ANNUAL REPORT 2020
in
these
risks, uncertainties and other
DISCLAIMER: Certain statements in this report
constitute
forward-looking statements. Forward-
looking statements are statements (other than
statements of historical fact) relating to future
events and the anticipated or planned financial and
operational performance of Michael Hill International
Limited and its related bodies corporate (the Group).
The words “targets,” “believes,” “expects,” “aims,”
“intends,” “plans,” “seeks,” “will,” “may,” “might,”
“anticipates,” “would,” “could,” “should,” “continues,”
“estimates” or similar expressions or the negatives
thereof, identify certain of these forward-looking
statements. Other forward-looking statements can
be identified in the context in which the statements
include,
are made. Forward-looking statements
among other things, statements addressing matters
such as the Group’s future results of operations;
financial condition; working capital, cash flows and
capital expenditures; and business strategy, plans and
objectives for future operations and events, including
those relating to ongoing operational and strategic
reviews, expansion into new markets, future product
launches, points of sale and production facilities.
Although the Group believes that the expectations
reflected
forward-looking statements
are reasonable, such forward-looking statements
involve known and unknown risks, uncertainties
and other important factors that could cause the
Group’s actual results, performance, operations or
achievements or industry results, to differ materially
from any future results, performance, operations or
achievements expressed or implied by such forward-
looking statements.
Such
important
factors include, among others: global and local
economic conditions; changes in market trends
and end-consumer preferences; fluctuations in the
prices of raw materials, currency exchange rates,
and interest rates; the Group’s plans or objectives for
future operations or products, including the ability to
introduce new jewellery and non-jewellery products;
the ability to expand in existing and new markets and
risks associated with doing business globally and,
in particular, in emerging markets; competition from
local, national and international companies in the
markets in which the Group operates; the protection
and strengthening of the Group’s intellectual property
rights, including patents and trademarks; the future
adequacy of the Group’s current warehousing, logistics
and information technology operations; changes in
laws and regulations or any interpretation thereof,
applicable to the Group’s business; increases to the
Group’s effective tax rate or other harm to the Group’s
business as a result of governmental review of the
Group’s transfer pricing policies, conflicting taxation
claims or changes in tax laws; and other factors
referenced to in this presentation.
Should one or more of these risks or uncertainties
materialise, or should any underlying assumptions
prove to be incorrect, the Company’s actual financial
condition, cash flows or results of operations
could differ materially from that described herein
as anticipated, believed, estimated or expected.
Accordingly, you are cautioned not to place undue
reliance on any
forward-looking statements,
particularly in light of the current economic climate
and the significant volatility, uncertainty and disruption
caused by the COVID-19 pandemic.
The Group does not intend, and do not assume any
obligation, to update any forward-looking statements
contained herein, except as may be required by law.
All subsequent written and oral forward-looking
statements attributable to us or to persons acting
on the Group’s behalf are expressly qualified in their
entirety by the cautionary statements referred to
above and contained elsewhere in this announcement.
TERMINOLOGY: In this report, unless otherwise
specified or appropriate in the context, the term
"Company" refers to Michael Hill
International
Limited, and the terms "Group" or "Michael Hill" refer
to the Company and its subsidiaries (as appropriate).
b
The Directors are pleased to present the
annual report of Michael Hill International
Limited and its subsidiaries for the year
ended 28 June 2020
What’s inside
3
5
COMPANY PROFILE
An introduction to the
Company and our vision
CHAIR & CEO REVIEW
Emma Hill & Daniel Bracken
review the Group’s overall
performance for the year
11 KEY FACTS
Key results and data for
the year
14 TREND STATEMENT
37 REMUNERATION REPORT
A table of our historical
performance over the past
five years
17 SUSTAINABILITY
22 OUR EXECUTIVE TEAM
25 DIRECTORS' REPORT
A review of the year’s
operations and the plans and
priorities for the future
Remuneration of Directors and
key executives
46 AUDITOR’S DECLARATION
47 FINANCIAL STATEMENTS
98 AUDITOR’S REPORT
102 ADDITIONAL INFORMATION
104 CORPORATE DIRECTORY
FRONT COVER: MODEL WEARS
EVERMORE BRIDAL SET
OPPOSITE PAGE: MODEL WEARS
EVERMORE ENGAGEMENT RING
1
Our vision:
to be the most
loved jewellery
destination
2
Company profile
Michael Hill is an international
multi-channel retail jewellery chain
with a vision to be the most loved
jewellery destination by creating
fine jewellery accessible to all.
As of 28 June 2020, it operates
290 stores and digital platforms
across Australia, New Zealand
and Canada.
The first Michael Hill store opened in 1979 when Sir
Michael Hill and his wife, Lady Christine Hill, 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, Michael Hill rapidly gained
popularity and rose to national prominence.
Successful listing on the New Zealand Stock
Exchange in 1987 saw the Group expand across the
Tasman to Australia. After 15 years of sustained growth
in both countries, Michael Hill embraced the opportunity
to expand to North America in 2002, opening its first
stores in Vancouver, Canada. The Group's Canadian retail
presence continues to evolve as does its innovative online
presence in all markets in which it operates.
In 2016 Michael Hill moved its primary stock
exchange to the Australian Securities Exchange and
continues to maintain a secondary listing on the New
Zealand Stock Exchange (ASX/NZX: MHJ).
As of 28 June 2020, the Group proudly operates
155 stores in Australia, 49 in New Zealand and 86
stores in Canada. Around the world, the Group employs
approximately 2,300 permanent employees across retail
sales, manufacturing and administration roles.
From 1979 until now and into the future, one constant
underpins all that we do: we’re for love. Michael Hill
remains committed to creating quality jewellery for our
customers to cherish for a lifetime.
Information on our corporate governance policies
and practices, including our Corporate Governance
Statement, is available on our Investor Relations Centre
website at investor.michaelhill.com
THIS PAGE AND OPPOSITE PAGE: JEWELLERY
FROM OUR MARK HILL COLLECTION
3
We started the year celebrating our
40th birthday and our journey from
a traditional retailer to a modern,
differentiated omni-channel
jewellery brand...
4
Dear Shareholders,
VALUES, CULTURE, DIVERSITY AND INCLUSION
Strong, values-led leadership in times of uncertainty is
paramount. I am proud of the determination, resilience
and agility our leadership team demonstrated throughout
the year. Our values; We care, We create outstanding
experiences, We are professional, and We are inclusive
and diverse were reflected and entrenched in the
approach taken by the leadership team when dealing
with the crisis. These attributes and values are engrained
in all levels of our business. As we navigate the rapidly
changing environment, our commitment to creating a
diverse and inclusive organisation will strengthen our
company. We are striving to create a culture where every
team member can thrive and feel valued, so they can
bring their whole self to work. This year we established
the diversity and inclusion council with stakeholders
from all levels and geographies of the business meeting
monthly to identify barriers to inclusion and opportunity
for improvement. While there is much more to do, we are
proud of our female representation at 85% throughout
the company. The majority of our customers are women,
likewise women form the majority of our team. 40% of
board, 50% of the executive and 52% of senior leadership
are female. Recognising diversity is not just about gender,
we will increasingly seek to reflect the communities we
serve across all attributes of diversity.
As highlighted last year, given culture has always
been important to us, we were very disappointed to
discover the misapplication in Australia of the General
Retail Industry Award. The company has largely
remediated existing team member payments. However,
during the COVID-19 closure period, the remediation
program for former teams was paused, noting that
interest will be paid on all amounts owing until this
program of work is completed.
BUILDING ON OUR
STRONG HERITAGE DURING
UNCERTAIN TIMES
The 2020 financial year has been
extraordinary. We started the year
celebrating our 40th birthday
and our journey from a traditional
retailer to a modern, differentiated
omni-channel jewellery brand. We
shared memories from the early days, the many challenges
overcome, and how the brand’s deep heritage remains
relevant in our business today. On a personal level, I’m very
proud of the company’s evolution, the strength that has
been built, and the direction it is headed in.
This past year has also been extremely challenging
and uncertain. Initially, bushfires, drought and floods
affected our Australian communities. This was followed
by the COVID-19 pandemic, one of the greatest health
threats of a generation, which profoundly impacts the
global economy, and continues to have a devastating
impact on many people’s lives. COVID-19 resulted in an
unprecedented temporary closure of our entire store
network severely impacting our operations, sales and profit.
While the effect of the pandemic on our business
is material, throughout the crisis we are adapting
and embracing learnings to remain strong and well
positioned to support our colleagues, customers and
the communities we serve. Across our network, we have
implemented robust protocols to keep our people and
customers safe. Managed retail entry, health screens,
personal protection, and intensified daily cleaning, along
with staged shifts in our support centre, and working
from home, were quickly mobilised. While conditions
may be unusual, and varied across geographies, we are
functioning smoothly.
As the crisis unfolded we accelerated a range of
digital engagement platforms, such as virtual selling,
enabling our customers to connect with our brand and
sales professionals even when they can’t visit us in
person. Jewellery is a considered purchase; our highly
trained sales professionals helping our customers
has always been central to our business model. The
virtualisation of our one to one selling model is a great
example of our continued quest to meet changing
customer needs. We are emerging from the crisis
a stronger, leaner, more relevant business.
5
We continue to improve the strategic foundations of
the business: this year we successfully embedded the
new retail operating model, launched our new loyalty
program, trialled laboratory-created diamonds, and
implemented a raft of digital developments.
6
OUR BOARD
Michael Hill has an outstanding and highly engaged
board of directors. I would like to personally thank the
directors for their commitment, and wise counsel during
the year. We normally meet monthly, however in the midst
of the crisis the board met up twice weekly to support,
govern and offer guidance to the Executive team.
As a cycle of board renewal, we are pleased to
welcome Jacquie Naylor as a Non-Executive Director.
Jacquie has over thirty years’ experience in retail, fashion,
and eCommerce. Her deep understanding of driving
retail performance, organisational change, and strategy
development will be a valuable and complimentary
addition to the Board.
Janine Allis will step down from the Board at the
2020 Annual General Meeting. Janine’s entrepreneurial
flare and commercial acumen has brought valuable
insights and judgement to Michael Hill. We are thankful
for the contribution and counsel she has provided.
DIVIDENDS
Given the uncertain economic environment, and our
desire to maintain a resilient balance sheet to withstand
stress, the Board has decided to not declare an end of
year dividend and to defer the payment of the interim
dividend. Our goal is to restore a regular pattern of
dividend payments as performance improves and
earnings stabilise.
On behalf of the Board, I would like to thank our
people, customers and shareholders for their ongoing
support, unwavering loyalty, and commitment to Michael
Hill. Furthermore, I would like to make particular mention
of our CEO Daniel Bracken and the Executive team, who
demonstrated outstanding leadership and dedication
throughout these unprecedented times.
Stay safe,
Emma Hill
Chair
CEO’s message
RHYTHM OF THE BUSINESS
GAINING TRACTION
As I reflect on the 2020 financial
year, it was certainly a year of
two halves. Following on from
the positive sales momentum
achieved across FY19, the business
delivered consecutive quarters of
sales growth in all markets to finish
the first half with +6.3% comparative sales. As we entered
the second half, we started to see the benefits from our
disciplined “rhythm of the business” approach coupled
with our strategies gaining traction, as the business shifted
its focus to a balance of both sales and margin.
The business has continued to leverage the brand’s
deep heritage as we celebrated our 40th birthday
in August. The roll-out of various digital capabilities
accelerated our journey of evolving into a modern,
differentiated, omni-channel jewellery brand. I’m proud of
how our teams have embraced and truly cemented the
retail fundamentals into the company culture.
Prior to the COVID-19 store closures at the end of
March, the business was successfully delivering both
sales and margin growth, and was tracking to achieve
increased year-on-year EBIT.
Undoubtedly, the 2020 financial year will always
be remembered for the COVID-19 global pandemic.
The impact of COVID-19 was beyond anything we have
ever experienced. The global economic and health
consequences are having a profound and far reaching
impact. As the pandemic advanced, given selling
jewellery is an intimate close quarter process, we had no
choice but to temporarily close all our stores to keep our
people and customers safe. The closures lasted between
five and thirteen weeks, depending on region and
country. Similar to many speciality retailers our business
was severely impacted, resulting in an estimated revenue
loss of at least $80m for FY20Q4.
From May 2020, our store network progressively
reopened with the establishment of best-in-class health
and safety protocols to protect our people and customers.
I am particularly proud of all our people. Never before
have we asked so much from them. Despite incredible
uncertainly, for themselves and their families, they responded
with resilience, determination and professionalism.
FY20 STRATEGY EXECUTION
Throughout the year, the company has maintained a laser
sharp focus on delivering new initiatives to modernise
Michael Hill. We successfully embedded the new retail
operating model, launched our new loyalty program,
trialled laboratory-created diamonds, along with a raft
of digital developments as we continued to improve the
strategic foundations of the business.
7
The progress we have made during
FY20 across costs, loyalty, digital
and retail fundamentals has Michael
Hill well positioned to navigate both
the opportunities, and the potential
market disruptions ahead.
8
I’m incredibility proud of the strategic
progress we have made during FY20 across
costs, loyalty, digital and retail fundamentals,
which I believe have Michael Hill well
positioned to navigate both the opportunities,
and the potential market disruptions ahead.
OUTLOOK FOR FY21 -
EMPHASIS ON GROWTH AND MARGIN
In FY21, the company will continue to strengthen the retail
fundamentals of the business, focus on providing a true
omni-channel customer experience, and rapidly progress
the key initiatives set out in the Directors’ report, with an
emphasis on growth in sales and margin.
I’m excited that as part of our digital-first initiative,
in August 2020, we launched our new pure play digital
brand – Medley. This offers us a real opportunity
to expand into the high margin demi-fine category,
attracting a new customer demographic in an agile and
capital light manner.
There is no doubt that the economic uncertainty of
the global pandemic will continue to have some impact
on FY21 performance, given the volatility in consumer
confidence, the economic reliance on government
stimulus packages, and the ongoing potential of store
closures. Having said this, the business has started FY21
positively in all markets, with continued gross margin
improvements, as our strategic initiatives steadily gather
momentum. We believe Michael Hill is a resilient business
with best in-class health and safety protocols and is
well positioned for growth and margin opportunities to
strengthen our business, across product, digital and
omni-channel offerings.
After what can only be described as a historic and
challenging year, I would like to personally thank our loyal
customers, our dedicated team members, the Executive
team and Board members for their resilience and
unwavering support.
Daniel Bracken
Chief Executive Officer
UNWAVERING FOCUS ON COSTS
Our continued focus on costs resonated across the
business as the reality of COVID-19 store closures
impacted the entire business. As a direct consequence,
we implemented a number of measures to preserve cash,
negotiated deferred vendor payment terms, tax payment
deferrals and rental abatements. The business cancelled
all discretionary spend, paused most of our planned
capital expenditure and operated with a leaner global
support office.
A number of initiatives had already been delivered
prior to COVID-19, such as a reinvigorated retail structure,
consolidation of our repair network in all countries, and
improved terms with some of our credit providers.
LAUNCH OF OUR LOYALTY PROGRAM –
BRILLIANCE BY MICHAEL HILL
Pleasingly, our long-awaited loyalty program was
soft-launched digitally late last year, and only eight
months later it has already more than 200,000 members.
This gives us the ability to capture customer data for
future engagement. As a result of the successful member
pricing aspect of the program, we are experiencing
higher transaction values and improved gross margins.
DIGITAL EXPLOSION
The Company experienced a surge in sales from our
digital business, resulting in record digital sales of $24.7m
which represented a milestone 5% of total sales, up from
2.8% of total sales in FY19.
As our customers turned to online shopping
channels due to COVID-19 store closures, we launched
several digital initiatives capitalising on the increased
website traffic. These involved an enhanced website
with improved customer experience, checkout process
and navigation functions; direct selling through social
media and digital catalogues; and a number of virtual
applications added into our ecosystem, including a virtual
selling platform, virtual appointments and virtual try ons.
RETAIL FUNDAMENTALS
We have made great progress in how we are organised
and operate our retail business.
During the year, we trialled our new store incentive
scheme. Those trials demonstrated increased
performance across many aspects of our business, most
notably higher margins. I’m pleased to say that the new
scheme has now been rolled across all stores in the
network, and is delivering very strong results.
The new Retail Operating Model is firmly embedded in
the business, and we have significantly ramped up our focus
on in-store execution and visual merchandising standards.
THIS PAGE AND OPPOSITE PAGE:
PENDANTS FROM OUR INFINITAS COLLECTION
9
The surge in the Company’s online
business resulted in record digital
sales of $24.7m for the full year
(up 54.7% on FY19)
1010
Key Facts
Year ended 28 June 2020
au$000 unless stated
TRADING RESULTS
From continuing operations
Group revenue
Gross margin
Earnings before interest and tax*
Underlying trading earnings
before interest and tax*
Net profit before tax
Net profit after tax
Group trading results
Profit for the year
Net cash inflow
from operating activities
2020
2019 % Change
Year ended 28 June 2020
2020
2019
492,060 569,500
298,204 353,032
21,115
14,079
(13.6%)
(15.5%)
(33.3%)
25,686
4,485
3,059
34,608
18,811
16,498
(25.8%)
(76.2%)
(81.5%)
KEY RATIOS
Return on average shareholders’ funds
Gross margin
Interest expense cover (times)
Equity ratio (total equity / total assets)
Gearing Ratio (net debt / total equity)
Working capital ratio
(current assets / trade payables)
Current ratio
(current assets / current liabilities)*
1.9%
60.6%
1.5
30.7%
-0.3%
9.4%
62.0%
8.6
46.6%
23.5%
3.0 : 1
5.0 : 1
1.4 : 1
2.1 : 1
3,059
16,498
(81.5%)
83,699
38,969
114.8%
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
au0.79¢ au4.26¢
au0.79¢ au4.25¢
FINANCIAL POSITION AT YEAR END
Contributed equity
387,769,105 ordinary shares
Total equity
Total assets
Net debt/(cash)
Capital expenditure
10,984
11,016
153,806 176,752
501,618 379,193
24,781
17,353 16,134
(523)
0.3%
(13.0%)
32.3%
(102.1%)
7.6%
DISTRIBUTION TO SHAREHOLDERS
Dividends - including final dividend
Per ordinary share
Times covered by net profit after tax
au1.5¢
0.53
au4.0¢
0.85
SHARE PRICE
30 June
au$0.32 au$0.54
ADJUSTED SAME STORE SALES*
Michael Hill adjusted same store sales*
movement (in local currency)
Australia
New Zealand
Canada
Group same store sales movement
NUMBER OF STORES
Australia
New Zealand
Canada
Michael Hill stores
Emma & Roe stores
Total stores
0.1%
2.4%
2.3%
2.7%
-5.7%
-4.5%
-1.7%
-3.3%
155
49
86
290
167
52
86
305
-
1
290
306
* EBIT, Underlying trading EBIT and Adjusted Same Store Sales are
Non-IFRS information and are unaudited. Please refer to page 31 for
an explanation of Non-IFRS information and a reconciliation of EBIT
and Underlying trading EBIT.
11
0
5
.
0
5
.
0
5
.
0
4
.
.
5
9
6
5
.
5
5
7
5
1
.
1
5
2 5
2
2
5
.
1
.
2
9
4
5
.
1
16
17
18
19 20
16
17
18
19 20
ORDINARY DIVIDEND
AU CENTS PER SHARE /
FINANCIAL YEAR
GROUP REVENUE
DOWN 14%
AU$ MILLIONS /
FINANCIAL YEAR
1212
3
.
7
3
.
5
2
3
7
.
4
2
.
5
5
7
2
.
7
6
.
5
4
6
7
.
9
6
.
0
8
1
2
.
4
1
.
0
3
1
.
0
6
1
1
.
1
1
9
6
.
1
.
4
.
5
0
4
16
17 18 19 20
16
17 18 19 20
16
17
18
19 20
BRANDED
COLLECTIONS
UP 13%
% OF TOTAL SALES /
FINANCIAL YEAR
DIGITAL SALES
UP 55%
AU$ MILLIONS /
FINANCIAL YEAR
EARNINGS BEFORE
INTEREST, TAXATION,
DEPRECIATION AND
AMORTISATION
(EBITDA) UP 72%
AU$ MILLIONS / FINANCIAL YEAR
FY2020 RESULT INCLUDES THE
ADOPTION OF AASB16 LEASES
7
.
7
2
.
5
3
2
.
6
0
2
.
0
8
1
NEW ZEALAND
21%
AUSTRALIA 54%
CANADA 25%
REVENUE BY COUNTRY
FINANCIAL YEAR
NEW ZEALAND
17%
AUSTRALIA 53%
16
17
18
19
.
3
0
-
GEARING RATIO
-0.3%
% / FINANCIAL YEAR
CANADA 30%
STORES BY COUNTRY
FINANCIAL YEAR
Performance
Highlights
KEY FINANCIAL RESULTS
■ Statutory net profit after tax
of $3.1m
■ Statutory earnings before
interest and tax of $14.1m
■ Group operating revenues
of $492.1m
■ Underlying trading earnings
before interest and tax* of
$25.7m
■ Group adjusted same store
sales* $469.3m, up 2.7%
■ Gross margin 60.6%
■ Inventory reduced to $178.7m
■ Equity ratio 30.7%
OPERATIONAL PERFORMANCE
■ Digital sales increased by
54.7% to $24.7m
■ Digital sales represent
5.0% of total sales
■ Branded Collection sales
represented 37.3% of total sales
■ Delivery of cloud enabled ERP
platform in June 2020
■ Decisive cash preservation
and cost management
throughout the year
■ Loyalty program Brilliance by
Michael Hill launched with over
200,000 members to date
■ Stores temporarily closed due
to COVID-19 for a period of
five to thirteen weeks
■ One new store opened and
seventeen underperforming
stores were closed
* EBIT, Underlying trading EBIT and Adjusted
Same Store Sales are Non-IFRS information
and are unaudited. Please refer to page 31
for an explanation of Non-IFRS information
and a reconciliation of EBIT and Underlying
trading EBIT.
13
13
Trend Statement
FINANCIAL PERFORMANCE
FROM CONTINUING OPERATIONS
Group revenue
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
FINANCIAL POSITION
Cash
Inventories
Other current assets
Total current assets
Other non-current assets
Deferred tax assets
Total tangible assets
Right of use asset
Intangible assets
Total assets
Total current liabilities
Non-current borrowings
Lease liabilities
Other long term liabilities
Total liabilities
2020
$000
2019
$000
2018
$000
2017
$000
2016^
$000
492,060
569,500 575,539
551,099
522,214
69,690
55,611
14,079
9,594
4,485
1,426
3,059
83,699
5,817
2020
$000
11,204
178,742
31,007
220,953
57,857
74,468
353,278
123,911
24,429
501,618
159,405
10,681
115,848
61,878
347,812
40,481
19,366
21,115
2,304
18,811
2,313
16,498
38,969
19,365
64,481
18,694
45,787
2,680
43,107
11,342
31,765
54,893
19,371
75,482
17,427
58,055
3,149
54,906
13,768
41,138
39,752
19,264
67,212
16,796
50,416
5,508
44,908
21,384
23,524
47,794
17,490
2019
$000
2018
$000
2017
$000
2016^
$000
7,923
7,220
5,676
8,853
179,503
192,074
203,853
199,961
35,878
29,314
29,052
31,298
223,304
228,608
238,581
240,112
72,742
67,708
72,219
68,022
83,864
62,712
74,450
67,610
363,754
368,849
385,157
382,172
-
-
-
15,439
12,626
8,784
379,193
381,475
393,941
105,130
108,710
32,704
35,213
-
-
95,716
45,034
-
-
5,561
387,733
112,772
40,887
-
64,607
62,627
62,252
55,923
202,441
206,550
203,002
209,582
Net assets
Reserves and retained profits*
Paid up capital
153,806
142,790
11,016
176,752
174,925
190,939
178,151
165,768
10,984
164,659
180,924
174,384
10,266
10,015
3,767
Total shareholder equity
153,806
176,752
174,925
190,939
178,151
Per ordinary share
Basic earnings per share
Diluted earnings per share
Dividends declared per share - Interim
- Final
0.79¢
0.79¢
au1.5¢
-
4.26¢
4.25¢
au2.5¢
au1.5¢
8.20¢
8.19¢
au2.5¢
au2.5¢
10.66¢
10.66¢
au2.5¢
au2.5¢
6.14¢
6.11¢
nz2.5¢
au2.5¢
Net tangible asset backing
$0.33
$0.42
$0.42
$0.47
$0.45
^ Please note that several key measures in the 2015-16 financial year were materially affected by the separate booking of the IR tax
settlement and the income tax consolidation cost base adjustments as a consequence of the ASX listing.
