RESULTS FOR HALF-YEAR ENDED 31 DECEMBER 2010: PROFIT BEFORE TAX FROM CONTINUING OPERATIONS $198.61M vs $237.77M DOWN 16.5%

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1 Harvey Norman Holdings Limited 1 ACN February 2011 RESULTS FOR HALF-YEAR ENDED 31 DECEMBER : PROFIT BEFORE TAX FROM CONTINUING OPERATIONS $198.61M vs $237.77M DOWN 16.5% Harvey Norman Holdings Limited announced today that profit before tax from continuing operations for HY to 31 was $ million, compared to $ million for HY to 31 - down 16.5%. Full details are set out in Appendix 4D, filed with the Australian Securities Exchange Limited today, copy attached. Harvey Norman Chairman Gerry Harvey said today when announcing the company results Our profit was down as a result of price deflation in key categories driven by the strong Australian dollar, the challenging retail environment, and also the extreme wet weather on the east coast of Australia that affected sales of seasonal products. Our integrated retail franchise and property system is robust and growing market share, and is well placed to capitalize on any resurgence in the discretionary retail sector. Our furniture and bedding categories continue to outperform the market and we also achieved strong market share growth across all other key product categories. The franchising operations segment continued to underpin the overall performance of the group and although the operating margin fell from 6.7% for HY10 to 5.63% for HY11, it produced significant net operating cash flows of $88.7M for the half (HY10: $59.9M). We expect to generate free net cash flow from these operations consistent with our strategic objective to create long term sustainable value for our shareholders. The primary focus remains in the enhancement of our customer offer while expanding and upgrading our retail complexes. We will also continue to invest strategically in property to drive growth in all our brands. We have a strong balance sheet and cash flow and are well placed to take advantage of emerging opportunities. The Board recommends payment of a fully franked dividend of 6 per share on 2 May 2011 to shareholders registered at 5.00pm on 15 April The details of this announcement will be available on our website this afternoon. G. HARVEY CHAIRMAN

2 APPENDIX 4D / HALF YEAR REPORT APPENDIX 4D / HALF-YEAR REPORT HALF-YEAR ENDED 31 DECEMBER Key Dates 25 February 2011 Announcement of Half-Year Profit to 31 Announcement of Interim 2011 Dividend 15 April 2011 Record date for determining entitlement to Interim 2011 Dividend 2 May 2011 Payment of Interim 2011 Dividend 30 August 2011 Announcement of Full Year Profit to 30 June 2011 Announcement of Final 2011 Dividend Company Information Registered Office Company Secretary Share Registry Stock Exchange Listing Bankers Auditors Solicitors A1 Richmond Road Homebush West NSW 2140 Ph: Fax: Mr Chris Mentis Registries Limited Level 7, 207 Kent Street Sydney NSW 2000 Ph: Harvey Norman Holdings Limited shares are quoted on the Australian Securities Exchange Limited ( ASX ) Australia and New Zealand Banking Group Limited Ernst & Young Brown Wright Stein Contents Company Information 1 Results for Announcement to the Market 2 Chairman s Report 3 Directors Report 12 Statement of Financial Position 15 Income Statement 16 Statement of Comprehensive Income 17 Statement of Changes in Equity 18 Statement of Cash Flows 20 Segment Information 23 Notes to and forming part of the Financial Statements for the Half-Year Ended Other Information 44 Directors Declaration 45 Independent Review Report 46 1

3 RESULTS FOR ANNOUNCEMENT TO THE MARKET Financial Highlights HY2011 Dec-10 HY Dec-09 HY Dec-08 no. of franchised outlets in Australia no. of company-owned stores franchisee sales revenue 1 $2.74bn $2.78bn $2.61bn company-owned sales revenue 2 $804.13m $715.63m $770.35m other revenues and other income items from continuing operations $590.38m $593.63m $536.50m earnings before interest and tax (EBIT) from continuing operations $219.96m $253.10m $181.60m Profit from continuing operations before income tax $198.61m $237.77m $161.96m profit from continuing operations after tax attributable to owners of the parent $131.67m $158.86m $99.33m Underlying Business Operations $132.99m $171.00m $123.52m market capitalisation at 31 $3.12bn $4.48bn $2.82bn basic earnings per share 12.39c 14.95c 9.35c dividends per share (fully franked) 6.0c 7.0c 5.0c 1 Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity. 2 Includes the Harvey Norman and Norman Ross branded company-owned stores in New Zealand, Ireland, Northern Ireland, Singapore, Malaysia and Slovenia and the Clive Peeters, Rick Hart and OFIS brand names in Australia. The OFIS brand ceased during the last quarter of the June financial year. Calculation of Profit from Underlying Business Operations: Underlying Business Operations Dec-10 Dec-09 Increase / (Decrease) % Profit After Tax From Continuing Operations 131, ,857 (27,188) (17.1%) Adjustments: Add back/(deduct) (1) net property revaluation decrements for investment properties in Australia 5,138 15,106 (9,968) (2) net property revaluation adjustments for share of joint venture properties (158) 639 (797) (3) profit on sale of a development property (7,343) - (7,343) (4) impairment expense - write-down of Irish fixed assets (927) (5) impairment expense - write-down of assets held within joint venture entities (155) (6) impairment expense - write-down of IT assets (7) information technology costs - core global merchandise management system 3,553-3,553 (8) income tax effects of the above adjustments (549) (4,724) 4,175 Net Profit from Underlying Business Operations 132, ,003 (38,009) (22.2%) 2

