JB Hi-Fi Ltd. is a retail company which deals mainly in domestic consumer products independent destination sites, online stores and shopping centers. JB Hi-Fi was founded in 1974 by John Barbuto and currently its headquarters are at Melbourne, Australia (Bloomberg, 2018a). The company is segmented into three parts, JB Hi-Fi Australia, The good Guys and JB Hi-Fi New Zealand. With a total strength of 12,200 employees, JB Hi-Fi’s annual revenue stands to be AUD 6.85 billion (Bloomberg, 2018a).
The engagements of Harvey Norman Holdings Ltd. are primarily in franchise, retail, digital enterprise and property business. It has several franchising operations and its retail business are based in countries like New Zealand, Singapore, Malaysia, Croatia, Slovenia, Ireland, etc. The non-franchised retail business is also a part of the company’s operations. Harvey Norman also engages in Retail property business, Resale property developments, Investments in equity and much more. Ian John Norman and Gerald Harvey together founded Harvey Norman in 1982, October (Bloomberg, 2018b). Currently the firm is located at Sydney, Australia, where it has its headquarters. With a total of 5420 employees, the company’s annual revenues are AUD 1.99 billion.
JB Hi-Fi has several major shareholders who have more than 5% shares in the company. Ellerston Capital Ltd. owns 10.7% equity shares of the company which is equivalent to 12,262,159 equities (Market Screener, 2018a). An investment management company known as Pendal Group Ltd. has 8.26% shares in the company which is equal to 9,491,899 shares. Legg Mason Asset Management Ltd. of Australia owns 8.17% of the equity shares of JB Hi-Fi which is around 9,383,770 shares. A total of 8,884,202 shares is owned by AustralianSuper Pty Ltd. in the company which is equivalent to 7.73% of the total equity shares (Market Screener, 2018a). UniSuper Ltd. owns about 7.51% of the total shares of the company that amounts to be 8,623,136. A total of 7,640,264 equity shares are owned by Airlie Funds Management Pty Ltd. which forms 6.65% of the total shares and finally Health Employees Superannuation Trust Australia owns 5.14% shares in the total shares of Hi-Fi. Their shares amount to be 5,908,167 (Market Screener, 2018a).
There are several shareholders of the company Norman Harvey. These are, firstly, the company’s executive Chairman himself, Gerald Harvey who owns 370,317,267 shares which is equal to 31.4% of the total equity shares (Market Screener, 2018b). Estate of Ian John Norman owns 194,107,477 shares of the company which is equal to 16.5% of the total shares. No other shareholder of the company holds more than or even 5% of the total number of shares of the company. However, Harvey Norman has several holdings, which hold some of the shares of the company. These companies are Gazal Corporation Limited, Brisco Group Limited and Eclipx Group Ltd. But, only Gazal Corporation Ltd owns more than 5% shares of the company, that is 9.33%, which is equivalent to a total of 4,165,656 shares (Market Screener, 2018b). These shares are valued at an estimated value of 12,459,186 USD.
The executive management of JB Hi-Fi is formed by the fourteen key people of the company. These are: Richard Murray (Executive Director, Chief Executive Officer and Group Chief Executive Officer), Nick Wells (Chief Financial Officer), Simon Page (Chief Information Officer), Peter Green (Operations Director), Tim Carter (Director-Supply Chain & Solutions), James Saretta (Director-Strategy & Digital), Gregory Richards (Chairman), Stephen Thomas Goddard (Independent Non-executive Director), Mark D. Powell (Independent Non-executive Director), Beth May Laughton (Independent Non-executive Director), Cameron Trainor (Managing Director), Doug Smith (Secretary & General Counsel), Wai Foon Tang (Independent Non-executive Director) and Richard Anders Uechtritz (Independent Non-executive Director) (JB Hi-Fi Limited, 2018b).
The executive management of Harvey Norman is formed by the eleven people of the company. These are: Gerald Harvey (Executive Chairman), Kay Lesley Harvey (Chief Executive Officer & Executive Director), John Evyn Slack-Smith (Chief Operating Officer & Executive Director), Chris Mentis (CFO, Secretary & Executive Director), Gordon Ian Dingwall (Chief Information Officer), Martin L. Anderson (General Manager-Advertising), Michael John Harvey (Non-Executive Director), David Matthew Ackery (Executive Director), Christopher Herbert Brown (Non-Executive Director), Graham Charles Paton (Senior Independent Non-Executive Director) and Kenneth William Gunderson-Briggs (Independent Non-Executive Director) (Harvey Norman, 2018a).
