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Michael Hill lifts operating earnings, despite bottom line falling

Friday 20th August 2010

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Jeweller Michael Hill International's annual net profit plunged 60%, reflecting a one-off tax credit in the year-earlier result, but operating earnings were up 38%.

The latter reflected both sales and profit growth in its New Zealand and Australian operations which more than offset losses in Canada and the US.

Net profit for the year ended June 30 fell to $26.5 million from $66.8 million, which included the $50.1 million tax credit in the previous year, while earnings before interest and tax (EBIT) rose to $36.2 million from $26.2 million.

"The New Zealand and Australian segments performed admirably this year," said chairman Michael Hill in a statement.

"Both businesses grew revenues, margins and their bottom lines, even though the retail environment in both countries has remained patchy."

The company was able to increase sales and margins "through improved buying and sourcing of our products and by continued improvement in our overall supply chain," Hill says.

Australian EBIT rose 16.4% to $47.7 million while New Zealand EBIT was up 8.4% to $16.2 million. By contrast, Canada's EBIT loss widened to $1.5 million from the $245,000 loss the previous year while the company lost $8.7 million in the US, up from last year's $5.3 million loss.

In June, Michael Hill decided to close eight of its 17 US stores to reduce the risk and ongoing operating losses there.

"Canada continued to be difficult and earnings slipped further in the wake of a depressed retail sector. However, in the last quarter we noticed a strong improvement in sales and these have continued in July," Hill says.

During the year, Michael Hill began to roll out its fifth generation store design and nearly 40 stores have been converted to the new design.

"We have seen strong sales improvements from existing stores which have been refitted into the new look," Hill says.

His only comment about the outlook is: "The directors remain confident in the continued growth and profitability of the group."

The company plans to open six new stores in the current year in Australia, where it had 141 stores at June 30, and 12 more in each of the following two years. In New Zealand, it plans one new store in each of the next three years.

In Canada, where it currently has 29 stores, six more are planned this year and 12 more in each of the following two years.

Michael Hill will pay an unfranked 2.5 cents a share final dividend (franking credits are available to Australian investors), up from 1.5 cents last year, taking the annual payout to four cents from 2.5 cents last year.

Michael Hill shares fell 2 cents to 67 cents in morning trading. They have traded between 60 cents and 77 cents over the last 12 months.

Businesswire.co.nz

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