HALFYR: MHI: 6 months results to 31 December 2009

18 Feb 2010 8:30 am

MHI 18/02/2010 HALFYR

REL: 0830 HRS Michael Hill International Limited

HALFYR: MHI: 6 months results to 31 December 2009

Michael Hill International Limited

Results for announcement to the market

Reporting Period 6 months to 31 December 2009 Previous Reporting Period 6 months to 31 December 2008

Percentage Amount Change $NZ'000 % Revenue from ordinary activities 244,864 7.9% Profit from ordinary activities after tax attributable to members 22,299 -66.0% Net profit for the period attributable to members 22,299 -66.0%

Imputed Amount amount per security per security Interim dividend for half-year ended 31 December 2009 1.5c nil Record date 25 March 2010 Dividend payment date 1 April 2010

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 (All values stated in NZD unless stated otherwise. Reference to "last year" refers to the same previous corresponding period from last year).

Michael Hill International today announced an after tax profit of $22.299m for the six months ended 31 December 2009 compared to $65.614m for the previous corresponding period. (The previous period included a deferred tax credit of $52.942m).

Summary of Key Points

- Operating revenue of $244.864m up 7.9% on last year

- Same store sales up 4.5% on last year

- Earnings before interest and tax (EBIT) of $30.329m up 42.3% on last year

- Net profit before tax of $27.542m up 53.9% on last year

- Net profit after tax of $22.299m

- 5 new stores opened during the six months and 2 closed

- Total of 242 stores open at 31 December 2009

- Interim dividend of 1.5 cents per share up from 1.0 cent last year

Australian Retail Operations

The Australian retail segment increased its revenue by 6.2% to A$132.818m for the six months with EBIT of A$24.414m, an increase of 5.6% on last year. Same store sales in local currency increased 3.6% for the six months (last year 1.0% increase).

The operating surplus as a percentage of revenue was 18.4% compared to 18.5% last year.

The company is pleased with the Australian retail result in such challenging times.

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

- Top Ryde, NSW

- Northland, Victoria

2 under performing stores were closed during the period giving a total of 143 stores operating in Australia at 31 December 2009.

New Zealand Retail Operations

The New Zealand retail segment increased revenue by 5.7% to $52.408m for the six months with (EBIT) of $9.403m, a decrease of 4.9% on last year.

Same store sales increased by 5.5% for the six months (last year 9.3% decrease).

The operating surplus as a percentage of revenue was 17.9% compared to 19.9% last year.

Trading conditions improved slightly for the six months compared to last year, however retail sales are still difficult to make and margin continues to be under pressure. Additional expense was also incurred due to an increase in the use of finance plans to help generate additional sales revenue.

There were 53 stores operating in New Zealand as at 31 December 2009.

Canadian Retail Operations

The Canadian retail segment increased its revenue 16.3% for the six months to C$16.248m.

Same stores sales in local currency decreased 5.1% for the six months (last year 10.7% decrease).

There was an operating surplus of C$0.150m compared to a surplus of C$0.316m last year.

Trading conditions continued to be difficult for the Canadian company throughout the six months.

3 new stores were opened during the period:

- Crossirons Mill, Alberta

- Bower Place, Alberta

- Park Royal, British Colombia

There were 29 stores open as at 31 December 2009.

U.S. Retail Operations

The US retail segment achieved revenue of US$5.332m for the six months.

There was an operating loss of US$2.885m compared to a loss of US$1.035m for the previous corresponding period.

Note that this business was acquired on 3rd September 2008 so only had four months of trade last year. This business is still in its infancy and the management team will continue to focus on adapting our proven retail formula to the US market.

There were 17 stores open as at 31 December 2009.

Non-Retail Segment Unallocated Expenses

Last year a number of "abnormal" and "one off" transactions occurred that adversely affected the group's half year result, were detailed in last years half year Chairman's Report and included US acquisition costs and restructure costs.

As a result of these "abnormal" and "one off" costs the unallocated expenses are significantly down on last year and this has lifted the half year result from the corresponding period last year.

Interim Dividend

The Directors are pleased to announce an interim dividend of 1.5 cents per share (2009 - 1.0 cents), with no imputation credits attached for New Zealand shareholders and full franking credits for Australian shareholders. The dividend will be paid on Thursday, 1st April 2010 with the record date being Thursday, 25th March 2010.

Cash Flows / Balance Sheets

The Group has reported net operating cash flows of $14.090m for the six months, compared to $14.984m for the previous year.

The Group's balance sheet continues to be sound with an equity ratio of 57.7% as at 31 December 2009 (55.0% in 2008) and a working capital ratio of 3.3:1 (2.6:1 in 2008).

Summary

The directors are satisfied at the improved operating result especially in such difficult trading conditions. With the global economic outlook still uncertain a strong focus will remain on improving existing store performance and controlling costs.

The Group's philosophy of controlled profitable growth will continue and further new stores are being evaluated in all markets. However in the current economic climate only the very best opportunities will be considered.

