Woolworths confronted by shareholders on future of Masters.
In the company’s annual general meeting on Thursday, Woolworths Limited chairman Gordon Cairns (pictured) addressed the company’s “frankly unacceptable” results for 2015 and outlined future plans to realise long term growth. Cairns also made comment on the fragile Masters business, as news of director Melinda Smith’s resignation surfaces, according to Fairfax Media, although it has not been released to shareholders on the ASX.
When questioned by shareholders about Masters, Cairns responsed, “The Board will take a fact-based, data driven approach to portfolio management and we will act in the best interests of shareholders to maximise the value of the company.
“We need to weigh carefully on our ability to compete for our share of the attractive and growing home improvement market against the cost and risk of doing so. We acknowledge that we cannot keep incurring substantial losses,” Cairns said.
“We cannot change the past, but we must learn from it, and urgently address the future.
“The potential in this organisation is immense, but we need to be clear on our game plan. We need to change from a knowing culture to a listening culture: listening to our store staff as to what we could do better, listening to our customers on whether we provide value, and listening to our suppliers on how we improve the partnerships,” he explained.
Woolworths CEO, Grant O’Brien further commented, “We are meeting the challenges head on to ensure Woolworths’ best days are ahead of it. I am confident that the actions we have taken to date and the plans we have put in place will result in a better and stronger Woolworths into the future.”
Company priorities are in order
Masters
Cairns described the opportunity in home improvement as “compelling” in a growing market with a high degree of fragmentation.
“We have identified our competitive advantage but execution has let us down. It is clear that we cannot afford to continue losing over $200 million a year. I joined with an open mind on Masters and said that the Board would be informed by the numbers from the five year plan and our options. This is what we as a Board are working on,” Cairns said.
O’Brien added, “As the market continues to consolidate, there is an opportunity for a second big box hardware retailer in Australia. We are working to improve the store format and range and, pleasingly, the stores that have the new format are trading significantly above old format stores.”
Big W
Big W is making half the profit it was five years ago.
“The discount department sector is rapidly changing and is highly competitive. We have not helped ourselves with our value proposition, some execution issues in IT, and a lack of leadership. With good leadership, there is a clear path to improve returns and provide us with more options going forward,” Cairns said.
Woolworths
The supermarket business, which is 70% of Woolworths’ profit, needs to be reinvigorated.
“We have been prepared to invest over $300 million in price to date and we have improved the service level in stores by adding staff, and ensuring availability, and are upgrading the look and feel of stores,” Cairns said.
However, he acknowledged that customers will not “suddenly switch back” and laying down a future pathway “will not happen overnight.”
Board renewal
Woolworths is yet to find a replacement CEO for the Group. Cairns said that he is currently interviewing in a thoughtful and careful manner.
The process of Board renewal is well underway with former Best and Less CEO, Holly Kramer joining the Board. Last week, Roger Corbett has also been brought on as an advisor bringing his deep expertise, understanding of the Australian market and his knowledge of Woolworths.
“We are well advanced in our discussions with several other potential directors and I expect to be able to announce further appointments to the market very soon,” Cairns said.
Outlook
O’Brien described FY16 as a “transition and rebuilding year.”
“We will focus on becoming a much more customer-centric organisation. We want our brands to remain the leaders in their sectors and to provide real growth opportunities into the future. It will be a multi-year task and will require highly successful execution of the strategies,” he said.