Australia's Wesfarmers Profit Rises, Shares Gain

Australian coal-to-groceries conglomerate Wesfarmers posted a 46 percent rise in first-half profit, at the top-end of earlier guidance, and said growth had since accelerated in fresh food.

AP

The result was boosted by a full contribution from the Coles supermarket chain, and retail chains Target, Kmart and Officeworks, which Wesfarmers bought for A$19 billion in late 2007 before the credit crunch hit. 

It is investing A$1 billion ($654 million) a year in a five-year effort to revive the new business and claw back market share against Australia's top supermarket chain, Woolworths.

"Particularly pleasing are the signs that the turnaround in Coles is gaining traction," said Wesfarmers Managing Director Richard Goyder. "Despite the impact of a tougher consumer environment, the group's retail businesses have generally weathered the downturn well and the Coles turnaround is gaining momentum," he said.

Second quarter sales growth in food and liquor was up 3.8 percent on a like-for-like basis, up from 1.3 percent in the first quarter.

"The (Coles) business achieved a record Christmas trading period driven ... We've also seen the upward trend continue since Dec. 31," Goyder said.

Still, the company warned household spending would suffer amid a domestic economy which is seen skirting close to recession and as unemployment rises.

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"Customers will become increasingly cost conscious," Wesfarmers said in a statement. "Delivering the necessary change required to a business that had lost its way will take time."

Wesfarmers, which last month launched a heavily-discounted share sale which raised around A$2.9 billion ($1.9 billion) to reduce debt, said its net profit after items rose to A$879 million in the July-December period from A$601 million a year earlier. Post tax writedowns and provisions totaled A$125 million.

Last month, Wesfarmers forecast net profit in a range of A$850-A$880 million.

Shares in Wesfarmers turned positive after the result to be up 2.4 percent at a one-month high of A$16.53 at 0051 GMT. The stock had traded above A$40 a share in late 2007, when Wesfarmers bought Coles.

In the coal division, Wesfarmers said a significant downturn in global steel production would hit prices and demand. As previously flagged, the company said its annual dividend would be no more than A$1.

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