An expected weak result from Wesfarmers yesterday thanks to those previously announced big impairment losses at Target and Queensland coal. But the results were actually a bit weaker even after setting side those one off items. Wesfarmers told the ASX that full-year profit plunged by more than 83% to $407 million as big losses from its coal division and Target crunched its earnings.
And the underlying profit, excluding the $1.84 billion in losses and write-downs from the company’s Curragh coal mine and the Target chain, fell 7.7% to $2.25 billion, falling short of analyst forecasts. A
Analyst estimates forecast the conglomerate’s full year net profit after tax would fall 6% to $2.29 billion.
And Wesfarmers cut final dividend to 95 cents a share, taking the total 2016 dividend to $1.86, down 7% from $2 payout for the previous financial year. the shares eased 2.1% to 42.63.
Clearly it was a weak result – companies these days do not cut dividends unless they really have to financially.
With the possible exception of the Queensland coal write down (which surely could have been done a year ago when coal prices were looking bad), the problems Wesfarmers have had, especially at Target, are all home grown.
Weak management controls, especially financial (there was an attempt to fiddle first half profits at Target by booking supplier rebates as earnings, with the plan to unwind them in the second half of the year to produce a neutral result).
Target is now in the books at nil value and the coal mine in Queensland is unwanted (as is the company’s NSW coal interests in the Hunter Valley). They could be sold, but who wants coal mines or a stumbling department store chain?
Revenue rose 5.7% to $65.98 billion.
CEO Richard Goyder said the strong performances across a majority of the group’s businesses were offset by challenging trading conditions and restructuring activities in Target and the impact of low commodity prices.
Looking at how the various parts of the company performed, Coles supermarkets did well with pre-tax earnings up 4.3% to 4.3 $1.86 billion, while the Bunnings hardware chain stood out (for yet another year) with an 11.6% rise in pre-tax earnings (to $1.24 billion) and revenue growth of 21.4% to more than $11.5 billion, with the newly acquired UK Homebase chain contributing from February 28.
Excluding Target, the retail portfolio delivered growth in EBIT (earnings before interest and tax) of 7.5%.
Target reported an operating loss of $195 million, including $145 million of restructuring costs and provisions to reset the business. The non-cash impairment for Target is $1.249 billion. The underlying loss of $50 million was primarily driven by high levels of seasonal clearance and the impact of a lower Australian dollar on margins.
Kmart’s earnings grew 8.8% to $470 million on revenue growth of 14%.
“Kmart delivered a significant increase in earnings and return on capital through improvements in range and productivity, as well as a strong focus on providing the lowest prices on everyday items,” Mr Goyder said. “Sales growth was achieved across all categories, supported by continued investment in new stores and refurbishments.”
Officeworks’ earnings of $134 million were 13.6% higher than the prior year, with revenue growth of 8% (meaning rising margins)
“Officeworks delivered another year of strong growth in earnings and return on capital,” Mr Goyder said. “Continued investments in price, service, the in-store environment and the online offer, as well as expanded merchandise ranges, contributed to growth across every channel.”
The write down for Curragh, a mostly coking coal export mine in central Queensland was $850 million.
At Coles, food and liquor sales for the year were up 5.8% to $32.56 billion. Like-for-like sales were up 4.1%, a solid performance given the price deflation (and the added competition from Aldi and Costco). But analysts did detect signs of weakening quality in the sales and profit data.
“The continued momentum in Coles’ Food and Liquor business was a good result given a competitive market and accelerating deflation during the year,” Mr Goyder said.
The CEO said the performance of the Industrials division during the year was significantly affected by depressed conditions across the resources sector.
"Underlying earnings for the division were $306 million lower than the prior year, primarily driven by an operating loss of $310 million from the Resources business. The Chemicals, Energy and Fertilisers (WesCEF) business had a strong year, with earnings growth achieved across all three business units, while Industrial and Safety made good progress to simplify its operations and reduce costs.”