* EBIT and EBITDA are Non-IFRS information and are unaudited. Please refer to page 31 for an explanation of Non-IFRS information
and a reconciliation of EBIT.
14
ANALYTICAL INFORMATION
EBITDA* to sales
EBIT* to sales
Net profit after tax to sales
EBIT* to total assets
Return on average shareholders funds
Return on average total assets
Working capital ratio
Current ratio
EBIT* interest expense cover
Effective tax rate
Gearing
Net borrowings to equity
Equity ratio
Other
Shares issued at year end excl Treasury
Treasury stock at year end
Exchange rate for translating:
New Zealand results
Canadian results
United States results
Number of Michael Hill stores
Australia
New Zealand
Canada
USA
Total number of Michael Hill stores
2020
14.2%
2.9%
0.6%
2.8%
1.9%
0.7%
3.0 : 1
1.4 : 1
1.5
31.8%
2019
7.1%
3.7%
2.9%
5.6%
9.4%
4.3%
5.0 : 1
2.1 : 1
8.6
12.3%
2018
11.2%
8.0%
5.5%
12.0%
17.4%
8.2%
4.6 : 1
2.1 : 1
17.0
26.3%
2017
13.7%
10.5%
7.5%
14.7%
20.9%
10.5%
4.9 : 1
2 .5 : 1
18.3
25.1%
2016^
12.9%
9.7%
4.5%
13.0%
12.9%
6.3%
5.2 : 1
2.1 : 1
8.3
47.6%
-0.3%
30.7%
23.5%
46.6%
27.7%
45.9%
20.6%
48.5%
18.0%
45.9%
387,769,105 387,750,000 387,438,513 387,438,513
14,677
-
-
-
1.04
0.90
-
155
49
86
-
290
1.06
0.95
-
167
52
86
-
305
1.09
0.98
0.78
171
52
83
-
306
1.07
0.97
0.83
166
52
76
9
303
383,138,513
14,677
1.07
0.97
0.83
168
52
67
10
297
^ Please note that several key measures in the 2015-16 financial year were materially affected by the separate booking of the IR tax
settlement and the income tax consolidation cost base adjustments as a consequence of the ASX listing.
* EBIT and EBITDA are Non-IFRS information and are unaudited. Please refer to page 31 for an explanation of Non-IFRS information
and a reconciliation of EBIT.
TOTAL MICHAEL HILL STORES 290
1987 - 2020
15
We care.
We create outstanding experiences.
We are professional.
We are inclusive and diverse.
16
Sustainability
FY20 has fundamentally tested our
notion of sustainability. The incredible
challenges that this year has presented
have been all encompassing. From
the bushfires that devastated so many
Australian communities throughout
late 2019 and into 2020, to the global
COVID-19 pandemic that continues to
dictate many of our daily interactions, we
have all been impacted.
Regardless of size, businesses
across the globe have had their very
ability to survive called into question as
immediate and sweeping events have
impacted their communities, customers,
teams and supply chains. Michael Hill
has been no exception to this, and we
have embraced the agility required to
adapt to these events while remaining
true to the values which serve as the
very foundation of our business.
At Michael Hill, we want each of
our team members to feel they are
a valued part of our family. We want
our customers to have confidence
that their jewellery has been ethically
sourced and produced, and that we
will continue to strive for innovation in
our products and the ways we offer
them. We want our investors to know
that we are willing and able to adapt
to the rising and increasingly complex
challenges facing people, communities
and the planet. Accordingly, our
sustainability strategy is driven by the
three areas identified as most material
by our key stakeholders during a
materiality assessment we conducted
based on the Global Reporting Initiative
Standards for sustainability reporting.
Key stakeholders consulted included:
trade partners, customers, internal
team members (from Board through
to team member), academics and
industry bodies.
ENGAGEMENT RING
FROM OUR SOLITAIRE
BY MICHAEL HILL
COLLECTION
PEOPLE: BUILDING TALENT AND TEAMS
Our people and our teams lie at the
very heart of our brand. With the
challenges that FY20 presented, so
too came valuable opportunities and
lessons in teamwork and responsive-
ness. Our leaders navigated new ways
to maintain team connections and
culture while working remotely and
delivering outcomes in challenging and
constantly changing environments.
Supporting this, our operational teams
were rapidly developing processes and
facilities to allow our teams to feel safe
at work, ranging from the deployment
of respirator masks to vulnerable team
members in the Australian bushfires, to
implementing safe operating protocols
(for both team members and customers)
following the COVID-19 pandemic.
FY20 saw the launch of several new
programs and initiatives to measure and
improve team member experiences,
strengthen internal capabilities, and
attract new talent. Early in the year
we conducted our first Great Place
to Work (GPTW) survey to measure
team member experience across the
key areas of: Trust, Engagement and
Collaboration. Just over half of our
global team responded to the survey
and overall, we scored 71% on the
GPTW measurement scale. We have
developed a clear plan of action to lift
this score to 75% and to increase team
member participation in the survey.
We aim for Michael Hill to provide
exceptional experiences for all and
to be a loved employer. Our People
Promise is ‘Enabling you to realise your
potential’. It’s what sets us apart as an
employer to ensure we attract, develop
and retain the right talent our business
needs to succeed.
For us, being a loved employer
is about making that connection,
it’s about living our values, it’s about
joining brilliance together. The Michael
Hill Leadership Promise is ‘As leaders,
we will create a high-performance,
high-trust culture that is open, honest
and committed to excellence’. We
have commenced embedding our
Leadership Promise, a statement with
corresponding actions that show to
our team members how we commit
Our Team
AS AT 28 JUNE 2020
NZ
AU
CA
TOTAL EMPLOYEES
BY REGION
TOTAL EMPLOYEES
BY GENDER
30–50
<30
>50
TOTAL EMPLOYEES
BY AGE
~90%
EDUCATION, TRAINING
AND PROGRESSION
Employees that received regular performance
and career development review during the year
17
It's our people
who make our
company!
18
to interacting with them, into our culture. Respect,
understanding, development, feedback, informing and
empowering are all key elements of this promise.
In September 2019 we formally launched our
Values, as outlined in the FY19 Annual Report. These
values work cohesively with our People and Leadership
Promises to form a clear framework for further building
the Michael Hill culture.
Our focus this year has been to understand our
employer value proposition touchpoints and to reinforce
and embed our People and Leadership Promises
into our employment lifecycle to further enhance our
team member experience. Additionally, we equipped
our team leaders with a clearly defined process for
reviewing talent and planning succession; a critical step
in building a high performing business for the future.
Pleasingly, FY20 also saw significant progress in the
rectification of the historic underpayment to our retail
workers identified in July 2019. While the discovery of this
underpayment was deeply disappointing, we are proud
of the commitment shown by our leadership team to
remediate this. In early 2020, underpayments to impacted
current team members were made. Our remediation work
to rectify our former team members continues.
Diversity also remained a focal point, with the
establishment of the Michael Hill Diversity and Inclusion
(D&I) Council to support the business to bring the
D&I strategy to life. Council members represent all
geographic and operational areas of the business and
span all levels of seniority. The Council meets monthly
to identify barriers to inclusion and opportunities for
improvement. Additionally, they support the execution of
D&I initiatives throughout the year across all countries.
In terms of gender diversity, at the conclusion of
FY20 85% of our total team mix was female (FY19: 84%).
Women in leadership positions (defined as executive
team, regional and store management, and support
centre senior leadership) was 52% (FY19: 48%). Female
representation on our executive team was 50% (FY19:
50%) and remained steady at 40% of the Michael Hill
Board of Directors (FY19: 40%).
We continue to communicate the availability of a
hotline available for team members to report instances
of discrimination or harassment. This supports the
Whistleblowing Policy endorsed by the Board.
Our health, safety and wellbeing initiatives gained
momentum during the year. We launched our strategy
roadmap to 2023, with a focus on five priorities: Risk
Management, Systems and Compliance, Culture and
Capabilities, Innovation and Enhanced Wellbeing.
The health, safety and wellbeing of our customers
and teams became a critical area of focus during the
COVID-19 pandemic. We were the first major Australian
retailer to take action in terms of closing stores and
while simultaneously increasing our online capabilities,
allowing us to redeploy some of our retail team
members to supporting those new digital initiatives.
As many of our team members across all areas of the
business were stood down, we accessed available
government wage subsidies in all three countries.
Additionally, we rapidly transitioned to flexible working
arrangements as many of our working team members
took on additional family responsibilities such as home
schooling. As our retail business resumed trading, we
took (and continue to take) a consultative response to
restarting stores and transitioning team members back
to our support office, whilst keeping team member and
customer safety as the first priority.
Finally, in terms of safety performance FY20 saw a
Lost Time Injury Frequency Rate (LTIFR) of 3.46 against
a target of 7.01 and industry average rate of 6.0. This was
a very pleasing improvement on our FY19 LTIFR of 7.65,
however, we acknowledge that this improvement may
be partially due to the COVID-19 shutdown period. FY21
will see a continued focus on improving the functionality
and effectiveness of our Safety Management Systems,
reporting processes and analytics.
RINGS FROM OUR
PRELUDE COLLECTION
19
PRODUCT: ETHICAL SOURCING
FY20 saw continued focus on ethical sourcing, a core
and non-negotiable principle of our business. Our
responsible sourcing program is supported by our
Conflict Free Diamonds and Sourcing Policy, as well as
our Code of Business Ethics and Code of Conduct for
Suppliers, a copy of which is available on our Investor
Relations Centre website.
As an international multi-channel jewellery retailer,
we recognise the inherent supply chain risk exposures
that come from operating within the global mining
and extractives industry. Notably, in March 2020, we
launched our online supply chain transparency platform
enabling us to better assess our supply chain for risks of
unacceptable practices. This new platform supports our
analysis of risks within our supply chain such as unethical
sourcing from conflict affected areas, corruption, and
modern slavery, and extends on our existing measures to
ensure responsible sourcing, including sound supplier due
diligence and contractual requirements.
The launch of this platform incorporated sixty-five
of our finished jewellery, component, raw material and
packaging suppliers representing approximately 60% of
company spend. The COVID-19 pandemic has impacted
the broader implementation of the platform, however,
we will continue improving our supply chain risk
management framework as we look to further increase
supply chain transparency through FY21.
The launch of the supply chain platform
complemented additional work performed in
preparation for our first Modern Slavery Statement.
Michael Hill is committed to the ethical use of human
resources in the supply chain and while no instances
of modern slavery have ever been identified in our
business, we continue to strengthen our supply
chain controls. Our first Modern Slavery Statement
will be publicly available in 2021 on the Australian
Government’s Online Register and our Investor Relations
Centre at investor.michaelhill.com
INNOVATION
Product and service innovation is a key element of our
sustainable business model. In August 2019, we became
the first major Australian jeweller to offer a range of
laboratory-created diamonds. Our expansion into this
range, which is available throughout our global operations,
was designed to offer a quality alternative to mined
diamonds with competitive pricing and clear provenance.
In October 2019, we launched our new loyalty
program, Brilliance by Michael Hill, which offers
members access to exclusive promotions, product
education insights, VIP sale events and new range
product previews. Brilliance by Michael Hill provides
another avenue to build meaningful connections with
our customers and ensure our business evolves to
meet their needs. As at 28 June 2020, there were
144,086 members of the Brilliance family. Since then,
membership has grown to over 200,000.
Additionally, our Brisbane based manufacturing team
continued to design and manufacture unique Branded
Collections which continue to be popular with our
customers. Our in-house manufacturing capability also
enables the creation of bespoke pieces for our customers.
The evolution of COVID-19 also provided us with
opportunities for innovation in the ways in which we
reach and connect with our customers. We launched
an online virtual direct selling platform, enabling group
or one-on-one product viewing, styling and purchasing.
We launched new digital applications to support
increased customer engagement and developed the
functionality to allow customers to shop directly from
digital online catalogues. These developments enabled
us to continue to serve our customers without an
operational network of physical stores and have proven
fundamental in sustaining
our business through this
challenging period.
20
This year also saw us introduce product packaging
made primarily from recycled materials. Additionally, our
gift bags are now recyclable. Our manufacturing centre
continued their processes to recover and recycle scrap
gold and lemel generated from their manufacture and
repair operations, while our corporate offices made use
of waste separation facilities to maximise recycling and
diversion from landfill.
We have not identified any non-compliance with
environmental laws and regulations in any of our operations.
THE FUTURE OF SUSTAINABILITY AT MICHAEL HILL
We remain in the early stages of our sustainability journey.
FY20 has seen an increased focus on sustainability at a
Board level, the development of a broad sustainability
strategy and a concerted effort from our entire team
to align our operations with this strategy. These efforts
were validated in March 2020, when we undertook an
interim audit of our Responsible Jewellery Council Code
of Practices (RJC COP) certification. The RJC COP covers
Human Rights, Labour Rights, Health and Safety, Product
Integrity and many other key topics and is aligned with
the OECD Due Diligence Guidance and the UN Guiding
Principles of Business and Human Rights. Through the
implementation of the RJC COP, Michael Hill contributes
towards the United Nations 2030 agenda and the 17
Sustainable Development Goals. The interim audit saw all
previously identified non conformances closed out, with
no additional non-conformances identified. Accordingly,
Michael Hill International has retained its RJC certification,
with our next comprehensive audit due in 2022.
This year has seen us gain momentum in
demonstrating our commitment to sustainability and
providing a benchmark for future performance, however
we recognise that there are opportunities for improvement.
Our immediate challenge is to embed and ingrain our sus-
tainability values more deeply into the way we do business.
This will be our focus over the coming year.
PLANET: SUPPORTING THE PLANET AND THE
COMMUNITIES IN WHICH WE OPERATE
With the challenges that FY20 brought, our business
has made every effort to extend its support to the
communities in which we operate.
At our global conference in September 2019, we
partnered with SolarBuddy to donate over three hundred
solar lights to children living in energy poverty. This
program is designed to enable children to continue their
studies after dusk and improve education outcomes.
In December 2019, we sponsored the World’s
Big Sleep Out event in Brisbane, a global initiative to
raise funds for homeless and displaced people. Our
Group Executive team joined a number of support
centre team members, in sleeping overnight at the
‘Gabba’ (a major sporting stadium) in Brisbane, for the
cause. In total, Michael Hill contributed over $40,000
to Mercy Community Services through sponsorship
and fundraising efforts, making us one of the top three
fundraisers across Australia – achieving second place
in the categories ‘Highest Team Fundraisers’ and
‘Individual Fundraiser’ (our CEO Daniel Bracken). By
sponsoring the event, Michael Hill made a significant
contribution to addressing the issue of homelessness in
our local community, with all fundraising going towards
food and accommodation for vulnerable individuals and
families in need.
The Australian bushfires in the summer of 2019
saw eleven stores close at various times, and many of
our team members needing to evacuate their homes.
Michael Hill contributed $100,000 to the Australian
Red Cross Disaster Relief and Recovery Fund, helping
support Australians affected by the bushfires to rebuild
and recover. Additionally, several individual stores
donated funds to their local community organisations
and many individual team members made voluntary
donations to the NSW Rural Fire Service and The
Australian Koala Foundation through our payroll system,
in support of the courageous work and much-needed
environmental recovery efforts of those organisations.
This year our proud partnership with the Michael
Hill International Violin Competition continued,
celebrating and supporting New Zealand’s cultural
offerings and showcasing the artistic talents of the
world’s finest young violinists.
During the COVID-19 pandemic, we were the first
major Australian retailer to take action in terms of
closing stores and standing down teams, simultaneously
increasing our online capabilities to continue to support
our vendors. We also focused efforts on supporting
local industry, purchasing all hand sanitiser needed
to stock Australian and New Zealand stores from the
Brisbane Distillery.
21
Our Executive Team
Daniel Bracken
Chief Executive Officer
Daniel has more than 25
years experience managing
some of the world’s most
iconic brands. He has an
extensive background in
retailing, fashion, and brand
development in Australia and
international markets, as a
Chief Executive Officer and
in senior executive positions
across strategy, marketing,
merchandise, product design
and digital and customer
engagement strategies.
Prior to joining Michael
Hill as CEO in November 2018,
Daniel was CEO at Specialty
Fashion Group and previously
held positions as the Group
Vice President, Strategy for
Burberry London, as Deputy
CEO and Chief Merchandise &
Customer Officer of Myer, and
as CEO of The Apparel Group.
During his time at
Speciality Fashion Group,
Daniel led the company’s
corporate restructure and the
successful divestment of a
number of brands, returning
the company to profitability.
At Myer, he oversaw
merchandise buying, design,
sourcing, and manufacturing,
and led the Myer brand and
customer experience strategy.
During his tenure, the Apparel
Group owned leading fashion
brands Sportscraft, Saba,
Willow, and JAG.
His international
experience includes more
than 15 years at Burberry
London in the United
Kingdom, where he was a key
member of the leadership
team involved in their
turnaround into an iconic
global brand. He performed
a range of roles at Burberry
including Vice President –
Strategy (Group), Head of
Merchandising & Production
(Ready to Wear), and
Commercial & Operations
Director (Menswear).
Andrew Lowe
Chief Financial Officer
and Company Secretary
Andrew joined Michael Hill
in December 2017 as Chief
Financial Officer, and later
assumed the role of Company
Secretary. He holds a Bachelor of
Commerce, a Bachelor of Laws
(Hons) and a Masters of Applied
Finance, and is a qualified
Chartered Accountant and a
Chartered Taxation Adviser of
the Taxation Institute of Australia.
Andrew has extensive
experience in finance and
leadership roles across a range
of listed corporate groups
with Australian and offshore
operations. This includes as Head
of Tax, Shared Services and
Finance Partnering at Australia’s
largest rail-based freight operator
and ASX100 firm, Aurizon.
Previously, he was Deputy CFO
and Head of Tax at Cleanaway
Waste Management, and spent
a decade with global mining
company, Anglo American.
22
FROM LEFT:
MATT KEAYS, VANESSA BRENNAN,
DANIEL BRACKEN, ANDREW LOWE,
ANDREA SLINGSBY,
JOANNE MATTHEWS
Andrea Slingsby
Chief Operating Officer
Vanessa Brennan
Chief Brand & Strategy Officer
Matt Keays
Chief Information Officer
Joanne Matthews
Chief People Officer
Vanessa joined Michael Hill
in January 2018 in the newly
created position of Chief Brand
& Customer Officer, to lead the
commercial growth strategy for
the business across customer,
product, brand marketing
and eCommerce. She is a
recognised leader in strategic
brand, customer and digital
strategy, and is renowned as
a transformative specialist in
building brands with expertise
covering the end-to-end
spectrum of customer, brand
and marketing communications.
Vanessa has more than
20 years’ experience gained in
Australia, Europe, Latin America
and Asia, where she has been
a key advisor to a number of
global and domestic commercial
and government organisations,
including as a Partner at PWC
and Managing Director of
Clemenger BBDO.
Andrea has more than 25
years corporate experience
working in high-growth service
sectors, and has held various
Board, Managing Director,
Chief Executive Officer, senior
management and corporate
advisory roles for a broad range
of Australian private and public
companies. She has outstanding
Australian and international
experience, and is an Alumni of
Harvard Business School.
Prior to joining Michael Hill
in 2019, Andrea held a number
of senior roles across 14 years
working for Flight Centre,
including President & CEO
for North America. She also
worked as a corporate advisor
to Michael Hill in late 2018 on
the company’s HR strategy
and operational execution,
prior to her appointment to
the company’s Executive
Management Team.
Andrea’s background
working for many fast-growing
companies, as well as her
unique experience in business
model improvement and
operational excellence, is
fundamental to Michael Hill
as it realises its strategy to
be a globally relevant and
modern retailer in the premium
jewellery category.
Joanne joined Michael Hill in
January 2019 with extensive
experience in change leadership,
and talent management and
development. This experience
was gained across 14 years in
senior human resource leadership
roles, including as Divisional
Human Resources Manager
(Leisure) for Super Retail Group.
Joanne has also worked as
the Executive General Manager,
Human Resources for MAX
Solutions Pty Ltd, a national
organisation that delivers health,
training and humanitarian
solutions for Federal and State
Governments, and prior to this
she worked in retail operations
with Woolworths.
With a workforce of more
than 3000 people in nearly 300
stores across Australia, New
Zealand and Canada, Joanne’s
experience will help to support
the company’s core priority of
attracting, developing, rewarding
and retaining top quality people
at Michael Hill.
Joanne holds a MBA and
Bachelor of Business in Human
Resources and Marketing.
Matt joined Michael Hill in
June 2015, bringing with
him extensive international
IT experience in the retail
space. Prior to joining the
company, Matt led the global
IT strategy for Forever New
as their General Manager
Information Technology, and
prior to that worked as Chief
Information Officer for Super
Amart where his final project
was successfully leading a
full-scale disaster recovery
process after the Queensland
floods in 2011. He also worked
for leading national footwear
and apparel company,
Colorado Group after enjoying
his long retail apprenticeship
with 11 years at Country Road,
where he worked initially as
a Finance Accountant, and
also gained solid shop floor
experience during his tenure.
Matt has strong technical
skills and a track record of
developing an effective team
focused on business alignment.
Matt’s career has seen him lead
significant technology and in-
frastructure programs, covering
Microsoft Dynamics, Infor,
Oracle and JDE. He has helped
all retail businesses implement
and embrace data warehousing
with his first Microsoft based
implementation as far back as
2004. The Michael Hill advanced
data warehouse went live in
2016 and his team continually
evolve our data platforms to
align with the strategic shifts
across the business.
RINGS FROM THE FENIX CREATED DIAMONDS
FOR MICHAEL HILL COLLECTION
23
Adjusted same store sales* were up
2.7% for the full year to $469.3m, as the
Company focused on enhancing the
retail fundamentals and implemented
the new retail operating model.
Directors' Report
5,817 9,679
$469.3m (FY19: $457.1m).
The Directors present 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 28 June 2020.
Principal activities
The Group operates predominately in the retail sale of
jewellery and related services sector in Australia, New
Zealand and Canada.
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:
2020
$000
2019
$000
Final ordinary dividend for the year
ended 30 June 2019 of au1.5¢
(2019: au2.5 cents) per fully paid
share paid on 27 September 2019
(2019: 28 September 2018)
Interim ordinary dividend for the year
ended 28 June 2020 of au1.5¢
(2019: au2.5¢) per fully paid share
deferred for payment
(2019: 29 March 2019)^
No final dividend has been declared
by the Directors for the year ended
28 June 2020 (2019: au1.5¢).
5,816 9,686
- 5,816
^ Interim dividend for the year ended 28 June 2020 of
au1.5¢ was declared. Subsequent to the shares trading
ex-dividend, but prior to payment date, the interim
dividend payment was deferred to 30 September 2021.
