for you Flem - I don't know what that should do to its price ?? - gk. Sue Mitchell WESFARMERS FPO (WES) Company Profile
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Principle Activity
Diversified industrial with interests including retail operations covering supermarkets, general merchandise and specialty departments stores, fuel and liquor outlets and home improvement and office supplies; coal mining; gas processing and distribution; insurance; chemicals and fertilisers; and industrial and safety product distribution.
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GICS
Food & Staples Retailing (301010)
Wesfarmers has opened the door to a possible sale of Target, slashing the value of goodwill by $680 million in an end of year balance sheet clean-up that will help the troubled discount department store improve future returns. The impairment write-down was flagged by Wesfarmers managing director Richard Goyder in February, following three years of declining earnings, but the size of the write-down, which represents 35 per cent of the goodwill carrying value, came as a surprise to many investors and analysts. The writedown reflects the deterioration in earnings at Target over the last few years, takes into account its longer term earnings outlook and potentially clears the way for Wesfarmers to sell the business further down the track without the need for more writeoffs. Wesfarmers said Target was expected to earn between $82 million and $88 million for the 12 months ending June, compared with $136 million in 2013, $244 million in 2012 and $381 million in 2010. Analysts are currently expecting Target’s earnings to improve in 2015. The goodwill writedown will help Target achieve its cost of capital in the future. Target’s return on capital of $2.9 billion fell to 4.6 per cent in 2013 from 8.4 per cent in 2012. The chain has lost market share and sales to rivals including sister chain Kmart, Woolworths’ BIG W, Pepkor’s Harris Scarfe and online competitors. Analysts have questioned whether there was sufficient room in the Wesfarmers stable for both Target and Kmart, which has grown profits by 30 per cent a year the past four years. However, Mr Goyder has said several times previously that he believes both Kmart and Target can grow simultaneously under Wesfarmers ownership and has played down rumours Wesfarmers could offload the business. “Notwithstanding the revision to Target’s carrying value, we are pleased with the progress that has been made over the last 12 months in materially strengthening Target’s leadership team and we consider there to be many opportunities to significantly improve Target’s performance,” Mr Goyder said on Wednesday. Confidence in Target, Kmart growth Target managing director Stuart Machin, who took the helm a year ago, is rationalising the store network and cutting suppliers, products, inventories and costs in an attempt to reverse the decline in earnings. The Target goodwill dates back to Wesfarmers’ $20 billion acquisition of the Coles Group in 2007, where goodwill values were arbitrarily applied to each business division. The value of goodwill at Coles and Kmart has risen about $8 billion over the past six years but accounting standards do not allow Wesfarmers to recognise these gains in its accounts. Wesfarmers also booked restructuring costs of $94 million in its underperforming liquor business, offsetting both the Target writedown and liquor provision against pre-tax profits of between $1.03 billion and $1.08 billion on the recent sale of its insurance operations. As a result, the Perth-based conglomerate will book one-off pre-tax gains between $261 million and $301 million and a net gain around $221 million in its accounts for the year ending June The $94 million restructuring provision in Coles liquor business will also come as a surprise to many investors and highlights the extent of the work required to reverse years of declining sales and earnings. Coles recently appointed Greg Davis to the position of Coles liquor director and has flagged a wide-ranging turnaround plan which involves reshaping the store network, rationalising product ranges, improving the customer offer and increasing operational efficiency. Wesfarmers said the $94 million provision related to initiatives due to be implemented during 2015, largely associated with store network restructuring aimed at improving customer experience, increasing store productivity and establishing a base for future growth. “The charges are not a surprise, but do reinforce the challenges facing parts of Wesfarmers,” said Citigroup analysts Craig Woolford. Analysts are currently forecasting full net profits, before one-off items, of about $2.42 billion. Wesfarmers shares rose 75¢ or 1.8 per cent to $42.27 after the announcement
