IGG Inc - Interim / Quarterly Report 2019

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ORIENTAL WATCH HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(the “Company”)

(Stock Code: 398)

ANNOuNCEMENT Of INTERIM RESuLTS fOR THE SIx MONTHS ENDED 30 SEpTEMbER 2018

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, 2018 together with the comparative figures for the corresponding period in 2017 as follows:

CONDENSED CONSOLIDATED STATEMENT Of pROfIT OR LOSS AND OTHER COMpREHENSIVE INCOME

For the six months ended 30 September 2018

		(unaudited)	(unaudited)
		Six months ended
		30 September	30 September
	NOTES	2018		2017
		*HK$’000*	HK$’000
Revenue		1,181,133	1,507,794
Cost of goods sold		(892,897)	(1,253,687)
Gross profit		288,236		254,107
Other income, gains and losses		18,563		23,161
Distribution and selling expenses		(113,757)		(95,724)
Administrative expenses		(116,878)	(125,084)
Finance costs		(2,202)		(2,150)
Share of results of associates		915		281
Share of result of a joint venture		47		(9)
Profit before taxation	4	74,924		54,582
Income tax expense	5	(11,189)		(8,649)
Profit for the period		63,735		45,933

— 1 —

		(unaudited)	(unaudited)
		Six months ended
		30 September	30 September
	NOTES	2018		2017
		*HK$’000*	HK$’000
Other comprehensive (expense) income
Item that will not be reclassified to profit or loss:
Change in fair value of equity instruments at fair value
through other comprehensive income (“FVTOCI”)		(629)		—
Items that may be reclassified subsequently to
profit or loss:
Exchange difference arising on translation of foreign
operations		(58,206)	29,323
Change in fair value of available-for-sale financial assets		—		376
Other comprehensive (expense) income for the period		(58,835)	29,699
Total comprehensive income for the period		4,900	75,632

Profit (loss) for the period attributable to:
Owners of the Company		64,005	46,034
Non-controlling interests		(270)		(101)
		63,735	45,933

Total comprehensive income (expense) for the period
attributable to:
Owners of the Company		5,219	75,707
Non-controlling interests		(319)		(75)
		4,900	75,632

Earnings per share	7
— Basic		11.22 HK cents	8.07 HK	cents

— Diluted		11.22 HK cents	8.07 HK	cents

— 2 —

CONDENSED CONSOLIDATED STATEMENT Of fINANCIAL pOSITION At 30 September 2018

(unaudited)
30 September
NOTES
2018
HK$’000
Non-current assets
Property, plant and equipment
8
206,851
Deposits for acquisition of property, plant and equipment
6,588
Interests in associates
35,014
Interest in a joint venture
9
25,196
Available-for-sale financial assets
—
Equity instruments at FVTOCI
3,837
Deferred tax assets
36
Property rental deposits
31,278
308,800
Current assets
Inventories
10
875,260
Trade and other receivables
11
153,014
Taxation recoverable
45
Bank balances and cash
1,094,210
2,122,529
Current liabilities
Trade and other payables
12
132,167
Contract liabilities
7,113
Taxation payable
30,040
Bank loans
13
69,534
238,854
Net current assets
1,883,675
Total assets less current liabilities
2,192,475

(Audited)
31 March
2018
HK$’000
210,816
3,000
37,779
27,413
12,344
—
56
30,817
322,225
1,001,069
134,704
48
1,081,891
2,217,712
126,076
—
19,925
62,820
208,821
2,008,891
2,331,116

— 3 —

(unaudited) 30 September NOTES 2018 *HK$’000* Non-current liabilities Bank loans 13 4,167 Deferred tax liabilities 1,505 5,672 Net assets 2,186,803 Capital and reserves Share capital 14 57,061 Reserves 2,129,086 Equity attributable to owners of the Company 2,186,147 Non-controlling interests 656 Total equity 2,186,803	(Audited) 31 March 2018 HK$’000 12,500 1,664 14,164 2,316,952 57,061 2,258,916 2,315,977 975 2,316,952

— 4 —

NOTES TO THE CONDENSED CONSOLIDATED fINANCIAL STATEMENTS For the six months ended 30 September 2018

1. bASIS Of pREpARATION

The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “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.

Other than addition accounting policy below and changes in accounting policies resulting from application of new and amendments to Hong Kong Financial Reporting Standards (“HKFRSs”), the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 September 2018 are the same as those followed in the preparation of the Group’s annual financial statements for the year ended 31 March 2018.

The Group has applied the following accounting policy for acquisition of a subsidiary not constituting a business during the current interim period.

