IGG Inc — Interim / Quarterly Report 2013

Nov 21, 2012

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

==> picture [96 x 86] intentionally omitted <==

ORIENTAL WATCH HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(the “Company”) (Stock Code: 398) Website: http://www.orientalwatch.com

ANNOuNCEMENT Of INTERIM RESuLTS fOR THE SIx MONTHS ENDED 30TH SEpTEMbER, 2012

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 30th September, 2012 together with the comparative figures for the corresponding period in 2011 as follows:

CONDENSED CONSOLIDATED STATEMENT Of COMpREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER, 2012

Notes Turnover Cost of goods sold Gross profit Other income Distribution and selling expenses Administrative expenses Finance costs Share of results of associates Share of results of jointly controlled entities Profit before taxation 4 Income tax expense 5 Profit for the period attributable to owners of the Company	(unaudited) Six months ended 30th 30th September, September, 2012 2011 HK$’000 HK$’000 1,795,280 1,967,176 (1,456,023) (1,539,576) 339,257 427,600 16,759 22,091 (119,582) (140,258) (154,062) (207,711) (16,731) (7,231) 1,538 2,480 304 599 67,483 97,570 (15,343) (34,522) 52,140 63,048

— 1 —

Notes Other comprehensive income (expense) Exchange difference arising on translation of foreign operations Change in fair value of available-for-sale financial assets Other comprehensive income for the period Total comprehensive income for the period attributable to owners of the Company Earnings per share 7 — Basic — Diluted	(unaudited) Six months ended 30th 30th September, September, 2012 2011 HK$’000 HK$’000 983 10,777 (55) (1,430) 928 9,347 53,068 72,395 9.14 HK cents 11.17 HK cents 9.14 HK cents 10.99 HK cents

— 2 —

CONDENSED CONSOLIDATED STATEMENT Of fINANCIAL pOSITION AT 30TH SEPTEMBER, 2012

Notes Non-current assets Property, plant and equipment 8 Deposits for acquisition of property, plant and equipment Interests in associates Interest in jointly controlled entities Available-for-sale financial assets Deferred tax assets Property rental deposits Amount due from a jointly controlled entity 9 Current assets Inventories Trade and other receivables 10 Receivable from a jointly controlled entity 11 Bank balances and cash Assets classified as held for sale 8 Current liabilities Trade and other payables 12 Taxation payable Bank loans 13 Net current assets Total assets less current liabilities Non-current liabilities Bank loans 13 Deferred tax liabilities Net assets Capital and reserves Share capital 14 Reserves Total equity	(unaudited) 30th September, 2012 HK$’000 266,507 5,498 39,037 24,639 9,213 1,293 31,514 52,892 430,593 2,139,162 200,539 5,718 335,960 2,681,379 9,307 2,690,686 213,574 27,959 408,698 650,231 2,040,455 2,471,048 352,500 1,783 354,283 2,116,765 57,061 2,059,704 2,116,765	(Audited) 31st March, 2012 HK$’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 —
		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

— 3 —

Notes:

1. bASIS Of pREpARATION

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard 34 (“HKAS”) “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

2. pRINCIpAL ACCOuNTING pOLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values.

The accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30th September, 2012 are the same as those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31st March, 2012, except for the following accounting policies which are adopted by the Group during the current interim period as they have become applicable to the Group.

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets (or disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

In the current interim period, the Group has applied, for the first time, the following amendments to Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the HKICPA:

Amendments to HKFRS 7 Financial instruments: disclosures — transfers of financial assets; and Amendments to HKAS 12 Deferred tax: recovery of underlying assets

The application of the above amendments to HKFRSs in the current interim period has had no material effect on the amounts reported in these condensed consolidated financial statements and/or disclosures set out in these condensed consolidated financial statements.

— 4 —

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 People’s Republic of China (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 Managing Director of the Group that are used to allocate resources and assess performance.

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	Turnover Six months ended 30th 30th September, September, 2012 2011 HK$’000 HK$’000 1,182,291 1,296,284 612,989 670,892 1,795,280 1,967,176	Results Six months ended 30th 30th September, September, 2012 2011 HK$’000 HK$’000 74,834 78,416 20,590 55,448 95,424 133,864 1,343 1,908 (14,395) (34,050) (16,731) (7,231) 1,538 2,480 304 599 67,483 97,570

Segment profit represents the profit earned by each segment without allocation of directors’ remuneration, finance costs, share of results of associates, share of results of jointly controlled entities and unallocated other income and expenses. This is the measure reported to the Managing Director of the Group for the purposes of resources allocation and performance assessment.

