Best CEO: Richard Goyder, Wesfarmers

For Wesfarmers chief executive Richard Goyder, the temptation to tell the world “I told you so” must be huge.

When Wesfarmers acquired Coles in November 2007, critics were quick to question the $18 billion deal. The supermarket chain was a long way behind chief rival Woolworths.

Coles’ problems with supply chains, store fit-outs and brand positioning were dragging down earnings.

Although the Coles project remains unfinished for Wesfarmers, recent results suggest that Goyder and his team are on the right track.

In the year to June 30 2012, Wesfarmers lifted net profit by 11 per cent to $2.1 billion on a 16 per cent increase in earnings at Coles.

For the same period, revenue at Woolworths rose 4.8 per cent to $55.5 billion and net profit fell 14.5 per cent to $1.8 billion.

Coles’ out-performance of its main competitor has been widely lauded and although return on capital remains below Wesfarmers’ preferred benchmark of 10 per cent, it rose 90 basis points last year to 8.7 per cent.

Speaking to BRW from Spain before he attended the World Economic Forum’s annual meeting in Switzerland, Goyder says a series of strong financial results have borne out his belief in the Coles deal.

“I’ve always been confident that it was the right thing to do,” he says.

“It’s easier when you are in my position and can see our projections and obviously more challenging for the market and external observers.

“I think what they are now seeing is the results [and] our outlook looks pretty good, too.”

Wesfarmers half-year results, to be released on February 14, are expected to show further strong gains and the good results have been rewarded by the sharemarket. Wesfarmers’ shares have risen by 26 per cent since July 1 to $37.76 on January 22.

Apart from being one of the biggest businesses in the country (it ranks third on this year’s Top 1000 behind dual-listed miners BHP Billiton and Rio Tinto), Wesfarmers is also one of the most diverse.

One of the few true conglomerates, Wesfarmers’ multi-sector strategy makes it a complex company to manage.

Goyder was chosen by BRW’s editorial panel as the best chief executive from the Top 1000 for his ability to achieve strong results across a range of performance indicators over multiple reporting periods.

According to Goyder, the Coles acquisition is a good example of Wesfarmers’ long-term approach to earnings growth.

“At Wesfarmers, there has been a long history of making decisions through the cycle and not being sidetracked by short-termism,”
he says.

“The board has always taken a long-term view and has been nothing but supportive through my tenure as CEO. Therefore, we haven’t been sidetracked by the noise. If the board doesn’t get sidetracked, management doesn’t get sidetracked.”

After buying Coles, Goyder appointed Scotsman Ian McLeodto run the business and his ability to satisfy the incentive requirements in his employment contract have meant that he is one of the few division managers in any business to be paid more than his boss.

Last year McLeod’s salary was $14.8 million, compared with Goyder’s $8 million.

Under McLeod’s leadership, Coles’ importance within the Wesfarmers group has risen quickly.

Last year, Coles accounted for 37 per cent of Wesfarmers’ earnings before interest and tax, up from 35 per cent in 2011.

Its other retail stores (including Bunnings, Officeworks, Target and Kmart) contributed a further 39 per cent, down 1 per cent of the previous year. Wesfarmers’ industrial and resources arm provided most of
the remainder.

Goyder says that despite the increasing importance of the retail division, Wesfarmers will remain a conglomerate.

“Six or seven years ago people said you are now turning into a resource company because your coal earnings are the largest part of the group,” he says. “Now they say [we] are a retail business. We are a multi-business conglomerate and we are happy to be that because it has given us the opportunity to grow faster than most companies.”

Goyder, 53, has been employed by Wesfarmers since 1993. He was appointed chief financial officer and deputy managing director in 2004 before replacing Michael Chaney as chief executive in 2005.

As just the seventh chief executive at Wesfarmers in 98 years, Goyder says grooming future leaders is a big part of his role.

“We have got a great history of developing our own CEOs and I hope that will continue but time will tell.”

He says the biggest challenges he expects to face this year involve staffing and protecting against complacency.

“I worry a lot about talent and retaining and developing good people,” he says. “We need to make sure we [continue] to look for growth opportunities, that we are never complacent and that we are always bold and innovative.”

Success can cripple a business, Goyder says. “When businesses are deemed to be successful they are a greater risk and have to work much harder.”

Despite economic concerns and debates about productivity and growth-limiting regulation, Goyder believes the economy remains conducive to long-term growth.

“I think there is more cause for cautious optimism now than there has been for a while,” he says.

“If you step back, I think we are in a pretty strong position and businesses in Australia have got great opportunities in the years ahead.”

• Tweet