Wesfarmers undeterred by UK debacle

Wesfarmers still believes Bunnings could have succeeded in the UK given enough time, despite the conglomerate’s $1 billion hit from the disastrous and short-lived overseas venture.

Chairman Michael Chaney told Wesfarmers annual general meeting in Perth that the belief it was in shareholders’ interest to pull the plug in the UK did not mean that a similar model could not thrive there.

“We did conclude early this year that there remains potential for a Bunnings-like business to operate successfully in the UK market,” Mr Chaney said on Thursday.

“Given the lessons we learned there, however – in particular how competitive the market is – we concluded that the additional effort and investment required would not be justified by the modest returns likely to be achieved in the long run.”

Wesfarmers sold out of Bunnings UK in May, with the total cost running to $1.02 billion in impairments, writeoffs and store closure provisions.

Mr Chaney said the disastrous investment had not deterred Wesfarmers from looking for new overseas investment opportunities.

The conglomerate could soon have cash to invest, with Wesfarmers voting for the proposed $20 billion demerger of Coles supermarkets immediately after the annual general meeting.

“Coles is an iconic Australian company,” managing director Rob Scott told the meeting.

“Coles is a mature, cash-generative business which will provide shareholders with returns that are expected to be resilient through economic cycles.”

Shareholders are expected to approve the demerger of Coles, with Wesfarmers aiming to shift investment weighting and focus towards businesses with higher earnings growth potential.

It will still own Bunnings, Kmart, Target and Officeworks.

Coles accounts for about 62 per cent of Wesfarmers’ capital employed, but contributes just one third of group earnings.

The conglomerate plans to retain a minority interest of 15 per cent in Coles, with the remaining 85 per cent distributed to Wesfarmers shareholders in proportion to their existing holdings.

Coles shares are expected to list on the ASX on November 21, subject to regulatory approval.