Harvey Norman's half year profits have been hit by a revaluation of the retailer's investment properties and founder Gerry Harvey's push into dairy farming. Before tax profit was flat and after tax was down 19% with shares suffering the biggest one day fall in two decades. Gerry Harvey: "...the market has just got it wrong."
After tax profit fell 19% to $207.69 million for the six months to December. The result included a $20.67 million impairment on the Coomboona dairy farm joint venture.
However, underlying profit before tax, excluding property value adjustments and trading losses and impairments from the Coomboona dairy joint venture, was a record $296.08 million, up just 0.8% on the same period last year.
At the close, Harvey Norman shares were down 12.4% to $4.01, the biggest one day fall in two decades.
Billionaire Harvey told The Australian newspaper: "So the market has just got it wrong, simple as that, they just don’t get it. The result isn’t bad, there is nothing wrong with the result at all."
The net property revaluation for Australian investment properties came in at a gain of $22.76 million compared to $75.74 million in the same six months last year.
The company also posted a $20.67 million impairment on the 49.9% holding in the Coomboona joint venture, a 2000-hectare dairy farming business in Victoria.
With all revenue combined, including that of franchisees, the Harvey Norman business had a turnover of more than $4.6 billion over the six months.
Harvey Norman says the property portfolio is robust, with assets totalling $2.81 billion, up from $2.60 billion.
Harvey Norman Chairman Gerry Harvey says the strength, stability and flexibility of the high-quality retail developments continues to be an integral point of difference of the company.
"This allows us to maximise the ability of our physical retail offerings to provide a complete interactive customer experience," he says.
"We're very much focused on raising the bar of our retail experience, and this period has seen a concerted focus towards completing our Flagship store strategy by the end of the 2018 financial year."
The company now has flagship stores in Singapore, Slovenia, Ireland and Northern Ireland.
Harvey Norman’s company-operated retail operations had a 11.3% rise in profitability to $57.38 million.
Aggregated franchisee sales revenue increased 4.8%, breaking the $3 billion barrier for the first time in a December reporting period.
"This is a really solid result when you consider the previous half-year period saw the strongest results on record and it shows our franchisees have kept up that momentum to deliver an unprecedented result," says Harvey.
The company declared a fully-franked dividend of 12 cents a share.
The 2018 half year results in detail: