RESULTS FOR HALF YEAR ENDED 31 DECEMBER 2008: PROFIT FROM UNDERLYING BUSINESS OPERATIONS OF $123.52M

Transcription

1 Harvey Norman Holdings Limited 1 ACN February 2009 RESULTS FOR HALF YEAR ENDED 31 DECEMBER : PROFIT FROM UNDERLYING BUSINESS OPERATIONS OF $123.52M Harvey Norman Holdings Limited announced today that profit from underlying business operations for HY to 31 was $ million, compared to $ million for HY to 31. 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 s result Trading conditions remain challenging but our core segments are resilient and our brands are growing market share in all key product categories. Net profit from underlying business operations was down 29.1% on the previous corresponding period. Our financial performance from underlying business operations in this period of global economic downturn must be viewed in light of the retail boom conditions experienced during HY. Trading conditions in Ireland remain extremely difficult. We have taken an impairment charge of $17 million against the written down value of our plant and equipment in Ireland. Commenting on the Boards decision to recommend payment of a 5 cent fully franked interim dividend on 4 May 2009, Harvey said The payment is consistent with the need for continuing our prudent financial stewardship. We have a strong balance sheet and cash flow. We are well placed for the future. This global recession will be here for some time and it might just be the case that Harvey Norman will be one of the few of the strong left standing. Our debt to equity ratio is a very strong 30.1%. Harvey Norman has 271 retail complexes in Australia, New Zealand, Asia and Europe trading under the Harvey Norman, Domayne, Joyce Mayne, Norman Ross brands. Harvey Norman owns property valued at $1.77 billion. 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 27 February 2009 Announcement of Half Year Profit to 31 Announcement of Interim 2009 Dividend 17 April 2009 Record date for determining entitlement to Interim 2009 Dividend 4 May 2009 Payment of Interim 2009 Dividend 31 August 2009 Announcement of Full Year Profit to 30 June 2009 Announcement of Final 2009 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 2, 28 Margaret 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 9 Balance Sheet 12 Income Statement 13 Statement of Changes in Equity 14 Cash Flow Statement 15 Segment Information 18 Notes to and forming part of the Financial Statements for the half year ended Other Information 37 Directors Declaration 38 Independent Review Report

3 RESULTS FOR ANNOUNCEMENT TO THE MARKET HY09 Dec-08 HY08 Dec-07 HY07 Dec-06 no. of franchised outlets in Australia no. of company-owned stores franchisee sales revenue 1 $2.61bn $2.54bn $2.29bn company-owned sales revenue 2 $770.35m $764.67m $659.31m other revenues and other income items from continuing operations $536.50m $557.77m $510.00m earnings before interest and tax (EBIT) from continuing operations $181.60m $344.28m $274.29m profit from continuing operations after tax attributable to members $99.33m $230.15m $172.90m profit from discontinued operations after tax attributable to members $- $- $7.60m net profit for the year attributable to members $99.33m $230.15m $180.50m Underlying Business Operations $123.52m $174.14m $132.87m market capitalisation at 31 $2.82bn $7.20bn $4.02bn basic earnings per share c 21.69c 16.35c Interim dividend per share (fully franked) 5.0c 7.0c 5.0c Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity Includes the Harvey Norman and Norman Ross branded company-owned stores in New Zealand, Republic of Ireland, Northern Ireland, Singapore, Malaysia and Slovenia and the OFIS brand name in Australia. The Dec-06 figure excludes the stores owned by Rebel Sport Limited trading under the Rebel Sport brand name. Basic earnings per share for Dec-06 excludes the discontinued operations of Rebel Sport Limited Financial Summary: Net profit after tax and minority interests of the underlying business operations was $ million for HY2009 compared to $ million for HY, a decrease of 29.1%. Net profit from continuing operations attributable to members after tax was $99.33 million for HY2009 compared to $ million for HY, a decrease of 56.8%. HY included $56.01 million net profit after tax in net property revaluation increments relating to the investment property portfolio in Australia (nil in HY2009). HY2009 includes a loss of $19.81 million recorded by the operations in Ireland and Northern Ireland. In addition, in Ireland, there was an impairment loss of $17.00 million to reduce the carrying amount of plant and equipment to recoverable amount. The franchising operations segment result before tax for HY2009 was $ million compared to $ million for HY, a decrease of 12.7%. Despite challenging trading conditions, franchisees in Australia continued to grow market share in all key product categories. The integrated retail, franchise and property system is strong and resilient. The franchising operations margin for HY2009 was 5.72% compared to 6.73% for HY, a decrease of 15.0%. Our balance sheet and cash flows remain strong and, under any measure, our gearing is low. We continue to maintain a low debt to equity ratio of 30.1% and a low net debt to equity ratio of 22.2% (included in net debt is cash and cash equivalents). Our debt to capital ratio is 24.7% and the net debt to capital ratio is 18.2%. The interim dividend payable for HY2009 is 5.0 cents per share fully franked (HY: 7.0 cents per share fully franked). Franchisee sales revenue for HY2009 was $2.61 billion compared to $2.54 billion for HY, an increase of 2.7%. 2