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 Review and Outlook
sections of this report.
Review of operations
In Australian dollars, the Group has reported operating
revenue of $492.1m (2019: $569.5m) for the 2020 financial
year, producing a net profit after tax (NPAT) of $3.1m
(2019: $16.5m). The Group reported an earnings before
interest and tax (EBIT) of $14.1m (2019: $21.1m) for the
2020 financial year. Underlying EBIT adjusted for non-cash
items and AASB 16 Leases (Underlying Trading EBIT)* for
the Group was $25.7m (2019: $34.6m) for the year.
OPERATIONAL REVIEW
The Group achieved the following key outcomes for the
2020 financial year:
Key Financial Results
• Statutory net profit after tax of $3.1m (FY19: $16.5m),
noting new AASB 16 Leases applies for FY20 only.
• Earnings before interest and tax (EBIT)* of $14.1m
(FY19: $21.1m).
• Underlying trading EBIT* adjusted for non-cash items
and AASB 16 Leases of $25.7m (FY19: $34.6m).
• Group operating revenues of $492.1m (FY19: $569.5m),
largely attributable to COVID-19 store closures.
• Group adjusted same store sales* were up 2.7% at
• Group gross margin 60.6% (FY19: 62.0%),
predominantly impacted by foreign exchange.
• Controlled inventory management, resulting in stock
holdings of $178.7m (FY19: $179.5m).
• Strong working capital management.
• No final dividend declared. Interim dividend payment
of au1.5¢ per share deferred to 30 September 2021.
Operational Performance
• Digital sales increased by 54.7% to a record $24.7m
(FY19: $16.0m), representing 5.0% of total sales
(FY19: 2.8%).
• Branded collection sales represented 37.3% of total
sales for the full year (FY19: 32.5%).
• Delivery of cloud enabled ERP platform in June 2020,
to optimise inventory allocation and store profiling.
• Decisive cash preservation and cost management
throughout the year.
• Loyalty program Brilliance by Michael Hill launched
online and in-store during the year, with over 200,000
members to date.
• Stores were temporarily closed due to COVID-19 for a
period of five to thirteen weeks, opening progressively
in accordance with Government health guidelines.
• One new store opened and seventeen under-performing
stores were closed during the year, giving a network
total of 290 stores across all markets (FY19: 306).
* EBIT, Underlying trading EBIT and Adjusted Same Store
Sales are Non-IFRS information and are unaudited. Please
refer to page 31 for an explanation of Non-IFRS information
and a reconciliation of EBIT and Underlying EBIT.
MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT 25
The Group reported statutory earnings before interest
and tax (EBIT) of $14.1m for the year ended 28 June 2020
(FY19: $21.1m). Underlying EBIT adjusted for non-cash
items and AASB 16 Leases for the year decreased to
$25.7m (FY19: $34.6m).
Prior to COVID-19, the Company had been gaining
positive momentum with increasing same store sales
growth and margin improvement. Adjusted same store
sales* were up 2.7% for the full year to $469.3m (FY19:
$457.1m), as the Company focused on enhancing the
retail fundamentals and implemented the new retail
operating model. This was particularly evident in the first
half, when same store sales returned to positive growth
with an increase of 6.3%.
The second half erosion of EBIT was a result of the
temporary closure of all stores for a period between five
to thirteen weeks, due to the COVID-19 pandemic. The
Company reduced the financial impact by implementing a
lean operating model, ceasing all discretionary spend, and
seeking rent abatements from landlords. In addition, wage
subsidies were received in each market which partially
offset the employee benefits paid out during this period.
The surge in the Company’s online business resulted
in record digital sales of $24.7m for the full year (up
54.7% on FY19). The online business delivered some
of the highest weeks in the Company’s history during
the COVID-19 period as customers embraced online
purchasing whilst stores were closed. Digital sales
now represent 5.0% of total sales. During the year, the
Company accelerated the delivery of a number of digital
first initiatives including enhanced website and user
experience, direct selling from social media platforms
and digital catalogues, virtual selling, along with the
successful launch of our loyalty program (Brilliance
by Michael Hill) which has now reached over 200,000
members globally.
A continued focus on re-imagining our Branded
Collections saw them represent 37.3% of total product
sales for the year (FY19: 32.5%). A key milestone was
reached with the delivery and go-live of the cloud
enabled ERP platform. This platform will optimise
inventory management, enhance store profiling and
stock allocation, and facilitate multiple initiatives to
deliver a true omni-channel customer experience.
During the second half of the year (COVID-19
lockdown period), the Company took decisive action
to preserve cash, reduce expenditure, and actively
monitor inventory. Cash management initiatives included
the cancellation or deferral of capital expenditure,
renegotiation of vendor payment terms, engaging with
landlords to obtain rental assistance packages including
deferrals, and a reduction in the cost of doing business
through leaner labour models.
Furthermore, during the COVID-19 temporary store
closure period, the Company worked closely with its
long standing lending partner ANZ. Given a nil net
debt position at year end, the existing $70m facility
limit is considered appropriate to meet the Company’s
inventory and working capital requirements.
Sales from the Group’s Professional Care Plan (PCP)
declined to $24.0m (FY19: $28.5m) with an amount of
$27.5m (FY19: $32.9m) recognised as revenue for the
full year. At 28 June 2020, a deferred amount of $73.8m
remained on the balance sheet (FY19: $77.8m).
The Company opened one new store and closed
seventeen under-performing stores, resulting in 290
stores at year end.
Segment results
The operational segments below reflect the
performance of the Group's retail operations in each
geographic segment. The segments include trading
activity from our online channels presence and our
Canadian in-house credit function. The segments
exclude revenue and expenses that do not relate directly
to the relevant 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. The results
below are expressed in local currency.
26 MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT
Michael Hill Australia
OPERATING RESULTS (AU $000)
Revenue from continuing operations
Gross margin
Gross margin as a % of revenue
EBIT
As a % of revenue
Number of stores
2020
266,610
161,030
60.4%
27,410
10.3%
155
2019
313,587
194,052
61.9%
32,917
10.5%
168
2018
325,709
206,303
63.3%
48,621
14.9%
171
2017
321,981
201,707
62.6%
51,688
16.1%
166
2016
309,457
194,152
62.7%
49,975
16.1%
168
In Australia, adjusted same store sales* marginally improved by 0.1%, and all stores revenue declined by 15.0% to $266.6m
(FY19: $313.6m) for the year. Gross margin for the year was 60.4% (FY19: 61.9%), largely due to FX impacts on cost of
goods. While the majority of the revenue decline is attributable to the COVID-19 temporary store closure period, a portion
is also due to the closure of thirteen underperforming stores during the year. Due to COVID-19 health restrictions, all
stores in Australia were closed on 24 March 2020 and progressively reopened from May 2020, and as such, stores were
closed for a period of between five and ten weeks.
Thirteen underperforming stores permanently closed during the period, resulting in 155 stores trading at 28 June 2020.
Michael Hill New Zealand
OPERATING RESULTS (NZ $000)
Revenue
Gross margin
Gross margin as a % of revenue
EBIT
As a % of revenue
Number of stores
FX rate for profit translation
2020
106,696
63,641
59.6%
21,067
19.7%
49
1.05
2019
120,064
73,011
60.8%
24,125
20.1%
52
1.06
2018
125,239
77,673
62.0%
27,800
22.2%
52
1.09
2017
121,970
75,204
61.7%
27,836
22.8%
52
1.06
2016
122,903
75,895
61.8%
27,136
22.1%
52
1.09
In New Zealand, adjusted same store sales* increased by 2.4% to NZ$103.9m (FY19: NZ$101.4m) and all store revenue
declined by 11.1% to NZ$106.7m (FY19: NZ$120.1m) for the year. Gross margin for the year was 59.6% (FY19: 60.8%). The
decline in revenue was attributable to the COVID-19 temporary store closure period. The New Zealand Government
mandated store closures from 24 March 2020, with stores reopening on either 16 May 2020 or 23 May 2020. Stores were
closed for a period of eight to nine weeks.
Three underperforming stores permanently closed during the period, resulting in 49 stores trading at 28 June 2020.
Michael Hill Canada
OPERATING RESULTS (CA $000)
Revenue
Gross margin
Gross margin as a % of revenue
EBIT
As a % of revenue
Number of stores
FX rate for profit translation
2020
110,799
63,991
57.8%
(2,412)
(2.2)%
86
0.90
2019
133,146
80,726
60.6%
9,797
7.4%
86
0.95
2018
130,762
81,576
62.4%
14,605
11.2%
83
0.98
2017
112,721
69,078
61.3%
12,386
11.0%
76
1.00
2016
95,423
59,252
62.1%
8,929
9.4%
67
0.97
In Canada, adjusted same store sales* increased by 2.3% to CA$102.8m (FY19: CA$100.5m) and all store revenue
declined by 16.8% to CA$110.8m (FY19: CA$133.1m) for the year. Gross margin declined to 57.8% (FY19: 60.6%), largely
due to FX impacts. The decline in revenue was largely attributable to the COVID-19 temporary store closure period. All
stores in Canada were temporarily closed on 20 March 2020 and progressively reopened across the provinces from
June 2020, and as such stores were closed for a period of between ten and thirteen weeks. One store was opened in
Canada at McArthur Glen, British Columbia.
One underperforming store permanently closed during the period. There were 70 of the 86 stores trading at 28 June 2020.
* Adjusted Same Store Sales is Non-IFRS information and is unaudited. Please refer to Non-IFRS information on page 31
for an explanation of Non-IFRS information.
MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT 27
Our strong retail fundamentals
embedded within a disciplined
framework provide a true
omni-channel customer
experience and maximise
growth opportunities...
28 MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT
Cash, cash flow and
dividends
Net operating cash inflows were $80.9m compared to
$39.0m the previous year. Due to the adoption of AASB
16 Leases, $32.7m was classified as principal portion of
lease payments within cash flow from financing activities
for FY2020, previously rent payments that were reported
in cash flows from operating activities.
Despite the impact to profit over FY2020, $13.2m
related to non-cash impairments (refer to page 31 of
the Directors' Report). Through further disciplined
inventory and working capital management, the Group's
debt levels reduced. The Group remains in a resilient
financial position with $0.5m in net cash (FY19: net debt
of $24.8m) to continue to invest in improvements to its
systems, infrastructure, and capabilities. At balance date,
$13.1m of rental costs were accrued.
Dividends
On 23 March 2020, the Company announced that
its FY20 interim dividend had been deferred until 30
September 2020 and was subject to review again
before that date. Given the impact of COVID-19 and the
uncertain economic environment, in order to protect the
Company's balance sheet and liquidity in the interests
of shareholders, the Board has decided to further
defer payment of the FY20 interim dividend until 30
September 2021. The Board will continue to monitor
economic conditions and the Company's performance
and may revisit and change the date for payment of
the FY20 interim dividend if considered necessary or
desirable in the circumstances. The Board has also
decided not to declare a final dividend for FY20. The
Company’s objective is to restore a regular pattern
of dividend payments as performance improves and
earnings stabilise. Decisions on future dividends will
continue to be made in line with the Company's financial
framework and dividend policy.
Key initiatives for
FY21 - emphasis on
growth and margin
Strong retail fundamentals embedded
within a disciplined framework providing a
robust platform to enable a true omni-channel customer
experience and maximise growth opportunities:
1 OMNI-CHANNEL - leveraging the recent investment
in our new ERP platform, the business will embark on
multiple digital and physical initiatives to meet the
demands of a modern-day customer, including "click
and collect/reserve", "ship from store", as well as "drop
ship" and marketplace opportunities.
2 DIGITAL FIRST - building on the successes of FY20
including positive launches of virtual try-on and
virtual selling, further enhancements will be delivered
across loyalty, new sales platforms and customer
communication channels. August 2020 launch of a
pure play digital brand - medleyjewellery.com.au - an
aspirational and attainable on-trend jewellery offering.
3 RETAIL FUNDAMENTALS - continue to deliver
improved gross profit and sales performance by
embedding multiple initiatives and reinvigorating
the retail store culture and customer experience.
Additionally, an increased focus on space planning to
optimise store productivity and efficiencies.
4 CANADIAN OPPORTUNITIES - maintaining focus
on increased productivity targets while delivering
a new supply chain solution, exploring new growth
channels, and maximising commercial opportunities
of the in-house credit program including a potential
divestment of the credit book.
5 PRODUCT EVOLUTION - undertake range and
assortment rationalisation strategy aligned to
refreshed product newness calendar and higher
inventory turns. A focus on optimising margin through
product mix and continuing to enhance higher margin
product offerings (eg. laboratory-created diamonds)
and branded collections.
6 COST CONSCIOUS CULTURE - embedding an
absolute focus on cost disciplines, inventory and capital
management across all aspects of the Company.
THIS PAGE AND OPPOSITE PAGE: JEWELLERY
FROM OUR EVERLIGHT COLLECTION
MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT 29
Risk management
The Board believe that a strong Corporate Governance framework will underpin the
Group’s growth and success. The Company regularly reviews its risk management
framework and has identified the following at risk areas and mitigating strategies:
RISK
STRATEGIES AND MITIGATION
External factors are not
appropriately recognised or
responded to appropriately
The Group has a crisis management framework and
nominated crisis management team in place. Internal
resources are designated to identify and coordinate
responses to factors affecting the ongoing operations
of the Group. This framework was utilised to manage
events including bushfires and COVID-19 this year.
Disruption to supply chain and
inefficiencies in replenishment
strategies
The Group is exploring and investing in better in-market
strategies as well as revamping its ranging and
increasing emphasis on sourcing and mix of product.
Inadequate business continuity
program and/or disaster
recovery strategies
Risk of a disruptor or new
competition entering our
markets
As part of the COVID-19 pandemic the Group has
executed business continuity plans as well as invested in
increased IT disaster recovery initiatives. Both business
continuity and disaster recovery processes will continue
to evolve to meet the needs of the business. External
consultants continue to be used to help with penetration
testing and to provide other technical assessments.
We are committed to improving and differentiating the
brand from our existing competitors to create a point of
difference and increase market share. This in itself helps
mitigate the risk of other competitors entering our key
markets and taking material market share.
Breach of regulation or law
in one of our jurisdictions in
an increasingly complex legal
compliance environment
The Company invests, via an in-house legal team who
are focused on compliance, in our three markets and by
utilising external legal firms for specialised legal advice
when required.
Inability to adjust to the rapidly
changing consumer segment
and retail environment
The Group continues to have an intense focus on digital
channels and initiatives to meet consumer demand.
Following the completion of our ERP upgrade, planning is
now underway for further omni-channel enhancements.
Environmental regulation
The Group has determined that no particular or significant environmental regulations
apply to it.
THIS PAGE AND OPPOSITE PAGE: JEWELLERY
FROM OUR SOUTHERN STAR COLLECTION
30 MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT
Non-IFRS Financial Information
This report contains certain non-IFRS financial measures of historical financial
performance. Non-IFRS financial measures are financial measures other than those
defined or specified under all relevant accounting standards. The measures therefore
may not be directly comparable with other companies' measures. Many of the measures
used are common practice in the industry in which the Group operates. Non-IFRS
financial information should be considered in addition to, and is not intended to be a
substitute for, or more important than, IFRS measures. The presentation of non-IFRS
measures is in line with Regulatory Guide 230 issued by Australian Securities and
Investments Commission (ASIC) to promote full and clear disclosure for investors and
other users of financial information, and minimise the possibility of those users being
misled by such information.
The measures are used by management and Directors for the purpose of assessing
the financial performance of the Group and individual segments. The Directors also
believe that these non-IFRS measures assist in providing additional meaningful
information on the drivers of the business, performance and trends, as well as the
position of the Group. Non-IFRS financial measures are also used to enhance the
comparability of information between reporting periods by adjusting for non-recurring
or controllable factors which affect IFRS measures, to aid the user in understanding the
Group's performance. Consequently, non-IFRS measures are used by the Directors and
management for performance analysis, planning, reporting and incentive setting. These
measures are not subject to audit.
The non-IFRS measures used in describing the business performance include:
• Adjusted same store sales reflect sales through store and online channels on
a comparable trading day basis
• Earnings before interest, tax, depreciation and amortisation (EBITDA)
• Earnings before interest and tax (EBIT)
• Underlying EBIT and Underlying Trading EBIT
• Significant item
CALCULATION OF UNDERLYING EBIT AND UNDERLYING TRADING EBIT
Underlying EBIT and Underlying Trading EBIT has been calculated as follows:
Statutory EBIT
Add back costs relating to:
Employee restructure costs
Direct, incremental costs relating to COVID-19
Emma & Roe closure costs
CEO transition costs
Remediation of employee benefits
Impairment of aged inventory
Underlying EBIT
Non-cash items included above
in underlying EBIT:
Impairment of stores and fixed assets
Impairment of inventory
Underlying EBIT adjusted for non-cash items
Less: Impact of AASB 16 Leases
Underlying trading EBIT
2020
$000
14,079
2,170
1,755
-
-
-
-
18,004
6,796
6,437
31,237
(5,551)
25,686
2019
$000
21,115
1,987
-
258
758
4,536
5,954
34,608
-
-
34,608
-
34,608
MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT 31
Information on Directors
FROM LEFT:
JANINE ALLIS, GARY SMITH,
EMMA HILL, SIR MICHAEL HILL
AND ROBERT FYFE
This section contains information on the
Directors of Michael Hill International Limited
in office during the financial year and until the
date of this report.
Emma Jane Hill (Chair)
B.COM, M.B.A.
Emma was appointed a Director of the
Company on 9 June 2016.
Emma has over 30 years’ experience with
subsidiaries of the Company commencing on
the shop floor in Whangarei, New Zealand.
She held a number of management positions
in the Australian company before successfully
leading the expansion of the Group into
Canada as Retail General Manager in 2002.
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
OF LISTED ENTITIES
none
FORMER DIRECTORSHIPS IN LAST 3 YEARS
OF LISTED ENTITIES
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
Gary Warwick Smith
K.N.Z.M.
B.COM, F.C.A., F.A.I.C.D.
Sir Michael was appointed a Director of the
Company on 9 June 2016.
Sir Michael is the founder of Michael Hill
Jeweller and was appointed as a Director of
Michael Hill New Zealand Limited on 30 March
1990. He had 23 years of jewellery retailing
experience before establishing Michael Hill in
1979, which then listed on the New Zealand
Stock Exchange in 1987. Sir Michael’s visionary
leadership has been the foundation for the
Company’s successful international expansion.
In 2008 he was recognised as Ernst & Young’s
‘Entrepreneur of the Year’ and in 2011 was
appointed a Knight Companion of the New
Zealand Order of Merit for services to business
and the arts.
Sir Michael was appointed Founder
President of the New Zealand listed entity in
2015 in recognition of his special connection
with Michael Hill for over 35 years.
Sir Michael led the Group as Chairman from
1987 until December 2015.
Gary was appointed a director of the Company
upon incorporation on 24 February 2016.
Gary has had extensive directorship
experience. He is currently Chairman and
member of the Audit and Remuneration
committees of Flight Centre Travel Group
Limited, one of Australia’s largest 100 public
companies which operates in 23 countries and
is one of the world’s largest retail and corporate
travel providers. He is also a director of National
Roads and Motorists Association Limited (the
NRMA), Australia’s largest member-based
organisation with over 2.6 million members
offering a variety of member services and
operating a range of diverse businesses,
where he is also a member of the Audit and
Risk Management committee as well as the
Finance and Investment committee. This follows
an extensive executive career in tourism and
hospitality development and management.
Gary is Fellow of The Institute of Chartered
Accountants and a Fellow of the Australian
Institute of Company Directors.
OTHER CURRENT DIRECTORSHIPS
OF LISTED ENTITIES
none
OTHER CURRENT DIRECTORSHIPS
OF LISTED ENTITIES
Flight Centre Travel Group Limited
FORMER DIRECTORSHIPS IN LAST 3 YEARS
OF LISTED ENTITIES
none
FORMER DIRECTORSHIPS IN LAST 3 YEARS
OF LISTED ENTITIES
none
RESPONSIBILITIES
Non-Executive Director
INTERESTS IN SHARES AND OPTIONS
148,330,600 Ordinary Shares
RESPONSIBILITIES
Non-Executive and Independent Director
Chair Audit and Risk Management Committee
Member People Development and
Remuneration Committee
INTERESTS IN SHARES AND OPTIONS
80,000 Ordinary Shares
32 MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT
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 have translated into
over $2 billion in global sales from inception
and has earned Janine many accolades,
including Telstra Businesswoman of the
Year, Amex Franchisor of the Year and ARA
Retailer of the Year. She was inducted into the
Australian Business Women Hall of Fame as
well as BRW listing Janine in the top 15 people
who have changed the way we do business in
the last 20 years.
OTHER CURRENT DIRECTORSHIPS
OF LISTED ENTITIES
none
FORMER DIRECTORSHIPS IN LAST 3 YEARS
OF LISTED ENTITIES
none
RESPONSIBILITIES
Non-Executive and Independent Director
Member Audit and Risk Management Committee
INTERESTS IN SHARES AND OPTIONS
651,745 Ordinary Shares
Robert Ian Fyfe
B.ENG, F.E.N.Z
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 OF
LISTED ENTITIES
Air Canada
OTHER CURRENT DIRECTORSHIPS
OF LISTED ENTITIES
none
RESPONSIBILITIES
Non-Executive and Independent Director
Chair People Development and Remuneration
Committee
Member Audit and Risk Management Committee
INTERESTS IN SHARES AND OPTIONS
2,693,640 Ordinary Shares
Jacqueline Elizabeth Naylor
Jacqueline was appointed a Director of the
Company on 15 July 2020.
Jacqueline is a highly regarded Australian retail
leader with over thirty years’ executive and board
experience in retail, fashion and eCommerce.
She is currently an independent non-executive
director of Myer and Cambridge Clothing and
was previously a director of PAS Group, Macpac
and the Virgin Australia Melbourne Fashion
Festival. This follows an extensive career as a
retail executive (and later an Executive Director)
at the Just Group, where Jacqueline oversaw
merchandising, marketing and brand strategies
across a portfolio of 800 stores.
OTHER CURRENT DIRECTORSHIPS
OF LISTED ENTITIES
Myer Holdings Limited
FORMER DIRECTORSHIPS IN LAST 3 YEARS
OF LISTED ENTITIES
none
RESPONSIBILITIES
Non-Executive and Independent Director
INTERESTS IN SHARES AND OPTIONS
160,000 Ordinary Shares
PENDANTS AND RING FROM OUR SPIRITS BAY
COLLECTION, DESIGNED BY CHRISTINE HILL
MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT 33
Our purpose:
"We're for love"
in all its forms...
34 MICHAEL HILL INTERNATIONAL LIMITED 2020 FINANCIAL STATEMENTS
CHRISTINE HILL IS THE DESIGN TALENT BEHIND SEVERAL ICONIC
MICHAEL HILL COLLECTIONS, INCLUDING 'KNOTS'
Company secretaries
The Company has appointed two company
secretaries, Andrew Lowe and Emily Bird.
Andrew Lowe, who is also the Chief Financial
Officer of the Group, was appointed to the position
of Company Secretary on 1 March 2019, having
held that position previously (15 December 2017
to 22 January 2018). Andrew holds a Bachelor
of Commerce, a Bachelor of Laws (Hons) and
a Masters of Applied Finance, and is a qualified
Chartered Accountant and a Chartered Taxation
Adviser of the Taxation Institute of Australia.
