28/03/2012 - 09:55

Would average be enough for Goyder?

28/03/2012 - 09:55


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Would average be enough for Goyder?
SHORTAGE: Richard Goyder says many of Wesfarmers’ customers are finding it harder to raise funds in the post-GFC environment. Photo: Grant Currall

THE average tenure for a managing director of Wesfarmers is about 13 years, which puts its current chief Richard Goyder at about the mid point if he continues in the role.

His predecessor Michael Chaney managed to hit the Wesfarmers’ mean in terms of tenure as a chief executive when he stepped down in July 2005.

Only time will tell if Mr Goyder emulates this feat.

Both leaders had their share of criticism early in their time at the helm. Mr Chaney suffered taunts from commentators throughout the 1990s for failing to do a deal. Wesfarmers often missed out on acquisitions because it would not budge on a price that worked for its rigid return on capital model.

Ultimately, Wesfarmers under Mr Chaney did do deals, notably buying Howard Smith for its hardware business to give real scale to its highly successful Bunnings brand. 

He left Wesfarmers with one of the best reputations as a corporate leader in Australian history, an unlikely outcome for a Western Australian emerging from the shadows of WA Inc.

Mr Goyder has also copped criticism, but for the opposite reason.

The timing of the $22 billion purchase of supermarket giant Coles in 2007, Australia’s biggest corporate takeover deal, less than a year before the GFC, meant Wesfarmers is perceived to have paid top dollar for the troubled retail chain.

Even after billions of dollars of investment and a significant turnaround, the Coles retail business return on capital has only reached slightly more than 8 per cent, well short of what Wesfarmers typically considers satisfactory.

Before the purchase, Wesfarmers traded above $40. Within 18 months of the deal it had to raise capital at less than $15 a share. Today its shares trade at around $30 each.

It has led to much commentary that Wesfarmers took on too much, paid over the odds and was subsequently distracted by a low-yielding asset during a period when many other businesses were up for grabs at cheap prices.

Not only that, but Coles’ business tactics, such as selling cut-price milk, have frequently made it a target of political campaigns – something the Wesfarmers boss said he finds quite personal.

Despite this Mr Goyder has no regrets about the purchase, which he sees as a significant benefit to the group and to the wider community.

“I think my life might have been easier,” Mr Goyder told WA Business News when considering the idea of having not bought Coles.

“(But) life isn’t like that.

“I am glad we took the opportunity. I look back and I only see positives in what happened with Coles.”

The alternative would have meant Coles being left to rot, undercapitalised.

“Australia would have been stuck with a second-tier supermarket,” Mr Goyder said.

But what of other opportunities that might have come along in the interim? For instance, Commonwealth Bank bought Bankwest in October 2008, after its UK-based parent HBOS hit trouble in the early stages of the GFC.

“It’s great to look back and say it was a steal but it looked gutsy at the time,” Mr Goyder said. 

“I think one of the things the last four to five years has shown us is the ability to raise funds is incredibly important.

“If we had a second-tier bank and tried to raise money on the wholesale funding markets I think that would have been uncomfortable, as it was for some of those banks.

“I think you want to be a serious player.”

In fact, Mr Goyder said one of the things that had changed since the GFC was that capital was no longer unlimited for all. He said while Wesfarmers remained in a strong position to raise the funds it needed, it was obvious that many of the group’s customers, small to medium enterprises, were struggling because of the lack of liquidity.

“It is not good for the economy,” he said.

“It is the customer base which hurts and that is what you have to be mindful of.”

Out of the Coles purchase, Mr Goyder said Wesfarmers had had a significant opportunity to bolster its human resources capacity by bringing in world-class executives to turn the retail business around – not just of Coles but Officeworks and Kmart, too.

On the earnings side he maintains his stance that the turnaround is progressing successfully and, apart from a period of digestion immediately following the acquisition, that Wesfarmers has not been distracted or held back from engaging in any other activity or investing in its other business units.

“On any measure, while it is not good enough, our total shareholder return is better than the market post-Coles and materially better post the refinancing in 2009,” Mr Goyder said.

“The proof will still be in the pudding in five to 10 years; we have a business that has years and years of growth ahead of it.

“I would far rather our outlook than most other companies’, in terms of growth in earnings, growth in earnings per share and growth in equity as well.”

Given it is Mr Goyder’s seventh year in the role, Wesfarmers’ leadership history would suggest he will be present for at least the first period of that growth outlook – even with the talented array of divisional chiefs he has as potential successors.

Those watching the company’s management closely may look to Mr Goyder’s activity outside the company for future signals regarding his plans for Wesfarmers’ helm. He recently joined the Australian Football Commission, stepping down from the Dockers board, and remains a director of the UWA Business School.

But, in a departure from his predecessor’s strategy, he said he did not plan to take up any directorships in the corporate world while his focus was fully on Wesfarmers. Mr Chaney was a director of BHP for most of the time he ran Wesfarmers, which was then a much smaller company.

“I would be unlikely to accept a position on another public company unless it was close to when I was leaving here,” Mr Goyder said.

“I don’t want to be in any position where I have to make a compromise at Wesfarmers based on an obligation somewhere else.”



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