Acquisition of a subsidiary not constituting a business

When the Group acquires a group of assets that do not constitute a business, the Group identifies and recognises the individual identifiable assets acquired and liabilities assumed by allocating the purchase price first to financial assets/financial liabilities at the respective fair values, the remaining balance of the purchase price is then allocated to the other individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction does not give rise to goodwill or bargain purchase gain.

Application of new and amendments to HKfRSs

In the current interim period, the Group has applied, for the first time, the following new and amendments to HKFRSs issued by the HKICPA that are relevant for the preparation of the Group’s condensed consolidated financial statements:

HKFRS 9 Financial Instruments HKFRS 15 Revenue from Contracts with Customers and the related Amendments HK(IFRIC) — Int 22 Foreign Currency Transactions and Advance Consideration Amendments to HKFRS 2 Classification and Measurement of Share-based Payment Transactions Amendments to HKFRS 4 Applying HKFRS 9 “Financial Instruments” with HKFRS 4 “Insurance Contracts” Amendments to HKAS 28 As part of the Annual Improvements to HKFRSs 2014 — 2016 Cycle Amendments to HKAS 40 Transfers of Investment Property

— 5 —

In addition, the Group has applied Amendments to HKFRS 9 “Prepayment Features with Negative Compensation” in advance of the effective date, i.e. 1 January 2019.

The new and amendments to HKFRSs have been applied in accordance with the relevant transition provisions in the respective standards and amendments which results in changes in accounting policies, amounts reported and/or disclosures as described below.

2.1 Impacts and changes in accounting policies of application on HKfRS 15 “Revenue from Contracts with Customers”

The Group has applied HKFRS 15 for the first time in the current interim period. HKFRS 15 superseded HKAS 18 “Revenue”, HKAS 11 “Construction Contracts” and the related interpretations.

The Group recognises revenue mainly from sales of watches.

The Group has applied HKFRS 15 retrospectively with the cumulative effect of initially applying this standard recognised at the date of initial application, 1 April 2018. Any difference at the date of initial application is recognised in the opening retained profits (or other components of equity, as appropriate) and comparative information has not been restated. Furthermore, in accordance with the transition provisions in HKFRS 15, the Group has elected to apply the standard retrospectively only to contracts that are not completed at 1 April 2018.

2.1.1 Key changes in accounting policies resulting from application of HKFRS 15

HKFRS 15 introduces a 5-step approach when recognising revenue.

Step 1: Identify the contract(s) with a customer
• Step 2: Identify the performance obligations in the contract • Step 3: Determine the transaction price • Step 4: Allocate the transaction price to the performance obligations in the contract • Step 5: Recognise revenue when (or as) the Group satisfies a performance obligation.

Under HKFRS 15, the Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer.

A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progress towards the complete satisfaction of the relevant performance obligation if one of the following criteria is met:

the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs;
the Group’s performance creates and enhances an asset that the customer controls as the Group performs; or

— 6 —

the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.

A contract asset represents the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer that is not yet unconditional. It is assessed for impairment in accordance with HKFRS 9. In contrast, a receivable represents the Group’s unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer.

At a point in time revenue recognition

The revenue of the Group is recognised at a point in time. Under the transfer-of-control approach in HKFRS 15, revenue from sales of goods to the Group’s customers are recognised when the goods are passed to the customers, which is at a point of time when the customer has the ability to direct the use of the goods and obtain substantially all of the remaining benefits of the goods.

Warranties

If a customer has the option to purchase a warranty separately, the Group accounts for the warranty as a separate performance obligation and allocates a portion of the transaction price to that performance obligation.

If a customer does not have the option to purchase a warranty separately, the Group accounts for the warranty in accordance with HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets” unless the warranty provides the customer with a service in addition to the assurance that the product complies with agreed-upon specifications (i.e. service-type warranties).

Incremental costs of obtaining a contract

Incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained.

The Group recognises such costs (sales commissions) as an asset if it expects to recover these costs. The asset so recognised is subsequently amortised to profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. The asset is subject to impairment review.

The Group applies the practical expedient of expensing all incremental costs to obtain a contract if these costs would otherwise have been fully amortised to profit or loss within one year.

— 7 —

2.1.2 Summary of effects arising from initial application of HKFRS 15

The following adjustments were made to the amounts recognised in the condensed consolidated statement of financial position at 1 April 2018. Line items that were not affected by the changes have not been included.