Andrew has extensive experience in finance and
leadership roles across a range of listed corporate
groups with Australian and offshore operations.
Emily Bird, who is also the General Counsel
of the Group, was appointed to the position of
Company Secretary on 31 July 2020. Emily joined
Michael Hill in September 2019 as Senior Legal
Counsel, and was appointed General Counsel
& Company Secretary in July 2020. She holds a
Bachelor of Laws, Bachelor of Arts (Psychology),
Graduate Diploma in Legal Practice and Graduate
Diploma in Applied Corporate Governance and Risk.
Emily has broad legal experience with in-house
roles at Lactalis Australia (formerly Parmalat
Australia), Virgin Blue (now Virgin Australia) and
a secondment at Tarong Energy (now Stanwell
Corporation), having started her legal career at
top-tier firm Clayton Utz.
Prior to Emily’s appointment, Richard Amos
was Company Secretary from 25 February 2020
to 31 July 2020.
Meetings of Directors
The numbers of meetings of the Company's Board of Directors and of each
Board committee held during the year ended 28 June 2020, and the numbers
of meetings attended by each Director were:
Full meetings
of Directors
E J Hill
Sir R M Hill
G W Smith
R I Fyfe
J S Allis
Meetings Meetings
held*
attended
16
16
16
16
16
16
16
15
16
16
Meetings of committees
Audit and Risk
Management
People Development
and Remuneration
Meetings Meetings
held*
attended
-
-
-
-
4
4
4
4
4
4
Meetings Meetings
held*
attended
5
5
-
-
5
5
5
5
-
-
* Number of meetings held during the time the Director held office or was a
member of the committee during the year.
Committee membership
As at the date of this report, Michael Hill International Limited has an Audit and
Risk Management Committee and a People Development and Remuneration
Committee.
Audit and Risk
Management Committee
Gary Smith c
Janine Allis
Robert Fyfe
c designates chair of the committee.
People Development and
and Remuneration Committee
Robert Fyfe c
Emma Hill
Gary Smith
THIS PAGE AND OPPOSITE PAGE: EARRINGS AND PENDANTS
FROM OUR KNOTS COLLECTION, DESIGNED BY CHRISTINE HILL
MICHAEL HILL INTERNATIONAL LIMITED DIRECTORS' REPORT 35
Our remuneration objectives are
to attract, motivate and retain executive talent;
reward the achievement of strategic objectives;
and alignment to shareholder value creation.
36 MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT
Audited
Remuneration Report
The Directors present the 2020 Michael Hill International
Limited remuneration report, outlining key aspects of our
remuneration policy and framework, and remuneration
awarded during the 2020 financial year. The information
provided in this remuneration report has been audited as
required by section 308(3C) of the Corporations Act 2001.
REMUNERATION OBJECTIVES
The following objectives inform the determination of
remuneration related decisions:
• Attract, motivate and retain executive talent
• Reward the achievement of strategic objectives
• Alignment to shareholder value creation.
Remuneration framework
REMUNERATION POLICY AND LINK TO PERFORMANCE
Our People Development and Remuneration Committee
(the Committee) is a Committee of the Board and is
made up of two independent non-executive Directors
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 the Group's remuneration
principles. The Committee obtains independent
advice every three years on the appropriateness of
remuneration practices of the Group given trends in
comparative companies both locally and internationally,
and the objectives of the Group’s remuneration strategy.
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 senior
executives, including key performance indicators and
performance hurdles
• remuneration levels of executives, and
• non-executive Director fees.
The Committee is responsible for assessing performance
against key performance indicators ('KPIs') and
determining the short-term incentive ('STI') and
long-term incentive ('LTI') to be paid. In the event of
serious misconduct or a material misstatement in the
Company’s financial statements, the Committee can
cancel or defer performance-based remuneration.
The Committee’s objective is to ensure that
remuneration policies and structures are fair and
competitive and aligned with the long-term interests of
the Company. The role of the Committee is set out in more
detail in the Corporate Governance Statement, available
on the Company's Investor Relations Centre website at
investor.michaelhill.com
KEY MANAGEMENT PERSONNEL
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 2020 financial year, it was determined that
the KMPs of Michael Hill International were:
• Chief Executive Officer (CEO) - Daniel Bracken
• Chief Financial Officer (CFO) - Andrew Lowe
• Chief Operating Officer (COO) - Andrea Slingsby
Vanessa Brennan (Chief Brand & Strategy Officer)
became a KMP on 11 August 2020.
BRIDAL SETS FROM OUR
EVERMORE COLLECTION
MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT 37
EXECUTIVE REMUNERATION FRAMEWORK
The executive remuneration structure has three components: Total Fixed Remuneration (TFR), STI and LTI.
Compensation levels are reviewed annually by the Committee through a process that considers individual, segment and
overall performance of the Group. In addition, external consultants provide analysis and advice every three years to ensure
the Directors’ and senior executives’ compensation is competitive in the market place. A senior executive’s compensation is
also reviewed on promotion. Further details in relation to the review process including the most recent review, please refer
to the Services from remuneration consultants section below.
TFR
STI
LTI
Determination
Delivery
TFR is set based on relevant
market relativities, reflecting
responsibilities, performance,
qualifications, experience and
geographic location
Base salary plus any fixed
elements including superan-
nuation and leave entitlements
Strategic intent
TFR will generally be positioned
at the median compared to
relevant market based data.
Expertise and performance in
the role are also considerations
The weighting and potential of STI and LTI for KMP is:
On target performance is
determined as a percentage of
TFR and paid as cash
An issue of share rights is
made to participants of the
scheme, the quantum being a
% of the STI earned
70% is directly aligned to
achieving a Group EBIT target
and other related items. 30%
is based on achievement of
individual performance and
development plans
Alignment of executive
incentives with the long term
performance is achieved by
way of a deferred remuneration
component
Performance incentive is
directed to achieving Board
approved targets, reflective of
market circumstances
LTI is intended to reward
executive KMP for sustainable
long-term growth aligned to
shareholders' interests
Short term incentive
potential value
Long term incentive
potential value
CEO
CFO
COO
70% of TFR
50% of TFR
50% of TFR
Other KMP
50% of TFR
50% of STI earned
30% of STI earned
30% of STI earned
30% of TFR
Remuneration levels are reviewed annually by the Committee through a process that considers individual, segment and
overall performance of the Group.
During the 2019-2020 financial year, the performance linked components of compensation for KMP comprised
approximately 11.1% of total payments to senior executives (FY19: 10.5%).
TEMPORARY SUSPENSION OF STI AND LTI AWARDS FOR SENIOR EXECUTIVES INCLUDING KMP
The Company was significantly impacted by the COVID-19 global pandemic, resulting in the closure of the entire store
network for a period during March to June 2020, and standing down a large portion of our team members during that
time. In response to those market conditions, the STI and LTI incentive programs for all senior executives, including KMP,
were suspended from 1 April 2020 for the financial year. Senior executives including KMPs had already been awarded
an STI payment in relation to the first half of the financial year in February 2020 prior to the COVID-19 related impacts
being experienced by the Company and will receive the resulting LTI award in relation to that first half; however they will
not receive any STI or LTI award for the second half of the financial year. The STI and LTI framework described below is
expected to recommence for the 2021 financial year but this will remain subject to Committee and Board determination.
38 MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT
TEMPORARY REDUCTION OF BASE SALARY FOR
SENIOR EXECUTIVES INCLUDING KMP
In addition to the temporary suspension of STI and LTI
awards described above, each senior executive of the
Company, including KMPs, voluntarily reduced their salaries
by 20% for the period inclusive of April to June 2020.
SHORT-TERM INCENTIVE SCHEME
The short term incentive scheme is detailed in
Performance and Development Plans ('PDPs') that are
agreed at the start of the reporting period. The KPIs are
in the form of a balanced scorecard, where performance
against key deliverables across financial, strategy, business
improvement, customer and people areas are measured.
The scheme is supported by 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. Performance
against KPIs is formally measured on a biannual basis and
informally in regular meetings. The 70% STI component
is paid on an annual basis if the Group financial
performance target and performance hurdle/s are met.
The 30% STI for the individual KPI component is paid
biannually post the performance review. The Committee
review the PDPs of each Senior Executive to determine
achievement, entitlement and eligibility for payment.
The policy and framework cascades from the CEO
to Senior Executives and 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.
LONG-TERM INCENTIVE SCHEME
The Company introduced a deferred compensation
plan ('LTI') involving the grant of share rights to eligible
participants in the 2015-16 financial year. This was
approved by shareholders at the Company’s Annual
General Meeting held on 31 October 2016 and
subsequently on 24 October 2019. Prior to that, options
were issued under the Executive Incentive Plan (made
in accordance with thresholds set in plans approved by
shareholders). The ability to exercise the options and share
rights is conditional on continuing employment with the
Group. No options were issued during the reporting period.
Options previously issued are detailed in this report.
Under the LTI plan, an 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, except for KMPs whose
relevant percentage rate of the STI payment earned is
greater as detailed earlier in this report. 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. No exercise
price is payable upon the exercise of any share right.
Feature
Opportunity/ 30% of respective STI which is issued
Allocation
to the executive (or a different percentage
rate for KMP as detailed earlier in this
report) by way of share rights which are
granted. Each share 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.
RINGS FROM OUR
WHITEFIRE COLLECTION
MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT 39
We remain
committed to
creating quality
jewellery for our
customers to
cherish.
40 MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT
CONSEQUENCES OF PERFORMANCE ON SHAREHOLDER WEALTH
In considering the Group’s performance and benefits for shareholder wealth, the Committee have regard to the following
indices in respect of the current financial year and the previous four financial years.
NPAT
NPAT from continuing operations
EBIT*
EBIT from continuing operations*
Underlying EBIT*
Dividends payments^
Share price at year end (2016: nz$)
Return on shareholders equity
Return on average total assets
2020
$000
3,059
3,059
14,079
14,079
18,004
5,817
$0.32
1.9%
0.7%
2019
$000
16,498
16,498
21,115
21,115
34,608
19,365
$0.54
9.4%
4.3%
2018
$000
1,557
31,765
8,854
45,787
40,106
19,371
$0.97
17.4%
8.2%
2017
$000
29,654
41,138
43,840
58,055
48,117
19,264
$1.11
20.9%
10.5%
2016
$000
16,771
23,524
43,050
50,416
47,058
17,490
$1.14
12.9%
6.3%
* EBIT and Underlying EBIT are Non-IFRS information and are unaudited. Please refer to page 31 for an explanation of
Non-IFRS information and a reconciliation of EBIT and Underlying EBIT.
^ The 2020 dividend payment relates to the FY19 final dividend.
EBIT is considered the primary financial performance target in setting the STI. Profit amounts for 2016 to 2020 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 IFRS as
issued by the International Accounting Standards Board.
The overall level of remuneration takes into consideration the performance of the Group over a number of years.
OTHER BENEFITS
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 MANAGEMENT PERSONNEL
The Company does not provide loans to any KMP or to other senior executives.
SERVICE CONTRACTS
It is the Group's policy that service contracts for KMP are unlimited in term but capable of termination on three months'
notice (six months in the case of the CEO) and that the Group retains the right to terminate the contract immediately,
by making payment equal to three months' pay in lieu of notice (or six months’ in the case of the CEO). KMP are also
entitled to receive on termination of employment their statutory entitlements of accrued annual and long service leave,
together with any superannuation benefits.
The service contracts with all KMP (including the CEO) outline the components of remuneration but does not
prescribe how remuneration levels are modified year to year. The Committee reviews remuneration levels each year to
take into consideration 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 the remuneration policy.
SERVICES FROM REMUNERATION CONSULTANTS
The Committee engaged a remuneration consultant during the 2016 financial year to review the amount and
elements of KMP remuneration and provide recommendations in relation thereto.
During the 2019 financial year, there was an internal review completed and the Committee were satisfied with
the results of this review. The Company did not engage a remuneration consultant during the 2020 financial year.
THIS AND OPPOSITE PAGE: JEWELLERY FROM OUR
WILLOWS COLLECTION, DESIGNED BY CHRISTINE HILL
MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT 41
NON-EXECUTIVE DIRECTORS
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 for the 2019-20 year were $100,419 per annum. Where a Director serves as Chair on the People
Development and Remuneration Committee they are entitled to an additional payment of $20,747 per annum. Where a Director serves
as Chair on the Audit and Risk Committee they are entitled to an additional payment of $31,120 per annum. It is the Company’s policy
to increase directors’ fees annually at the commencement of each financial year of the Company, in accordance with the consumer
price index. 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.
TEMPORARY REDUCTION IN REMUNERATION FOR NON-EXECUTIVE DIRECTORS
In response to the COVID-19 global pandemic market conditions impacting the Company in the 2020 financial year, all non-executive
director fees were reduced by 50% for the period from 1 April 2020 to 30 June 2020.
DIRECTOR AND KMP REMUNERATION
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 are:
Salary &
fees
STI cash
bonus
Short-term
Non-monetary
benefits
(relocation)
Long-term
Post-
employment
Total
Long service
leave
Superannuation
benefits
Termination
benefits
Share-
based
payments
Options
and share
rights
Total
Value of
Proportion
remuneration
options as
performance proportion of
related remuneration
Non-executive Directors
$
$
$
$
$
Emma Jane Hill
2020
2019
Sir Richard Michael Hill
2020
2019
Gary Warwick Smith
2020
2019
Robert Ian Fyfe
2020
2019
Janine Suzanne Allis
2020
2019
Total Director
remuneration
2020
2019
170,849
197,047
97,989
98,523
104,327
117,628
105,545
118,878
78,594
89,799
557,304
621,875
-
-
-
-
-
-
-
-
-
-
-
-
- 170,849
- 197,047
-
-
97,989
98,523
- 104,327
- 117,628
- 105,545
- 118,878
-
-
78,594
89,799
- 557,304
- 621,875
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
9,911
11,175
-
-
7,467
8,533
17,378
19,708
$
$
$
%
%
-
-
-
-
-
-
-
-
-
-
-
-
- 170,849
- 197,047
-
-
97,989
98,523
- 114,238
- 128,803
- 105,545
- 118,878
-
-
86,061
98,332
- 574,682
- 641,583
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
42 MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT
Salary &
fees
STI cash
bonus
Short-term
Non-monetary
benefits
(relocation)
Long-term
Post-
employment
Total
Long service
leave
Superannuation
benefits
Termination
benefits
Share-
based
payments
Options
and share
rights
Total
Value of
Proportion
remuneration
options as
performance proportion of
related remuneration
Non-executive Directors
$
$
$
$
$
$
$
$
$
%
%
Daniel Bracken, CEO
2020
905,142 134,092
- 1,039,234
10,980
25,481
2019
594,726
69,300
19,970 683,996
9,327
15,385
Phil Taylor, CEO
(ceased 21 Sept 2018)
2019
Andrew Lowe, CFO
2020
192,680
58,508
- 251,188
8,830
6,731
429,075
40,021
- 469,096
3,790
25,481
2019
403,807
42,273
- 446,080
8,107
24,355
Andrea Slingsby, COO
2020
456,372
32,681
- 489,053
5,862
25,481
2019
217,708
25,900
- 243,608
3,597
11,538
-
-
-
-
-
-
-
15,324
1,091,019 12.29
1.40
- 708,708
9.78
-
71,794 338,543 17.28 21.21
9,728 508,095
5,067 483,609
7.88
8.74
1.91
1.05
2,688 523,084
6.25
0.51
- 258,743 10.01
-
236,298
37,014
- 273,312
3,637
12,981
-
3,963 293,893 12.59
1.35
174,788
13,372
- 188,160
3,128
12,981
-
8,154 212,423
6.30
3.84
30,160
2,982
-
33,142
445
2,885
44,962
-
-
44,962
625
4,327
1,790,589 206,794
-
1,997,383
20,632
76,443
1,895,129 249,349
19,970 2,164,448
37,696
91,183
2,347,893 206,794
- 2,554,687
20,632
93,821
-
-
-
-
-
-
1,908
38,380
7.77
4.97
2,714
52,628
-
5.16
27,740 2,122,198
9.74
93,600 2,386,927 10.45
1.31
3.92
27,740 2,696,880
93,600 3,028,510
7.67
8.23
1.03
3.09
2019
2,517,004 249,349
19,970 2,786,323
37,696 110,891
ANALYSIS OF BONUSES INCLUDED IN REMUNERATION
Details of the short-term incentive cash bonuses awarded as remuneration to each KMP are detailed below.
KMP
Daniel Bracken
Andrew Lowe
Andrea Slingsby
Target bonus
available
$
438,984
148,460
164,970
Included in
remuneration
$
134,092
40,021
32,681
Amounts
forfeited
$
304,892
108,439
132,289
MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT 43
Vanessa Brennan, CB&CO
(ceased 9 Jan 2019)
2019
Matt Keays, CIO
(ceased 9 Jan 2019)
2019
Galina Hirtzel, GESC
(ceased 6 Aug 2018)
2019
Stewart Silk, GEHR
(ceased 3 Sept 2018)
2019
Total KMP
remuneration
2020
2019
Total Director and
KMP remuneration
2020
Additional statutory information
EQUITY INSTRUMENTS
All options or rights refer to options or rights over ordinary shares of Michael Hill International Limited, which are exercisable
on a one-for-one basis under the Executive Incentive Plan.
OPTIONS AND RIGHTS OVER EQUITY INSTRUMENTS ISSUED AS COMPENSATION
MODIFICATION OF TERMS OF EQUITY-SETTLED SHARE-BASED PAYMENT 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.
UNISSUED SHARES
As at the date of this report, there were 1,400,000 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.
ANALYSIS OF OPTIONS AND RIGHTS OVER EQUITY INSTRUMENTS GRANTED AS COMPENSATION
No options were granted to KMPs as compensation for the financial year.
SHARE RIGHTS
The number of share rights issued to KMP and senior executives during the last financial year was 286,294 share rights.
Of these, share rights issued to KMP are set out below.
KMP
Daniel Bracken
Andrew Lowe
Andrea Slingsby
Number of
share rights issued
110,018
33,463
19,301
Fair value
per share right
$
0.57
0.57
0.57
RECONCILIATION OF OPTIONS AND SHARE RIGHTS HELD BY KMP
No options are held by KMP.
This table below details share rights that were issued, vested and forfeited during the year for each KMP.
Daniel Bracken
Andrew Lowe
Andrea Slingsby
Total
Balance
at start of
the year
Number
-
17,298
-
17,298
Issued
during
the year
Number
110,018
33,463
19,301
162,782
Vested
Forfeited
Balance at
end of year
(unvested)
Number
Number
Number
-
-
-
-
-
-
-
-
110,018
50,761
19,301
180,080
Share rights relating to the current reporting period are anticipated to be granted in late 2020. The number of shares
will depend on the Michael Hill International Limited’s share price over the five days prior to the grant date.
44 MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT
VOTING OF SHAREHOLDERS AT LAST YEAR'S
ANNUAL GENERAL MEETING
The Company received 99.2% of “For” votes on its
remuneration report for the 2019 financial year. The
Company did not receive any specific feedback at the
AGM or throughout the year on its remuneration practices.
INSURANCE OF OFFICERS AND INDEMNITIES
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 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, Company Secretary and certain other officers.
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.
NON-AUDIT SERVICES
The following non-audit services were provided by the
entity's auditor, Ernst & Young Australia. The Directors
are satisfied that the provision of non-audit services is
compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The nature
and scope of each type of non-audit service provided
means that auditor independence was not compromised.
Ernst & Young Australia received or are due to
receive the following amounts for the provision of
non-audit services:
Ernst & Young firm:
Advisory fees
Total remuneration
for non-audit services
2020
$
2019
$
10,050
127,512
10,050
127,512
AUDITOR'S INDEPENDENCE DECLARATION
A copy of the auditor's independence declaration as
required under section 307C of the Corporations Act
2001 is set out on page 46.
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 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 on 18 August 2020 in accordance
with a resolution of Directors as required by section 298 of
the Corporations Act 2001.
E. J. Hill, Chair
Brisbane
18 August 2020
BRIDAL SET FROM OUR
EVERMORE COLLECTION
MICHAEL HILL INTERNATIONAL LIMITED REMUNERATION REPORT 45
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 the financial report of Michael Hill International Limited
for the financial year ended 28 June 2020, 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 2020
THIS PAGE:
BRIDAL SETS FROM OUR
EVERMORE COLLECTION
OPPOSITE PAGE:
MODEL WEARS EARRINGS
FROM OUR MARK HILL
COLLECTION
46
Financial
Statements
ABN 25 610 937 598
The Directors present the
consolidated financial statements
of Michael Hill International Limited
for the year ended 28 June 2020
48 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
49 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
50 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
51 CONSOLIDATED CASH FLOW STATEMENT
52 NOTES TO THE FINANCIAL STATEMENTS
97 DIRECTORS' DECLARATION
98 AUDITOR'S REPORT
102 ASX LISTING – ADDITIONAL INFORMATION
47
Consolidated statement of
comprehensive income
Revenue from contracts with customers
Other income
Cost of goods sold
Employee benefits expense
Occupancy costs
Marketing expenses
Selling expenses
Impairment of property, plant and equipment
Impairment of other assets
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
NOTES
5
6(a)
6(b)
9(b)
6(b)
6(b)
7
2020
$000
492,060
20,574
(193,855)
(149,173)
(14,390)
(28,918)
(18,701)
(6,473)
(1,582)
(55,611)
(499)
(29,349)
(9,598)
4,485
(1,426)
3,059
2019
$000
569,500
1,555
(216,468)
(163,177)
(60,587)
(33,732)
(24,636)
(289)
(1,823)
(19,366)
(619)
(29,083)
(2,464)
18,811
(2,313)
16,498
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Gains/(losses) on cash flow hedges
Currency translation differences arising during the year
11(b)
11(b)
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
434
(1,716)
(1,282)
1,777
(323)
4,911
4,588
21,086
Total comprehensive income for the year is attributable to:
Owners of Michael Hill International Limited
1,777
21,086
Earnings per share for profit attributable to the
ordinary equity holders of the Company:
Basic earnings per share
Diluted earnings per share
21
21
0.79¢
0.79¢
4.26¢
4.25¢
The above consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
48 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Consolidated statement of
financial position
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Right of return assets
Inventories
Current tax receivables
Other current assets
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Intangible assets
Contract assets
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Contract liabilities
Derivative financial instruments
Current tax liabilities
Provisions
Deferred revenue
Lease liabilities
Total current liabilities
Non-current liabilities
Contract liabilities
Borrowings
Provisions
Deferred revenue
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained profits
Total equity
NOTES
2020
$000
2019
$000
8(a)
8(b)
5(b)
5(b)
9(a)
9(e)
8(b)
9(b)
10(a)
9(d)
9(c)
5(b)
8(d)
5(b)
8(f)
9(f)
9(g)
9(h)
10(b)
5(b)
8(e)
9(g)
9(h)
10(b)
11,204
25,006
625
108
178,742
3,165
2,103
220,953
10,727
45,405
123,911
74,468
24,429
1,048
677
280,665
7,923
29,656
701
291
179,503
2,295
2,935
223,304
6,985
63,213
-
67,708
15,439
1,438
1,106
155,889
501,618
379,193
64,472
25,974
34
1,445
24,949
367
42,164
159,405
53,539
10,681
8,339
-
115,848
188,407
44,548
26,054
468
1,367
31,441
1,252
-
105,130
55,813
32,704
6,947
1,847
-
97,311
347,812
202,441
153,806
176,752
11(a)
11(b)
11(b)
11,016
4,420
138,370
153,806
10,984
5,805
159,963
176,752
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 49
Consolidated statement of changes in equity
Attributable to owners of
Michael Hill International Limited
Balance at 1 July 2018
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 share capital on
vesting of share rights
Transfer option reserve to retained
earnings on forfeiture of options
Share rights expense through
share based payments reserve
Balance at 30 June 2019
Adjustment on adoption of
AASB 16 (net of tax)
Restated total equity
at the beginning of the financial year
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/provided
Issue of share capital on
vesting of share rights
Transfer option reserve to retained
earnings on forfeiture of options
Share rights expense through
share based payments reserve
Share rights forfeited
Notes Contributed
equity
$000
10,266
Share
based
payments
reserve
$000
1,369
Foreign
currency
translation
reserve
$000
605
Cash flow
hedge
reserve
Retained
profits
Total
equity
$000
$000
$000
(145) 162,830 174,925
-
-
-
-
-
-
-
-
-
-
-
-
-
11
8(f)
8(f)
14(b)(i)
19(c)
490
(490)
11(a)
228
(228)
19(c)
-
718
95
(612)
-
4,911
-
-
4,911
-
-
(390)
67
16,498
-
-
-
(323) 16,498
16,498
4,911
(390)
67
21,086
-
-
-
-
-
-
-
-
-
-
-
-
(19,365)
(19,365)
-
-
-
11
-
-
-
(19,365)
95
(19,259)
10,984
757
5,516
(468) 159,963 176,752
2(x)
-
-
(43)
-
(13,019)
(13,062)
10,984
757
5,473
(468) 146,944 163,690
-
-
-
-
-
-
-
-
-
-
-
-
8(f)
8(f)
14(b)(i)
11(a)
32
(32)
11(b)
19(c)
11(b)
-
(166)
-
-
32
166
(28)
(60)
-
(1,716)
-
-
(1,716)
-
-
145
289
434
3,059
-
-
-
3,059
3,059
(1,716)
145
289
1,777
-
-
-
-
-
-
-
-
-
-
-
-
(11,633)
(11,633)
-
-
-
(166)
-
-
166
(28)
(11,633) (11,661)
Balance at 28 June 2020
11,016
697
3,757
(34) 138,370 153,806
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
50 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
50 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Consolidated cash flow statement
NOTES
2020
$000
2019
$000
547,258
618,416
Cash flows from operating activities
Receipts from customers (inclusive of GST and sales taxes)
Payments to suppliers and employees
(inclusive of GST and sales taxes)
Interest received
Other revenue
Interest paid
Income tax paid
Net GST and sales taxes paid
Net cash inflow 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 borrowings
Repayment of borrowings
Principal portion of lease payments
Dividends paid to Company's shareholders
Net cash (outflow) from financing activities
12(a)
9(b)
9(c)
14(b)
Net 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
8(a)
(451,577)
95,681
4
13,193
(2,261)
(3,974)
(18,944)
83,699
146
(6,112)
(11,241)
(17,207)
70,500
(92,300)
(35,520)
(5,817)
(63,137)
3,355
7,923
(74)
11,204
(536,855)
81,561
160
1,303
(2,474)
(5,245)
(36,336)
38,969
432
(10,753)
(5,381)
(15,702)
128,800
(132,000)
-
(19,365)
(22,565)
702
7,220
1
7,923
The above consolidated cash flow statement should be read in conjunction with the accompanying notes.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 51
Notes to the financial statements
Note 1 Corporate information
The consolidated financial statements of Michael Hill
International Limited and its subsidiaries (collectively, the
Group) for the year ended 28 June 2020 were authorised
for issue in accordance with a resolution of the Directors
on 18 August 2020. Michael Hill International Limited
(the Company or Parent) is a for profit company limited
by shares incorporated in Australia. The Company is
listed on the Australian Securities Exchange ('ASX') as its
primary listing, and maintains a secondary listing on the
New Zealand Stock Exchange ('NZX').
