IGG Inc — Annual Report 2013

Jun 19, 2013

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ORIENTAL WATCH HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 398)

Website: http://www.orientalwatch.com.hk

FINAL RESuLTS FOR THE yEAR ENDED 31ST MARCH, 2013

FINANCIAL HIGHLIGHTS

• Turnover declined 5.2% to HK$3,733 million

• Profit attributable to owners of the Company decreased 0.9% to HK$162 million

• Profit for the year would be HK$86 million excluding the net gain of HK$76 million in relation to the disposal of property, plant and equipment this year, mainly comprised the gain on disposal on a shop premises

• Basic earnings per share was HK28.50 cents

• Final dividend of HK5.0 cents per share

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The Board of Directors of Oriental Watch Holdings Limited (the “Company”) is pleased to announce the audited consolidated results of the Company and its subsidiaries (the “Group”) for the year ended 31st March, 2013 together with the comparative figures for the corresponding year in 2012 as follows:

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31sT MARcH, 2013

Notes Turnover 3 Cost of goods sold Gross profit Other income and gains 4 Distribution and selling expenses Administrative expenses Finance costs 5 Share of results of associates Share of results of jointly controlled entities Profit before taxation 6 Income tax expense 7 Profit for the year attributable to owners of the Company Other comprehensive income (expense) Exchange difference arising on translation of foreign operations Change in fair value of available-for-sale financial assets Reclassification adjustment relating to impairment loss on available-for-sale financial assets Other comprehensive income for the year Total comprehensive income for the year attributable to owners of the Company Earnings per share Basic 9 Diluted 9	2013 HK$’000 3,732,925 (3,032,500) 700,425 113,254 (246,473) (353,344) (31,269) 677 2,693 185,963 (23,366) 162,597 8,321 4,747 — 13,068 175,665 28.50 HK cents 28.50 HK cents	2012 HK$’000 3,935,963 (3,108,451) 827,512 37,059 (269,641) (366,841) (18,247) 5,087 2,008 216,937 (52,829) 164,108 17,773 (1,101) 249 16,921 181,029 28.94 HK cents 28.76 HK cents

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 31sT MARcH, 2013

Notes Non-current assets Property, plant and equipment Deposits for acquisition of property, plant and equipment Interests in associates Interests in jointly controlled entities Available-for-sale financial assets Deferred tax assets Property rental deposits Amount due from a jointly controlled entity Current assets Inventories Trade and other receivables 10 Taxation recoverable Bank balances and cash Current liabilities Trade and other payables 11 Taxation payable Bank loans Net current assets Total assets less current liabilities Non-current liabilities Bank loans Deferred tax liabilities Net assets Capital and reserves Share capital 12 Reserves Total equity	2013 HK$’000 292,244 238 37,965 27,328 14,015 1,387 30,509 67,739 471,425 2,060,287 167,923 9,236 373,221 2,610,667 159,251 6,964 393,451 559,666 2,051,001 2,522,426 292,500 1,976 294,476 2,227,950 57,061 2,170,889 2,227,950	2012 HK$’000 267,455 6,679 37,777 24,311 9,268 1,680 38,774 —
		385,944
		2,003,455 207,935 — 206,605
		2,417,995
		173,252 30,685 476,351
		680,288
		1,737,707
		2,123,651
		30,000 1,423
		31,423
		2,092,228
		57,061 2,035,167
		2,092,228

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Notes

1. GENERAL

The Company is incorporated in Bermuda as an exempted company with limited liability and acts as an investment holding company as well as engaged in watch trading. The shares of the Company are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The address of the registered office and principal place of business of the Company are detailed in the corporate information section of the annual report.

The consolidated financial statements are presented in Hong Kong dollars which is also the functional currency of the Company.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

In the current year, the Group has applied the following new and revised HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

Amendments to HKAS 12 Deferred tax: Recovery of underlying assets Amendments to HKFRS 7 Financial instruments: Disclosures — Transfers of financial assets

The application of the amendments to HKFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective:

Amendments to HKFRSs Amendments to HKFRS 7 Amendments to HKFRS 9 and HKFRS 7

Annual improvements to HKFRSs 2009 — 2011 cycle1 Disclosures — Offsetting financial assets and financial liabilities1 Mandatory effective date of HKFRS 9 and transition disclosures3

Amendments to HKFRS 10, Consolidated financial statements, joint arrangements and disclosure HKFRS 11 and HKFRS 12 of interests in other entities: Transition guidance1 Amendments to HKFRS 10, Investment entities2 HKFRS 12 and HKAS 27 HKFRS 9 Financial instruments3 HKFRS 10 Consolidated financial statements1 HKFRS 11 Joint arrangements1 HKFRS 12 Disclosure of interests in other entities1 HKFRS 13 Fair value measurement1 HKAS 19 (as revised in 2011) Employee benefits1 HKAS 27 (as revised in 2011) Separate financial statements1 HKAS 28 (as revised in 2011) Investments in associates and joint ventures1 Amendments to HKAS 1 Presentation of items of other comprehensive income4 Amendments to HKAS 32 Offsetting financial assets and financial liabilities2 HK(IFRIC) — INT 20 Stripping costs in the production phase of a surface mine1

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• 1 Effective for annual periods beginning on or after 1st January, 2013.

