Michael Hill tax credit pushes profits up to $69m

Michael Hill. Photo / Herald on Sunday

Jewellery retailer Michael Hill International (MHI) reported a 175.6 per cent rise in full year net profit to $69.5 million, with the results boosted by a $52.9 million deferred tax credit.

The net profit compared to $25.2m the year before.

Operating revenue for the 12 months to the end of June lifted 9.4 per cent to $412m, while same store sales were 0.8 per cent up on the same period last year. Earnings before interest and tax fell 38 per cent to $26.2m.

Chairman Michael Hill said New Zealand and Canada felt the impact of worsening global conditions, but the Australian retail segment was more resilient.

The expansion into the United States in September had adversely affected the result for the year, but the move into the US was viewed as a long term strategy to ensure the group's long term growth goals.

New stores were being evaluated in all markets, but in the current economic climate only the best opportunities would be considered, said Hill.

As a consequence new store growth would continue to be modest in the coming 12 months until signs appeared of a sustained economic recovery.

MHI is paying a final dividend of 1.5c per share, down from 2c in 2008. That took the total dividend for the year to 2.5cps, down from 3.2cps the year before.

A group restructure, which saw the transfer of the intellectual property comprising the Michael Hill Jeweller System from New Zealand to Australia for $294m was completed in December.

As a result of the transaction a deferred tax asset of $52.9m was recognised for future Australian taxation deductions available for certain intellectual property rights acquired, Mr Hill said.

Revenue from New Zealand retail operations fell 6.8 per cent to $90.4m, while ebit fell 18.9 per cent to $15m.

Same store sales in New Zealand during the year fell 8.2 per cent.

Trading conditions in New Zealand continued to be difficult for the company throughout the year as economic conditions restrained retail spending, said Hill.

The company had focused on cost control to limit the impact of reduced sales on the bottom line.

At the end of June 53 stores were operating in this country, with one new store, in Masterton, opening during the year.

Australian retail segment revenue rose 4.3 per cent to A$221.1m ($273.8m), with ebit up 5.9 per cent to A$33.8m. Same store sales in local currency increased 0.3 per cent.

The company had 143 stores in Australia after eight new stores opened during the year and one closed.

In Canada, retail segment revenue rose 3.2 per cent to $C25.645m ($35.3m), while same stores sales in local currency fell 9.8 per cent.

Canadian operations had an operating loss of $C239,000, compared to a profit of $C998,000 for the previous corresponding period.

With four new stores opening during the year, the company's total in Canada rose to 26.

In the US, where MHI bought 17 stores in Illinois and Missouri last September, the retail segment achieved revenue of US$9.1m ($13.5m) for the 10 months and there was an operating loss of US$3.1m for the same period.

A refurbishment programme for some stores was starting before Christmas, which would see four stores converted to the company's new corporate design.

MHI shares closed at 72c yesterday, having ranged between 95c and 45c in the past year.

- NZPA