GERRY Harvey might not have heard of the phrase "omni channel strategy" until a couple of days before his results were released, but Insider can take a stab at its source. In reporting its surprisingly stable result for the December half-year, Harvey Norman mentioned that it had just been named the third most valuable brand in the Asia Pacific region in the annual Interbrand survey.
The retailer mentioned that on the same presentation slide in which it introduced the "omni channel" words which anyone who has ever met proprietor Gerry Harvey knows are unlikely to ever fall from his plain-speaking lips.
The retailer's explanation of what the heck is an omni channel described it as "we seamlessly integrate the customer experience across all channels".
Insider is fairly sure they must be on the right track because, according to the Interbrand report, US giant Walmart changed its behaviour in 2011 because customers want "a consistent, seamless shopping experience in store and online". Snap.
What Harvey Norman did not mention in citing its Interbrand ranking was that it was third in 2011 as well, but the value of its brand was assessed as being worth almost $25 million less at $873 million.
The report also suggested that Harvey Norman "needs to develop a stronger, more unique brand positioning in 2012" to hold its position. Then again, last year Interbrand noted that "Mr Norman" had called for a sales tax on internet purchases. Four out of the top five Asia Pacific retailers were Australian, led by Woolworths with a brand value of $4.2 billion. Myer came in at No. 4, with an estimated brand worth of $599 million, which means that Bernie Brookes leap-frogged competitor Paul Zahra at David Jones where more than $50 million of value was shed to finish at $562 million.
Meanwhile, back at the omni channel, Harvey seems to have a timely ruling by the ATO to thank for being able to make its net profit look much less dank for the half-year. Harvey Norman paid a tax rate of only 20 per cent in the six months, its bill falling from $64.6 million to $32.6 million. The first $10 million of that was just because it earned less money. Another $7 million came from it reversing some provisions for potential capital gains tax on properties.
The clincher though was $12.3 million of benefits, allowed by the ATO in an "Advance Pricing Agreement" dated February 6, and relating to money the retailer has had to pump into its Irish businesses. At least, though, they cut their losses $2 million there to $15.7 million.
While Harvey Norman's depressed performance from its franchisees was partially offset by property contributions, Insider cannot help wondering how long that can persist if retail conditions do not improve.
Of the $512 million received from franchise operations in the half, $109 million was rent. Franchise fees from its in-store tenants were down $30 million to $386 million. If those franchisees continue to lose sales, their ability to keep paying the rent becomes problematic.
The retailer also said it had an additional $126 million of loans out to its franchisees at balance date, money advanced to buy in computer and digital camera stocks that it said were taken on to head off potential shortages thanks to last year's floods in Thailand. That ought to rebalance itself by year's end, but if those loans are still high because selling conditions have not improved, it will be interesting to see how Harvey Norman handles the financing arrangements.
Man overboard, again
YET another man went overboard at marine safety products group Mobilarm yesterday when chairman Richard Allen stepped aside the day after the company posted a $1.7 million loss for the half. Allen was replaced by Briton David Marshall, whose business Mobilarm bought last June for a mix of cash and shares. That completes a clean sweep of the executive suite since current chief executive, and substantial shareholder, Ken Gaunt took a board seat last September.
At that time the chief executive, Lindsay Lyon, stepped off the board but kept his executive position. In early January, he handed the CEO role to Gaunt, while managing director Brenton Scott reverted to just being a non-executive director.
There has been so much shuffling at Mobilarm that when Allen's departure was announced yesterday, the phone number attached for Gaunt was actually Lyon's.
Shares listing
MANAGEMENT buyout announcement long-suffering shareholders = share price rally. Sadly, not if you have what could laughingly be called an investment in Hydrotech International.
After the plan was announced yesterday, shares in the concrete waterproofing company leaked two-thirds of their value, plunging from an already ordinary 0.5? to 0.2?.
Small wonder they fell because Hydrotech's Hong Kong-based managers Francis Lung and Tony McKee are not offering to buy any of the equity just the company's struggling business, and only that by repaying $100,000 owed to the company's chairman, Philip Gray.
Existing shareholders not only get nothing, they are now dependent on the board finding something else to do including retiring the other $US650,000 of money that Gray has put into the company to keep its head above water. Members of the board other than the bidders have recommended the deal and by Insider's calculation they speak for more than 20 per cent of the equity.