4 CHAIRMAN S REPORT Business Performance Our strong balance sheet and solid cash flows will enable us to take advantage of emerging opportunities as they arise and benefit from any improvement in the local and global economies. We continue to maintain a low debt to equity ratio of 31.19% and a net debt to equity ratio of 25.12% as at 31. Despite the challenging retail climate, our integrated retail, franchise and property system is robust and growing market share and is well-placed to capitalise on any resurgence in the discretionary retail sector in Australia. Our sustainable business model is resilient and is geared towards the creation of longterm shareholder value, despite turbulence in the current retail climate. Retail trading conditions in the half-year ended 31 have been negatively affected by: a decline in consumer confidence following successive interest rate increases; unusually cool and wet summer conditions reducing demand for seasonal products such as cooling and outdoor furniture products; significant price deflation in the television and laptop computer categories exacerbated by the strength of the Australian dollar; and challenging global economic conditions. By contrast, the previous corresponding period saw an improvement in retail confidence on the back of the strengthening domestic housing market and increased spending by businesses and consumers caused by the Government s Stimulus packages. The underlying result before tax of the franchising operations segment was $ million for the half-year ended 31 compared with an underlying result of $ million for the prior period, a reduction of 17.3%. Our franchisees have managed a difficult trading environment well and continued to gain market share in all key categories. We continued our store roll-out program in Australia and have opened two (2) Harvey Norman complexes during the current period. We opened one (1) new Harvey Norman company-owned store in Novo Mesto, Slovenia in October. We have taken advantage of our low gearing to seize opportunities in the marketplace. We acquired the assets of twenty-eight (28) Clive Peeters and Rick Hart stores in July and subsequently rebranded two (2) of the Clive Peeters stores to Harvey Norman and one (1) to Joyce Mayne. The acquisition of the Clive Peeters and Rick Hart brands has provided a positive boost to our retail offering in Australia generating a combined sales revenue of $ million for the period. Significant investment costs were incurred in rebuilding the Clive Peeters and Rick Hart brands and in restructuring the business to create a viable platform for future growth and profitability. The consolidated result for the Clive Peeters and Rick Hart stores for the half-year ended 31 was a loss of $20.67 million before tax. Net Profit from Continuing Operations After Tax and Non-Controlling Interests Net profit from continuing operations attributable to owners of the parent after tax was $ million for the half-year ended 31 compared with $ million for the previous corresponding period, a decrease of $27.19 million or 17.1%. This decrease is mainly attributable to: a reduction in the profitability of the franchising operations segment by $36.44 million or 19.5% before tax ($25.51 million after tax) due to lower franchise fees collected during the period; start-up investment costs and trading losses of $20.67 million before tax ($14.47 million after tax) incurred in the Clive Peeters and Rick Hart operations during the current half year; and a lower rise by $9.32 million before tax ($6.52 million after tax) in the market value of the listed public securities held by the consolidated entity relative to the previous corresponding period; The negative impact of the above factors has been minimised by the following increases in profit: a reduction in the net property revaluation decrement for Australian investment properties and joint venture entities by $10.77 million before tax ($7.54 million after tax) compared to the previous period; the profit of $7.34 million before tax ($5.14 million after tax) recognised on the sale of a development property located in Mentone, Victoria; and the stronger result generated by the retail operations in Singapore, Malaysia and Slovenia which have increased profitability by $4.75 million before tax collectively compared to the previous period. 3

5 CHAIRMAN S REPORT (CONTINUED) Net Profit from Underlying Business Operations The net profit from the underlying business operations of the consolidated entity is calculated by excluding from net profit from continuing operations one-off transactions and the net revaluation adjustments recorded in the group s property portfolio brought to account in the income statement. In determining the profit from underlying business operations, the following items have been excluded from profit for the halfyear ended 31 : 1) The net property revaluation decrement of $5.14 million before tax ($3.60 million after tax) for investment properties in Australia The fair value review of the Australian investment property portfolio resulted in a net property revaluation decrement for the current period. 2) The net property revaluation increment of $0.16 million before tax ($0.11 million after tax) for properties held under joint venture entities The fair value review of the properties held under several joint venture entities resulted in a net property revaluation increment for the current period. 3) The net profit recorded on the sale of a development property of $7.34 million before tax ($5.14 million after tax) During the current period, a development property owned by the joint venture entity in Mentone, Victoria was sold and the consolidated entity s share of the profit on sale was $7.34 million before tax. 4) Information technology ( IT ) costs of $3.55 million before tax ($2.49 million after tax) incurred in relation to the development of a core global merchandise management system to support the Harvey Norman, Domayne, Joyce Mayne and Norman Ross brands These costs have been expensed in the income statement as they do not satisfy the criteria for capitalisation or are operational in nature. This IT initiative has progressed to the design phase of the project during the current review period. 5) The impairment expense of $0.64 million before tax ($0.45 million after tax) due to the write-down of information technology assets An internal review was conducted during the period to identify those IT assets that are no longer of value. 6) The impairment expense of $0.04 million recorded in respect of plant and equipment assets of stores located in Northern Ireland A further expense of $0.04 million was incurred in Northern Ireland which represented the asset additions of the two (2) stores located in Northern Ireland during the current period. No further impairment expense was recognised in respect of the plant and equipment assets of stores located in the Republic of Ireland. The net profit from underlying business operations for the preceding half-year period was $ million. Upon the basis of the assumptions set out above, the net profit after tax and non-controlling interests of the underlying business operations would have been $ million for the half-year ended 31 compared to $ million for the previous half-year period, a decrease of 22.2%. Franchising Operations Segment The franchising operations segment in Australia delivered a lower segment result before tax of $ million for the half-year ended 31 compared with a segment result of $ million for the prior period, a decrease of 19.5%. If the costs arising from the new IT merchandise management system and the IT asset write-down costs were excluded, the underlying franchising operations segment result would have been $ million for the current period compared to $ million for the prior half-year, a reduction of 17.3%. Franchising Operations Segment Result HY Dec HY Dec Increase / (Decrease) Segment Result Before tax 150, ,794 (36,437) (19.5%) Adjustments: Add back/(deduct) - IT costs - merchandise management system 3,553-3,553 - IT costs write down of IT assets Underlying Franchising Operations Segment Result 154, ,794 (32,243) (17.3%) % 4

