A NNUA L R E P OR T 2016
The Directors are pleased to present the
annual report of Michael Hill International
Limited for the year ended 30 June 2016
b
WHAT’S INSIDE
3 Company profile &
corporate goals
An introduction to the Company, our
goals and our mission statement
5 Performance summary for
the year
A snapshot of all the key results
and data for the year
7 Chair review
Emma Hill reviews the Group’s overall
performance for the year
9 Key facts
Key results and data for the year
12 Trend statement
A table of our historical performance
over the past six years
14 Our community spirit
The Group’s involvement in the
communities we do business in
16 Celebrating our success
84 Corporate governance
A look at how we pay tribute to our
managers and high achievers
18 Key management
Our key people across Australia,
The policies and procedures applied
by the Directors and management
to provide for ethical and prudent
management of the Group
New Zealand, Canada and the USA
94 Analysis of shareholding
18 Our values and principles
96 Index and corporate directory
21 Directors report
A review of the year’s operations and
the plans and priorities for the future
28 Director profiles
35 Remuneration report
Remuneration of Directors and
key executives
42 Auditor’s declaration
43 Financial statements
83 Auditor’s report
1
Our mission is to be
the most people focused
Jeweller in the world
2
COMPANY PROFILE
Michael Hill International Limited owns the brands ‘Michael Hill’ and ‘Emma & Roe’ and operates a retail
jewellery chain of 297 Michael Hill stores and 16 Emma & Roe stores in Australia, New Zealand, Canada
and the United States as at 30 June 2016.
The Company story began in 1979 when Michael and his wife Christine opened their first store in
the New Zealand town of Whangarei, some 160 kilometres north of Auckland. Since then, our growth
has been guided by our unique retail jewellery formula. Through dramatically different store designs, a
product range devoted exclusively to jewellery and development of high impact advertising, the Company
rose to national prominence. In 1987 the Company was listed on the New Zealand Stock Exchange, the
same year the Group expanded into Australia.
In 2002, the Group expanded into North America, opening its first stores in Vancouver, Canada. The
Canadian presence now includes stores in British Columbia, Alberta, Manitoba, Saskatchewan and Ontario.
In September 2008, the Group entered the United States market and now has 10 stores in Illinois,
Ohio, Minnesota and New York.
2014 witnessed the opening of the first Emma & Roe boutique, following a successful trial during the
preceding 18 months in five South East Queensland outlets under the trading name ‘Captured Moments’.
Emma & Roe carries unique jewellery collections catering to the way women like to customise and
accessorise their look. The two brands are viewed as being complementary within the jewellery sector
with the Michael Hill brand continuing to focus on diamonds, bridal and fine jewellery. The name Emma
& Roe takes its inspiration from the Hill family; ‘Emma’, our Chair and
Sir Michael's daughter, and ‘Roe’, Christine Lady Hill’s maiden name.
In June 2016, Shareholders voted overwhelmingly in favour of
moving the primary stock exchange listing of the Company from
the New Zealand Stock Exchange to the Australian Securities
Exchange. On 7 July 2016 the Company was admitted to
the official list of the Australian Securities Exchange as
its primary listing with a secondary listing on the New
Zealand Stock Exchange (ASX/NZX: MHJ).
As at 30 June 2016, the Group had 168 Michael
Hill stores in Australia, 52 in New Zealand, 67 in
Canada, and 10 stores in the USA. In addition there
were 15 Emma & Roe stores in Australia and one in
New Zealand. Around the world, the Group employs
around 2,450 permanent employees across retail
sales, manufacturing and administration roles.
MICHAEL HILL INTERNATIONAL 2016 COMPANY PROFILE 3
Our overall strategic goal is to
grow shareholder wealth over
time through our philosophy of
controlled profitable growth
4
® Revenue increased 9.5% to $551.1m
® Group same store sales up 5.2%
® Branded Collection sales reached 14.4% of sales
® PCP sales up 10.6% to $39.3m with PCP
income up 22.0% to $30.8m
® Earnings before interest and tax of $47.1m, up
11.9% from $42.1m
® Net profit after tax (NPAT) of $19.6m
impacted by the booking of tax entries in
relation to two separate matters being the
settlement of the historical IR tax dispute and
the tax consolidation cost
base adjustments arising as a
consequence of the ASX listing,
down 29.5% from $27.8m
® Final dividend of AU 2.5¢, up from
NZ 2.5¢ (AU 2.25¢). Total dividend
for the year of AU 4.75¢
® Net operating cash inflow
remained strong at $47.8m
® Net debt of $32.0m
down 16.4%
® 19 new stores opened
across the Group giving
a total of 313 stores
® Eight new Emma & Roe stores
opened bringing the total to 16
(all values stated in $AU unless stated otherwise)
MICHAEL HILL INTERNATIONAL 2016 PERFORMANCE HIGHLIGHTS 5
...a symbol of strength and
resilience and a celebration
of the spirit of strong women,
over the coming year we will be
rolling out Spirits Bay collection
to all New Zealand stores and
50 key sites internationally...
6
CHAIR'S REVIEW
Dear Shareholders,
I am pleased to report a record EBIT result
of $47.1m for the Michael Hill Group. All the
details of our results can be found in the
Directors' Report. It was a fabulous year and
the Company is well positioned for the future
with an array of opportunities ahead of us. I
am very excited about what the future holds,
so let me explain how I see things unfolding.
The way in which customers shop has changed more in the last
10 years than it has in the previous 50 and looking forward, that
rate of change will only accelerate. In the next 10 years, the retailers
that will continue to prosper will be those that develop authentic
differentiated brands, offer a customer-centric engaging experience
and are agile and can adapt at speed.
1. Customers increasingly want to engage in a meaningful
relationship with a brand, not just buy products.
We have been working for some time now to differentiate our
ranges with unique jewellery collections designed in-house. We
currently have 13 proprietary collections that all have a meaningful
story behind their creation which builds emotional engagement.
An example of this is our Spirits Bay collection – designed by
Christine Lady Hill and inspired by the Totorere shells, shaped by
the elements and washed up on New Zealand beaches. Spirits Bay
is a symbol of strength and resilience and a celebration of the spirit
of strong women. We will be rolling out the Spirits Bay collection to
all New Zealand stores over the coming year and 50 key sites inter-
nationally. This unique collection, like others, will be supported by a
very distinctive advertisement telling the story. You can view this at
www.michaelhill.co.nz/collections/explore/spirits-bay
Building compelling collections like Spirits Bay is a core focus and
over time we see them becoming the dominant part our business.
In addition to driving customer preference our collections are
delivering incremental margin which we are really enjoying too!
2. Retailers of the future will offer an inspirational,
engaging experience - shopping should be enjoyable
and fun.
Providing a superior customer experience has always been in
our DNA. Since opening our very first store in Whangarei, led
by Sir Michael, to today, we have spent 37 years building a core
competency in exceptional salesmanship and customer service.
We have, I believe, the best sales training and productivity model
in the world. Our managers are trained and developed to be
gifted sales coaches. Their mandate is to seek daily improvement
through coaching and training of their team on the floor so when a
customer visits they have an enjoyable experience that wins their
trust. We don’t get it right 100% of time, but by goodness we
are determined to. We are totally committed to investing in and
building the world’s best sales professionals. Few retailers focus
on this the way we always have, and always will.
3. We don’t care how they reach us, as long as they arrive.
The customer journey has changed enormously over the last
decade. 55% of our customers now visit our online channel before
visiting a store. They are more informed, have less time, and are
more connected than ever before. We are working hard to ensure
we really know our customers – so we can talk to them at the
right time and stage of their journey in ways that are relevant and
meaningful to them. Over time we will become fully ‘omni-channel’
so we are accessible in whichever way our customers choose to
engage with us, providing a totally seamless experience. We are
currently investing in the systems to support this evolution. It’s an
exciting area for us, as it offers so much potential. This year we
will make big strides in our customer relationship management
program, to enable a single customer view and ensure we know
our customers preferences, whichever channel they choose to
engage with us through.
Stepping away from strategy to all important leadership.
As you will be aware we have had some recent changes. Mike
Parsell, our CEO of 15 years, stepped down in August. He
has had a truly remarkable career, rising from the shop floor in
Whangarei to lead the Group into Australia and North America
and most recently, in developing the Emma & Roe brand. On
behalf of the Board and our shareholders, I want to thank Mike for
his contribution to the Group and for making a meaningful impact
on so many people. He can be incredibly proud of what he has
achieved – we certainly are.
Phil Taylor, our long standing CFO, is acting CEO while we
conduct both an internal and external global search for our next
leader, to take us from $500m to $1bn in revenue. Phil has been
with the Company since 1987, when he helped with the original
listing on the NZX, and then joined Mike to establish the Australian
arm of the business later that year. He was appointed the Group’s
Chief Financial Officer in 2003 and his expertise has provided a
strong foundation for our growth. With Phil at the helm we are in
exceptional hands while we go through leadership transition.
When we listed on the ASX, we
formed our new Board consisting
of Sir Michael, myself and
three independent
directors – Rob Fyfe,
Janine Allis and Gary
Smith. I could not be
more satisfied with our
board. They are highly
engaged, passionate
about what they do, and
totally committed to building a
world class company.
Finally, thank you to all our shareholders
for your ongoing support and investment.
I look forward to seeing you at our upcoming
AGM in Brisbane.
Emma Hill
Chair
MICHAEL HILL INTERNATIONAL 2016 CHAIR REVIEW 7
KEY FACTS
8
YEAR ENDED 30 JUNE / AU$000 UNLESS STATED
2016
2015 % CHANGE
N U M B E R OF STOR ES
2016
2015
TRADI NG R ESU LTS
Group revenue
Gross profit
Earnings before interest and tax
Net profit before tax
Net profit after tax*
Net cash inflow from operating activities
551,127
351,276
47,058
41,534
19,577
47,794
503,370
320,326
42,061
37,402
27,754
54,566
9.5%
9.7%
11.9%
11.0%
-29.5%
-12.4%
FI NANCIAL P OSITION AT YEAR E N D
Contributed equity
383,138,513 ordinary shares
Total equity
Total assets
Net debt
Capital expenditure
3,767
186,401
384,197
32,034
24,549
3,760
187,621
351,013
38,319
22,115
0.2%
-0.7%
9.5%
-16.4%
11.0%
Australia
New Zealand
Canada
United States
Michael Hill stores
Australia
New Zealand
Emma & Roe stores
168
52
67
10
297
15
1
16
167
52
60
9
288
7
1
8
Total stores
313
296
* Please note that several key measures have been
materially affected by the separate booking of the
IR tax settlement and the income tax consolidation
cost base adjustments as a consequence of the
ASX listing.
KEY RATIOS
Return on average shareholders’ funds*
Gross profit
Interest expense cover (times)
Equity ratio (total equity/total assets)*
Gearing Ratio (net debt/total equity)*
Current ratio
10.5%
64.0%
7.7
48.5%
17.2%
15.0%
63.9%
8.9
53.5%
20.4%
(current assets/current liabilities)*
2.4:1
3.3:1
EAR N I NGS PE R SHAR E
Basic earnings per share*
Diluted earnings per share*
5.11¢
5.09¢
7.24¢
7.22¢
DISTR I B UTION TO SHAR E HOLDE RS
Dividends - including final dividend
- Per ordinary share
- Times covered by net profit after tax*
au4.75¢
1.08
nz5.0¢
1.52
SHAR E PR ICE
30 June
nz$1.14
nz$1.06
SAME STORE SALES
Michael Hill same store sales movement (in local currency)
- Australia
- New Zealand
- Canada
- United States
3.8%
7.2%
5.3%
3.5%
-2.5%
4.3%
2.5%
3.5%
Emma & Roe same store sales movement (in local currency)
- Australia
34.6%
-
Group same store sales movement
5.2%
0.7%
MICHAEL HILL INTERNATIONAL 2016 KEY FACTS 9
Total Michael Hill and Emma & Roe jewellery stores 313
1987 - 2016, YEAR ENDED 30 JUNE
■ MH STORES ■ E&R STORES
10
.
1
1
5
5
4
.
3
0
5
9
.
3
8
4
2
.
0
4
4
.
6
7
9
3
9
.
5
7
3
8
.
5
6
1
.
2
3
.
8
7
5
2
.
5
5
7
.
0
5
0
.
5
4
6
.
3
4
2
.
8
2
3
.
6
2
.
8
7
2
0
.
5
2
6
.
9
1
11
12
13
14
15
16
11
12
13
14
15
16
11
12
13
14
15
16
Group revenue up 9.5%
AU$ MILLIONS /
YEAR ENDED 30 JUNE
Earnings before interest,
taxation, depreciation and
amortisation (EBITDA) up 13.9%
AU$ MILLIONS /
YEAR ENDED 30 JUNE
Net profit after tax
down 29.5%*
AU$ MILLIONS /
YEAR ENDED 30 JUNE
* Please note that net
profit after tax has been
materially affected by the
separate booking of the
IR tax settlement and the
income tax consolidation
cost base adjustments
as a consequence of the
ASX listing.
MICHAEL HILL INTERNATIONAL 2016 KEY FACTS 11
TREND STATEMENT
FI NANCIAL PE R FOR MANCE
2016
$000
2015
$000
2014
$000
2013
$000
2012
$000
2011
$000
Group revenue
551,127
503,370
483,935
440,225
397,633
375,850
Earnings before interest, tax, depreciation
and amortisation (EBITDA)
Depreciation and amortisation
Earnings before interest and tax (EBIT)
Net interest paid
Net profit before tax (NPBT)
Income tax*
Net profit after tax (NPAT)*
Net operating cash flow
Ordinary dividends paid
FI NANCIAL P OSITION
Cash
Inventories
Other current assets
Total current assets
Other non-current assets
Deferred tax assets
Total tangible assets
Intangible assets
Total assets
Total current liabilities*
Non-current borrowings
Other long term liabilities
Total liabilities*
65,818
18,760
47,058
5,524
41,534
21,957
19,577
47,794
17,490
57,799
15,738
42,061
4,659
37,402
9,648
27,754
54,566
23,176
55,221
13,070
42,151
5,376
36,775
11,734
25,041
14,689
22,336
50,711
10,452
40,259
2,522
37,737
5,638
32,099
41,686
18,482
2016
$000
2015
$000
2014
$000
2013
$000
8,853
6,797
8,109
10,461
45,023
9,611
35,412
3,002
32,410
4,200
28,210
40,662
15,021
2012
$000
9,488
43,640
8,814
34,826
4,359
30,467
4,161
26,306
33,386
11,689
2011
$000
6,580
199,961
182,232
179,280
154,293
147,089
133,374
31,298
39,378
25,204
15,653
9,319
6,590
240,112
74,450
64,074
378,636
5,561
384,197
100,986
40,887
55,923
197,796
228,407
212,593
180,407
165,896
146,544
67,734
48,381
58,488
62,324
52,232
56,064
36,739
50,403
32,532
46,703
344,522
333,405
288,703
253,038
225,779
6,491
6,413
3,632
1,511
117
351,013
339,818
292,335
254,549
225,896
69,879
45,116
48,397
71,005
56,000
31,528
60,977
28,000
29,673
54,101
26,000
21,586
163,392
158,533
118,650
101,687
44,078
35,000
9,347
88,425
Net assets*
186,401
187,621
181,285
173,685
152,862
137,471
Reserves and retained profits*
Paid up capital
Treasury stock
182,634
3,767
-
183,861
177,634
170,261
149,500
134,187
3,767
(7)
3,702
(51)
3,515
(91)
3,482
(120)
3,448
(164)
Total shareholder equity
186,401
187,621
181,285
173,685
152,862
137,471
Per ordinary share
Basic earnings per share*
Diluted earnings per share*
Dividends declared per share - interim
- final
5.11¢
5.09¢
nz2.5¢
au2.5¢
7.24¢
7.22¢
nz2.5¢
nz2.5¢
6.54¢
6.43¢
nz2.5¢
nz4.0¢
8.38¢
8.24¢
nz2.5¢
nz4.0¢
7.37¢
7.34¢
nz2.0¢
nz3.5¢
6.88¢
6.85¢
nz1.5¢
nz3.0¢
Net tangible asset backing*
$0.47
$0.47
$0.46
$0.44
$0.40
$0.36
* Please note that several key measures have been materially affected by the separate booking of the IR tax settlement and the income
tax consolidation cost base adjustments as a consequence of the ASX listing.
12
ANALYTICAL I N FOR MATION
2016
2015
2014
2013
2012
2011
EBITDA to sales
EBIT to sales
Net profit after tax to sales*
EBIT to total assets
Return on average shareholders' funds*
Return on average total assets*
Current ratio*
EBIT interest expense cover
Effective tax rate
Gearing
Net borrowings to equity
Equity ratio
Other
Shares issued at year end excl Treasury
Treasury stock at year end
Exchange rate for translating
New Zealand results
Canadian results
United States results
Number of Michael Hill stores
Australia
New Zealand
Canada
USA
Total Michael Hill stores
Number of Emma & Roe stores
Australia
New Zealand
Total Emma & Roe stores
11.9%
8.5%
3.6%
12.2%
10.5%
5.3%
2.4
7.7
52.9%
11.5%
11.4%
11.5%
11.3%
8.4%
5.5%
12.0%
15.0%
8.0%
3.3
8.9
8.7%
5.2%
12.4%
14.1%
7.9%
3.0
7.8
9.1%
7.3%
13.8%
19.7%
11.7%
3.0
15.6
8.9%
7.1%
13.9%
19.4%
11.7%
3.1
11.2
11.6%
9.3%
7.0%
15.4%
19.6%
12.0%
3.3
7.8
25.8%
31.9%
14.9%
13.0%
13.7%
17.2%
48.5%
20.4%
53.5%
26.4%
53.3%
10.1%
59.4%
10.8%
60.1%
20.7%
60.9%
383,138,513 383,138,513 383,041,606 382,849,544 382,775,586 382,664,473
388,717
203,646
277,604
111,584
14,677
-
1.09
0.97
0.73
168
52
67
10
297
15
1
16
1.07
0.97
0.83
167
52
60
9
288
7
1
8
1.10
0.98
0.92
164
52
54
8
278
6
-
6
1.25
1.03
1.03
162
52
45
8
267
5
-
5
1.28
1.03
1.03
153
53
37
9
252
-
-
-
1.30
0.99
0.99
146
52
33
9
240
-
-
-
Total stores
313
296
284
272
252
240
* Please note that several key measures have been materially affected by the separate booking of the IR tax settlement and the income
tax consolidation cost base adjustments as a consequence of the ASX listing.
13
COMMUNITY SPIRIT
Michael Hill and Emma & Roe take great pride in giving back to
the communities surrounding our 313 stores.
The Michael Hill International Violin
Competition aims to recognise and
celebrate excellence, distinctiveness
and musical artistry. We encourage
talented young violinists from all
over the world who are on the verge
of launching themselves on the
world stage and empower them with
the necessary skills to broaden their
career opportunities.
Suyeon Kang (the first Australian
winner) undertook her 2016 Winner’s
Tour with performances in 14 New
Zealand centres plus Melbourne and
Sydney. She and New Zealand pianist
Stephen De Pledge received ample
praise in the media. “Absolutely
enthralling… I cannot seem to praise
them enough. Michelangelo hinted
that he felt his sculptures were within
the marble waiting to be set free.
I liken this analogy to both players,
as it was as if the music was coming
from themselves instead of through
their instruments; that they were
using their tools to carve out the
music from the air.” (Emily Sharp,
Wellington Regional News).
Across New Zealand, Suyeon
visited with and gave a number of
community outreach concerts, her
natural gift of communication being
warmly received. Her tour culminated
in a recording on the Atoll label for
release the end of 2016.
The careers of the past Michael
Hill winners continue to demonstrate
the calibre of the artists involved – the
latest major appointment was that
Nikki Chooi (2013 winner from Canada)
was recently appointed Concertmaster
of New York’s Metropolitan Opera
Orchestra (The Met).
The next competition will be held
2–10 June 2017 in Queenstown and
Auckland, when 16 of the world’s
finest talents will be flown to New
Zealand to compete for a total prize
package worth $100,000. We invite
you to come and see these spine-
tingling performances for yourself.
violincompetition.co.nz
14 MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT
PI N K HO PE
Emma & Roe continues its
partnership with the Pink Hope
Foundation to help support families
facing hereditary breast and ovarian
cancer. Since 2014, Emma & Roe
has been working with Pink Hope
founder Krystal Barter supporting
awareness for the cause through
an exclusive Pink Hope collection.
The collection includes custom
charms and a selection of bracelets,
as well as limited edition items. A
percentage of the gross profits from
the sale of the Pink Hope Collection
go to Pink Hope. Emma & Roe also
actively supports the promotion
of key Pink Hope initiatives,
including #Bright Pink Lipstick Day.
Customers are engaged in-store
and online and encouraged to get
behind the cause.
BMW ISPS HANDA
NZ OPEN 2016
Michael Hill was once again one of the proud major sponsors of the BMW ISPS
Handa NZ Golf Open 2016 hosted at Sir Michael’s stunning golf course The Hills
in Arrowtown, New Zealand. The NZ Open has been the biggest highlight on the
NZ golf calendar dating back to 1907 and this year was no exception. The event
drew a large crowd of over 15,000 spectators over the four days and was televised
globally to 80 countries, with 145,000 viewers tuning in to watch the Professional
and Amateur players fight it out on
the course. This year it came down
to a nail biting finish on the fourth
day between Matthew Griffin (AUS)
and Hideto Tanihara (JPN). Griffin
came out on top with a clutch birdie
on the final hole to take out the
title. The event always draws in
many sports people and celebrities
to take part, this year saw the likes
of Glenn Robbins, Stephen Ponting
and Ivan Cleary playing in the
Celebrity Challenge.
MICHAEL HILL INTERNATIONAL COMMUNITY SPIRIT 15 15
CELEBRATING OUR SUCCESS
International Managers' Conference 2015, Hawaii: Our Retail and Support
Centre Management Teams come together to celebrate their phenomenal
achievements. We recognise their contributions and share with them the
Group’s strategic direction for the coming year. Our culture, values and
leadership principles are re-energised and focused, to drive our teams to
continue to produce outstanding results and incredible customer experiences.
16
IT’S OUR PEOPLE
WHO MAKE OUR COMPANY
17
Our Senior Executive Team SE PTE M B E R 2016
PH I L TAYLOR
GALI NA H I RTZ E L
AN NA SHAW
MATT KEAYS
STEWART SI LK
Acting CEO and Chief
Financial Officer
Group Merchandising
and Manufacturing
Executive
Chief Marketing Officer
Chief Information
Officer
Group Human
Resources Executive
Our values
PEOPLE-FOCUSE D We delight our customers,
PR ECISION
employees and communities first,
always and often
We lead with quality, attainable
jewellery. We will anguish over detail
in all aspects of our business
I NTEG R ITY
We build credibility with our honesty
and ethics
ADAPTAB I LITY
We embrace practical irreverence
DR IVE N
We take ownership of and are
accountable for our business and
the brand
18 MICHAEL HILL INTERNATIONAL 2016 SENIOR EXECUTIVES
Our leadership principles
CUSTOM E R FOCUS We brighten, impress and delight our
customers
We consider our customers in
everything we do
M I N DSET FOR
G ROWTH
We show perseverance and
determination to grow
We are competitive and take the lead
in the marketplace
We innovate and challenge the status quo
We display a positive attitude and
confidence towards our future
We are visible, accessible and clearly
communicate the vision
B IAS FOR ACTION
We deliberately choose our priorities
to achieve our vision
We engage in thoughtful decision
making and intelligent risk-taking
We act with speed and a sense
of urgency in executing initiatives
and strategy
KEVI N STOCK
B R ETT HALLI DAY
G R EG N E L
Retail General Manager,
Australia
Retail General Manager,
North America
Retail General Manager,
New Zealand
MARY-AN N E
G R EAVES
Company Secretary
B U I LDI NG TALE NT We personally invest in the
AN D TEAMS
development and success of our teams
We identify and develop talent to
achieve the Michael Hill vision
We commit to being part of, and
engendering an aligned and
cohesive team
We believe in having a diverse team
and placing the best people in the
right positions
ACCOU NTAB I LITY
& R ESPONSI B I LITY
We lead by example, hold ourselves to
the highest standards and deliver on
our personal KPIs
We hold our teams accountable
by setting clear expectations and
providing continuous feedback
We personally drive positive change
MICHAEL HILL INTERNATIONAL 2016 SENIOR EXECUTIVES 19
20
DIRECTORS’ REPORT
The Directors have pleasure in submitting their report on
the consolidated entity (referred to hereafter as the ‘Group’)
consisting of Michael Hill International Limited ACN 610
937 598 (‘Michael Hill International’ or the ‘Company’)
and all controlled subsidiaries for the year ended 30 June
2016. As a result of the recent restructure of the Group
which saw a new parent company, Michael Hill International,
being interposed on the previous parent company, Michael
Hill New Zealand Limited Company No. 342863 (‘MHNZ’)
(formerly known as Michael Hill International Limited), certain
sections of this report will reflect the position of Michael Hill
International as well as the position of MHNZ (as the previous
parent company for part of the financial year to which this
report relates).
Principal activities
The Group operates predominately in the retail sale of
jewellery and related services in Australia, New Zealand,
Canada and the United States.
There were no significant changes in the nature of the
Group’s activities during the year.
Significant changes in state of affairs
The Company is a for profit company limited by shares and
incorporated in Australia. The Company was admitted to the
official list of the Australian Securities Exchange (ASX) on 7
July 2016 as its primary listing, and maintains a secondary
listing on the New Zealand Stock Exchange (NZX).
Until 23 June 2016, MHNZ (formerly known as Michael
Hill International Limited) was the parent of the Group.
MHNZ is a public company registered under the Companies
Act 1993 and remains domiciled in New Zealand. MHNZ
had its primary listing on the New Zealand Stock Exchange.
