2017 HALF-YEAR RESULTS
GROUP PERFORMANCE SUMMARY
The Group reported a net profit after tax (NPAT) of $1,577 million for the half-year ended
31 December 2016, an increase of 13.2 per cent on the prior corresponding period. Earnings per share increased 12.8 per cent to $1.40 per share, and return on equity (R12) increased 20 basis points to 10.2 per cent¹.
It was pleasing to record strong earnings growth
EARNINGS BEFORE INTEREST AND TAX BREAKDOWN
Industrials
Coles
INTERIM DIVIDEND PER SHARE
$1.03up 13.2 per cent
for the half, with the results reflecting the benefits of the Group's conglomerate structure.
In light of the overall improved Group earnings and cash flows, the directors have declared an
$377m
Officeworks
15%
Total divisional EBIT
37%
$920m
Outlook
The Group continues to remain generally optimistic in its outlook. Strong momentum and strong market positions provide for a positive outlook for BANZ,
Kmart and Officeworks for the second half of the financial year. Coles will continue
to focus on delivering a strong customer proposition to support long-term growth in earnings and returns. In the short term, margin pressures are expected to persist as the focus remains on delivering customer value in a competitive market. Target's performance in the second half is expected to improve relative to the prior corresponding period as merchandising progressively improves and restructuring costs and provisions incurred in the prior year are not repeated.
The full-year result for the Resources business is expected to benefit from the increases in coal prices experienced during the first half, but prices are expected to remain highly volatile for the remainder of the year, with recent spot prices trading significantly below
their November 2016 peak. The focus for the business will remain on improving operational productivity, cost control and capital discipline. WesCEF's earnings in the second half will be subject to
international commodity prices, exchange rates and seasonal conditions in fertilisers. In Industrial and Safety, improved merchandising, sourcing and pricing strategies, as well as realised cost savings, are expected to continue to mitigate the impact of subdued market conditions.
Home Improvement
We are pleased to provide
shareholders with a summary of Wesfarmers Limited's
increase of 13.2 per cent in the interim dividend to $1.03 per share.
Retail
$62m 3%
Department Stores
$2,468m
29% $722m
results for the half-year ended
$387m
16%
31 December 2016. For more detail we encourage you to read the relevant announcements
Total retail earnings were in line with the prior
corresponding period, with very strong results reported for Bunnings Australia and New Zealand (BANZ), Kmart and Officeworks. The continued momentum in these businesses was
released by the ASX on 15 February 2017.
Michael Chaney AO
Chairman
Richard Goyder AO
Managing Director
16 February 2017
particularly pleasing and reflects the strong
market positions they have each established.
Coles' sales performance during the half built on the strong growth achieved in the prior corresponding period, but significant investment in value, particularly in the second quarter, led to lower earnings despite a reduction in costs.
BANZ delivered very strong improvements in both earnings and return on capital due to good execution of its strategic agenda. In the
United Kingdom and Ireland, Bunnings (BUKI) has moved at pace, making solid progress
on phase one of its transformation plan. Earnings for BUKI were affected by necessary restructuring, including clearance of deleted lines and high levels of price deflation associated with the move to 'Always Low Prices'.
While reported earnings for Department Stores declined marginally, underlying earnings2 were higher than the prior corresponding period, with strong growth in Kmart partially offset by
difficult trading and further restructuring activity in Target.
Officeworks' performance was pleasing as it continued to drive growth from its 'every channel' strategy.
Industrials
Earnings for the Industrials division were significantly above the prior corresponding period, with Resources benefitting from higher coal prices and strong production in the second quarter. The Chemicals, Energy and Fertilisers business (WesCEF) delivered a strong result for the half, primarily driven by higher chemicals earnings and growth in natural gas retailing, while earnings for Industrial and Safety also improved, benefitting from lower costs following 'Fit for Growth' restructuring activities.
Cash flow
The Group's cash flow management was a highlight for the half. Operating cash flows increased $244 million to $2,648 million, with the cash realisation ratio improving to
119.7 per cent3.
Strict disciplines were also maintained in respect of capital expenditure, which contributed to
a $566 million increase in free cash flows to
$2,231 million. This resulted in a strengthening of the Group's balance sheet, with net financial debt at 31 December 2016 largely in line with the prior corresponding period, despite the debt-funded acquisition of Homebase in February 2016.
Portfolio management
The Group continues to focus on enhancing shareholder value through portfolio optimisation and, during the half, announced divestment options were being evaluated for the Resources business. This process is ongoing.
The Group has also commenced a strategic review of Officeworks. Since Wesfarmers acquired Officeworks in 2007, the business has successfully executed a turnaround plan, more than doubling its earnings
and improving its return on capital from
5.7 per cent in the 2009 financial year to 13.9 per cent in the current period.
Officeworks is well positioned for future growth with a strong competitive position and ongoing initiatives to grow its addressable market. In light of its performance, options to monetise the value created for shareholders, including via an initial public offering4, are being evaluated. The business will be retained if divestment options do not meet Wesfarmers' valuation hurdles.
See page 3 for footnotes.
2
It was pleasing to record strong earnings for the half with the results reflecting the benefits of the Group's conglomerate structure.
REVENUE
$34,917Mup 4.3 per cent
EARNINGS BEFORE INTEREST AND TAX
$2,429Mup 15.1 per cent
NET PROFIT AFTER TAX
$1,577Mup 13.2 per cent
EARNINGS PER SHARE
$1.40up 12.8 per cent
RETURN ON EQUITY (R12)1
10.2%up 20 bps
$33,462m
$34,917m
$2,110m
$2,429m
$1,393m
$1,577m
$1.24
$1.40
10.0
10.2
2016
2017
2016 2017
2016
2017
2016
2017
2016
2017
Excludes post-tax non-cash impairments of $1,844 million relating to Target and Curragh recorded in the 2016 financial year.
