Australia’s Wesfarmers to spin off supermarket giant Coles

Sydney (AFP) – Australian supermarket chain Coles will be spun off into a separate entity by owner Wesfarmers, the company said Friday, amid a shake-up in the food retail sector as new entrants threaten a longstanding duopoly.

Coles, which together with rival Woolworths is one of Australia’s two main supermarket giants, will become one of the nation’s 30 biggest listed firms after the demerger, conglomerate Wesfarmers said.

Coles currently gobbles up 60 percent of Wesfarmers’ capital, but only contributes 34 percent of its earnings. The spin-off decision was taken after a review of the entire business, Wesfarmers said.

“We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately,” Wesfarmers managing director Rob Scott said in a statement.

“Coles will be well-positioned to continue to deliver long-term earnings growth, with an earnings profile that is expected to be resilient through economic cycles.”

Scott said Wesfarmers was repositioning its portfolio to focus on divisions that have “strong future earnings growth prospects”.

The Perth-based firm, one of Australia’s largest-listed companies, also has interests in home improvement, department stores, mining and industrial products.

Wesfarmers posted a 605.9 percent surge in annual net profit to Aus$2.87 billion (US$2.24 billion) for the year to June 30, 2017 on the back of its coal division.

But profits in Coles fell 13.5 percent to Aus$1.61 billion in what the company said was a “very competitive environment”.

Apart from Woolworths, Coles faces competition from German food discount retailer Aldi, which has been making inroads into the market.

Internet giant Amazon, which recently launched in Australia, is also being closely watched by the local sector as it expands its grocery business in the United States.

Wesfarmers said it would retain a 20 percent share in Coles, with the demerger expected to be completed by June next year if it gains board and regulatory consent.

Shares in Wesfarmers closed 6.31 percent higher at Aus$43.80 in Sydney Friday.