The directors of JB Hi-Fi who form Director’s Board are, Richard Murray (Executive Director, Chief Executive Officer and Group Chief Executive Officer), Gregory Richards (Chairman), Peter Green (Operations Director), Nick Wells (Chief Financial Officer), Simon Page (Chief Information Officer) (The Wall Street Journal, 2018a). There are five independent non-executive directors of the company. They are, Richard Anders Uechtritz, Beth May Laughton, Wai Foon Tang, Stephen Thomas Goddard and Mark D. Powell.
The Board of Directors of Harvey Norman Ltd. is formed by seven key people. These are namely, Gerald Harvey (Executive Chairman), Kay Lesley Harvey (Chief Executive Officer & Executive Director), John Evyn Slack-Smith (Chief Operating Officer & Executive Director), Chris Mentis (CFO, Secretary & Executive Director), Michael John Harvey (Non-Executive Director), David Matthew Ackery (Executive Director) and Christopher Herbert Brown (Non-Executive Director) (The Wall Street Journal, 2018b).
The executives of JB Hi-Fi receive incentives that are fixed, long-term incentives as well as short-term incentives. The aggregate remuneration of the non-executive director for the financial year 2018 was determined to be $1,500,000. The remuneration of the chairman is $300,000 whereas the same of the Non-executive director was $134,000 (JB Hi-Fi Limited, 2018c). The total compensation of all the executives and non-executive directors are shown in the table below:
|
Executives |
Total Compensation & Fees ($) |
|
R. Murray |
3,361,543 |
|
C. Trainor |
2,026,874 |
|
T. Smart |
2,241,345 |
|
N. Wells |
1,234,856 |
|
T. Carter |
1,136,427 |
|
J. Saretta |
1,042,755 |
|
Non-executive directors |
Total Compensation & Fees |
|
G. Richards |
325,000 |
|
B. Laughton |
180,000 |
|
W. Tang |
164,000 |
|
R. Uechtritz |
134,000 |
|
S. Goddard |
150,000 |
|
M. Powell |
150,000 |
The compensation of the Directors and Non-Executives of Harvey Norman Ltd. is shown as under:
|
Executives |
Total Compensation & Fees ($) |
|
G. Harvey |
955,797 |
|
K. L. Page |
3,128,446 |
|
J. E. Slack Smith |
2,141,342 |
|
D. M. Ackery |
2,141,342 |
|
C. Mentis |
1,742,875 |
|
M. J. Harvey |
60,000 |
|
C. H. Brown |
145,000 |
|
K. W. Gunderson-Briggs |
173,873 |
|
G. C. Paton |
145,000 |
|
Non-executive directors |
Total Compensation & Fees |
|
T. J. Scott |
604,433 |
|
M. Anderson |
347,730 |
|
G. I. Dingwall |
492,749 |
|
R. Nelson |
72,668 |
|
A. Calpakam |
396,417 |
|
H. I. Myers |
138,308 |
|
L. Roach |
320,359 |
|
G. V. D. Vegt |
– |
|
F. Robinson |
485,792 |
JB H-Fi Limited has its equities in Share A, where it has a total number of 114,883,372 shares (Market Screener, 2018a). Out of these shares, 93.5% are floating shares, which means, 107,398,194 are floating shares. Voting rights are given to shareholders which is one per share. For the beginning of the financial year 2016, the total equity of JB Hi-Fi was $404.7 m. The comprehensive income for that year was $171.2m. The balance of equity at the end of the year was $853.5 m which was the opening balance for 2017 (JB Hi-Fi Limited, 2018c). The total comprehensive income then was $233.8 m. Finally, the closing balance of the equity stands to be $947.6m.
Harvey Norman Limited also has its equities in Share A, where it has a total number of 1,179,729,435 shares, out of which, 57.1% are floating shares, meaning, 674,027,274 are floating shares (Market Screener, 2018b). Here also, voting rights are given to the shareholders which is one per share. The opening equity balance for the financial year 2016 of the company was $2,688,674. The comprehensive income for year was $470,191. The balance of equity at the end of the year was $2,812,907 which was the opening balance for 2017 (Harvey Norman, 2018b). The total comprehensive income then was $390,871. The closing balance of the equity of the company was $2,937,932.
