HARVEY NORMAN HOLDINGS LIMITED HALF-YEAR REPORT
HOLDINGS LIMITED
Our brands provide 'Solutions For The Home' by offering the largest range of trusted brands, products and services under one roof in 193 Harvey Norman®, Domayne® and Joyce Mayne® branded franchised complexes in Australia and 87 company-operated stores across 7 overseas countries.
KEY DATES:
28 February 2017 Announcement of Half Year Profit to 31 December 2016 Announcement of Interim 2017 Dividend
7 April 2017 Record Date for Determining Entitlement to Interim 2017 Dividend
2 May 2017 Payment of Interim 2017 Dividend
31 August 2017 Announcement of Full Year Profit to 30 June 2017
Announcement of Final 2017 Dividend
COMPANY INFORMATION
Registered Office:
A1 Richmond Road, Homebush West NSW 2140 Ph: 02 9201 6111
Fax: 02 9201 6250
Share Registry:
Boardroom Pty Limited
Level 12, 225 George Street, Sydney NSW 2000
Ph: 02 9290 9600
Auditors:
Ernst & Young
Stock Exchange Listing:
Harvey Norman Holdings Limited shares are quoted on the Australian Securities Exchange Limited ("ASX")
Solicitors:
Brown Wright Stein
Company Secretary:
Mr Chris Mentis
HARVEY NORMAN HOLDINGS LIMITED
ABN 54 003 237 545
FRANCHISEE AGGREGATED SALES REVENUE
$2.86bn
up 5.2% on PCP*
COMPANY-OPERATED SALES REVENUE
$976.28m
up 7.0% on PCP*
PROFIT BEFORE TAX
$366.23m
up 39.8% on PCP*
PROFIT AFTER TAX & NON-CONTROLLING INTERESTS
$257.29m
up 38.7% on PCP*
PROFIT AFTER TAX & NON-CONTROLLING INTERESTS
(excluding net property revaluation adjustments)
$204.27m
up 19.7% on PCP*
* PCP = previous corresponding period
Contents
Financial Highlights 04
Directors' Report 05
Operating and Financial Review 06
Statement of Financial Position 16
Income Statement 17
Statement of Comprehensive Income 18
Statement of Changes in Equity 19
Statement of Cash Flows 21
Notes to the Financial Statements 22
Other Information 40
Directors' Declaration 41
Independent Auditor's Report 42
The Omni Channel Strategy, incorporating the Harvey Norman integrated retail, franchise, property and digital platforms, is robust and
the most viable format to effectively compete in an evolving market. The digital and physical stores and distribution channels provide a
significant competitive advantage for Harvey Norman franchisees.
DISTRIBUTION
& DELIVERY OPTIONS
PHYSICAL STORES
ONLINE STORE
HOME SERVICES
MARKETING & SOCIAL MEDIA
MOBILE & OTHER DEVICES
FINANCIAL HIGHLIGHTS
The information contained in the half year report is to be read in conjunction with the last annual report and any announcements to the market by Harvey Norman Holdings Limited during the period.
Half Year Ended 31 December | |
2015 | 2016 |
RESULTS FOR ANNOUNCEMENT TO THE MARKET
Movement
$ %
No. of franchised complexes in Australia1
191 193
No. of company-operated stores2
86 87
Franchisee aggregated headline sales revenue1
$2.72bn $2.86bn +$142.61m +5.2%
Company-operated sales revenue2
$911.98m $976.28m +$64.29m +7.0%
Revenues and other income items
$635.25m $716.02m +$80.78m +12.7%
Earnings before interest, tax, depreciation, impairment and amortisation (EBITDIA)
$333.39m $430.11m +$96.71m +29.0%
Earnings before interest and tax (EBIT)
$276.65m $375.84m +$99.18m +35.9%
Net property revaluation increment/ (decrement)
$21.19m $75.74m +$54.55m +257.4%
Profit before tax |
Profit before tax excluding impairment losses |
Profit before tax excluding net property revaluation adjustments |
Profit before tax excluding impairment losses and net property revaluation adjustments |
$262.01m | $366.23m |
$279.52m | $381.90m |
$240.82m | $290.49m |
$258.33m | $306.16m |
+$104.22m | +39.8% |
+$102.38m | +36.6% |
+$49.67m | +20.6% |
+$47.83m | +18.5% |
Profit after tax and non-controlling interests (NCI) |
Profit after tax and NCI excluding impairment losses |
Profit after tax and NCI excluding net property revaluation adjustments |
Profit after tax and NCI excluding impairment losses and net property revaluations |
$185.51m | $257.29m |
$197.76m | $268.26m |
$170.66m | $204.27m |
$182.92m | $215.24m |
+$71.79m | +38.7% |
+$70.50m | +35.6% |
+$33.61m | +19.7% |
+$32.33m | +17.7% |
Net cash flows from operating activities | $141.77m | $279.50m | +$137.73m | +97.2% |
Basic earnings per share | 16.70c | 23.13c | +6.43c | +38.5% |
Dividends per share (fully-franked) | 13.0c | 14.0c | +1.0c | +7.7% |
Net debt to equity ratio (%) | 22.29% | 19.91% |
Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity.
Includes the "Harvey Norman®" branded company-operated stores in New Zealand, Ireland, Northern Ireland, Singapore, Malaysia, Slovenia & Croatia.
PROFIT BEFORE TAX ($M)
(Excluding net property revaluations)
RECORD
PROFIT BEFORE
TAX RESULT IN DECEMBER
2016$242.65m
$249.35m
$253.52m
$290.49m
$240.82m
$88.52m
$100.86m
$122.45m
$144.90m
$163.86m
$177.10m
$167.41m
$203.59m
$152.40m
$144.52m
$168.25m
$196.93m
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
HALF-YEAR ENDED 31 DECEMBER
(excluding net property revaluations)
DIRECTORS' REPORT
The directors of Harvey Norman Holdings Limited (the "Company") submit their report for the half-year ended 31 December 2016. 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
Executive Director and CEO
Chris Mentis B.Bus., FCA, FGIA,
Grad Dip App Fin Executive Director, CFO & Company Secretary
John Evyn Slack-Smith Executive Director and COO
David Matthew Ackery Executive Director
Michael John Harvey B.Com.
Non-Executive Director
Christopher Herbert Brown OAM, LL.M., FAICD, CTA
Non-Executive Director
Kenneth William Gunderson-Briggs B.Bus., FCA, MAICD
Non-Executive Director (Independent)
Graham Charles Paton AM B.Ec., FCPA, MAICD
Non-Executive Director (Independent)
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 period, unless otherwise stated.
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 Company or consolidated entity in future financial years.
Principal Activities
The principal activities of the consolidated entity are that of an integrated retail, franchise, property and digital system including:
Franchisor;
Sale of furniture, bedding, computers, communications, consumer electrical products and lifestyle products in,
New Zealand, Singapore, Malaysia, Slovenia, Croatia, Ireland and Northern Ireland;
Property investment;
Lessor of premises to Harvey Norman®, Domayne® and Joyce Mayne® franchisees and other third parties;
Media placement; and
Provision of consumer finance and other commercial advances.
Capital Management Policy
The consolidated entity's capital management policy objectives are to: create long-term sustainable value for shareholders; maintain optimal returns to shareholders and benefits to other stakeholders; source the lowest cost available capital; and, prevent the adverse outcomes that can result from short-term decision making.
The Capital Management Policy stipulates a net debt to equity target for the consolidated entity of less than 50%.
The capital structure of the consolidated entity consists of: debt, which includes interest-bearing loans and borrowings as disclosed in Notes 18 and 21 of this report; cash and cash equivalents;
and, equity attributable to equity holders of the parent, comprising issued capital, retained earnings and reserves as disclosed in Notes 24, 25 and 27 respectively.
The consolidated entity's borrowings consist primarily of bank debt provided by a syndicate of four banks (three of which are members of the "Big 4" Australian Banks) trading in Australia. Concentration risk is minimised by staggering facility renewals and utilising a range of maturities over 1, 3 and 5 years.
Dividends
The directors recommend a fully franked interim dividend of 14.0 cents per share. This interim dividend will be paid on 2 May 2017 to shareholders registered at 5:00pm on 7 April 2017. No provision has been made in the Statement of Financial Position for this recommended interim dividend.
The Dividend Policy of the
Company is to pay such dividends as do not compromise the capability of the Company to execute
strategic objectives.
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 December 2016.
Operational Efficiencies
During the period, the phased rollout of the merchandise, inventory and supplier management system and the workforce productivity technology system continued on time and within budget.
The number of suppliers being replenished by franchisees via the merchandise, inventory and supplier management system has increased significantly and it is expected that franchisees will be able to replenish inventory using this system for the majority of larger categories by the end of the 2017 financial year.
Each franchisee has successfully deployed on time and within budget, a workforce management system including staff rostering and roster optimisation. Each franchisee now has the tools necessary to efficiently roster
staff based on forecast customer traffic, expected sales and staff availability.
Each franchisee can now plan to have the right staff on the shop floor to effectively service customer demand, while managing payroll expense.
The workforce productivity technology will be deployed to all company-operated stores in New Zealand towards the end of the 2017 calendar year.
DIRECTORS' REPORT (CONTINUED)
OPERATING AND FINANCIAL REVIEW
The Operating and Financial Review (OFR) in this report provides shareholders with an overview of the consolidated entity's results, financial position, dividends and the progress of key operational efficiency measures for the first half of the 2017 financial year. This OFR is not a full and comprehensive OFR, such as normally forms part of the Directors' Report in the Annual Report.
FINANCIAL ANALYSIS & COMMENTARY: NET PROFIT BEFORE TAX & NET PROFIT AFTER TAX PROFIT BEFORE TAX: 39.8% INCREASE
The directors are proud to report a record result for the 2017 half-year period with a 39.8% increase in profit before tax to
$366.23 million, up from $262.01 million in the previous corresponding period. Excluding net property revaluation adjustments, profit before income tax increased by 20.6% to $290.49 million, up from $240.82 million in the previous corresponding half, representing the best-ever trading result for a first half-year period in the consolidated entity's 30- year history. This is an outstanding achievement affirming the value of the integrated retail, franchise, property and digital strategy. It clearly demonstrates the ability of the model to quickly evolve and adapt to emerging trends and capitalise on its multi-pronged approach to retail.
The franchising operations segment delivered an outstanding margin of 6.01%, the highest return on aggregated franchisee sales revenue since the commencement of the global financial crisis (GFC). Connected technology continues to be a strong trend and the multitude of connected devices offered by Harvey Norman® franchisees is meeting and fuelling consumers' passion for connectivity in their everyday lives. The extensive Home and Lifestyle product range carried by franchisees, coupled with the generous, large-store footprint to showcase its capabilities, has enabled franchisees to capitalise on this technology demand phenomenon. In addition, there was solid growth in the company-operated retail segment, with all offshore operations growing market share in their respective regions, and a significant uplift in the value of the investment property portfolio in Australia.
