Surplus After Tax

Michael Hills surplus after tax, before abnormal items for 2002 was a record $12.298 million, up 22.5% on the previous year. The surplus after abnormals was $12.706 million, up 26.6%.

• An increase in sales in New Zealand of 18%, resulting in a 32.6% increase in EBIT contribution and a 10.4% increase in sales in Australia resulting in a 24.4% increase in EBIT in Australia.
• Same store sales increased by 13% in New Zealand and 6.4% in Australia.

It should be noted that the increase in unallocated expenses shown in the segment statement has resulted from the establishment of a number of group functions now undertaken in Australia on behalf of the whole group; in particular strategic direction, marketing, supply chain management, human resource management and IT. Some of these group activities were commenced in 2000/01 and were reflected in the Australian segment results shown that year. These group costs amounted to $1,930,000 in 2001/02.

Depreciation and amortisation charged to profit was $4.85 million compared to $4.27 million in 2002.

Our interest costs for the year were $2.014 million compared to $2.142 million for the previous year and were covered 10.3 times by earnings compared with 8.1 times the previous year.

Our rental and operating lease costs increased from $11.931 million (6.3% of revenue) to $13.274 million (6.2% of revenue).

The surplus after tax included a gain of $408,000 on the sale of the New Zealand Head Office building in August 2001. The taxation charge increased from $5.091 million to $5.992 million due to the increased profit. The effective tax rate for the year was 32.1%.

Cash Flow

Net cash flow from operating activities for 2001 was $8.871 million, up 12.5% on the previous year.

Key drivers of this were:

• Receipts from customers increased by 23.3% to $231.783 million, reflecting increased sales in both countries. However, a change in our credit provider in Australia for our customers did have a one-off negative effect of around $6 million on our operating cash flow for the year.
• Payments to suppliers and employees increased from $170.1 million to $214.3 million reflecting the increased number of stores operating, and also this reflects higher performance bonuses paid to staff during the year.
• Income taxes paid out reduced from $7.91 million to $6.75 million reflecting the reduction in corporate tax rates in Australia from 34 cents to 30 cents.

Cash outflow relating to investing activities was $4.448 million compared to $7.850 million the previous year.

• Sale of the New Zealand Head Office building which realised $1.5 million in cash.
• Cash paid for new store fitouts and refurbishments was down from $8.028 million in 2000/01 to $6.256 million.

Cash flow relating to financing activities changed to an outflow of funds of $4.087 million from an inflow of $840,000 in 2000/01.

• Net outflow of $435,000 relating to the management share purchase scheme.
• Dividends paid increased to $5.978 million from $5.410 million.
• Net borrowings of $2.326 million versus net borrowings of $6.250 million in 2000/01.

Balance Sheet

Net assets increased from $49.572 million to $53.328 million reflecting an increase in total assets to $96.413 million from $91.331 million, and offset by an increase in total liabilities from $41.759 million to $43.085 million.

Long term borrowings remained nearly static at $27.965 million versus $27.525 million, and our net debt to debt plus equity ratio reduced from 35.3% in 2001/02 to 34% in 2002/02.

• Debtors increasing by $6.271 million, reflecting a change in our customer credit provider in Australia. The payments are guaranteed but are spread over a longer period than previously.
• Total property plant and equipment including properties intended for sale down from $22.793 million to $20.673 million, reflecting the sale of the New Zealand Head Office building, and increased depreciation charges and amortisation charges exceeding capital expenditure.
  

EVENTS AFTER BALANCE DATE
The Company signed a contract for the sale of its Australian Head Office building in August 2002. The sale price was A$4.5 million and full settlement was made on the 13th September 2002. An after tax profit of A$1,069,000 will be booked in the 2002/03 financial year.

• Declared dividends total 17 cents per share compared to 15 cents for 2000/01. (This includes the final dividend declared on 22nd August).
• Shares traded between $3.80 and $5.30 ending at $5.00 at 30 June 2002.
• Average return on equity for year 23.9%, -2000/01 21.8%.