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

— 5 —

The following is an analysis of the Group’s assets by operating segments:

Hong Kong Macau and the PRC Segment total Unallocated Total assets 4. pROfIT bEfORE TAxATION Profit before taxation has been arrived at after charging: Depreciation of property, plant and equipment Directors’ remuneration_(note)_ Equity-settled share-based payment expense — other employees — consultants Loss on disposal of property, plant and equipment and after crediting: Interest income	30th 31st September, March, 2012 2012 HK$’000 HK$’000 1,582,204 1,483,601 1,071,616 1,038,842 2,653,820 2,522,443 467,459 281,496 3,121,279 2,803,939 Six months ended 30th 30th September, September, 2012 2011 HK$’000 HK$’000 17,801 14,716 12,862 32,553 — 54,776 — 21,974 278 — 1,343 1,908	31st March, 2012 HK$’000 1,483,601 1,038,842
		2,522,443 281,496
		2,803,939

Note: During the six months ended 30th September, 2011, key management personnel of the Group comprises directors of the Company. The amount above for the six months ended 30th September, 2011 included equity-settled share-based payment expense of HK$16,803,000 (2012: nil).

— 6 —

5. INCOME TAx ExpENSE

The charge comprises: Hong Kong Profits Tax Taxation in other jurisdictions Deferred taxation	Six months ended 30th 30th September, September, 2012 2011 HK$’000 HK$’000 11,086 23,777 3,510 10,745 14,596 34,522 747 — 15,343 34,522	Six months ended 30th 30th September, September, 2012 2011 HK$’000 HK$’000 11,086 23,777 3,510 10,745 14,596 34,522 747 — 15,343 34,522
		34,522 —
		34,522

Hong Kong Profits Tax is calculated at 16.5% on the estimated assessable profit for both periods.

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

6. DIVIDEND

During the six months ended 30th September, 2012, a final dividend of 5.0 HK cents per share, totalling HK$28,531,000, in respect of the year ended 31st March, 2012 (2011: 8.0 HK cents per share, totalling HK$37,561,000) was approved at the annual general meeting held on 14th August, 2012.

On 21st November, 2012 , the directors resolved to declare an interim dividend of 2.0 HK cents per share (2011: an interim dividend of 3.0 HK cents per share and a special dividend of 3.0 HK cents per share) in respect of the six months ended 30th September, 2012, totalling HK$11,412,000 (2011: HK$34,056,000), to be paid in cash to those shareholders whose names appear on the Company’s register of members on 14th December, 2012.

7. EARNINGS pER SHARE

	Six months	ended
	30th	30th
	September,	September,
	2012	2011
	HK$’000	HK$’000
Profit for the period attributable to owners of the Company for the
purposes of basic and diluted earnings per share	52,140	63,048

— 7 —

Weighted average number of ordinary shares for the purpose of calculating basic earnings per share Effect of dilutive potential ordinary shares — share options Weighted average number of ordinary shares for the purpose of calculating diluted earnings per share	Number of shares Six months ended 30th 30th September, September, 2012 2011 570,610,224 564,585,833 — 9,331,047 570,610,224 573,916,880	Number of shares Six months ended 30th 30th September, September, 2012 2011 570,610,224 564,585,833 — 9,331,047 570,610,224 573,916,880
		573,916,880

The diluted earnings per share for the six months ended 30th September, 2012 has not included the effect from the Company’s share options because the exercise prices of the share options are higher than the average market price of the Company.

8. pROpERTY, pLANT AND EQuIpMENT/ASSETS CLASSIfIED AS HELD fOR SALE

During the six months ended 30th September, 2012, the Group incurred expenditure of HK$26,498,000 (2011: HK$130,128,000) to acquire property, plant and equipment for its operation.

The Group has pledged certain land and buildings with an aggregate carrying value of HK$101,764,000 (31st March, 2012: HK$143,497,000) to a bank to secure the bank loan facilities granted to the Group.

