Wesfarmers finds more underpayments, as Bunnings, Kmart lift profit

Wesfarmers has admitted to underpaying staff at its struggling Target stores by $9m, as Bunnings and Kmart lifted profits.

Wesfarmers CEO Rob Scott. Picture: MARIE NIRME

Wesfarmers has confessed to underpaying staff at its struggling general merchandise chain Target by $9 million, adding to the $15 million in missed wages that it previously owned up to at its industrials safety business.

The revelation follows a string of underpayments by top Australian companies, including by Coles, once owned by Wesfarmers, which on Tuesday owned up to $15m in unpaid wages.

The announcement that Target staff had been underpaid was contained in Wesfarmers’ first-half results, which was lifted by the strong performances of Bunnings and Kmart.

Wesfarmers, which posted a 5.7 per cent lift in December half profit to $1.21 billion, said a review of its payroll had uncovered the latest underpayment, this time at retailer Target.

Following payroll errors previously identified, Wesfarmers’ businesses have conducted extensive reviews of their respective pay systems and processes. As a result of these reviews, some additional payroll errors have been identified, the company said.

“Immediate steps are being taken to rectify identified issues, notify and repay affected team members, including interest, and ensure accuracy in the future through a robust program of auditing and monitoring,” Wesfarmers CEO Rob Scott said.

The group’s first half results include the impact of the estimated payroll remediation costs and associated expenses. The remediation costs at Target and industrial and safety have been separately disclosed within the divisional results to outline the underlying performance of these businesses.

The review did not identify any material errors in the remaining businesses, Wesfarmers said.

A Target store. Picture: CAMERON BATES

A string of companies have been caught out over the last year underpaying staff, with Woolworths the biggest underpayer, admitting to underpaying as much as $300m to staff which it is now paying back.

Wesfarmers’ former supermarket arm Coles faces a bill of $20m after confessing to underpaying its liquor retail staff by $3m and supermarkets employees by $12m, with interest and costs on top.

Other retailers to have revealed underpayments recently have included AP Eagers, Super Retail Group, Wesfarmers hardware chain Bunnings, Michael Hill and 7-Eleven.

Shop, Distributive and Allied Employees Association national secretary Gerard Dwyer said the underpayment of wages was “now a full blown epidemic”.

“The fact is that a decade ago there were few instances of systemic underpayment when unions had the right to conduct spot checks of company payrolls,” he said.

“All the recent examples of underpayment have emerged since the coalition government changed the law. It is all well and good for Workplace Relations Minister Christian Porter to threaten criminal penalties for wage theft, but as he admits that would set the bar very high.

“We will only know that he and the Morrison government are fair dinkum about ending this epidemic if they restore the rights of unions to have ready access to company payrolls to conduct spot checks.”

He agreed with Mr Porter that it was not good enough for big companies with sophisticated accounting systems to claim complexity was the problem.

“They have no trouble calculating how little tax they should pay down to the cent,” he said. “It should be just as easy for them to pay their workers what they have earned.”

Profit rise

Meanwhile Wesfarmers said its 5.7 per cent lift in December half profit came amid strong earnings momentum from Bunnings, Kmart and Officeworks, which countered continued disappointing results from its struggling Target chain and the industrials safety business.

It came as Wesfarmers also confirmed the sale of a 4.9 per cent stake in its demerged Coles supermarket business at a price of $16.08 per share that will deliver Wesfarmers a pretax profit of $160 million on the sale. Wesfarmers still holds a 10.1 per cent stake in Coles.

It came after investment banks UBS and Macquarie Capital on Tuesday embarked on a $1.1bn block trade, capitalising on Coles shares record highs.

Releasing its first half sales Wesfarmers said excluding the impact of the new lease accounting standard and discontinued operations, Wesfarmers’ net profit increased 5.7 per cent to $1.14bn.

Revenue for the half rose 6 per cent to $15.249bn .

Mr Scott said the result was underpinned by the strong performance of the group’s largest businesses in Bunnings and Kmart, and solid ongoing performance in chemicals, energy and fertilisers (WesCEF).

However its Target chain again underperformed while industrials safety also struggled.

“Bunnings, Kmart and Officeworks delivered a pleasing trading performance, with sales growth increasing relative to the prior corresponding period,” Mr Scott said

“Strict working capital management and disciplined capital expenditure also resulted in strong cash flow generation across the group’s operating divisions.

“In contrast to the rest of the group, the industrial and safety result was disappointing and the performance of Target was below expectations. A number of initiatives are underway to address the underperformance of both businesses.”

Wesfarmers continued to invest heavily in its digital strategy.

“Pleasing progress continues on the group’s digital strategy, with a number of divisions successfully implementing initiatives in conjunction with the Advanced Analytics Centre,” Mr Scott said.

“The group’s retail businesses also delivered further improvements in their respective e-commerce capabilities with strong growth in online sales of 35 per cent for the half.

“The enhancements in digital capability continue to complement existing store networks with sales density improving in the group’s retail divisions.”

Turning to its outlook, Wesfarmers said that following a period of significant change, its portfolio of cash-generative businesses with leading market positions was well-placed to deliver satisfactory shareholder returns over the long term.

The company said its first-half result includes the impact of estimated payroll remediation costs and associated expenses, following a scandal in which Wesfarmers underpaid some workers in previous years. The company said that some additional payroll errors had been identified.

Wesfarmers didn’t provide specific guidance for the rest of the fiscal year.

With Dow Jones Newswires