• 2 Effective for annual periods beginning on or after 1st January, 2014. 3 Effective for annual periods beginning on or after 1st January, 2015.

• 4 Effective for annual periods beginning on or after 1st July, 2012.

HKFRS 9 “Financial instruments”

HKFRS 9 issued in 2009 introduces new requirements for the classification and measurement of financial assets. HKFRS 9 amended in 2010 includes the requirements for the classification and measurement of financial liabilities and for derecognition.

Key requirements of HKFRS 9 are described as follows:

• All recognised financial assets that are within the scope of HKAS 39 “Financial instruments: Recognition and measurement” are subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent reporting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

• With regard to the measurement of financial liabilities designated as at fair value through profit or loss, HKFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value of financial liabilities attributable to changes in the financial liabilities’ credit risk are not subsequently reclassified to profit or loss. Under HKAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss was presented in profit or loss.

HKFRS 9 is effective for annual periods beginning on or after 1st January, 2015, with earlier application permitted.

Except for available-for-sale investments, the directors anticipate that the application of HKFRS 9 will not affect the classification and measurement of the Group’s other financial assets and liabilities as at 31st March, 2013. Regarding the Group’s available-for-sale investments, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

New and revised standards on consolidation, joint arrangements, associates and disclosures

In June 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued, including HKFRS 10, HKFRS 11, HKFRS 12, HKAS 27 (as revised in 2011) and HKAS 28 (as revised in 2011).

Key requirements of these five standards are described below.

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HKFRS 10 replaces the parts of HKAS 27 “Consolidated and separate financial statements” that deal with consolidated financial statements. HK(SIC) — INT 12 “Consolidation — Special purpose entities” will be withdrawn upon the effective date of HKFRS 10. Under HKFRS 10, there is only one basis for consolidation, that is, control. In addition, HKFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in HKFRS 10 to deal with complex scenarios.

HKFRS 11 replaces HKAS 31 “Interests in joint ventures”. HKFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified. HK(SIC) — INT 13 “Jointly controlled entities — Non-monetary contributions by venturers” will be withdrawn upon the effective date of HKFRS 11. Under HKFRS 11, joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. In contrast, under HKAS 31, there are three types of joint arrangements: jointly controlled entities, jointly controlled assets and jointly controlled operations. In addition, joint ventures under HKFRS 11 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under HKAS 31 can be accounted for using the equity method of accounting or proportionate consolidation.

HKFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in HKFRS 12 are more extensive than those in the current standards.

In July 2012, the amendments to HKFRS 10, HKFRS 11 and HKFRS 12 were issued to clarify certain transitional guidance on the application of these five HKFRSs for the first time.

These five standards, together with the amendments relating to the transitional guidance, are effective for annual periods beginning on or after 1st January, 2013 with earlier application permitted provided that all of these standards are applied at the same time.

The directors anticipate that the application of these five standards will be adopted in the Group’s consolidated financial statements for the annual period beginning 1st April, 2013. The application of these five standards will not have material impacts on amounts reported in the consolidated financial statements but will result in more extensive disclosure in the consolidated financial statements.

HKFRS 13 “Fair value measurement”

HKFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The scope of HKFRS 13 is broad; it applies to both financial instrument items and non-financial instrument items for which other HKFRSs require or permit fair value measurements and disclosures about fair value measurements, except in specified circumstances. In general, the disclosure requirements in HKFRS 13 are more extensive than those in the current standards. For example, quantitative and qualitative disclosures based on the threelevel fair value hierarchy currently required for financial instruments only under HKFRS 7 “Financial instruments: Disclosures” will be extended by HKFRS 13 to cover all assets and liabilities within its scope.

HKFRS 13 is effective for annual periods beginning on or after 1st January, 2013, with earlier application permitted.

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The directors anticipate that HKFRS 13 will be adopted in the Group’s consolidated financial statements for the annual period beginning 1st April, 2013. Other than the available-for-sale investments carried at fair value, the application of this new standard is not expected to affect the measurement and presentation of the Group’s assets and liabilities reported in the consolidated financial statements but may result in more extensive disclosures in the consolidated financial statements.

Amendments to HKAS 1 “Presentation of items of other comprehensive income”

The amendments to HKAS 1 “Presentation of items of other comprehensive income” introduce new terminology for the statement of comprehensive income and income statement. Under the amendments to HKAS 1, a ‘statement of comprehensive income’ is renamed as a ‘statement of profit or loss and other comprehensive income’ and an ‘income statement’ is renamed as a ‘statement of profit or loss’. The amendments to HKAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to HKAS 1 require items of other comprehensive income to be grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis — the amendments do not change the option to present items of other comprehensive income either before tax or net of tax.

The amendments to HKAS 1 are effective for annual periods beginning on or after 1st July, 2012. The presentation of items of other comprehensive income will be modified accordingly when the amendments are applied in future accounting periods. This standard will be adopted for the Group’s consolidated financial statements for the annual period beginning 1st April, 2013.

The directors of the Company anticipate that the application of other new and revised HKFRSs will have no material impact on the consolidated financial statements.

3. SEGMENT INFORMATION

The Group’s operation is principally sales of watches. The Group’s turnover represents consideration received or receivable from sales of watches.