4 CHAIRMAN S REPORT Business Performance Prior to the retail sector experienced unprecedented growth and consumer sentiment was extremely strong. Subsequent to and as a result of the global economic crisis, retail conditions have deteriorated, adversely impacting the financial performance of the consolidated entity for the half year ended 31. Although trading conditions remain challenging, the core segments of the consolidated entity are extremely resilient and our brands are growing market share in all key product categories. This resilience is evidenced by the financial performance of the franchising operations segment which, although down 12.7% on the prior corresponding period, must be considered in light of the retail boom conditions experienced during the half year ended 31 and the global economic downturn experienced in the half year to 31. Our balance sheet and cash flows remain strong and we continue to maintain a low debt to equity ratio of 30.1%. By any measure, our gearing is low. Our prudent financial stewardship has enabled the consolidated entity to grow and create opportunities for long-term sustainable growth and shareholder value in the future. We continue to invest in our integrated retail, franchise and property system capitalising on our strong brand and market leadership position. Net Profit from Continuing Operations After Tax and Minority Interests Net profit from continuing operations attributable to members after tax was $99.33 million for the half year ended 31 compared with $ million for the previous corresponding period, a decrease of 56.8%. This decrease is attributable to: the inclusion of $80.01 million before tax ($56.01 million after tax) in net property revaluation increments in the previous half year period compared to no change in the fair value of investment properties in Australia and a revaluation decrement of $5.45 million before tax ($4.31 million after tax) recognised on the first-time revaluation of a property in Slovenia for the half year to ; tougher trading conditions experienced by franchisees in Australia and declining franchisee profitability resulting in an increase in support to franchisees to assist the franchisees to grow market share; the loss of $19.81 million recorded by the operations in Ireland and Northern Ireland due to the depressed state of the Irish and UK economies and start-up investment costs associated with the expansion into Northern Ireland. In addition, in Ireland, there was an impairment loss of $17.00 million to reduce the carrying amount of plant and equipment to recoverable amount; the weakening Australian dollar relative to the Euro and UK Pound Sterling thereby further magnifying the losses incurred in Ireland and Northern Ireland for the purposes of translation into the presentation currency of this report; and net losses of $6.99 million before tax ($4.89 million after tax) incurred on the market revaluation of the consolidated entity s investment portfolio of listed securities in Australia due to the collapse of the Australian equity market. This decrease has been magnified due to the extremely buoyant retail trading conditions during the previous corresponding period that enabled the consolidated entity to post a very strong result for the half year ended 31. The record result produced by the previous half year has set an incredibly high benchmark for the comparison period. Net Profit from Underlying Business Operations The underlying business operations of the consolidated group are exclusive of one-off transactions and the net fair value adjustments recorded in respect of the group s property portfolio. For the purposes of determining net profit from underlying business operations, the following items should be excluded from profit for the half year ended 31 : the impairment loss of $17.00 million recognised in respect of the plant and equipment assets of stores located in the Republic of Ireland. In light of the global economic downturn and the significant losses incurred in the Irish operations, the recoverable amount of plant and equipment assets in Ireland has been reviewed. Based on expectations of cash flows to be generated over the remaining useful life of these assets, an impairment charge has been recognised against plant and equipment to reduce the value to recoverable amount. information technology costs of $4.12 million before tax ($2.89 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 (Dec : nil). The costs incurred to date in respect of this system have been expensed in the income statement as part of the solution definition phase of the project. The development of this merchandise management system has been approved by the Board but its implementation has been deferred until such time as macroeconomic conditions improve. the property revaluation decrement of $5.45 million before tax ($4.31 million after tax) relating to the first-time revaluation of an owned property in Slovenia. No adjustment is required in relation to the investment property portfolio in Australia. In accordance with the accounting policy for investment property outlined in Note 1 of this report, the Board of Directors reviewed the Australian investment property portfolio and determined that no fair value adjustment was required for the half year ended 31. 3

