Return on capital is Coles' preferred profitability metric: CEO
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More news: Coles chief executive Leah Weckert has said the supermarket’s return on equity is 31%, but the company instead uses return on capital as a profitability metric.
Fronting the Senate Select Committee on Supermarket Prices, Weckert was also asked about Coles’ return on equity. She said return on capital was also part of executive incentives and it was at 15% in the last financial year.
Weckert noted that Coles’ return on invested capital was 11% and its return on assets was 6%.
What they said: “I think the key thing is to work out which is the appropriate metric to use. I would highlight that equity is a historical number and so it's actually quite difficult to compare return on equities across businesses,” she said.
“... Coles has been operating in Australia now for over 100 years and so a lot of our equity and asset base has been in place for a long time. In regards to comparisons with ROE internationally, there is quite a unique aspect of the grocery market in Australia, which is that the vast majority of our properties that we have our stores are leased.
“So, 99% of our stores are leased and if you compare that to UK stores like Tesco or Sainsbury's [they] have in excess of 30% of their property portfolio which they own. They would hold equity against those buildings and those pieces of land on the balance sheet.
“As we don't own those assets we don't hold equity on the balance sheet and so necessarily our equity, and therefore the denominator we're dividing by here, is lower and you end up with a higher ROE.
“I completely acknowledge that it is an important metric used. But I think it is important to take it in the context of the different market conditions we have and whether it's possible to compare it across industries I'm not sure.”
Woolworths CEO Banducci threatened with prison time in inquiry stoush
The news: Woolworths chief executive Brad Banducci has conceded that he did not know the company's return on equity over the last financial year after a Senate inquiry threatened to hold him in contempt for refusing to answer its question on profitability.
The context: Banducci fronted the Senate Select Committee on Supermarket Prices on the second day of public hearings on Tuesday, where he was threatened with prison time for not answering questions directly.
The committee’s chair Greens Senator Nick McKim asked Banducci whether return on equity was one of the accepted benchmarks for assessing a company’s profitability. However, Banducci said Woolworths focused on return on investment and total shareholder return.
McKim continued to question Banducci, asking whether Woolworths’ return on equity over the last financial year was 26%, irrespective of what figures the company focused on.
Not satisfied that Banducci was answering the question directly, McKim warned that a person failing to comply with a parliamentary committee could be found to be in contempt of parliament. That offence could amount to up to six months in prison and fines of up to $5,000.
The committee chair then suspended the hearing to talk to the senators in private on Banducci’s refusal “to answer a legitimate question”.
When the inquiry resumed, following a further back and forth on the topic Banducci conceded that he did not know the return on equity figures and that he would take the question on notice.
What they said: “I'm not interested in your spin or bullshit, this is a senate inquiry, answer the question. Was your return on equity in the last financial year 26% which is more than 2.5 times the average ROE enjoyed by Australian banks which are the most profitable banks in the world. Is that true or not?” McKim asked Banducci.
“ … You want to cherry pick your measure of profitability and data on competition in Australia.”
Banducci said: “I don't focus on that number [return on equity], it's not a number we focus on, and not a number we report to. If it helps the committee in terms of us moving on, I don't know that number and I'm happy to take it on notice”.
McKim replied: “You don't know what the ROE for Woolworths is in the last financial year. Mr Banducci, you are paid over $8 million a year to be the CEO of the Woolworths group. You've received since you started as CEO over $65 million from Woolworths for the job that you are doing.
“Farmers are being screwed over at the farm gate. Your workers are being done over and subjected to unsafe working conditions, you're price gouging your customers, you've profited obscenely on a personal and corporate level from your domination of market power.
"How can it possibly be that someone who's getting paid over $8 million a year doesn't know doesn't know the return on equity for your corporation in the last financial year when it is an absolutely standard accepted measure of the profit and profitability of a company? How can you not know that?”
The source: Senate Select Committee on Supermarket Prices hearing