	Carrying		Carrying
	amounts		amounts
	previously	Impacts of	under
	reported at	adopting	HKfRS 15 at
	31 March 2018	HKfRS 15	1 April 2018
	HK$’000	HK$’000	HK$’000
	(Audited)		(Restated)
Current liabilities
Trade and other payables	126,076	(8,780)	117,296
Contract liabilities	—	8,780	8,780

As at 1 April 2018, advances from customers of HK$8,780,000 in respect of sales contracts signed with customers previously included in trade and other payables were reclassified to contract liabilities.

The application of HKFRS 15 has had no material impact on the Group’s retained profits as at 1 April 2018.

The following table summaries the impact of applying HKFRS 15 on the Group’s condensed consolidated statement of financial position as at 30 September 2018 for each of the line item affected. Line items that were not affected by the changes have not been included.

Impact on the condensed consolidated statement of financial position

			Amounts
			without
			application of
	As reported	Reclassification	HKfRS 15
	HK$’000	HK$’000	HK$’000
	(Audited)		(Restated)
Current liabilities
Trade and other payables	132,167	7,113	139,280
Contract liabilities	7,113	(7,113)	—

— 8 —

2.2 Impacts and changes in accounting policies of application on HKfRS 9 “financial Instruments” and the related amendments

In the current period, the Group has applied HKFRS 9 “Financial Instruments”, Amendments to HKFRS 9 “Prepayment Features with Negative Compensation” and the related consequential amendments to other HKFRSs. HKFRS 9 introduces new requirements for (1) the classification and measurement of financial assets and financial liabilities, (2) expected credit losses (“ECL”) for financial assets and (3) general hedge accounting.

The Group has applied HKFRS 9 in accordance with the transition provisions set out in HKFRS 9. i.e. applied the classification and measurement requirements (including impairment) retrospectively to instruments that have not been derecognised as at 1 April 2018 (date of initial application) and has not applied the requirements to instruments that have already been derecognised as at 1 April 2018. The difference between carrying amounts as at 31 March 2018 and the carrying amounts as at 1 April 2018 are recognised in the opening retained profits and other components of equity, without restating comparative information.

Accordingly, certain comparative information may not be comparable as comparative information was prepared under HKAS 39 “Financial Instruments: Recognition and Measurement”.

2.2.1 Key changes in accounting policies resulting from application of HKFRS 9

Classification and measurement of financial assets

Trade receivables arising from contracts with customers are initially measured in accordance with HKFRS 15.

All recognised financial assets that are within the scope of HKFRS 9 are subsequently measured at amortised cost or fair value.

Debt instruments that meet the following conditions are subsequently measured at amortised cost:

the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (“FVTOCI”):

the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

— 9 —

All other financial assets are subsequently measured at fair value through profit or loss (“FVTPL”), except that at the date of initial application/initial recognition of a financial asset the Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income (“OCI”) if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 “Business Combinations” applies.

In addition, the Group may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

Equity instruments designated as at FVTOCI

At the date of initial application/initial recognition, the Group may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI.

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in OCI and accumulated in the asset revaluation reserve; and are not subject to impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, and will be transferred to retained profits.

Dividends on these investments in equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established in accordance with HKFRS 9, unless the dividends clearly represent a recovery of part of the cost of the investment.

The directors of the Company reviewed and assessed the Group’s financial assets as at 1 April 2018 based on the facts and circumstances that existed at that date. Changes in classification and measurement on the Group’s financial assets and the impacts thereof are detailed in note 2.2.2.

Impairment under ECL model

The Group recognises a loss allowance for ECL on financial assets which are subject to impairment under HKFRS 9 (including trade receivables and other receivables, and bank balances). The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instruments. In contrast, 12-month ECL (“12m ECL”) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessments are done based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.

— 10 —

The Group always recognises lifetime ECL for trade receivables. The ECL on these assets are assessed individually for debtors with significant balances and/or collectively using a provision matrix with appropriate groupings.

For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition.

Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instruments as at the reporting date with the risk of a default occurring on the financial instruments as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly:

an actual or expected significant deterioration in the financial instruments’ external (if available) or internal credit rating;
significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;
existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations;
an actual or expected significant deterioration in the operating results of the debtor;
an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations.

Irrespective of the outcome of the above assessment, the Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise.

Despite the aforegoing, the Group assumes that the credit risk on a debt instrument has not increased significantly since initial recognition if the debt instrument is determined to have low credit risk at the reporting date. A debt instrument determined to have low credit risk if (i) it has a low risk of default, (ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and (iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

— 11 —

The Group considers that default has occurred when the instruments are more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information.

Generally, the ECL is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition.

Interest income is calculated based on the gross carrying amount of the financial assets unless the financial assets are credit impaired, in which case interest income is calculated based on amortised cost of the financial asset.

The Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade receivables where the corresponding adjustment is recognised through a loss allowance account.

