Wesfarmers is looking to explore new investment opportunities and better leverage its existing data and digital opportunities, if shareholders approve its proposed demerger of supermarket subsidiary Coles on November 15.
In a series of documents released to the ASX on Friday, October 5, Wesfarmers said that the move to spin off Coles into a separately listed entity will enable it to invest in businesses with higher future earnings prospects.
Coles contributed just 35 per cent of Wesfarmers’ earnings in the 2018 financial year, despite accounting for 64 per cent of the conglomerate’s employed capital.
The group said its strong balance sheet and cash generative assets will create new investment opportunities post-demerger, while Coles is expected to benefit from Australia’s population growth and improving disposable income and consumer sentiment metrics moving forward.
Coles currently holds 31 per cent of the Australian supermarket sector. Rival Woolworths holds 38 per cent and German up-and-comer Aldi holds 10 per cent.
The supermarket revealed plans to improve the supply chain with two automated distribution centres over the next five years and continue rolling out consumer-centric initiatives in each of its divisions, including supermarkets, liquor, convenience and loyalty.
Coles is partnering with logistics solutions provider Witron on the automated distribution centres, which are expected to reduce costs and increase productivity over the medium to long term. The project is expected to cost between $600 and $800 million in capital expenditure.
Wesfarmers in August reported full-year earnings before interest and tax (EBIT) of around $4 billion. On Friday, it revealed that without the Coles business, the group’s EBIT would have been around $3 billion, while Coles’ EBIT would have been around $1.4 billion.
Wesfarmers shareholders will vote on whether to go ahead with the demerger on November 15. If the plan is approved, Coles will list on the ASX the following week.
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