Wesfarmers today announced its intention to demerge its Coles division, subject to shareholder and other approvals. It is anticipated that the proposed demerger would create a new top 30 company listed on the Australian Securities Exchange, with leading positions in supermarkets, liquor and convenience, strong cash generation capability to underpin dividend distributions, and an earnings profile which is expected to be resilient through economic cycles.
The decision follows a review of the Wesfarmers portfolio and an assessment of the composition of its capital employed to support higher levels of future growth and total shareholder returns. As at 31 December 2017, Coles accounted for approximately 60 percent of the Group’s capital employed and 34 percent of Group divisional earnings.
Wesfarmers Managing Director Rob Scott said the Group was repositioning its portfolio to target a higher capital weighting toward businesses with strong future earnings growth prospects.
“Wesfarmers acquired Coles as part of Coles Group in 2007 and since then has successfully turned around the business and restored its position as a leading Australian retailer,” Scott said.
“We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately. It is now a mature and cash generative business, which is expected to have a strong balance sheet and dividend paying capacity. Coles will be well positioned to continue to deliver long-term earnings growth, with an earnings profile that is expected to be resilient through economic cycles.
“A demerger of Coles will facilitate greater focus by Wesfarmers on growth opportunities within its remaining businesses and the pursuit of value accretive transactions. The capacity to act opportunistically will be retained through a strong balance sheet and a cash generative portfolio. The Group expects to retain its current strong credit ratings and the dividend policy will remain unchanged.”
Wesfarmers Chairman Michael Chaney said the demerger would extend the Group’s long history of actively managing its portfolio.
“Wesfarmers’ operating model has benefited our shareholders over the long term and will continue to provide the framework for future capital allocation decisions,” Chaney said.