Positive outlook on Michael Hill remains unchanged

Haley Van Leeuwen.
Haley Van Leeuwen.
There was nothing in the Michael Hill International profit report for the year ended June to change a positive view on the company, Forsyth Barr broker Haley Van Leeuwen said yesterday.

The listed jeweller reported operating earnings of $55.2 million for the period, up nearly 9% on the $50.7 million reported in the previous corresponding period.

Increased depreciation of $13.1 million, up 25%, lowered the earnings before interest and tax to $42.1 million but it was still up 4.7% on the previous period.

The profit before tax was $36.8 million, down 2.5%, and the profit after tax was down 22% to $25 million.

Margins were reduced to 8.7% from 9.1% and a final dividend of 4c per share was declared.

Mrs Van Leeuwen said the reported profit after tax was in line with expectations, after adjusting for one-offs.

''The key standout from the result was its Canadian division with strong same-store sales growth and margin expansions.

''This division appears to have reached the tipping point with critical store mass to see positive earnings momentum and strong growth.''

Michael Hill's professional care plans continued to impress and divisional margins in Australia and New Zealand were ahead of expectations, she said.

''This is encouraging, given weak same-store growth over the period.''

Net debt was significantly ahead of the previous period, driven by higher inventory, high levels of capital expenditure and one-offs relating to tax disputes.

The company had resolved its dispute with the Australian Tax Office and, as previously flagged, had paid $A6 million ($NZ6.6 million) to the tax office.

That was regarded by Forsyth Barr as a successful outcome, given Michael Hill was able to continue to report about $2 million in cash tax savings to about 2033.

The agreement left in place the original deferred tax asset of $50.2 million, Mrs Van Leeuwen said.

Michael Hill remained in discussion with the New Zealand Inland Revenue Department over the tax issue.

The aggregate amount of the dispute was now $31 million. The company would also have to pay use of money interest.

Further developments would be followed closely, she said.

No specific guidance or outlook commentary had been given for the 2015 financial year.

However, store expansion appeared in line with previous guidance at its annual meeting.

''There is nothing to change our positive view on the company.

"We have a positive view on outlook, with accelerating growth driven by footprint expansion and increased traction in Canada and its professional care plans,'' Mrs Van Leeuwen said.

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