The listing was suspended on 22 June 2016 as part of the
restructure of the Group.
Likely developments and expected
results of operations
Information on likely developments in the Group’s operations
and the expected results of operations have been included in
the Operational Overview and Outlook sections of this report.
Dividends
Dividends paid to ordinary equity holders of MHNZ during
the financial year were as follows:
Final dividend for the year ended 30
June 2015 of NZ 2.5¢ (2014 - NZ 4.0¢)
per fully paid ordinary share paid on
2 October 2015 (2014 - 3 Oct 2014)
Interim dividend for the year ended 30
June 2016 of NZ 2.5¢ (2015 - NZ 2.5¢)
per fully paid ordinary share paid on
1 April 2016 (2015 - 2 April 2015)
2016
$000
2015
$000
8,870 13,765
8,620
9,411
Dividends not recognised at year end relating to
Michael Hill International:
2016
$000
2015
$000
Since year end, the Directors have
declared the payment of a final dividend
of AU 2.5c per fully paid ordinary share
(2015 - NZ 2.5c). The final dividend
will be fully franked and imputed. The
aggregate amount of the proposed
dividend expected to be paid on 6
October 2016 out of retained profits at
30 June 2016, but not recognised as a
liability at year end, is:
9,578
8,574
Result overview
In Australian dollars, the Group has reported operating
revenues of $551.1m, with earnings before interest and tax
of $47.1m, up 11.9% on the prior year. The Group reported a
net profit after tax of $19.6m for the 2015-16 financial year.
CASH, CASH FLOW AN D DIVI DE N DS
The Group has an equity ratio of 48.5% at 30 June 2016
(53.5% in 2015), and a working capital ratio of 2.4:1 (3.3:1
in 2015). Net operating cash flows were $47.8m compared
to $54.6m the previous year. Net debt at 30 June 2016 was
$32.0m compared to $38.3m at 30 June 2015.
The Group remains in a sound financial position to take
advantage of growth opportunities as they arise.
For shareholders, the dividend for the year was AU 4.75
cents (NZ 5.0 cents) per share. There will be a final dividend
of AU 2.5 cents per share being payable on 6 October
2016. The final dividend will be fully franked for Australian
shareholders and fully imputed for New Zealand shareholders.
MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT 21
2015-16 was a significant year for the Group with a
record EBIT result being achieved on the back of solid
performances by our Australian, New Zealand and Canadian
businesses. The Group has several years of new store
growth in the Canadian market which will further lift revenues
and profits. Our US trial continues and while the bottom line
slipped on the previous year some headway was made with
real estate and merchandise refinements. Experimentation in
the lucrative US market will continue in the year ahead with
a view to positioning the brand for growth in future years.
Emma & Roe was moved from trial mode to growth in June
2016 and up to 12 new stores are planned for the 16-17
year. While the Group will continue to be cautious with the
rate of growth for this exciting new brand, this rate can be
accelerated as each new market proves up in the coming
months and years.
Branded collections revenue lifted to 14.4% of total
revenue in 2015-16. This strategy will remain in coming
years as more of our investment in inventory is shifted from
generic product to proprietary branded collections that offer
higher margin and superior return on investment.
The continued growth in Professional Care Plan (PCP)
revenue has again provided strong cash flow for the Group.
The PCP program is designed to provide a comprehensive
suite of product care services to our customers to ensure
their jewellery is cared for by experts to enhance the look
of their jewellery and to ensure it is maintained in top
condition. Total sales from these plans grew by 10.6%
this year to $39.3m and at 30 June 2016 there was $71.6
million of deferred PCP revenue held on the Balance Sheet.
The Group e-commerce platform continues to support
the business well with e-commerce revenues increasing
by 48%, driven by an uplift in online activity in all regions.
We will continue to work on initiatives that better integrate
our online and physical store environments providing a
superior omni-channel experience for our valued customers.
We continued to experience strong levels of customer
engagement across our digital and social channels.
As at 30 June 2016, the Group operated Michael Hill
e-commerce sites in all four countries we operate in, and an
Emma & Roe e-commerce site in the Australian market. As
part of our multichannel strategy, Emma & Roe merchandise
is also sold across all Michael Hill e-commerce sites.
The Group opened 19 new stores for the year and
closed 2 giving a total of 313 stores trading at 30 June
2016. This was comprised of 11 new Michael Hill stores
during the year; 3 in Australia, 7 in Canada and 1 in the
United States. Two stores were closed during the period,
resulting in a total of 297 Michael Hill stores trading as
at 30 June 2016. We also opened 8 Emma & Roe stores
giving a total of 16 stores open as at 30 June 2016.
I N LAN D R EVE N U E DISPUTE SETTLE M E NT
On 17 August 2016, the Company reached a settlement
with the Inland Revenue (‘IR’) on its long running tax
dispute relating to the financing of the Intellectual Property
transferred from its New Zealand subsidiary to its Australian
subsidiary in 2008. As a result, the Company has recognised
a tax liability payable of $28.8m (NZ$30.3m). All amounts
payable under this settlement have been provided for in the
2015-16 year and this settlement resolves all matters in
relation to these proceedings. The settlement does not involve
the payment of any penalties by the Company. Tax pooling
deposits, which the Company has entered into over a number
of years, will fund a portion of the agreed settlement with the
Commissioner, including UOMI (Use of Money Interest) and
NZ $7.7m of core tax. The residual amount due of NZ $22.6m
will be funded from the Group’s existing financing facilities,
without any impact on the Group’s ongoing operations, and
will not impact the planned store roll out program.
Implementation of the settlement will generate
imputation credits enabling dividends to be fully imputed
for the benefit of New Zealand shareholders for some years
to come (assuming current levels of financial performance
and dividend distribution are maintained), including the final
dividend expected to be paid in October 2016.
The Board has been conscious of the increasing
difficulties that this dispute has had for our shareholders in
trying to understand and quantify the potential price impact of
the contingency should an adverse outcome result (reflecting
the uncertainty and risk involved in any formal litigation).
Accordingly, whilst the Board remains comfortable
that the Group’s tax treatment of the transaction, which has
been the subject of the proceedings, fully complied with
all relevant tax laws at that time, the Board is now of the
opinion that removing the continued uncertainty and the
significant cost associated with the dispute, is in the overall
best interests of shareholders and that the settlement
reached is accordingly a sensible commercial outcome.
OPE RATIONAL R EVI EW
During the year, the Group achieved some key outcomes for
the 12 months:
• Revenue increased 9.5% to $551.1m
• Same store sales up 5.2%
• Branded Collection sales reached 14.9% of sales
• PCP sales up 10.6% to $39.3m lifting deferred revenue
from PCP sales to $71.6m
• Gross profit lifted to 64.0%
• Earnings before interest and tax of $47.1m, up from $42.1m
• Net profit after tax (NPAT) of $19.6m impacted by the
booking of tax entries in relation to two separate matters
being the settlement of the historical IR tax dispute and
the tax consolidation cost base adjustments arising as a
consequence of the ASX listing, down 29.5% from $27.8m
• Net operating cash inflow remained strong at $47.8m
• Net debt of $32.0m down 16.4%
• 19 new stores opened across the Group giving a total of
313 stores
• Eight new Emma & Roe stores opened bringing the total
to 16 stores
22 MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT
Review of 2015 -16 Priorities
PR IOR ITI ES
R ESU LTS
To drive same store sales
and EBIT performance
across the Group
Group revenue increased 9.5%, and same
store sales increased 5.2%. Group EBIT
reached a record $47.1m.
To make further progress across
our 4 strategic themes; Delight
the mid-market, Expand our
footprint, Empower our people,
Brighten our bridal experience
Strategies and initiatives were rolled out
across all 4 markets to achieve these
themes and they have proven successful
with solid same store sales growth for the
Group compared to the industry generally.
To improve return on
shareholders’ funds and
return on assets
To open 20 new stores across
the Group
To increase sales from our
e-commerce platforms across
both brands while integrating
the online and in-store
experiences
To continue testing and refining
our Michael Hill retail model in
the US and our new Emma & Roe
brand
To continue to fine tune our
in-house credit model in North
America towards ‘best practice’
within our industry
Improve branded assortments as
a portion of total sales, which will
in turn drive sales and margins
If both the IR tax settlement of $28.8m
(NZ$30.3m) and the income tax
consolidation cost base adjustments of
$19.4m are removed from our results, the
Group would have achieved a return on
shareholder funds of 15.5% compared to
15.0% last year and on total opening assets
of 8.1% compared to 8.0% last year.
19 new stores were opened during the year.
Online sales increased by 48% during the
period. Work continues on the integration of
on-line and off-line channels.
The testing in the US market continues and
progress has been made on topline sales
and refinement of the investment mode.
Emma & Roe was moved to growth mode in
June 2016 with up to 12 new stores planned
for 2016-17.
Improvements have seen our model better
support our two North American businesses
and further adjustments will continue into
2016-17 around the data analysis and
marketing opportunities.
Branded collection sales lifted from 13.2%
the previous year to 14.4% in 15-16. This has
been a successful strategy and will continue
in 2016-17.
MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT 23
23
Segment Results
The segments reported below reflect the performance of the Group’s Michael Hill retail operations in each geographic segment
and also includes the Emma & Roe brand as a separate segment. The segments exclude revenue and expenses that do not relate
directly to the relevant Michael Hill or Emma & Roe retail segments. These predominately relate to corporate costs and Australian
based support costs, but also include the trading activity through our online presence, manufacturing activities, warehouse and
distribution, interest and company tax.
The results below are expressed in local currency.
Australia
OPERATING RESULTS (AU $000)
Revenue
EBIT
As a % of revenue
Number of stores
2016
307,333
50,339
16.4%
168
2015
294,442
45,933
15.6%
167
2014
298,474
47,193
15.8%
164
2013
289,333
42,225
14.6%
162
2012
259,032
36,798
14.2%
153
The Australian retail segment revenue increased by 4.4% to $307.3m and same store sales lifted 3.8% contributing to an
EBIT result of $50.3m, an increase of 9.6%. The EBIT as a percentage of revenue was 16.4% (15.6% last year). This result
is particularly pleasing against a backdrop of a continued challenging retail environment, especially in regions impacted by the
resources sector downturn.
Three new stores were opened in Australia during the period as follows:
• Broadway Mall, New South Wales
• Casey, Victoria
• Halls Head, Western Australia
Two stores closed during the period. There were 168 stores trading at 30 June 2016.
New Zealand
OPERATING RESULTS (NZ $000)
Revenue
EBIT
As a % of revenue
Number of stores
FX rate for profit translation
2016
2015
2014
2013
2012
122,201
113,983
109,693
111,357
109,110
27,296
22.3%
52
1.09
23,545
20.7%
52
1.07
22,062
20.1%
52
1.10
22,128
19.9%
52
1.25
21,550
19.8%
53
1.28
The New Zealand retail segment revenue increased 7.2% to a record NZ$122.2m for the twelve months, with an EBIT result of
NZ$27.3m, up 15.9% on the corresponding period last year. The EBIT as a percentage of revenue was 22.3% (20.7% last year).
The Company is delighted with the continued strong performance of this market and this result is a credit to the leadership team.
No stores opened or closed during the year, with 52 stores trading at 30 June 2016.
Canada
OPERATING RESULTS (CA $000)
Revenue
EBIT
As a % of revenue
Number of stores
FX rate for profit translation
2016
94,073
9,454
10.0%
67
0.97
2015
79,097
6,041
7.6%
60
0.97
2014
69,025
3,794
5.5%
54
0.98
2013
52,950
1,121
2.1%
45
1.03
2012
44,265
518
1.2%
37
1.03
The Canadian retail segment revenue increased by 18.9% for the twelve months to CA$94.1m, with an EBIT of CA$9.5m
compared to CA$6.0m the previous year, a 56.5% increase on the previous corresponding period. Same stores sales increased
5.3% for the twelve months. The operating surplus as a percentage of revenue was 10.0% (7.6% last year). The Canadian
segment continues to show strong growth as we gain traction in the larger provinces such as Ontario. The Company is confident
this trend will continue in coming years as we grow out the brand across Canada towards 110 stores.
24 MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT
Seven new stores were opened in Canada during the period, as follows:
• Cataraqui, Ontario
• Erin Mills, Ontario
• Londonderry, Alberta
• Maple View, Ontario
There were 67 stores trading at 30 June 2016. The Group plans to open up to ten new stores during the 2016-17 year subject
to availability of suitable sites.
• Sherway, Ontario
• Sherwood Park, Alberta
• Yorkdale, Ontario
USA
OPERATING RESULTS (US $000)
Revenue
EBIT
As a % of revenue
Number of stores
FX rate for profit translation
2016
14,041
(2,269)
(16.2%)
10
0.73
2015
11,290
(1,916)
(17.0%)
9
0.83
2014
9,994
(1,679)
(16.8%)
8
0.92
2013
10,265
(2,359)
(23.0%)
8
1.03
2012
9,576
(2,650)
(27.7%)
9
1.03
The US retail segment increased its revenue by 24.4% to US$14.0m for the twelve months, and there was an EBIT loss of
US$2.3m, in line with expectations. Same store sales in local currency increased 3.5% for the twelve months (adjusted for a
temporary store closure at Woodfield Mall during the year for development). The focus in the US continues on the development
of proprietary bridal and fashion collections to differentiate the brand in the market, new marketing initiatives to reach our target
customer catchment, the development of a competitive in-house credit program, and delivering this through positioning the brand
in malls with strong customer traffic flow and impressive retail mix.
A new store was opened at Roosevelt Field in New York during the period giving a total of ten stores operating at 30 June 2016.
Emma & Roe
The Emma & Roe segment revenue increased by 91.6% for the twelve months to $9.3m, with an EBIT loss of $2.4m compared
to $2.9m the previous year, a 15.8% improvement on the previous corresponding period. Same store sales increased 34.6% for
the twelve months.
In June 2016, the Company announced that the Emma & Roe brand was going into expansion. Up to ten new Emma & Roe
stores are planned for 2016-17 in the Australian market and two for New Zealand.
The Emma & Roe concept is positioned towards a new and emerging customer who likes to collect and create new looks,
expressing their own individuality and fashion through the various assortments and collections of complimentary charms,
bracelets, rings, pendants and earrings the brand offers. The frequency of purchase is higher for an Emma & Roe customer
compared to a Michael Hill customer however the average transaction value is lower. We believe these two brands are well
complimented, and will extend our reach further into the fine jewellery category.
Strategic Update
The Group’s strategies have been grouped into four key strategic themes. Under these themes we have grouped eleven areas of
focus which will underpin the Group’s growth going forward:
DE LIG HT TH E M I D-MAR KET
This strategy recognises that the mid-market continues to represent the largest and most sustainable financial opportunity for
global growth and scale. The themes within this strategy are:
• Strengthen marketing and brand position. Win more customers and business through creating more desire for products and
services, affinity for the brand and differentiated collections. Drive foot traffic, online traffic and enquiries.
• Build stronger team engagement. Improve our processes, tools and technology that allow teams to drive better customer
outcomes, thereby increasing personal performance, productivity, income and engagement.
• Drive customer engagement. Ensuring that all customer channels, places of engagement and touch points are optimised
to allow customers the best possible experience; where, when and how they choose to engage us. Also innovating with
new merchandising approaches, including physical and digital, to deliver a world class and leading assortment of innovative
products in the fashion space.
• Develop omni-channel capability. Continue to develop and integrate our channel capabilities to deliver a seamless customer
experience and drive conversion rate and repeat purchase.
• Establish differentiated bridal and fashion brands. Within this strategy we are committed to ongoing development and honing
of our proprietary bridal and fashion brands, supported by strong and relevant stories, to drive consumer preference and deliver
incremental margin gains.
MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT 25
We have plans to expand the Emma & Roe brand in
Australasia initially in coming years and expect to be able
to open up to 200 stores in this market which is well known
to us. We expect to expand the Emma & Roe brand into
Canada in a few years’ time once the Australasian growth
is well underway and results are meeting expectations.
Canada will offer the opportunity of up to another 100
Emma & Roe stores.
e-commerce and online revenue from both brands is
expected to grow steadily in coming years as this channel
grows in acceptance and our omni-channel strategy
builds both in-store and online sales. Investment in online
capability will be required to take full advantage of this
opportunity.
Proprietary collection revenues will continue to grow
as we move investment in inventory into these ranges.
Collections offer a brand premium and are unique to
Michael Hill and therefore help build and cement our Brand
in our customer’s minds.
The economic environments in which we operate have
been relatively stable and in the absence of a material
economic downturn in one or a number of our key markets,
the business should be able to continue to grow and
achieve profitability goals.
Priorities for 2016/17
• To increase same store sales by more than CPI in each
market and deliver improved EBIT performance across
the Group
• To deliver a minimum return on opening shareholder funds
of 15% and a return on opening assets of 9%
• To open more than 20 new stores across the Group.
Ten Michael Hill stores and twelve Emma & Roe stores
• To continue to evolve the Emma & Roe model and produce
positive EBIT from the stores opened for the full year
• To continue to evolve our omni-channel capability and lift
revenue from our online channel for both brands
• To improve efficiency of our inventory and lift return
on investment
• To continue experimentation and testing of our US
segment and bringing the majority of ten US stores to
a positive EBIT position
• Improved CRM capability allowing our sales force to
communicate effectively with their customers and to
foster leads secured in store or via the web site
• To drive branded collection sales to 15% of total revenue
EXPAN D OU R FOOT PR I NT
This strategy focuses on building our global brand presence
and profile through the expansion of our physical foot print
internationally of stores and channels. The themes within this
strategy are:
• Proving up the Michael Hill US model. To continue to refine
the US model until we are confident we have a profitable
model to expand in this market. The US still provides the
Group the largest growth opportunity for the future.
• Grow the Emma & Roe business. To successfully
transition the Emma & Roe business from trial mode to
expansion mode, providing a complimentary business
model to Michael Hill by engaging a new segment
of jewellery consumer to drive market share growth,
physical footprint and profitability.
PE R FOR MANCE TH ROUG H PEOPLE AN D SYSTE M S
This strategy recognises the importance of building
organisational capability to support the Group’s strategic
growth plan. The themes within this strategy are:
• Building a World-Class Team. Ongoing development of
the Group’s human resources across both Michael Hill
and Emma & Roe businesses to provide a qualified talent
pipeline to execute the retail model and grow the business.
The focus will remain on building selling and leadership
capabilities while ensuring key roles are adequately
succession planned.
• Deliver Systems and Infrastructure to Support Growth.
We will develop systems and infrastructure capability by
investing in enabling technologies to support the Group’s
growth plan.
DR IVE R ETU R N ON I NVESTM E NT
This strategy recognises the importance of improved
efficiency and a continued cost-control focus as the business
scales. ROI will be driven through a focus on operational
expenditure and continued tightening of capital control. The
themes within this strategy are:
• Control operational costs. Increased focus on operational
expenditures to lower Selling & General Administration
expense as a percentage of sales, to drive profitability.
• Improve return on assets. To drive ROI through a
stronger focus on capital expenditure and improved asset
management.
Outlook
We are committed to expanding the Michael Hill brand fully in
all 3 proven markets of New Zealand, Australia and Canada.
This will see up to 335 Michael Hill stores opened. We are
also committed to continuing to test the US market with the
vision of being able to open up to 400 stores in this market
eventually. The Australian segment is reaching maturity in
store numbers but now offers the potential for improved EBIT
performance during its mature phase much in the same way
the New Zealand business has in recent years. Canada still
has several years of growth for the Michael Hill brand and will
then also reach a maturity phase where EBIT performance
can be honed and improved.
26 MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT
Risk management
R ISK
STRATEG I ES AN D M ITIGATION
Insufficient leadership talent to
meet growth plans
Inadequate Business
Continuity Planning and/or
Disaster Recovery Strategies
Economic downturn in
key markets
Supply Chain disruption
Cost controls
inadequate
People supply chain planning is
in place and talent development
workshops are being deployed to fast
track talent through the system to
meet new store openings
We are committed to undertaking
and updating the Group’s Business
Continuity Plan and Disaster Recovery
processes. The Group is also investing
heavily in new software and systems
to protect the key business systems
The Group’s Balance Sheet is
positioned conservatively so if there
is a downturn in any of our key
economies or another global event the
Company is well placed to deal with
it. Growth in Canada, in particular, will
offer some mitigation by spreading
reliance on our two traditional
Australasian markets
We use a number of key suppliers to
spread risk of a key supplier losing
their plant and factory through natural
disaster or other adverse event. Our
product also turns quite slowly so
we generally will have time to find
alternative suppliers or time to resolve
any issues with freighters or import/
export authorities before material
damage is caused to the business
Sophisticated cost monitoring systems
exist that manage key costs in the
business and we also dedicate key
financial staff to the monitoring of cost
variances to budget. A robust budget
and forecast cycle is in place to plan
and control overheads in the business
MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT 27
27
GARY SMITH
EMMA HILL
SIR MICHAEL HILL
JANINE ALLIS
ROBERT FYFE
Information on Directors
Information on directors of Michael Hill International Limited ACN 610 937 598 in office during the financial year and until
the date of this report are set out below. Michael Hill International was incorporated on 24 February 2016. Gary Smith, Mike
Parsell and Phil Taylor were appointed as the initial directors of the Company. As a result of the recent restructure of the Group, on
9 June 2016 Mike Parsell and Phil Taylor resigned as directors and Emma Hill (Chair), Sir Michael Hill, Rob Fyfe and Janine
Allis were appointed as directors from that date.
Emma Jane Hill B.Com, M.B.A.
Emma was appointed a Director of the Company on 9 June 2016.
Emma has over 30 years’ experience with subsidiaries of the Company commencing on the
shop floor in Whangarei, New Zealand. She held a number of management positions in the
Australian company before successfully leading the expansion of the Group into Canada
as Retail General Manager in 2002. Emma was appointed a director of Michael Hill New
Zealand Limited on 22 February 2007.
In 2011 Emma was appointed as Deputy Chair of the listed New Zealand entity and was
appointed by the Board as Chair of that company in December 2015.
Emma holds a Bachelor of Commerce degree and an MBA from Bond University.
R ESPONSI B I LITI ES
Chair
Non-Executive Director
Member Audit and Risk
Committee
Member People Development
and Remuneration Committee
DI R ECTOR'S SHAR E
I NTE R ESTS
185,012,276 ordinary shares
28 MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT
Sir Richard Michael Hill K.N.Z.M.
Sir Michael was appointed a Director of the Company on 9 June 2016.
Sir Michael is the founder of Michael Hill Jeweller and was appointed as a director of
Michael Hill New Zealand Limited on 30 March 1990. He had 23 years of jewellery retailing
experience before establishing Michael Hill in 1979 which then listed on the New Zealand
Stock Exchange in 1987. Sir Michael’s visionary leadership has been the foundation for
the Company’s successful international expansion. In 2008 he was recognised as Ernst &
Young’s ‘Entrepreneur of the Year’ and in 2011 was appointed a Knight Companion of the
New Zealand Order of Merit for services to business and the arts.
Sir Michael was appointed Founder President of the New Zealand listed entity in 2015
in recognition of his special connection with Michael Hill for over 35 years. Sir Michael led
the Group as Chairman from 1987 until December 2015.
R ESPONSI B I LITI ES
Non-Executive Director
DI R ECTOR'S SHAR E
I NTE R ESTS
164,330,600 ordinary shares
Gary Warwick Smith B.Com, F.C.A., F.A.I.C.D.
Gary was appointed a Director of the Company upon incorporation on 24 February 2016.
Gary was appointed a Director of Michael Hill New Zealand Limited on 2 November 2012.
Gary has had extensive director experience. He is Chairman of Flight Centre, one of
Australia’s top 100 public companies and is a member of their Audit and Remuneration
sub-committee. He is a Chartered Accountant and a Fellow of the Australian Institute of
Company Directors.
He has extensive director experience in many tourism and leisure industry companies
R ESPONSI B I LITI ES
Non-Executive and
Independent Director
Chair Audit and Risk
Management Committee
Member People Development
and Remuneration Committee
in Australia. He is also a Director of Tourism Events Queensland and Chair of its Audit and
Risk Committee. His former governance roles include being Chairman of the Queensland
Tourism Industry Council and being a Director of Ecotourism Australia.
DI R ECTOR'S SHAR E
I NTE R ESTS
30,000 ordinary shares
Robert Ian Fyfe
Rob was appointed a Director of the Company on 9 June 2016. Rob was appointed a Director
of Michael Hill New Zealand Limited on 6 January 2014.
Rob served as CEO of Air New Zealand between 2005 and 2012, a period that saw a
resurgence in Air New Zealand to become one of the most recognised and awarded airlines
in the world and one of the best performers in a tough industry. Prior to Air New Zealand, Rob
gained extensive general management experience in various retail businesses operating in New
Zealand, Australia and Great Britain.
He is currently CEO and director of New Zealand merino wool clothing company Icebreaker
and a director of Antarctica New Zealand.
R ESPONSI B I LITI ES
Non-Executive and Independent
Director
Chair People Development and
Remuneration Committee
Member Audit and Risk
Management Committee
DI R ECTOR'S SHAR E
I NTE R ESTS
Nil
MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT 29
Janine Suzanne Allis
Janine was appointed a Director of the Company on 9 June 2016.
Janine is the Founder and Executive Director of Retail Zoo which currently owns the
three brands Boost Juice, Salsa’s Fresh Mex Grill and Cibo. The Retail Zoo network has
over 500 stores in 13 countries.
Janine’s strong retail experience was obtained by creating Boost Juice Bars and turning
it into an iconic Australian brand with over 95% awareness rate in the Australian market.
Drive and passion has translated into over $2 billion in global sales from inception and
has earned Janine many accolades, including Telstra Businesswoman of the Year, Amex
Franchisor of the Year and ARA Retailer of the Year. She was inducted into the Australian
Business Women Hall of Fame as well as BRW listing Janine in the top 15 people who have
changed the way we do business in the last 20 years.