The total debt of JB Hi-Fi stood to be $2491.7m for the year 2018 which was $2459.8m in the previous year, meaning there has been an increase in the total debt JB (Hi-Fi Limited, 2018c). The total debt of the company is constituted by, Short-term debts such as trade payables, deferred revenue, provisions, and tax liabilities; Long-term debts like Borrowings, deferred revenue and tax liabilities and long-term provisions. The total equity of the firm stood to be $947.6m for the year 2018 which was $853.5m in the previous financial year (Hi-Fi Limited, 2018c). The total equity is constituted of Contributed equity, reserves and retained earnings.
The total debt of Norman Harvey was $2491.7m for the year 2018 which was $2459.8m in the previous year, meaning there has been an increase in the total debt (Harvey Norman, 2018b). The contribution to the company’s total debt was made by trade payables, interest bearing loans and borrowings, income tax liabilities, provisions and deferred tax. The loans and borrowings included secured and unsecured loans. The secured loans included bank overdraft, commercial bills payable and lease liabilities. The unsecured loans contained derivatives payable and non-trade amounts owed to directors and some related & unrelated parties. The maximum repayment period for the commercial bills was 180 days (Harvey Norman, 2018b). The repayment date of the syndicated payment agreement was December 4, 2020. The maturity date for the other short-term borrowing was December 4, 2018.
The Board of the company JB Hi-Fi sets its dividend policy which is reviewed as and when it is considered appropriate by the Board and the members (JB Hi-Fi Limited, 2018a). For the year 2018, final dividend for fully franked shares of $0.46 each share was paid on 7 September 2018. While, for the previous year, i.e., 2017, the same was paid for fully franked shares of $0.46 each share as well. It was paid on 8 September 2017 (JB Hi-Fi Limited, 2018a). For 2018, the interim dividend paid was $0.86 per share whereas for the previous year, it was $0.72 per share.
The directors of Norman Harvey recommended to pay a final divided of fully franked share of $0.18 each share which was ton be paid on 2 November 2018 (Harvey Norman, 2018b). The same for the previous year was $0.30 per share. The dividend policy of the firm is payment of such dividends without compromising with the company’s capability of executing strategic objectives.
JB Hi-Fi decided to take over The Good Guys in September, 2016. It was a $870 million acquisition which was proposed with an intention and target of sharing a market edge of the latter company, Harvey Norman in the market of domestic appliances (Sydney Morning Herald, 2016). The deal of buying and taking over the Good Guys raised the share of JB Hi-Fi to 29 per cent as compared to that of Harvey’s which was 24 per cent. The deal also boasted the combined network of the company’s consumer electronics branch. There was a total of 295 stores which increased the market share for consumer electronics by 24 per cent, whereas the same for Harvey was only 15 per cent.
Financial strength of a company can be efficiently measured by using three essential factors. They are, the interest coverage which is measured by the debt burden, the debt to revenue ratio and, the Altman z-score. JB Hi-Fi’s operating income for the year 2018 stood to be $ -595.28 million and its interest expenses for the financial year end of 2018, was $ -6.22 million (Hi-Fi Limited, 2018c). The long-term debts and obligations were $351.87 million for the same period of time. Hence, JB Hi-Fi was not left with any kind of amount for covering and paying the interest expenses. The revenue of the company was $2372.189 million for the year 2018 (Hi-Fi Limited, 2018c). So, the debt to revenue ratio was 0.15. The Altman Z-score is a formula that has been developed for predicting and forecasting bankruptcy or any sort of failure of a company within the next two years (Siddiqui, 2012). It is often considered as the distress assessment of industrial firms (Altman, Iwanicz?Drozdowska, Laitinen & Suvas, 2017). The Z-score of JB Hi-Fi is 4.66 which indicates that it is in the safe zones, implying its Z-score is very strong. Hence, the company has lesser chances of getting bankrupt in the next two years.
Norman Harvey’s operating income for the year 2018 stood to be $ -576 million and its interest expenses for the financial year end of 2018, was $ -10 million (Harvey Norman, 2018b). The long-term debts and obligations were $377 million for the same period of time. Hence, Norman Harvey was also not left with any earnings for covering and paying the interest expenses. The revenue of the company was $879.534 million for the year 2018. So, the debt to revenue ratio was 0.79, which is way higher than JB Hi-Fi (Harvey Norman, 2018b). The Z-score of Norman Harvey is 3.11 which indicates that it is almost in the safe zones, implying its Z-score is also strong. Hence, the company has lesser chances of getting bankrupt in the next two years. Both, JB and Norman have nearly similar stats and financial strength.