5 CHAIRMAN S REPORT (CONTINUED) Net Profit from Underlying Business Operations (continued) For the purposes of determining net profit from underlying business operations, the following item should be excluded from profit for the half year ended 31 : the total property revaluation uplift recognised in the previous corresponding period of $80.01 million before tax ($56.01 million after tax), of which $37.57 million before tax ($26.30 million) was attributable to the revaluation of properties held in joint venture entities. Upon the basis of the assumptions set out above, the net profit after tax and minority interests of the underlying business operations would have been $ million for the half year ended 31 compared to $ million for the previous half year, a decrease of 29.1%. Franchising Operations Despite the challenging trading conditions, effective management of the franchising system and sustained investment in the Harvey Norman, Domayne and Joyce Mayne brand names in Australia has delivered a solid franchising operations segment result. The integrated retail, franchise and property system is strong and resilient. The franchising operations segment result before tax for the current half year was $ million compared to $ million for the half year ended 31, a decrease of 12.7%. The main reason for the reduction was the cost of increased support to franchisees to assist franchisees to grow market share. The franchising operations segment result for the current year excludes the IT costs incurred in relation to the new merchandise management system of $4.12 million before tax. The table below shows the franchising operations margin, calculated as the franchising operations segment result before tax over franchisee aggregate sales revenue for the following half-year ( HY ) periods. The franchising operations margin was 5.72% for the half year to 31 compared to 6.73% for the previous corresponding period. Franchising Operations Margin HY Dec FY June HY Dec no. of franchised outlets in Australia franchising operations segment $149.42m $291.41m $171.24m result before tax 2 franchisee sales revenue 1 $2.61bn $4.86bn $2.54bn franchising operations margin (%) 5.72% 6.00% 6.73% 1 Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity 2 Excluding: HY Dec - Information technology (IT) expenses of $4.12m for merchandise management system FY June - Information technology (IT) expenses of $3.95m for merchandise management system and write-down of several IT assets of $1.48m Overseas Controlled Entities: New Zealand Despite the recession experienced in New Zealand, the New Zealand company-owned stores grew market share however this was achieved at the expense of product margins and ultimately, profitability. The retail segment result in New Zealand was $22.85 million for the current period compared to $27.79 million for the previous half year, a decrease of 17.8%. Asia The segment result of our Asian operations for the half year ended 31 has been negatively impacted by the closure of the export and distribution businesses in Singapore and Malaysia during the second half of the June financial year. The segment result for the Asian operations was $1.51 million for the current half year relative to $4.19 million for the previous corresponding period, a decrease of 64.1%. Slovenia The segment result for our two (2) company-owned stores in Slovenia was $2.60 million for the half year ended 31 compared to $1.67 million for the previous year, an increase of 55.7%, assisted by an appreciation of the Euro relative to the Australian dollar and the strong brand recognition in the Slovenian retail market. Republic of Ireland and Northern Ireland The economic situation in Ireland has continued to deteriorate during the half year ended 31 and the severe recession has impacted all Irish retailers. The Board has affirmed its decision to continue to trade for the longterm. Negative sales growth (in local currency) and a significant decline in product margins has resulted in a loss of $19.81 million for the half year ended 31. This figure includes start-up investment losses of $3.96 million relating to the expansion into Northern Ireland. In addition, there was an impairment loss of $17.00 million to reduce the carrying amount of plant and equipment to recoverable amount. The appreciation of the Euro and the UK Pound Sterling relative to the Australian dollar for the purposes of translation in this report has further exacerbated this loss. The Board has no reason to believe that trading conditions in Ireland will improve in the near future. 4

6 CHAIRMAN S REPORT (CONTINUED) We have expanded into Northern Ireland and have opened two stores during the current period in the face of economic downturn in Europe. This is an important move into a new territory which, after a period of expansion, we anticipate will consolidate our position in Ireland. New Complex Openings and Closures The consolidated entity continually reviews the property portfolio and the performance of franchisees at each complex. During the half year ended 31, three (3) new Harvey Norman and four (4) new Joyce Mayne franchised complexes commenced trading, a total of seven (7) new franchised complexes in Australia. One (1) Harvey Norman and two (2) Joyce Mayne franchised complexes in regional locations ceased trading during the current period. The smallerformat complexes were closed as the area is serviced by full-format Harvey Norman complexes. The total number of franchised complexes in Australia as at 31 was 198 compared with 194 franchised complexes at the end of June. Three (3) new Harvey Norman company-owned stores were opened in offshore markets, including one (1) store in The Republic of Ireland and the establishment of two (2) new stores in the Northern Ireland market. Two (2) Norman Ross stores commenced trading in New Zealand bringing the total number of Norman Ross stores to four (4). The OFIS brand was launched in the Australian market in March as a discount retailer of stationery and home office products. As at 30 June, there were three (3) OFIS stores located in New South Wales. A further two (2) OFIS stores were opened in Cambridge Park, Tasmania and Mentone, Victoria during the current half year. In February 2009, the consolidated entity announced that all five (5) company-owned OFIS stores will be closed during the last quarter of the June 2009 financial year as the OFIS brand format has not achieved and is not expected to achieve the requirement for ongoing investment by the consolidated entity. There were a total of 73 company-owned stores in Australia and offshore markets as at 31 compared with 66 company-owned stores at the end of June. Property Portfolio Composition of the Property Portfolio The Harvey Norman property portfolio consists of Harvey Norman, Domayne, Joyce Mayne and OFIS complexes in Australia, Harvey Norman and Norman Ross stores in New Zealand, properties owned in Singapore, the two Harvey Norman stores in Slovenia, properties held under joint venture agreements and land and buildings in Australia for development and resale at a profit. The total value of the Harvey Norman property portfolio as at 31 was $1.77 billion, broken down as follows: investment properties in Australia of $1.25 billion; land and buildings owned in New Zealand, Singapore and Slovenia of $ million; investment properties under construction recorded as property, plant and equipment of $ million; joint venture properties accounted for using the equity method of $ million; and properties held for resale accounted for as current inventory of $25.61 million. 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, tenanted by leaders in the retail industry. Revaluation of the Property Portfolio Land and buildings owned in Australia that are fully operational, earning investment income and are leased to external franchisees and other independent third parties are characterised as investment properties. Land and buildings owned in New Zealand, Singapore and Slovenia are owner-occupied properties and are characterised as property, plant and equipment in the balance sheet. The Board has reviewed the property portfolio as at and has determined that no adjustment to the fair value of investment properties is required. The total net revaluation increment recognised in the income statement for the half year ended 31 was $80.01 million before tax and before minority interests, $42.44 million of which was attributable to investment properties in Australia and $37.57 million related to the consolidated entity s share of property held under joint venture agreements. 5

