ANNUAL REPORT 2017
Our mission is to be
the most people focused
Jeweller in the world
b
The Directors are pleased to present the annual report of Michael Hill
International Limited for the year ended 30 June 2017
WHAT’S INSIDE
3 Company profile &
corporate goals
An introduction to the Company and
our goals
5 Chair review
Emma Hill reviews the Group’s overall
performance for the year
7 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
17 Celebrating our success
33 Remuneration report
A look at how we pay tribute to our
managers and high achievers
Remuneration of Directors and
key executives
19 Sustainability report
44 Auditor’s declaration
20 Our leadership principles
45 Financial statements
21 Key management
Our key people across Australia,
New Zealand, Canada and the USA
21 Our values
23 Directors report
A review of the year’s operations and
the plans and priorities for the future
30 Director profiles
90 Auditor’s report
94 Analysis of shareholding
96 Index
97 Corporate directory
1
Our overall strategic goal is to
grow shareholder wealth over time
through our philosophy of controlled
profitable growth
2
COMPANY PROFILE
Michael Hill International Limited is a specialist retail jewellery chain that
owns the brands ‘Michael Hill’ and ‘Emma & Roe’. As at 30 June 2017, it
operates 303 Michael Hill stores and 29 Emma & Roe stores in Australia,
New Zealand, Canada and the United States.
The first Michael Hill store opened in 1979 when Michael Hill and his wife Christine launched their
unique retail jewellery formula in the New Zealand town of Whangarei, some 160 kilometres north
of Auckland.
With dramatically different store designs, a product range devoted exclusively to accessible
jewellery and the clever use of high impact advertising, the Company rapidly gained popularity and
rose to national prominence.
Through the successful listing of the company on the New Zealand Stock Exchange in 1987, the
Group expanded into Australia. The next 15 years saw sustained growth and in 2002, Michael Hill
expanded into North America, opening its first stores in Vancouver, Canada. The Canadian presence
continues to grow and now includes stores in British Columbia, Alberta, Manitoba, Saskatchewan,
Nova Scotia and Ontario.
In September 2008, the Group entered the United States market and now has nine stores in
Illinois, Minnesota and New York.
The Group opened the first Emma & Roe boutique in 2014, following a successful 18 month
trial in five South East Queensland outlets under the trading name ‘Captured Moments’. The
Group’s two brands are viewed as being complementary within the jewellery sector, with Michael
Hill continuing to focus on diamonds, bridal and fine jewellery while Emma & Roe focuses on the
emerging preference for customisable and uniquely collectible jewellery. The name Emma & Roe
takes its inspiration from the Hill family; ‘Emma’, 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 Michael Hill International Limited 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 2017, the Group has 52 Michael Hill stores in New Zealand, 166 in Australia,
76 in Canada, and 9 stores in the USA. In addition, there are 28 Emma & Roe stores in Australia
and one in New Zealand. Around the world, the Group employs approximately 2,820 permanent
employees across retail sales, manufacturing and administration roles.
Our continued strategic goal is to grow shareholder wealth over time through
our philosophy of controlled profitable growth.
MICHAEL HILL INTERNATIONAL COMPANY PROFILE 3
CHAIR'S REVIEW
...our established Michael Hill markets
of Australia and New Zealand both
delivered record profits against the
backdrop of a challenging and changing
retail environment...
4
OU R STRATEGY
We will continue to evolve and differentiate our business so at
every touch point, we give our customers a compelling reason to
shop with us.
While many factors impact success, none are more
important than having unique desirable products. Our goal is
to evolve our jewellery ranges towards a majority of branded
collections over the coming years. Our proprietary collections
are designed in-house and each is inspired by a meaningful
story that resonates with our customers and builds emotional
engagement. We will be launching a number of new collections
in the coming year. Distinct advertising across all communication
channels supports each collection and conveys their stories. This
strategy is allowing us to move away from regular price driven
promotions and events, which have long supported the traditional
middle market jewellery sector. We will build a sustainable future,
gain market share, and grow revenue and margin by offering
customers a compelling point of difference.
LEADE RSH I P
Our strategy cannot be implemented without leadership. In March
2017 the board appointed Phil Taylor as the Chief Executive
Officer of Michael Hill. Phil has been with the business since
1987 and brings to the role unparalleled understanding of our
key drivers for profitable growth. We are delighted to have Phil
leading us forward as we continue to evolve our business in the
new era of Omni-channel retail.
Thank you for your ongoing support and investment, I look
forward to seeing you at our upcoming AGM.
Emma Hill
Chair
Dear Shareholders,
I am pleased to present the Michael Hill
International Limited annual report to
shareholders for the 2017 year.
The group produced a record EBIT
result of $48.1m up 2.3% on the prior year
and a return on capital employed of 16.8%.
Earnings before interest and tax over the
past five years has had average growth of 7.2%. All the details of
our result can be found in the directors’ report.
OU R B USI N ESSES
Our established Michael Hill markets of Australia and New
Zealand both delivered record profits against the backdrop of
a challenging and changing retail environment. This was an
excellent result and a testament to the strength of our teams
who bring the customer experience to life.
Our Canadian business has reached a level of critical mass,
providing brand presence and scale to deliver outstanding
revenue and profit growth. This important market will continue
to contribute increasing returns as we expand to national
prominence. Our distinct offer in the Canadian market together
with highly engaged sales professionals are driving customer
preference and winning market share.
In the US, our newest Michael Hill market, we continue to
experiment and refine our model. EBIT losses were higher than
expected for the year, due to a combination of organisational
changes and experimentation with our marketing program, which
didn’t produce the desired results. Winning in the US, the most
competitive jewellery market in the world was never going to be
easy. The prize however, if we get it right, is significant. The Board
will continue to monitor our US business as management refine
the business model and improve financial performance over the
next 24 months.
Our Emma and Roe brand expanded its footprint in Australia
and New Zealand to 29 stores, however we struggled to achieve
planned revenue growth. This young business will continue to
evolve in the year ahead in an effort to position for sustained
profitable growth. We have now established a strategic foothold in
the important markets of Queensland and New South Wales and
focus this year will be on improving performance of this store base.
I would like to thank the whole Michael Hill team for the
passion and drive they bring to our business every day and their
contribution to our solid result for the Group.
MICHAEL HILL INTERNATIONAL 2017 CHAIR REVIEW 5
KEY FACTS
6
YEAR ENDED 30 JUNE / AU$000 UNLESS STATED
2017
2016 % CHANGE
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
582,975 551,127
368,943
351,276
48,117
47,058
44,958
41,534
32,648
19,577
39,752
47,794
5.8%
5.0%
2.3%
8.2%
66.8%
-16.8%
FI NANCIAL P OSITION AT YEAR E N D
Contributed equity
387,438,513 ordinary shares
Total equity
Total assets
Net debt
Capital expenditure
10,015
202,183
389,122
39,358
33,145
3,767 165.9%
8.5%
1.3%
22.9%
35.0%
186,401
384,197
32,034
24,549
SHAR E PR ICE
30 June
2017
2016
au$1.11
nz$1.14
SAM E STOR E SALES
Michael Hill same store sales
movement (in local currency)
Australia
New Zealand
Canada
United States
Emma & Roe same store sales
movement (in local currency)
Australia
New Zealand
1.2%
-0.8%
8.8%
-8.5%
3.8%
7.2%
5.3%
3.5%
-1.1%
-14.5%
34.6%
-
Group same store sales
movement
1.6%
5.2%
KEY RATIOS
Return on average shareholders’ funds*
Gross profit
Interest expense cover (times)
Equity ratio (total equity/total assets)*
Gearing Ratio (net debt/total equity)*
Current ratio
16.8%
63.5%
15.2
52.0%
19.5%
10.5%
64.0%
7.7
48.5%
17.2%
(current assets/current liabilities)*
3.0:1
2.4:1
EAR N I NGS PE R SHAR E
Basic earnings per share*
Diluted earnings per share*
8.46¢
8.45¢
5.11¢
5.09¢
DISTR I B UTION TO SHAR E HOLDE RS
Dividends - including final dividend
Per ordinary share
Times covered by net profit after tax*
au5.0¢
1.69
au4.75¢
1.08
N U M B E R OF STOR ES
Australia
New Zealand
Canada
United States
Michael Hill stores
Australia
New Zealand
Emma & Roe stores
166
52
76
9
303
28
1
29
168
52
67
10
297
15
1
16
Total stores
332
313
* Please note that several key
measures in the 2015-16
financial year were materially
affected by the booking
of the IR tax settlement
and the income tax
consolidation cost base
adjustments as a result of
the ASX listing.
MICHAEL HILL INTERNATIONAL 2017 KEY FACTS 7
0
.
3
8
5
.
1
1
5
5
4
.
3
0
5
9
.
3
8
4
2
.
0
4
4
.
6
7
9
3
1
.
8
6
8
.
5
6
.
8
7
5
2
.
5
5
7
.
0
5
0
.
5
4
Total Michael Hill and Emma & Roe jewellery stores 332
1987 - 2017, YEAR ENDED 30 JUNE
■ MH STORES ■ E&R STORES
Group revenue up 5.8%
AU$ MILLIONS /
YEAR ENDED 30 JUNE
8 MICHAEL HILL INTERNATIONAL 2017 KEY FACTS
Earnings before interest,
taxation, depreciation and
amortisation (EBITDA) up 3.5%
AU$ MILLIONS /
YEAR ENDED 30 JUNE
12
13
14
15
16
17
12
13
14
15
16
17
(all values stated in $AU unless stated otherwise)
� Operating revenue of $583.0m up 5.8% on same period last year
� Same store sales were 1.6% up on same period last year
� Revenue collected from Professional Care Plans of $39.7m,
up 1.0% on same period last year
� EBIT of $48.1m, up 2.3% on same period last year
� Net profit after tax of $32.6m, up 66.8% on same period last year
� Final dividend of au2.5¢ per share making the total dividend
au5.0¢ for the year
� Equity ratio of 52.0% at 30 June 2017
� 13 new Michael Hill stores opened and seven closed during the period
� 13 new Emma & Roe stores opened during the period
� Total of 303 Michael Hill stores open at 30 June 2017
� Total of 29 Emma & Roe stores open at 30 June 2017
� Total of 332 stores in the Group open at 30 June 2017
MICHAEL HILL INTERNATIONAL 2017 KEY FACTS 9
1
.
2
3
6
.
2
3
5
.
6
z
n
5
.
6
z
n
2
.
8
2
.
8
7
2
0
.
5
2
6
.
9
1
5
.
5
z
n
0
.
5
0
.
5
z
n
5
7
.
4
z
n
.
1
3
1
z
n
.
4
2
1
z
n
8
9
.
0
z
n
.
4
1
1
z
6 n
0
1
z
n
.
1
1
1
.
12
13
14
15
16
17
12
13
14
15
16
17
Net profit after tax
up 66.8%
AU$ MILLIONS /
YEAR ENDED 30 JUNE
Ordinary dividend
AU CENTS PER SHARE /
YEAR ENDED 30 JUNE
12
13
14
15
16
17
Share price performance
AU$ / YEAR ENDED 30 JUNE
10 MICHAEL HILL INTERNATIONAL 2017 KEY FACTS
7
.
9
1
4
.
9
1
8
.
6
1
0
.
5
1
1
.
4
1
5
.
0
1
CURRENT
LIABILITIES 20%
EQUITY 52%
NON-CURRENT
LIABILITIES 28%
Source of funding
30 JUNE 2017
12
13
14
15
16
17
Return on average
shareholders’ funds
16.8%
% / YEAR ENDED 30 JUNE
.
7
1
1
.
7
1
1
4
.
6
2
4
.
8
9
7
.
0
.
8
4
.
0
2
5
.
9
1
.
2
7
1
3
.
5
8
.
0
1
1
.
0
1
12
13
14
15
16
17
12
13
14
15
16
17
Return on average
assets 8.4%
% / YEAR ENDED 30 JUNE
Gearing ratio 19.5%
% / YEAR ENDED 30 JUNE
MICHAEL HILL INTERNATIONAL 2017 KEY FACTS 11
TREND STATEMENT
FI NANCIAL PE R FOR MANCE
2017
$000
2016
$000
2015
$000
2014
$000
2013
$000
2012
$000
Group revenue
582,975
551,127
503,370
483,935
440,225
397,633
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
68,133
20,016
48,117
3,159
44,958
12,310
32,648
39,752
19,264
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
45,023
9,611
35,412
3,002
37,737
32,410
5,638
32,099
41,686
18,482
4,200
28,210
40,662
15,021
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*
2017
$000
2016
$000
2015
$000
2014
$000
2013
$000
2012
$000
5,676
8,853
6,797
8,109
10,461
9,488
203,853
29,052
238,581
83,864
57,893
380,338
8,784
389,122
79,653
45,034
62,252
186,939
199,961
182,232
179,280
154,293
147,089
31,298
39,378
25,204
15,653
9,319
240,112
228,407
212,593
180,407
165,896
74,450
64,074
67,734
48,381
58,488
62,324
52,232
56,064
36,739
50,403
378,636
344,522
333,405
288,703
253,038
5,561
6,491
6,413
3,632
1,511
384,197
351,013
339,818
292,335
254,549
100,986
40,887
55,923
69,879
45,116
48,397
71,005
56,000
31,528
60,977
28,000
29,673
54,101
26,000
21,586
197,796
163,392
158,533
118,650
101,687
Net assets*
202,183
186,401
187,621
181,285
173,685
152,862
Reserves and retained profits*
Paid up capital
Treasury stock
192,168 182,634
10,015
3,767
183,861
177,634
170,261
149,500
3,767
3,702
3,515
-
-
(7)
(51)
(91)
3,482
(120)
Total shareholder equity
202,183
186,401
187,621
181,285
173,685
152,862
Per ordinary share
Basic earnings per share*
Diluted earnings per share*
Dividends declared per share - interim
- final
8.46¢
8.45¢
au2.5¢
au2.5¢
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¢
Net tangible asset backing*
$0.50
$0.47
$0.47
$0.46
$0.44
$0.40
* Please note that several key measures in the 2015-16 financial year were materially affected by the booking of the IR tax settlement and
the income tax consolidation cost base adjustments as a result of the ASX listing.
12
ANALYTICAL I N FOR MATION
2017
2016
2015
2014
2013
2012
EBITDA to sales
EBIT to sales
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
11.7%
8.3%
5.6%
12.4%
16.8%
8.4%
3.0
15.2
27.4%
11.9%
11.5%
11.4%
11.5%
8.5%
3.6%
12.2%
10.5%
5.3%
2.4
7.7
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
11.3%
8.9%
7.1%
13.9%
19.4%
11.7%
3.1
11.2
52.9%
25.8%
31.9%
14.9%
13.0%
19.5%
52.0%
17.2%
48.5%
20.4%
53.5%
26.4%
53.3%
10.1%
59.4%
10.8%
60.1%
Other
Shares issued at year end excl Treasury 387,438,513 383,138,513 383,138,513 383,041,606 382,849,544 382,775,586
277,604
Treasury stock at year end
203,646
111,584
14,677
-
-
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
1.06
1.00
0.75
166
52
76
9
303
28
1
29
1.09
0.97
0.73
1.07
0.97
0.83
1.10
0.98
0.92
1.25
1.03
1.03
1.28
1.03
1.03
168
167
164
162
153
52
67
10
52
60
9
52
54
8
52
45
8
53
37
9
297
288
278
267
252
15
1
16
7
1
8
6
-
6
5
-
5
-
-
-
Total stores
332
313
296
284
272
252
* Please note that several key measures in the 2015-16 financial year were materially affected by the booking of the IR tax settlement and
the income tax consolidation cost base adjustments as a result of the ASX listing.
13
COMMUNITY SPIRIT
Michael Hill International takes great pride in giving back to the communities surrounding our 332 stores
MICHAEL HILL
INTERNATIONAL
VIOLIN
COMPETITION
The Michael Hill International Violin
Competition is a biennial music
competition for violinists aged between
18 and 28. It aims to recognise,
promote and celebrate excellence,
distinctiveness and musical artistry.
Young violinists from all over the world,
who are on the verge of launching
themselves on the world stage, are
invited to apply to compete in this
extraordinary competition that instils
the necessary skills to broaden their
career opportunities.
14
For the 2017 competition, 140
The careers of the past Michael
applications were received from
young violinists representing 32
different nationalities. The selected
finalists, 16 of the world’s finest young
violinists, were flown to New Zealand
to compete for a total prize package
worth NZ$100,000. This year’s winner
Ioana Cristina Goicea from Romania
received NZ$40,000 and a recording
contract with the Atoll label. She
is about to undertake an intensive
performance tour across New Zealand
and Australia in 2018.
Hill winners continue to demonstrate
the calibre of the artists involved.
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
in 2019 in Queenstown and Auckland.
You can stay up to date with all
the upcoming competition news at
violincompetition.co.nz
COMMUNITY SPIRIT:
PLAID FOR DAD
SUPPORTING PROSTATE CANCER RESEARCH IN CANADA
Plaid for Dad was launched in 2015 to help raise awareness and vital research funds for prostate cancer. It has quickly
become a fun and easy way for Canadians to celebrate dad and help the 1 in 7 men who will be diagnosed with prostate
cancer in their lifetime.
This year, North American president Brett Halliday and his entire team showed their support by wearing plaid in store
in the run up to 16 June, the Friday before Father’s Day, officially designated as the day to wear Plaid for Dad.
Brett and his team actively supported Plaid for Dad initiatives by raising over CA$10,000 and they were recognised
with an ‘Outstanding Achievement in the Retail Services Sector’.
PINK HOPE
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.
CELEBRATING OUR SUCCESS:
GOLD CLUB
Every year we celebrate the personal achievements
of our highest performing Sales Professionals. This
year the 232 incredible individuals who achieved
gold club status, accounting for over AU$145m in
sales, were invited to celebrate their success in the
amazing cities of Quebec and Melbourne. Our top
performers were joined by our General Managers
and Chair of the Board Emma Hill to personally
congratulate and thank them for their contributions
to the success of Michael Hill and Emma & Roe
for 2016.
15
16
CELEBRATING OUR SUCCESS
International Managers' Conference 2016, Gold
Coast, Australia: Each year, 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.
17
18
SUSTAINABILITY
Michael Hill understands the importance of
operating its business sustainably to protect
the long term value of the Company, and to
enhance its relationship with its stakeholders,
particularly investors.
