It is the second time Woolworths has needed to ratchet up its numbers on wage underpayment, with the latest number coming in at $390 million. In each instance, the company said the work has been done and this should be the last of it.
Sound familiar? It is the same sort of assurance given by financial services companies (mostly banks) when they were trawling back through historical records working out the levels of compensation for their, mainly, wealth customers.
Sadly for Woolworths, the ‘team member bonuses’ it generously announced a few weeks ago won’t erase the stain on its brand from what is regularly referred to as ‘wage theft’.
Revisions to these estimates in the financial services industry are now legendary. Sure, the rump now seems to be accounted for, but in each reporting period additional compensation and remediation costs trickle through.
For both the banks and for retailers like Woolworths, the process of going through historical records is arduous.
Woolworths has now been through 70 per cent of the employment records and grossed up the remainder, so it hopes it won’t need to revise the compensation again. But no promises.
Retailers have placed the blame for the underpayment directly at the feet of the very complex set of awards.
Undoubtedly Woolworths, Coles, Bunnings and many (but not all) other companies caught up in the underpayment episode were not deliberately trying to stiff their staff.
But there is a decent argument to be made that they under-invested in the management and technology resources needed to ensure these mistakes were not made – in much the same way the executives at the top of Westpac and the Commonwealth Bank didn’t properly resource the area of their banks that dealt with anti-money laundering.
In both cases it was a cost of doing business that wasn’t generating sales or profit.
Fixing it has now come at a much larger cost. It’s embarrassing and it’s reputational.
Contrast this with Woolworths’ announcement of a $780 million investment in supply chain that will overhaul its distribution centre capability, resulting in the closure of three facilities and the development of two more.
Not only is this investment designed to streamline logistics and provide a significant (but undisclosed) return on capital, it would also boost productivity (which is company code for reducing the number of staff).
This is the kind of announcement that should satisfy investors as long as the hype matches the reality of benefits. The $176 million in one-off redundancy costs will be viewed by investors as a necessary cost of improving the company’s financial performance.
But they don’t look so kindly on the ballooning cost of staff remediation, which will wipe $185 million from the 2020 full year’s net profit. Then there’s another 230 million in one-time costs from getting the hotels business Endeavour Group ready for separation – even though the timing of this process has been extended due to COVID.
Meanwhile, it was a sizable chunk of coronavirus-related costs (not treated as one-offs), which were adding up to $275 million in the current half that contributed to the company’s forecast for earnings before interest and tax to come in between 1.2 per cent and 2.7 per cent below the 2019 result.
The other major factor negatively affecting 2020 profit was Endeavour. The hotels business sustained a 55 per cent drop in profit during the period, due to the COVID-related closures of most properties. While pubs are now beginning to open in some states, the spike in new cases in Victoria (where many Endeavour hotels are located) will prolong this division’s drag on earnings into the second half of this calendar year.
So while Woolworths’ forecasts for its profit in 2020 is below analyst expectations, the result still appears strong given the additional costs and the impact of Endeavour.
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Elizabeth Knight comments on companies, markets and the economy.