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.
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.
For the financial year the Group adopted a
weekly 'retail calendar' closing each Sunday. This
resulted in a change in reporting dates with a 52
week period ending on 28 June 2020.
Compliance with IFRS
The consolidated financial statements of the Group
International Financial Reporting
comply with
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.
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
52 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
in the individual financial statements of Michael Hill
International Limited. Refer to Note 15.
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.
(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 presentation currency.
transactions are
(ii) Transactions and balances
Foreign currency
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.
(e) CURRENT VERSUS NON-CURRENT CLASSIFICATION
The Group presents assets and liabilities in the
statement of financial position based on current/
non-current classification.
An asset is current when it is:
• Expected to be realised or intended to be sold or
consumed in the normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realised within twelve months after
the reporting period; or
• Cash or cash equivalent unless restricted from
being exchanged or used to settle a liability for at
least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in the normal operating
cycle;
• It is held primarily for the purpose of trading;
• It is due to be settled within twelve months after
the reporting period; or
• There is no unconditional right to defer the
settlement of the liability for at least twelve months
after the reporting period.
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities.
(f) INTEREST INCOME
Interest income is recognised using the effective
interest method.
(g) 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 inter-
pretation. 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.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 53
Notes to the financial statements cont.
Note 2 Summary of significant
accounting policies continued
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 where
there is a legally enforceable right to offset current
tax assets and liabilities and where the deferred tax
balances relate to the same taxation authority. Current
tax assets and tax liabilities are offset where the entity
has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset
and settle the liability simultaneously.
Tax consolidation group
Michael Hill International Limited and its wholly-owned
Australian controlled entities form a tax consolidation
group. As a consequence, one income tax return is
completed for the Australian tax group and is 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.
(h) 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
(i)
• 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.
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, 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. Right-of-use assets
are also incorporated into the calculation. Subsequent
to an
if the recoverable
amount from assets exceeds the carrying value, the
impairment loss is reversed to the extent that it has
been recognised.
impairment occurring,
The pre-tax discount rates used in determining
the recoverable amount ranged between 9.4% and
12.8%, 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 when utilised.
(k) 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
54 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Note 2 Summary of
significant accounting
policies continued
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. Management
review stock holdings based on recoverability at a
product level and impair as appropriate.
(l) FINANCIAL INSTRUMENTS - INITIAL RECOGNITION
AND SUBSEQUENT MEASUREMENT
A financial instrument is any contract that gives
rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
(i) Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition,
as subsequently measured at amortised cost, fair
value through Other Comprehensive Income (OCI),
and fair value through profit or loss.
The classification of financial assets at initial
recognition depends on the financial asset’s
contractual cash flow characteristics and the
Group’s business model for managing them. With
the exception of trade receivables that do not
contain a significant financing component, the Group
initially measures a financial asset at its fair value
plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs. Trade
receivables that do not contain a significant financing
component are measured at the transaction price
determined under AASB 15. Refer to the accounting
policies in section 5(c).
In order for a financial asset to be classified and
measured at amortised cost or fair value through
OCI, it needs to give rise to cash flows that are
‘Solely Payments of Principal and Interest (SPPI)’ on
the principal amount outstanding. This assessment
is referred to as the SPPI test and is performed at an
instrument level.
The Group’s business model for managing
financial assets refers to how it manages its financial
assets in order to generate cash flows. The business
model determines whether cash flows will result from
collecting contractual cash flows, selling the financial
assets, or both.
Subsequent measurement
Whilst there are four categories, two are relevant in
the current reporting period for the Group, being:
• Financial assets at amortised cost (debt instruments)
• Financial assets at fair value through profit or loss
Financial assets at amortised cost
(debt instruments)
This category is the most relevant to the Group. The
Group measures financial assets at amortised cost if
both of the following conditions are met:
• The financial asset is held within a business model
with the objective to hold financial assets in order
to collect contractual cash flows; and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
Financial assets at amortised cost are subsequently
measured using the Effective Interest Rate (EIR)
method and are subject to impairment. Gains and
losses are recognised in profit or loss when the asset
is derecognised, modified or impaired.
The Group’s financial assets at amortised cost
include trade receivables included under current and
non-current financial assets.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss
include financial assets held for trading, financial
assets designated upon initial recognition at fair value
through profit or loss, or financial assets mandatorily
required to be measured at fair value. Financial
assets are classified as held for trading if they are
acquired for the purpose of selling or repurchasing
in the near term. Derivatives, including separated
embedded derivatives, are also classified as held
for trading unless they are designated as effective
hedging instruments. Financial assets with cash flows
that are not solely payments of principal and interest
are classified and measured at fair value through
profit or loss, irrespective of the business model.
Notwithstanding the criteria for debt instruments
to be classified at amortised cost or at fair value
through OCI, as described above, debt instruments
may be designated at fair value through profit or
loss on initial recognition if doing so eliminates, or
significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or
loss are carried in the statement of financial position
at fair value with net changes in fair value recognised
in the statement of profit or loss.
This category includes derivative instruments
which the Group had not irrevocably elected to
classify at fair value through OCI.
Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily derecognised (i.e. removed from
the Group’s consolidated statement of financial
position) when:
• The rights to receive cash flows from the asset
have expired; or
• The Group has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a ‘pass-
through’ arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of
the asset, or (b) the Group has neither transferred
nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 55
Notes to the financial statements cont.
Note 2 Summary of significant
accounting policies continued
When the Group has transferred its rights to receive
cash flows from an asset or has entered into a
pass-through arrangement, it evaluates if, and to
what extent, it has retained the risks and rewards
of ownership. When it has neither transferred nor
retained substantially all of the risks and rewards
of the asset, nor transferred control of the asset,
the Group continues to recognise the transferred
asset to the extent of its continuing involvement. In
that case, the Group also recognises an associated
liability. The transferred asset and the associated
liability are measured on a basis that reflects the
rights and obligations that the Group has retained.
Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at
the lower of the original carrying amount of the asset
and the maximum amount of consideration that the
Group could be required to repay.
Impairment of financial assets
Further disclosures relating to impairment of financial
assets are also provided in the following notes:
• Changes in accounting policies and disclosures:
Note 2(x)
• Trade receivables including contract assets: Note 8
The Group recognises an allowance for Expected
Credit Losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on
the difference between the contractual cash flows due
in accordance with the contract and all the cash flows
that the Group expects to receive, discounted at an
approximation of the original effective interest rate.
For trade receivables and contract assets, the
Group applies a simplified approach in calculating
ECLs. Therefore, the Group does not track changes
in credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date.
The Group has established a provision matrix that
is based on its historical credit loss experience,
adjusted for forward-looking factors specific to the
debtors and the economic environment.
The Group considers a financial asset in default
when contractual payments are past due. However,
in certain cases, the Group may also consider a
financial asset to be in default when internal or
external information indicates that the Group is
unlikely to receive the outstanding contractual
amounts in full before taking into account any credit
enhancements held by the Group. A financial asset is
written off when there is no reasonable expectation
of recovering the contractual cash flows.
(ii) Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition,
as financial liabilities at fair value through profit or
loss, loans and borrowings, payables, or as derivatives
designated as hedging instruments in an effective
hedge, as appropriate.
All financial liabilities are recognised initially at fair
value and, in the case of loans and borrowings and
payables, net of directly attributable transaction costs.
The Group’s financial liabilities include trade and
other payables, loans and borrowings including bank
overdrafts, and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on
their classification, as described below.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or
loss include financial liabilities held for trading and
financial liabilities designated upon initial recognition
as at fair value through profit or loss.
Financial liabilities are classified as held for
trading if they are incurred for the purpose of
repurchasing in the near term. This category also
includes derivative financial instruments entered into
by the Group that are not designated as hedging
instruments in hedge relationships as defined by
AASB 9. Separated embedded derivatives are
also classified as held for trading unless they are
designated as effective hedging instruments.
Gains or losses on liabilities held for trading are
recognised in the statement of profit or loss.
Financial
liabilities designated upon
initial
recognition at fair value through profit or loss are
designated at the initial date of recognition, and only
if the criteria in AASB 9 are satisfied. The Group has
not designated any financial liability as at fair value
through profit or loss.
Loans and borrowings at amortised cost
This is the category most relevant to the Group.
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised
cost using the Effective Interest Rate (EIR) method.
Gains and losses are recognised in profit or loss
when the liabilities are derecognised as well as
through the EIR amortisation process.
Amortised cost is calculated by taking into
account any discount or premium on acquisition and
fees or costs that are an integral part of the EIR. The
EIR amortisation is included as finance costs in the
statement of profit or loss.
This category generally applies to interest-bear-
ing loans and borrowings. For more information, refer
to Note 8.
Derecognition
A financial liability is derecognised when the obligation
under the liability is discharged or cancelled or
expires. When an existing financial liability is replaced
by another from the same lender on substantially
different terms, or the terms of an existing liability
are substantially modified, such an exchange or
modification is treated as the derecognition of the
original liability and the recognition of a new liability.
The difference in the respective carrying amounts is
recognised in the statement of profit or loss.
56 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
(iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset
and the net amount is reported in the consolidated
statement of financial position if there is a currently
enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
(m) DERIVATIVES AND HEDGING ACTIVITIES
Initial recognition and subsequent measurement
The Group uses derivative financial instruments,
such as forward currency contracts and interest
rate swaps, to hedge its foreign currency risks
and interest rate risks, respectively. Such derivative
financial instruments are initially recognised at fair
value on the date on which a derivative contract is
entered into and are subsequently remeasured at fair
value. Derivatives are carried as financial assets when
the fair value is positive and as financial liabilities
when the fair value is negative.
For the purpose of hedge accounting, hedges
are classified as:
• Fair value hedges when hedging the exposure to
changes in the fair value of a recognised asset or
liability or an unrecognised firm commitment.
• Cash flow hedges when hedging the exposure to
variability in cash flows that is either attributable to
a particular risk associated with a recognised asset
or liability or a highly probable forecast transaction
or the foreign currency risk in an unrecognised firm
commitment.
• Hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group
formally designates and documents the hedge
relationship to which it wishes to apply hedge
accounting and the risk management objective and
strategy for undertaking the hedge.
The documentation includes identification of the
hedging instrument, the hedged item, the nature of
the risk being hedged and how the Group will assess
whether the hedging relationship meets the hedge
effectiveness requirements (including the analysis of
sources of hedge ineffectiveness and how the hedge
ratio is determined). A hedging relationship qualifies
for hedge accounting if it meets all of the following
effectiveness requirements:
• There is ‘an economic relationship’ between the
hedged item and the hedging instrument.
• The effect of credit risk does not ‘dominate the
value changes’ that result from that economic
relationship.
• The hedge ratio of the hedging relationship is
the same as that resulting from the quantity of
the hedged item that the Group actually hedges
and the quantity of the hedging instrument that
the Group actually uses to hedge that quantity of
hedged item.
Hedges that meet all the qualifying criteria for hedge
accounting are accounted for, as described below.
Fair value hedge
The change in the fair value of a hedging instrument
is recognised in the statement of profit or loss
as other expense. The change in the fair value of
the hedged item attributable to the risk hedged is
recorded as part of the carrying value of the hedged
item and is also recognised in the statement of profit
or loss as other expense.
If the hedged item is derecognised, the unamortised
fair value is recognised immediately in profit or loss.
is
When an unrecognised firm commitment
designated as a hedged item, the subsequent cumulative
change in the fair value of the firm commitment
attributable to the hedged risk is recognised as an
asset or liability with a corresponding gain or loss
recognised in profit or loss.
Cash flow hedge
The effective portion of the gain or loss on the
hedging instrument is recognised in OCI in the cash
flow hedge reserve, while any ineffective portion is
recognised immediately in the statement of profit or
loss. The cash flow hedge reserve is adjusted to the
lower of the cumulative gain or loss on the hedging
instrument and the cumulative change in fair value of
the hedged item.
The Group uses forward currency contracts as
hedges of its exposure to foreign currency risk in
forecast transactions and firm commitments, as well
as interest rate swaps for its exposure to volatility
in interest rates. The ineffective portion relating to
foreign currency contracts is recognised as other
expense and the ineffective portion relating to interest
rate swaps is recognised in other operating income or
expenses. Refer to Note 13 for more details.
When forward contracts are used to hedge
forecast transactions, the group designates the
change in fair value of the forward contract related to
the spot component as the hedging instrument. Gains
or losses relating to the effective portion of the change
in the spot component of the forward contracts are
recognised in the cash flow hedge reserve within
equity. The change in the forward element of the
contract that relates to the hedged item (‘aligned
forward element’) is recognised within OCI in the cash
flow hedge reserve within equity. In some cases, the
entity may designate the full change in fair value of
the forward contract (including forward points) as the
hedging instrument. In such cases, the gains or losses
relating to the effective portion of the change in fair
value of the entire forward contract are recognised in
the cash flow hedge reserve within equity.
The amounts accumulated in OCI are accounted
for, depending on the nature of the underlying hedged
transaction. If the hedged transaction subsequently
results in the recognition of a non-financial item,
the amount accumulated in equity is removed from
the separate component of equity and included
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 57
Notes to the financial statements cont.
Note 2 Summary of significant
accounting policies continued
in the initial cost or other carrying amount of the
hedged asset or liability. This is not a reclassification
adjustment and will not be recognised in OCI for the
period. This also applies where the hedged forecast
transaction of a non-financial asset or non-financial
liability subsequently becomes a firm commitment
for which fair value hedge accounting is applied.
For any other cash flow hedges, the amount
accumulated in OCI is reclassified to profit or loss as
a reclassification adjustment in the same period or
periods during which the hedged cash flows affect
profit or loss.
If cash flow hedge accounting is discontinued,
the amount that has been accumulated in OCI must
remain in accumulated OCI if the hedged future
cash flows are still expected to occur. Otherwise,
the amount will be immediately reclassified to profit
or loss as a reclassification adjustment. After dis-
continuation, once the hedged cash flow occurs,
any amount remaining in accumulated OCI must
be accounted for depending on the nature of the
underlying transaction as described above.
(n) PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment is stated at
historical cost less depreciation and impairment.
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 9(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.
(o) LEASES
The Group assesses at contract inception whether
a contract is, or contains, a lease. That is, if the
contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
Group as a lessee
The Group applies a single recognition and measurement
approach for all leases, except for short-term leases
and leases of low-value assets which are recognised in
the profit or loss. The Group recognises lease liabilities
to make lease payments and right-of-use assets
representing the right to use the underlying assets.
(i) Right-of-use assets
The Group recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The
cost of right-of-use assets includes the amount
of lease liabilities recognised, initial direct costs
incurred, and lease payments made at or before
the commencement date less any lease incentives
received. Right-of-use assets are depreciated on a
straight-line basis over the lease term.
The right-of-use assets are also subject to
impairment. Refer to the accounting policies in Note 2(i).
If ownership of the leased asset transfers to
the Group at the end of the lease term or the
cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated useful
life of the asset.
(ii) Lease liabilities
At commencement date of the lease, the Group
recognises lease liabilities measured at the present
value of lease payments to be made over the lease
term. The lease payments include fixed payments
(including in-substance fixed payments) less any
lease incentives receivable, variable lease payments
that depend on an index or a rate, and amounts
expected to be paid under residual value guarantees.
The lease payments also include the exercise price
of a purchase option reasonably certain to be
exercised by the Group and payments of penalties
for terminating the lease, if the lease term reflects the
Group exercising the option to terminate. Variable
lease payments that do not depend on an index
or a rate are recognised as expenses (unless they
are incurred to produce inventories) in the period
in which the event or condition that triggers the
payment occurs.
In calculating the present value of
lease
payments, the Group uses its incremental borrowing
rate at the lease commencement date because
the interest rate implicit in the lease is not readily
58 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
determinable. After the commencement date, the
amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of
lease liabilities is remeasured if there is a modification,
a change in the lease term, a change in the lease
payment (e.g., changes to future payments resulting
from a change in an index or rate used to determine
such lease payments) or a change in the assessment
of an option to purchase the underlying asset.
The Group's lease liabilities are included at
Note 10(b).
(iii) Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition
exemption to its short-term leases of machinery and
equipment (i.e., those leases that have a lease term
of 12 months or less from the commencement date
and do not contain a purchase option). It also applies
the lease of low-value assets recognition exemption
to leases of office equipment that are considered to
be low value. Lease payments on short-term leases
and leases of low-value assets are recognised as
expense on a straight-line basis over the lease term.
The Group adopted AASB 16 using the modified
retrospective method of adoption from 1 July 2019.
As a result, the results for the comparative period
have been prepared on the basis of AASB 117 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.
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.
(p) 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 ten years).
(q) GOVERNMENT GRANTS
Where government grants have been approved or
received, the Group releases to 'Other income' as
any prerequisite to the grant is met. This includes
recognition and timing of expenses as required.
During the year, the Group received grants in relation
to wage subsidies in all three regions. These grants
were recognised as income upon recognition of the
corresponding employee benefit expense.
(r) PROVISIONS
Provisions 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.
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.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 59
Notes to the financial statements cont.
Note 2 Summary of significant
accounting policies continued
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.
(s) EMPLOYEE BENEFITS
(i) Short-term obligations
including
for wages and salaries,
Liabilities
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
expected to be paid when the liabilities are settled.
Provisions for employee benefits are measured
at the present value of management’s best estimate
of the expenditure required to settle the present
obligation at the reporting date.
(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 the Milliman G100 discount rates at the end
of the reporting period. 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
Options have previously been issued to Executives
of Michael Hill International Limited in accordance
with the Company's constitution. The Board of
Directors passed resolutions approving the issue of
the options. The fair value of options granted was
recognised as an employee benefit expense with a
corresponding increase in equity.
The fair value was measured at grant date and
is recognised over the period during which the
employees become unconditionally entitled to the
options. The fair value at grant date for options
issued during prior financial years was 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. No options
were granted during the 2020 financial year.
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 period), and
• including the impact of any non-vesting conditions
(eg the requirement for employees to save or
holdings shares for a specific period 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-market 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.
Share rights
Share rights are granted to eligible senior executives
in accordance with
the Company's deferred
compensation plan ('LTI'). The fair value of rights
granted is recognised as an employee benefit
expense with a corresponding increase in equity.
The fair value was measured at grant date and
is recognised over the period during which the
employees become unconditionally entitled to the
rights. The valuation methodology to calculate fair
value is detailed in Note 19(b).
60 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
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 share rights that are expected to
vest based on the non-market 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 the share rights, the balance
of the share-based payments reserve relating to
those rights 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 superan-
nuation 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 super-
annuation 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.
(t) 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.
(u) 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.
(v) 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 (Note 21(d)).
(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.
(w) 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.
(x) CHANGES IN ACCOUNTING POLICIES AND
DISCLOSURES
The Group applied AASB 16 Leases for the first time.
The nature and effect of the changes as a result of
adoption of these new accounting standards are
described below.
Several other amendments and interpretations
apply for the first time in 2020, but do not have an
impact on the consolidated financial statements of
the Group. The Group has not early adopted any
standards, interpretations or amendments that have
been issued but are not yet effective.
AASB 16 Leases
The Group adopted AASB 16 using the modified
retrospective method of adoption with the date of
initial application of 1 July 2019. Under this method, the
standard is applied retrospectively with the cumulative
effect of initially applying the standard recognised at the
date of initial application. The Group elected to use the
transition practical expedient to not reassess whether a
contract is, or contains a lease at 1 July 2019. Instead,
the Group applied the standard only to contracts that
were previously identified as leases applying AASB 117
and IFRIC 4 at the date of initial application.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 61
Notes to the financial statements cont.
Note 2 Summary of significant
accounting policies continued
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 a Lease;
c) SIC-15 Operating Leases - Incentives; and
d) SIC-27 Evaluating the Substance of Transactions
involving the Legal Form of a Lease.
