Australia's second largest grocery chain Coles Group Ltd <COL.AX> said it had underpaid some store managers for six years, thrusting it into a wages scandal that has affected several of the country's biggest companies and crimping its half-year profit.
The company posted near-flat earnings for the half year on Tuesday, as it included a A$20 million ($13.4 million) cost provision for payments to underpaid salaried employees.
Alongside a scheduled trading update, Coles said a review by the company found it may have underpaid five percent of managers of its supermarkets and liquor stores.
"We aim to make Coles a great place to work, and apologise to those team members who have been unintentionally affected," CEO Steven Cain said in a statement. He added on a call with analysts that the amount may change since the review into backpayments was ongoing.
Though the amount is relatively small for the company, which has A$38 billion a year in sales, the disclosure puts Coles in the ranks of other high profile Australian underpayment cases, including a A$300 million backpayment from larger rival Woolworths Group Ltd <WOW.AX> and a A$25 million underpayment bill for Commonwealth Bank of Australia <CBA.AX>.
A week earlier, the upscale restaurant group of local celebrity chef George Calombaris went into voluntary administration after bad publicity stemming from an underpayment scandal kept diners away, according to local media.
The Coles underpayment provision prompted the federal government to say it would introduce laws that criminalised what it called "wage theft", as well as banning people from being company directors if they had presided over underpayment.
"Corporate Australia surely now has got the message that they need to get their house in order," Attorney General Christian Porter told reporters in Melbourne.
"If they haven't got that message...then they are going to be absolutely and utterly compelled to in the future by the most vigorous, robust and complete set of laws around wage underpayment that Australia's ever seen," he added.
Shares in Coles <COL.AX> fell 1%, while the broader market <.AXJO> closed 0.2% lower.
Late on Tuesday, Coles' largest shareholder, Wesfarmers Ltd <WES.AX>, said it would sell 4.9% of the supermarket chain which it spun off in 2018, via two investment banks. Wesfarmers would then retain a minority interest of 10.1% in Coles, it said in a statement. [nL4N2AI1OO]
Coles posted earnings before interest and tax of A$725 million for the 27 weeks to Jan. 5, up slightly on A$722 million a year earlier and within guidance it gave in early February of between A$710 million and A$730 million.
Net profit on a comparable basis rose to A$498 million from A$489 million, the company added.
Total sales rose 3.3% to A$18.85 billion but overall pre-tax profit was dragged down by a 9.9% decline in liquor sales due to heavy discounting and the underpayment provision.
Liquor sales were hurt by devastating bushfires which destroyed huge swathes of bushland across southeastern Australia, but the company was also reviewing its liquor business, CEO Cain said.
Coles declared an interim dividend of 30 Australian cents per share, its first half-year dividend since it was spun off from retail conglomerate Wesfarmers Ltd <WES.AX> in 2018.
Coles shares were off 0.8% by midsession, helping drag lower the broader market which was down 0.2%.
(Reporting by Byron Kaye and Renju Jose in Sydney and Niyati Shetty and Shriya Ramakrishnan in Bengaluru; Editing by Dan Grebler, Jacqueline Wong and Kim Coghill)
