Investors Turn On Djs Over Card Upheaval

Investors Turn On Djs Over Card Upheaval

Sydney Morning Herald

Saturday November 29, 2008

Vanda Carson

THE chairman of the retailer David Jones was yesterday on the back foot after a shareholder revolt over the company's decision to axe its long-standing shareholder discount and replace it with an offer to sign up for rewards through its new credit card.

When Coles Myer scrapped its card in 2004 a similar backlash was felt.

Robert Savage was also on the defensive over his pay packet and that of the company's other non-executive directors, with one shareholder asking the board to consider cutting its pay given that the retail industry was struggling and the share price had fallen 48 per cent in the past year.

Asked if he believed he was overpaid, Mr Savage said he wasn't. He earned $379,020 in 2007-08.

Mr Savage said he had no misgivings about increasing the pool because good board talent was still hard to find and retain.

More than 16 per cent of shareholders also showed their displeasure by voting against a proposal to increase the fee pool for non-executive directors from $1.8 million to $2.3 million. The increase comes two years after the last increase.

Mr Savage could not reassure shareholders he would not seek another increase in 2010.

Mr Savage said the larger fee pool was "like an insurance policy" and might not be used.

"Right now is the most difficult time to recruit good experienced qualified directors that I have ever seen," he said.

"Finding those people who meet those qualifications and experience is a very, very, very difficult task," he said.

And13.5 per cent of shareholders voted against the issue of "retention rights" issued to the chief executive, Mark McInnes, and chief financial officer, Stephen Goddard, to ensure they do not defect to rival retailers.

One shareholder lamented "management's decision to get into bed with a low-grade credit card company", referring to the deal with American Express where cardholders pay a $99 annual fee for a credit card. He highlighted the fact that many retailers impose a surcharge on customers paying with American Express.

Mr McInnes later said Amex had agreed that it would ensure that customers could use their cards at about 94 per cent of retailers surrounding David Jones stores without being hit with the fee.

The shareholder said Amex's use of junk mail in an attempt to sign up new cardholders would diminish David Jones's "prestigious reputation".

Mr Savage said the credit card was a "significant source of profit" for the company, while Mr McInnes said the take-up of the credit card was "much better than we expected". About 70 per cent of the customers to have signed up for the new credit card had been existing store cardholders, he said.

Of these, half had decided to keep their store card as well. The remaining 30 per cent to have signed up for the credit card did not have a store card.

The shareholder discount, of 2 per cent off purchases, will end in February and save the company $2 million.

It had been whittled down in 2005, when it was 3 per cent and up to 7.5 per cent on some items. This move saved the company $3.5 million.

It is a concern to shareholders because the DJs register has a high proportion of retail investors, with more than 65,000 of David Jones's 76,000 shareholders owning 5000 shares or fewer.

Shares in the company have fallen 48 per cent in the past year, less than its discretionary peers at 59 per cent but more than the benchmark ASX 200 index.

Mr McInnes said the company's dividend this year could be flat, at 27c, "if the macro [economic] environment deteriorates significantly worse than we expect".

Mr Savage said he believed the company would be able to increase its dividend even though sales were falling.

"Provided we achieve our targets we have enough headroom to be able to increase the dividend."

The company's profit is expected to rise between 5 and 10 per cent this year, despite a sharp fall in sales, which could be as much as 7.5 per cent down on last year.