Net profit before tax increased by $104.22 million, or 39.8%, from $262.01 million in the previous corresponding half to
$366.23 million for the half-year to December 2016 and was impacted by the following:
a net property revaluation increment of $75.74 million, an increase of $54.55 million over the net property revaluation increment of $21.19 million recognised in the previous corresponding half;
a $21.71 million, or 14.4%, increase in the profitability of the franchising operations segment to $172.13 million. This growth was primarily achieved through a $17.09 million increase in franchise fees to $430.20 million resulting from a 5.2% increase in headline aggregated franchisee sales revenue to $2.86 billion. Tactical support remains low, representing 1% of aggregated franchisee sales revenue for the current half year period;
a $6.37 million, or 18.8%, increase in the retail segment result in New Zealand as the company-operated stores continue to outperform the New Zealand market and grow sales and market share in key categories while reducing operating costs;
a $6.10 million increase in the contribution from the company-operated stores in Singapore and Malaysia to
$11.56 million, which is more than double the profit recorded in the previous corresponding half of $5.46 million;
a $2.09 million increase in the profitability of the company-operated stores in Ireland and Northern Ireland from
$0.82 million in the previous corresponding half to a profit of $2.91 million in the current half. There was a $2.15
million reduction in trading losses in Northern Ireland in the current half over the previous corresponding period. The flagship furniture store in Boucher Road, South Belfast has now traded for a full year, firmly establishing the Harvey Norman® brand in Northern Ireland and significantly growing market share;
a $4.63 million increase in rental income received;
a $2.93 million increase in the equity investments segment result during the period, reflecting an increase in the market value of listed securities held by the consolidated entity; and
an impairment loss of $15.67 million recognised in the December 2016 half compared to an impairment loss of
$17.51 million in the previous corresponding period.
DIRECTORS' REPORT (CONTINUED) OPERATING & FINANCIAL REVIEW (CONTINUED)
NET PROFIT AFTER TAX & NON-CONTROLLING INTERESTS: 38.7% INCREASE
Net profit after tax and non-controlling interests increased 38.7%, or $71.79 million, to $257.29 million for the half-year ended 31 December 2016, from $185.51 million in the previous corresponding half year. Net profit after tax excluding impairment losses increased 35.6%, or $70.50 million, to $268.26 million for the half-year ended 31 December 2016, from
$197.76 million in the half-year ended 31 December 2015. Net profit after tax excluding net property revaluation adjustments for the December 2016 half increased 19.7%, or $33.61 million, to $204.27 million, from $170.66 million in the previous corresponding half.
The effective income tax rate for the half-year ended 31 December 2016 was 29.00% compared to an effective income tax rate of 28.60% for the half-year ended 31 December 2015.
REVIEW & RESULTS OF KEY OPERATING SEGMENTS
THE FRANCHISING OPERATIONS SEGMENT
The franchising operations segment result increased $21.71 million, or 14.4%, to $172.13 million in the first half of the 2017 financial year from $150.42 million in the prior corresponding period. This solid result was primarily due to growth in gross franchise fee revenue of $17.09 million, or 4.1%, to $430.20 million resulting from the robust sales performance of independent Harvey Norman®, Domayne® and Joyce Mayne® franchisees in Australia. The increase in franchise fee revenue was consistent with the 5.2% increase in aggregated franchisee sales revenue to $2.86 billion for the current period.
Tactical support may be provided by a franchisor to a franchisee, from time to time, to protect and promote the Harvey Norman® brand. Tactical support assists a franchisee to better compete in a market. While the rate of decline in tactical support has moderated, tactical support is at its lowest levels since the height of the GFC and currently represents approximately 1% of aggregated franchisee sales revenue for the December 2016 half.
Higher franchise fee revenue has resulted in a solid franchising operations margin of 6.01% for the December 2016 half-year, up from 5.53% in the previous corresponding period, and the highest return since the start of the GFC.
DIRECTORS' REPORT (CONTINUED) OPERATING & FINANCIAL REVIEW (CONTINUED)
FRANCHISEE SALES REVENUE UNDERPINS THE FRANCHISING OPERATIONS SEGMENT
Each franchisee is independently owned and operated. Each franchisee controls all operations of its franchised business. Aggregate sales by franchisees have grown during the period resulting in increased franchise fees paid to the consolidated entity.
Headline Australian aggregated franchisee sales revenue increased 5.2%, or $142.61 million, to $2.86 billion for the half- year ended 31 December 2016 from $2.72 billion in the prior corresponding period. Comparable franchisee sales revenue increased 4.7% to $2.84 billion for the December 2016 half year.
Quarter-on-quarter franchisee sales growth is robust and Harvey Norman®, Domayne®, Joyce Mayne® franchisees continue to be the dominant player in the Home and Lifestyle market in Australia. The residential property market has remained buoyant, with strong property values and high auction clearance rates fuelling consumer demand for the extensive Homemaker product range offered by franchisees. Dominance in the Home and Lifestyle market in Australia has allowed franchisees to capitalise on the rapidly-growing market of The Internet of Things. Strong performance by the franchisees in the home appliances category and associated sub-categories continued during the December 2016 half year.
DIRECTORS' REPORT (CONTINUED) OPERATING & FINANCIAL REVIEW (CONTINUED)
PROPERTY SEGMENT: RETAIL PROPERTY & PROPERTY DEVELOPMENTS FOR RESALE
The consolidated entity's substantial property portfolio is integral to the success of the Omni Channel strategy.
Properties within the portfolio range from multi-tenanted large-format centres to stand-alone showrooms and warehouses that are primarily occupied by Harvey Norman®, Domayne® and Joyce Mayne® franchisee tenants, as well as a diverse mix of other quality third-party tenants. The investment in property delivers strong returns through rental income from franchisees and complementary third-party tenants and also delivers long-term capital appreciation.
The property portfolio was valued at $2.60 billion at 31 December 2016. For the 2017 first half, this represents 54% of the consolidated entity's total asset base as at 31 December 2016. The result before tax generated by the property segments represents 40% of consolidated profit before tax for the half-year ended 31 December 2016.
There was a significant increase in the total property segment result by $69.88 million, to $146.68 million for the half-year ended 31 December 2016, up 91.0% from $76.80 million in the prior corresponding half year. This was largely due to a
$54.55 million increase in the net property revaluation adjustment to $75.74 million recognised in the Income Statement during the period, from $21.19 million in the previous corresponding period, reflecting an increase in the fair value of the Australian investment property portfolio. Other property segment revenue, comprising rent and outgoings, increased by approximately $4 million during the period, in line with market rental rates.
There were no write-downs of equity-accounted investments recognised during the current period. In the December 2015 half year, a write-down of $7.24 million was incurred to reduce the value of the equity-accounted investments in mining camp accommodation joint ventures.
The investment property portfolio in Australia and properties held in joint venture entities are subject to a review to fair market value at each reporting period. At each reporting period,
one-sixth of the investment property portfolio is independently valued with the remaining five-sixths reviewed for fair value by Directors. The entire portfolio is independently valued every three years.
During the half-year ended 31 December 2016, twenty-three (23) properties in Australia were independently valued, representing
18% of the total number of investment properties owned by the consolidated entity and 18% of the fair value of all investment properties. The balance of the portfolio was reviewed for comparability resulting in the preparation of internal valuations for sixteen (16) additional sites.
The valuation of investment properties for the December 2016 half year resulted in a net increase of $75.74 million in Australia which was recognised in the Income Statement.
DIRECTORS' REPORT (CONTINUED) OPERATING & FINANCIAL REVIEW (CONTINUED)
THE COMPANY-OPERATED RETAIL SEGMENTS
The result before tax of the company-operated retail segment increased 22.6% to $51.56 million in the December 2016 half year, from $42.06 million in the prior corresponding half year. With the exception of Northern Ireland, which reduced its losses by $2.15 million during the current period, each offshore company-operated retail business recorded a profit, with Croatia closing the period in a profitable position for the first time.
New Zealand
FX rate: NZD vs AUD up by 4.37%
Sales revenue from the New Zealand company-operated stores increased by 10.6%, or $NZ46.40 million, to $NZ483.29 million in the December 2016 half year, from $NZ436.90 million in the December 2015 half year. Translated into Australian dollars, sales revenue increased 15.5%, or $61.51 million, to $459.45 million. Contributing to the result was the opening of the Westgate store in April 2016 and the Queenstown store in October 2016. Comparable sales growth remained strong, increasing by 6.5% in NZD for the period. Sales of all key categories grew relative to the prior corresponding period, supported by the strong momentum in the New Zealand economy. Population growth from net migration, record low interest rates, improving house prices nationwide and a strengthening labour market is driving consumer confidence which has, in turn, had a positive impact on retail sales.
The retail result in New Zealand increased 18.8%, or $6.37 million, to $40.15 million for the first half of the 2017 financial year, from $33.78 million in the prior corresponding half. This is a record half year result for New Zealand and reflects the strong position of the Harvey Norman® brand in the New Zealand market. In a competitive industry, the New Zealand business has increased total gross margin through a continued focus on their core product range as well as improved supplier relationships. In addition, cost control efficiencies resulted in total operating costs remaining consistent with the prior year despite the significant rise in sales revenues.
Singapore & Malaysia
FX rate: SGD vs AUD down 2.88%
This segment comprises thirteen Harvey Norman® stores in Singapore, fifteen Harvey Norman® stores in Malaysia and the prestige furniture offering of Space Furniture in Singapore and Malaysia. Despite the poor retail sentiment in Singapore and Malaysia, and the net reduction of one store relative to the prior corresponding period, sales revenue increased 3.3%, or $S7.15 million, to $S221.53 million in the December 2016 half year, from $S214.38 million in the December 2015 half year. Translated into Australian dollars, the increase was 0.4%, or $0.76 million, to $212.68 million, from $211.92 million in the prior half year due to a 2.88% depreciation in the Singapore dollar relative to the Australian dollar.
The retail result in Singapore and Malaysia more than doubled, with an increase of 111.8% or $6.10 million, to $11.56 million for the first half of the 2017 financial year, from $5.46 million in the prior corresponding half.
DIRECTORS' REPORT (CONTINUED) OPERATING & FINANCIAL REVIEW (CONTINUED)
In Singapore, the 100,000 sq feet flagship store in Millenia Walk which opened in December 2015, together with existing stores, has gained market share and improved overall headline sales revenue and profits, despite the closure of three company-operated stores within the last 18 months. In Malaysia, the opening of two stores, Ioi City Mall in October 2015 and Sunway Velocity in December 2016, also contributed to the growth in revenue and profits.
Ireland & Northern Ireland
FX rate: EUR vs AUD down 4.64%; FX rate: GBP vs AUD down 20.19%
Sales revenue from the company owned stores in Ireland increased 1.3%, or €1.32 million, to €100.48 million in the December 2016 half year, from €99.16 million in the prior half year. Translated into Australian dollars, sales revenue actually decreased by 3.4%, or $5.10 million, to $146.22 million due to a 4.64% decline in the Euro relative to the Australian dollar during the period.