Janine now shares her knowledge with others, including through her role as a ‘Shark’,
investor and mentor on Channel Ten’s Shark Tank.
R ESPONSI B I LITI ES
Non-Executive and
Independent Director
DI R ECTOR'S SHAR E
I NTE R ESTS
Nil
Michael Robin Parsell
Mike was appointed a Director of the Company upon incorporation on 24 February 2016.
Mike resigned as Director of the Company on 9 June 2016. Mike resigned from his
position as Chief Executive Officer of the Michael Hill Group on 8 August 2016.
Philip RoyTaylor A.C.A., A.C.I.M., A.I.M.M.
Phil was appointed a Director of the Company upon incorporation on 24 February 2016.
Phil resigned as Director of the Company on 9 June 2016. Phil is currently the Acting
CEO and Chief Financial Officer of the Michael Hill Group.
Phil joined Michael Hill in New Zealand in 1987 and moved with the Group to
Australia later that year as part of a start-up team in the role of Financial Controller before
assuming the role of Chief Financial Officer of the Group in 2003. In August this year Phil
was appointed Acting Chief Executive Officer. Over the past 30 years Phil has worked
closely with most functions and departments within the Group. He has been instrumental
in the success of both the Australian business in its establishment years, and the wider
Group since assuming the role of CFO in 2003. More specifically Phil oversaw a major
restructuring of the Group in 2008 and more recently led the successful ASX listing project.
R ESPONSI B I LITI ES
Former Chief Executive Officer
of the Michael Hill Group
DI R ECTOR'S SHAR E
I NTE R ESTS
6,789,264 ordinary shares
6,000,000 options
R ESPONSI B I LITI ES
Acting CEO and Chief Financial
Officer of the Michael Hill Group
DI R ECTOR'S SHAR E
I NTE R ESTS
2,000,000 ordinary shares
2,250,000 options
30 MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT
Information on directors of MHNZ, the former parent company, who are not Directors of
the Australian listed entity, Michael Hill International, and set out above, in office during the
financial year and until the date of this report are set out below:
Ann Christine Lady Hill
Lady Hill has been associated with the Michael Hill Group since its inception in 1979 and has
been closely involved with the artistic direction of the Michael Hill Group’s store design and
interior layouts over the years.
Lady Hill joined the Board of Michael Hill New Zealand Limited on 23 February 2001
and resigned on 29 June 2016.
RESPONSIBILITIES
Non-Executive Director
DI R ECTOR'S SHAR E
I NTE R ESTS
164,330,600 ordinary shares
Gary John Gwynne
Gary has an extensive background in marketing, retailing and property development. He is
currently a Director of Oyster Property Group, the operator of Dress Smart Factory Shopping
Centres and Sheppard Industries.
Gary joined the Board of Michael Hill New Zealand Limited on 19 February 1998 and
resigned on 29 June 2016.
R ESPONSI B I LITI ES
Non-Executive Director
DI R ECTOR'S SHAR E
I NTE R ESTS
1,972,000 ordinary shares
Company Secretary
The names and details of the Company Secretaries of Michael Hill International in office during
the financial year and until the date of this report are set out below:
Philip Roy Taylor A.C.A., A.C.I.M., A.I.M.M.,
Appointed 24 Feb 2016 Resigned 11 July 2016
Mary-Anne Greaves LLM., LL.B., ACIS, AGIA
Appointed 11 July 2016
Mary-Anne Greaves
Mary-Anne joined Michael Hill in July 2016 with over 15 years’ experience in Company
Secretarial and Law. Mary-Anne has a strong interest in the area of corporate governance
and is admitted as a solicitor of the Supreme Court of Queensland, is a Chartered Secretary
and an Associate of the Governance Institute
of Australia. Mary-Anne brings a wealth of
experience from her previous roles as
Company Secretary of a number
of ASX and NSX listed entities.
Mary-Anne is also a qualified
real estate principal and
has an additional 16 years’
experience in the finance and
property industries.
MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT 31
Directors’ meetings
The number of meetings held throughout the past year is detailed below for both
Michael Hill International and MHNZ.
The agenda for meetings is determined by the Chair in conjunction with the Chief
Executive Officer. Any member of the Board may request the addition of an item to
the agenda. Board papers are circulated to Directors a week in advance of meetings.
The following table sets out the Board meetings attended by Directors during
the course of the financial year for Michael Hill International. This Company was
incorporated on 24 February 2016. A number of directors were appointed on 9
June 2016 and therefore were only eligible to attend a certain number of board
meetings as set out below.
Board of Directors
E.J. Hill2
Sir Michael Hill2
G.W. Smith
R.I. Fyfe2
J.S. Allis2
M.R. Parsell1
P.R. Taylor1
Meetings
held
9
9
9
9
9
9
9
Number of meetings
eligable to attend
5
4
9
4
4
4
4
Meetings
attended
5
4
9
4
4
4
4
1 Resigned 9 June 2016 2 Appointed 9 June 2016
The number of meetings held throughout the past year is detailed below for both
Michael Hill International and MHNZ.
Board of
Directors
Meetings Meetings
attended
8
8
8
8
8
7
3
held
8
8
8
8
8
8
4
E.J.Hill
Sir Michael Hill2
A.C Hill2
G.W. Smith
R.I. Fyfe
G.J. Gwynne2
M.R. Parsell1
Audit and Risk People Development
and Remuneration
Sub-committee
Meetings Meetings
attended
2
-
-
2
2
-
-
Management
Sub-committee
Meetings Meetings
attended
2
-
-
2
2
-
-
held
2
-
-
2
2
-
-
held
2
-
-
2
2
-
-
Nominations
Sub-committee
Meetings Meetings
attended
1
-
-
-
1
1
-
held
1
-
-
-
1
1
-
1 Resigned 4 December 2015 reappointed 24 February 2016
2 Resigned 29 June 2016
32 MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT
Committee membership
As at the date of this report, Michael Hill International
has an Audit and Risk Management Committee
and a People Development and Remuneration
Committee.
No meetings of these Committees were held
during the financial year as the Company was only
incorporated on 24 February 2016. Members of
these committees of the Board are:
Audit and Risk
Management
Committee
Gary Smith*
Emma Hill
Rob Fyfe
People Development
and Remuneration
Committee
Rob Fyfe*
Emma Hill
Gary Smith
*designates chair of the committee
As a result of the recent restructure and as at the
date of this report, MHNZ does not now have any
committees of the Board. MHNZ previously had
an Audit and Risk Management sub-committee,
a People Development and Remuneration
sub-committee and a Nominations sub-committee
during the financial year.
Members acting on those Committees of the
Board of MHNZ during the financial year were:
Audit and Risk
Management
Sub-committee
Gary Smith*
Emma Hill
Rob Fyfe
People Development
and Remuneration
Sub-committee
Rob Fyfe*
Emma Hill
Gary Smith
*designates chair of the committee
Nominations
Sub-committee
Rob Fyfe*
Emma Hill
Gary Gwynne
Indemnification and insurance of
directors and officers
The Company’s Constitution provides that it may
indemnify any person who is, or has been, an officer
of the Group, including the Directors, the Secretaries
and other Executive Officers, against liabilities incurred
whilst acting as such officers to the extent permitted
by law. The Company has entered into a Deed of
Indemnity, Insurance and Access with each of the
Company’s Directors. No Director or officer of the
Company has received benefits under an indemnity
from the Company during or since the end of the year.
The Company has paid a premium for insurance
for officers of the Group. This insurance is against a
liability for costs and expenses incurred by officers in
defending civil or criminal proceedings involving them
as such officers, with some exceptions. The contract
of insurance prohibits disclosure of the nature of
the liability insured against and the amount of the
premium paid.
Indemnification of auditors
To the extent permitted by law, the Company has agreed to indemnify its auditor,
Ernst & Young, as part of the terms of its audit engagement agreement against
claims by third parties arising from the audit (for an unspecified amount). No payment
has been made to indemnify Ernst & Young during or since the financial year.
Environmental regulations
The Group has determined that no particular or significant environmental
regulations apply to it.
Share options
U N I SSU E D S HAR E S
As at the date of this report, there were 12,550,000 unissued ordinary shares under
options (12,550,000 at the reporting date). Option holders do not have any right,
by virtue of the option, to participate in any share issue of the Company or any
related body corporate.
S HAR E S I SSU E D AS A R E SU LT OF TH E EXE RCI S E OF OPTION S
During the financial year, no employees and executives have exercised options to
acquire fully paid ordinary shares in the Company.
Non-audit services
The following non-audit services were provided by the entity's auditor, Ernst &
Young Australia. The Directors are satisfied that the provision of non-audit services
is compatible with the general standard of independence for auditors imposed by
the Corporations Act 2001. The nature and scope of each type of non-audit service
provided means that auditor independence was not compromised.
Ernst & Young Australia received or are due to receive the following amounts
for the provision of non-audit services:
Advisory services
$50,000
Auditor’s independence declaration
A copy of the auditor’s independence declaration, as required under section 37C of
the Corporations Act 2001, is set out on page 42.
Rounding
The amounts contained in the financial report have been rounded
to the nearest $1,000 (where rounding is applicable) where
noted ($000) under the option available to the Company under
ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191.
The Company is an entity to which the legislative
instrument applies.
MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT 33
34
REMUNERATION REPORT AUDITED
Remuneration framework
PR I NCI PLES OF COM PE NSATION
Remuneration is referred to as compensation throughout
this report.
Key management personnel ('KMP') have authority
and responsibility for planning, directing and controlling the
activities of the Group, including directors of the Company and
other executives. Key management personnel comprise the
directors of the Company and senior executives for the Group.
For the 2015-16 financial year, it was determined that
the KMP of Michael Hill International were:
• Chief Executive Officer (CEO) – Mike Parsell (resigned 8
August 2016)
• Chief Financial Officer (CFO) – Phil Taylor
• Group Executive Merchandising (GEM) – Galina Hirtzel
• Chief Marketing Officer (CMO) – Anna Shaw
Compensation levels for key management personnel of the
Group are competitively set to attract and retain appropriately
qualified and experienced directors and executives. The
remuneration committee obtains independent advice on the
appropriateness of compensation packages of the Group given
trends in comparative companies both locally and internationally,
and the objectives of the Group’s compensation strategy.
The compensation structures explained below are
designed to attract suitably qualified candidates, reward
the achievement of strategic objectives, and achieve the
broader outcome of creation of value for shareholders. The
compensation structures take into account:
• The capability and experience of the key management
personnel
• The key management personnel’s ability to control the
relevant segment/s’ performance
• The Group’s performance including:
- The Group’s earnings
- The amount of incentives within each key management
person’s compensation
- Delivering constant returns on shareholder wealth.
The Remuneration framework consists of:
1 Total Fixed Remuneration ('TFR') - includes fixed cash
remuneration, any car allowance and superannuation
component.
2 Short term incentive ('STI') – on target performance
is determined as a percentage of TFR, which is then
converted to a share of the return on assets ('ROA')
surplus above a minimum hurdle rate which would deliver
the targeted STI in the 2015-16 financial year.
- In the 2015-16 financial year the STI payment was
derived solely from the ROA calculation.
- Commencing in the 2016-17 financial year, 30% of the
STI will be at risk and assessed based on achievement
of individual performance goals which will be agreed at
the commencement of each financial year.
3 Long term incentive ('LTI') – commencing in the 2016-17
financial year a regular allocation of performance rights will
be introduced, the value of the issue will be determined as
a percentage of the STI earned for the preceding year.
CFO
The structure of the benefits for key management personnel
for the 2016-17 financial year is as follows:
TFR set at 90% of market median,
CEO
On target STI set at 75% of TFR,
LTI commencing in 2016-17 set at 30% of STI
achieved in the preceding year
TFR set at 90% of market median
On target STI set at 70% of TFR (higher than
market to recognise the broader scope of the
current CFO/CEO role)
LTI commencing in 2016-17 set at 30% of STI
achieved in the preceding year
TFR set at 90% of market median
On target STI set at 35% of TFR
LTI commencing in 2016-17 set at 30% of STI
achieved in the preceding year
GEM
CMO* TFR set at 90% of market median
On target STI set at 35% of TFR
*As the current CMO commenced in June 2016, there is no
LTI component in the 2016-17 financial year. This benefit will
commence in the 2017-18 financial year.
FIXE D COM PE NSATION
Fixed compensation consists of base compensation (which
is calculated on a total cost basis and includes any FBT
charges related to employee benefits including motor
vehicles), as well as leave entitlements and employer
contributions to superannuation funds.
Compensation levels are reviewed annually by the
People Development and Remuneration Committee through
a process that considers individual, segment and overall
performance of the Group. In addition, external consultants
provide analysis and advice to ensure the directors’ and
senior executives’ compensation is competitive in the
market place. A senior executive’s compensation is also
reviewed on promotion.
MICHAEL HILL INTERNATIONAL 2016 REMUNERATION REPORT 35
PE R FOR MANCE LI N KE D COM PE NSATION
Performance linked compensation includes both short-term
and long-term incentives, and is designed to reward senior
executives for meeting or exceeding their financial and
personal objectives. The STI is an ‘at risk’ bonus provided
in the form of cash, while the LTI is provided as rights over
ordinary shares of the Company under the rules of the
Executive Incentive Plan. The Board did not exercise any
discretion on the payment of bonuses and rights as the plans
provide for no such discretion.
SHORT-TE R M I NCE NTIVE BON US
The performance framework through which each senior
executive’s performance will be measured is through the use
of agreed Personal Performance Plan’s ('PPP'). These PPP’s
include relevant business key performance indicators ('KPIs')
as well as other goals and metrics which are assessed and
measured. These plans set out the at-risk component of the
STI as prescribed in the remuneration policy.
The process is designed to provide a basis for an
ongoing performance management system, along with
integrated reporting for visibility and transparency of
progress by each senior executive. The framework aligns
the senior executive KPIs to delivery of the strategic plan,
divisional business plans along with critical operational
measures and leadership measures of each role. The
following points outline the framework:
• The policy and framework cascades from the CEO
to Group Executives with the intention in 2016-17 to
cascade relevant KPIs further down through all levels
of management. This aims to ensure key aspects of
the Group’s strategic plan, divisional business plans,
along with critical drivers of business outcomes are
clearly identified at each level of leadership. This
includes personal development plans, and leadership
performance.
• The metrics are updated monthly (on a YTD basis) and
along with normal operational metrics, provides the basis
for monthly work in progress ('WIP') reviews. These
metrics are cascaded through weekly WIP meetings with
direct reports, which continue to track agreed progress
and actions required to improve performance until the
next rolled up monthly update.
• The framework consists of four sets of high level measures
each representing 25% of the ‘at-risk’ component of the
STI. Within each of the four groups there are between 3
and 5 KPIs that are tracked and managed.
• A subset of these KPIs, approximately 2 to 3, are agreed as
critical success factors to meeting the overall performance
objectives of the senior executive. This subset is
referenced when assessing achievement of their STI.
• This framework provides for the future design and im-
plementation of a scheme to add an incremental STI for
management currently outside of this scheme, following
approval by the People Development and Remuneration
Committee. Under such a scheme full performance
may trigger an additional 10% over and above senior
executive’s fixed remuneration.
36 MICHAEL HILL INTERNATIONAL 2016 REMUNERATION REPORT
The Group PPP and KPI frameworks are structured into four
major groups:
1 Financial Performance - this focuses on high
level financial results. Metrics measured at Group or
divisional level - to budget or policy i.e. sales, GP%,
expenses, EBIT, ROA (opening) balance sheet metrics,
cash flow etc.
2 Operational Performance - this focuses on
operational drivers, adherence to policy, key drivers of
sales, margins, expense control, efficiency, drivers of
ROA, and critical business measures etc.
3 Business Growth - this focuses on key drivers of
business growth particularly expansion of business
channels, delivery of new initiatives, physical foot print
expansion, customer satisfaction, improving customer
experience.
4 Leadership Performance - this focuses on our
leadership capability, work force capability, training and
development, staff engagement, productivity, and talent
development and succession planning etc.
LONG-TE R M I NCE NTIVE
Options are issued under the Executive Incentive Plan
(made in accordance with thresholds set in plans approved
by shareholders at the Company’s AGM), and it provides
for senior executives to receive options over ordinary shares
for no consideration. The ability to exercise the options is
conditional on continuing employment with the Company.
No further options will be issued to senior executives
other than the tranches already in place for four senior
executives including one KMP. The Company intends to
introduce a new Incentive Plan commencing for the 2016-17
financial year which will be submitted to shareholders for
approval at the Company’s next Annual General Meeting.
SHORT-TE R M AN D LONG-TE R M I NCE NTIVE STR UCTU R E
The People Development and Remuneration Committee
considers that the above performance-linked compensation
structure is generating the desired outcome. The evidence
for this is:
• The performance-linked element of the structure appears
to be appropriate as all of the senior executives achieved
their performance targets last year;
• This in turn led to strong growth in profits; and
• High levels of retention among senior executives.
The tenure of the KMP, as at the date of this report, are
as follows:
KMP
Mike Parsell, former CEO
Phil Taylor, Acting CEO and CFO
Galina Hirtzel, GEM
Anna Shaw, CMO
No of years
of service
34 years
29 years
24 years
2 months
Currently, the performance linked component of
compensation comprises approximately forty-one percent of
total payments to senior executives.
In the current year the Group exceeded its overall Board
targets, with all major segments meeting budgeted results.
CONSEQU E NCES OF PE R FOR MANCE ON SHAR E HOLDE R WEALTH
In considering the Group’s performance and benefits for shareholder wealth, the People Development and
Remuneration Committee have regard to the following indices in respect of the current financial year and the
previous four financial years.
EBIT
Net profit attributable to
owners of the Company
Dividends paid
Share price as at 30 June (NZ$)
Return on capital employed
2016
$000
2015
$000
2014
$000
2013
$000
2012
$000
47,058
42,061
42,151
40,259
35,412
19,577
17,490
$1.14
10.5%
27,754
23,176
$1.06
15.0%
25,041
22,336
$1.24
14.1%
32,099
18,482
$1.31
19.7%
28,210
15,021
$0.98
19.4%
Profit is considered the primary financial performance target in setting the STI. Profit amounts for 2012 to 2016 have
been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards
and other authoritative pronouncements of the Australian Accounting Standards Board. This also complies with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The overall level of compensation takes into account the performance of the Group over a number of years.
OTH E R B E N E FITS
Key management personnel do not receive additional benefits such as non-cash benefits, as part of the terms and
conditions of their appointment.
LOANS TO KEY MANAG E M E NT PE RSON N E L
The Company does not provide loans to KMP’s or other senior executives.
SE RVICE CONTRACTS
It is the Group’s policy that service contracts for senior executives, excluding the chief executive officer, are
unlimited in term but capable of termination on six months’ notice and that the Group retains the right to terminate
the contract immediately, by making payment equal to six months’ pay in lieu of notice.
The Group has entered into service contracts with each senior executive, excluding the chief executive
officer, that are capable of termination on six months’ notice. The Group retains the right to terminate a contract
immediately by making payment equal to six months’ pay in lieu of notice. The senior executives are also entitled
to receive on termination of employment their statutory entitlements of accrued annual and long service leave,
together with any superannuation benefits.
The service contract outlines the components of compensation but does not prescribe how compensation
levels are modified year to year. The remuneration committee reviews compensation levels each year to take
into account cost-of-living changes, any change in the scope of the role performed by the senior executive and
any changes required to meet the principles of compensation policy.
Mr Mike Parsell, former chief executive officer, had a contract of employment with the Group. Mr Parsell
commenced his employment with the Group in 1981 and in 2004 was engaged to act as CEO of the Group.
The contract specifies the duties and obligations to be fulfilled by the chief executive officer. The CEO
remuneration package is revised by the Board annually. Either party may terminate the contract of employment
in writing by giving 1 year’s notice, or payment in lieu of notice (or as otherwise agreed by both parties). On
termination (other than by the Company for cause) the CEO contract provides for the payment of an exit
package to the CEO of up to 2 years remuneration based on an increasing scale commensurate with the CEO’s
length of employment in the Group at the time of termination.
The services contract terminated on 8 August 2016 upon the resignation of Mr Mike Parsell.
The Company will be seeking shareholder support at the upcoming Annual General Meeting of the
Company for a termination package at a level substantially below that specified in Mr Parsell’s employment
contract of 2004.
MICHAEL HILL INTERNATIONAL 2016 REMUNERATION REPORT 37
SE RVICES FROM R E M U N E RATION CONSU LTANTS
The People Development and Remuneration Committee
engaged Mercer Consulting (Australia) Pty Ltd (‘Mercer’) as
remuneration consultant to the board to review the amount
and elements of the key management personnel remuneration
and provide recommendations in relation thereto.
In addition to the remuneration recommendations,
Mercer provided the following other services to the
Company throughout the year:
• Summarised the key terms and conditions of each
contract for services to enable the remuneration
committee to assess whether the terms and conditions
are consistent across different parts of the business;
• Advice in relation to the embodiment of risk in
the assessment of performance for the vesting of
remuneration awards; and
• Advice on structuring various management roles and
market trends.
Mercer was paid $38,000 for the remuneration
recommendations in respect of reviewing the amount and
elements of remuneration. Mercer was paid $22,112 in total
for all other services.
The engagement of Mercer by the People Development
and Remuneration Committee was based on a documented
set of protocols that would be followed by Mercer, members
of the People Development and Remuneration Committee
and members of the key management personnel for the
way in which remuneration recommendations would be
developed by Mercer and provided to the board.
The protocols included the prohibition of Mercer
providing advice or recommendations to key management
personnel before the advice or recommendations were
given to members of the People Development and
Remuneration Committee and not unless Mercer had
approval to do so from members of the People Development
and Remuneration Committee.
These arrangements were implemented to ensure
that Mercer would be able to carry out its work, including
information capture and the formation of its recommen-
dations, free from undue influence by members of the key
management personnel about whom the recommendations
may relate.
The Board undertook its own enquiries and review of the
processes and procedures followed by Mercer during the
course of its assignment and is satisfied that its remuneration
recommendations were made free from undue influence.
These enquiries included arrangements under which
Mercer was required to provide the Board with a summary
of the way in which it carried out its work, details of its
interaction with key management personnel in relation to the
assignment and other services, and respond to questioning by
members of the Board after the completion of the assignment.
PriceWaterhouseCoopers assisted the Company
in relation to taxation aspects of the remuneration
recommendations.
NON-EXECUTIVE DI R ECTORS
Total compensation for all non-executive directors, last
voted upon by shareholders, is not to exceed $840,000 per
annum and is set based on advice from external advisors with
reference to fees paid to other non-executive directors of
comparable companies. Directors’ base fees are presently
up to $95,000 per annum. Where a Director serves as Chair
on a Board Committee they are entitled to an extra payment
of $20,000 per annum.
The Chair receives up to twice the base fee.
Non-executive directors do not receive performance-re-
lated compensation. Directors’ fees cover all main board
activities and membership of committees.
Non-executive directors are not provided with
retirement benefits apart from statutory superannuation.
38 MICHAEL HILL INTERNATIONAL 2016 REMUNERATION REPORT
DI R ECTORS’ AN D EXECUTIVE OFFICE RS’ R E M U N E RATION
Details of the nature and amount of each major element of remuneration of each Director of the Company, and other key management personnel
of the consolidated entity and includes Michael Hill International and MHNZ are:
Post-
employment
Other
long
term
Share-based
payments
Superannuation
benefits
$
Total
$
Termination
benefits
$
$
Options
and rights
$(b)
Value of
Proportion of
remuneration
options as
performance proportion of
related remuneration
%
$
Total
$
Salary &
fees
$
STI cash
bonus
$(a)
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
136,735
148,915
162,845
117,597
95,000
88,419
105,023
95,652
115,000
94,370
95,000
88,419
-
2016
2015
709,603
633,371
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2016
2015
2016
2015
2016
2015
824,000
794,481
771,845
358,965
399,000
374,642
301,256
143,586
250,000
133,184
215,549
44,871
2016
5,288
-
2016
2015
201,821
286,596
63,232
81,250
Short-term
Non-monetary
benefits
(motor vehicle)
$
30,000
27,922
-
-
-
-
-
-
-
-
-
-
-
166,735
176,837
162,845
117,597
95,000
88,419
105,023
95,652
115,000
94,370
95,000
88,419
-
-
-
-
-
-
-
9,977
8,848
-
-
-
-
-
30,000
27,922
739,603
661,294
9,977
8,848
- 1,618,481
- 1,130,810
773,642
444,842
383,184
260,420
35,000
25,000
35,000
25,000
30,000
24,089
5,288
502
265,053
25,180
367,846
25,000
-
-
-
-
-
-
-
Non-executive Directors
Sir Richard Michael Hill
Emma Jane Hill
Ann Christine Lady Hill
(resigned 29 June 2016)
Gary Warwick Smith
Robert Ian Fyfe
Gary Gwynne
(resigned 29 June 2016)
Janine Suzanne Allis
(appointed 9 June 2016)
Total Directors’
remuneration
Executives
Mike Parsell, CEO
Phil Taylor, CFO
Galina Hirtzel, GEM
Anna Shaw, CMO
(appointed 20 June 2016)
Former executives
J Talcott, CMO
(resigned 26 January 2016)
Total executives’
remuneration
2016 1,680,109 1,365,539
- 3,045,648
125,682
2015 1,575,246
628,672
- 2,203,918
99,089
Total Directors’ and
executives’ remuneration 2016 2,389,712 1,365,539
628,672
2015 2,208,617
30,000 3,785,251
135,659
27,922 2,865,212
107,937
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
166,735
176,837
162,845
117,597
95,000
88,419
115,000
104,500
115,000
94,370
95,000
88,419
-
749,580
670,142
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 1,653,481 48.04%
- 1,155,810 31.05%
-
-
808,642 46.33%
469,842 30.56%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 32,826
446,010 29.86%
7.36%
- 37,340
321,849 13.94% 11.60%
-
-
-
-
-
-
5,790
-
290,233 21.79%
392,846 20.68%
- 32,826 3,204,156 42.68%
- 37,340 2,340,347 26.86%
- 32,826 3,953,736 34.54%
- 37,340 3,010,489 20.88%
-
-
-
1.02%
1.60%
0.83%
1.24%
MICHAEL HILL INTERNATIONAL 2016 REMUNERATION REPORT 39
Notes in relation to the table of Directors’ and executive officers’ remuneration:
a The short-term incentive bonus is for performance during the respective financial year using the criteria set out on pages 36
and 37. The amount was finally determined on 18 August 2016 after performance reviews were completed and approved by
the People Development and Remuneration Committee.
b The fair value of the options is calculated at the date of grant using the Binomial option-pricing model and allocated to each
reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of
the options recognised as an expense in each reporting period.
