FOR THE HALF-YEAR ENDED 31 DECEMBER 2018 For personal … · Ikano, Kuala Lumpur, Malaysia Zagreb, Croatia INTERNATIONAL SUCCESS OPENING NEW AVENUES ... location for introducing new

ANALYST PRESENTATION FOR THE HALF-YEAR ENDED

31 DECEMBER 2018

ACN 003 237 545

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CONTENTSFlagship Strategy Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Key Financial Highlights HY19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Our Strategy for Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Reported Profit Before Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Underlying Profit Before Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Key Statistics: Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Outstanding Performance Overseas . . . . . . . . . . . . . . . . . . . . . .13

Headline & Comparable Aggregated Total Sales Revenue . . . 16

Franchisee Aggregated Sales Revenue . . . . . . . . . . . . . . . . . . . 17

Segment Analysis: Franchising Operations . . . . . . . . . . . . . . . . 18

Segment Analysis: Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Review of the Income Statement . . . . . . . . . . . . . . . . . . . . . . . . 21

Review of the Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Review of the Statement of Cash Flows . . . . . . . . . . . . . . . . . .24

Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Auburn Flagship Complex, NSW

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FLAGSHIP STORES

THE BEST STORES IN THE WORLD

At Harvey Norman, we strive to continually deliver the highest levels of quality, value and service for our customers. These principles inform every facet of our business, from top to bottom, and it is with these principles in mind that we devised our Flagship strategy .A Flagship store should represent the pinnacle of achievement for a brand, while also setting the course for the future. Our Flagship stores feature the latest innovations and designs, with the biggest range of quality brands and products, and offer a level of customer service that is unsurpassed in the industry .

8 COUNTRIES – 8 FLAGSHIP STORESTHE FLAGSHIP

EXPERIENCE

Auburn Flagship Store, Australia

Zagreb Flagship Store, Croatia

Wairau Park Flagship Store, New Zealand

Auburn, Australia Wairau Park, New Zealand Millenia Walk, Singapore Ljubljana, Slovenia

Tallaght, Ireland Boucher Road, Northern Ireland Ikano, Kuala Lumpur, Malaysia Zagreb, Croatia

INTERNATIONAL SUCCESS

OPENING NEW AVENUES

The last six months have seen outstanding results from our stores in Singapore and Malaysia, building on the growth we’d already experienced in the region and really delivering in an impressive manner . Performance like this further enhances the sterling reputation of our brand in the region, and provides a solid foundation for further development and new Harvey Norman stores in the region in the near future . It has also proven to be an ideal location for introducing new ideas and for testing the proof-of-concept for new ventures .

Millenia Walk in Singapore was where we first developed and implemented our Flagship store concept to much acclaim . Since that success, we’ve completed the roll-out of Flagship stores across all of our eight territories – with the second stage of reformatting the complexes at Auburn in Sydney and at Wairau Park in Auckland finished in late 2018. We’ve learnt a lot from these experiences, and it’s changing the way we think about the retail experience we’re providing .

These Flagship stores are just one step in our continuing evolution as a leader in global retail . From humble beginnings with one store in Sydney over 35 years ago, to over 200 locations across eight countries, we’ve built a legacy we can be proud of. But we’re never happy to rest on our laurels . Just as the international economic climate will always be evolving, and as new technologies alter the retail experience and landscape, we’re constantly striving to find new ways to deliver the best customer experience possible – covering everything from a product search and the in-store experience, to delivery and after-sale care.

By trying new things, learning from those experiences and putting those lessons into practice, we’re setting a strong course for our future .

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REPORTED PROFIT BEFORE TAX

$315.68mUP 7 .5% FROM $293 .61m IN DEC 2017

REPORTED PROFIT AFTER TAX & NCI

$222.77mUP 7 .3% FROM $207 .69m IN DEC 2017

NET TANGIBLE ASSETS PER SECURITY

$2.85UP FROM $2.75 IN DEC 2017

BASIC EARNINGSPER SHARE

19.55cUP FROM 18 .38c IN DEC 2017

DIVIDENDS PER SHARE(FULLY-FRANKED)

12.0c12.0c IN DEC 2017

NET DEBT TO EQUITY RATIO

22.35%IMPROVED FROM 24.16% IN DEC 2017

KEY FINANCIAL HIGHLIGHTS HY19 4

89 OFFSHORE COMPANY OPERATED STORES

IN AUSTRALIA

545 FRANCHISEES

195 FRANCHISED COMPLEXES

HALF YEAR

TO 31 DECEMBER

2017

COMPANY-OPERATED SALES REVENUE

REVENUE RECEIVED FROM FRANCHISEES

REVENUES AND OTHER INCOME ITEMS

EBITDIA

EBIT


UNDERLYING PROFIT BEFORE TAX2


UNDERLYING PROFIT AFTER TAX & NCI2

$1,022.24m

$524.73m

$377.77m

$306.15m

$293.61m

$296.08m

$207.69m

$209.42m2 Excluding net property revaluations, Coomboona JV trading losses and Coomboona JV impairment losses

$93.97m

HALF YEAR

TO 31 DECEMBER

2018

COMPANY-OPERATED SALES REVENUE


REVENUES AND OTHER INCOME ITEMS

EBITDIA

EBIT


UNDERLYING PROFIT BEFORE TAX1


UNDERLYING PROFIT AFTER TAX & NCI1

$1,175.25m

$519.76m

$383.37m

$330.61m

$315.68m

$297.04m

$222.77m

$209.70m1 Excluding net property revaluations, Coomboona JV impairment losses and KEH restructure

$114.00m

15 .0%

0 .9%

21 .3%

1 .5%

8 .0%

7 .5%

0 .3%

7 .3%

0 .1%

• Net assets exceed $3 BILLION milestone net assets soared to $3.15 billion as at 31 December 2018, with the robust tangible, property portfolio of $2.93 billion representing approx. 93% of the total net asset base