Michael Hill International Limited is a Member
of the Responsible Jewellery Council (RJC). The
RJC is a standards-setting organisation that has
been established to advance responsible ethical, human rights,
social and environmental practices throughout the diamond, gold
and platinum group metals jewellery supply chain.
The RJC has developed a benchmark standard for the
jewellery supply chain and credible mechanisms for verifying
responsible business practices through third party auditing.
As an RJC Member, we commit to operating our business
in accordance with the RJC Code of Practices. We commit to
integrating ethical, human rights, social and environmental con-
siderations into our day-to-day operations, business planning
activities and decision making processes.
Although certain aspects of our business strategy and
performance are reported through our annual report to
stakeholders, we understand the importance of continuing
to align our reporting with issues of key importance to the
company and to its stakeholders. In order to meet growing
community expectations of transparency and disclosure, and
to support our commitment to achieving certification under the
Responsible Jewellery Council Code of Practices, the Company
has commenced working towards compliance with the Code of
Practices and setting the foundation upon which to move towards
preparing a sustainability report that is GRI G4 compliant.
Preliminary work in this area, including interviews with key
internal and external stakeholders and a validation workshop,
has identified a number of material topics that are of importance
to the business. These topics will be used as a guide for an
internal gap assessment process to guide our strategy and
content development with a Sustainability Report expected to
be released for the 2018 reporting period.
19
Our leadership principles
CUSTOM E R FOCUS
M I N DSET FOR G ROWTH
B IAS FOR ACTION
We brighten, impress and
delight our customers
We show perseverance and
determination to grow
We deliberately choose our
priorities to achieve our vision
We consider our customers in
everything we do
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
We engage in thoughtful
decision making and intelligent
risk-taking
We act with speed and a
sense of urgency in executing
initiatives and strategy
B U I LDI NG TALE NT
AN D TEAMS
ACCOU NTAB I LITY AN D
R ESPONSI B I LITY
We personally invest in the
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
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
20
PH I L TAYLOR
CEO and
Chief Financial Officer
GALI NA H I RTZ E L
Group Executive
Supply Chain
MATT KEAYS
Chief Information Officer
STEWART SI LK
Group Executive
Human Resources
B R ETT HALLI DAY
President,
North America
KEVI N STOCK
Retail General Manager,
Australia
G R EG N E L
Retail General Manager,
New Zealand
TISHARA M I NA
Retail General Manager,
Emma & Roe
MARY-AN N E G R EAVES
Company Secretary
Our Senior Executive Team SE PTE M B E R 2017
Our values
PEOPLE-FOCUSE D
PR ECISION
I NTEG R ITY
ADAPTAB I LITY
DR IVE N
We delight our customers,
employees and communities
first, always and often.
We lead with quality, attainable
jewellery.
We build credibility with our
honesty and ethics.
We embrace practical
irreverence.
We will anguish over detail in all
aspects of our business.
We take ownership of and are
accountable for our business
and the brand.
MICHAEL HILL INTERNATIONAL SENIOR EXECUTIVES 21
...the Group remains in a strong
financial position to take advantage of
growth opportunities as they arise...
...the Group remains in a strong
financial position to take advantage of
growth opportunities as they arise...
22
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 2017.
As a result of the restructure of the Group in June 2016
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 previous
financial year to which this report relates).
Principal activities
The Group operates predominately in the retail sale of
jewellery and related services sector 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.
Dividends
Dividends paid to members during the financial year were
as follows:
Final ordinary dividend for the year
ended 30 June 2016 of au2.5¢ (2015
- nz2.5¢) per fully paid share paid on 6
October 2016 (2015 - 2 October 2015)
Interim ordinary dividend for the year
ended 30 June 2017 of au2.5¢ (2016 -
nz2.5¢) per fully paid share paid on 31
March 2017 (2016 - 1 April 2016)
Since year end, the Directors have
declared the payment of a final dividend
of au2.5¢ per fully paid ordinary share*
(2016 - au2.5¢). The final dividend will
be unfranked for Australian shareholders
and fully imputed for New Zealand
shareholders. The aggregate amount
of the proposed dividend expected to
be paid on 29 September 2017 out of
retained earnings at 30 June 2017, but
not recognised as a liability at year end, is
2017
$000
2016
$000
9,578
8,870
9,686
8,620
9,686 9,578
* This will be declared as conduit foreign income, therefore
no Australian withholding tax will be deducted from the
dividend payment for our foreign shareholders.
Significant changes in the 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. Its primary listing is on the ASX and it 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.
Review of operations
In Australian dollars, the Group has reported operating
revenues of $583.0m, producing record earnings before
interest and tax (EBIT) for the Group of $48.1m, up 2.3%
on the prior year. The Group reported a net profit after tax
(NPAT) of $32.6m for the 2017 financial year.
MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT 23
CASH, CASH FLOW AN D DIVI DE N DS
The Group has an equity ratio of 52.0% at 30 June 2017
(48.5% in 2016), and a working capital ratio of 3.0:1 (2.4:1
in 2016). Net operating cash flows were $39.8m compared
to $47.8m the previous year. Net debt at 30 June 2017
was $39.4m compared to $32.0m at 30 June 2016.
The Group remains in a strong financial position to
take advantage of growth opportunities as they arise.
For shareholders, the dividend for the year was au5.0¢
(2016 - au4.75¢) per share. There will be a final dividend
of au2.5¢ per share, declared as conduit foreign income,
payable on 29 September 2017. The final dividend will be
unfranked for Australian shareholders and fully imputed for
New Zealand shareholders.
OPE RATIONAL R EVI EW
The Group achieved the following key outcomes for the
12 months:
• Revenue increased 5.8% to $583.0m, up from $551.1m
• Same store sales up 1.6%
• Canadian segment continues to gain market share with
same store sales increase of 8.8%
• Branded Collection sales increased to 14.2% of total
product sales, up on 13.0% prior year
• Sale of Professional Care Plans ('PCP') amounted to
$39.7m, increasing deferred revenue on the balance
sheet from PCP sales to $77.1m
• Gross profit of 63.5%
• Write-down of assets and a provision for an onerous
lease relating to two US stores totalling us$1.3m
• Record EBIT result of $48.1m, up from $47.1m
• Net profit after tax of $32.6m
• Dividend of 5.0¢ up from 4.75¢ (au2.5¢ and nz2.5¢)
• Net operating cash inflow was $39.8m, down on
$47.8m in prior year
• Payment of the IR settlement balance amounting
to NZ$22.6m
• Additional increase in deferred tax asset of $4.4m
resulting from the 2015-16 tax consolidation cost base
adjustment, taking the total adjustment to $23.8m as at
the end of the financial year
• Net debt of $39.4m, up from $32.0m
• 26 stores opened across the Group, including 13 Emma
& Roe stores, giving a total of 332 stores
2016-17 was a solid year for the Group, producing a
record EBIT result of $48.1m achieved on the back of
steady performances by our Australian and New Zealand
businesses, and a strong performance by our Canadian
business. The US business went through a year of change
that saw EBIT deteriorate on the previous year. However,
this result included the write down of assets and lease exit
costs at the Easton Centre store in Ohio, which was closed in
June 2017, and also the impairment of the fitout and onerous
lease provision taken up at our Roosevelt Fields store in New
York, which is not performing to expected levels. During the
24 MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT
year we transferred the leadership of this business to Brett
Halliday, who has been successful in driving performance
of our Canadian business. He is reviewing the US business
based on his learnings from the Canadian market and
making adjustments to the model as required.
The Emma & Roe brand grew from 16 stores to
29 stores during the year, including entry into the NSW
market. Revenue targets weren’t achieved in 2016-17 year
and as a result, losses have exceeded expectations for the
year. We are continuing to review the Emma & Roe model
based on customer responses and insights, with a view to
making adjustments to the brand offering during 2017-18.
The continued growth in PCP revenue has again
provided strong cash flow for the Group. The PCP program
is designed to provide a comprehensive suite of care
services to our customers so they can maintain their
jewellery in pristine condition. Total sales from these plans
amounted to $39.7m, an increase of 1.0% on prior year,
and at 30 June 2017 there was $77.1m of deferred PCP
revenue held on the statement of financial position. $33.7m
in PCP revenue was recognised in the 2016-17 year, up
9.5% on the previous year.
In-house credit now represents 25.6% of Canadian
sales and 35.2% of our US sales. The loan book sits at
$17.7m at year end, and bad debts run at 4.2% of in-house
credit sales.
The Group's e-commerce platform continues to
support the business well with e-commerce revenues
increasing by 68%, driven by an uplift in online activity
in all regions. e-commerce sales now represent over 1%
of the Group's total revenue. Investment will continue to
evolve our on-line experience, including integration of our
online and physical channels aimed at providing a seamless
customer experience. We continued to experience strong
levels of customer engagement across our digital and
social channels.
As at 30 June 2017, 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.
As a result of the ASX listing in July 2016, a further
adjustment has been made to the deferred tax asset
resulting from the tax consolidation cost base adjustment
of $4.4m, bringing the total deferred tax asset adjustment
from that transaction to $23.8m.
The Group opened 26 stores for the year and closed 7
giving a total of 332 stores trading at 30 June 2017. New
stores opened comprised of 13 Michael Hill stores during
the year; 3 in Australia, 1 in New Zealand and 9 in Canada.
Seven stores were closed during the period, resulting in a
total of 303 Michael Hill stores trading as at 30 June 2017.
We also opened 13 Emma & Roe stores giving a total of 29
stores as at 30 June 2017.
Review of 2016-17 Priorities
PR IOR ITI ES
R ESU LTS
To increase same store sales by more than CPI in each market
and deliver improved EBIT performance across the Group.
Group revenue increased 5.8% with same store sales
increasing 1.6%, short of our goal of CPI. Group EBIT
reached a record $48.1m.
To deliver a minimum return on average shareholder funds
of 15% and a return on average total assets of 9%.
To open more than 20 new stores across the Group.
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.
The Group achieved a return on shareholder funds of
16.8% compared to 15.5% last year (adjusted for the IR
tax settlement of $28.8m (nz$30.3m) and the income
tax consolidation cost base adjustments of $23.8m). The
return on average total assets was 8.4% compared to 8.1%
(adjusted) last year.
26 new stores were opened during the year; 13 Michael Hill
stores and 13 Emma & Roe stores.
Refinements have continued to be made to the Emma & Roe
model, however same stores reported a revenue decline of
2.1% and lower than expected EBIT levels.
e-commerce revenue lifted by 68% to exceed 1% of the
Group's revenue during the year and numerous refinements
to our online channel were made. Traffic to our website
increased 28%.
To improve efficiency of our inventory and lift return on
investment.
Stock turn was 1.11 for the year, up from 1.06. Gross margin
return on inventory was 1.42, up on prior year 1.39.
To continue experimentation and testing of our US segment
and bringing the majority of 10 US stores to a positive EBIT
position.
Improved CRM capability allowing our sales force to
communicate more effectively with their customers and to
foster relationships secured in store or via the web site.
To drive branded collection sales to 15% of total
merchandise sales.
4 of our 9 open US stores generated a positive EBIT and 7
of 9 stores were in a cash positive position for the year. The
underperforming Easton store was closed during the year in
addition to the Roosevelt Fields store fitout being impaired
and an onerous lease provision recognised.
With over 1.45m customer records now in CRM (system),
combined with the implementation of a new POS, our sales
force have greater visibility of customer profiles including
past transaction and service history which will enable them
to deliver an exceptional customer experience. The group
has also seen 58.3% growth in subscribers to 0.7m.
Branded collection sales reached 14.2% for the year slightly
short of our 15% goal. We will continue to focus on this
strategy during 2017-18.
MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT 25
Segment Results
The segments reported on reflect the performance of the Group’s Michael Hill and Emma & Roe retail operations in each
geographic segment. The definition of segments was amended during the year and now includes trading activity from our
online presence and our North American in-house credit function. The segments exclude revenue and expenses that do not
relate directly to the relevant Michael Hill or Emma & Roe retail segments, and are treated as unallocated. These predominately
relate to corporate costs and Australian based support costs, but also include the manufacturing activities, warehouse and
distribution, interest and company tax. Prior year comparatives were restated in line with the updated definition.
The results below are expressed in local currency.
Michael Hill Australia
OPERATING RESULTS (AU $000)
Revenue
EBIT
As a % of revenue
Number of stores
2017
321,981
52,392
16.3%
166
2016
2015
309,457
50,662
16.4%
168
296,064
46,042
15.6%
167
2014
298,474
47,193
15.8%
164
2013
289,333
42,225
14.6%
162
The Australian retail segment revenue increased by 4.0% to $322.0m and same store sales lifted 1.2% contributing to a
record EBIT result for the segment of $52.4m, an increase of 3.4%. EBIT as a percentage of revenue was 16.3% (16.4% last
year). This result is particularly pleasing against a backdrop of a challenging retail environment.
Three stores were opened in Australia during the period as follows:
• Bourke Street, Victoria
• Chadstone, Victoria
• DFO Brisbane, Queensland
Five stores closed during the period. There were 166 stores trading at 30 June 2017. The Group plans to expand its store
footprint by two stores during the 2017-18 year.
Michael Hill New Zealand
OPERATING RESULTS (NZ $000)
Revenue
EBIT
As a % of revenue
Number of stores
FX rate for profit translation
2017
121,968
28,032
23.0%
52
1.06
2016
2015
122,901
27,318
22.2%
52
1.09
114,486
23,462
20.7%
52
1.07
2014
109,693
22,062
20.1%
52
1.10
2013
111,357
22,128
19.9%
52
1.25
The New Zealand retail segment revenue decreased 0.8% to NZ$122.0m for the twelve months, however the segment still
achieved a record EBIT result of NZ$28.0m, an increase of 2.6%. EBIT as a percentage of revenue was 23.0% (22.2% last
year). The improved result was achieved with an improved focus on variable costs such as advertising, wages and credit costs.
The Company is satisfied with the performance of this business.
One store opened at Christchurch and one store closed during the year, with 52 stores trading at 30 June 2017. The Group
plans to open one store during 2017/18.
Michael Hill Canada
OPERATING RESULTS (CA $000)
Revenue
EBIT
As a % of revenue
Number of stores
FX rate for profit translation
2017
112,721
12,565
11.1%
76
1.00
2016
95,423
9,099
9.5%
67
0.97
2015
79,617
5,699
7.6%
60
0.97
2014
68,682
3,917
5.5%
54
0.98
2013
52,274
503
2.1%
45
1.03
The Canadian retail segment revenue increased by 18.1% for the twelve months to CA$112.7m, with record EBIT of
CA$12.6m compared to CA$9.1m the previous year, a 38.1% increase on the previous corresponding period. Same stores
sales increased 8.8%. EBIT as a percentage of revenue was 11.1% (9.5% last year). The Canadian segment continues to
26 MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT
show strong growth as we achieve scale and increased market share across the country. The Company is confident this trend
will continue in the coming year as we open more stores and gain more brand recognition.
Nine stores were opened in Canada during the period, as follows:
• Carlingwood, Ontario
• Halifax, Nova Scotia
• Limeridge, Ontario
• Lynden Park, Ontario
• New Sudbury, Ontario
There were 76 stores trading at 30 June 2017. There is potential for up to 100 stores in Canada, and the Group plans to open
up to seven stores during the 2017-18 year subject to availability of suitable sites.
• Square One, Ontario
• Tswawwassen, British Columbia
• Village Green, British Columbia
• Winnepeg Outlet, Manitoba
Michael Hill USA
OPERATING RESULTS (US $000)
Revenue
EBIT
As a % of revenue
Number of stores
FX rate for profit translation
2017
12,498
(3,784)
(30.3%)
9
0.75
2016
14,203
(2,570)
(18.1%)
10
0.73
2015
11,465
(2,069)
(17.0%)
9
0.83
2014
9,866
(1,821)
(16.8%)
8
0.92
2013
10,188
(2,525)
(23.0%)
8
1.03
Our US business underwent a lot of change during the year including a leadership change and a new advertising direction.
As a result, it struggled to improve performance, finishing the year 8.5% down in revenue on a same stores basis. The
Easton Centre store in Columbus, Ohio, was closed in June because of continued poor performance. Costs to terminate this
lease early amounted to US$650,000, a combination of one year’s rent plus the write-off of the store fitout. Similarly, the
performance of our Roosevelt Fields store in New York resulted in a decision to impair this store, resulting in a US$667,000
write down of impaired assets and an onerous lease provision being recognised. In September 2016, the US was put under
the leadership of Brett Halliday, our North American President, who has delivered consistently outstanding results in Canada.
The Board and Executive team continue to closely monitor the US business.
One store closed during the year giving a total of nine stores operating at 30 June 2017. There are no plans to open any
stores during 2017-18.
Emma & Roe
OPERATING RESULTS (AU $000)
Revenue
EBIT
As a % of revenue
Number of stores
2017
15,118
(6,943)
(45.9%)
29
2016
9,347
(2,428)
(26.0%)
16
2015
4,958
(2,929)
(59.1%)
8
Emma & Roe experienced sales growth of 61.7% with same store sales declining 2.1%. 13 new stores were opened across
Queensland and New South Wales. While the drop in same store sales is disappointing, the brand is new and evolving. We
are continuing to review the Emma & Roe model based on customer responses and insights, with a view to making ongoing
adjustments to the brand during 2017-18.
The Emma & Roe concept is positioned towards a new and emerging customer who likes to collect and create new looks,
expressing their 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 complimentary
and will extend our reach further into the jewellery category.
MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT 27
Strategic Update
The Group’s strategies have been grouped into four key
strategic themes. Under these themes we have grouped
twelve 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. To attract more
customers and revenue through the creation of desirable
products and services, an affinity for the brand and dif-
ferentiated collections. Drive foot traffic, online traffic
and enquiries.
• Build strong team engagement. Improve our processes,
tools and technology that allow teams to drive superior
customer experiences, 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 our brands.
• Develop omni-channel capability. Continue to develop
and integrate our omni-channel capabilities to deliver a
seamless customer experience and improve conversion
and repeat business.
• Establish differentiated bridal and fashion brands. Within
this strategy we are committed to ongoing development
and honing of our branded bridal and fashion collections,
supported by meaningful and relevant stories that drive
consumer preference and deliver incremental margin.
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 and online
footprint internationally. The themes within this strategy are:
• To continue to refine the US model until we are confident
we have a profitable model to expand in this market. The
US provides the Group a significant growth opportunity
for the future.
• To successfully evolve Emma & Roe as a complimentary
business model to Michael Hill by engaging a new
segment of jewellery consumer to drive market share
growth and profitability.
