Australia’s second-largest supermarket operator, Coles Myer, reported an 82% surge in annual net profit today (21 September), up from A$637.9m last year to A$1.16bn (US$877m) for FY2006. This was achieved despite difficult market conditions with reduced consumer spending due to increasing fuel bills and interest rate hikes, the company said.

Underlying profit increased 14% to A$787m for fiscal 2006, beating the company’s own Target of A$785m.

“This result brings to reality the aspirational earnings goal we set five years ago and is a very satisfying achievement for the team,” CEO John Fletcher said.

“Since we began our turnaround strategy, the group has doubled profitability, earnings per share and return on investment. We have also returned A$3.3bn to shareholders through capital management and dividend initiatives,” he continued.

The group said earnings before interest and tax (EBIT) at its key food and liquor operations rose 8.5% before transformation costs to A$785.9m. The momentum gained in its supermarket operations is expected to be carried through in the coming financial period, the company said.

Its general merchandise business, which includes Officeworks, Kmart and Target, reported a 16.2% increase in EBIT to A$248.3m.

Revenue for the year rose 3.7% to A$34.3n.

During the year, Coles Myer disposed of its department store. This divestment has streamlined the retailer’s operations and produced good returns for shareholders. “The sale of Myer during the year produced an excellent result for shareholders and has enabled the company to simplify the group and put greater strategic, financial and management focus on the everyday needs businesses,” Fletcher said.

In the results release, the Melbourne-based retailer, which is currently fending off a A$17.3bn takeover bid from a consortium of private equity firms led by Kohlberg Kravis Roberts, increased its quarterly dividend to 22.5 cents a share, taking total dividends for the year to 42 cents – an increase of 26.3%.

Coles said that although the Australian retail environment look set to remain highly competitive, the outlook for the group is positive.

For fiscal 2007, the group predicted headline NPAT of A$787m and EPS of approximately A$0.66 per share. After adjusting for one-off implementation costs and annualising full year benefits, the company said annualised NPAT is expected to be approximately A$970m, or A$0.80 per share.

Looking ahead to FY2008, Coles said that after adjusting for one-off implementation costs and annualising full year benefits, annualised NPAT is expected to be approximately A$1.25bn or A$1.00 per share.

Despite the positive results, ratings agency Standard & Poor retained the retailer’s BBB/A- rating and said the company would remain on credit watch. It said that this status reflects the possibility of a further takeover bid in the near future, leading to uncertainty surrounding future ownership.

Shares in Coles increased by 2.89% from an open of A$14.30, to close at A$14.61.