In July 2012, the directors determined to dispose of certain leasehold land and buildings in Hong Kong with a carrying amount of HK$9,307,000 and expect that these properties will be sold within twelve months. Accordingly, these properties were classified as assets held for sale and are presented separately in the condensed consolidated statement of financial position. Also in July 2012, the Group entered into a provisional sale and purchase agreement with an independent third party for the disposal of these properties for a consideration of HK$86,800,000, completion of which is expected to be in December 2012.

9. AMOuNT DuE fROM A JOINTLY CONTROLLED ENTITY

The amount is unsecured, interest free and has no fixed repayment term. The Group expects the amount would be settled after twelve months from the end of the reporting period and therefore classifies the amount as a non-current asset in the condensed consolidated statement of financial position at 30th September, 2012.

— 8 —

10. TRADE AND OTHER RECEIVAbLES

Trade receivables Property rental and utilities deposits Refundable deposits_(note (a)) Advances to apparel suppliers Advances to other suppliers VAT receivables Property rental prepaid Other receivables(note (b))_	30th September, 2012 HK$’000 153,675 24,180 — 1,618 2,082 14,545 — 4,439 200,539	31st March, 2012 HK$’000 143,754 11,813 9,561 1,811 237 18,176 7,569 15,014
		207,935

Notes:

• (a) The refundable deposits paid to landlord of a target shop to be leased were refunded in full in the current interim period.

• (b) The amount at 31st March, 2012 included amount due from a jointly controlled entity amounting to HK$10,168,000 representing deposits paid on behalf of the jointly controlled entity for its acquisition of property, plant and equipment.

The Group maintains a general credit policy of not more than 30 days for its wholesale customers. Sales made to retail customers are made on a cash basis. The following is an aged analysis of trade receivables presented 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	30th September, 2012 HK$’000 126,365 18,308 8,417 585 153,675	31st March, 2012 HK$’000 125,044 12,953 4,809 948
		143,754

— 9 —

11. RECEIVAbLE fROM A JOINTLY CONTROLLED ENTITY

The amount represents reimbursements receivable from a jointly controlled entity under a procurement arrangement (see note 16).

12. TRADE AND OTHER pAYAbLES

Trade payables Payroll and welfare payables Commission payables Advances from customers Renovation work payables VAT payables Advertising fee payables Interest payables Property rental payables Deposits received in respect of sale of property, plant and equipment_(see note 8)_ Other payables	30th September, 2012 HK$’000 135,699 27,962 6,519 8,988 8,731 1,474 119 291 6,061 8,680 9,050 213,574	31st March, 2012 HK$’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	30th September, 2012 HK$’000 126,795 2,979 5,925 135,699	31st March, 2012 HK$’000 105,198 4,209 1,124
		110,531

13. bANK LOANS

During the six months ended 30th September, 2012, the Group obtained new bank loans amounting to HK$703,031,000 (2011: HK$218,340,000). The loans are unsecured, carry interest rates which mainly vary with Hong Kong Interbank Offered Rate and the People’s Bank of China benchmark interest rate and are repayable in instalments over a period of 5 years. The effective interest rates range from 2.10% to 6.71% per annum. The proceeds were used to finance setting up of new retail shops.

— 10 —

14. SHARE CApITAL

Ordinary shares of HK$0.10 each Authorised: At 1st April, 2011, 31st March, 2012 and 30th September, 2012 Issued and fully paid: At 1st April, 2011 Bonus issue of shares_(note a) Issue of shares upon exercise of share options(note b)_ At 31st March, 2012 and 30th September, 2012	Number of shares 1,000,000,000 469,508,520 93,901,704 7,200,000 570,610,224	Amount HK$’000 100,000
		46,951 9,390 720
		57,061

• (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.

15. SHARE-bASED pAYMENT TRANSACTION

The Company has share options scheme for eligible directors, employees, consultants, customers, suppliers or advisors of the Company or a company in which the Company holds an interest or a subsidiary of such company.

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.

— 11 —

Details of specific categories of options are as follows:

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

Note (a): The number of shares under the outstanding options and the exercise price have been adjusted upon the bonus issue of shares on the basis of one new ordinary share for every five ordinary shares held on 28th July, 2011.

