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Why Wesfarmers is offloading Officeworks

 

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Wesfarmers has delivered strong half-yearly results to 31 December 2016. The group also announced a strategic review for Officeworks has begun with a possible trade sale or spin-off into a separately listed company with two possible options ahead of a potential head-on attack from the arrival of Amazon in Australia over the next 12 months.

According to Wesfarmers managing director, Richard Goyder, who has announced that he will be stepping down from the company in November, the stationery and office supplies business that was acquired a decade ago has doubled in size since 2009 and offers a 13.9 per cent return on capital.

There are 163 Officeworks stores currently operating across Australia with turnover increasing by six per cent over the half year to 31 December 2016 to $927 million while earnings before interest and tax grew five per cent to $62 million.

“Officeworks is well positioned for future growth with a strong competitive position and ongoing initiatives to grow its addressable market,” he said. “In light of its performance, options to monetise the value created for shareholders, including via an initial public offering, are being evaluated.”

The home improvement division saw profits rise three per cent to $722 million. The earnings of the Bunnings Australia and New Zealand businesses to $770 million was offset by losses in the UK and Ireland during their start-up phase. In Australia and New Zealand like-for-like or comparative sales were up 7.3 per cent in the December quarter, up from 5.5 per cent in the first quarter despite the discounts offered by former competitor Masters during its closing down and liquidation.

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Overall, Wesfarmers results were ahead of analysts’ expectations with interim net profit increasing by 13.2 per cent to $1.58 billion for the six months to 31 December, with group sales up by 4.3 per cent to $34.8 billion, with Coles representing $20.05 billion of this result.

In its department store business, Kmart earnings increased 16.3 per cent to $371 million while Target delivered a weak result. Target sales fell 18 per cent with earnings falling 78 per cent from $74 million to $16 million for the first-half which was described by Goyder as a “difficult trading period and impacts associated with significant transition work underway”. Guy Russo, who managed the improvement of the Kmart business, is now managing both department store brands.

This story originally appeared in Appliance Retailer.

 

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