The Group has two operating segments, which are analysed based on geographical markets of the goods sold, being (a) Hong Kong, and (b) Macau and the PRC, which is also the basis of organisation of the Group for managing the business operations. The Group determines its operating segments based on the internal reports reviewed by the chief operating decision maker, being the Managing Director of the Group that are used to allocate resources and assess performance. No operating segments identified by the chief operating decision maker have been aggregated in arriving at the reportable segments of the Group.

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The following is an analysis of the Group’s segment revenue and results by operating segments.

Hong Kong Macau and the PRC Unallocated other income Unallocated corporate expenses Finance costs Share of results of associates Share of results of jointly controlled entities Profit before taxation	Segment revenue 2013 2012 HK$’000 HK$’000 2,553,928 2,594,648 1,178,997 1,341,315 3,732,925 3,935,963	Segment 2013 HK$’000 222,959 24,800 247,759 3,393 (37,290) (31,269) 677 2,693 185,963	profit 2012 HK$’000 185,133 91,902
			277,035 5,268 (54,214) (18,247) 5,087 2,008
			216,937

The accounting policies used to determine segment revenue and results are the same as the accounting policies adopted in the Group’s consolidated financial statements. Segment profit represents the profit earned by each segment without allocation of finance costs, share of results of associates and jointly controlled entities and unallocated other income and expenses. Unallocated expenses include auditor’s remuneration, directors’ emoluments and operating expenses of inactive companies. This is the measure reported to the Managing Director of the Group for the purposes of resources allocation and performance assessment.

The Group has no customer who contributed over 10% of the total revenue of the Group for any of the two years ended 31st March, 2013.

All segment revenue is generated from external customers for both years.

The following is an analysis of the Group’s assets and liabilities by operating segments.

Hong Kong Macau and the PRC Segment total Unallocated Group’s total	Segment 2013 HK$’000 1,478,959 1,071,173 2,550,132 531,960 3,082,092	assets 2012 HK$’000 1,483,601 1,038,842 2,522,443 281,496 2,803,939	Segment liabilities 2013 2012 HK$’000 HK$’000 111,129 125,028 47,425 47,632 158,554 172,660 695,588 539,051 854,142 711,711	Segment liabilities 2013 2012 HK$’000 HK$’000 111,129 125,028 47,425 47,632 158,554 172,660 695,588 539,051 854,142 711,711
				172,660 539,051
				711,711

The segment assets by location of assets are the same as by location of markets of the goods sold.

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For the purposes of monitoring segment performance and allocating resources between segments:

• all assets are allocated to operating segments other than interests in associates and jointly controlled entities, available-for-sale financial assets, deferred tax assets, amount due from a jointly controlled entity, taxation recoverable as well as assets of the headquarters and bank balances and cash; and

• all liabilities are allocated to operating segments other than taxation payable, deferred tax liabilities and bank loans as well as other payables of the headquarters. Bank loans are classified as unallocated corporate liabilities because they are managed centrally by the treasury function of the Group.

Other segment information

Amounts included in the measure of segment results or segment assets:

Hong Kong Macau and the PRC Segment total Unallocated Group’s total	Additions of property, plant and equipment 2013 2012 HK$’000 HK$’000 36,518 112,838 37,831 32,859 74,349 145,697 — — 74,349 145,697	Depreciation (Gain) loss on disposal of property, plant and equipment 2013 2012 2013 2012 HK$’000 HK$’000 HK$’000 HK$’000 14,209 10,176 (76,917) — 24,975 25,043 610 5 39,184 35,219 (76,307) 5 268 60 — — 39,452 35,279 (76,307) 5	Impairment loss on available-for-sale financial assets 2013 2012 HK$’000 HK$’000 — — — — — — — 249 — 249	(Decrease) increase in non-current property rental deposits 2013 2012 HK$’000 HK$’000 (3,263) 15,724 (5,002) 9,073 (8,265) 24,797 — — (8,265) 24,797	(Decrease) increase in non-current property rental deposits 2013 2012 HK$’000 HK$’000 (3,263) 15,724 (5,002) 9,073 (8,265) 24,797 — — (8,265) 24,797
					24,797 —
					24,797

Information about the Group’s non-current assets (excluding available-for-sale financial assets, deferred tax assets, property rental deposits, amount due from a jointly controlled entity and interests in associates and jointly controlled entities) by geographical location of the assets is detailed below:

Hong Kong Macau and the PRC	Carrying amount of non-current assets 2013 2012 HK$’000 HK$’000 220,379 214,394 72,103 59,740 292,482 274,134

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4. OTHER INCOME AND GAINS

Exchange gain Gain on disposal of property, plant and equipment Interest income Repairing service income Show window rental income Others 5. FINANCE COSTS Interest on bank borrowings: Wholly repayable within five years Not wholly repayable within five years 6. PROFIT BEFORE TAXATION Profit before taxation has been arrived at after charging: Directors’ remuneration Equity-settled share-based payment expense for other staff Other staff’s retirement benefits scheme contributions Other staff costs Auditor’s remuneration Depreciation of property, plant and equipment Equity-settled share-based payment expense for consultants (included in administrative expenses) Impairment loss recognised on available-for-sale financial assets (included in administrative expenses) Loss on disposal of available-for-sale financial assets (included in administrative expenses) Loss on disposal of property, plant and equipment Operating lease rentals in respect of rented premises	2013 HK$’000 1,767 76,307 1,626 5,285 24,229 4,040 113,254 2013 HK$’000 30,578 691 31,269 2013 HK$’000 34,185 — 7,253 134,105 175,543 2,780 39,452 — — — — 190,194	2012 HK$’000 2,510 — 2,758 5,961 23,175 2,655
		37,059
		2012 HK$’000 17,807 440
		18,247
		2012 HK$’000 50,681 54,776 4,940 123,960
		234,357
		2,653 35,279 21,974 249 479 5 139,818

