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Target, coal mining to cost Wesfarmers nearly $2b in write-downs

Wednesday, 25 May 2016 07:26:43 | Michael Janda

Wesfarmers has written down the value of Target by $1.1-1.3 billion. (ABC News: Nic MacBean)

Wesfarmers has slashed the value placed on its Target retail unit and its Curragh coal mine in Queensland.

The conglomerate is expecting to write down the value of its Target department store group by between $1.1 billion and $1.3 billion in its upcoming full-year results to be released in August.

The write-downs are non-cash, and relate mainly to good will inherited from the Coles Group when Wesfarmers took it over in 2007.

Target has been struggling for several years, and has been significantly outperformed by Wesfarmers' other discount department store, Kmart.

Kmart has been performing so well that Wesfarmers rolled Target into a department stores division under the management of Kmart boss Guy Russo.

Following that move, Wesfarmers uncovered a raft of serious accounting issues that prompted the resignation of Target boss Stuart Machin in April.

At the time Mr Machin said, "I was not aware of these, but they happened on my watch, and as managing director I accept my share of the responsibility."

Wesfarmers announced that it was also taking action against the staff who were involved in accounting tricks to inflate Target's profits by $21 million in the last half-year.

Target set for $50m full-year loss

Target's profits certainly will not be inflated this half, with Wesfarmers flagging an underlying $50 million full-year loss for the unit.

In addition to that, and the goodwill write-downs, Target has incurred one-off costs of $145 million.

Around $30 million of that relates to 240 redundancies from a restructuring of its store support centre in Geelong, announced in April.

Another $35 million relates to costs of exiting surplus offsite facilities, while clearance costs from discounting poor selling categories of stock will cost $80 million.

"Since February, Target's new management team and I have acted promptly to clearly understand both the short and longer term opportunities for performance improvement," said Wesfarmers' department store boss Guy Russo.

"Through this process I am very confident that, over time, there can be a great future for both Target and Kmart as parallel but differentiated brands in the market place."

Wesfarmers also noted that accounting rules did not allow it to increase the goodwill associated with the better-performing Kmart, which it said would exceed the write-down for Target.

Queensland coal write-down

In addition to its Target woes, Wesfarmers' coal division is also suffering.

The conglomerate is planning to write-down the value of it Curragh coal mine near Rockhampton by between $600 million to $850 million.

The company said the write-down mainly reflects lower coal prices, with Wesfarmers now expecting a slower forecast recovery in long-term export coal prices and increased volatility, including in exchange rates.

Wesfarmers said Curragh remains a relatively low-cost producer.

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