Wesfarmers takes a $1.3b hit on UK business

Written on the 5 February 2018 by David Simmons

Wesfarmers takes a $1.3b hit on UK business

Wesfarmers (ASX: WES) will undergo a leadership restructure after the company took a $1.3 billion hit due to its struggling UK hardware business.

The company's UK operations were largely responsible for $1.3 billion worth of write-downs and impairments at Wesfarmers during the first half.

It's underperforming UK hardware business will see a leadership reshuffle and veteran Peter Davis, who has lead Bunnings Australia for 25-years, will take the lead at Bunnings UK replacing Damian McGloughlin.

The company, which owns Coles, Bunnings, Kmart, Officeworks, Target, and Liquorland, says the UK hardware business had not met expectations. The Australian company acquired the business in February 2016 for $705 million. The UK operations are estimated to have contributed around $1 billion in impairments and write-downs.

The remaining $306 million non-cash impairment is the fault of the group's struggling Target department stores. Managing director Rob Scott says tough retail conditions in Australia are to blame for the performance of the store.

"We need to address underperformance in our portfolio that is detracting from positive performance in other areas, and the announcement today sets out decisive actions to achieve this," says Scott.

"The impairment of Target reflects difficult trading conditions in an increasingly competitive market."

The group's UK business is expected to show an underlying loss before interest and tax of $165 million, when Wesfarmers reports its first-half results on February 21.

Since the acquisition of the UK hardware business in 2016, eighteen Homebase stores have been rebranded as Bunnings with encouraging results. However, Bunnings managing director Michael Schneider says sales were particularly weak in the first-half.

"It is clear that a significant amount of change has been driven through Homebase sine the acquisition and the disruption caused by the rapid repositioning of the business has contributed to greater-than-expected losses across the Homebase network," says Schneider.

The impairment from struggling Target stores reflects a conservative outlook on the situation according to Scott, despite overall department store earnings, including Kmart, hitting their highest level since 2010.

The company expects Target to report first-half earnings before interest and tax of $33 million, up 13.8 per cent on the prior corresponding period.

Shares in the multinational conglomerate are down by 4.67 per cent to $42.09 per share at 11.26am AEDT.

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Business News Australia

Author: David Simmons





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