Target managing director Stuart Machin announced his resignation from Wesfarmers last Friday following an investigation into the accounting treatment of a number of Target supplier arrangements negotiated in December 2015.
Wesfarmers, along with external auditors Ernst & Young, conducted an internal investigation of the agreements concerned and found that the collective effect of agreed rebates of $18.1 million for past activity and subsequent product cost increases in December with 31 overseas suppliers did not meet operational standards or accounting policies. A further $3 million in supply arrangements were found not to have complied with the company’s accounting standards.
While the deals had no cashflow implications, they did support income of $21 million recognised in Target’s earnings for the six months ending December 31, 2015. If accounted for in line with the group’s policies, Target’s earnings before interest and tax would have been $53 million, rather than the $74 million reported.
For the full financial year to June 30, 2016, the arrangements would have had a negligible effect, as any gains made in the first half of the year would be reversed with higher production costs in the second half. Target is working with the suppliers to unwind the agreements.
Mr Machin said that although he was not aware of the issues, he accepted his share of the responsibility as they had happened on his watch as managing director.
“The right thing is now for me to move on,” he said.
Wesfarmers Managing Director Richard Goyder said that he had accepted Mr Machin’s resignation and that Mr Machin had made a substantial contribution to the turnaround of Coles as Operations Director and put great effort into rebuilding Target.
“Consistent with my experience of working with Stuart, he has cooperated well with the investigation,” Mr Goyder said.
