Wesfarmers shares rose modestly yesterday in something of a surprise after the company surprised the market by revealing that the long time head of its Bunnings hardware business was standing down.
But Wesfarmers made it clear that while John Gilliam, is stepping aside after 12 years in the job, he is not leaving and will remain an advisor to the company on this sector and its move into the UK market with the Homebase purchase earlier this year.
For that reason alone the shares traded solidly – ending up 15 cents or 0.4% at $40.38. Had Mr Gilliam left Wesfarmers all together then the shares would have fallen heavily because he is seen as perhaps the most important of all the company’s leaders.
Some analysts wonder why Wesfarmers let Mr Gilliam go and why they didn’t keep him for the top job when Richard Goyder retires as CEO (his recent track record with the multi million dollar problems at Target, isn’t that hot).
His contribution has been enormous, especially since Wesfarmers bought Coles, Myer (later sold) and chains like Officeworks, Target and Kmart. Under him Bunnings more than doubled sales from $5.4 billion in 2008 to $11.6 billion, while earnings before interest and tax jumped to $1.2 billion in 2015-16 from just on $5.90 eight years ago. Store numbers jumped from 226 to 347 in Australia and NZ (of all sizes).
Under Gilliam Bunnings had maintained high profit margins during its period of rapid growth. In the year to June Bunnings EBIT margin (earnings before interest and tax, the most widely used retail profit margin measure) was 10.5% down from 11.7% in 2011-12. But the 2016 figure includes the UK Homebase from February 28 this year. Homebase added revenue but negligible earnings, thus depressing the final figure.
More importantly, Mr Gillam, who holds $20 million worth of Wesfarmers shares, won the battle against Woolworths’ attempts to open a hardware-home improvement business in competition to Bunnings.
That cost Woolies more than $3.2 billion in write downs and more given the hundreds of millions of dollars of trading losses in the now defunct business.
Media reports say Woolies tried to snatch Gilliam (now aged 50 and a 20 year veteran at Wesfarmers) as its new CEO earlier this year, Woolies went in house with Brad Banducci.
In a statement to the ASX, Wesfarmers managing director Richard Goyder paid tribute to Mr Gilliam’s success at the company in various roles at Bunnings and also as chairman of Officeworks.
"In every role he has been outstanding and left and indelible and positive legacy," Mr Goyder said.”Bunnings is now a national institution, “ and Mr Gillam had been a “massive contributor".
As part of a structural revamp, Bunnings Australia and New Zealand managing director Mick Schneider and Bunnings United Kingdom and Ireland managing director Peter Davis will now report directly to Mr Goyder. That indicates Wesfarmers have not had a succession plan in place.
Mr Gilliam will stay on as chairman of the Bunnings Group Council which the company set up at the time of its Homebase acquisition in the United Kingdom. The council oversees Bunnings activities around the world.
Mr Goyder said the company had spent months bedding down a new management structure at Bunnings which had now been in place for almost a year.
Mr Gilliam’s contribution to Wesfarmer’s success can be seen by a look at the growth in the business in the past eight years (from 2008, when the new look company with Coles and its other chains on board).
In the year to June this year revenue for the Home Improvement division increased by 21.4% to $11.6 billion, including trading results for Homebase from February 28, 2016. Earnings for the division of $1,214 million were up 11.6% from 2014-15. In Bunnings Australia and New Zealand (BANZ) operating revenue rose 10.9% to $10.6 billion. BANZ recorded EBIT of $1,213 million, up 11.5% 11.5 from 2014-15. At the end of the year, there were 244 warehouses, 70 smaller format stores and 33 trade centres in the BANZ network.
Five years ago in 2010-11 Bunnings operating revenue rose 5.7% 5.7 per cent to $6.8 billion for the full-year. Earnings before interest and tax of $802 million were 10.2% higher than that recorded in the 2009-10 year. At the end of the period there were 194 warehouses, 59 smaller format stores and 36 trade centres operating in the Bunnings network across Australia and New Zealand.
And in 2007-08 Wesfarmers’ said Bunnings operating revenue (including property transactions) increased by 8.5% to $5.4 billion for the full-year. Earnings before interest and tax rose 11.6% to $589 million .At year-end there were 165 warehouse stores and 61 smaller format stores operating across Australia and New Zealand.
