On 20 August 2014, Wesfarmers announced a capital management initiative involving the distribution to shareholders of $1.00 per share and a share consolidation. The return of capital and the share consolidation were approved by Wesfarmers shareholders at the Annual General Meeting (AGM) on Thursday, 20 November 2014, after which the Wesfarmers Board declared the fully-franked dividend. The total amount of the distribution was approximately $1,143 million and was paid on Tuesday, 16 December 2014.
Please find below some information and frequently asked questions in relation to this initiative or refer to 2014 Capital Management Initiative - A quick guide.
General information
Shareholder information
Relevant documents
- ASX announcement
- 2014 Notice of Meeting
- 2014 Capital Management Initiative - A quick guide
- ATO class ruling
- 2014 Shareholder Tax Information Guide
- ASX Notice-Capital Return, Share Consolidation & Dividend
General information
Capital management overview
What was the capital management initiative?
Wesfarmers made a cash payment to shareholders of $1.00 per share (or approximately $1,143 million in total). The payment comprised a return of capital of 75 cents per share (the capital component) and a fully-franked dividend of 25 cents per share (the dividend component). Similar to Wesfarmers' return of capital in 2013, the capital component was accompanied by an equal and proportionate share consolidation.
Why was the capital management initiative undertaken?
The initiative was undertaken to return a portion of surplus capital equitably to shareholders and to ensure that Wesfarmers has a more efficient capital structure. Wesfarmers actively manages its balance sheet to provide satisfactory returns to shareholders while ensuring it also has the flexibility to pursue growth opportunities and ensure its credit metrics are maintained. Receipt of proceeds from the sale of the Insurance division in June 2014, continued strong cash flow generation and robust credit metrics enabled the capital management initiative to be undertaken without reducing balance sheet flexibility.
The capital management initiative demonstrates Wesfarmers' commitment to efficient capital management and its focus on providing a satisfactory return to all shareholders.
How did the capital management initiative work and what was the effect on the company?
Wesfarmers shareholders received a $1.00 per share cash distribution. The distribution comprised a return of capital of 75 cents per share and a fully-franked dividend of 25 cents per share.
Collectively, shareholders received a total distribution of approximately $1,143 million. The return of capital was approximately $857 million and reduced Wesfarmers' share capital by this amount. The payment of the return of capital resulted in the transfer of this capital directly to shareholders. The share consolidation took effect from Monday, 1 December 2014 and resulted in the reduction in the number of shares on issue from approximately 1,143 million to approximately 1,123 million (representing a 1.7 per cent reduction in the number of shares on issue).
The fully-franked dividend was approximately $286 million in total.
In determining whether to implement the capital management initiative, the directors reviewed Wesfarmers' assets, liabilities and expected cash flows and satisfied themselves as to Wesfarmers' solvency and ability to pay its creditors following the capital management. In the Board's view, the capital management initiative was fair and reasonable to shareholders and was not expected to adversely impact Wesfarmers' credit ratings or have a material impact on Wesfarmers' ability to fund new investments consistent with its growth strategy.
No adverse tax consequences are expected to arise for Wesfarmers as a consequence of the capital management initiative.
How was the capital management initiative funded?
The capital management initiative represented a partial distribution of proceeds from the sale of the Insurance division. The distribution was funded by a mix of Wesfarmers' available cash balances and drawing on existing debt facilities, with the mix determined by the most cost-effective source of funding available at the date of payment.
Return of capital (capital component) and share consolidation
What was the capital component?
Wesfarmers made a total cash payment to shareholders of $1.00 per share, which included a return of capital of 75 cents per share. The Wesfarmers Dividend Investment Plan (DIP) did not apply to the return of capital payment as it was not a dividend.
Why return capital this way?
This method was seen as the most equitable way of returning a portion of surplus capital in cash to all shareholders. As Wesfarmers has a high dividend payout ratio and distributes, where possible, available franking credits, a return of capital was seen as the most efficient distribution of capital to shareholders. Additionally, it was expected that not all shareholders would participate in an off-market buyback if offered.
What was the share consolidation?
Wesfarmers undertook a consolidation of its share capital through the conversion of every one share into 0.9827 shares which took effect from Monday, 1 December 2014.
The share consolidation was implemented in a manner which ensured that each shareholder's proportionate interest in Wesfarmers remained unchanged following the payment of the return of capital, subject to the rounding up of fractional entitlements.
Why was the share consolidation done?