• Outstanding performance of Harvey Norman® overseas delivering best-ever trading result for a half year now represents 25% of total consolidated profit before tax result

• Offshore Harvey Norman® retail revenue surpasses $1 BILLION milestone strongest-ever sales performance overseas, with offshore revenue of $1.074 billion for HY19 and each overseas country reporting solid sales growth and market share gains

• Reported PBT up by 7.5% to $315.68 million and record underlying PBT of $297.04 million up 0.3% from PCP reaffirms our diversified strategy of operating an integrated retail, franchised, property and digital enterprise to be the best and most adaptable and flexible to deliver stable income streams and strong returns for our stakeholders

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Landmark $3 billion net asset milestone surpassed in HY19, with the net asset position of the consolidated entity soaring to $3.15 billion as at 31 December 2018. Total assets have grown to $4.83 billion, up 7.2% from the comparative period. The robust property portfolio of $2.93 billion bolstered the balance sheet with real, tangible asset backing that delivers stable income streams and capital growth year-on-year. Total liabilities have increased marginally by 3.5% to $1.68 billion for the current half.

NET ASSETS IN EXCESS OF

$3bn Strongest-ever performance from overseas company-operated stores for a December half-year, with offshore revenue surpassing the $1 billion milestone, to $1.074 billion for HY19. Each overseas country reported solid sales growth, up from an already-impressive record base in the comparative period. The Flagship stores in each country have led the way with outstanding sales growth, market share gains and in elevating the brand name with their premium offering and unrivalled in-store experience – paving the way for other stores – near or far – to reach new heights.

OFFSHORE RETAIL

REVENUE OF OVER

$1bn

An excellent result for HY19 and it reaffirms our diversified strategy of operating an integrated retail, franchised, property and digital enterprise to be the most robust, adaptable and flexible model to deliver stable income streams and strong returns for our stakeholders .

REPORTED PBT UP BY

7.5%TO $315.68m

Earnings per share for HY19 was 19.55 cents per share compared to 18 .38 cents per share in HY18 .

EARNINGS PER SHARE

UP BY

6.4%

Our 89 Harvey Norman® overseas company-operated stores continue to excel and the overseas businesses now represent 25% of the total consolidated PBT for HY19. This is a stark contrast to 5 years ago where the overseas business represented 7% of the result in the HY to Dec-2013 and only 3% of the result 10 years ago for the HY to Dec-2009. Growth during HY19 was exceptional, rising by 25.4%, to a profit of $77.53 million for HY19, from the record highs reported in the comparative period.

OFFSHORE PROFIT

25% OF

CONSOLIDATED PBT

Our net debt to equity ratio has improved to 22 .35% as at 31 December 2018 compared to 25.50% in June 2018 and 24.16% in December 2017.


22.35%

We are pleased to report the highest-ever underlying PBT result for a half-year period, with an underlying PBT of $297.04 million for HY19. This is the 4th consecutive record-breaking underlying PBT reported by the consolidated entity for a December half-year period.

RECORD UNDERLYING PBT FOR 4TH

CONSECUTIVE DEC HALF

FINANCIAL HIGHLIGHTS 5

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We operate an integrated retail, franchise, property and digital strategy that continues to deliver strong, stable income streams.

A DIVERSIFIED,

UNIQUE

BUSINESS

MODEL

Significant retail footprint across 8 countries – with 195 franchised complexes in Australia and 89 Harvey Norman® company-operated stores across 7 overseas countries .

INTERNATIONAL

RETAIL

FOOTPRINT

Our robust property portfolio of $2.93 billion continues to be our point of difference and competitive advantage - with emerging or restructured competitors – both big or small, online or physical – the resilient investment property portfolio keeps the consolidated entity a step-ahead and provides the flexible, large footprint needed to showcase the best on offer.

ROBUST

PROPERTY

PORTFOLIO

Our Board of Directors and management team in Australia and each offshore region are business savvy and experienced in retail and property, who have an in-depth understanding and appreciation of the key drivers of the discretionary retail market. The consolidated entity continues to invest in its leaders and their people and prides itself on the longevity, tenure and breadth of knowledge of the Harvey Norman®, Domayne® and Joyce Mayne® brands of key personnel to effectively position the brand in each of the differing markets.

THE RIGHT

PEOPLE

Our retail strategy and retail mix encompasses the entire Home and Lifestyle market. Franchisees and company-operated stores continue to be dominant players across all key categories within the Home and Lifestyle market. This diversified offering and the extensive product range is flexible and capable of withstanding changing competitive pressures and headwinds of specific product categories to effectively respond to evolving consumer dynamics and desires.

ENCOMPASSING

ALL ASPECTS

OF THE HOME

OUR STRATEGY FOR SUCCESS 6

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UNDERLYING PBT HALF YEAR ENDED 31 DECEMBER 2018

RECORD UNDERLYING PBT FOR THE 4TH CONSECUTIVE DECEMBER HALF

UNDERLYING PROFIT BEFORE TAX*


FROM A RECORD COMPARATIVE BASE IN HY18

UPBY

UPBY

(*excluding net property revaluations, Coomboona JV impairment losses and KEH restructure )


$297.04m

$297.04m

0.3%

0.3%

REPORTED PBT HALF YEAR ENDED 31 DECEMBER 2018


NET PROFIT BEFORE TAX


$315.68m

$315.68m

UPBY

UPBY

7.5%

7.5%

FORHY19

RECORD HY19 OFFSHORE RETAIL SALES REVENUE OVER


25%

25%

$1 billion

$1 billion

OFFSHORE PROFIT

OFFSHORE PROFIT

OF TOTAL PROFIT BEFORE TAX



FIRST TIME NET ASSETS EXCEED $3 billionRECORD NET ASSETS EXCEED $3 billion

HY19 OFFSHORE RETAIL SALES REVENUE OVERRECORD

OFFSHORE PROFIT 25%

$1 billion

REPORTED PROFIT BEFORE TAX 7

UP BY

0.3%

ON RECORD

UNDERLYING PROFIT

RESULT IN PCP

2014 2015 2016 2017 2018

2014 2015 2016 2017 2018

PROFIT BEFORE TAX AS REPORTED ($M) (Including net property revaluations)

UNDERLYING PROFIT BEFORE TAX ($M) (Excluding net property revaluations, Coomboona JV trading losses, Coomboona JV impairment and KEH restructure)

HALF YEAR ENDED 31 DECEMBER (including property revaluations)

Denotes the contribution of net property revaluations to total PBT.

