Wesfarmers’ disastrous hardware adventure into Britain and hefty write-downs in on the value of its still struggling Target department store chain have cost Perth-based group’s executives $17 million in lost share awards in 2017-18 financial year, according to the company’s annual report which was issued on Monday.
Wesfarmers said that all performance rights awarded under its 2014 long-term bonus scheme had lapsed after the executives covered by the plan failed to meet targets.
The failed expansion of Bunnings into the UK via the purchase of the weak Homebase chain and the Target write-downs sent Wesfarmers’ annual profit plunging 58% to $1.2 billion, which in turn produced a reckoning for the pay packets of its executives.
Existing and former senior bosses, including past chief executive Richard Goyder (now chair of Woodside and the incoming chair of Qantas) and former finance director Terry Bowen (a director of BHP and a senior executive at private equity group, BGH) lost $17 million of share rights for the year to June 30, it said.
Also, Mr. Goyder and Mr. Bowen did not receive any cash bonuses for the year after missing financial targets and “agreeing to forfeit any payment on their strategic hurdles”.
Mr. Goyder, who left last November, received none of his cash bonus, compared to a $2.1 million payout a year earlier, and was not paid a short-term share bonus.
The value of Mr. Goyder’s long-term incentive share payments dropped sharply, from $2.5 million to $279,772.
But he did receive a $968,720 termination payment, bringing his total remuneration for his five months work last year to $2.8 million, a lot less than the $12 million a year earlier.
Mr Bowen saw similar punishment, with his total pay falling from $6.6 million to $1.9 million.
New CEO Rob Scott, who succeeded Mr. Goyder in November, was paid $6.55 million in remuneration, including a $500,000 cash bonus. He has been doing the cleaning up after the disasters and problems and took the big step of deciding to sell off 85% of its Coles supermarkets chain, the mainstay of the business.
The Bunnings UK operations and Curragh coal mine were sold and the proposed demerger of Coles was announced during 2017-18.
Further, the sale of Kmart Tyre and Auto Service, the 40% stake in the Bengalla coal mine iN NSW, and our indirect interest in Quadrant Energy were announced in the months following the close of the year.
The Coles demerger is scheduled to be completed in November 2018, subject to shareholder and other approvals and will change Wesfarmers structure, reducing retailing’s importance in one respect, but increasing Wesfarmer’s sensitivity to the performance of just two companies – Bunnings Australia and NZ and Kmart.
Wesfarmers chairman Michael Chaney said in yesterday’s report that “These disposals reflect the determination of the Board and management to prioritise the achievement of Wesfarmers’ stated objective ‘to provide a satisfactory return to shareholders’.”
“They will result in a reduction in the size of the company but leave it with a group of strong businesses each with good growth potential and, importantly, a very strong balance sheet,” Mr. Chaney said.
“That financial strength does not mean that we feel any urgency to make new acquisitions. Apart from the fact that there are many opportunities for growth in our existing businesses, new investments will only occur if we assess them to have the potential to deliver superior returns to our shareholders over the long term.
“The Group Managing Director has reiterated this point on many occasions since his appointment,” Mr Chaney said.
Wesfarmers shares rose 1% to $50.94.
