Low pricing hits Coles bottom line
L-R: Wesfarmers' current Managing Director Richard Goyder, succeeding Managing Director Rob Scott and Chairman Michael Chaney
The supermarket price wars has hit Coles 2017 half yearly financial profits with the supermarket’s earnings before interest and tax falling.
When compared to Coles first half 2016 financial year results, its EBIT fell by 2.6 per cent to AUD $920 million with parent company, Wesfarmers, saying investing in value has negatively impacted earnings.
Despite the Coles troubles, Wesfarmers reported a strong net profit after tax of AUD $1.5 million for the half year ended 31 December 2016, an increase of 13.2 per cent on the prior corresponding period.
Other Wesfarmers investments Bunnings Australia and New Zealand, Kmart and Officeworks performed well.
Stationery and office supplier chain Officeworks is performing so well Wesfarmers said it is considering selling or listing it on the Australian Securities Exchange.
Although Coles earnings fell due to price cutting, Wesfarmers reported that its overall food and liquor recorded sales grew 2.2 per cent on the corresponding 2016 first half results.
“Coles’ steadfast commitment to its customer-led strategy delivered continued growth in comparable transactions, basket size and sales per square metre during the half, with record results achieved on key feedback measures over Christmas trading period,” Wesfarmers Managing Director Richard Goyder said.
He however said the decline in earnings were driven by lower margins following increased investments in value, which he said were weighted towards the second quarter, including through the absorption of cost price increases in meat.
“Costs of doing business were well managed, partially offsetting lower gross margins, despite Coles continuing to proactively invest to enhance the customer experience through better quality, availability and service,” Goyder said.
Bunnings Australia and New Zealand (BANZ) delivered an earnings growth of 9.8 per cent to AUD $770 million.
“The BANZ results for the half reflect its strong market position, which has been further supported through continued investment in customer value, stores and online,” Goyder said.
Bunnings UK reported a loss of AUD $48 million with Goyder saying they have made “very good progress to separate Homebase from its former owner”.
Target and Kmart
Things did not fare well for Target which earnt AUD $16 million in the first half of the year, AUD $58 million lower than the prior corresponding period.
Kmart however fared well with a 16.3 per cent growth in earnings to AUD $371 million.
Officeworks earnings were AUD 62 million, 5.1 per cent higher for the period.
“Growth in sales and earnings reflected continued improvements in merchandise layouts, new and expanded product ranges and ongoing price investment,” Goyder said.
Earnings in the Industrials division of Wesfarmers were AUD $377 million, AUD $355 million higher than the prior corresponding period with the increase attributed to a significant increase in coal prices and strong production in the second quarter of the financial year.
Rob Scott to take on Wesfarmers’ Managing Director role
The Wesfarmers financial results were announced one day after the company announced that internal candidate Rob Scott will be taking over Richard Goyder’s Managing Director role by the end of 2017.
Goyder has decided to retire after being in the MD role for more than 12 years.
Scott becomes the Group’s Deputy Chief Executive Officer immediately and will join the board in November 2017. He holds position as head of Wesfarmers Industrials division until 1 July 2017.
Chairman of Wesfarmers, Michael Chaney, said Scott has shown himself to be an outstanding executive in several senior roles within Wesfarmers.
“Rob has a proven capability to deliver improved business performance and to lead change through building great teams around him,” he said.
Chaney paid tribute to Goyder, who first joined Wesfarmers in 1993.
“Richard has been an extraordinary leader at Wesfarmers and is a highly respected and admired leader of the Australian business community,” he said.
About Rob Scott
Scott first began working for Wesfarmers in 1993 as a financial accountant but later moved into investment banking roles outside the company with Deutsche Bank.
He later re-joined Wesfarmers in 2004 in business development before being appointed Managing Director of Wesfarmers Insurance in 2007 and then Finance Director of Coles in February 2013. He was appointed as Managing Director of Financial Services in October 2014.
Scott was born in Perth and holds a Master of Applied Financed from Macquarie University, Bachelor of Commerce from the Australian National University, Graduate Diploma in Applied Finance in Investments and has completed the Advanced Management program at Harvard Business School.
He is also a former Olympic rower, winning a silver medal at the 1996 Atlanta Olympics.
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