Bunnings UK and Ireland (BUKI) is expected to report an underlying loss before interest and tax of £97 million ($165 million) for the first-half of the 2018 financial year.
“It is clear that a significant amount of change has been driven through Homebase since the acquisition and the disruption caused by the rapid repositioning of the business has contributed to greater than expected losses across the Homebase network,” Mr Schneider said.

Following an unscheduled review of the performance and strategic plans for Bunnings United Kingdom and Ireland, parent company Wesfarmers Limited advises of a number of significant items that are expected to be included in the Group’s 2018 half-year (HY2018) financial results, subject to completion of Ernst & Young’s review of the financial statements. These are:

Non-cash impairment of £454 million ($795 million) before tax, with £444 million ($777 million) to be recorded against goodwill recognised on the acquisition of Homebase and £10 million ($18 million) against the remaining book value of the Homebase brand name.

Stock write-downs of £37 million ($66 million), relating to excess, unsuitable and display stock, and store closure provisions of £40 million ($70 million).

A write-down of BUKI deferred tax assets of £53 million ($92 million), reflecting a more conservative outlook for the business, to be reflected in the Group’s income tax expense. In addition to the significant items detailed above, BUKI is expected to report an underlying loss before interest and tax of £97 million ($165 million) for HY2018, reflecting the "poor trading performance of Homebase".

Wesfarmers Managing Director Rob Scott said the Group is focused on delivering satisfactory returns to shareholders by improving its underperforming businesses, proactively managing its portfolio and investing in value-accretive growth opportunities. “We need to address underperformance in our portfolio that is detracting from positive performance in other areas, and the announcement today sets out decisive actions to achieve this,” Mr Scott said.

“The Homebase acquisition has been below our expectations which is obviously disappointing. In light of this, a review of BUKI has commenced to identify the actions required to improve shareholder returns.”

The review of BUKI is focused on options to improve the trading performance of Homebase as well as further evaluating the performance of the pilot stores to inform the future plans for BUKI. “We will take a disciplined approach to further capital deployment in BUKI and provide an update on the outcomes of the business review and our plans for a broader conversion to Bunnings at our Strategy Briefing Day in June,” Mr Scott said.

The first Bunnings pilot store opened in February 2017 and there are 19 pilot stores currently trading. The early results from the pilot program have been encouraging, although sales uplifts achieved moderated during the winter months. The business said it will continue to use the pilots to test, learn, iterate, and improve the offer and roll-out process.

“Through the pilot program, we have identified ways to reduce the capital expenditure and duration of the conversions,” Mr Schneider said. “As a result, we are reviewing plans for the roll-out of Bunnings across the network, which will include a small store format in addition to the warehouse format. “We will continue to monitor the profitability of the first tranche of pilot stores over the remainder of the 2018 financial year. Achieving proof of concept for the Bunnings format is a precursor to executing a broader roll-out plan.”

For more insight on the latest Bunnings news, read the latest blog from industry consultant and former DIY Week publisher, Colin Petty