The Directors have pleasure in submitting to Shareholders the 14th Annual Report and audited accounts of the Company for the year ended 30 June 2001 together with the CEO's review of the Australian and New Zealand operations.

Business Activities

The Group's sole business activities during the 2000/00 financial year continued to be jewellery retailing and manufacturing.

Consolidated Financial Results

The Group has recorded a tax paid surplus of $10,039,000 for the year ended 30 June 2001 (2000 - $9,939,000). This surplus was achieved on a turnover of $181,168,000 (2000 - $181,983,000).

The accounts for the year ended 30 June 2001 have been presented in accordance with the accounting principles and policies detailed on pages 28 and 29 of this Report.

*Note - The final dividend of 8.5¢ per share has not been included. See change in Accounting Policy in the notes to the Financial Statements.

Shareholders' Funds/Reserves

Total Shareholders' Funds of the Group now stand at $49,568,000, an increase of $6,981,000 over the previous year.

The Group's reserves at 30 June 2001 totalled $41,856,000.

Equity Ratio/Cash Flows

At 30 June 2001, Shareholders' Funds accounted for 54% of the total assets employed by the Group compared to 52% the year before. The change in accounting policy for the final
dividend has increased this ratio by 2% compared to last year. Our interest bill for the year
was covered 8.1 times by earnings. (2000 - 10.6 times).

Operating cash flows for the Group amounted to $7,887,000 for the year compared to
$14,214,000 the previous year.

Dividends

Your Directors paid an interim dividend of 6.5 cents per share, with full imputation credits attached on 26 March 2001. Overseas Shareholders were also paid a supplementary dividend. On the 23 August 2001, your Directors declared a final dividend of 8.5 cents per share payable on 29 October 2001. The share register will close at 5pm on 19 October 2001 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 15.0 cents (fully imputed), a 11% increase over last year. The payout represents 58% of the Groups operating surplus after tax (including the final dividend), and is consistent with our objectives of increasing benefits to shareholders while pursuing controlled profitable growth for the Group.

Directors

Messrs M.R. Parsell and L.W. Peters retire by rotation and being eligible offer themselves for
re-election. J.W.D. Ryder resigned from the Board as at 17 November 2000. Mrs A.C. Hill
was appointed by the Board as a Director on the 22nd February 2001 and under the
constitution resigns, but being eligible offers herself for re-election.

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, 0.79 (2000 - 0.80).

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.

Risk Management Practices
The principal risk management practices adopted by the Board are set out on page 17 of this report.

Corporate Code of Conduct
The Company operates under a Corporate Code of Conduct that is set out on page 19 of this report.

Directors' Interests in Contacts
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.

Setting up the scheme involved the Company working closely with its solicitors and other advisors to devise a scheme that complied with both New Zealand and Australian securities and tax laws. The complex issues that arose during the course of finalising the structure of the scheme lead to the Company considering a number of different structures prior to choosing the final configuration
for the scheme.

Last years Report of Directors indicated that the scheme would entitle participating management to acquire shares in the Company in lieu of bonuses to which they would otherwise be entitled in respect of a particular year. The scheme which was finally approved by the Board does not provide for an increase in staff bonuses, as originally proposed but instead provides for the sale of treasury stock at a discount to market prices in a manner which has approximately the same economic effect as the original proposal.

Australian securities laws preclude the Company from including further information about the scheme in the Annual Report at this stage, however, the Board can report that all the documentation for the scheme has now been finalised, and implementation will be able to occur later this year.

Auditors
PricewaterhouseCoopers, whose audit remuneration and fees paid for other services are detailed on 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
The treatment of dividends in the accounts has been changed and is set out at Note 1 to the Financial Statements on page 29.

Annual Report Award

For the third consecutive year, the Company was delighted to be judged the winner of the Other Companies section in the Annual Report Awards competition conducted by the New Zealand Institute of Chartered Accountants for its 2000 Annual Report to shareholders. The Company was also awarded the special award for best Corporate Governance Reporting for all New Zealand companies.

The Board extends its congratulations to the dedicated team who have compiled and designed these award winning reports over the past three years.

Donations

Small donations (cash and/or jewellery) were made to
a) Business in the Community - mentor program
b) Various schools and sports clubs throughout New Zealand for prizes
c) Raleigh New Zealand - youth development program
d) The Michael Hill World Violin Competition - $20,000 cash plus trophies and prizes.
The Company was very pleased to be judged the winner of the Creative NZ Award for the most inspirational new arts and business partnership at the 2001 National Business Review Supporter of the Arts awards, attended by the Prime Minister and Minister of the Arts, the Rt. Hon. Helen
Clark. The judges commented a new and exciting relationship between arts and business partners, fostering innovation, energy and excellence.

On behalf of the Directors,

 R.M. Hill
 Chairman

 M.R. Parsell
 Chief Executive Officer