Monday, January 17, 2011

The Warehouse Group: Should Ian Morrice Go?

Update - Hours after this piece was published it was announced that Ian is retiring this year and the company is looking for his replacement.

Speculation in mainstream business media over whether The Warehouse Group [WHS.NZX] boss Ian Morrice and some of his executives jobs are on the line because of sliding sales and sinking profits have got me thinking as to whether sacking of Morrice would be a rational decision based on his results as CEO of the company since he took over the reigns in 2004.

Lets have a look at the last 5 years of company performance then and make our decision based on his record of financial results.

Some key figures from a Research Report dated 16.1.11

Sales have dropped from almost 1.9 billion in 2006 to less that 1.7 billion in 2010. Net profit (before abnormals) from $69 million to $83 million. Return on assets, from 9.5 - 13%. Net margin from 3.14 to 4.93%.

To be fair Ian took over the company at a low ebb as the company was wallowing in debt due to a failed entry into Australia in 2001 and an exit from that market in 2005. This was a reason for the poor financial results around 2004-2005 when Ian took the reigns.

Therefore it makes subsequent years look good by comparison and this should be taken into account when assessing Ian's impact on the business.

There was also his failed move into the grocery sector with the Extra format that was trialled and cut a few years latter at a cost of at least 20 million dollars.

In the last few years the company has taken a big hit and Ian has placed the blame on various outside influences such as inclement weather, a change in customer demand or the recession.

It really doesn't look that good at all for his position when you look closely at the figures combined with his efforts to expand the business over his 6 year tenure.

He has basically failed to deliver what he was hired for - to turn around the business after the disastrous foray into Australia.

In an interview I had with him at the end of 2010 Ian seem to think he had done well over the last 6 years:

SI - What has been your main achievement or achievements at The Warehouse over the last six years as CEO ?

IM - In financial terms: NPAT growth + 40%, debt reduced from over $300m to under $100m whilst returning over $500m to shareholders. I am also pleased to have enhanced our strong brand reputation - 90% of the population still shop with us every year. I am proud of the many leaders who have developed their careers in the business over this time - our talent retention levels are over 90%. We have improved and modernised every aspect of the business over the past six years from source to shelf and transformed our supply chain internationally and domestically enabling significant cost reduction.

But we are yet to see an impact of Ian's input on the bottomline to date and we are unlikely to see that in 2011 either, in fact the status quo of dropping sales and profit will be de rigguer unless some changes are made and that should be made at the top in my opinion.

Disclosure: I own WHS shares in the Share Investor Portfolio

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