HALF-YEAR ENDED 31 DECEMBER (Excluding net property revaluations, Coomboona JV trading losses, Coomboona JV impairment losses and KEH restructure)

$200.79m

$196.93m

$262.01m

$242.62m

$366.23m

$293.75m

$293.61m

$296.08m

$315.68m

$297.04m

$21.19m$3.86m

$75.74m

$22.76m$36.56m

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$122.45m

$144.90m

$163.86m

$177.10m

$242.65m$249.35m

$167.41m

$253.52m

$203.59m

$152.40m$144.52m

$168.25m

$196.93m

$240.82m

$290.49m

HALF-YEAR ENDED 31 DECEMBER (Excluding net property revaluations, Coomboona JV trading losses, Coomboona JV impairment and KEH restructure)

$291.06m


$263.81m

$293.75m $296.08m $296.24m

REPORTED PBT UP BY

7.5%

ON PCP

UP BY

0.3%

ON RECORD

UNDERLYING PROFIT

RESULT IN PCP

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KEY CONTRIBUTORS TO REPORTED PROFIT BEFORE TAX 8

Increase of $22.07m in Reported PBT due to:

• $15.71m increase in profitability of overseas company-operated retail segment ($77.53m vs $61.82m) up +25.4% outstanding performance of Harvey Norman® brand overseas: Singapore & Malaysia up +$8.46m; Ireland & Northern Ireland up +$6.43m;

NZ up +$0.93m; Slovenia & Croatia down -$0.11m

• $11.96m increase in overall property segment profit result ($103.24m vs $91.28m) up +13.1% mainly due to $13.80m or + 60.6% increase in the net property revaluation increment ($36.56m vs $22.76m) higher rent and outgoings collected from property segment assets, offset by higher borrowing costs for property acquisitions

• $8.26m reduction in the losses incurred from non-core JVs included in the other segment & other non-franchised retail segment (loss of ($20.78m) vs loss of ($29.05m))

lower impairment losses by $12.42m in respect of Coomboona JV ($8.25m vs $20.67m) following the completion of the Administrator Sale of Coomboona assets

lower impairment losses by $9.08m for commercial loans advanced to KEH ($0.11m vs $9.19m) offset by $6.29m trading losses incurred by KEH during HY19 $9.67m losses on restructure of KEH business and acquisition of a further 49.02% interest in KEH during HY19

Offset by:

• ($8.74m) decrease in franchising operations segment result ($158.47m vs $167.21m) down -5.2% FO segment was negatively impacted by moderation in discretionary retail sales during the peak festive periods, softer post-Christmas sales,

increased competition and aggressive pricing to maintain market share resulting in a reduction in aggregate headline franchisee sales by 1 .7% to $2.95 billion, or down 0.6% on a comparable sales basis

decrease in FO segment profit result due to reduction in FO segment revenue coupled with a rise in operating expenses of the franchisor to monitor and evaluate compliance with franchise agreements

• ($5.11m) reduction in the market value and dividends received from the equity investments segment

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RECONCILIATION OF UNDERLYING PROFIT TO REPORTED PROFIT BEFORE TAX 9

HY2019 HY2018 Incr/(Decr)

REPORTED PROFIT BEFORE TAX $315.68m $293.61m +7.5%

Less: Net property revaluation increment (a) ($36.56m) ($22.76m)

Profit Before Tax Excluding Net Property Revaluation Increment

$279.12m $270.85m +3.1%

Add back: Coomboona JV impairment losses (b) $8.25m $20.67m

Add back: Coomboona JV trading losses (c) - $4.57m

Add back: KEH Partnership Restructure (d) $9.67m -

UNDERLYING PROFIT BEFORE TAX $297.04m $296.08m +0.3%

(a) $13.80m (+60.6%) increase in net property revaluation increment

(b) $8.25m impairment loss on expected recovery of loans advanced to the Coomboona JV following the completion of the Administrator Sale shortly after balance date

(c) Nil Coomboona JV trading loss for HY19 as the Coomboona JV has been managed by Administrators, Ferrier Hodgson, since March 2018

(d) $9.67m relates to loss incurred upon consolidation of KEH following the restructure of KEH and the acquisition of a further 49.02% Participation Units in KEH effective 1 July 2018 (total interest now 99.02%)

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UNDERLYING PROFIT BEFORE TAX 10

UP BY

0.3%

ON RECORD

UNDERLYING PROFIT

RESULT IN PCP

2014 2015 2016 2017 2018

2014 2015 2016 2017 2018

PROFIT BEFORE TAX AS REPORTED ($M) (Including net property revaluations)


HALF YEAR ENDED 31 DECEMBER (including property revaluations)

Denotes the contribution of net property revaluations to total PBT.

