IGG Inc — Interim / Quarterly Report 2014

Nov 20, 2013

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.

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ORIENTAL WATCH HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 398)

Website: http://www.orientalwatch.com

ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH SEPTEMBER, 2013

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, 2013 together with the comparative figures for the corresponding period in 2012 as follows:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER, 2013

Notes Turnover Cost of goods sold Gross profit Other income and gains Distribution and selling expenses Administrative expenses Finance costs Share of results of associates Share of results of joint ventures Profit before taxation 4 Income tax expense 5 Profit for the period	(Unaudited) Six months ended 30th 30th September, September, 2013 2012 HK$’000 HK$’000 1,710,146 1,795,280 (1,401,135) (1,456,023) 309,011 339,257 13,562 16,759 (118,210) (119,582) (169,799) (154,062) (11,741) (16,731) (48) 1,538 3,852 304 26,627 67,483 (6,820) (15,343) 19,807 52,140

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Notes Other comprehensive income (expense) Items that may be subsequently reclassified to profit or loss: 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 Profit (loss) for the period attributable to: Owners of the Company Non-controlling interests Total comprehensive income (expense) for the period attributable to: Owners of the Company Non-controlling interests Earnings per share 7 — Basic — Diluted

(Unaudited) Six months ended 30th 30th September, September, 2013 2012 HK$’000 HK$’000 9,908 983 91 (55) 9,999 928 29,806 53,068 19,935 52,140 (128) — 19,807 52,140 29,949 53,068 (143) — 29,806 53,068 3.49 HK cents 9.14 HK cents 3.49 HK cents 9.14 HK cents

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CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30TH SEPTEMBER, 2013

Notes Non-current assets Property, plant and equipment 8 Deposits for acquisition of property, plant and equipment Goodwill Interests in associates Interests in joint ventures 9 Available-for-sale financial assets Deferred tax assets Property rental deposits 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 12 Net current assets Total assets less current liabilities Non-current liabilities Bank loans 12 Deferred tax liabilities Net assets Capital and reserves Share capital 13 Reserves Equity attributable to owners of the Company Non-controlling interests Total equity	(Unaudited) 30th September, 2013 HK$’000 288,698 3,091 1,674 37,316 99,302 14,106 1,191 46,575 491,953 1,943,911 163,052 11,815 406,413 2,525,191 203,897 1,680 330,093 535,670 1,989,521 2,481,474 247,500 2,134 249,634 2,231,840 57,061 2,173,147 2,230,208 1,632 2,231,840	(Audited) 31st March, 2013 HK$’000 292,244 238 — 37,965 95,067 14,015 1,387 30,509 471,425 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 — 2,227,950

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30TH SEPTEMBER, 2013

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, 2013 are the same as those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31st March, 2013, 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.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisitiondate fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

• deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 “Income taxes” and HKAS 19 “Employee benefits” respectively;

• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 “Share-based payment” at the acquisition date (see the accounting policy below); and

• assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 “Noncurrent assets held for sale and discontinued operations” are measured in accordance with that standard.

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Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at their fair value or, when applicable, on the basis specified in another standard.

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control), and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

In addition, in the current interim period, the Group has applied, for the first time, the following new and revised HKAS(s), Hong Kong Financial Reporting Standards (“HKFRS(s)”), amendments and interpretation (“HK(IFRIC) — INT”) (hereinafter collectively referred to as the “new and revised HKFRSs”) issued by the HKICPA:

Amendments to HKFRSs	Annual improvements to HKFRSs 2009 — 2011 cycle
Amendments to HKFRS 7	Disclosures — Offsetting financial assets and financial liabilities
Amendments to HKFRS 10,	Consolidated financial statements, joint arrangements and disclosure
HKFRS 11 and HKFRS 12	of interests in other entities: Transition guidance
HKFRS 10	Consolidated financial statements
HKFRS 11	Joint arrangements
HKFRS 12	Disclosure of interests in other entities
HKFRS 13	Fair value measurement
HKAS 19 (as revised in 2011)	Employee benefits
HKAS 27 (as revised in 2011)	Separate financial statements
HKAS 28 (as revised in 2011)	Investments in associates and joint ventures
Amendments to HKAS 1	Presentation of items of other comprehensive income
HK(IFRIC) — INT 20	Stripping costs in the production phase of a surface mine

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

In the current interim period, the Group has applied for the first time HKFRS 10, HKFRS 11, HKFRS 12, HKAS 27 (as revised in 2011) and HKAS 28 (as revised in 2011) together with the amendments to HKFRS 10, HKFRS 11 and HKFRS 12 regarding the transitional guidance.

