CEO Name: Gerry Harvey
Company: Harvey Norman
Years at company: 53
Forecast FY14 EPS: 19.4
Forecast FY14 PE: 16.7
Target price: $3.16 (approx 2.3% below current price)
Forecast FY 14 yield: 3.1%
Source: Yahoo!7, Data as at 24 March, 2014
Why did you want to become CEO?
I started the business in 1961 and I’ve been here for 53 years.
What is your managerial style?
Give people enough rope to hang themselves.
What is your percentage ownership of the company?
The Harvey and Norman families own half of Harvey Norman.
Describe your business plan and strategy for the company.
Our business plan is basically to grow the assets of the company in the quickest time possible and grow it to the maximum.
What is the company’s competitive advantage?
We try to be the leader in the product categories that we specialise in and we are in some of those categories and not in others.
Who are your main competitors? How do you rate them?
Our main competitors in electrical are JB Hi Fi and the Good Guys and they’re both competent retailers.
There is no standout competitor in furniture. Ikea is a big name but they are a different type of furniture retailer, but then you go down to people like Freedom and Nick Scali. One, we’re in more locations and two, we have it all under the one roof, whereas the sort of people I’ve been talking about as competitors have got a lesser product range under a smaller roof.
What is the company’s growth strategy?
At the moment we are not opening shops and this is the first time in our history that we haven’t opened shops. There are two reasons: main one is that we’ve got a shop in pretty much every area we want and two, people are not opening shops much.
Is that because of the Internet?
I don’t know that you can say it’s the Internet because the Internet represents such a small percentage of our sales. It is an influence but not sufficient to say it’s because of the Internet.
Do you have global growth plans?
Our plan was to try and develop an international business and open shops in lots of countries across the world and that has also stalled now. Can that be revived? We would like to think so, but realistically it’s not going to happen any time soon.
What are your company’s main challenges?
At the moment, our biggest challenge is profit because we have been subjected to margin erosion in a really healthy economic climate and that’s never been the case before.
Is that a company or industry problem?
It’s both. If you look at Harvey Norman, because a big part of our business is technology, which is computer and electrical which is 70% of our business, really that particular area has been severely affected by price erosion and market erosion.
TVs and computers are the price erosion but they are also the margin erosion as well. If you look at anyone that’s been in that sort of industry it’s been severely affected.
Were your company’s most recent financial results better, or worse, than the market expected?
I’d say they were about what the market expected.
Can you provide guidance for the current financial year?
No. I think we never give our market guidance. That’s not in our policy. We would only do that where we knew that the analysts out there had a certain figure in mind and ours was either up or below that by a reasonable amount. We would then make a statement.
What is your dividend strategy (payout ratio/franking, etc.), and how much will you be returning to shareholders this year?
Traditionally, we paid out between 25% to 35% of our profit after tax. That’s now rising more to 40% or 50%. That may be the norm going forward now with not opening shops. And we have a problem where we’ve got all these franking credits that are now … $700 or $800 million or something. So we have a problem as to how we are going to handle that going forward and we’re being continuously asked by shareholders and analysts as to what we’re doing and we haven’t provided a satisfactory answer.
How have technology changes impacted your business?
We couldn’t predict what would happen a few years ago with the way the market has gone. We were a very big computer seller of a product that sold between $1,500 to $4,000 dollars and now that’s changed to say…an iPad that might be $300,$400,$500, $600. And we didn’t pick that. Neither did anyone else I think. It’s a big change in the market.
Going forward, you might end up in two places. You might have a phone that will have a lot more capability than what you’ve got now. You’ll have a wrist product that will sit on your wrist …connected health issues and also some other things that a phone or a calculator or iPad would do as well. There will be more and more features on those [wrist products].
There is a whole heap of new products coming out at the moment. The big new thing in TV will be curved screens.
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