6 CHAIRMAN S REPORT (CONTINUED) Franchising Operations Segment (continued) The table below shows the underlying franchising operations margin, calculated as the underlying franchising operations segment result before tax over franchisee aggregate sales revenue, for the following half-year ( HY ) and full-year ( FY ) periods. The underlying franchising operations margin was 5.63% for the half-year ended 31 compared to 6.7% for the half-year ended 31. Underlying Franchising Operations Margin HY Dec FY June HY Dec no. of franchised outlets in Australia underlying franchising operations segment $154.55m $314.17m $186.79m result before tax franchisee sales revenue 1 $2.74bn $5.19bn $2.78bn underlying franchising operations margin 5.63% 6.1% 6.7% 1 Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity Franchising Operations Segment Key Statistics HY Dec HY Dec Underlying franchising operations margin 5.63% 6.7% Half-year return on franchising operations equity (a) 21.36% 24.81% Half-year return on franchising operations assets (b) 11.53% 13.96% Revenue from franchising operations 498, ,712 Franchising operations EBITDA 189, ,221 Net operating cash flows from franchising operations 88,713 59,860 (a) Calculated as: Half-Year EBIT from Franchising Operations Franchising Operations Equity* [*equity allocated to franchising operations segment based on franchising operations assets as a proportion of total assets] (b) Calculated as: Half-Year EBIT from Franchising Operations Franchising Operations Segment Assets (after eliminations) Note: The segment result has not been annualised for the purposes of this calculation. Sales Revenue of Franchisees in Australia: Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity. Retail sales in Harvey Norman, Domayne and Joyce Mayne complexes in Australia are made by independently owned franchised business entities that are not consolidated with the consolidated entity s results. Australian franchisee sales data for the half-year ended indicated the following: Furniture and bedding franchisees continue to grow revenue and market share despite the industry experiencing a slow down with the dampened housing market. The Harvey Norman and Domayne brands continue to lead in these categories illustrating the strength of the model. It is a credit to these teams to have achieved this result in such tough times. Electrical franchisees continue to strengthen their businesses in an extremely difficult environment. The well documented price deflation for the half at around 30% has compromised revenue growth. Manufacturers are indicating that price deflation will continue during the calendar year 2011, although not at the levels of. Despite tough conditions, television market share has grown during the half. This is due to the strong trading partnerships with key suppliers and continued focus on technology sectors within the television market. An unusually cool and wet summer has seen demand for air conditioners and other cooling products tumble significantly. Despite the market decrease, electrical franchisees have again continued to increase their share of this segment. All other product categories showed good growth which led to increased market share in all segments, even after excluding the Clive Peeters and Rick Hart brands. Computer franchisee sales during the half have been influenced by a very competitive market that was driven by a cautious consumer. This has also led to an increase in the price deflation in the key laptop computer category during the period. Positive contributions from the digital SLR camera, smart phone and gaming console categories, combined with the expected growth in the tablet computer categories, have the franchisee well positioned to maximise the technology product opportunities throughout The reduction in franchisee sales revenue has translated into a decrease in the profitability of the franchising operations segment. Franchise fees received during the period decreased. Franchisees continued to grow market share across all key product categories. Franchisees are well placed to take advantage of any improvement in discretionary retail. 5

7 CHAIRMAN S REPORT (CONTINUED) Acquisition of Clive Peeters and Rick Hart Retail Brands and Assets On 1 July Harvey Norman CP Pty Limited, a wholly-owned subsidiary of Harvey Norman Holdings Limited, entered into an Asset Sale Agreement ( ASA ) with Clive Peeters Limited ACN (Administrators Appointed) (Receivers & Managers Appointed) ( CP ) and certain associated companies of CP to purchase certain assets for an estimated purchase price of $55 million inclusive of GST. The ASA was completed on 7 July and, subsequent to the satisfactory completion of the due diligence by management, a final purchase price of $54.75 million inclusive of GST was agreed with the Receivers. The inventory and plant and equipment assets of each of the twenty-eight (28) Clive Peeters and Rick Hart stores listed in the table below, the know-how and intellectual property rights and systems of the Vendors were acquired less an allowance for employee entitlement provisions and customer deposits received in advance. There was no goodwill recognised pursuant to the Clive Peeters business combination as the purchase consideration paid for the net assets acquired approximated fair value as at acquisition date. Victoria (10 stores) Queensland (7 stores) Western Australia (7 stores) Bendigo Richmond Aspley Belmont Braybrook Ringwood Burleigh Waters Joondalup Coburg Thomastown Loganholme Mandurah Dandenong Macgregor Midland Malvern Tasmania (1 store) Mackay O Connor Moorabbin Moonah Maroochydore Osborne Park Mornington Morayfield Victoria Park Clive Peeters Mt. Druitt (NSW) store was rebranded to Harvey Norman R in August Clive Peeters Maryborough (QLD) store was rebranded to Harvey Norman R in September Clive Peeters Bundaberg (QLD) store was rebranded to Joyce Mayne in October All Clive Peeters and Rick Hart stores are operated as company-run stores and not part of the franchise system. Clive Peeters and Rick Hart Sales and Profit Performance Consolidated sales revenue for the half-year ended 31 was $93.17 million for Clive Peeters and $31.60 million for Rick Hart, a total of $ million for the two newly-acquired brands. This was below management s expectations highlighting the impact of the damage to the brands prior to acquisition and the lead-time for customer acceptance and confidence in the reinvigorated business under Harvey Norman s stewardship. Heavy discounting continued post acquisition to expedite the sale of old inventory acquired from the former business while management focused on building a stronger retail offering to consumers by implementing a new computer business. The subdued sales result was compounded by the difficult trading conditions experienced by all retailers, price deflation on electrical goods and the cooler start to the summer trading period along the Eastern seaboard. The consolidated result for the Clive Peeters and Rick Hart brands for the half-year ended 31 was a loss of $20.67 million before tax. This loss reflects investment costs in rebuilding the Clive Peeters and Rick Hart brands and restructuring the business to create a viable platform for future growth and profitability. Significant investment costs included higher advertising and promotion costs to repair the brand, start-up costs associated with establishing the new computer business and the costs associated with altering and integrating the existing operations into the Harvey Norman system. It is intended to capitalise on the buying and bargaining power of the Harvey Norman system. 6

