Unresolved tax still affecting jeweller

Tax issues continue to haunt the balance sheet of listed jeweller Michael Hill International and the group has paid substantially more tax in the six months ended December than it did in the previous corresponding period (pcp).

In a report to the NZX, the group reported an operating profit for the period of $28.5 million for the period, up 5.13% on the $27.1 reported in the pcp. Revenue was up nearly 10% in the period to $270.7 million.

Michael Hill paid $12.24 million of tax in the current period, up from $5.1 million in the previous year. This year, the tax paid was 43% of the operating profit compared to 19% in 2012, dragging down the after-tax profit 26% on the pcp to $16.2 million.

However, after more than $7 million of other income was added in ($551,000 in the pcp) the reported profit was up 4.3% to $23.6 million.

New Zealand shareholders will receive an unimputed dividend of 2.5c per share (cps) and Australian shareholders will receive a tax-paid dividend of 2.5 cps.

Chairman Sir Michael Hill said due to the internal restructuring of the group in December 2008, the group was unlikely to be in a position to impute dividends for some years. That would depend on the performance of the segment in coming years and on the level of future dividends.

The group had two unresolved tax matters relating to the sale and financing of the intellectual property between New Zealand and Australian group members.

Discussions continued with the Inland Revenue Department but it remained unclear when final resolution would be achieved, he said.

''The board does not consider this tax matter requires a provision in the group's financial statements.''

Significant progress had been made with the Australian Taxation Office but a binding settlement agreement has yet to be concluded.

The group reported a net operating cash outflow of $2.6 million for the six months, compared to a net operating cash flow of $22.2 million for the pcp.

Sir Michael said the drop in operating cash flow resulted primarily from a decision to trial a new bridal range of product in its US stores and in selected Canadian stores in early December.

''The new range is a key strategy in our North American expansion and has resulted in significant additional inventory being deployed during the first half.''

Directors were confident the strategy would produce returns.

''The directors are satisfied with the overall performance and they remain confident in the continued growth and profitability of the group,'' Sir Michael said.

Forsyth Barr broker Suzanne Kinnaird said progress on tax was positive: ''The group's tax issues have been a key concern for investors for quite some time and also, I expect, taken up a considerable amount of management time and resources.''


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