The impact of the application of these standards that is relevant to the Group is set out below.

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Impact of the application of HKFRS 10

HKFRS 10 replaces the parts of HKAS 27 “Consolidated and separate financial statements” that deal with consolidated financial statements and HK(SIC) — INT 12 “Consolidation — Special purpose entities”. HKFRS 10 changes the definition of control such that an investor has control over an investee when (a) it has power over the investee, (b) it is exposed, or has rights, to variable returns from its involvement with the investee and (c) has the ability to use its power to affect its returns. All three of these criteria must be met for an investor to have control over an investee. Previously, control was defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Additional guidance has been included in HKFRS 10 to explain when an investor has control over an investee.

As a result of the adoption of HKFRS 10, the Group has changed its accounting policy with respect to determining whether it has control over an investee. The adoption does not change any of the control conclusions reached by the Group in respect of its involvement with other entities as at 1st April, 2013.

Impact of the application of HKFRS 11

HKFRS 11 replaces HKAS 31 “Interests in joint ventures”, and the guidance contained in a related interpretation, HK(SIC) — INT 13 “Jointly controlled entities — Non-monetary contributions by venturers”, has been incorporated in HKAS 28 (as revised in 2011). HKFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified and accounted for. Under HKFRS 11, there are only two types of joint arrangements — joint operations and joint ventures. The classification of joint arrangements under HKFRS 11 is determined based on the rights and obligations of parties to the joint arrangements by considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. Previously, HKAS 31 had three types of joint arrangements — jointly controlled entities, jointly controlled operations and jointly controlled assets. The classification of joint arrangements under HKAS 31 was primarily determined based on the legal form of the arrangement (e.g. a joint arrangement that was established through a separate entity was classified as a jointly controlled entity).

The initial and subsequent accounting of joint ventures and joint operations are different. Investments in joint ventures are accounted for using the equity method (proportionate consolidation is no longer allowed). Investments in joint operations are accounted for such that each joint operator recognises its assets (including its share of any assets jointly held), its liabilities (including its share of any liabilities incurred jointly), its revenue (including its share of revenue from the sale of the output by the joint operation) and its expenses (including its share of any expenses incurred jointly). Each joint operator accounts for the assets and liabilities, as well as revenues and expenses, relating to its interest in the joint operation in accordance with the applicable standards.

As a result of the adoption of HKFRS 11, the Group has changed its accounting policy with respect to its interests in joint arrangements and re-evaluated its involvement in its joint arrangements. The Group has amended the terminology from jointly controlled entities to joint ventures. The investments continue to be accounted for using equity method and therefore this amendment does not have any material impact on the financial position and the financial result of the Group.

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HKFRS 12 “Disclosure of interests in other entities”

HKFRS 12 brings together into a single standard all the disclosure requirements relevant to an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The disclosures required by HKFRS 12 are generally more extensive than those previously required by the respective standards. Since those disclosure requirements only apply to a full set of financial statements, the Group has not made additional disclosures in these condensed consolidated financial statements as a result of adopting HKFRS 12.

HKFRS 13 “Fair value measurement”

The Group has applied HKFRS 13 for the first time in the current interim period. HKFRS 13 establishes a single source of guidance for, and disclosures about, fair value measurements, and replaces those requirements previously included in various HKFRSs. Consequential amendments have been made to HKAS 34 to require certain disclosures to be made in the interim condensed consolidated financial statements.

The scope of HKFRS 13 is broad, and 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, subject to a few exceptions. HKFRS 13 contains a new definition for ‘fair value’ and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions. Fair value under HKFRS 13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique. Also, HKFRS 13 includes extensive disclosure requirements.

In accordance with the transitional provisions of HKFRS 13, the Group has applied the new fair value measurement and disclosure requirements prospectively. The adoption of HKFRS 13 does not have any material impact on the fair value measurements of the Group’s assets and liabilities.

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

The amendments to HKAS 1 require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories: (a) items that will not be subsequently reclassified to profit or loss; and (b) items that may be subsequently reclassified 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 existing option to present items of other comprehensive income either before tax or net of tax. The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive income has been modified to reflect the changes.

Except as described above, the application of the other new and revised HKFRSs in the current interim period has had no material effect on the amounts reported and/or disclosures set out in these condensed consolidated financial statements.