HALF-YEAR ENDED 31 DECEMBER (Excluding net property revaluations, Coomboona JV trading losses, Coomboona JV impairment losses and KEH restructure)

$200.79m

$196.93m

$262.01m

$242.62m

$366.23m

$293.75m

$293.61m

$296.08m

$315.68m

$297.04m

$21.19m$3.86m

$75.74m

$22.76m$36.56m

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$122.45m

$144.90m

$163.86m

$177.10m

$242.65m$249.35m

$167.41m

$253.52m

$203.59m

$152.40m$144.52m

$168.25m

$196.93m

$240.82m

$290.49m

HALF-YEAR ENDED 31 DECEMBER (Excluding net property revaluations, Coomboona JV trading losses, Coomboona JV impairment and KEH restructure)

$291.06m


$263.81m

$293.75m $296.08m $296.24m

REPORTED PBT UP BY

7.5%

ON PCP

UP BY

0.3%

ON RECORD

UNDERLYING PROFIT

RESULT IN PCP

UNDERLYING PBT HALF YEAR ENDED 31 DECEMBER 2018

RECORD UNDERLYING PBT FOR THE 4TH CONSECUTIVE DECEMBER HALF



FROM A RECORD COMPARATIVE BASE IN HY18

UPBY

UPBY



$297.04m

$297.04m

0.3%

0.3%





$315.68m

$315.68m

UPBY

UPBY

7.5%

7.5%

FORHY19



25%

25%

$1 billion

$1 billion

OFFSHORE PROFIT

OFFSHORE PROFIT




FIRST TIME NET ASSETS EXCEED $3 billionRECORD NET ASSETS EXCEED $3 billion

HY19 OFFSHORE RETAIL SALES REVENUE OVERRECORD

OFFSHORE PROFIT 25%

$1 billion

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COMPOSITION OF UNDERLYING PROFIT BEFORE TAX 11

Underlying profit before tax of $297.04m for HY19 is comprised of:

• $158.47m franchising operations segment profit result, down -5.2% from $167.21 million in HY18

• $77.53m profit from the offshore company-operated retail operations, up +25.4% from $61.82 million in HY18

• $66.68m profit from the property segments (excluding net property revaluation adjustments), down -2.7% from $68.52 million in HY18

• ($2.78m) loss from the equity investments segment, a deterioration of ($5.11) million from a profit of $2.34 million in HY18

• ($2.87m) net loss from non-core joint ventures included in other segment and other non-franchised retail segment (excluding Coomboona JV trading losses, Coomboona JV impairment losses and the loss on the KEH restructure)

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$ 123.30m CASH

$ 452.29m INVENTORIES

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TY

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T AS

SETS 61 % OF TOTAL ASSETS

$2,931.18m TANGIBLE PROPERTY

ASSETS

$169.34m OTHER ASSETS

$244.64m PLANT & EQUIPMENT

COMPOSITION OF TOTAL ASSETS OF $4.83bn

$4.81bn $4.51bn $4.83bn2016 2017 2018

HALF YEAR ENDED 31 DECEMBER

$2.04bn $1.63bn $1.68bn2016 2017 2018


TOTAL ASSETS TOTAL LIABILITIES

NET ASSET POSITION DECEMBER 2018

UP 9.3%

TO $3.15bn

$913.68m RECEIVABLES

KEY STATISTICS: BALANCE SHEET 12

HY2019 HY2018 Incr/(Decr)

TOTAL ASSETS $4.83bn $4.51bn +7.2%

TOTAL LIABILITIES ($1.68bn) ($1.63bn) +3.5%

NET ASSETS $3.15bn $2.88bn +9.3%

NET DEBT TO EQUITY % 22.35% 24.16%

DIVIDENDS PER SHARE 12.0c 12.0c

EPS 19.55c 18.38c +6.4%

$ 123.30m CASH


PR

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EN

T AS



ASSETS




$4.81bn $4.51bn $4.83bn2016 2017 2018


$2.04bn $1.63bn $1.68bn2016 2017 2018




UP 9.3%

TO $3.15bn


DEC 2018

22.35%NET DEBT TO EQUITY RATIO

NET DEBT

$568.56m $594.84m $555.20m $701.78m $709.32m

Dec 14 Dec 15 Dec 16 Dec 17 Dec 18

TOTAL EQUITY (excluding acquisition reserve)

$2563.9m $2,669.0m $2,789.2m $2,905.1m $3,173.5m




22.35%


19.91%

22.29%22.18%24.16%

$ 123.30m CASH


PR

OP

ER

TY

SE

GM

EN

T AS



ASSETS




$4.81bn $4.51bn $4.83bn2016 2017 2018


$2.04bn $1.63bn $1.68bn2016 2017 2018




UP 9.3%

TO $3.15bn


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DEC 14 DEC 15 DEC 16 DEC 17 DEC 18



TOTAL OVERSEAS RETAIL REVENUE ($AUD M)

TOTAL OVERSEAS RETAIL PROFIT RESULT ($AUD M)





$763.18m

$902.44m$958.45m

$1,074.46m

$18.36m $42.03m $57.04m $61.82m $77.53m

$18.36m $42.03m $57.04m $61.82m $77.53m

UP BY

52%

OVER THE LAST 5 YEARS

UP BY

632%


COMPRISES

25%

TOTAL PBT

$841.95m




TOTAL OVERSEAS RETAIL REVENUE ($AUD M)






$763.18m

$902.44m$958.45m

$1,074.46m

$18.36m $42.03m $57.04m $61.82m $77.53m

$18.36m $42.03m $57.04m $61.82m $77.53m

UP BY

52%


UP BY

632%


COMPRISES

25%

TOTAL PBT

$841.95m

OUTSTANDING PERFORMANCE OVERSEAS: SUCCESSFUL OFFSHORE EXPANSION AND SOLID OFFSHORE PERFORMANCE 13

RETAIL SEGMENT PROFIT RESULT HY2019 HY2018 Incr/(Decr)

