Homebase owner Wesfarmers said on Monday that it is reviewing the future of its UK and Irish DIY businesses following the Australian group's high profile acquisition of the DIY retailer in 2016.
The Australian retail-to-resources conglomerate said it will take a A$1 billion writedown on its UK/Irish business, in a move which threatens a strategy that hinges on Wesfarmers rolling out its Bunnings DIY brand across Homebase’s 250 stores in the UK and Ireland.
Homebase’s Irish business has had a somewhat chequered past; in 2013, 500 jobs were saved when the company exited examinership, but it closed two of its then 15 stores. Since then however, its fortunes in Ireland appear to have recovered, and recent accounts show a 13 per cent bump in its annual sales, up to €48.6 million, with profits of some €11 million. The chain currently operates 11 stores across Ireland, with 383 employees.
Wesfarmers said it had bungled the takeover by making changes to Homebase that did not resonate with customers. It said it would close 20 to 40 stores and has not ruled out exiting the business altogether.
Rob Scott, Wesfarmers managing director, said it was not his preferred option to pull the plug on the UK DIY business, noting that two years ago it had been trading profitably.
“A lot of the issues we are dealing with today, to be frank, were self-induced,” he told investors on Monday. “We now have a team that understands the UK market, we have a number of opportunities to improve performance and that is what we are very much focused on. But all options are open.”
Mr Scott said the strategic rationale for the Homebase acquisition was sound, but poor execution had hurt sales. He cited as mistakes the loss of management knowledge in the UK, the pace of the transition to the Bunnings brand and the decision to remove certain product lines. He said Wesfarmers would provide an update in June.
Wesfarmers said Bunnings UK and Ireland would report an underlying loss before tax and interest of £97million (A$165m) for the first half of 2018. It is taking a £454 million non-cash impairment before tax to be recorded against goodwill recognised on the Homebase acquisition. It is writing down the value of unsuitable stock by £37million and writing down deferred tax assets worth £53 million, reflecting a more conservative outlook for the business.
Wesfarmers has rebranded 19 Homebase stores as Bunnings at a cost of £50 million. Any decision to close Homebase would be costly for Wesfarmers, which has £1 billion in outstanding lease liabilities in the UK.
(Additional reporting The Financial Times)
