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02 Financial Highlights
04 Corporate Information
05 Information for Investors
06 Condensed Consolidated Income Statement
07 Condensed Consolidated Balance Sheet
09 Condensed Consolidated Statement of Changes in Equity
10 Condensed Consolidated Cash Flow Statement
11 Notes to Condensed Consolidated Financial Statements
22 Management Discussion and Analysis
29 Dividend
30 Other Inf
| Contents |
| Contents |
Period Period
Key Financial Ratios Notes 4-9/2007 4-9/2006 Change +/-
Performance
Gross Margin (%) 1 65.9 63.1 2.8% pts.
Adjusted Gross Margin (%) 2 67.9 66.1 1.8% pt.
Net Profit Margin (%) 3 9.1 9.5 -0.4% pt.
Adjusted Net Profit Margin (%) 4 11.1 12.4 -1.3% pt.
Return on Average Equity
(Annualised) (%) 5 14.3 14.6 -0.3% pt.
Return on Average Assets
(Annualised) (%) 6 12.3 12.6 -0.3% pt.
Operating
Inventory Turnover Days
(Annualised) 7 214 221 -7 days
Debtors’ Turnover Days
(Annualised) 8 14 12 2 days
Creditors’ Turnover Days
(Annualised) 9 28 15 13 days
Per Share Data
Earnings Per Share (HK cents) 10 6.4 5.9 8.5%
Dividend Per Share
Interim (HK cents) 2.5 2.5 —
As at
30/9/2007
As at
31/3/2007
Liquidity
Current Ratio 11 4.6 6.8 -32.4%
Quick Ratio 12 2.9 4.5 -35.6%
Per Share Data
Book Value Per Share (HK cents) 13 87.9 91.8 -4.2%
Financial Highlights
02
Notes:
1. ‘‘Gross Margin’’ is based on gross profit divided by turnover during the period.
2. ‘‘Adjusted Gross Margin’’ is based on gross profit excluding net provision for slow-moving inventories
of HK$5.2 million (2006: HK$6.5 million) divided by turnover during the period.
3. ‘‘Net Profit Margin’’ is calculated as net profit divided by turnover during the period.
4. ‘‘Adjusted Net Profit Margin’’ is based on net profit excluding net provision for slow-moving inventories
of HK$5.2 million (2006: HK$6.5 million) divided by turnover during the period.
5. ‘‘Return on Average Equity’’ represents net profit during the period divided by average of opening and
closing balance for shareholders’ equity.
6. ‘‘Return on Average Assets’’ represents net profit during the period divided by average of opening and
closing balance for total assets.
7. ‘‘Inventory Turnover Days’’ is based on average of opening and closing balance of inventories divided
by cost of sales and then multiplied by number of days during the period.
8. ‘‘Debtors’ Turnover Days’’ is based on average of opening and closing balance of trade and bills
receivables divided by turnover and then multiplied by number of days during the period.
9. ‘‘Creditors’ Turnover Days’’ is based on average of opening and closing balance of trade and bills
payables divided by purchases and then multiplied by number of days during the period.
10. ‘‘Earnings Per Share’’ is calculated based on the weighted average number of 359,450,000 shares
(2006: 350,650,000 shares) in issue during the period under review.
11. ‘‘Current Ratio’’ represents current assets divided by current liabilities.
12. ‘‘Quick Ratio’’ represents current assets less inventories then divided by current liabilities.
13. ‘‘Book Value Per Share’’ represents shareholders’ equity divided by the total number of issued shares at
the balance sheet dates of 359,450,000.