Underlying earnings exclude: in 2016, a provision of $13 million recognised for restructuring costs associated with the planned relocation of Target's store support office. In 2015 for Target, rebate income of $21 million recognised contrary to Group policy which was reversed in the second half of 2016, having no effect on the 2016 full-year results.
Operating cash flows as a percentage of net profit after tax, before depreciation and amortisation and NTIs.
This announcement does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in any jurisdiction, including the United States. Any securities to be offered and sold in an initial public offering have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
3
COLES | HOME IMPROVEMENT | DEPARTMENT STORES | |||
Financial performance |
| Bunnings Australia | Bunnings United Kingdom | Target | Kmart |
Headline food and liquor sales up 2.2 per cent on strong prior corresponding period
Comparable food and liquor sales up 1.3 per cent
Food and liquor deflation of
0.9 per cent
Decline in EBIT of 2.6 per cent mainly driven by a decline in shelf margin (gross margin excluding loss and logistics)
Shelf margin decline was driven by
Proactive investment in the customer experience
Price investment including absorption of cost price increases in meat
A highly competitive market
Lower gross margins partially offset by disciplined cost management
growth in Coles Online
Positive comparable sales growth in Liquor
Coles Express revenue declined on lower fuel volumes and prices but convenience store sales continued to grow
Outlook
Gross margin pressures expected to persist through the rest of
the year
Providing a market-leading customer offer will remain a priority
Over the long term, simplicity benefits expected to fund investments in the customer offer
Progress the liquor transformation and provide a market leading convenience store offer
and New Zealand
Financial performance
Total store sales growth of 8.4 per cent and store-on-store sales growth up
6.5 per cent
Sales growth achieved in consumer and commercial markets and across all major trading regions
Earnings growth from solid trading and strong focus on cost control
Focus on long-term value creation through store upgrades, category refresh work and investments in customer value
Good outcomes on property divestments
Nine new trading locations opened during the half
Outlook
Dynamic and competitive environment
Continued focus on creating better experiences for customers,
strengthening the core of the business and driving stronger growth
and Ireland
Financial performance
Trading volumes in line with prior year after adjusting for previous owner's store closures and the exit of Habitat, Argos and other discontinued ranges
Pleasing customer participation with transactions increasing 9.1 per cent on a like-for-like trading basis
First Bunnings Warehouse pilot store opened on 2 February 2017 at St Albans
One-off costs of £13 million (A$21 million) for transition work, concession exits, intangible write-offs and pilot store establishment costs
Outlook
All work prioritised around building strong business foundations
Continued focus on implementing plans to establish four pilot Bunnings Warehouse stores in FY2017
Financial performance
First half reflected a difficult trading period and the transition underway
Total store sales down 17.4 per cent and comparable store sales down
18.2 per cent
Sales affected by deflation resulting from the conversion to everyday low pricing which included the end of the Toy Sale event in July 2016
Good progress on reducing costs
Higher cash flows due to improved working capital management and moderated capital expenditure
$13 million of restructuring costs related to support office relocation
Outlook
Outlook for balance of FY2017 reflects a transitional year
Earnings in second half expected to be materially above prior corresponding period due to no repeat of restructuring costs and provisions in the prior period
Financial performance
Total store sales up 9.1 per cent, comparable sales up 5.7 per cent
Strong sales growth supported by increased transactions and units sold
Earnings growth driven by a strong contribution from everyday ranges sold at full price, sourcing and supply chain efficiencies and clearance management
Opened five new stores, including
two conversions from Target to Kmart, and completed 15 refurbishments
Outlook
Well positioned for continued growth
Continued focus on sustainable growth by providing a great place to shop that is simple to run, better products at even lower prices and relentlessly pursuing lowest cost
Plans to open five new stores and complete 18 store refurbishments in the second half
COLES
$20,056Mdown 0.2 per cent
HOME IMPROVEMENT
$6,995Mup 27.2 per cent
BUNNINGS AUSTRALIA AND NEW ZEALAND
$5,957Mup 8.3 per cent
TARGET
$1,623Mdown 17.7 per cent
KMART
$2,996Mup 8.9 per cent
2016 $20,087m
2017 $20,056m
REVENUE
2016
2017
2016 $5,500m
2017 $6,995m
2016
2017
2016 $5,500m
2017 $5,957m
2016
2017
2016 $1,972m
2017 $1,623m
2016
2017
2016 $2,750m
2017 $2,996m
2016
2017
EARNINGS BEFORE INTEREST AND TAX
$920Mdown 2.6 per cent
$722Mup 3.0 per cent
$770Mup 9.8 per cent
$16Mdown 78.4 per cent
$371Mup 16.3 per cent
2016 | $945m | 2016 | $701m | 2016 | $701m | 2016 | $74m | |||||||
2017 | $920m | 2016 | 2017 | 2017 | $722m | 2016 | 2017 | 2017 | $770m | 2016 | 2017 | 2017 | $16m | 2016 |
2017
2016 $319m
2017 $371m
2016
2017
RETURN ON CAPITAL (R12)
11.1%2016 | 11.2% | 2016 | 35.8% | 2016 | 35.8% | 2016 3.8% | 2016 | 36.6% | ||||||||||
2017 | 11.1% | 2016 | 2017 | 2017 | 30.7% | 2016 | 2017 | 2017 | 39.0% | 2016 | 2017 | 2017 (15.1%) | 2016 | 2017 | 2017 | 41.5% | 2016 | 2017 |
down 10 bps
30.7%down 504 bps
39.0%up 317 bps
(15.1%) 41.5%up 492 bps
4
Wesfarmers Ltd. published this content on 16 February 2017 and is solely responsible for the information contained herein.
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