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Wesfarmers Announces Writedowns of Over $2 Billion

Wesfarmers Announces Writedowns of Over $2 Billion
After a comprehensive review of all aspects of the business, Target’s management team is now taking decisive steps to reduce the cost base and has introduced various restructuring measures regarding its costs and supply chain activities.
May 25, 2016 By Kaivalya Kandarpa Tags: WES

Retailer Wesfarmers Limited (ASX:WES) announced that the company has completed a review of its department stores and its Curragh coal mine, and has introduced various write-downs and impairments.

The company aims to significantly rebase Target and provide an enhanced platform for the future, and estimates the restructuring costs and provisions to be $145 million. The company also anticipates Target’s underlying earnings before interest and tax (EBIT) loss to be approximately $50 million. Moreover, a non-cash impairment charge of $1.1 billion to $1.3 billion will be recorded for Target, against its historic share The company states that its performance was impacted by high seasonal clearance activity and lower gross margins.

A non-cash impairment of $600 million to $850 million on a pre-tax basis will be recorded in the Curragh coal mine. Wesfarmers notes that the mine’s recoverable value continues to be highly sensitive to future currency and coal prices, and low cost production offers scope for improvement in financial performance of the asset.

The aforementioned impairments in Target and Curragh will be finalised in the group’s FY16 annual accounts. The final dividend will be determined on the basis of the group’s net profit after tax excluding the impairment charges.

Wesfarmers Managing Director, Richard Goyder commented on the impairments: “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 remain confident that operationally we have the right plans to improve future performances over time.” 

After a comprehensive review of all aspects of the business, Target’s management team is now taking decisive steps to reduce the cost base and has introduced various restructuring measures regarding its costs and supply chain activities. 

WES has dropped 1.7% since the announcement, and was last quoted at $41.26 (as at 10:40 am (AEST)).

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Kaivalya Kandarpa Author: Kaivalya Kandarpa May 25, 2016

Kaivalya is an equity analyst and a client advisor at Wise-owl. She specialises in fundamental and technical analysis for large and mid-cap companies. Having completed her bachelor's degree in Business Administration majoring in Finance, Kaivalya has a comprehensive understanding of international stock market movements. She tracks local and overseas markets and compiles analytical reports for various industries.

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