Woolworths shares will rebound after Aus-bid reverse – CEO Ian Moir

It was always on the cards that once he’s moved into the hot seat, Woolworths CEO Ian Moir would look to expand the group’s operations in Australia. The Scots-born executive spent 20 years Down Under, highlighted by engineering the turnaround at Woolies’ long-time under-performer Country Road. Soon after taking over as CEO, Moir added Australian retail brands Witchery and Trenery to the stable. A week ago, he took a huge leap with a R21.4bn takeover offer for David Jones, Australia’s number two department store chain. The bid, worth more than a third of the Woolies market cap, was greeted with some concern by investors on the JSE who dropped the share price from R74 to R67.50 (see graph above). In our interview today, the first since Moir returned from Australia, the Woolies CEO explains his rationale and contends the share price reverse will be temporary. Also, that the aggressive expansion into Australia has nothing to do with chairman Simon Susman’s criticism of the direction SA’s economy is going. – AH

ALEC HOGG:  Ian Moir is the Chief Executive of Woolworths and he’s been spending quite a bit of time in Australia.  They want to acquire Australia’s second-largest department store chain, David Jones.  The price tag is R20.5bn.  Well Ian, you’ve been over there for quite a while this time around, I suppose, a visit to dot the I’s and cross the T’s on your offer, but you’re no stranger to Australia.

IAN MOIR:  No, Alec, not at all.  I’ve been involved in this market for nearly 20 years now.   I ran Country Road before I came over to run Woolies, so it’s a market we know well in, in a business sector we know well, one we’ve performed well in and certainly, our Country Road business is performing exceptionally well above market.  It already sits at over 17% of our profit, so it’s not new to us at all.

ALEC HOGG:  Country Road did have its ups and downs though, even during the time you were running it.

IAN MOIR:  For sure, it had many ups and downs.  It’s been all one way for the past…nearly eight years now, Alec.  It was a business, which had a lot wrong with it and needed a lot of fixing.  We went in and quite frankly, it was a business, which was close to bankruptcy.  Turning that around, getting all of the right processes, systems, and structures in place…we’ve managed to increase the turnover three times.  We’re employing five times as many people.  We’ve taken it from unprofitable to what we’re now projecting to be a 12% return.  It’s now close to $800m turnover, so it’s a very significant business and a very successful business for us, and consistently performing now.

ALEC HOGG:  You do see many Country Road’s when you go around Australia, but other South African-related companies seem to have struggled.  Ian, as you say, you’ve had a two-decade relationship with the country.  You would have seen the South Africans come and go.  What is it that they’ve been doing wrong?

IAN MOIR:  It depends.  Some have been successful and some haven’t.  There’s always Christo Wiese and his group of investors in Australia at the moment – doing well.  There will be others, I’m sure, that will come in.  Some will be successful and some won’t.  I think the differences between our group and the other groups is that we know the market well.  We engaged and we’ve integrated the groups.  It takes a long time to make sure there’s proper integration between the groups.  You also need to buy into a business that has the same culture, has the same values, and operates at the same level of the market.  You’re not trying to adopt a completely different business with a different approach, with a different customer set.  I think values are particularly important.

ALEC HOGG:  We had David Shapiro in the studio on the day that your announcement was made.  He was concerned for two reasons and I’d like you to address them.  The first thing he said was that you’re more like a Marks & Spencer from a global perspective (that’s Woolworths in South Africa), whereas David Jones, which you are targeting to acquire, is more like a Selfridges.  He said in the second point, that he sense much antagonism toward South Africans and South African owned businesses in Australia.  Starting with the first of those, do you think it’s a fair comment?

IAN MOIR:  Comparing us to M & S might have been valid ten years ago.  I don’t think it is now.  If you look at what we’ve done with the business Alec, we really turned our clothing business around.  We’re getting good growth.  We’re taking market share.  It’s a very modern and stylish business with a great set of sub-brands within it from Witchery, Country Road, Trenery, Studio, JT One, and Reed.  They’re all great brands, and it’s those brands, which we’ll be taking in to David Jones.  Those brands will be as successful, I’m sure, that they are in South Africa and quite frankly, as we’ve seen with the Country Road brand and vice versa.  I therefore don’t think that’s particularly valid and if you look at the way we’re able to grow our food business, our Africa business, and our Australia business quite independently.  We benefit from having them conjoined in South Africa, but that doesn’t mean you need them conjoined in Australia.

ALEC HOGG:  Ian, what about the second point, that Australians are antagonistic towards South Africans and South African owned businesses?

IAN MOIR:  I don’t think that’s true.  I think there’s an intense competition between Australians and South Africans and certainly, more now in the sporting arena.  The reality is nobody really pays attention to who owns what as a customer.  We’ve owned Country Road for a very long time, so we really looked after that brand and we’ve run that brand as though it’s an Australian brand.  We love it just as much as our Australian customers do, and we’ll do the same with David Jones.  Woolies is a business that understands brands, understands the importance of ownership and integrity, looking after a brand over time, and taking long-term decisions about the business and its brands.  That’s exactly what we’ll do with David Jones.  On the customer-facing side of this business, the South African element of it will not be known.  We don’t intend to change the name.  We don’t intend to take the Woolworths brand in there.  The brands we take in will be sub-brands and they’ll become sub-brands of David Jones.

ALEC HOGG:  Just a rather thorny issue…if one reads through Woolworths’ annual reports, your Chairman Simon Susman, is outspoken about concerns he has with South Africa and the future of this country.  Now you see the company taking a massive bet – around one third of your market cap – in Australia.  Do we read much into this?

IAN MOIR:  Look, I wouldn’t read into it what you might be inferring there, Alec.  We’re not running away from South Africa.  This is South Africa going to Australia.  We’ll see more people employed here and we’ll see more of our brands going into Australia.  I think this is a great move for South Africa Inc.  If I hear what the governments, the Reserve Bank, and what the marketplace has been saying about South African, its ability to compete, and the need to go and grow businesses on an international scale…  If you look at some successful businesses – Aspen is a good example – they’ve been very successful by growing both locally and internationally.  Our commitment to South Africa remains.  We’re going to be a very, very big food business in time, we’re going to take more and more market share in clothing in time, and we’re going to be a big Africa player over time.  Africa is currently one of the best performing parts of our business and this deal doesn’t stop that.

ALEC HOGG:  Just a final comment on the way the market reacted: they’ve pushed your share price down a few Rand.

IAN MOIR:  Yes, we had a negative reaction on the first day, but it was trying to jump back a couple of percent the following day.  Yesterday, I think we were one of the only retail stocks that stayed in the positive.  As we’ve seen over time, people understand what we’re doing, why we’re doing it, and how it will actually flow through/work through.  All of the analysts’ reports coming out are actually far more positive and supportive of the deal, and we’re seeing more and more recommendations to buy our stock.  I think the first reaction was one of ‘wow, this is a big deal.  What’s happening?  How is it going to work?  How accretive…  How big a return are these guys going to get’ etcetera.  I think that once they saw the whites of our eyes and understood the proposition, we actually had a very positive response from the market.

ALEC HOGG:  The share price is down from R74.00 to R67.60 today.  That was Ian Moir, Chief Executive of Woolworths.