Michael Hill International Limited/Announcement

Preliminary Final Report

Full Year Results24 August 2023MHJConsumer Discretionary

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A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation

Ernst & Young
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333
Fax: +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 2 July 2023 , the consolidated statement of profit or loss and other 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 2 July 2023
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.

A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation

Existence of inventories
Why significant How our audit addressed the key audit matter
As at 2 July 2023 the Group’s inventories
balance is $203 million or 38% of the Group’s
total assets.
Inventories are primarily kept in the Group’s 304
retail stores located in Australia, New Zealand
and Canada, and the distribution and
manufacturing centres. Inventories comprise a
large number of physically small but high value
items which are subject to misappropriation and
other loss.
The Group accounts for inventories in
accordance with the policy disclosed in Note
J1(H) and further disclosure is included in Note
A4 of the financial report.
Inventory is considered a key audit matter due
to the nature, size and geographic spread of
locations where items are held.
Our audit procedures included the following:
► Attended stocktakes conducted at 15 Michael
Hill branded and 5 Bevilles branded retail
stores across Australia, New Zealand and
Canada.
► In addition to the retail stores, we attended
the stocktakes completed at each of the
distribution and manufacturing centres in
June 2023 prior to year end.
► Testing the operating effectiveness of key
controls relevant to the conduct of physical
stocktakes, the review and investigation of
stocktake variances, and the approval of
adjustments made to stock quantities.
► At these stocktakes at the retail stores,
distribution and manufacturing centres, we
observed compliance with the stocktake
instructions (including the suspension of
inventory movements during the stocktake
process) and selected a sample of items to re-
count to establish the accuracy of the counts
performed by the Group.
► For each of the locations attended, and for a
further representative sample of retail stores,
we inspected evidence that stocktakes had
been conducted in accordance with Group
policies, stock variances identified had been
reviewed and approved, and that the
adjustments were accurately recorded.
► Where stocktakes were completed prior to the
year end date, we performed inventory
movement analysis, and on a sample basis,
evidenced changes in inventory quantities to
evaluate the movement of inventories
between the stocktake date and year end
date. For retail locations not attended at
stocktake, we performed movements analysis
on a store-by-store basis and further analysis
where the year end balances were outside our
set expectations.
► We obtained details of stock-in-transit at year
end, as well as movements either side of the
year end date and performed procedures to
address the risk of incorrect cut-off of
inventory quantities at year end.

A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation

Professional Care Plan (PCP) revenue recognition
Why significant How our audit addressed the key audit matter
The balance of the deferred PCP revenue
liability at 2 July 2023 was $73.9 million, and
PCP revenue recognised in the income
statement for the year ended 2 July 2023 was
$32.9 million as disclosed in Note A2 of the
financial report.
The recognition of Professional Care Plan (PCP)
revenue is a key audit matter due to the
significant degree of estimation involved in
determining the appropriate revenue
recognition pattern for lifetime, 10 year and 3
year plans offered to the Group’s customers.
Under these plans, revenue is deferred on
receipt of the payment from the customer and
recognised over time in a manner that reflects
the proportion of actual services used by
customers relative to the total amount of
expected services to be provided under the
PCPs.
The estimation process for PCP revenue is
based on an analysis of actual services (through
historical cleaning, repairs and re-sizing service
data) performed under these plans since
inception in October 2010, with management
judgement applied to take account of emerging
trends in customer behaviour, industry data and
exceptional circumstances such as COVID
related store closures.
The result of the estimation process is reviewed
by the Group on at least an annual basis. As
circumstances change over time, the Group
updates its measure of progress, and any
adjustments are recognised as a cumulative
catch up in revenue recognition (or reversal) in
the current year results.

