Annual Report

Annual reports and statements




Chairman’s Statement


DEAR FELLOW SHAREHOLDERS,

I am delighted to report that the Group posted its strongest historic financial performance for the fiscal year ended 31 March 2008. Net profit after tax grew by 62% to a record $31.5 million whilst sales rose a robust 20% to $487.6 million.

This accomplishment further strengthened the balance sheet with shareholders funds at $169.3 million. On an enlarged share capital of 231.7 million shares, this translates into a net asset value per share of 73.1 cents per ordinary share as at 31 March 2008. The Group’s net gearing ratio has been reduced from 18% in FY2007 to 11% in FY2008 and our year-end inventory levels grew by a nominal 7% to $151.7 million. Notwithstanding, this marginal increase in stocks did not detract management from continuing to improve our stock turnover ratio to 2.6 times, double that of the industry average.

In view of the Group’s sterling performance and to reward shareholders for their trust, loyalty and continuous support, the Board is pleased to recommend a final dividend of 2.0 cents per share (based on a one-tier system). Together with the one-time special interim gross dividend of 8.0 cents per share declared and paid during the year, the total net dividend payout for the full year will amount to $12.0 million.

BUSINESS REVIEW

There was an unanticipated and unprecedented boom in wealth creation over the past several years leading to a never seen before demand for luxury and specialty watches. Though the industry was firing on all cylinders, manufacturers were still not delivering enough product to satisfy global markets, and in particular, Asia. This was due to massive production bottlenecks, the result of decades of underinvestment in facilities expansion.

On the back of this buoyant mood, The Hour Glass added $80.5 million in net sales whilst operating profit soared by 67% to $ 39.5 million. All this was realised with the same retail network as the year before – that is to say no new stores were opened during the fiscal year – making this achievement even more rewarding. The sales increase and margin appreciation resulted from the Group’s focus on both high-grade technical timepieces and luxury performance sports watches, two key growth segments in the markets we operate in. Our ability to sustain prices came about as the growth in demand for luxury watches was not matched by a concurrent increase in product supply. We believe that this shortfall in supply cannot be rectified in the near term.

Whilst the attention of our sales and merchandising teams were trained on the next watch they were going to procure and sell, our marketing teams were working overtime to produce the world’s ultimate consumer watch festival Tempus – The Temple of Time. Held in September 2007, Tempus was heralded by both industry pundits and collectors alike as a watch event second to none. We are delighted with the contributions The Hour Glass has made in both raising watch consciousness and building watch culture globally and believe this initiative further reinforces The Hour Glass as the watch world’s leading cultural retail enterprise.

OUTLOOK

The tailwinds driving the market last year have abruptly switched directions and turned into rather turbulent economic headwinds. The force of these headwinds will certainly be testing as we face what we believe to be one of the greatest financial challenges of this new millennium. Despite slowing global growth, volatile stock markets and its dampening impact on consumer sentiment and hence discretionary spending, we intend to use this period of economic uncertainty to augment our strong business and operating fundamentals, enhancing our boutique network over the next 3 years. In this respect, we will invest approximately $25 million in both capital expenditure and increasing working capital over the course of the next 12 months, adding an additional 8 stores in Singapore, Malaysia, Thailand, Australia and Japan. This is the most rapid and profound network expansion programme we have engaged in since listing the business in 1988.

Part of this developmental plan includes a recent joint venture we concluded in Thailand on 1 April 2008. Trading under the name of PMT The Hour Glass, this 50/50 joint venture was signed with Prima Times Co. Ltd, an associate company of Blue River Corporation. Blue River Corporation is one of Thailand’s leading jewelers and was founded by the Thamavaranukup family. The venture will leverage on The Hour Glass’ status as Asia’s premier specialty watch retailer and Blue River Corporation’s excellent local knowledge of Thailand’s luxury retail market. We are confident that PMT The Hour Glass will be Thailand’s leading retailer of specialist timepieces, operating four boutiques comprising of three PMT The Hour Glass multi-brand format stores at Gaysorn Shopping Centre, Siam Paragon Shopping Centre and Emporium Shopping Complex, as well as a Chopard mono-brand boutique at Siam Paragon Shopping Centre. I thank our partners, the Thamavaranukups for the confidence and trust they have placed in us. Judging from the smooth and successful business integration effort, it leads me to believe that this will prove to be a great ‘together forever’ partnership.

A year ago, we had indicated that The Hour Glass had been approached by several international brands to manage their stand-alone boutiques in key Asian cities. I am pleased to report that we have since concluded on several such opportunities and that the following will commence business in FY2009: A Hublot standalone flagship store at Starhill Gallery in Kuala Lumpur representing the first of such mono-brand boutiques that we will open in Southeast Asia. In Sydney’s prime shopping district of Castlereagh Street, we will be opening Australia’s fifth Montblanc boutique operated by The Hour Glass. An A. Lange & Sohne boutique in Ginza, Tokyo is slated to open its doors in the second half of this year. This Lange boutique will be the only one of its kind in the world managed by a third party retailer. In Singapore, we have secured a space for a Rolex flagship store to be located at ION Orchard in addition to a new multi-brand boutique located in the same shopping complex.

We believe The Hour Glass is well positioned to extend our market leadership by doing what we do best; directing our retail marketing and merchandising programmes towards new areas of growth, managing our pricing strategies to ensure margin enhancements, increasing the productivity of our inventory assets, increasing the levels of cash being generated from the business and most importantly, producing more earnings per dollar of net revenue we generate.

At the forefront of our business development initiative is the emphasis we are placing on our human resources. I have tasked senior officers of the group to enhance their efforts in developing the next rung of leaders in the organisation so that over the course of the next 10 years they will have successfully strengthened the management team. As is the culture of the Company, we prefer to achieve this through internal promotions but will not rule out external recruitment as a means of realising this objective. Our senior officers have all committed to rise to this challenge, embracing this direction wholeheartedly. I hope that in a few years, we will be able to report positively on this and that the talent and experience of our management and frontline teams will continue to be the most respected in the industry.

ACKNOWLEDGEMENTS

On behalf of the Board of Directors, I would like to thank the management and staff at The Hour Glass, our brand partners, associates and ever faithful clients for what can only be described as an incredible year. It is the deep rooted culture, unyielding commitment, integrity and single mindedness of our whole organisation in striving to extend the market leadership of this unique cultural retail enterprise that has brought us to where we are today. And despite the poor economic conditions that may lie ahead, this passionate desire to lead means that we remain focused, excited about the future, positive about the prospects for our business and the industry we operate in and dedicated to continue delivering sustainable results for the years ahead.

Henry Tay Yun Chwan
Executive Chairman
2 June 2008

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