Michael Hill interim profit dips

LAURA WALTERS
Last updated 11:49 14/02/2014

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Jewellery retailer Michael Hill has reported a net profit of A$16.2 million (NZ$17.5m) for the six months to December 31, down 26 per cent from the previous corresponding period due to ongoing tax issues and excessive stock levels.

The NZX-listed company's profit before tax for the six months of A$28.5m was up 5.1 per cent compared to a year earlier.

Total operating revenue grew 9.8 per cent to A$271m against total costs of A$242.6m, an increase of 10.4 per cent.

Shareholders will receive an interim dividend of 2.5 cents a share, payable on April 1.

However, New Zealand shareholders' dividends would not be imputed due to the internal restructuring of the group in 2008.

Michael Hill said it was unlikely to be in a position to impute dividends for "some years".

Chairman Michael Hill said the board was "satisfied with the overall performance" and remained "confident in the continued growth and profitability of the group".

Revenue for the New Zealand business 'fell 3.5 per cent to NZ$60.9m during the half year.

New Zealand same-store sales in local currency decreased 4.1 per cent.

One store opened in Ashburton during the period, taking the chain to a total of 53 New Zealand stores at the end of last year.

Revenue' at the United States operation was 8.4 per cent down on a year earlier to US$5m (NZ$6m), but

same-store sales in local currency increased 2 per cent.

Hill said a reduction in operating cashflow was due to the costs associated with the trial of a new bridal range in its US and Canadian stores in December.

The new range was part of its North American expansion and had resulted in "significant" additional inventory being deployed during the first half.

"It is too early to comment on the results from this strategy but the directors are confident it will produce returns for the group in the years to come."

The excess inventory would be used across the group to replenish stock levels at stores not involved in the trial during the second half of the financial year, he said.

'The Canadian business increased its revenue by 28.5 per cent for the six months to C$37.9m (NZ$41.4m).

Same-stores sales in local currency increased 7.9 per cent.

"The directors were particularly pleased with the progress of our Canadian business as it demonstrates the benefit of time in the market and a critical mass of stores being reached," Hill said.

In Australia revenue was up 5.5 per cent to A$171.7m for the six months. Same-store sales were up 1.4 per cent.

The company's total store count at December 31 was 279, with 13 stores opening and one closing during the six months.

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Hill said the company's two tax disputes relating to the sale and financing of its intellectual property between New Zealand and Australian in 2008 was still unresolved.

"Discussions continue with the Inland Revenue Department within their dispute process framework, but it remains unclear when final resolution will be achieved in respect of this matter."

"Significant progress" had been made with the Australian Taxation Office but no binding settlement agreement had been concluded, Hill said.

A further announcement would be made when the agreement was concluded.

Michael Hill's shares were unchanged at $1.40 in early trading.

- Fairfax Media

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