Homebase owner's profits plummet as turnaround efforts fall flat

Poor performance has cast a shadow on Wesfarmers' £340m takeover of Homebase

Wesfarmers' botched takeover of Homebase forced it to book a massive slump in profits today, casting further doubt on the logic behind the £340m deal.

The Australian retail giant replaced Homebase’s senior management team after taking over in 2016 and has been slowly converting stores to its own Bunnings brand in a bid to reverse the company’s long-term decline.

But the UK chain’s revenues fell again in the six months to December, down 15.7pc to £517m, which Wesfarmers blamed on “inconsistent store standards poor execution” as new product lines failed to make up for sales lost from discontinued ranges.

That drove up trading losses to £97m, while it also incurred exceptional costs of £531m, mostly in relation to the takeover and turnaround efforts. The costly bill contributed to an 86.6pc plummet in its parent company's profits to just A$212m (£120m).

Earlier this month Rob Scott, managing director of Wesfarmers, said it was “keeping all options open”, including a possible sale of Homebase, as it revealed plans to close up to 40 stores, with 2,000 potential job losses.

Wesfarmers is converting Homebase stores to its own Bunnings Warehouse brand

Today Mr Scott said Homebase’s poor performance “reflected continued trading and execution challenges” following the takeover.

He added: “The management team has been strengthened and a review is underway to identify the actions required to improve shareholder returns.”

Former B&Q executive Damian McGloughlin was made managing director last month after Peter Davis, who had been running Homebase since the takeover, stood down.

Just 15 stores had been converted to the Bunnings brand by December 31, leaving 234 Homebase stores and another four closed for conversion. Wesfarmers said early results from converted stores had been “encouraging” but that gains were smaller during the winter months.

Thomas Brereton, an analyst at Globaldata, said: “With a more cautious attitude to capital investment slowing down conversion of Homebase stores to the Bunnings brand, and lease obligations making an exit very expensive, it is difficult to see a happy ending to Wesfarmers’ UK adventure.”