HVN 2.07% $2.84 harvey norman holdings limited

gerry harvey on business sunday

  1. 3,567 Posts.
    Look out for the 2 new stores... Harvey Norman Express and Harvey Norman Smart Store:

    Business Sunday interview:


    16 March 2003

    Helen McCombie

    "The market knocked me down, so our share price went down a little bit because of that result, so I think that's probably a little unfair because they're saying that our growth is not what it used to be..."

    On the face of it, it's a solid result from Harvey Norman ... interim earnings up higher than forecast and a higher dividend on a good lift in sales.

    But in Friday's rising market, Harvey Norman shares fell sharply after the result was announced. Investors remain concerned by the company's overseas expansion, especially in Europe, and also its progress in Australia.

    Chairman Gerry Harvey is speaking to Helen McCombie.

    Reporter: Are you happy with this result?

    Gerry Harvey, Harvey Norman: Oh I could be happier but it's a 15-point-6 increase in profit and if I increase my profit 15-point-6 per cent every year, for five years, I'd sort of double it so I can't be too unhappy.

    Reporter: The market has its reservations though.

    Harvey: The market knocked me down, so our share price went down a little bit because of that result, so I think that's probably a little unfair because they're saying that our growth is not what it used to be and they're right but by the same token our share price of two dollars is half what it used to be at four dollars, so it's been marked down so, you know, I think it's a good buy - well I just went out and bought some shares today.

    Reporter: How many did you buy?

    Harvey: I bought a million.

    Reporter: Why?

    Harvey: Because I thought it was a good buy.

    Reporter: Do you expect other people to think it's a good buy?

    Harvey: Oh I - some do obviously because quite a lot of shares changed hands today, some think it's a real bad deal and they've got rid of their shares, so but you know, I'm pretty happy buying shares for two dollars, even more than that, so..

    Reporter: Why do you think it's such a good buy then?

    Harvey: Well Harvey Norman's a growth company from 1987 when we went public for the next dozen years we were the fastest growing - out-performed every other company on the stock exchange and in the last three or four years we haven't been increasing our profits 20, 30, 40, 50 per cent a year which is what we used to do because it's difficult now but we're still increasing our profits 15, 16 per cent that's still a very good increase in profit, it's still a very good business, and we've got great growth prospects and lots of things we want to do so I think our business is fantastic, I don't think it's good, I think it's fantastic.

    Reporter: Are you worried that growth is slowing for Harvey Norman, is that the reason for the new formats that you're talking about?

    Harvey: Well we're doing all sorts of things to try and increase our business.. we went to New Zealand and then we went to Singapore, and then we went to Slovenia and now we're going to Ireland and we bought Rebel and we're going to open these two new format type stores to take advantage of the boom at the moment in digital camera, video camera, widescreen TV, just the entertainment product, home theatre, all that sort of thing, DVD.

    Reporter: So how do these two hybrids work?

    Harvey: Well one will be 150 - 200 sq. metres and that'll be a small range of product that people would come in, pick up and take away, just technology product. The other one would 1500-2000 sq. metres and that would be a much bigger range.. there wouldn't be any whitegoods there, it'll be all brown goods, so it's TV and music and sound and computers and PCs and cameras, and VDDs all that sort of stuff.

    Reporter: What are they going to be called?

    Harvey: Well we're probably going to call the smaller ones Harvey Norman Express and the bigger ones, Harvey Norman Smart Store.

    Reporter: What sort of locations, near railway stations, in Westfield Shopping Centres?

    Harvey: Yeah that sort of thing.

    Reporter: And how far advanced is the planning.

    Harvey: Oh well we've got one opening up very soon.

    Reporter: How quickly will you roll them out?

    Harvey: Well we'll have two, three, four open before Christmas.

    Reporter: What sort of shape was Rebel in when you bought it?

    Harvey: Oh it was basically in good shape, it was just a case of the company was - they had a few problems in - things that were very obvious that you could walk in and say don't do it like that do it like that or that's waste of time doing that, that sort of thing so you could sort of go in there and just make those changes and see if quite a big difference in the company in terms of its profit and the way it's run.

    Reporter: Are there more businesses out there, like Rebel, that you can see value in and would seek a majority ownership of?

