IGG Inc — Interim / Quarterly Report 2001

Dec 19, 2001

Oriental Watch Holdings Limited

(Incorporated in Bermuda with limited liability)

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

Interim Results for the six months ended 30 September 2001

The Board of Directors of Oriental Watch Holdings Limited (the "Company") is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the "Group") for the six months ended 30 September 2001 together with the comparative figures for the corresponding period in 2000 as follows:

Condensed Consolidated Income Statement

Six months ended

30 September 30 September

2001 2000

Notes HK$'000 HK$'000

(unaudited) (unaudited)

Turnover 846,757 744,374

Costs of sales (764,442 ) (647,680 )

Gross profit 82,315 96,694

Other r evenue 8,694 7,179

Distribution costs (14,806 ) (13,336 )

Administrative expenses (28,692 ) (36,502 )

Profit from operations 47,511 54,035

Finance costs 2 (499 ) (476 )

Profit before taxation 3 47,012 53,559

Taxation 4 (8,178 ) (9,940 )

Profit before minority interests 38,834 43,619

Minority Interests 1,226 1,413

Profit attributable to

shareholders 40,060 45,032

Dividend 5 6,881 8,270

Earnings per share 6

• Basic 14.55 cents 16.28 cents

• Diluted 14.28 cents 16.20 cents

Condensed Consolidated Balance Sheet

30 September 31 March

2001 2001

Notes HK$'000 HK$'000

(unaudited) (audited and

restated)

ASSETS AND LIABILITIES

Non-current Assets

Investment properties 37,600 46,550

Other properties,

plant and equipment 80,660 81,556

Investments in securities 13,873 4,991

132,133 133,097

Current Assets

Inventories 385,959 354,140

Debtor, deposits

and prepayments 7 29,809 8,694

Investments in securities 930 5,102

Taxation recoverable 2,463 1,850

Pledged bank deposits 14,052 -

Other bank balances and cash 50,492 55,712

483,705 425,498

Current Liabilities

Creditors and accrued charges 8 57,542 28,303

Taxation payable 11,150 3,021

Obligations under a finance

lease - amount due

within one year 76 76

Short-term bank loan (secured) 12,453 -

Mortgage loan - amount due

within one year - 1,287

Bank overdrafts 563 3,953

81,784 36,640

Net current assets 401,921 388,858

Total assets less

current liabilities 534,054 521,955

Non- current liabilities

Obligation under a finance lease

• amount due after one year 32 63

Mortgage loan - amount due

after one year - 6,968

Amount due to a minority

shareholder of subsidiaries 12,000 15,200

Deferred taxation 349 370

12,381 22,601

Minority interests (5,061 ) (3,835 )

7,320 18,766

Net assets 526,734 503,189

CAPITAL AND RESERVES

Share capital 27,525 27,525

Reserves 499,209 475,664

Shareholders' funds 526,734 503,189

Notes: -

1. General

The Group is engaged in watch trading. Over 90% of its turnover and profit from operations are derived in Hong Kong.

2. Finance Costs

Six months ended

30 September 30 September

2001 2000

HK$'000 HK$'000

Interest on bank borrowings wholly

repayable with five years 487 464

Finance lease charges 12 12

499 476

3. Profit before taxation

Six months ended

30 September 30 September

2001 2000

HK$'000 HK$'000

Profit before taxation has been

arriving at after charging:

Depreciation on:

• owned assets 2,180 1,880

• asset held under a finance lease 20 20

2,200 1,900

Unrealised loss on listed

trading securities 272 380

and after crediting:

Interest income 1,196 2,291

Rental income 1,828 1,406

Realised gain on sale

of listed trading securities - 184

4. Taxation

Six months ended

30 September 30 September

2001 2000

HK$'000 HK$'000

The charge comprises:

Hong Kong Profits Tax 8,102 9,784

Taxation outside Hong Kong 97 156

8,199 9,940

Deferred taxation (21 ) -

8,178 9,940

Hong Kong Profits Tax is calculated at 16% on the estimated assessable profits of the Group which are derived from Hong Kong. Taxation outside Hong Kong is calculated at the rates prevailing in the respective jurisdictions outside Hong Kong in which the Group operates.

5. Dividend

On 18 December 2001, the directors resolved to declare an interim dividend of 2.5 cents per share in respect of the six months ended 30 September 2001 (2000: 3 cents per share), totalling approximately HK$6,881,000 (2000: HK$8,270,000), to be paid in cash to those shareholders whose names appear on the Company's register of members on 9 January 2002. The dividend will be paid on or before 16 January 2002.

