The Directors have pleasure in submitting to Shareholders the 13th Annual Report and audited accounts of the Company for the year ended 30 June 2000 together with the CEO's review of the Australian and New Zealand operations.

Business Activities

The Group's sole business activities during the 1999/00 financial year continued to be jewellery retailing and manufacturing.

Consolidated Financial Results

The Group has recorded a tax paid surplus of $9,939,000 for the year ended 30 June 2000 (1999 - $8,774,000). This surplus was achieved on a turnover of $181,983,000 (1999 - $156,940,000).

The accounts for the year ended 30 June 2000 have been presented in accordance with the accounting principles and policies detailed on pages 28 and 29 of this Report.

Shareholders' Funds/Reserves

Total Shareholders' Funds of the Group now stand at $42,857,000, an increase of $5,536,000 over the previous year.

The Group's reserves at 30 June 2000 totalled $34,875,000.

Equity Ratio/Cash Flows

At 30 June 2000, Shareholders' Funds accounted for 52% of the total assets employed by the Group compared to 50% the year before. Our interest bill for the year was covered 10.6 times by earnings. (1999 - 9.9 times).

Operating cash flows for the Group amounted to $14,214,000 for the year compared to $2,781,000 the previous year.

Dividends

Your Directors paid an interim dividend of 6.0 cents per share, with full imputation credits attached on 20 March 2000. Overseas Shareholders were also paid a supplementary dividend. On the 17 August 2000, your Directors declared a final dividend of 7.5 cents per share payable on 24 October 2000. The share register will close at 5pm on 13 October 2000 for the purpose of determining entitlement to the final dividend. Overseas Shareholders will also be entitled to a supplementary payment on the final dividend.

The total dividend for the year was 13.5 cents (fully imputed), a 17% increase over last year. The payout represents 52.4% of the Group's operating surplus after tax, and is consistent with our objectives of increasing benefits to shareholders while pursuing controlled profitable growth for the Group.

Directors

Messrs R.M. Hill, G.J. Gwynne, J.W.D. Ryder and M.R. Doyle retire by rotation. Messrs Hill, Gwynne and Doyle, being eligible, offer themselves for re-election. H.N.P. Bretherton resigned as a Director as at 30 June 2000, and W.M.G. Yovich resigned as at 19 November 1999. M.R. Doyle was appointed a Director on the 18 February 2000.

Directors' Remuneration

Directors' Remuneration and all other benefits received, or due and receivable during the year was as follows:

*Note
Executive Directors do not receive director's fees. Executive remuneration includes salary, superannuation, bonus payments, retirement allowances and provision of a vehicle received in their capacity as employees.

Remuneration of Employees

The number of employees (not including Directors) whose remuneration exceeded $100,000 is as follows:

Australian remuneration has been converted into New Zealand dollars at the exchange rate used for translating the Australian profits into New Zealand dollars, 0.80 (1999 - 0.84).

Information on Directors

The qualifications and experience of the Directors are shown on page 21.

The Directors are responsible for the preparation of the Financial Statements and other information included in this Annual Report. The Financial Statements have been prepared in conformity with generally accepted accounting principles to give a true and fair view of the financial position of the Company and Group and the results of their operations and cashflows.

The Company appoints independent chartered accountants to audit the Financial Statements prepared by the Directors and to express an opinion on these Financial Statements. The independent auditors' report, which sets out their opinion and the basis of that opinion is set out on page 22 of this report.

Corporate Governance Practices

The principal corporate governance policies followed by the Directors are set out on page 16 of this report.

Risk Management Practices

The principal risk management practices adopted by the Board are set out on page 18 of this report.

Directors' Interests in Contracts

Since the date of the last report, the Directors have declared, pursuant to Section 140 (2) of the Companies Act 1993, that they are to be regarded as having an interest in any contract that may be made with the entities listed by virtue of their directorship or membership of those entities. Changes recorded in the interests register during the financial year are listed on page 36.

Directors' Share Dealings

The Directors named below have disclosed to the Board under Section 148 of the Companies Act 1993 particulars of the following acquisitions or dispositions of relevant interests in the ordinary shares of the company during the year. The relevant interest acquired or disposed of includes beneficial ownership.

Directors' Use of Information

During the year, the Board received no requests from Directors to use information received in their capacity as directors or employees which would not otherwise have been available to them.

Directors' & Employees' Indemnity and Insurance

The Company has arranged policies of Directors and Officers Liability Insurance with an indemnity limit that generally ensures Directors and Officers will incur no monetary loss as a result of actions taken by them. Certain actions are excluded, including penalties and fines imposed in respect of breaches of the law.

Directors' Loans

There were no loans by the Company to the Directors.

Share Purchase Scheme/Options

The company proposes to implement a share purchase scheme for Management staff throughout the Group. The scheme is designed to encourage participating management to own part of the business they are working in and to align their interests with those of shareholders.

The scheme will enable participating management to acquire shares in the company in lieu of bonuses to which they would otherwise be entitled in respect of a year. The company will increase any such bonuses by 10%, if the bonuses are used to purchase MHI shares.

The company's current intention is to purchase existing shares "on market" during the period commencing on the day following the day on which the company's results for the most recently completed financial year are announced through the Exchange and ending five months after the end of that financial year. The company will then on provide such shares to participating management at a price which represents the average price the company paid for the shares. The scheme will impose some restrictions on each participant's rights to initially deal with the shares.

Initially, the company will not require shareholder consent for the scheme, however, over time certain thresholds outlined in the company's Constitution and the Listing rules are likely to be exceeded and the company will approach shareholders for the required approvals at that point in time. The Directors propose to have the scheme implemented in time to enable the first purchase of shares under the scheme to take place in August 2001.

The Company also proposes to issue 300,000 options to Mike Parsell, as part of his remuneration package, subject to shareholder approval at the Annual Meeting on 17 November. The key terms and conditions of the issue of these options are outlined in the Notice of meeting to the Annual Meeting which accompanies this Report.

Pursuant to the powers available to the Company under the Constitution and the Listing Rules, the Company is also proposing to issue 450,000 options to other key management personnel in the Group. These options will be issued under the same terms and conditions as those to be issued to Mike Parsell. The Directors recognise that such stock options can be valuable and will record an assessed cost for these options as remuneration expenses in the Statement of Financial Performance. The Black-Scholes Option pricing model will be used in this assessment.

Auditors

PricewaterhouseCoopers, whose audit remuneration and fees paid for other services are detailed in note 2 to the accounts, have indicated their willingness to continue in office.

Events Subsequent to Balance Date

The Directors are not aware of any matter or circumstance since the end of the financial year not otherwise dealt with in this Report or the Financial Statements that has or may significantly affect the operation of Michael Hill International Limited, or the state of affairs of the Company.

Changes in Accounting Policy

There have been no changes in accounting policy during the year.

Donations

Small donations were made to

a) Business in the Community - mentor program

b) Raleigh New Zealand - youth development program.

Annual Report Award

For the second consecutive year, the Company was very pleased to be judged the winner of the "Other Companies" section in the Annual Report Awards conducted by the New Zealand Institute of Chartered Accountants for its 1999 Annual Report to Shareholders. This followed a commendation received for its 1996 report.

Congratulations are extended to the dedicated team who have compiled these award winning reports.

On behalf of the Directors,

 R.M. Hill
 Chairman

 M.R. Parsell
 Chief Executive Officer