NEW ZEALAND $42.01m $41.08m +2.3%

SINGAPORE & MALAYSIA $20.76m $12.30m +68.7%

IRELAND & NORTHERN IRELAND $10.34m $3.91m +164.4%

SLOVENIA & CROATIA $4.42m $4.53m -2.5%

TOTAL OVERSEAS $77.53m $61.82m +25.4%

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OUTSTANDING PERFORMANCE OVERSEAS: SIGNIFICANT INCREASE IN OFFSHORE COMPANY-OPERATED RETAIL REVENUE 14

OFFSHORE COMPANY-OPERATED RETAIL REVENUE

OVER $1 BILLION FOR HY2019

GROWTH OF 52% OVER THE LAST 5 YEARS

COMPANY-OPERATED RETAIL SEGMENT REVENUE

UP BY $116.01m (+12.1%) FROM $958 .45m IN HY18 TO $1.07 BILLION IN HY19

SINGAPORE & MALAYSIA

UP BY $58.91m (+25.6%)

IRELAND & NORTHERN IRELAND

UP BY $36.64m (+19.8%)

SLOVENIA & CROATIA

UP BY $9.04m (+13.0%)

NEW ZEALAND

UP BY $11.42m (+2.4%)

Main reason for revenue growth was rise in offshore sales revenue by $114.80m (+12.2%), from $937.60m to $1,052.39m:

• $57.23m increase in Singapore & Malaysia sales revenue: Singapore

up by $21.74m due to full 6-months’ trade of the expanded, full-concept stores at Parkway Parade (opened Aug-17) and North Point City (opened Dec-17), the premium positioning of the Millenia Walk Flagship store that continued to deliver solid sales growth and an unrivalled offering in Singapore

Malaysia up by $35.49m due to full 6-months’ trade of the Ikano Flagship store (launched Nov-17) and Viva

City Mega Mall (opened Dec-17). ‘Halo-effect’ of Flagship store resulted in favourable acceptance of new store at Johor Paradigm Mall (opened Jul-18) and relocation of Mid Valley store to a larger, refurbished site (in Oct-18)

• $37.05m increase in Ireland & Northern Ireland sales revenue: Ireland up by $36.92m due to strong performance of the Tallaght Flagship store that has outperformed and

underpinned sales growth across all sites, reinforcing the importance of a prominent benchmark and the ‘halo-effect’ it generates across Irish stores, near or far

Northern Ireland up by $0.13m due to ongoing strength of Boucher Road, South Belfast Flagship store & improved

performance following refurbishment of Holywood store

• $8.59m increase in Slovenia & Croatia sales revenue: Slovenia up by $7.15m due to strong branding propelled by the Flagship store at BTC City, Ljubljana

(relaunched in Jun-17) resulting in solid sales across all 5 stores and key product categories Croatia up by $1.44m due to completion of renovation at Zagreb Flagship store (completed in Oct-18)

• $11.92m increase in New Zealand sales revenue full 6-months’ trade of Wairau Park Flagship store (launched at end of Jun-18) and opening of a new

computer outlet in Porirua store (opened in Nov-18)

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OUTSTANDING PERFORMANCE OVERSEAS: HIGHEST-EVER OFFSHORE COMPANY-OPERATED RETAIL PROFIT RESULT 15

OVERSEAS COMPANY-OPERATED RETAIL SEGMENT

NOW REPRESENTS 25%


HARVEY NORMAN® COMPANY-OPERATED RETAIL SEGMENT

RESULT

UP BY $15.71m (+25.4%) FROM $61 .82m IN HY18

TO $77.53m IN HY19

GROWTH OF 632% OVER THE LAST 5 YEARS

• $8.46m (+68.7%) increase in Singapore & Malaysia result from $12.30m in HY18 to $20.76m in HY19 on track with investment and expansion plans in Malaysia, with the expectation of growing to

25 Harvey Norman® stores in Malaysia within next 2 years, with potential to increase to over 50 stores by end of 2023

actively looking for potential new retail sites in Singapore

• $6.43m (+164.4%) increase in Ireland & Northern Ireland result from $3.91m in HY18 to $10.34m in HY19

significant growth and market share gains across most product categories continued investment in enhancing the in-store immersive experience, ongoing focus on

representation of Irish-made products and concerted efforts to grow commercial business

• $0.93m (+2.3%) increase in New Zealand result from $41.08m in HY18 to $42.01m in HY19 performed strongly despite challenging NZ economy and headwinds that dampen consumer

discretionary spending NZ company-operated stores remain the clear market leader across key Home and Lifestyle

product categories

• $0.11m (-2.5%) decrease in Slovenia & Croatia result from $4.53m in HY18 to $4.42m in HY19 despite the solid sales growth in Slovenia, there was a reduction in gross profit margins during

the period due to heightened competition and discounting Croatia benefitted from the completion and launch of the Zagreb Flagship store in HY19

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AGGREGATED SALES INCREASE / (DECREASE) IN CONSTANT LOCAL CURRENCIES:

HEADLINE & COMPARABLE AGGREGATED TOTAL SALES REVENUE 16

TOTAL SALES 1Q2019vs.

1Q2018

2Q2019vs.

2Q2018

HY2019vs.

HY2018

AUSTRALIAN FRANCHISEES $A* (-1.7%) (-1.8%) (-1.7%)

NEW ZEALAND $NZD +3.1% +0.5% +1.6%

SLOVENIA & CROATIA € EURO +1.9% +10.7% +6.8%

IRELAND € EURO +16.7% +16.6% +16.6%

NORTHERN IRELAND £ GBP (-3.6%) +1.6% (-0.8%)

SINGAPORE $SGD +6.5% +6.6% +6.5%

MALAYSIA RM +46.3% +34.3% +40.2%

COMPARABLE SALES 1Q2019vs.

1Q2018

2Q2019vs.

2Q2018

HY2019vs.