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7. INCOME TAX EXPENSE

The charge (credit) comprises: Hong Kong Profits Tax Overprovision in prior years Taxation in other jurisdictions Under(over)provision in prior years Deferred taxation	2013 HK$’000 18,098 (2,725) 15,373 6,923 207 7,130 863 23,366	2012 HK$’000 38,569 (2,677) 35,892 19,235 (2,041) 17,194 (257) 52,829

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profits for both years.

Taxation in other jurisdictions is calculated at the rates prevailing pursuant to the relevant laws and regulations.

Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25% from 1st January, 2008 onwards. Certain subsidiaries that enjoyed a preferential tax rate prior to 1st January, 2008 will be gradually transitioned to the new tax rate over five years from 1st January, 2008. Therefore, the Enterprise Income Tax rate of these PRC subsidiaries was increased from 24% in the calendar year of 2011 to 25% in the calendar year of 2012.

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8. DIVIDENDS

	2013		2012
	HK$’000		HK$’000
Dividend recognised as distribution during the year:
Interim dividend for financial year ended 31st March, 2013 of 2.0
HK cents (financial year ended 31st March, 2012: 3.0 HK cents)
per share on 570,610,224 (2012: 570,610,224) shares	11,412		17,118
Special dividend for financial year ended 31st March, 2012 of 3.0
HK cents (2013: nil) per share on 570,610,224 shares	—		17,118
Final dividend for financial year ended 31st March, 2012 of 5.0 HK
cents (financial year ended 31st March, 2011: 8.0 HK cents) per
share on 570,610,224 (2011: 469,508,520) shares	28,531		37,561
	39,943		71,797
Dividend proposed after year end:
Proposed final dividend for financial year ended 31st March, 2013
of 5.0 HK cents (financial year ended 31st March, 2012: 5.0 HK
cents) per share on 570,610,224 (2012: 570,610,224) shares	28,531		28,531
A final dividend of 5.0 HK cents (2012: 5.0 HK cents) per share has been proposed by		the directors and
is subject to approval by the shareholders in the forthcoming annual general meeting.

9. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to owners of the Company is based on the following data:

Earnings Earnings for the purposes of basic and diluted earnings per share (Profit for the year attributable to owners of the Company) Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares — share options Weighted average number of ordinary shares for the purpose of diluted earnings per share	2013 HK$’000 162,597 2013 ’000 570,610 — 570,610	2012 HK$’000 164,108
		2012 ’000 567,010 3,617
		570,627

The diluted earnings per share for both years has not included the effect from certain of the Company’s share options because the exercise prices of those share options are higher than the average market price of the shares of the Company.

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10. TRADE AND OTHER RECEIVABLES

Trade receivables Property rental and utilities deposits Refundable deposits Advances to apparel suppliers Advances to other suppliers VAT recoverable Property rental prepaid Other receivables	2013 HK$’000 111,656 36,625 — 1,413 3,736 10,065 — 4,428 167,923	2012 HK$’000 143,754 11,813 9,561 1,811 237 18,176 7,569 15,014
		207,935

The Group maintains a general credit policy of not more than 30 days for its wholesales customers. Sales made to retail customers are made on a cash basis. The following is an aged analysis of trade receivables based on the invoice date at the end of the reporting period:

Age 0 to 30 days 31 to 60 days 61 to 90 days Over 90 days	2013 HK$’000 104,287 5,169 511 1,689 111,656	2012 HK$’000 125,044 12,953 4,809 948
		143,754

More than 93% (2012: 86%) of the trade receivables that are neither past due nor impaired are recovered within one month after the end of the reporting period. No provision has been made for trade receivables as at 31st March, 2013 (2012: nil).

Included in the Group’s trade receivable balances are debtors with an aggregate carrying amount of HK$7,369,000 (2012: HK$18,710,000) which are past due at the reporting date for which the Group has not provided for impairment loss. The Group does not hold any collateral over these balances. The average age of these receivables is 46 days (2012: 41 days).

Ageing of trade receivables which are past due but not impaired

31 to 60 days 61 to 90 days Over 90 days	2013 HK$’000 5,169 511 1,689 7,369	2012 HK$’000 12,953 4,809 948
		18,710

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The Group will provide fully for any receivables over 365 days because historical experience is such that receivables that are past due beyond 365 days are generally not recoverable.

The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.

