Hmmm, went investors yesterday as they studied the annual figures of Wesfarmers, ‘this is not good, it’s really a resources company with all these other bits attached to it, including Coles"
The company said earnings in the 2008 year climbed 33.6% on 2006-07 to $1.05 billion, thanks to the acquisition of Coles and strong performances from its coal business, as well as Bunnings, energy, industrial and safety, and chemicals and fertilisers divisions.
But that was well under market consensus for a result of $1.18 billion, according market consensus, and a high $1.210 billion for Goldman Sachs JBWere, so down went the shares, plunging $1.65, or more than 4.7% to $32.90.
The shares fell after the results were released late morning. They touched a day’s low of $32.76.
Wesfarmers declared a final dividend of $1.35, taking the total for the year to $2 a share, down from $2.25 in fiscal 2007. But that was on capital expanded significantly by the Coles buy.
Wesfarmers said the outlook was for continuing "solid performances" across most its businesses, with earnings for the 2009 financial year "particularly strong". But that will reflect 9 months contribution from higher coking and thermal coal prices for its Queensland and NSW mines.
There was no mention of the other businesses looking forward to ‘strong’ results in the coming year.
"Overall, the businesses we owned for the full year recorded a 15% increase in revenue and 16% increase in earnings before interest and tax," managing director Richard Goyder said in a statement.
Revenue during the 12 months to June 30 climbed 244% to $33.58 billion. That’s with the $16 billion in sales from Coles.
Wesfarmers forecast for its retail divisions is mixed, with continued sales growth expected for Bunnings, moderate sales growth expected for Officeworks and an accelerated store refurbishment program at Target expected to affect profitability.
The company said it would continue to lay the foundations for improved performance of Coles, which was in the early stages of its five-year turnaround.
"The changes won’t suddenly be obvious on a particular day or date, but I continue to strongly believe that the results of progress made to date, and the strategies being planned, will deliver value to our shareholders and our customers," Mr Goyder said.
The outlook for the company’s coal division is more bullish, with Wesfarmers forecasting earnings to increase "significantly" this year after record contract coal prices.
The Coles business generated revenue of $16.9 billion, up 7.2%, while earnings before interest and tax totalled $474 million before charging $101 million of non-trading items related to redundancy and other restructuring costs resulting from organisational change and store network initiatives.
That emphasises the huge task in front of Wesfarmers.
For all that nearly $17 billion of sales, the huge Coles business couldn’t get to half a billion of EBIT, while the still growing Bunnings business had an EBIT of $589 million on sales of $5.4 billion.
Food and Liquor sales grew by 4.2%, with growth in all categories except fresh produce, which was impacted by price deflation in the fourth quarter.
Woolies’ top line growth for the year was 9.9% (with inflation of 2.9%. it to reported slowing food price inflation in the quarter because of falling fruit and vegetable prices).
Comparative store sales growth in Food and Liquor for the ownership period was 2.8%; that was well under the effort at rival Woolies where comparative sales growth was 6.3% for the full year.
Wesfarmers said since its acquisition of Coles, food and liquor sales had begun to show signs of improvement.
"Market share has been stabilising as a result," it said and there was a "focus on realigning the network commenced including the development of 17 new supermarkets, 42 new liquor stores, four hotels, and eight convenience stores during the ownership period.
"In addition, 12 supermarkets, 99 liquor stores, 27 hotels and 31 convenience stores were extended or refurbished.
“In an initial start to much needed reinvestment in stores, a programme of minor refurbishment was carried out on 266 supermarkets. The total network of stores as at 30 June 2008 comprised 750 supermarkets, 767 liquor stores (including 52 large format stores), 95 hotels and 619 convenience stores.
Wesfarmers said while there are challenges ahead to turnaround Coles over the coming years, strategies are now underway to revitalise the business.
"While retail markets are becoming more challenging as household budgets come under pressure and consumer confidence softens, these actions are collectively designed to lay the foundations of change and a sustained improvement in performance," it said.
Wesfarmers said its industrial and safety division is expected to continue to strengthen its competitive position and deliver "strong results", while the resources sector is expected to be "favourable" to its chemicals and fertilisers business.
The company said it’s the underwriting performance of its insurance business is likely to be constrained in the short term by competitive pressures, but is expected to make further bolt-on acquisitions.
“We’ve seen excellent results across a number of our divisions: Bunnings, Energy, Resources, Industrial and Safety, and Chemicals and Fertilisers.
“Overall, the businesses we owned for the full-year recorded a 15 per cent increase in revenue and 16 per cent increase in earnings before interest and tax.
“The results are pleasing given a tightening economy and the Varanus gas outage which curtailed our Western Australian energy and chemicals operations in June.
“Bunnings has