The effect of adoption of AASB 16 on the statement
of financial position increase/(decrease) as at 1 July
2019:
Assets
Right-of-use assets
Property, plant and equipment
Trade and other receivables
Deferred tax assets
Total assets
Liabilities
Trade and other payables
Deferred revenue
Lease liability
Provisions
Total liabilities
Equity
Foreign currency translation
Retained earnings
Total equity
$000
144,326
(3,060)
963
5,375
147,604
25
(2,810)
168,054
(4,603)
160,666
(43)
(13,019)
(13,062)
• Right-of-use assets of $144,326 were recognised
and presented separately in the statement of
financial position.
• Property, plant and equipment reduced by $3,060
in relation to fit out contributions received from
landlords previously recognised as deferred
revenue and recalculation of the make good asset.
• Deferred tax assets increased by $5,375 due to the
deferred tax impact of the changes in assets and
liabilities.
• Lease liabilities of $168,054 were recognised, with
$34,017 as a current liability and $134,037 as a
non-current liability.
• Deferred revenue of $2,810 relating to lease incentive
revenue was derecognised.
• Provisions of $4,603 related to straight line leasing
adjustments for previous operating leases were
derecognised.
• The net effect of these adjustments had been
adjusted to retained earnings ($13,019).
Upon adoption of AASB 16, the Group applied a
single recognition and measurement approach for
all leases except for short-term leases and leases
of low-value assets. The standard provided specific
transition requirements and practical expedients,
which have been applied by the Group.
Leases previously classified as finance leases
The Group did not change the initial carrying amounts
of recognised assets and liabilities at the date of initial
application for leases previously classified as finance
leases (i.e., the right-of-use assets and lease liabilities
equal the lease asses and liabilities recognised under
AASB 17). The requirements of AASB 16 were applied
to these leases from 1 July 2019.
Leases previously accounted for as
operating leases
The Group recognised right-of-use assets and lease
liabilities for those leases previously classified as
operating leases, except for short-term leases and
leases of low-value assets. The right-of-use assets
for most leases were recognised based on the
carrying amount as if the standard had always
been applied, apart from the use of incremental
borrowing rate at the date of initial application. In
some leases, the right-of-use assets were recognised
based on the amount equal to the lease liabilities,
adjusted for any related prepaid and accrued lease
payments previously recognised. Lease liabilities
were recognised based on the present value of
the remaining lease payments, discounted using
the incremental borrowing rate at the date of initial
application.
The Group also applied the available practical
expedients wherein it:
• Used a single discount rate to a portfolio of leases
with reasonably similar characteristics
• Relied on its assessment of whether leases are
onerous immediately before the date of initial
application
• Applied the short-term leases exemptions to
leases with lease term that ends within 12 months
of the date of initial application
• Excluded the
from the
measurement of the right-of-use asset at the date
of initial application
initial direct costs
• Used hindsight in determining the lease term
where the contract contained options to extend or
terminate the lease.
62 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
COVID-19 related rent concessions
The Group has adopted the practical expedient for
rent concessions negotiated as a consequence of
COVID-19. This allows the company to elect not to
account for changes in lease payments as a lease
modification where a change in lease payments to
the revised consideration are substantially the same
or less than the consideration for the lease preceding
the change, the reductions only affects payments
which fall due before 30 June 2021 and there has
been no substantive change in terms and conditions.
Where the practical expedient has been applied, rent
concessions are accounted for as a reduction in the
right-of-use asset.
The lease liabilities as at 1 July 2019 can be
reconciled to the operating lease commitments as of
30 June 2019, as follows:
Operating lease commitments
disclosed as at 30 June 2019
Discounted using the group’s
incremental borrowing rate
applicable to leases
Add: payments in optional renewal
periods not included in lease
commitments as at 30 June 2019
Lease liability recognised
as at 1 July 2019
$000
155,070
121,642
46,412
168,054
IFRIC Interpretation 23 Uncertainty over Income
Tax Treatment
The Interpretation addresses the accounting for
income taxes when tax treatments involve uncertainty
that affects the application of AASB 12 Income Taxes.
It does not apply to taxes or levies outside the
scope of AASB 12, nor does it specifically include
requirements relating to interest and penalties
associated with uncertain tax treatments. The
Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax
treatments separately.
• The assumptions an entity makes about the
examination of tax treatments by taxation authorities.
• How an entity determines taxable profit (tax loss),
tax bases, unused tax losses, unused tax credits and
tax rates.
• How an entity considers changes in facts and
circumstances.
The Group determines whether to consider each
uncertain tax treatment separately or together with
one or more other uncertain tax treatments and uses
the approach that better predicts the resolution of
the uncertainty. The Group determined, based on
its current tax position that it is probable that its tax
treatments will be accepted by the taxation authorities.
The Interpretation did not have an impact on the
consolidated financial statements of the Group.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 63
Notes to the financial statements cont.
Note 3 Significant estimates,
judgements and errors
(a) SIGNIFICANT ESTIMATES AND JUDGEMENTS
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.
The uncertainty surrounding
Impact of COVID-19
During the second half of the financial year, the
Group was impacted by COVID-19. All bricks-and-
mortar stores were temporarily closed in order to
maintain the safety of our staff and customers or
in response to government regulation. The Group
also took the opportunity to assess how the stores
would reopen. Safety initiatives were subsequently
implemented and stores commenced reopening
about five weeks after the initial temporary closures.
trading
environment
impacted
management's approach of forecasting, modelling
cash flows and supporting the recoverability of the
Group's assets (see Note 2(i)). Further additional
sensitivities were overlayed into provisions, such
as Expected Credit Losses (ECL) on the Group's
impairment
(see Note 2(l)) and
receivables
assessment property, plant and equipment and right
of use assets (see Note 9(b)(i). Partially offsetting the
closure of stores and subsequent loss of revenue, the
Group received certain government grants (see Note
2(q)) and rental assistance from landlords with further
rental negotiations continuing into FY21.
the Group has
the
for
The Group continues to monitor the situation
throughout the geographies in which it operates.
Uncertainty remains as to the future impact of a
'second-wave' and the ability to operate bricks-and-
mortar stores during this period. The Group continues
to adhere to provincial and federal government
guidance in relation to any future impacts which
would temporarily close stores.
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
Black Scholes 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
and office premises. The provision includes future
cost estimates associated with dismantling and
closure of stores and offices. The calculation of this
provision requires assumptions such as discount rates,
lease exit 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 9(g) Provisions.
Lease term of contracts with renewable options
The Group determines the lease term to be the
non-cancellable term of the lease, together with
any periods covered by an option to extend the
lease if it is reasonably certain that the option will
be exercised. In assessing the likelihood of a lease
option being exercised, the Group considers the
costs of termination, the extent of any leasehold
improvements, the strategic importance of the lease
location and the current market rent for the stores.
Holdover leases
At any given point in time, there will be a number
of property leases in holdover. These leases are
accounted for under AASB 16 Leases when it is
reasonably certain that the lease will be renewed or
a new lease signed, and the terms and conditions of
the lease are mutually agreed with the lessor.
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.
64 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Revenue recognition
Professional care plan (PCP) 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. The accounting policies and significant
judgements are disclosed in Note 5c(iii) Revenue.
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
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.
Employee benefits
Provisions for employee benefits are measured at the
present value of management’s best estimate of the
expenditure required to settle the present obligation
at the reporting date.
Provision for expected credit losses of trade
receivables
The Group uses a provision matrix to calculate ECLs for
trade receivables and contract assets. The provision
rates are based on days past due for groupings of
various customer segments that have similar loss
patterns (i.e., by geography and customer rating).
The provision matrix is initially based on the
Group’s historical observed default rates. The Group
will calibrate the matrix to adjust the historical credit
loss experience with forward-looking information. For
instance, if forecast economic conditions (i.e., gross
domestic product) are expected to deteriorate over
the next year. At every reporting date, the historical
observed default rates are updated and changes in
the forward-looking estimates are analysed.
The assessment of the correlation between
historical observed default rates, forecast economic
conditions and ECLs is a significant estimate.
The amount of ECLs is sensitive to changes in
circumstances and of forecast economic conditions.
The Group’s historical credit loss experience and
forecast of economic conditions may also not be
representative of customer’s actual default in the
future. The information about the ECLs on the
Group’s trade receivables is disclosed in Note 8(b).
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.
(b) analysis and sub-totals, including segment information
information about estimates and judgements made
(c)
in relation to particular items.
Note 4 Segment information
Note 5 Revenue
Note 6 Other income and expense items
Income tax expense
Note 7
Note 8 Financial assets and
financial liabilities
Note 9 Non-financial assets and liabilities
Note 11 Equity
Note 12 Cash flow information
page 66
page 68
page 70
page 70
page 72
page 75
page 80
page 81
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 65
Notes to the financial statements cont.
Note 4 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 Management team that are used to make strategic decisions. The Board and Executive
Management team consider, organise and manage the business primarily from a geographic perspective,
being the country of origin where the sale and service was performed.
The operating segments exclude the adjustments required under AASB 16 Leases and therefore
operating lease expenses are included at a segment level.
The amounts provided to the Board and Executive Management 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's operations are in three geographical segments: Australia, New Zealand and Canada.
The Corporate and other segment includes revenue and expenses that do not relate directly to the
relevant Michael Hill 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 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.
The Group report regional segments as set out in the table below. These results are prepared on a pre-AASB
16 Leases basis. An adjustment column representing the Group's entries due to AASB 16 Leases has been
included for the purposes of comparability.
(b) SEGMENT RESULTS
Segment information 2020
Operating revenue
Gross profit
Gross profit %
EBITDA*
Depreciation and amortisation
Segment EBIT*
EBIT as a % of revenue
Interest income
Finance costs
Net profit before tax
Income tax expense
Net profit after tax
Australia
New
Zealand
Canada
Corporate
and other
$000
$000
$000
$000
MH
Proforma Adjustment^
$000
$000
Group
$000
266,610
161,030
60.4%
35,102
(7,692)
27,410
10.3%
-
145
27,555
101,276
60,412
59.7%
22,554
(2,550)
20,004
19.8%
-
16
20,020
123,038
71,075
57.8%
3,471
(6,031)
(2,560)
(2.1)%
-
-
(2,560)
(33,971)
(2,355)
(36,326)
1,136 492,060
5,687 298,204
60.6%
27,156
(18,628)
8,528
1.7%
4
(1,970)
6,562
4
(2,131)
(38,453)
27,555
20,020
(2,560)
(38,453)
6,562
(36,983)
5,551
- 492,060
- 298,204
60.6%
42,534 69,690
(55,611)
14,079
2.9%
4
(9,598)
4,485
(1,426)
3,059
-
(7,628)
(2,077)
(2,077)
66 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Australia
New
Zealand
Canada
Corporate
and other
$000
$000
$000
$000
Group
$000
Segment information 2019
Operating revenue
Gross profit
Gross profit %
EBITDA*
Depreciation and Amortisation
Segment EBIT*
EBIT as a % of revenue
Interest income
Finance costs
Net profit before tax
Income tax expense
Net profit after tax
313,587
194,052
61.9%
41,421
(8,504)
32,917
10.5%
-
42
32,959
112,964
68,655
60.8%
25,159
(2,446)
22,713
20.1%
1
(5)
22,709
140,402
85,131
61.0%
16,001
(5,759)
10,242
7.0%
-
-
10,242
32,959
22,709
10,242
(42,100)
(2,657)
(44,757)
2,547 569,500
5,194 353,032
62.0%
40,481
(19,366)
21,115
3.7%
160
(2,464)
18,811
(2,313)
16,498
159
(2,501)
(47,099)
(47,099)
* EBIT and EBITDA are Non-IFRS information and are unaudited. Please refer to page 31 for an explanation of
Non-IFRS information and a reconciliation of EBIT from continuing operations and Normalised EBIT.
^ This represents the impact of AASB 16 Leases on the Group.
The totals for the year ended 28 June 2020 include the impacts of AASB 16 Leases and cannot be compared directly
to the totals for the year ended 30 June 2019.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 67
Notes to the financial statements cont.
Note 5 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
Lifetime Diamond Warranty
2020
$000
2019
$000
460,393
27,478
3,958
231
492,060
533,282
32,923
3,293
2
569,500
(a) DISAGGREGATION OF REVENUE FROM CONTRACTS WITH CUSTOMERS
The Group derives revenue from the transfer of goods and services over time and at a point in time in the
following major product lines and geographical regions:
2020
Timing of revenue recognition
At a point in time
Over time
2019
Timing of revenue recognition
At a point in time
Over time
Australia
New Zealand
$000
$000
Canada
$000
Corporate
and other
$000
Total
$000
249,852
16,758
266,610
95,770
5,506
101,276
114,145
8,893
123,038
626
510
1,136
460,393
31,667
492,060
295,480
18,107
313,587
107,064
5,900
112,964
130,132
10,270
140,402
606
1,941
2,547
533,282
36,218
569,500
(b) ASSETS AND LIABILITIES RELATED TO
CONTRACTS WITH CUSTOMERS
Right of return assets
Deferred expenditure
Total contract assets
Deferred service revenue
Deferred interest free revenue
Rights of return liabilities
Lifetime Diamond Warranty
Total contract liabilities
NOTES
5(b)(i)
5(b)(ii)
5(c)(i)
5(c)(iv)
5(c)(v)
5(c)(vi)
2020
$000
108
1,673
1,781
73,856
2,918
250
2,489
79,513
2019
$000
291
2,139
2,430
77,803
2,247
682
1,135
81,867
(i) Revenue recognised in relation to contract liabilities
The following table shows how much of the revenue recognised in the current reporting year relates to carried-
forward contract liabilities and how much relates to performance obligations that were satisfied in a prior year:
Revenue recognised that was included in the contract liability
balance at the beginning of the year
Revenue recognised from performance obligations
satisfied in previous years
68 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
2020
$000
2019
$000
22,300
26,229
-
1,770
(ii) Right of return assets
The following table shows contract assets recorded under our change of mind returns policy.
Carrying amount at the start of the year
Additional amounts recognised
Amounts incurred and charged
Exchange differences
Closing right of return asset
2020
$000
291
114
(291)
(6)
108
2019
$000
424
270
(424)
21
291
(iii) Assets recognised from costs to fulfil a contract
Direct and incremental bonuses associated with the sale of PCPs are deferred and amortised in proportion to
the PCP 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. This is presented
within other assets in the consolidated statement of financial position. For further information on the basis of
calculation refer to Note 5c(iii).
Carrying amount at the start of the year
Additional amounts recognised
Amounts incurred and charged
Exchange differences
Total deferred expenditure
2020
$000
2,139
435
(834)
(67)
1,673
2019
$000
2,494
588
(986)
43
2,139
(c) ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS
(i) Sale of goods
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.
(ii) Repair services
Sales of services for repair work performed is recognised in the accounting period in which the services are performed.
(iii) Deferred service revenue
The Group offers a 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 based on expected services under the plans is
used as a basis to establish the amount of service revenue to recognise in the consolidated statement of
comprehensive income. During the financial year ended 28 June 2020, the Group did not recognise revenue
for PCP services in Canada from 2 March 2020 to 28 June 2020 due to the inability to service customers from
closure of stores. An amount of $1.8m would have otherwise been attributed to this period.
(iv) Deferred interest free revenue
Deferred interest free 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.
(v) Rights of return assets and liabilities
Rights of return recognises the estimated returned sales under the Group's return policy, being 30 day change of
mind in Australia and New Zealand and 60 day change of mind in Canada. Management estimates the returned
sales based on historical sale return information and any recent trends that may suggest future claims could differ
from historical amounts. For sales that are expected to be returned, the Group recognises a right of return liability.
The associated inventory value for sales that are expected to be returned is recognised as a right of return asset.
(vi) Lifetime Diamond Warranty
LTDW is a warranty provided to customers with the purchase of jewellery items set with a diamond (excluding
watches). This has been deemed a service-type warranty and is calculated with reference to the estimated
value of service provided to customers and the stand-alone value of customers obtaining the service
independently. Income in relation to the LTDW is recognised in line with the estimated pattern of customers
utilising this service-type warranty.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 69
Notes to the financial statements cont.
Note 6 Other income and expense items
NOTES
(a) OTHER INCOME
Insurance recoveries
Net foreign exchange gains
Government grants
Other items
(b) BREAKDOWN OF EXPENSES BY NATURE
Depreciation and amortisation
Depreciation on property, plant and equipment
Depreciation on right-of-use assets
Total depreciation
Total amortisation
Total depreciation and amortisation
Finance costs
Interest on lease liabilities
Bank and interest charges
Interest on make good provision
Total finance costs
Employee benefits expense
NOTES
9(b)
9(c)
9(g)
2020
$000
11
2,382
17,678
503
20,574
2020
$000
15,484
37,876
53,360
2,251
55,611
7,628
2,198
(228)
9,598
2019
$000
7
92
-
1,456
1,555
2019
$000
16,932
-
16,932
2,434
19,366
-
2,472
(8)
2,464
Employee wages
Employee wage on costs and post-retirement benefits
Provision for employee remediation
Total employee benefits expense
134,377
14,796
-
149,173
142,463
16,295
4,419
163,177
Note 7 Income tax expense
NOTES
2020
$000
2019
$000
(a)
INCOME TAX EXPENSE
Current tax
Current tax on profits for the year
Unrecognised tax losses utilised during the year
Adjustments for current tax of prior periods
Foreign income tax offsets not recognised
Total current tax expense
Deferred income tax
(Increase) / Decrease in deferred tax assets
Adjustments for deferred tax of prior periods
Total deferred tax expense/(benefit)
Income tax expense
2,488
-
650
-
3,138
(957)
(755)
(1,712)
1,426
5,265
(468)
(3,363)
154
1,588
356
369
725
2,313
9(d)
70 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
(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% (2019: 30.0%)
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Non deductible expenditure
Non-assessable intragroup markups
Sundry items
Difference in overseas tax rates
Adjustments for current tax of prior periods
Adjustments for deferred tax of prior periods
Utilisation of tax losses not recognised
Unrecognised tax losses utilised during the year
Foreign income tax offset not recognised
Change in tax rate on deferred tax balance
Income tax expense
Income tax expense is attributable to:
Profit from continuing operations
(c) TAX LOSSES
Unused United States tax losses for which
no deferred tax asset has been recognised
Potential tax benefit @ 25.0%
Unused New Zealand tax losses for which
no deferred tax asset has been recognised
Potential tax benefit @ 28.0%
2020
$000
4,486
1,346
279
-
(211)
1,414
208
650
(755)
(91)
-
-
-
1,426
2019
$000
18,811
5,643
269
4
68
5,984
(338)
(3,363)
369
-
(468)
154
(25)
2,313
1,426
2,313
2020
$000
35,745
8,936
2,651
742
2019
$000
33,647
10,094
2,708
758
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 the New Zealand losses may be used to offset
taxable profits and the United States losses are not expected to be used.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 71
Notes to the financial statements cont.
Note 8 Financial assets and financial liabilities
The Group holds the following financial instruments:
NOTES
Financial assets
Cash and cash equivalents
Trade receivables
Total current financial assets
Total non-current financial assets
Financial liabilities at amortised cost
Trade and other payables
Borrowings
Lease liabilities
Derivative financial instruments used for hedging
Total current financial liabilities
Total non-current financial liabilities
8(a)
8(b)
8(d)
8(e)
10(b)
13(a)
2020
$000
11,204
35,733
46,937
36,210
10,727
46,937
64,472
10,681
158,012
34
233,199
106,670
126,529
233,199
2019
$000
7,923
36,641
44,564
37,579
6,985
44,564
44,548
32,704
-
468
77,720
45,016
32,704
77,720
The Group’s exposure to various risks associated with the financial instruments is discussed in Note 13. 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.
Derivatives not designated as hedging instruments reflect the change in fair value of those foreign exchange
forward contracts that are not designated in hedge relationships, but are, nevertheless, intended to reduce
the level of foreign currency risk for expected sales and purchases.
Derivatives designated as hedging instruments reflect the change in fair value of foreign exchange forward
contracts, designated as cash flow hedges to hedge highly probable forecast purchases in US dollars (USD).
Debt instruments at amortised cost include trade receivables, trade payables and borrowings.
(a) CASH AND CASH EQUIVALENTS
Current assets
Cash at bank and on hand
2020
$000
11,204
2019
$000
7,923
Interest rates for the bank accounts have been between 0.00% and 0.75% during the year (2019: between
0.00%and 1.15%).
(b) TRADE & OTHER RECEIVABLES
Notes
Current
Trade receivables
Provision for expected credit loss
In-house customer finance
Provision for expected credit loss
Sundry debtors
$000
3,432
(340)
3,092
13(c)(ii)
Non-
current
$000
-
-
-
2020
Total
$000
3,432
(340)
3,092
Current
$000
4,822
(409)
4,413
Non-
current
$000
-
-
-
2019
Total
$000
4,822
(409)
4,413
14,576 11,021 25,597 20,145
(928)
13(c)(i) 13,433 10,727 24,160 19,217
(1,437)
(1,143)
(294)
8,481
6,026
-
25,006 10,727 35,733 29,656
8,481
7,337 27,482
(1,280)
6,985 26,202
(352)
-
6,026
6,985 36,641
Further information relating to loans to related parties and key management personnel is set out in Note 18.
72 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
(i) Trade receivables
Trade receivables from sales made to customers through third party credit providers are non-interest bearing
and are generally on 0-30 day terms.
In-house customer finance
(ii)
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 40 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. See Note 2(l)(i) for the
accounting policy regarding the provision for expected credit losses.
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. In-house customer finance receivables are
recognised net of significant financing components.
(iii) Impairment and risk exposure
Information about the impairment of trade receivables and the Group’s exposure to credit risk and foreign
currency risk can be found in Note 13(b) and 13(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) CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
2020
$000
2019
$000
Non-current interest-bearing loans and liabilities
Carrying amount at start of year
Outwards cash flows
Inwards cash flows
Foreign exchange movements
Carrying amount at end of year
(d) TRADE AND OTHER PAYABLES
Current liabilities
Trade payables
Annual leave liability
Accrued expenses
Other payables
32,704
(92,300)
70,500
(223)
10,681
2020
$000
28,982
7,758
1,131
26,601
64,472
35,213
(132,000)
128,800
691
32,704
2019
$000
22,592
8,480
3,102
10,374
44,548
Trade payables and other payables are unsecured and are usually paid within 45 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.
(e) BORROWINGS
Bank loans
Current
Non-
current
2020
Total
Current
Non-
current
2019
Total
$000
$000
$000
$000
$000
$000
- 10,681 10,681
- 32,704 32,704
Total secured borrowings
- 10,681 10,681
- 32,704 32,704
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 73
Notes to the financial statements cont.
Note 8 Financial assets and financial liabilities continued
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. The agreement with ANZ on 26 June 2018 was updated
to provide a $70,000,000 multi option borrowing facility in line with the business requirements of the Group.
At balance date, $46,248,000 was available (2019: $70,000,000), and of that, $10,681,000 was utilised (2019:
$32,704,000).
The Group also has access to various uncommitted credit facility lines serving working capital needs that,
at balance date, totalled $1,935,000 (2019: $1,955,000). No amounts were drawn under these credit facility
lines as at balance date.
(f) 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.
Recurring fair value measurements
at 28 June 2020
Financial liabilities
Derivatives used for hedging
- Interest rate swaps
Total financial liabilities
Recurring fair value measurements
at 30 June 2019
Financial liabilities
Derivatives used for hedging
- Foreign exchange contracts
- Interest rate swaps
Total financial liabilities
Notes
Level 1
$000
Level 2
$000
Level 3
$000
Total
$000
13(a)
13(a)
13(a)
-
-
-
-
-
34
34
145
323
468
-
-
-
-
-
34
34
145
323
468
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 period.
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 period. 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.