6. Earnings per share

The calculations of the basic and diluted earnings per share are based on the following data:

Six months ended

30 September 30 September

2001 2000

HK$'000 HK$'000

Earnings

Profit for the period attributable

to shareholders 40,060 45,032

Number of shares

Weighted average number of shares

for the purpose of calculating

basic earnings per share 275,253,200 276,686,071

Potential dilutive shares issuable

under the Company's share

option scheme 5,295,547 1,325,153

Weighted average number of shares

for the purpose of calculating

diluted earnings per share 280,548,747 278,011,224

7. Debtors, deposits and prepayments

30 September 31 March

2001 2001

HK$'000 HK$'000

Trade debtors 23,336 4,100

Deposits and prepayments 6,473 4,594

29,809 8,694

The Group maintains a general credit policy of not more than 30 days for its established and major customers. The following is an aged analysis of the trade debtors of the Group at the balance sheet date:

30 September 31 March

2001 2001

HK$'000 HK$'000

0-30 days 23,148 2,493

31-60 days 7 854

61-90 days 84 218

Over 90 days 97 535

23,336 4,100

8. Creditors and accrued charges

30 September 31 March

2001 2001

HK$'000 HK$'000

Trade creditors 38,150 14,744

Other creditors and accrued charges 19,392 13,559

57,542 28,303

The following is an aged analysis of the trade creditors of the Group at the balance sheet date:

30 September 31 March

2001 2001

HK$'000 HK$'000

0-60 days 37,805 14,526

61-90 days 71 193

Over 90 days 274 25

38,150 14,744

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from 4 January 2002 to 9 January 2002 (both days inclusive) during which period no transfer of shares will be registered. In order to qualify for the proposed interim dividend which is payable on 16 January 2002, all transfers accompanied by the relevant share certificates must be lodged with the Company's Branch Share Registrars, Secretaries Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not later than 4:00p.m. on 3 January 2002.

BUSINESS REVIEW AND PROSPECTS

The Group's unaudited consolidated turnover for the period under review was HK$846,757,000 (2000: HK$744,374,000), representing an increase of approximately 13.8% against the corresponding period last year. Profit attributable to shareholders was HK$40,060,000 (2000: HK$45,032,000), representing a drop of 11.0% when compared with the previous period. Basic earnings per share declined by 10.6% to 14.55 cents (2000: 16.28 cents).

During this first half year, the Group recorded a satisfactory growth in turnover despite the slow retail market and the resulting fierce competition for sales. Consequently, the Group experienced a reduction in profit margin. In order to maintain profitability, tighter cost and inventory controls have been implemented.

The existing import tariffs on watches to China are between 20% and 23%, which are expected to reduce by steps following China's entry into the World Trade Organisation (the "WTO"). The Group has established a presence in Shangai Wai Gao Qiao Free Trade Zone to engage in the trading of watches. The Board believes that restrictions to engage in watch retail business in China will be relaxed and that this will provide greater opportunities for watch retailers like the Group to capture the vast demand from customers in China.

The Group will expand its operations in China by opening a new shop at 38 Hongli Road, Star Plaza Shopping Centre, Futian, Shenzhen in January 2002. To establish a solid foothold in the domestic market of China, the Group will continue to expand its retail network into the major cities of China, such as Shanghai and Beijing.

The economic impact of the September 11 terrorist attacks in the United States has yet to be fully felt. There are still many uncertainties and downside risks prevailing which may affect the economic performance in the coming quarters. The Hong Kong economy is still struggling toward the year-end holiday seasons, Christmas and Chinese New Year, which traditionally account for a large portion of revenues and profits for retailers. While the immediate future is still uncertain, it is probable that there will continue to be economic difficulties in the coming quarters. The Board is not too pessimistic about the future as it is highly likely that the US economy will rebound sometime next year. On the other hand, the mainland economy will continue to grow at a fairly fast rate and Hong Kong, being the gateway to China, will stand to benefit. Though China's WTO membership has created many opportunities, certain restrictions and impediments will remain. In the short to medium-term, the investment environment may not look markedly different than today. In the long-term, predictability, transparency and openness of trade with and within China will improve. However, it is anticipated that competitions from key domestic players will become intense. Nevertheless, with its long established goodwill and accumulated experience in the China market, the Group's China strategy is for the long-term perspective and not a reflexive response to China's entry into the WTO. The Board is optimistic about the long-term future prospects of the Group.

LIQUIDITY AND CAPITAL RESOURCES

As at 30 September 2001, the Group's total shareholders' funds amounted to HK$527 million, compared with HK$503 million as at 31 March 2001. The Group's bank and other borrowings were insignificant when compared to shareholders' funds.

The Group had net current assets of HK$401 million, including bank and cash balances of HK$64 million as at 30 September 2001 compared with balances of HK$389 million and HK$56 million respectively as at 31 March 2001.

The financial position of the Group is strong. The Board believes that the Group has sufficient internal finance resources to discharge its debts and to finance its operations and capital expenditure.

CODE OF BEST PRACTICE FOR DIRECTORS

None of the Directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not for any part of the six months ended 30 September 2001, in compliance with the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S SHARES

During the six months ended 30 September 2001, there was no purchase, sale or redemption by the Company or any of its subsidiaries of the Company's listed securities on The Stock Exchange of Hong

Kong Limited.

By order of the Board

Yeung Ming Biu

Chairman

Hong Kong, 18 December 2001

Please also refer to the published version of this announcement in the South China Morning Post.