Following a review of the performance and strategic plans for Bunnings UK and Ireland (BUKI), owners Wesfarmers Limited plans to write down a number of significant items in the Group’s 2018 half-year (HY2018) financial results, subject to completion of a review of the financial statements by EY.  

There will be a non-cash impairment of £454m (A$795m) before tax, with £444m to be recorded against goodwill recognised on the acquisition of Homebase and £10m against the remaining book value of the Homebase brand name.

The purchase of Homebase in February 2016 was meant to replicate the success of Bunnings, a major DIY chain in Australia, but it is now being forced to conduct a wholesale review of the business.

In addition to the signification goodwill writedown, BUKI plans a stock write-downs of £37m, relating to excess, unsuitable and display stock, and store closure provisions of £40m.

A write-down of BUKI deferred tax assets of £53m, reflecting a more conservative outlook for the business, to be reflected in the Group’s income tax expense.

In addition to the goodwill write off, BUKI is expected to report an underlying loss before interest and tax of £97m 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,’ 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.’

A review of BUKI is underway to identify the actions required to improve shareholder returns. The review 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. The Group’s year end is 30 June 2018.

Wesfarmers already plans to shut 40 UK stores and is reviewing the future of the remaining 234 UK  stores. Following the takeover of Homebase BUKI quickly moved to end concession agreements, and close in-house concessions from companies like Habitat and Laura Ashley.

‘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 in June,’ Scott said.

BUKI is expected to report an underlying loss before interest and tax of £97m 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,’ Bunnings Group managing director Michael Schneider said.

‘Sales have been affected as non-core categories and concessions were exited ahead of the implementation of the Bunnings format, and investments in price and new ranges have not offset these lost sales. Trading was particularly weak during the latter part of the first half of the 2018 financial year.’

There will also be a shakeup of the top management at the UK and Ireland operation with current managing director Peter J Davis stepping down pending retirement after 25 years at the Group. He will be replaced by Damian McGloughlin, who has been appointed managing director of BUKI, reporting to Schneider. McGloughlin has more than 30 years’ experience in the UK home improvement and DIY market.

A number of other senior leadership appointments including David Haydon as chief operating officer have been made to strengthen the BUKI team and provide additional local experience and expertise.