The below article in today's Sydney Morning Herald is entitled "who will sack Gerry Harvey". It could just as easily have been written about the Board of Tribune and particulary Anton Billis. The share price has slumped from over $3.00 to a current $1.20 and this in spite of a rising gold price. The iron ore price has collapsed making the Liberian deal that our 44% owned subsidiary Rand Mining is pursuing look even more suspicious! The current Board has been there for ever, the "Executive Chairman", who you cannot contact, is over 75 years old. The quarterly report shows admin expenses of $6m for the quarter. Try and find out the true nature of these "expenses" or was it a subtle way to "window dress" the 2012 Annual Report? The "continuous disclosure" that is meant to happen is non existent. How is the Board going to rectify these issues, or is the Board so old and stale and not independent enough to make tough decisions? The share buy back shows just how out of touch this Board is with reality. If there are 90,000oz of gold in the Perth Mint then at todays spot that alone would be worth $155m or $3.10 per share. And that price has zero value for the other significant assets. The company buys back shares at $1.15. Don't tell me this Board is not out of touch!!
"Who will sack Gerry Harvey" written by Nathan Bell who is a Research Director at Intelligent Investor Sydney Morning Herald 11th Sept 2012
Who will sack Gerry Harvey In the very long run, humans are an adaptable species. Over shorter periods — say a decade — we struggle to acknowledge a changing world, and thus fail to respond to it.
That's not the only reason the 2012 financial year was Harvey Norman's toughest ever. But it's a big part of it.
Last year, revenues fell 8 per cent to $2,469 million. After adjusting for various one-offs and tax benefits, underlying profit fell 33 per cent to $162 million.
The company blamed fierce competition, including the collapses of WOW Light and Sound and Retravision Southern. But if that were the only explanation, Harvey Norman wouldn't be losing market share to JB Hi-Fi.
Advertisement There's something else going on, and it doesn't take a genius to work out what it is.
Harvey Norman's business model is under threat and its management team seems incapable of responding.
Over the past four years, the company has struggled to open profitable stores and has failed to expand beyond around 200 outlets.
Last financial year, the company doubled the “tactical support” it provided to franchisees doing it tough, at a total cost of $124 million. Rent received from franchisees rose 9 per cent at a time when their sales were falling.
That's a situation that can't continue. For those looking at this stock as a cheap turnaround play, it has massive implications.
The $2.1 billion of property on the books accounts for Harvey Norman's entire market capitalisation. If sales are falling, then rents may follow. If rents fall, then property values will too.
There's early evidence that they already have. Retail tenants — including Harvey Norman franchisees — are under pressure, which probably explains why values for bulky goods centres have been falling.
With competitors leaving the market, a rebound in consumer spending may stem the bleeding. Dick Smith is likely to be sold this half and, with the launch of new Windows and Apple products, a minor profit recovery in 2013 seems likely.
The problem is that, even if Harvey Norman's retail business emerges from its funk, it may not be sufficient to cover the cracks in the company's property valuation. Nor will it reverse the strategic threat from online sales.
Manufacturers such as Dell and Apple have paved the way for online distribution. Computer sales are migrating online and other categories will follow. Only furniture and bedding are likely to offer resistance.
The internet is turning traditional retail on its head and hollowing it out, one click at a time.
Thus far, Harvey Norman's response to these industry shifts has been half-hearted at best. Gerry Harvey himself called the company's “omni-channel” strategy “spin”. The company's online sales are small, certainly, but that's because its new strategy is too little, too late.
It's time for Gerry to stand aside. Not because he's too old or frail — he remains whip-smart — but because his initial success in building Harvey Norman blinds him from imagining a different future for it.
Gerry's personal relationships with franchisees makes it almost impossible for him to make the changes necessary to fix this business.
He needs to step back and let someone else without those relationships make the decisions he can't.
For inspiration, he should look to high-end fashion retailer Oroton, a company that struggled for years. After the major shareholder relinquished operating control to new managing director Sally Macdonald, an impressive turnaround took hold.
Who knows whether that's possible with Harvey Norman. It may already be too late. But if it isn't, there's a much greater chance of this business prospering with someone other than Gerry at the helm.
So Gerry, take a bow. You've built an incredible business, a life's work.
Now it's time to get out of the way and let someone who can see a different future for Harvey Norman, a future that's not a reflection of its past. Your shareholders deserve no less. And, with a 30 per cent stake in the business, so do you.
