Bond Street Bites: APRA, WOW, MYR

Two notable retirements in the Australian business world yesterday with the nation’s most senior banking regulator, Wayne Byres stepping down as chair of the Australian Prudential Regulation Authority and long-time chair of Woolworths Gordon Cairns confirming the timing of his departure this year.

Both men have played major roles in the economy in the past 8 years – Byers in the most important sector of the economy – financial services and Cairns in the biggest area of spending in the economy – retailing and rapidly growing services, including online.

Byers has been head of APRA for 8 years, Cairns has been chair of Woolies, the country’s biggest retailer, for seven years.

Treasurer Jim Chalmers said Byres, who has been with APRA since its creation in 1998, would step down from October 30. He was reappointed to a second, 5-year term in July 2019.

In a statement, Byres said he was pleased with what had been achieved at APRA over the past eight years. But he said it was now a suitable time to move on.

“I feel that now is a good time to hand over the chair’s role to someone new, who will lead the organisation on the next stage of its journey,” he said.

“Just as we expect the financial institutions we regulate to carefully consider how they renew their leadership, the same applies to APRA.

Byers has been tested by two huge housing booms in his time at the head of the regulator and helped drive a significant tightening of regulations over home lending as well as forcing banks to hold more capital.

That helped in the pandemic in 2020 and 2021 and will help the financial system support the slide in hous prices and an expected rise in bad debts late this year and 2023.

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Meanwhile, Woolworths (ASX:WOW) investors took the news of the retirement chairman Gordon Cairns in their stride yesterday.

Woolies shares sold off 1.2% to $36.98 amid worries about the impact of inflation on earnings in the wake of a trading update and earnings downgrade from Walmart, the world’s biggest retailer.

The man who saved Woolworths from its disastrous hardware adventure and more than $3 billion in losses, will retire as chair of the country’s biggest retailer later this year.

Cairns – who used to run Lion Breweries before retiring and becoming a director of various companies (he was also chair of Origin Energy) – announced Tuesday morning that he will retire as chair at Woolies’ 2022 AGM on October 26.

Cairns joined the Woolies board in 2014 and was named chair in September 2015 after the Masters hardware debacle threatened to cripple the retailer

He moved to clean out management and the board after Woolies saw its biggest loss ever in the first half of 2015-16.

Woolworths in fact reported its first loss in 23 years after writing off $3.2 billion on its failed hardware expansion, an attempt to mirror the success Wesfarmers – then owners of rival supermarkets chain Coles – was having with Bunnings.

Woolies revealed a first half loss of $972.7 million for 2015-16 following the impairment charges for the Masters hardware business disaster.

When Cairns stepped into the role Woolworths share price was sitting at $26.40 and the supermarket giant was struggling as it battled to save its reputation in the wake of the hardware disaster.

The stock closed at $37.46 on Monday, a gain of 42% since 2015. But they were as high as $42.60 almost a year ago. They fell as low as $33.19 late in June.

Current CEO Brad Banducci was appointed by the Cairns-chaired board to run the retailer and haul it out of the mire

While he has done that, there was a nasty wage theft story that the company is still trying to end. In 2019, Cairns and Banducci both said they had let many of the company’s salaried team members down.

Cairns took a 20% reduction in his board fees for the year because he “took a higher level of responsibility than board colleagues” for the underpayments.

In 2020 he and the board decided to spin off its Endeavour Drinks business (home of the Dan Murphy’s liquor chain) because of reputational problems with Endeavour’s hotels and poker machines.

As well a number of non-mainstream retailing businesses, in data and food services have been bought to broaden Woolies offering across the entire food industry, not just directly to consumers.

But for the past two years the big issue for Woolies, Cairns, the board and managers has been the same as for every Australian business – coping with the unknowns of the pandemic.

Woolies and other big retailers were frontline along with hospitals, medical people, police, ambulance and other emergency workers and coping with Covid was as much as learning on the job in real time as the virus and its variants waxed and waned across the country.

Cairns will be replaced by director Scott Perkins, the man who replaced him at as chair of Origin Energy.

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Finally, there was almost mass hysteria yesterday at the trading update from department store chain Myer Holdings (ASX:MYR) which revealed a very solid improvement in revenue and earnings for the year to the end of July.

Thanks to continuing strong growth in online sales in particular, Myer now expects full-year profit of more than $55 million for its 2021-22 financial year ending next Sunday, July 31.

Enthusiastic investors pushed the shares up Tuesday by more than 22% to 49 cents, after the company told investors its total sales were up by as much as 12.7% for the year and would come in at close to $3 billion.

The shares eased a fraction to 48.5 cents by the close.

The share price is still well under the 54 cent level Myer shares surged to in late March when it revealed a surprisingly strong first half improvement in revenue, earnings and an interim dividend.

But from then till yesterday the shares were sold-off and bottomed out at a tiny 26 cents in late June as the market fretted about interest rates and their impact on sales growth, consumer confidence and spending.

Myer says it now expects net profit after tax for the year to July of between $55 million and $60 million, which would be an increase of between 86% and 103% on last year, excluding the impact of JobKeeper payments on 2021 earnings.

Naturally there were cheers all round and a lot of back slapping but yesterday’s price rise got nowhere near the most recent high of 51.5 cents in early March when the company revealed its first half performance.

First half sales rose 8.5% to $1.5 billion and group online sales jumped 47.5% to $424 million. That was equal to 27.9% of all group sales for the half.

The company said yesterday said full year online sales would be in the range of $715 to $725 million by financial year end next Sunday (July 31). That would be a share of 24% of total group sales – a record but there were signs of a slowdown in growth in recent months.

That’s evidenced by the slower growth for the year of 32% to 34% after the 47.5% explosion in first half online sales.

And after the surprise 1.5 cents a share interim payout for the first half, some analysts are wondering if Myer will have another little reward in the shape of a final dividends for long suffering investors, led by Solomon Lew’s Premier retailing group which is Myer’s biggest shareholder.

CEO John King said on Tuesday that the company saw all sales categories grow in 2022 despite the retailer losing more trading days due to COVID restrictions than the previous year.

“The momentum in the second half in terms of sales growth both in-store and online, profitability and strengthening of our balance sheet places us well as we go into the new financial year,” he said.

Myer’s full year financial results will be released in September.

Myer says it expects to have net cash position of more than $155 million at the end of the financial year.