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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) Taiwan, 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 Taiwan, Macau and the PRC Unallocated other income Unallocated corporate expenses Finance costs Share of results of associates Share of results of joint ventures Profit before taxation	Turnover Six months ended 30th 30th September, September, 2013 2012 HK$’000 HK$’000 1,154,459 1,182,291 555,687 612,989 1,710,146 1,795,280	Results Six months ended 30th 30th September, September, 2013 2012 HK$’000 HK$’000 43,963 74,834 221 20,590 44,184 95,424 661 1,343 (10,281) (14,395) (11,741) (16,731) (48) 1,538 3,852 304 26,627 67,483

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 joint ventures 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.

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

Hong Kong Taiwan, 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 Loss on disposal of property, plant and equipment and after crediting: Interest income 5. INCOME TAX EXPENSE The charge comprises: Hong Kong Profits Tax Taxation in other jurisdictions Deferred taxation	30th 31st September, March, 2013 2013 HK$’000 HK$’000 1,405,819 1,478,959 1,039,608 1,071,173 2,445,427 2,550,132 571,717 531,960 3,017,144 3,082,092 Six months ended 30th 30th September, September, 2013 2012 HK$’000 HK$’000 23,063 17,801 8,774 12,862 — 278 661 1,343 Six months ended 30th 30th September, September, 2013 2012 HK$’000 HK$’000 5,556 11,086 891 3,510 6,447 14,596 373 747 6,820 15,343	31st March, 2013 HK$’000 1,478,959 1,071,173
		2,550,132 531,960
		3,082,092
		14,596 747
		15,343

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.

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6. DIVIDEND

During the six months ended 30th September, 2013, a final dividend of 5.0 HK cents per share, totalling HK$28,531,000, in respect of the year ended 31st March, 2013 (2012: 5.0 HK cents per share, totalling HK$28,531,000) was approved at the annual general meeting held on 13th August, 2013.

On 20th November, 2013, the directors resolved to declare an interim dividend of 0.75 HK cents per share (2012: an interim dividend of 2.0 HK cents per share) in respect of the six months ended 30th September, 2013, totalling HK$4,280,000 (2012: HK$11,412,000), to be paid in cash to those shareholders whose names appear on the Company’s register of members on 13th December, 2013.

7. EARNINGS PER SHARE

Profit for the period attributable to owners of the Company for the purposes of basic and diluted earnings per share Number of ordinary shares for the purpose of calculating basic earnings per share Effect of dilutive potential ordinary shares — share options Number of ordinary shares for the purpose of calculating diluted earnings per share	Six months ended 30th 30th September, September, 2013 2012 HK$’000 HK$’000 19,935 52,140 Number of shares Six months ended 30th 30th September, September, 2013 2012 570,610,224 570,610,224 — — 570,610,224 570,610,224	Six months ended 30th 30th September, September, 2013 2012 HK$’000 HK$’000 19,935 52,140 Number of shares Six months ended 30th 30th September, September, 2013 2012 570,610,224 570,610,224 — — 570,610,224 570,610,224
		570,610,224

The diluted earnings per share for the six months ended 30th September, 2013 and 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 during both periods.

8. PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30th September, 2013, the Group incurred expenditure of HK$18,643,000 (2012: HK$26,498,000) to acquire property, plant and equipment for its operation.

The Group has pledged certain land and buildings with an aggregate carrying value of HK$99,438,000 (31st March, 2013: HK$100,595,000) to a bank to secure the bank loan facilities granted to the Group.

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9. INTERESTS IN JOINT VENTURES

Cost of investments in unlisted joint ventures Exchange adjustment Share of post-acquisition profits Amount due from a joint venture (note)	30th September, 2013 HK$’000 21,807 1,203 8,553 31,563 67,739 99,302	31st March, 2013 HK$’000 21,807 820 4,701
		27,328 67,739
		95,067

Note: 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. The amount at 31st March, 2013 was presented in the consolidated statement of financial position as a separate line item.

10. TRADE AND OTHER RECEIVABLES

Trade receivables Receivable from a joint venture (note) Property rental and utilities deposits Advances to apparel suppliers Advances to other suppliers VAT receivables Prepaid advertising fee Other receivables	30th September, 2013 HK$’000 128,366 1,091 12,365 347 5,741 4,012 2,927 8,203 163,052	31st March, 2013 HK$’000 111,656 — 36,625 1,413 3,736 10,065 — 4,428
		167,923

Note: The amount represents reimbursements receivable from a joint venture under a procurement arrangement.

