AGM Presentation

1
ANNUAL
GENERAL
MEETING
24 October 2018

Certain statements in this announcement constitute
forward-looking statements. Forward-looking stateme
nts are statements (other than
statements of historical fact) relating to future e
vents and the anticipated or planned financial and
operational performance of Michael Hill
International Limited and its related bodies corpor
ate (the Company). The words “targets,” “believes,”
“expects,” “aims,” “intends,”
“plans,” “seeks,” “will,” “may,” “might,” “anticipa
tes,” “would,” “could,” “should,” “continues,” “est
imates” or similar expressions or the
negatives thereof, identify certain of these forwar
d-looking statements. Other forward-looking stateme
nts can be identified in the context
in which the statements are made. Forward-looking s
tatements include, among other things, statements a
ddressing matters such as the
Company’s future results of operations; financial c
ondition; working capital, cash flows and capital e
xpenditures; and business strategy,
plans and objectives for future operations and even
ts, including those relating to ongoing operational
and strategic reviews, expansion into
new markets, future product launches, points of sal
e and production facilities.
Although the Company believes that the expectations
reflected in these forward-looking statements are
reasonable, such forward-looking
statements involve known and unknown risks, uncerta
inties and other important factors that could cause
the Company’s actual results,
performance, operations or achievements or industry
results, to differ materially from any future resu
lts, performance, operations or
achievements expressed or implied by such forward-l
ooking statements.
Such risks, uncertainties and other important facto
rs include, among others: global and local economic
conditions; changes in market
trends and end-consumer preferences; fluctuations i
n the prices of raw materials, currency exchange ra
tes, and interest rates; the
Company’s plans or objectives for future operations
or products, including the ability to introduce ne
w jewellery and non-jewellery
products; the ability to expand in existing and new
markets and risks associated with doing business g
lobally and, in particular, in emerging
markets; competition from local, national and inter
national companies in the markets in which the Comp
any operates; the protection and
strengthening of the Company’s intellectual propert
y rights, including patents and trademarks; the fut
ure adequacy of the Company’s
current warehousing, logistics and information tech
nology operations; changes in laws and regulations
or any interpretation thereof,
applicable to the Company’s business; increases to
the Company’s effective tax rate or other harm to t
he Company’s business as a result of
governmental review of the Company’s transfer prici
ng 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 p
rove to be incorrect, the Company’s
actual financial condition, cash flows or results o
f operations could differ materially from that desc
ribed herein as anticipated, believed,
estimated or expected.
The Company does not intend, and do not assume any
obligation, to update any forward-looking statement
s 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
Company’s behalf are expressly qualified in their e
ntirety by the cautionary statements referred to ab
ove and contained elsewhere in this
announcement.
DISCLAIMER
2

3
CHAIR’S
ADDRESS
2018

4
EXECUTIVE REVIEW
• OVERVIEW AND STRATEGIC
SNAPSHOT
• FINANCIAL HIGHLIGHTS• GROUP RESULTS• STRATEGIC SHIFTS • PRIORITIES FOR 2018-19

OVERVIEW AND STRATEGIC SNAPSHOT
•
FY18 was a year of recalibration and repositioning,
with the
closure of the US stores and Emma & Roe brand and a
refocus
on the three core markets of Australia, New Zealand
and
Canada.
•
Revenue from continuing operations of $575.5m was u
p 4.4%.
•
Statutory NPAT of $4.6m, impacted by one-off closur
e costs
and deterioration in performance for Emma & Roe and
the
US. NPAT from continuing operations of $34.8m.
•
EBIT from continuing operations of $50.1m and norma
lised
EBIT of $40.1m.
•
EBIT from continuing retail segments (Australia, Ne
w Zealand,
Canada) of $89.1m, down 1.6% from prior year of $90
.5m.
•
Canadian segment continues to gain market share wit
h a
record EBIT for the year of CA$14.6m.
Revenues $575.5mNPAT continuing operations $34.8mEBIT from continuing operations $50.1mFull year dividend 5cCash FlowNet Debt
5

•
The Group has identified five strategic shifts that
are designed to reposition Michael Hill from a
traditional retailer to a differentiated omni-chann
el brand:
•
Omni-channel:
Building capability to deliver a seamless customer e
xperience
•
Customer loyalty:
Building data capability to better service customers
•
Unique branded collections:
Escalate our growth of branded collections
•
Brand position:
Strengthen and grow brand loyalty
•
Operational excellence:
Enhance execution capability and agility
•
To deliver against this ambition, investment will b
e made in capability and infrastructure.
•
FY19 will be a foundational year, with the benefits
from these investments to be progressively
realised.
•
Incremental planned opex of $3m includes: COO, CPO a
nd additional roles in data and digital.
•
Planned capex of $25m for FY19 is in line with prio
r years: investment programme across new and
refurbished stores, IT systems, tools and infrastru
cture.
OVERVIEW AND STRATEGIC SNAPSHOT
6