The share consolidation was undertaken at a ratio which reflected the size of the return of capital to shareholders. The combination of the return of capital and share consolidation enabled Wesfarmers to provide an earnings per share (EPS) outcome relating to the return of capital similar to that which would result from a share buy-back, whilst also ensuring that all shareholders received an equal cash distribution per share. The share consolidation was implemented in a manner to ensure that each shareholder's proportionate interest in Wesfarmers remained unchanged post the capital management initiative (subject to rounding up of fractional entitlements and disregarding any additional shares allotted to participating shareholders under the DIP).
How was the share consolidation rate determined?
The share consolidation ratio was calculated by referencing the amount of the return of capital as a proportion of the volume weighted average sale price of Wesfarmers shares over the consecutive 20 trading day period ending Monday, 18 August 2014 ($43.29):
i.e. ($43.29 - $0.75) / $43.29 = 0.9827
What was the effect of the share consolidation on the company?
Effective Monday, 1 December 2014, the number of shares on issue was reduced from approximately 1,143 million to approximately 1,123 million (representing a 1.7 per cent reduction in the number of shares on issue).
The above numbers are subject only to rounding of fractions.
Fully-franked dividend (dividend component)
What was the dividend component?
Wesfarmers made a total cash payment to shareholders of $1.00 per share, which included a fully-franked dividend of 25 cents per share (the dividend component). The DIP applied to the dividend component of the distribution.
The DIP will apply to the dividend component of the distribution.
Shareholder information
Your shareholding
Was I eligible for the capital management initiative?
To be eligible to receive the return of capital and fully-franked dividend and for the share consolidation to have applied to your shares, you needed to be a registered shareholder on the record date for determining entitlements, which was 4.00pm (Perth time) on Friday, 28 November 2014. The last date to purchase shares which were eligible to receive the return of capital and fully-franked dividend and participate in the share consolidation was Tuesday, 25 November 2014. Shares purchased on or after Wednesday, 26 November 2014 were not eligible for the capital management initiative.
Did I have the choice to participate in the capital management initiative?
The return of capital and share consolidation were approved by shareholders at the 2014 AGM. Eligible shareholders did not have the opportunity to 'opt out' of the capital management initiative.
How much did I receive and how was the payment made?
You received $1.00 for every share you held as registered holder at 4:00pm (Perth time) on Friday, 28 November 2014, comprising a return of capital of 75 cents per share and a fully-franked dividend of 25 cents per share.
For example, if you held 1,000 shares as at the record date, you received 1,000 x $1.00 or $1,000, comprising $750 as the return of capital payment and $250 as the dividend payment. If you had elected to participate in the DIP you received $750 as the return of capital payment and the $250 dividend payment was put towards the share allocation under the DIP.
As with dividend payments, payments of the distribution to Australian, New Zealand and United Kingdom registered resident shareholders were made by way of direct credit to a financial institution in Australia, New Zealand or the United Kingdom (including a bank, building society or credit union account).
Was the DIP applicable?
The DIP applied to the dividend component of the distribution. The DIP did not apply to the return of capital.
What was the DIP allocation price?
Wesfarmers announced on Wednesday, 10 December 2014 that the allocation price for shares to be issued through the Dividend Investment Plan for the dividend component of the 2014 capital management initiative was $42.2090.
The allocation price for shares was determined in accordance with the rules of the Dividend Investment Plan, which for the dividend component of the 2014 capital management initiative was calculated as the average of the daily volume weighted average price of Wesfarmers Limited shares on each of the five consecutive trading days during the period from Wednesday, 3 December 2014 to Tuesday, 9 December 2014 inclusive, excluding trades which are not considered to reflect normal supply and demand.
What was the effect of the share consolidation on my shareholding?
Each share you held as at 4:00pm (Perth time) on Friday, 28 November 2014 was converted into 0.9827 shares. The share consolidation was effective as at Monday, 1 December 2014.
For example, if you held 1,000 shares before the share consolidation, your post-consolidation holding was 983 shares (rounded up for the fractional entitlement).
As the consolidation applied equally to all of the company's shareholders, individual shareholdings were reduced in the same ratio as the total number of Wesfarmers shares (subject only to the rounding of fractions). It follows that the consolidation had no effect on the percentage interest of each individual shareholder in Wesfarmers, except for rounding.
What happened if my holding resulted in entitlement to a fraction of a share?
Where the consolidation of a shareholder's holding resulted in an entitlement to a fraction of a share, the fraction was rounded up to the nearest whole number of shares. In determining entitlements, fractions less than one thousandth of a post-consolidation share were disregarded.
Will I receive less total dividends as a result of owning fewer shares after the share consolidation?