7 CHAIRMAN S REPORT (CONTINUED) Property Portfolio (continued) The property portfolio in New Zealand was subject to revaluation in the current period. A revaluation increment of $1.32 million after tax was recognised as an increase to the asset revaluation reserve for the half year ended 31. The property portfolio in Slovenia was subject to revaluation for the first time during the current period. Properties in Slovenia were previously held at cost. A revaluation increment of $17.82 million before tax ($14.26 million after tax) was recognised as an increase to the asset revaluation reserve for the current half year following a rise in the fair value of the property. A revaluation decrement of $5.45 million before tax ($4.31 million after tax) was recorded in the income statement with respect to another owned property in Slovenia. Composition of Owned and Leased Complexes 31 Owned Leased* Total Australia franchised complexes Australia OFIS stores New Zealand Slovenia Ireland Northern Ireland Asia TOTAL * leased from external parties Sales Revenue Consolidated Entity Sales Revenue: Sales revenue for the Harvey Norman consolidated group consists of the sales made by company-owned stores located in New Zealand, Ireland and Slovenia and the controlling interest held in Pertama Holdings Limited in Singapore. Consolidated sales revenue also includes Harvey Norman s controlling interest in several retail partnerships and the company-run OFIS stores 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 group results. Consolidated sales revenue for the half year ended 31 was $ million compared to $ million for the half year ended 31, an increase of 0.74%. Sales Revenue - New Zealand Sales revenue from the New Zealand company-owned stores increased by $33.04 million New Zealand dollars (increase of 8.4%). When sales in New Zealand were translated into Australian dollars for the purposes of this report, the increase in sales was $12.68 million Australian dollars (increase of 3.7%). Contributing to this increase in sales revenue is a full half year s trading of the two Harvey Norman and two Norman Ross stores opened during previous periods and the opening of two new Norman Ross stores at Botany (October ) and Palmerston North (November ). Sales Revenue - Ireland and Northern Ireland Sales revenue from the company-owned stores in the Republic of Ireland decreased by 4.96 million (decrease of 6.3%). When sales in Ireland were translated into Australian dollars for the purposes of this report, the increase in sales was $6.14 million (increase of 4.8%). The appreciation of the Euro relative to the Australian dollar supported the sales increase for this report. In local currency, the reduction in sales is reflective of the extremely challenging retail trading conditions and lack of consumer confidence in the Irish market. Sales have decreased despite a full half year s trading of three stores that commenced trading in previous periods and the opening of the new store in Waterford in July. The above decrease has been offset by the sales generated by the two new stores in Northern Ireland of $7.33 million for the half year ended 31. Sales Revenue - Slovenia Sales revenue from the company-owned stores in Slovenia increased by 0.90 million (increase of 5.4%). When sales in Slovenia were translated into Australian dollars for the purposes of this report, the increase in sales was $4.88 million (increase of 17.8%). 6

8 CHAIRMAN S REPORT (CONTINUED) Sales Revenue - Asia Sales revenue from the controlled entity Pertama Holdings Limited, Singapore, trading as Harvey Norman decreased by $44.00 million Singaporean dollars (decrease of 18.3%). When sales in Singapore were translated into Australian dollars for the purposes of this report, the result was a decrease in sales by $11.17 million Australian dollars (a decrease of 6.0%). The non-core export and distribution businesses in Singapore and Malaysia were closed during the second half of the June financial year. Excluding the sales revenue of the export and distribution businesses, there would have been an increase in consolidated sales revenue of $38.67 million for the current half year, an increase of 28.6%. The effect of these business closures has been softened by an appreciation of the Singaporean dollar relative to the Australian dollar by 15.1%. Geographic Spread This diagram displays the geographic spread of the franchised Harvey Norman ( HN ), Domayne ( DM ) and Joyce Mayne ( JM ) franchised complexes and OFIS company-owned stores in the Australian market and the Harvey Norman and Norman Ross ( NR ) branded company-owned stores in New Zealand, Ireland, Singapore, Malaysia and Slovenia as at 31. Nth. Ireland 2 Ireland 14 Slovenia 2 Malaysia 6 Singapore 14 Australia 203 New Zealand 30 Australia 198 franchised complexes in total 5 company-owned OFIS stores 3 store closures in regional locations 7 new franchised complexes opened during the period: o HN Woodville (SA) o HN Capalaba (QLD) o HN Frankston (VIC) o JM Warrawong (NSW) o JM Ballina (NSW) o JM Maroochydore (QLD) o JM West Gosford (NSW) 2 company-owned stores opened during the period: o OFIS Cambridge Park (TAS) o OFIS Mentone (VIC) Location of Franchised Complexes Harvey Domayne Joyce TOTAL Norman Mayne NSW QLD VIC WA SA ACT NT TAS TOTAL Overseas Controlled Entities New Zealand 30 stores in total: 26 Harvey Norman, 4 Norman Ross 2 new stores opened during the period: o NR Botany o NR Palmerston North Ireland 14 stores in total 1 new store opened during the period: o HN Waterford Northern Ireland 2 new stores opened during the period: o HN Newtownabbey o HN Holywood Slovenia 2 stores in total Singapore 14 stores in total Malaysia 6 stores in total 7