• Investigate and explore new markets and channels for
our two brands.
PE R FOR MANCE TH ROUG H PEOPLE AN D SYSTE MS
This strategy recognises the importance of building organ-
isational 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 teams across both Michael Hill and Emma &
Roe brands to provide a strong talent pipeline to expertly
execute the retail model and grow both businesses.
28 MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT
• 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 and improve efficiencies and productivity.
DR IVE R ETU R N ON I NVESTM E NT
This strategy recognises the importance of improved
operational efficiency and cost control, as the business
scales. Return on investment (ROI) will be driven through
a focus on operational expenditure and capital investment.
The themes within this strategy are:
• Control operational costs. Increased focus on operational
expenditure to lower Selling & General Administration
expense as a percentage of sales and drive profitability.
• Improve return on assets deployed. To improve ROI
through controlling capital expenditure and improving
the efficiency of our working capital management and in
particular inventory, which is our largest asset.
Outlook
We are committed to expanding the Michael Hill brand in
all three proven markets of New Zealand, Australia and
Canada. Over time we see this resulting in up to 340
Michael Hill stores trading, from the current 303. We
are also committed to continuing to test the US market
with the aim of developing a viable business model for
this large market. The Australian segment is reaching
maturity in store numbers but now offers the potential for
improved EBIT performance much in the same way as the
New Zealand business has managed to in recent years,
through a combination of developing its on-line capability,
refinement of the property portfolio and improved cost
efficiencies. Canada still has several years of store growth
for the Michael Hill brand and will also focus on building
its profitability through on-line revenue growth, property
portfolio improvements and cost efficiencies.
We have plans to expand the Emma & Roe brand in
Australasia once proven further. The continued evolution
of the Emma & Roe brand will occur throughout 2017-18
based on customer feedback and insights.
e-commerce revenue from both brands is expected
to continue to grow steadily in coming years as a
percentage of overall Group revenue as we refine our
offer and optimise the online channels. Investment in our
e-commerce capability will continue to take full advantage
of this growth channel.
Proprietary branded collections revenue will continue
to grow as we increase investment in these ranges.
Branded collections offer a unique product offering to our
customers and in doing so builds strong brand equity in the
markets we operate in.
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 2017-18
• Same store sales growth in all markets and for both brands of above 2%
• Open at least 10 new Michael Hill stores across all markets
• Continue to review the Emma & Roe brand and adjust the brand and offering
• To reduce the US operating losses and develop a viable model
• Branded collection sales to reach 18%
• Improved inventory management delivering increase in GMROI (gross margin
return on investment) and stock turn
• Continue to develop the e-commerce business and grow to 2% of Group revenue
• Continued information systems investment to migrate the organisation onto a
highly integrated ERP environment
Environmental regulation
The Group has determined that no particular or significant environmental
regulations apply to it.
Risk management
R ISK
STRATEG I ES AN D M ITIGATION
Inadequate business continuity program
and/or disaster recovery strategies
Insufficient leadership talent to meet
growth plans
Systems capability does not meet
demands of business
Inability to adjust to the rapidly changing
consumer segment and retail environment
A Business Continuity Program team
has been formed and they have
begun updating the Group’s business
continuity plan and disaster recovery
processes. The Group is also investing
in new software and systems that will
protect key business systems and data.
External consultants are also used to
help with penetration testing and to
provide other technical assessments.
People resource planning is in place
and talent development workshops
are being deployed to fast track talent
through the system to meet new store
openings and business demand.
A structured plan of system renovation
and implementation with significant
investment has begun to facilitate the
upgrade of our key business systems.
Our teams are continually adjusting our
offer in the respective market places
to meet new consumer demands and
trends. We also access and research
significant customer segment data and
conduct customer focus groups to keep
abreast of shifting demands and trends.
MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT 29
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.
From left: Robert Fyfe, Gary Smith, Emma Hill,
Sir Michael Hill and Janine Allis
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 Group before successfully leading
the expansion of the Group into Canada as
Retail General Manager in 2002.
In 2011 Emma was appointed as Deputy
Chair of the listed New Zealand entity and
was appointed by the Board as Executive
Chair of that company in December 2015.
Emma holds a Bachelor of Commerce
degree and an MBA from Bond University.
Other current directorships
none
Former directorships in last three years
none
Responsibilities
Chair
Non-Executive Director
Member People Development and
Remuneration Committee
Interests in shares and options
167,487,526 Ordinary Shares
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. He led the Group as Chairman from
1987 until December 2015.
Other current directorships
none
Former directorships in last three years
none
Responsibilities
Non-Executive Director
Interests in shares and options
148,330,600 Ordinary Shares
30 MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT
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 has had extensive Director
experience. He is Chairman of Flight Centre
Travel Group, 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 is also a Director of Tourism Events
Queensland and Chair of its Audit and Risk
Committee.
Other current directorships
Flight Centre Travel Group Limited
Tourism Events Queensland
Former directorships in last three years
none
Responsibilities
Non-Executive and Independent Director
Chair Audit and Risk Management Committee
Member People Development and
Remuneration Committee
Interests in shares and options
30,000 Ordinary Shares
Robert Ian Fyfe
Rob was appointed a Director of the
Company on 9 June 2016.
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 had gained
extensive general management experience
in various retail businesses operating in New
Zealand, Australia and Great Britain.
Other current directorships
Icebreaker Limited
Antarctica New Zealand
Former directorships in last three years
none
Responsibilities
Non-Executive and Independent Director
Chair People Development and
Remuneration Committee
Member Audit and Risk Management
Committee
Interests in shares and options
63,640 Ordinary Shares
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 Pty Ltd which currently
owns 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 form 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.
Other current directorships
Retail Zoo Pty Ltd
Former directorships in last three years
none
Responsibilities
Non-Executive and Independent Director
Member Audit and Risk Management
Committee
Interests in shares and options
150,000 Ordinary Shares
Company secretary
The Company Secretary is Mary-Anne
Greaves LLM, LLB, FCIS, FGIA. Mary-Anne was
appointed to the position of Company
Secretary on 11 July 2016. Mary-Anne joined
Michael Hill in July 2016 with over 15 years’
experience in Company Secretarial and Law.
Philip Roy Taylor was appointed as
Company Secretary on 24 February 2016
and resigned on 11 July 2016.
MICHAEL HILL INTERNATIONAL 2016 DIRECTORS' REPORT 31
Directors’ meetings
The numbers of meetings of the Company's Board of Directors and of each
Board committee held during the year ended 30 June 2017, and the numbers of
meetings attended by each Director were:
Full meetings
of Directors
Meetings Meetings
attended
13
13
12
13
13
held
13
13
13
13
13
E.J. Hill
Sir R.M. Hill
G.W. Smith
R.I. Fyfe
J.S. Allis
* Resigned 17 August 2016
** Appointed 17 August 2016
Audit and Risk People Development
and Remuneration
Meetings Meetings
attended
3
-
3
3
-
Management
Meetings Meetings
attended
1*
-
3
3
2**
held
1
-
3
3
2
held
3
-
3
3
-
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.
Audit and Risk
Management
Committee
Gary Smith c
Janine Allis **
Rob Fyfe
Emma Hill *
People Development
and Remuneration
Committee
Rob Fyfe c
Emma Hill
Gary Smith
c designates chair of the committee
* Resigned 17 August 2016
** Appointed 17 August 2016
32 MICHAEL HILL INTERNATIONAL DIRECTORS' REPORT
REMUNERATION REPORT AUDITED
The Directors present the 2017 Michael Hill International
Limited remuneration report, outlining key aspects of our
remuneration policy and framework, and remuneration
awarded this year.
Remuneration framework
The information provided in this remuneration report
has been audited as required by section 308(3C) of the
Corporations Act 2001.
PR I NCI PLES OF COM PE NSATION
Remuneration is referred to as compensation throughout
this report.
Key management personnel (KMP), including
Directors of the Company and other executives, have
authority and responsibility for planning, directing and
controlling the activities of the Group.
For the 2017 financial year, it was determined that the
KMP of Michael Hill International were:
• Chief Executive Officer (CEO) - Phil Taylor
• Chief Financial Officer (CFO) - vacant*
• Chief Information Officer (CIO) - Matt Keays
• Group Executive Supply Chain (GESC) - Galina Hirtzel
• Chief Marketing Officer (CMO) - vacant*
• Group Executive Human Resources (GEHR) - Stewart Silk
* We are in the process of recruiting to fill these two
vacant positions.
Compensation levels for key management personnel
of the Group are competitively set to attract and retain
appropriately qualified and experienced directors and
executives. The People Development and Remuneration
Committee obtains independent advice every three years
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 KMP, and the KMP's ability to control
the relevant segments performance.
The Executive Remuneration framework consists of:
1 Total Fixed Remuneration ('TFR') - includes fixed cash
remuneration and superannuation component.
2 Short term incentive ('STI') - on target performance is
determined as a percentage of TFR, 70% of the STI
is directly aligned to achieving the Group EBIT return
on average total assets ('ROA') hurdle (15% ROA) and
30% based on achievement of individual performance
plans. In the 2016 financial year, the STI payment was
derived solely from the ROA calculation.
3 Long term incentive ('LTI') - alignment of executive
incentives with the long term performance is achieved
by way of a deferred remuneration component. An
issue of share rights is made to participants of the
scheme, the quantum being a % of the STI earned in the
preceding year. The LTI scheme was introduced in the
2015-16 financial year.
The current target remuneration settings for the KMP are
as follows:
CEO TFR set at 90% of market median
On target STI set at 75% of TFR
LTI set at 30% of STI achieved in the preceding year
CFO TFR set at 90% of market median
CIO
On target STI set at 70% of TFR
LTI 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 set at 30% of STI achieved in the preceding year
GESC TFR set at 90% of market median
On target STI set at 35% of TFR
LTI set at 30% of STI achieved in the preceding year
CMO TFR set at 90% of market median
On target STI set at 35% of TFR
LTI set at 30% of STI achieved in the preceding year
GEHR TFR set at 70% of market median
On target STI set at 35% of TFR
LTI set at 30% of STI achieved in the preceding year
TOTAL FIXE D COM PE NSATION
Fixed compensation consists of base compensation 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 every three years. A senior
executive’s compensation is also reviewed on promotion.
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
MICHAEL HILL INTERNATIONAL REMUNERATION REPORT 33
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 a deferred compensation
plan providing rights over ordinary shares of the Company
under the rules of the executive incentive plan.
SHORT-TE R M I NCE NTIVE BON US
The short term incentive scheme is comprised of two
components; 70% of the STI for key management
personnel is linked to achievement of the Group's EBIT
return on average total assets hurdle (15% ROA) for
the year and 30% is linked to the achievement of key
performance indicators (KPI's) that are agreed in personal
performance plans (PPP's).
The process and scheme 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 2017-18 to
cascade relevant KPIs further down through the 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 assessed monthly (on a YTD basis)
and along with normal operational metrics, provides the
basis for monthly work in progress (WIP) reviews.
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 two KMPs. Options
previously issued are detailed in the Annual Report.
The Company introduced a new deferred
compensation plan (LTI) involving the granting of share
rights to eligible participants, which commenced in the
2015-16 financial year and was approved by shareholders
at the Company’s Annual General Meeting held on 31
October 2016.
Under the plan, a senior executive may be granted
share rights by the Company. Each share right represents
a right to receive one ordinary share in the Company,
subject to the terms and conditions of the rules of the
plan. An allocation of share rights is made to each eligible
participant on an annual basis to a value of 30% of the STI
34 MICHAEL HILL INTERNATIONAL REMUNERATION REPORT
payment earned in the preceding year1. The share rights
progressively vest2 over a three, four and five year period
from the date of issue and are only retained on exiting
the business in the event that the participant is deemed a
'Good Leaver' pursuant to the LTI plan rules.
In addition to the share rights issued to the CEO
and other eligible senior executives of the Group under
the newly introduced incentive plan, the CEO has been
granted share rights as part of the CEO package, which
were granted to Mr Taylor during his tenure as interim CEO.
An allocation of share rights equal to 75% of 2016 TFR
($325,500) per annum for three years from 1 September
2016 has been made to the CEO. Each tranche of share
rights will vest at a date which is three years from the
date of issue and are only retained provided Mr Taylor
is employed by the Group at the commencement of the
financial year in which the share right vesting is scheduled
to occur. Termination of employment prior to each
corresponding three year period will result in all unvested
share rights being forfeited3.
1 The number of share rights in each tranche, is based
on the prescribed dollar value for each tranche divided
by the volume weighted average share price of Michael
Hill International shares over five trading days following
the Michael Hill International shares trading on an
ex-dividend basis.
2 On vesting each share right represents a right to receive
one (1) ordinary share in the Company. No exercise price
is payable upon the exercise of any share rights.
3 The additional share rights component of Mr Taylor's
remuneration package is a continuation of the existing
plan agreed to upon Mr Taylor's appointment as interim
CEO. As a consequence, the deemed issue date for the
first tranche of share rights is 1 September 2016 and the
corresponding vesting date is 1 September 2019.
Feature
Opportunity/ 30% of respective STI which is issued to the
Allocation
Executive by way of share rights which are
granted and vest in 3 tranches. Each right
represents a right to acquire one ordinary
share in the Company.
Tranches
Exercise
Year 3 - provided participant remains
employed with the Company, 25% will vest
Year 4 - provided participant remains
employed with the Company, 25% will vest
Year 5 - provided participant remains
employed with the Company, 50% will vest
Once the rights have vested, Participants
can exercise them. They can be exercised
by completing and returning to the Company
an Exercise Notice.
Expiry
Rights will expire on the date 15 years from
the grant date.
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 scheme is already demonstrating a close correlation between executive remuneration, achievement of budget
targets and share price performance as desired.
In 2016-17, the performance linked component of compensation comprises approximately 7% of total payments to
senior executives.
In the current year the Group didn't meet its overall Board targets, and despite record EBIT the STI component was
below the targeted STI % of TFR.
R E M U N E RATION POLICY AN D LI N K TO PE R FOR MANCE
Our People Development and Remuneration Committee is made up of two independent non-executive Director's and the
Chair of the Board of Directors. The committee reviews and determines our remuneration policy and structure annually to
ensure it remains aligned to business needs, and meets our remuneration principles. The Committee also engages external
remuneration consultants every three years to assist with this review.
The People Development and Remuneration Committee is a committee of the Board. It is primarily responsible for
making recommendations to the Board on:
• the over-arching executive remuneration framework
• operation of the incentive plans which apply to the senior executives (the executive team), including key performance
indicators and performance hurdles
• remuneration levels of executives, and
• non-executive Director fees.
Their objective is to ensure that remuneration policies and structures are fair and competitive and aligned with the
long-term interests of the Company.
The Corporate Governance Statement provides further information on the role of this committee. The ASX Corporate
Governance Principles and Recommendations rules and principles may materially differ from NZX's Corporate Governance
rules and NZX Code. In particular, the Board aims to ensure that remuneration practices are:
• competitive and reasonable, enabling the Company to attract and retain key talent
• aligned to the Company's strategic and business objectives and the creation of shareholder value
• transparent and easily understood, and
• acceptable to shareholders.
Figure 1: Remuneration framework
Element
Purpose
Performance metrics
Potential value
Changes for FY 2018
Total fixed
remuneration (TFR)
Provide competitive
market salary including
superannuation and
non-monetary benefits
All executives are
reviewed in line with
personal performance
plans
Positioned at a
percentage of median
market rate
Reviewed in line with
market
STI
LTI
Reward for in-year
performance
CEO: 75% of TFR
CFO: 70% of TFR
Execs: 35% of TFR
100% of the STI is
calculated on a return
on total assets basis.
30% of that 100% is
subject to a range of
KPI's
Alignment to
long-term shareholder
value
Nil
CEO: 30% of STI
CFO: 30% of STI
Execs: 30% of STI
Nil
Nil
MICHAEL HILL INTERNATIONAL REMUNERATION REPORT 35
BALANCI NG SHORT-TE R M AN D LONG-TE R M PE R FOR MANCE
Annual incentives are set between 35% and 75% of TFR, in order to drive performance without encouraging undue risk-taking.
Long-term incentives are assessed over a three to five year period and are designed to promote long-term stability in
shareholder returns and talent retention.
The actual remuneration mix for FY 2017 is shown in figure 2 below and target remuneration mix for 2018 is in figure 3
below. It reflects the STI opportunity for the 2017-18 year that will be available if the performance conditions are satisfied at
target, and the value of the LTI rights and options granted during the year, as determined at the grant date.
Figure 2: Actual remuneration mix for FY 2017
Figure 3: Target remuneration mix for FY 2018
CEO
KMP
62%
16% 4%
18%
CEO
41%
31%
9%
19%
83%
9% 8%
KMP
64%
28%
8%
■ TFR ■ STI ■ LTI ■ ENGAGEMENT PACKAGE
■ TFR ■ STI ■ LTI ■ ENGAGEMENT PACKAGE
ASSESSI NG PE R FOR MANCE AN D CLAW-BACK OF R E M U N E RATION
The People Development and Remuneration Committee is responsible for assessing performance against KPIs and
determining the STI and LTI to be paid.
In the event of serious misconduct or a material misstatement in the Company’s financial statements, the People
Development and Remuneration Committee can cancel or defer performance-based remuneration.
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
NPAT
Dividends paid
Share price as at 30 June (nz$ 2016 to 2013)
Return on shareholders equity
Return on average total assets
2017
$000
48,117
32,648
19,264
$1.11
16.8%
8.4%
2016
$000
47,058
19,577
17,490
$1.14
15.5%
5.3%
2015
$000
42,061
27,754
23,176
$1.06
15.0%
8.0%
2014
$000
42,151
25,041
22,336
$1.24
14.1%
7.9%
2013
$000
40,259
32,099
18,482
$1.31
19.7%
11.7%
EBIT and ROA hurdles are considered the primary financial performance targets in setting the STI. Profit amounts for 2013
to 2017 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, other
than statutory superannuation, 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 KMPs or other senior executives.
36 MICHAEL HILL INTERNATIONAL REMUNERATION REPORT
SE RVICE CONTRACTS
It is the Group’s policy that service contracts for KMPs,
excluding the chief executive officer, are unlimited in term
but capable of termination on three months’ notice and
that the Group retains the right to terminate the contract
immediately, by making payment equal to three months’ pay
in lieu of notice.