Sales revenue from the company operated stores in Northern Ireland increased 67.7%, or £2.31 million, to £5.72 million for the December 2016 half year, from £3.41 million in the prior corresponding half year. Translated into Australian dollars, sales increased 33.9%, or $2.45 million, to $9.68 million. The flagship furniture store at Balmoral Plaza, off Boucher Road in South Belfast, has traded for a full year and has gone from strength to strength. Sales of furniture, bedding and interiors categories have grown strongly year-on-year, and similarly gross profit. The Harvey Norman® brand in Northern Ireland is now firmly established and gaining market share. The refurbishment of the second Belfast store in Holywood is now complete, and strong performances from both stores are anticipated.
The Ireland and Northern Ireland segment recorded a profit of $2.91 million for the December 2016 half year, up from
$0.82 million in the prior half, an increase of $2.09 million. The Irish business has now been in a profitable position for 18 months however the majority of the improvement in this segment is attributable to the $2.15 million reduction in losses for the company-operated stores in Northern Ireland due to the positive contribution of the flagship Boucher Road offering.
Slovenia & Croatia
FX rate: EUR vs AUD down 4.64%
Sales revenue from the five company-operated stores in Slovenia increased 7.1%, or €1.92 million, to €28.83 million in the December 2016 half, from €26.91 million in the prior corresponding period. Translated into Australian dollars, sales revenue increased 2.2%, or $0.88 million, to $41.95 million, from $41.06 million in the prior corresponding period.
The flagship store at Ljubljana was renovated and relaunched in November 2016 to deliver the best retail customer experience in Slovenia. The store undertook a renovation of all areas except for the bedding area which will be completed by June 2017. The relaunching of the Ljubljana store drove sales throughout November and December 2016.
The retail result in Slovenia was consistent with prior corresponding period at $2.38 million for the December 2016 half, compared to $2.45 million in the December 2015 half.
Sales revenue for the Zagreb, Croatia store increased 13.4%, or €1.11 million, to €9.37 million in the current half, from €8.27 million in the prior corresponding half. Translated into Australian dollars, sales revenue increased 8.1%, or $1.02 million, to
$13.64 million. The Croatian business has reported its first profitable half year period since commencing trade in the region. There was a turnaround of $0.52 million during the period, resulting in a profit of $0.05 million for the December 2016 half, up from a loss of $0.47 million in the previous corresponding half year.
Other Non-Franchised Retail
The other non-franchised retail segment consists primarily of the retail and wholesale trading operations in Australia which are controlled by the consolidated entity and does not include any operations of Harvey Norman®, Domayne® and Joyce Mayne® franchisees. Total revenue for the other non-franchised retail segment increased 5.4%, or $4.85 million, to $94.77 million for the December 2016 half year from $89.92 million in the prior corresponding half year.
The result for the other non-franchised retail segment deteriorated by $5.50 million to a loss of $5.47 million for the half- year ended 31 December 2016. The result for the current period included an $11.05 million write-down in commercial advances made to a retail joint venture in Australia, compared to an impairment loss of $4.31 million recognised in the previous corresponding period.
DIRECTORS' REPORT (CONTINUED) OPERATING & FINANCIAL REVIEW (CONTINUED)
OTHER SEGMENT
The Other segment primarily comprises credit facilities provided to related and unrelated parties and other unallocated income and expense items and the joint venture investment in Coomboona Holdings Pty Limited.
The Other segment recorded a loss of $8.95 million in the December 2016 half compared to a loss of $9.14 million in the December 2015 half, an improvement of $0.19 million. The current period included an impairment loss of $4.62 million in respect of an estimated shortfall in the repayment of an external finance facility for a mining camp accommodation joint venture. The prior half year period contained a write-down of $5.96 million of commercial advances made to mining camp accommodation joint ventures to reduce the value of the non-trade receivable to the expected recoverable amount.
In September 2015, the consolidated entity acquired a 49.9% investment in Coomboona Holdings Pty Limited, comprising dairy farm operations and a pedigree breeding and genetics division in Northern Victoria. The equity- accounted losses attributable to the Coomboona dairy joint venture were $3.26 million for the half-year ended 31 December 2016 compared to equity-accounted losses of $1.79 million in the previous corresponding half year.
REVIEW OF NET CASH FLOWS FROM OPERATING ACTIVITIES
Net cash flows from operating activities increased 97.2%, or $137.73 million, to $279.50 million for the December 2016 half year, from $141.77 million in the prior half year.
Cash inflows received from higher franchise fee income and higher sales from company-operated stores were significantly stronger than the previous corresponding period offset by only a marginal increase in payments to suppliers and employees.
Receivables from franchisees reduced relative to the previous half indicating a lower net outflow in the provision of financial accommodation to franchisees. This can be attributed to higher aggregated franchisee sales revenue and improved working capital requirements of franchisees.
Interest and other costs of finance reduced due to lower average debt levels during the period offset by higher income taxes paid due to higher taxable income generated by the consolidated entity.
REVIEW OF THE FINANCIAL POSITION OF THE CONSOLIDATED ENTITY
The consolidated entity's balance sheet remains strong, anchored by real property assets and a solid working capital position. Net assets increased 4.5%, or $120.16 million, to $2.77 billion at 31 December 2016, from $2.65 billion as at 31 December 2015.
DIRECTORS' REPORT (CONTINUED) OPERATING & FINANCIAL REVIEW (CONTINUED)
Total assets increased 5.8%, or $264.35 million, to $4.81 billion as at 31 December 2016, from $4.54 billion in the prior corresponding period. This increase was largely due to increases of:
$216.18 million (+10.9%) in investment properties attributable to fair value adjustments ($102.91 million net property revaluation increments since December 2015) and increased construction, acquisition and refurbishment activity during the period ($113.27 million in net capital additions, disposals and transfers since December 2015);
$24.10 million (+4.2%) in property, plant and equipment assets due to a new franchised complex opening in Australia and two new company-operated store openings in New Zealand and Malaysia, in addition to the refurbishments of existing franchised complexes in Australia; and
$18.70 million (+52.2%) in cash and cash equivalents due to strong cash flows from operating activities.
These increases have been offset by a decrease in inventories in company-operated stores of $4.14 million (-1.1%) mainly due to the foreign currency effects of translating offshore inventories into the Australian dollar presentation currency and a decrease in trade and other receivables by $6.91 million (-0.5%).
Total liabilities increased by 7.6%, or $144.19 million, to $2.04 billion as at 31 December 2016. The increase was due to higher trade and other payables, up $100.20 million (+10.8%) as a result of higher purchases during the current period in response to increased sales demand and higher deferred tax liabilities of $37.51 million (+17.5%) attributable to the increase in the net property revaluation increment since December 2015. This was offset by a reduction in interest- bearing loans and borrowings of $20.94 million (-3.3%) during the period.
The overall debt levels of the consolidated entity remain low, resulting in a low net debt to equity ratio of 19.91% as at 31 December 2016.
DIRECTORS' REPORT (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
GEOGRAPHIC SPREAD
This diagram shows the geographic spread of the Harvey Norman® ("HN"), Domayne® ("DM") and Joyce Mayne® ("JM") franchised complexes in the Australian market and the Harvey Norman® company-operated stores in New Zealand, Ireland, Northern Ireland, Singapore, Malaysia, Slovenia and Croatia as at 31 December 2016.
DIRECTORS' REPORT (CONTINUED)
AUDITOR INDEPENDENCE
The directors received the following declaration from the auditor of Harvey Norman Holdings Limited.
Auditor's Independence Declaration to the Directors of Harvey Norman Holdings Limited
As lead auditor for the review of Harvey Norman Holdings Limited for the half-year ended 31 December 2016, I declare to the best of my knowledge and belief, there have been:
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and
no contraventions of any applicable code of professional conduct in relation to the review.
This declaration is in respect of Harvey Norman Holdings Limited and the entities it controlled during the financial period.
Ernst & Young
Renay C. Robinson Partner, Sydney 28 February 2017
A member firm of Ernst & Young Global Limited
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
28 February 2017 28 February 2017
STATEMENT OF FINANCIAL POSITION
CO N S O L I D A T E D | ||||
NOTE | December 2016 | June 2016 | December 2015 | |
$000 | $000 | $000 | ||
Current Assets | ||||
Cash and cash equivalents | 28(a) | 54,513 | 139,874 | 35,815 |
Trade and other receivables | 7 | 1,296,516 | 1,096,572 | 1,312,602 |
Other financial assets | 8 | 29,158 | 26,204 | 26,501 |
Inventories | 9 | 364,087 | 315,746 | 368,231 |
Other assets | 10 | 44,571 | 26,703 | 37,130 |
Intangible assets | 11 | 683 | 448 | 343 |
Total current assets | 1,789,528 | 1,605,547 | 1,780,622 | |
Non-Current Assets | ||||
Trade and other receivables | 12 | 84,204 | 74,382 | 75,030 |
Investments accounted for using equity method | 29 | 23,632 | 24,828 | 25,801 |
Other financial assets | 13 | 30,744 | 18,751 | 17,570 |
Property, plant and equipment | 14 | 596,991 | 580,805 | 572,890 |
Investment properties | 15 | 2,202,558 | 2,046,295 | 1,986,379 |
Intangible assets | 16 | 78,842 | 81,192 | 83,853 |
Total non-current assets | 3,016,971 | 2,826,253 | 2,761,523 | |
Total Assets | 4,806,499 | 4,431,800 | 4,542,145 | |
Current Liabilities | ||||
Trade and other payables | 17 | 1,024,884 | 713,553 | 924,687 |
Interest-bearing loans and borrowings | 18 | 395,046 | 453,035 | 430,656 |
Income tax payable | 33,921 | 42,711 | 31,463 | |
Other liabilities | 19 | 43,348 | 41,016 | 34,855 |
Provisions | 20 | 41,930 | 28,697 | 24,161 |
Total current liabilities | 1,539,129 | 1,279,012 | 1,445,822 | |
Non-Current Liabilities | ||||
Interest-bearing loans and borrowings | 21 | 214,672 | 201,042 | 200,000 |
Provisions | 22 | 12,349 | 14,710 | 13,434 |
Deferred income tax liabilities | 252,206 | 226,254 | 214,700 | |
Other liabilities | 23 | 21,008 | 22,108 | 21,216 |
Total non-current liabilities | 500,235 | 464,114 | 449,350 | |
Total Liabilities | 2,039,364 | 1,743,126 | 1,895,172 | |
NET ASSETS | 2,767,135 | 2,688,674 | 2,646,973 | |
Equity | ||||
Contributed equity | 24 | 385,296 | 385,296 | 382,611 |
Reserves | 27 | 165,474 | 155,814 | 136,682 |
Retained profits | 25 | 2,193,344 | 2,125,186 | 2,106,720 |
Parent entity interests | 2,744,114 | 2,666,296 | 2,626,013 | |
Non-controlling interests | 26 | 23,021 | 22,378 | 20,960 |
TOTAL EQUITY | 2,767,135 | 2,688,674 | 2,646,973 | |
The above Statement of Financial Position should be read in conjunction with the accompanying notes.