8 CHAIRMAN S REPORT (CONTINUED) Sales and Profitability of the Overseas Controlled Entities New Zealand Sales revenue from the New Zealand company-owned stores decreased by $NZ13.92 million (decrease of 3.6%) due to the New Zealand recession and low consumer sentiment. When sales in New Zealand were translated into Australian dollars for the purposes of this report, the decrease in sales revenue was $A20.13 million (decrease of 6.4%). This decrease is due to a 2.9% devaluation in the New Zealand dollar relative to the Australian dollar used for translation purposes. The retail segment result in New Zealand was $20.68 million for the halfyear ended 31 compared to $22.36 million for the previous half year, a decrease of 7.5%. The decrease in local currency would have been 4.7% The state of the New Zealand economy remains challenging, characterised by high unemployment, low savings, a significant fall in property prices and a very cautious consumer. The GST hike in October further exacerbated a depressed retail environment. The dominant Harvey Norman brand in New Zealand continues to be the clear market leader in all key product categories. Republic of Ireland and Northern Ireland Sales revenue from the company-owned stores in the Republic of Ireland decreased by 1.96 million (decrease of 2.6%) from million in the previous half-year to million for the half-year ended 31. When sales in Ireland were translated into Australian dollars for the purposes of this report, sales revenue decreased by $A22.94 million (decrease of 18.2%). This decrease is due to a 16.1% decline in the Euro relative to the Australian dollar used for translation purposes. Sales revenue from the two company-owned stores in Northern Ireland increased by 0.25 million (increase of 4.2%) from 5.90 million in the previous half-year to 6.15 million for the half-year ended 31. The sales increase can be attributed to increased brand awareness in Northern Ireland as the two (2) stores have been trading for over two years. When sales in Northern Ireland were translated into Australian dollars for the purposes of this report, sales revenue actually decreased by $A0.90 million (decrease of 8.1%) due to a 11.9% decline in the UK Pound Sterling relative to the Australian dollar used for translation purposes. The segment result for the operations in Ireland and Northern Ireland was a trading loss of $17.78 million for the half-year ended 31 compared to $17.97 million in. Ireland reported a loss of million for the current period compared to a loss of 8.79 million in the previous period, an increase of 23.5% in local currency. The increase in the Irish loss in Australian dollars was 3.7%. Northern Ireland reported a loss of 1.55 million for the period compared to a loss of 1.75 million in the prior period, an improvement of 11.6% in local currency. In Australian dollars, the improvement in the Northern Ireland segment result was 22.0%. In March, a new management team was appointed in Ireland. There have been positive signs of improved operational performance throughout the business. The Irish team are working tirelessly to reduce costs and enhance efficiencies. We continue to grow market share in Ireland and are well positioned to take advantage of any improvement in macroeconomic conditions. The Board remains committed to Ireland for the long-term. 7

9 CHAIRMAN S REPORT (CONTINUED) Sales and Profitability of Overseas Controlled Entities (continued) Asia Sales revenue from the controlled entity Pertama Holdings Limited, Singapore, trading as Harvey Norman increased by $S13.57 million (increase of 6.6%). When sales in Singapore were translated into Australian dollars for the purposes of this report, the increase in sales was $A7.82 million (increase of 4.7%). There was a devaluation of 1.8% in the Singapore dollar relative to the Australian dollar used for translation purposes. The Harvey Norman branded stores in Singapore and Malaysia continue to grow market share and outperform competitors. There has been an improvement in the segment result for the Asian operations during the half-year from $2.06 million in the previous half-year to $3.41 million for the half-year ended 31, an increase of 65.3%. The increase in local currency was 68.4%. The Harvey Norman stores in Singapore have performed well. The investment in the Space Furniture brand in Singapore has resulted in a 42.9% increase in sales revenue. The Malaysian operations are expected to be a growth area within the Asian segment. Slovenia Sales revenue from the company-owned stores in Slovenia increased by 5.10 million (increase of 23.5%) relative to the previous period. This increase is mainly attributable to the sales revenue recorded by the new store at Novo Mesto which commenced trading in October and a full six-month s trading of the Celje store which opened in August. When sales in Slovenia were translated into Australian dollars for the purposes of this report, the increase in sales was $A1.32 million (increase of 3.6%). With the recent opening of Novo Mesto, there are now four (4) stores in Slovenia with strong market share in all categories. The segment result was $3.80 million for the half-year ended 31 compared to $0.39 million for the preceding period. Other Non-Franchised Retail The non-franchised retail segment consists of the retail trading operations in Australia which are controlled by the consolidated entity and does not include any operations of Harvey Norman franchisees. This segment includes the Clive Peeters and Rick Hart brands in Australia and the Space Furniture brand in Malaysia. Sales revenue for the other non-franchised retail segment was $ million for the half-year ended 31 compared to $60.44 million for the previous period, an increase of 204.1%. This increase is primarily due to the inclusion of Clive Peeters and Rick Hart sales revenue for the period amounting to $93.17 million and $31.60 million respectively. The segment result for the non-franchised retail segment was a loss of $17.00 million for the current half-year compared to a profit of $3.95 million in the prior period, a deterioration of $20.95 million. This reduction in profit is mainly attributed to the startup costs and trading losses incurred in respect of the Clive Peeters and Rick Hart stores of $20.67 million. 8