DETAI LS OF PE R FOR MANCE R E LATE D R E M U N E RATION
Details of the Group’s policy in relation to the proportion of remuneration that is performance related is discussed on page 36.
ANALYSIS OF BON USES I NCLU DE D I N R E M U N E RATION
Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each director of the
Company, and other key management personnel are detailed below.
Short-term incentive bonus
Directors
Executives
Mike Parsell
Phil Taylor
Galina Hirtzel
Anna Shaw
Included in
remuneration $(a)
-
Vested in year
%
-
Forfeited in year
%(b)
-
794,481
374,642
133,184
-
100%
100%
100%
-
-
-
-
-
a Amounts included in remuneration for the financial year represent the amount related to the financial year based on
achievement of personal goals and satisfaction of specified performance criteria. The People Development and Remuneration
Committee approved these amounts on 18 August 2016.
b The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year.
EQU ITY I NSTR U M E NTS
All options refer to options over ordinary shares of Michael Hill International Limited, which are exercisable on a one-for-one
basis under the Executive Incentive Plan.
OPTIONS AN D R IG HTS OVE R EQU ITY I NSTR U M E NTS G RANTE D AS COM PE NSATION
Details on options over ordinary shares in the Company that were granted as compensation to each key management person
during the reporting period and details on options that vested during the reporting period are as follows:
Directors
Executives
Mike Parsell
Phil Taylor
Galina Hirtzel
Anna Shaw
Number of
options granted
during 2016
-
-
-
100,000
-
Grant date
-
-
-
22/01/16
-
Fair value
at grant date
per option
-
Exercise price
per option
-
-
-
NZ16.2¢
-
-
-
NZ$1.14
-
Expiry date
-
-
-
30/09/25
-
Number of
options vested
during 2016
-
-
-
-
-
All options expire on the earlier of their expiry date or within 3 months of termination of the individual’s employment. The options
are exercisable 5 years from grant date. The options are conditional on continuing employment service. For options granted in
the current year, the earliest exercise date is 30/09/2020.
MODI FICATION OF TE R MS OF EQU ITY-SETTLE D SHAR E-BASE D PAYM E NT TRANSACTIONS
No terms of equity-settled share-based payment transactions (including options and rights granted as compensation to a
key management person) have been altered or modified by the issuing entity during the reporting period or the prior period.
The exercise price of any future option grants will be set using the same method, with reference to the Australian Securities
Exchange. Upon exercise of any option previously granted, the NZ$ exercise price will be converted to AU$ referenced to the
Reserve Bank of Australia foreign exchange rate.
40 MICHAEL HILL INTERNATIONAL 2016 REMUNERATION REPORT
EXE RCISE OF OPTIONS G RANTE D AS COM PE NSATION
During the reporting period, no shares were issued on the exercise of options previously granted as compensation.
There are no amounts unpaid on the shares issued as a result of the exercise of the options in the 2016 financial year.
ANALYSIS OF OPTIONS AN D R IG HTS OVE R EQU ITY I NSTR U M E NTS G RANTE D AS COM PE NSATION
Details of vesting profiles of the options granted as remuneration to each key management person of the Group are detailed below.
Options granted
Directors
Executives
Mike Parsell
Total
Phil Taylor
Total
Galina Hirtzel
Total
Anna Shaw
Number
-
2,000,000
400,000
400,000
400,000
400,000
400,000
2,000,000
6,000,000
750,000
150,000
150,000
150,000
150,000
150,000
750,000
2,250,000
500,000
100,000
100,000
100,000
100,000
100,000
1,000,000
-
Grant date
-
Exercise price % forfeited in % vested in
year*
-
NZ$
-
year
-
Financial years
in which option
vests
-
Nov 2007
Nov 2009
Sep 2010
Sep 2011
Sep 2012
Sep 2013
Dec 2013
Nov 2007
Nov 2009
Sep 2010
Sep 2011
Sep 2012
Sep 2013
Dec 2013
Dec 2013
Sep 2014
Sep 2015
Sep 2016
Sep 2017
Sep 2018
$1.25
$0.94
$0.88
$1.16
$1.41
$1.82
$1.82
$1.25
$0.94
$0.88
$1.16
$1.41
$1.82
$1.82
$1.82
$1.63
$1.14
-
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
07/08
08/09
09/10
10/11
11/12
12/13
12/13
07/08
08/09
09/10
10/11
11/12
12/13
12/13
- 2014-2019
- 2015-2020
- 2016-2021
- 2017-2022
- 2018-2023
- 2019-2024
Financial years
in which option
exercisable
-
2013-2017
2014-2018
2015-2019
2016-2020
2017-2021
2018-2022
2018-2022
2013-2017
2014-2018
2015-2019
2016-2020
2017-2021
2018-2022
2018-2022
2020-2024
2021-2025
2022-2026
2023-2027
2024-2028
2025-2029
-
-
-
-
-
-
* The percentage forfeited in the year represents the reduction from the maximum number of options available to vest due to
performance criteria not being achieved.
ANALYSIS OF MOVE M E NTS I N OPTIONS
The movement during the reporting period, by value, of options over ordinary shares in the Company held by each key
management person is detailed below.
Mike Parsell
Phil Taylor
Galina Hirtzel
Anna Shaw
Value of options
granted in year)
-
-
NZ$16,200
-
Value of options
exercised in year
-
-
-
-
Number of options
lapsed in year
-
-
-
-
MICHAEL HILL INTERNATIONAL 2016 REMUNERATION REPORT 41
The value of options granted in the year is the fair value
of the options calculated at grant date using the Binomial
option-pricing model. The total value of the options granted
is included in the table above. This amount is allocated to
remuneration over the vesting period (i.e. in years 1 to 5).
The value of options exercised during the year is
calculated as the market price of shares of the Company as
at close of trading on the date the options were exercised
after deducting the price paid to exercise the option. The
number of the options that lapsed during the year was nil.
PAYM E NTS TO PE RSONS B E FOR E TAKI NG OFFICE
No payments were made to any person as consideration for
the person agreeing to hold office.
R E LATE D PARTY TRANSACTIONS
As part of the reorganisation, Michael Hill International Limited
acquired 100% of the share capital in Durante Holdings Pty
Ltd (a company controlled by interests associated with the Hill
Family which held 52.89% of the shares on issue in MHNZ).
Durante Holdings Pty Ltd has been consolidated as a fully
controlled subsidiary in accordance with the accounting policy
described in note 2(b).
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
T +61 7 3011 3333
F +61 7 3011 3100
ey.com/au
AU DITOR’S I N DE PE N DE NCE DECLARATION TO
M ICHAE L H I LL I NTE R NATIONAL LI M ITE D
As lead auditor for the audit of Michael Hill International Limited
for the financial year ended 30 June 2016, I declare to the best
of my knowledge and belief, there have been:
a) no contraventions of the auditor independence
requirements of the Corporations Act 2001 in relation to
the audit; and
b) no contraventions of any applicable code of professional
conduct in relation to the audit.
This Directors’ Report is made out in accordance with a
resolution of the Directors.
This declaration is in respect of Michael Hill International
Limited and the entities it controlled during the financial year.
Emma Hill
Chair
Brisbane
18 August 2016
Ernst & Young
Alison de Groot
Partner
Brisbane
18 August 2016
42 MICHAEL HILL INTERNATIONAL 2016 REMUNERATION REPORT
Financial Statements
The Directors are pleased to present the financial
statements of Michael Hill International Limited for the
year ended 30 June 2016. The Board of Directors
of Michael Hill International Limited authorised these
financial statements for issue on 18 August 2016.
Emma Hill
Chair
44 Statement of comprehensive income
45 Statement of financial position
46 Statement of changes in equity
47 Cash flow statement
48 Notes to the financial statements
58 Statement of segmented results
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 43
Statement of comprehensive income FOR TH E YEAR E N DE D 30 J U N E 2016
Revenue from continuing operations
Other income
Cost of goods sold
Employee benefits expense
Occupancy costs
Marketing expenses
Selling expenses
Depreciation and amortisation expense
Loss on disposal of property, plant and equipment
Other expenses
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Cash flow hedges
Currency translation differences arising during the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
NOTES
6
7
8
8
8
8
9
2016
$000
551,127
555
(197,302)
(144,724)
(54,238)
(30,158)
(24,621)
(18,760)
(328)
(33,910)
(6,107)
41,534
(21,957)
19,577
2015
$000
503,370
2,259
(181,135)
(130,937)
(50,640)
(31,906)
(22,748)
(15,738)
(204)
(30,211)
(4,708)
37,402
(9,648)
27,754
(116)
(3,443)
(3,559)
16,018
(491)
2,115
1,624
29,378
Total comprehensive income for the year is attributable to:
Owners of Michael Hill International Limited
16,018
29,378
Earnings per share attributable to the ordinary equity
holders of the Company during the year, attributable
to continuing operations:
Basic earnings per share
Diluted earnings per share
30
30
5.11¢
5.09¢
7.24¢
7.22¢
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
44 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
Statement of financial position AS AT 30 J U N E 2016
NOTES
2016
$000
2015
$000
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivables
Other current assets
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Deferred tax assets
Intangible assets
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Deferred revenue
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Deferred revenue
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained profits
Total equity
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
28
8,853
26,263
199,961
-
5,035
240,112
325
71,933
64,074
5,561
2,192
144,085
6,797
20,575
182,232
11,376
7,427
228,407
422
64,845
48,381
6,491
2,467
122,606
384,197
351,013
46,377
25,022
4,902
24,685
100,986
40,887
5,198
50,725
96,810
43,739
-
4,624
21,516
69,879
45,116
4,254
44,143
93,513
197,796
163,392
186,401
187,621
3,767
4,131
178,503
186,401
3,760
7,445
176,416
187,621
The above statement of financial position should be read in conjunction with the accompanying notes.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 45
Statement of changes in equity FOR TH E YEAR E N DE D 30 J U N E 2016
Attributable to members of
Michael Hill International Limited
Notes Contributed
equity
Options
reserve
$000
$000
Foreign
currency
translation
reserve
$000
Cash flow
hedge
reserve
Retained
profits
Total
equity
$000
$000
$000
Balance at 1 July 2014
3,651
1,918
4,155
(277) 171,838 181,285
Profit for the year
Currency translation differences
Currency forward contracts
Interest rate swaps
Total comprehensive income
Transactions with owners in their
capacity as owners:
Dividends paid
Employee shares issued
Option expense through share based
payments reserve
Forfeiture of issued options
29
33(b)
33(c)
33(c)
-
-
-
-
-
-
109
-
-
109
-
-
-
-
-
-
-
162
(137)
25
-
2,115
-
-
2,115
-
-
77
(568)
(491)
27,754
-
-
-
27,754
27,754
2,115
77
(568)
29,378
-
-
-
-
-
-
-
-
-
-
(23,176)
-
(23,176)
109
-
-
(23,176)
162
(137)
(23,042)
Balance at 30 June 2015
3,760
1,943
6,270
(768) 176,416 187,621
Profit for the year
Currency translation differences
Currency forward contracts
Interest rate swaps
Total comprehensive income
Transactions with owners in their
capacity as owners:
Dividends paid
Cancellation of treasury stock
Option expense through share based
payments reserve
Forfeiture of issued options - reversal
29
33(b)
33(c)
33(c)
-
-
-
-
-
-
7
-
-
7
-
-
-
-
-
-
-
132
113
245
-
(3,443)
-
-
(3,443)
-
-
360
(476)
(116)
19,577
-
-
-
19,577
19,577
(3,443)
360
(476)
16,018
-
-
-
-
-
-
-
-
-
-
(17,490)
-
(17,490)
7
-
-
(17,490)
132
113
(17,238)
Balance at 30 June 2016
3,767
2,188
2,827
(884) 178,503 186,401
The above statement of changes in equity should be read in conjunction with the accompanying notes.
46 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
Cash flow statement FOR TH E YEAR E N DE D 30 J U N E 2016
Cash flows from operating activities
Receipts from customers (inclusive of GST and sales taxes)
Payments to suppliers and employees
(inclusive of GST and sales taxes)
Interest received
Other revenue
Interest paid
Income tax paid
Net GST and sales taxes paid
Net cash inflow / (outflow) from operating activities
34
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
Payments for intangible assets
Net cash inflow / (outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayments of borrowings
Proceeds from sale of treasury stock
Dividends paid to Company's shareholders
Net cash inflow / (outflow) from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
29
10
NOTES
2016
$000
2015
$000
617,024
566,544
(521,904)
95,120
583
555
(5,950)
(2,257)
(40,257)
47,794
213
(22,949)
(1,600)
(24,336)
124,500
(128,500)
-
(17,490)
(21,490)
1,968
6,797
88
8,853
(462,663)
103,881
49
477
(4,626)
(9,105)
(36,110)
54,566
283
(20,190)
(1,925)
(21,832)
68,507
(79,500)
98
(23,176)
(34,071)
(1,337)
8,109
25
6,797
The above cash flow statement should be read in conjunction with the accompanying notes.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 47
Notes to the financial statements FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 1 Corporate information
The consolidated financial statements of Michael Hill
International Limited and its subsidiaries (collectively, the
Group) for the year ended 30 June 2016 were authorised for
issue in accordance with a resolution of the directors on 18
August 2016. Michael Hill International Limited (the Company
or Parent) is a for profit company limited by shares incorporated
in Australia. The Company listed on the Australian Securities
Exchange ('ASX') on 7 July 2016 as its primary listing, and
maintains a secondary listing on the New Zealand Stock
Exchange ('NZX').
Until 23 June 2016, Michael Hill New Zealand Limited
(formerly known as Michael Hill International Limited) was the
parent of the Group. Until that time, Michael Hill New Zealand
Limited was a public company registered under the Companies
Act 1993 and remains domiciled in New Zealand. Michael
Hill New Zealand Limited had its primary listing on the New
Zealand Stock Exchange. The listing was suspended on 22
June 2016 as part of the scheme of arrangement to move the
primary listing to the ASX.
Michael Hill International Limited obtained control of the
former parent, Michael Hill New Zealand Limited (formerly
known as Michael Hill International Limited) on 23 June 2016.
The reason for obtaining control was the move to the ASX.
Michael Hill International Limited issued equity in exchange
for the equity of Michael Hill New Zealand Limited. The assets
and liabilities of the new group and the original group were
the same immediately before and after the reorganisation. The
owners of the original parent before the reorganisation had the
same absolute and relative interests in the new assets of the
original group and the new group immediately before and after
the reorganisation. As it was a common control transaction,
it is outside the scope of AASB 3 Business Combinations.
The transaction is accounted for as a group reorganisation by
applying the principles of reverse acquisition accounting. The
Group financial statements represent a continuation of the
original group.
As part of the reorganisation, Michael Hill International
Limited acquired 100% of the share capital in Durante
Holdings Pty Ltd (a company controlled by interests associated
with the Hill Family which held 52.89% of the shares on issue
in Michael Hill New Zealand Limited). Durante Holdings Pty
Ltd has been consolidated as a fully controlled subsidiary in
accordance with the accounting policy described in note 2(b).
48 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 2 Summary of significant
accounting policies
(a) BASIS OF PREPARATION
The financial report is a general purpose financial
report, which has been prepared in accordance with the
requirements of the Corporations Act 2001, Australian
Accounting Standards and other authoritative pronounce-
ments of the Australian Accounting Standards Board.
Prior to the change in parent, as described in note
1, the financial statements were prepared in accordance
with New Zealand Generally Accepted Account Practice
(NZ GAAP). They complied with New Zealand equivalents
to International Financial Reporting Standards (NZ IFRS),
and other applicable New Zealand Financial Reporting
Standards, as appropriate for profit-oriented entities. They
also complied with the requirements of the Financial
Reporting Act 2013, Financial Markets Conduct Act 2013
and the Companies Act 1993. There has been no significant
changes in the statement of comprehensive income or
statement of financial position as a result of the change.
The financial report is presented in Australian dollars
and all values are rounded to the nearest thousand
($'000), except when otherwise indicated.
The financial statements have been prepared on
a historical cost basis, except for derivative financial
instruments that have been measured at fair value. The
consolidated financial statements provide comparative
information in respect of the previous period.
Compliance with IFRS
The financial report also complies with International
Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
(b) PRINCIPLES OF CONSOLIDATION
Subsidiaries
Subsidiaries are all those entities (including special
purpose entities) over which the Group has control.
Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through
its power over the investee.
Subsidiaries are fully consolidated from the date
on which control is transferred to the Group. They are
de-consolidated from the date that control ceases.
As described in note 1, the Group inserted a new
parent during the year. As it was a common control
transaction, it is outside the scope of AASB 3 Business
Combinations. The transaction is accounted for as a
group reorganisation by applying the principles of reverse
acquisition accounting. The Group financial statements
represent a continuation of the original group.
The acquisition method of accounting is used to
account for the acquisition of subsidiaries by the Group.
The cost of an acquisition is measured as the fair value of
the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange. Identifiable
assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially
at their fair values at the acquisition date, irrespective of
the extent of any non-controlling interest. The excess of
the cost of acquisition over the fair value of the Group’s
share of the identifiable net assets acquired is recorded as
goodwill. If the cost of acquisition is less than the fair value
of the net assets of the subsidiary acquired, the difference
is recognised directly in the statement of comprehensive
income. Investments in subsidiaries are accounted for at
cost in the individual financial statements of Michael Hill
International Limited.
Intercompany transactions, balances and unrealised
gains on transactions between Group companies are
eliminated on consolidation. Unrealised losses are also
eliminated unless the transaction provides evidence of the
impairment of the asset transferred. Accounting policies
of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the Group.
Michael Hill Trustee Company Limited was formed to
administer the Group's Employee Share Scheme. Shares
held by the Trust are disclosed as treasury shares and
deducted from contributed equity. All treasury shares on
hand at 24 June 2016 were cancelled as part of the move
to the Australian Securities Exchange.
(c) SEGMENT REPORTING
Operating segments are reported in a manner consistent
with the internal reporting provided to the chief operating
decision makers. The chief operating decision makers, who
are responsible for allocating resources and assessing
performance of the operating segments, have been
identified as the Executive Management team.
(d) FOREIGN CURRENCY TRANSLATION
(i) Functional and presentation currency
Items included in the financial statements of each of
the Group's entities are measured using the currency of
the primary economic environment in which the entity
operates (‘the functional currency’). The Group financial
statements are presented in Australian dollars, which is the
Group's functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement, except
when deferred in equity as qualifying cash flow hedges
and qualifying net investment hedges or are attributable to
part of the net investment in a foreign operation.
(iii) Group companies
The results and financial position of all the Group entities
(none of which have the currency of a hyperinflation-
ary economy) that have a functional currency different
from the presentation currency are translated into the
presentation currency as follows:
• assets and liabilities for each statement of financial
position presented are translated at the closing rate at
the date of the statement of financial position;
• income and expenses for each profit and
loss
component of the statement of comprehensive income
are translated at average exchange rates, unless this is
not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates
of the transactions; and
• all resulting exchange differences are recognised as
other comprehensive income.
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities, and
of borrowings and other financial instruments designated
as hedges of such investments, are recognised in other
comprehensive income. When a foreign operation is sold
or any borrowings forming part of the net investment
are repaid, a proportionate share of such exchange
differences is reclassified to profit or loss, as part of the
gain or loss on sale where applicable.
Goodwill and fair value adjustments arising on the
acquisition of foreign entities are treated as assets and
liabilities of the foreign entities and translated at the
closing rate.
(e) REVENUE RECOGNITION
(i) Sales of goods - retail
Sales of goods are recognised when a Group entity
delivers a product to the customer. Retail sales are
usually by cash, payment plan or credit card. The recorded
revenue is the gross amount of sale (excluding taxes),
including any fees payable for the transaction.
It is the Group's policy to sell its products to the end
customer with a right of return. Accumulated experience
is used to estimate and provide for such returns at the time
of sale.
(ii) Rendering of services - deferred service revenue
The Group offers a professional care plan ('PCP') product
which is considered deferred revenue until such time that
service has been provided. A PCP is a plan under which
the Group offers future services to customers based
on the type of plan purchased. The Group subsequently
recognises the income in revenue in the statement
of comprehensive income once these services are
performed. An estimate is used as a basis to establish the
amount of service revenue to recognise in the statement
of comprehensive income.
(iii) Rendering of services - repairs
Sales of services for repair work performed is recognised
in the accounting period in which the services are rendered.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 49
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
(iv) Interest revenue from in-house customer
finance program
Interest revenue is recognised on the in-house customer
finance program when consideration is deferred. It is
calculated as the difference between the nominal cash
and cash equivalents received from customers and the
discounted cashflows, on both interest and non-interest
bearing products. Interest revenue is brought to account
over the term of the finance agreement, and the rate used
for non-interest bearing products is in line with current,
comparable market rates.
Interest income
(v)
Interest income is recognised using the effective interest
method.
(f) TAXES
Current income tax
The income tax expense or revenue for the period is the tax
payable on the current period’s taxable income based on
the applicable income tax rate for each jurisdiction adjusted
by changes in deferred tax assets and liabilities attributable
to temporary differences and to unused tax losses.
The current income tax charge is calculated on the
basis of the tax laws enacted or substantively enacted
at the end of the reporting period in the countries
where the Group operates and generates taxable income.
Management periodically evaluates positions taken in
tax returns with respect to situations in which applicable
tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Current tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case,
the tax is also recognised in other comprehensive income
or directly in equity, respectively.
Deferred income tax
Deferred income tax is provided in full, using the liability
method, on temporary differences between the tax bases
of assets and liabilities and their carrying amounts in the
consolidated financial statements.
Deferred tax assets are recognised for deductible
temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to
utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised
for temporary differences between the carrying amount
and tax bases of investments in controlled entities where
the Parent Entity is able to control the timing of the reversal
of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
Deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case,
the tax is also recognised in other comprehensive income
or directly in equity, respectively.
Deferred tax assets and liabilities are offset when
there is a legally enforceable right to offset current tax
50 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
assets and liabilities and when the deferred tax balances
relate to the same taxation authority. Current tax assets
and liabilities are offset where the entity has a legally
enforceable right to offset and intends either to settle on
a net basis, or to realise the asset and settle the liability
simultaneously.
Tax consolidation group
Michael Hill International Limited and its wholly-owned
Australian controlled entities formed a tax consolidation
group on 29 June 2016. As a consequence, one income
tax return is completed for the Australian tax group and is
treated for income tax purposes as one taxpayer.
Formerly, Michael Hill Jeweller (Australia) Pty Ltd
and all wholly-owned Australian controlled entities formed
the Australian tax consolidation group who completed
one income tax return and was treated for income tax
purposes as one taxpayer.
The tax balances have been attributed for reporting
purposes to each of the entities on the basis of their
individual results. Amounts of tax due to and receivable
from the Australian Taxation Office are made by Michael
Hill International Limited as the nominated member of the
Australian tax consolidated group. The current tax balance
for the Australian tax group has been allocated between
the members based on each entity’s current tax movement
for the period. Where tax losses are incurred by Australian
tax group members, these are offset within the group
without payment.
As a result of the formation of the Australian tax
consolidated group, the general income tax consolidation
provisions apply relating to the setting of the tax cost
base of the assets of the subsidiary members of the tax
consolidated group. This includes resetting of the tax
cost base of the assets of the Australian group including
intellectual property, depreciating assets and trading stock.
The resetting of the tax bases resulted in recognition of a
deferred tax asset amounting to $19,438,000.
(g) GOODS AND SERVICES TAX (GST)
Revenues, expenses and assets are recognised net of the
amount of GST, except:
• When the GST incurred on a sale or purchase of assets
or services is not payable to or recoverable from the
taxation authority, in which case the GST is recognised
as part of the revenue or the expense item or as part of
the cost of acquisition of the asset, as applicable; or
• When receivables and payables are stated with the
amount of GST included.
The net amount of GST recoverable from, or payable to,
the taxation authority is included as part of receivables
or payables in the statement of financial position.
Commitments and contingencies are disclosed net of
the amount of GST recoverable from, or payable to, the
taxation authority.
Cash flows are included in the statement of cash
flows on a gross basis and the GST component of
cashflows arising from investing and financing activities,
which is recoverable from, or payable to, the taxation
authority is classified as part of operating cash flows.
(h) LEASES
Leases of property, plant and equipment where the Group,
as lessee, has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases
are capitalised at the lease’s inception at the fair value
of the leased property or, if lower, the present value of
the minimum lease payments. The corresponding rental
obligations, net of finance charges, are included in other
short term and long term payables. Each lease payment
is allocated between the liability and finance charges. The
finance cost is charged to the statement of comprehensive
income over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the
liability for each period. The property, plant and equipment
acquired under finance leases is depreciated over the
shorter of the asset’s useful life and the lease term.
Leases in which a significant portion of the risks
and rewards of ownership are retained by the lessor are
classified as operating leases. Payments made under
operating leases (net of any incentives received from the
lessor) are charged to the comprehensive income statement
on a straight-line basis over the period of the lease.
