88IV - Public company info - Peace Mark (Holdings) Ltd.

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Peace Mark (Holdings) Ltd., 00304.HK - Company Profile
Chairman	CHAU Cham Wong Patrick
Share Issued (share)	1,259,000,000
Par Currency	Hong Kong Dollar
Par Value	0.1
Industry	Watch & Jewellery
Corporate Profile	Business Summary: The Group is mainly engaged in original design manufacturing, original equipment manufacturing, distribution and retail of timepieces and after sales services. Business Review: GREATER CHINA (CHINA, HONG KONG, TAIWAN AND MACAU) LUXURY RETAIL China showed a strong growth in the import of Swiss watches during the financial year. Federation of the Swiss Watch lndustry FH recorded that the import by China for the financial year 2008 was CHF 653 million representing a 55 per cent growth year on year. The growth of demand for high-end watches were mainly driven by the proliferation of the newly rich, widespread advertising campaigns by the brands and an increasing disposable income from the second-tier cities. The strong presence of the newly rich is a typical characteristic of the emerging markets. That explains why sales of discretionary items are performing well even during the economic downturn. High-end watches are being perceived as a symbol of status, which is one of the key motivations for luxury consumption in China. Over the course of FY2008, Peace Mark has made progress in expanding its luxury retail network in China. The total number of retail outlets increased by 43 from 65 to 108 stores through organic and acquisitive growth. The level of competition, diversity of consumer preferences and various stages of infrastructure developments required different strategies for penetrating different cities in China. In a bid to support the growth of our retail network in China, we built the infrastructure for the distribution of goods. We secured the rights to set up public bonded warehouses in Jizhou and Chongqing from the Chinese Government. The warehouse in Jizhou will be the only public bonded warehouse in the city and the one in Chongqing is the only public bonded warehouse used for storing timepieces and jewelry among the three warehouses in the city. The warehouses will enable Peace Mark to provide one-stop services from importation to storage, logistics, distribution and retail to all peers, allowing for greater savings on tax and logistics costs while boosting operational efficiency for the Group and its clients. Both of the bonded warehouses are designed for public use. The warehouse in Jizhou will be a jointly-owned facility between the Group and Jizhou Sundry Goods Timepiece Limited holding 60 per cent and 40 per cent equity, respectively for various commodities. The facility in Chongqing is wholly-owned by the Group for storage of timepieces and jewelry. Any goods deposited in the warehouses will be deferred from import duty, valueadded tax and consumption tax until they are transferable by endorsement. In an effort to establish the network across China, we have been taking a multi-format strategy that has worked well in China to cope with the wide range of consumer preferences. It involves the establishment of domestic joint ventures, mono-brand boutiques and Tourneau stores. The formation of strategic alliances and joint ventures with foreign and domestic companies enables us to leverage their resources to our competitive advantage. DOMESTIC JOINT VENTURE Peace Mark has systematically invested and acquired domestic companies over the recent years to increase its geographic coverage in China. Other than first-tier cities like Shanghai, Beijing and Guangzhou, we have significant presence in the secondtier cities like Chengdu, Chongqing, Xian, Ningbo, Shenzhen, Tianjin, Shenyang, Hangzhou and Urumqi through the partnership with strong players in these areas. The Group recognized the Shenyang joint venture as a 51 per cent owned subsidiary during the year. The joint venture in Ningbo extended the presence to Hangzhou. We had 29 new stores during the year making a total of 67 joint venture stores. Sales growth was recorded across all the areas covered by these domestic joint ventures. MONO-BRAND BOUTIQUES With an ever-growing interest of luxury brands in China, many of them appointed independent companies to assist their penetration into the market through various initiatives from brand management, distribution to retailing. Peace Mark has been one of the preferred partners of the brands in this regard. We were operating 37 mono-brand stores in Hong Kong, China and Macau by the end March 2008. We opened mono-brand shops in areas which we have our own operation or through the setting up of domestic joint ventures. The Rolex shop opened in February 2007 in Tsim Sha Tsui, Hong Kong, and started to generate a full-year revenue contribution. The sales performance of this shop was remarkable. In China, we opened 11 Rolex shops in total in areas like Kunming, Changsha, Chongqing, Xian, Shenyang, Taiyuan and Ningbo. More shops are committed to open for Rolex in the coming year. For Omega, we also opened and upgraded shops in locations like Metropolitans in Chonqqing, Friendship Shop in Chengdu, Yitian Holiday Plaza in Shenzhen, Paragon Center in Xiamen, Hisense Plaza in Qingdao, Dong Shun Department Store in Shenyang and GDA Plaza Department Store in Hangzhou. Other than Omega and Rolex, we opened shops for Blancpain, Glashutte, Longines and Rado separately. The biggest Tissot boutique was also opened during the year in Chongqing. We serve a wide range of brands with mono-brand shops from Rolex, Omega, Cartier to Vacheron Constantin as well as other luxury brands. TOURNEAU In August 2007, in addition to the 3 Tourneau stores operating in China, the Group opened a Tourneau store of approximately 4,500 square feet at The Venetian in Macau in 2008-making a total of 4 stores. MIDDLE-RANGE MARKET We achieved strong sales growth of 38.0 per cent in FY2008 as our retail businesses continued to show solid network expansion and same-store-sales growth. With the increasing disposable income both in the urban and rural cities in China, the middle-range segment has been performed well. Given the increasing brand awareness of the middle class, international brands have been gaining market share and overtaking local brands in terms of presence in many cities. With the independent distributors and our own retail operation, we operated a total of over 1,000 outlets for the middle-range sector at the year end carrying over 100 brands. Certain mid-range brands like Swatch and Citizen have operated mono-brand counters or shop-in-shop through Peace Mark to expand their retail presence. Outside Mainland China, there are 38 TimeZone outlets in Hong Kong and Taiwan in total. With that, we were operating a comprehensive retail network in the Greater Region for the mid-priced fashion brands. We continued to invest in organic growth. With the improved efficiency and growth potential in many secondtier cities in China, we believe strong revenue growth will continue to deliver