Harvey Norman® FY20 Results: A “Testament To The Strength Of Its Model”?

Summary

  • Harvey Norman® is in the lifestyle/home retail business, and even amid unique challenges of FY20, customers continued to engage strongly with its brands.
  • Customers were particularly appreciative of the shopping experience, spaciousness and easy parking at the physical franchised complexes/ stores and embraced the Company’s digital offerings.
  • The Chairman & CEO report highlighting the FY20 results states that “The results achieved in 2020, are a testament to the strength of our model.”
  • In FY21, the Company plans to open up 12 new stores overseas and anticipates recommencing the premium refit plan.

Harvey Norman® Holdings Limited’s (ASX:HVN) principal activities predominantly comprise of integrated retail, franchise, property and digital enterprise. Listed on the ASX 200, the Company’s stock has delivered returns of 29.73 per cent in the last three months. On Friday, 28 August 2020, HVN traded close to its 52-week high, at $ 4.24. Besides, the stock has an annual dividend yield of 7.66 per cent.

Contributing to the ongoing earnings season in the Australian market, Harvey Norman® unveiled its results for the year-ended 30 June 2020. Chairman Gerry Harvey opines that the robust results are a testament to the strength of the Company’s model.

FY20 Results Highlights (Source: Analyst Presentation, 28 August 2020)

Walk Through Harvey Norman®’s FY20 Results

Globally, FY20 posed as a year of unique challenges. The drought and bushfires last summer, followed by the pandemic COVID-19, had a significant impact in the 8 countries where the Company and its franchisees’ trade.

Despite the dismal year for businesses, Harvey Norman® reported significant results for the year-ended 30 June 2020-

  • Reported EBITDA was $ 944.67 million, up by $ 256.07 million / 37.2 % relative to the previous year.
  • NPAT and non-controlling interests were $ 480.54 million, up $ 78.22 million, from $ 402.32 million in the previous year, representing a 19.4 % increase.
  • PBT was $ 661.29 million, an increase of 15.1 % from $ 574.56 million in the previous year.
  • Aggregated sales totalled $ 8.23 billion, up 7.6 % on the previous year.
  • The value of net assets increased 8.74 % to $3.48 billion as of 30 June 2020, from, $ 3.2 billion as of 30 June 2019.
  • The Board has recommended the payment of a fully franked final dividend of 18.0 cps, to be paid on 2 November 2020
  • As of 30 June 2020, the Company was in a net cash position of $ 15.35 million, compared to a net debt position of $ 626.47 million as of 30 June 2019.
  • Net debt to equity ratio for 2020 was NIL, compared to a net debt to equity ratio of 19.46% in 2019.
  • On 30 June 2020, the Company had $ 685 million of unused, available financing facilities.
  • Net Assets worth was $ 3.5 billion, up by 8.7 % from $ 3.2 billion.

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On the property end, the Company has a robust $3 billion property portfolio. As on 30 June 2020, it had 194 franchised complexes in Australia and 96 company-operated stores overseas. With the exception of the obligatory closure of 2 franchised complexes in Tasmania for two weeks, the 194 franchised complexes across Australia remained open during the year.

Besides, 5 new company-operated stores opened during the first half of FY20. The Company affirms that as company-operated stores overseas began to re-open to the public, sales improved quickly.

Moreover, based on the eligibility criteria of the COVID-19 support and assistance offered by the respective governments, each of the Company’s offshore subsidiaries applied for, and were eligible to receive, wages support and assistance of $22.28 million in aggregate. In Australia, JobKeeper support amounted to $ 7.6 million, in aggregate.

FY20 Key Milestones

Company customers continued to engage strongly with Harvey Norman® brands during the reporting period. Most importantly, the Company leveraged from being part of the lifestyle/home retail space. Customers were positive of the shopping experience, spaciousness and easy parking at the physical franchised complexes and stores.

Growing digitisation was another add on, as customers were able to connect to Company brands digitally. Reportedly, they made good use of home delivery and click and collect services.

Besides, in Australia, two Harvey Norman® franchised complexes were opened. Overseas, five company operated stores were opened in Malaysia and one company-operated store was opened in New Zealand.

FY21 Outlook

The Company anticipates recommencing the premium refit plan in FY21. The plan was placed on hold temporarily due to COVID-19 disruptions.

Harvey Norman® may open up to 12 new stores overseas during FY21. Planned openings are- 3 each in New Zealand, Malaysia, and Singapore, 2 in Ireland and 1 in Croatia. Progress has commenced with the Galway City store already opened in Ireland on 22 July 2020, and trading well.

Undoubtedly, there is elevated importance of family, home, work and study from home, cooking, and entertainment from home. Possibly, Harvey Norman® brands could take advantage of this trend.

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