INCOME STATEMENT
CO N S O L I D A T E D | |||
NOTE | December 2016 | December 2015 | |
$000 | $000 | ||
Sales revenue | 3 | 976,276 | 911,984 |
Cost of sales | (664,232) | (629,569) | |
Gross profit | 312,044 | 282,415 | |
Revenues and other income items | 3 | 716,023 | 635,246 |
Distribution expenses | (18,193) | (17,151) | |
Marketing expenses | (207,374) | (203,065) | |
Occupancy expenses | 4 | (114,395) | (116,107) |
Administrative expenses | 4 | (262,229) | (250,565) |
Other expenses | 4 | (52,021) | (54,458) |
Finance costs | 4 | (9,603) | (14,637) |
Share of net profit of joint venture entities | 29 | 1,980 | 336 |
Profit before income tax | 366,232 | 262,014 | |
Income tax expense | 5 | (106,218) | (74,942) |
Profit after tax | 260,014 | 187,072 | |
Attributable to: | |||
Owners of the parent | 257,292 | 185,507 | |
Non-controlling interests | 2,722 | 1,565 | |
260,014 | 187,072 | ||
Earnings Per Share: | |||
Basic earnings per share (cents per share) | 6 | 23.13 cents | 16.70 cents |
Diluted earnings per share (cents per share) | 6 | 23.10 cents | 16.67 cents |
Dividends per share (cents per share) | 25 | 14.0 cents | 13.0 cents |
The above Income Statement should be read in conjunction with the accompanying notes.
STATEMENT OF COMPREHENSIVE INCOME
CO N S O L I D A T E D | ||
December 2016 | December 2015 | |
$000 | $000 | |
Profit for the period | 260,014 | 187,072 |
Items that may be reclassified subsequently to profit or loss: | ||
Foreign currency translation | (3,987) | 17,664 |
Net fair value gains/(losses) on available-for-sale investments | 4,595 | (148) |
Net movement on cash flow hedges | 61 | 2,692 |
Income tax effect on net movement on cash flow hedges | (19) | (789) |
Items that will not be reclassified subsequently to profit or loss: | ||
Fair value revaluation of land and buildings | 9,465 | 5,417 |
Income tax effect on fair value revaluation of land and buildings | (1,576) | (1,530) |
Other comprehensive income for the period (net of tax) | 8,539 | 23,306 |
Total comprehensive income for the period (net of tax) | 268,553 | 210,378 |
Total comprehensive income attributable to: | ||
- Owners of the parent | 266,873 | 208,821 |
- Non-controlling interests | 1,680 | 1,557 |
268,553 | 210,378 | |
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
STATEMENT OF CHANGES IN EQUITY
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 | Acquisition Reserve | Non- Controlling Interests | TOTAL EQUITY |
$000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 |
At 1 July 2016 | 385,296 | 2,125,186 | 111,199 | 48,021 | 9,682 | (32) | 8,995 | (22,051) | 22,378 | 2,688,674 |
Other comprehensive income: Revaluation of land and buildings | - | - | 7,889 | - | - | - | - | - | - | 7,889 |
Reverse expired or realised cash flow hedge reserves | - | - | - | - | - | 32 | - | - | - | 32 |
Currency translation differences Fair value of forward foreign exchange contracts | - - | - - | - - | (2,945) - | - - | - 10 | - - | - - | (1,042) - | (3,987) 10 |
Fair value of available for sale financial assets | - | - | - | - | 4,595 | - | - | - | - | 4,595 |
Other comprehensive income | - | - | 7,889 | (2,945) | 4,595 | 42 | - | - | (1,042) | 8,539 |
Profit for the period | - | 257,292 | - | - | - | - | - | - | 2,722 | 260,014 |
Total comprehensive income for the period | - | 257,292 | 7,889 | (2,945) | 4,595 | 42 | - | - | 1,680 | 268,553 |
Cost of share based payments | - | - | - | - | - | - | 79 | - | - | 79 |
Dividends paid | - | (189,134) | - | - | - | - | - | - | (277) | (189,411) |
Distribution to members | - | - | - | - | - | - | - | - | (760) | (760) |
At 31 December 2016 | 385,296 | 2,193,344 | 119,088 | 45,076 | 14,277 | 10 | 9,074 | (22,051) | 23,021 | 2,767,135 |
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
STATEMENT OF CHANGES IN EQUITY (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 | Acquisition Reserve | Non- Controlling Interests | TOTAL EQUITY |
$000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 |
At 1 July 2015 | 380,328 | 2,043,463 | 102,244 | 18,529 | 8,581 | (2,817) | 8,804 | (22,051) | 19,779 | 2,556,860 |
Other comprehensive income: Revaluation of land and buildings | - | - | 3,499 | - | - | - | - | - | 388 | 3,887 |
Reverse expired or realised cash flow hedge reserves | - | - | - | - | - | 62 | - | - | - | 62 |
Currency translation differences | - | - | - | 18,060 | - | - | - | - | (396) | 17,664 |
Fair value of interest rate swaps Fair value of forward foreign exchange contracts | - - | - - | - - | - - | - - | 1,871 (30) | - - | - - | - - | 1,871 (30) |
Fair value of available for sale financial assets | - | - | - | - | (148) | - | - | - | - | (148) |
Other comprehensive income | - | - | 3,499 | 18,060 | (148) | 1,903 | - | - | (8) | 23,306 |
Profit for the period | - | 185,507 | - | - | - | - | - | - | 1,565 | 187,072 |
Total comprehensive income for the period | - | 185,507 | 3,499 | 18,060 | (148) | 1,903 | - | - | 1,557 | 210,378 |
Cost of share based payments | - | - | - | - | - | - | 78 | - | - | 78 |
Shares issued | 2,283 | - | - | - | - | - | - | - | - | 2,283 |
Dividends paid | - | (122,250) | - | - | - | - | - | - | (33) | (122,283) |
Distribution to members | - | - | - | - | - | - | - | - | (343) | (343) |
At 31 December 2015 | 382,611 | 2,106,720 | 105,743 | 36,589 | 8,433 | (914) | 8,882 | (22,051) | 20,960 | 2,646,973 |
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
STATEMENT OF CASH FLOWS
CO N S O L I D A T E D | |||
NOTE | December 2016 | December 2015 | |
$000 | $000 | ||
Cash Flows from Operating Activities | Inflows/(Outflows) | ||
Net receipts from franchisees | 579,538 | 452,834 | |
Receipts from customers | 1,020,171 | 950,245 | |
Payments to suppliers and employees | (1,207,379) | (1,163,973) | |
Distributions received from joint ventures | 6,296 | 5,055 | |
GST paid | (22,871) | (25,203) | |
Interest received | 3,002 | 3,854 | |
Interest and other costs of finance paid | (9,572) | (14,766) | |
Income taxes paid | (90,815) | (67,514) | |
Dividends received | 1,134 | 1,239 | |
Net Cash Flows From Operating Activities | 28(b) | 279,504 | 141,771 |
Cash Flows from Investing Activities | |||
Payments for purchases of property, plant and equipment and intangible assets | (42,361) | (38,830) | |
Payments for purchase of investment properties | (80,739) | (31,877) | |
Proceeds from sale of property, plant and equipment and properties held for resale | 531 | 8,305 | |
Payments for purchase of units in unit trusts and other investments | (87) | (56) | |
Payments for purchase of equity accounted investments | (2,957) | (25,009) | |
Payments for purchase of listed securities | (6,538) | (146) | |
Loans repaid from / (granted to) joint venture entities, joint venture partners and unrelated entities | 5,023 | (19,028) | |
Net Cash Flows Used In Investing Activities | (127,128) | (106,641) | |
Cash Flows from Financing Activities | |||
Proceeds from shares issued | - | 2,283 | |
Repayment of Syndicated Facility Agreement | (50,000) | (50,000) | |
Dividends paid | (189,134) | (122,250) | |
Loans received from / (repaid to) related parties | 15,910 | (16,562) | |
(Repayments of) / proceeds from other borrowings | (11,835) | 6,249 | |
Net Cash Flows Used In Financing Activities | (235,059) | (180,280) | |
Net (Decrease) / Increase in Cash and Cash Equivalents | (82,683) | (145,150) | |
Cash and Cash Equivalents at Beginning of the Period | 103,631 | 153,220 | |
Cash and Cash Equivalents at End of the Period | 28(a) | 20,948 | 8,070 |
The above Statement of Cash Flows should be read in conjunction with the accompanying notes.
NOTES TO THE FINANCIAL STATEMENTS
1. | STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES |
CORPORATE INFORMATION
The financial report of Harvey Norman Holdings Limited for the half-year ended 31 December 2016 was authorised for issue in accordance with a resolution of the directors on 27 February 2017. Harvey Norman Holdings Limited (the "Company") is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian stock exchange.
BASIS OF PREPARATION
The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and the operating, financing and investing activities of the consolidated entity as the full financial report.
The half-year financial report should be read in conjunction with the Annual Financial Report of Harvey Norman Holdings Limited as at 30 June 2016.
It is also recommended that the half-year financial report be considered together with any public announcements made by Harvey Norman Holdings Limited and its controlled entities during the half-year ended 31 December 2016 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001.
The half-year consolidated financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Accounting Standard AASB 134 "Interim Financial Reporting". The financial report has been prepared on a historical cost basis, except for investment properties, land and buildings, derivative financial instruments, listed shares held for trading and available-for-sale investments, which have been measured at fair value. The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and are otherwise carried at cost, are adjusted to record changes in the fair values attributable to the risks that are being hedged.
ROUNDING OF AMOUNTS
The Company is of a kind referred to in the Australian Securities and Investments Commission Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, and, accordingly, amounts in this Report and the Financial Report have been rounded off to the nearest thousand dollars ($'000), unless otherwise stated.
STATEMENT OF COMPLIANCE
These consolidated financial statements have been prepared using the same accounting policies as used in the Annual Financial Report for the year ended 30 June 2016, except for the adoption of new and amended standards mandatory for annual periods beginning on or after 1 July 2016. The adoption of the amending standards did not have a significant impact on the consolidated entity.
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the consolidated entity for the half-year reporting period ended 31 December 2016.