through organic growth and network expansion. MANUFACTURING On top of a 6% increase in 2007, Hong Kong’s watches and clocks exports grew by 16% during January-March 2008. Peace Mark was in the process of shifting its focus from low-end to high-end manufacturing. Slowing US consumption caused a sluggish demand for mass-market watches, and the total watch export was flat for the year 2007 as compared to 2006. Retailers were more cautious in sales forecast and therefore order placing. As an ongoing process of restructuring the manufacturing process, we had outsourced more of the manufacturing process to independent subcontractors. A division within the manufacturing segment that showed strong market demand was the mechanical movement which is a key component of high-end watches. The current global supply of mechanical movements has not been able to fully satisfy the increasing market demand. Peace Mark through its Tianjin Seagull manufacturing division has emerged as the most important supplier of quality mechanical movement in China. Peace Mark has become the leader in the China mechanical movement manufacturing with a market share of about 40% and superb technology capability of producing various complications. The current capacity is approximately 6 million pieces a year and has been running at 80% utilization. In October 2007, we completed the capital injection of the Seagull joint venture and its financials had been included in the second half of this financial year. The six-month revenue booked in the second half was HK$258 million. In September 2007, A-One, a substantial shareholder of Peace Mark, and Peace Mark entered into a call option agreement pursuant to which A-One unconditionally granted an irrevocable and exclusive call option to Peace Mark at HK$1.0 whereby A-One shall transfer its equity interest it holds in the group of three movement manufacturers namely, Sopord, SFT and Swissebauches which are operating in Switzerland, France and China. The call option has no expiry date. Peace Mark had decided not to proceed with the acquisition of the movement manufacturing group but agreed to accept the call option for the reason that the manufacturing group had been loss-making up to the time of acquisition. The inclusion of the mechanical manufacturing group in our consolidated results will negatively impact the financial performance of the Peace Mark group. Peace Mark is definitely enjoying the upside of the transaction, should the mechanical movement group turn around in the financial performance and the supply side of the movement market become more constrained. Prospects: The Global economy has slowed down since the second half of 2007 against the backdrop of the financial turmoil and a deepening US downturn. At the same time, the global inflation has risen. Looking ahead to the remainder of 2008 and 2009, the global consumer spending is likely to retrench in the face of these negative factors. The knock-on effects of financial turmoil increased the risk of an Asian (ex-Japan) slowdown. Nevertheless, the growth in this region is and will be still significantly exceeding that in the rest of the world in the medium term. The tightening economic measures in the Mainland have slowed its growth. Federation of Swiss Watch Industry FH reported the year-to-date growth of China at 60%. However, there were already signs of softening in May 2008 as the rate of growth was only 38%, supported by the less severe supply constraint and the network growth across China. From the macro point of view, we believe the Chinese government will continue to promulgate policies which encourage domestic consumption. The proliferation of the newly rich in China has no doubt made China a very important market for high-end consumption. Strong Chinese Yuan relative to Swiss Franc will further fuel the growth of the industry. During the economic downturn, fashion and luxury items have a relative stronger pricing power on the retail level, thus our margin as a distributor and retailer to a large extent will sustain. In China, we will continue to grow the retail network in the luxury and midrange segments. More co-operations with brands are expected, which in turn will further strengthen our foothold in China. The scale of the network which we have developed through acquisitions and organic growth puts us in a better position to negotiate with the upscale players. In the mid-range segment, the increasing disposal income and urbanization are the key drivers for the future consumption in China. As the new generation has been influenced by the influx of advertising by the imported brands, the dominance of local brands in this segment is expected to diminish and the growth of imported brands in terms of the market share will continue. Structural change in the spending pattern of the Chinese consumers has shown increasing spending in the category of clothing and accessories. Department stores in China have been gradually transforming into a concession business model for merchandises with a wide diversity of brands and models like the mid-range watch segment. This transformation is in favour to companies like Peace Mark that have a large brands stable and an established network. We believe that we will continue to deliver good performance in the segment. According to 2008 World Wealth Report, released in June 2008 by Merrill Lynch and Capgemini, Asia Pacific’s high net worth individuals grew by 7.7% from 2006. High net worth individuals in Asia- Pacific Indulged most in gems, jewelry and watches. They spend 19% of their wealth in this category. According to the Swiss watch export statistics, Singapore, being the eighth largest importer of Swiss watches, registered a year-todate growth of 56%. In May the growth rate was 72% which was the highest amongst all the import countries around the world. However, the spillover effect of the global financial market turmoil, the contraction in private housing market and a fragile outlook for financial assets in Singapore could compose negative wealth effects which would in turn impinge on high-end consumption. Sincere Watch provides a platform for Peace Mark to capture the growth of South East Asia which continue to be one of the fastest growing regions in luxury watch sales. The merger of Sincere Watch and Peace Mark should create one of the largest fully-integrated watch companies in Asia, making it well-positioned in the industry to capture the future growth opportunities in the region. The transaction with Sincere Watch allows Peace Mark to achieve a much larger scale in a shorter timeframe. Scale benefits will be realized with the integration process. The combined management depth of Sincere Watch and Peace Mark will certainly help the Group to grow further. We are facing a period of uncertainty in the coming year. However, with its geographical diversity, strong management and solid market positions, Peace Mark is well placed to weather any storms that lie ahead.

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Public company info - Peace Mark (Holdings) Ltd. , 00304.HK