Ross Greenwood speaks to Harvey Norman Executive Chairman Gerry Harvey who says over-regulation in Australia will force businesses overseas after Harvey Norman’s first-half profit shows they are doing better overseas than at home.
Ross Greenwood: Great to have your company here on Money News, right around Australia. If you want to get a bill with Rom what’s happening in the housing markets and we’ve explained to you today that the lending in the last month has been the lowest since 1984. Housing credit increased just 0.2 of a percent. Well, what we’re going to do is look at the knock-on effect. Construction, building yesterday was well down and that, of course, inflows into the number of new housing stats that are going out there, and then follow on from that potentially into retail sales because people don’t buy couches necessarily or televisions, whatever it might be.
Then you come back and have a look at, say, Harvey Norman. Now in this particular case, what you’ve got is profit before tax up by some 7.5% at $315 million. You dig down a little deeper into that and the net profit is just a little more flat. This is the way in which it’s reported. I report a profit after tax and non controlling interest, however, that’s up 7%, $227 million. It depends, again, with these profits as to what is included and what’s excluded.
To explain it all to us. Let’s go to the chairman and one of the great drivers of retail in this country, Gerry Harvey is on the line. Many thanks for your time, Gerry.
Interview with: Gerry Harvey, Executive Chairman, Harvey Norman
Gerry Harvey: Thanks Ross.
Ross Greenwood: Okay. Is it good or bad out there right now?
Gerry Harvey: It’s very flat. What worries me a lot at the moment is that we’ve got regulations, we’ve just had the banking thing. The regulators are going to get more powers. When you become a regulator, you want to make more rules. They’re going to make more rules. They’re going to be given more money and all the companies out there have got to employ more compliance people.
I tried to change an electricity provider the other day and I was 15 minutes on the phone because she went through all of this crap. You just say, “Yes, no.” It’s because there are so many rules just to change an electricity account. Then you’re spending money and time dealing with regulators all the time. Then Kate says to me, “We’re supposed to be selling fridges, there is ACCC.” There’s this, the next and it never stops.
Then you talk to other people, the chairman or CEOs of public companies and they say, “We’ve spent half the time doing something, nothing to do with the company.” All these regulations.
Now, I’m not saying there shouldn’t have been a Bank Royal Commission. I’m not saying there shouldn’t be regulations, but when you get over regulation and then when we compare that to all the other countries we operate in, we’re going mad.
Ross Greenwood: I was going to ask you exactly about that because, clearly, at the moment you say things are flat here in Australia, but by contrast, you say that Malaysia and Singapore are going gangbusters at the moment. You’ve also got operations throughout Europe. You’ve got an active ability to compare the systems and the business systems in this country versus others.
Gerry Harvey: Well, we need regulation, but we don’t need over regulation. Soon as you give some new bloke the job of running some new regulatory body, ACCC, whatever it is, he’s going to make a name for himself. That means he’s going to bring more regulations and it’s going to cost companies more money. Then no one is going to spend as much money employing people, building things, growing things, whatever they do. You’ve got to be very careful that you don’t go over the top.
Ross Greenwood: Okay. Given that you’ve got operations in Singapore and Malaysia, they’ve gone through the billion-dollar sales barrier for the first time in a half year period. If you’ve got spare money now and you consider opening new stores in Australia or opening stores in Singapore or Malaysia, where do you go to?
Gerry Harvey: I’m going to Malaysia.
Ross Greenwood: Why is that?
Gerry Harvey: Well, I’ve got more opportunity there. I’ve got less regulation, I’ve got a lot lower costs and it’s an economy that’s growing. Even all the crap that’s happened in Malaysia with their prime minister and all the rest of it, whatever is happening, the place is fiery. From my point of view, if I’ve got to make a very simple decision, I’ve got to chase the profit, chase the business. If the business Malaysia is better to do it there, why am I going to do it in Australia? Hang on a second, I’m going to do it in Australia too, but I’ll put a bit more time into Malaysia.