(i) IMPAIRMENT OF ASSETS
At each annual reporting date (or more frequently if
events or changes in circumstances indicate that they
might be impaired), the Group assesses whether there
is any indication that an asset may be impaired. Where
such an indication is identified, the Group estimates
the recoverable amount of the asset and recognises an
impairment loss where the recoverable amount is less than
the carrying amount. The recoverable amount is the higher
of an asset's fair value less costs to sell and value-in-use.
In addition, at least annually, goodwill and intangible
assets with indefinite useful lives are tested for impairment
by comparing their estimated recoverable amounts with
their carrying amounts. Where the recoverable amount
exceeds the carrying amount of an asset, an impairment
loss is recognised.
The pre-tax discount rates used in determining the
recoverable amount ranged between 10.3% and 13.3%
(2015: 10.2% and 11.9%), depending on the geographical
segment of the assets.
(j) CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, deposits
held at call with financial institutions, other short-term and
highly liquid investments with original maturities of three
months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant
risk of changes in value. Bank overdrafts are shown within
borrowings in current liabilities on the balance sheet.
(k) TRADE AND OTHER RECEIVABLES
Trade receivables are amounts due from customers for
goods sold or services rendered in the ordinary course of
business. If collection is expected in one year or less (or in
the normal operating cycle of the business if longer), they
are classified as current assets. If not, they are presented
as non-current assets.
Collectibility of trade receivables is reviewed on an
ongoing basis. Debts which are known to be uncollectible
are written off. A provision for impaired receivables is
established when there is objective evidence that the
Group will not be able to collect all amounts due according
to the original terms of receivables. The amount of the
provision is the difference between the asset’s carrying
amount and the present value of estimated future cash
flows, discounted at the original effective interest rate.
Cash flows relating to short-term receivables are not
discounted if the effect of discounting is immaterial. The
amount of the provision is recognised in the statement of
comprehensive income.
(l) DEFERRED EXPENDITURE
Direct and incremental bonuses associated with the sale
of professional care plans are deferred and amortised in
proportion to the professional care plan revenue recognised.
Management reviews trends in current and estimated
future services provided under the plan to assess whether
changes are required to the cost recognition rates used.
(m) INVENTORIES
Raw materials and finished goods are stated at the lower
of cost and net realisable value. Cost comprises direct
materials, direct labour and an appropriate proportion of
variable and fixed overhead expenditure, the latter being
allocated on the basis of normal operating capacity. Costs
are assigned to individual items of inventory on the basis
of weighted average costs. Net realisable value is the
estimated selling price in the ordinary course of business
less the estimated costs of completion and the estimated
costs necessary to make the sale.
(n) INVESTMENTS AND OTHER FINANCIAL ASSETS
The Group classifies its investments and other financial
assets into the following categories: financial assets at
fair value through profit or loss, loans and receivables,
held-to-maturity investments and available-for-sale financial
assets. The classification depends on the purpose for which
the investments were acquired. Management determines
the classification of its investments at initial recognition.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are
financial assets held for trading. A financial asset is
classified in this category if acquired principally for the
purpose of selling in the short term. Derivatives are classified
as held for trading unless they are designated as hedges.
Assets in this category are classified as current assets.
(ii) Loans and receivables
Loans and receivables are non derivative financial assets
with fixed or determinable payments that are not quoted
in an active market. They are included in current assets,
except for those with maturities greater than 12 months
after the reporting date which are classified as non-current
assets. Loans and receivables are included in trade and
other receivables in the balance sheet.
The Group assesses at the end of each reporting
period whether there is objective evidence that a financial
asset or a group of financial assets is impaired.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 51
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
(o) DERIVATIVES
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at the end of each reporting
period. The method of recognising the resulting gain or
loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being
hedged. The Group designates certain derivatives as either:
(1) hedges of the fair value of recognised assets or liabilities
or a firm commitment (fair value hedge); or (2) hedges of
highly probable forecast transactions (cash flow hedges).
The Group documents at the inception of the
transaction the relationship between hedging instruments
and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions.
The Group also documents its assessment, both at
hedge inception and on an ongoing basis, of whether the
derivatives that are used in hedging transactions have
been and will continue to be highly effective in offsetting
changes in fair values or cash flows of hedged items.
The fair values of various derivative financial
instruments used for hedging purposes are:
(i) Fair value hedge
Changes in the fair value of derivatives that are designated
and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of
the hedged asset or liability that are attributable to the
hedged risk.
(ii) Cash flow hedge
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow
hedges are recognised in other comprehensive income
and accumulated in reserves in equity. The gain or
loss relating to the ineffective portion is recognised
immediately in the profit or loss within other income or
other expenses.
Amounts accumulated in equity are reclassified to
profit or loss in the periods when the hedged item
will affect profit or loss. However, when the forecast
transaction that is hedged results in the recognition of a
non-financial asset or a non-financial liability, the gains and
losses previously deferred in equity are transferred from
equity and included in the initial measurement of the cost
of the asset.
When a hedging instrument expires or is sold or
terminated, or when a hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss existing
in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in the
income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was
reported in equity is immediately reclassified to profit or loss.
(p) FAIR VALUE ESTIMATION
The fair value of financial assets and financial liabilities
must be estimated for recognition and measurement or for
disclosure purposes.
The fair value of forward exchange contracts is
determined using forward exchange market rates at the
balance sheet date.
52 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
The carrying value less impairment provision of trade
receivables and payables are assumed to approximate
their fair values due to their short-term nature. The fair
value of financial liabilities for disclosure purposes is
estimated by discounting the future contractual cash flows
at the current market interest rate that is available to the
Group for similar financial instruments.
(q) PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment is stated at historical cost
less depreciation. Historical cost includes expenditure that
is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits
associated with the item will flow to the Group and the
cost of the item can be measured reliably. All costs
are charged to the profit and loss component of the
statement of comprehensive income during the financial
period in which they are incurred.
Depreciation on other assets is calculated using the
straight line method to allocate their cost or revalued
amounts, net of their residual values, over their estimated
useful lives, as follows:
• Plant and equipment
5 - 6 years
• Motor vehicles
3 - 5 years
6 - 10 years
• Fixtures and fittings
• Leasehold improvements 6 - 10 years
6 - 10 years
• Display material
The assets’ residual values and useful lives are
reviewed, and adjusted if appropriate, at each balance
sheet date.
An asset’s carrying amount
is written down
immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable
amount (note 2(i)).
Gains and losses on disposals are determined by
comparing proceeds with the carrying amount. These are
included in the comprehensive income statement.
(r) INTANGIBLE ASSETS
Computer software
Acquired computer software licences are capitalised on
the basis of the costs incurred to acquire and bring to use
the specific software. These costs are amortised over their
estimated useful lives (three to five years).
Costs associated with developing or maintaining
computer software programs are recognised as an
expense as incurred. Costs that are directly associated
with the production of identifiable and unique software
products controlled by the Group, and that will probably
generate economic benefits exceeding costs beyond one
year, are recognised as intangible assets. Direct costs
include the software development employee costs and an
appropriate portion of relevant overheads.
Computer software development costs recognised as
assets are amortised over their estimated useful lives (not
exceeding five years).
(s) TRADE AND OTHER PAYABLES
These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial year
which are unpaid. The amounts are unsecured and are
usually paid within 30 days of recognition.
Deferred revenue represents lease incentives for
entering new lease agreements and revenue from PCPs.
The accounting policy used to recognise the revenue is
detailed in note 2(e)(ii).
(t) BORROWINGS
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption
amount is recognised in the income statement over the
period of the borrowings using the effective interest method.
Borrowings are removed from the balance sheet
when the obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying
amount of a financial liability that has been extinguished
or transferred to another party and the consideration paid,
including any non-cash assets transferred or liabilities
assumed, is recognised in other income or finance costs.
Borrowings are classified as current liabilities when
repayment is due within twelve months.
(u) PROVISIONS
Provisions for legal claims, sales returns, lifetime battery
replacement and make good obligations are recognised
when the Group has a present legal or constructive
obligation as a result of past events; it is probable that
an outflow of resources will be required to settle the
obligation; and the amount has been reliably estimated.
Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the
likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a
whole. A provision is recognised even if the likelihood of
an outflow with respect to any one item included in the
same class of obligations may be small.
Provisions are measured at the present value of
management's best estimate of the expenditures required
to settle the present obligation at the balance sheet date.
The discount rate used to determine the present value is
a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the
liability. The increase in the provision due to passage of
time is recognised as interest expense.
(v) EMPLOYEE BENEFITS
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary
benefits and annual leave expected to be settled within 12
months after the end of the period in which the employees
render the related service are recognised in respect of
employees' services up to the end of the reporting period
and are measured at the amounts expected to be paid
when the liabilities are settled. All short-term employee
benefit obligations are presented as payables.
(ii) Other long-term employee benefit obligations
The liability for long service leave and annual leave which
is not expected to be settled within 12 months after the
end of the period in which the employees render the
related service is recognised in the provision for employee
benefits and measured as the present value of expected
future payments to be made in respect of services
provided by employees up to the reporting period using
the projected unit credit method. Consideration is given
to expected future wage and salary levels, experience of
employee departures and periods of service. Expected
future payments are discounted using market yields at
the reporting period on corporate bonds with terms to
maturity and currency that match, as closely as possible,
the estimated future cash outflows.
(iii) Retirement benefit obligations
All Australian and Canadian employees of the Group are
entitled to benefits on retirement, disability or death from
the Group’s defined contribution superannuation plans. The
defined contribution superannuation plans receive fixed
contributions from Group companies and the Group’s legal
or constructive obligation is limited to these contributions.
Contributions to the defined contribution funds are
recognised as an expense as they become payable.
Prepaid contributions are recognised as an asset to the
extent that a cash refund or a reduction in the future
payments is available.
(iv) Share-based payments
Share-based compensation benefits are provided to
employees via the Michael Hill International Limited
Employee Share Scheme and from time to time options
are issued to Executives of Michael Hill International
Limited in accordance with the Company's constitution.
The Board of Directors pass a resolution approving the
issue of the options. The fair value of options granted
is recognised as an employee benefit expense with a
corresponding increase in equity.
The fair value is measured at grant date and
recognised over the period during which the employees
become unconditionally entitled to the options. The fair
value at grant date for options issued during 2016 were
independently determined using a Binomial option pricing
model, which is an iterative model for options that can
be exercised at times prior to expiry. The model takes
into account the grant date, exercise price, the vesting
and performance criteria, the impact of dilution, the
non-tradeable nature of the option, the share price at grant
date and expected price volatility of the underlying share,
the expected dividend yield and the risk-free interest rate
for the term of the option. It also assumes the options will
be exercised at the mid-point of the exercise period.
The fair value of the options granted is adjusted
to reflect market vesting conditions, but excludes the
impact of any non-market vesting conditions (for example,
profitability and sales growth targets). Non-market vesting
conditions are included in the assumptions about the
number of options that are expected to become exercisable.
At each balance sheet date, the entity revises its estimate
of the number of options that are expected to become
exercisable. The employee benefit expense recognised
each period takes into account the most recent estimate.
The impact of the revision to original estimates, if any, is
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 53
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
recognised in the statement of comprehensive income
with a corresponding adjustment to equity.
Upon the exercise of options, the balance of the
share-based payments reserve relating to those options
is transferred to share capital. Proceeds received net of
any directly attributable transaction costs are credited to
share capital when the options are exercised. The ten
percent discount on the market value of shares issued
to employees under the Employee Share Scheme is
recognised as an employee benefits expense when the
shares are issued.
(v) Profit-sharing and bonus plans
The Group recognises a liability and an expense for
bonuses and profit-sharing based on a formula that
takes into consideration the profit attributable to the
Company’s shareholders after certain adjustments. The
Group recognises a provision where contractually obliged
or where there is a past practice that has created a
constructive obligation.
(w) CONTRIBUTED EQUITY
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of
new shares or options are shown in equity as a deduction,
net of tax, from the proceeds. Incremental costs directly
attributable to the issue of new shares or options for the
acquisition of a business are included in the cost of the
acquisition as part of the purchase consideration.
If the entity reacquires its own equity instruments,
e.g. as the result of a share buy-back, those instruments
are deducted from equity until the associated shares are
cancelled, reissued or disposed of. No gain or loss is
recognised in the profit or loss and the consideration paid
including any directly attributable incremental costs (net of
income taxes) is recognised directly in equity.
(x) DIVIDENDS
Provision is made for the amount of any dividends
declared, being appropriately authorised and no longer
at the discretion of the entity, on or before the end of
the reporting period but not distributed at the end of the
reporting period.
(y) EARNINGS PER SHARE
(i) Basic earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company, excluding
any costs of servicing equity other than ordinary shares,
by the weighted average number of ordinary shares
outstanding during the financial year, adjusted for bonus
elements in ordinary shares issued during the year.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in
the determination of basic earnings per share to take
into account the after income tax effect of interest and
other financing costs associated with dilutive potential
ordinary shares and the weighted average number of
shares assumed to have been issued for no consideration
in relation to dilutive potential ordinary shares.
54 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
(z) STANDARDS, AMENDMENTS AND
INTERPRETATIONS TO EXISTING STANDARDS
THAT ARE NOT YET EFFECTIVE
Certain new standards, amendments and interpretations
of existing standards have been published that are not
mandatory for 30 June 2016 reporting periods.
AASB 9 Financial Instruments: Classification and
measurement (effective 1 January 2018)
AASB 9 addresses the classification, measurement and
derecognition of financial assets and financial liabilities.
The standard is not applicable until 1 January 2018 but
is available for early adoption. The Group has not yet
assessed the potential impact of this change.
AASB 15 Revenue from Contracts with
Customers (effective 1 January 2018)
AASB 15 deals with revenue recognition and establishes
principles for reporting useful information to users of
financial statements about the nature, amount, timing and
uncertainty of revenue and cash flows arising from an
entity’s contracts with customers. Revenue is recognised
when a customer obtains control of a good or service and
thus has the ability to direct the use and obtain the benefits
from the good or service. AASB 15 supersedes:
(a) AASB 111 Construction Contracts;
(b) AASB 118 Revenue;
(c)
(d)
Interpretation 13 Customer Loyalty Programmes;
Interpretation 15 Agreements for the
Construction of Real Estate;
Interpretation 18 Transfers of Assets from Customers;
Interpretation 131 Revenue - Barter Transactions
Involving Advertising Services; and
Interpretation 1042 Subscriber acquisition costs in
the Telecommunications Industry.
The core principle of AASB 15 is that an entity
recognises revenue to depict the transfer of promised
goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled
in exchange for those goods or services.
(e)
(f)
(g)
The standard is not applicable until 1 January 2018
but is available for early adoption. The Group has not yet
assessed the potential impact of this change.
AASB 16 Leases (effective 1 January 2019)
AASB 16 addresses the recognition and measurement of
assets and liabilities for all leases with a term of more than
12 months, unless they are of low value. It also contains
the disclosure requirements for lessees and lessors.
AASB 16 supersedes:
(a) AASB 117 Leases;
(b)
Interpretation 4 Determining whether an
Arrangement contains a Lease;
(c) SIC-15 Operating Leases - Incentives; and
(d) SEC-27 Evaluating the Substance of Transactions
involving the Legal Form of a Lease.
The standard is not applicable until 1 January 2019
but is available for early adoption provided the new
revenue standard, AASB 15 Revenue from Contracts with
Customers, has been applied or is applied at the same
date as AASB 16. The Group has not yet assessed the
potential impact of this change.
NOTE 3 Financial risk management
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk
and price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpre-
dictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the
Group. The Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps
to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other
speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed.
These methods include sensitivity analysis in the case of interest rate and foreign exchange risks and aging analysis
for credit risk.
The Board of Directors are responsible for risk management. The Group's overall risk management program
includes a focus on financial risk including the unpredictability of financial markets and foreign exchange risk.
The policies are implemented by the central finance function that undertakes regular reviews to enable prompt
identification of financial risks so that appropriate actions may be taken.
(a) MARKET RISK
Foreign exchange risk
(i)
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities that are
denominated in a currency that is not the entity’s functional currency and net investments in foreign operations.
The Group operates internationally and is exposed to foreign exchange risk arising from various currency
exposures. Where it considers appropriate, the Group enters into forward foreign exchange contracts to buy
specified amounts of various foreign currencies in the future at a pre-determined exchange rate.
Foreign exchange forward contracts measured through Other comprehensive income are designated as hedging
instruments in cash flow hedges of forecast purchases in USD. These forecast transactions are highly probable.
The cash flow hedges of the expected future purchases were assessed to be highly effective and a net
unrealised gain of $360,000 (2015: $77,000 gain) is included in Other comprehensive income. Fair value gain
adjustments are included in Trade and other receivables. Fair value loss adjustments are included in Trade and
other payables.
Forward exchange contracts - cash flow hedges
The cash flows are expected to occur at various dates up to six months from the balance date. At balance date,
the details of outstanding contracts are:
Buy US Dollars
Maturity 0 - 3 months
Maturity 3 - 6 months
Sell Australian dollars
2015
US$000
2016
US$000
11,000
4,000
15,000
2,810
-
2,810
Average exchange rate
2015
2016
0.7608
0.7459
0.7800
-
Amounts disclosed above represent currency sold, measured at the contracted rate.
The Group’s exposure to foreign currency risk at the reporting date was as follows:
Cash and cash equivalents
Trade receivables
Trade payables
USD
$000
11
2,967
867
30 June 2016
CAD
NZD
$000
$000
37
-
3
30
10
60
USD
$000
30
1,392
2,590
30 June 2015
CAD
NZD
$000
$000
80
106
-
7
-
102
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 55
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2016
Group sensitivity
The Group's principal foreign currency exposures arise from trade payables and receivables outstanding at year end.
Based on the USD trade payables due for payment at 30 June 2016, had the Australian dollar weakened/
strengthened by 10% against the USD with all other variables held constant, the Group's equity for the year
would have been $130,000 lower / $107,000 higher (2015: $377,000 lower / $308,000 higher).
Most trade payables are repaid within 30 days so there is minimal equity impact arising from foreign
currency exposures.
Based on the USD receivables at 30 June 2016, had the Australian dollar weakened/strengthened by
10% against the USD with all other variables held constant, the Group's equity for the year would have been
$446,000 higher / $365,000 lower (2015: $203,000 higher / $166,000 lower).
The Group does not hedge either economic exposure or the translation exposure arising from the profits,
assets and liabilities of New Zealand, Canada and United States. The effect on the FX translation reserve is
contained in the statement of changes in equity.
(ii) Cash flow and fair value interest rate risk
The Group's main interest rate risk arises from long-term borrowings and cash. Borrowings issued at variable
rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair
value interest rate risk. Group policy is to maintain fixed interest cover of between 50% and 100% of core debt
up to 12 months, between 50% and 75% of core debt between 1 and 3 years, and between 25% and 50% of
core debt between 3 and 5 years.
To manage variable interest rate borrowings risk, the Group enters into interest rate swaps in which the
Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts
calculated by reference to an agreed-upon notional principal amount. As at the reporting date, the Group had the
following borrowings outstanding:
Variable rate fully drawn
down advance facility
30 June 2016
Weighted average
interest rate
%
30 June 2015
Weighted average
interest rate
%
Balance
$000
Balance
$000
2.64%
40,887
2.84%
45,116
An analysis by maturity and a summary of the terms and conditions is in note 24.
In order to reduce the variability of the future cash flows in relation to the interest bearing loans, the Group
has entered into Australian dollar interest rate swap contracts under which it has a right to receive interest at
variable rates and to pay interest at fixed rates. Swaps in place cover approximately 85.6% (2015: 55.4%) of the
variable rate principal outstanding.
The interest rate swaps are designated as cash flow hedging instruments. Changes in the interest paid on the
variable rate fully drawn down advance facility are measured at fair value through Other comprehensive income.
The cash flow hedges were assessed to be highly effective and a net realised loss of $476,000 (2015:
$568,000) is included in Other comprehensive income. Fair value gain adjustments are included in Trade and
other receivables. Fair value loss adjustments are included in Trade and other payables.
The notional principal amounts and period of expiry of the interest rate derivatives contracts are as follows:
GROUP
Swap terminating 1 July 2016
Swap terminating 1 September 2017
Swap terminating 1 May 2018
Swap terminating 12 September 2018
Swap terminating 1 October 2018
Swap terminating 12 September 2019
Swap terminating 1 October 2019
Rate
%
3.29
3.46
3.58
3.44
2.30
3.60
2.43
2016
$000
5,000
5,000
5,000
5,000
5,000
5,000
5,000
35,000
2015
$000
5,000
5,000
5,000
5,000
-
5,000
-
25,000
56 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
The interest rate derivatives require settlement of net
interest receivable or payable each 30 days and are
settled on a net basis.
and consolidated debt to capitalisation. There have been
no breaches of these covenants or events of review for the
current or prior period.
Group sensitivity
At 30 June 2016, if interest rates had changed by -/+ 100
basis points from the year end rates with all other variables
held constant, the Group's equity for the year would have
been $409,000 higher / lower (2015: $451,000 higher /
lower), mainly as a result of lower / higher interest expense
on variable borrowings. All other non-derivative financial
liabilities have a contractual maturity of less than 6 months.
(b) CREDIT RISK
Credit risk is managed on a Group basis and refers to the
risk of a counterparty failing to discharge an obligation.
In the normal course of business, the Group incurs credit
risk from trade receivables and transactions with financial
institutions. The Group places its cash and short term
deposits with only high credit quality financial institutions.
Sales to retail customers are required to be settled via
cash, major credit cards or passed onto various credit
providers in each country.
In-house customer finance was established in Canada
and the United States in October 2012. Customer credit
risk is managed subject to the Group's established policy,
procedures and control relating to customer credit risk
management. Credit quality of a customer is assessed based
on an extensive credit rating scorecard and individual credit
limits are defined in accordance with this assessment.
An impairment analysis is performed at each
reporting date. The maximum exposure to credit risk is
the carrying value of in-house customer finance program
as disclosed in note 11. The Group does not hold collateral
as security. The Group evaluates the concentration of risk
with respect to trade receivables as low.
(c) LIQUIDITY RISK
The Group maintains prudent liquidity risk management
with sufficient cash and marketable securities and the
availability of funding through an adequate amount of
committed credit facilities.
Please see note 24 for more information on the
Group's borrowings, financing arrangements and interest
rate exposures.
(d) CAPITAL RISK MANAGEMENT
The main objective of capital risk management is to ensure
the Group operates as a going concern, meets debts as
they fall due, maintains the best possible capital structure,
and reduces the cost of capital. Group capital is regarded
as equity as shown in the statement of financial position.
To maintain or alter the capital structure, the Group has
the ability to review the size of the dividends paid to
shareholders, return capital or issue new shares, reduce or
increase debt or sell assets.
There are a number of external bank covenants
in place relating to debt facilities. These covenants
are calculated and reported to the bank quarterly. The
principal covenants relating to capital management are the
earnings before interest and taxation (EBIT) fixed cover
charge ratio, the consolidated debt to earnings before
interest, taxation, depreciation and amortisation (EBITDA)
NOTE 4 Critical accounting estimates
and assumptions
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
The Group makes estimates and assumptions concerning
the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities
within the next financial year are addressed below.
Share-based payment transactions
The Group measures the cost of equity-settled transactions
with employees by reference to the fair value of the equity
instruments at the date at which they are granted. The fair value
is determined with the assistance of an external valuer using
the Binomial model. The related assumptions are detailed in
note 33. The accounting estimates and assumptions relating
to equity-settled share-based payments would have no impact
on the carrying amounts of assets and liabilities within the next
annual reporting period but may impact expenses and equity.
Make good provisions
A provision has been made for the present value of anticipated
costs of future restoration of leased store premises. The
provision includes future cost estimates associated with
dismantling and closure of stores. The calculation of this
provision requires assumptions such as discount rates, store
closure dates and lease terms. These uncertainties may
result in future actual expenditure differing from the amounts
currently provided. The provision recognised is periodically
reviewed and updated based on the facts and circumstances
available at the time. Changes for the estimated future costs
for sites are recognised in the statement of financial position
by adjusting both the expense or asset (if applicable) and
provision. The related carrying amounts are disclosed in note
22 and note 25.
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based
on historical experience, lease terms (for leased equipment)
and policies (for motor vehicles). In addition, the condition of
the assets is assessed at least once per year and considered
against the remaining useful life. Adjustments to useful lives are
made when considered necessary.
CRITICAL JUDGEMENTS IN APPLYING THE ENTITY’S
ACCOUNTING POLICIES
Revenue recognition
Professional care plan revenue is recognised as sales revenue
in the statement of comprehensive income. Management
judgement is required to determine the amount of service
revenue that can be recognised based on the usage pattern
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 57
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
of PCPs and general information obtained on the operation of
service plans in other markets. Those direct and incremental
bonuses associated with the sale of these plans are deferred
and amortised in proportion to the revenue recognised.
Management reviews trends in current and estimated future
services provided under the plan to assess whether changes
are required to the revenue and cost recognition rates used.
Due to management reviews conducted during the year,
an adjustment to the revenue recognition pattern has been
deemed necessary. As a result of this, an additional $2,214,000
has been recognised as revenue in the current financial year.
Of this, $138,000 relates to the current financial year, and
$2,076,000 relates to prior financial years. The change in
estimate will result in lower revenue in future periods by the
corresponding amount.
Taxation and recovery of deferred tax assets
The Group is subject to income taxes in Australia and
jurisdictions where it has foreign operations. Significant
judgement is required in determining the worldwide provision
for income taxes. There are many transactions and calculations
for which the ultimate tax determination is uncertain during the
ordinary course of business.
Deferred tax assets are recognised for deductible
temporary differences as management considers that it is
probable that future taxable profits will be available to utilise
those temporary differences. Management judgement is
required to determine the amount of deferred tax assets that
can be recognised.
