A slightly untidy interim profit from retailer, Harvey Norman.
It revealed yesterday that first half earnings jumped by almost 37 per cent to $180.5 million, but that was after two particularly significant items.
They were a $27 million revaluation linked to investment properties ($22 million in the first half of 2006) and a final $41 million commission received from the float of FlexiGroup Ltd in December (which won’t be repeated).
FlexiGroup provides finance to consumers to buy IT equipment, TVs and whitegoods, and is available through Harvey Norman and other retailers.
Excluding those items, HVN said net profit from continuing operations rose a solid 14.2 per cent to $132.9 million in the six months to December 31, 2006, which is a more realistic figure.
The shares eased just 6c in yesterday’s big sell off, finishing at $4.35.
Demand for wide screen televisions, iPods and other electronic products helped boost sales by a headline 16.7 per cent to $2.71 billion in the half. Same store (like-for-like sales) across the Harvey Norman franchises, stores in New Zealand, Slovenia and Ireland, and furniture outlets Domain and Joyce Mayne, rose 7.1 per cent.
And the sales momentum continued into January with HVN revealing that sales for the seven months to 31 January 2007 “increased by 16.5% compared to the seven months ended 31 January 2006, and like for like sales increased by 7.4%”.
So the group hasn’t lost momentum.
The company said consolidated profit before income tax and before minority interests (EBIT) was $269.71 million for the half-year ended 31 December 2006 compared to $199.25 million for the previous half-year period, representing an increase of 35.4 per cent. But that included the $68 million in those two previously mentioned one-off items.
Earnings before interest, tax, depreciation, impairment and amortisation (EBITDIA) grew 28.1 per cent to $335.86 million (again including the two one-offs).
Harvey Norman declared an interim dividend of five cents a share, up from four cents previously. Basic earnings per share increased to 17.06c from 12.47c, an increase of 36.8% (and included the one offs).
Directors said that the “previously outlined three brand strategy is the core platform for ongoing growth in Australia.
“There are currently 22 Harvey Norman stores in New Zealand with two further stores planned to open in the second half of the current financial year.
“There are 12 Harvey Norman stores in Singapore and three Harvey Norman stores in Malaysia. Further new store opportunities in both markets continue to be investigated.
“In Ireland, business continues to grow strongly with additional key sites in predetermined markets being investigated.
“In Slovenia, we will continue to consolidate our expanded position after the opening of the second store at Koper.
“Retail property investment activities have continued to expand and during the six month period new complexes were opened as follows:
“18 franchised store openings in Australia: 9 Harvey Norman, 1 Domayne and 8 Joyce Mayne franchised complexes; included in these were 14 small-format former Retravision stores, 6 of which became Harvey Norman franchised stores and 8 became Joyce Mayne franchised stores; 8 new company-owned stores opened in offshore markets: 2 in Ireland, 2 in New Zealand, 2 in Malaysia, 1 in Singapore and 1 in Slovenia.
“Franchisee sales revenue for the first half was $2.29 billion compared with $2.00 billion, an increase of 14.3 per cent, which resulted in increased franchise fees and other franchise related revenue for the parent company.
“Consolidated sales revenue from company-owned stores for HY07 was $869.8m compared with HY06 of $741.2m, an increase of 17.4%.”
HVN said that total consolidated revenue and other income items for HY07 was $1.38bn compared with HY06 of $1.14bn, an increase of 21.4 per cent. That includes franchisee and other fees and sales income from company owned stores.
The company said that its retail franchise system continues to be the main contributor to the total result of the consolidated entity.
“The franchising operations segment result before tax was $167.98 million for the half-year ended 31 December 2006 compared with $105.65 million for the prior period.
“Total franchising operations contributed 62.3% of consolidated profit before tax for the current period and there has been an increase of 59.0% over the previous corresponding period.
“The final commission received in relation to the FlexiGroup Limited IPO of $40.98 million has been included in the franchising operations segment. If the one-off item were excluded from this result the franchising operations segment result before tax would have been $127.00 million, an increase of 20.2% from the previous corresponding period.”
So not as big as with the two one-offs included, but nevertheless a health result from HVN with its key franchise business performing strongly.
And Gerry Harvey is interested in the Officeworks business of Coles, if it comes onto the market. That would cost around a billion dollars but would add more than a billion in sales and substantial profits.
It would be ideal to break up and franchise each store, just like the basic Harvey Norman business.
