Coles goes for all-out automation, to be demerged from Wesfarmers

Coles goes for all-out automation, to be demerged from Wesfarmers

Coles has entered into a Heads of Agreement with Witron Australia, the Australian subsidiary of Witron Logistik + Informatik GmbH (Witron), to develop two new automated ambient distribution centres for Coles over a five-year period. Witron has developed over 50 automated projects for major retailers around the world.

Wesfarmers managing director Rob Scott said the decision to make this investment followed an extensive evaluation process and assessment of global best practice to ensure that the project supports Coles’ strategy over the long term.

“We are pleased to partner with Witron to invest in world-class technology to modernise Coles’ supply chain,” Mr Scott said. “Following a comprehensive review of all options, this investment is expected to deliver significant productivity improvements over the medium to long term.”

Coles managing director Steven Cain said the investment demonstrates Coles’ commitment towards modernising its supply chain, which delivers more than one billion cartons to stores each year, through investment in technology and automation.

“Coles is committed to improving efficiency and stock availability in stores and delivering higher service levels for our customers,” Mr Cain said. “The investment we are making in this technology is expected to lower supply chain costs, provide safer working environments and enhance our business competitiveness.”

The total investment required to develop the two new automated ambient distribution centres will be managed within Coles’ overall capital expenditure budget by applying its established capital allocation processes and return hurdles. Future capital expenditure requirements associated with this investment were taken into account in determining the appropriate level of net debt for Coles as a standalone company, and the investment is supported by the incoming Coles Board.

The 2019 financial year capital expenditure associated with this project is included in Coles’ net capital expenditure guidance of $600 million to $800 million. Coles expects to recognise provisions of approximately $130 million to $150 million before tax in the 2019 financial year, relating to redundancies and lease exit costs for a number of existing distribution centres that will be closed over a five year period.

Demerger details

The Supreme Court of Western Australia has ordered a meeting (Scheme Meeting) of Wesfarmers shareholders be convened to vote on a scheme of arrangement for the proposed demerger of Coles.

If the demerger proceeds Wesfarmers shareholders will retain their Wesfarmers shares. Eligible shareholders will be entitled to receive one Coles share for every Wesfarmers share held at the demerger record date.

Wesfarmers chairman Michael Chaney said: “Demerging Coles enhances Wesfarmers’ prospects of delivering satisfactory returns to shareholders by shifting our investment weighting and focus towards businesses with higher future earnings growth prospects,” Mr Chaney said.

“Following a successful turnaround since it was acquired by Wesfarmers in 2007, Coles is once again a leading Australian retailer, well positioned to grow as a defensive business with strong investment characteristics.”

  • Demerger of Coles to reposition the Group’s portfolio and set up both Wesfarmers and Coles for future success.
  • Wesfarmers to retain 15 per cent of Coles and 50 per cent of flybuys.
  • Eligible shareholders will receive one Coles share for every Wesfarmers share.
  • Wesfarmers Board recommends shareholders vote in favour of the demerger of Coles.
  • The Independent Expert, Grant Samuel & Associates, has concluded the demerger proposal is in the best interests of Wesfarmers shareholders.
  • Shareholder vote scheduled for Thursday, 15 November 2018, with demerger to be completed in November 2018, subject to shareholder, court and regulatory approvals.

Wesfarmers following the proposed demerger

Wesfarmers managing director Rob Scott said the demerger represented a significant repositioning of the group’s portfolio and would set up Wesfarmers for success over the next decade.

“The demerger will reposition the group’s portfolio to target a higher capital weighting towards businesses with strong future earnings growth prospects,” Mr Scott said. “After the demerger, Wesfarmers will have a portfolio of cash generative businesses, with strong returns on capital, good momentum and leading positions in their respective markets.”

“Maintaining a strategic stake in Coles provides an important connection with Wesfarmers to reinforce opportunities to collaborate in the data, digital and loyalty areas. flybuys will be better able to realise its potential as a leading loyalty company through the ongoing support and investment of both Coles and Wesfarmers and by leveraging the broader networks of the Wesfarmers Group, including the existing partnerships with Kmart and Target,” Mr Scott said.

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