The following tables disclose movements of the Company’s share options held by directors, employees and consultants during the six months ended 30th September, 2012:

Share options granted on 6th April, 2011

Categories of participants Directors of the Company Other employees Consultants_(note (b))_ Total Share options granted on 29th August, 2011	Number of shares under option outstanding at 1st April, 2012 and 30th September, 2012 14,520,000 14,400,000 2,640,000
	31,560,000

Categories of participants Other employees Consultants_(note (b))_	Number of shares under option outstanding at 1st April, 2012 and 30th September, 2012 18,000,000 5,000,000
	23,000,000

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

— 12 —

No share option was granted, exercised or forfeited during the six months ended 30th September, 2012.

The fair values of share options granted during the six months ended 30th September, 2011 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%

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.

During the six months ended 30th September, 2011, the Group recognised a share-based payment expense of HK$93,553,000 (2012: nil) in relation to share options granted by the Company.

16. RELATED pARTY TRANSACTIONS

Details of the compensation of key management personnel are disclosed in note 4.

In addition, in April 2012, the Group entered into a procurement agreement with Hei Tung Watches Company Limited, a company incorporated in Macau and a jointly controlled entity of the Group. Pursuant to the procurement agreement, the Group provides procurement services to the jointly controlled entity relating to supply of watches and spare parts for no consideration. The procurement agreement is effective from 1st April, 2012.

— 13 —

17. CApITAL COMMITMENTS

	30th	31st
	September,	March,
	2012	2012
	HK$’000	HK$’000
Capital expenditure in respect of acquisition of property, plant
and equipment contracted for but not provided in the condensed
consolidated financial statements	272	2,860

In addition to the above, the Group’s share of the capital commitments of a jointly controlled entity is as follows:

	30th	31st
	September,	March,
	2012	2012
	HK$’000	HK$’000
Capital expenditure in respect of acquisition of property, plant and
equipment contracted for but not provided	2,594	—

At 31st March, 2012, the Group was also committed to pay HK$6,462,000 (30th September, 2012: nil) to suppliers of property, plant and equipment of a jointly controlled entity.

18. 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 year inclusive	30th September, 2012 HK$’000 2,462 6,766 9,228	31st March, 2012 HK$’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.

— 14 —

INTERIM DIVIDEND

The directors have proposed a pay an interim dividend of 2.0 HK cents per share (2011: an interim dividend of 3.0 HK cents per share and special dividend of 3.0 HK cents per share) in respect of the six months ended 30th September, 2012, totalling HK$11,412,000 (2011: HK$34,056,000), to be paid in cash to the shareholders whose names appear on the register of the members of the Company on 14th December, 2012. Dividend warrants will be sent to the shareholders on or before 20th December, 2012.

CLOSuRE Of REGISTER Of MEMbERS

The Register of Members of the Company will be closed from 11th December, 2012 to 14th December, 2012 (both days inclusive) during which period no transfer of shares will be registered. In order to qualify for the proposed interim dividend which will be payable on 20th December, 2012, 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 4:00 p.m. on 10th December, 2012.

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”), it is my pleasure to present the unaudited consolidated results of the Group for the six months ended 30th September, 2012 (the “Reporting Period”).

Turnover for the six months ended 30th September, 2012 was HK$1,795 million (2011: HK$1,967 million). Gross profit declined 20.7% to HK$339 million (2011: HK$428 million) thus gross profit margin dropped to 18.9% from 21.7% in the previous corresponding period. Net profit attributable to owners of the Company was HK$52 million, representing a decrease of 17.3% from the previous corresponding period (2011: HK$63 million). Excluding the fair value impact of HK$94 million recognized in profit or loss in relation to share options granted last period, the adjusted net profit decrease would have been 66.7%. It is noteworthy to mention that the significant decline in net profit performance was mainly attributable to two key factors: (1) lower gross profit margin as compared with the previous corresponding period due to the absence of price hikes implemented by watch suppliers, and (2) rising rental expenses in Hong Kong.

To thank the continual support of our shareholders, the Board has resolved to recommend an interim dividend of 2.0 HK cents per share (2011: 6.0 HK cents), representing a payout of approximately 21.9% for the six months ended 30th September, 2012 (2011: 54.3%).

— 15 —

business Review and prospects

The Group currently operates 109 stores (including associate stores) in the Greater China region. Breakdown by geographic region is as follows:

Hong Kong Macau China Taiwan Total	2012 14 2 91 2
	109

Consumer appetite for luxury watch items remained relatively weak during the period. The subsided consumption trend in Hong Kong was particularly evident amongst visiting Mainland consumers, who have curbed their spending considerably amidst the prevailing global economic uncertainty. In spite of the unfavourable market sentiment, the Group’s sales momentum in key operating markets (such as Hong Kong, Macau and China) has indicated signs of improvement during the Reporting Period. The encouraging trend is in keeping with overall same-store sales growth converging towards a positive mark in September 2012 and is expected to extend well into the remainder of the calendar year.