9 CHAIRMAN S REPORT (CONTINUED) Future Prospects During a period of unprecedented turbulent economic conditions, the core operations of the consolidated entity remain strong and resilient. The integrated retail, franchise and property system continues to provide the platform on which the consolidated entity s growth will be built in the years ahead. We lead the market in new and exciting product categories because of our excellent commercial relationships with suppliers. Our strong financial base positions us as the retailer of choice with our trading partners. Our commitment to being first to market with exciting technology and homemaker products remains as strong as ever. We are, and will continue to conduct an ongoing review of the operations of the consolidated entity against our strategic, operational and financial requirements for ongoing support and investment. The franchising operations segment has performed well through this challenging period and we have ongoing expectations of a positive performance from the franchising system of the consolidated entity. Our previously stated intent of opening a minimum of fifteen (15) new complexes for our brands remains, and there will be a net increase for the 2009 financial year, once the complex closures have been completed. Trading conditions in Ireland have not improved with the economy in deep recession. We continue to strive for improved operational performance and support from third party organisations to recover the existing loss and reinforce the foundation for acceptable growth and returns in the future. The New Zealand operation, again with the economy in recession, should continue to outperform the market. Material share of key growth categories combined with the brand strength of the company in the market, has us well placed for ongoing future growth. Our market position in key product areas in the Australian market such as flat panel televisions, computers, bedding and furniture has improved over the six (6) month period. The appliances category, whilst under margin pressure, presents substantial revenue opportunities for the business. The core global merchandise management system that has been previously identified as a business critical improvement has been approved but the implementation phase has been deferred until there is an improvement in underlying economic conditions. We are confident of sustainable growth across all of our brands and the property portfolio through sound strategic and financial management during the current period and in preparation for improved economic conditions. Our integrated retail, franchise and property system and the resilient strength of the franchising operations segment has the consolidated entity very well placed for the future. Equity Consolidated equity as at 31 was $2.02 billion compared to $1.92 billion at 31 an increase of $ million or 5.3%. Of the total equity of $2.02 billion, an amount of $60.99 million (Dec : $48.52 million) is attributable to minority interests in the controlled entities mainly relating to Pertama Holdings Limited, Singapore. Dividend The recommended interim dividend is 5.0 cents per share fully franked (Dec : 7.0 cents per share fully franked). This interim dividend will be paid on 4 May 2009 to shareholders registered at 5:00 pm on 17 April No provision has been made in the Balance Sheet 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, 27 February

10 DIRECTORS REPORT Your directors submit their report for the half-year ended 31. 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 Committee Membership 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 As at the date of this report, the Company has 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 continue to be that of an integrated retail, franchise and property entity including: Franchisor Sale of furniture, bedding, computers, communications and consumer electrical products in New Zealand, Slovenia and Ireland Property investment Lessor of premises to Harvey Norman franchisees and other third parties Media placement Provision of consumer finance 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 activity of Pertama is retail sales of homewares and electrical goods in Singapore and Malaysia. 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: Increased franchise fee revenue from franchisees Increased rental income from franchisees and external tenants Revaluation of the owner-occupied properties in New Zealand and Slovenia 9

11 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 On 3 February 2009, the consolidated entity announced that: All the business operations of Harvey Norman OFIS Pty Limited, a wholly owned subsidiary of Harvey Norman Holdings Limited, at all five (5) OFIS complexes will be closed during the last quarter of the year ended 30 June 2009; There will be no further investment in the OFIS brand format; The OFIS brand format has not achieved and is not expected to achieve the requirement for ongoing investment by the Company; The closure of the operations of Harvey Norman OFIS Pty Limited, including the OFIS brand format will result in a charge against the pre-tax profit of the consolidated entity of an amount presently estimated to be not less than $7 million but not greater than $8 million in respect of the financial year ended 30 June No provision has been made in the Balance Sheet for any losses to be incurred in respect of the OFIS store closures. Dividends The directors recommend a fully franked interim dividend of 5.0 cents per share. This interim dividend will be paid on 4 May 2009 to shareholders registered at 5:00 pm on 17 April No provision has been made in the Balance Sheet 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. 10