As at 1 April 2018, the directors of the Company reviewed and assessed the Group’s existing financial assets for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of HKFRS 9. The results of the assessment and the impact thereof are detailed in note 2.2.2.

2.2.2 Summary of effects arising from initial application of HKFRS 9

Below illustrates the classification and measurement (including impairment) of financial assets and other items subject to ECL under HKFRS 9 and HKAS 39 at the date of initial application, 1 April 2018.

Reclassification from available-for-sale financial assets to equity instruments at FVTOCI

The Group elected to present in OCI the fair value changes of all its equity investments previously classified as available-for-sale financial assets, which is previously measured at fair value under HKAS 39. These investments are not held for trading and not expected to be sold in the foreseeable future. At the date of initial application of HKFRS 9, HK$12,344,000 were reclassified from available-for-sale financial assets to equity instruments at FVTOCI. The fair value gains of HK$6,932,000 relating to those investments previously carried at fair value continued to accumulate in asset revaluation reserve.

Impairment under ECL

In the current period, the Group has applied the HKFRS 9 simplified approach to measure ECL using lifetime ECL for trade receivables. To measure the ECL, trade receivables have been grouped based on shared credit risk characteristics, and there has been no significant increase in credit risk since initial recognition.

— 12 —

Loss allowances for other financial assets at amortised cost mainly comprise of bank balances and other receivables, are measured on 12m ECL basis and there had been no significant increase in credit risk since initial recognition.

As at 1 April 2018, the additional credit loss allowance of HK$3,808,000 has been recognised against retained profits. The additional loss allowance is charged against the trade receivables.

All loss allowances for trade receivables as at 31 March 2018 reconcile to the opening loss allowances of trade receivables as at 1 April 2018 is as follows:

At 31 March 2018 (audited) — HKAS 39 Amounts remeasured through opening retained profits At 1 April 2018 (restated)	Trade receivables HK$’000 108,938 (3,808) 105,130

2.3 Impacts on opening condensed consolidated statement of financial position arising from the application of all new standards

As a result of the changes in the Company’s accounting policies above, the opening condensed consolidated statement of financial position had to be restated. The following table show the adjustments recognised for each individual line item.

	31 March			1 April
	2018	HKfRS 15	HKfRS 9	2018
	HK$’000	HK$’000	HK$’000	HK$’000
	(Audited)			(Restated)
Non-current assets
Available-for-sale financial assets	12,344	—	(12,344)	—
Equity instruments at FVTOCI	—	—	12,344	12,344
Current asset
Trade and other receivables	134,704	—	(3,808)	130,896
Current liabilities
Trade and other payables	(126,076)	8,780	—	(117,296)
Contract liabilities	—	(8,780)	—	(8,780)

Except as disclosed above, the application of other amendments to HKFRSs and an interpretation 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.

— 13 —

3. REVENuE AND SEGMENT INfORMATION

The Group’s operation is principally sales of watches. The Group’s revenue 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 chief operating decision marker, 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.

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 result of a joint venture Profit before taxation	Revenue Six months ended 30 September 2018 2017 *HK$’000* HK$’000 688,656 1,057,133 492,477 450,661 1,181,133 1,507,794	Results Six months ended 30 September 2018 2017 *HK$’000* HK$’000 74,354 55,423 15,481 14,871 89,835 70,294 5,799 2,191 (19,470) (16,025) (2,202) (2,150) 915 281 47 (9) 74,924 54,582

Segment profit represents the profit before taxation earned by each segment without allocation of finance costs, share of results of associates and a joint venture and unallocated other income and corporate expenses. Unallocated corporate expenses include auditor’s remuneration, directors’ remuneration, net exchange losses and operating expenses of inactive companies. This is the measure reported to the Managing Director of the Company for the purposes of resources allocation and performance assessment.

All segment revenue is generated from external customers and recognised at a point in time for both periods.

— 14 —

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

	Assets		Liabilities	Liabilities
	30 September	31 March	30 September	31 March
	2018	2018	2018	2018
	*HK$’000*	HK$’000	*HK$’000*	HK$’000
Hong Kong	806,081	892,402	87,148	71,398
Taiwan, Macau and the PRC	465,801	552,866	52,132	53,362
Segment total	1,271,882	1,445,268	139,280	124,760
Unallocated	1,159,447	1,094,669	105,246	98,225
Consolidated total	2,431,329	2,539,937	244,526	222,985

