Ann: FLLYR: MHI: Full Year Results for the year e

• Release Date: 16/08/13 10:33
• Summary: FLLYR: MHI: Full Year Results for the year ending 30 June 2013
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MHI
16/08/2013 08:33
FLLYR

REL: 0833 HRS Michael Hill International Limited

FLLYR: MHI: Full Year Results for the year ending 30 June 2013

Michael Hill International Limited

 Results for announcement to the market

  Reporting Period   12 months to 30 June 2013
  Previous Reporting Period   12 months to 30 June 2012

      Percentage
     Amount Change
     $NZ'000 %
  Revenue from ordinary activities   549,521 7.4%
  Profit from ordinary activities after tax attributable to members   40,032
  9.6%
  Net profit for the period attributable to members   40,032 9.6%

      Imputed
     Amount amount
     per security per security
  Final dividend for year ended 30 June 2013 4.0 cents  nil
  Record date  27 September 2013
  Dividend payment date    4 October 2013

 Michael Hill International Limited's accounts have been audited and an
unqualified audit opinion was given.

 CHAIRMAN'S STATEMENT

Profit Announcement
Michael Hill International Limited today announced an after tax profit of
$40.032m for the twelve months
ended 30 June 2013, up 9.6% on the corresponding period last year.

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

- Operating revenue of $549.521m up 7.4% on same period last year
- EBIT of $50.193m up 9.4% on same period last year
- Same store sales were 1.2% up on same period last year
- Net profit before tax of $47.040m up 11.9% on same period last year
- Net profit after tax of $40.032m up 9.6% on same period last year
- Revenue collected from Professional Care Plans of $33.072m for the period

- Net debt of $20.890m at 30 June 2013, in line with last year
- Operating cash flow of $52.345m, in line with last year
- 18 new stores opened and 3 closed during the period
- Total of 267 stores open at 30 June 2013
- Final dividend of 4.0 cents per share up 14.3%
- Total dividend for the year of 6.5 cents up 18.2% from 5.5 cents last year

- Equity ratio of 59.4% at 30 June 2013

New Zealand Retail Operations
The New Zealand retail segment revenue increased by 2.1% to $111.357m for the
twelve months, with an operating surplus of $22.128m, an increase of 2.7% on
the corresponding period last year.
Same store sales during the twelve months increased by 1.9% (7.3% last year).

The operating surplus as a percentage of revenue increased to 19.9% (19.8%
last year).

One store closed in New Zealand during the period giving a total of 52 stores
operating at 30 June 2013.

Australian Retail Operations
The Australian retail segment increased its revenue by 11.7% to AU$289.333m
for the twelve months with an operating surplus of AU$42.225m, compared to
AU$36.798m for the previous corresponding period, an increase of 14.7%. Same
store sales in local currency increased 4.3% for the twelve months (2.1%
decrease last year).

The operating surplus as a percentage of revenue was 14.6% (14.2% last year).

Ten new stores were opened in Australia during the period, as follows:
- Albany, Western Australia
- Goulburn, New South Wales
- Hobart CBD, Tasmania
- Melbourne CBD, Victoria
- Mt Gambier, South Australia
- Parramatta, New South Wales
- Perth CBD, Western Australia
- Queen's Plaza Brisbane CBD, Queensland
- Shepparton, Victoria
- Singleton, New South Wales

One store closed during the period, giving a total of 162 stores operating at
30 June 2013.

Canadian Retail Operations
The Canadian retail segment increased its revenue by 19.6% for the twelve
months to CA$52.950m and there was an operating surplus of CA$1.121m compared
to CA$0.518m for the previous corresponding period. Same stores sales in
local currency increased 1.7% for the twelve months (5.8% last year).

Eight new stores were opened during the period, as follows:
- Cambridge, Ontario
- Edmonton City Centre, Alberta
- Georgian Mall, Ontario
- Hillside, British Columbia
- Lambton Mall, Ontario
- Markville, Ontario
- Prairie Mall, Ontario
- St Laurent, Ontario

No stores were closed during the period, giving a total of 45 stores
operating at 30 June 2013.

US Retail Operations
The US retail segment increased its revenue by 7.2% to US$10.265m for the
twelve months and there was an operating loss of US$2.359m for the same
period (US$2.650m last year).  Same stores sales in local currency increased
6.4% for the twelve months.