During the half-year ended 31 December 2016, certain comparatives have been restated in the Statement of Financial Position and Income Statement for consistency with policies adopted in the current period, which are not material for disclosure purposes.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. | OPERATING SEGMENTS |
December 2016 $000 | |||
Operating Segment Revenue: 31 December 2016 | Sales to Customers Outside the Consolidated Entity | Other Revenues from Outside the Consolidated Entity | Segment Revenue |
FRANCHISING OPERATIONS | - | 516,450 | 516,450 |
Retail - New Zealand | 459,449 | 10,334 | 469,783 |
Retail - Singapore & Malaysia | 212,682 | 3,609 | 216,291 |
Retail - Slovenia & Croatia | 55,588 | 803 | 56,391 |
Retail - Ireland & Northern Ireland | 155,900 | 4,077 | 159,977 |
Other Non-Franchised Retail | 92,330 | 2,441 | 94,771 |
TOTAL RETAIL | 975,949 | 21,264 | 997,213 |
Retail Property | 68 | 196,176 | 196,244 |
Property Developments for Resale | - | 30 | 30 |
TOTAL PROPERTY | 68 | 196,206 | 196,274 |
Equity Investments | - | 1,357 | 1,357 |
Other | 259 | 8,304 | 8,563 |
Inter-company eliminations | - | (27,558) | (27,558) |
Total Segment Revenue | 976,276 | 716,023 | 1,692,299 |
December 2015 $000 | |||
Operating Segment Revenue: 31 December 2015 | Sales to Customers Outside the Consolidated Entity | Other Revenues from Outside the Consolidated Entity | Segment Revenue |
FRANCHISING OPERATIONS | - | 488,464 | 488,464 |
Retail - New Zealand | 397,938 | 11,425 | 409,363 |
Retail - Singapore & Malaysia | 211,921 | 4,069 | 215,990 |
Retail - Slovenia & Croatia | 53,681 | 981 | 54,662 |
Retail - Ireland & Northern Ireland | 158,553 | 3,382 | 161,935 |
Other Non-Franchised Retail | 87,076 | 2,842 | 89,918 |
TOTAL RETAIL | 909,169 | 22,699 | 931,868 |
Retail Property | 65 | 124,411 | 124,476 |
Property Developments for Resale | 2,750 | 9,900 | 12,650 |
TOTAL PROPERTY | 2,815 | 134,311 | 137,126 |
Equity Investments | - | 2,005 | 2,005 |
Other | - | 8,672 | 8,672 |
Inter-company eliminations | - | (20,905) | (20,905) |
Total Segment Revenue | 911,984 | 635,246 | 1,547,230 |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. | OPERATING SEGMENTS (CONTINUED) |
December 2016 $000
Operating Segment Result: 31 December 2016 | Segment Result Before Interest, | Interest Expense | Depreciation Expense | Impairment & Amortisation | Segment Result |
Taxation, | Expense | Before | |||
Depreciation, | Tax | ||||
Impairment & | |||||
Amortisation | |||||
FRANCHISING OPERATIONS | 194,442 | (1,989) | (12,676) | (7,652) | 172,125 |
Retail - New Zealand | 44,088 | (14) | (3,784) | (145) | 40,145 |
Retail - Singapore & Malaysia | 14,982 | (24) | (2,927) | (474) | 11,557 |
Retail - Slovenia & Croatia | 3,499 | (191) | (808) | (76) | 2,424 |
Retail - Ireland & Northern Ireland | 5,510 | (814) | (1,785) | - | 2,911 |
Other Non-Franchised Retail | 7,097 | (718) | (711) | (11,141) | (5,473) |
TOTAL RETAIL | 75,176 | (1,761) | (10,015) | (11,836) | 51,564 |
Retail Property | 157,474 | (5,515) | (4,841) | (152) | 146,966 |
Property Under Construction | (10) | (1) | (1) | - | (12) |
Property Developments for Resale | (206) | (65) | - | - | (271) |
TOTAL PROPERTY | 157,258 | (5,581) | (4,842) | (152) | 146,683 |
Equity Investments | 4,885 | (80) | - | - | 4,805 |
Other | (1,329) | (519) | (2,479) | (4,618) | (8,945) |
Inter-company eliminations | (327) | 327 | - | - | - |
Total Segment Result Before Tax | 430,105 | (9,603) | (30,012) | (24,258) | 366,232 |
December 2015 $000 | |||||
Operating Segment Result: 31 December 2015 | Segment Result Before Interest, Taxation, Depreciation, Impairment & Amortisation | Interest Expense | Depreciation Expense | Impairment & Amortisation Expense | Segment Result Before Tax |
FRANCHISING OPERATIONS | 175,090 | (3,331) | (14,368) | (6,974) | 150,417 |
Retail - New Zealand | 37,659 | (1) | (3,801) | (78) | 33,779 |
Retail - Singapore & Malaysia | 8,849 | (33) | (2,884) | (476) | 5,456 |
Retail - Slovenia & Croatia | 3,216 | (244) | (922) | (77) | 1,973 |
Retail - Ireland & Northern Ireland | 3,789 | (1,203) | (1,763) | - | 823 |
Other Non-Franchised Retail | 5,887 | (849) | (659) | (4,354) | 25 |
TOTAL RETAIL | 59,400 | (2,330) | (10,029) | (4,985) | 42,056 |
Retail Property | 87,659 | (8,231) | (4,585) | (7,389) | 67,454 |
Property Developments for Resale | 9,460 | (112) | - | - | 9,348 |
TOTAL PROPERTY | 97,119 | (8,343) | (4,585) | (7,389) | 76,802 |
Equity Investments | 1,971 | (97) | - | - | 1,874 |
Other | 76 | (799) | (2,447) | (5,965) | (9,135) |
Inter-company eliminations | (263) | 263 | - | - | - |
Total Segment Result Before Tax | 333,393 | (14,637) | (31,429) | (25,313) | 262,014 |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. | OPERATING SEGMENTS (CONTINUED) |
The consolidated entity operates predominantly in eleven (11) operating segments:
Operating Segment | Description of Segment |
Franchising Operations | Consists of the franchisor operations of the consolidated entity, but does not include the results, assets, liabilities or operations of any Harvey Norman®, Domayne® and Joyce Mayne® franchisee. |
Retail - New Zealand | Consists of the wholly-owned operations of the consolidated entity in the retail trading operations in New Zealand under the Harvey Norman® brand name. |
Retail - Singapore & Malaysia | Consists of the controlling interest of the consolidated entity in the retail trading operations in Singapore and Malaysia under the Harvey Norman® and Space brand names. |
Retail - Slovenia & Croatia | Consists of the wholly-owned operations of the consolidated entity in the retail trading operations in Slovenia and Croatia under the Harvey Norman® brand name. |
Retail - Ireland & Northern Ireland | Consists of the wholly-owned operations of the consolidated entity in the retail trading operations in Ireland and Northern Ireland under the Harvey Norman® brand name. |
Other Non-Franchised Retail | Consists of the retail and wholesale trading operations in Australia which are controlled by the consolidated entity and does not include any operations of Harvey Norman®, Domayne® and Joyce Mayne® franchisees. |
Retail Property | Consists of land and buildings for each site that is fully operational or is ready and able to be tenanted. The revenue and results of this segment consists of rental income, outgoings recovered and the net property revaluation increments and/or decrements recognised in the Income Statement for each site that is owned by the consolidated entity which is fully operational (or ready for operations) as at balance date. This segment includes the mining camp accommodation joint ventures. |
Retail Property Under Construction | Consists of sites that are currently undergoing construction at balance date intended for retail leasing. It also includes vacant land that has been purchased for the purposes of generating future investment income and facilitating the expansion and operation of the franchising operations. |
Property Developments for Resale | Consists of land and buildings acquired by the consolidated entity, to be developed, or currently under development, for the sole purpose of resale at a profit. |
Equity Investments | This segment refers to the trading of, and investment in, listed securities. |
Other | This segment primarily relates to credit facilities provided to related and unrelated entities, other unallocated income and expense items and the joint venture investment in Coomboona Holdings Pty Limited. |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CO N S O L I D A T E D
December
2016
$000
December
2015
$000
3. | REVENUES | ||
Sales revenue: | |||
Revenue from the sale of products | 976,276 | 911,984 | |
Revenues and other income items: | |||
Gross revenue from franchisees: | |||
- Franchise fees | 430,201 | 413,113 | |
- Rent | 116,805 | 114,950 | |
- Interest | 14,152 | 11,100 | |
Total revenue received from franchisees | 561,158 | 539,163 | |
Gross revenue from other unrelated parties: | |||
- Rent received from external tenants | 40,412 | 37,639 | |
- Interest received from financial institutions and other parties | 3,002 | 3,854 | |
- Dividends received | 1,357 | 1,434 | |
Total revenue from other unrelated parties | 44,771 | 42,927 | |
Other Income Items: | |||
- Net property revaluation increment on Australian investment properties | 75,743 | 20,627 | |
- Property revaluation adjustment for overseas controlled entity | - | 565 | |
- Net revaluation increment of listed shares held for trading at fair value | 3,571 | 571 | |
- Net foreign exchange gains | 263 | 922 | |
- Other revenue | 30,517 | 30,471 | |
Total other income items | 110,094 | 53,156 | |
Total revenues and other income items | 716,023 | 635,246 | |
4. | EXPENSES AND LOSSES | ||
Tactical support: | |||
Tactical support (included in other expenses line in the Income Statement) | 28,840 | 29,162 | |
Employee benefits expense: | |||
- Wages and salaries | 130,493 | 117,854 | |
- Workers' compensation | 624 | 521 | |
- Superannuation contributions | 6,635 | 6,477 | |
- Payroll tax | 4,888 | 4,876 | |
- Share-based payments | 96 | 79 | |
- Other employee benefits | 5,791 | 3,945 | |
Total employee benefits expense | 148,527 | 133,752 | |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CO N S O L I D A T E D | |
December 2016 | December 2015 |
$000 | $000 |
4. | EXPENSES AND LOSSES (CONTINUED) | ||
Minimum lease payments | 80,606 | 83,336 | |
Finance costs: | |||
Interest paid or payable: | |||
- Loans from directors and director-related entities | 454 | 1,120 | |
- Bank interest paid to financial institutions | 8,506 | 12,950 | |
- Other | 643 | 567 | |
Total finance costs | 9,603 | 14,637 | |
Depreciation, amortisation and impairment: | |||
Depreciation of: | |||
- Buildings | 4,524 | 4,230 | |
- Plant and equipment | 25,488 | 27,199 | |
Amortisation of: | |||
- Computer software | 8,395 | 7,652 | |
- Net licence property and other intangible assets | 191 | 152 | |
Impairment of non-trade debts receivable from related parties (a) (included in administrative expenses line in the Income Statement) | 11,054 | 10,274 | |
Impairment loss on repayment of external finance facility (b) (included in administrative expenses line in the Income Statement) | 4,618 | - | |
Impairment of equity-accounted investments (c) (included in administrative expenses line in the Income Statement) | - | 7,235 | |
Total depreciation, amortisation and impairment | 54,270 | 56,742 | |
