Bunnings hits $1.3b snag in UK
WESTFARMERS will take a $1.3 billion hit in impairments, largely due to its struggling UK hardware business that it acquired two years ago.
The Perth-based conglomerate and parent company of Coles said the former Homebase business had not met expectations since it acquired the 200-plus stores for $705 million in February 2016.
The UK and Ireland business, where only 19 pilot stores have so far been rebadged as Bunnings, will be subject to about $1 billion in impairments and writedowns. The remaining $306 million non-cash impairment is related to Wesfarmers’ struggling Target department stores in Australia.
Bunnings UK’s leadership will undergo changes, including the retirement of Bunnings veteran and head of the group’s UK business Peter Davis who will be replaced by Damian McGloughlin.
Wesfarmers managing director Rob Scott said the company needs to address underperformance in its portfolio.
“The Homebase acquisition has been below our expectations, which is, obviously, disappointing,” Mr Scott said.
Bunnings group managing director Michael Schneider said the Bunnings rollout plans will be reviewed, including the possibility of a small store format in addition to its warehouse style.
“It is clear that a significant amount of change has been driven through Homebase since the acquisition and the disruption caused by the rapid repositioning of the business has contributed to greaterthan-expected losses across the Homebase network,” Mr Schneider said.
The UK business is expected to show an underlying loss before interest and tax (EBIT) of $165 million, when Wesfarmers reports its first-half results on February 21.
Wesfarmers will record a non-cash impairment against its UK business of $795 million, a $66 million writedown in the value of excess and unsuitable stock, a $70 million increase in store closure provisions, and a $92 million tax asset writedown.
The Target impairment reflects a more conservative outlook for the brand despite overall department store earnings, including Kmart, hitting their highest level since 2010. Target is expected to report first-half earnings before interest and tax (EBIT) of $33 million, up 13.8 per cent on the prior corresponding period.