Coles Group up for grabs, board reviewing options

By Sarah Falson

TOORONGA, Vic: The Coles Group today said it would commence a “process to review ownership options for the company and its businesses,” which includes mass merchant chains Kmart and Target, which sell consumer electronics and appliances.

Sales and earnings in the Coles Group’s Kmart business along with the company’s supermarket business were lower-than-expected, leading to its decision to review its ownership options, according to Coles Group CEO, John Fletcher.

The company’s “other businesses”, however, performed “in line with or above expectations,” including the Target group.

In fact, the entire Coles Group’s net profit for the first half of the 2007 financial year amounted to $501 million (subject to audit), which is well on the way to the Group’s expected earnings of $787 million for the entire 2007 financial year, even though the company has announced that the monetary contribution from its supermarkets will probably be lower than expected.

Looking ahead, the Group now forecasts its earnings for the financial year in 2008 will be 10 per cent lower than the original guidance of $1,066 million.

Still, Fletcher said that, although the company has been forced to adjust its 2008 earnings guidance, it has made some strong progress in implementing some important components of the original strategy which was meant to acquire them $1,066 million.

“On the plus side, business simplification has identified potential savings in excess of the $363 million target outlined in September. Our Liquor business, Coles Express, Target and Officeworks have also gained strong strategic momentum,” he said.

Fletcher also said that the re-branding of Bi-Lo stores to Coles has not achieved the sales earnings envisaged.

“We [will spend] more in supermarkets now to minimise the educational risk and maximise long-term value,” he said.

The company also had to fork out an undisclosed amount in investigation practices within the group’s meat department, which followed the dismissal of managing director of merchandise, Peter Scott, in November last year.

The Coles Group has received a number of informal approaches to purchase its business in recent weeks, and the board now has to decide whether it will sell 100 per cent of its business or restructure the Group instead.

Coles chairman, Rick Allert, said the board needs to ascertain which of a sale, restructure or demerger would create greater value for shareholders of the publicly-listed company.

“This is a business which has more than doubled earnings and shareholder returns over the past five years. It has an exciting strategy to create significant further value for shareholders over the next five years,” said Allert.

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