Ross Greenwood: All right. Then explain to me about the property markets right now because one of the things that your profits do is include property valuations or property revaluations.
Gerry Harvey: Yes.
Ross Greenwood: Clearly, property right now is not shooting forward here in Australia. Also, then you’ve got the added issue that affects your company and that is that if house prices are falling, that impacts on consumer behavior and the consumer’s willingness to spend. Is that a real thing or not?
Gerry Harvey: Well, it’s interesting because house prices are falling, but if you look at warehouses, bulky goods centers, offices, they’re actually firming. Where we had yields of six, seven, eight, you’ve got yields now of four, five, six. I can’t find a value proposition if I buy into that commercial market. You can find a value proposition in the house, but you try and buy a good office block, a good warehouse or a good bulky goods center, it’s very difficult.
If I want to go and build another flagship store in Sydney, Melbourne or another capital city, I can’t find a site. If I do find a site, I’ve got to double my rent to go over here. The sites, I’ve got to let go and I can’t do a new one. I can do it, but it will be in a terrible position if I make any money or I can do it and it’ll cost me twice as much for the rent this will pay now. In a way, it’s good because it means that what I’ve got is gold, but it’s bad because it’s going to be very difficult to expand.
Ross Greenwood: Tell me one thing, your share register has attracted an awful lot of short sellers over a period of time. I think it’s just a little under 10% of the overall stock on issue is held in the hands of short sellers right now. They’re basically backing you to file in this strategy. Clearly, this profit today doesn’t indicate that that is taking place, share prices up today on the market. Is there any pressure on you as the chairman, major shareholder in his company of those short sellers?
Gerry Harvey: Well, it’s interesting because today it looks like we’re nearly nine million shares change teams and the share price, I think it finished at 360 or something. The short sellers have been selling them at a lot lower price than that. They’ve been as high as 125 million shares have been short sold and a bit under a 100. At the moment, it’s about 106 or something like that. That represents, as you said, 10% of the float, but it’s 20% of the free float. Because we own 55% of the company, the free float is only 45%.
Ross Greenwood: Do you think short sellers actually play a good role, a reasonable role in our stock markets?
Gerry Harvey: I haven’t got a problem with short sellers as such, but I have got a huge problem with short sellers that sell a stock and then go out and use all means possible, including the media to bad mouth that stock and make statements that are knowingly false. When they do that, they’re engaging in a criminal activity.
Ross Greenwood: Do you think that has been happening in Australia’s equity market?
Gerry Harvey: It’s been happening for so long, it doesn’t matter. It all started because they started doing it in America years ago and then Australia caught on real quick. The short sellers, their argument is, “Basically, the companies we short sold, we were right. They went broke.” Yes, but what about the ones you short sold like there’s one called TFS, a forest Sandwood.
Ross Greenwood: Sandwood company.
Gerry Harvey: I believe that company is worth 600 to 800 million, they reduced it to zero. Now, I’m going to watch that company because my belief is that’s going to be rebirthed and it will be worth 600 to 800 million again. It’ll take a few years and then I’m going to go back and revisit that and try to prove that the short sellers destroyed 600 to 800 million of shareholder wealth to nothing. Then the ownership just transferred to other shareholders. If that’s not criminal, what the hell is?
If I can prove that in a few years because I can’t prove it straight away, it’s very difficult. On the front page of the Herald today, there’s an article about short sellers being prosecuted. That’s going to happen sooner or later because they’re so brazen and they’ve been getting away with so many things. I’ve got a lot of evidence that they don’t know I’ve got where I believe I could win if I sued them tomorrow. I’m holding off on that. Sooner or later this is all going to blow up because they’ve become so brazen. They think they can say and do anything and just get away with it.
Ross Greenwood: It’s always good to have you in the program. Gerry Harvey, the executive chairman, but also the driving force, you’d have to say, along with Katie Page behind the Harvey Norman. Always frank, always good with his time here on Money News. Gerry, I appreciate it this evening.
Gerry Harvey: Thanks Ross, good luck.
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