10 CHAIRMAN S REPORT (CONTINUED) Property Portfolio Composition of the Property Portfolio The Harvey Norman property portfolio consists of Harvey Norman, Domayne and Joyce Mayne complexes in Australia, Harvey Norman and Norman Ross stores in New Zealand, properties located in Singapore, the four (4) Harvey Norman stores in Slovenia, properties held under joint venture agreements and land and buildings in Australia for development and resale at a profit. Composition of Property Portfolio HY Dec FY June HY Dec Investment properties 1,395,200 1,393,991 1,316,569 Investment properties under construction 148,879 95,209 86,988 Joint venture properties 163, , ,287 Owned land & buildings in New Zealand, Singapore and Slovenia 252, , ,257 Properties held for resale 17,626 17,485 20,229 Total Property Portfolio 1,977,531 1,877,861 1,825,330 Benefits of Property Ownership The property portfolio is an essential complement to the Harvey Norman brand and retail system. Ownership of the retail complexes enables shareholders to participate in the benefits of ownership of high quality commercial retail and warehouse property. The Harvey Norman and Domayne branded complexes are very attractive to retail tenants. Harvey Norman complexes are well-maintained and well-located. Generally, tenants are of good quality, including Harvey Norman franchisees. There is a low vacancy rate in Harvey Norman complexes. The benefits flowing from the property investment portfolio include: long-term capital appreciation; control of rental obligations, and avoidance of potentially crippling opportunistic rental escalations by landlords; flexibility and freedom to adjust franchisee store layout and configuration to deal with changing market retail trends; and capacity to attract quality third party tenants to the complex location. Composition of Harvey Norman, Domayne, Joyce Mayne, Norman Ross, Clive Peeters and Rick Hart branded complexes as at 31 : 31 Dec Owned Leased** Total Australia: Franchised complexes Australia: Clive Peeters & Rick Hart New Zealand Slovenia Ireland & Northern Ireland Asia TOTAL ** leased from external parties 9

11 CHAIRMAN S REPORT (CONTINUED) Geographic Spread This diagram displays the geographic spread of the franchised Harvey Norman ( HN ), Domayne ( DM ) and Joyce Mayne ( JM ) franchised complexes in the Australian market, the Harvey Norman and Norman Ross ( NR ) branded company-owned stores in New Zealand, Ireland, Northern Ireland, Singapore, Malaysia and Slovenia and the Clive Peeters ( CP ) and Rick Hart ( RH ) branded company-owned stores in Australia as at 31. Two (2) franchised complexes, HN Morwell and HN Ipswich, commenced trading during the current period. One (1) franchised HN complex located at Ulverstone, Tasmania ceased trading during the period and the HN Bernoths store at Toowoomba was rebranded to Joyce Mayne. Two (2) former CP stores were rebranded to Harvey Norman during the period and one (1) former CP store was rebranded to Joyce Mayne. There were 198 franchised complexes in Australia as at 31. One (1) new store was opened in Novo Mesto, Slovenia in October and there was one (1) store closure in Lower Hutt, New Zealand. As at 31 there were eighteen (18) Clive Peeters and seven (7) Rick Hart company-owned stores in Australia. There were 95 company-owned stores in Australia and offshore markets as at 31. Ireland 14 Northern Ireland 2 Slovenia 4 Singapore 14 Australia: Franchised Complexes 198 Clive Peeters & Rick Hart 25 Malaysia 6 New Zealand 30 Australia Clive Peeters & Rick Hart 18 Clive Peeters Stores o 10 in VIC, 7 in QLD, 1 in TAS 7 Rick Hart Stores o 7 in WA Franchised Complexes 198 franchised complexes in total 2 new franchised complexes opened during the period: o HN Ipswich (QLD) o HN Morwell (VIC) 3 CP stores re-branded during the period: o CP Mt. Druitt to HN Mt. Druitt (NSW) o CP Maryborough to HN Maryborough (QLD) o CP Bundaberg to JM Bundaberg (QLD) Closure of the HN Ulverstone (TAS) complex Rebranding of the HN Bernoths, Toowoomba complex to JM Overseas Controlled Entities New Zealand 30 stores in total: 26 Harvey Norman and 4 Norman Ross Closure of Lower Hutt store in October Ireland 14 stores in total Northern Ireland 2 stores in total Slovenia 4 stores in total 1 new HN store opened at Novo Mesto in October Singapore 14 stores in total Malaysia 6 stores in total 10