The board is satisfied with the progress of the US operation over the past
five years but acknowledges there is still a long way to go before the
business is proven up in the US market.  Focus remains on improving the
performance of the existing stores over the coming twelve months.  The
company's strategy moving forward is to refine the US property portfolio
based on our learning's from the last 5 years in Chicago.  The first step in
this strategy has been the closure of the Water Tower store in Chicago in
June, which will likely be replaced by a new store to be based in the eastern
states of the US before Christmas this year.  The board view this strategy as
an extension to the existing test of the Michael Hill brand in the US market.

One store closed during the period giving a total of 8 stores operating at 30
June 2013.

In-house Customer Finance for North America
The Group established an in-house customer finance program in October 2012 in
response to our Canadian provider withdrawing from the consumer credit market
at the end of September 2012. Due to the strategic importance of consumer
credit to our future revenue stream and the fact that there was no suitable
replacement credit provider in the Canadian market the decision was made to
bring that function in-house. This strategy not only secures our revenue in
the Canadian market but will provide a strategic advantage as we build a
valuable database of customers and their spending behaviours. After
establishing the in-house customer finance program in October 2012 for our
Canadian business it was extended to our fledging US operation where
availability of consumer credit is paramount to success in our industry. The
in-house customer finance function is being serviced by a US business partner
based in Salt Lake City. Receivables from our in-house customer finance
activity amounted to $7.723m at 30 June 2013.

Professional Care Plan (PCP)
PCP sales for the financial year were $33.072m.   An amount of $16.208m has
been included as revenue in the segment figures stated above from the current
and prior periods.  As a result of a change in the estimation, brought about
by management's review of another twelve months of usage data from the PCP
program, an additional $4.242m of PCP revenue was recognised in 2012-13 over
and above what would have been recognised under the previous estimation
formula, of which $1.942m belongs to prior periods.  In line with IFRS the
full $4.242m of additional revenue was brought to account in the 2012-13
period.

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 Life
Time) 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 usage data over the coming years. The costs of meeting the
liability under the respective PCP's is 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 year    $26.955m $33.072m
 PCP revenue brought to income for the year    $6.025m $16.208m
 Deferred revenue carried forward on balance sheet     $31.670m $47.047m

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 $24.636m, 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 2013 financial year is
$6.406m.  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 30 June 2013 was $41.099m 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. The Group has filed a formal, detailed
response with the ATO, together with legal and valuation reports which
support the Group's position.

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 2013 financial statements but further detail is included at
note 34 to the Financial Statements.

Dividend
The Directors are pleased to announce a final dividend of 4.0  per share
(2012 - 3.5 ), with no imputation credits attached for New Zealand
shareholders and full franking credits for Australian shareholders. The
dividend will be paid on Friday, 4 October 2013 with the record date being
Friday, 27 September 2013. Including the 2.5 cent per share interim dividend
paid on 3 April 2013, the total dividend for the year will be 6.5 , an
increase of 18.2% on the previous corresponding period (2012 - 5.5 ).

Due to the internal restructuring of the Group in December 2008, the Company
is unlikely to be in a position to impute dividends 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 final 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 $52.345m for the twelve
months, compared to $52.131m for the previous year.

The surplus from operations is a result of:
- Profit excluding non-cash items    $50.227m
- Increase in deferred revenues from Professional Care Plan    $17.550m
- Increase in trade and other receivables    $(7.339)m
- Increase in inventory levels   $(7.088)m
- Other miscellaneous items    $(1.005)m
Net Cash Inflow from Operations Surplus for Year    $52.345m

The Group's balance sheet continues to be sound with an equity ratio of 59.4%
as at 30 June 2013 (60.1% in 2012) and a working capital ratio of 3.0:1
(3.1:1 in 2012).

Summary
The Directors are pleased that all four segments were able to improve their
results in 2012-13 despite continued pressure on the retail sector. Revenue
growth continued to be difficult to achieve in all markets especially over
the second half of the financial year. A focus on improving the existing
business will continue during 2013-14 as well as continued store openings
when suitable sites become available.

The Directors are satisfied with the overall performance and they remain
confident in the continued growth and
profitability of the group.

Sir Michael Hill 15/08/2013
Chairman
Internet Home Page - www.michaelhill.com
All inquiries should be made to Mike Parsell CEO phone +61 403 246655
End CA:00239765 For:MHI    Type:FLLYR      Time:2013-08-16 08:33:07