The Group has entered into a service contract with
two KMPs that are capable of termination on three months’
notice. The Group retains the right to terminate a contract
immediately by making payment equal to three months’ pay
in lieu of notice. The KMPs 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 Group has entered into service contracts with
a KMP that is capable of termination on six month's
notice. The Group retains the right to terminate a contract
immediately by making payment equal to six months' pay
in lieu of notice. The KMP is also entitled to receive on
termination of employment their statutory entitlements of
accrued annual and long service leave, together with any
superannuation benefits.
CEO CONTRACT
The Group has entered into a service contract with the
CEO, Phil Taylor who was appointed CEO on 6 March 2017
following the resignation of the former CEO, Mike Parsell.
The service contract does not contain any probationary
period or fixed term.
The remuneration payable to Mr Taylor is as follows:
a Annual base salary - $694,400 (inclusive of the
statutory superannuation contributions).
b Short terms incentives (STI) - 75% of base salary
payable in cash on performance of agreed Group profit
targets based on a return on asset formula (70% of STI)
and other agreed annual key indicators (30% of STI).
c Deferred compensation plan (LTI) - an allocation of
share rights on an annual basis to a value of 30% of the
STI payment earned in the preceding year1. The share
rights progressively vest2 over a three to five year period
from the date of issue and are retained on exiting the
business in the event that Mr Taylor is deemed a 'Good
Leaver' pursuant to the LTI plan rules.
d Interim CEO engagement package - an allocation of
share rights equal to 75% of 2016 TFR ($325,500) per
annum for three years from 1 September 2016. Each
tranche of share rights will vest at a date which is three
years from the date of issue and are retained provided Mr
Taylor is employed by the Group at the commencement
of the financial year in which the share right vesting is
scheduled to occur. Termination of employment prior to
each corresponding three year period will result in all
unvested share rights being forfeited3.
Either party may terminate the engagement on six months'
notice. Otherwise, the Group may terminate Mr Taylor's
position for serious misconduct or professional negligence.
Mr Taylor will be restrained for up to 18 months
following the cessation of his engagement with the Group
from soliciting business, customers, suppliers or employees
of the Group.
1 The number of share rights in each tranche is based on
the prescribed dollar value for each tranche divided by
the volume weighted average share price of Michael
Hill International shares over five trading days following
the Michael Hill International shares trading on an
ex-dividend basis.
2 On vesting, each share right represents a right to
receive one (1) ordinary share in the capital of the
Company. No exercise price is payable upon the
exercise of any share right.
3 The additional share rights component of Mr Taylor's
remuneration package is a continuation of the existing
plan agreed to upon Mr Taylor's appointment as interim
CEO. As a consequence, the deemed issue date for the
first tranche of share rights is 1 September 2016 and
the corresponding vesting date is 1 September 2019.
The service contract outlines the components of
compensation but does not prescribe how compensation
levels are modified year to year. The People Development
and 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.
SE RVICES FROM R E M U N E RATION CONSU LTANTS
The People Development and Remuneration Committee
engaged a remuneration consultant during the 2016
financial year to review the amount and elements of the
key management personnel remuneration and provide
recommendations in relation thereto.
NON-EXECUTIVE DI R ECTORS
Total compensation for all non-executive directors, last
voted upon by shareholders on 29 June 2016, 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 additional payment of
$20,000 per annum. All non-executive directors enter
into a service agreement with the Company in the form of
a letter of appointment. The letter summarises the board
policies and terms, including remuneration, relevant to the
office of Director.
The Board Chair receives up to twice the base fee.
Non-executive directors do not receive performance-
related 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.
MICHAEL HILL INTERNATIONAL REMUNERATION REPORT 37
DI R ECTORS' AN D KM Ps 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:
Salary &
fees
STI cash
bonus
Short-term
Non-monetary
benefits
(motor vehicle)
Post-employment Share-based
payments
Total
Superannuation
benefits
Termination
benefits
Options
and rights
$
$
$
$
$
$
Total
Proportion
remuneration
Value of
options as
performance proportion of
remuneration
%
related
%
$
-
30,000
-
-
-
-
-
-
-
-
-
-
-
-
95,000
166,735
190,000
162,845
-
95,000
104,072
105,023
115,000
115,000
-
95,000
95,000
-
$
-
-
-
-
-
-
10,928
9,977
-
-
-
-
-
-
-
30,000
599,072
739,603
10,928
9,977
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
95,000
- 166,735
- 190,000
- 162,845
-
-
-
95,000
- 115,000
- 115,000
- 115,000
- 115,000
-
-
-
-
-
95,000
95,000
-
- 610,000
- 749,580
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
2017
95,000
2016 136,735
2017 190,000
2016 162,845
-
2017
2016
95,000
2017 104,072
2016 105,023
2017 115,000
2016 115,000
2017
2016
-
95,000
2017
2016
95,000
-
2017 599,072
2016 709,603
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38 MICHAEL HILL INTERNATIONAL REMUNERATION REPORT
Salary &
fees
Short-term
STI cash Non-monetary
benefits
(motor vehicle)
bonus
Post-employment
Share-based
payments
Total Superannuation
benefits
Termination
benefits
Options
and rights
Total
$
$
$
$
$
$
$
$
Proportion
Value of
options as
remuneration
performance proportion of
remuneration
%
related
%
2017 488,561
2016 824,000
-
794,481
- 488,561 38,623 1,603,742
-
- 1,618,481 35,000
- 2,130,926
-
- 1,653,481 48.05%
-
-%
2017 631,667
2016 399,000
2017 302,177
2016 279,000
2017 270,000
2016 250,000
167,267
374,642
39,150
133,184
29,321
120,852
- 798,934 30,627
- 773,642 35,000
- 341,327 29,760
- 412,184 30,000
- 299,321 28,235
- 370,852 30,000
- 227,332 1,056,893 15.83% 21.51%
808,642 46.33%
-
-
-
383,209 10.22% 3.16%
- 12,122
442,184 30.12%
-
-
-
365,512 8.02% 10.38%
- 37,956
433,678 27.94% 7.59%
- 32,826
KMPs
Mike Parsell, CEO
(resigned 8 August 2016)
Phil Taylor, CEO
(appointed 6 March 2017,
formerly CFO)
Matt Keays, CIO
Galina Hirtzel, GESC
Anna Shaw, CMO
(appointed 20 June 2016, 2017 304,433
resigned 22 March 2017)
5,288
2016
68,000
-
- 372,433 29,498
502
-
5,288
-
-
-
-
401,931 16.92%
-
5,790
-
-
Joe Talcott, CMO
(resigned 26 Jan 2016)
Stewart Silk, GEHR
Total KMPs'
remuneration
Total Directors’ and
KMPs' remuneration
2017
-
2016 201,821
2017 209,946
2016 207,000
-
63,232
24,023
102,355
-
-
-
- 265,053 25,180
- 233,969 27,640
- 309,355 29,389
-
-
-
-
- 36,281
- 32,826
-
-
-
290,233 21.79%
-%
297,890 8.06% 12.18%
371,570 27.55% 8.83%
327,761
2017 2,206,784
2016 2,166,109 1,588,746
- 2,534,545 184,383 1,603,742 313,691 4,636,361 7.07% 6.77%
- 65,652 4,005,578 39.67% 1.64%
- 3,754,855 185,071
2017 2,805,856
2016 2,875,712 1,588,746 30,000 4,494,458 195,048
- 3,133,617 195,311 1,603,742 313,691 5,246,361 6.25% 5.98%
- 65,652 4,755,158 33.42% 1.38%
327,761
Notes in relation to the table of Directors' and KMPs' remuneration:
a) The short-term incentive bonus is for performance during the respective financial year using the criteria set out on page 34 of the
Remuneration report. The amount was determined on 18 August 2017 after performance reviews were completed and approved by the
People Development and Remuneration Committee.
b) The fair value of 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.
c) Mike Parsell's termination benefits were approved by shareholders and the Board on 31 October 2016.
MICHAEL HILL INTERNATIONAL REMUNERATION REPORT 39
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
KMPs
Phil Taylor
Matt Keays
Galina Hirtzel
Anna Shaw
Stewart Silk
Target bonus
available
Included in
remuneration $(a)
Vested in year
%
496,720
116,261
105,000
106,750
83,780
167,267
39,150
29,321
68,000
24,023
100%
100%
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 2017.
b) The amounts forfeited due to the performance or service criteria not being met in relation to the current financial year.
Additional statutory information
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 of 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:
Number of
options granted
during 2017
Grant date
Fair value Exercise price
per option
at grant date
per option
Expiry date
Number of
options vested
during 2017
KMPs
Galina Hirtzel
Stewart Silk
100,000
100,000
22/09/16
22/09/16
nz$0.156
nz$0.156
au$2.12 30/09/2026
au$2.12 30/09/2026
-
-
All options expire on their expiry date or within three months of termination of the individual's employment. The options are
exercisable five years from grant date. The options are conditional on continuing service. For options granted in the current
year, the earliest exercise date is 30/9/2021.
MODI FICATION OF TE R MS OF EQU ITY-SETTLE D SHAR E-BASE D PAYM E NT TRANSACTIONS
No terms of equity-settled share-based payment transactions (including options and rights granted as compensation to a key
management person) have been altered or modified by the issuing entity during the reporting period or the prior period. The
exercise price of any future option grants will be set by using the same method, with reference to the Australian Securities
Exchange (ASX). Upon exercise of any option previously granted with a NZ$ exercise price, the $ exercise price will be
converted to AU$ with reference to the Reserve Bank of Australian foreign exchange rate on that date.
U N ISSU E D SHAR ES
As at the date of this report, there were 4,850,000 unissued ordinary shares under options. 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.
40 MICHAEL HILL INTERNATIONAL REMUNERATION REPORT
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. When exercisable, each option is convertible into one ordinary share of Michael Hill International Limited. The vesting
conditions are set out in note 19(a).
Options granted
KMPs
Phil Taylor
Total
Galina Hirtzel
Total
Stewart Silk
Total
Number
Grant date*
Exercise
price $
%
forfeited in
in year**
%
vested
in year
Financial years Financial years
in which option
in which option
exercisable
vests
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
500,000
100,000
100,000
100,000
100,000
100,000
1,000,000
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
Dec 2013
Sep 2014
Sep 2015
Sep 2016
Sep 2017
Sep 2018
nz$1.25
nz$0.94
nz$0.88
nz$1.16
nz$1.41
nz$1.82
nz$1.82
nz$1.82
nz$1.63
nz$1.14
au$2.12
-
-
nz$1.82
nz$1.63
nz$1.14
au$2.12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2008-2012 2013-2018
2009-2014 2015-2020
2010-2015 2016-2021
2011-2016 2017-2022
2012-2017 2018-2023
2013-2018 2019-2024
2013-2018 2019-2024
2014-2018 2019-2024
2015-2019 2020-2025
2016-2020 2021-2026
2017-2021 2022-2027
-
-
-
-
2014-2018 2019-2024
2015-2019 2020-2025
2016-2020 2021-2026
2017-2021 2022-2027
-
-
-
-
* The grant date refers to the date of the tranches prescribed in the options agreement.
** 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.
Value of options
granted in the year
Value of options
exercised in year
Number of options
lapsed in year
Phil Taylor
Matt Keays
Galina Hirtzel
Stewart Silk
-
-
nz$15,570
nz$15,570
-
-
-
-
-
-
-
-
MICHAEL HILL INTERNATIONAL REMUNERATION REPORT 41
SHAR E R IG HTS
The number of share rights granted to KMPs and senior executives during the last financial year (including the interim CEO
engagement package) was 382,551 share rights. Of these, share rights granted to KMPs are set out below (including the
CEO engagement package).
Phil Taylor
Matt Keays
Galina Hirtzel
Stewart Silk
Number of share rights granted
263,593
24,051
21,824
18,484
R ECONCI LIATION OF OPTIONS AN D SHAR E R IG HTS H E LD BY KM P
The table below shows a reconciliation of options held by each KMP during the 2017 financial year. All vested options
were exercisable.
Balance at the start
of the year
Balance at the end
of the year
Vested
Unvested
Granted as Vested
Exercised
Forfeited Vested and Un-vested
compensation
exercisable
M Parsell
P Taylor
G Hirtzel
S Silk
Total
6,000,000
2,250,000
-
-
-
-
700,000
700,000
8,250,000 1,400,000
-
-
100,000
100,000
200,000
- (3,600,000)
-
-
-
-
-
-
- (3,600,000)
(2,400,000)
-
-
800,000
800,000
(2,400,000) 2,250,000 1,600,000
-
- 2,250,000
-
-
-
-
The amounts paid per ordinary share on the exercise of options at the date of exercise were as follows:
Exercise date
08 Nov 2016
08 Nov 2016
08 Nov 2016
08 Nov 2016
08 Nov 2016
Total
KMP No. shares issued
Amount paid per share
M Parsell
M Parsell
M Parsell
M Parsell
M Parsell
2,000,000
400,000
400,000
400,000
400,000
3,600,000
nz$1.25 (au$1.17)
nz$0.94 (au$0.88)
nz$0.88 (au$0.82)
nz$1.16 (au$1.09)
nz$1.41 (au$1.32)
No amounts are unpaid on any shares issued on the exercise of options.
This table shows how many share rights were granted, vested and forfeited during the year.
Balance
at start of
the year
Granted
during
the year
Vested Forfeited Balance at
end of year
(unvested)
P Taylor
M Keays
G Hirtzel
S Silk
Total
Number
-
-
-
-
-
Number Number Number
-
-
-
-
-
263,593
24,051
21,824
18,484
327,952
-
-
-
-
-
Number
263,593
24,051
21,824
18,484
327,952
a) Shares for the deferred portion of the 2017 STI will be granted in September 2017. The number of shares will depend on
the Michael Hill International Limited’s share price over the five days prior to the grant date.
b) The maximum value of the deferred shares yet to vest has been determined as the amount of the grant date fair value of
the rights that is yet to be expensed. For the 2017 grant, the maximum value yet to vest for this grant was estimated based
on the share price of the Company at 30 June 2017. The minimum value of deferred shares yet to vest is nil, as the shares
will be forfeited if the vesting conditions are not met.
42 MICHAEL HILL INTERNATIONAL REMUNERATION REPORT
VOTI NG OF SHAR E HOLDE RS AT LAST YEAR'S AN N UAL G E N E RAL M E ETI NG
Michael Hill International Limited received more than 99.69% of “yes” votes on its remuneration report for the 2016 financial
year. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices.
I NSU RANCE OF OFFICE RS
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.
I N DE M N ITY OF AU DITORS
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.
NON-AU DIT SE RVICES
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:
Ernst & Young firm advisory fees
Total remuneration for non-audit services
2017
$
7,000
7,000
2016
$
50,000
50,000
AU DITOR'S I N DE PE N DE NCE DECLARATION
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out
on page 44.
ROU N DI NG OF AMOU NTS
The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to
the 'rounding off' of amounts in the directors' report. Amounts in the directors' report
have been rounded off in accordance with the instrument to the nearest thousand
dollars, or in certain cases, to the nearest dollar.
This report is made in accordance with a resolution of Directors.
E. J. Hill, Chair
Brisbane
18 August 2017
MICHAEL HILL INTERNATIONAL REMUNERATION REPORT 43
Ernst & Young
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
AUDITOR’S INDEPENDENCE DECLARATION
to the Directors of Michael Hill International Limited
As lead auditor for the audit of Michael Hill International Limited for the
financial year ended 30 June 2017, 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 declaration is in respect of Michael Hill International Limited and the
entities it controlled during the financial year.
Ernst & Young
Alison de Groot
Partner
18 August 2017
44
FINANCIAL STATEMENTS
The Directors are pleased to present the financial
statements of Michael Hill International Limited
for the year ended 30 June 2017. The Board of
Directors of Michael Hill International Limited
authorised these financial statements for issue on
18 August 2017.
46 Statement of comprehensive
income
47 Statement of financial position
48 Statement of changes in equity
49 Cash flow statement
50 Notes to the financial statements
89 Directors' declaration
90 Auditors report
Emma Hill, Chair
Statement of comprehensive income FOR THE YEAR ENDED 30 JUNE 2017
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
4
5(a)
5(b)
5(b)
6
9(b)
9(b)
2017
$000
582,975
1,655
(211,833)
(155,122)
(59,890)
(30,822)
(25,924)
(20,016)
(1,165)
(31,725)
(3,175)
44,958
(12,310)
32,648
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
(256)
(2,542)
(2,798)
29,850
(116)
(3,443)
(3,559)
16,018
Total comprehensive income for the year is attributable to:
Owners of Michael Hill International Limited
29,850
16,018
Earnings per share for profit attributable to the
ordinary equity holders of the Company, attributable
to continuing operations:
Basic earnings per share
Diluted earnings per share
21
21
8.46¢
8.45¢
5.11¢
5.09¢
The above consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
46 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
Statement of financial position AS AT 30 J U N E 2017
NOTES
2017
$000
2016
$000
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
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
Derivative financial instruments
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
7(a)
7(b)
8(a)
11(a)
8(e)
8(f)
7(b)
8(b)
8(d)
8(c)
8(f)
7(c)
11(a)
8(g)
8(h)
8(j)
7(d)
8(h)
8(i)
5,676
24,219
203,853
-
888
3,945
238,581
2,371
79,436
57,893
8,784
2,057
150,541
8,853
25,813
199,961
450
-
5,035
240,112
325
71,933
64,074
5,561
2,192
144,085
389,122
384,197
47,918
1,141
-
4,670
25,924
79,653
45,034
6,235
56,017
107,286
45,044
1,333
25,022
4,902
24,685
100,986
40,887
5,198
50,725
96,810
186,939
197,796
202,183
186,401
9(a)
9(b)
9(b)
10,015
281
191,887
202,183
3,767
4,131
178,503
186,401
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 47
Statement of changes in equity FOR THE YEAR ENDED 30 JUNE 2017
Attributable to owners of
Michael Hill International Limited
Notes Contributed
equity
$000
Share
based
payments
reserve
$000
Foreign Cash flow
hedge
currency
translation
reserve
reserve
$000
$000
Retained
profits
Total
equity
$000
$000
Balance at 1 July 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 for the year
Transactions with members
in their capacity as owners:
Dividends paid
Option expense through share based
payments reserve
Cancellation of treasury stock
Reverse options previously forfeited
13(b)(i)
9(b)
-
-
-
-
-
-
-
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)
-
-
-
(17,490)
132
7
113
(17,238)
Balance at 30 June 2016
3,767
2,188
2,827
(884) 178,503 186,401
Profit for the year
Currency translation differences
Currency forward contracts
Interest rate swaps
Total comprehensive income for the year
Transactions with members
in their capacity as owners:
Dividends paid
Option expense through share based
payments reserve
Issue of shares to employees on
exercise of options
Transfer option reserve to contributed
equity on exercise of options
Transfer option reserve to contributed
equity on forfeiture of options
Share rights expense through
share based payments reserve
13(b)(i)
9(b)
-
-
-
-
-
-
-
4,825
-
-
-
-
-
-
55
-
712
(712)
711
(711)
-
6,248
316
(1,052)
-
(2,542)
-
-
(2,542)
-
-
(834)
578
(256)
32,648
-
-
-
32,648
32,648
(2,542)
(834)
578
29,850
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(19,264)
(19,264)
-
-
-
-
55
4,825
-
-
-
(19,264)
316
(14,068)
Balance at 30 June 2017
10,015
1,136
285
(1,140) 191,887 202,183
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
48 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
Cash flow statement FOR THE YEAR ENDED 30 JUNE 2017
NOTES
2017
$000
2016
$000
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
Inland revenue tax settlement
Net GST and sales taxes paid
Net cash inflow from operating activities
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 (outflow) from investing activities
Cash flows from financing activities
Proceeds from issues of shares on exercise of options
Proceeds from borrowings
Repayment of borrowings
Dividends paid to Company's shareholders
Net cash (outflow) from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
10(a)
8(b)
9(a)
13(b)
7(a)
649,041
617,024
(534,444)
114,597
16
791
(3,106)
(9,179)
(21,842)
(41,525)
39,752
(521,904)
95,120
583
555
(5,950)
(2,257)
-
(40,257)
47,794
289
(27,294)
(5,851)
(32,856)
213
(22,949)
(1,600)
(24,336)
4,825
136,750
(132,250)
(19,264)
(9,939)
(3,043)
8,853
(134)
5,676
-
124,500
(128,500)
(17,490)
(21,490)
1,968
6,797
88
8,853
The above consolidated cash flow statement should be read in conjunction with the accompanying notes.
