Harvey Norman Shareholders Not Sold On Earnings Announcement
Harvey Norman shareholders have responded negatively to the company’s announcement of a 25.9 per cent jump in pre-tax profit in the September quarter due to questions raised about how Harvey Norman handles loans to franchisees.
While the company reported profits lifting by $23.8 million to $115.6 million, shareholders and analysts remain cautious since Harvey Norman failed to address how much of the profit increase was affected by the forgiveness of loans to franchisees, or what the company calls ‘tactical support’.
The latest annual report from Harvey Norman in September revealed $943 million in franchisee loans for the first time. Proxy firm Ownership Matters reported that ‘financial accommodation’ to franchisees, including working capital, stock payments and overdue fees, rent and interest from franchisees totaled $594.9 million. The firm is calling for the accounts of franchisees to be voluntarily consolidated for greater transparency to shareholders on how profits are calculated.
$566 million in loans have been written off as ‘tactical support’ since 2011. Franchisee loans appear to have never been categorised as overdue, impaired or doubtful, according to the Financial Review.
Same store sales have grown by 6.5 per cent across Harvey Norman stores worldwide in the September quarter, down slightly from 7 per cent growth in the same period last year. Appreciation in the New Zealand dollar helped drive sales growth, while devaluation in the Euro, the Pound, the Singaporean Dollar and the Malaysian Ringgit had a negative effect from operations overseas.
Harvey Norman shares rose by 15 cents to $5.09 after the earnings announcement, but eventually fell to $4.93 at market close.