Business SummaryHarvey Norman Holdings Limited (HVN) engages in franchising operation,integrated retail business, property development and digital system. HVNoperates under a franchise system in Australia and operates wholly-owned orcontrolled stores in overseas markets.

Australia Franchising Operations: The division consists of the franchisingoperations of the company. The franchisees offer products in the followingcategories: electrical goods, furniture, computerized communications,bedding and manchester, small appliances, carpets and flooring.

Oversea Retail Operations: The division consists of the wholly-ownedoperations in New Zealand, Ireland and Northern Ireland and the retail tradingoperations in Singapore and Malaysia under the Harvey Norman and Spacebrand names, and in Slovenia under the Harvey Norman brand name.

Non-Franchised Retail: The division consists of the wholly-ownedoperations under the Clive Peeters and Rick Hart brand, the retail tradingoperations in Australia which are controlled by HVN. This business unitincludes the Space Furniture brand in Malaysia.

Retail Property: The property portfolio consists of Harvey Norman, Domayneand Joyce Mayne complexes in Australia, Harvey Norman and Norman Rossstores in New Zealand, properties located in Singapore, four Harvey Normanstores in Slovenia, properties held under joint venture agreements and landand buildings in Australia for development and resale.

Latest Research1H18 Result – Competitive Intensity Ramping Up

Harvey Norman delivers weak 1H18 result — The Australian Franchisee

business saw profitability fall despite good LFL sales momentum, asinvestment in price and service outweighed operating leverage on a flatunderlying cost base. The

earnings outlook is challenging, as competitive intensity ratchets up andthe housing cycle moderates. We downgrade FY19e EPS by 5.5% andreiterate our Sell rating and reduce our target price to $3.40 (from $3.50).

For more information see research 01 Mar 2018.

GICS - Retailing

Harvey Norman Holdings Ltd

ASX Code: HVN Price: $3.50 12 Mth Target Price: $3.10 Rating: Sell

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Snapshot

DateMarket Cap.Shares on issue12 Month High12 Month Low

15 June 2018$3,900m1,114.2m$4.62$3.32

RatingRating12 Mth Target Price

Capital GainGross Yield

Implied Total Return

Sell$3.10-11.7%9.0%-2.7%

Investment FundamentalsFYE 30 Jun 2017A 2018F 2019F 2020F

Profit $m 391.0 378.0 352.0 334.0Profit (norm)* $m 391.0 378.0 352.0 334.0

EPS* ¢ 35.0 34.0 32.0 30.0EPS Growth % 16.7 -2.9 -5.9 -6.2P/E* x 10.0 10.3 11.0 11.7P/E Relative % 0.0 0.0 0.0 0.0

DPS ¢ 26.0 24.0 22.0 23.0Yield % 7.4 6.8 6.3 6.6Franking % 100.0 100.0 100.0 100.0* Adjusted for goodwill and unusual itemsSource: Based on Citi estimates

Share Price Chart

Total Return on $10,000 Investment

Profit & Loss ($M)2013A 2014A 2015A 2016A 2017A

Sales Revenue 2,240 2,435 2,581 2,826 2,905Total Revenue ex. Int. 2,347 2,538 2,710 3,019 3,162EBITDA 373 418 480 603 739Depreciation & Amort. -90 -78 -77 -79 -78Goodwill Amortisation -- -- -- -- --EBIT 283 340 403 524 661Net Interest -34 -28 -24 -21 -15Profit Before Tax 249 313 378 503 646Income Tax -43 -92 -109 -142 -187Outside Equity Int. -2 -1 -1 -3 -4Profit after Tax 204 220 268 358 455Significant Items after Tax -61 -9 -0 -9 -6Reported Profit after Tax 142 212 268 349 449Preferred Dividends -- -- -- -- --

Cash Flow ($M)2013A 2014A 2015A 2016A 2017A

Receipts from Customers 2,131 2,462 2,538 2,882 2,875Funds from Operations 333 467 482 614 622Net Operating Cashflow 239 339 340 438 425Capex -74 -67 -55 -69 -89Acquisitions & Investments -103 -57 -20 -90 -130Sale of Invest. & Subsid. 11 0 1 0 --Net Investing Cashflow -208 -113 -82 -180 -199Proceeds from Issues -- -- -- 5 1Dividends Paid -90 -112 -334 -267 -345Net Financing Cashflow -47 -235 -221 -307 -287Net Increase Cash -16 -9 38 -50 -61Cash at Beginning 140 125 115 153 104Exchange Rate Adjust. -- -- -- -- --Cash at End 125 115 153 104 43

Ratios and Substantial Shareholders2013A 2014A 2015A 2016A 2017A

Profitability RatiosEBITDA Margin % 16.65 17.17 18.60 21.32 25.43EBIT Margin % 12.65 13.98 15.60 18.54 22.75Net Profit Margin % 9.09 9.05 10.40 12.66 15.67Return on Equity % 8.74 8.91 10.58 13.42 16.31Return on Assets % 5.85 5.85 6.72 8.57 11.26

Debt/Safety RatiosNet Debt/Equity % 27.86 22.60 20.05 19.29 22.76Interest Cover x 8.31 12.35 16.63 24.82 44.27

Top 5 Substantial ShareholdersGerald Harvey 30.5%Dimbulu Pty Ltd 16.5%

Balance Sheet ($M)2013A 2014A 2015A 2016A 2017A

Cash & Equivalent 162 145 186 140 80Receivables 1,054 1,119 1,143 1,097 641Inventories 269 298 298 316 316Other Current Assets 47 45 50 53 76Current Assets 1,532 1,607 1,676 1,606 1,112Prop. Plant & Equipment 549 569 553 581 625Intangibles 59 78 84 81 75Other Non-Current Assets 60 53 122 128 154Non-Current Assets 2,533 2,618 2,682 2,826 3,077Total Assets 4,065 4,225 4,359 4,432 4,190Interest Bearing Debt 820 708 698 658 720Other Liabilities 881 1,026 1,103 1,085 656Total Liabilities 1,701 1,734 1,802 1,743 1,377Net Assets 2,364 2,491 2,557 2,689 2,813Share Capital 260 260 380 385 386Reserves 62 103 113 156 175Retained Earnings 2,009 2,109 2,043 2,125 2,229Outside Equity Int. 34 20 20 22 22Total Shareholders Equity 2,364 2,491 2,557 2,689 2,813

Current Analyst Recommendations *

* Source: Morningstar. This chart shows the spread of recommendations from thosebroker analyst's in Australia with research coverage of this stock.

Principals & DirectorsPrincipals

Company Secretary Mr Chris Mentis

Directors

Mr Gerald Harvey(Executive Director,Executive Chairman)Ms Kay Lesley Page(Chief Executive Officer,Executive Director)Mr John Evyn Slack-Smith(Chief Operating Officer,ExecutiveDirector)Mr Michael John Harvey(Non-Executive Director)Mr Christopher Herbert Brown(Non-Executive Director)Mr Kenneth William Gunderson-Briggs(Non-Executive Director)Mr Graham Charles Paton(Non-Executive Director)Mr David Matthew Ackery(Executive Director)Mr Chris Mentis(Chief Financial Officer,CompanySecretary,Executive Director)

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Harvey Norman Holdings Ltd

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