    Harvey: Possibly. I think there are at least 30 to 40 per cent of the public companies in Australia are not very well run and probably 10 to 20 per cent of the public companies are probably badly run, so if you can identify those sort of companies and you can buy them like you do a Rebel, and if you can buy them for 60 or 80 or 90 cents and then turn them into two dollars virtually overnight, I mean that's wonderful business.

    Reporter: Have you identified a couple of those?

    Harvey: Oh I know a few yeah but how many things can you do at once. I mean we're being accused of not growing fast enough at the moment, I mean, we've got so many things on we're growing quite fast.

    Reporter: The ASX Corporate Governance Council has been considering a strict test for boardroom independence which prohibits the appointment of directors with family ties, cross directorships or those with more than ten years service but it's backed away from that, is that a good thing or a bad thing?

    Harvey: Well you take Harvey Norman for instance, we would get an 'F' on corporate governance, we're like the lowest out there but I think probably we're one of the best because we don't have a lot of outside directors, we have people who work in the business. I happen to think that's the best way to do it but it probably only works when the directors own a big share of the company and that's what happens in Harvey Norman.. the directors own a lot of the company and they've got their - it's their blood that they spill when something goes wrong and an outside director can't help us much but if say we owned nil of the company then I think you've got to have outside directors and you've got to have proper accountability and that sort of thing but in my opinion far and away the best system is the one where the directors own a big hunk of the shares and when that happens they've got a lot of reasons to make sure it works.

    Reporter: Is the quality of directors improving or is it more of the same?

    Harvey: Oh I think it's probably more of the same. There are some problems out there, I think, probably we should say that you can't be a director on more than two, three, four public companies and that's it.. 'cause I can't see how .. and I don't think - I don't think there should be - if you've got a chairman of AMP, and he's the chairman of another company nearly as big as AMP I think that's really not on. I don't think anyone should be the chairman of anymore than one big company like that because it's too big a job.

    Reporter: You've always been free and frank on your views about Coles Myer, and you've been a shareholder, is there upside for the company or is break-up inevitable?

    Harvey: Mmmm it's probably inevitable it's got to be break-up.

    Reporter: Any guidance or help for John Fletcher?

    Harvey: Oh, no, John Fletcher would, by now, have worked out that he's got a much bigger job than he probably ever thought he did have and he's going to have to make some pretty big decisions over the next one, two, three years or John Fletcher won't be there.. I mean the chances are he won't be there anyway because of the performance of the company, so, you know, over the years I've bought Coles Myer when now might be a good time to buy Coles Myer.. wait until they get to five bucks of something, I don't know, and then when John Fletcher goes and the new bloke comes in well then I'll sell because the shares will go up.

    Reporter: What makes you think break-up is inevitable?

    Harvey: Well because they've been running it like it is for 20 years with chief executive after chief executive and none of them have been able to make it work, so for the next 20 years do you do that or do you say I'm going to try something new and the only other new thing they can try, I think, is to say let's break it up.

    Reporter: Are you still holding your shares?

    Harvey: No I've sold, I'm probably nearly ready to buy again.

    Reporter: What's going to determine when you buy again?

    Harvey: Oh because I try to pick the bottom of the market. I've been in and out of Coles Myer shares that many times it doesn't matter and I've made money every single time. I try to pick the bottom of the market with Coles Myer and when the new executives come along and everyone says it's going to change and be wonderful, Coles Myer shares go between five bucks and ten bucks - have done for years, so if you buy close to five bucks and sell around ten bucks you're doubling your money. Now I haven't doubled my money every time sometimes I've only made ten or twenty per cent on my money but I've always made money.

    Reporter: But this time could be different and I mean, if you and Woolworths and Foodland can get double digit sales and profit growth, as an investor what would be the point in persisting with Coles Myer?

    Harvey: Oh because Coles Myer's got this wonderful core business, you know, it's got department stores, it's got K-Marts and liquor shops and food shops and a big share of the market so it can't just disappear overnight. One day they're going to get lucky and they're going to figure out how to run it or they're going to break it up or something like that and if you're in there as a shareholder when that happens, you can double your money no trouble...
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