Michael Hill Jeweller interim profit loses lustre

By NZPA

Wednesday 26th February 2003

Jeweller Michael Hill International's interim profit fell 1 percent to $8.63 million because of a stronger New Zealand dollar and the costs of starting up in Canada.

Operating profit of $7.53 million was down 10 percent on the same period a year ago ($8.30 million), while turnover rose to $121.75 million from $115.68 million.

Michael Hill will pay a 7c per share dividend on March 31, the same as the previous year's interim dividend.

The company said today the main factors in the fall of operating profit were:

* the stronger New Zealand dollar, which accounted for $494,000 of the fall when translating the Australian Company results into New Zealand dollars;

* lower than expected sales revenue in New Zealand in November amounting to around $1 million;

* higher infrastructure costs as the group expands internationally;

* higher operating costs in Australia; and

* start-up costs for the Canadian operation, including the delay in opening a third store, which contributed an after-tax loss of $NZ496,000.

The tax-paid profit for the six months ended December included an after-tax profit of $1.10 million on the sale of the Australian head office building.

In New Zealand revenue rose by 6.6 percent, but earnings before interest and tax (ebit) fell 0.5 percent at $6.51 million following a 22.5 percent increase the previous year.

Same store sales for the six months increased by 4.3 percent.

The Australian business improved revenue by 3.5 percent in New Zealand dollar terms, with ebit up 2.8 percent at $NZ7.88 million.

In Australian dollars revenue rose 11 percent, with same store sales up 5.7 percent, and ebit up 10.3 percent at $A6.85 million ($NZ7.4 million).

Michael Hill opened two stores in Canada at the beginning of November, and will open another in April.

Start-up costs and only five months of trading led to a pre-tax loss from the Canadian operation of $NZ808,000.

"It is still very much early days in the life of the Canadian operation, and it is expected that it will be a full 12 months before we get a complete understanding of the Canadian jewellery scene," the company said.

"The initial results look encouraging and sales should grow as recognition of the Michael Hill brand continues to build over the next 12 months."

Directors said they were confident of the group's continued growth and profitability.

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