(a) | As at 31 December 2016, non-trade debts receivable with a carrying value of $101.12 million (Dec 2015: $83.08 million) was assessed for impairment and the consolidated entity recognised an impairment loss of $11.05 million in the Income Statement (Dec 2015: $10.27 million). The non-trade debts receivable relate to several mining camp accommodation joint ventures and a retail joint venture in Australia. | ||
(b) | During the half-year ended 31 December 2016, an impairment loss of $4.62 million was recognised in respect of an estimated shortfall in the repayment of an external finance facility for a mining camp accommodation joint venture. | ||
(c) | The impairment loss incurred in the December 2015 half included a write-down of the equity-accounted investments in mining camp accommodation joint ventures totalling $7.24 million. No further impairment write- down was required for the current period. | ||
5. | INCOME TAX | ||
Income tax recognised in the Income Statement: | |||
The major components of income tax expense are: | |||
Current income tax: | |||
Current income tax charge | 79,487 | 64,773 | |
Adjustments in respect of current income tax of previous years | (668) | 38 | |
Deferred income tax: | |||
Relating to the origination and reversal of temporary differences | 27,399 | 10,131 | |
Total income tax expense reported in the Income Statement | 106,218 | 74,942 | |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CO N S O L I D A T E D | |||
December 2016 | December 2015 | ||
$000 | $000 | ||
6. | EARNINGS PER SHARE | ||
Basic earnings per share (cents per share) | 23.13 cents | 16.70 cents | |
Diluted earnings per share (cents per share) | 23.10 cents | 16.67 cents | |
The following reflects the income and share data used in the calculations of basic and diluted earnings per share: | |||
Profit after tax | 260,014 | 187,072 | |
Profit after tax attributable to non-controlling interests | (2,722) | (1,565) | |
Profit after tax attributable to owners of the parent | 257,292 | 185,507 | |
N U M B E R O F SH A R E S | |||
December 2016 | December 2015 | ||
Weighted average number of ordinary shares used in calculating basic earnings per share: | 1,112,554,911 | 1,111,103,780 | |
Effect of dilutive securities (a): | 1,483,210 | 1,440,212 | |
Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share | 1,114,038,121 | 1,112,543,992 | |
(a) | EFFECT OF DILUTIVE SECURITIES | ||
On 29 November 2010, the consolidated entity issued 3,000,000 unlisted options to certain executive directors (the "First Tranche"). These options are capable of exercise from 1 January 2014 to 30 June 2016 at an exercise price of $3.02 per option and a fair value of $0.87 per option at grant date. On 1 September 2015, a total of 756,000 options over 756,000 shares in respect of the First Tranche were exercised reducing the unexercised portion to 378,000 options. On 1 April 2016, the remaining 378,000 options over 378,000 shares were exercised. On 29 November 2011, the consolidated entity issued 3,000,000 unlisted options to certain executive directors (the "Second Tranche"). These options are capable of exercise from 1 January 2015 to 30 June 2017 at an exercise price of $2.03 per option and a fair value of $0.51 per option at grant date. On 29 November 2012, the consolidated entity announced that a total of 2,250,000 options over 2,250,000 shares in respect of the Second Tranche had lapsed and will never be exercisable by the participants. On 14 March 2016, a total of 250,000 options over 250,000 shares in respect of the Second Tranche were exercised reducing the unexercised portion to 500,000 options. On 29 November 2012, the consolidated entity issued 3,000,000 unlisted options to certain executive directors (the "Third Tranche"). These options are capable of exercise from 1 January 2016 to 30 June 2018 at an exercise price of $1.83 per option and a fair value of $0.282 per option at grant date. On 14 November 2013, the consolidated entity announced that a total of 1,299,000 options over 1,299,000 shares in respect of the Third Tranche had lapsed and will never be exercisable by the participants. On 14 March 2016, a total of 567,000 options over 567,000 shares in respect of the Third Tranche were exercised reducing the unexercised portion to 1,134,000 options. On 30 November 2015, the consolidated entity issued a total of 400,000 performance rights under Tranche 1 of the 2016 LTI Plan to the executive directors. A performance right is the right to acquire one ordinary share in the Company at nil exercise price. If exercised, each performance right will be converted into one ordinary share in the Company. These performance rights are capable of exercise from 1 January 2019 to 30 June 2021. The performance rights were valued at grant date at $3.52 per entitlement share using a discounted cash flow technique. Subject to the satisfaction of the financial performance condition (calculated exclusively based on RONA) and service conditions of the 2016 LTI Plan, the total fair value of Tranche 1 performance rights amounted to $1,408,000 in aggregate. On 28 November 2016, the consolidated entity issued a total of 400,000 performance rights under Tranche 2 of the 2016 LTI Plan to the executive directors. These performance rights are capable of exercise from 1 January 2020 to 30 June 2022. The performance rights were valued at grant date at $4.73 per entitlement share using a discounted cash flow technique. Subject to the satisfaction of the financial performance condition (calculated exclusively based on RONA) and service conditions of the 2016 LTI Plan, the total fair value of Tranche 2 performance rights amounted to $1,892,000 in aggregate. Options issued pursuant to the Second and Third Tranches and the performance rights issued under Tranche 1 and Tranche 2 of the 2016 LTI Plan have been included in the calculation of diluted earnings per share. They are considered to be dilutive as their conversion to ordinary shares would decrease the net profit per share. There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date. | |||
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CO N S O L I D A T E D | ||||
December 2016 $000 | June 2016 $000 | December 2015 $000 | ||
7. | TRADE AND OTHER RECEIVABLES (CURRENT) | |||
Receivables from franchisees | 1,145,418 | 942,934 | 1,153,523 | |
Trade receivables | 126,720 | 106,435 | 129,923 | |
Consumer finance loans | 2,120 | 2,215 | 2,085 | |
Provision for doubtful debts | (1,088) | (862) | (1,004) | |
Receivables from franchisees and trade receivables, net | 1,273,170 | 1,050,722 | 1,284,527 | |
Amounts receivable in respect of finance leases | 5,508 | 9,223 | 9,469 | |
Provision for doubtful debts | (2,458) | (5,897) | (5,897) | |
Finance leases, net | 3,050 | 3,326 | 3,572 | |
Non-trade debts receivable from: | ||||
- Related entities (including joint ventures and joint venture partners) | 16,303 | 28,391 | 18,627 | |
- Unrelated entities | 4,143 | 15,120 | 6,992 | |
Provision for doubtful debts | (150) | (987) | (1,116) | |
Non-trade debts receivable, net | 20,296 | 42,524 | 24,503 | |
Total trade and other receivables (current) | 1,296,516 | 1,096,572 | 1,312,602 | |
8. | OTHER FINANCIAL ASSETS (CURRENT) | |||
Listed shares held for trading at fair value | 27,447 | 24,512 | 25,151 | |
Derivatives receivable | 19 | - | - | |
Other current financial assets | 1,692 | 1,692 | 1,350 | |
Total other financial assets (current) | 29,158 | 26,204 | 26,501 | |
9. | INVENTORIES (CURRENT) | |||
Finished goods at cost | 369,835 | 321,307 | 372,900 | |
Provision for obsolescence | (5,748) | (5,561) | (4,669) | |
Total inventories (current) | 364,087 | 315,746 | 368,231 | |
10. | OTHER ASSETS (CURRENT) | |||
Prepayments | 30,096 | 15,578 | 30,291 | |
Other current assets | 14,475 | 11,125 | 6,839 | |
Total other assets (current) | 44,571 | 26,703 | 37,130 | |
11. | INTANGIBLE ASSETS (CURRENT) | |||
Net licence property | 683 | 448 | 343 | |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CO N S O L I D A T E D | ||||
December 2016 $000 | June 2016 $000 | December 2015 $000 | ||
12. | TRADE AND OTHER RECEIVABLES (NON-CURRENT) | |||
Trade receivables | 483 | 800 | 313 | |
Consumer finance loans | 444 | 464 | 436 | |
Provision for doubtful debts | (4) | (4) | (4) | |
Trade receivables, net | 923 | 1,260 | 745 | |
Amounts receivable in respect of finance leases | 1,194 | 1,207 | 1,261 | |
Non-trade debts receivable from: | ||||
- Related entities (including joint ventures) | 110,115 | 93,179 | 82,110 | |
- Unrelated entities | 8,957 | 8,049 | 7,057 | |
Provision for doubtful debts | (36,985) | (29,313) | (16,143) | |
Non-trade debts receivable, net | 82,087 | 71,915 | 73,024 | |
Total trade and other receivables (non-current) | 84,204 | 74,382 | 75,030 | |
13. | OTHER FINANCIAL ASSETS (NON-CURRENT) | |||
Listed shares held for trading at fair value | 9,372 | 2,200 | 2,650 | |
Listed shares held as available for sale | 20,350 | 15,616 | 14,125 | |
Units in unit trusts | 225 | 221 | 215 | |
Other non-current financial assets | 797 | 714 | 580 | |
Total other financial assets (non-current) | 30,744 | 18,751 | 17,570 | |
14. | PROPERTY, PLANT AND EQUIPMENT (NON-CURRENT) | |||
Land at fair value | 180,128 | 166,399 | 159,184 | |
Buildings at fair value | 216,301 | 223,401 | 221,335 | |
Net land and buildings at fair value | 396,429 | 389,800 | 380,519 | |
Plant and equipment: | ||||
At cost | 783,212 | 772,179 | 767,354 | |
Accumulated depreciation | (585,131) | (583,817) | (577,505) | |
Net plant and equipment | 198,081 | 188,362 | 189,849 | |
Lease make good asset: | ||||
At cost | 5,440 | 5,526 | 5,469 | |
Accumulated depreciation | (2,959) | (2,883) | (2,947) | |
Net lease make good asset | 2,481 | 2,643 | 2,522 | |
Total plant and equipment | 200,562 | 191,005 | 192,371 | |
Total property, plant and equipment: | ||||
Land and buildings at fair value | 396,429 | 389,800 | 380,519 | |
Plant and equipment at cost | 788,652 | 777,705 | 772,823 | |
Total property, plant and equipment | 1,185,081 | 1,167,505 | 1,153,342 | |
Accumulated depreciation and amortisation | (588,090) | (586,700) | (580,452) | |
Total written down amount | 596,991 | 580,805 | 572,890 | |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CO N S O L I D A T E D | ||||
December 2016 | June 2016 | December 2015 | ||
$000 | $000 | $000 | ||
15. | INVESTMENT PROPERTIES | |||
Opening balance, at fair value | 2,046,295 | 1,935,936 | 1,935,936 | |
Net additions, disposals and transfers | 80,520 | 62,001 | 29,251 | |
Net increase from fair value adjustments | 75,743 | 48,358 | 21,192 | |
Closing balance, at fair value | 2,202,558 | 2,046,295 | 1,986,379 | |
