BUSINESS Harvey’s profit plummets

HARVEY Norman’s full- year profit has slumped 16.4 per cent to $ 375.4 million due to property revaluations and the furniture and electrical goods retailer’s failed dairy farming investment.

Sales revenue for the year ending June 30 rose 8.8 per cent to $ 1.99 billion, but property revaluation more than halved to $ 51.7 million and trading losses from the firm’s Coomboona dairy farm hit $ 49.5 million.

The company yesterday announced an entitlement offer of new shares to raise $ 163.9 million in an effort to pay down debt, with the offer price of $ 2.50 a share representing a 33 per cent discount to Thursday’s close.

Harvey Norman paid $ 34 million for a 49.9 per cent stake in Coomboona in September 2015, on the recommendation of founder and chairman Gerry Harvey ( pictured). Analysts considered the acquisition odd because it was unrelated to Harvey Norman’s core business and the Vic- torian venture fell into receivership in March.

Stripping out property revaluations and losses from the dairy business, profit was flat at $ 532.5 million. Harvey Norman’s 195 domestic franchiseeowned stores’ comparable sales revenue was up 2.2 per cent to $ 5.7 billion, but Mr Harvey said he was particularly pleased with growth overseas.

The offshore division, which consists of 89 stores in seven countries, accounted for 22 per cent of the company’s consolidated profit.

There are 39 Harvey Norman stores in New Zealand, 16 in Malaysia, and 13 each in Ireland and Singapore.

It is also present in Slovenia, Northern Ireland, and Croatia.

“We fully intend to capitalise on this excellent performance overseas, and plan to invest substantially in growing our offshore Harvey Norman store network, particularly in South East Asia,” Mr Harvey said in a statement. “We are actively exploring new sites, and there is an expectation to open up to 18 new Harvey Nor- man company- operated stores overseas within the next two years.”

Analysts at Citi warned the change in focus, while understandable due to declining profitability in the face of increased competition and a slowing housing cycle, was not without risk.

“Harvey Norman is looking to derive more growth from offshore, particularly Malaysia,” Citi said, maintaining its sell rating.

“While this may deliver growth, it also increases the risk profile of the business.”