Friday 21st December 2001
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Peter Halkett: Firstly, I don't expect Appliance margins to improve given the competitive nature of the market. However, by continuing to reduce operating costs, expanding our Finance Company, entering new high margin categories e.g. Living & Giving and maintaining overall sales growth, profit as a percentage of total group turnover will steadily rise.
Peter Halkett: Big Byte is already trading at a level close to break-even point, despite a market wide slump in PC sales. Not bad for a new brand after only 3 months. A large amount of future growth in the appliance/consumer electronics sector is expected to come from digital, computer and Internet related products and services, therefore Big Byte has been developed and positioned accordingly. We aim to have about 8-10 Big Byte stores nationwide, however timing is ultimately determined by site acquisition requirements. I expect we will open 2-3 stores next year.
Peter Halkett: Historically PRF has simply provided Hire Purchase to the Appliance business, however earlier this year the board signed off a proposal to significantly expand the Finance business. PRF will grow 3rd party financing (providing hire purchase to other big ticket retailers) and also increase its range of finance offerings to include personal loans etc. A direct sales channel starts operations February 2002 and we will concentrate on existing database opportunities. As part of the plan an ongoing debenture offer to the public has been put in place to fund finance contracts and agreements that don't currently meet the specific criteria of the securitisation vehicle. As a result of the expansion reporting detail will be increased. Finally, currently 90% of PRF revenue is originated via the appliance business therefore spinning off is not appropriate for the foreseeable future.
Peter Halkett: We already have quite a few initiatives underway to maintain growth. For example, Finance Company expansion, Big Byte, Living and Giving, larger Noel Leeming and Bond & Bond stores, and Internet sales. In addition we are well positioned and funded to take advantage of other opportunities as they arise - we are actively pursuing suitable retail acquisitions.
Peter Halkett: No, but anything is possible - I wouldn't like to completely rule out this option.
Peter Halkett: The board is confident that investing in current and potential growth opportunities will deliver greater shareholder value than paying a dividend at this point in time. The improved performance over the last 18 months would support this approach.
Peter Halkett: Yes, I believe the AA forecast was fair and was based upon management information.
Peter Halkett: Lack of liquidity, controlling shareholder with 73%, lack of dividend payout and a legacy of over promising and under delivering.
Peter Halkett: Given our previous poor track record for meeting our financial commitments, at this stage of our turn-around, in the main we prefer to let the results speak for themselves.
Peter Halkett: Refer Q 8 above.
Peter Halkett: Refer Q 9 above plus our recent interim result has been widely reported and positively received by the market. In addition, the linkage with the AA valuation report was noted by several media commentators.
Peter Halkett: As at 30 November PRF had raised $13.2M (in approx 16 weeks) from the debenture offer.
Peter Halkett: Refer Q 3 above.
Peter Halkett: The securitisation structure is still in place and operates for most hire purchase agreements however as mentioned in Q 3 above not all financing activities can be funded via the existing arrangement.
Peter Halkett: Little impact, if any. I presume you are aware we now source the same basic products at similar prices from Thailand and China. In addition, we have now introduced (on an exclusive to PRG basis) Kelvinator and Mitsubishi whiteware so our overall whiteware offering is stronger than ever! This should mean higher sales and margins.
Peter Halkett: As you say, certain department stores have been on the back foot for a couple of years now. This appears to be a worldwide trend as department stores get squeezed in-between the discounters at one end e.g. Wal-Mart, Warehouse types and the specialists like us at the other. I don't believe discounting is the long term solution for middle market department stores, although, as they find this out they will make it tougher on their competitors at the same time as reducing their own profits even further. In my opinion, true department stores don't have a sufficiently low cost structure to profitably position on price. (A similar situation to the recent airline industry dramas) Without wanting to become over confident or complacent specialists have a genuine and sustainable point of difference, if executed correctly - width/depth of range, expertise, focus etc therefore I feel PRG is well equipped to defend our patch against the general merchandise retailers.
Peter Halkett: This is not a straightforward answer. Firstly, and not really the point of your question but we are progressively moving NL and BB out of malls - too expensive for the size of store we require. We run to two appliance chains because we can achieve much greater market share than we could with just one. The additional costs of running two chains is more than justified by the extra sales and scale benefits plus if we didn't operate say BB someone else would. Our stores are often in close proximity because we want our stores to be in the best possible retail locations and in many situations there is no feasible alternative within a defined market catchment. Our research shows appliance buyers visit 3.5 shops before they buy therefore clusters of similar stores types are proving popular with consumers. To separate our stores and put one chain in a less than desirable location simply limits our potential. Grouping our stores actually creates a destination and can therefore isolate our competitors. Take Wairau Park in Auckland as an example, it is arguably NZ premier big ticket shopping destination - if you're not there you will miss out on a lot of business.
ShareChat thanks Peter Halkett for taking part in this Investor Interview.
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