4. pROfIT bEfORE TAxATION

	Six months ended	Six months ended
	30 September	30 September
	2018	2017
	*HK$’000*	HK$’000
Profit before taxation has been arrived at after charging:
Depreciation of property, plant and equipment	11,502	10,714
Directors’ remuneration	11,433	10,216
Loss on disposal of property, plant and equipment	2,384	135
Minimum operating lease rentals in respect of rented premises	78,055	83,897
Net exchange losses	6,647	380
and after crediting:
Interest income	5,799	2,191

— 15 —

5. INCOME TAx ExpENSE

The charge comprises: Hong Kong Profits Tax — Current period Taxation in other jurisdictions Deferred taxation	Six months ended 30 September 30 September 2018 2017 *HK$’000* HK$’000 10,271 8,609 709 — 10,980 8,609 209 40 11,189 8,649	Six months ended 30 September 30 September 2018 2017 *HK$’000* HK$’000 10,271 8,609 709 — 10,980 8,609 209 40 11,189 8,649
		8,609 40
		8,649

On 21 March 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered profits tax rates regime. The Bill was signed into law on 28 March 2018 and was gazetted on the following day.

Under the two-tiered profits tax rates regime, the first HK$2 million of profits of qualifying corporation is taxed at 8.25% and profits above HK$2 million is taxed at 16.5%. For the six months ended 30 September 2018, Hong Kong Profits Tax of the qualified entity is calculated in accordance with the two-tiered profits tax rates regime. Hong Kong Profits Tax of other non-qualified group entities are calculated in accordance with the flat rate of 16.5% of the estimated assessable profits.

For the six months ended 30 September 2017, Hong Kong Profits Tax was calculated at a flat rate of 16.5% of the estimated assessable profits.

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%.

6. DIVIDEND

During the current interim period, a final dividend of 8.0 HK cents per share, totalling HK$45,649,000, in respect of the year ended 31 March 2018 (2017: 0.40 HK cent per share, totalling HK$2,282,000) and a special dividend of 15.0 HK cents per share, totalling HK$85,592,000, in respect of the year ended 31 March 2018 (2017: 3.0 HK cents per share, totalling HK$17,118,000) were approved at the annual general meeting held on 29 August 2018.

On 20 November 2018, the directors resolved to declare an interim dividend of 2.8 HK cents per share, totalling HK$15,970,000 in respect of the six months ended 30 September 2018 (2017: 2.0 HK cents per share, totalling HK$11,412,000) and a special dividend of 8.7 HK cents per share, totalling HK$49,621,000, in respect of the six months ended 30 September 2018, to be paid in cash to those shareholders whose names appear on the Company’s register of members on 14 December 2018.

— 16 —

7. 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 period attributable to owners of the Company) Number of shares Number of ordinary shares for the purpose of basic and diluted earnings per share	Six months ended 30 September 30 September 2018 2017 *HK$’000* HK$’000 64,005 46,034 Number of shares 30 September 30 September 2018 2017 570,610,224 570,610,224

The diluted earnings per share for both periods 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 shares of the Company.

8. pROpERTY, pLANT AND EQuIpMENT

During the six months ended 30 September 2018, the Group incurred expenditure of HK$7,383,000 (six months ended 30 September 2017: HK$5,555,000) to acquire property, plant and equipment for its operation. During the period, the Group disposed of certain property, plant and equipment with carrying amount of HK$2,396,000 (six months ended 30 September 2017: HK$135,000) resulting a loss on disposal of HK$2,384,000 (six months ended 30 September 2017: HK$135,000).

The Group has pledged certain land and buildings with an aggregate carrying value of HK$87,870,000 (31 March 2018: HK$89,027,000) to a bank to secure the bank loan facilities granted to the Group.

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9. INTEREST IN A JOINT VENTuRE

Cost of investment in an unlisted joint venture Exchange adjustment Share of post-acquisition profits INVENTORIES Watches Accessories and parts TRADE AND OTHER RECEIVAbLES Trade receivables Property rental deposits Value-added tax recoverable Advances to other suppliers Earnest money paid Other receivables	30 September 2018 *HK$’000* 21,793 (1,612) 5,015 25,196 30 September 2018 *HK$’000* 867,039 8,221 875,260 30 September 2018 *HK$’000* 92,806 30,056 2,686 7,009 16,467 3,990 153,014	31 March 2018 HK$’000 21,793 652 4,968
		27,413

		31 March 2018 HK$’000 991,952 9,117
		1,001,069

		31 March 2018 HK$’000 108,938 18,915 2,904 798 — 3,149
		134,704

10. INVENTORIES

11. TRADE AND OTHER RECEIVAbLES

— 18 —

The Group maintains a general credit policy of not more than 30 days for its wholesale customers. Sales made to retail customers are mainly 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:

30 September 2018 *HK$’000* Age 0 to 30 days 85,965 31 to 60 days 4,044 61 to 90 days 695 Over 90 days 2,102 92,806 Movement in the allowance for impairment in respect of trade receivables is as follows: At the beginning of the period* Net measurement of loss allowance At the end of the period	31 March 2018 HK$’000 99,445 6,233 45 3,215
	108,938

	At 30 September 2018 *HK$’000* 3,808 —
	3,808

The Group has initially applied HKFRS 9 at 1 April 2018. Under the transition method chosen, comparative information is not restated.