The current stock price of JB Hi-fi is AUD 23.30 per share which has gone up by 0.65% (The Wall Street Journal, 2018c). The Price to earnings ratio is 11.58, whereas the Earnings per share is $2.01. the market capital of the company is $2.70 billion. JB Hi-Fi is currently having an outstanding shares amount of 114.88 million shares whereas the public float is 107.13 million (The Wall Street Journal, 2018c). The average yield was measured to be 3.95%.
Figure 2: JB H-Fi’s Stock values over the five years
The present stock price of Norman Harvey is AUD 3.105 per share which has increased by 0.49% (The Wall Street Journal, 2018d). The P/E ratio is 9.37, whereas the EPS is $0.33. The market capital of the firm is $3.66 billion. Norman Harvey is presently having an outstanding share of 1.18 billion shares whereas the public float is 513.48 million (The Wall Street Journal, 2018d). The average yield was determined to be 11.59%.
Figure 2: Norman Harvey’s Stock values over the five years
Even though both the companies have totally different statistics, as one has higher price for each share of stock and other is very much lower, but the profit yield is higher for one whereas the other has lesser, yet it can be said that it is profitable to invest in either of the companies. However, looking at the yield, it can be said that buying the shares of Norman Harvey would be beneficial.
References
Altman, E. I., Iwanicz?Drozdowska, M., Laitinen, E. K., & Suvas, A. (2017). Financial Distress Prediction in an International Context: a Review and Empirical Analysis of Altman’s Z?Score Model. Journal of International Financial Management & Accounting, 28(2), 131-171.
Bloomberg. (2018a). Company Overview of JB Hi-Fi Limited. Retrieved from: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=1319678
Bloomberg. (2018b). Company Overview of Harvey Norman Holdings Limited. https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=6478902
Harvey Norman. (2018a). Company Profile. Management Structure. Retrieved from: https://www.harveynormanholdings.com.au/management-structure/
Harvey Norman. (2018b). Reports and Announcements. Annual Report to Shareholders. Retrieved from: https://www.harveynormanholdings.com.au/reports-announcements-1/
JB Hi-Fi Limited. (2018a). Investors. Dividend Policy & History. Retrieved from: https://investors.jbhifi.com.au/dividend-policy-history/
JB Hi-Fi Limited. (2018b). About Us. The Executive Team. Retrieved from: https://investors.jbhifi.com.au/the-executive-team/
JB Hi-Fi Limited. (2018c). Investors. Annual Reports. Retrieved from: https://investors.jbhifi.com.au/annual-reports/
Market Screener. (2018a). Australian Securities Exchange Limited. JB HI-FI LIMITED (JBH). Retrieved from: https://www.marketscreener.com/JB-HI-FI-LIMITED-6496641/company/
Market Screener. (2018b). Australian Securities Exchange Limited. HARVEY NORMAN HOLDINGS LIMITED (HVN). Retrieved from: https://www.marketscreener.com/HARVEY-NORMAN-HOLDINGS-LI-6491354/company/
Siddiqui, S. A. (2012). Business bankruptcy prediction models: A significant study of the Altman’s Z-score model.
Sydney Morning Herald. (2016). JB Hi-Fi buys The Good Guys to create electronics giant. Retrieved from: https://www.smh.com.au/business/companies/jb-hifi-buys-the-good-guys-to-create-electronics-giant-20160913-grf68t.html
The Wall Street Journal. (2018a). JB Hi-Fi Ltd. JBH (Australia: Sydney) Retrieved from: https://quotes.wsj.com/AU/XASX/JBH/company-people
The Wall Street Journal. (2018b). Harvey Norman Holdings Ltd. HVN (Australia: Sydney) Retrieved from: https://quotes.wsj.com/AU/XASX/HVN/company-people
The Wall Street Journal. (2018c). JB Hi-Fi Ltd. JBH (Australia: Sydney) Retrieved from: https://quotes.wsj.com/AU/XASX/JBH
The Wall Street Journal. (2018d). Harvey Norman Holdings Ltd. HVN (Australia: Sydney) Retrieved from: https://quotes.wsj.com/AU/XASX/HV
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