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Wesfarmers to focus on fixing Bunnings UK and Ireland

Australian conglomerate Wesfarmers Ltd. will focus on fixing its home-improvement retail business Bunnings U.K. and Ireland, which owns the Homebase stores, after the chain's underperformance in the fiscal first half dented profitability.

"We're facing significant challenges in Homebase as a result of the rapid repositioning in the business, alongside planning and execution that quite simply has not been good enough," Michael Schneider, managing director of Bunnings Group, said during an earnings conference call Feb. 21. "We did too much too fast and didn't keep enough local talent in the business to inform our thinking and support our team in executing change."

Bunnings expanded into the U.K. and Ireland in 2016 through its £340 million acquisition of Homebase. It is in the process of converting Homebase outlets into the Bunnings Warehouse format, with 19 pilot stores now operating and a further five scheduled to open by June 30, the end of its fiscal year.

The group will analyze and monitor the performance of its pilot stores before informing investors of future plans at a strategy day in June 2018.

A more comprehensive review of the store portfolio of Homebase is underway and will likely result in closing another 20 to 40 stores. Five loss-making Homebase stores were closed in the fiscal first half, Schneider added.

Loss before interest and tax at the household hardware chain widened to £97 million for the fiscal first half ended Dec. 31, 2017, from a loss of £28 million in the year-ago period. Operating revenue fell 15.5% year over year to £517 million.

In the short term, Bunnings U.K. and Ireland will focus on reducing cash losses and improving trading performance, Wesfarmers Managing Director Robert Scott said during the conference call.

"We've got a lot of stock there and we're coming into a really important trading period through the spring and summer," Scott said.

Other efforts by management to repair Homebase's faults in the fiscal first half included recruiting talent in areas such as merchandise, supply chain and store development. "We now have a greater depth of talent more attuned to the local market and a structure that allows us to improve clarity, responsibility and accountability," said Schneider.

"We've also sharpened up merchandising promotional and operational plans to drive better performance and place significant emphasis on much-improved execution in all aspect of the business," he added.