Billionaire Gerry Harvey is licking his financial wounds because of the sharemarket crash. He’s a big equity holder and quickly calculates that Harvey Norman’s retreating share price during the past 12 months has stripped more than a $1 billion from his immense wealth.
But we’ll chat more about that later. Harvey is chairman of an international company generating billions of dollars in revenue each year – his Australian empire has about 200 outlets and 600 franchisees alone. Personally, Harvey is a substantial property holder, thoroughbred seller and breeder and beef exporter.
The father of four is 69, married to Harvey Norman managing director Katie Page and has no plans to retire.
Harvey is optimistic that Australia can avoid a recession. He believes falling interest rates and the Federal Government’s $10 billion stimulus package will sustain economic growth, but at a slower rate. “I think the Government acted relatively early and the economy is still in good shape with unemployment marginally above 4 per cent,” Harvey says.
But Harvey acknowledges danger signs are lurking and he expects unemployment to rise up to 7 per cent despite predicting the Reserve Bank will cut the official cash rate to between 3 and 4 per cent during the next 12 months. “If the US has two quarters of negative growth and then a positive quarter of 1 per cent growth, then Australia should avoid a recession,” Harvey says.
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“But say the US has four quarters of negative growth, then we might not be able to avoid a recession. These are things no one knows. No one can say, ‘I know what’s going to happen’. This is the most complicated financial situation (credit crunch) in 100 years, possibly ever. We didn’t have complicated derivatives at work during the 1929 stock market crash.”
The concrete evidence Harvey can offer of a slowing economy is reflected in declining sales at Harvey Norman stores. He says sales at his Australian outlets were down 5.8 per cent over a 28-day period to October 19 when compared to the same period last year. For the 28-day period ending October 12, sales fell by 4.7 per cent compared to the same period last year. Harvey is publishing monthly sales figures, saying they a reflection of activity in the wider economy as there is a Harvey Norman outlet in almost every town in Australia, where the population exceeds more than 10,000 people.
He says sales across his 14 stores in Ireland are down 30 per cent for the September quarter. “It’s catastrophic in Ireland and it will take time to turn around,” Harvey says. “The wider economy in Ireland has crashed. But sales in Singapore and Slovenia are up.”
Harvey says the fear factor in Australia is alive and well. “People are holding back, they’re not buying, they’re not going into debt. I suspect it’s the same at the local coffee shop and at car dealers.”
Harvey’s vast wealth has suffered from a substantial downturn in the Australian equity market, but he’s not crying poor. His own 312 million Harvey Norman shares (about 30 per cent of the company) have fallen from a 12-month high of $7.25 in November last year to recent $2.60 levels. He says he was buying Harvey Norman shares on the way down from their 12-month peak.
Harvey says: “I bought Harvey Norman shares at $4.55, then at $3.90. I thought Harvey Norman shares were good value at $4.55.” But it’s a “paper loss” Harvey is keen to point out for a company that also owns Domayne and Joyce Mayne outlets. The company owns property valued at $1.68 billion and its debt-to-equity ratio of 26 per cent makes it one of the lowest-geared companies on the ASX, Harvey says.
Harvey’s diversified share portfolio includes National Australia Bank, St George Bank, Macquarie Bank, Macquarie Airports, Macquarie Infrastructure Group, Babcock & Brown, Premier Investments, BHP Billiton, Cabcharge, CSR, Transurban Group, Foster’s Group, Monadelphous Group, Bradken, Brambles, Emeco Holdings, and Ausdrill.
“That’s the first page,” Harvey says.
Also included are Washington H Soul Pattinson & Company, IMF (Australia), Tower Australia Group, Beach Petroleum, Woodside Petroleum, Clough, Petsec Energy, AMP, Datadot Technology and Mark Sensing. Harvey says the last parcel of shares he bought was Ausdrill on February 18 this year.
He bought 2.5 million Emeco Holdings shares at 80c on January 31. He says he would have made a healthy profit had he sold his Emeco shares when they climbed to an intra-day high of $1.29 on May 29. But he didn’t sell and Emeco shares were trading at 69c on October 27. Harvey says most of his portfolio is losing money on paper, but he’s confident that “share values will go back to where they were”.
Harvey believes shares have been way over-sold in response to fear and panic during the global meltdown on equity markets. “You can either put your money into shares, property or cash,” Harvey says. “They say cash is king, but interest rates are dropping and so will the returns, not forgetting tax at the marginal rate. And, as a result, of lower rates, I don’t think the property market will be offering too much of a discount from here.
“Warren Buffett says it’s the best time to buy equities. History shows that investors who buy shares during past downturns do very well. It’s time to consider selling when taxi drivers suggest share tips because that’s when the market is trading at a peak. Shares at today’s prices give you a chance to double your money. History is telling us it’s a good time to buy.”
At age 69, Harvey says he still works between 50 and 60 hours a week for an annual salary of $500,000 a year. He’s critical of multi-million dollar chief executive packages and golden parachutes when shareholder value has been destroyed as a result of poor performance and decision making. He says executive salaries above $1 million a year are too much unless they are earned as an incentive from creating shareholder value.
He doesn’t have an issue with executives making millions of dollars when it can be justified on performance. He says ballooning executive salaries grew out of a boardroom culture that’s been “wrong for such a long time”. But given the slowing economic outlook in an ever-increasing challenging world, boards will be under pressure to keep executive salaries, pay increases and bonuses at much more modest levels.
“The game has changed,” Harvey says. “I get paid $10,000 a week; that’s two grand a day. Two grand is a lot of money for one day.”
But Harvey has numerous other investments and income streams. He says he has “lots of houses,” the family residence is in Sydney, with others on the Gold Coast and Byron Bay. He loves racehorses. He owns a 1000 of them – on three studs in New South Wales and one in New Zealand – kept up to speed by 40 trainers. One of Harvey’s horses Zagreb is entered in the Melbourne Cup, but a recent hoof injury makes him an uncertain starter. Zagreb was heavily backed to win this year’s $2.5 million Caulfield Cup before he was scratched.
Harvey and his good mate John Singleton also own the Magic Millions thoroughbred auctions held on the Gold Coast in January. Harvey says he sells half the thoroughbreds in Australia each year. “I’ve been involved in racing for 36 years,” Harvey says. “I love racing, breeding, selling and buying.”
He also loves cattle breeding. Harvey has 25,000 head of cattle and exports Wagyu-bred beef to Asia, Europe, Russia and Dubai. He says Wagyu beef fetches up to $600 a kilogram overseas and a heavily marbled steak sells for between $200 and $400 in a Japanese restaurant. He says Wagyu is the most expensive beef in the world, describing its distinctive flavour as “one of the world’s great delicacies”.
Harvey says he’s going to keep working for as long as possible. “I do a bit of exercise every day and I enjoy playing tennis, golf and doing the garden. I eat my fruit and vegies. Why would I retire, I have a lot of interests.”
It’s been one successful journey for Harvey who, along with Ian Norman, opened their first store in the Sydney suburb of Arncliffe in 1961.