I HAVE NEVER FELT MORE CONFIDENT IN THE FUTURE OF OUR COMPANY THAN I DO NOW. WE HAVE A GROOMED TEAM OF DEDICATED PERSONNEL READY TO TAKE UP THE CHALLENGE. THERE IS JUST SO MUCH POTENTIAL FOR STRONG GROWTH AHEAD OF US IN CANADA, AUSTRALIA AND NEW ZEALAND.

Dear Shareholders,

Michael Hill International has achieved another record tax paid profit of $16,510,000 for the year ended 30 June 2005, up 9.6% on the previous year. This profit was achieved on a 4.5% increase in revenue of $271,573,000.

The profit achieved represents an excellent 26.8% return on average shareholdersfunds for the year.Over the past 7 years,our after tax return on funds employed has averaged 24.67%,which has created great returns for shareholders over this time.

The strengthening of the NZ dollar against the Australian dollar this year resulted in a reduction in profit compared to last year of approximately NZ $400,000.

The value of the company has again been reflected in the change in the share price, which has increased 26.6% to $7.60 in the 12 months ended 30 June 2005.Our dividend payout for the year of 23 cents per share for the year was up 9.5% on the previous year and in line with our profit increase.

This past year we have concentrated on positioning ourselves for future expansion.

" The Human Resources Department has been re-aligned and our in house Retail Training system is now recognized by the Australian Government.

" We continued to upgrade all IT communications to better serve a global market.

" Store design has been refined, enabling us to build and refit our distinctive stores in under two weeks.

" Merchandising has been streamlined to make better use of our buying power in all jewellery categories.

" The Brisbane manufacturing division has expanded.Producing our own product is the key to quality control and to creating distinctive designs exclusive to Michael Hill Jeweller.

We opened 14 new stores throughout the group (10 in Australia,3 in Canada and 1 in New Zealand) and the contributions from these stores will benefit us in the coming years. In the 2005/06 year,our plan is to open approximately 20 new stores spread over the three countries,depending on availability of sites.

Our fundamental philosophy of controlled profitable growth will underlie all our growth strategies.The Groups balance sheet is strong with an equity ratio of 50.1% (2004 - 46.9%) and this continues to provide us with a very solid platform for our growth plans.

I have never felt more confident in the future of our company than I do now. We have a groomed team of dedicated personnel ready to take up the challenge. There is just so much potential for strong growth ahead of us in Canada,Australia and New Zealand.

I would like to thank the board for a year of great contributions and for visualizing the exciting years ahead. In this years report we have listed all 1,650 of our company colleagues. I congratulate every one of them on the years achievement. It is your passion,enthusiasm and commitment which drives the success of Michael Hill Jeweller.

Thank you

 Michael Hill
 Chairman