25 May 2016
Following a review by Directors of Wesfarmers' Strategic Plans for Department Stores and Curragh, and preliminary second half impairment testing results, Wesfarmers advises of a number of significant items now expected to be included in the Group's 2016 full-year (FY2016) financial results. These are:
- Restructuring costs and provisions of $145 million to significantly rebase Target and provide a stronger platform for the future; this is in addition to an expected underlying earnings before interest and tax (EBIT) loss in Target for FY2016 of approximately $50 million, due to high seasonal clearance activity and lower gross margins.
- Non-cash impairment of $1,100 million to $1,300 million pre-tax ($1,083 million to $1,283 million post-tax) to be recorded in Target, mainly against its historic share of the Coles Group goodwill.
- Non-cash impairment of $600 million to $850 million pre-tax ($420 million to $600 million post-tax) to be recorded in Curragh; Curragh's recoverable value remains very sensitive to future currency and export coal price assumptions, and low cost production provides scope for improvement in financial performance should coal revenues improve.
The accounting impairments in Target and Curragh, which will be finalised as part of the Group's FY2016 annual accounts, are non-cash in nature, have no effect on current trading and will not impact the Group's compliance with its banking covenants. It is intended that the Group's final dividend for FY2016 will be determined based on the Group's net profit after tax (NPAT) excluding the above impairment charges, and will be made in accordance with Wesfarmers' existing dividend policy.
Wesfarmers Managing Director Richard Goyder said "In Wesfarmers, we firmly believe in doing what's right for the long term future of our businesses, and we have never shied away from taking tough action in the short term if that is what is required. The decisions which we have outlined today reflect more difficult market conditions in both Target and Curragh, but we remain confident that operationally we have the right plans to improve future performances over time."
"Whilst Target has made operational progress in recent years, market competition and disruption has continued to accelerate, including from the very strong performance of Kmart. Within this context, the Group created the new Department Stores division with a mandate to deliver a higher long term earnings outcome for the overall division. Under Guy Russo's leadership, the new management team has completed a detailed assessment of business opportunities and begun revising strategic plans, which will include greater property coordination as well as accelerating activity in Target to ensure that it has the best foundation possible on which to build future success."