Christopher Niesche: Aussie businesses hold on to wage subsidy despite bumper profits

OPINION:

For some businesses, such as those in tourism and hospitality, the effects of the coronavirus pandemic have been debilitating.

But for others, it’s as if the pandemic never happened, as Australia’s latest earnings season reveals.

In fact, it was the best earnings season – when companies report their annual or half-year profits – in Australia for six years. Some 55 per cent of companies reported an increase in profits, up from 36 per cent in the earnings season six months early.

Data from AMP shows 48 per cent of companies increased their dividends and only 33 per cent cut them.

The strong earnings results suggest many companies never needed the generous stimulus payments introduced by the Australian government when the reality of the pandemic set in.

It is no fault of the Morrison government that it handed out money that wasn’t needed. The pandemic was unprecedented and unpredictable. It became quickly apparent the government needed to get money out to households and businesses as quickly as possible through widely spread payments.

Just about any business which suffered a drop in revenue was eligible for the JobKeeper payment of A$1500 (NZ$1609) per employee per fortnight. It meant many businesses received many millions of dollars.

But it turned out the pandemic wasn’t too catastrophic for certain businesses, and so some handed back their JobKeeper payments to the government.

Super Retail Group – proprietors of the Supercheap Auto and Rebel brands – earlier this year announced plans to voluntarily return A$1.7 million of JobKeeper payments to the federal government. This came as the company revealed a record A$170 million net profit after tax. Toyota plans to hand back more than A$18 million in payments after strong sales.

Domino’s Pizza handed back its JobKeeper payment after pizza deliveries to locked-down householders surged.

The payments were handed out unconditionally, so there was no legal requirement for these companies to return the payments, making it notable those that opted to do so.
Ten or 15 years ago, they probably wouldn’t have and no one would expect them to.

But in 2021 we expect our companies to do more than just generate the largest possible profit for their shareholders and comply with the law. We also expect our corporate leaders to be socially responsible and consider the community and the environment when making decisions.

Hence many companies handed back the cash.

But there are some who didn’t.

Furniture retailer Nick Scali initially said it would hold on to the A$3.6 million despite earning a A$40.6 million profit for the second half of 2020. The board decided to increase its interim dividend by 60 per cent to 40¢ a share, with A$4.4 million to go to the Scali family.

This was doubly poor form from the company. Not only had it benefited from the wage subsidy, it was also a beneficiary of stimulus cheques sent to households, some of which would have found its way to the retailer’s bank accounts.

Only after a public outcry did the company’s board decide to return the money.

Not so Harvey Norman. Perhaps no more than any other business, the electronics and furniture retailer has benefited from the pandemic as people upgraded their laptops and home entertainment systems and renovated their houses.

The company earned a bumper A$438 million net profit in the six months to the end of December, A$250 million of which it will pay to shareholders as dividends. At the same time, it received A$22 million in JobKeeper payments.

“I’ve been doing this for 60 years and I’ve never seen sales in our categories as strong as this – I don’t know how much longer it’s going to last,” billionaire Gerry Harvey said about sales at the retail chain.

Harvey surely owes some gratitude to government stimulus money flowing from consumers into his shops.

Yet, Harvey is refusing the return the wage subsidy.

He argues that JobKeeper had little impact on the results and Harvey Norman would repay them through A$42 million in higher taxes. In one respect he is right – JobKeeper had little impact on its results, but only because its profits were so enormous that it didn’t need the government subsidy.

“From our point of view it’s a non-issue – the big issue for us is what’s happening in the market and where will Harvey Norman be in 10 years,” Harvey said.

Holding on to government money while also paying out a quarter of a billion dollars in dividends might not be an issue for Harvey, but for many others it is.

Harvey doesn’t only face a consumer backlash. He also risks the wrath of investors.
More and more investment managers are taking into account environmental, social and governance factors when deciding where to put their cash.

They argue those companies which adhere to ESG principles will be more sustainable over the long term.

If Harvey Norman keeps behaving like this, the company might find itself starved of capital as investors shun the company. That’s what Garry Harvey should be considering when he thinks about where Harvey Norman will be in 10 years.

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