Coles brands going strong: Wesfarmers

Wesfarmers Ltd says the turnaround of subsidiary Coles Group is on track and is set
to continue growing sales of its house brands at double-digit rates.
Wesfarmers managing director Richard Goyder said the conglomerate had a strong
balance sheet, thanks to its $2.9 billion capital raising in January and could
survive any adverse outcome if funding markets dried up again.
"I'm very pleased to have a very strong balance sheet in a company that I think is
pretty well bullet-proof at the moment because there's still a few bumps in the road
going ahead," Mr Goyder said.
"There has been a lot of wealth destruction ... and things in the early stage of
recovery are fragile."
"We think under any circumstance, going forward, if debt markets closed again, that
through a combination of cash flows from our businesses and the equity from our
balance sheet and existing facilities that we could survive pretty much any adverse
outcome," he said.
Wesfarmers remained cautious about the overall economic outlook but Mr Goyder said
retail sales in Australia had held up "remarkably well" and the outlook for retail
selling was looking up.
Perth-based Wesfarmers, which owns businesses spanning the retail, insurance, and
resources sectors, acquired retail giant Coles Group in 2007 after Coles rebuffed
offers by private equity companies.
"Coles had not been managed well for some time," Mr Goyder said on Tuesday, adding
that the management of the Target retail chain was an exception.
Phase one of Wesfarmers' five-year turnaround strategy for Coles was on track and
double-digit sales of Coles' house brands would continue, he said.
"They've been strong because there has been a move by consumers to value and so we'd
expect them to remain strong because we're also investing in those brands and the
quality and value of those brands."
March quarter sales of Coles' house brands showed double-digit growth at a higher
level than branded product lines.
Mr Goyder said Wesfarmers would look to lift return on equity and total shareholder
return, which was pared back through the capital raising and its acquisition of
Coles.
The conglomerate's refinancing of $9.7 billion in debt - inherited mostly from its
takeover of Coles - and the associated equity rights issue to retail and
institutional investors caused Wesfarmers' management some anxious moments, Mr
Goyder said.
"We had to make a decision about whether we were going to do a refinancing and how
much," he said.
"It was pretty grim. The world was pretty grim, so the outlook certainly was not as
positive (as today)," Mr Goyder said.
Concerns over risk dominated the capital raising, which delivered Wesfarmers $100
million more than expected from the oversubscribed institutional component.
"At the time we felt that the regret of doing it in six months' time, if it turned
out we didn't need to do it, would be far less than the regret of not doing it if we
did need to do it," Mr Goyder said.
"So in some ways I think we would have been betting the company if we hadn't have
done it."
Wesfarmers' shares gained 31 cents to $26.35.