FINANCIAL HIGHLIGHTS
$
575.5 MILLION
CONTINUING
OPERATIONS R E VE N U E
$
4.6 MILLION
NET PROFIT
AFTER TAX
$
54.9 MILLION
OPE R ATI NG N ET CASH I N FLOW
$
28 MILLION
NET DEBT
2017: $39.4m
$
50.1
MILLION
E B I T
CONTINUING OPERATIONS
5.0c
DIVID E N D
2017: 5.0 C
63.7%
GROSS MARG IN
0.4%
SAME STOR E
SALES
37.8%
17
NEW STORES
OPENED
7
4.4%

18.0%
BRANDED COLLECTION SALES
$35.7
MILLION
PCP SALES
(CONTINUING OPERATIONS)
$89.1 MILLION
EBIT FROM CONTINUING RETAIL SEGMENTS
$10.3 MILLION
E-COMM E RCE SALES
GROWTH
57.4%
FINANCIAL HIGHLIGHTS
1.6%
2017: 14.2%
50.4%
EQ U ITY RATI O
2017: 52.0%
8
3.8%
C A N A DA
SAM E STOR E SALES
G ROWTH
2.3%
N E W
Z EA L A N D
SAM E STOR E SALES
G ROWTH
-0.9%
AU ST R A L I A
SAM E STOR E SALES
G ROWTH

•
Revenue from continuing operations grew 4.4%, with sa
me store sales up 0.4%
•
Gross margin for the Group was flat on prior year a
t 63.7% of revenue
•
Normalised EBIT before one-off items of $40.1m, dow
n from $48.1m
•
EBIT from continuing operations of $50.1m
•
Full year dividend of 5.0 cents per share in line wit
h prior year, unfranked and fully imputed
For the year ending
AUD
Jun-18
Jun-17
move
Revenue
575.5m
551.1m
4.4%
Gross profit
366.9m
351.0m
4.5%
Gross profit as a % of revenue
63.7%
63.7%
-
EBIT – continuing operations
50.1m
62.3m
-19.5%
EBIT – continuing operations as a % ofrevenue
8.7%
11.3%
-2.6%
Normalised EBIT
40.1m
48.1m
-16.6%
Normalised EBIT – as a % of revenue
6.6%
8.3%
-1.7%
Statutory EBIT
13.2m
48.1m
-72.5%
Statutory EBIT as a % of revenue
2.3%
8.7%
-6.4%
Total stores open
312
332
-20
9
GROUP RESULTS

MICHAEL HILL AUSTRALIA
RETAIL S E G M E N T
•
Revenue grew by 1.2% in a tough retail market
•
Gross margin of 63.3%, up from 62.6% in prior year
•
Rising costs and a challenging retail environment imp
acted EBIT of $48.6m
•
7 new stores opened during the year and 2 closed, gi
ving a total of 171 trading at the end of the
period
•
Potential exists to deliver superior results over ti
me which will be assisted by splitting the large
Australian segment into two businesses each led by
a Retail General Manager
For the year ending
AUD
Jun-18
Jun-17
move
Revenue
325.7m
322.0m
1.2%
Gross profit
206.3m
201.7m
2.3%
Gross profit as a % of revenue
63.3%
62.6%
0.7%
EBIT
48.6m
51.7m
-5.9%
EBIT as a % of revenue
14.9%
16.1%
-1.2%
Total stores open
171
166
5
10

11

MICHAEL HILL NEW ZEALAND
RETAIL S E G M E N T
•
Revenue grew by 2.7% to NZ$125.2m
•
Same store sales growth of 2.3% in a mature market
•
EBIT of NZ$27.8m, in line with the prior year
•
The focus in this mature market is on improving sto
re locations and building average store
sales through broadening our product offer and impr
oving our online sales channel
•
Total of 52 stores trading at 30 June 2018
For the year ending
NZD
Jun-18
Jun-17
move
Revenue
125.2m
122.0m
2.7%
Gross profit
77.7m
75.2m
3.3%
Gross profit as a % of revenue
62.0%
61.7%
0.3%
EBIT
27.8m
27.8m
-
EBIT as a % of revenue
22.2%
22.8%
-0.6%
Total stores open
52
52
-
12

