Back in February, billionaire retailer Gerry Harvey implored investors to “sell your boat, sell your car, sell your house, buy Harvey Norman shares” after the market wiped 12.45 per cent off the company’s value in one session, responding to its weaker than expected first-half result (which was in no small part down to the $20.67 million write-down of, and $4.57 million trading losses from, Harvey Norman’s inexplicable 50 per cent stake in a Coomboona dairy farm).
“They’re all mad,” Gerry insisted. “If the share price goes down to $4 then sell your house.” It closed last week at $3.65.
Because four weeks later, on March 23, Harvey tipped Coomboona into administration. In response, soon after, senior lender National Australia Bank appointed receivers. At that point (as of December 31), Coomboona owed Harvey Norman $28.76 million.
But then 11 days ago, Harvey Norman announced that Coomboona now owed it $37.9 million and that it had fully assumed Coomboona’s debt to NAB of $36.06 million (for the tally, that’s total debt accrued by Harvey Norman of $73.15 million). That’s right, Gerry is using the funds of Harvey Norman shareholders to wear 100 per cent of the most senior debt of a tangential basket case it only owns half of (the bromance with joint venture partner Alex Arena being well and truly over). And at 100 cents in the dollar!
This extraneous amusement (no more congruous than the $45 million Harvey Norman set on fire buying mobile accommodation, or dongas, for mining towns) Gerry has saddled his minority shareholders with is fast becoming an epic sinkhole. Given Harvey Norman’s equity contribution to Coomboona already stood at $33.88 million (now written down to zero), that is now $107.8 million of loot down the drain – around $45 million of which has been dusted in the five months of calendar 2018.
But that’s certainly not the final balance of total losses here. There is up to $7.8 million still owed to creditors, including the poor bloke at Bolton’s Hoof Trimming who’s sitting on an outstanding invoice of $16,579.64 (that’s gotta be a helluva lot of bovine pedicures).
And these cows still need to be fed and milked, in a business now running at an annual (implied) loss of $18.12 million a year.
Coomboona has real assets and by all accounts it’s a ripper property with a permit for up to 6000 cows. It could fetch in the vicinity of $50 million. Although the longer the huge operating losses accumulate, the lower that number is going.
For Harvey’s fellow HVN shareholders, his latest double-down will destroy more of their capital. Why? If it’s to salvage Gerry’s reputation in the front bar of the Coomboona Hotel, he should damn well pay for it himself.
Compare that $45 million cash outflow since December 31 to fund this crazy foray with the $22.5 million Harvey Norman saved by cutting its dividend by 2¢ a share (which no doubt contributed significantly to pushing the share price below the $4 “sell your caravan” mark). It’s a dead set outrage.
By: Joe Aston
Source: Financial Review