Annual Report

Annual reports and statements




Chairman’s Statement


DEAR SHAREHOLDERS,

I am pleased to report that for the financial year ended 31st March 2001, the Group had staged a robust turnaround with a net profit after tax of $16.8 million compared to a net loss of $7.4 million the previous year. Group pretax profit was $20 million compared to the previous year’s loss of $4 million before tax. This included exceptional gains totalling $7.4 million from the strategic divestment of the Swiss manufacturing operations to Bvlgari.

At the Group level, operating profit for the year was $12.4 million (excluding the gain on disposal of the Swiss manufacturing operations), while that for the previous year was $12 million on a comparable basis, ie. after excluding the losses from the discontinued operations, before other exceptional items. This was achieved despite a slight decrease in Group turnover from $275 million to $257 million. The improvement in profitability was principally attributed to better trading margins, which was moderated by higher payroll costs.

This is an encouraging performance, as the trading environment has not been easy, particularly in the second half of the financial year where retail sentiment was affected by regional political uncertainties and a slow down in global economies.

Based on the existing share capital, earnings per share improved from a loss of 7.11 cents to a profit of 15.11 cents – a turnaround of 22.22 cents per share.

Net tangible asset per share is 98.57 cents, up 18.4% from 83.26 cents previously.

Now that the Group has returned to profitability and is in a solid financial position, the Company would like to reward shareholders for their support over recent years. As such, your Directors have proposed a first and final dividend of 5% per share less tax, and a bonus dividend of 5% per share less tax.

Review of Operations

South East Asia/Australia

In line with the slowdown in regional economies, Group turnover for the Watch division in Singapore and Australia were slightly lower than the previous year, but better trading margins were achieved. However, The Hour Glass Malaysia grew its turnover by 46%, benefitting from a full year’s operation of its second boutique at KLCC. The Hour Glass Thailand also saw tremendous growth, boosted by consumer spending following the reduction in the import duty on watches from 30% to 5%.

Overall, the drop in operating profit of $1.2 million for South East Asia/Australia can be attributed to The Hour Glass Singapore which saw higher payroll costs arising from salary and bonus revisions, CPF adjustments, head count increases and investments in staff training. These measures were undertaken to strengthen the Corporate office management and support team and to further enhance the quality of retail services. Courses attended by the staff include SQC teambuilding, the Service Excellence, the Friedman Productivity and the People Developer programmes.

Mondial Jewellers, a premier jeweller in Singapore, enjoyed another year of growth in profitability. Despite the slight dip in turnover, creative merchandising, event marketing and international distribution activities resulted in higher operating profit of $1.3 million compared with $1.0 million in the previous year.

North East Asia

The distribution activities in Hong Kong and Tokyo undertaken by The Hour Glass Hong Kong and The Hour Glass Japan, saw their combined turnover improve by a robust 59%, albeit from a modest base of $5.1 million. The Hong Kong subsidiary recorded a small operating profit of $0.3 million while the Japanese subsidiary incurred a marginal loss due to provisions made for foreign exchange losses resulting from the weakening of the yen.

The Group’s retail activity in Hong Kong, trading under the name of Swiss Union, also reported a drop in turnover in tandem with the softening of consumer sentiment in the region. However, with a concerted focus on its merchandise mix, it was able to realise a higher operating profit for the year of $1.6 million, up from $1.3 million last year.

The markets in North East Asia present potential opportunities for the Group to grow. Hence in the coming year, Management would be carefully assessing these opportunities.

Prospects for the Coming Year

In the current financial year, the Group has embarked on a program of divesting its non-core property holdings beginning with the sale of 57 Boat Quay. This sale will bring in a profit of $1 million in the financial year ending 31 March 2002.

With the expected proceeds of almost $4 million from the sale of the above property and available cash of $16 million, the Group shall have at its disposal $20 million with minimal gearing. Given this solid financial position and strengthened management resources, the Group is well placed to capitalize on opportunities available that arise amidst a background of continuing slowdown in the global economy, and economic and political uncertainties in the region.

Meanwhile, several initiatives are underway to strengthen the Group’s operations. These include rolling out its line of contemporary classic concept stores, successfully introduced in its flagship boutique at Takashimaya Shopping Centre in Singapore, to the rest of the boutiques in the retail group, and through the strengthening of its brand and merchandise selection. The Friedman programme and other human resource training initiatives would also be introduced to our retail teams overseas. In addition, $2.4 million is being earmarked for the implementation of the Movex Enterprise Resource Planning I.T. System which will introduce group wide integration of processes and information flow.

Thus while trading conditions are expected to remain difficult and intense, and may invariably result in the erosion of trading margins, our Company is in a strong position to face these challenges and operate profitably.

Acknowledgement

Board Director, Mr Michael Kwee has decided not to offer himself for re-election this year, and Mr Michael Hwang will be stepping down from the Board with effect from the conclusion of the upcoming Annual General Meeting.

I wish to record my appreciation to both Mr Kwee and Mr Hwang for their wise counsel and fellowship during their years on the Board. My sincere thanks also go to my fellow Board members for their guidance during the year.

Our successful turnaround would not have been possible without the dedicated and industrious efforts of our Management and staff, the support of our business associates and brand partners and the loyalty of our customers.

With our thanks, we will also pledge our commitment to continue to strive and improve our service to all our business partners and customers in the coming years.

Henry Tay Yun Chwan
Executive Chairman
3 July 2001

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