DEAR SHAREHOLDERS,

On behalf of the Board of Directors, I am delighted to report that the Group recorded a net profit of $8.7million for the financial year ended 31 March 2005, an increase of 42% over the prior year whilst revenue grew at a moderate pace of 5% to $335.1million.

The Group’s balance sheet continues to remain strong with shareholders’ funds at $130.7million. This translates into a net asset value per share of $1.20 as at 31 March 2005. We have maintained a conservative debt to equity ratio of 0.13 and concurrently, also strove to ensure that our trade creditors were maintained at a reasonable level and that inventory did not outpace the growth in sales.

In view of our improving performance and to reward our shareholders, the Board is pleased to recommend a first and final dividend of 1.25 cents per share and a bonus dividend of 3.125 cents per share, giving a total of 4.375 cents per share.

OVERVIEW

The recovery of the regional economies was dampened in the first half of the financial year by higher interest rates and increasing oil prices. The modest stabilisation of these factors coupled with the year end festive seasons lifted sentiment in the third quarter whilst the last quarter experienced a slowdown in regional tourism as a result of an unexpected fall-out from the Tsunami disaster.

Despite a challenging macro environment, operating profit in the second half of the financial year reached $7.0millon, more than double that of the $3.2millon earned in the first half. We were able to grow earnings faster than sales simply by doing the basics well. These included a more selective expansionary policy, a concentrated merchandising and marketing strategy that enhanced our gross profit margins whilst ensuring that all our business units worked hard to contain costs.

There are a few reasons for our strong set of second half results. The first being that our core marketing campaign of educating watch consumers started to pay dividends. We were able further entrenched ourselves in the specialist watch market by introducing The Hour Glass’ own brand of “Edutainment” in the form of Tempus – The Great Watchscapade. Tempus was hailed by both industry partners and watch pundits as Asia’s most veritable watch adventure. In the 5 days of exhibition, workshops and forums, Tempus managed to attract some 50,000 visitors from around the world with some coming from as far afield as Alaska. Undeniably, it was Asia’s most successful watch exposition to date.

The second is that while our discerning customers learn to appreciate the beauty and intricacies of complicated watch movements, our sales consultants are continually being trained to understand and respond to their needs on a wider level than merely offering competitive pricing; hence our improving margins.

Lastly, our jewellery subsidiary, Glajz-THG Pte Ltd also reported an increase in operating profit and its sale of the “Mondial” trademark and retail outlet gave rise to an exceptional gain of $2.8millon.

PROSPECTS

Over the course of the 25 years, The Hour Glass has sold over $6.0billion worth of luxury timepieces and during this time, the industry has gone through profound changes. The Group has evolved to become a more professionally run business and one that will continue to upgrade. What remains constant however, are the relationships that have been forged with key brand partners such as Rolex and Patek Philippe. These relationships, intangible as they seem, form the bedrock of our long term growth initiatives.

We have identified that as part of our future growth, we need to make further concerted effort to work more collaboratively with our brand partners and especially those who have a desire to expand their business in line with The Hour Glass’ retail development efforts in the Asia Pacific region. This includes constantly researching and reviewing our merchandise mix and product offerings to meet the consumer’s ever changing demands. Selective retail expansion will be explored in prime retail locations and we also expect to grow our Montblanc business in Australia.

We believe that multiple initiatives by governments in the region to promote tourism, such as the Disneyland Theme Park in Hong Kong, the Integrated Resorts in Singapore and the corresponding increase in regional tourism augurs well for the retail sector in the coming years.

Our modus operandi remains the same, and that is to drive productivity, operational efficiency and inventory management which are critical drivers for retail organisations such as ours, there being little room for error.

Financially, our Group continues to remain very strong. Capital allocation is a critical management decision and in order to keep our stores vibrant and relevant, a prudent level of capital expenditure is required every year in store renewals. We will also continue to divest the Group’s non-core assets in a judicious manner and will endeavour to scout for opportunities where we can invest our funds to secure higher rates of return.

Based on the overall positive outlook, the Group looks to improving its performance in the current financial year.

ACKNOWLEDGEMENT

On behalf of the Board of Directors, I would like to thank our management and staff for their hard work and dedication. Our gratitude is extended to our customers, brand partners, business associates and shareholders for their support over the past 25 years. I would also like to take this opportunity to thank my fellow Board Members for their invaluable advice and guidance.