This article is from the Australian Property Journal archive
WESFARMERS has taken a $1.329 billion hit from its underperforming Bunnings UK and Ireland (BUKI) and Target businesses.
Wesfarmers recorded an impairment of £454 million ($795 million) before tax, with £444 million ($777 million) on the acquisition of Homebase and £10 million ($18 million) against the remaining book value of the Homebase brand name.
The acquisition of Homebase in 2016 for £340 million ($705 million) was part of Wesfarmers’ strategy to roll out the Bunnings offshore.
Yesterday the group revealed it will also take stock write-downs of £37 million ($66 million), relating to excess, unsuitable and display stock, and store closure provisions of £40 million ($70 million).
Wesfarmer booked a further write-down of BUKI deferred tax assets of £53 million ($92 million), reflecting a more conservative outlook for the business.
Furthermore, BUKI is expected to report an underlying loss before interest and tax of £97 million ($165 million) for HY2018, reflecting the poor trading performance of Homebase.
Wesfarmers managing director Rob Scott said the Homebase acquisition has been below expectations.
“In light of this, a review of BUKI has commenced to identify the actions required to improve shareholder returns,” he added.
Scott has not ruled out an exit from BUKI.
Wesfarmers also wrote down the value of its investment in Target of $306 million before tax, to be applied against the carrying value of its brand name ($238 million), remaining goodwill of $47 million and property and equipment ($21 million).
Despite a decline in sales in HY2018, Target is expected to report earnings before interest and tax of $33 million for the half, representing an improvement of 13.8% on underlying earnings of $29 million in the prior corresponding period.
“The impairment of Target reflects difficult trading conditions in an increasingly competitive market. Target’s earnings have stabilised and the business will continue to leverage the department stores structure to support its future performance,” Scott said.
Despite the write-downs, S&P Global Ratings said Wesfarmers’ ratings are unaffected.
“We do not expect the predominantly non-cash charges to materially impact Wesfarmers’ fiscal 2018 credit metrics. Nevertheless, the BUKI write-downs reflect the ongoing challenges Wesfarmers faces in making the UK-based business profitable.
“We will monitor the review that BUKI has initiated to improve its returns,” S&P said.
Australian Property Journal
