Harvey Norman full year profit jumps 20pc, but cools on offshore expansion

Harvey Norman has paid down its debt and lifted annual profit 19.4pc, but Covid has prompted the retailer to cool its overseas expansion plans.

Michael Spencer, in Harvey Norman’s Fortitude Valley store. Picture: Steve Pohlner

Harvey Norman is entering the first recession in thirty years buttressed by the powerful trifecta of no debt, booming sales and a multi-billion property portfolio, although it has been forced to rein in its ambitious offshore expansion plans due to the COVID-19 pandemic.

Chairman, founder and major shareholder Gerry Harvey told The Weekend Australian the retailer was in one of its strongest financial positions in years thanks to a highly profitable stable of overseas stores and robust sales in Australia and New Zealand as consumers filled their homes with new fridges, freezers and home appliances.

And while the COVID-19 had forced the retailer to scale down its store opening plans in south east Asia the region would still be a hot spot of activity for the company, with the potential for as many as 100 stores across Malaysia.

He added that with zero debt and a property portfolio worth almost $3.5bn, Harvey Norman had more financial muscle than most other retailers to ride out the recession in Australia and in the economies it operates in.

“It is a huge advantage, we could have a billion or a billion and half in debt, no trouble, on our balance sheet but we have got none … we have more than $3bn in property and owe nothing so it is a wonderful position to be in,” Mr Harvey told The Weekend Australian after the retailer reported a 19.4 per cent lift in full-year net profit to $480.54m, as sales revenue for the period rose 7.6 per cent to $8.23bn.

The retailer has also emerged from the 2020 financial year with a net cash position of $15.35m, compared to a net debt position of $626.47m as at 2019. The net debt to equity ratio for 2020 was zero, compared to a net debt to equity ratio of 19.46 per cent in 2019. This is backed up by large mostly commercial property portfolio that helped lift Harvey Norman’s net assets by 8.74 per cent to $3.48bn from $3.2bn in 2019.

It ended the year with like for like sales growth of 7.2 per cent from its stores in Australia as well as Slovenia, Croatia, Ireland, Northern Ireland, Singapore and Malaysia, with the strong sales momentum in 2020 still evident in the first few months of fiscal 2021.

In a trading update provided with the release of its full-year results, Harvey Norman said same store sales growth in Australia between July and August was up 38.4 per cent, up 54.9 per cent in Ireland and up by 29.1 per cent in Slovenia and Croatia.

Mr Harvey said there was a likely a large portion of those sales that had been pulled forward by the COVID-19 pandemic but it was unclear the exact size.

“I think there has to be some pull forward of home furnishings, electrical and computers, there has to be, but how significant it is I just don’t know.’’

But the COVID-19 health crisis has forced Harvey Norman to slow down its overseas expansion plans, with the company deciding to scrap its plans to open 21 stores overseas by 2021.

The retailer said on Friday the company is now planning to open 12 stores in 2021, with the bulk of those in Malaysia and Singapore where Mr Harvey sees huge growth potential.

“Nothing has changed, on the overseas front that is where our biggest expansion will be in the years to come. New Zealand is now our most successful one and when you look at Slovenia and Croatia … and Ireland you have a huge increase in sales where we started there we lost $50m a year but now that is getting better and making money.

“Malaysia is our biggest program at the moment, we are hoping to have 50 to 100 stores there one day.

“We pick countries where we can end up being a major player rather than a smaller player among bigger players.’’

Mr Harvey said the 2020 financial year was a year of “unique challenges”.

“The drought and bushfires last summer, followed by COVID-19, had a significant impact in the eight countries where we, or our franchisees, trade.

“Pleasingly, customers continued to engage strongly with our brands.’’

Harvey Norman has recommended the payment of a fully-franked final dividend of 18c per share, down from 21c paid at the same time last year. It will be paid on November 2 to shareholders registered on October 12.

Shares in Harvey Norman fell 1.6 per cent on Friday to $4.24 each.

Gerry Harvey. Picture: Richard Dobson