MICHAEL HILL INTERNATIONAL 2016 FINANCIAL STATEMENTS 49
Notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2017
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 2017 were authorised for
issue in accordance with a resolution of the directors on 18
August 2017. 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 14a Subsidiaries.
50 MICHAEL HILL INTERNATIONAL 2017 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 pronouncements of the
Australian Accounting Standards Board.
Prior to the change in parent, as described in note
1 Corporate Information, 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 consolidated financial statements of the Michael Hill
International Limited Group comply with International
Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
(b) PRINCIPLES OF CONSOLIDATION
AND EQUITY ACCOUNTING
Subsidiaries
Subsidiaries are all entities (including special purpose)
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 to
direct the activities of the investee. Subsidiaries are fully
consolidated from the date on which control is transferred
to the Group. They are deconsolidated from the date that
control ceases.
As described in note 1, the Group inserted a new
parent during the prior year. As it was a common control
transaction, it was outside the scope of AASB 3 Business
Combinations. The transaction was 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. Refer to note 14(a).
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 transferred asset. 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 and the company
was amalgamated with MHNZ on 10 February 2017.
(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 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 hyperinflationary
economy) that have a functional currency different
from the presentation currency are translated into the
presentation currency as follows:
• assets and liabilities for each balance sheet presented
are translated at the closing rate at the date of the
statement of financial position;
• income and expenses for each statement of profit
or loss and 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 in
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, the associated exchange differences are reclassified
to profit or loss, as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the
acquisition of a foreign operation are treated as assets
and liabilities of the foreign operation 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 consolidated
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 2017 FINANCIAL STATEMENTS 51
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
(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 credit for the year is the tax
payable on the current year'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 year 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 assets and
liabilities and when the deferred tax balances relate to the
same taxation authority. Current tax assets and tax liabilities
52 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
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 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 $19,439,000 being
recognised in the 2016 financial year. A further adjustment
has been made to the deferred tax asset in the 2017
financial year of $4,389,000, bringing the total adjustment
from that transaction to $23,828,000.
(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 components of cash
flows arising from investing or financing activities which
are recoverable from, or payable to, the taxation authority,
are presented as 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 cost. The
finance cost is charged to the consolidated 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 year. The
property, plant and equipment acquired under finance
leases is depreciated over the asset's useful life or 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 not transferred to the
Group as lessee are classified as operating leases (note
16). Payments made under operating leases (net of any
incentives received from the lessor) are charged to profit
or loss on a straight-line basis over the year 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 11.1% and 15.7%
(2016: 10.3% and 13.3%), 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,
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, and bank overdrafts. Bank
overdrafts are shown within borrowings in current liabilities
in the statement of financial position.
(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. Trade receivables 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
Classification
The Group classifies its financial assets in 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 and, in
the case of assets classified as held-to-maturity, re-evaluates
this designation at the end of each reporting year. See note
7 for details about each type of financial asset.
(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 if they are expected to be settled within 12 months;
otherwise they are classified as non-current.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 53
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
(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 period which are classified as
non-current assets. Loans and receivables are included in
trade and other receivables in the statement of financial
position (note 7(b)).
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial
assets with fixed or determinable payments and fixed
maturities that the Group's management has the positive
intention and ability to hold to maturity. If the Group were to
sell other than an insignificant amount of held-to-maturity
financial assets, the whole category would be tainted and
reclassified as available-for-sale. Held-to-maturity financial
assets are included in non-current assets, except for those
with maturities less than 12 months from the end of the
reporting period, which are classified as current assets.
Available-for-sale financial assets
Available-for-sale financial assets, comprising principally
marketable equity securities, are non-derivatives that are
either designated in this category or not classified in any
of the other categories. They are included in non-current
assets unless the investment matures or management
intends to dispose of the investment within 12 months of
the end of the reporting period. Investments are designated
as available-for-sale if they do not have fixed maturities and
fixed or determinable payments and management intends
to hold them for the medium to long-term.
Impairment
The Group assesses at the end of each reporting year
whether there is objective evidence that a financial asset
or a Group of financial assets is impaired. A financial asset
or a Group of financial assets is impaired and impairment
losses are incurred only if there is objective evidence
of impairment as a result of one or more events that
occurred after the initial recognition of the asset (a 'loss
event') and that loss event (or events) has an impact on
the estimated future cash flows of the financial asset or
Group of financial assets that can be reliably estimated. In
the case of equity investments classified as available-for-
sale, a significant or prolonged decline in the fair value of
the security below its cost is considered an indicator that
the assets are impaired.
(o) DERIVATIVES AND HEDGING ACTIVITIES
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
year. The accounting for subsequent changes in fair
value 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:
• hedges of the fair value of recognised assets or
liabilities or a firm commitment (fair value hedges);
54 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
• hedges of a particular risk associated with the cash
flows of recognised assets and liabilities and highly
probable forecast transactions (cash flow hedges); or
• hedges of a net investment in a foreign operation (net
investment hedges).
The Group documents at the inception of the hedging
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 disclosed
in note 7(e). Movements in the hedging reserve in
shareholder's equity are shown in note 9(b). The full fair
value of a hedging derivative is classified as a non-current
asset or liability when the remaining maturity of the
hedged item is more than 12 months; it is classified as a
current asset or liability when the remaining maturity of the
hedged item is less than 12 months. Trading derivatives
are classified as a current asset or liability.
(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. The gain or loss relating to the effective portion
of interest rate swaps hedging fixed rate borrowings is
recognised in profit or loss within finance costs, together
with changes in the fair value of the hedged fixed rate
borrowings attributable to interest rate risk. The gain or loss
relating to the ineffective portion is recognised in profit or
loss within other income or other expenses.
If the hedge no longer meets the criteria for hedge
accounting, the adjustment to the carrying amount of
a hedged item for which the effective interest method
is used is amortised to profit or loss over the period to
maturity using a recalculated effective interest rate.
(ii) Cash flow hedge
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow
hedges is recognised in other comprehensive income and
accumulated in reserves in equity. The gain or loss relating
to the ineffective portion is recognised immediately in
profit or loss within other income or other expense.
Amounts accumulated in equity are reclassified to
profit or loss in the years when the hedged item affects
profit or loss (for instance when the forecast sale that
is hedged takes place). The gain or loss relating to the
effective portion of interest rate swaps hedging variable
rate borrowings is recognised in profit or loss within
'finance costs'. The gain or loss relating to the effective
portion of forward foreign exchange contracts hedging
export sales is recognised in profit or loss within 'sales'.
However, when the forecast transaction that is hedged
results in the recognition of a non-financial asset (for
example, inventory or fixed assets) the gains and losses
previously deferred in equity are reclassified from equity
and included in the initial measurement of the cost of the
asset. The deferred amounts are ultimately recognised in
profit or loss as cost of goods sold in the case of inventory,
or as depreciation or impairment in the case of fixed assets.
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 profit
or loss. 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.
(iii) Net investment hedges
Hedges of net investments in foreign operations are
accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating
to the effective portion of the hedge is recognised in other
comprehensive income and accumulated in reserves in
equity. The gain or loss relating to the ineffective portion
is recognised immediately in profit or loss within other
income or other expenses.
Gains and
in equity are
losses accumulated
reclassified to profit or loss when the foreign operation is
partially disposed of or sold.
(iv) Derivatives that do not qualify for hedge
accounting
Certain derivative instruments do not qualify for hedge
accounting. Changes in the fair value of any derivative
instrument that does not qualify for hedge accounting are
recognised immediately in profit or loss and are included
in other income or other expenses.
(p) 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. The carrying
amount of any component accounted for as a separate
asset is derecognised when replaced. All other repairs
and maintenance are charged to profit or loss during the
reporting year 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 (see note 8(b)).
The assets' residual values and useful lives are
reviewed, and adjusted if appropriate, at the end of each
reporting year.
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 carrying amount. These are
included in profit or loss. When revalued assets are sold, it
is Group policy to transfer any amounts included in other
reserves in respect of those assets to retained earnings.
(q) INTANGIBLE ASSETS
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
software programmes are recognised as an expense as
incurred. Development costs that are directly attributable
to the design and testing of identifiable and unique
software products controlled by the Group are recognised
as intangible assets when the following criteria are met:
• it is technically feasible to complete the software so that
it will be available for use;
• management intends to complete the software and use
or sell it;
• there is an ability to use or sell the software;
• it can be demonstrated how the software will generate
probable future economic benefits;
• adequate technical, financial and other resources to
complete the development and to use or sell the
software are available; and
• the expenditure attributable to the software during its
development can be reliably measured.
Directly attributable costs that are capitalised as part of
the software include employee costs and an appropriate
portion of relevant overheads.
Capitalised development costs are recorded as
intangible assets and amortised from the point at which
the asset is ready for use.
Computer software development costs recognised as
assets are amortised over their estimated useful lives (not
exceeding five years).
(r) TRADE AND OTHER PAYABLES
These amounts represent liabilities for goods and services
provided to the Group prior to the end of financial year
which are unpaid. The amounts are unsecured and are
usually paid within 30 days of recognition. Trade and
other payables are presented as current liabilities unless
payment is not due within 12 months after the reporting
year. They are recognised initially at their fair value and
subsequently measured at amortised cost using the
effective interest method.
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).
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 55
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
(s) 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 profit or loss over the year 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 profit or loss as other income
or finance costs.
Borrowings are classified as current liabilities unless
the Group has an unconditional right to defer settlement of
the liability for at least 12 months after the reporting year.
(t) 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 can be 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.
Present obligations arising from onerous contracts
are required to be recognised and measured as a provision.
An onerous contract is considered to exist where the
unavoidable cost of meeting the obligations under the
contract exceed the economic benefits expected to be
received from the contract. The Group has recognised a
provision in relation to one contract at our Roosevelt Fields
location in the US that was identified as onerous during
the reporting period.
Provisions are measured at the present value of
management's best estimate of the expenditure required
to settle the present obligation at the end of the reporting
year. 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 the passage of time is recognised as interest expense.
(u) EMPLOYEE BENEFITS
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary
benefits and accumulating sick leave that are expected
to be settled wholly within 12 months after the end of the
year in which the employees render the related service are
recognised in respect of employees’ services up to the end
of the reporting year and are measured at the amounts
56 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
expected to be paid when the liabilities are settled. The
liabilities are presented as current employee benefit
obligations in the statement of financial position.
(ii) Other long-term employee benefit obligations
The liabilities for long service leave and annual leave that
are not expected to be settled wholly within 12 months
after the end of the year in which the employees render
the related service are measured as the present value
of expected future payments to be made in respect of
services provided by employees up to the end of the
reporting year 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 end of the reporting year of
high-quality corporate bonds with terms and currencies
that match, as closely as possible, the estimated future
cash outflows. Remeasurements as a result of experience
adjustments and changes in actuarial assumptions are
recognised in profit or loss.
The obligations are presented as current liabilities in
the statement of financial position if the entity does not
have an unconditional right to defer settlement for at least
twelve months after the reporting year, regardless of when
the actual settlement is expected to occur.
(iii) Share-based payments - Employee options
issued to Executives of Michael Hill
Options are
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 2017 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 options granted is recognised as an
employee benefits expense with a corresponding increase
in equity. The total amount to be expensed is determined
by reference to the fair value of the options granted:
• including any market performance conditions (eg the
entity’s share price);
• excluding the impact of any service and non-market
performance vesting conditions (eg profitability, sales
growth targets and remaining an employee of the entity
over a specified time year); and
• including the impact of any non-vesting conditions (eg
the requirement for employees to save or holding shares
for a specific year of time).
The total expense is recognised over the vesting period,
which is the period over which all of the specified vesting
conditions are to be satisfied. At the end of each year, the
entity revises its estimates of the number of options that
are expected to vest based on the non-marketing vesting
and service conditions. It recognises the impact of the
revision to original estimates, if any, in profit or loss, 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.
(iv) 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.
(v) Retirement benefit obligations
All Australian and Canadian employees of the Group are
entitled to benefits from the Group's superannuation plan
on retirement, disability or death or can direct the group to
make contributions to a defined contribution plan of their
choice. The Group’s superannuation plan has a defined
benefit section which receives fixed contributions from
Group companies and the Group's legal or constructive
obligation is limited to these contributions.
(v) 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.
Where any Group company purchases the Company's
equity instruments, for example as the result of a share
buy-back or a share-based payment plan, the consideration
paid, including any directly attributable incremental costs
(net of income taxes) is deducted from equity attributable
to the owners of Michael Hill International Limited as
treasury shares until the shares are cancelled or reissued.
Where such ordinary shares are subsequently reissued,
any consideration received, net of any directly attributable
incremental transaction costs and the related income tax
effects, is included in equity attributable to the owners of
Michael Hill International Limited.
(w) DIVIDENDS
Provision is made for the amount of any dividend declared,
being appropriately authorised and no longer at the
discretion of the entity, on or before the end of the reporting
year but not distributed at the end of the reporting year.
(x) EARNINGS PER SHARE
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
• the profit attributable to owners 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 and
excluding treasury shares.
(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 additional ordinary
shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
(y) ROUNDING OF AMOUNTS
The Company is of a kind referred to in ASIC Legislative
Instrument 2016/191, relating to the 'rounding off' of
amounts in the financial statements. Amounts in the
financial statements have been rounded off in accordance
with the instrument to the nearest thousand dollars, or in
certain cases, the nearest dollar.
(z) NEW ACCOUNTING STANDARDS AND
INTERPRETATIONS
Certain new accounting standards and interpretations
have been published that are not mandatory for 30 June
2017 reporting periods and have not been early adopted
by the group. The Group's assessment of the financial
impact of these new standards and interpretations is set
out below.
(i) AASB 9 Financial Instruments:
Classification and measurement
AASB 9 Financial Instruments addresses the classification,
measurement and derecognition of financial assets and
financial liabilities. The standard is not applicable until
financial years commencing on or after 1 January 2018
but is available for early adoption. The Group has not yet
assessed the potential financial impact of this change,
but is not anticipating a material impact on the financial
statements given the nature of the financial assets
and liabilities held by the Group. An anticipated date of
adoption has not yet been agreed by the Board.
(ii) AASB 15 Revenue from Contracts with Customers
AASB 15 Revenue 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.
(e)
(f)
(g)
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 57
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
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. This is largely in line with the current
accounting policies adopted for recognition of revenue, as
described in note 2(e).
The standard is not applicable until financial years
commencing on or after 1 January 2018 but is available for
early adoption. The Group has an IFRS project underway
and continues to evaluate the effect of the new standard
including the financial impact and related disclosures. The
Group will conduct a complete impact assessment during
the 2018 financial year. The impact will be quantified when
the assessment has been completed. As a result of the
complete assessment, the result and impact on revenue
if any, will invariably impact the transition method adopted.
The Group is expecting to adopt the new standard from
the 2019 financial year.
(iii) AASB 16 Leases
AASB 16 Leases 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 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 financial years
commencing on or after 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 financial
impact of this change, but expects it will have a material
impact on the Group's financial statements. An anticipated
date of adoption has not yet been agreed by the Board.
The standard will require lessees to recognise assets
and liabilities on the balance sheet for the rights and
obligations created by all leases with terms greater than
twelve months.
Additional information
This section provides additional information about those
individual line items in the financial statements that the Directors
consider most relevant in the context of the operations of the
entity, including:
(a) accounting policies that are relevant for an understanding
of the items recognised in the financial statements.
These cover situations where the accounting standards
either allow a choice or do not deal with a particular type
of transaction
(b) analysis and sub-totals, including segment information
(c)
information about estimates and judgements made in relation
to particular items.
58 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
page 58
Note 3 Segment information
page 61
Note 4 Revenue
page 61
Note 5 Other income and expense items
Note 6
page 62
Note 7 Financial assets and financial liabilities page 63
page 66
Note 8 Non-financial assets and liabilities
page 70
Note 9 Equity
page 71
Note 10 Cash flow information
Income tax expense
NOTE 3 Segment information
(a) DESCRIPTION OF SEGMENTS AND
PRINCIPAL ACTIVITIES
Management have determined the operating segments
based on the reports reviewed by the Board and Executive
Team that are used to make strategic decisions. 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. The
segment definition was amended during the year and now
includes trading activity from our stores, online presence and
North American in-house credit function. 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.
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 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 by brand and 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.
