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The Senate inquiry into supermarket pricing has threatened Woolworths boss Brad Banducci with contempt for failing to answer simple questions.
Mr Banducci was warned he could face six months in prison or a $5,000 fine if he was held in contempt by the Senate committee.
The Woolworths chief executive was appearing before senators in Canberra to answer questions about the supermarket giant's pricing behaviour.
But things went awry when Greens senator Nick McKim, committee chair, asked Mr Banducci if "return on equity" was an important measure of corporate profitability.
Mr Banducci refused to answer the question, saying he preferred to talk about other metrics of profitability, and he repeatedly refused to answer it despite being asked over a dozen times.
The back and forth between Senator McKim and Mr Banducci became so repetitive that Mr Banducci was warned that the committee could hold him in contempt, and he could end up in prison.
"I'm not interested in your spin or your bullshit," Senator McKim said.
Mr Banducci eventually answered some questions to the satisfaction of Senator McKim, admitting that he didn't know what the return on equity was for Woolworths Group last financial year.
The dramatic event comes two months after Woolworths announced Mr Banducci would be stepping down as chief executive in September this year.
The announcement of his retirement had come days after the ABC's Four Corners aired an interview with Mr Banducci which the Woolworths boss had walked away from mid-interview.
An argument about profit metrics
Mr Banducci told senators on Tuesday that Australia's supermarket sector was highly competitive and Woolworths faced more competition than people realised.
He said the supermarket giant faced competition from Coles, Aldi, Costco, and Amazon, and it faced strong competition on different product categories from companies like Bunnings and Chemist Warehouse.
He said the supermarket sector was unique and, when measured on certain profit metrics, it was not highly profitable.
"Grocery retailing is a high-volume, low-margin sector and Australia has one of the most efficient and productive grocery sectors in the OECD," Mr Banducci said.
"We make a reasonable profit — both a 10 per cent return on funds employed after tax and also a 10 per cent total shareholder return over the last five years — and, as I said earlier, much of that goes back to Australian households in the form of superannuation and dividends," he said.
However, when Senator McKim asked Mr Banducci about the group's return on equity (ROE), Mr Banducci repeatedly refused to answer the question.
It got to the point where Mr Banducci was warned that if he failed to comply with a lawful order of the committee he may be found in contempt of the Senate and that, in accordance with Section 7 of the Parliamentary Privileges Act 1987, subject to a penalty of up to six months imprisonment, or a fine of not exceeding $5,000.
"So in the light of that advice can I just ask you again, whether you accept that 'return on equity' is an accepted measure of assessing a company's profitability?" Senator McKim asked.
It led to the following exchange:
Banducci: "Senator, as I've said, the way we measure our performance and profitability is our return on investment and total shareholder return. I do recognise that financial institutions might have different ways they do things. But that's not the way we do it. This is the way we measure it and it's the right way to measure it in the context of the industry we operate in."
McKim: "I'm not asking you how you do it, Mr Banducci. You're entitled to do whatever you like. But when you're before a Senate committee, my advice to you is to answer the questions that are put to you by the chair of this committee. So leaving aside what your preferred measure is … do you accept that ROE, return on equity, is a standard and accepted measure of the profitability of a company?"
Banducci: "Senator, we measure return on investment, which we think is the right way of measuring profitability in a company. You put $1 in and what return do you get out? In our case, we get 10 cents out from the dollar we put in and I don't think it's a coincidence that our total shareholder return over the last five years is also 10 per cent, which becomes a 3 per cent dividend back to our hard-working retail shareholders."
McKim: "Last chance, Mr Banducci. Do you accept that return on equity is an accepted measure of the financial profitability of a company?"
Banducci: "Senator, we measure return on investment. We think that is the right way to measure profitability in the grocery sector. I'm not commenting on financial services. I'm commenting on the sector that I operate in."
That was the point at which Senator McKim suspended the hearing to discuss the issue of contempt with his Senate colleagues.
When proceedings returned and the inquiry picked up again, Mr Banducci was given one final warning about answering simple questions.
With the threat of contempt in the air, Mr Banducci told senators that if it helped to push the hearing forward, he would be happy to say he didn't know what the return on equity was for Woolworths Group last financial year.
The implication was that he didn't know it because it wasn't important.
Senator McKim said he suspected there was a reason why Mr Banducci wanted to talk about return on investment, rather than an alternative measure.
"I put it to you the reason you don’t want to focus on return on equity is because you don’t like the story that it’s telling, which is that you are basically profiteering and making off with massive profits at the expense of farmers, at the expense of your workers and at the expense of Australian shoppers who you are price gouging," he said.
Senator McKim said Woolworths' return on equity was 26 per cent, which proved the grocery giant was "making off like bandits" and gouging customers.
Mr Banducci disagreed, saying customers wouldn't shop there if the company was taking advantage of them.
Coles boss answers question without pushback
Later in the hearing, Coles chief executive Leah Weckert appeared for questioning.
Senator McKim asked her if she had watched the hearing in the morning and seen the "fairly lengthy discussion on return on equity".
"Yes," Ms Weckert replied.
He asked her if she accepted whether return on equity was one way to measure return metrics for a business.
Ms Weckert said yes, it was a measure, "but it's not a measure we use a lot in the grocery space."
She said Coles' net profit was just over $1 billion, and while she didn't have the size of its equity base on hand, its ROE last year was 31 per cent.
But she added some "clarifying comments" about the use of that number.
"A number of return metrics are commonly used, ROE is one of them, we also have return on capital … and return on assets," she said.
"Equity is a historical number," she added, and noted it was difficult to compare equities across businesses.
She referenced the comparison to the banking sector Senator McKim had used in the morning session, and said that was appropriate for banks because banks had to hold equity, "so their return on equity is always going to be lower [than the supermarkets]."