Dear Fellow Shareholders,

I am pleased to be able to report that we have had another very successful year and one in which we have made significant progress.

Our main goals at the beginning of the year were to achieve revenue of $174 million, Group profit of $9.95 million and to open 10 new stores. We also intended to place more emphasis on improving the performance of our existing stores in both countries. Our results for the year show that we achieved $182 million of revenue, which was a 16% improvement on last year, and a Group profit of $9.95 million which was a 13% increase on last year. We opened seven new stores during the year, including three Super Stores in New Zealand and closed three stores, one of which was replaced by a Super Store.

Our profit result for the year represents a 24.9% return on Shareholders' funds. The return has averaged 24.7% over the past three years and there are few companies in New Zealand which can match these consistent returns.

We have again increased our dividend payout to shareholders, who will receive a 17% increase in their dividend for the year. Our dividend payout has nearly doubled in the course of three years and this is consistent with our objectives of increasing Shareholder value while pursuing controlled profitable growth for the Group.

The Group now has 106 stores spread between Australia (66) and New Zealand (40), and we are well on the way to our long term goal of dominating the Australasian jewellery market. During the last financial year, we opened three new Superstores in New Zealand. These Superstores offer a totally new jewellery shopping experience for our customers, with a huge range of quality jewellery on display in each store. They also offer private viewing rooms, coffee facilities, and a spacious environment which creates a very pleasant shopping ambience for our valued customers. During the coming year, we are spreading the Superstore concept to Australia, where we will be opening the first store in Melbourne in October.

With Howard Bretherton's resignation effective on the 30th June 2000 as joint Managing Director, Mike Parsell took over as Chief Executive Officer for the Group on 1st July 2000. Mike is now responsible for the total operations of the Group reporting to the Board. Mike joined the Michael Hill Jeweller team in 1981, and in 1987 was appointed Australian General Manager to launch and lead our trans-Tasman expansion. He was appointed to the Board in 1989 and has been Joint Managing Director for the last five years. Mike has grown with the Company and is well versed in the culture and has extensive experience across all aspects of the business. Mike has a big task ahead of him but will be ably assisted by Kevin Phillips, the General Manager in New Zealand and Paul Williams, the Retail Operations Manager in Australia.

This year we had our first Australian and New Zealand combined Managers' Conference in Noumea. It was an emotional time for us all as we celebrated in high spirits our first twenty one years in business. The bonding that went on between the two countries was great.

Murray Doyle has joined the Company as a Director. Murray has had 20 years experience in the finance industry, being a founding partner of the stockbroking firm, Doyle Paterson Brown Ltd. Following Bankers Trust New Zealand Ltd's purchase of that business, he became chairman of BT Alex Brown New Zealand and a Director of Bankers Trust New Zealand Ltd. John Ryder, who has been on the Board since the Company listed in 1987, will be stepping down as a Director at the Annual meeting in November. John, who has been an advisor to the Company since 1983, has made a very valuable contribution to the Company over the years, and I would like to thank him for his efforts and wish him the very best in the future.

Our company has never been in better shape and is in a very strong financial position. With the solid foundations we now have, we are very confident that we will be able to take advantage of the tremendous growth opportunities available to us. We have the opportunity to double the number of stores we currently have in Australia, and this growth potential, coupled with the reductions in corporate tax rates in Australia to 30 cents in the dollar from 1/7/01, augurs well for the future profitability of the Group. Michael Hill Jeweller is a peoples business and I see at all levels of our business a dedication and passion that will ensure that our Company remains the most profitable publicly listed jewellery retailer in Australasia.

Our annual meeting will be held at the Formosa Golf Club in Auckland on the 17th November and I look forward to welcoming you there.

 Michael Hill
 Chairman