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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 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 payables Other payables	30th September, 2013 HK$’000 120,109 3,652 2,502 2,103 128,366 30th September, 2013 HK$’000 120,690 25,142 7,388 10,188 11,468 17,007 33 1,033 2,937 8,011 203,897	31st March, 2013 HK$’000 104,287 5,169 511 1,689
		111,656
		31st March, 2013 HK$’000 81,453 22,274 11,979 13,630 7,793 1,463 1,296 2,867 7,779 8,717
		159,251

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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, 2013 HK$’000 105,598 7,789 7,303 120,690	31st March, 2013 HK$’000 75,965 179 5,309
		81,453

12. BANK LOANS

During the six months ended 30th September, 2013, the Group obtained new bank loans amounting to HK$208,426,000 (2012: HK$703,031,000). These new loans are unsecured, carry interest at rates which mainly vary with the People’s Bank of China benchmark interest rate and the average interest rate of short-term bills traded in secondary market in Taiwan and are repayable within one year.

13. SHARE CAPITAL

Ordinary shares of HK$0.10 each Authorised: At 1st April, 2012, 31st March, 2013 and 30th September, 2013 Issued and fully paid: At 1st April, 2012, 31st March, 2013 and 30th September, 2013	Number of shares 1,000,000,000 570,610,224	Amount HK$’000 100,000
		57,061

14. 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.

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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, 2013 and 30th September, 2012:

Share options granted on 6th April, 2011

Categories of participants

Number of share options outstanding at 1st April, 2012, 30th September, 2012, 1st April, 2013 and 30th September, 2013

Directors of the Company 14,520,000 Other employees 14,400,000 Consultants (note (b)) 2,640,000 Total 31,560,000

Share options granted on 29th August, 2011

Categories of participants

Number of share options outstanding at 1st April, 2012, 30th September, 2012, 1st April, 2013 and 30th September, 2013

Other employees 18,000,000 Consultants (note (b)) 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.

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No share option was granted, exercised or forfeited during the six months ended 30th September, 2013 and 30th September, 2012.

During the six months ended 30th September, 2013 and 30th September, 2012, no share-based payment expense was recognised in relation to share options granted by the Company.

The above share option scheme expired on 2nd November, 2013. At the annual general meeting of the Company held on 13th August, 2013, a new share option scheme was adopted with effect on 3rd November, 2013 which will remain in force for a period of 10 years from 3rd November, 2013.

15. CAPITAL COMMITMENTS

	30th	31st
	September,	March,
	2013	2013
	HK$’000	HK$’000
Capital expenditure in respect of the acquisition of property, plant
and equipment contracted for but not provided in the condensed
consolidated financial statements	2,116	268

16. 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 guaranteed royalties payment as follows:

	30th	31st
	September,	March,
	2013	2013
	HK$’000	HK$’000
Within one year	—	1,800

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

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INTERIM DIVIDEND

The directors have proposed a pay an interim dividend of 0.75 HK cents per share (2012: 2.0 HK cents per share) in respect of the six months ended 30th September, 2013, totalling HK$4,280,000 (2012: HK$11,412,000), to be paid in cash to the shareholders whose names appear on the register of the members of the Company on 13th December, 2013. Dividend warrants will be sent to the shareholders on or before 18th December, 2013.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from 11th December, 2013 to 13th December, 2013 (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 18th December, 2013, 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, 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 unaudited consolidated results of the Group for the six months ended 30th September, 2013 (the “Period”).

Turnover for the six months ended 30th September, 2013 declined 4.7% to HK$1,710.1 million (2012: HK$1,795.3 million). This led to a gross profit decline of 8.9% to HK$309.0 million (2012: HK$339.3 million). Net profit attributable to owners of the Company was HK$19.9 million, representing a decrease of 61.8% from the previous corresponding period (2012: HK$52.1 million). The substantial decline in net profit was mainly attributable to: (1) the slowdown in Hong Kong and China’s high end goods market which had waned the Group’s sales performance during the Period and (2) a decline in gross profit margin as compared to the previous corresponding period.

