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Wesfarmers FY'18 profit plunges 58.3% on UK exit

Wesfarmers Ltd.'s earnings for full-year fiscal 2018 took a hit from the Australian conglomerate's failed venture into the U.K. retail market, with profit plummeting 58.3% year over year.

For the fiscal year ended June 30, net profit attributable to members of the parent dropped to A$1.20 billion from A$2.87 billion in fiscal 2017, and also fell below the S&P Global Market Intelligence consensus estimate of A$1.33 billion.

Diluted EPS attributable to ordinary equity holders of the parent came in at A$1.06, down from A$2.54 a year prior and behind the S&P Global Market Intelligence consensus estimate of A$1.15.

Revenue amounted to A$66.88 billion, up 3% from A$64.91 billion in the previous year.

Wesfarmers attributed the profit slide to a loss from discontinued operations amounting to A$1.41 billion. That reflects the trading results and significant items for the Bunnings U.K. and Ireland unit, also called BUKI and which comprised operations of the British home improvement chain Homebase, as well as for the Curragh coal mine in Australia. Both were divested by the group during the financial year.

Earnings from the company's continuing operations, excluding a non-cash impairment of A$300 million in its Australian retail chain Target, increased 5.2% to A$2.90 billion from A$2.76 billion.

Across Wesfarmers' various major business divisions, EBIT increased 12.7% year over year to A$1.50 billion at Bunnings Australia and New Zealand, jumped 21.5% to A$660 million for department store retailers Kmart and Target, and rose 8.3% to A$156 million for the Officeworks office supply chain. Meanwhile, EBIT dropped 6.8% to A$1.50 billion for its supermarket chain Coles, which is set to be spun off later this year.

The company also announced a shuffle in leadership, with Guy Russo to retire as CEO of the department store division and managing director of Target.

Wesfarmers Managing Director Rob Scott said during an Aug. 15 earnings call that despite the profit drop, the company made "good progress" with its short-term priorities. Those included addressing areas of underperformance, repositioning the company's portfolio and developing capabilities to support future growth.

"This progress was demonstrated through the divestments of Curragh and BUKI, which completed during the year, and the proposal to demerge Coles," Scott said.

Scott added that Wesfarmers will continue investing in the data and digital areas, while retaining a strong balance sheet and capital discipline in order to "take advantage of opportunities to create shareholder value when they arise."

In addition, the board declared a final ordinary dividend of A$1.20 per share, bringing the full-year ordinary dividend to A$2.23 per share, in line with the previous fiscal year.

However, CFO Anthony Gianotti said on the call that the dividend declared for fiscal 2019 will be affected by the EPS impact of the Coles demerger and divestments of the Curragh and Bengalla coal mines.

"We expect that, taken together, the dividends to be declared by Coles and Wesfarmers for the 2019 financial year will be broadly equivalent to the dividends that Wesfarmers would otherwise have declared if the demerger did not proceed," Gianotti said.

As of Aug. 14, US$1 was equivalent to A$1.38.