11. TRADE AND OTHER PAyABLES

Trade payables Payroll and welfare payables Commission payables Advances from customers Renovation work payables VAT and other taxes payables Advertising fee payables Interest payables Property rental fee payables Other payables	2013 HK$’000 81,453 22,274 11,979 13,630 7,793 1,463 1,296 2,867 7,779 8,717 159,251	2012 HK$’000 110,531 21,892 12,096 2,802 2,968 1,389 4,937 1,778 7,172 7,687
		173,252

The following is an aged analysis of trade payables presented based on the invoice date at the end of the reporting period:

Age 0 to 60 days 61 to 90 days Over 90 days	2013 HK$’000 75,965 179 5,309 81,453	2012 HK$’000 105,198 4,209 1,124
		110,531

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12. SHARE CAPITAL

Ordinary shares of HK$0.10 each Authorised: At 1st April, 2011, 31st March, 2012 and 31st March, 2013 Issued and fully paid: At 1st April, 2011 Bonus issue of shares_(note (a)) Issue of shares upon exercise of share options(note (b))_ At 31st March, 2012 and 31st March, 2013	Number of shares 1,000,000,000 469,508,520 93,901,704 7,200,000 570,610,224	Amount HK$’000 100,000
		46,951 9,390 720
		57,061

Notes:

• (a) By an ordinary resolution passed at the annual general meeting of the Company held on 28th July, 2011, the issued share capital was increased by way of a bonus issue by charging HK$9,390,000 to the retained profits account in payment in full at par of 93,901,704 ordinary shares of HK$0.10 each on the basis of one new ordinary share for every five ordinary shares held on 28th July, 2011.

• (b) During the year ended 31st March, 2012, consultants of the Company exercised share options amounting to 7,200,000 shares, at an adjusted exercise price of HK$3.44 per share.

The new bonus shares issued on 28th July, 2011 were not entitled to the final dividend for the year ended 31st March, 2011. All other shares issued during the year ended 31st March, 2012 rank pari passu with the then existing shares in all respects.

13. SHARE-BASED PAyMENT TRANSACTION

Pursuant to an ordinary resolution passed at the Company’s special general meeting held on 3rd November, 2003, the Company adopted a Share Option Scheme.

Under the Share Option Scheme, options may be granted to any director, employee, consultant, customer, supplier or advisor of the Group or a company in which the Company holds an interest or a subsidiary of such company (the “Eligible Persons”), the trustee of the Eligible Persons or a company beneficially owned by the Eligible Persons. The purpose of the Share Option Scheme is to attract and retain quality personnel and other persons to provide incentive to them to contribute to the business and operation of the Group. The total number of shares available for issue under the Share Option Scheme as at the end of reporting period is 23,950,852 shares. No Eligible Persons shall be granted an option in any 12-month period for such number of shares (issued and to be issued) which in aggregate would exceed 1% of the share capital of the Company in issue on the last day of such 12-month period unless approval of the shareholders of the Company has been obtained in accordance with the Rules Governing the Listing of Securities on the Stock Exchange. The exercisable period is determined by the directors of the Company, which shall not be more than 10 years from the date of grant, and may include a

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minimum period for which the options must be held before it can be exercised. The exercise price per share payable on the exercise of an option equals to the highest of:

• (a) the nominal value of one share;

• (b) the closing price per share as stated in the Stock Exchange’s daily quotations sheet on the date of grant; and

• (c) the average closing price per share as quoted in the Stock Exchange’s daily quotations sheet for the five business days immediately preceding the date of grant.

The Share Option Scheme will remain in force until 2nd November, 2013.

On 6th April, 2011, 32,300,000 share options were granted and on 29th August, 2011, 23,000,000 share options were granted. The options may be exercised by the grantees at any time during the option period up to the termination of employment. All share options vested immediately at the date of grant. The estimated fair values of the options granted on these dates are HK$44,855,000 and HK$48,698,000, respectively. The closing prices immediately before the date of grant were HK$3.95 and HK$4.38, respectively.

Details of specific categories of options are as follows:

			Original	Adjusted
	Number of		exercise	exercise
	share options		price	price
Date of grant	granted	Exercisable period	per share	per share
6th April, 2011	32,300,000	6th April, 2011 to 5th April, 2021	HK$4.13	HK$3.44
	(note (a))			(note (a))
29th August, 2011	23,000,000	29th August, 2011 to 28th August, 2021	HK$4.80	N/A

The following tables disclose movements of the Company’s share options held by directors, employees and consultants during the years ended 31st March, 2012 and 31st March, 2013.

Share options granted on 6th April, 2011

Categories of participants Directors of the Company Other employees Consultants_(note (b))_ Total		Number of shares under	option	option
	Outstanding at 1st April, 2011 — — — —	Granted Adjustment during on bonus issue the year of shares (note (a)) 12,100,000 2,420,000 12,000,000 2,400,000 8,200,000 1,640,000 32,300,000 6,460,000	Outstanding at 31st March, Exercised 2012 and during 31st March, the year 2013 — 14,520,000 — 14,400,000 (7,200,000) 2,640,000 (7,200,000) 31,560,000
				31,560,000

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Share options granted on 29th August, 2011

Number of shares under option

Categories of participants Other employees Consultants_(note (b))_	Outstanding at 1st April, 2011 — — —	Outstanding at 31st March, Granted 2012 and during 31st March, the year 2013 18,000,000 18,000,000 5,000,000 5,000,000 23,000,000 23,000,000

Notes:

• (a) The number of shares under the outstanding options and the exercise price have been adjusted upon the bonus issue of shares in July 2011 on the basis of one new ordinary share for every five ordinary shares held.

• (b) The share options were granted to consultants for services rendered in exploring investment opportunities for the Group.

During the year ended 31st March, 2012, 7,200,000 share options granted under the Share Option Scheme were exercised on 5th August, 2011, 21st September, 2011 and 7th December, 2011. The share prices at the respective dates of exercise were HK$5.58, HK$4.34 and HK$4.15. The weighted average share price at the dates of exercise was HK$4.69.