R.M. Hill 17/02/2010 Chairman Internet Home Page - www.michaelhill.com

All inquiries should be made to Mike Parsell CEO phone +61 403 246655

Consolidated Statement of Financial Performance

Previous STATEMENT OF FINANCIAL PERFORMANCE Current corresponding half year % Change half year

$NZ'000 $NZ'000 Revenue Trading revenue 244,864 7.9% 226,976

Other revenue 597 (22.4%) 769 Total operating revenue 245,461 7.8% 227,745

Expenses Cost of goods sold ( 91,966) 2.4% ( 89,820) Employee benefits expense ( 57,535) 5.2% ( 54,691) Occupancy costs ( 20,702) 9.6% ( 18,896)

Depreciation and amortisation expense ( 4,944) 2.3% ( 4,835) Loss on disposal of property, plant & equipment ( 39) (46.6%) ( 73) Other expenses ( 39,826) 4.8% ( 38,012)

Finance costs ( 2,907) (17.6%) ( 3,526)

Profit before income tax 27,542 53.9% 17,892 Income tax expense ( 5,243) (111.0%) 47,722 Profit attributable to members of Michael Hill

International Limited 22,299 (66.0%) 65,614

INCLUDED IN STATEMENT OF FINANCIAL PERFORMANCE ABOVE

Interest income 120 18.8% 101 Net foreign exchange gain (loss) 446 (29.1%) 629 Depreciation ( 4,835) 4.9% ( 4,608)

Amortisation ( 109) (52.0%) ( 227)

Net loss on disposal of property, plant & equipment ( 39) (46.6%) ( 73) Rental expense relating to operating leases ( 20,702) 9.6% ( 18,896)

Earnings Per Security Previous EARNINGS PER SECURITY Current corresponding

half year half year Cents Cents Basic EPS 5.83 17.16 Diluted EPS 5.82 17.13

Dividends Previous DIVIDENDS Current corresponding half year half year $NZ'000 $NZ'000

Final dividend for the year ended 30 June 2009 of 1.5 cents (2008 - 2.0 cents) 5,737 7,661 per fully paid share paid on 12 October 2009 (2008 - 13 October 2008).

Total dividends provided for or paid 5,737 7,661

Consolidated Statement of Financial Position At end of At end of STATEMENT OF FINANCIAL POSITION current previous half year % Change half year

$NZ'000 $NZ'000 ASSETS Current Assets Cash and cash equivalents 25,194 26.4% 19,935 Trade and other receivables 9,869 (9.6%) 10,921 Inventories 150,485 5.0% 143,290

Total current assets 185,548 6.5% 174,146 Non-current assets Property, plant and equipment 36,656 2.0% 35,950 Deferred tax assets 60,973 (1.3%) 61,801 Intangible assets 375 (43.2%) 660 Total non-current assets 98,004 (0.4%) 98,411 Total assets 283,552 4.0% 272,557

LIABILITIES Current liabilities Trade and other payables 54,187 36.2% 39,790 Current interest bearing debt - (100.0%) 24,583 Current tax liabilities 499 (75.0%) 1,995

Provisions 2,403 25.0% 1,922

Total current liabilities 57,089 (16.4%) 68,290 Non-current liabilities Borrowings 61,659 15.8% 53,244

Provisions 1,172 8.5% 1,080

Total non-current liabilities 62,831 15.7% 54,324 Total liabilities 119,920 (2.2%) 122,614 Net assets 163,632 9.1% 149,943

EQUITY Contributed equity 3,850 - 3,850

Reserves 2,212 (57.3%) 5,175

Retained profits 157,570 11.8% 140,918 Total equity 163,632 9.1% 149,943

Net Tangible Assets Previous NET TANGIBLE ASSETS Current corresponding

half year half year $ / Share $ / Share Net tangible assets $0.43 $0.39

Consolidated Statement of Cash flows Previous STATEMENT OF CASH FLOWS Current corresponding

half year half year $NZ'000 $NZ'000

Cash flows from operating activities

Receipts from customers (incl. GST) 282,026 245,010 Payments to suppliers and employees (incl. GST) (256,385) (215,679) Interest received 120 101 Other revenue 185 556 Interest paid (2,906) (3,710)

Income tax paid (294) (4,365)

Net goods and services tax paid (8,656) (6,929) Net cash inflow from operating activities 14,090 14,984

Cash flows from investing activities

Proceeds from sale of property, plant and equipment 209 88 Payments for property, plant and equipment (6,597) (6,034) Net cash (outflow) from investing activities (6,388) (5,946)

Cash flows from financing activities

Proceeds from borrowings 31,910 48,152 Repayment of borrowings (30,682) (40,929) Dividends paid to company's shareholders (5,737) (7,661) Net cash (outflow) from financing activities (4,509) (438)

Net increase in cash and cash equivalents 3,193 8,600 Cash and cash equivalents at the beginning of the financial year 23,529 10,013 Effects of exchange rate changes on cash and cash equivalents (1,528) 1,322 Cash and cash equivalents at the end of half year 25,194 19,935

Statement of Changes In Equity Previous STATEMENT OF CHANGES IN EQUITY Current corresponding half year half year $NZ'000 $NZ'000

