Bunnings’ UK foray drags parent company’s profits down 87%

Bunnings UK update

Bunnings’ introduction into the UK has had an adverse impact on its Australian parent company’s first half profits, with figures plummeting 86.6 per cent year-on-year.

For the six month period ending December 31, Wesfarmers’ net profits plummeted to AUD $212 million (£119 million), down from AUD $1.57 billion (£881 million) the previous year – a whopping $1 billion-plus drop.

The plunge was partly attributed to a AUD $1.03 billion (£506 million) write-down on the UK arm of its Bunnings Warehouse chain, a sum larger than the AUD $750 million (£422 million) it originally paid to acquire it.

The write-down – along with another from Wesfarmer’s embattled value department store Target – was announced earlier this month and sent company shares plummeting by around seven per cent.

After purchasing the British Homebase chain in February 2016, Wesfarmers has been attempting to transfer its business model to the UK, slowly rebranding Homebase stores to the Australian Bunnings fascia.

This has proven difficult, with Bunnings UK reporting a loss before interest and tax of £97 million for the first half, compared to a loss of £28 million in the prior corresponding period.

Meanwhile, revenue for Bunnings UK decreased 15.5 per cent to £517 million.

Wesfarmers managing director Rob Scott confirmed that they were currently reviewing the future of its UK operations.

“The loss for the half reflected continued trading and execution challenges as a result of the rapid repositioning of Homebase following the acquisition,” he said.

“The management team has been strengthened and a review is underway to identify the actions required to improve shareholder returns.”

In addition to Bunnings UK’s reported loss, pre-tax significant items of £531 million were recorded in the half, reflecting the current trading performance of Homebase and a moderated outlook for Bunnings.

The company has put aside AUD $70 million (£40 million) for store closures and shareholders would be provided an update at Wesfarmer’s strategy briefing day in June.

It is thought that around 2000 UK-based Bunnings and Homebase employees will be under risk as a result of the business review.

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