Coles Pays Special Dividend Despite Earnings Fall

By Glenn Dyer | More Articles by Glenn Dyer

In the wider retail sector (compared with the part The Reject Shop is finding it tough to operate in- see separate story) the country’s second major supermarket chain, Coles Group has completed the financial year with OK trading figures, but a one-off surprise for shareholders.

In fact, it would be fair to say that Coles surprised shareholders with an 11.5 cents a share on top of the 24 cents a share final for what was around 8 months of freedom after being a part of Wesfarmers up to late last year.

The bonus payment was made despite Coles’ net profit falling 9.1% to $1.43 billion thanks to a big drop in earnings from fuel and convenience retailing than was only partly offset by modest earnings growth from supermarkets and liquor.

The result was marred by $145.8 million in one-off charges for head office redundancies and lease exit costs on about five distribution centers due to close in the next few years. – those one-offs had been flagged earlier in the year

Coles also booked one-off gains of $133 million from the sale of its Spirits Hotel business to KKR’s Australian Venue Co and $137 million from the restructure of its fuel supply agreement with Viva Energy.

A 1.7% drop in total revenue for the 12 months to June 30 to $38.4 billion told the real story and the level of competition in retailing at a time of weak to no growth in many categories thanks to hesitant consumers facing weak wage and income growth.

CEO Steven Cain made the point yesterday that the result came as retailing and Coles enters the most competitive period in history as the industry faces cost headwinds.

“It has been a year of substantial change for Coles following the successful demerger and ASX listing from Wesfarmers in November 2018. As highlighted at our Investor Day in June, consumer behaviours are changing faster than ever, we are heading into the most competitive period in Coles’ history, and there are significant industry-wide cost headwinds.

“With the return to profit growth in our core Supermarkets division, we have made a solid start to our four-year transformation program. Delivery of our sales growth strategy and the $1 billion Smarter Selling program will be critical to Group EBIT growth.”

Excluding its new fuel deal with Viva Energy and the offloaded hotels business, Coles grew full-year sales revenue by 3.1% to $35 billion.

In February, Coles entered into a new agreement with petrol partner Viva Energy to forgo its retail fuel margin, instead of receiving a one-off payment of $137.0 million.

This was offset by a provision expense of $145.8 million relating to redundancies and lease exit costs following a modernisation restructuring program, leading to an earnings before interest and tax fall of 0.9% to $1.46 billion.

For its supermarkets’ division, earnings before interest and tax grew by 2.2%, while a 30% jump in online sales growth generated revenues of $1.1 billion.

No earnings guidance was provided yesterday. Though, management once again reiterated that Smarter Selling initiatives in 2019-20 are anticipated to deliver annualised benefits in excess of $150 million. An updated is expected at the AGM in November.

Coles investors liked the result and the surprise dividend and sent the shares up 2.1% to $13.52.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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