KEY POINTS:
The shine has gone off jewellery retailer Michael Hill International as profit margins face pressure from a falling currency, and second quarter sales take a hit.
But it also expected to gain around $57 million in immediate tax benefits by selling intellectual property to its Australian subsidiary.
Shareholders were, however, likely to forego dividend imputation credits. The company yesterday took the unusual step of providing a five-month sales update.
Chairman Michael Hill, in a statement to the NZX, said retail conditions had been "very challenging" in the second quarter, with declining same store sales in New Zealand and Canada, and flat sales in its key Australian market.
"The next few weeks' trade has a material impact on the company's result for the year so we are not able to indicate at this point in time a likely half-year or full-year result. A further update on trade will be provided after the important Xmas trading period."
Compounding sluggish sales was the strong US dollar, which has placed pressure on margins. This will adversely affect the half year bottomline, said Hill.
"A drop of nearly 25 per cent in the [Australian dollar] against the USD rate came at a time when the majority of our Xmas orders were being received into stock, resulting in significant additional local cost being incurred on these orders."
Hill also announced an internal restructuring yesterday which sees the group's intellectual property in its jewellery retailing system change hands from New Zealand subsidiary Michael & Co to Australian subsidiary Michael Hill Franchise for $293 million.
The move will result in a $57 million boost to group after tax profit for the 2008-09 year, due primarily to the recognition of future Australian taxation deductions for the acquisition of intellectual property rights.
The company expects after-tax profits in each subsequent year to also increase by around $7.4 million per annum due to the impact of inter-company funding arrangements. This was expected to continue until at least 2012-13.Cash-flow benefits for the group should also increase as a result by approximately $4.9 million for the 2008-09 year andaround $9.5 million per annum for the four years from 2009 to 2013.
Assuming the past pattern of dividends continued, the company said the
last dividend to be paid with full imputation credits in New Zealand, and full franking credits in Australia, would be the April 2009 payout. Shares in Michael Hill International closed yesterday at 61c, up 1c.
Sluggish:
Same store sales for the five months ending Nov 30
NZ:
2008 - $31.5m
2007 - $34.6m
Australia:
2008 - $90.4m
2007 - $86.5m
Canada:
2008 - $8.8m
2007 - $9.3m
Total:
2008 - $130.7m
2007 - $130.4m