— 19 —

12. TRADE AND OTHER pAYAbLES

Trade payables Payroll and welfare payables Commission payables Advances from customers Renovation work payables Valve-added tax and other taxes payables Advertising fee payables Property rental fee payables Other payables	30 September 2018 *HK$’000* 65,659 19,937 19,500 — 2,250 11,048 830 1,306 11,637 132,167	31 March 2018 HK$’000 65,307 19,954 2,116 8,780 5,288 12,372 639 1,996 9,624
		126,076

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	30 September 2018 *HK$’000* 61,729 1,756 2,174 65,659	31 March 2018 HK$’000 54,341 907 10,059
		65,307

13. bANK LOANS

During the six months ended 30 September 2018, the Group obtained a bank loan amounting to approximately HK$41,200,000 (six months ended 30 September 2017: HK$31,920,000). The loan carried interest at Taipei Interbank Offered Rate plus 1.5% divided by 0.946 and will be repayable in September 2019.

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14. SHARE CApITAL

Ordinary shares of HK$0.10 each Authorised: At 1 April 2017, 30 September 2017, 1 April 2018 and 30 September 2018 Issued and fully paid: At 1 April 2017, 30 September 2017, 1 April 2018 and 30 September 2018	Number of shares 1,000,000,000 570,610,224	Amount HK$’000 100,000

		57,061

15. SHARE-bASED pAYMENT TRANSACTION

The Company has share options schemes 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.

(i) 2003 Share Option Scheme

Pursuant to an ordinary resolution passed at the Company’s special general meeting held on 3 November 2003, the Company adopted a share option scheme (the “2003 Share Option Scheme”). The 2003 Share Option Scheme was valid for a period of ten years commencing on the adoption date on 3 November 2003.

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
6 April 2011	32,300,000	6 April 2011 to	HK$4.13	HK$3.44
	(note a)	5 April 2021		(note a)
29 August 2011	23,000,000	29 August 2011 to	HK$4.80	N/A
		28 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 in July 2011 on the basis of one new ordinary share for every five ordinary shares held.

— 21 —

The following tables disclose movements of the Company’s share options held by directors, employees and consultants during the six months ended 30 September 2018 and 30 September 2017:

Share options granted on 6 April 2011

Categories of participants Number of share options outstanding at 1 April 2017, 30 September 2017 and 31 March 2018 Directors of the Company 11,520,000 Other employees 14,400,000 Consultants_(note b)_ 5,640,000 Total 31,560,000	forfeited during the period Number of share options outstanding at 30 September 2018 — 11,520,000 — 14,400,000 (3,000,000) 2,640,000 (3,000,000) 28,560,000	forfeited during the period Number of share options outstanding at 30 September 2018 — 11,520,000 — 14,400,000 (3,000,000) 2,640,000 (3,000,000) 28,560,000
		28,560,000

Share options granted on 29 August 2011

	Number of
	share options
	outstanding
	at 1 April 2017,
	30 September
	2017,
	31 March 2018
	and
	30 September
Categories of participants	2018
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.

The 2003 Share Option Scheme expired on 2 November 2013. The options could be exercised by the participants at any time during the option exercisable period and notwithstanding that the 2003 Share Option Scheme had expired.

No option was exercised under the 2003 Share Option Scheme during the six months ended 30 September 2018 and 30 September 2017. During the six months ended 30 September 2018, 3,000,000 options under the 2003 Share Option Scheme were forfeited.

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(ii) 2013 Share Option Scheme

Pursuant to an ordinary resolution passed at the annual general meeting of the Company held on 13 August 2013, a new share option scheme was adopted with effect on 3 November 2013 (the “2013 Share Option Scheme”) after the expiry of the 2003 Share Option Scheme. The 2013 Share Option Scheme will remain in force until 2 November 2023.

No option was granted, exercised or lapsed under the 2013 Share Option Scheme during each of the six months ended 30 September 2018 and 30 September 2017 since its effective date on 3 November 2013 and there was no outstanding share option as at 30 September 2018.

During the six months ended 30 September 2018 and 30 September 2017, no share-based payment expense was recognised in relation to share options granted by the Company.