HY2018

AUSTRALIAN FRANCHISEES $A* (-0.7%) (-0.5%) (-0.6%)

NEW ZEALAND $NZD +3.1% +0.5% +1.6%

SLOVENIA & CROATIA € EURO +1.9% +10.7% +6.8%

IRELAND € EURO +13.9% +16.6% +15.6%

NORTHERN IRELAND £ GBP (-3.6%) +1.6% (-0.8%)

SINGAPORE $SGD +1.3% +3.4% +2.4%

MALAYSIA RM +35.3% +17.3% +25.9%

HEADLINE AGGREGATED SALES OF $4.0bn FOR HY19

vs $3 .93bn FOR HY18

UP 1.6% ($AUD)

AGGREGATED COMPARABLE SALES OF $3.96bn FOR HY19

vs $3 .88bn FOR HY18

UP 2.0% ($AUD)

COMPRISED OF AGGREGATED FRANCHISEE SALES REVENUE

IN AUSTRALIA PLUS COMPANY-OPERATED

HARVEY NORMAN® SALES IN NEW ZEALAND, SLOVENIA, CROATIA,

IRELAND, NORTHERN IRELAND, SINGAPORE AND MALAYSIA

* Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity.


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FRANCHISEE AGGREGATED SALES REVENUE 17

+5.53% +6.01% +5.57% +5.37%

2015 2016 2017 2018

FRANCHISING OPERATIONS MARGINDOWN FROM 5.57% TO 5.37%

$150.42m $172.13m $167.21m $158.47m

2015 2016 2017 2018

FRANCHISING OPERATIONS SEGMENT RESULTDOWN BY 5.2% FROM $167.21m TO $158.47m

HALF YEAR ENDED 31 DECEMBER HALF YEAR ENDED 31 DECEMBER

HY DEC 18

5.37%

FRANCHISING OPERATIONS

MARGIN

AGGREGATED FRANCHISEE SALES REVENUE HY DECEMBER 2018

TOTAL FRANCHISEE SALES

DECEMBER 2018

$2.95bnDOWNBY 1.7%

COMPARABLE FRANCHISEE SALES

DECEMBER 2018

$2.94bnDOWNBY 0.6%

• 195 franchised complexes in Australia, with 545 franchisees responsible for the day-to-day management and control of their respective franchisee businesses

• Aggregated franchisee sales revenue reduced in HY19, off a record-breaking base in HY18, which saw franchisee sales soar to $3.00bn for the first time for a December half period

• Franchisee sales performance was in line with overall moderation in the discretionary retail market in Australia for December 2018 trading period

• Franchisees remain the market leaders in the Connected Smart Home category, delivering an unparalleled in-store experience and seamless in-store execution for tech-savvy consumers


* *

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+5.53% +6.01% +5.57% +5.37%

2015 2016 2017 2018

FRANCHISING OPERATIONS MARGINDOWN FROM 5.57% TO 5.37%

$150.42m $172.13m $167.21m $158.47m

2015 2016 2017 2018

FRANCHISING OPERATIONS SEGMENT RESULTDOWN BY 5.2% FROM $167.21m TO $158.47m

HALF YEAR ENDED 31 DECEMBER HALF YEAR ENDED 31 DECEMBER

HY DEC 18

5.37%

FRANCHISING OPERATIONS

MARGIN

AGGREGATED FRANCHISEE SALES REVENUE HY DECEMBER 2018

TOTAL FRANCHISEE SALES

DECEMBER 2018

$2.95bnDOWNBY 1.7%

COMPARABLE FRANCHISEE SALES

DECEMBER 2018

$2.94bnDOWNBY 0.6%

SEGMENT ANALYSIS: FRANCHISING OPERATIONS 18

HY2019 HY2018 Incr/(Decr) %

AGGREGATED FRANCHISEE HEADLINE SALES REVENUE $2.95bn $3.00bn (-$0.05bn) (-1.7%)

FRANCHISING OPERATIONS SEGMENT RESULT $158.47m $167.21m (-$8.74m) (-5.2%)

FRANCHISING OPERATIONS MARGIN % 5.37% 5.57% -20bps

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SEGMENT ANALYSIS: FRANCHISING OPERATIONS (continued) 19


FRANCHISING OPERATIONS SEGMENT RESULT $158.47m $167.21m (-$8.74m) (-5.2%)

FRANCHISEE OPERATIONS SEGMENT REVENUE $468.64m $469.26m (-$0.62m) (-0.1%)

FRANCHISING OPERATIONS MARGIN % 5.37% 5.57% -20bps

FRANCHISING OPERATIONS SEGMENT REVENUE

DOWN BY $0.62m (-0.1%) FROM $469 .26m IN HY18

TO $468.64m IN HY19

FRANCHISING OPERATIONS SEGMENT RESULT


TO $158.47m IN HY19

• Impacted by a $7.18m (-1.8%) decrease in franchise fees received from franchisees (per franchise agreements)

negatively impacted by a 1 .7% reduction in headline aggregated franchisee sales revenue to $2 .95 billion, or a reduction of 0.6% on a comparable franchisee sales basis

upon first-time application of AASB 15 Revenue from Contracts with Customers, tactical support payments have been netted off against franchise fees received

AASB 15 had nil impact on the franchising operations segment result (reclassification from expenses to revenue)

tactical support payments to protect, enhance and promote the Harvey Norman®, Domayne® and Joyce Mayne® brands, are an expense of the franchisor to assist a franchisee, as required from time-to-time at a franchisor’s discretion, to effectively compete in their local markets

Offset by:• Higher rents and outgoings received from franchisees for externally-leased retail sites• Higher interest to implement and administer the financial accommodation facilities

• Decrease is due to the reduction in franchising operations segment revenue coupled with a rise in operating expenses of the franchisor to monitor and evaluate compliance with franchise agreements