Total equity at the beginning of the half year 149,484 91,001

Profit for the half year 22,299 65,614 Exchange differences on translation of foreign operations ( 2,519) 875 Total recognised income and expense for the half year 19,780 66,489

Transactions with equity holders in their capacity as equity holders

Option reserve movement 105 114

Dividends provided for or paid ( 5,737) ( 7,661)

Total equity at the end of the half year 163,632 149,943

Issued Securities At end of At end of ISSUED AND QUOTED SECURITIES current previous half year half year No. of Shares No. of Shares Ordinary Shares: Fully Paid 383,053,190 383,053,190

Treasury stock held for employee share scheme ( 584,290) ( 584,290) 382,468,900 382,468,900

Options issued during the half year 350,000 -

Issued Options: Issued Exercise Price Expiry Date

Options issued 7 November 2007 4,250,000 $1.253 30/09/2017 Options issued 24 August 2009 200,000 $0.940 30/09/2019 Options issued 5 November 2009 150,000 $0.940 30/09/2019

Subsidiaries Previous SUBSIDIARIES Current corresponding half year half year % Ownership % Ownership

Name of Entity Country of Incorporation

Michael Hill Jeweller Limited New Zealand 100% 100% Michael & Company Limited (in liquidation) New Zealand - 100% Michael Hill Trustee Company Limited New Zealand 100% 100% MHJ (US) Limited New Zealand 100% 100%

Michael Hill Finance (NZ) Limited New Zealand 100% 100% Michael Hill Franchise Holdings Limited New Zealand 100% 100% Michael Hill Jeweller (Australia) Pty Limited Australia 100% 100% Michael Hill (Wholesale) Pty Limited Australia 100% 100% Michael Hill Manufacturing Pty Limited Australia 100% 100% Michael Hill Finance (Limited Partnership) Australia 100% 100% Michael Hill Finance Australia Pty Ltd Australia 100% 100% Michael Hill Franchise Pty Ltd Australia 100% 100% Michael Hill Franchise Services Pty Ltd Australia 100% 100% Michael Hill Jeweller (Canada) Limited Canada 100% 100% Michael Hill LLC United States 100% 100%

Statement of Segmented Results

for the half year ended 31 December 2009

MHJ NEW ZEALAND MHJ AUSTRALIA MHJ CANADA MHJ USA GROUP 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 $'000 $'000 +/-% $'000 $'000 +/-% $'000 $'000 +/-% $'000 $'000 +/-% $'000 $'000 +/-% Operating revenue

Sales to customers 52,408 49,585 5.7% 163,650 150,199 9.0% 21,010 19,667 6.8% 7,453 6,999 6.5% 244,521 226,450 8.0% Unallocated revenue 343 526 (34.8%) Total operating revenue $244,864 $226,976 7.9%

Segment results

Operating surplus 9,403 9,890 (4.9%) 30,166 27,670 9.0% 196 514 (61.9%) (4,017) (1,749) (129.7%) 35,748 36,325 (1.6%) Unallocated revenue less unallocated expenses

(8,206) (18,433) (55.5%) Profit before income tax 27,542 17,892 53.9% Income tax (expense)/credit (5,243) 47,722 (111.0%) Profit for the half year $22,299 $65,614 (66.0%)

Segment assets 41,864 37,587 11.4% 100,639 97,685 3.0% 28,010 24,730 13.3% 14,011 15,991 (12.4%) 184,524 175,993 4.8% Unallocated 99,028 96,564 2.6% Total $283,552 $272,557 4.0%

Segment Liabilities 8,752 7,899 10.8% 27,200 22,859 19.0% 3,680 2,850 29.1% 1,086 274 296.4% 40,718 33,882 20.2% Unallocated 79,202 88,732 (10.7%) Total $119,920 $122,614 (2.2%)

Segment acquisitions of property, plant & equipment and intangibles

1,380 1,663 (17.0%) 1,970 3,354 (41.3%) 1,605 415 286.7% 692 - - 5,647 5,432 4.0% Unallocated 950 602 57.9% Total $6,597 $6,034 9.3%

Segment depreciation and amortisation expense

793 827 (4.1%) 2,579 2,496 3.3% 584 497 17.5% 32 - - 3,988 3,820 4.4% Unallocated 956 1,015 (5.8%) Total $4,944 $4,835 2.3%

Notes:

1 Michael Hill International Limited and its controlled entities operate predominantly in one business segment being the sale of jewellery and related services.

2 The company operates in 4 geographical segments; New Zealand, Australia, Canada and the United States of America and is managed on a global basis.

In adopting NZIFRS 8 the allocation of profits to each geographical segment has changed from prior years.

An additional wholesale margin is earned in each geographical segment which is now quantifiable and has been included in the segment results. The 2008 comparative has been restated.

3 Inter segment pricing is at arm's length or market value.

4 Unallocated expenses include all expenses that do not relate directly to the relevant segment and include: manufacturing activities, warehouse and distribution, general corporate expenses, interest and company tax. End CA:00191300 For:MHI Type:HALFYR Time:2010-02-18:08:30:35

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