Wesfarmers profit plunges 83pc after $2bn in impairments

Profits from Coles and Bunnings have been swamped by $2bn in impairments linked to coal and the Target chain.

Coles supermarkets — one of the strongest performers for Wesfarmers.

Wesfarmers has suffered an 83.3 per cent slump in its full-year profit to $407 million after more than $2 billion in impairments flowing from its loss-making coal operations and its underperforming merchandise chain Target overwhelmed otherwise strong profitability from its key retail arms Coles and Bunnings.

It is Wesfarmers’ lowest net profit in 15 years.

The Perth-based conglomerate (WES) will now rely more than ever before on its sprawling retail operations to bolster its bottom line, with chief executive Richard Goyder warning that competition in the retail sector is expected to remain robust as customers continue to be driven by value.

Unveiling an underlying net profit of $2.353 billion, down 3.6 per cent after stripping out the impact of the non-cash impairments linked to Target and its Curragh coal arm, Mr Goyder said the outlook for Wesfarmers’ industrial divisions remained challenging while it would “evaluate all strategic options’’ for its underperforming coal business.

Revenue from the Wesfarmers conglomerate, which spans retail, supermarkets, coal, industrial services and chemicals, rose 5.7 per cent to $66 billion for 2016, while earnings before interest and tax fell 4 per cent to $1.346 billion.

Wesfarmers, which in the past has showered its shareholders in growing dividend and special dividends, has sliced its payout in light of the deterioration in the performance of its resources, coal and Target divisions.

Its final dividend has been reduced from $1.11 to 95¢, payable October 5, taking the full year payout to $1.86. The full year payout is down 7 per cent on the 2015 payout of $2.00 per share.

The bottom line, a profit of $407 million, was crunched by $2.116 billion in non-cash impairments of Target and its coal division as well as $145 million (pre tax) of restructuring costs and provisions to reset Target and resuscitate the merchandise chain’s spluttering earnings.

It was up to Wesfarmers powerhouse retail arms, Bunnings and Coles, to power earnings, and excluding Target, the conglomerate’s retail portfolio delivered growth in earnings before interest and tax of 7.5 per cent.

At its Coles supermarket business earnings increased 4.3 per cent to $1.86 billion for the full year, with revenue growth of 2.7 per cent. Food and liquor sales recorded growth of 5.1 per cent, with comparable sales growth of 4.1 per cent.

It is likely to beat the sales growth of Woolworths when it reports its results tomorrow, marking the 28th consecutive quarter that Coles has posted stronger like-for-like sales growth compared to Woolworths.

Coles has now recorded 33 consecutive quarters of comparable store sales growth.

“In a competitive environment, the group’s retail businesses continued to invest in customer value, service, stores and online as well as improved merchandise ranges to deliver long-term growth and improved returns,’’ Mr Goyder said.

Bunnings, one of the best-run retail businesses in Australia and an engine room of growth for Wesfarmers for decades, posted an 11.6 per cent lift in earnings to $1.214 billion on revenue growth of 21.4 per cent.

Target reported an operating loss of $195 million, including $145 million of restructuring costs to turn around the business under the new leadership of Kmart boss Guy Russo. The underlying loss of $50 million was mainly driven by high levels of seasonal clearance and the impact of the Australian dollar on margins.

Kmart grew earnings by 8.8 per cent to $470 million on revenue growth of 14 per cent. Earnings at Officeworks of $134 million were 13.6 per cent higher, with revenue growth of 8 per cent.

At industrials, its chemicals, energy and fertilisers business, earnings of $294 million were up 26.2 per cent.

Coal posted a loss of $310 million, which was expected by the market.