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Coles Myer surges on A$354M profit
By Geoff Hiscock
SYDNEY, Australia (CNN) -- Shares in Australia's largest retailer Coles Myer surged to a nine-week high Thursday after the group lifted full-year net profit 6 percent to A$354 million ($192 million). Coles Myer closed at A$6.43, a 5 percent gain on a day the broader market, measured by the S&P/ASX200, ended virtually unchanged, up just 0.04 percent at 2999.3. The profit result was in line with an August downgrade of expectations, when chief executive John Fletcher said earnings would be in the range of A$350 million to A$365 million. On Thursday Fletcher claimed the result demonstrated "early progress" in delivering on the group's five-year plan to rebuild its business and restore shareholder value. But it is short of the 20 percent profit growth Fletcher said he was aiming for earlier this year. Coles Myer has seen its share price tumble from A$9.00 in February to a five-year low of just A$5.70 last month as it struggles with poor performance from some of its units and a bitter boardroom battle involving outgoing chairman Stan Wallis and key shareholder and director Solomon Lew. Structural change
At the heart of the dispute is the potential change in structure of the group, which turned over A$25.7 billion (about $14 billion) in the 2002 financial year from its Coles supermarkets, its department stores such as Myer and Grace Brothers, and its Kmart and Target stores, which it runs under license. The group had been looking to spin off the Target and Myer Grace Bros. operations in the first half of next year, following a structural review that has been going on since May. But on Tuesday Fletcher said the Coles Myer board was delaying a decision on splitting up the company until at least July 2003, citing the importance of the coming Christmas trading period. (Full story) The Myer Grace Bros operation showed a pre-tax loss of A$21.6 million in the 2002 financial year, against pre-tax earnings of A$51.7 million for Target, A$61.9 million for Kmart and A$547 million for the Coles supermarket and liquor business. Fletcher said Thursday the group was forecasting total savings in its cost of doing business of at least A$300 million ($163 million) by the end of the 2004 financial year. Turnaround taking longerHe said that while the Target and Kmart operations were showing improvement, a turnaround in the Myer Grace Bros. business was taking longer to "get traction". But he said he believed the worst was behind the group. Fletcher took over as CEO in September 2001 and unveiled a five-year plan in March this year under which he aimed to double profit by mid-2006. Of more immediate concern to Coles investors is the dispute between Wallis and Lew, who has been a director since 1985 and holds a 5 percent stake through his Premier Investments. Lew, who has a range of retail interests and supplier transactions involving Coles Myer, has been highly critical of the performance of Wallis. Lew has also argued against an early spinoff of Myer Grace Bros and Target. In turn, Lew has been criticized over a potential conflict of interest in his role as both supplier to and competitor of Coles Myer. The board had been expected to elect a replacement for Wallis at a meeting Wednesday, but failed to do so. Wallis said the board would try again next Thursday. Rick Allert, chairman of the beverage group Southcorp, is regarded as the most likely replacement for Wallis. Shares in Coles Myer's arch-rival, Woolworths Ltd, also closed higher Thursday, up 1.43 percent to A$12.79. That is close to its record high of A$13.64 in April this year.
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