Impairment of non-financial assets other than
goodwill and indefinite life intangibles
The Group assesses impairment of all assets at each reporting
date by evaluating conditions specific to the Group and to the
particular asset that may lead to impairment. These include
store performance, product and manufacturing performance,
technology and economic environments and future product
expectations. If an impairment trigger exists the recoverable
amount of the asset is determined.
NOTE 5 Segment information
Identification and description of segments
Management have determined the operating segments based
on the reports reviewed by the Board and Executive Team
that are used to make strategic decisions. This definition
was updated after it was announced on 10 June 2016 that
the Emma & Roe brand was moving from the trial phase into
growth mode. Prior year comparatives were also restated in
line with the updated definition.
The Board and Executive Team consider, organise and
manage the business primarily from a brand perspective. For
the Michael Hill brand, they also consider, organise and manage
the business from a geographic perspective, being the country
of origin where the sale and service was performed. Discrete
financial information about each of these operating businesses
is reported to the Board and Executive Team monthly, via the
preparation of the Group financial reports.
The amounts provided to the Board and Executive Team in
respect of total assets and liabilities are measured in a manner
consistent with the financial statements. These reports do not
allocate total assets or total liabilities based on the operations
of each segment or by geographical location.
The Group operates in four geographical segments:
Australia, New Zealand, Canada and the United States of
America (see note 32).
The corporate and other segment includes revenue and
expenses that do not relate directly to the relevant Michael Hill
or Emma & Roe retail segments. These predominately relate
to corporate costs and Australian based support costs, but
also include the trading activity through our online presence,
manufacturing activities, warehouse and distribution, interest
and company tax. Inter-segment pricing is at arm's length or
market value.
Types of products and services
Michael Hill International Limited and its controlled entities
operate predominately in the sale of jewellery and related
services. As indicated above, the Group is organised and
managed globally into geographic areas.
Major customers
Michael Hill International Limited and its controlled entities sell
goods and provide services to a number of customers from which
revenue is derived. There is no single customer from which the
Group derives more than 10% of total consolidated revenue.
Accounting policies and inter-segment transactions
The accounting policies used by the Group in reporting
segments internally are the same as those contained in note 2
to the accounts and in the prior period.
58 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
SEGMENT INFORMATION BY BRAND
for the period ended 30 June 2016
Operating revenue
EBITDA
Depreciation and amortisation
EBIT
Interest income
Finance costs
Net profit before tax
Income tax expense
Net profit after tax
for the period ended 30 June 2015
Operating revenue
EBITDA
Depreciation and amortisation
EBIT
Interest income
Finance costs
Net profit before tax
Income tax expense
Net profit after tax
Michael Hill Emma & Roe
$000
536,424
96,840
(14,733)
82,107
-
(149)
81,958
495,580
84,621
(12,766)
71,855
-
(135)
71,720
$000
9,347
(1,817)
(611)
(2,428)
-
(14)
(2,442)
4,879
(2,539)
(345)
(2,884)
-
8
(2,876)
Corporate
& other
$000
5,356
(29,205)
(3,416)
(32,621)
583
(5,944)
(37,982)
2,911
(24,283)
(2,627)
(26,910)
49
(4,581)
(31,442)
Group
$000
551,127
65,818
(18,760)
47,058
583
(6,107)
41,534
(21,957)
19,577
503,370
57,799
(15,738)
42,061
49
(4,708)
37,402
(9,648)
27,754
MICHAEL HILL RETAIL SEGMENT INFORMATION BY COUNTRY
for the period ended 30 June 2016
Segment operating revenue
Segment EBITDA
Segment depreciation and amortisation
Segment EBIT
Segment EBIT as a % of revenue
Segment finance costs
Segment net profit before tax
for the period ended 30 June 2015
Segment operating revenue
Segment EBITDA
Segment depreciation and amortisation
Segment EBIT
Segment EBIT as a % of revenue
Segment finance costs
Segment net profit before tax
MHJ
MHJ
Australia New Zealand
MHJ
MHJ
Canada United States Michael Hill
$000
307,333
57,540
(7,201)
50,339
16.4%
(135)
50,204
294,442
52,492
(6,559)
45,933
15.6%
(96)
45,837
$000
112,473
27,729
(2,542)
25,187
22.4%
(12)
25,175
106,180
24,434
(2,496)
21,938
20.7%
(37)
21,901
$000
97,322
13,475
(3,753)
9,722
10.0%
-
9,722
81,348
9,289
(2,963)
6,326
7.8%
(2)
6,324
$000
19,296
(1,904)
(1,237)
(3,141)
(16.3%)
(2)
(3,143)
13,610
(1,594)
(748)
(2,342)
(17.2%)
-
(2,342)
$000
536,424
96,840
(14,733)
82,107
15.3%
(149)
81,958
495,580
84,621
(12,766)
71,855
14.5%
(135)
71,720
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 59
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 6 Revenue
From continuing operations:
Sales revenue
Revenue from sale of goods and repair services
Revenue from professional care plans
2016
$000
2015
$000
517,820
30,758
1,966
550,544
476,253
25,208
1,860
503,321
583
551,127
49
503,370
2016
$000
102
-
453
555
2015
$000
137
1,783
339
2,259
Interest and other revenue from in-house customer finance program
Other revenue
Interest income
NOTE 7 Other income
Insurance recoveries
Net foreign exchange gains (Net foreign exchange losses in 2016)
Other income
60 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 8 Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Plant and equipment
Furniture and fittings
Motor vehicles
Leasehold improvements
Display materials
Total depreciation
Amortisation – software
Total depreciation and amortisation
Bank and interest charges
Interest expense - make good provision
Interest paid in regards to tax pooling arrangement
Total finance costs
Net foreign exchange losses (Net foreign exchange gains in 2015)
Remuneration of auditors
During the year the following fees were paid or payable for
services provided by the auditor of the Parent Entity, its related
practices and non-related audit firms:
(a) Assurance services - audit services
Ernst & Young Australian firm audit and review of financial reports
Grant Thornton New Zealand firm audit of ordinary shares register
Total remuneration for assurance services
(b) Advisory services
Ernst & Young Australian firm advisory fees
2016
$000
2015
$000
3,681
3,498
214
7,126
1,720
16,239
2,521
18,760
2,793
161
3,153
6,107
352
367
2
369
50
419
3,499
2,987
212
5,826
1,354
13,878
1,860
15,738
3,508
127
1,073
4,708
-
337
2
339
5
344
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 61
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 9 Income tax expense
(a) Income tax expense
Current tax
Deferred tax
Over provided in prior years
Derecognised tax losses
Tax consolidation cost base adjustments (see note 2(f))
Inland Revenue tax settlement provision
Income tax expense
12,139
332
(65)
208
(19,439)
28,782
21,957
2016
$000
7,139
1,532
(24)
1,001
-
-
9,648
2015
$000
(b) Numerical reconciliation of income tax
expense to prima facie tax payable
Profit from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2015: at the NZ tax rate of 28%)
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Non deductible entertainment expenditure
Non deductible legal expenditure
Debt deduction denied
Share of partnership
Unrealised foreign exchange loss not included in accounting profit
Sundry items
Tax consolidation cost base adjustments
Inland Revenue tax settlement provision
Difference in overseas tax rates
Over provided in prior years
Tax losses not recognised
Income tax expense
(c) Tax losses
Unused United States tax losses for which no deferred tax has been recognised
Potential tax benefit @ 40%
Unused New Zealand tax losses for which no deferred tax has been recognised
Potential tax benefit @ 28%
NOTE 10 Current assets - Cash and cash equivalents
Cash at bank and on hand
41,534
12,460
37,402
10,473
178
89
-
(515)
(500)
1
(19,439)
28,782
21,056
(414)
(65)
1,380
21,957
15,199
6,079
413
116
2016
$000
8,853
171
98
28
(3,601)
39
3
-
-
7,211
325
(24)
2,136
9,648
10,451
4,181
4,330
1,212
2015
$000
6,797
Interest rates for the bank accounts have been between 0.00% and 1.15% during the year (2015: between 0.00%
and 4.00%).
62 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 11 Current assets - Trade and other receivables
Trade receivables
Provision for impaired receivables
In-house customer finance
Provision for impaired receivables
Other receivables
Sundry debtors
Financial assets*
2016
$000
4,533
(675)
3,858
13,911
(879)
13,032
8,923
450
9,373
2015
$000
4,917
(455)
4,462
11,881
(751)
11,130
4,923
60
4,983
*See note 3 for more information on derivative contracts.
(a) Impaired trade receivables
Trade receivables from sales made to customers through third party credit providers are non-interest bearing and are
generally on 0-30 day terms. A provision for impairment loss is recognised when there is objective evidence that an
individual trade receivable is impaired. An impairment loss of $252,000 (2015: $452,000) has been recognised by the
Group. All trade receivables related to third party credit providers past 90 days have been impaired.
At 30 June 2016, the ageing analysis of trade receivables related to third party credit providers is as follows:
0 - 30 days
31 - 60 days
61 - 90 days
91 + days
Movements in the provision for trade receivables impairment loss were as follows:
Opening balance
Amounts written off
Additional provisions recognised
Exchange differences
2016
$000
3,600
243
107
583
4,533
455
(252)
468
4
675
2015
$000
4,271
188
32
426
4,917
731
(452)
178
(2)
455
(b) In-house customer finance
In October 2012, Michael Hill launched an in-house customer finance program in the Canadian and United States
markets. The terms available to customers range from a revolving line of credit through to 18 months, although 12 to
18 months is the typical financing period, and interest bearing and non-interest bearing products are offered.
The receivables from the in-house customer finance program are comprised of a large number of transactions
with no one customer representing a significant balance. The finance portfolio consists of contracts of similar char-
acteristics that are evaluated collectively for impairment. The allowance is an estimate of the losses as of the balance
date, and is calculated using such factors as delinquency and recovery rates.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 63
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 11 continued
The credit quality and ageing of these receivables is as follows:
Performing:
Current, aged 0 - 30 days
Past due, aged 31 - 90 days
Non performing:
Past due, aged more than 90 days
Ageing has been calculated with reference to payment due dates.
This has been disclosed as:
Current receivables
Non-current receivables
2016
$000
13,437
397
424
14,258
13,911
347
14,258
Movements in the provision for in-house customer finance receivables impairment loss were as follows:
Opening balance
Amounts written off
Additional provisions recognised
Exchange differences
This has been disclosed as:
Current receivables
Non-current receivables
2016
$000
780
(1,814)
1,945
(10)
901
879
22
901
2015
$000
11,564
364
404
12,332
11,881
451
12,332
2015
$000
675
(1,407)
1,446
66
780
751
29
780
Only trade receivables and in-house customer finance contain impaired assets. The remaining classes within trade
and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other
classes, it is expected that these amounts will be received when due.
(c) Other receivables
Other receivables relate to supplier credits, security deposits, revaluation of derivatives and other sundry receivables.
(d) Effective interest rates
Other than in-house customer finance, all receivables are non-interest bearing. The majority of in-house customer
finance receivables are also non-interest bearing.
64 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 12 Current assets - Inventories
Raw materials
Finished goods
Packaging and other consumables
All inventories are held at cost.
2016
$000
7,461
188,723
3,777
199,961
2015
$000
7,128
172,827
2,277
182,232
NOTE 13 Current assets - Current tax receivables
Income tax (Current tax liability in 2016)
2016
$000
-
2015
$000
11,376
NOTE 14 Current assets - Other current assets
Prepayments
Deferred expenditure
Tax pool deposits
2016
$000
4,050
985
-
5,035
2015
$000
3,192
1,092
3,143
7,427
Tax pooling deposits have been applied to the estimated IR tax settlement liability provided for in Current tax liabilities
(see note 21).
NOTE 15 Non-current assets - Trade and other receivables
In-house customer finance
Provision for impaired receivables
2016
$000
347
(22)
325
2015
$000
451
(29)
422
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 65
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 16 Non-current assets - Property, plant and equipment
At 1 July 2014
Cost
Accumulated depreciation
Net book amount
Year ended 30 June 2015
Opening net book amount
Exchange differences
Additions
Additions - make good asset
Disposals
Reclassification to intangible assets
Depreciation charge
Impairment charge
Closing net book amount
At 30 June 2015
Cost
Accumulated depreciation
Net book amount
Year ended 30 June 2016
Opening net book amount
Exchange differences
Additions
Additions - make good asset
Disposals
Depreciation charge
Impairment charge
Closing net book amount
At 30 June 2016
Cost
Accumulated depreciation
Net book amount
Plant and Fixtures and
fittings
equipment
Motor
Leasehold
vehicles improvements
Display
materials
$000
$000
$000
$000
$000
Total
$000
24,587
(14,465)
10,122
21,092
(10,392)
10,700
1,000
(553)
447
55,665
(27,010)
28,655
10,076
(4,600)
5,476
112,420
(57,020)
55,400
10,122
264
5,696
-
(154)
(10)
(3,499)
(29)
12,390
10,700
139
5,631
-
(62)
1
(2,987)
(23)
13,399
447
3
363
-
(91)
-
(212)
-
510
28,655
1,083
5,917
2,116
(171)
-
(5,826)
(107)
31,667
5,476
182
2,583
-
(8)
-
(1,354)
-
6,879
55,400
1,671
20,190
2,116
(486)
(9)
(13,878)
(159)
64,845
29,856
(17,466)
12,390
26,393
(12,994)
13,399
953
(443)
510
63,697
(32,030)
31,667
12,576
(5,697)
6,879
133,475
(68,630)
64,845
12,390
51
4,350
-
(218)
(3,681)
(20)
12,872
13,399
101
4,865
-
(65)
(3,498)
(39)
14,763
510
12
367
-
(141)
(214)
-
534
31,667
117
10,730
713
(71)
(7,126)
(37)
35,993
6,879
19
2,637
-
(44)
(1,720)
-
7,771
64,845
300
22,949
713
(539)
(16,239)
(96)
71,933
33,203
(20,331)
12,872
30,206
(15,443)
14,763
930
(396)
534
72,926
(36,933)
35,993
12,767
(4,996)
7,771
150,032
(78,099)
71,933
66 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 17 Non-current assets - Deferred tax assets
The balance comprises temporary differences attributable to:
Doubtful debts
Fixed assets and intangibles
Intangible assets from intellectual property transfer
Deferred expenditure
Prepayments
Deferred service revenue
Unearned income
Employee benefits
Retirement benefit obligations
Provision for warranties and legal costs
Straight-line lease provision
Other provisions
Unrealised foreign exchange losses
Sundry items
Tax consolidation cost base adjustments
Net deferred tax assets
Movements:
Opening balance at 1 July
Credited / (charged) to the income statement (note 9)
Prior year adjustment - deferred service revenue
Prior year adjustment - other
Losses utilised
Derecognised tax losses
Foreign exchange differences
Closing balance at 30 June
Expected settlement:
Within 12 months
In excess of 12 months
2016
$000
391
1,414
30,304
(841)
(1)
4,400
888
2,597
789
722
1,401
2,371
(17)
217
19,439
64,074
48,381
19,107
-
(65)
-
-
(3,349)
64,074
14,943
49,131
64,074
2015
$000
298
2,664
33,873
(932)
(53)
4,408
769
2,437
692
739
1,501
1,988
(3)
-
-
48,381
62,324
(1,532)
(9,300)
(41)
(155)
(1,001)
(1,914)
48,381
6,852
41,529
48,381
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 67
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 18 Non-current assets - Intangible assets
Patents,
trademarks and
other rights
$000
Computer
software
$000
Total
$000
At 1 July 2014
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2015
Opening net book amount
Exchange differences
Additions
Disposals
Reclassification from property, plant and equipment
Amortisation charge*
Closing net book amount
At 30 June 2015
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2016
Opening net book amount
Exchange differences
Additions
Disposals
Amortisation charge*
Impairment
Closing net book amount
At 30 June 2016
Cost
Accumulated amortisation
Net book amount
24
-
24
24
1
54
-
-
-
79
79
-
79
79
-
-
-
-
-
79
79
-
79
13,206
(6,817)
6,389
13,230
(6,817)
6,413
6,389
4
1,871
(1)
9
(1,860)
6,412
6,413
5
1,925
(1)
9
(1,860)
6,491
15,085
(8,673)
6,412
15,164
(8,673)
6,491
6,412
(6)
1,600
(2)
(2,521)
(1)
5,482
6,491
(6)
1,600
(2)
(2,521)
(1)
5,561
16,675
(11,193)
5,482
16,754
(11,193)
5,561
*Amortisation of $2,521,000 (2015: $1,860,000) is included in depreciation and amortisation expense in the statement
of comprehensive income.
NOTE 19 Non-current assets - Other non-current assets
Deferred expenditure
Prepayments
2016
$000
2,038
154
2,192
2015
$000
2,253
214
2,467
68 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 20 Current liabilities - Trade and other payables
Trade payables
Annual leave liability
Accrued expenses
Financial liabilities*
Other payables
*See note 3 for more information on derivative contracts.
NOTE 21 Current liabilities - Current tax liabilities
Income tax (Current tax receivable in 2015)
2016
$000
23,734
7,725
8,553
1,333
5,032
46,377
2016
$000
25,022
2015
$000
24,505
7,354
5,772
828
5,280
43,739
2015
$000
-
Tax pooling deposits of NZ$7.7m have been applied to the estimated IR tax settlement liability (see note 37). These were
previously accounted for as tax pool deposits, included in Other current assets (see note 14).
NOTE 22 Current liabilities - Provisions
Employee benefits - long service leave
Returns provision
Make good provision
2016
$000
2,081
2,609
212
4,902
2015
$000
1,704
2,818
102
4,624
(a) Employee benefits - long service leave
The liability for long service leave is measured as the present value of expected future payments to be made in respect
of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given
to expected future wage and salary levels, experience of employee departures and periods of service. Expected future
payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency
that match, as closely as possible, the estimated future cash outflows.
(b) Returns provision
Provision is made for the estimated sale returns for the Group's return policies, being 30 day change of mind, 12 month
guarantee on the quality of workmanship and the 3 year watch guarantee. In addition, all Michael Hill watches are sold with
a lifetime battery replacement guarantee. Management estimates the provision based on historical sale return information
and any recent trends that may suggest future claims could differ from historical amounts.
(c) Make good provision
The Group has an obligation to restore certain leasehold sites to their original condition upon store closure or relocation. This
provision represents the present value of the expected future make good commitment. Amounts charged to the provision
represent both the cost of make good costs incurred and the costs incurred which mitigate the final liability prior to the
closure or relocation.
(d) Movements in provisions
Movements for the Group in each class of provision during the financial year are set out below:
Carrying amount at the start of the year
Additional provisions recognised
Amounts incurred and charged
Exchange differences
Carrying amount at the end of the year
Employee
benefits
$000
1,704
671
(297)
3
2,081
Returns Make good
provision
$000
102
458
(350)
2
212
provision
$000
2,818
2,611
(2,817)
(3)
2,609
Total
$000
4,624
3,740
(3,464)
2
4,902
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 69
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 23 Current liabilities - Deferred revenue
Deferred service revenue
Lease incentive income
Deferred interest free revenue
2016
$000
23,421
1,006
258
24,685
2015
$000
20,504
731
281
21,516
NOTE 24 Non-current liabilities - Borrowings
Bank loans
Total non-current borrowings
2016
$000
40,887
40,887
2015
$000
45,116
45,116
These advances, together with the bank overdraft, are secured by floating charges over all of the Group's assets.
(a) Financing arrangements
The Group’s objectives when managing capital are to ensure sufficient liquidity to support its financial obligations
and execute the Group's operational and strategic plans. The Group continually assesses its capital structure and
makes adjustments to it with reference to changes in economic conditions and risk characteristics associated with
its underlying assets. Accordingly, the Group entered into an agreement with ANZ on 24 June 2015 that provides
for a $110,000,000 multi option borrowing facility, the availability of which is adjusted throughout the year in line with
business requirements. At balance date, $70,000,000 was available, and of that, $40,887,000 was utilised.
The Group also has access to various uncommitted credit facility lines serving working capital needs that, at
balance date, totalled $1,957,000. No amounts were drawn under these credit facility lines as at balance date.
(b) Interest rate risk exposures
The following table sets out the Group’s exposure to interest rate risk, including the contractual repricing dates and
the effective weighted average interest rate by maturity periods.
Exposures arise predominantly from liabilities bearing variable interest rates. To manage this exposure the Group
has taken out interest rate swaps, as described in note 3(a)(ii). The carrying amount of the fully drawn advance facility
reflects fair value.
2016
Variable rate fully drawn advance facility
Weighted average interest rate
2015
Variable rate fully drawn advance facility
Weighted average interest rate
Floating
interest rate
Less than
6 months
FIXED INTEREST RATE
6 - 12
months
Over 1 year
less than
5 years
$000
$000
$000
$000
40,887
2.64%
45,116
2.84%
-
-
-
-
-
-
-
-
-
-
-
-
Over
5 years
$000
-
-
-
-
Total
$000
40,887
45,116
The Group retains the discretion to maintain the required borrowing levels under the fully drawn advance facility until
the borrowing facility terminates on 1 July 2019, so long as the facility limit has not been reached.
70 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 25 Non-current liabilities - Provisions
Employee benefits - long service leave
Make good provision
2016
$000
1,789
3,409
5,198
2015
$000
1,641
2,613
4,254
(a) Employee benefits - long service leave
The basis used to measure the liability for long service leave is set out in note 22(a).
(b) Make good provision
The basis used to calculate the make good provision is set out in note 22(c).
(c) Movements in provisions
Movements for the Group in each class of provision during the financial year are set out below:
Carrying amount at the start of the year
Additional provisions recognised
Exchange differences
Carrying amount at the end of the year
NOTE 26 Non-current liabilities - Deferred revenue
Deferred service revenue
Lease incentive income
Deferred interest free revenue
Employee
benefits
$000
1,641
145
3
1,789
Make good
provision
$000
2,613
759
37
3,409
2016
$000
48,201
2,509
15
50,725
Total
$000
4,254
904
40
5,198
2015
$000
41,805
2,318
20
44,143
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 71
Notes to the financial statements cont. for the year ended 30 June 2016
NOTE 27 Contributed equity
(a) Share capital: Ordinary shares
Fully paid (b)
Treasury stock held for Employee
Share Scheme (c)
(b) Fully paid ordinary share capital
Opening balance of ordinary shares issued
Issues of ordinary shares during the year
Employee Share Scheme issue
Transfer from treasury stock
Cancellation of treasury stock
Closing balance of ordinary shares issued
2016
Shares
PARENT
2015
Shares
2016
$000
PARENT
2015
$000
383,138,513 383,153,190
3,767
3,767
(14,677)
383,138,513 383,138,513
-
-
3,767
(7)
3,760
383,153,190 383,153,190
3,767
3,702
-
-
(14,677)
96,907
(96,907)
-
383,138,513 383,153,190
-
-
-
3,767
109
(44)
-
3,767
Refer to note 1 for details of the change in parent company that occurred during the year.
(c) Treasury stock
Treasury shares were shares in Michael Hill New Zealand Limited (formerly known as Michael Hill International
Limited) that were held by Michael Hill Trustee Company Limited for the purpose of issuing shares under the Michael
Hill International Employee Share Scheme. As part of the reorganisation described in note 1, all shares not allocated
to employees were cancelled on 24 June 2016 (see note 33).
Opening balance of treasury stock shares issued
Allocated to Employee Share Scheme
Cancelled shares
Closing balance of treasury stock shares issued
2016
Shares
14,677
-
(14,677)
-
PARENT
2015
Shares
111,584
(96,907)
-
14,677
2016
$000
7
-
(7)
-
PARENT
2015
$000
51
(44)
-
7
(d) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one
vote, and upon a poll each share is entitled to one vote.
(e) Employee Share Scheme
Information relating to the Michael Hill International Limited Employee Share Scheme, including details of shares
previously issued under the scheme, is set out in note 33.
(f) Options
Information relating to the Michael Hill International Limited Employee Option Plan, including details of options issued,
exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in
note 33.
72 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 28 Reserves and retained profits
Nature and purpose of reserves
(i) Hedging reserve - cash flow hedges
The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge. The amounts
are recognised in the profit and loss component of the statement of comprehensive income when the associated
hedged transactions affect profit or loss, as described in note 2(o).
(ii) Options reserve
The share-based payments reserve is used to recognise the fair value of options issued but not exercised. Refer
to note 33(a) for further details.
(iii) Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency
translation reserve, as described in note 2(d).
NOTE 29 Dividends
(a) Ordinary shares
Final dividend for the year ended 30 June 2015 of NZ 2.5c (2014 - NZ 4.0c) per fully
paid share paid on 2 October 2015 (2014 - 3 October 2014).
Interim dividend for the year ended 30 June 2016 of NZ 2.5c (2015 - NZ 2.5c) per fully
paid share paid on 1 April 2016 (2015 - 2 April 2015).
(b) Dividends not recognised at year end
Since year end, the Directors have declared the payment of a final dividend of AU 2.5c
per fully paid ordinary share (2015 - NZ 2.5c). The final dividend will be fully franked
and imputed. The aggregate amount of the proposed dividend expected to be paid on 6
October 2016 out of retained profits at 30 June 2016, but not recognised as a liability
at year end, is:
2016
$000
2015
$000
8,870
13,765
8,620
17,490
9,411
23,176
9,578
8,574
(c) Franking and imputation credits
Franking credits available for subsequent reporting periods based on a 30% tax rate for
the Group in AUD are:
2,710
(3,727)
Imputation credits available for subsequent reporting periods based on the New Zealand
28% tax rate for the Group in NZD are:
13,118
5,840
The dividends paid during the current financial period and corresponding previous financial period were not franked
or imputed.
The above franking credit amounts represent the balance of the franking account as at the end of the financial
year, adjusted for franking credits that will arise from the payment of income tax payable.