16. fAIR VALuE MEASuREMENT Of fINANCIAL INSTRuMENTS

Fair value of the Group’s financial assets that are measured at fair value on a recurring basis

Some of the Group’s financial assets are measured at fair value at the end of the reporting period. The following table gives information about how the fair values of these financial assets are determined (in particular, the valuation technique(s) and inputs used), as well as the level of the fair value hierarchy into which the fair value measurements are categorised (Levels 1 to 3) based on the degree to which the inputs to the fair value measurements are observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

				fair value	Valuation technique(s)
financial assets		fair value	as at	hierarchy	and key input(s)
		30 September	31 March
		2018	2018
		*HK$’000*	HK$’000
(a)	Equity instruments at FVTOCI
	— listed investments, equity				Quoted bid prices in an active
	securities listed in Hong Kong	21	51	Level 1	market
(b)	Equity instruments at FVTOCI				Quoted market prices provided
	— unlisted funds				by brokers which are
		3,816	12,293	Level 2	financial institutions_(note)_

Note: Quoted market prices provided by brokers which are financial institutions represent the fair values of the respective funds, based on the observable quoted prices of the underlying investments in active market.

— 23 —

The directors of the Company consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the condensed consolidated financial statements approximate to their fair values.

17. RELATED pARTY TRANSACTIONS

The compensation of key management personnel which represents the directors of the Company is disclosed in note 4.

18. CONTINGENT LIAbILITIES

As at 30 September 2018, the Group issued financial guarantees to banks in respect of banking facilities granted to associates. The aggregate amount that may be required to be paid if the guarantees are called upon in entirety amounting to NT$180,000,000 (equivalent to HK$46,350,000; 31 March 2018: NT$200,000,000 and equivalent to HK$54,100,000), which was fully utilised by these associates at 30 September 2018. The fair value of the financial guarantee contracts at the grant date is not significant and in the opinion of the directors, the default risk of associates at 31 March 2018 and 30 September 2018 is considered as low.

19. OpERATING LEASE ARRANGEMENTS

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 Over five years	30 September 2018 *HK$’000* 121,442 90,665 — 212,107	31 March 2018 HK$’000 133,694 116,547 616
		250,857

Operating lease payments represent rentals payable by the Group for certain its shops and office premises. Leases are negotiated for a term ranged from 1 to 8 years (31 March 2018: 1 to 8 years). Some group entities are required to pay lease charges based on a fixed percentage of net sales.

20. CApITAL COMMITMENTS

	30 September	31 March
	2018	2018
	*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	5,361	8,949

— 24 —

INTERIM DIVIDEND

The directors have proposed pay an interim dividend of 2.8 HK cents per share (2017: 2 HK cents) and a special dividend of 8.7 HK cents per share (2017: Nil) in respect of the six months ended 30 September 2018, totalling HK$65,591,000 (2017: 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 14 December 2018. Dividend warrants will be sent to the shareholders on or before 20 December 2018.

CLOSuRE Of REGISTER Of MEMbERS

The Register of Members of the Company will be closed from 11 December 2018 to 14 December 2018 (both days inclusive) during which period no transfer of shares will be registered. In order to qualify for the proposed interim dividend and special dividend which will be payable on 20 December, 2018, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Branch Share Registrars, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not later than 4:00 p.m. on 10 December 2018.

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 30 September 2018 (the “Period”).

The Hong Kong retail market has experienced a steady growth since the second half of 2017. The retail sales for luxury goods, such as jewellery, watches and clocks, maintained on a favourable double-digit growth in the first half of 2018 as compared to the same period last year, according to the monthly survey of retail sales report published by the Census and Statistics Department. Driven by the upbeat consumer sentiment and ongoing recovery of tourist arrivals, the Group’s turnover for the Period decreased by 21.7% to HK$1,181 million (2017: HK$1,508 million). Gross profit increased by 13.4% to HK$288 million (2017: HK$254 million) while gross profit margin increased to 24.4%. In addition, given the Group’s efforts in rental negotiation, the rental cost during the Period maintained at a relatively lower level, and as a result the Group’s net profit attributable to owners of the Company recorded a year on year (“yoy”) growth of 39.1% to HK$64.0 million (2017: HK$46 million), representing a positive result in this financial period.

To show our appreciation for shareholders’ continuous support, the Board has resolved to recommend an interim dividend of 2.8 HK cents per share (2017: 2 HK cents) and a special dividend of 8.7 HK cents (2017: Nil) for the Period.