As a result of the share consolidation, there are fewer total Wesfarmers shares on issue. This will mean that the total amount that Wesfarmers pays out as dividends is paid on the reduced number of shares. Therefore, although each shareholder owns fewer shares post the share consolidation, all other things being equal, the dividends per share should be higher than they would have been post the return of capital, had share the consolidation not taken place.
Will my shares be worth less after the capital management initiative?
Shares may have traded at a lower price from the 'ex return of capital' date than they otherwise would have done had the return of capital not been approved and had the dividend not been declared. This is due to the outflow of funds to shareholders.
All other things being equal, the share consolidation was expected to neutralise the effect of the return of capital on forward earnings per share expectations and, therefore, on any reduction in the share price specifically relating to the return of capital.
However, despite the expected neutralisation of the effect of the return of capital via the share consolidation, all other things being equal, the effect of the dividend component was that shares likely traded at a lower price from the 'ex dividend' date than they otherwise would have done as a result of the dividend being declared, as is generally the case with dividend payments.
Payment details
How and when will I be paid?
If you provided your direct credit payment instructions by 4:00pm (Perth time) on Friday, 28 November, the return of capital and fully-franked dividend payments were made on Tuesday, 16 December 2014 by direct credit to your financial institution if your registered address is in Australia, New Zealand or the UK.
Payments should appear in your bank account between Tuesday, 16 and Thursday, 18 December 2014, depending on transfer time between banks. Payments made to credit unions may take longer.
Letters confirming pre- and post-consolidation holdings as at Monday, 1 December 2014, and including the return of capital payment advice and a dividend advice were sent to shareholders on Tuesday, 16 December 2014. The dividend advice includes the number of shares which have been allocated to you under the Dividend Investment Plan, if relevant.
How do I provide, update or check my bank account details?
Shareholders who did not provide the share registry with their bank account details may complete the Direct Credit Payment Form, which is available from Wesfarmers' share registry, Computershare Investor Services Pty Limited, or provide their details online to Computershare at www.wesdirect.com.au. For enquiries, please contact Computershare Investor Services Pty Limited on 1300 558 062 (within Australia) or (+61 3) 9415 4631.
Tax implications
What were the tax implications of the capital management initiative?
Please refer to the Wesfarmers Limited 2014 Shareholders Tax Information Guide or the ATO class ruling. In general terms, there was no immediate tax liability for most shareholders relating to the return of capital, where the cost base of their shares exceeded the return of capital. There was no capital gains tax event as a result of the share consolidation. The fully-franked 25 cent per share dividend was treated as a normal dividend for Wesfarmers shareholders.
Key dates
What are the key dates for the capital management initiative?
Thursday, 20 November 2014
- Annual General Meeting, at which shareholders approved the capital return and share consolidation and after which the Wesfarmers Board declared the fully-franked dividend.
Tuesday, 25 November 2014
- Last day for trading in pre-consolidated shares.
Wednesday, 26 November 2014
- Trading in post-consolidated shares commenced on a deferred settlement basis. Wesfarmers shares traded with the ASX code 'WESDD' instead of 'WES' during the deferred settlement trading period.
4:00pm (Perth time) Friday, 28 November 2014
- Record date for determining entitlement to participate in the return of capital, dividend and share consolidation. Entitlements for the return of capital and dividend were determined by reference to Wesfarmers' pre-consolidation capital.
- Last day to register transfers of shares on a pre-consolidated basis.
Monday, 1 December 2014
- Post-consolidation holdings entered into shareholders' security holdings.
- Last date for elections under the DIP - elections had to be made by 5:00pm (Perth time).
Friday, 5 December 2014
- Deferred settlement trading ended (close of trade).
Monday, 8 December 2014
- Wesfarmers shares resumed trading under the ASX code 'WES'. Shares settle on a T+3 basis.
Tuesday, 16 December 2014
- Payment date for the capital management distribution.
- If relevant, allocation date for shares under the DIP.
- Mail packs issued to shareholders enclosing:
- confirmation of the number of shares held following the consolidation (as at 1 December 2014);
- capital return payment advice; and
- dividend payment advice (including the number of shares allocated under the DIP if relevant).
Additional information
How can I find out more about the capital management initiative?
You can refer to the following reference materials:
- ASX announcement
- 2014 Notice of Meeting
- 2014 Capital Management Initiative - A quick guide
- ATO class ruling
- 2014 Shareholder Tax Information Guide
- ASX Notice-Capital Return, Share Consolidation & Dividend
Otherwise, please contact our dedicated Shareholder Information Line on 1300 558 062.
Please note all dollar figures are expressed in Australian dollars (AUD) unless otherwise stated.