No share option was granted, exercised or forfeited during the year ended 31st March, 2013.

The fair values of share options granted during the year ended 31st March, 2012 were calculated using the Black-Scholes pricing model. The inputs into the model are as follows:

Share options granted on 6th April, 2011
Share price at grant date	HK$4.13
Exercise price	HK$4.13
Expected volatility	53.41%
Expected life	3 years
Risk-free rate	1.42%
Expected dividend yield	1.69%
Share options granted on 29th August, 2011
Share price at grant date	HK$4.80
Exercise price	HK$4.80
Expected volatility	45.20%
Expected life	10 years
Risk-free rate	2.25%
Expected dividend yield	1.91%

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Expected volatilities were determined by using the historical volatility of the Company’s share price over the previous years.

The variable and assumptions used in computing the fair values of the share options are based on the directors’ best estimate. The value of an option varies with different variables of certain subjective assumptions.

The Group recognised a share-based payment expense of HK$93,553,000 for the year ended 31st March, 2012 (2013: nil) in relation to share options granted by the Company.

14. CONTINGENT LIABILITIES

As at 31st March, 2013, the Group issued financial guarantees to banks in respect of banking facilities granted to associates. The aggregate amount that could be required to be paid if the guarantees were called upon in entirety amounted to NT$250,000,000 (equivalent to HK$64,950,000; 2012: NT$380,000,000 and equivalent to HK$100,000,000), NT$200,000,000 (equivalent to HK$51,960,000; 2012: NT$100,000,000 and equivalent to HK$26,300,000) of which has been utilised by these associates. The fair value of the financial guarantee contracts at the grant date and at 31st March, 2012 and 2013 is not significant. In the opinion of directors, the default risk of associates is considered as low.

15. OPERATING LEASE ARRANGEMENTS

At the end of the reporting period, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth years inclusive	2013 HK$’000 219,062 167,581 386,643	2012 HK$’000 155,718 122,347
		278,065

Operating lease payments represent rentals payable by the Group for certain its shops and office premises. Leases are negotiated for an average term of 1 to 4 years (2012: 1 to 4 years). Some group entities are required to pay lease charges based on a fixed percentage of net sales.

16. CAPITAL COMMITMENTS

	2013	2012
	HK$’000	HK$’000
Capital expenditure in respect of the acquisition of property,
plant and equipment contracted for but not provided in
the consolidated financial statements	268	2,860

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17. OTHER COMMITMENTS

At the end of the reporting period, the Group was committed to pay royalties for the usage of a fashion brand for manufacture and trading of apparels with a minimum guarantee royalties payment as follows:

Within one year In the second to fifth years inclusive	2013 HK$’000 1,800 — 1,800	2012 HK$’000 2,272 8,057
		10,329

The Group was also subject to pay royalties at 6% on total net wholesales made per annum on top of the above minimum guarantee royalties.

During the year ended 31st March, 2013, the Group early terminated the licence agreement with effect from 31st December, 2012. The Group is permitted to sell the apparels for a period up to 30th June, 2013. The amount of commitments at 31st March, 2013 represents further payment to be paid to the licensor under the termination agreement.

FINAL DIVIDEND

The directors proposed to pay a final dividend of 5.0 Hong Kong cents per share for the year ended 31st March, 2013 (2012: 5.0 Hong Kong cents) to the shareholders whose names appear on the register of members of the Company on 21st August, 2013. Subject to approval at the forthcoming annual general meeting, dividend warrants will be sent to shareholders on or before 5th September, 2013.

CLOSuRE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from 19th August, 2013 to 21st August, 2013 (both days inclusive) during which period no transfer of shares will be effected. In order to qualify for the proposed final dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Branch Share Registrars, Tricor Secretaries Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Hong Kong not later than 4:30 p.m. on 16th August, 2013.

MANAGEMENT DISCuSSION AND ANALySIS

Group Results

On behalf of the Board of Directors (the “Board”) of Oriental Watch Holdings Limited (the “Company”) and its subsidiaries (collectively, the “Group”), I hereby present the audited consolidated results of the Group for the year ended 31st March 2013 (the “Year”).

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Turnover for the year ended 31st March 2013 declined 5.2% to HK$3,733 million (2012: HK$3,936 million). This led to a gross profit decline of 15.4% to HK$700 million (2012: HK$828 million) thus gross profit margin to drop to 18.8% from 21.0% last year. Net profit attributable to owners of the Company was HK$162 million, representing a decrease of 0.9% from the previous corresponding year (2012: HK$164 million). Excluding the one-off share option expense of HK$94 million recognized last year and the net gain of HK$76 million in relation to the disposal of property, plant and equipment this year, mainly comprised the gain on disposal on a shop premises, the adjusted net profit decrease for our core business would have been 66.5%. This significant decline in net profit performance was mainly attributable to: (1) the absence of price hikes implemented by watch suppliers during the year, (2) the slowdown in China’s sales performance amidst a cooling domestic economy, (3) these together led to a substantial drop in gross profit margin as compared to the previous year, (4) heightened rental expenses in both Hong Kong and China and (5) significant increase in stock provision during the year which grew 31.7% to HK$126 million as compared to last year (2012: HK$96 million).