12 CHAIRMAN S REPORT (CONTINUED) Outlook The outlook for the integrated retail, franchise and property system is positive, despite the current economic and market headwinds. We remain intent on following the proven strategy to create long term sustainable growth and value for shareholders. The strong free net cash flow from the franchising operations segment remains the foundation for growth. Furniture and bedding franchisees continue to outperform the Australian market. Electrical and computer franchisees have maintained their dominant market position despite intense competition and deflationary pressure in key categories. The franchise system remains strong and resilient. The property portfolio will be enhanced with the development of a 32,695 sq.m retail complex in Maroochydore, Queensland. The development will include a Harvey Norman complex, a Domayne complex and a further 20 external tenancies. Additionally, the already commenced Springvale development in Melbourne, comprising an area of 72,000 sq.m including IKEA, is ahead of its scheduled completion date and is now expected to open during the last quarter of calendar year Once complete, this will be the largest homemaker shopping centre of its kind in Australia. The Ireland operation continues to operate within very challenging economic circumstances. We are confident that the stability of the Irish business model has us well positioned to capitalise on any recovery in the Irish economy. The New Zealand business is expected to maintain its strong position despite a generally negative consumer sentiment. The balance sheet of the company remains a strength through prudent financial management. This stable base allows our people within our brands to operate with continuing optimism as they deliver on the considered retail, franchise and property strategy for the long term benefit of all shareholders. Equity Consolidated equity as at 31 was $2.19 billion compared to $2.15 billion at 31 an increase of $37.50 million or 1.7%. Of the total equity of $2.19 billion, an amount of $46.05 million ( : $48.70 million) is attributable to non-controlling interests mainly relating to Pertama Holdings Limited, Singapore. Dividend The recommended interim dividend is 6.0 cents per share fully franked ( : 7.0 cents per share fully franked). This interim dividend will be paid on 2 May 2011 to shareholders registered at 5:00 pm on 15 April No provision has been made in the Statement of Financial Position for this recommended interim dividend. I would like to thank my fellow directors, Harvey Norman employees, franchisees and their staff for their continuing efforts and loyalty. G. HARVEY Chairman Sydney, 25 February

13 DIRECTORS REPORT The directors of Harvey Norman Holdings Limited (the Company ) submit their report for the half-year ended 31. Unless otherwise indicated, all directors (collectively termed the Board ) held their position as a director throughout the entire financial period and up to the date of this report. Directors Gerald Harvey Executive Chairman Kay Lesley Page Director and Chief Executive Officer Arthur Bayly Brew * Director John Evyn Slack-Smith Director and Chief Operating Officer David Matthew Ackery Director Chris Mentis Director and Chief Financial Officer Michael John Harvey Non-Executive Director Ian John Norman Non-Executive Director Christopher Herbert Brown Non-Executive Director Kenneth William Gunderson-Briggs Non-Executive Director Graham Charles Paton AM Non-Executive Director * Arthur Bayly Brew retired as director of Harvey Norman Holdings Limited on 1 September. Mr. Brew remains an executive employee of Yoogalu Pty Limited, a wholly-owned subsidiary of the Company. Committee Membership As at the date of this report, the Company had an Audit Committee, a Remuneration Committee and a Nomination Committee. Members acting on the committees of the board during the half year were: Audit Committee: G.C. Paton AM (Chairman) C.H. Brown K.W. Gunderson-Briggs Remuneration Committee: C.H. Brown (Chairman) K.W. Gunderson-Briggs G.C. Paton AM Nomination Committee: C.H. Brown (Chairman) K.W. Gunderson-Briggs G.C. Paton AM Principal Activities The principal activities of the consolidated entity are that of an integrated retail, franchise and property enterprise including: Franchisor; Sale of furniture, bedding, computers, communications and consumer electrical products in Australia, New Zealand, Slovenia, Republic of Ireland and Northern Ireland; Property investment; Lessor of premises to Harvey Norman franchisees and other third parties; Media placement; and Provision of consumer finance and other commercial advances. The consolidated entity holds a controlling interest in Pertama Holdings Limited ( Pertama ). Shares in Pertama are listed on the Stock Exchange of Singapore. The principal activities of Pertama are retail sales of furniture, bedding, computers, communications and consumer electrical products. Review of Group Operations The total equity of the consolidated entity for the half-year ended 31 increased over the previous corresponding period due to the following: Profit attributable to franchise fee revenue; A lower property revaluation decrement recorded for the period; Profit attributable to increased value of the listed public securities held by the consolidated entity; and Profit attributable to increased rental income. 12

14 DIRECTORS REPORT (CONTINUED) Significant Changes in the State of Affairs In the opinion of the directors, there were no significant changes in the state of affairs of the consolidated entity that occurred during the half-year ended 31. Significant Events After Balance Date There have been no circumstances arising since balance date which have significantly affected or may significantly affect: the operations; the results of those operations; or the state of affairs of the entity or consolidated entity in future financial years. Dividends The directors recommend a fully franked interim dividend of 6.0 cents per share. This interim dividend will be paid on 2 May 2011 to shareholders registered at 5:00 pm on 15 April No provision has been made in the Statement of Financial Position for this recommended interim dividend. Corporate Governance The Company is committed to good corporate governance and disclosure. The Company has substantially adopted the ASX Corporate Governance Council's "Principles of Good Corporate Governance and Best Practice Recommendations" for the entire financial period, unless otherwise stated. 13

15 DIRECTORS REPORT (CONTINUED) Auditor Independence The directors received the following declaration from the auditors of Harvey Norman Holdings Limited. Auditor s Independence Declaration to the Directors of Harvey Norman Holdings Limited In relation to our review of the financial report of Harvey Norman Holdings Limited for the half-year ended 31, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Christopher George Partner Sydney 25 February 2011 Liability limited by a scheme approved under Professional Standards Legislation. This report has been made in accordance with a resolution of directors. G. HARVEY K.L. PAGE Chairman Chief Executive Officer Sydney Sydney 25 February February