74 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Note 9 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
Provision for impairment
2020
$000
6,313
174,758
3,335
(5,664)
178,742
2019
$000
6,732
176,670
2,033
(5,932)
179,503
All inventories are held at the lower of cost or net realisable value.
(b) PROPERTY, PLANT & EQUIPMENT
Plant and Fixtures and
fittings
$000
equipment
$000
Motor
vehicles
$000
Leasehold
improvements
$000
Display
materials
$000
Total
$000
At 1 July 2018
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2019
Opening net book amount
Exchange differences
Additions
Additions - make good
Disposals
Transfers
Depreciation charge
Impairment loss (i)
Closing net book amount
At 30 June 2019
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 28 June 2020
Opening net book amount
Adjustment for change in
accounting policy
Exchange differences
Additions
Additions - make good
Disposals
Transfers
Depreciation charge
Impairment loss (i)
Closing net book amount
At 28 June 2020
Cost
Accumulated depreciation
and impairment
Net book amount
38,744
(25,851)
12,893
34,667
(23,100)
11,567
569
(316)
253
81,642
(46,423)
35,219
13,958 169,580
(7,224) (102,914)
66,666
6,734
12,893
284
2,618
-
(762)
13
(3,929)
(211)
10,906
11,567
256
1,695
-
(24)
-
(3,500)
(12)
9,982
253
5
-
-
(59)
-
(110)
-
89
35,219
1,373
4,952
1,794
(20)
(13)
(7,429)
(64)
35,812
6,734
214
1,488
-
(46)
-
(1,964)
(2)
6,424
66,666
2,132
10,753
1,794
(911)
-
(16,932)
(289)
63,213
32,867
(21,961)
10,906
33,153
(23,171)
9,982
366
(277)
89
85,774
(49,962)
35,812
15,449 167,609
(9,025) (104,396)
63,213
6,424
10,906
9,982
89
35,812
6,424
63,213
-
(48)
1,852
-
(190)
90
(3,617)
(738)
8,255
-
(52)
1,819
-
(119)
253
(3,373)
(404)
8,106
-
-
-
-
(38)
-
(35)
-
16
(2,653)
(265)
1,376
1,757
(240)
(346)
(6,540)
(2,016)
26,885
-
19
1,065
-
(131)
-
(1,919)
(3,315)
2,143
(2,653)
(346)
6,112
1,757
(718)
(3)
(15,484)
(6,473)
45,405
32,831
34,431
47
78,164
15,197 160,670
(24,576)
8,255
(26,325)
8,106
(31)
16
(51,279)
26,885
(13,054) (115,265)
45,405
2,143
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 75
Notes to the financial statements cont.
Note 9 Non-financial assets and liabilities continued
Impairment loss
(i)
As per the Group's accounting policies, the Group impairs assets where the recoverable amount is less than
the carrying amount. This also includes assets held at stores facing closure. Any assets held at an impaired
store that are able to redeployed throughout the Group are not impaired.
Impairment indicators were identified due to the impact of COVID-19 which resulted in temporary
store closures and reduction in sales. The Group treats each store as a separate cash-generating unit for
impairment testing of property, plant and equipment and right of use assets. Key assumptions used in
calculating the Value in Use for impairment assessment purposes factor in any immediately visible impact on
store sales and performance from COVID-19 as disclosed in Note 3(a).
(ii) Depreciation methods and useful lives
Depreciation is calculated using the straight-line method to allocate the cost or revalued amounts of the
assets, 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 2018
Cost
Accumulated amortisation
Net book amount
Year ended 30 June 2019
Opening net book amount
Exchange differences
Additions
Disposals
Amortisation charge
Closing net book amount
At 30 June 2019
Cost
Accumulated amortisation
Net book amount
Year ended 28 June 2020
Opening net book amount
Additions
Category transfers
Impairment charge
Amortisation charge
Closing net book amount
At 28 June 2020
Cost
Accumulated amortisation
Net book amount
Patents,
trademarks and
other rights
$000
Computer
software
Total
$000
$000
79
-
79
28,941
(16,394)
12,547
29,020
(16,394)
12,626
79
-
-
-
-
79
12,547
6
5,381
(140)
(2,434)
15,360
12,626
6
5,381
(140)
(2,434)
15,439
79
-
79
30,852
(15,492)
15,360
30,931
(15,492)
15,439
79
-
-
-
-
79
15,360
11,241
3
(3)
(2,251)
24,350
15,439
11,241
3
(3)
(2,251)
24,429
79
-
79
39,383
(15,033)
24,350
39,462
(15,033)
24,429
76 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
485
8,190
22,723
(478)
(19)
235
-
7,487
20,757
(317)
(511)
15,916
74,468
39,585
34,883
74,468
67,708
957
5,375
755
(327)
74,468
2020
$000
3,165
450
5,655
24,593
(601)
(21)
4,223
1,738
-
16,926
(156)
989
13,912
67,708
31,180
36,528
67,708
68,022
(356)
-
(369)
411
67,708
2019
$000
2,295
1,445
1,367
(d) DEFERRED TAX BALANCES
2020
$000
2019
$000
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
Leases
Provisions
Unrealised foreign exchange losses
Sundry items
Inventories
Net deferred tax assets
Expected settlement:
Deferred tax assets expected to be recovered within 12 months
Deferred tax assets expected to be recovered after more than 12 months
Movements:
Opening balance at 1 July
Credited / (charged) to the income statement
Adjustment on adoption of AASB 16
Prior year adjustment
Foreign exchange differences
Closing balance at 30 June
(e) CURRENT TAX RECEIVABLES
Current tax receivables
(f) CURRENT TAX LIABILITIES
Current tax liabilities
(g) PROVISIONS
Employee benefits (i)
Assurance-type warranties (i)
Make good provision (i)
Restructuring costs (i)
Diamond warranty (i)
Current
$000
20,599
1,405
260
2,325
360
24,949
2020
Non-
current
$000
Total
Current
$000
$000
1,776 22,375 28,140
1,674
1,405
6,823
133
1,014
2,325
480
360
8,339 33,288 31,441
-
6,563
-
-
2019
Non-
current
$000
Total
$000
2,069 30,209
1,674
5,011
1,014
480
6,947 38,388
-
4,878
-
-
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 77
Notes to the financial statements cont.
Note 9 Non-financial assets and liabilities continued
Information about individual provisions and significant estimates
(i)
Employee benefits
Employee benefits includes provision for long service leave, revaluation of employee benefits in New Zealand and
the provision for remediation. 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 liability for long service leave is measured as the present value of expected future payments to be made
in respect of services provided by employees up to the reporting date using the projected unit credit method.
Consideration is given to expected future wage and salary levels, experience of employee departures and periods
of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds
with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Assurance-type warranties
Provision is made for the estimated sale returns for the Group's return policies, being 12 month guarantee on the
quality of workmanship and the 3 year watch guarantee. In addition, all Michael Hill watches sold before 30 June
2018 included 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.
Restructuring
A provision has been raised for the estimated staffing exit costs from business structure changes.
Restructuring provisions are recognised only when the Group has a constructive obligation, which is when:
• there is a detailed formal plan that identifies the business or part of the business concerned, the location
and number of employees affected, the detailed estimate of the associated costs, and the timeline; and
• the employees affected have been notified of the plan’s main features.
Diamond warranty
Provision is made for the estimated costs for the Group's diamond warranty offered with the purchase of
selected diamond jewellery lines. Management estimates the provision based on costs incurred in recent
years and will review the adequacy of the provision each reporting date as more data becomes available.
(ii) Movements in provisions
Movements in each class of provision during the financial year are set out below:
Employee Restructuring
benefits obligations
Returns Make good
provision
provision
Diamond
warranty
Total
Carrying amount at start of year
Additional provisions recognised
Amounts incurred and charged
Exchange differences
Carrying amount at end of year
$000
30,209
1,940
(9,773)
(1)
$000
1,014
1,995
(682)
(2)
$000
1,674
1,405
(1,663)
(11)
$000
5,011
2,280
(441)
(27)
22,375
2,325
1,405
6,823
$000
480
-
$000
38,388
7,620
(120) (12,679)
(41)
360 33,288
-
(h) DEFERRED REVENUE
Lease incentive income
Sundry deferred revenue
Current
$000
-
367
367
Non-
current
$000
-
-
-
2020
Total
$000
-
367
367
Current
$000
962
290
1,252
Non-
current
$000
1,847
-
1,847
2019
Total
$000
2,809
290
3,099
78 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Note 10 Leases
This note provides information for leases where the Group is a lessee.
(a) RIGHT-OF-USE ASSETS
Right-of-use assets
Right-of-use assets
Less: Accumulated impairment
Less: Accumulated depreciation
Reconciliation of right-of-use assets
Opening right-of-use asset on adoption of AASB 16 on 1 July 2019
Additional right-of-use assets relating to leases
entered into during the year
Lease modifications agreed during the year
Depreciation
Reduction in right-of-use assets as a consequence
of COVID-19 on rent concessions
Impairment of right-of-use assets
Foreign currency translation
Balance at 28 June 2020
(b) LEASE LIABILITIES
Lease liabilities
Current
Non-current
Reconciliation of lease liabilities
Opening lease liabilities recognised on adoption
of AASB 16 on 1 July 2019
Additional leases entered into during the year
Lease modifications during the year
Reduction in right-of-use assets as a consequence
of COVID-19 on rent concessions
Interest accrued
Lease repayments
Foreign currency translation
Balance at 28 June 2020
2020
$000
162,380
(815)
(37,654)
123,911
142,833
21,702
(126)
(37,876)
(2,033)
(815)
226
123,911
2020
$000
42,164
115,848
158,012
166,322
21,671
14
(2,033)
7,628
(35,520)
(70)
158,012
The incremental borrowing rate used in determining the lease liability ranged between 1.85% and 6.95%.
(c)
IMPAIRMENT LOSS
As per the Group's accounting policies, the Group impairs assets where the recoverable amount is less than
the carrying amount.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 79
Notes to the financial statements cont.
Note 11 Contributed equity
(a) SHARE CAPITAL
Ordinary shares - fully paid
Total share capital
2020
Shares
2019
Shares
387,769,105 387,750,000
387,769,105 387,750,000
2020
$000
11,016
11,016
(i) Movements in ordinary shares:
Opening balance 1 July 2018
Options forfeited
Rights converted
Balance 30 June 2019
Rights converted
Balance 28 June 2020
Notes
11(a)(ii)
11(a)(iii)
11(a)(iii)
No. of shares
387,438,513
-
311,487
387,750,000
19,105
387,769,105
2019
$000
10,984
10,984
$000
10,266
228
490
10,984
32
11,016
(ii) 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 on a poll each share is entitled to one vote.
(iii) 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).
(iv) Rights issue
Information relating to share rights issued under the Company's deferred compensation plan, including details
of rights issued, exercised and lapsed during the financial year and rights outstanding at the end of the
financial year, is set out in Note 19(b).
(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(m). 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 value of equity-settled share-based payments
provided to employees, including key management personnel, as part of their remunerations. Refer to Note
19 for further details of these plans.
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.
80 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Note 12 Cash flow information
Reconciliation of profit after income tax to
net cash inflow from operating activities
Profit for the year
Adjustment for:
NOTES
2020
$000
2019
$000
3,059
16,498
Depreciation of property, plant and equipment
Depreciation of right-of-use asset
Amortisation
Impairment - property, plant and equipment
Impairment - other assets
Impairment - intangibles
Non-cash employee benefits expense - share-based payments
Make good interest
Net loss on sale of non-current assets
Net exchange differences
6(b)
6(b)
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 non current assets
(Increase) / decrease in other 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
15,484
37,876
2,251
6,473
1,579
3
(25)
(228)
442
1,143
1,490
(206)
(1,430)
2,324
89
12,987
8,509
(6,121)
(2,000)
83,699
16,932
-
2,434
289
1,823
-
106
(8)
619
(9)
(8,419)
12,102
227
(309)
896
(485)
(3,517)
(110)
(100)
38,969
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 13 Financial risk management
Note 14 Capital management
page 82
page 87
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 81
Notes to the financial statements cont.
Note 13 Financial risk management
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk
and price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpre-
dictability of financial markets and seeks to minimise potential adverse effects on the financial performance of
the Group. The Group uses derivative financial instruments such as foreign exchange contracts and interest rate
swaps to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading
or other speculative instruments. The Group uses different methods to measure different types of risk to which it
is exposed. These methods include sensitivity analysis in the case of interest rate and foreign exchange risks and
aging analysis for credit risk.
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 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
The Group is exposed to certain risks relating to its ongoing business operations. The primary risks managed
using derivative instruments are foreign currency risk and interest rate risk.
The Group’s risk management strategy and how it is applied to manage risk are explained below.
(i) Classification of derivatives
Derivatives are only used for economic hedging purposes and not as speculative investments. However, where
derivatives do not meet the hedge accounting criteria, they are classified as ‘held for trading’ for accounting
purposes and are accounted for at fair value through profit or loss. They are presented as current assets or
liabilities to the extent 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(m). Further information about
the derivatives used by the Group is provided in Note 13(b) below.
Derivatives not designated as hedging instruments
The Group uses foreign currency-denominated borrowings and foreign exchange forward contracts to
manage some of its transaction exposures. The foreign exchange forward contracts are not designated as
cash flow hedges and are entered into for periods consistent with foreign currency exposure of the underlying
transactions, generally from one to six months.
(ii) Fair value measurements
For information about the methods and assumptions used in determining the fair value of derivatives please
refer to Note 8(f).
(iii) Hedging reserves
The Group’s hedging reserves are disclosed in the statement of changes in equity.
There were no reclassifications from the cash flow hedge reserve to profit or loss during the year in
relation to the foreign currency forwards and options.
82 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
(iv) Amounts recognised in profit or loss
In addition to the amounts disclosed in the reconciliation of hedging reserves above, the following amounts
were recognised in profit or loss in relation to derivatives:
Net foreign exchange gain/(loss) included in other gains/(losses)
2020
$000
69
2019
$000
92
Hedge ineffectiveness
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic
prospective effectiveness assessments to ensure that an economic relationship exists between the hedged
item and hedging instrument.
For hedges of interest rate risk, the Group enters into hedge relationships where the critical terms of
the hedging instrument match exactly with the terms of the hedged item. The Group therefore performs a
qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item
such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the
Group uses the hypothetical derivative method to assess effectiveness. It may occur due to:
• the credit value/debit value adjustment on the interest rate swaps which is not matched by the loan, and
• differences in critical terms between the interest rate swaps and loans.
There was no recognised ineffectiveness during 2020 or 2019 in relation to the interest rate swaps.
(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.
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:
Buy foreign currency (cash flow hedges)
28 June 2020
30 June 2019
USD
$000
36
500
7,539
NZD
$000
64
-
-
CAD
$000
43
-
2
USD
$000
16
1,590
1,567
NZD
$000
33
2
-
CAD
$000
28
-
113
-
-
-
12,000
-
-
Sensitivity
The Group's principal foreign currency exposures arise from trade payables and receivables outstanding at
year end.
Most trade payables are repaid within 45 days so there is minimal equity impact arising from foreign
currency exposures. The below calculations are the impact on the Mark to Market (MTM) for the Foreign
Exchange Contracts (FEC) hedged. These are not designated as cash flow hedges, therefore the impact
will be on pre-tax profit.
US$ Trade payables
us$ exchange rate - increase 10%*
us$ exchange rate - decrease 10%*
Impact on pre-tax profit
Impact on other
components of equity
2020
$000
2019
$000
2020
$000
2019
$000
1,680
(2,205)
-
-
-
-
1,697
(1,752)
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 83
Notes to the financial statements cont.
Note 13 Financial risk management continued
(ii) Cash flow and fair value interest rate risk
The Group's main interest rate risk arises from long-term borrowings and cash. Borrowings issued at variable
rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to
fair value interest rate risk. Group policy is to maintain fixed interest cover of between 50% and 100% of core
debt up to 12 months, between 50% and 75% of core debt between 1 and 3 years, and between 25% and
50% of core debt between 3 and 5 years.
To manage variable interest rate borrowings risk, the Group enters into interest rate swaps in which the
Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest
amounts calculated by reference to an agreed-upon notional principal amount.
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 borrowings to interest rate changes and the contractual re-pricing dates of
the borrowings at the end of the reporting year are as follows:
Variable rate borrowings
$000
10,681
2020
% of total
loans
100.0%
2019
% of total
loans
100.0%
$000
32,704
An analysis by maturities is provided in Note 13(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.
Instruments used by the group
Swaps in place cover approximately 46.8% (2019: 76.4%) 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
28 June 2020
Balance
30 June 2019
Balance
Weighted
average
interest rate
%
1.88%
4.63%
Weighted
average
interest rate
%
2.54%
3.91%
$000
10,681
5,000
5,681
$000
32,704
25,000
7,704
An analysis by maturities is provided in note 13(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)*
Impact on post-tax profit
Impact on other
components of equity
2020
$000
(107)
107
2019
$000
(109)
109
2020
$000
(15)
(36)
2019
$000
(2)
2
* Holding all other variables constant, this represents the impact of the interest rate swaps held at the end of
the reporting period and variable borrowings if the interest rate was to increase or decrease by 10%.
84 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
(c) CREDIT RISK
Credit risk is managed on a Group basis and refers to the risk of a counterparty failing to discharge an obligation.
In the normal course of business, the Group incurs credit risk from trade receivables and transactions with
financial institutions. The Group places its cash and short term deposits with only high credit quality financial
institutions. Sales to retail customers are required to be settled via cash, major credit cards or passed onto
various credit providers in each country.
(i) Credit quality and impaired in-house customer finance
In-house customer finance was established in Canada 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 8(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
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
(ii)
Impaired trade receivables
The ageing of these receivables is as follows:
0 - 30 days
31 - 60 days
61 - 90 days
91 + days
2020
$000
24,651
491
455
25,597
2020
$000
1,280
(2,093)
2,270
(20)
1,437
2020
$000
3,027
199
(2)
208
3,432
The amount written off during the period amounted to $193,000 (2019: $615,000).
Movements in the provision for impairment of trade receivables
that are assessed for impairment collectively are as follows:
At 1 July
Amounts written off
Additional provisions recognised
Exchange differences
At 28 June
2020
$000
409
(193)
125
(1)
340
2019
$000
26,511
508
463
27,482
2019
$000
1,430
(2,263)
2,028
85
1,280
2019
$000
3,677
574
171
400
4,822
2019
$000
819
(615)
201
4
409
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 85
Notes to the financial statements 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 characteris-
tics associated with its underlying assets. The agreement with ANZ on 26 June 2018 was updated to provide a
$70,000,000 multi option borrowing facility in line with the business requirements of the Group and the facility
limit available was reduced in line with rents unpaid. At balance date, $46,248,000 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)
2020
$000
1,935
46,248
48,183
2019
$000
1,955
32,704
34,659
(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 28 June 2020
Non-derivatives
Lease liabilities
Trade payables
Borrowings
Total non-derivatives
Derivatives
Gross settled (forward foreign
exchange contracts)
Net settled (interest rate swaps)
At 30 June 2019
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
10,065
64,964
-
75,029
1,168
-
-
1,168
9,954
-
10,681
20,635
59,411
-
-
59,411
77,414 158,012
64,964
10,681
77,414 233,657
-
-
69
34
103
44,548
-
44,548
-
-
-
-
-
-
-
-
-
-
32,704
32,704
145
52
197
-
158
158
-
113
113
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
69
34
103
44,548
32,704
77,252
145
323
468
86 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Note 14 Capital management
(a) RISK MANAGEMENT
The Group's objectives when managing capital are to:
• safeguard its ability to continue as a going concern, so that it 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 EBIT fixed cover charge ratio, consolidated debt to EBITDA, consolidated debt to capitalisation, and
consolidated debt to inventory. There have been no breaches of these covenants and the Group continues
to collaborate with the external financing partners as required.
(b) DIVIDENDS
(i) Ordinary shares
Final dividend for the year ended 30 June 2019 of 1.5¢ (2018: 2.5¢)
fully paid share paid on 27 September 2019 (2019: 28 September 2018).
Interim dividend for the year ended 28 June 2020 of 1.5¢ (2019: 2.5¢)
deferred for payment (2019: 27 March 2019)*.
2020
$000
2019
$000
5,817
9,679
5,816
11,633
9,686
19,365
* Interim dividend for the year ended 28 June 2020 of 1.5¢ was declared. Subsequent to the shares trading
ex dividend, but prior to payment date, the interim dividend payment was deferred to 30 September 2021.
(ii) Dividends not recognised at the end of the reporting period
No final dividend has been declared by the Directors for the year ended
28 June 2020 (2019: au1.5¢).
-
5,816
* This will be declared as conduit foreign income, therefore Australian withholding tax will not be deducted
from the dividend payment for foreign (non-Australian tax resident) shareholders.
(iii) Franking and imputation credits
Franking credits available for subsequent reporting periods based on
a tax rate of 30.0% (2019: 30.0%)
Imputation credits (NZ$) available for subsequent reporting periods
based on the New Zealand tax rate of 28.0% (2019: 28.0%)
2020
$000
2019
$000
2,174
1,487
18,474
17,885
The dividend paid during the current financial period and corresponding previous financial period were fully
imputed and not franked.
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.
The declared interim dividend, which has been deferred, was unfranked and therefore will not reduce the
franking account.
The impact on the imputation credit account of the interim dividend declared but deferred is estimated to
be a reduction in the imputation credit account of nz$2,418,000 (2019: nz$2,381,000). The amount of imputation
credits is dependant on the NZD exchange rate at the time of the dividend.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 87
Notes to the financial statements cont.
Note 15 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):
Name of entity
Country of
Incorporation
Ownership interest
held by the group
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
Medley Jewellery Pty Ltd (formally Emma & Roe Online Pty Ltd)
Durante Holdings Pty Limited
Michael Hill New Zealand Limited
Michael Hill Jeweller 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
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
Canada
United States
2020 %
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2019 %
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Note 16 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 the New Zealand stock exchange at 28 June 2020 of $33,000 (30 June 2019: $137,000).
From time to time, Companies within the Group are party to various legal actions as well as inquiries from
regulators and government bodies that have arisen in the normal course of business. The Directors have given
consideration to such matters which are or may be subject to claims or litigation at year end and are of the
opinion that that any liabilities arising over and above already provided in the financial statements from such
action would not have a material effect on the Group's financial performance.
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.
88 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Note 17 Events occurring after the reporting period
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.
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 15.
(b) KEY MANAGEMENT PERSONNEL COMPENSATION
Short-term employee benefits
Long-term benefits
Post-employment benefits
Share-based payments
2020
$
1,997,383
20,632
76,443
27,740
2,122,198
2019
$
2,164,448
37,696
91,183
93,600
2,386,927
Detailed remuneration disclosures are provided in the remuneration report on pages 37 to 45.
(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 report
by a related party of board members
2020
$
2019
$
13,945
13,225
All transactions with related parties were in the normal course of business and provided on commercial terms.
Further details regarding the Consulting Agreement with a Director is included within the Director's Report
Service contracts.
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 89
Notes to the financial statements cont.
