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Australia's Coles Full-Year Profit Is Little Changed

Australian supermarket chain Coles Group, the target of an A$18.5 billion (US$15.8 billion) takeover bid, said on Wednesday its full-year profit was little changed from a year earlier, as grocery earnings stalled.

Net profit before one-off items was A$792 million, compared with A$787 million a year ago. That compared with a consensus forecast of A$764 million, according to a Reuters Estimates survey of 10 analysts. Estimates had ranged widely however, from A$704 million to A$792 million, with some including one-off items.

Coles said it was inappropriate to maintain the 2008 profit forecast it issued in February of 20 percent growth, because of the change of ownership, but it would continue to operate in line with that guidance.

Coles, which has recommended the takeover offer by conglomerate Wesfarmers, has lost market share in its core food and liquor business to rival Woolworths, whose 2007 food and liquor sales rose 8% and profit surged 28%.

Coles' comparable store sales for food and liquor rose just 0.5% in the second half, and by 1.6% in the year.

Earnings in the food and liquor division slumped 9.5%, although results were better at general merchandise chain Kmart and discount store chain Target.

Excluding costs associated with the takeover bid, net profit was A$747.8 million.

Wesfarmers, which owns Australia's largest hardware chain Bunnings, has said it will take three to five years to turn around Coles' ailing supermarkets business, and plans to spend at least A$1 billion a year to bring it up to scratch.

An independent expert last week said the Wesfarmers offer was in the best interests of Coles shareholders because there was no real alternative, even though it fell below a range of fair value for the company.

A private equity consortium led by TPG pulled out of the auction for Coles just ahead of the bidding deadline, citing higher funding costs caused by the U.S. credit crunch.

Coles shares have fallen 20% from a record high of A$17.89 in May, as the value of Wesfarmers' scrip-heavy bid has also declined, and are up 2.3% from a year ago compared with a 25% gain for the broader market.

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