Eli Greenblat
February 17, 2012
The Age
WESFARMERS boss Richard Goyder has reignited the war of words between the supermarkets and Australia’s leading food manufacturers, labelling calls for an industry ombudsman ”a joke”.
Mr Goyder said the real culprit was prolonged underinvestment in manufacturers’ own brands and factories.
Defending the continued turnaround and profitability of Coles, which Wesfarmers bought five years ago for $19 billion, he said grocery manufacturers were to blame for their thinning margins and that the resuscitation of Coles under the conglomerate’s ownership had expanded the market and volumes for all suppliers.
”The call from the Australian Food and Grocery Council for an ombudsman is frankly a joke,” Mr Goyder said yesterday.
”I’ve never seen any business or industry ombudsman that would do anything but detract value from the sector and so I think it’s a joke, and it’s from people who haven’t invested enough in their own brands and haven’t invested enough in their own production capabilities to provide customers with what they want.”
He admitted that Wesfarmers needed to work harder to improve its return on shareholder funds extracted from its conglomerate structure – now stuck at just under 8 per cent – with its insurance arm’s profits almost wiped out in the first half.
”It’s not good enough but it is going in the right direction and we are confident in the future [return on shareholder funds] will continue to grow and I think a good indicator of that is Coles,” he said.
Mr Goyder’s comments came as Wesfarmers yesterday unveiled a mixed half-year profit.
Coles again starred with a 14.1 per cent increase in earnings before interest and tax to $656 million while discretionary retailer Target’s earnings were down almost 10 per cent. Resources, dominated by Wesfarmers’ coal operations, were flat; and the insurance arm took a big hit from the spate of floods and earthquakes that hit the region to post a 73.8 per cent dive in earnings to $17 million.
The high level of catastrophe claims and increases in insurance reserves combined with price deflation at its retail businesses to rub the gloss off Wesfarmers’ profit, with interim net profit up only 0.3 per cent to $1.176 billion.
Wesfarmers shares dropped 76¢ to $29.09, but Mr Goyder said he was optimistic about the outlook for the group’s retail businesses despite heavy discounting and tough retail conditions.
Target was most affected by deflation and intense competition, reporting a 9.7 per cent dive in EBIT to $186 million, while earnings at Kmart rose 12.6 per cent to $197 million. The company said changes to Target’s promotional program late in the half resulted in improvement in December trading.
Hardware chain Bunnings posted a 6.1 per cent increase in pre-tax earnings to $485 million.
Wesfarmers declared an interim dividend of 70¢ a share, fully franked, and payable on March 30.
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