Escalating rental rates continued to be a major concern for Hong Kong and Macau retailers. In comparison to the previous corresponding period, the Group’s rental expense increased by approximately 23.1% and was mainly attributable to the lease renewal of 3 existing stores and the opening of a new Rolex boutique in Causeway Bay at Hysan Place, which commenced operation in August 2012. Notwithstanding the decline in retail activities, the Group remained relatively resilient against such cost pressures as good portion of our retail stores in Hong Kong are self-owned properties, thus effectively averaging down our rental costs. As a result, rental as a percentage of turnover remained at a healthy level and in line with the turnover performance during the Reporting Period. By adopting prudent policies on its operating expenses, the Group strives to maintain, or even lower, this ratio in the coming years.

The Group is committed to managing and reducing its inventory levels in the near term so as to maximize cash flow performance. The recent disposal of a shop premises in Central for a cash consideration HK$86.8 million in July 2012 also indicates a positive step towards further improving our balance sheet. To utilize its assets, the Group may consider divesting other shop premises at opportune times to unlock greater shareholder value in the long run.

To promote the prestigious image of “Oriental Watch Company”, continuous marketing campaigns were rolled out to enhance brand awareness amongst tourist groups and local customers. Notable campaigns include the recent sponsorship of the Hong Kong Jockey Club (“HKJC”) Sha Tin Trophy

— 16 —

in late October 2012. The historical and prestigious event is the first 1,600m race of the season in Hong Kong and was attended by elite guests from watch industries worldwide. A dazzling watch and fashion show was also held to exhibit luxury timepieces from renowned international brands, highlighting the Group’s long-established relationships with international brand owners.

Supported by the rising wealth of a growing middle class coupled with the Central Government’s forthcoming stimulus measures to promote domestic consumption, the Board maintains a cautiously optimistic outlook on the luxury retail market in Greater China. In the near term, the Group will adopt a prudent store expansion strategy and will focus more on fine-tuning existing locations to optimize operating performance. Stringent inventory and cost controls will also be enforced to maintain a healthy cash position to fuel future endeavours.

In the long term, the Group aims to strategically increase its sales footprint in China by opening self-operating retail stores accordingly and may consider small-scale acquisitions or joint venture opportunities with local watch retailers and distributors to accelerate market exposure in the most cost efficient manner. Referring to the successful collaboration with Larry Jewelry International Company Limited (“Larry Jewelry”, stock code: 8351) in March 2012, the Group will also continue to source and identify other value-enhancing business opportunities that are in the best interest of the shareholders.

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

Liquidity and financial resources

At 30th September, 2012, the Group’s total equity reached HK$2,117 million, compared with HK$2,092 million as at 31st March, 2012. The Group had net current assets of HK$2,040 million, including bank and cash balances of HK$336 million as at 30th September, 2012 compared with balances of HK$1,738 million and HK$207 million respectively as at 31st March, 2012. At 30th September, 2012, bank loans and overdrafts totalled HK$761 million (31st March, 2012: HK$506 million). At 30th September, 2012, the gearing ratio (defined as total bank borrowing on total equity) was 0.36 (31st March, 2012: 0.24).

Management considers that financial position of the Group is healthy with adequate funds and unused banking facilities.

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.

— 17 —

STAff AND EMpLOYMENT

As at 30th September, 2012, the Group employed a total work force of about 900 staff. The staff turnover rate is low. The Group’s policy is annually review its employee’s pay levels and incentive bonus.

puRCHASE, SALE OR REDEMpTION Of THE COMpANY’S LISTED SECuRITIES

During the six months ended 30th September, 2012, 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 six months ended 30th September, 2012, 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 during the six months ended 30th September, 2012.

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 unaudited consolidated financial statements for the six months ended 30th September, 2012.

— 18 —

pubLICATION Of INTERIM RESuLTS AND DESpATCH Of INTERIM REpORT

The interim 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). The 2012 interim report containing all information required by the Listing Rules will be despatched to the Company’s shareholders and available on the above websites in the due course.

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, 21st November, 2012

— 19 —