2017 Half-year Results

15 February 2017

Wesfarmers Limited has 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. Strong earnings growth was recorded for the half, with the results reflecting the benefits of the Group’s conglomerate structure.

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 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. 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.

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.

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.

In light of the overall improved Group earnings and cash flows, the directors have declared an increase of 13.2 per cent in the interim dividend to $1.03 per share.

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.

For full details, please refer to the links below:

• 2017 Half-year Report (incorporating Appendix 4D)
• Dividend/Distribution - WES
• 2017 Half-year Results Announcement
• 2017 Half-year Results Presentation
• 2017 Half-year Results Supplementary Information
• Richard Goyder discusses the 2017 Half-year Results
• 2017 Half-year Results - Shareholder Quick Guide

¹ Excludes post-tax non-cash impairments of $1,844 million relating to Target and Curragh recorded in the 2016 financial year.
² 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.
³ Operating cash flows as a percentage of net profit after tax, before depreciation and amortisation and NTIs.
⁴ 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.