12 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 27 February 2009 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 27 February February

13 BALANCE SHEET AS AT 31 DECEMBER CONSOLIDATED NOTE June $000 $000 $000 Current Assets Cash and cash equivalents 27(a) 159,667 64,660 67,026 Trade and other receivables 5 1,134,698 1,001,426 1,175,485 Other financial assets 6 18,556 29,936 2,945 Inventories 7 333, , ,013 Other assets 8 25,754 18,508 27,160 Intangible assets 9 1, ,218 Total current assets 1,673,563 1,341,396 1,563,847 Non-Current Assets Trade and other receivables 10 20,062 19,879 14,686 Investments accounted for using equity method , , ,427 Other financial assets 11 5,020 6,903 17,087 Property, plant and equipment , , ,213 Investment properties 13 1,253,468 1,178,784 1,094,721 Intangible assets 14 19,430 22,098 18,958 Deferred income tax assets 26,331 21,599 21,401 Total non-current assets 2,105,536 2,023,634 1,897,493 Total Assets 3,779,099 3,365,030 3,461,340 Current Liabilities Trade and other payables , , ,532 Interest bearing loans and borrowings , , ,314 Income tax payable 38,993 43,542 44,830 Other liabilities 17 4,548 4,022 5,081 Provisions 18 16,203 13,684 13,423 Total current liabilities 1,530,916 1,079,267 1,018,180 Non-Current Liabilities Interest-bearing loans and borrowings 19 25, , ,830 Provisions 20 11,869 9,880 8,749 Deferred income tax liabilities 164, , ,478 Other liabilities 21 27,448 16,996 13,587 Total non-current liabilities 229, , ,644 Total Liabilities 1,760,733 1,417,878 1,543,824 NET ASSETS 2,018,366 1,947,152 1,917,516 Equity Contributed equity , , ,610 Reserves 23 65,788 33,274 56,308 Retained profits 24 1,631,982 1,607,015 1,553,078 Parent entity interest 1,957,380 1,899,899 1,868,996 Minority interest 25 60,986 47,253 48,520 TOTAL EQUITY 2,018,366 1,947,152 1,917,516 The above balance sheet should be read in conjunction with the accompanying notes. 12

14 INCOME STATEMENT FOR THE HALF-YEAR ENDED 31 DECEMBER NOTE CONSOLIDATED $000 $000 Continuing Operations Sales revenue 2 770, ,665 Cost of sales (562,094) (571,282) Gross profit 208, ,383 Revenues and other income items 2 536, ,769 Distribution expenses (4,393) (3,392) Marketing expenses (175,970) (156,725) Occupancy expenses (102,861) (79,677) Administrative expenses (210,476) (177,727) Other expenses from ordinary activities (72,252) (29,497) Finance costs 3 (19,638) (14,920) Share of equity accounted entities: - Share of net profit of joint venture entities 28 2,795 2,577 - Share of joint venture property revaluation 28-37,572 Profit from continuing operations before income tax 161, ,363 Income tax expense (61,029) (97,053) Profit from continuing operations after tax 100, ,310 Profit from continuing operations attributable to minority interests (1,605) (2,161) Profit from continuing operations attributable to members of the parent 99, ,149 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) 5.0 cents 7.0 cents The above income statement should be read in conjunction with the accompanying notes. 13

15 STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER Attributable to Equity Holders of the Parent Contributed Equity Retained Profits Reserves Minority Interest TOTAL EQUITY $000 $000 $000 $000 $000 AT 1 JULY 248,991 1,386,668 56,925 49,568 1,742,152 Revaluation of land and buildings - - 3,534-3,534 Currency translation differences - - (3,733) (1,601) (5,334) Fair value of interest rate swaps - - (636) - (636) Fair value of forward foreign exchange contracts Fair value of available for sale financial assets - - (1,063) - (1,063) Net income/(expense) recognised directly in equity - - (977) (1,601) (2,578) Profit attributable to members - 230,149-2, ,310 Total recognised income and expense for the period - 230,149 (977) ,732 Shares issued 10, ,619 Change in shareholding of controlled entity (236) (236) Cost of share based payments Dividends paid - (63,739) - (1,372) (65,111) AT 31 DECEMBER 259,610 1,553,078 56,308 48,520 1,917,516 AT 1 JULY 259,610 1,607,015 33,274 47,253 1,947,152 Revaluation of land and buildings ,571-15,571 Currency translation differences ,851 14,497 35,348 Fair value of interest rate swaps - - (4,809) - (4,809) Fair value of forward foreign exchange contracts Fair value of available for sale financial assets - - (396) - (396) Net income recognised directly in equity ,384 14,497 45,881 Profit attributable to members - 99,329-1, ,934 Total recognised income and expense for the period - 99,329 31,384 16, ,815 Change in shareholding of controlled entity (400) (400) Cost of share based payments - - 1,130-1,130 Dividends paid - (74,362) - (1,969) (76,331) AT 31 DECEMBER 259,610 1,631,982 65,788 60,986 2,018,366 The above statement of changes in equity should be read in conjunction with the accompanying notes. 14

