Bunnings UK: Wesfarmers to write $1bn off struggling British chain, spurring talk of sale

NEW Wesfarmers chief Rob Scott is increasingly likely to pull the plug on the group’s Bunnings business in the UK and Ireland within a year, analysts say.

NEW Wesfarmers chief Rob Scott is increasingly likely to pull the plug on the group’s Bunnings business in the UK and Ireland within a year, analysts say.

Speculation over the future of Bunnings UK and Ireland comes as the division’s losses blow out and Wesfarmers prepares to hand down its slimmest first-half profit haul in more than a decade.

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The snags are as popular as ever — including at Bunnings’ first British store, at St Albans — but the chain’s losses are blowing out in the UK.

The Perth-based retail and industrial conglomerate will book a $1 billion impairment against the value of Bunnings UK and Ireland at its first-half results, due on February 21. Wesfarmers will also absorb a $306 million impairment against the value of Target. The discount department store chain has now delivered more than $1.5 billion in impairments over the past 18 months.

Wesfarmers said Monday it had launched a top-to-bottom review of Bunnings in Britain and Ireland, where it is likely to have lost £97 million ($165 million) for the six months to December.

The loss is far greater than analysts had been expecting and more than triple the £28 million plunge into the red posted for the same period a year earlier.

Bunnings opened its first British store at St Albans, in Hertfordshire, in February 2016.

Peter Davis, a 25-year Bunnings veteran, has stood down as head of the UK and Ireland business. Damian McGloughlin, poached from British hardware heavyweight B&Q in the middle of last year, will take over as managing director of the division.

Wesfarmers shelled out $705 million for the ailing British hardware chain Homebase at the start of 2016, gaining a network of 265 stores.

Macca’s perspective.

It has converted 19 Homebase stores to the Bunnings model so far and closed about 10 outlets.

Mr Scott said while the review would look at the option of selling Bunnings UK and Ireland, it was not the preferred outcome.

“All options are open,” he said.

Mr Scott said the group had lost Homebase customers by exiting product lines too rapidly as the business was converted to a Bunnings model.

Wesfarmers chief Rob Scott.

“A lot of the issues we are dealing with today have been, to be frank, self-induced — two years ago this was a business that was profitable,” Mr Scott said.

Citi analyst Craig Woolford said there was “a firming expectation that the new senior management team will announce an exit from Bunnings UK over the next twelve months”.

UBS analyst Ben Gilbert said the impairments and lacklustre trading update put the option of calling time on Bunnings UK and Ireland squarely into play.

But are they made from Aussie beef?

The impairments will cut a hefty slice from the $1.6 billion first-half profit analysts, before yesterday, had expected from Wesfarmers. The group is now on track for its lowest first-half profit since 2005.

Wesfarmers shares dropped 4.5 per cent — their biggest one-day fall in more than a year — to close at $42.16.

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