ASIC Finally Questions Harvey Norman About Franchise Operation & Questionable Accounts
The Australian Securities and Investments Commission has finally moved to question Harvey Norman management about their accounts which have been the subject of ridicule following their Annual General Meeting when Chairman Gerry Harvey told people questioning his accounts to “Piss Off”.
What ASIC want is more details about the failure of more than 100 Harvey Norman franchised stores and the warehousing of over $566million in debt. ASIC is also set to question Harvey Norman auditors Ernst & Young who approved the accounts.
At this stage Ernst + Young have refused to comment following several questions from independent crits such as the Australian Shareholders Association.
One of the big questions is whether the franchisees operate independently or are they controlled by head office who scoops all revenue every night into the Harvey Norman accounts.
At this stage, there is no suggestion Harvey Norman hasn’t adhered to the accounting standards, however several experienced organisations including proxy adviser Ownership Matters and the Australian Shareholders have serious reservations about the accounts.
In its latest report, Ownership Matters highlighted that Harvey Norman had advanced more than $943 million to its 673 franchisees and written off $566 million of these loans, which it refers to as “tactical support” in the past five years.
Gerry Harvey has also failed to explain why there was a need in the first place to write off millions for what appears to be a high failure rate of franchised stores.
The proxy adviser believes Harvey Norman should consolidate the financial accounts of the franchisees and provide shareholders with a clearer picture of the retailers’ group profits.
The Australian Shareholders’ Association called for Mr Harvey to resign this week and suggested the company should also change its auditor, prompting Mr Harvey to threaten to abandon annual meetings altogether.
Harvey Norman’s full-year profit jumped 30 per cent to $348.61 million last financial year compared to an 11.5 per cent increase in competitor JB Hi-Fi’s full-year profit to $152.2 million.
In the first quarter Harvey Norman’s preliminary profit rose 26 per cent to $115.6 million however same store sales rose 5.4 per cent, compared to 7.1 per cent in the same period last year.