Investment Properties Each investment property is valued at fair value. Each investment property is the subject of a lease or licence in favour of independent third parties, including Harvey Norman®, Domayne® and Joyce Mayne® franchisees ("Franchisees"). The fair value in respect of each investment property has been calculated predominantly using the income capitalisation method of valuation, using the current market rental value, and having regard to, in respect of each property:
parties in an arm's length transaction The investment property portfolio in Australia is subject to a semi-annual review to fair market value at each reporting period. At each reporting period, one-sixth of the portfolio is independently valued with the remaining five-sixths reviewed for fair value by Directors. The whole portfolio is independently valued every three years. The consolidated entity obtained independent valuations in respect of twenty-three (23) properties during the half-year ended 31 December 2016. Based on the results of the independent valuations, a further sixteen (16) properties were identified by management for further review by management. The sixteen (16) properties had been similarly affected by the same factors or characteristics of the properties which had been independently valued, particularly in relation to yields and market rentals. The capitalisation method of valuation was used for all valuations. A discounted cash flow valuation was undertaken in respect of all properties for means of comparison. There were no material differences between the capitalisation method result and the discounted cash flow method result. | ||||
December
2016
CO N S O L I D A T E D
June 2016
December
2015
16. INTANGIBLE ASSETS (NON-CURRENT)
$000 $000 $000
Other intangible assets | 281 | 272 | 264 |
Net licence property Computer software: - At cost | 3,872 176,364 | 4,108 170,560 | 4,338 164,857 |
- Accumulated amortisation and impairment | (101,675) | (93,748) | (85,606) |
Net computer software | 74,689 | 76,812 | 79,251 |
Net intangible assets (non-current) | 78,842 | 81,192 | 83,853 |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CO N S O L I D A T E D | ||||
December 2016 | June 2016 | December 2015 | ||
$000 | $000 | $000 | ||
17. | TRADE AND OTHER PAYABLES (CURRENT) | |||
Trade and other creditors | 964,331 | 666,276 | 862,234 | |
Accruals | 60,553 | 47,277 | 62,453 | |
Total trade and other payables (current) | 1,024,884 | 713,553 | 924,687 | |
18. | INTEREST-BEARING LOANS AND BORROWINGS (CURRENT) | |||
Secured: | ||||
Non trade amounts owing to: | ||||
- Bank overdraft | 33,565 | 36,243 | 27,745 | |
- Commercial bills payable | 9,750 | 9,750 | 9,750 | |
- Syndicated Facility Agreement (a) | 200,000 | 260,000 | 210,000 | |
- Other short-term borrowings (b) | 90,261 | 102,110 | 108,060 | |
- Lease liabilities | 1,278 | 364 | 118 | |
Unsecured: | ||||
Derivatives payable | 3 | 325 | 1,513 | |
Non trade amounts owing to: | ||||
- Directors | 52,360 | 38,134 | 64,527 | |
- Other related parties | 7,616 | 5,932 | 8,838 | |
- Unrelated parties | 213 | 177 | 105 | |
Total interest-bearing loans and borrowings (current) | 395,046 | 453,035 | 430,656 | |
(a) | SYNDICATED FACILITY AGREEMENT On 2 December 2009, the Company, a subsidiary of the Company ("Borrower") and certain other subsidiaries of the Company ("Guarantors") entered into a Syndicated Facility Agreement with certain banks ("Financiers" and each a "Financier"). On 30 November 2016, the Amending Deed (No. 4) to the Syndicated Facility Agreement was executed with the effect of extending the repayment date of Tranche A1 of the Facility totalling $170 million to 4 December 2019 and the repayment date of Tranche B of the Facility totalling $240 million to 4 December 2018. The aggregate available facility of the Syndicated Facility Agreement remained at $610 million. The utilised amount of the Syndicated Facility Agreement as at 31 December 2016 was $410 million, repayable as set out below, $200 million of which was classified as current interest-bearing loans and borrowings and $210 million classified as non-current interest-bearing loans and borrowings. This Facility is secured by:
Under the terms of the Syndicated Facility Agreement, the Facility is repayable: | |||
18. (b) | INTEREST-BEARING LOANS AND BORROWINGS (CURRENT) (CONTINUED) OTHER SHORT-TERM BORROWINGS Of the total other short-term borrowings of $90.26 million:
The Company has not received notice of the occurrence of any Relevant Event from any Financier. During the current and prior half years, there were no defaults or breaches on any of the interest-bearing loans and borrowings referred to in this note and in Note 21 Interest-Bearing Loans and Borrowings (Non-Current). |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
December | CO N S O L I D A T E D June | December |
2016 | 2016 | 2015 |
$000 | $000 | $000 |
19. | OTHER LIABILITIES (CURRENT) | |
Lease incentives 3,172 | 3,164 | 2,556 |
Unearned revenue 40,176 | 37,852 | 32,299 |
Total other liabilities (current) 43,348 | 41,016 | 34,855 |
20. | PROVISIONS (CURRENT) | |
Employee entitlements 30,548 | 25,174 | 20,496 |
Lease make good 1,255 | 1,684 | 1,961 |
Deferred lease expenses 1,292 | 1,243 | 1,086 |
Onerous lease costs 835 | 596 | 618 |
Other 8,000 | - | - |
Total provisions (current) 41,930 | 28,697 | 24,161 |
21. | INTEREST-BEARING LOANS AND BORROWINGS (NON-CURRENT) | |
Secured: | ||
Non trade amounts owing to: | ||
- Syndicated Facility Agreement (Refer to Note 18(a)) 210,000 | 200,000 | 200,000 |
- Lease liabilities 4,672 | 1,042 | - |
Total interest-bearing loans and borrowings (non-current) 214,672 | 201,042 | 200,000 |
22. | PROVISIONS (NON-CURRENT) | |
Employee entitlements 4,089 | 6,134 | 5,168 |
Lease make good 4,202 | 3,859 | 3,525 |
Deferred lease expenses 4,058 | 4,717 | 4,741 |
Total provisions (non-current) 12,349 | 14,710 | 13,434 |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CO N S O L I D A T E D | ||||
December 2016 | June 2016 | December 2015 | ||
$000 | $000 | $000 | ||
23. | OTHER LIABILITIES (NON-CURRENT) | |||
Lease incentives | 17,119 | 17,553 | 15,944 | |
Unearned revenue | 3,889 | 4,555 | 5,272 | |
Total other liabilities (non-current) | 21,008 | 22,108 | 21,216 | |
24. | CONTRIBUTED EQUITY | |||
Ordinary shares | 385,296 | 385,296 | 382,611 | |
Total contributed equity | 385,296 | 385,296 | 382,611 | |
The number of ordinary shares issued and fully paid as at 31 December 2016 was 1,112,554,911 shares (December 2015: 1,111,359,911 shares). Fully paid ordinary shares carry one vote per share and carry the right to dividends. There were no movements in ordinary shares on issue from 1 July 2016 to 31 December 2016. | ||||
CO N S O L I D A T E D
December 2016 | June 2016 | December 2015 | |
$000 | $000 | $000 | |
25. | RETAINED PROFITS AND DIVIDENDS | ||
Movements in retained earnings were as follows: | |||
Opening balance | 2,125,186 | 2,043,463 | 2,043,463 |
Profit for the period | 257,292 | 348,605 | 185,507 |
Dividends paid | (189,134) | (266,882) | (122,250) |
Closing balance | 2,193,344 | 2,125,186 | 2,106,720 |
Dividends declared and paid: Dividends on ordinary shares: | |||
Final fully-franked dividend for 2016: 17.0 cents (2015: 11.0 cents) | 189,134 | 122,250 | 122,250 |
Interim fully-franked dividend for 2016: 13.0 cents | |||
(2015: 9.0 cents ) | - | 144,632 | - |
Total dividends paid | 189,134 | 266,882 | 122,250 |
The final dividend of $189.13 million, fully-franked, for the year ended 30 June 2016 was paid on 1 December 2016. The interim dividend of 14.0 cents per share, totalling $155.76 million fully-franked, for the year ended 30 June 2017 will be paid on 2 May 2017.
Franking credit balance | |||
The amount of franking credits available for the subsequent financial periods are: | |||
- franking account balance as at the end of the financial period at 30% | 580,129 | 588,411 | 611,405 |
- franking credits that will arise from the payment of income tax payable as at the end of the financial period | 30,682 | 34,254 | 26,924 |
- franking credits that will be utilised in the payment of proposed dividend | (66,753) | (81,058) | (61,919) |
The amount of franking credits available for future reporting periods | 544,058 | 541,607 | 576,410 |
26. | NON-CONTROLLING INTERESTS | |||
Interest in: | ||||
- Ordinary shares | 2,691 | 2,691 | 2,591 | |
- Reserves | 12,969 | 14,011 | 13,432 | |
- Retained earnings | 7,361 | 5,676 | 4,937 | |
Total non-controlling interests | 23,021 | 22,378 | 20,960 | |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
27. RESERVES | |||||||
CONSOLIDATED $000 | Asset revaluation reserve | Foreign currency translation reserve | Available for sale reserve | Cash flow hedge reserve | Employee equity benefits reserve | Acquisition reserve | Total |
At 1 July 2015 | 102,244 | 18,529 | 8,581 | (2,817) | 8,804 | (22,051) | 113,290 |
Revaluation of land and buildings | 5,029 | - | - | - | - | - | 5,029 |
Tax effect of revaluation of land and buildings | (1,530) | - | - | - | - | - | (1,530) |
Unrealised loss on available- for-sale investments | - | - | (148) | - | - | - | (148) |
Net gain on interest rate swap | - | - | - | 2,673 | - | - | 2,673 |
Tax effect of net gain on swap | - | - | - | (802) | - | - | (802) |
Reverse expired or realised cash flow hedge reserves | - | - | - | 62 | - | - | 62 |
Net loss on forward foreign exchange contracts | - | - | - | (43) | - | - | (43) |
Tax effect of net loss on forward foreign exchange contracts | - | - | - | 13 | - | - | 13 |
Currency translation differences | - | 18,060 | - | - | - | - | 18,060 |
Share based payment | - | - | - | - | 78 | - | 78 |
At 31 December 2015 | 105,743 | 36,589 | 8,433 | (914) | 8,882 | (22,051) | 136,682 |
At 1 July 2016 | 111,199 | 48,021 | 9,682 | (32) | 8,995 | (22,051) | 155,814 |
Revaluation of land and buildings | 9,465 | - | - | - | - | - | 9,465 |
Tax effect of revaluation of land and buildings | (1,576) | - | - | - | - | - | (1,576) |
Unrealised gain on available- for-sale investments | - | - | 4,595 | - | - | - | 4,595 |
Reverse expired or realised cash flow hedge reserves | - | - | - | 32 | - | - | 32 |
Net gain on forward foreign exchange contracts | - | - | - | 15 | - | - | 15 |
Tax effect of net gain on forward foreign exchange contracts | - | - | - | (5) | - | - | (5) |
Currency translation differences | - | (2,945) | - | - | - | - | (2,945) |
Share based payment | - | - | - | - | 79 | - | 79 |
At 31 December 2016 | 119,088 | 45,076 | 14,277 | 10 | 9,074 | (22,051) | 165,474 |
NATURE AND PURPOSE OF RESERVES:
ASSET REVALUATION RESERVE
This reserve is used to record increases in the fair value of "owner occupied" land and buildings and decreases to the
extent that such decreases relate to an increase of the same asset previously recognised in equity.
