Irish people love Harvey Norman -- and we're not going anywhere
But shareholder patience is wearing thin as losses grow
Published 20/05/2010 | 05:00
KATIE Page isn't particularly happy. Not for the first time, she's trying to convince a journalist that the Australian electrical and homeware chain Harvey Norman does not intend to pull out of Ireland, despite having a torrid time here.
As group chief executive of the business that her husband Gerry Harvey co-founded with long-time business partner Ian Norman in 1982, Page has the assured sales patter that belies what can so far be reasonably considered a pretty disastrous foray into the Irish market.
The company's Irish arm has only ever made an annual profit once since the retailer opened its first store here in 2003.
In the six months to the end of last December, it posted an €11.2m trading loss in Ireland, where it has 16 stores -- two of them in Northern Ireland -- and employs around 850 people.
But Page is not for turning.
"We can only keep saying we're staying here," she insists, speaking at the company's store in Carrickmines, Dublin, which has been recently renovated and has had its staff retrained with the aim of getting the business on track
"Harvey Norman is a public company, so our results are published," says Page, who describes her staff as "big-picture people".
"Obviously that means the struggles in Ireland over the last two years are well known, but we're not going anywhere. You just have to look around here to see the level of investment we are still making in Ireland."
Indeed. The company, which is Australia's largest furniture and electrical retailer, has invested a stack of money in Ireland.
But even plain-speaking Gerry Harvey, executive chairman of the group, has on more than one occasion publicly cursed the decision ever to enter the Irish market.
Page says the company is a "long-term player" here and that she recently told a delegation of 40 businesses to Australia the same thing.
"I told them, 'I don't know what you heard but we are staying.' Unfortunately, Ireland has been hit badly by the recession but I can't say anything else.
"We have a good model, Irish people love Harvey Norman, we've done the focus groups and our market share is through the roof.
"We talk to bankers, economists and the Irish Government and the outlook for this country next year is very positive."
But whether a return to meaningful growth can really come quickly enough for Harvey Norman is one of the big unknowns.
The business is grounded in the very types of consumables that hard-pressed shoppers are understandably loathe to commit to buying when their jobs might be on the line.
Even if the immediate threat of losing their jobs is allayed, a return to the devil-may-care splurges of the past decade is simply not going to happen.
According to data from the Central Statistics Office, the value of electrical goods sold in Ireland fell 5.2pc year-on-year in March, although the volume of sales climbed 5.6pc.
Sales of furniture and lighting, however, rose 9.1pc in value terms and 20.2pc on a volume basis in March.
In value terms, the sales of furniture and lighting were still about 25pc lower than they were in 2005 and in volume terms 4pc lower.
"You've gone through a lot of pain but that's beyond our control and it's beyond your control," says Page.
"It would be nice if the country did not go through what it has but those are the facts."
She adds that the company has an "obligation" to make its investment in Ireland work.
It has been speculated that it will 2012 or 2013 before the group breaks even here. The group also has stores in Slovenia, New Zealand, Malaysia and Singapore.
Meanwhile, Harvey Norman also has an obligation to shareholders, who until now have displayed remarkable forbearance regarding the group's performance in Ireland and a languishing share price amid newly struggling sales growth. But that patience could now be starting to wear thin.
Last month, Harvey Norman top brass were left red-faced after they were forced to pull a planned extraordinary general meeting that aimed to pass proposals to issue 17.5 million new executive share options.
Page was set to receive 4.5 million options and her husband three million, exercisable between 2013 and 2017.
After a round of meetings with institutional shareholders, the EGM was hurriedly scrapped when it was spelled out to management that the resolutions would not be backed.
Investors weren't impressed that the options were priced below previous option prices and that the vesting criteria weren't particularly onerous.
Just a cumulative 5pc annual increase in earnings per share (EPS) during the qualifying periods would have resulted in 50pc of the options being exercisable.
While EPS growth at the group was strong between 2006 and 2008, the figure declined sharply last year, by over 40pc.
Gerry Harvey, who alone still owns about 30pc of the group that has a market capitalisation of about $3.5bn (€2.4bn), also said he'll meet investors and analysts over the next year to convince them that the company shouldn't spin off its property assets and associated management functions in a separate listing in an attempt to realise value and release the company from what some shareholders think shouldn't be a core discipline.
Whether it will be enough to quell any wider shareholder dissent over the retailer's strategy -- including its continuing presence in Ireland -- is unclear.
One thing is certain: if Harvey Norman could turn its Irish operations around, its executives and institutional shareholders might sleep a bit easier.
To a large extent, that unenviable task of revitalisation now lies on the shoulders of Blaine Callard, an Australian native who was parachuted into Ireland from the firm's Slovenian operations earlier this year to take charge of the task at hand.
He has his work cut out but will no doubt be eager to prove his mettle once more.
To be fair, he's facing a challenge mirrored by every other retailer in the space in Ireland.
Callard has already said that Harvey Norman's sales in Ireland are "encouraging". In the six months to the end of December, the firm's sales here rose 2pc to €75.3m.
Meanwhile, in a display of incredible optimism, Katie Page even says there's scope for expansion in Ireland.
"During a recession, certain things become available that weren't there before," she explains.
"We're a cashed-up company and if you look at our results in the rest of the world, we've come through this really well.
"As a company, we've got very low debt, so we have money and the ability to pick up new sites.
"Rents here are getting lower than they were and that's a really big issue for us, so if we can pick up some sites at good prices, then that's terrific."
"The door remains open for expansion. All good companies that are cashed up take that opportunity to grow when others haven't got the money and when you see the uptick you can take advantage of that."
Realistically though, Harvey Norman has to get its current house in order before building an extension.
That's not going to be easy, but the company seems determined to make the Irish market work. Ireland is a natural springboard to Britain, so if it can get things right here then perhaps bigger things beckon.