The Board has resolved to recommend a final dividend of 5.0 HK cents per share (2012: 5.0 HK cents). The final dividend together with the interim dividend of 2.0 HK cents per share, represented a dividend payout of approximately 25% for the year ended 31st March 2013 (2012: 38%).

Business Review

As at 31st March 2013, the Group operates 107 stores (including stores of associates and jointly controlled entities) in the Greater China region. Breakdown by geographic region is as follows:

	As at March 2013
Hong Kong	14
Macau	2
China	89
Taiwan	2
Total	107

In 2011, the strong demand in China drove the luxury watch industry into a banner year. However, a volatile global economic backdrop and the Chinese government’s crackdown on ostentation and luxury gifting amongst government officials has cooled consumption considerably during the Year as Mainland consumers curb their spending on extravagant items. This was evident in the latest export statistics, with the Federation of the Swiss Watch Industry reporting that China’s Swiss watch sales from January to April 2013 has dropped 25% year-on-year. Yet, in contrast to such unfavourable sentiment in China, the Group’s retail sales in Hong Kong and Macau has picked up from the second half of the fiscal year onwards, with the regions’ same-store sales (“SSS”) registering consecutive positive growth since February 2013. The Group anticipates this improvement to continue, as our stores have already witnessed a gradual increase in Mainland tourist foot traffic and a pick-up in sales for high-ticket watch items.

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High rental costs continued to be a major cost concern for retailers in Hong Kong, Macau and China, respectively. Compared to the previous corresponding year, the Group’s rental expense increased by approximately 35.7% and this was mainly caused by the lease renewal of 3 existing stores in Hong Kong and the opening of a new Rolex boutique in Hysan Place, Causeway Bay. The latter commenced operation in August 2012. Yet, the rise in rental as a percentage of turnover increased by 1.50 percentage points to 5.1%. The Group wishes to put this heightened cost impact in perspective, that this spike is almost entirely related to these one-off events and that our rental expense is better controlled than our peers. A good portion of Oriental Watch’s retail stores in Hong Kong are selfowned properties, hence the Group is relatively defensive to such external cost pressures. The Group will maintain prudent policies on its operating expenses and is determined to lower this ratio in the coming years.

As at 31st March 2013, the Group’s inventory level grew 2.9% to HK$2,060 million (2012: HK$2,003 million) and was mainly attributable to the stocking up of inventory for our two new stores in Hysan Place, Causeway Bay and in New Mandarin Plaza, Tsim Sha Tsui East, respectively. The Group understands the importance of a healthy working capital hence we have already tightened inventory management during the Year, with clear directives to front line staff to slow the replenishment rate of high-ticket items. Moreover, the Group’s balance sheet was also strengthened by the disposal of property, plant and equipment, mainly comprised the gain on disposal on a shop premises in Central for a net gain of HK$76 million during the Year. To unlock value in our assets, the Group may consider divesting 4 other potential shop premises at opportune times to achieve greater shareholder returns in the long run.

Prospects

Despite the global economic uncertainty, the Group remains cautiously optimistic on the business outlook in the luxury market and believes the inspiration for high-end goods is still strong and growing amongst Mainland consumers. This is fuelled by the rising wealth of China’s aspirational middle class, business elites, and sophisticated individuals who have a growing taste for niche brands and exclusive products. In most cases they come for world renowned brands, of which the Group distributes many. The agreement to lower the import tariff for Swiss goods on the back of the recent Swiss-China free trade is certain to stimulate demand for luxury watches in China over the mediumto-long term.

Further to the addition of two new stores during the Year, the Group will continue to adopt a prudent store expansion strategy in the new fiscal year, focusing on fine-tuning its existing retail store network (especially in China) to optimize operating performance. And when the opportunity presents, the management may further expand in Hong Kong on more reasonable rental costs. Tightened inventory and costs controls will also be enforced to maintain a healthy cash position. In the long term, the Group is confident that Hong Kong will continue to be a major shopping destination for Mainland Chinese tourists with its superior service standards, lower tax rates and comprehensive product range.

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“Oriental Watch” is a prestigious brand established over a long establishment history and well known amongst Chinese consumers. With this being the biggest asset for the Group, we will continue to strive to capitalize on all viable business opportunities and aim to achieve satisfactory returns for our shareholders.

On behalf of the Group, we thank our customers, suppliers, staff and shareholders for their loyalty and continued support.

FINANCIAL REVIEW

Liquidity and financial resources

At 31st March 2013, the Group’s total equity reached HK$2,228 million, compared with HK$2,092 million as at 31st March, 2012. The Group had net current assets of HK$2,051 million, including bank and cash balances of HK$373 million as at 31st March, 2013 compared with balances of HK$1,738 million and HK$207 million respectively as at 31st March, 2012. At 31st March, 2013, bank loans and overdrafts totalled HK$686 million (31st March, 2012: HK$506 million). At 31st March, 2013, the gearing ratio (defined as total bank borrowing on total equity) was 0.30 (31st March, 2012: 0.24).

Management considers that financial position of the Group is healthy with adequate funds and unused banking facilities. The Group’s sales and purchase transactions are primarily denominated in Hong Kong dollars and Renminbi. The Group did not face significant risk from exposure to foreign exchange fluctuations.

Foreign exchange exposure

The Group’s sales and purchase transactions are primarily denominated in Hong Kong dollars and Renminbi. The Group did not face significant risk from exposure to foreign exchange fluctuations.