— 25 —

business Review

As at 30 September 2018, the Group operates 62 retail and wholesale points (including associate retail stores) in the Greater China region. Breakdown by geographic region is as follows:

	As at
	30 September
	2018
Hong Kong	11
Macau	1
China	47
Taiwan	3
Total	62

China’s gross domestic product (“GDP”) has sustained a stable growth of around 6.7% yoy for the first three quarters in 2018, which was in line with general expectation. Supported by the Chinese’s government’s increasing efforts on promoting consumption upgrade and along with the stronger appetite for luxury goods, the purchasing power from the national citizens has been unleashed. Under such positive market sentiment, the Group’s same-store-sales growth in China has achieved to 4% during the Period as we are poised to capitalize opportunities arising from the continued growth. On the other hand, Hong Kong as a global tourism hub, the Hong Kong government has continued to attach great emphasis on promoting tourist arrival. The Hong Kong Tourism Board reported that there were more than 26 million tourist arrivals during the Period, representing a 11% increase as compared to the same period last year. Given a strong performance during the Period, we believe that the Group as a leading watch company, with extensive foothold in the Greater China region, will be able to sustain a satisfactory performance even though the economic backdrop may face a period of correction in the future. Oriental Watch, as a traditional luxury watch company, will strive to consolidate its leading position for better return to its shareholders.

The Group executes stringent cost control over the years, and our priority has been to control and maintain a reasonable rental cost since 2014. Due to the unrelenting efforts in negotiating better rental over the past year, we have managed to keep it at a relatively lower level and the benefits have continued to reflect over the Period. The Group’s aggregate rental cost (excluding related property management fees) decreased significantly by 6.9% to HK$78.1 million, accounting for 35.5% of the Group’s overall operating expenses (2017: 36.0%). In addition, regular internal assessments on the performance of all retail stores and closedown of high-rent yet non-performing stores are also the Group’s strategy for better resource allocation. The Group will continue to closely monitor the store performance as well as the rental contracts from time to time in order to maximize the profitability by improving our efficiency and cost structure.

— 26 —

During the Period, the Group has employed policies on inventory management to ensure stable cash flow and healthy financial position. Policies included monitoring the inventory level and purchasing stocks only when existing inventory depletes to a pre-agreed level. With the hard work and determination from all staff, the Group’s inventory level has successfully been maintained at a reasonable level. As at 30 September 2018, the Group’s overall inventory level amounted to HK$875 million, decreasing by 12.6% from HK$1,001 million as at 31 March 2018. In parallel, the Group has also continued to step up its efforts in adjusting and optimising its brand portfolio, in order to stabilise the Group’s overall sales performance and keep abreast of market trend. Oriental Watch will continue to maintain a lower inventory level for a better cash position and a sustainable business development in the future.

According to the Federation of the Swiss Watch Industry FH, the watch industry exports continued to gain ground in March 2018, and the total export value was 7.8% higher than that in the same period of 2017. The Hong Kong market witnessed a slight slowdown of 3.5% in September from the accelerating growth last year. However, Hong Kong still surpassed other major importing countries and accounted for 12.5% of the total Swiss watch exports with favourable government policies to boost tourist arrival, and the commencing of infrastructures such as the opening of the GuangzhouShenzhen-Hong Kong Express Rail Link and the Hong Kong-Zhuhai-Macau Bridge, the Group remains positive for the longer-term retail market, especially for the high-end sectors. Oriental Watch will continue to deploy appropriate strategies to elevate the productivity of existing stores, strengthen cost management and optimize its inventory profile, as well as enrich its product portfolio to capture opportunities within this particular consumer threshold.

On behalf of the Group, we would like to thank our customers, suppliers, staff and shareholders for their contribution, loyalty and unfailing support.

Liquidity and financial resources

At 30 September 2018, the Group’s total equity reached HK$2,187 million, compared with HK$2,317 million as at 31 March 2018. The Group had net current assets of HK$1,884 million, including bank and cash balances of HK$1,094 million as at 30 September 2018 compared with balances of HK$2,009 million and HK$1,082 million respectively as at 31 March 2018. At 30 September 2018 bank loans of HK$74 million (31 March 2018: HK$75 million). At 30 September 2018, the gearing ratio (defined as total bank borrowing on total equity) was 0.03 (31 March 2018: 0.03).

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.

— 27 —

STAff AND EMpLOYMENT

As at 30 September 2018, the Group employed a total work force of about 570 staff. The staff turnover rate is low. The Group’s policy is to review its employee’s pay levels and incentive bonus.

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

During the six months ended 30 September 2018, 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 Corporate Governance Code (“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 30 September 2018, 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 30 September, 2018.

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 30 September 2018.

— 28 —

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 2018 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, 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, 20 November 2018

— 29 —