(b) SEGMENT RESULTS
Segment information by brand 2017
Operating revenue
Gross profit %
EBITDA
Depreciation and amortisation
EBIT
Interest income
Finance costs
Net profit before tax
Income tax expense
Net profit after tax
Included in EBIT figure above:
Segment impairment
Segment onerous lease provision
Segment information by brand 2016
Operating revenue
Gross profit %
EBITDA
Depreciation and amortisation
EBIT
Interest income
Finance costs
Net profit before tax
Income tax expense
Net profit after tax
Included in EBIT figure above:
Segment impairment
Michael Hill
Emma & Roe
$000
567,034
62.1%
102,669
(15,906)
86,763
1
(58)
86,706
-
86,706
$000
15,118
66.0%
(5,719)
(1,224)
(6,943)
-
(11)
(6,954)
-
(6,954)
Corporate
and other
$000
823
-
(28,817)
(2,886)
(31,703)
15
(3,106)
(34,794)
-
(34,794)
Group
$000
582,975
63.5%
68,133
(20,016)
48,117
16
(3,175)
44,958
(12,310)
32,648
827
93
-
-
-
-
827
93
540,805
62.3%
96,632
(14,966)
81,666
2
(149)
81,519
-
81,519
9,347
69.9%
(1,817)
(611)
(2,428)
-
(14)
(2,442)
-
(2,442)
975
-
551,127
64.0%
(28,997)
(3,183)
(32,180)
581
(5,944)
(37,543)
-
(37,543)
65,818
(18,760)
47,058
583
(6,107)
41,534
(21,957)
19,577
96
-
1
97
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 59
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 3 Segment information cont.
MICHAEL HILL RETAIL SEGMENT INFORMATION BY COUNTRY
for the period ended 30 June 2017
Segment operating revenue
Segment gross profit %
Segment EBITDA
Segment depreciation and amortisation
Segment EBIT
Segment EBIT as a % of revenue
Segment interest income
Segment finance costs
Segment net profit before tax
Included in EBIT figure above:
Segment impairment
Segment onerous lease provision
for the period ended 30 June 2016
Segment operating revenue
Segment gross profit %
Segment EBITDA
Segment depreciation and amortisation
Segment EBIT
Segment EBIT as a % of revenue
Segment interest income
Segment finance costs
Segment net profit before tax
Included in EBIT figure above:
Segment impairment
Australia
New Zealand
Canada United States
Michael Hill
$000
$000
$000
$000
$000
321,981
62.6%
60,158
(7,766)
52,392
16.3%
-
(17)
52,375
115,518
61.7%
29,234
(2,651)
26,583
23.0%
1
(41)
26,543
112,930
61.3%
16,771
(4,196)
12,575
11.1%
-
-
12,575
16,605
60.5%
(3,494)
(1,293)
(4,787)
(28.8%)
-
-
(4,787)
567,034
62.1%
102,669
(15,906)
86,763
15.3%
1
(58)
86,706
37
-
-
-
-
-
790
93
827
93
309,457
62.7%
57,863
(7,201)
50,662
16.4%
-
(135)
50,527
113,119
61.8%
27,751
(2,542)
25,209
22.3%
2
(12)
25,199
98,711
62.1%
13,218
(3,870)
9,348
9.5%
-
-
9,348
19,518
58.9%
(2,200)
(1,353)
(3,553)
(18.2%)
-
(2)
(3,555)
540,805
62.3%
96,632
(14,966)
81,666
15.1%
2
(149)
81,519
96
-
-
-
96
60 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
NOTE 4 Revenue
From continuing operations:
Sales revenue
Revenue from sale of goods and repair services
Revenue from professional care plans
Interest and other revenue from in-house customer finance program
Other revenue
Interest income
Total revenue from continuing operations
2017
$000
2016
$000
547,087
33,689
2,183
582,959
16
582,975
517,820
30,758
1,966
550,544
583
551,127
NOTE 5 Other income and expense items
(a) OTHER INCOME
Insurance recoveries
Net foreign exchange gains
Other income
(b) BREAKDOWN OF EXPENSES BY NATURE
Depreciation
Plant and equipment
Furniture and fittings
Motor vehicles
Leasehold improvements
Display materials
Total depreciation
Amortisation – software
Total depreciation and amortisation
Finance costs
Bank and interest charges
Interest expense - make good provision
Interest paid in regards to tax pooling arrangement
Total finance costs
Net foreign exchange losses included in other expenses for the year
NOTES
11(b)
8(b)
8(c)
8(h)
11(b)
2017
$000
2
863
790
1,655
4,229
3,956
194
7,089
1,947
17,415
2,601
20,016
3,106
69
-
3,175
-
2016
$000
102
-
453
555
3,681
3,498
214
7,126
1,720
16,239
2,521
18,760
2,793
161
3,153
6,107
352
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 61
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 6 Income tax expense
(a) INCOME TAX EXPENSE
2017
$000
NOTES
2016
$000
Current tax
Current tax on profits for the year
Adjustments for current tax of prior periods
Derecognised tax losses
Inland Revenue tax settlement provision
Foreign income tax offsets not recognised
Total current tax expense
Deferred income tax
Decrease (increase) in deferred tax assets
Tax consolidation cost base adjustments
Adjustments for deferred tax of prior periods
Total deferred tax expense/(benefit)
Income tax expense
(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 30.0% (2016 - 30.0%)
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Non deductible entertainment expenditure
Non deductible legal expenditure
Share of partnership
Non-assessable intragroup markups
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
Adjustments for current tax of prior periods
Adjustments for deferred tax of prior periods
Tax losses not recognised
Foreign income tax offset 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%
8(d)
6,402
947
461
-
1,055
8,865
8,125
(4,389)
(291)
3,445
12,310
12,139
-
208
28,782
-
41,129
332
(19,439)
(65)
(19,172)
21,957
44,958
13,487
41,534
12,460
140
38
-
(653)
-
89
(4,389)
-
8,712
(321)
947
(291)
2,208
1,055
12,310
19,524
7,810
1,645
461
178
89
(515)
-
(500)
1
(19,439)
28,782
21,056
(414)
-
(65)
1,380
-
21,957
15,199
6,079
413
116
The unused tax losses incurred in the United States and New Zealand are available indefinitely for offsetting
against future taxable profits of the countries in which the losses arose. Deferred tax assets have not been
recognised in respect of these losses as it is unknown when they may be used to offset taxable profits.
62 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
NOTE 7 Financial assets and financial liabilities
Financial assets 2017
Cash and cash equivalents
Trade and other receivables
Financial assets 2016
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Financial liabilities 2017
Trade and other payables
Borrowings
Derivative financial instruments
Financial liabilities 2016
Trade and other payables
Borrowings
Derivative financial instruments
Notes Derivatives Amortised
cost
used for
hedging
Total
$000
$000
$000
7(a)
7(b)
7(a)
7(b)
11(a)
7(c)
7(d)
11(a)
7(c)
7(d)
11(a)
-
-
-
5,676
26,590
32,266
5,676
26,590
32,266
-
-
450
450
8,853
26,138
-
34,991
8,853
26,138
450
35,441
-
-
1,141
1,141
-
-
1,333
1,333
47,918
45,034
-
92,952
45,044
40,887
-
85,931
47,918
45,034
1,141
94,093
45,044
40,887
1,333
87,264
The Group’s exposure to various risks associated with the financial instruments is discussed in note 11. The maximum exposure
to credit risk at the end of the reporting year is the carrying amount of each class of financial assets mentioned above.
(a) CASH AND CASH EQUIVALENTS
Current assets
Cash at bank and on hand
2017
$000
5,676
2016
$000
8,853
Interest rates for the bank accounts have been between 0.00% and 1.15% during the year (2016: between 0.00%
and 1.15%).
(b) TRADE & OTHER RECEIVABLES
Notes
Trade receivables
Provision for impairment of receivables
In-house customer finance
Provision for impairment of receivables
11(c)(i)
11(c)(ii)
Sundry debtors
Current Non-current
$000
-
-
-
$000
4,752
(502)
4,250
2017
Total
$000
4,752
(502)
4,250
Current Non-current
$000
-
-
-
$000
4,533
(675)
3,858
2016
Total
$000
4,533
(675)
3,858
15,157
(956)
14,201
2,533
(162)
2,371
17,690
(1,118)
16,572
13,911
(879)
13,032
347
(22)
325
14,258
(901)
13,357
5,768
24,219
-
2,371
5,768
26,590
8,923
25,813
-
325
8,923
26,138
Further information relating to loans to related parties and key management personnel is set out in note 18.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 63
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 7 Financial assets and financial liabilities cont.
(i) Trade receivables
Trade receivables from sales made to customers through third party credit providers are non-interest bearing and
are generally on a 0-30 day terms.
(ii) 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 an interest bearing revolving line of credit through to
interest free terms of between 6 and 24 months, although 12 to 18 months is the typical financing period.
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
characteristics 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.
(iii) Sundry debtors
Sundry debtors relates to supplier credits, security deposits and other sundry receivables.
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.
Impairment and risk exposure
Information about the impairment of trade and other receivables, their credit quality and the Group’s exposure to
credit risk, foreign currency risk and interest rate risk can be found in note 11(b) and 11(c).
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) TRADE AND OTHER PAYABLES
Current liabilities
Trade payables
Annual leave liability
Accrued expenses
Other payables
2017
$000
27,648
8,571
6,442
5,257
47,918
2016
$000
23,734
7,725
8,553
5,032
45,044
Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying amounts of trade
and other payables are considered to be the same as their fair values, due to their short-term nature.
(d) BORROWINGS
Non-current liabilities
2017
$000
2016
$000
45,034
40,887
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 a four year 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, $45,034,000 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.
64 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
(e) RECOGNISED FAIR VALUE MEASUREMENTS
Fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial
instruments that are recognised and measured at fair value in the financial statements. To provide an indication
about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments
into the three levels prescribed under the accounting standards. An explanation of each level follows underneath
the table.
Notes
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
Recurring fair value measurements
at 30 June 2017
Financial liabilities
Derivatives used for hedging
- Foreign exchange contracts
- Interest rate swaps
Total financial liabilities
Recurring fair value measurements
at 30 June 2016
Financial assets
Derivatives used for hedging
- Foreign exchange contracts
Total financial assets
Financial Liabilities
Derivatives used for hedging
- Foreign exchange contracts
- Interest rate swaps
Total financial liabilities
11(a)
11(a)
11(a)
11(a)
11(a)
-
-
-
-
-
-
-
-
414
727
1,141
450
450
29
1,304
1,333
-
-
-
-
-
-
-
-
414
727
1,141
450
450
29
1,304
1,333
There were no transfers between levels during the year.
The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of
the reporting year.
Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and
trading and available-for-sale securities) is based on quoted market prices at the end of the reporting
year. The quoted market price used for financial assets held by the Group is the current bid price. These
instruments are included in level 1.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-
counter derivatives) is determined using valuation techniques which maximise the use of observable
market data and rely as little as possible on entity-specific estimates. If all significant inputs required to
fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included
in level 3. This is the case for unlisted equity securities.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 65
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 8 Non-financial assets and liabilities
This note provides information about the Group's non-financial assets and liabilities, including:
(a) INVENTORIES
Raw materials
Finished goods
Packaging and other consumables
2017
$000
7,870
191,768
4,215
203,853
2016
$000
7,461
188,723
3,777
199,961
All inventories are held at the lower of cost or net realisable value.
(b) PROPERTY, PLANT & EQUIPMENT
Plant and Fixtures and
fittings
equipment
Motor
Leasehold
vehicles improvements
Display
materials
Total
$000
$000
$000
$000
$000
$000
At 1 July 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
Year ended 30 June 2017
Opening net book amount
Exchange differences
Additions
Additions - make good asset
Disposals
Depreciation charge
Impairment charge
Closing net book amount
At 30 June 2017
Cost
Accumulated depreciation
Net book amount
29,856
(17,466)
12,390
26,393
(12,994)
13,399
12,390
51
4,350
-
(218)
(3,681)
(20)
12,872
13,399
101
4,865
-
(65)
(3,498)
(39)
14,763
953
(443)
510
510
12
367
-
(141)
(214)
-
534
63,697
(32,030)
31,667
12,576
(5,697)
6,879
133,475
(68,630)
64,845
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
12,872
(124)
6,868
-
(427)
(4,229)
(26)
14,934
14,763
(119)
5,034
-
(118)
(3,956)
(5)
15,599
534
(6)
153
-
(55)
(194)
-
432
35,993
(525)
13,193
773
(791)
(7,089)
(796)
40,758
7,771
(93)
2,046
-
(64)
(1,947)
-
7,713
71,933
(867)
27,294
773
(1,455)
(17,415)
(827)
79,436
37,944
(23,010)
14,934
34,169
(18,570)
15,599
796
(364)
432
82,602
(41,844)
40,758
13,816
(6,103)
7,713
169,327
(89,891)
79,436
66 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
Impairment loss
(i)
As per the Group's accounting policies, the Group impairs assets where the recoverable amount is less than the
carrying amount. The Group has impaired the assets of two stores, based on projected discounted cash flows. Any
assets held at an impaired store that are able to be redeployed throughout the Group are not impaired. This cost
is reported in Other expenses in the statement of comprehensive income. The segment breakdown of impairment
losses recognised during the year is reported at note 3.
(ii) Revaluation, depreciation methods and useful lives
Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of their
residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant
and equipment, the shorter lease term as follows:
5 - 6 years
• Plant and equipment
3 - 5 years
• Motor vehicles
• Fixtures and fittings
6 - 10 years
• Leasehold improvements 6 - 10 years
6 - 10 years
• Display material
(c) INTANGIBLE ASSETS
At 1 July 2015
Cost
Accumulation amortisation
Net book amount
Year ended 30 June 2016
Opening net book amount
Exchange differences
Additions
Disposals
Amortisation charge*
Impairment charge
Closing net book amount
At 30 June 2016
Cost
Accumulation amortisation
Net book amount
Year ended 30 June 2017
Opening net book amount
Exchange differences
Additions
Amortisation charge*
Closing net book amount
At 30 June 2017
Cost
Accumulated amortisation
Net book amount
Patents, Computer
software
Total
trademarks and
other rights
$000
$000
$000
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
5,482
(27)
5,851
(2,601)
8,705
5,561
(27)
5,851
(2,601)
8,784
22,472
(13,767)
8,705
22,551
(13,767)
8,784
79
-
79
79
-
-
-
-
-
79
79
-
79
79
-
-
-
79
79
-
79
* Amortisation of $2,601,000 (2016: $2,521,000) is included in depreciation and amortisation expense in the
statement of comprehensive income.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 67
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
2017
$000
397
3,585
28,101
(764)
(55)
4,322
1,201
2,775
837
708
1,335
1,654
(15)
200
11,270
2,342
57,893
11,846
46,047
57,893
64,074
(8,125)
2,342
(291)
(107)
57,893
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
14,943
49,131
64,074
48,381
19,107
-
(65)
(3,349)
64,074
NOTE 8 Non-financial assets and liabilities cont.
(d) 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 pension obligations
Provisions for warranties and legal costs
Straight-line lease provision
Other provisions
Unrealised foreign exchange losses
Sundry items
Tax consolidation cost base adjustments
Tax losses recognised
Net deferred tax assets
Expected settlement:
Within 12 months
After more than 12 months
Movements:
Opening balance at 1 July
(Charged) / credited to the income statement
Tax losses recognised
Prior year adjustment
Foreign exchange differences
Closing balance at 30 June
(e) CURRENT TAX RECEIVABLES
Current tax receivables
(f) OTHER ASSETS
Prepayments
Deferred expenditure
68 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
888
-
Current Non-current
$000
178
1,879
2,057
$000
3,089
856
3,945
2017
Total
$000
3,267
2,735
6,002
Current Non-current
$000
154
2,038
2,192
$000
4,050
985
5,035
2016
Total
$000
4,204
3,023
7,227
(g) CURRENT TAX LIABILITIES
Current tax liabilities
(h) PROVISIONS
Employee benefits (i)
Returns provision (i)
Make good provision (i)
Other provisions (i)
2017
$000
-
Current Non-current
$000
1,931
-
4,246
58
6,235
$000
1,894
2,518
223
35
4,670
2017
Total
$000
3,825
2,518
4,469
93
10,905
Current Non-current
$000
1,789
-
3,409
-
5,198
$000
2,081
2,609
212
-
4,902
2016
$000
25,022
2016
Total
$000
3,870
2,609
3,621
-
10,100
Information about individual provisions and significant estimates:
(i)
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. Con-
sideration 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.
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.
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.
Other provisions
Other provisions relate to a provision for an onerous lease.
(ii) Movements in provisions
Movements 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 end of year
(i) DEFERRED REVENUE
Deferred service revenue
Lease incentive income
Deferred interest free revenue
Employee
benefits
$000
3,870
643
(689)
1
3,825
Returns Make good
provision
$000
3,621
1,226
(379)
1
4,469
provision
$000
2,609
2,516
(2,602)
(5)
2,518
Other
provisions
$000
-
93
-
-
93
Current Non-current
$000
52,989
2,827
201
56,017
$000
24,121
1,211
592
25,924
2017
Total
$000
77,110
4,038
793
81,941
Current Non-current
$000
48,201
2,509
15
50,725
$000
23,421
1,006
258
24,685
Total
$000
10,100
4,478
(3,670)
(3)
10,905
2016
Total
$000
71,622
3,515
273
75,410
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 69
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 9 Contributed equity
(a) SHARE CAPITAL
Ordinary shares - fully paid
Total share capital
2017
Shares
2016
Shares
387,438,513 383,138,513
387,438,513 383,138,513
2017
$000
10,015
10,015
(i) Movements in ordinary shares:
Opening balance 1 July 2015
Cancellation of treasury stock
Balance 30 June 2016
Exercise of options - Proceeds received
Transfer option reserve to contributed equity
Balance 30 June 2017
Notes
9(a)(iv)
No. of shares
383,153,190
(14,677)
383,138,513
4,300,000
-
387,438,513
Refer to note 1 for details of the change in parent company that occurred during the 2016 financial year.
(ii) Movements in treasury stock:
Opening balance 1 July 2015
Cancelled shares
Balance 30 June 2016
No. of shares
14,677
(14,677)
-
2016
$000
3,767
3,767
$000
3,767
-
3,767
4,825
1,423
10,015
$000
7
(7)
-
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.
(iii) Ordinary shares
Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up 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.
(iv) Options
Information relating to the Michael Hill International 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 19(a).
(v) 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 19(b).
70 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
(b) RESERVES AND RETAINED PROFITS
Nature and purpose of other reserves:
Cash flow hedges
The hedging reserve is used to record gains or losses on derivatives that are designated and qualify as cash
flow hedges and that are recognised in other comprehensive income, as described in note 2(o). Amounts are
reclassified to profit or loss when the associated hedged transaction affects profit or loss.
