Full year results for 12 months ending 30 June 2011

Michael Hill International Limited

Results for announcement to the market

Reporting Period 12 months to 30 June 2011
Previous Reporting Period 12 months to 30 June 2010

Percentage
Amount Change
$NZ'000 %
Revenue from ordinary activities 489,330 10.3%
Profit from ordinary activities after tax attributable to members 34,499 32.6%
Net profit for the period attributable to members 34,499 32.6%

Imputed
Amount amount
per security per security
Final dividend for year ended 30 June 2011 3.0 cents nil
Record date 30 September 2011
Dividend payment date 10 October 2011

Michael Hill International Limited's accounts have been audited and an unqualified audit opinion was given.

CHAIRMAN'S STATEMENT

Profit Announcement
Michael Hill International Limited today announced an after tax profit of $34.449m for the twelve
months ended 30 June 2011 up 32.6% on the corresponding period last year.

Summary of Key Points (all values stated in NZD unless stated otherwise)
- Operating revenue of $489.330m up 10.3% on same period last year
- Same store sales 9.2% up on same period last year
- EBIT of $45.638m up 28.4% on same period last year
- Net profit before tax of $39.985m up 32.4% on last year
- Net profit after tax of $34.499m up 32.6% on last year
- Net debt of $36.873m at 30 June 2011
- Operating cash flow of $43.319m for period up from $12.872m last year
- 11 new stores opened and 3 closed
- Total of 240 stores open at 30 June 2011
- Final dividend of 3.0 cents per share up 20%
- Total dividend for the year of 4.5 cents up 12.5% from 4.0 cents in 2010
- Equity ratio of 60.9% at 30 June 2011

New Zealand Retail Operations
The New Zealand retail segment revenue increased by 6.2% to $101.742m for the twelve months,
with an operating surplus of $18.577m, an increase of 15.7% on the corresponding period last year.
Same store sales during the twelve months increased by 5.4% (6.1% last year).
The operating surplus as a percentage of revenue increased to 18.3% (16.8% last year).

One new store opened in New Zealand during the period, as follows:
- The Base, Northern region

Two stores were closed in Christchurch during the period, giving a total of 52 stores operating in
New Zealand as at 30 June 2011.

Australian Retail Operations
The Australian retail segment increased its revenue by 6.2% to AU$250.999m for the twelve months
with an operating surplus of A$38.935m, compared to AU$38.105m for the previous corresponding
period, an increase of 2.2%. Same store sales in local currency increased 4.7% for the twelve
months (4.9% increase last year).

The operating surplus as a percentage of revenue was 15.5% (16.1% last year).

Six new stores were opened in Australia during the period, as follows:
- Castletown, Queensland
- Rundle Mall, South Australia
- Wendouree, Victoria
- Merrylands, New South Wales
- Sunshine Marketplace, Victoria
- Charlestown, New South Wales

One store was closed in Victoria during the period, giving a total of 146 stores operating in Australia
as at 30 June 2011.

Canadian Retail Operations
The Canadian retail segment increased its revenue by 22.7% for the twelve months to CA$36.818m
and there was an operating loss of CA$0.174m compared to a loss of CA$1.211m for the previous
corresponding period. Same stores sales in local currency increased 12.1% for the twelve months
(3.2% decrease last year).

Strong same store sales growth saw the Canadian business reverse the bottom line deterioration
experienced during the GFC and the company expects to see continued improvement in the Canadian business
over the coming twelve months.

Four new stores were opened during the period, as follows:
- Chinook, Alberta
- Midtown, Saskatchewan
- Bramalea, Ontario
- Upper Canada, Ontario

There were 33 stores open as at 30 June 2011.

US Retail Operations
The US retail segment achieved revenue of US$8.105m for the 12 months and there was an
operating loss of US$3.392m for the same period (US$6.264m last year). Same stores sales in local
currency increased 20.3% for the twelve months.

The board is pleased with the progress of the US operation over the past 12 months but
acknowledges there is still a long way to go before the business is proven up in the US market.

Focus remains on improving both the top line sales and the margins in order to grow the bottom line
of the 9 stores over the coming twelve months.

There were 9 stores open as at 30 June 2011.

Outstanding Tax Issues from Group Restructuring in 2008
In the February half year report, the company provided an update on the 2 outstanding tax matters relating to the 2008
group restructure. Below is an update on the respective matters.