13

MICHAEL HILL CANADA
RETAIL S E G M E N T
•
Revenue grew by 16.0% to CA$130.8m
•
Same store sales grew 3.8%
•
EBIT increased 17.9% to a record CA$14.6m
•
This segment continues to show good growth as it ac
hieves scale and increases
market share
•
8 new stores opened during the year and 1 closed, givi
ng a total of 83 stores
operating
For the year ending
CAD
Jun-18
Jun-17
move
Revenue
130.8m
112.7m
16.0%
Gross profit
81.6m
69.1m
18.1%
Gross profit as a % of revenue
62.4%
61.3%
1.1%
EBIT
14.6m
12.4m
17.9%
EBIT as a % of revenue
11.2%
11.0%
0.2%
Total stores open
83
76
7
14

15

16
STRATEGIC SHIFTS

OMNI-CHANNEL: BUILDING CAPABILIITY TO DELIVER A SEA
MLESS CUSTOMER
EXPERIENCE
Evolving our online experience, including integrati
on of digital and social channels with our store
network, to enable a seamless experience for custom
ers where and when they engage with us.
•
Target growth in e-commerce
– e-commerce revenues increased by 57.4% in FY18, dr
iven by an
uplift in online activity to now represent over 1.8
% of the Group's total revenue. We will target
continued e-commerce growth.
•
Continue to focus on online experiences
– investment being made in better online capabilitie
s to
evolve our online offering and to capitalise on gro
wing levels of customer interest, including on
social media channels.
•
Increase market share
– seeking to achieve through improved customer engag
ement across all
channels and increased frequency of visit.
•
Long-term vision
– e-commerce revenues are expected to grow in coming
years as we refine our
offer and optimise our online channels. Our planned
investment in our e-commerce capability will
take full advantage of this growth opportunity.
•
A global e-commerce presence
– the Group operates Michael Hill e-commerce sites i
n all of our
markets and an Emma & Roe e-commerce site in Austra
lia, which will operate for part of next
financial year to facilitate stock clearance for th
at brand.
17

CUSTOMER LOYALTY: BUILDING DATA CAPABILITY TO BET TE
R SERVICE
CUSTOMERS
Using data driven customer insights to deliver tail
ored customer experiences to drive brand loyalty
and advocacy.
•
A focus on customer data and insights
– Build our data and insights capability to be better

informed and service our multi customer groups to d
eliver tailored customer experience and grow
brand loyalty.
•
An immersive cross-channel experience
– additional resources for our e-commerce strategy,
especially in relation to digital and data, which w
ill be the foundation of the Group’s omni-channel
and customer engagement strategies.
18

UNIQUE BRANDED COLLECTIONS: ESCALATE OUR GROWTH OF
BRANDED
COLLECTIONS
Through enhanced designer capability, create unique
branded collections to meet growing customer
demand for differentiated products.
•
Growth through proprietary branded collections
– planning to grow revenue by increasing
investment in these ranges. Branded collections pro
vide a unique product offering to our
customers and in doing so, builds strong brand equi
ty in the markets we operate in.
•
Increased consumer demand
– branded collection sales increased to 18.0% of tot
al product sales
in FY18, up from 14.2% on the prior year. We are pl
anning for continued growth.
•
Sustained revenue growth
– branded collection sales targeted for further grow
th as a percentage
of total sales.
19

BRAND POSITION: STRENGTHEN AND GROW BRAND LOYALTY
Based on recent brand review, we will reposition ou
r brand in market to meet the changing
consumer landscape.
•
Better engagement with our customers
– differentiate the brand from our competitors to cr
eate a
point of difference and acquire market share.
•
Focus on gross margins
– gross margins grew across all continuing retail se
gments as a result of
our proprietary collection strategy commanding a pr
emium.
•
Australia +0.7% to 63.3%
•
New Zealand +0.3% to 62.0%
•
Canada +1.1% to 62.4%
20

