In the past, Wesfarmers Limited (ASX: WES) has taken a number of actions to reposition the Group’s portfolio which includes demerger of Coles and various divestments. Today (i.e., 14 January 2019) the company announced the outcomes of portfolio management actions and also provided a preliminary estimate of its net financial debt position as at 31 December 2018.
The company also informed significant items that are expected in the first half of 2019 and also provided an update on retail trading for the half-year ending 31 December 2018 (1H FY2019). After providing the update, the share price of the company decreased by 2.973 percent as on 14 January 2019 (AEST 12:31).
During 1H FY2019, the company completed the demerger of Coles and also completed several divestments which include the divestment of Bengalla, the divestment of Kmart Tyre and Auto (KTAS) and the divestment of the company’s interest in Quadrant Energy.
The company’s balance sheet was strengthened following the receipt of proceeds from the above-mentioned transactions and as at 31 December 2018 the company had an unaudited net debt position of approximately $0.3 billion which is substantially less than $3.6 billion at 30 June 2018.
It is expected that the results of the first half of 2019 will include various significant items relating to discontinued operations. The company is expecting a gain of $670 million to $680 million from the divestment of Bengalla and a gain of $265 million to $275 million from the divestment of KTAS. Further, the company is expecting a Gain of US$98 million from the disposal of the interest in Quadrant Energy and Wesfarmers is also expecting a provision of $130 million to $150 million relating to supply chain modernization in Coles. It is expected that the results of the first half of 2019 will also include the gain of $2,100 million to $2,300 million from the demerger of Coles.
As per the company’s announcement, the trading performance of Wesfarmers’ retail divisions during H1 FY 2019 was in line with management expectations with the exception of the Department Stores business. Further, the company witnessed a moderated sales growth in Kmart during the latter part of November and through December. In H1 FY 2019, the total sales in Kmart (excluding KTAS) only increased by 1.0 percent, with comparable sales declining by 0.6 percent. Due to the moderation in sales growth in Kmart, the company is expecting its H1 2019 earnings before interest and tax (EBIT) for Department Stores to be in between $385 million and $400 million, excluding the gain on disposal of KTAS.
As per Wesfarmers’ Managing Director Mr. Rob Scott, the company has entered CY 2019 with a strong balance sheet and the operating businesses of the company are well positioned for the future.
In the past one year, the share price of Wesfarmers increased by 1.31 percent as on 11 January 2019 and trading at a PE multiple of 30.190x. WES’s shares traded at $31.00 with a market capitalization of circa $36.23 billion as on 14 January 2019 (AEST 1:10 PM).
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