The discussions referred to in the half year report with the Inland Revenue (IR) in New Zealand in relation to the
way the group financed the sale of Intellectual Property from one of our New Zealand Companies to one of our
Australian Companies have continued. Tax returns have been filed with the IR for the 2008-09 and 2009-10 financial
years. The IR has issued a binding ruling confirming some aspects of the tax treatment of the financing
structure, but has commenced a limited scope review of some outstanding concerns in relation to the 2009 tax return. In
turn the company has initiated the disputes resolution process in respect of the 2010 return in order to expedite
finalisation of the issues. Discussions are continuing.

The company's discussions with the Australian Taxation Office (ATO) relate to the value at which the intellectual
property was transferred between the respective companies. Discussions are likewise continuing with the ATO in respect to
this matter at the time of this announcement.

The board does not consider that either of the above ongoing tax matters requires a provision or contingency in the Group's
financial statements for 2010-11 financial year. This will be kept under review.

Dividend
The Directors are pleased to announce a final dividend of 3.0cents per share (2010 – 2.5cents), with no
imputation credits attached for New Zealand shareholders and full franking credits for Australian
shareholders. The dividend will be paid on Monday, 10 October 2011 with the record date being
Friday 30 September 2011. Including the 1.5 cents per share interim dividend paid on 1 April 2011,
the total dividend for the year will be 4.5 cents, an increase of 12.5% on the previous corresponding
period (2010-4.0 cents).

Due to the internal restructuring of the Group in December 2008, the company is unlikely to be in a
position to impute dividends for the foreseeable future, however this will depend on the performance
of each segment in the coming years and also on the level of dividend to be paid in future periods.

Cash Flows / Balance Sheets
The Group has reported net operating cash flows of $43.319m for the twelve months, compared to
$12.872m for the previous year.

The surplus from operations is a result of:
- Profit excluding non cash items $45.621m
- Decrease in other payables $5.581m
- Increase in deferred revenues from Professional Care Plan $11.287m
- Increase in inventory levels $(22.780)m
- Other miscellaneous items $3.610m
Net Cash Inflow from Operations Surplus for Year $43.319m

In October 2010 the Company introduced a Professional Care Plan for customers, to provide for the ongoing
maintenance and care of their jewellery. Revenue from the Professional Care Program is treated as
Deferred Revenue in the balance sheet and brought to account over the life of the plan purchased by the
customer.

The Group’s balance sheet continues to be sound with an equity ratio of 60.9% as at 30 June 2011
(61.4% in 2010) and a working capital ratio of 3.3:1 (3.5:1 in 2010).

Summary
2010-11 witnessed a good top line sales recovery after several difficult years of trade since October
2008, however the retail sector remained difficult in all markets, and increased investment in
marketing, consumer payment plans and inventory levels was required to achieve these gains on the
sales line.

A continued focus on our diamond bridal business reaped benefits for the group as average sale
value continued to grow. The expansion of the Michael Hill bead charm collection also resulted in
strong growth during the year.

The decision to downsize the US operation from 17 stores to 9 stores in June 2010 was vindicated
with good same store sales growth over the 12 months with all 9 stores now refurbished to the latest
Michael Hill design. However, further improvement is necessary in this new market before the
company can be confident the business has reached a level of performance that would justify further
store growth.

Canada experienced strong sales growth and has recovered much of the ground it lost since 2008
when it had broken into profit. The company is still confident of success in the Canadian market and
intends to push on with steady growth in the years to come.

The New Zealand and Australian segments continued to perform well over the year with both
businesses growing revenue and bottom lines, even though the retail environment in both countries
has remained patchy. This is testament to the strength of the Michael Hill brand in these markets,
the maturity of our teams, and the strategies employed within the business over the past few years.

During the year the company continued the roll out of our 5th generation store design. In the
development of this design we carefully considered many elements including the evolution of our
brand, the international retail environment in which we now operate, and the latest developments in
technology along with customer feedback. 60 stores are now trading in the new design and these
stores have experienced stronger sales growth than the non refurbished stores in each market. The
store design also gives the Michael Hill brand a strong point of difference to our competitors in
appearance and customer experience.

Overall trading conditions remained challenging over the past year; however a strong focus on
growing same store sales, managing margins and controlling costs saw the company achieve a
record profit in 2010-11.

The Directors remain confident in the continued growth and profitability of the group.

Sir Michael Hill 18/08/2011
Chairman
Internet Home Page - www.michaelhill.com
All inquiries should be made to Mike Parsell CEO phone +61 403 246655