16 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER CONSOLIDATED NOTE June Current Assets Cash and cash equivalents 27(a) 132, , ,346 Trade and other receivables 5 1,192,482 1,081,645 1,195,115 Other financial assets 6 38,000 34,400 39,320 Inventories 7 359, , ,131 Other assets 8 38,324 20,913 26,137 Intangible assets Total current assets 1,761,845 1,556,629 1,723,667 Non-Current Assets Trade and other receivables 10 16,639 25,182 20,050 Investments accounted for using equity method , , ,287 Other financial assets 11 9,331 7,171 6,906 Property, plant and equipment , , ,708 Investment properties 13 1,544,079 1,489,200 1,403,557 Intangible assets 14 36,021 24,229 18,301 Deferred income tax assets 22,520 22,488 17,963 Total non-current assets 2,293,453 2,147,884 2,100,772 Total Assets 4,055,298 3,704,513 3,824,439 Current Liabilities Trade and other payables , , ,665 Interest bearing loans and borrowings , , ,374 Income tax payable 34,972 41,040 43,994 Other liabilities 17 2,721 2,930 3,223 Provisions 18 25,005 23,326 19,588 Total current liabilities 1,113, ,353 1,082,844 Non-Current Liabilities Trade and other payables 19-23,332 - Interest-bearing loans and borrowings , , ,193 Provisions 21 9,947 8,819 8,742 Deferred income tax liabilities 188, , ,515 Other liabilities 22 19,131 21,984 24,472 Total non-current liabilities 752, , ,922 Total Liabilities 1,866,121 1,547,302 1,672,766 NET ASSETS 2,189,177 2,157,211 2,151,673 Equity Contributed equity , , ,610 Reserves 24 39,019 56,418 54,354 Retained profits 25 1,844,503 1,787,196 1,789,006 Parent entity interests 2,143,132 2,103,224 2,102,970 Non-controlling interests 26 46,045 53,987 48,703 TOTAL EQUITY 2,189,177 2,157,211 2,151,673 The above Statement of Financial Position should be read in conjunction with the accompanying notes. J 15

17 INCOME STATEMENT FOR THE HALF-YEAR ENDED 31 DECEMBER CONSOLIDATED NOTE Continuing Operations Sales revenue 2 804, ,629 Cost of sales (588,742) (521,870) Gross profit 215, ,759 Revenues and other income items 2 590, ,634 Distribution expenses (4,063) (4,290) Marketing expenses (213,629) (194,461) Occupancy expenses (113,052) (113,323) Administrative expenses (222,425) (188,609) Other expenses from ordinary activities (43,930) (36,933) Finance costs 3 (21,349) (15,324) Share of equity accounted entities: - Share of net profit of joint venture entities 28 11,138 3,957 - Share of joint venture property revaluation (639) Profit from continuing operations before income tax 198, ,771 Income tax expense (64,608) (77,240) Profit from continuing operations after tax 134, ,531 Attributable to: Owners of the parent 131, ,857 Non-controlling interests 2,335 1, , ,531 Earnings Per Share From continuing operations: Basic earnings per share (cents per share) cents cents Diluted earnings per share (cents per share) cents cents Dividends per share (cents per share) 6.0 cents 7.0 cents The above Income Statement should be read in conjunction with the accompanying notes. 16

18 STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER CONSOLIDATED Profit for the period 134, ,531 Other comprehensive income Foreign currency translation (24,763) (3,732) Net fair value gains on available-for-sale investments Cash flow hedges: Gain/(loss) taken to equity 3,056 (26) Transferred realised gains to other income (56) 79 Transferred to Statement of Financial Position (1) 439 Fair value revaluation of land and buildings Income tax on items of other comprehensive income (1,168) (101) Other comprehensive income for the period (net of tax) (21,738) (2,361) Total comprehensive income for the period 112, ,170 Total comprehensive income attributable to: Owners of the parent 114, ,027 Non-controlling interests (2,302) (1,857) 112, ,170 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 17

19 STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER Contributed Equity Retained Profits Attributable to Equity Holders of the Parent Asset Revaluation Reserve Foreign Currency Translation Reserve Available for Sale Reserve Cash Flow Hedge Reserve Employee Equity Benefits Reserve Non-controlling Interest TOTAL EQUITY AT 1 JULY 259,610 1,787,196 68,980 (20,107) 1,354 (1,201) 7,392 53,987 2,157,211 Other comprehensive income: Revaluation of land and buildings Reverse expired or realised cash flow hedge reserves (1) - - (1) Currency translation differences (20,126) (4,637) (24,763) Transfer realised gains on interest rate swaps to other income (56) - - (56) Fair value of interest rate swaps , ,164 Fair value of forward foreign exchange contracts (25) - - (25) Fair value of available for sale financial assets Other comprehensive income (20,126) 359 2,082 - (4,637) (21,738) Profit for the period - 131, , ,004 Total comprehensive income for the period - 131, (20,126) 359 2,082 - (2,302) 112,266 Change in control of controlled entity (342) (342) Cost of share based payments Reversal of share expenses (360) - (360) Dividends paid - (74,362) (4,198) (78,560) Distribution to members (1,100) (1,100) AT 31 DECEMBER 259,610 1,844,503 69,564 (40,233) 1, ,094 46,045 2,189,177 J 18

20 STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER (CONTINUED) Attributable to Equity Holders of the Parent Contributed Equity Retained Profits Asset Revaluation Reserve Foreign Currency Translation Reserve Available for Sale Reserve Cash Flow Hedge Reserve Employee Equity Benefits Reserve Non-controlling Interest TOTAL EQUITY AT 1 JULY 259,610 1,693,888 64,928 (21,715) 373 (460) 9,419 53,139 2,059,182 Other comprehensive income: Revaluation of land and buildings - - (64) (64) Reverse expired or realised cash flow hedge reserves Currency translation differences (176) - - (25) (3,531) (3,732) Fair value of forward foreign exchange contracts (18) - - (18) Fair value of available for sale financial assets Other comprehensive income - - (64) (176) (25) (3,531) (2,361) Profit for the period - 158, , ,531 Total comprehensive income for the period - 158,857 (64) (176) (25) (1,857) 158,170 Cost of share based payments Dividends paid - (63,739) (1,869) (65,608) Distribution to members (710) (710) AT 31 DECEMBER 259,610 1,789,006 64,864 (21,891) 1, ,033 48,703 2,151,673 J 19