HuMAN RESOuRCES

As at 31st March, 2013, our Group had approximately 890 employees all over HK, Macau, China and Taiwan, in which approximately 65% of whom were in Mainland. The total manpower is around the same as last year.

The Group’s compensation package, which includes basic salary, commission, annual bonus, medical insurance, and other common benefits, is structured by reference to the marketplace and individual merits, and is reviewed on an annual basis based on the Group policy’s performance system and objective specification performance appraisal.

We deeply believe every customer does have expectations on the service they obtained. Thus, we must always strive to provide service beyond their expectations in order to maintain the most excellent quality and comprehensive of service. As such, more resources have been allocated to

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the Staff Training and Development aspect. Since January 2009, we commissioned an independent consulting firm to conduct a continuous “Mystery Shoppers Programme (MSP)”. This programme will help the management to gauge and monitor the overall service performance of our sales team. By analyzing the results of MSP, we are able to identify the areas for improvements in a more specific way such that our future training programme could be tailor-made to specific shop/ individual level. All the effort is to align with the company’s philosophy of providing “Service Excellence” to customers, with the aim of impelling the Group’s business and making great strides forward unceasingly.

REVIEW OF CONSOLIDATED FINANCIAL STATEMENTS

The Audit Committee of the Company has reviewed the consolidated financial statements of the Group for the year ended 31st March, 2013.

PuRCHASE, SALE OR REDEMPTION OF THE COMPANy’S LISTED SECuRITIES

During the year ended 31st March, 2013, neither the Company nor any of its subsidiaries had purchased, redeemed or sold any of the Company’s listed securities on The Stock Exchange of Hong Kong Limited.

CORPORATE GOVERNANCE

The Company is committed to the establishment of good governance practices and procedures. The Company has met the code provisions set out in the Code on Corporate Governance Practices (“CG Code”) in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“the Listing Rules”), throughout the year ended 31st March, 2013, except the deviation from the code provision A.4.1 of the CG Code.

Under the Code Provision A.4.1, non-executive directors should be appointed for a specific term, subject to re-election. However, the Independent Non-executive Directors were not appointed for a specific term but are subject to retirement by rotation in annual general meeting of the Company in accordance with the Bye-laws of the Company. The management of the Company considered that there is no imminent need to revise the letter of appointment of Independent Non-executive Directors by adding a specific term in the letter of appointment.

MODEL CODE FOR SECuRITIES TRANSACTIONS By DIRECTORS

The Company has adopted the Model Code set out in Appendix 10 of the Listing Rules as its own code of conduct regarding Directors’ securities transactions. Enquiry has been made with all Directors and all Directors have confirmed that they have complied with the required standard set out in the Model Code throughout the year ended 31st March, 2013.

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AuDIT COMMITTEE

The Audit Committee comprises three independent non-executive directors of the Company. Terms of reference of the Audit Committee have been updated in compliance with the CG Code.

The Audit Committee, together with the management of the Company, have reviewed the accounting principles and practices adopted by the Group and discussed internal control and financial reporting matters including the review of audited consolidated financial statements for the year ended 31st March, 2013.

SCOPE OF WORK OF MESSRS. DELOITTE TOuCHE TOHMATSu

The figures in respect of the Group’s consolidated statement of financial position, consolidated statement of comprehensive income and the related notes thereto for the year ended 31st March, 2013 as set out in the preliminary announcement have been agreed by the Group’s auditor, Messrs. Deloitte Touche Tohmatsu, to the amounts set out in the Group’s audited consolidated financial statements for the year. The work performed by Messrs. Deloitte Touche Tohmatsu in this respect did not constitute an assurance engagement in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants and consequently no assurance has been expressed by Messrs. Deloitte Touche Tohmatsu on the preliminary announcement.

REMuNERATION COMMITTEE

The Remuneration Committee of the Company (“the Remuneration Committee”) comprises three members, a majority of whom are independent non-executive directors of the Company. The principal functions of the Remuneration Committee include reviewing the remuneration policies of the Company, assessing the performance of the directors and senior management of the Company and determining the policies in respect to their remuneration packages.

ANNuAL GENERAL MEETING

It is proposed that the Annual General Meeting will be held on 13th August, 2013. The Notice of Annual General Meeting will be published and dispatched to the shareholders in due course.

PuBLICATION OF FINAL RESuLTS AND DISPATCH OF ANNuAL REPORT

The final results announcement is published on the websites of The Stock Exchange of Hong Kong Limited at (www.hkex.com.hk) and the Company at (www.orientalwatch.com.hk). The 2013 annual report containing all information required by the Listing Rules will be dispatched to the Company’s shareholders and available on the above websites in due course.

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MEMBERS OF THE BOARD OF DIRECTORS

As at the date of this announcement, the Board comprises Dr. Yeung Ming Biu, Mr. Yeung Him Kit, Dennis, Mr. Fung Kwong Yiu, Madam Yeung Man Yee, Shirley, Mr. Lam Hing Lun, Alain and Mr. Choi Kwok Yum as executive directors and Dr. Sun Ping Hsu, Samson, Dr. Li Sau Hung, Eddy and Mr. Choi Man Chau, Michael as independent non-executive directors.

By order of the Board yeung Ming Biu chairman

Hong Kong, 19th June, 2013

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