The Board has resolved to recommend an interim dividend of 0.75 HK cents per share for the six months ended 30th September, 2013 (2012: 2.0 HK cents), representing an interim dividend payout of approximately 22.0% (2012: 22.0%)

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Business Review

As at 30th September, 2013, the Group operates 108 retail and wholesale points (including associate retail stores) in the Greater China region. Breakdown by geographic region is as follows:

Hong Kong Macau China Taiwan Total	As at 30th September, 2013 14 2 89 3
	108

Rapid economic growth, successful structural reforms and rising wealth have undoubtedly been the most important drivers for high end consumption in China, in particular the high end watch segment. Positioned as a high end watch distributor, the Group was able to capture this uptrend perfectly, as reflected in our strong sales and profit growth in the last few years. However, a prolonged global economic instability and the Chinese government’s tough stance on controlling spending amongst government officials have since dampened such high end consumption from Mainland consumers. This is in tune with the latest export statistics by the Federation of the Swiss Watch Industry, reporting that Hong Kong and China’s overall Swiss watch sales from January to September 2013 has declined 7% and 15% year-on-year respectively. As uncertainties continue to cloud the high end retail sectors, the Group has focused its efforts in improving its cost management and internal efficiency during the Period.

Acknowledging the importance of a healthy cash position during times of uncertainty, the Group remained committed in accelerating its inventory turnover during the Period. Such initiatives included instructions to front line staff to control the replenishment rate of high-ticket items and staff incentives to push sales through-put. Such efforts were realized, with the Group’s inventory level declining 5.6% from HK$2,060.3 million at 31st March, 2013 to HK$1,943.9 million as at 30th September, 2013. On a year-to-year basis, inventory has declined a notable 9.1% from HK$2,139.2 million at 30th September, 2012. Moreover, the Group has re-arranged a large portion of its investment accounts in China during the Period to further tighten its inventory control and alleviate the risks of overstocking. This will further improve the Group’s cash performance in the long-run.

Rental rates have moderated significantly during the Period, but continued to be a major cost factor for retailers in Hong Kong, Macau and China. In comparison to the previous corresponding period, the Group’s rental expense (excluding related property management fees) increased by approximately 21% 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. Despite the cost increase, the Group wishes to emphasize that approximately one-third of Oriental

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Watch’s retail stores in Hong Kong are self-owned properties. Notwithstanding the decline in retail activities, this has effectively helped us average down overall rental costs, with rental as a percentage of turnover maintained at a manageable level during the Period. The Group will continue to enforce prudent policies on its operating expenses, with a long-term vision to further lower this ratio in the coming years.

Prospects

According to Bain & Company, a global management consulting firm, Chinese consumers will represent approximately 29% of luxury consumers worldwide in 2013, representing the single biggest group of buyers. In addition, we are also seeing early signs of recovery in China, with the region’s July to September 2013 GDP registering a growth of 7.8%, the fastest pace this year. This will be a driving force for domestic consumption. As such, the Group remains cautiously optimistic on the business outlook in the high end market and believes the inspiration for high end goods is still strong and growing amongst Mainland consumers. Moreover, the board of directors remains confident that Hong Kong will continue to be a key shopping destination for Mainland Chinese consumers with its close-to-home advantages, product variety and lower tax rates.

Following the opening of two new stores in 2012, there are currently no major expansion plans in 2013. The Group will instead focus on fine-tuning its existing retail network (especially in China) to optimize operating performance and to allow room for store maturity, thereby elevating overall same-store-sales. The Group will also take caution in managing its rental expenses, and may consider divesting its shop assets at attractive market prices to recapture the premises under favourable leaseback arrangements. But as rental rates begin to stabilize in the short-to-medium-term, the Group may consider further expansion in Hong Kong and Macau should retail premises become available at more reasonable costs.

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

Liquidity and financial resources

At 30th September, 2013, the Group’s total equity reached HK$2,232 million, compared with HK$2,228 million as at 31st March, 2013. The Group had net current assets of HK$1,990 million, including bank and cash balances of HK$406 million as at 30th September, 2013 compared with balances of HK$2,051 million and HK$373 million respectively as at 31st March, 2013. At 30th September, 2013, bank loans totalled HK$578 million (31st March, 2013: HK$686 million). At 30th September, 2013, the gearing ratio (defined as total bank borrowing on total equity) was 0.26 (31st March, 2013: 0.30).

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

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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.

STAFF AND EMPLOYMENT

As at 30th September, 2013, the Group employed a total work force of about 820 staff. The staff turnover rate is low. The Group’s policy is to review its employee’s pay levels and incentive bonus annually.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the six months ended 30th September, 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 six months ended 30th September, 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 during the six months ended 30th September, 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 unaudited consolidated financial statements for the six months ended 30th September, 2013.

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 2013 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, 20th November, 2013

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