Ann: HALFYR: MHI: Half year Results to 31 Decembe

• Release Date: 16/02/12 10:30
• Summary: HALFYR: MHI: Half year Results to 31 December 2011
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MHI
16/02/2012 08:30
HALFYR

REL: 0830 HRS Michael Hill International Limited

HALFYR: MHI: Half year Results to 31 December 2011

Michael Hill International Limited

 Results for announcement to the market

  Reporting Period   6 months to 31 December 2011
  Previous Reporting Period   6 months to 31 December 2010

      Percentage
     Amount Change
     $NZ'000 %
  Revenue from ordinary activities   288,846 7.3%
  Profit from ordinary activities after tax attributable to members   26,297
  11.5%
  Net profit for the period attributable to members   26,297 11.5%

      Imputed
     Amount amount
     per security per security
  Interim dividend for half-year ended 31 December 2011    2 cents  nil
  Record date  23 March 2012
  Dividend payment date    2 April 2012

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

REPORT OF THE DIRECTORS

Profit Announcement
Michael Hill International Limited today announced an after tax profit of
$26.297m for the six months ended
31 December 2011, up 11.5% on the corresponding period last year.

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

 Operating revenue of $288.846m up 7.3% on same period last year
 Same store sales were 1.7% up on same period last year
 EBIT of $34.775m up 9.2% on same period last year
 Net profit before tax of $32.337m is up 12.7% on last year
 Net profit after tax of $26.297m is up 11.5% on last year
 Revenue collected from Professional Care Plans of $14.411m for the period

 Net debt of $10.728m at 31 December 2011 down from $49.163m last year
 Operating cash inflow of $46.800m up from $21.040m last year
 7 new stores opened and 1 closed during the period
 Total of 245 stores open at 31 December 2011
 Interim dividend of 2.0 cents per share up 33% on last year
 Equity ratio of 56.2% at 31 December 2011

New Zealand Retail Operations
The New Zealand retail segment revenue increased by 8.5% to $60.908m for the
six months, with an
operating surplus of $12.192m, an increase of 12.7% on the corresponding
period last year.
Same store sales during the twelve months increased by 9.2% (6.2% last year).

The operating surplus as a percentage of revenue increased to 20% (19.3% last
year).

Australian Retail Operations
The Australian retail segment increased its revenue by 4.4% to AU$147.091m
for the six months with an
operating surplus of AU$24.382m, compared to AU$25.079m for the previous
corresponding period, a
decrease of 2.8%.

Same store sales in local currency decreased by 1.5% for the six months (5.7%
increase last year).
The operating surplus as a percentage of revenue was 16.6% (17.8% last year).

5 new stores were opened in Australia during the period, as follows:
 Doncaster, Victoria
 Chatswood, New South Wales
 Marrickville, New South Wales
 Burleigh, New South Wales
 Warrnambool, Victoria

1 store was closed in New South Wales during the period, giving a total of
149 stores operating in Australia
as at 31 December 2011.

Canadian Retail Operations
The Canadian retail segment increased its revenue by 20.9% to CA$24.257m for
the six months, with an
operating surplus of CA$1.184m, compared to CA$0.391m for the previous
corresponding period, an
increase of 202.8%.

Same stores sales in local currency increased 5.2% for the six months (15.1%
increase last year).

2 new stores were opened during the period:
 Polo Park, Manitoba
 Market Mall, Alberta

There were 35 stores open as at 31 December 2011.

US Retail Operations
The US retail segment achieved revenue of US$5.272m for the six months and
there was an operating loss
of US$1.431m for the same period (US$2.121m last year). Same stores sales in
local currency increased
22.3% for the six months.

The board is pleased 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 9 stores open as at 31 December 2011.

Professional Care Plan (PCP)
PCP sales continue to grow and have significantly improved cash flow of the
company. Although it is too
early to accurately predict the margins and therefore profitability of the
PCP business, the company is
confident that the PCP's will contribute positively to the margins and
profits of the overall business.

PCP sales during the first six months were $14,411,408. An amount of
$1,466,312 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 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 actual 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 Last Year This Year
    First half * Second Half First Half
PCP sales collected for the half year  $2,937,882 $8,734,389 $14,411,408
PCP revenue brought to income for the half year
      $0 $559,779 $1,466,312
Deferred revenue carried forward on balance sheet    $2,986,080 $11,069,275
$24,337,672
    *PCP's have been sold since October 2010

Outstanding Tax Issues from Group Restructuring in 2008
In the 2011 full year report, the company provided an update on the 2
outstanding tax matters relating to
the 2008 group restructure. Below is a further update on the respective
matters.

The company's discussions with the Inland Revenue (IR) in New Zealand
referred to in the 2011 directors'
report in relation to the way the group financed the sale of Intellectual
Property from one of our New
Zealand companies to one of our Australian companies have continued. Tax
returns have been filed with
the IR for the 2008-09 and 2009-10 financial years. The IR issued a binding
ruling confirming some
aspects of the tax treatment of the financing structure but commenced a
limited scope review of some
outstanding concerns in relation to the 2009 tax return. The 2009 tax return
issues are now being
considered by IR under the disputes resolution process. In turn the company
initiated the disputes
resolution process in respect of the 2010 return in order to expedite
finalisation of the issues. Discussions
with IR in relation to the 2009 and 2010 tax returns are continuing.

The company's discussions with the Australian Taxation Office (ATO) relate to
the value at which the
intellectual property was transferred between the respective companies.
Discussions are likewise
continuing with the ATO in respect to this matter at the time of this
announcement.

The board does not consider that either of the above ongoing tax matters
requires a provision or
contingency in the group's financial statements for 2011 half year. This will
be kept under review.

Dividend
The Directors are pleased to announce an interim dividend of 2.0 per share
(2010 - 1.5), with no
imputation credits attached for New Zealand shareholders and full franking
credits for Australian
shareholders. The dividend will be paid on Monday, 2nd April 2012 with the
record date being Friday, 23rd
March 2012.

Due to the internal restructuring of the Group in December 2008, the company
is unlikely to be in a position
to impute dividends for the foreseeable future, however this will depend on
the performance of each
segment in the coming years and also on the level of dividend to be paid in
future periods.
Whilst the 2011-12 interim dividend is fully franked to Australian resident
shareholders, it is likely that future
dividends will only be partially franked due to the level of 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 inflows of $46.800m for the six
months, compared to $21.040m
for the previous year and net debt has fallen to $10.728m from $49.163m at
the same time last year.

The surplus from operations is a result of:
 Profit excluding non cash items
        $31.802m
 Increase in trade and other receivables
  ($8.192)m
 Increase in inventory levels
      ($12.246)m
 Increase in trade and other payables
   $17.664m
 Increase in deferred revenues from Professional Care Plans
$12.925m
 Other miscellaneous items
         $4.847m

Net cash inflow from operations for Half Year
      $46.800m

The Group's balance sheet continues to be sound with an equity ratio of 56.2%
as at 31 December 2011
(54.1% in 2010) and a working capital ratio of 2.8 :1 (3.2:1 in 2010).

M. Hill
Chairman

Sir Michael Hill 15/02/2012
Chairman

Internet Home Page - www.michaelhill.com

All inquiries should be made to Mike Parsell CEO phone +61 403 246655
End CA:00219563 For:MHI    Type:HALFYR     Time:2012-02-16 08:30:08