Woolworths Faces Scrutiny from Media Regulator | KOSEC

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Woolworths Faces Scrutiny from Media Regulator


In its recent trading update announced last week, Woolworths Group revealed the additional costs that it is likely to incur in the FY20 financial year. Yet, it is apparent that the list is not final. On the 2nd of July, the group’s supermarket division came under the scrutiny of The Australian Communications and Media Authority. Specifically, the media regulator issued a $1,003,800 fine as Woolworths was guilty of breaching the Spam Act 2003.

The Act provides consumers with the right and discretion to opt-out receiving marketing information. However, Woolworths continued to send emails to consumers who had already chosen not to be part of the mailing list. The breaches, which amount to more than 5 million, took place between October 2018 and July 2019. More broadly speaking, the fine represents one of the heftiest fines since the introduction of rules. It also serves as a timely reminder for companies regardless of scale to actively comply with regulations.

Meanwhile, Woolworths attributes the mistake to several factors. Foremost, the group’s spokesperson believes a significant proportion of breaches to households sharing email addresses yet own separate rewards accounts. Consumers falling under this category would then receive two sets of emails. Woolworths also believes that the breaches also reflect the joint result of systems and technical errors previously resolved. Under a court-enforceable undertaking, the Group will identify an appropriate consultant to review its policies, procedures and processes to close up any room for improvements prior to reporting back to the regulator.

More importantly, this is not the first time regulators are coming into the picture. In its recent trading update, the Group cautioned that $105 million would be recorded in H2FY20 to account for expenditure related to ongoing remediation efforts. The amount is on top of the $80 million recorded in H1FY20 reflecting interest and remediation expenditure related to payment shortfalls for salaried staff across Woolworth’s businesses. Currently, the total cost of remediation will amount to that of $390 million.

On a more positive note, the firm has finally been able to sell off its Melbourne property. The property consists of a Woolworths supermarket, BWS and fifteen retail tenancies in The Village Dandenong Shopping Centre. The $29 million transaction represents a yield of 5.2 per cent and also marks the end of a three-year attempt in identifying a suitable buyer. Additionally, the price tag also reaffirms the robust demand in non-discretionary retail businesses.

Meanwhile, trading in the last quarter of FY20 remained strong across all segments except for Hotels. However, because of higher costs incurred through the pandemic, Woolworths Group expects earnings before interest and tax (EBIT) for FY20 to come in between $3,200- $3,500 million, slightly lower than that of $3,290 million. Nevertheless, with the upcoming initiative surrounding an automated distribution centre, the Group’s short-term pain will be offset by long-term benefits and savings.

By Caroline Wong 

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Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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