Ann: HALFYR: MHI: Results for six months ended 31

• Release Date: 15/02/13 10:30
• Summary: HALFYR: MHI: Results for six months ended 31 December 2012
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MHI
15/02/2013 08:30
HALFYR

REL: 0830 HRS Michael Hill International Limited

HALFYR: MHI: Results for six months ended 31 December 2012

Michael Hill International Limited

 Results for announcement to the market

  Reporting Period   6 months to 31 December 2012
  Previous Reporting Period   6 months to 31 December 2011

      Percentage
     Amount Change
     $NZ'000 %
  Revenue from ordinary activities   312,866 8.3%
  Profit from ordinary activities after tax attributable to members   27,839
  5.9%
  Net profit for the period attributable to members   27,839 5.9%

      Imputed
     Amount amount
     per security per security
  Interim dividend for half-year ended 31 December 2012    2.5 cents  nil
  Record date  25 March 2013
  Dividend payment date    3 April 2013

 Michael Hill International Limited's accounts attached to this report have
been reviewed and are not subject
 to any qualification.

 CHAIRMAN'S STATEMENT

Profit Announcement
Michael Hill International Limited today announced an after tax profit of
$27.839m for the six months ended 31 December 2012, up 5.9% on the
corresponding period last year.

Summary of Key Points (all values stated in NZD unless stated otherwise)

o Operating revenue of $312.866m up 8.3% on same period last year
o Same store sales were 2.3% up on same period last year
o EBIT of $35.970m up 3.4% on same period last year
o Net profit before tax of $34.210m up 5.8% on same period last year
o Net profit after tax of $27.839m up 5.9% on same period last year
o Revenue collected from professional care plans of $18.063m for the period

o Net debt of $20.688m at 31 December 2012
o Operating cash flow of $28.114m
o 12 new stores opened and 1 closed during the period
o Total of 263 stores open at 31 December 2012
o Interim dividend of 2.5 cents per share up 25.0%

New Zealand Retail Operations
The New Zealand retail segment revenue increased by 3.6% to $63.117m for the
six months, with an operating surplus of $12.945m, an increase of 6.2% on the
corresponding period last year.
Same store sales during the twelve months increased by 3.0% (9.2% last year).

The operating surplus as a percentage of revenue increased to 20.5% (20.0%
last year).
One store closed in New Zealand during the period at Fashion Island
(Papamoa), giving a total of 52 stores operating in New Zealand as at 31
December 2012.

Australian Retail Operations
The Australian retail segment increased its revenue by 10.6% to AU$162.712m
for the six months with an operating surplus of AU$27.986m, compared to
AU$24.363m for the previous corresponding period, an increase of 14.9%. Same
store sales in local currency increased 3.8% for the six months (1.5%
decrease last year).

The operating surplus as a percentage of revenue was 17.2% (16.6% last year).

Seven new stores were opened in Australia during the period, as follows:

o Goulburn, New South Wales
o Melbourne CBD, Victoria
o Mt Gambier, South Australia
o Parramatta, New South Wales
o Queen's Plaza Brisbane CBD, Queensland
o Shepparton, Victoria
o Singleton, New South Wales

No stores were closed during the period, giving a total of 160 stores
operating in Australia as at 31 December 2012.

Canadian Retail Operations
The Canadian retail segment increased its revenue by 21.5% for the six months
to CA$29.463m and there was an operating surplus of CA$1.555m, up 31.7% on
CA$1.181m for the previous corresponding period. Same stores sales in local
currency increased 3.8% for the six months (5.2% last year).

Five new stores were opened during the period, as follows:
o Cambridge, Ontario
o Georgian Mall, Ontario
o Lambton Mall, Ontario
o Markville, Ontario
o St Laurent, Ontario

No stores were closed during the period, giving a total of 42 stores
operating in Canada as at 31 December 2012.

US Retail Operations
The US retail segment increased its revenue by 4.2% for the six months to
US$5.493m for the six months and there was an operating loss of US$1.266m for
the same period (US$1.431m loss last year). Same stores sales in local
currency increased 4.2% for the six months.

The board is satisfied with the progress of the US operation over the past
six months but acknowledges there is still a long way to go before the
business is proven up in the US market. Focus remains on improving both the
top line sales and the margins in order to grow the bottom line of the nine
stores over the coming twelve months.

There were nine stores open as at 31 December 2012.

Professional Care Plan (PCP)

PCP sales for the half year were $18.063m. An amount of $5.060m has been
included as revenue in the segment figures stated above from the current and
prior periods.

PCP sales are carried on the balance sheet as deferred revenue and then
brought to revenue in the P&L over the life of the plans (3 year and
lifetime) in proportion to the expected cost of meeting commitments under the
PCP's. It is assumed that the liability for accounting purposes of the life
time plans will expire within 10 years from date of sale. The estimate of
expected commitments under the relevant PCP is based on a combination of our
own experience and overseas research. These estimates will be updated as the
company gathers actual data over the coming years. The costs of meeting the
liability under the PCP programs are brought to account in the period
incurred.

