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Dear Shareholders, Michael Hill International delivered a 20% increase in net after tax profit of $25.232m for the 2007/08 financial year. The Group's operating revenues of $376.664m were 8% up on the previous year. The profit achieved represents an excellent 30.9% return on average shareholders' funds, with our average return over the past 5 years being 28.1%. The results achieved were very pleasing with the focus for the year being on managing our margins and control of all costs throughout the group. We opened 21 new stores during the year (13 in Australia, 2 in New Zealand and 6 in Canada) and had 3 closures. The Group had 210 stores operating at 30 June 2008. In Canada we entered the Ontario market in the east and established a separate retail management team to manage this market. This has added some infrastructure costs to the Canadian operation in the short term but has been an effective way to establish ourselves in this large market. The stores in West Canada are now producing good profits and with our fine team of Canadian recruits trained the Michael Hill way, I see Canada as our next strong market. The future for our company lies in creating "Michael Hill" as a brand and we have moved a long way forward over the past 18 months by creating our own "Michael Hill" watch brand. Sales of these watches are going well and they are proving to be eagerly sought after. Other products will shortly be branded "Michael Hill" and eventually a good proportion of the products we sell will be branded. Securing the NZ Golf Open on my private course "The Hills" in November 2007, helped to showcase Michael Hill watches to an estimated 222 million worldwide viewers. The Michael Hill violin competition which is mainly supported personally by me, but has company backing, is developing into one of the world's most prestigious violin competitions for young violinists. This also adds value and credibility to the brand. Behind the scenes this year significant progress has been achieved in many areas that will transform the future for the Michael Hill brand. Most of these projects have not yet surfaced for you to be able to judge for yourselves the way we will project our brand to the world. There are changes on the way for our marketing, our store designs, and our in store stock displays. We are introducing new stock ranges and our internet web site is being upgraded to reflect our truly international status. Michael Hill is poised to become a truly international brand. For many years the Company has been keeping a close eye on the huge American market. In August 2008, under the capable leadership of Mike Parsell and Phil Taylor, the Company purchased 17 stores in Illinois and Missouri in the United States out of the Chapter 11 bankruptcy of Whitehall Jewelers Holdings Inc. The 17 stores purchased were some of the best and most profitable sites of Whitehall's 365 stores and to have acquired 17 prime sites in Chicago and St Louis is a remarkable coup by Mike and Phil and a dream come true. The purchase price was approximately USD$5.0m (NZD$7.0m) and was attributed to the inventory purchased at an amount equal to 80 cents in the dollar on the cost price of the inventory held at the 17 locations on the settlement date. The acquisition includes Whitehall's rights with respect to store fitouts and leases for all 17 stores and all other trading assets at those locations. This grouping of stores will provide a sound launching pad to the very large US market and fits with our historical pattern of building a concentration of stores in new markets to leverage efficiencies in logistics, marketing and management supervision. The company does not expect these stores to achieve profitability for several years but the opportunity to enter the US market on such favourable terms was too good to overlook and enables us to put a stake in the ground in the USA. The Group continues to have a sound balance sheet. Our equity ratio at 30 June 2008 was 44.4% compared to 47% in 2007 and a working capital ratio of 2.6 compared to 1.9 in 2007. On the 19th November 2007 the company performed a 10 for 1 share split. For shareholders, we have increased our dividend for the year by 23% to 3.2 cents (fully imputed and fully franked for Australian shareholders), with the final dividend of 2 cents being paid on the 13th October, 2008. The Group will continue to expand as opportunities arise with its strategy of controlled profitable growth and the future looks very promising indeed. Best wishes and I hope to see you at the Annual meeting on the 7th November.
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