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Wesfarmers Full-Year Profit Plunges As Target Writedown Bites

Wesfarmers’ full-year net profit after tax has plunged 83.3 per cent, impacted by an asset impairment on Target, with varying results delivered by different sectors of its business.

While Target struggled, among Wesfarmers other business sectors, Kmart, Officeworks and Bunnings delivered positive results.

Wesfarmers delivered net profit after tax of $407 million, having recorded impairments of $1.84 billion, including a $1.25 billion non-cash impairment of Target, originally flagged in May.

Restructuring costs and provisions to reset Target of $102 million also impacted profit, with Wesfarmers reporting net profit after tax excluding significant items of $2.35 billion, down 3.6 per cent.

Wesfarmers’ revenue of $65.98 billion for the year was up 5.7 per cent.

“Excluding Target, the retail portfolio delivered growth in earnings before interest and tax (earnings or EBIT) of 7.5 per cent,” Wesfarmers managing director Richard Goyder stated.

“This growth was offset by weak underlying performance in Target, as well as the cost of restructuring activities following the creation of the Department Stores division in February 2016 to provide a stronger platform for future growth.”

Target’s revenue for the year remained comparatively flat at $3.46 billion, while it posted an EBIT loss of $195 million, compared to EBIT of $90 MM year-on-year.

Goyder stated that following the creation of the Department Stores structure “decisive steps were taken to reduce Target’s cost base and reset inventory in line with a revised strategic plan”.

“While good progress has been made to reduce inventory and rationalise ranges, there remains further work to do in these areas,” he commented.

Kmart, meanwhile, headed in the opposite direction, with revenue of $5.19 billion up 14 per cent, with EBIT of $470 million up 8.8 per cent.

Officeworks also posted revenue growth, totalling $1.85 billion for the year, up 8 per cent, with EBIT of $134 million up 13.6 per cent.

“Officeworks delivered another year of strong growth in earnings and return on capital,” Goyder commented. “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.”

Bunnings’ revenue, meanwhile, grew 21.4 per cent to $11.57 billion, with EBIT of $1.21 billion up 11.6 per cent, with the result including the contribution of Homebase, acquired by Wesfarmers earlier in the year.

“Sales growth was achieved across all areas of the business following the delivery of greater digital and physical brand reach, continued commercial expansion and increased customer value,” Goyder stated.

“Since the acquisition of Homebase, good progress has been made to reshape the business, with results in line with the acquisition plans.”

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