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SEGMENT ANALYSIS: PROPERTY 20


PROPERTY SEGMENT REVENUE $164.80m $148.54m $16.25m +10.9%

NET PROPERTY REVALUATION INCREMENT $36.56m $22.76m $13.80m +60.6%

PROPERTY SEGMENT EBITDIA $119.85m $105.15m $14.70m +14.0%

PROPERTY SEGMENT RESULT BEFORE TAX $103.24m $91.28m $11.96m +13.1%

• $13.80m increase in the net property revaluation increment $36.56m in HY19 vs $22.76m in HY18. Driven mainly by increment in Australian Investment Property (+$12.93m or +56.8%)

• Higher rent and outgoings received from investment properties in Australia leased to external tenants, other than franchisees

• $16 .26m increase in property segment revenue• offset by an increase in property finance costs (higher utilisation of external financing facilities for the

acquisition and refurbishment of properties) and other costs to operate the Australian investment property portfolio

PROPERTY SEGMENT REVENUE

UP BY $16.25m (+10.9%) FROM $148 .54m IN HY18

TO $164.80m IN HY19

PROPERTY SEGMENT RESULT BEFORE TAX

UP BY $11.96m (+13.1%) FROM $91 .28m IN HY18 TO $103.24m IN HY19

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• +$13.80m increase in net property revaluation increment $36 .56m in HY19 vs $22 .76m in HY18

• +$6.24m increase in rent, interest and dividends received from other unrelated parties $51 .07m in HY19 vs $44 .84m in HY18

• Decrease mainly attributable to a 1.7% reduction in aggregated franchisee sales revenue to $2.95bn in HY19

• +$57.23m (+25.3%) increase for Asia Harvey Norman® Singapore sales up by +$20.21m (+13.1%); Harvey Norman® Malaysia sales up by +$34.66m (+53.7%); Space Furniture® Singapore sales up by +$1.54m (+25.9%) & Space Furniture® Malaysia sales up by +$0.83m (+172%). Local currency up by $S42.67m (+17.9%) [+6.43% appreciation of SGD vs AUD]

• +$36.92m (+21.6%) increase for Ireland (13 stores) local currency up by €17.49m (+15.4%) [+5.33% appreciation of Euro vs AUD]

• +$7.15m (+13.4%) increase for Slovenia (5 stores) local currency up by €2.71m (+7.6%)

• +$11.92m (+2.6%) increase for New Zealand (39 stores) local currency up by NZ$8.29m (+1.6%) [+0.92% appreciation of NZD vs AUD]

• +$1.44m (+9.5%) increase for Croatia (1 store) local currency up by €0.4m (+4.0%)

• +$0.13m (+1.3%) increase for Northern Ireland (2 stores) local currency down by £0.24m (-4.1%) [+5.68% appreciation of GBP vs AUD]

• +$39.77m (+48.5%) increase in other non-franchised retail sales in Australia

REVIEW OF THE INCOME STATEMENT 21


SALES REVENUE* $1,175.25m $1,022.24m $153.01m +15.0%

GROSS PROFIT $376.09m $324.96m $51.13m +15.7%

REVENUE RECEIVED FROM FRANCHISEES $519.76m $524.73m (-$4.97m) (-0.9%)

REVENUES & OTHER INCOME $114.00m $93.97m $20.03m +21.3%

* Includes the sales revenue of company-operated stores in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland , Slovenia & Croatia under the Harvey Norman® brand name but does not include the sales revenue made by independent franchisees

SALES REVENUE

UP BY $153.01m (+15.0%) FROM $1 .02bn IN HY18

TO $1.18bn IN HY19

REVENUES & OTHER INCOME

UP BY $20.03m (+21.3%) FROM $93 .97m IN HY18

TO $114.00m IN HY19



TO $519.76m IN HY19

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REVIEW OF THE INCOME STATEMENT (continued) 22


TOTAL EXPENSES ($698.76m) ($650.89m) $47.87m +7.4%

SHARE OF NET PROFIT OF JV ENTITIES $4.59m $0.84m $3.75m +445.4%

PROFIT BEFORE TAX $315.68m $293.61m $22.07m +7.5%

INCOME TAX EXPENSES ($89.48m) ($83.84m) ($5.64m) (-6.7%)

NON-CONTROLLING INTERESTS ($3.43m) ($2.08m) ($1.35m) (-64.9%)

PROFIT AFTER TAX & NCI $222.77m $207.69m $15.08m +7.3%

• Mainly due to higher profit before tax in HY19 vs HY18• HY19 effective tax rate of 28.34% vs. HY18 effective tax rate of 28.55%

TOTAL EXPENSES

UP BY $47.87m (+7.4%) FROM $650 .89m IN HY18

TO $698.76m IN HY19

HIGHER TAX CHARGE

BY $5.64m

SHARE OF NET PROFIT OF JV ENTITIES

UP BY $3.75m

• +$13.76m increase in administrative expenses due to: $21.46m higher employee benefits expense, with $6.45m attributable to first-time consolidation of KEH and $15.30m due to higher offshore wages and on-costs due to growth and expansion overseas.

offset by lower depreciation, amortisation and impairment costs by -$18.86m from $71.62m in HY18 to $52 .76m in HY19 mainly due to reduction in Coomboona JV impairment costs by $12.42m

• +$18.44m increase in other expenses includes the losses recognised on the restructure and consolidation of KEH for the settlement of pre-existing transactions immediately prior to the acquisition of the additional 49.02% interest in KEH

• +$7.88m increase in occupancy expenses mainly attributable to new offshore retail stores and annual rent increase

• HY18 included the trading losses incurred by the Coomboona JV of $4.57m compared to nil in HY19 (Coomboona in Administration since March 2018)F

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REVIEW OF THE BALANCE SHEET 23


