Michael Hill looks for lower taxes – moves to AUS
Michael Hill looks for lower taxes – moves to Australia
By Paul McBeth
Dec. 16 – Michael Hill International Ltd., New Zealand’s largest jewellery chain, will shift its operation to Australia, gaining tax benefits as tight retail margins put its profits under pressure.
The jeweller has been moving more of its business to Australia, including its head office, over the last five years having negotiated a pricing arrangement with the Australian Taxation Office and Inland Revenue Department in 2003. The company’s Australian subsidiary, Michael Hill Franchise Pty, will buy Michael Hill Jeweller System for NZ$293 million.
The restructuring “will materially and positively affect the after-tax profits and cash flow of the group,” chairman Michael Hill said in a statement. “This fundamental shift in functions has also required the Group to review its existing international transfer pricing arrangements which are in place for taxation purposes.”
The company said retail conditions have been “very challenging” in the second quarter, with same-store sales growth stalled in Australia and weaker in New Zealand and Canada.
For the five months to Nov. 30, the company record a 7.9% increase in sales to NZ$147.7 million, driven by an 8.6% increase for its Australian stores, which account for more than two-thirds of the company’s revenue. New Zealand sales dropped 7.1% to NZ$32.5 million.
The strength of the U.S. dollar versus the Australian dollar was blamed for putting margins under pressure, and the company expects its new American business to operate at a loss in the current year.
The company expects the restructure to see an increase in net profit for the 2008/09 year by NZ$57 million, “due primarily to the recognition of future Australian taxation deductions.” It expects the tax deductions to boost profit by NZ$7.4 million every year until at least 2012/13. The restructure aims to improve efficiencies and governance structures, and it’s forecasting an increase in cash flow of NZ$4.5 million this year, with a NZ$9.5 million rise per annum over the next four years.
The jeweller’s stock rose 1.67% to 61 N.Z. cents, having dropped over 30% in the last 12 months.
(Businesswire)
ENDS