The above imputation credit amounts represent the balance of the imputation account as at the end of the
financial year, adjusted for imputation credits that will arise from the payment of income tax payable. It has not been
adjusted to reflect amounts payable under the IR settlement.
The impact on the franking account of the dividend recommended by the Directors since year end, but not
recognised as a liability at year end, will be a reduction in the franking account of $4,105,000 (2015: Nil).
The impact on the imputation credit account of the dividend recommended by the Directors since year end,
but not recognised as a liability at year end, is estimated to be a reduction in the imputation credit account of
NZ$3,890,000 (2015: Nil). The amount of imputation credits is dependant on the NZD exchange rate at the time of
the dividend.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 73
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 30 Earnings per share
(a) Basic earnings per share
Profit attributable to the ordinary equity holders of the Company
(b) Diluted earnings per share
Profit attributable to the ordinary equity holders of the Company
(c) Reconciliation of earnings used in calculating earnings per share
Basic earnings per share
Profit attributable to the ordinary equity holders of the Company
used in calculating basic earnings per share
Diluted earnings per share
Profit attributable to the ordinary equity holders of the Company
used in calculating diluted earnings per share
(d) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as
the denominator in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Options
Treasury stock
Weighted average number of ordinary shares
for diluted earnings per share
2016
Cents
5.11
5.09
2016
$000
2015
Cents
7.24
7.22
2015
$000
19,577
27,754
19,577
27,754
2016
Number
2015
Number
383,138,513
383,117,273
1,700,000
-
1,300,000
14,677
384,838,513
384,431,950
(e) Information concerning the classification of securities
(i) Options
Options granted to employees under the Michael Hill International Limited Employee Option Plan are considered
to be potential ordinary shares and have been included in the determination of diluted earnings per share to the
extent to which they are dilutive. The options have not been included in the determination of basic earnings per
share. Details relating to the options are set out in note 33.
(ii) Treasury stock
Treasury stock held under the Michael Hill International Limited Employee Share Scheme are considered to be
potential ordinary shares and have been included in the determination of diluted earnings per share. Treasury
stock has not been included in the determination of basic earnings per share. Details relating to treasury stock
are set out in note 27.
74 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 31 Related party transactions
(a) Key management personnel compensation
Key management personnel compensation for the years ended 30 June 2016 and 2015 is set out below. Those
determined to be key management personnel was reviewed during the year with reference to the applicable accounting
standard. Prior year comparatives have been restated to include the updated definition of who is key management.
2016
2015
Short-term
benefits
$000
3,785
2,900
Post-employment
benefits
$000
136
108
Share-based
payments
$000
33
37
Total
$000
3,954
3,045
(b) Subsidiaries
The ultimate parent and controlling entity of the Group is Michael Hill International Limited. Interests in subsidiaries
are set out in note 32.
As part of the reorganisation, Michael Hill International Limited acquired 100% of the share capital in Durante
Holdings Pty Ltd (a company controlled by interests associated with the Hill Family which held 52.89% of the shares
on issue in Michael Hill New Zealand Limited). Durante Holdings Pty Ltd has been consolidated as a fully controlled
subsidiary in accordance with the accounting policy described in note 2(b).
(c) Transactions with other related parties
The following transactions occurred with related parties for the relevant financial year:
Services rendered for graphic design of the annual
and half year reports by a related party of board members
Other transactions
Annual sponsorship of the New Zealand PGA
Annual sponsorship of the Michael Hill Violin Charitable Trust
2016
$000
13
214
52
2015
$000
12
215
59
All transactions with related parties were in the normal course of business and provided on commercial terms.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 75
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 32 Investments in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in note 2(b):
NAME OF ENTITY
Michael Hill Jeweller (Australia) Pty Limited
Michael Hill Wholesale Pty Limited
Michael Hill Manufacturing Pty Limited
Michael Hill Franchise Pty Limited
Michael Hill Franchise Services Pty Limited
Michael Hill Finance (Limited Partnership)
Michael Hill Group Services Pty Limited
Michael Hill Charms Pty Limited
Michael Hill Online Pty Limited
Emma & Roe Pty Limited
Emma & Roe Online Pty Limited
Durante Holdings Pty Limited
Michael Hill New Zealand Limited
(formerly known as Michael Hill International Limited)
Michael Hill Jeweller Limited
Michael Hill Trustee Company Limited
Michael Hill Finance (NZ) Limited
Michael Hill Franchise Holdings Limited
MHJ (US) Limited
Emma & Roe NZ Limited
Michael Hill Online Holdings Limited
Michael Hill Jeweller (Canada) Limited
Michael Hill LLC
COUNTRY OF
INCORPORATION
CLASS OF
SHARES
EQUITY HOLDING
2015
2016
%
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Canada
United States
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
-
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
100
100
100
NOTE 33 Share-based payments
(a) Employee Option Plan
Options are granted from time to time at the discretion of Directors to Senior Executives within the Group. Motions to
issue options to related parties of Michael Hill International Limited are subject to the approval of shareholders at the
Annual General Meeting in accordance with the Company's constitution.
Options are granted under the plan for no consideration. Options are granted for a ten year period and are
exercisable at any time during the final five years.
Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible
into one ordinary share.
The exercise price of the options previously granted was set at 30% above the weighted average price at
which the Company's shares were traded on the New Zealand Stock Exchange for the calendar month following the
announcement by the Group to the New Zealand Stock Exchange of its annual results.
The exercise price of any future option grants will be set using the same method, with reference to the Australian
Securities Exchange.
76 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 33 continued
Set out below are summaries of options granted under the plans:
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Outstanding at the end of the year
2016
Weighted average
exercise price
in NZ$ per share
2016
Number of
options
2015
Weighted average
exercise price
in NZ$ per share
1.48
1.14
-
12,150,000
400,000
-
1.47 12,550,000
1.48
1.63
1.54
1.48
Share options outstanding at the end of the year have the following expiry date and exercise prices:
30 September 2017
30 September 2019
30 September 2020
30 September 2021
30 September 2022
30 September 2023
30 September 2024
30 September 2025
Exercise price
in NZ$
per share
1.25
0.94
0.88
1.16
1.41
1.82
1.63
1.14
2016
Number of
options
3,750,000
650,000
650,000
650,000
650,000
5,400,000
400,000
400,000
2015
Number of
options
12,750,000
400,000
(1,000,000)
12,150,000
2015
Number
of options
3,750,000
650,000
650,000
650,000
650,000
5,400,000
400,000
-
The weighted average remaining contractual life of share options outstanding at the end of the period was 5.0 years
(2015: 5.9 years). The range of exercise prices for options outstanding at the end of the year was NZ$0.88 - NZ$1.82.
Refer to the table above for detailed information on each issue. The exercise price will be converted to Australian
dollars using the Reserve Bank of Australia exchange rate on the day the option is exercised.
The fair value at grant date for the options issued during the 2016 financial year were independently determined
using a Binomial option pricing model, which is an iterative model for options that can be exercised at times prior to
expiry. The model takes into account the grant date, exercise price, the expected life, the expiry date, the share price
at grant date, expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate
for the term of the option. The expected life assumes the option is exercised at the mid-point of the exercise period,
and reflects the ability to exercise early and the non-transferability of the option.
The expected price volatility is based on the historic volatility (based on the remaining life of the options),
adjusted for any expected changes to future volatility due to publicly available information. The following table lists the
inputs to the models used for the options issued during the years ended 30 June 2016 and 30 June 2015:
Number of options
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of option (years)
Option exercise price (NZ$)
Share price at grant date (NZ$)
Weighted average fair value per option (NZ¢)
June 2016
June 2015
22 January 2016 10 November 2014
400,000
5.00%
25%
4.78%
7.5
$1.14
$1.00
16.2¢
400,000
5.00%
25%
4.78%
7.5
$1.63
$1.46
17.0¢
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 77
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 33 continued
(b) Employee Share Scheme
The Michael Hill International Limited Employee Share Scheme was established by Michael Hill International Limited
in 2001 to assist employees to become shareholders of the Company. Employees are able to purchase shares in the
Company at a 10% discount to the average market price over the two weeks prior to the invitation to purchase. The shares
were held by a Trustee for a one year period during which time any dividends derived would be paid to the employee.
As part of the reorganisation described in note 1, all shares not allocated to employees were cancelled on 24 June 2016.
The plan held the following ordinary shares at the end of the year:
Shares issued to participating employees (fully paid)
Not yet allocated to employees
2016
Number
-
-
-
2015
Number
96,907
14,677
111,584
During the year, no shares (2015: 96,907) were issued to the Michael Hill Employee Share Scheme. The average 2015
price was NZ$1.25. Michael Hill International Limited acquired no shares through on-market purchases on the New
Zealand Stock Exchange during the year that related to the Employee Share Scheme.
(c) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee
benefits expense were as follows:
Options issued under employee option plan
Shares issued under Employee Share Scheme
NOTE 34 Reconciliation of profit after income tax
to net cash inflow from operating activities
Profit for the year
Depreciation
Amortisation
Non-cash employee benefits expense - share-based payments
Other non-cash expenses
Net loss on sale of non-current assets
Deferred taxation
Net exchange differences
Decrease / (increase) in trade and other receivables
Decrease / (increase) in inventories
Decrease / (increase) in other non current assets
(Increase) in other non current assets
(Decrease) in tax payables
Increase / (decrease) in trade and other payables
Increase in deferred revenue
Increase in provisions
Net cash inflow from operating activities
78 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
2016
$000
245
6
251
2016
$000
19,577
16,239
2,521
245
65
328
(19,501)
371
(6,280)
(19,472)
2,762
192
36,557
2,999
10,791
400
47,794
2015
$000
25
11
36
2015
$000
27,754
13,878
1,860
38
-
204
12,343
(1,732)
1,306
136
380
(3,248)
(11,279)
1,500
10,731
695
54,566
NOTE 35 Commitments
Operating leases
The Group leases all shops and in addition, various offices and warehouses under non-cancellable operating leases
expiring within various periods of up to fifteen years. The leases have varying terms, escalation clauses and renewal
rights. On renewal, the terms of the leases are renegotiated.
The Group also leases various plant and machinery under cancellable operating leases. The Group is required
to give six months notice for termination of these leases.
Commitments for minimum lease payments in relation to
non-cancellable operating leases are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
2016
$000
2015
$000
41,624
92,417
16,083
150,124
41,279
99,239
20,597
161,115
NOTE 36 Contingencies
(a) Contingent liabilities
The Group had contingent liabilities in respect of guarantees to bankers and other financial institutions in respect of
overdraft facilities and fixed assets at 30 June 2016 of $547,000 (30 June 2015 - $457,000). $72,000 has been
released subsequent to 30 June 2016 in respect of a guarantee by the former parent (Michael Hill New Zealand
Limited) to the New Zealand Stock Exchange.
The Group is not aware of any significant events occurring subsequent to balance date that have not been disclosed.
(b) Contingent assets
The Group has no material contingent assets existing as at balance date.
NOTE 37 Events occurring after the reporting period
On 17 August 2016, the Company reached a settlement with the Inland Revenue (‘IR’) on its long running tax dispute
relating to the financing of the Intellectual Property transferred from its New Zealand subsidiary to its Australian
subsidiary in 2008. As a result, the Company has recognised a tax liability payable of $28.8m (NZ$30.3m). All
amounts payable under this settlement have been provided for in the 2015-16 year and this settlement resolves all
matters in relation to these proceedings. There are no penalties payable by the Company in respect of the settlement.
Tax pooling deposits, which the Company has entered into over a number of years, will fund a portion of the agreed
settlement with the Commissioner, including UOMI (Use of Money Interest) and NZ$7.7m of core tax. The residual
amount due of NZ$22.6m will be funded from the Group’s existing financing facilities, without any impact on the
Group’s ongoing operations, and will not impact the planned store roll out program.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 79
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 38 Information relating to Michael Hill International Ltd (the Parent)
Current assets
Total assets
Net assets
Issued capital
Retained earnings
Acquisition reserve
Option reserve
Total equity
Profit or loss of the Parent entity
Total comprehensive income of the Parent entity
2016
$000
1,672
328,677
328,677
283,910
1,672
40,907
2,188
328,677
1,672
1,672
2015
$000
-
-
-
-
-
-
-
-
-
-
The Parent has issued the following guarantees in relation to the debts of its subsidiaries:
• Pursuant to Class Order 98/1418, Michael Hill International Limited and the subsidiaries listed below entered into
a deed of cross guarantee on 30 June 2016. The effect of the deed is that Michael Hill International Limited has
guaranteed to pay any deficiency in the event of winding up of any controlled entity or if they do not meet their
obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled
entities have also given a similar guarantee in the event that Michael Hill International Limited is wound up or if it
does not meet its obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee.
• The subsidiaries subject to the deed are: Durante Holdings Pty Ltd, Michael Hill Group Services Pty Ltd, Michael Hill
Jeweller (Australia) Pty Ltd, Michael Hill Manufacturing Pty Ltd, Michael Hill Wholesale Pty Ltd, Michael Hill Franchise
Services Pty Ltd, Michael Hill Franchise Pty Ltd, Michael Hill New Zealand Ltd, Michael Hill Jeweller Ltd, Michael Hill
Franchise Holdings Ltd, Michael Hill Finance (NZ) Ltd, Michael Hill Online Pty Ltd, Michael Hill Charms Pty Ltd, Emma
& Roe Pty Ltd, Emma & Roe Online Pty Ltd, Michael Hill Online Holdings Ltd and Emma & Roe NZ Ltd.
The Parent entity had contingent liabilities in respect of guarantees to bankers and other financial institutions in
respect of overdraft facilities and fixed assets at 30 June 2016 of $72,000.
80 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
NOTE 39 Deed of cross guarantee
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the Australian wholly-owned subsidiaries listed
below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports
and directors' report in Australia.
The subsidiaries subject to the deed are: Durante Holdings Pty Ltd, Michael Hill Group Services Pty Ltd, Michael
Hill Jeweller (Australia) Pty Ltd, Michael Hill Manufacturing Pty Ltd, Michael Hill Wholesale Pty Ltd, Michael Hill Franchise
Services Pty Ltd, Michael Hill Franchise Pty Ltd, Michael Hill New Zealand Ltd, Michael Hill Jeweller Ltd, Michael Hill
Franchise Holdings Ltd, Michael Hill Finance (NZ) Ltd, Michael Hill Online Pty Ltd, Michael Hill Charms Pty Ltd, Emma & Roe
Pty Ltd, Emma & Roe Online Pty Ltd, Michael Hill Online Holdings Ltd and Emma & Roe NZ Ltd.
The Class Order requires the Parent Company and each of the subsidiaries to enter into a Deed of Cross Guarantee.
The effect of the deed is that the Company guarantees each creditor payment in full of any debt in the event of winding up of
any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions
of the Corporations Act 2001, the Company will only be liable in the event that after six months any creditor has not been
paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up.
The above companies represent a Closed Group for the purposes of the Class Order and, as there are no other parties to the
Deed of Cross Guarantee that are controlled by Michael Hill International Limited, they also represent the Extended Closed Group.
Statement of comprehensive income
Set out below are the consolidated statement of comprehensive income and statement of changes in equity of the Closed
Group consisting of Michael Hill International Limited and the subsidiaries listed above.
Revenue from sale of goods and services
Sales to Group companies not in Closed Group
Other income
Cost of goods sold
Employee benefits expense
Occupancy costs
Marketing expenses
Selling expenses
Depreciation and amortisation expense
Loss on disposal of property, plant and equipment
Other expenses
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income
Currency translation differences arising during the year
Total comprehensive income for the year
Statement of changes in equity
Balance at 1 July
Total comprehensive income
Cancellation of treasury stock
Employee shares issued
Option expense through share based payments reserve
Dividend paid
Balance at 30 June
2016
$000
448,800
44,699
532
(196,809)
(118,525)
(41,529)
(21,342)
(21,580)
(13,494)
(290)
(16,852)
(6,468)
57,142
(25,460)
31,682
2015
$000
424,064
33,707
457
(177,894)
(110,301)
(40,738)
(23,938)
(20,452)
(11,997)
(83)
(15,796)
(5,077)
51,952
(13,129)
38,823
4,207
35,889
(7,855)
30,968
461,184
35,889
7
-
245
(17,490)
479,835
466,503
30,968
-
109
25
(36,421)
461,184
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 81
Notes to the financial statements cont. FOR TH E YEAR E N DE D 30 J U N E 2016
NOTE 39 continued
Statement of financial position
Set out below is the statement of financial position as at 30 June for the Closed Group consisting of Michael Hill
International Limited and the subsidiaries listed above.
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Loans to related parties
Current tax receivables
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Investments in subsidiaries
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Deferred revenue
Total current liabilities
Non-current liabilities
Provisions
Deferred revenue
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
82 MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS
2016
$000
2015
$000
2,779
11,758
147,595
213,978
-
3,131
379,241
44,543
60,131
4,944
121,033
1,799
232,450
2,060
8,375
134,767
103,045
11,060
5,412
264,719
39,928
45,192
6,429
200,565
1,982
294,096
611,691
558,815
37,053
25,033
4,542
19,485
86,113
5,198
40,545
45,743
36,387
-
4,232
17,175
57,794
4,255
35,582
39,837
131,856
97,631
479,835
461,184
302,756
1,582
175,497
479,835
302,749
(2,870)
161,305
461,184
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
T +61 7 3011 3333
F +61 7 3011 3100
ey.com/au
Independent Auditor’s Report To the Shareholders
of Michael Hill International Limited
R E PORT ON TH E FI NANCIAL R E PORT
We have audited the accompanying financial report of
Michael Hill International Limited, which comprises the
consolidated statement of financial position as at 30 June
2016, the consolidated statement of comprehensive income,
the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then
ended, notes comprising a summary of significant accounting
policies and other explanatory information, and the directors'
declaration of the consolidated entity comprising the company
and the entities it controlled at the year's end or from time to
time during the financial year.
DI R ECTORS' R ESPONSI B I LITY FOR TH E
FI NANCIAL R E PORT
The directors of the company are responsible for the
preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards
and the Corporations Act 2001 and for such internal
controls as the directors determine are necessary to enable
the preparation of the financial report that is free from material
misstatement, whether due to fraud or error. In Note 2, the
directors also state, in accordance with Accounting Standard
AASB 101 Presentation of Financial Statements, that the
financial statements comply with International Financial
Reporting Standards.
AU DITOR'S R ESPONSI B I LITY
Our responsibility is to express an opinion on the financial
report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. Those
standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and
perform the audit to obtain reasonable assurance about
whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in
the financial report. The procedures selected depend
on the auditor's judgment, including the assessment
of the risks of material misstatement of the financial
report, whether due to fraud or error. In making those
risk assessments, the auditor considers internal controls
relevant to the entity's preparation and fair presentation
of the financial report in order to design audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the entity's internal controls. An audit also includes
evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall
presentation of the financial report.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis
for our audit opinion.
I N DE PE N DE NCE
In conducting our audit we have complied with the
independence requirements of the Corporations Act 2001.
We have given to the directors of the company a written
Auditor’s Independence Declaration, a copy of which is
included in the directors’ report.
OPI N ION
In our opinion:
a) the financial report of Michael Hill International Limited is in
accordance with the Corporations Act 2001, including:
i 2016 and of its performance for the year ended on that
date; and
ii complying with Australian Accounting Standards and the
Corporations Regulations and 2001; and
b) the financial report also complies with International
Financial Reporting Standards as disclosed in Note 2.
R E PORT ON TH E R E M U N E RATION R E PORT
We have audited the Remuneration Report included in the
directors' report for the year ended 30 June 2016. The
directors of the company are responsible for the preparation
and presentation of the Remuneration Report in accordance
with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration
Report, based on our audit conducted in accordance with
Australian Auditing Standards.
OPI N ION
In our opinion, the Remuneration Report of Michael Hill
International Limited for the year ended 30 June 2016,
complies with section 300A of the Corporations Act 2001.
Ernst & Young
Alison de Groot
Partner
Brisbane
18 August 2016
MICHAEL HILL INTERNATIONAL 2016 AUDITOR'S REPORT 83
Corporate governance
The Board acknowledges the need for and
continued maintenance of the highest standards of
corporate governance practice and ethical conduct
by all Directors and employees of Michael Hill
International Limited and its subsidiaries.
The Board has adopted a Corporate
Governance Charter and this can
be obtained, at no cost, from the
registered office of the Company
and is also available on the Group’s
website www.michaelhill.com.au .
G E N E RAL
To the extent applicable,
commensurate with the Company’s size
and nature, the Company has adopted
The ASX Corporate Governance
Principles and Recommendations
(3rd Edition) as published by ASX
Corporate Governance Council
('Recommendations'). The Directors
will seek, where appropriate, to provide
accountability levels that meet or
exceed the Recommendations, which
are not prescriptions, but guidelines.
The Company’s main corporate
governance policies are outlined below.
BOAR D OF DI R ECTORS
The Board oversees the Company’s
business and is responsible for the
overall corporate governance of the
Group. It monitors the operational,
financial position and performance of
the Group and oversees its business
strategy, including approving the
strategy and performance objectives
of the Group.
The Board is committed to
maximising performance and
generating value and financial returns
for shareholders. To further these
objectives, the Board has created a
framework for managing the Group,
including the adoption of relevant
internal controls, risk management
processes and corporate governance
policies and practices which the
Board believes are appropriate for the
business and which are designed to
promote the responsible management
and conduct of the Group.
COM P OSITION OF TH E BOAR D
The Board is currently comprised
of five non-executive Directors,
including the Chair. Biographies of
the Directors are set out in the Annual
Report on pages 28-30.
As the Group’s activities increase
in size, nature and scope, the size
of the Board required to adequately
govern the Company’s activities will
be reviewed, and the optimum number
of Directors will be determined
within the limitations imposed by the
Constitution.
In assessing the independence
of Directors, the Company has regard
to Principle 2 of the Recommenda-
tions. The Corporate Governance
Charter sets out further matters
that the Board will consider when
determining the independence of
Directors of the Company.
Each Director has confirmed
to the Company that he or she
anticipates being available to perform
his or her duties as a non-executive
director, without constraint from other
commitments.
84 MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE
COR P ORATE GOVE R NANCE
COM M ITTE E
The Board does not consider it
appropriate to establish a corporate
governance committee at this
time. Instead, the Board members
will share the responsibility of
ensuring that the Company meets
its corporate governance obligations
under the relevant provisions of
the Corporations Act and the ASX
Listing Rules. The Board will review
this position and adopt a corporate
governance committee when
appropriate.
I DE NTI FICATION AN D
MANAG E M E NT OF R ISK
The Company has established
an audit and risk management
committee (Audit and Risk
Management Committee) to
assist the Board in discharging its
responsibility to exercise due care,
diligence and skill in relation to
the Company. The Audit and Risk
Management Committee will be
responsible for reviewing and making
recommendations to the Board
in relation to the adequacy of the
Company’s processes for managing
risks and developing an appropriate
risk management policy framework
to provide guidance to company
management.
ISO 9001 CE RTI FICATION
In July 2015, our global quality
control team were recognised for
their commitment to excellence
with official ISO 9001 certification
achieved for quality control and
administrative functions for jewellery
wholesale. Michael Hill is one of the
few Australian jewellers to achieve
ISO 9001:2008 certification.
This global certification
recognises our robust quality
management system where
the business has demonstrated
compliance, consistent performance
and service as well as a commitment
to continuous improvement.
The process of certification
involved an accredited third party
certification body assessing our
organisation to ascertain that the
Michael Hill Quality Management
System meets the globally recognised
criteria for ISO 9001:2008
certification. In addition, the system
undergoes regular internal and
external audits to ensure we maintain
our strict standards and adhere to
our commitment to providing an
exceptional product.
R E M U N E RATION COM M ITTE E
The Board has established
a People, Development and
Remuneration Committee to
ensure that remuneration is fair
and adequate, and accords with the
Company’s capacity and business
plan. The People, Development and
Remuneration Committee’s role is to
review and make recommendations in
relation to management remuneration
and incentive plans and policies,
as well as in relation to the Group’s
recruitment, retention and termination
policies and procedures for senior
management.
NOM I NATIONS COM M ITTE E
The Board has not formally
established a nominations committee
at this time as the Board considers
that it is able to deal efficiently and
effectively with Board composition
and succession issues without
establishing a separate nominations
committee and in doing so, the Board
will be guided by the Corporate
Governance Charter and applicable
provisions of the ASX Listing Rules
and Corporations Act.
DIVE RSITY P OLICY
Historically, the People, Development
and Remuneration Committee of
the Company has monitored and
made recommendations regarding
Group diversity at senior executive
and Board level. The Company
will continue to maintain this
practice through its newly adopted
Diversity Policy which the People,
Development and Remuneration
Committee is tasked with overseeing.
Broadly, the Diversity Policy seeks to
ensure that the Company is attuned
to diverse corporate, business and
market opportunities and strategies
to achieve the Company’s corporate
targets through managing and
facilitating the collective skills and
experience of personnel within the
Group’s systems and culture.
ETH ICAL STAN DAR DS
The Company is committed to the
establishment and maintenance
of appropriate ethical standards.
Accordingly, the Company has
adopted a Corporate Ethics Policy
and a Corporate Code of Conduct.
The Code of Conduct establishes the
principles, standards and respon-
sibilities to which the Company is
committed with respect to both its
internal dealings with employees and
consultants, and external dealings
with Shareholders and the community
at large.
SHAR E TRADI NG P OLICY
The Company has adopted a Trading
Policy which is intended to ensure
that persons who are discharging
managerial responsibilities, including
but not limited to Directors, do not
abuse, and do not place themselves
under suspicion of abusing, inside
information that they may be thought
to have, especially in periods leading
up to an announcement of the
Company.
