Mar 27, 2015

Myer chief’s baptism of fire as Umbers battles on several fronts | The Australian

It’s unlikely that department store Myer would sell rabbit’s feet or four-leaf clovers, but maybe new chief executive Richard Umbers should fill his office with the lucky charms after his first three weeks in the role saw him issue a profit downgrade, unveil a 23 per cent dive in half-year profit, witness a one-third slide in the share price and now face a shareholder class action lawsuit.
Mr Umbers, a former Australia Post executive whose hiring last year by Myer was announced alongside that of the infamous Andrew Jeffrey Flanagan who turned out to be a con man, has lived through one of the worst starts for any CEO of a listed company in living memory — and it’s only been 24 days since he took over from long-serving Myer boss Bernie Brookes in what was viewed by many as a botched succession.
Myer has also faced a “please explain’’ from the Australian Securities Exchange over the timing of its shock profit downgrade earlier this month and whether it had breached its continuous disclosure requirements, with the corporate regulator ASIC also sniffing around the board’s alleged lack of earnings disclosure.
Now Mr Umbers and the Myer board have become entangled in a class-action lawsuit led by former Minter Ellison partner and one-man litigator Mark Elliott, who added the retailer to a long list of ASX-listed companies he has aimed his legal guns at, such as Treasury Wine Estates, Leighton, Vocation Care and WorleyParsons.
A former British Royal Engineer who served in the first Iraq war, Mr Umbers is in the midst of this investor backlash, corporate governance minefield and class action lawsuit, trying to rescue the department store from flatlining sales and evaporating profits. And he hasn’t even finished his first month as CEO.
But don’t expect much sympathy from Mr Elliott, who on Wednesday started legal proceedings against Myer for unspecified loss and damages on behalf of shareholders who hold shares in the department store and have watched in horror as the stock collapsed by nearly 30 per cent.
“I feel sorry for the shareholders who bought Myer shares at the inflated price and have now lost 20 or 25 per cent of their investment,’’ Mr Elliott told The Australian.
“I don’t feel sorry for CEOs because the minute they get their feet under the desk they assume responsibility. A clean baton change is what they need to ensure they are satisfied that the board has dealt with all disclosure issues on or before their appointment.’’
The writ was filed by Portfolio Law Pty Ltd on behalf of Melbourne City Investments, a vehicle established by Mr Elliott but which will represent all Myer shareholders who bought their stock from September 11.
In his writ, obtained by The Australian, Mr Elliott focuses on a public forecast given by former Myer boss Mr Brookes at the company’s full-year results presentation on September 11 last year.
According to the writ, Myer disclosed on September 11 that it was expecting profit growth for the year ahead, quoting Mr Brookes who told investors in an earnings call: “We will therefore not only have anticipated sales growth, but anticipated profit growth this year.’’
This would mean Myer would post earnings higher than the $98.5 million profit achieved for 2013-14, Mr Elliott says in his writ.
He claims Myer should have known as early as November 11 last year, when it released its first quarter sales, that the business was underperforming.
He claims Myer had no grounds to make the profit claim and that it was misleading. On March 19 Myer reported a 23.1 per cent drop in half-year profit to $62.15m, missing consensus estimates.
Given about 75 per cent of Myer’s earnings are booked in the first half, it became clear Myer would miss its full-year forecast of a profit of $90m and Mr Umbers was forced to downgrade the 2015 profit to between $75m and $80m, excluding one-off costs.
Mr Elliott said the admission from Myer last week it would not meet consensus forecasts was “way overdue,’’ given it knew the first-half results well before that.
“A company of Myer’s lumpy sales and profit performance where 75 per cent of its net profit is meant to be in the Christmas/New Year period, I can’t believe that on January 2 when they shut the tills after the sales, that their processes would not have told them exactly where they were sitting vis a vis the previous year and forecasts.
“Maybe everyone was on holidays ... and then in March they say, oh, mea culpa.’’
Mr Elliott’s MCI bought 400 Myer shares on November 14, paying a price of $1.78 a share. Since then the shares have fallen by 24 per cent.
Myer was this week forced to defend the timing of its downgrade, rejecting suggestions it did not comply with continuous disclosure laws.
Myer has denied the claim by Mr Elliott and says it will defend the litigation vigorously.

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