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Wesfarmers Records Revenue Growth in 1H16

Wesfarmers Records Revenue Growth in 1H16
The Coles division reaped 5.6% earnings growth underpinned by a rise in food and liquor revenues
Feb 24, 2016 By Imran Valibhoy Tags: WES

Wesfarmers Limited (ASX:WES) released financial results for the first half of 2016, reporting a 1.2% rise in net profit after tax (NPAT) attributed to a strong operational performance across all divisions.

The retailer lifted its half year revenue by 4.7% to 33.46 billion, resulting in 1.2% profit growth to $1.3 billion. Earnings per share rose 2.6% to $1.24.

Coles EBIT up 5.6%

The Coles division reaped 5.6% growth in Earnings before Interest and Tax to $945 million, underpinned by a 3.1% rise in revenue.

The Group’s Managing Director Richard Goyder commented on the segment’s performance: “The good momentum in Coles’ food and liquor business continued during the half. Food and liquor revenue grew $937 million, driven by investing benefits from operational simplification and supply chain efficiencies into better value for customers and improvements in service, particularly over the Christmas period.”

Strong Earnings Growth in Home Improvement and Office Supplies

The home improvement segment thrived as Bunnings’ earnings grew 13.4% to $701 million on the back of a 10.9% lift in revenue.

The Group recently expanded into the UK with the acquisition of Homebase, the second largest home improvement and garden retailer in the UK and Ireland. While the acquisition is yet to be completed, Wesfarmers expects this procurement to result in a long-term value creation opportunity for Bunnings.

The Office Supplies segment recorded a significant expansion in margins as Officeworks’ earnings of $59 million were 18% higher than the pcp, with revenue growth of 9.1%.

Department Stores Record Higher Revenue

Kmart’s earnings grew 10.4% to $319 million on 12.6% revenue growth. Target’s earnings of $74 million were 5.7% higher, with a 1.9% rise in revenue.

Mr. Groyder stated that Target’s customer transactions and unit volumes grew during the period as the department store lowered its prices as part of its ‘first price, right price’ strategy. He also mentioned that Kmart’s strong result “which included a significant increase in return on capital, was delivered through a continued focus on range improvement, cost control and inventory management.”

Poor Results in Industrials

Earnings from the Chemicals, Energy and Fertiliser business (WesCEF) grew 9.5% to $104 million while the earnings from Industrials and Safety business declined $14 million to $36 million. The ongoing rout in commodity prices had a substantial impact on Wesfarmers’ investments in the industrials sector. The Resources business logged a loss of $118 million coupled with a 4.2% decline in coal production.

Other Businesses and Cash Flows

Operating cash flows of $2.4 billion, a $123 million rise over the pcp, resulted in a cash realisation ratio (Cash Flow from Operating Activities divided by Net Income) of 118.3%. Moreover, the retailer expanded its free cash flows by 31.2% to $1.67 billion.

Gross capital expenditure increased 12.3% to $1.06 billion as a result of marginally lower retail store network investment and higher proceeds from the sale of retail property. However, net capital expenditure declined 24.9% to $675 million.

Dividend

The board declared a fully-franked interim dividend of $0.91 cents per share, which is a 2.2% premium on last year’s distribution.

WES shed 4.1% to $41.8 as at 10:50 AM (AEDT).

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Imran Valibhoy Author: Imran Valibhoy Feb 24, 2016

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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