Share-based payments
The share-based payments reserve is used to recognise:
• the grant date fair value of options issued to employees but not exercised
• the grant date fair value of shares issued to employees
• the grant date fair value of deferred shares granted to employees but not yet vested
Foreign currency translation
Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive
income as described in note 2(d) and accumulated in a separate reserve within equity. The cumulative amount is
reclassified to profit or loss when the net investment is disposed of.
NOTE 10 Cash flow information
Reconciliation of profit after income tax to
net cash inflow from operating activities
Profit for the year
Adjustment for
Depreciation
Amortisation
Non-cash employee benefits expense - share-based payments
Other non-cash expenses
Net loss on sale of non-current assets
Net exchange differences
Change in operating assets and liabilities:
(Increase) / decrease in trade and other receivables
(Increase) / decrease in inventories
(Increase) / decrease in deferred tax assets
(Increase) / decrease in other current assets
(Increase) / decrease in other non current assets
(Decrease) / increase in trade and other payables
(Decrease) / increase in current tax liabilities
(Decrease) / increase in provisions
(Decrease) / increase in deferred revenue
Net cash inflow from operating activities
NOTES
2017
$000
2016
$000
32,648
19,577
5(b)
5(b)
17,415
2,601
371
897
1,166
(908)
(579)
(6,074)
6,043
1,085
118
3,050
(26,110)
830
7,199
39,752
16,239
2,521
245
65
328
371
(6,280)
(19,472)
(19,501)
2,762
192
2,999
36,557
400
10,791
47,794
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 71
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
RISK
This section of the notes discusses the Group’s exposure to various risks and shows how these could affect the
Group’s financial position and performance.
Note 11 Financial risk management
page 72
Note 12 Critical estimates, judgements and errors page 77
page 78
Note 13 Capital management
NOTE 11 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 unpredictability
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.
Risk
Exposure arising from
Measurement
Management
Market risk - foreign
exchange
Future commercial transactions
Recognised financial assets and liabilities
not denominated in AUD
Cash flow forecasting
Sensitivity analysis
Forward foreign
exchange contracts
Market risk - interest rate
Long-term borrowings at variable rates
Sensitivity analysis
Interest rate swaps
Credit risk
Cash and cash equivalents and
trade receivables
Aging analysis
Liquidity risk
Borrowings and other liabilities
Rolling cash flow
forecasts
Diversification of bank
deposits, credit limits
and letters of credit
Availability of
committed credit lines
and borrowing facilities
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) DERIVATIVES
Derivatives are only used for economic hedging purposes and not as speculative investments. However, where
derivatives do not meet the hedging criteria, they are classified as ‘held for trading’ for accounting purposes below.
The Group has the following derivative financial instruments:
Current assets
Forward foreign exchange contracts - cash flow hedges (Note 11(b)(i))
Total current derivative financial instrument assets
Current liabilities
Interest rate swap contracts - cash flow hedges (Note 11(b)(ii))
Forward foreign exchange contracts - cash flow hedges (Note 11(b)(i))
Total current derivative financial instrument liabilities
72 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
2017
$000
-
-
727
414
1,141
2016
$000
450
450
1,304
29
1,333
(i) Classification of derivatives
Derivatives are classified as held for trading and accounted for at fair value through profit or loss unless they are
designated as hedges. They are presented as current assets or liabilities if they are expected to be settled within
12 months after the end of the reporting year.
The Group’s accounting policy for its cash flow hedges is set out in note 2(o). For hedged forecast transactions
that result in the recognition of a non-financial asset, the Group has elected to include related hedging gains and
losses in the initial measurement of the cost of the asset.
(ii) Fair value measurements
For information about the methods and assumptions used in determining the fair value of derivatives please refer
to note 7(e).
(b) MARKET RISK
(i) Foreign exchange risk
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 loss of $834,000 (2016: $360,000 gain) is included in Other comprehensive income. Fair value
adjustments are included in Derivative financial instruments.
Exposure
The Group's exposure to foreign currency risk at the end of the reporting year, expressed in transactional currency,
was as follows:
Cash and cash equivalents
Trade receivables
Trade payables
Forward exchange contracts
USD
$000
25
882
3,696
2017
NZD
$000
40
-
228
CAD
$000
45
-
57
USD
$000
11
2,967
867
2016
NZD
$000
37
-
3
CAD
$000
30
10
60
Buy foreign currency (cash flow hedges) 17,000
-
-
15,000
-
-
Sensitivity
The Group's principal foreign currency exposures arise from trade payables and receivables outstanding at year end.
Most trade payables are repaid within 30 days so there is minimal equity impact arising from foreign currency
exposures.
US$ Trade payables
us$ exchange rate - increase 10%*
us$ exchange rate - decrease 10%*
* Holding all other variables constant
Impact on pre-tax profit
Impact on other
components of equity
2017
$000
2016
$000
2017
$000
2016
$000
-
-
-
-
2,011
(2,458)
1,420
(2,671)
(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.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 73
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 11 Financial risk management cont.
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. The interest rate derivatives require
settlement of net interest receivable or payable each 30 days and are settled on a net basis.
The exposure of the Group’s borrowing to interest rate changes and the contractual re-pricing dates of the
fixed interest rate borrowings at the end of the reporting year are as follows:
Variable rate borrowings
2017
$000
45,034
2016
$000
40,887
Instruments used by the group
The cash flow hedges were assessed to be highly effective and a net realised gain of $578,000 (2016: $476,000 loss)
is included in Other comprehensive income. Fair value adjustments are included in Derivative financial instruments.
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.
Swaps in place cover approximately 77.7% (2016: 85.6%) of the variable rate principal outstanding.
As at the end of the reporting year, the Group had the following variable rate borrowings and interest rate
swap contracts outstanding:
Bank overdrafts and bank loans
Interest rate swaps (notional principal amount)
Net exposure to cash flow interest rate risk
Weighted
average
interest rate
%
3.64%
3.85%
2017
Balance
$000
45,034
35,000
10,034
Weighted
average
interest rate
%
2.64%
3.16%
2016
Balance
$000
40,887
35,000
5,887
An analysis by maturities is provided in note 11(d) below. The percentage of total loans shows the proportion of
loans that are currently at variable rates in relation to the total amount of borrowings.
Amounts recognised in profit or loss and other comprehensive income
The cash flow hedges were assessed to be highly effective. Fair value adjustments are included in Derivative
financial instruments.
Sensitivity
Profit or loss is sensitive to higher/lower interest income from cash and cash equivalents as a result of changes
in interest rates. Other components of equity change as a result of an increase/decrease in the fair value of the
cash flow hedges of borrowings. All other non-derivative financial liabilities have a contractual maturity of less
than 6 months.
Interest rates - increase by 100 basis points (100 bps)*
Interest rates - decrease by 100 basis points (100 bps)*
* Holding all other variables constant
Impact on pre-tax profit
Impact on other
components of equity
2017
$000
(100)
100
2016
$000
(104)
104
2017
$000
(16)
16
2016
$000
(17)
17
(c) CR EDIT 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.
74 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
Impaired trade receivables
(i)
A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable
is impaired. An impairment loss of $313,000 (2016: $252,000) has been recognised by the Group. All trade
receivables related to third party credit providers past 90 days have been impaired.
The ageing of these receivables is as follows:
Movements in the provision for impairment of trade receivables that are assessed for impairment collectively are
as follows:
0 - 30 days
31 - 60 days
61 - 90 days
91 + days
At 1 July
Amounts written off
Additional provisions recognised
Exchange differences
At 30 June
2017
$000
3,977
295
73
407
4,752
2017
$000
675
(313)
141
(1)
502
2016
$000
3,600
243
107
583
4,533
2016
$000
455
(252)
468
4
675
(ii) Credit quality and impaired in-house customer finance
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 7(b)(ii). The Group does not hold
collateral as security. The Group evaluates the concentration of risk with respect to trade receivables as low.
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
2017
$000
16,786
402
502
17,690
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
2017
$000
901
(2,051)
2,299
(31)
1,118
2016
$000
13,437
397
424
14,258
2016
$000
780
(1,814)
1,945
(10)
901
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 75
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 11 Financial risk management cont.
(d) 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.
(i) 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. The Group had access to the following
undrawn borrowing facilities at the end of the reporting year:
Floating rate
Expiring beyond one year (bank overdrafts)
Expiring beyond one year (bank loans)
2017
$000
1,957
24,966
26,923
2016
$000
1,957
29,113
31,070
(ii) Maturities of financial liabilities
The tables below analyse the Group's financial liabilities into relevant maturity groupings based on their contractual
maturities for:
• all non-derivative financial liabilities; and
• net and gross settled derivative financial instruments for which the contractual maturities are essential for an
understanding of the timing of the cash flows.
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months
equal their carrying balances as the impact of discounting is not significant. For interest rate swaps the cash flows
have been estimated using forward interest rates applicable at the end of the reporting year.
Contractual maturities
of financial liabilities
At 30 June 2017
Non-derivatives
Trade payables
Borrowings
Total non-derivatives
Derivatives
Gross settled (forward foreign
exchange contracts)
Net settled (interest rate swaps)
Less than
6 months
6 - 12
months
Between
1 and 2
years
Between
2 and 5
years
Over
Total
5 years contractual
cash flows
$000
$000
$000
$000
$000
$000
47,918
-
47,918
-
-
-
-
45,034
45,034
-
-
-
-
5,000
5,000
17,000
-
17,000
-
5,000
5,000
-
25,000
25,000
-
-
-
-
-
-
47,918
45,034
92,952
17,000
35,000
52,000
76 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
Contractual maturities
of financial liabilities
At 30 June 2016
Non-derivatives
Trade payables
Borrowings
Total non-derivatives
Derivatives
Gross settled (forward foreign
exchange contracts)
Net settled (interest rate swaps)
Less than
6 months
6 - 12
months
Between
1 and 2
years
Between
2 and 5
years
Over
Total
5 years contractual
cash flows
$000
$000
$000
$000
$000
$000
45,044
-
45,044
-
-
-
-
40,887
40,887
-
-
-
-
-
-
15,000
5,000
20,000
-
10,000
10,000
-
20,000
20,000
-
-
-
-
-
-
45,044
40,887
85,931
15,000
35,000
50,000
NOTE 12 Critical estimates, judgements and errors
The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom
equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies.
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 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 19. 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 8(h).
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on historical experience, lease terms (for display assets)
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.
(a) CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
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 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.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 77
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 12 Critical estimates, judgements and errors cont.
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 $1,686,000 has been recognised as revenue in the
current financial year. Of this, $89,000 relates to the current financial year, and $1,597,000 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 13 Capital management
(a) RISK MANAGEMENT
The Group's objectives when managing capital are to:
• safeguard their ability to continue as a going concern, so that they can continue to provide returns for
shareholders and benefits for other stakeholders; and
• maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
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) and consolidated debt to capitalisation. There have
been no breaches of these covenants or events of review for the current or prior period.
(b) DIVIDENDS
(i) Ordinary shares
Final dividend for the year ended 30 June 2016 of au2.5¢ (2015 - nz2.5¢)
per fully paid share paid on 6 October 2016 (2015 - 2 October 2015)
Interim dividend for the year ended 30 June 2017 of au2.5¢ (2016 - nz2.5¢)
per fully paid share paid on 31 March 2017 (2016 - 1 April 2016)
(ii) Dividends not recognised at the end of the reporting period
Since year end the Directors have declared the payment of a final
dividend of au2.5¢ per fully paid ordinary share* (2016 - au2.5¢). The
final dividend will be unfranked and fully imputed. The aggregate amount
of the proposed dividend expected to be paid on 29 September 2017 out
of retained earnings at 30 June 2017, but not recognised as a liability at
year end, is:
2017
$000
9,578
9,686
19,264
2016
$000
8,870
8,620
17,490
9,686
9,578
* This will be declared as conduit foreign income, therefore no Australian withholding tax will be deducted from
the dividend payment for our foreign shareholders.
78 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
(iii) Franking and imputation credits
Franking credits available for subsequent reporting periods
based on a tax rate of 30.0% (2016 - 30.0%) in au$ are:
Imputation credits available for subsequent reporting periods based
on the New Zealand tax rate of 28.0% (2016 - 28.0%) in nz$ are:
2017
$000
2016
$000
(2,148)
2,710
28,424
13,118
The dividends paid during the current financial period and corresponding previous financial period were partly
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 and refund 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 and refund of income tax payable.
As the dividend recommended by the Directors since year end, but not recognised as a liability at year end, will
be unfranked, there will be no reduction in the franking account (2016: $4,105,000). 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$3,935,000 (2016: nz$3,890,000).
The amount of imputation credits is dependant on the NZD exchange rate at the time of the dividend.
NOTE 14 Interests in other entities
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):
Subsidiaries
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 Ltd
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
Ownership interest
held by the group
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
2017 %
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
2016 %
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
* Michael Hill Trustee Company Limited was amalgamated with MHNZ on 10 February 2017.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 79
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 15 Contingent liabilities and contingent assets
(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 2017 of $461,000 (30 June 2016 - $547,000).
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 16 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
2017
$000
2016
$000
42,784
95,788
20,195
158,767
41,624
92,417
16,083
150,124
NOTE 17 Events occurring after the reporting period
DIVIDENDS
On 18 August 2017, the Directors declared the payment of a final dividend for the year ended 30 June 2017. Refer to
note 13(b)(ii) for details.
No other matters or circumstances have occurred subsequent to year end that has significantly affected, or may
significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or
economic entity in subsequent financial years.
80 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
NOTE 18 Related party transactions
(a) SUBSIDIARIES
The ultimate parent and controlling entity of the Group is Michael Hill International Limited. Interests in subsidiaries
are set out in note 14(a).
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).
(b) KEY MANAGEMENT PERSONNEL COMPENSATION
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
2017
$000
3,133
195
1,604
314
5,246
Detailed remuneration disclosures are provided in the remuneration report on pages 33 to 43.
(c) TRANSACTIONS WITH OTHER RELATED PARTIES
The following transactions occurred with related parties:
Sales and purchases of goods and services
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
2017
$000
13
-
58
2016
$000
4,494
195
-
66
4,755
2016
$000
13
214
52
All transactions with related parties were in the normal course of business and provided on commercial terms.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 81
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 19 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.
Set out below are summaries of options granted under the plan:
As at 1 July NZD options
Granted during the year
Exercised during the year
Forfeited during the year
As at 30 June NZD options
As at 1 July AUD options
Granted during the year
As at 30 June AUD options
2017
Average
exercise price
per share
1.47
-
1.19
1.81
1.47
-
2.12
2.12
2017
Number of
options
2016
Average
exercise price
per share
2016
Number of
options
12,550,000
-
(4,300,000)
(3,600,000)
4,650,000
-
200,000
200,000
1.48 12,150,000
400,000
1.14
-
-
-
-
1.47 12,550,000
-
-
-
-
-
-
No options expired during the years covered by the above tables.
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Grant date
9 November 2007
22 September 2009
5 November 2009
17 September 2010
8 November 2010
5 November 2010
16 November 2011
19 September 2012
18 September 2013
29 November 2013
10 November 2014
22 January 2016
22 September 2016
Total
Expiry date Exercise price
Share options Share options
30 June 2016
30 June 2017
30 September 2017
30 September 2019
30 September 2019
30 September 2020
30 September 2019
30 September 2020
30 September 2021
30 September 2022
30 September 2023
30 September 2023
30 September 2024
30 September 2025
30 September 2026
NZ$1.25
NZ$0.94
NZ$0.94
NZ$0.88
NZ$0.94
NZ$0.88
NZ$1.16
NZ$1.41
NZ$1.82
NZ$1.82
NZ$1.63
NZ$1.14
AU$2.12
1,250,000
100,000
150,000
250,000
-
-
250,000
250,000
250,000
1,750,000
200,000
200,000
200,000
3,750,000
100,000
150,000
250,000
400,000
400,000
650,000
650,000
650,000
4,750,000
400,000
400,000
-
4,850,000 12,550,000
The weighted average remaining contractual life of share options outstanding at the end of the period was 4.4 years
(2016: 5.0 years).
82 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
The range of exercise prices for options outstanding at the end of the year was NZ$0.88 - NZ$1.82 and
AU$2.12. 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.
Fair value of options granted
The fair value at grant date for the options issued during the 2017 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 model inputs for options granted during the year ended 30 June 2017 and 30 June 2016 included:
Number of options
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of options (years)
Option exercise price
Share price at grant date
Weighted average fair value per option
(b) EMPLOYEE SHARE SCHEME
June 2017
22 September 2016
June 2016
22 January 2016
200,000
5.00%
25%
4.78%
7.5
au$2.12
au$1.74
nz15.6¢
400,000
5.00%
25%
4.78%
7.5
nz$1.14
nz$1.00
nz16.2¢
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.
(c) SHARE RIGHTS
The Company introduced a new deferred compensation plan ("LTI") involving the granting of share rights to
eligible participants, which commenced in the 2015-16 financial year and was approved by shareholders at the
Company’s Annual General Meeting held on 31 October 2016.
Under the plan, a senior executive may be granted share rights by the Company. Each share right represents
a right to receive one ordinary share in the Company, subject to the terms and conditions of the rules of the plan.
An allocation of share rights is made to each eligible participant on an annual basis to a value of 30% of the STI
payment earned in the preceding year. The share rights progressively vest over a 3, 4 and 5 year period from the
date of issue and are only retained on exiting the business in the event that the participant is deemed a 'Good
Leaver' pursuant to the LTI plan rules.
During the year, the Board agreed to grant 382,551 share rights to eligible participants of the deferred
compensation plan.
186,613 of the share rights were issued on the basis that they are divided into three tranches and vest over
3, 4 and 5 years, respectively. 195,938 of the share rights were issued on the basis that 100% will vest if the
participant has been continuously engaged under an engagement arrangement with the Company at grant date,
which is in three years time.
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 83
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 19 Share-based payments cont.
The number of share rights in each tranche is based on the prescribed dollar value for each tranche divided by the
volume weighted average share price ('VWAP') of Michael Hill International shares over five trading days following
the Michael Hill International shares trading on an ex-dividend basis.