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
Forfeited during the year
As at 28 June NZD options
As at 1 July AUD options
Granted during the year
Forfeited during the year
As at 28 June AUD options
Average
exercise price
per share
1.58
1.60
1.56
1.56
-
1.56
1.56
2020
Number of
options
Average
exercise price
per share option
2019
Number of
options
1,900,000
(800,000)
1,100,000
600,000
-
(300,000)
300,000
1.56 3,400,000
1.53 (1,500,000)
1.58 1,900,000
1.78
1.11
-
1.56
400,000
200,000
-
600,000
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
Grant date
Expiry date Exercise price
22 September 2009
17 September 2010
16 November 2011
19 September 2012
18 September 2013
29 November 2013
10 November 2014
5 October 2017
22 September 2016
22 January 2016
22 September 2018
Total
30 September 2019
30 September 2020
30 September 2021
30 September 2022
30 September 2023
30 September 2023
30 September 2024
30 September 2027
30 September 2026
30 September 2025
30 September 2028
nz$0.94
nz$0.88
nz$1.16
nz$1.41
nz$1.82
nz$1.82
nz$1.63
au$1.44
au$2.12
nz$1.14
au$1.11
Share options Share options
30 June 2019
28 June 2020
100,000
-
100,000
100,000
100,000
100,000
100,000
100,000
100,000
100,000
1,000,000
500,000
200,000
100,000
200,000
100,000
200,000
100,000
200,000
100,000
200,000
100,000
2,500,000
1,400,000
The weighted average remaining contractual life of share options outstanding at the end of the period was
3.9 years (2019: 5.1 years).
The range of exercise prices for options outstanding at the end of the year was nz$0.88 - nz$1.82 and
au$1.11 - 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.
90 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Fair value of options granted
The fair value at grant date for the options issued during the 2020 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.
No options were granted during the year ended 28 June 2020 (2019: 200,000).
(b) SHARE RIGHTS
The Company introduced a deferred compensation plan ("LTI") involving the granting of share rights to eligible
participants in 2016 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 286,294 share rights to eligible participants of the deferred
compensation plan.
All share rights were issued on the basis that they are divided into three tranches and vest over 3, 4 and
5 years, respectively.
Outstanding as at 1 July
Granted
Vested
Forfeited
Outstanding at 28 June
2020 average
exercise price per
share right $
0.54
0.57
1.66
-
0.81
2020
2019 average
Number of exercise price per
share right $
1.30
0.54
1.57
1.05
0.54
rights
521,609
286,294
(19,105)
-
788,798
2019
Number of
rights
919,102
224,670
(311,487)
(310,676)
521,609
In prior financial years, 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 5 trading days following the Michael Hill International shares trading on an ex-dividend basis.
Share rights issued during the 2020 financial year used the Black-Scholes model to determine the fair
value of share rights using the following inputs as at 28 June 2020:
Number of rights
Share price
Annualised volatility
Expected dividend yield
Risk free rate
Fair value of share right
(c) EXPENSES ARISING FROM SHARE-BASED PAYMENT TRANSACTIONS
Options issued under employee option plan
Share rights issued under LTI plan
2020
27 Feb 2020
286,294
$0.68
40%
6.50%
0.75%
$0.57
2019
9 May 2019
224,670
$0.67
40%
6.50%
1.50%
$0.54
2020
$000
-
166
166
2019
$000
11
95
106
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 91
Notes to the financial statements cont.
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,
Michael Hill International Limited, its related practices and non-related audit firms:
Ernst & Young
(i) Audit and other assurance services:
Audit and review of financial statements
(ii) Other services:
Advisory fees
Total remuneration of Ernst & Young Australia
Total auditors' remuneration
2020
$
2019
$
535,506
477,223
10,050
545,556
127,512
604,735
545,556
604,735
92 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Note 21 Earnings per share
(a) BASIC EARNINGS PER SHARE
Earnings per share for profit attributable to
the ordinary equity holders of the Company
(b) DILUTED EARNINGS PER SHARE
Diluted earnings per share for profit attributable to
the ordinary equity holders of the Company
(c) RECONCILIATION OF EARNINGS USED
IN CALCULATING EARNINGS PER SHARE
Basic earnings per share
Profit attributable to the ordinary equity holders of the
Company used in calculating basic earnings per share
Diluted earnings per share
Profit from continuing operations attributable to
the ordinary equity holders of the Company
2020
2019
0.79¢
4.26¢
0.79¢
4.25¢
2020
$000
2019
$000
3,059
16,498
3,059
16,498
(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:
Share rights
2020
Number
2019
Number
387,766,481 387,483,743
574,013
854,613
Weighted average number of ordinary and potential ordinary shares
used as the denominator in calculating diluted earnings per share
388,340,494 388,338,356
(e) INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES
Options and share rights
Options and share rights 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 and share rights have not been
included in the determination of basic earnings per share. Details are set out in Note 19(a).
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 93
Notes to the financial statements cont.
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:
2020
$000
2019
$000
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Total liabilities
Shareholders' equity
Issued capital
Reserves - Acquisition reserve
- Option and share rights reserve
Retained earnings
Profit or loss for the year
Total comprehensive income
1,495
464,727
466,222
6,153
6,153
291,158
40,907
697
127,307
460,069
92,647
92,647
41,146
338,180
379,326
243
243
291,126
40,907
757
46,293
379,083
43,578
43,578
(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, Medley Jewellery 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 at 28 June 2020 of $33,000 (2019: $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,
94 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Michael Hill Franchise Holdings Ltd, Michael Hill Finance (NZ) Ltd, Michael Hill Online Pty Ltd, Michael Hill Charms
Pty Ltd, Emma & Roe Pty Ltd, Medley Jewellery Pty Ltd, Michael Hill Online Holdings Ltd and Emma & Roe NZ Ltd.
The Class Order requires the Parent Company and each of the subsidiaries to enter into a Deed of Cross
Guarantee. The effect of the deed is that the Company guarantees each creditor payment in full of any debt in the
event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up
occurs under other provisions of the Corporations Act 2001, the Company will only be liable in the event that after
six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event
that the Company is wound up.
The above companies represent a Closed Group for the purposes of the Class Order and, as there are no other
parties to the Deed of Cross Guarantee that are controlled by Michael Hill International Limited, they also represent
the Extended Closed Group.
(a) CONSOLIDATED STATEMENT OF PROFIT OR LOSS, STATEMENT OF COMPREHENSIVE INCOME AND
SUMMARY OF MOVEMENTS IN CONSOLIDATED RETAINED EARNINGS
Set out below is a consolidated statement of profit or loss, a consolidated statement of comprehensive
income and a summary of movements in consolidated retained earnings for the year ended 28 June 2020 of
the closed group consisting of Michael Hill International Limited and the entities noted above.
Consolidated 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
Change in accounting policy – adoption of AASB 16
Total comprehensive income / (loss)
Share rights through share based payments reserve
Option expense through share based payment reserve
Dividends paid
Total equity at the end of the financial year
2020
$000
370,986
30,941
15,703
(175,412)
(117,063)
(9,193)
(20,684)
(15,223)
(40,988)
(454)
(17,588)
(6,949)
14,076
(3,801)
10,275
2019
$000
430,052
48,004
988
(206,255)
(125,720)
(45,645)
(24,133)
(21,333)
(13,714)
(498)
(15,468)
(2,574)
23,704
(4,203)
19,501
(23,808)
(23,808)
(13,533)
11,336
11,336
30,837
474,874
(23,574)
(13,533)
-
(28)
(11,633)
426,106
463,296
-
30,837
95
11
(19,365)
474,874
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 95
Notes to the financial statements cont.
Note 23 Deed of cross guarantee continued
(b) CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Set out below is a consolidated statement of financial position as at 28 June 2020 of the Closed Group consisting
of Michael Hill International Limited and the entities noted above.
Current assets
Cash and cash equivalents
Trade receivables
Inventories
Current tax receivables
Loans to related parties
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Investments in subsidiaries
Other non-current assets
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Lease liabilities
Current tax liabilities
Deferred revenue
Provisions
Total current liabilities
Non-current liabilities
Lease liabilities
Provisions
Deferred revenue
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
2020
$000
2019
$000
6,915
8,953
144,719
-
231,628
1,980
394,195
26,004
81,372
87,834
1,465
24,419
64,952
286,046
3,704
9,004
137,750
(358)
244,716
2,904
397,720
34,617
-
87,834
2,062
15,386
55,713
195,612
680,241
593,332
56,575
23,732
8,260
17,456
24,505
130,528
73,776
8,339
41,492
123,607
20,488
-
-
19,597
25,824
65,909
-
6,947
45,602
52,549
254,135
118,458
426,106
474,874
310,006
(24,633)
140,733
426,106
309,975
(750)
165,649
474,874
96 MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020
Directors' declaration
In the Directors' opinion:
(a) there are reasonable grounds to believe that the Company will be able
to pay its debts as and when they become due and payable;
(b) the financial statements and notes of the Group for the financial year
ended 28 June 2020, 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 28 June 2020 and of its performance for the financial
year ended on that date;
(c) as at the date of this declaration, there are reasonable grounds to
believe that the members of the extended closed group identified in
Note 24 will be able to meet any obligations or liabilities to which they
are, or may become, subject to 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 the directors.
E.J. Hill, Chair
Brisbane, 18 August 2020
MICHAEL HILL INTERNATIONAL LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 JUNE 2020 97
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
Independent Auditor's Report
to the Members of Michael Hill International Limited
Report on the Audit of the Financial Report
OPINION
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 28 June 2020, 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 statements, 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 28 June 2020 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 OPINION
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 (including
Independence Standards) (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 AUDIT MATTERS
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.
98 MICHAEL HILL INTERNATIONAL LIMITED AUDITOR'S REPORT
EXISTENCE OF INVENTORY
Why significant
The existence of inventories was a key audit matter
due to the size of the recorded asset (28 June 2020:
$178,472,000) which represents 36% (2019: 47%) of the
Group’s total assets, the nature of the inventory and its
location.
Inventories are primarily kept in the Group’s retail
stores situated in three countries and the distribution
centre and manufacturing warehouse.
Inventories
comprise a significant number of physically small but
high value items. Moreover, a significant portion of
stock was returned to the distribution centre due to the
temporary store closures due to COVID-19 and then
returned to stores once they re-opened.
The Group accounts for inventories in accordance
with the policy disclosed in Note 2(k) and further
disclosure is included in Note 9(a) of the financial report.
How our audit addressed the key audit matter
Our audit procedures included the following:
Retail Stores and Manufacturing
• Assessed the effectiveness of controls relevant to the conduct of physical
stocktaking for a sample of the Group’s retail stores and the manufacturing
warehouse to assess whether inventories had been appropriately counted at
each location and whether movements in to and out of each location prior to
and subsequent to the counts had been appropriately recorded.
• We reviewed the summary of stock variances and results prepared by Internal
audit across the sample of stores and considered the impact of their findings in
our audit approach.
• Selected samples of stock receipts prior to and after the stock count including
transfers to stores, to assess whether these were appropriately recorded in the
correct period.
Distribution Centre
• We performed sample counts of the Distribution Centre at year-end to assess
the existence of stock and corroborate the findings of the Group’s full stock count.
• Selected samples of stock receipts prior to and after the stock count including
transfers to stores, to assess whether these were appropriately recorded in the
correct period.
• Tested a sample of transfers back to the stores in Canada as a result of the
temporary store closures during the period. We subsequently attended a number
of stores in Canada to physically observe transferred product had been received.
• We performed inventory analysis for the stores and tested any unusual fluctuations,
outside of our set expectations of the year-end balance, compared to the stock
take. We also compared the movement in stock balances at a country level from
the stock take date to year-end.
• We reviewed the implementation of the new Enterprise Resource Planning
Inventory system from June 2020 and assessed the proper cut-over of stock
balances to the new system.
ADOPTION OF AUSTRALIAN ACCOUNTING STANDARD AASB 16 – LEASES
Why significant
How our audit addressed the key audit matter
The 28 June 2020 financial year was the first year of
adoption of Australian Accounting Standard AASB
16 – Leases. The Group has entered into a significant
volume of leases by number and value through its store
network and head office as a lessee.
Given the financial significance to the Group
of its leasing arrangements, the complexity and
judgements involved in the application of AASB 16,
the transition requirements of the standard and the
subsequent amendment to consider the impact on rent
concessions due to COVID-19, this was considered to
be a key audit matter.
In addition, the complexity in the modelling of the
accounting for the leases, including the calculation of the
incremental borrowing rate and the judgement involved
in the treatment of renewal options is significant.
Upon transition, a lease liability of $168.0 million,
right of use asset of $144.3 million including the deferred
tax effect and a restatement to opening retained
earnings of $13.0 million was recorded on the statement
of financial position as outlined in Note 2(x).
Our audit procedures assessed the existence, completeness and valuation of AASB
16 lease balances and the related financial report disclosures. These procedures
included the following:
• Assessed the appropriateness of the accounting policies, transition and new
disclosures as set out in Notes 2(o) and 2(x) for compliance with the requirements
of AASB 16 including the adoption of any practical expedients selected by the
Group as part of the transition process.
• Assessed the integrity of the Group’s AASB 16 lease calculation model used,
including the mathematical accuracy of the underlying calculation formulas of
the accounting module utilised by the Group.
• For a sample of leases, we agreed the key inputs in the lease accounting module
to the relevant terms of the underlying signed lease agreements.
• We considered the Group’s assumptions in relation to the treatment of lease
renewal options.
• Assessed completeness of the leases included in transition including the recon-
ciliation of the operating lease commitments disclosure in the prior year financial
report to the transition disclosures and new leases entered during the year.
• Assessed the internal borrowing rate used to discount future lease payments
to present value for reasonableness by performing sensitivities using published
interest rates and terms of the Group’s existing debt facilities.
• Tested a sample of rent concessions agreed to contracts and other supporting
documentation.
MICHAEL HILL INTERNATIONAL LIMITED AUDITOR'S REPORT 99
PROFESSIONAL CARE PLAN (PCP) REVENUE RECOGNITION
Why significant
How our audit addressed the key audit matter
Our audit procedures included the following:
• Considered the Group’s PCP revenue recognition accounting
policies and assessed compliance with the requirements of
Australian Accounting Standards.
• Assessed the effectiveness of controls relating to PCP revenue
recognition.
• Assessed the appropriateness of the balance of the PCP revenue
recognised during the year and the closing deferred PCP contract
liability at year end based on the usage pattern.
• Assessed the Group’s calculation supporting the change in
estimate relating to revenue recognition, which included agreeing
assumptions to samples of the underlying PCP repairs usage data.
• Considered the changes in the PCP revenue recognition as a result
of the temporary store closures during the COVID-19 lockdowns.
The recognition of professional care plan (PCP) revenue was 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 offered to the Group’s customers.
The estimation is based on a combination of comparative market
data and an analysis of services (through historical repairs data) made
under these plans since inception in October 2010. The estimation is
reviewed by the Group at least on an annual basis.
As disclosed in Note 3(a) of the financial report, the Group’s
performance obligation for its PCPs are satisfied over time. In measuring
the progress toward complete satisfaction of the performance
obligation, the Group uses customer usage history and industry
information. As such, the determination of the pattern of revenue
recognition is judgmental.
The pattern of recognising revenue, is disclosed in Note 5(c)(iii)
of the financial report and is based on an input method to measure
progress towards complete satisfaction of the service, because
the customer simultaneously receives and consumes the benefits
provided by the Group. As circumstances change over time, the
Group updates its measure of progress to reflect any changes in
the outcome of the performance obligation. In accordance with
Australian Accounting Standards such changes are reflected in the
current year results.
This change in estimate has been disclosed in Note 5(c)(iii) to the
financial report.
CASHFLOW FORECASTS AND THE IMPACT OF COVID-19
Why significant
How our audit addressed the key audit matter
During the second half of the financial year, the Group was impacted
by COVID-19. All bricks-and-mortar stores were temporarily closed in
order to maintain the safety of the Group’s staff and customers and
as also required by local Government regulations.
The cashflow forecasts are used in the Group’s impairment review
of its cash generating units (CGUS) and used to prepare forecast
debt covenant calculations to assess associated compliance. The
Group’s cash flow forecasts involve a number of assumptions and
uncertainty around the short and medium term impact of COVID-19
to the Group. Sensitivity to changes in key assumptions could affect
the Group’s assessment of the recoverable amount of its CGUs at
balance date or forecast debt covenant compliance. Accordingly,
this was considered a key audit matter.
The significant judgement and estimates associated with the
Group’s measurement of its forecast cash flows are disclosed in Note
3(a) of the financial report.
Our audit procedures included the following:
• Assessed the cash flow forecasts approved by the Board taking
into account our knowledge of the business and relevant external
information as at 28 June 2020.
• Considered the reasonableness of the assumptions used in the
cash flow forecasts based on historical results, growth rates and a
range of possible scenarios resulting from the ongoing uncertainty
associated with COVID-19.
•
• Assessed the Group’s sensitivity analysis on its CGUs in three main
areas being the cash flows, discount rate and terminal growth rate
assumptions.
In conjunction with our Valuation Specialists, we assessed the ap-
propriateness of the discount rate applied to the cash flows of
each CGU to assess whether the rate reflects the risks, including
COVID-19 risks, associated with the respective cash flow forecasts
for impairment testing.
• Assessed the Group’s sensitivity analysis on forecast debt
covenant compliance at the future reporting points to the external
financier for a period of 12 months from signing the financial
statements and the related appropriateness of management’s
consideration on the going concern assumption.
the appropriateness of
the disclosures around
significant judgments and estimates as required by the relevant
Accounting Standards.
• Assessed
100 MICHAEL HILL INTERNATIONAL LIMITED AUDITOR'S REPORT
INFORMATION OTHER THAN THE FINANCIAL REPORT
AND AUDITOR’S REPORT THEREON
The directors are responsible for the other information. The other
information comprises the information included in the Group’s 2020
Annual Report, other than the financial report and our auditor’s report
thereon. We obtained the Directors’ Report that is to be included in
the Annual Report, prior to the date of this auditor’s report, and we
expect to obtain the remaining sections of the Annual Report after
the date of this auditor’s report.
Our opinion on the financial report does not cover the other
information and accordingly we do not express any form of assurance
conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audit of the financial report, our respon-
sibility 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 on the other information
obtained prior to the date of this auditor’s report, 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.
RESPONSIBILITIES OF THE DIRECTORS FOR
THE FINANCIAL REPORT
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.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT
OF THE FINANCIAL REPORT
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
judgment and maintain
Standards, we exercise professional
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, misrep-
resentations, or the override of 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, actions taken to eliminate threats or safeguards applied.
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.
REPORT ON THE AUDIT OF THE REMUNERATION REPORT
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors'
report for the year ended 28 June 2020.
In our opinion, the Remuneration Report of Michael Hill International
Limited for the year ended 28 June 2020 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.
• 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.
Ernst & Young
Alison de Groot, Partner
Brisbane
18 August 2020
MICHAEL HILL INTERNATIONAL LIMITED AUDITOR'S REPORT 101
Additional Information as at 4 September 2020
Michael Hill has one class of shares on issue (being ordinary shares). The Company’s shares are listed on the
Australian Securities Exchange and the New Zealand Stock Exchange.
Issued capital
Number of shareholders
Minimum Parcel Price
Holders with less than a marketable parcel
Twenty largest shareholders
Hoglett Hamlett Limited*
J P Morgan Nominees Australia Pty Limited
New Zealand Central Securities Depository Ltd
HSBC Custody Nominees (Australia) Limited
Mole Hill Limited*
Squeakidin Limited*
Forsyth Barr Custodians Limited
Citicorp Nominees Pty Limited
New Zealand Depository Nominee Limited
FNZ Custodians Limited
BNP Paribas Nominees Pty Ltd
Vanward Investments Limited
BNP Paribas Noms Pty Ltd
Custodial Services Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Nominees (NZ) Ltd
DDS Trustee Services Limited
Mr Philip Roy Taylor
ASB Nominees Limited
Ronoc Holdings Limited
Total
Total remaining holders balance
Number
387,843,007
4,664
$0.360
693
% of Fully Paid
Ordinary Shares
38.25
7.15
6.70
5.35
4.94
4.94
1.07
0.79
0.79
0.76
0.62
0.59
0.47
0.45
0.44
0.41
0.40
0.39
0.37
0.26
75.14
24.86
Fully Paid
Ordinary Shares
148,330,600
27,738,925
25,999,936
20,759,965
19,156,926
19,156,926
4,135,720
3,064,265
3,053,562
2,942,501
2,407,060
2,298,056
1,835,927
1,746,928
1,719,535
1,578,009
1,570,353
1,500,000
1,418,884
1,000,000
291,414,078
96,428,929
* Denotes entities in which a member or members of the Hill family have an ownership interest.
Distribution Of Security Holders
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
Over 100,000
Total
102
Number of
fully paid
ordinary shares
600
1,483
919
1,488
174
4,664
No. of holders
of fully paid
ordinary shares
375,846
4,508,062
7,548,131
46,115,242
329,295,726
387,843,007
Unmarketable parcels
Minimum $500.00 parcel at $0.360 per unit
Minimum
parcel size
1,389
Holders
Units
693
490,595
Substantial holders
As at 4 September 2020, there are five substantial shareholders that Michael Hill is aware of:
Hoglett Hamlett Limited and others*
Mark Simon Hill
Emma Jane Hill
Accident Compensation Corporation
Spheria Asset Management Pty Ltd
Latest notice date
13 October 2016
13 October 2016
13 October 2016
2 April 2020
21 August 2020
Shares
148,330,600
167,487,526
167,487,526
28,717,313
28,915,143
* Includes: Hoglett Hamlett Limited (New Zealand incorporated company with company number 5994887), Sir
Richard Michael Hill, Lady Ann Christine Hill and Veritas Hill Limited (New Zealand incorporated company with
company number 2303840).
The above table sets out the number of securities held by substantial shareholders in Michael Hill as disclosed
in their last substantial shareholder’s notice. Those shareholders may have acquired or disposed of securities
in Michael Hill since the date of that notice. A substantial shareholder is only required to disclose acquisition or
disposals where there has been a movement of at least 1% in their shareholding.
Share Options and Rights
Michael Hill has unlisted share options and rights on issue. As at 4 September 2020, there were 11 holders of share
options and rights.
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Corporate directory
DIRECTORS
E.J. Hill BCom, MBA (Chair)
Sir R.M. Hill KNZM
G.W. Smith BComm, FCA, FAICD
R.I. Fyfe BEng, FENZ
J.S. Allis
J.E. Naylor
COMPANY SECRETARY
A. Lowe
BCom, LLB (Hons), MAppFin, CA, CTA
E. Bird LLB (Hons), BA (Psych),
GradDipLegalPrac, GradDipAppCorpGov
PRINCIPAL REGISTERED
OFFICE IN AUSTRALIA
Metroplex on Gateway
7 Smallwood Place
Murarrie, QLD 4172
Telephone +61 7 3114 3500
Fax +61 7 3399 0222
SHARE REGISTRAR
Computershare Investor
Services Pty Ltd
Level 1 , 200 Mary Street
Brisbane QLD 4000
1300 552 270
(within Australia)
+61 3 9415 4000
(outside Australia)
AUDITOR
Ernst & Young
Level 51
111 Eagle Street
Brisbane, QLD 4000
SOLICITOR
Allens
Level 26
480 Queen Street
Brisbane QLD 4000
BANKERS
Australia and New Zealand
Banking Group Limited
ANZ Banking Group
(New Zealand) Limited
Bank of Montreal
Bank of America N.A.
WEBSITES
michaelhill.com.au
michaelhill.co.nz
michaelhill.ca
michaelhill.com
medleyjewellery.com.au
investor.michaelhill.com
EMAIL
inquiry@michaelhill.com.au
THIS PAGE AND OPPOSITE PAGE:
PENDANTS AND EARRINGS FROM OUR
SPIRITS BAY COLLECTION
BACK COVER: MODEL WEARS ITEMS FROM
OUR KNOTS COLLECTION
SPIRITS BAY AND KNOTS COLLECTIONS
WERE DESIGNED BY CHRISTINE HILL
104
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