Our audit procedures included the following:
► Assessed the Group’s PCP revenue
recognition accounting policies and
compliance with the requirements of
Australian Accounting Standards.
► Assessed the accuracy of the data used in the
PCP revenue estimation calculation and
challenged the reasonableness of the key
judgements including:
► Obtained details of the sales of PCP
products to customers during the year and
tested the cash receipts were
appropriately deferred.
► Obtained details of the actual cleaning,
repairs and resizing services during the
year and tested a sample of transactions
to understand if repairs are accurately
tagged to the associated PCP plan date.
► Performed analysis over the historic
repairs data, to determine whether the
assumptions made by the Group were
supportable, including the length of the
lookback period, any adjustments made for
the impact of COVID related store closures
in recent years, and the weighting of
recent trends compared to older data.
► Tested the mathematical accuracy of the PCP
revenue estimation model and reperformed
the Group’s calculation supporting the change
in estimate relating to PCP revenue
recognition.
► Re-performed management’s sensitivity
analysis over the assumptions using
reasonable alternative scenarios to determine
whether there would be a material impact on
revenue recognised in the year.
► Assessed the adequacy of disclosures
included in the Notes to the financial
statements of PCP revenue recorded and
deferred at year-end and the associated
estimation uncertainty.

A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation

Acquisition of Bevilles
Why significant How our audit addressed the key audit matter
On 1 June 2023 the Group acquired the
business and selected assets of Bevilles, with
consideration consisting of cash upfront of
$44.6m, deferred consideration of $0.9m and
contingent consideration of $3.5m relating to
earn out payments over the next two years. The
details of the provisional business combination
accounting for the acquisition are disclosed in
Note G1 of the financial report.
The acquisition has been accounted for as a
business combination in accordance with
Australian Accounting Standards, and due to the
proximity of the acquisition to year end, the
business combination is accounted on a
provisional basis.
In undertaking the provisional acquisition
accounting, the Group is required to measure
the fair value of consideration transferred, the
fair values of identifiable assets, assumed
liabilities and contingent liabilities acquired at
the acquisition date, and determine the amount
of goodwill to be recognised.
The fair value measurements require significant
judgement and complex estimation, including
the:
► identification and measurement of all assets,
liabilities and contingencies of the business;
► valuation of intangible assets acquired
including brand names utilised by the Bevilles
business; and
► The valuation of contingent and deferred
consideration, a portion of which is linked to
the Group’s share price at future dates.
As a result, we considered the Group’s
provisional business combination accounting
and the related disclosures in the financial
report to be a key audit matter.

Our audit procedures included:
► Assessing the accuracy of treating the
acquisition as a business combination in
accordance with Australian Accounting
Standards.
► Assessing the Group’s determination of the
acquisition date of the business combination.
► Evaluating the Group’s determination of the
purchase consideration and the fair value of
future payments.
► Evaluating the qualifications, competence and
objectivity of the Group’s external experts
used to determine the provisional values
recorded particularly for intangible assets
recorded.
► Using our valuation experts to independently
assess the reasonability of provisional fair
value estimates determined by the Group’s
external experts, particularly for intangible
assets.
► Performing valuation cross checks on the
acquired intangible assets with reference to
market and transaction multiples.
► Testing the working capital balances,
including cash, inventory, trade receivable
and payables, contract liabilities and
provisions at the acquisition date. Our
procedures on inventory included attendance
at 5 retail store stocktakes and the stocktake
of the head office location at the date of
acquisition.
► Testing the provisional right of use assets and
lease liabilities recorded in accordance with
Australian Accounting Standards and
underlying lease documentation.
► Involving our taxation specialists in assessing
the deferred tax balances associated with the
provisional accounting for the acquisition.
► Assessed the adequacy of the financial report
disclosures included in the Notes to the
financial report setting out the nature and
basis of the provisional business combination
accounting.

A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation

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 Company’s 2023 annual report, but does not include the financial report
and our auditor’s report thereon.
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 responsibility 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, 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 Standards, we exercise professional
judgment and maintain 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, misrepresentations, or the
override of internal control.

A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation

► 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.
► 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.

A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation

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
2 July 2023.
In our opinion, the Remuneration Report of Michael Hill International Limited for the year ended
2 July 2023, 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.

Ernst & Young

Kellie McKenzie
Partner
Brisbane
25 August 2023

Initial Director’s Interest Notice – D Whittle Preliminary Final Report – Wording Correction

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