16 CASH FLOW STATEMENT FOR THE HALF-YEAR ENDED 31 DECEMBER CONSOLIDATED NOTE $000 $000 Cash Flows from Operating Activities Inflows/(Outflows) Net receipts from franchisees A 549, ,768 Receipts from customers B 753, ,009 Payments to suppliers and employees C (1,024,358) (1,004,642) Distributions received from joint ventures D 25,277 3,609 GST paid (12,775) (19,160) Interest received 3,352 4,950 Interest and other costs of finance paid E (19,183) (14,541) Income taxes paid F (68,308) (106,928) Dividends received ,793 77,310 Consumer finance related cash flows: Consumer finance loans granted by consolidated entity G (1,312) (2,136) Proceeds of sale of FAST No. 1 Trust consumer finance loans G 1,015 5,483 Accommodation fees paid G (451) (866) Repayments received from consumers on FAST No. 1 Trust consumer finance loans granted by consolidated entity and not sold to commercial investors G 8,302 13,389 7,554 15,870 Net Cash Flows from Operating Activities 27(b) 215,347 93,180 15

17 CASH FLOW STATEMENT FOR THE HALF-YEAR ENDED 31 DECEMBER (CONTINUED) CONSOLIDATED NOTE $000 $000 Cash Flows from Investing Activities Inflows/(Outflows) Payment for purchases of property, plant and equipment and intangible assets H (71,392) (51,249) Payment for the purchase of investment properties H (56,172) (35,495) Proceeds from sale of property, plant and equipment 4,336 1,023 Proceeds from sale of units in unit trusts 1,760 2,732 Payments for purchase of equity investments (9,445) (20,102) Proceeds from sale of listed securities Payments for purchase of listed securities (1,090) - Payments for the purchase of other investments (1,050) - Loans granted (3,280) - Loans repaid from other entities - 5,153 Net Cash Flows Used In Investing Activities (136,333) (97,399) Cash Flows from Financing Activities Proceeds from short-term borrowings - 52,845 Repayment of short-term borrowings (8,161) - Repayment of secured bank bills payable I - (99,377) Proceeds from secured bank bills payable I 55,005 - Proceeds from the issue of shares J - 10,619 Dividends paid (74,362) (63,739) Proceeds from loans to directors and other periods Repayment of loans to directors and other persons (122) (2,501) Net Cash Flows Used In Financing Activities (27,170) (102,153) Net increase/(decrease) in cash and cash equivalents 51,844 (106,372) Cash and Cash Equivalents at Beginning of Period (21,338) 105,840 Cash and Cash Equivalents at End of Period 27(a) 30,506 (532) The above cash flow statement should be read in conjunction with the accompanying notes. 16

18 CASH FLOW STATEMENT FOR THE HALF-YEAR ENDED 31 DECEMBER (CONTINUED) Commentary to the Cash Flow Statement: <A> <B> <C> <D> <E> Net receipts from franchisees increased relative to the previous corresponding period as a result of increased franchise fees, rent and interest received from franchisees. Receipts from customers have increased due to two (2) new store openings in New Zealand, the new Irish store at Waterford, the commencement of trade in Northern Ireland with two (2) new stores at Newtownabbey and Holywood and the two (2) OFIS stores that opened during the current half year. Receipts from customers were also assisted by a full six-month s trading of the thirteen (13) company-owned stores that opened during the year ended 30 June. The appreciation of the Euro, New Zealand dollar, UK pound sterling and the Singaporean dollar relative to the Australian dollar used for the purposes of translation in this report has had the effect of increasing the receipts from customers. This increase has been offset by reduced sales revenue recognised in the Asian operations following the closure of the export and distribution businesses in the previous financial year. The increase in payments to suppliers and employees is attributable to loans to franchisees to fund purchases by franchisees from suppliers for new franchised complex openings in Australia, new company-owned stores and increased employee numbers. The increase in distributions received from joint venture entities during the period is due to the proceeds received from the sale of an office building pursuant to a development agreement negotiated by the joint venture in Cambridge Park, Tasmania. In the previous half year, the consolidated entity had significant cash reserves due to higher franchisee sales and one-off cash receipts resulting in a large reduction in the secured bank bill facility. During the current period, the consolidated entity has increased the utilisation of the secured bank bill facility by $ million in order to fund working capital and capital expenditure acquisitions. This has resulted in an increase in interest and other costs of finance paid despite a reduction in the interest rates payable on the facility. <F> The large reduction in income taxes paid is because the prior year figure included the payment in of $45.68 million attributable to the capital gain of $ million on the sale of shares held in Rebel on 30 March. <G> <H> <I> <J> There has been a decrease in the number of consumer finance loans granted by Network Consumer Finance ( NCF ), a wholly-owned subsidiary, primarily due to lower interest-free promotions generated by NCF resulting from an increased emphasis by franchisees on promotions by external financiers. Repayment of loans from customers has decreased as the receivables portfolio contracts. The rise in the purchase of fixed assets and investment properties is due to the acquisition of new properties, new store openings and asset additions and refurbishment of the franchised stores in Australia. In the previous half year the consolidated entity had retired $99.38 million of bank bills due to an improvement in available cash reserves. During the current period, the consolidated entity has increased the bank bill facility by $55.01 million due to the lower increase in net receipts from franchisees and receipts from customers coupled with a rise in working capital requirements and capital expenditure during the period. The proceeds from issue of new shares received during the half-year ended 31 relate to the exercise of options granted under the Harvey Norman Executive Option Plan. 17