The following table summarises the revenue treatment of the PCP business.

 The following figures are in NZ Dollars  Last Year  This Year

 PCP sales collected for the half year   $14,411,408 $18,063,228
 PCP revenue brought to income for the half year    $1,466,312 $5,059,516
 Deferred revenue held on balance sheet   $24,337,672 $44,468,278

Outstanding Tax Issues from Group Restructuring in 2008
It will be recalled that the Group currently has two unresolved tax matters
relating to the way the Group valued and financed the sale of intellectual
property from one of our New Zealand companies to one of our Australian
companies.

In New Zealand, the Inland Revenue (IR) has questioned the manner in which
the transaction was financed. In Australia, the Australian Taxation Office
(ATO) has queried the value at which the intellectual property was
transferred. The Group does not agree with the positions advanced by either
the IR or ATO and believes the tax treatment and values it has adopted are
correct.  Discussions continue with both the IR and ATO within their dispute
process frameworks, but it remains unclear when final resolution will be
achieved in respect of either matter.

In New Zealand, the amount in dispute is $24,636,000, being the tax effect of
deductions claimed by the New Zealand Group from the date of the sale through
to 30 June 2012. The tax effect of deductions for the December 2012 half year
is $3,469,000. In the event any tax liability was payable, the Group would
also incur an interest expense.

In respect of Australia, the value at which the intellectual property was
transferred was originally determined by reference to an independent
valuation carried out by an internationally recognised firm and a deferred
tax asset was raised in 2009 based on that valuation.  The deferred tax asset
balance at 31 December 2012 was $41,591,000 as a result of depreciation of
components of the intellectual property and a previously announced adjustment
in value. The ATO has signalled that it has issues with aspects of that
valuation which, if correct, would reduce the amount of depreciation able to
be deducted by the Group. As noted, the Group does not accept the ATO's
position and believes the ATO's views are based on a number of factual, legal
and technical valuation errors.

Both matters are capable of being resolved by agreement, but if the Group is
unable to find common ground with either the IR or ATO then further formal
legal processes may be needed to achieve resolution. As is the case with
almost all legal processes there is inherent uncertainty as to the outcome
and the Group does not believe that the outcome of either process can be
predicted or the range of possible implications quantified.  The board does
not consider that either of the above ongoing tax matters require a provision
in the Group's financial statements for the six months ended 31 December
2012.

Dividend
The Directors are pleased to announce a final dividend of 2.5? per share
(2011 - 2.0?), with no imputation credits attached for New Zealand
shareholders and full franking credits for Australian shareholders. The
dividend will be paid on Wednesday, 3 April 2013 with the record date being
Monday, 25 March 2013.

Due to the internal restructuring of the Group in December 2008, the company
is unlikely to be in a position to impute dividends for New Zealand
shareholders for some years, however this will depend on the performance of
the segment in the coming years and also on the level of dividend to be paid
in future periods.

Whilst the 2012-13 interim dividend is fully franked to Australian resident
shareholders, it is possible that future dividends will only be partially
franked due to the likelihood of future dividend payout exceeding the level
of tax liability in Australia. However, this position can change over time
depending on a number of variables and the company will keep the market
informed each time a dividend is declared.

Cash Flows / Balance Sheets
The Group has reported net operating cash flows of $28.114m for the six
months, compared to $46.800m for the previous year.

The surplus from operations is a result of:
o Profit excluding non-cash items    $34.935m
o Increase in trade and other receivables    ($10.324)m
o Increase in inventory levels   ($28.035)m
o Increase in trade and other payables   $20.107m
o Increase in deferred revenues from professional care plan    $12.902m
o Other miscellaneous items    ($1.471)m
Net cash inflow from operations surplus for the half year    $28.114m

The Group's balance sheet continues to be sound with an equity ratio of 55.9%
as at 31 December 2012 (56.2% in 2011) and a working capital ratio of 2.6:1
(2.8:1 in 2011).

Summary
Trading for the six months was a story of two quarters with a strong first
quarter being followed by a slowdown in the second quarter. All countries
struggled to make gains on the previous year's sales numbers during the key
December quarter however "same store" growth was achieved in all markets
during the six months which is pleasing. As mentioned in our August 2012
Chairman's Statement, additional resources were placed into our key
Australian market in mid-2012 and this has started to have a positive impact
on sales in this key market. The directors remain satisfied with the overall
performance of the Group and they remain confident in the continued growth
and profitability of the Group.

Sir Michael Hill 15/02/2013
Chairman
Internet Home Page - www.michaelhill.com
All inquiries should be made to Mike Parsell CEO phone +61 403 246655
End CA:00232950 For:MHI    Type:HALFYR     Time:2013-02-15 08:30:30