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Dear Fellow Shareholders,
Michael Hill International has achieved a tax paid profit of $11,570,000 for the year ended 30 June 2003 including an after tax profit on the sale of our Australian Head Office building of $1,326,000. The profit achieved represents an excellent 22% return on average shareholders funds for the year. Over the past 6 years,our after tax return on funds employed has averaged 23.65%,matched by few companies on the NZ Stock Exchange.
Our main goals at the beginning of the year were to achieve group revenue of $234 million, an after tax operating profit of $12.98 million and most importantly to trial an expansion of the Michael Hill brand into Canada. Although our financial results fell short of the goals set, the operating results in both New Zealand and Australia were very close to the budgets set. Higher than budgeted group infrastructure costs,some one off costs,and a higher than budgeted loss on our entry into the Canadian market resulted in the
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overall operating profit being 16.7% down on the 2001/02 year. There were also a number of other factors that contributed to the decline including the strengthening of the NZ dollar against the Australian dollar, which accounted for $668,000 of the profit decline.
The drop in the operating profit needs to be seen in the light of the Boards strategic decisions to increase shareholder value over time. This includes the expansion trial into Canada, which Mike Parsell expands upon in his report,and the setting up of a group infrastructure that will cope with the expansion of the Group internationally beyond Australia and New Zealand. The benefits for shareholders from these strategic moves will flow through in the years to come.
The Company has maintained its ordinary dividend payout of 17 cents per share for the 12 months ended 30 June 2003. In addition, a special dividend of 20 cents per share was paid out in October 2002 following the sale and lease back of our Head Office building in Australia. Our growth opportunities remain substantial for the years ahead. In the 2002/03 financial year,we opened a further 15 stores 3 in NZ,8 in Australia,and 4 in Canada, bringing our total number of stores operating to 134 at 30 June 2003. There is significant potential for new stores in Australasia and our expansion into Canada will open up new horizons. Our fundamental philosophy of controlled profitable growth will underlie all our growth strategies.
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The profit achieved represents an excellent 22% return on average shareholders' funds for the year. Over the past 6 years,our after tax return on funds employed has averaged 23.65%, matched by few companies on the NZ Stock Exchange.
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In summary, it has been very much year of innovation, development and reorganisation fo the future. Our people have again performed exceptionally well and I congratulate all our staff in Australia and New Zealand. Our pioneers into Canada late last year deserve special mention. It is a challenge to take an unknown brand into a new market and I am delighted with their achievements.
I must also thank my fellow Board members for their contribution. Their combined advice and insight is invaluable in these exciting times. Our company is a team of dedicated and passionate professionals at all levels and their expertise and enthusiasm contributes enormously to our continuing success.
Our annual meeting this year will be held at Eden Park in Auckland on the 7th of November. I look forward to welcoming you all there.
Michael Hill
Chairman
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