DEAR FELLOW SHAREHOLDERS,

I am delighted to report that the Group has delivered an impressive 50% growth in net profit to $19.4 million, on the back of a healthy 15% increase in revenue to $407.2 million for the financial year ended 31 March 2007. The net profit growth constitutes a six-fold increase from the net profit of $2.7 million barely five years ago.

The Group’s improved operating performance was also reflected in its strong balance sheet with shareholders funds increasing 54% to $210.4 million. This translates into a net asset value per share of $1.88 as at 31 March 2007. The Group’s debt to equity ratio of 0.13 remains conservative and year-end closing inventory levels, at $142.3 million, represent an annual average stock turn ratio of 2.5 times, double that of the industry average.

In view of the Group’s stellar performance and to reward shareholders, the Board is pleased to recommend a final dividend of 1.25 cents per share, and a special bonus dividend of 9.75 cents per share, giving shareholders a record dividend payout of 11.0 cents per share.

BUSINESS REVIEW

The Group had achieved an exceptionally robust qualitative sales growth over the prior year with $52.6 million more sales being recorded. This also translated into an operating profit of $23.7 million, 66% higher than the $14.3 million earned in the previous financial year.

The top line growth is attributable to higher revenue contributions from key markets in the Asia Pacific region, particularly Hong Kong and Singapore, where continued broad-based macro growth underpinned by improvements in regional bourses and asset reflation helped carry the positive momentum in consumer sentiment. This is with the exception of Thailand where uncertainty over the political leadership of the country has dampened demand for high-end luxury consumer goods.

For a fifth year running, we were able to grow our net profit faster than revenue by concentrating on improving the fundamentals of the business. These include an efficient inventory management policy that supports our growth objectives and, a focused merchandising and marketing strategy that enhances our gross profit margins whilst ensuring that we continue to contain our expense structures.

To consolidate our leadership position as a multi-brand specialist watch retailer in the Asia Pacific region, the Group has invested in renewing its retail store formats. During the financial year, the Tang Plaza boutique in Singapore and the Ginza store in Japan were refurbished. This capital expenditure had resulted in positive revenue growth for the Group.

As mentioned in the Chairman’s statement two years ago, a central tenet of The Hour Glass’ capital allocation policy is to seek out superior returns that may be generated from our financial resources. Our investment in Gems TV Holdings Limited (“Gems TV”) which was made in June 2006, contributed its maiden dividend payout of $0.94 million during the financial year to provide a reasonable rate of return for our investment. Despite the potential volatility of Gems TV’s quoted prices, The Hour Glass intends to hold its investment in Gems TV for the long term in order to participate in its growth potential.

OUTLOOK

The increase in intra-regional tourism traffic, especially visitors from mainland China to Hong Kong, has accelerated in the past year. Coupled with rising regional affluence and a general “feel good” factor, this has fuelled the demand for specialist timepieces across most territories that we operate in. We anticipate that these tailwinds driving the market should continue into the foreseeable future.

This however, also pose some challenges to our business. Favourable market forces have resulted in a bevy of new entrants jumping into the watch retail industry. Now, these competitors not only comprise start-ups attempting to build multi-brand luxury watch businesses, but also include manufacturers who establish free standing mono brand boutiques. On this front, The Hour Glass has entered into discussions with several brand partners to manage mono brand boutique operations. We will move forward with such opportunities provided that they can produce tangible benefits for the Group.

In the second half of 2007, the Group will be relocating two boutiques in Kuala Lumpur as part of our ongoing plan to invest and enhance the quality of our retail network. We will also endeavour to seek new brand partnerships to add to our list of luxury watch brands and continue to lead by being the preferred retailer of choice and knowledge centre of specialist watches in the region.

As the watch world’s leading cultural retail enterprise, The Hour Glass is delighted to once again stage its award winning watch festival “TEMPUS”. TEMPUS – The Temple of Time, will be held from 5 to 9 September 2007 at the Raffles City Convention Centre and I would like to invite all our shareholders to attend the event. This year, the festival will showcase more than $150 million worth of timepieces presented by over 55 exhibitors, nearly double the number of participants in TEMPUS 2004. Some key highlights include Antiquorum’s Only Watch 2007 travelling exhibit and the unveiling of The Hour Glass’ Museum of Contemporary Horological Art. MOCHA, as we call it, will feature significant timekeeping artifacts produced from 1970 onwards with a strong emphasis on horological masterpieces created over the past decade. We are exhilarated by the overwhelming show of support for TEMPUS – The Temple of Time and are determined to produce what will be the most exciting programme the watch world will have seen.

Our current management team has done an exemplary job by producing 5 years of consecutive revenue and profit growth. They continue to drive the business with an emphasis on market development strategies combined with strong fiscal discipline. I have every confidence that Kenny and his team will continue to strengthen the brands we represent, build new and deeper business relationships with our partners and continue to drive the enterprise forward.

ACKNOWLEDGEMENTS

On behalf of the Board of Directors, I would like to thank our management and front line teams for their diligence and dedication over the past several years. We also extend our heartfelt gratitude to our clients, brand partners, business associates and shareholders for their continued encouragement and support.

I would also like to take this opportunity to thank my fellow Board members for their guidance and wise counsel and express my sincere gratitude to Mr Timothy Chia, who after having served as an independent director for twenty years, retired from the Board on 21 July 2006. Mr Timothy Chia’s contribution was highly valued and we wish him the very best. On a related note, I am delighted to welcome Mr Jason Choo and Mr Ariel Kor as our new independent directors. I am confident that our new independent directors will bring diversity and fresh perspectives to the Board.

With the management team continuing to execute its business strategy and enhance the quality of our fiscal position, I am confident we will yet again be profitable in the year ahead.