19 SEGMENT INFORMATION PRIMARY SEGMENT Business Segments 31 SEGMENT REVENUE Sales to Customers Outside the Consolidated Entity $000 Other Revenues from Outside the Consolidated Entity $000 Share of Joint Venture Revaluation $000 Share of Net Profit/(Loss) of Equity Accounted Investments $000 Segment Revenue $000 Continuing Operations FRANCHISING OPERATIONS - 477, ,324 Retail New Zealand 355,406 1, ,312 Retail Asia 175,092 1, ,782 Retail Slovenia 32,195 1, ,289 Retail Ireland & Northern Ireland 141, ,022 Other Non-Franchised Retail 66, ,226 TOTAL RETAIL 770,351 6, ,631 Retail Property - 63,796-2,281 66,077 Property Under Construction for Retail Property Development for resale TOTAL PROPERTY - 63,854-2,795 66,649 Financial Services - 4, ,110 Share Trading TOTAL OTHER - 4, ,971 Eliminations - (15,928) - - (15,928) Total from continuing operations 770, ,501-2,795 1,309,647 18

20 SEGMENT INFORMATION (CONTINUED) Business Segments 31 (continued) Continuing Operations Segment Result Before Interest, Taxation, Depreciation, Impairment & Amortisation $000 Interest Expense $000 SEGMENT RESULT Depreciation Expense $000 Amortisation & Impairment Expense $000 Segment Result Before Tax $000 FRANCHISING OPERATIONS 180,474 (6,957) (24,443) (3,782) 145,292 Retail New Zealand 27,534 (1,018) (3,665) (1) 22,850 Retail Asia 4,604 (619) (2,479) - 1,506 Retail Slovenia 3,705 (653) (391) (60) 2,601 Retail Ireland & Northern Ireland (12,439) (2,200) (5,173) (17,000) (36,812) Other Non-Franchised Retail 615 (933) (1,806) (186) (2,310) TOTAL RETAIL 24,019 (5,423) (13,514) (17,247) (12,165) Retail Property 45,754 (6,927) (3,926) - 34,901 Property Under Construction for Retail (521) (550) - - (1,071) Property Development for resale 208 (163) TOTAL PROPERTY (a) 45,441 (7,640) (3,926) - 33,875 Financial Services 2,899 (834) (114) - 1,951 Share Trading (6,897) (93) - - (6,990) TOTAL OTHER (3,998) (927) (114) - (5,039) Eliminations (1,309) 1, Total from continuing operations 244,627 (19,638) (41,997) (21,029) 161,963 Income tax expense (61,029) Profit from continuing operations attributable to minority interests (1,605) Net profit for the year attributable to members of the parent 99,329 (a) Included in the Total Property segments for the current half year period was a revaluation decrement of $5.45 million before tax relating to the revaluation of a property located in Slovenia. 19

21 SEGMENT INFORMATION (CONTINUED) PRIMARY SEGMENT Business Segments - Comparative 31 SEGMENT REVENUE Continuing Operations Sales to Customers Outside the Consolidated Entity $000 Other Revenues from Outside the Consolidated Entity $000 Share of Joint Venture Revaluation $000 Share of Net Profit/(Loss) of Equity Accounted Investments $000 Segment Revenue $000 FRANCHISING OPERATIONS - 456, ,465 Retail New Zealand 342,722 1, ,455 Retail Asia 186,258 2, ,260 Retail Slovenia 27, ,323 Retail Ireland 127, ,124 Other Non-Franchised Retail 80,486 4, ,497 TOTAL RETAIL 764,665 7, ,659 Retail Property - 102,318 37,572 2, ,188 Property Under Construction for Retail Property Development for Resale (174) (174) TOTAL PROPERTY - 102,370 37,572 2, ,519 Financial Services - 5, ,383 Share Trading TOTAL OTHER - 5, ,768 Eliminations - (14,828) - - (14,828) Total from continuing operations 764, ,769 37,572 2,577 1,362,583 20