FOREIGN CURRENCY TRANSLATION RESERVE
This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
AVAILABLE FOR SALE RESERVE
This reserve is used to record fair value changes on available-for-sale investments.
CASH FLOW HEDGE RESERVE
This reserve is used to record the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge.
EMPLOYEE EQUITY BENEFITS RESERVE
This reserve is used to record the value of equity benefits provided to executive directors as part of their remuneration.
ACQUISITION RESERVE
This reserve is used to record the consideration paid in excess of carrying value of non-controlling interests.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
C O N S O L I D A T E D | ||||
December 2016 | June 2016 | December 2015 | ||
$000 | $000 | $000 | ||
28. | CASH AND CASH EQUIVALENTS | |||
(a) | RECONCILIATION TO CASH FLOW STATEMENT | |||
Cash and cash equivalents comprise the following at end of the period: | ||||
Cash at bank and on hand | 42,319 | 99,909 | 25,540 | |
Short term money market deposits | 12,194 | 39,965 | 10,275 | |
54,513 | 139,874 | 35,815 | ||
Bank overdraft (Note 18) | (33,565) | (36,243) | (27,745) | |
Cash and cash equivalents at end of the period | 20,948 | 103,631 | 8,070 | |
C O N S O L I D A T E D | |||
December 2016 | December 2015 | ||
$000 | $000 | ||
(b) | RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET OPERATING CASH FLOWS: | ||
Profit after tax | 260,014 | 187,072 | |
Adjustments for: | |||
Net foreign exchange gains | (263) | (922) | |
Bad and doubtful debts | 2,576 | 1,118 | |
Share of net profit from joint venture entities | (1,980) | (336) | |
Depreciation of property, plant and equipment | 30,012 | 31,429 | |
Amortisation | 8,586 | 7,804 | |
Impairment of non-trade debts receivable | 11,054 | 10,274 | |
Impairment loss on repayment of external finance facility | 4,618 | - | |
Impairment of equity-accounted investments | - | 7,235 | |
Revaluation of investment properties in Australia | (75,743) | (20,627) | |
Property revaluation adjustment for overseas controlled entities | - | (565) | |
Deferred lease expenses | (698) | (208) | |
Provision for onerous leases | 643 | 323 | |
Executive remuneration expenses | 2,017 | 1,721 | |
Gain on disposal and revaluation of property, plant and equipment, and listed securities | (3,082) | (612) | |
Movements in provisions | 564 | (860) | |
Changes in assets and liabilities: | |||
(Increase)/decrease in assets: | |||
Receivables | (218,592) | (197,232) | |
Inventory | (48,527) | (68,955) | |
Other current assets | (17,868) | (14,058) | |
Increase/(decrease) in liabilities: | |||
Payables and other current liabilities | 334,963 | 202,515 | |
Income tax payable | (8,790) | (3,345) | |
Net cash from operating activities | 279,504 | 141,771 | |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
C O N S O L I D A T E D | ||||
December 2016 | June 2016 | December 2015 | ||
$000 | $000 | $000 | ||
29. | INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD | |||
Total joint venture entities accounted for using equity method | 23,632 | 24,828 | 25,801 | |
Name and Principal Activities | Ownership Interest | Contribution to Pre Tax Profit / (Loss) | ||
December 2016 | December 2015 | December 2016 | December 2015 | |
% | % | $000 | $000 | |
Noarlunga (Shopping complex) | 50% | 50% | 814 | 777 |
Perth City West (Shopping complex) | 50% | 50% | 2,142 | 1,968 |
Warrawong King St (a) (Shopping complex) | 62.5% | 62.5% | 544 | 532 |
Byron Bay (Residential/convention development) | 50% | 50% | (367) | (359) |
Byron Bay - 2 (Resort operations) | 50% | 50% | 370 | 356 |
Dubbo (Shopping complex) | 50% | 50% | 338 | 326 |
Bundaberg (Land held for investment) | 50% | 50% | (2) | (2) |
Gepps Cross (Shopping complex) | 50% | 50% | 1,395 | 1,529 |
QCV (b) (Miners residential complex) | 50% | 50% | 8 | (2,998) |
KEH Partnership (Retailer) | 50% | 50% | - | - |
Coomboona Dairy (c) (Dairy farming) | 49.9% | 49.9% | (3,262) | (1,793) |
1,980 | 336 | |||
This joint venture has not been consolidated as the consolidated entity does not have control over operating and financing decisions and all joint venture parties participate equally in decision making.
A number of wholly-owned subsidiaries of Harvey Norman Holdings Limited ("HNHL") have entered into joint ventures with an unrelated party to provide mining camp accommodation. The respective joint ventures have been granted finance facilities as follows:
a finance facility from ANZ for the amount of $10.30 million plus interest and costs, with a maturity date of 15 March 2017.
finance facilities from Network Consumer Finance Pty Limited ("NCF"), a wholly-owned subsidiary of HNHL, for the amount of $30.05 million plus interest and costs, subject to bi-annual review.
In September 2015, the consolidated entity acquired, through a wholly-owned subsidiary, 49.9% of Coomboona Holdings Pty Limited comprising dairy farm operations and a pedigree breeding and genetics division in Northern Victoria. The consolidated entity incurred a $3.26 million (Dec 2015: $1.79 million) equity-accounted loss in respect of this joint venture.
The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices.
The fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.
The fair value of current trade receivables and payables is assessed to equal carrying value due to the short-term nature of the assets. The fair value of interest-bearing loans and borrowings approximates their carrying amounts.
The fair value of derivative instruments are calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-option derivatives and option pricing models for option derivatives.
Level 1 - Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities
Level 2 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable)
Level 3 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable)
the financial statements, notes and the additional disclosures included in the Directors' Report of the consolidated entity for the half-year ended 31 December 2016 are in accordance with the Corporations Act 2001, including:
giving a true and fair view of the consolidated entity's financial position as at 31 December 2016 and of its performance for the half-year ended on that date; and
complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and
there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable.
giving a true and fair view of the consolidated entity's financial position as at 31 December 2016 and of its performance for the half-year ended on that date; and
complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
30. | FINANCIAL INSTRUMENTS |
Set out below is an overview of financial instruments, other than cash and short-term deposits, held by the consolidated entity as at 31 December 2016:
Loans and receivables | Available-for- sale | Fair value profit or loss | Fair value other comprehensive income | |
$000 | $000 | $000 | $000 | |
Current Financial Assets: | ||||
Trade and other receivables (Note 7) | 1,296,516 | - | - | - |
Other financial assets (Note 8) | - | - | 29,143 | 15 |
Total current financial assets | 1,296,516 | - | 29,143 | 15 |
Non-Current Financial Assets: | ||||
Trade and other receivables (Note 12) | 84,204 | - | - | - |
Other financial assets (Note 13) | - | 20,350 | 10,394 | - |
Total non-current financial assets | 84,204 | 20,350 | 10,394 | - |
Total Financial Assets | 1,380,720 | 20,350 | 39,537 | 15 |
Current Financial Liabilities: | ||||
Trade and other payables (Note 17) | 1,024,884 | - | - | - |
Interest-bearing loans and borrowings (Note 18) | 395,043 | - | 3 | - |
Total current financial liabilities | 1,419,927 | - | 3 | - |
Non-Current Financial Liabilities: | ||||
Interest-bearing loans and borrowings (Note 21) | 214,672 | - | - | - |
Total non-current financial liabilities | 214,672 | - | - | - |
Total Financial Liabilities | 1,634,599 | - | 3 | - |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
Fair value hierarchy The fair value of financial assets and financial liabilities are determined as follows: All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: |
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
30. | FINANCIAL INSTRUMENTS (CONTINUED) |
For financial instruments that are recognised at fair value on a recurring basis, the consolidated entity determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based
on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
As at 31 December 2016, the consolidated entity held the following classes of financial instruments measured at fair value:
Level 1 | Level 2 | Level 3 | Total | |
$000 | $000 | $000 | $000 | |
Financial Assets | ||||
Listed investments | 57,169 | - | - | 57,169 |
Other investments | - | - | 2,714 | 2,714 |
Foreign exchange contracts | - | 19 | - | 19 |
Total Financial Assets | 57,169 | 19 | 2,714 | 59,902 |
Financial Liabilities | ||||
Foreign exchange contracts | - | 3 | - | 3 |
Total Financial Liabilities | - | 3 | - | 3 |
OTHER INFORMATION
NON-CASH FINANCING AND INVESTING ACTIVITIES
Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows are as follows.
N/A
CONSOLIDATED
NET TANGIBLE ASSETS PER SECURITY
Net tangible asset backing per ordinary security
December 2016
2.62
December 2015
2.48
BUSINESS COMBINATIONS HAVING MATERIAL EFFECT Name of business combination | N/A | N/A | |
Consolidated profit/(loss) after tax of the business combination since | |||
the date in the current period on which control was acquired | N/A | N/A | |
Date from which such profit has been calculated | N/A | N/A | |
Profit/(loss) after tax of the controlled business combination for the | |||
whole of the previous corresponding period | N/A | N/A |
LOSS OF CONTROL OF ENTITIES HAVING MATERIAL EFFECT | ||
Name of entity (or group of entities) | N/A | N/A |
Consolidated profit/(loss) from discontinued operations after tax of the controlled entity (or group of entities) for the current period to the date of loss of control | N/A | N/A |
Date from which such profit/(loss) has been calculated | N/A | N/A |
Profit/(loss) from discontinued operations after tax of the controlled entity (or group of entities) while controlled during the whole of the previous corresponding period | N/A | N/A |
DIRECTORS' DECLARATION
In accordance with a resolution of the directors of Harvey Norman Holdings Limited, we state that: In the opinion of the directors:
This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the half-year ended 31 December 2016.
On behalf of the Board.
G. HARVEY K.L. PAGE
Chairman Director / Chief Executive Officer
Sydney Sydney
28 February 2017 28 February 2017
Ernst & Young 200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
To the members of Harvey Norman Holdings Limited
Report on the Half-Year Financial ReportWe have reviewed the accompanying half-year financial report of Harvey Norman Holdings Limited which comprises the statement of financial position as at 31 December 2016, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a statement of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year.
Directors' Responsibility for the Half-Year Financial Report
The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity's financial position as at 31 December 2016 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Harvey Norman Holdings Limited and the entities it controlled during the half-year, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.
A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Independence
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor's Independence Declaration, a copy of which is included in the Directors' Report.
Conclusion
Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Harvey Norman Holdings Limited is not in accordance with the Corporations Act 2001, including:
Ernst & Young
Renay Robinson Partner
Sydney
28 February 2017
Harvey Norman Holdings Ltd. published this content on 28 February 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 28 February 2017 02:38:11 UTC.
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