Under the terms of the Trading
Policy, a ‘Restricted Person’ (as
identified in the Trading Policy)
must not deal with securities of the
Company unless a clearance to deal
is obtained in accordance with the
Trading Policy or the dealing is an
Excluded Dealing (as identified in the
Trading Policy). Further, a Restricted
Person must not deal with securities
of the Company if such a dealing
would involve:
• use of inside information;
• short-term selling;
• short selling; or
• hedging transactions.
MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE 85
COM PLIANCE WITH R ECOM M E N DATIONS
The following statement explains how the Company complies with the Recommendations, and, in the case of non-com-
pliance, why not. The Board is of the view that with the exception of the departures from the Recommendations noted
below it otherwise complies with all of the Recommendations.
PR I NCI PLE AN D B EST
PRACTICE R ECOM M E N DATION
M ICHAE L H I LL I NTE R NATIONAL LI M ITE D’S
COM PLIANCE WITH R ECOM M E N DATION
1 Lay solid foundations for management and oversight
1.1 Role of Board and
management
Disclose the respective roles
and responsibilities of the Board
and management and those
matters expressly reserved to the
Board and those delegated to
management.
1.2 Information regarding election
and re-election of Director
candidates
Undertake appropriate checks
before appointing a person,
or putting forward to security
holders a candidate for election,
as a Director and provide
security holders with all material
information in the Company’s
possession relevant to a decision
on whether or not to elect or
re-elect a Director.
1.3 Written contracts of
appointment
Have a written agreement
with each Director and senior
executive setting out the terms of
their appointment.
1.4 Company Secretary
The Company Secretary should
be accountable directly to the
Board, through the Chair, on all
matters to do with the proper
functioning of the Board.
Comply
The respective roles and responsibilities of the Directors are set out in the
Annual Report on pages 28-30. The Board has established a clear distinction
between the functions and responsibilities reserved for the Board and those
delegated to management, which are set out in the Company’s Corporate
Governance Charter.
A copy of the Corporate Governance Charter is available from the
Company’s website, www.michaelhill.com.au
Comply
The Company carefully considers the character, experience, education and
skillset, as well as interests and associations of potential candidates for
appointment to the Board and conducts appropriate checks to verify the
suitability of the candidate, prior to their election.
The Company has appropriate procedures in place to ensure that material
information relevant to a decision to elect or re-elect a Director, is disclosed in
the notice of meeting provided to shareholders.
Comply
In addition to being set out in the Corporate Governance Charter, the roles and
responsibilities of Directors are also formalised in the letter of appointment
which each Director receives and commits to on their appointment. The letters
of appointment specify the term of appointment, time commitment envisaged,
expectations in relation to committee work or any other special duties attaching
to the position, reporting lines, remuneration arrangements, disclosure
obligations in relation to personal interests, confidentiality obligations, insurance
and indemnity entitlements and details of the Company’s key governance
policies, such as the Trading Policy.
Each senior executive enters into a service contract which sets out the
material terms of employment, including a description of the position and
duties, reporting lines, remuneration arrangements and termination rights and
entitlements.
Contract details of senior executives which are KMP are summarized in the
Company’s Remuneration Report on page 35.
Comply
The Company Secretary is accountable to the Board for facilitating the
Company’s corporate governance processes and the proper functioning of
the Board. Each Director is entitled to access the advice and services of the
Company Secretary.
In accordance with the Company’s Constitution, the appointment or
removal of the Company Secretary is a matter for the Board as a whole. Details
of the Company Secretary’s experience and qualifications are set out on page 31
of the Annual Report.
86 MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE
PR I NCI PLE AN D B EST
PRACTICE R ECOM M E N DATION
M ICHAE L H I LL I NTE R NATIONAL LI M ITE D’S
COM PLIANCE WITH R ECOM M E N DATION
Comply
The Company has adopted a Diversity Policy setting out its objectives and
reporting practices with respect to diversity, which is set out in the Company’s
Corporate Governance Charter.
A copy of the Corporate Governance Charter is available from the
Company’s website, www.michaelhill.com.au
The measurable objectives for gender diversity, agreed by the Company’s
Board for FY2015-16, are set out below:
30% females on the Board; and
Female/male ratio in senior management roles of 40%:60%.
The outcomes of the Company’s results against its measurable objectives
are set out below and illustrates the Company’s progress towards achieving its
objectives:
40%
60%
29.2%
70.8%
BOARD
GENDER DIVERSITY
SENIOR MANAGEMENT
GENDER DIVERSITY
1.5 Diversity
• Have a diversity policy which
includes requirements for the
Board or a relevant committee
of the Board to set measurable
objectives for achieving
gender diversity and to assess
annually both the objectives
and the Company’s progress in
achieving them.
• Disclose that policy or a
summary of it.
• Disclose at the end of each
reporting period the measurable
objectives for achieving gender
diversity set by the Board or
a relevant committee of the
Board in accordance with the
Company’s diversity policy and
its progress toward achieving
them and either the respective
proportions of men and
women on the Board, in senior
executive positions across the
whole organisation (including
how the entity has defined
‘senior executive’ for these
purposes) or if the Company
is a ‘relevant employer’ under
the Workplace Gender Equality
Act 2012 (Cth), the Company’s
most recent ‘Gender Equality
Indicators’, as defined in and
published under that Act.
1.6 Board Reviews
Have and disclose a process
for periodically evaluating the
performance of the Board,
its committees and individual
Directors and disclose whether
a performance evaluation was
undertaken in accordance with
that process.
Comply
A performance review is undertaken annually in relation to the Board and
the Board Committees. In addition to individual evaluation sessions between
the Chair and individual Directors, a formal self-evaluation questionnaire is
used to facilitate the annual performance review process. Where it considers
necessary the Board may also engage a professional independent consultant
experienced in Board reviews to conduct a review of the Board and its
Committees and the effectiveness of the Board as a whole.
1.7 Management reviews
Have and disclose a process
for periodically evaluating
the performance of senior
executives and disclose whether
a performance evaluation was
undertaken in accordance with
that process.
Comply
Each year the Board sets financial, operational, management and individual
targets for the CEO and the CFO. The CEO and the CFO (in consultation with
the Board), in turn sets targets for their direct reports. Performance against
these targets is assessed periodically throughout the year and a formal
performance evaluation for senior management is completed for the year end.
Details of the process followed are set out on page 36 of the Remuneration
Report within this Annual Report.
MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE 87
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2 Structure the Board to add value
Non comply
The Board has not formally established a Nominations Committee as it
considers that it is able to deal efficiently and effectively with Board composition
and succession issues without establishing a separate nominations committee.
Non comply
The Company has not adopted a Board skills matrix at this time. The Company
is satisfied that it currently has an appropriate, balanced, rich and diverse range
of skills and knowledge among the Board members, necessary to govern the
Group. The Company’s People, Development and Remuneration Committee
will ensure that the necessary breadth and depth of skills and experience
is maintained amongst Board members, in furtherance of the Committee’s
obligations under the Corporate Governance Charter.
Comply
In accordance with the Corporate Governance Charter, the majority of Directors
are independent.
Details regarding which Directors are considered independent and the
length of their service are set out on pages 28 and 30 of the Directors’ Report
within this Annual Report.
2.1 Nominations Committee
Does the Board have a
nominations committee? If
the Board does not have a
nominations committee, disclose
that fact and the processes
it employs to address Board
succession issues and to
ensure that the Board has
the appropriate balance of
skills, knowledge, experience,
independence and diversity to
enable it to discharge its duties
and responsibilities effectively.
2.2 Board skills matrix
Have and disclose a Board skills
matrix setting out the mix of
skills and diversity that the Board
currently has or is looking to
achieve in its membership.
2.3 Disclose independence and
length of service
• Disclose the names of the
Directors considered by the
Board to be independent
Directors.
• If a director has an interest,
position, association or
relationship that might cause
doubts about the independence
of a Director, disclose the
nature of the interest, position,
association or relationship in
question and an explanation of
why the Board is of that opinion.
• Disclose the length of service
of each Director.
2.4 Majority of Directors
independent
The majority of the Board should
be independent Directors.
Comply
In accordance with the Corporate Governance Charter and as disclosed against
Recommendation 2.3, the majority of the Directors are independent.
Details regarding the independence of the Directors are set out on pages
28 to 30 of the Directors’ Report within this Annual Report.
88 MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE
PR I NCI PLE AN D B EST
PRACTICE R ECOM M E N DATION
M ICHAE L H I LL I NTE R NATIONAL LI M ITE D’S
COM PLIANCE WITH R ECOM M E N DATION
2.5 Chair independent
The Chair of the Board should
be an independent Director
and, in particular, should not be
the same person as the Chief
Executive Officer.
2.6 Induction and professional
development
Have a program for inducting new
Directors and provide appropriate
professional development
opportunities for Directors to
develop and maintain the skills
and knowledge needed to perform
their role as Directors effectively.
Non comply
The Chair of Michael Hill International Limited is Emma Hill, a non-indepen-
dent Director. Ms Hill has a comprehensive understanding of the Group and
its business. In light of this, the Company’s Board considers Ms Hill to be the
most appropriate candidate for the role of Chair. Given that the Company’s
Board is constituted by a majority of independent Directors, it is considered that
governance will not be adversely affected by there being a non-independent
Chair. Ms Hill is not the Chief Executive Officer of the Company.
Comply
An induction process including appointment letters and ongoing education exists
to promote early, active and relevant involvement of new members of the Board.
All Directors are encouraged to become a member of the Australian
Institute of Company Directors (AICD) and to further their knowledge through
participation in seminars hosted by the AICD and other forums sponsored by
professional, industry, governance and Government bodies.
In addition to peer review, interaction and networking with other Directors
and industry leaders, the Company’s Directors participate, from time to time,
in the Company’s leadership forums and actively engage with the Company’s
employees by visiting the Company’s stores to gain an understanding of the
operational environment.
During the course of the year Directors receive accounting policy updates,
especially around the time when the Board considers the Half Year and Full
Year accounts.
The Board also includes educational sessions on legal, accounting,
regulatory change, developments in communication including social media and
human resource management.
Directors are encouraged and given the opportunity to broaden their
knowledge of the business by visiting stores in different locations. During the
financial year, Directors made a number of visits to stores and to Company
competitor sites.
3 Act ethically and responsibly
3.1 Code of conduct
Have a code of conduct for
Directors, senior executives and
employees and disclose that
code or a summary of it.
Comply
The Board has established a Code of Conduct for its Directors, senior
executives and employees, a copy of which is available on the Company’s
website, www.michaelhill.com.au
MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE 89
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M ICHAE L H I LL I NTE R NATIONAL LI M ITE D’S
COM PLIANCE WITH R ECOM M E N DATION
4 Safeguard integrity in corporate reporting
4.1 Audit Committee
The Board should have an Audit
Committee which:
• has at least three members,
all of whom are non-executive
Directors;
• a majority of whom are
independent Directors;
• be chaired by an independent
Director who is not the Chair of
the Board;
• disclose the Charter of the
Committee, the relevant quali-
fications and experience of the
members of the Committee; and
• in relation to each reporting
period, the number of times
the Committee met throughout
the period and the individual
attendances of the members at
those meetings.
4.2 CEO and CFO certification of
financial statements
The Board should, before it
approves the entity’s financial
statements for a financial period,
receive from its Chief Executive
Officer and Chief Financial Officer
a declaration that, in their opinion,
the financial records of the entity
have been properly maintained
and that the financial statements
comply with the appropriate
accounting standards and give a
true and fair view of the financial
position and performance of the
entity and that the opinion has
been formed on the basis of a
sound system of risk management
and internal control which is
operating effectively.
4.3 External auditor at AGM
Ensure that the Company’s
external auditor attends the
annual general meeting and is
available to answer questions
from security holders relevant to
the audit.
Comply
The Audit and Risk Management Committee comprises three members
(including the Chair), all of whom are non-executive Directors with the majority
being independent Directors. Details of the membership of the Audit and Risk
Management Committee, including the names and qualifications of the Committee
members, are set out on pages 28 to 30 and page 32 of this Annual Report.
In addition to the Audit and Risk Management Committee members, the
CEO, CFO, external auditors and Company Secretary regularly attend Audit and
Risk Management Committee meetings.
The number of meetings held and attended by each member of the Audit
and Risk Management Committee during the financial year are set out on page
32 of this Annual Report.
The Audit and Risk Management Committee Charter is reviewed annually
and is available on the Company’s website, www.michaelhill.com.au
Comply
This Recommendation is not specifically addressed in the Corporate
Governance Charter however will be discharged by the Company pursuant to its
obligation under section 295A of the Corporations Act.
Comply
The Group’s external audit function is performed by Ernst & Young (EY).
Representatives of EY will attend the Annual General Meeting and be available
to answer shareholder questions regarding the audit.
90 MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE
PR I NCI PLE AN D B EST
PRACTICE R ECOM M E N DATION
M ICHAE L H I LL I NTE R NATIONAL LI M ITE D’S
COM PLIANCE WITH R ECOM M E N DATION
5 Make timely and balanced disclosure
5.1 Disclosure and
Communications Policy
Establish a written policy
designed to ensure compliance
with ASX Listing Rule disclosure
requirements and disclose that
policy or a summary of it.
Comply
The Company has adopted guidelines in relation to disclosure and communi-
cations which sets out the processes and practices that ensure its compliance
with the continuous disclosure requirements under the ASX Listing Rules and
the Corporations Act.
The Company has also established guidelines to assist officers and
employees of the Group to comply with the Company’s disclosure and commu-
nications requirements. A copy of the guidelines is set out in the Company’s
Corporate Governance Charter which is available on its website, www.
michaelhill.com.au
6 Respect the rights of Shareholders
6.1 Information on website
Provide information about the
Company and its governance
to investors via the Company’s
website.
6.2 Investor relations programs
Design and implement an
investor relations program to
facilitate effective two-way
communication with investors.
Comply
The Company keeps investors informed of its corporate governance, financial
performance and prospects via its website. Investors can access copies of
all announcements to the ASX and NZX, notices of meetings, annual reports
and financial statements, investor presentations webcasts and/or transcripts
of those presentations and a key events calendar via the ‘Investor Centre’ tab
and can access general information regarding the Company and the structure
of its business under the ‘About Us’ and governance documents under the
‘Governance Policies and Compliance’ tabs.
The Company’s website is www.michaelhill.com.au
Comply
The Company conducts regular briefings including interim and full year results
announcements, investor days, site visits and attends regional and industry
specific conferences in order to facilitate effective two-way communication
with investors and other financial market participants. Access to Executive and
Operational management is provided at these events, with separate one-on-one
or group meetings offered whenever possible.
The presentation material provided at these events is posted on the Company’s
Investor Centre website, including the webcast and transcript if applicable.
6.3 Facilitate participation at
meetings of security holders
Disclose policies and processes
in place to facilitate and
encourage participation at
meetings of security holders.
Comply
The Company uses technology to facilitate the participation of security holders
in meetings including live teleconferences and in respect of Annual General
Meetings (AGM), provide a direct voting facility to allow security holders to vote
ahead of the meeting without having to attend or appoint a proxy.
Shareholders are encouraged to participate in general meetings and are
given an opportunity to ask questions of the Company and its auditor at the AGM.
6.4 Facilitate electronic
communications
Give security holders the option
to receive communications from,
and send communications to, the
Company and its security registry
electronically.
Comply
The Company provides its investors the option to receive communications from
and send communications to, the Company and the share registry electronically.
MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE 91
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PRACTICE R ECOM M E N DATION
M ICHAE L H I LL I NTE R NATIONAL LI M ITE D’S
COM PLIANCE WITH R ECOM M E N DATION
Comply
The Company’s Audit and Risk Management Committee oversees the process
for identifying and managing material risks in the Company in accordance with
the Audit and Risk Management Committee Charter. A copy of the Audit and
Risk Management Committee Charter is available on the Company’s website,
www.michaelhill.com.au .
Further details regarding the Audit and Risk Management Committee, its
membership and the number of meetings held during the financial year are set
out in response to Recommendation 4.1.
7 Recognise and manage risk
7.1 Risk Committee
Have a committee or committees
to oversee risk, each of which has:
• at least three members;
• a majority of whom are
independent directors;
• are chaired by an independent
director;
• disclose the charter of the
committee and the members of
the committee; and
• at the end of each reporting
period, the number of times
the committee met throughout
the period and the individual
attendances of the members at
those meetings.
7.2 Annual risk review
The Board or committee of
the Board should review the
Company’s risk management
framework at least annually to
satisfy itself that it continues to
be sound and disclose, in relation
to each reporting period, whether
such a review has taken place.
Comply
The Board has mandated Internal Audit to provide independent assurance on
the effectiveness of the Company’s risk management practices and report
its findings to the Audit and Risk Management Committee. The purpose of
the review is to confirm the Company’s governance processes and practices
continue to be sound and that the entity manages risk within the Board
approved risk appetite.
Internal Audit conducted its review during the financial year and concluded that
control over risk management processes were considered adequate and effective.
7.3 Internal audit
Disclose if it has an internal
audit function, how the function
is structured and what role it
performs or if it does not have an
internal audit function, that fact
and the processes it employs
for evaluation and continually
improving the effectiveness of
its risk management and internal
control processes.
7.4 Sustainability risks
Disclose whether the Company
has any material exposure to
economic, environmental and
social sustainability risks and if it
does, how it manages or intends
to manage those risks.
Comply
The Company has an internal audit function that operates under a Board
approved Internal Audit Charter.
The internal audit function is independent of management and the external
auditor and is overseen by the Audit and Risk Management Committee. In
accordance with the Audit and Risk Management Committee Charter the
appointment or removal of the Chief Internal Auditor is a matter for this
Committee.
Comply
The Company identifies and manages material exposures to economic,
environmental and social sustainability risks in accordance with its risk
management framework incorporating the Board approved risk appetite.
Steps have been taken to strengthen the governance of sustainability in
the Company during the year.
92 MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE
PR I NCI PLE AN D B EST
PRACTICE R ECOM M E N DATION
M ICHAE L H I LL I NTE R NATIONAL LI M ITE D’S
COM PLIANCE WITH R ECOM M E N DATION
8 Remunerate fairly and responsibly
8.1 Remuneration Committee
The Board should have a remu-
neration committee which has:
• at least three members, all
of whom are independent
directors;
• is chaired by an independent
director;
• disclose the charter and the
committee, the members of the
committee; and
• at the end of each reporting
period, the number of times
the committee met throughout
the period and the individual
attendances of the members at
those meetings.
8.2 Disclosure of Executive
and Non-Executive Director
remuneration policy
Separately disclose policies
and practices regarding the
remuneration of non-executive
Directors and the remuneration
of executive Directors and other
senior executives.
8.3 Policy on hedging equity
incentive schemes
Have a policy on whether partici-
pants are permitted to enter into
transactions (whether through use
of derivatives or otherwise) which
limit the economic risk of partici-
pating in the scheme and disclose
that policy or a summary of it.
Non comply
The Company’s remuneration function is performed by the People, Development
and Remuneration Committee. Further details regarding the Committee, its
composition and members are set out on page 32 of this Annual Report.
Ms Hill is one of the three members of the People, Development and
Remuneration Committee. Given the small size of the Board and Ms Hill’s relevant
expertise, the Company considers it appropriate for Ms Hill to be a member.
Comply
The Company seeks to attract and retain high performance Directors and
Executives with appropriate skills, qualifications and experience to add value
to the Company and fulfil the roles and responsibilities required. It reviews
requirements for additional capabilities at least annually.
Executive remuneration is to reflect performance and, accordingly,
remuneration is structured with a fixed component and performance-based
remuneration component.
Non-executive Directors are paid fixed fees for their services in accordance
with the Company’s Constitution. Fees paid are a composite fee (covering all
Board and Committee responsibilities) and any contributions by the Company
to a fund for the purposes of superannuation benefits for a Director. No other
retirement benefit schemes are in place in respect to non-executive Directors.
Further details regarding the remuneration of executive and non-executive
Directors are set out on page 39 of the Remuneration Report within this
Annual Report.
Comply
The Company’s Key Management Personnel must not enter into any hedge
arrangement in relation to any element of the Key Management Personnel’s remu-
neration that has not vested or has vested but remains subject to a holding lock.
For the purposes of this policy, hedging includes the entry into any transaction,
arrangement or financial product which operates to limit the economic risk of a
security holding in the Company and includes financial instruments such as equity
swaps and contracts for differences. The term ‘Key Management Personnel’
has the definition given in the Accounting Standard AASB 124 Related Party
Disclosure as ‘those persons having authority and responsibility for planning,
directing and controlling the activities of the entity, directly and indirectly, including
any director (whether executive or otherwise) of that entity’.
Further details regarding the Company’s policy on hedging are set out in
the Company’s Trading Policy which is available in the Governance Policies and
Compliance section of the Company’s website, www.michaelhill.com.au .
MICHAEL HILL INTERNATIONAL CORPORATE GOVERNANCE 93
Analysis of Shareholding
Twenty largest shareholders as at 31 August 2016
Hoglett Hamlett Limited
New Zealand Central Securities Depository Ltd
Mole Hill Limited
Squeakidin Limited
National Nominees Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
RBC Investor Services Australia Nominees Pty Limited
Hsbc Custody Nominees (Australia) Limited
M.R. Parsell
R.L. Parsell
HSBC Custody Nominees (Australia) Limited
Forsyth Barr Custodians Limited
Custodial Services Limited
P.R. Taylor
G.J & P.A. Gwynne
W.K. & C.A. Butler and R.M.J. Urlich
UBS Nominees Pty Ltd
Heffalump Holdings Limited
K.G. Stock
Total
Total remaining holders balance
Shareholding by range of shares as at 31 August 2016
Ordinary Shares
% of Shares
164,330,600
37,427,782
19,156,926
19,156,926
9,130,836
8,829,599
8,267,667
6,462,170
4,977,559
4,289,264
3,350,250
3,165,439
3,086,057
2,936,581
2,000,000
1,972,000
1,760,000
1,720,390
1,524,750
1,010,000
304,554,796
78,583,717
42.89
9.77
5.00
5.00
2.38
2.30
2.16
1.69
1.30
1.12
0.87
0.83
0.81
0.77
0.52
0.51
0.46
0.45
0.40
0.26
79.49
20.51
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - 999,999,999
Total
Unmarketable parcels
No. of Holders
% of Holders
No. of Shares
497
1,225
862
1,347
128
4,059
0.09
1.01
1.87
10.50
86.53
100.00
352,051
3,865,081
7,167,325
40,228,524
331,525,532
383,138,513
Minimum $500.00 parcel at $1.69 per unit
Minimum parcel size
296
Holders
52
Units
6,823
94 MICHAEL HILL INTERNATIONAL 2016 ANALYSIS OF SHAREHOLDING
Substantial holders of 5% or more of fully paid ordinary shares as at 31 August 2016*
Emma Jane Hill
Hoglett Hamlett Limited
Mole Hill Limited
Squeakidin Limited
Mark Simon Hill
Blackcurrant Trustees Limited
Notice Date
31 August 2016
11 July 2016
11 July 2016
11 July 2016
11 July 2016
8 July 2016
Shares
183,487,526
164,330,600
19,156,926
20,681,676
183,487,526
20,681,676
* as disclosed in substantial shareholder notices received by the Company
Investor Calendar
2016 Dates
19 August 2016
6 October 2016
31 October 2016
Details
Full year results and final dividend announcement
Final dividend payment date
Annual General Meeting
MICHAEL HILL INTERNATIONAL 2016 ANALYSIS OF SHAREHOLDING 95
Corporate directory
Index
SOLICITORS
HopgoodGanim Lawyers
Level 8 Waterfront Place
Brisbane Qld 4000
Australia
AU DITORS
Ernst & Young
Level 51
One One One
111 Eagle Street
Brisbane, QLD 4000
Australia
PR I MARY BAN KE RS
Australia and New Zealand
Banking Group Limited
ANZ Banking Group (New
Zealand) Limited
Bank of Montreal
Bank of America N.A.
WE BSITE
www.michaelhill.com.au
www.emmaandroe.com.au
investor.michaelhill.com
E MAI L
inquiry@michaelhill.com.au
DI R ECTORS
E.J. Hill B.Com., M.B.A. (Chair)
Sir Richard Michael Hill K.N.Z.M.
G.W. Smith B.Comm., F.C.A., F.A.I.C.D.
R.I. Fyfe
J.S. Allis
COM PANY SECR ETARY
Mary-Anne Greaves
R EG ISTE R E D OFFICE
AN D COR P ORATE H EAD
OFFICE
Metroplex on Gateway
7 Smallwood Place
Murarrie, QLD 4172
GPO Box 2922
Brisbane, QLD 4001
Australia
Telephone +61 7 3114 3500
Fax +61 7 3399 0222
SHAR E R EG ISTRAR
Computershare Investor
Services Pty Limited
117 Victoria Street
West End Qld 4101
Australia
Investor Enquiries:
1300 850 505
(within Australia)
+61 3 9415 4000
(outside Australia)
13 Analytical information
95 Investor calendar
42 Auditor’s independence
9 Key facts
declaration
47 Cash flow statement
7 Chair review
2 Mission statement
48 Notes to the financial
statements
32 Committee membership
22 Operational review
14 Community spirit
3 Company profile
96 Corporate directory
84 Corporate governance
28 Director information
32 Directors’ meetings
21 Directors’ report
21/73 Dividends
13 Exchange rates
18 Executive
management team
43 Financial statements
73 Franking credit account
87 Gender composition of
Directors and Senior
Management
73 Imputation credit account
26 Outlook
5 Performance highlights
35 Remuneration report
23 Review of 2015-16 priorities
27 Risk management
24/58 Segment results
94 Shareholder information
12 Statistics
46 Statement of
changes in equity
44 Statement of
comprehensive income
45 Statement of
financial position
95 Substantial security holders
12 Trend statement
18 Values and leadership
83 Independent Auditor’s report
principles
96 MICHAEL HILL INTERNATIONAL 2016 CORPORATE DIRECTORY / INDEX
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS c