more of the same, page-6

Share Novis,

I don't think any-one is saying there are no problems with Coles. In fact everyone knows there are problems including Coles previous management and shareholders who bailed out to Wesfarmers because it was all too hard for them.

From the Myer turn around example it would appear that Coles management did not have a clue on how to properly run their businesses so there is potentially a lot of value for WES in getting Coles, K-mart etc right.

The only issue is whether or not Wefarmers will be successful in their turn around for the business. I believe they will be successful because they have a tremendous track record for providing leadership and discipline to the businesses they manage.

Obviously running a supermarket chain is a lot different to running Bunnings, so to properly tick the leadership box they have imported the new CEO in from the UK. I think he was only due to start this month so it is a little bit early to be looking for a better shopping experience in your local Coles store.

To date WES have however separated the businesses into autonomous groups which will compete for capital along with the other Wesfarmers divisions. The tried and true Wesfarmers model will now be put into action for the Coles food and liquor division.

I think the model typically goes something like this:

[1] Buy businesses that are cheap relative to their potential value

[2] Install a good CEO and set him reasonable targets to improve ROC etc and ultimately unlock the hidden value for shareholders

[3] If he doesn't achieve targets in a reasonable time frame sack the CEO and try someone else

[4] If the business still doesn't achieve the targetted shareholder return then sell it and use the capital on something that will

[5] If someone makes you an offer for the asset which is more than you can extract by running the business yourself then sell it to them.

Its not really rocket science but I think anyone can see the approach is fundamentally sound and light years away from how Coles was managed.

It also emphasizes how important the new Coles CEO is to the WES strategy and why he is getting paid more than Richard Goyder?