Overview of the year This has been a year of change. Many divisions under the new group executive team were restructured to help us cope with our ambitious growth plans. These changes did not come without some cost and resulted in us not meeting all our financial objectives. However,the Company has built a sound platform for growth and is now positioned to take advantage of the opportunities that lie ahead. Our Australian and New Zealand retail businesses performed to our expectations during the year. We opened a further 15 new stores,and refurbished 19 stores at a total cost of NZ$3.495 million. This refurbishment program is an essential part of our strategy to improve our brand perception and deliver same store sales growth.

We opened in Canada

In September, our start up team moved to Vancouver. The first stores opened in Lougheed Mall and Seven Oaks Mall in November 2002, Mayfair Mall in early December 2002 and Metrotown, Vancouvers largest Mall in April 2003.

With only four stores, building brand awareness was always going to take time as we found when we have opened new states in Australia. This financial year we have budgeted a larger percentage of revenue to this task. Sales are now trending up each month, and our high levels of customer service, along with the in store experience is being well received.

Currently our main priority is to fine-tune our existing stores to ensure their success. Further stores will be considered only when this is achieved.

Restructuring

As planned, we have restructured our top level of management. Our Manufacturing Divisions are now under one Group Manager and with the appointment of a Group Buying Manager, we have completed our international buying team. This will result in greater efficiencies and improved margins.

Our New Zealand business continued to improve its performance and built on an extremely strong result last year. Sales rose 3.9% and EBIT improved 5%. Same store sales increased 1% over last year. EBIT as a percentage of sales improved from 12.6% to 12.7%. This result continues to demonstrate the Companys ability to grow our core business year after year. The result was achieved on the back of a magnificent result in 2002 and is a credit to the entire team. Three new stores were opened during the year. The Palms Shopping Centre at Christchurch opened in November 2002, Papakura in South Auckland opened in December 2002, and Blenheim in the South Island in April 2003. In the past two years the Company has sought out new opportunities in cities previously considered too small to support a Michael Hill Jeweller store. Taupo and Blenheim have been very successful. They have demonstrated that there are further opportunities in New Zealand for growth and we will be taking advantage of these opportunities in the coming years. In total 46 stores were open at 30 June 2003.

In Australian dollars total sales increased 12.8%. EBIT rose 4.2%, and same store sales increased 5.7%. The fall in EBIT percentage reflected higher wage costs within the operation. This was partly due to the introduction of seven day trading in Queensland. It also reflected an adjustment the Company made to our bonus system for sales professionals, which resulted in higher bonus payments. This was part of a strategic move to improve same store performance over the medium term. In a growth business it is important to retain high performing staff as their stability underpins our ability to grow and to continue delivering same store sales growth. This investment will help improve retention levels and assist us in delivering improved performance this financial year. The company recruited a higher number of Managers in training to meet our growth opportunities especially in Victoria, Western Australia, and Tasmania.

A further eight stores were opened during the year. They included;

" Hurstville in Sydney which opened in July 2002,

" Maitland in NSW, August 2002.

" Eastgardens in Sydney, October 2002.

" Werribee in Melbourne, November2002.

" Rockingham (our fourth store) in Perth, February 2003.

" Victoria Gardens in Melbourne, April 2003.

" Northgate in Hobart (our first store in Tasmania) May 2003. In total 84 stores were open as at 30 June 2003.

We have not yet reached full scales of economy in Perth, Melbourne, or Tasmania. Therefore our strategy is to continue opening stores over the next twelve months focusing on these areas. All of our support structures are in place and the brand is established in these markets.

We have currently identified that we will reach 130 outlets in Australia. However with the increase in the number of mall refurbishments, redevelopments and new projects this number is growing and we now realise that the number of potential of store numbers is greater than planned. This will provide us with growth prospects well into the future.

Our main priorities for the next year are as follows.

"To continue to build the Canadian business.

"To open further stores in Australasia as opportunities arise.

"To deliver improved merchandise ranges to the stores.

"To leverage the new group structure and to deliver value across the entire group, allowing us to grow more effectively.

"With the IT systems on the same platform, we will improve our position regarding consolidated reporting, merchandise planning systems, inventory management and logistics.

"To continue to grow our same store business through a strong focus on our people, our customers, and our brand.

My thanks to the team

Finally I would like to thank our entire team. You make this Company unique, and I thank you all for sharing our vision.

M.R. Parsell
Chief Executive Officer