Some of what little cash Hydrotech still has will now have to be spent on an independent expert's report.
Hydrotech has a deficiency of assets of $370,000, and its market worth of less than $1 million means investors would have been better off buying a bathing box at least they could then choose their dunking.
Judgment call
OWNERSHIP Matters' Martin Lawrence rightly pointed out to Insider yesterday that Seven Group's charges against profit on its Seven West Media stake were impairments, rather than "mark to market" effects.
The difference is that Seven Group owns more than 30 per cent of Seven West, making it an associate.
That does not, though, change Insider's argument that impairments based on volatile market values distort profit and loss statements, and that the real test perhaps should be whether the board considers such a fall in price to be a permanent fall in value of the shares.
That is the sort of judgment that boards wrestle with all the time particularly the worth of their own stock, such as in the current case of Billabong International, when bidders come a-knocking and they have to determine whether an offer is pitched at reasonable value.
Seven Group displayed that judgment itself last year when it sought to mop up the relatively illiquid shareholding rump in National Hire, where it offered a substantial premium (some say still not enough) to the previous market price.
Harvey seems to have a timely ruling by the ATO to thank for being able to make its net profit look much less dank for the half-year.
Frequently Asked Questions about this Article…
What did Harvey Norman mean by an "omni‑channel strategy" and why does it matter for investors?
Harvey Norman described an omni‑channel strategy as "seamlessly integrate the customer experience across all channels," meaning it aims to deliver consistent shopping whether customers buy in store or online. For investors, omni‑channel execution matters because it can help protect sales and brand value as customer shopping habits shift between physical and digital channels.
How was Harvey Norman ranked in the Interbrand report and did its brand value change?
The Interbrand survey named Harvey Norman the third most valuable retail brand in the Asia‑Pacific region. The article notes the brand was also third in 2011 but that its assessed value was lower this time — about $873 million, roughly $25 million less than previously.
How did a ruling from the ATO affect Harvey Norman's reported half‑year profit and tax rate?
Harvey Norman paid an effective tax rate of about 20% for the half, with its tax bill falling from $64.6 million to $32.6 million. That reduction included $10 million because the company earned less, a $7 million reversal of provisions for potential capital gains tax, and a $12.3 million benefit from an ATO Advance Pricing Agreement related to funds in its Irish businesses — all of which made net profit look better for the period.
What risks do franchisee results pose to Harvey Norman's earnings and cash flow?
A large part of Harvey Norman's franchise income comes from rent and fees; of the $512 million received from franchise operations in the half, $109 million was rent and in‑store franchise fees fell $30 million to $386 million. If franchisees keep losing sales, their ability to pay rent or franchise fees — and repay loans advanced by the group — could weaken, putting pressure on Harvey Norman's earnings and cash flow.
Why has Harvey Norman advanced loans to franchisees and how big are those loans?
Harvey Norman had an additional $126 million of loans outstanding to franchisees at the balance date. Much of that was advanced to help franchisees buy computer and digital camera stock that the company said it took on to head off potential shortages following Thailand's floods; the company expects that position to rebalance by year‑end if selling conditions improve.
What executive changes occurred at Mobilarm after it reported a loss?
After Mobilarm posted a $1.7 million half‑year loss, chairman Richard Allen stepped aside and was replaced by Briton David Marshall. The business has seen extensive executive reshuffling over recent months, including Ken Gaunt moving onto the board and into the CEO role, Lindsay Lyon keeping an executive position but stepping off the board earlier, and Brenton Scott reverting to a non‑executive director role.
What happened to Hydrotech International's share price following its management buyout announcement?
Shares in concrete waterproofing company Hydrotech plunged about two‑thirds after the management buyout plan was announced — falling from roughly 0.5 to about 0.2. The deal offered existing shareholders little direct equity value, and the bidders were only buying business assets by repaying a small debt to the company's chairman.
What point does the article make about impairments and investor judgment using Seven Group as an example?
The article highlights that Seven Group recorded impairments (not mark‑to‑market adjustments) on its holding in Seven West Media because it owns more than 30% of the business, making it an associate. It argues impairments based on volatile market values can distort profit and loss statements and that investors should consider whether a board views a price fall as a permanent loss of value — a judgment companies face regularly when assessing associates or deciding on offers for their own shares.
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