OPERATIONAL EXCELLENCE: ENHANCE EXECUTION CAPABILIT
Y AND AGILITY
Build capability and agility throughout the organis
ation to adapt quickly to a fast changing retail
environment.
•
Improve IT infrastructure and systems
– investment in our finance, HR, customer experience
and
inventory management systems and supporting cloud b
ased infrastructure.
•
Increase our presence in local markets
– committed to expanding the Michael Hill brand in
Australia, Canada and New Zealand with plans to ope
n a minimum of 10 new stores this year
across these three markets, subject to site availab
ility.
•
Implement our new Point of Sale system
– the Group introduced a new Point of Sale system
across all 171 Australian stores in FY18. New Zeala
nd and Canadian stores are set to be completed
in the first quarter of FY19.
•
Continued focus of GMROI (gross margin return on in
vestment)
– improved to 1.48 in FY18
through a combination of inventory range refinement
and improved margin management. We will
target further improvement in GMROI in FY19.
•
Disciplined financial management
– continued strong operational cash flows will enabl
e further
debt reduction and capital investment levels to be
maintained, while also leaving the Group well
placed to explore opportunities aligned with the fi
ve strategic shifts.
21

PRIORITIES FOR 2018-19
22
•
Open at least 10 new Michael Hill stores across all
markets.
•
Reposition Michael Hill from a traditional retailer
to a differentiated omni-channel retailer.
•
Branded collection sales to grow as a percentage of
total revenue.
•
Continued improvement in inventory management to de
liver further improvement in GMROI
(gross margin return on investment).
•
Continue to invest and develop the e-commerce busin
ess.

23

Q1 2019 TRADING UPDATE
24
•
Same store sales fell by 11% during the quarter
•
Gross profit lifted to 64.6%
•
3 new MH stores opened during the quarter and 3 wer
e closed
•
4 E&R stores closed during the quarter and we now h
ave just 2 remaining open
•
Ecommerce sales increased 85% for the quarter to $3
.4m

25
BUSINESS
OF THE
ANNUAL
GENERAL
MEETING

FINANCIAL REPORTfor the financial year ended 30 June 2018
26
Tabled for consideration:•
Audited financial statements;
•
Directors’ Report; and
•
Auditor’s Report.

RESOLUTION 1: Remuneration Report (Advisory Resolution)
27
To consider and if thought fit, pass the following
advisory resolution:
“That the Remuneration Report for the year ended 30
June 2018 (as set out in the
Directors’ Report) is adopted.”
FOR
AGAINST
OPEN
ABSTAIN
EXCLUDED
NO. OF SHARES
237,895,253
115,041
591,295
3,543,098
21,156,926
% OF ELIGIBLE VOTES
99.7
0.05
0.25
N/A
N/A
% OF ALL SECURITIES
61.4
0.03
0.15
0.91
5.46

RESOLUTION 2: Re-election of Emma Jane Hill as a Director
28
To consider and if thought fit, pass the following
resolution, as an Ordinary
Resolution of the Company:“That Emma Jane Hill, who retires by rotation in ac
cordance with Listing Rule 14.4
and Article 38.6 of the Company’s Constitution and,
being eligible, offers herself for
re-election as a Director.”
FOR
AGAINST
OPEN
ABSTAIN
EXCLUDED
NO. OF SHARES
259,402,888
152,834
462,041
3,283,850
0
% OF ELIGIBLE VOTES
99.76
0.06
0.18
N/A
N/A
% OF ALL SECURITIES
66.95
0.04
0.12
0.85
0.00

RESOLUTION 3: Re-election of Sir Richard Michael Hill as a Director
29
To consider and if thought fit, pass the following
resolution, as an Ordinary
Resolution of the Company:“That Sir Richard Michael Hill, who retires by rota
tion in accordance with Listing
Rule 14.4 and Article 38.6 of the Company’s Constit
ution and, being eligible, offers
himself for re-election as a Director.”
FOR
AGAINST
OPEN
ABSTAIN
EXCLUDED
NO. OF SHARES
259,410,355
156,589
454,041
3,280,628
0
% OF ELIGIBLE VOTES
99.77
0.06
0.17
N/A
N/A
% OF ALL SECURITIES
66.96
0.04
0.12
0.85
0

RESOLUTION 4: Re-election of Janine Suzanne Allis as a Director
30
To consider and if thought fit, pass the following
resolution, as an Ordinary
Resolution of the Company:“That Janine Suzanne Allis, who retires by rotation
in accordance with Listing Rule
14.4 and Article 38.6 of the Company’s Constitution
and, being eligible, offers
herself for re-election as a Director.”
FOR
AGAINST
OPEN
ABSTAIN
EXCLUDED
NO. OF SHARES
259,492,502
77,989
462,041
3,269,081
0
% OF ELIGIBLE VOTES
99.79
0.03
0.18
N/A
N/A
% OF ALL SECURITIES
66.98
0.02
0.12
0.84
0.00

31
THAN K YO U