Employee share rights - tranche 1
Employee share rights - tranche 2
Employee share rights - tranche 3
CEO share rights
Issue Date
Number of
share rights
20 March 2017
20 March 2017
20 March 2017
20 March 2017
46,651
46,651
93,311
195,938
VWAP
Vesting Date
1.66
1.66
1.66
1.66
01 July 2019
01 July 2020
01 July 2021
01 July 2019
There were no share share rights granted in prior years and none of the share share rights had vested as at 30
June 2017.
(d) EXPENSES ARISING FROM SHARE-BASED PAYMENT TRANSACTIONS
Total expenses arising from share-based payment transactions recognised during the year as part of employee
benefit expense were as follows:
Options issued under Employee Option Plan
Shares issued under Employee Share Scheme
Share rights issued under LTI plan
2017
$000
55
-
316
371
2016
$000
245
6
-
251
NOTE 20 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) ERNST & YOUNG
Audit and other assurance services:
Audit and review of financial statements
Advisory fees
Total remuneration of Ernst & Young Australia
(b) NON-ERNST & YOUNG RELATED AUDIT FIRMS
Audit and other assurance services:
Grant Thornton New Zealand firm audit of ordinary shares register
Total auditors' remuneration
2017
$000
343
7
350
1
351
2016
$000
367
50
417
2
419
84 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
NOTE 21 Earnings per share
(a) BASIC EARNINGS PER SHARE
2017
2016
Profit attributable to the ordinary equity holders of the Company
8.46¢
5.11¢
(b) DILUTED EARNINGS PER SHARE
Profit attributable to the ordinary equity holders of the Company
8.45¢
5.09¢
(c) RECONCILIATION OF EARNINGS USED
IN CALCULATING EARNINGS PER SHARE
2017
$000
2016
$000
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
32,648
19,577
32,648
19,577
2017
Number
2016
Number
385,963,992
383,138,513
500,000
1,700,000
Weighted average number of ordinary and potential ordinary shares
used as the denominator in calculating diluted earnings per share
386,463,992
384,838,513
(e) INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES
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 19(a).
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 85
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 22 Parent entity financial information
(a) SUMMARY FINANCIAL INFORMATION
The individual financial statements for Michael Hill International Limited (the parent) show the following
aggregate amounts:
Balance sheet
Current assets
Non-current assets
Total assets
Shareholders' equity
Issued capital
Reserves - Acquisition reserve
- Option reserve
Retained earnings
Profit or loss for the year
Total comprehensive income
2017
$000
2016
$000
1,605
329,278
330,775
290,157
40,907
1,136
1,683
333,883
1,683
1,683
1,672
327,005
328,677
283,910
40,907
2,188
1,672
328,677
1,672
1,672
(b) GUARANTEES ENTERED INTO BY THE PARENT ENTITY
The Parent has issued the following guarantees in relation to the debts of its subsidiaries:
• Pursuant to Class Order 2016/785, 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.
(c) CONTINGENT LIABILITIES OF THE PARENT ENTITY
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 2017 of $72,000 (2016: $72,000).
NOTE 23 Deed of cross guarantee
Pursuant to ASIC Class Order 2016/785, 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.
86 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
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.
(a) STATEMENT OF PROFIT OR LOSS, STATEMENT OF COMPREHENSIVE INCOME AND SUMMARY OF
MOVEMENTS IN RETAINED EARNINGS
Set out below is a statement of profit or loss, a statement of comprehensive income and a summary of movements
in retained earnings for the year ended 30 June 2017 of the closed group consisting of Michael Hill International
Limited and the entities noted above.
Statement of profit or loss
Revenue from sales 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 in 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 to profit or loss
Exchange differences on translation of foreign operations
Other comprehensive income for the period, net of tax
Total comprehensive income for the year
Statement of changes in equity
Equity at the beginning of the financial year
Total comprehensive income
Issue of share capital - exercise of options
Share rights through share based payments reserve
Option expense through share based payment reserve
Cancellation of treasury stock
Dividends paid
Total equity at the end of the financial year
2017
$000
455,114
43,527
1,164
(205,916)
(126,861)
(45,394)
(22,537)
(22,454)
(14,554)
(322)
(11,767)
(3,550)
46,450
(11,022)
35,428
(4)
(4)
35,424
479,835
35,424
4,825
316
55
-
(19,264)
501,191
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
4,207
4,207
35,889
461,184
35,889
-
-
245
7
(17,490)
479,835
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 87
Notes to the financial statements cont. FOR THE YEAR ENDED 30 JUNE 2017
NOTE 23 Deed of cross guarantee cont.
(b) CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Set out below is a statement of financial position as at 30 June 2017 of the Closed Group consisting of Michael Hill
International Limited and the entities noted above.
2017
$000
2016
$000
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivables
Loans to related parties
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
88 MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS
1,600
8,982
152,907
1,008
234,510
2,542
401,549
47,713
53,485
8,613
102,991
1,634
214,436
2,779
11,758
147,595
-
213,978
3,131
379,241
44,543
60,131
4,944
121,033
1,799
232,450
615,985
611,691
39,278
-
4,336
20,135
63,749
6,177
44,868
51,045
37,053
25,033
4,542
19,485
86,113
5,198
40,545
45,743
114,794
131,856
501,191
479,835
309,004
528
191,659
501,191
302,756
1,582
175,497
479,835
Directors' declaration
In accordance with a resolution of the Director's of Michael Hill International
Limited, I state that in the Directors' opinion:
(a) the financial statements and notes of Michael Hill International Limited
for the financial year ended 30 June 2017, are in accordance with the
Corporations Act 2001, including:
(i) complying with Accounting Standards, the Corporations Regulations
2001 and other mandatory professional reporting requirements, and
(ii) giving a true and fair view of the consolidated entity's financial
position as at 30 June 2017 and of its performance for the financial
year ended on that date, and
(b) there are reasonable grounds to believe that the Company will be able to
pay its debts as and when they become due and payable, and
(c) at the date of this declaration, there are reasonable grounds to believe that
the members of the extended closed group identified in note 23 will be
able to meet any obligations or liabilities to which they are, or may become,
subject by virtue of the deed of cross guarantee described in note 23.
Note 2(a) confirms that the financial statements also comply with International
Financial Reporting Standards as issued by the International Accounting
Standards Board.
The Directors have been given the declarations by the chief executive officer
and chief financial officer required by section 295A of the Corporations Act
2001. This declaration is made in accordance with a resolution of Directors.
E.J. Hill, Chair
Brisbane, 18 August 2017
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS 89
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 Members of Michael Hill International Limited
R E PORT ON TH E AU DIT OF TH E FI NANCIAL R E PORT
OPI N ION
We have audited the financial report of Michael Hill International Limited (the Company) and its subsidiaries (collectively the Group), which comprises
the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial report, including a summary of significant
accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance
for the year ended on that date; and
b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
BASIS FOR OPI N ION
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in
the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the
auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards
Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
KEY AU DIT MATTE RS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current
year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including
in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below,
provide the basis for our audit opinion on the accompanying financial report.
EXISTE NCE OF I NVE NTOR I ES
Why significant
How our audit addressed the key audit matter
The audit of inventories is a key audit matter due
to the size of the recorded asset (30 June 2017:
$203,853,000) which represents more than 50%
of the Group’s total assets.
Inventories are primarily kept in the stores
and the dispatch and manufacturing warehouse.
Inventories comprise a significant number of small
high value items and are held in many stores across
four countries. Given the significant balance of
inventories, we conclude that the existence of
inventories is a key audit matter for our audit.
The Group accounts for its inventories in
accordance with the policy disclosed in Note 2(m)
and further disclosure is included in Note 8(a) to the
financial report.
In obtaining sufficient and appropriate audit evidence, we:
a) Obtained an understanding of the Group’s processes regarding inventory management
including purchasing, manufacturing (where applicable) and store management. We
assessed and tested the design and operating effectiveness of relevant controls relevant
to address the risks that physical counts are not correctly recorded in the general ledger
and that counts are not performed, or inaccurately performed.
b) Attended stock counts at the dispatch and manufacturing warehouse and at a sample of
retail stores across four countries. As part of our stock count attendance and physical
verification, we used the work performed by Internal Audit at the retail stores and considered
the impact of their findings in our audit approach. We assessed the competence of the
Internal Audit team and tested a sample of the relevant working papers. We also performed
cut-off testing during our attendance at the manufacturing warehouse stock counts by
selecting samples or stock receipts prior to and after the stock count including transfers to
stores, to assess whether these were appropriately recorded.
c) Considered any significant changes in stock count and purchases controls from the date we
attended the stock counts to balance date. We performed store-bystore stock level analysis
for any unusual fluctuations outside of our set expectations. We performed a recalculation of
warehouse inventory levels at balance date including an assessment of the inventories listing
by product to determine if there were any large or unusual items. For any material or unusual
variances, we obtained supporting evidence and enquired with the Group.
90 MICHAEL HILL INTERNATIONAL AUDITOR'S REPORT
PROFESSIONAL CAR E PLAN (PCP) R EVE N U E R ECOG N ITION
Why significant
How our audit addressed the key audit matter
In obtaining sufficient and appropriate audit evidence, we:
a) Considered the adequacy of the Group’s revenue recognition accounting policies and
assessed compliance with the policies against the requirements of AASB 118 Revenue.
b) Assessed and tested the design and operating effectiveness of relevant controls relating
to revenue recognition.
c) Performed analytical procedures on the rollforward of the initial sale of the PCP, deferral
and subsequent recognition of the related PCP revenue based on the change in usage
pattern during the year. Where material variances were identified above our set testing
threshold, supporting documentation was examined and enquiries were made of the
Group.
d) Tested the Group’s calculations for the change in estimate in revenue recognition, which
included testing samples of the underlying PCP repairs usage data. The Group’s estimates
rely on actual customer usage patterns.
The recognition of professional care plan revenue is
considered a key audit matter due to the significant
degree of estimation involved in determining the
appropriate revenue recognition pattern for both the
lifetime and 3 year plans.
The estimation is based on a combination of
comparative market data and an analysis of services
(through repairs data) made under these plans
since inception in October 2010. The estimation is
reviewed by the Group at least on an annual basis.
The pattern of recognising revenue is disclosed
in Note 2(e)(ii) to the financial report under rendering
of service which is based on percentage of
completion. A change in estimate in the current year
has resulted from new information that meets the
definition of a ‘revision in an estimate’ in accordance
with Australian Accounting Standard - AASB 108
in Accounting
Accounting Policies, Changes
Estimates and Errors and as a result the adjusting
entry has been booked in the current period.
This change in estimate has been disclosed in
Note 12(a) to the financial report.
In respect of the lifetime plans, given the infancy
of the PCP product, there is limited customer usage
history to reference and industry information is also
utilised. As such, the determination of the optimal
revenue recognition pattern is judgmental. This
uncertainly has been disclosed in Note 12(a) to the
financial report.
R ECOG N ITION OF DE FE R R E D TAX ASSETS
Why significant
How our audit addressed the key audit matter
In obtaining sufficient and appropriate audit evidence, we involved our tax specialists and:
a) Evaluated the Group's assumptions supporting the calculation of deferred tax assets
arising in respect of the underlying assets and the recovery of the assets with regard to the
Group's business plans.
b) Assessed the valuation prepared by the Group's independent tax expert and compared this
to the assumptions used by the Group. We assessed the independence and competence
of the Group’s tax expert.
c) Considered the adequacy of the taxation disclosures made in the financial report.
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. The
resetting of the tax bases resulted in recognition
of deferred tax assets of $23,828,000 being
recognised at 30 June 2017 on the consolidated
statement of financial position.
The income tax position in relation to the recognition
of deferred tax assets was significant to our audit as
the amount was material to the financial report and the
assessment process requires judgment. Independent
advice was obtained by the Group to support the
position adopted at 30 June 2017.
The Group accounts for its deferred taxes as
disclosed in Note 2(f) to the financial report.
MICHAEL HILL INTERNATIONAL AUDITOR'S REPORT 91
• Obtain an understanding of internal control relevant to the audit
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 Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the directors.
• Conclude on the appropriateness of the directors’ use of the going
concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the
related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group to cease
to continue as a going concern.
• Evaluate the overall presentation, structure and content of the
financial report, including the disclosures, and whether the financial
report represents the underlying transactions and events in a manner
that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the Group to
express an opinion on the financial report. We are responsible for
the direction, supervision and performance of the Group audit. We
remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters,
the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have
complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated to the directors, we determine
those matters that were of most significance in the audit of the financial
report of the current year and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated
in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such
communication.
I N FOR MATION OTH E R THAN TH E FI NANCIAL R E PORT
AN D AU DITOR’S R E PORT
The directors are responsible for the other information. The other
information comprises the information included in the Group’s 2017
Annual Report, but does not include the financial report and our auditor’s
report thereon.
Our opinion on the financial report does not cover the other
information and accordingly we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial report, our responsibility
is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial report or our
knowledge obtained in the audit or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
R ESPONSI B I LITI ES OF TH E DI R ECTORS
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 control as the directors determine is necessary to enable
the preparation of the financial report that gives a true and fair view and
is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for
assessing the Group’s ability to continue as a going concern, disclosing, as
applicable, matters relating to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.
AU DITOR’S R ESPONSI B I LITI ES FOR TH E AU DIT
OF TH E FI NANCIAL R E PORT
Our objectives are to obtain reasonable assurance about whether the
financial report as a whole is free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with the Australian
Auditing Standards will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of this financial report.
As part of an audit in accordance with the Australian Auditing
Standards, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial
report, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of
internal control.
92 MICHAEL HILL INTERNATIONAL AUDITOR'S REPORT
R E PORT ON TH E AU DIT OF TH E R E M U N E RATION R E PORT
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors'
report for the year ended 30 June 2017.
In our opinion, the Remuneration Report of Michael Hill International
Limited for the year ended 30 June 2017, complies with section 300A of
the Corporations Act 2001.
Responsibilities
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.
Ernst & Young
Alison de Groot, Partner
Brisbane
18 August 2017
MICHAEL HILL INTERNATIONAL AUDITOR'S REPORT 93
Analysis of Shareholding
Twenty largest shareholders as at 31 August 2017
Hoglett Hamlett Limited
New Zealand Central Securities Depository Ltd
JP Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Mole Hill Limited
Squeakidin Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Forsyth Barr Custodians Limited
HSBC Custody Nominees (Australia) Limited
Custodial Services Limited
P.R. Taylor
BNP Paribas Nominees Pty Ltd
W.K. & C.A. Butler
Vanward Investments Limited
S. Mead
FNZ Custodians Limited
K.G. Stock
D.R. Sim & Franklin Trustee Services Ltd
Forsyth Barr Custodians Limited
Total
Total remaining holders balance
Shareholding by range of shares as at 31 August 2017
Ordinary Shares
% of Shares
148,330,600
46,078,839
22,926,350
22,432,857
19,156,926
19,156,926
10,916,458
8,171,286
3,611,918
3,562,694
2,818,801
2,000,000
1,914,966
1,760,000
1,466,180
1,200,000
1,070,800
1,010,000
800,000
761,111
319,146,712
68,291,801
38.28
11.89
5.92
5.79
4.94
4.94
2.82
2.11
0.93
0.92
0.73
0.52
0.49
0.45
0.38
0.31
0.28
0.26
0.21
0.20
82.37
17.63
1 - 1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 - over
Total
Unmarketable parcels
No. of Holders
% of Holders
No. of Shares
519
1,209
839
1,259
113
3,939
0.09
0.98
1.79
9.70
87.43
100.00
346,815
3,796,245
6,943,935
37,595,317
338,756,201
387,438,513
Minimum $500.00 parcel at $1.23 per share
118
407
22,431
No. of Holders
Minimum
parcel size
Units
94 MICHAEL HILL INTERNATIONAL ANALYSIS OF SHAREHOLDING
Substantial holders of 5% or more of fully paid ordinary shares as at 31 August 2017*
Hoglett Hamlett Limited
Mark Simon Hill
Emma Jane Hill
Fisher Funds Management Limited
Notice Date
13 October 2016
13 October 2016
13 October 2016
10 July 2017
Shares
148,330,600
167,487,526
167,487,526
34,564,923
* as disclosed in substantial shareholder notices received by the Company.
Investor Calendar
2017 Dates
18 August 2017
29 September 2017
31 October 2017
Details
Full year results and final dividend announcement
Final dividend payment date
Annual General Meeting
MICHAEL HILL INTERNATIONAL ANALYSIS OF SHAREHOLDING 95
Index
10 Analytical information
44 Auditor’s independence
declaration
49 Cash flow statement
5 Chair review
32 Committee membership
14 Community spirit
3 Company profile
97 Corporate directory
30 Director information
32 Directors’ meetings
23 Directors’ report
23/78 Dividends
13 Exchange rates
21 Executive
management team
45 Financial statements
79 Franking credit account
79 Imputation credit account
90 Independent Auditor’s report
95 Investor calendar
7 Key facts
20 Leadership principles
Inside
cover Mission statement
50 Notes to the financial
statements
24 Operational review
28 Outlook
9 Performance highlights
33 Remuneration report
25 Review of 2016-17 priorities
29 Risk management
26/27/59 Segment results
94 Shareholder information
10 Statistics
48 Statement of
changes in equity
46 Statement of
comprehensive income
47 Statement of
financial position
95 Substantial security holders
19 Sustainability
12 Trend statement
21 Values
96
Corporate directory
DI R ECTORS
E.J. Hill BCom, MBA (Chair)
Sir Richard Michael Hill KNZM
G.W. Smith BComm, FCA, FAICD
R.I. Fyfe
J.S. Allis
COM PANY SECR ETARY
Mary-Anne Greaves
LLM, LLB, FCIS, FGIA
PR I NCI PAL R EG ISTE R E D
OFFICE I N AUSTRALIA
Metroplex on Gateway
7 Smallwood Place
Murarrie, QLD 4172
GPO Box 2922
Brisbane, QLD 4001
Telephone +61 7 3114 3500
Fax +61 7 3399 0222
SHAR E R EG ISTRAR
Computershare Investor
Services Pty Ltd
117 Victoria Street
West End Qld 4101
1300 850 505
(within Australia)
+61 3 9415 4000
(outside Australia)
AU DITOR
Ernst & Young
Level 51 One One One
111 Eagle Street
Brisbane, QLD 4000
SOLICITOR
HopgoodGanim Lawyers
Level 8 Waterfront Place
Brisbane Qld 4000
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
michaelhill.com.au
emmaandroe.com.au
investor.michaelhill.com
E MAI L
inquiry@michaelhill.com.au
MICHAEL HILL INTERNATIONAL 2017 FINANCIAL STATEMENTS c