Finance Finance News Bunnings’ UK disaster drags Wesfarmers profits down 87%

Bunnings’ UK disaster drags Wesfarmers profits down 87%

Bunnings' foray into the UK market has been a flop.
Bunnings' foray into the UK market has been a flop.
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The disastrous launch of Bunnings Warehouse in the UK has seen parent company Wesfarmers take a more-than $1 billion hit to its half-year profits.

First-half profit plummeted to $212 million, down from $1.57 billion the previous year, a drop of 86.6 per cent.

The spectacular drop was mostly down to a $1.03 billion write-down on the UK hardware business UKBI. A $300 million write-down on troubled department store chain Target was also to blame.

Wesfarmers announced those write-downs earlier in February, which sent its shares plunging around 7 per cent.

Wesfarmers managing director Rob Scott reiterated that Wesfarmers was reviewing the future of its UK hardware venture, which has had $70 million set aside for store closures, and said shareholders would be updated at June’s strategy briefing day.

Wednesday’s terrible results did not push the share price downwards because investors had already priced in the fall.

In fact the share price rose on the news that Wesfarmers’ dividend would maintain its fully franked interim dividend at $1.03.

At 2pm one share was trading $41.96, up 2.9 per cent for the day.

Investors were also cheered by signs of improvement at Wesfarmers’ supermarket chain Coles.

While sales growth at Coles slipped from 1.3 per cent a year ago to 0.9 per cent for the six months to December 31, most of that fall came in the first quarter of the period. Growth returned to 1.3 per cent in the second quarter.

Coles is making headway. Photo: AAP

The improvement could suggest Coles is making headway against resurgent rival Woolworths. A recent report showed Woolworths has beaten Coles in pretty much every metric.

Coles’ earnings before interest and tax (EBIT) fell 14.1 per cent to $790 million, partly due to investments in lowering prices, but an EBIT margin of 4.0 per cent was 0.5 percentage points ahead of that expected by Citi analysts.

Wesfarmers managing director Rob Scott said Coles was expected to continue to improve its business in the second half.

“Coles maintained good sales momentum during the half, with transaction growth accelerating in the second quarter and reaching the highest level of quarterly comparable transaction growth in six quarters,” Mr Scott said.

Net profit dropped 2.7 per cent even when significant items were stripped out.

Earnings rose 12.2 per cent at Bunnings Australia and NZ, by 9.7 per cent at Officeworks, and by 7.2 per cent at the department store unit underpinned by Kmart.

Key details

  • Net profit down 86.6pct to $212m
  • Net profit excluding significant items down 2.7pct to $1.54b
  • Revenue up 2.8pct to $35.9b
  • Interim dividend flat at $1.03, fully franked

-with AAP

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