21 STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER CONSOLIDATED NOTE Cash Flows from Operating Activities Inflows/(Outflows) Net receipts from franchisees A 484, ,219 Receipts from customers B 797, ,449 Payments to suppliers and employees C (1,121,965) (963,059) Distributions received from joint ventures D 25,876 4,105 GST paid E (9,319) (26,052) Interest received 3,650 2,445 Interest and other costs of finance paid F (21,267) (13,901) Income taxes paid (67,952) (70,042) Dividends received 1, Cash flows from operating activities prior to consumer finance related cash flows 92, ,035 Consumer finance related cash flows: Consumer finance loans granted by the consolidated entity (769) (888) Proceeds of sale of consumer finance loans Repayments received from consumers on consumer finance loans granted by consolidated entity and not sold to commercial investors 977 2,535 Consumer finance related cash flows 874 2,419 Net Cash Flows from Operating Activities 27(b) 93, ,454 20NE

22 STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER (CONTINUED) CONSOLIDATED NOTE Cash Flows from Investing Activities Inflows/(Outflows) Payment for purchases of property, plant and equipment and intangible assets G (93,575) (31,577) Payment for the purchase of investment properties G (125,828) (27,214) Proceeds from sale of property, plant and equipment 3,650 6,920 Payment for the purchase of other investments (4) (5) Proceeds from sale of units in unit trusts 4 27 Payments for purchase of equity investments H (5,189) (1,335) Payments for purchase of listed securities - (424) Loans repaid from other entities Loans granted to other entities (5,495) - Net Cash Flows Used In Investing Activities (226,437) (52,709) Cash Flows from Financing Activities Proceeds from short-term borrowings I 3,481 - Repayment of short-term borrowings I - (229,410) Proceeds from Syndicated Loan Facility I 184, ,500 Repayment of secured bank bills payable I - (133,420) Dividends paid (74,362) (63,739) Proceeds of loans from directors and other persons Repayment of loans to directors and other persons 1, (683) Net Cash Flows From/(Used) In Financing Activities 115,533 (45,752) Net increase/(decrease) in cash and cash equivalents (17,384) 33,993 Cash and Cash Equivalents at Beginning of the Period 100,910 61,375 Cash and Cash Equivalents at End of the Period 27(a) 83,526 95,368 21

23 STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER (CONTINUED) Commentary to the Statement of Cash Flows: <A> Net receipts from franchisees of $ million for the current period exceeded the net franchise receipts of the prior period of $ million, an increase of $2.27 million. Note 2 of this report shows that total revenue received from franchisees decreased from $ million for the previous half year to $ million for the half-year ended 31, a decrease of $11.64 million or 2.1%. Franchisees have responded to the adverse change in the external consumer spending environment by focusing on appropriate cost reductions and inventory levels to increase business efficiency. The result of increased efficiency in franchisee operations has been a reduction in the rate of increase in working capital requirements advanced to franchisees. This reduced cash outflow was greater than the reduction in franchisee fee revenue generated for the period resulting in an increase in net receipts from franchisees. <B> <C> Sales revenue derived by company-owned stores increased for the half-year ended 31 relative to the previous corresponding period due to the inclusion of eighteen (18) Clive Peeters stores and seven (7) Rick Hart stores and the opening of one (1) new store in Novo Mesto, Slovenia. The consolidated sales revenue for the half-year ended 31 for Clive Peeters and Rick Hart was $ million. The increase in payments to suppliers and employees is attributable to the acquisition of inventory of selected Clive Peeters and Rick Hart stores in July and the build up of inventory for the new Clive Peeters and Rick Hart businesses and the costs incurred in re-establishing the brands within the Australian retail market. The remainder of the increase relates to increased inventory payments and operating expenses by company-owned stores. <D> <E> <F> <G> <H> <I> The distributions received from joint venture entities in the current half-year period included $21.99 million in proceeds received from the sale of a development property located in Mentone, Victoria. Net GST payments are lower by $16.73 million in the half-year ended 31 compared to the previous corresponding period. The current half year contained higher GST input tax credits (cash inflows) resulting from increased capital acquisitions and lower GST outputs (cash outflows) due to lower revenue received from franchisees. Interest and other costs of finance paid have increased by $7.37 million due to the increase in commercial bill facilities of overseas controlled entities and the increase in the Syndicated Facilities utilised in Australia. The increase in interest rates in Australia also has had the effect of increasing interest payments. Payments for the purchases of property, plant and equipment, intangible assets and investment properties have increased by $ million relative to the previous corresponding period. This increase is attributable to several significant property acquisitions during the current period including the At Home Centre at Penrith and the new development under construction at Springvale, Victoria. Refurbishment and new fit-out costs were incurred for the conversion of the three (3) former Clive Peeters stores to the Harvey Norman standard as well as the two (2) new Harvey Norman store openings in Australia. The increase is also due to the plant and equipment assets purchased from the former owners of Clive Peeters and Rick Hart as part of the acquisition of assets that took place in July. The increase in payments for the purchase of equity investments is due to capital contributions required for the new mining camp joint venture in Queensland of $4.76 million. On 2, the Company entered into the Syndicated Facility Agreement (as defined in Note 20(a)) in relation to the Facility. Proceeds from the Facility were used to repay the short-term facility previously provided by the Australia and New Zealand Banking Group Limited of $ million and the secured bill facility in Australia of $ million. As at 31, $ million had been drawn down pursuant to the Facility to fund investing activities including significant property acquisitions (see Note G above) and the Clive Peeters asset acquisition. 22