Michael Hill lifts 1H profit despite disappointing Christmas

A boost in Australian sales has lifted listed jeweller Michael Hill International's profit 5.9% for the financial first half year.

Net profit rose to $27.8 million, or 7.23 cents per share, in the six months ended December 31, from $26.3 million, or 6.85 cents, a year earlier, the Brisbane-based company said in a statement

The company has declared an interim dividend of 2.5c a share.

It is still battling tax departments on both sides of the Tasman over its 2008 restructuring.

Announcing its preliminary results, the company said this morning its revenue was $312.9 million, up 8.3% on the previous comparable period.

That was on earnings before interest and tax of $35.97 million, up from $34.8 million a year earlier.

MHI announced last month it missed Christmas forecasts.

Chairman Sir Michael Hill, a NBR Rich Lister, announced in August it would focus greater resources in Australia, which appears to have paid off.

Consumers 'upbeat'

Same store sales for the six months to December 31 were up 2.3% on the same period in 2011, with Australian revenue up 8.9% to $206.4 million, New Zealand revenue up 3.6% to $63.1 million, Canadian revenue up 19.2% to $36.2 million and US revenue up 1% to $6.7 million.

Retailers have been trying to revive consumer appetite since the global financial crisis, and a consumer confidence survey yesterday showed people were the most upbeat they've been in almost three years. 

Sir Michael says in his chairman's update trading for the six months started strongly but slowed in the second quarter.

"All countries struggled to make gains on the previous years sales numbers during the key December quarter however same store growth was achieved in all markets during the six months which is pleasing."

MHI's statements show several large increases in expenses, including employee benefits up 13.9% to $76.4 million, occupancy costs up 11% to $25.8 million and "other" expenses up 43% to $19.3 million.

The US operations made an operating loss of $US1.4 million and the company admits it has a long way to go before its business is "proven up" in the US market.

MHI has 263 stores in four countries.

The company notes it has outstanding tax disputes in New Zealand and Australia and the board has not made provision in its financial statements for either.

The retailer said it is still at odds with New Zealand's Inland Revenue Department and the Australian Taxation Office over the way it financed a 2008 restructure where the group sold intellectual property from a New Zealand unit to an Australian subsidiary.

The IRD is disputed $24.6 million in deductions claimed by the New Zealand group, while the ATO is at odds with the $41.6 million deferred tax asset resulting from the depreciation of the intellectual property. 

Shares (NZX: MHI) will open at $1.23 this morning, up 38% from a year ago.

- with BusinessDesk

dwilliams@nbr.co.nz

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