TOTAL ASSETS $4 .32bn $4 .54bn $4 .81bn $4 .51bn $4.83bn

TOTAL LIABILITIES $1 .78bn $1 .90bn $2 .04bn $1 .63bn $1.68bn

TOTAL EQUITY* $2 .54bn $2 .65bn $2 .77bn $2 .88bn $3.15bn

• +$26.34m (+7.3%) increase in trade & other payables• +$26.11m (+37.3%) increase in other liabilities• +$23.34m (+7.8%) increase in tax liabilities• offset by -$19.78m (-2.3%) decrease in interest bearing loans and borrowings

TOTAL ASSETS


TO $4.83bn IN HY19

TOTAL LIABILITIES


TO $1.68bn IN HY19

* Excludes non-controlling interests

• +$118.93m (+15.0%) increase in trade receivables due to higher receivables from franchisees by $102.09m, new overseas company-operated stores and higher trading of existing offshore stores

• +$81.40m (+21.9%) increase in Inventories due to store expansion and offshore sales growth and the consolidation of KEH resulting in the recognition of inventory holdings of The School Locker business

• +$94.26m (+4.0%) increase in the value of the investment property portfolio due to net property revaluation increments in the past twelve months and acquisitions and refurbishments made since the previous corresponding period

• +$56.25m (+8.8%) increase in property, plant and equipment due to new offshore retail locations and refurbishments of the flagship stores and company-operated stores

offset by: • -$27.32m (-18.1%) reduction in cash and cash equivalents as cash reserve was utilised to pay higher

dividends, reduce interest-bearing liabilities, fund expansion of the business and invest in upgrading of existing stores

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OPERATING CASH FLOWS $145.36m $262.61m (-$117.25m) (-44.6%)

REVIEW OF THE STATEMENT OF CASH FLOWS 24

OPERATING CASH FLOWS

DOWN BY $117.25m

• -$216 .20m increase in payments to suppliers & employees• -$97 .32m reduction in net receipts from franchisees

+$93.07m increase in net financial accommodation provided to franchisees due to higher inventory purchased by franchisees in HY19 vs HY18, coupled with reduction in franchise fees received during the period

offset by:• +$164 .19m increase in receipts from customers

primarily due to higher sales generated by overseas company-operated stores• -$25.98m reduction in income tax paid• -$8.20m reduction in GST payments

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REVIEW OF THE STATEMENT OF CASH FLOWS (continued) 25


INVESTING CASH FLOWS ($63.15m) ($191.32m) $128.17m +67.0%

FINANCING CASH FLOWS ($103.87m) $11 .73m (-$115.60m) (-985.6%)

NET INCREASE/(DECREASE) IN CASH FLOWS ($21.66m) $83 .01m (-$104.67m)

CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD $125.46m $42 .88m $82.58m

CASH & CASH EQUIVALENTS AT END OF PERIOD $103.80m $125 .90m (-$22.09m) (-17.5%)

• $190 .00m increase in net repayment of the Syndicated Facility Agreement $30 .00m repayments during HY2019 compared to $160 .00m proceeds during HY2018

• $66.92m higher final dividends payment final dividend paid of 18cps in FY2018 vs 12cps in HY2018

• $25 .33m increase in repayments of loans to related partiesoffset by:• $163.87m proceeds raised from renounceable pro-rata Entitlement Offer in October 2018

INVESTING CASH OUTFLOWS

DOWN BY $128.17m

FINANCING CASH OUTFLOWS

UP BY $115.60m

• $94.32m reduction in cash outflows for the purchase and refurbishments of investment properties• $27.90m decrease in loans granted to related entities including joint ventures and joint venture parties and

unrelated entities• $5.52m decrease in payment for purchases of property, plant and equipment

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OUTLOOK 26

• Continue to invest in the next iteration of the Flagship Strategy

• On track with investment and expansion plans in Malaysia, with expectation of growing to 25 Harvey Norman® stores in Malaysia within the next 2 years, with potential to increase to over 50 stores by the end of 2023

• Actively looking for potential new retail sites in Singapore

• Investigating 3 new sites in Croatia

• Aggregated Sales increase/(decrease) 1 January 2019 to 25 February 2019 vs 1 January 2018 to 25 February 2018

$A TOTAL SALES

$A COMPARABLE SALES

CONSTANT LOCAL CURRENCIESTOTAL SALES

CONSTANT LOCAL CURRENCIES

COMPARABLE SALES

* NOTE 1

AUSTRALIAN FRANCHISEES (-3.2%) (-2.2%) (-3.2%) (-2.2%) 0.2%

NEW ZEALAND 0.3% 0.2% (-3.2%) (-3.2%) 7.7%

SLOVENIA & CROATIA 11.9% 11.9% 8.6% 8.6% 15.6%

IRELAND 15.9% 15.9% 12.4% 12.4% 4.4%

NORTHERN IRELAND 14.1% 14.1% 10.5% 10.5% 3.7%

SINGAPORE 0.2% 3.2% (-7.3%) (-4.5%) 23.1%

MALAYSIA 22.7% 14.5% 15.3% 7.5% (-1.1%)

The decrease in Australian franchisee sales for the period 1 January 2019 to 25 February 2019 compared to the corresponding period was on the back of the changed promotional period of Australia Day, Back to School and Lunar New Year. This compression of the three promotions into one week negatively impacted sales . * NOTE 1: Constant local currency comparable sales increase/(decrease) 1 January 2018 to 26 February 2018 vs 1 January 2017 to 26

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QUESTIONS (limited to 30 minutes) 27

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FOR THE HALF-YEAR ENDED 31 DECEMBER 2018 For personal … · Ikano, Kuala Lumpur, Malaysia Zagreb, Croatia INTERNATIONAL SUCCESS OPENING NEW AVENUES ... location for introducing new