DEAR SHAREHOLDERS,

On behalf of the Board of Directors, I am delighted to report that the Group has achieved a net profit of $12.4 million for the financial year ended 31 March 2006, representing an increase of 43% over the prior year whilst revenue grew a modest 6% to $354.5 million.

The Group’s balance sheet continues to remain robust with shareholders’ funds at $136.7 million. This translates into a net asset value per share of $1.26 as at 31 March 2006. The Group maintained a conservative debt to equity ratio of 0.11 and ensured that inventory levels are reflective of the volume of business we conduct.

In view of our improving performance and to reward our shareholders, the Board is recommending 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 financial year in 2006 saw a return to buoyant regional markets that registered optimistic economic indicators. Countries such as Hong Kong experienced a real estate rebound to pre-crisis levels, Japan showed signs that they were pulling out of their decade plus slump, and with greater political stability in neighboring Indonesia, we have observed that the propensity to spend on luxury goods improved significantly over the last year. Nonetheless, the impetus for a break-out growth was restrained due to concern over an upswing in the inflationary cycle and a resultant higher interest rate environment.

The Hour Glass continued to strengthen its position as a leading multi-brand specialist watch retailer in the Asia Pacific region, refurbishing its flagship boutique in Ngee Ann City, Singapore and opening its fourth Montblanc boutique in Brisbane during the year. Both stores contributed positively to our revenue growth when operational.

The Group achieved a stronger sales performance than the prior year with $19.0 million more sales being recorded. This translated into an operating profit of $14.3 million, which is 40% more than the $10.2 million earned in the previous financial year. This growth is credited to higher revenue contributions from our overseas subsidiaries.

In line with our strategy to dispose of non-core assets, the Group sold its investment properties at Trengganu Street during the year giving rise to an exceptional gain of $0.8 million.

COMMENTARY

I often remind my management team and brand partners that we are competing in a marathon and not a sprint; with many short term objectives often ending with erratic performances and results. Our aim is to build our business on a structurally sound foundation, one that will be able to achieve a measured and sustainable rate of growth.

I often also remind my management team that there are no secrets to success. Success comes as a result of preparation, hard work and the ability to learn from failure. In this regard, I am delighted that the second generation of management leaders we have installed are working extremely diligently and cohesively as a team. They have re-engineered the organizational matrix and its processes; they have executed a broad ranging set of multi-tiered, multi-pronged market development strategies and have maintained fiscal discipline by way of cost containment and carefully preventing inventory escalation whilst always driving towards margin enhancement.

Most impressive of all is that they have produced 16 quarters of consecutive growth, quintupling our net income in the process. The board and I are confident that this team led by the Group Managing Director, Kenny Chan, has the experience and the tenacity to build on our competitive position in the market.

Finally, I would like to add that we will continue to pursue our policy of divesting the Group’s non-core assets, and concurrently ensure that we seek for opportunities to maximise returns from our capital resources.

Based on the overall positive outlook, the Group expects to remain profitable in the current financial year.

ACKNOWLEDGEMENT

On behalf of the Board of Directors, I would like to thank our management and staff for their dedication, drive and support. Our gratitude is extended to our customers, brand partners, business associates and shareholders for their generous support.

I would also like to take this opportunity to welcome Michael Tay, who joined the Board on 15 August 2005, and express my heartfelt appreciation to my fellow Board Members for their advice and guidance.