Harvey Norman reports financial turnaround despite decline in revenue
Harvey Norman Limited, a prominent investment and property management group, has reported a substantial recovery in profitability for the financial year 2024. The company achieved a net profit of NZD 9.86 million, reversing the previous year's net loss of NZD 21.15 million. This marks a significant improvement despite facing a 10.4% decline in total revenue.
Revenue and Cost Pressures
The company's consolidated revenue for the year fell to NZD 62.04 million from NZD 69.20 million in the prior year.
This decline was attributed to reduced management fees and a slight decrease in rental income. Management fees, a key revenue driver, dropped by nearly 29% to NZD 17.20 million, while revenue from rent and outgoings rose to NZD 37.87 million from NZD 33.03 million.
Operating expenses remained a challenge. Rent and outgoing costs increased to NZD 8.08 million, and other expenses totalled NZD 19.47 million, though this represented an improvement from NZD 27.34 million the year prior.
Key Contributors to Profitability
A key contributor to the turnaround was a substantial reduction in revaluation losses on investment properties. The company reported a loss of NZD 13.04 million on property revaluations, significantly better than the NZD 40.76 million loss incurred in the previous year. Additionally, Harvey Norman's share of profits from its joint venture in the Westgate Lifestyle Centre added NZD 3.03 million, compared to NZD 0.59 million the year before.
Finance costs increased modestly to NZD 5.61 million, up from NZD 5.17 million, reflecting higher lease liabilities. Depreciation costs were also reduced sharply to NZD 0.37 million from NZD 2.54 million, contributing further to improved profitability.
Investment Properties and Financial Position
Investment properties remain the cornerstone of Harvey Norman's portfolio, valued at NZD 487.47 million as of 30 June 2024. This represents a net increase from NZD 461.73 million, driven by property additions worth NZD 38.84 million, offset by valuation adjustments and minor disposals.
The company's financial position improved, with net assets increasing to NZD 532.82 million, up from NZD 524.22 million. This was largely driven by the increase in retained earnings to NZD 505.06 million.
However, current liabilities saw a notable rise to NZD 156.27 million from NZD 132.11 million. This was primarily due to increased income tax liabilities and related party payables. Non-current liabilities also grew modestly, standing at NZD 133.98 million compared to NZD 127.06 million in the previous year.
Cash Flow Challenges
Despite the positive bottom line, the company's operational cash flow remains constrained. Cash flows from operating activities resulted in a negligible net outflow of NZD 0.10, and the year-end cash balance stood at just NZD 461. Financing activities provided a minimal inflow of NZD 19, reflecting limited movement in funding.
Outlook
The board of directors has expressed cautious optimism about the company's prospects. A statement within the report highlights that the group has adequate resources to continue operations and that financial support from its shareholder, Harvey Norman Holdings Limited, remains available if required.
While the recovery in profitability is encouraging, the company faces ongoing challenges with revenue generation and managing its financial obligations. Its strategy will likely hinge on stabilising rental income, managing costs, and capitalising on its robust property portfolio.
Harvey Norman Limited's 2024 financial results signal a turnaround from significant losses the previous year, though challenges persist. The company's ability to navigate its operational pressures and leverage its core assets will be critical in maintaining its upward trajectory.