03
Name of the Company
Bauhaus International (Holdings) Limited
包浩斯國際 (控股) 有限公司
Directors
Executive directors:
Mr. Wong Yui Lam
(Chairman and Chief Executive Officer)
Madam Tong She Man, Winnie
(Vice-Chairman)
Madam Lee Yuk Ming
Mr. Yeung Yat Hang
Independent non-executive directors:
Mr. Chu To Ki
Mr. Mak Wing Kit
Dr. Wong Yun Kuen
Company Secretary
Mr. Chung Chi Keung, CPA, FCCA
Qualified Accountant
Mr. Chung Chi Keung, CPA, FCCA
Authorised Representatives
Mr. Wong Yui Lam
Madam Tong She Man, Winnie
Members of Audit Committee
Mr. Mak Wing Kit (Chairman)
Mr. Chu To Ki
Dr. Wong Yun Kuen
Members of Remuneration
Committee
Mr. Mak Wing Kit (Chairman)
Mr. Chu To Ki
Dr. Wong Yun Kuen
Members of Nomination
Committee
Dr. Wong Yun Kuen (Chairman)
Mr. Chu To Ki
Mr. Mak Wing Kit
Principal Auditors
Ernst & Young, Certified Public Accountants
18th Floor
Two International Finance Centre
8 Finance Street, Central
Hong Kong
Compliance Adviser
Sun Hung Kai International Limited
Level 12, One Pacific Place
88 Queensway
Hong Kong
Principal Bankers
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road, Central
Hong Kong
Bank of China (Hong Kong) Limited
382–384 Prince Edward Road
Kowloon City
Kowloon
Hong Kong
Registered Office
Cricket Square
Hutchins Drive
P.O. Box 2681
GrandCaymanKY1-1111
Cayman Islands
Head Office and Principal Place
of Business in Hong Kong
Room 501, Sino Industrial Plaza
9 Kai Cheung Road
Kowloon Bay, Kowloon
Hong Kong
Principal Share Registrar and
Transfer Office
Butterfield Bank (Cayman) Limited
Butterfield House
68 Fort Street, P.O. Box 705
George Town
Grand Cayman
Cayman Islands
Hong Kong Branch Share
Registrar and Transfer Office
Tricor Investor Services Limited
26th Floor, Tesbury Centre
28 Queen’s Road East
Wanchai, Hong Kong
Corporate Information
04
Listing information
Listing exchange : Main Board of 10
4–9/2007 4–9/2006
Basic earnings per share : HK 6.4 cents HK 5.9 cents
Dividend per share
Interim : HK 2.5 cents HK 2.5 cents
Key dates
2007 annual results announcement : 16 July 2007
Closure of Register of Members : 21 August 2007 to 23 August 2007
(both days inclusive)
2007 annual general meeting : 23 August 2007
Payment of 2007 final and special dividends : 24 September 2007
2008 interim results announcement : 18 December 2007
Closure of Register of Members : 9 January 2008 to 11 January 2008
(both days inclusive)
Payable of 2008 interim dividend on or about : 25 January 2008
Internet Website : www.bauhaus.com.hk
Financial year end : 31 March
Interim period end : 30 September
Information for Investors
05
The board of directors (the ‘‘Directors’’) of Bauhaus International (Holdings) Limited
(the ‘‘Company’’) is pleased to announce the unaudited condensed consolidated
interim financial statements (the ‘‘Interim Financial Statements’’) of the Company and
its subsidiaries (collectively the ‘‘Group’’) for the six months ended 30 September 2007,
prepared on the basis set out in note 1 to the Interim Financial Statements below,
together with the comparative figures for the corresponding period.
These Interim Financial Statements have not been audited, but have been reviewed by
the Company’s audit committee.
Six months ended
30 September
2007 2006
Notes (Unaudited) (Unaudited)
HK$’000 HK$’000
REVENUE 3 254,136 219,456
Cost of sales (86,732) (80,919)
GROSS PROFIT 167,404 138,537
Other income and gains 4 2,535 2,891
Selling and distribution costs (108,657) (90,359)
Administrative expenses (34,611) (25,302)
Other expenses (405) (1,471)
Finance costs 5 — (158)
PROFIT BEFORE TAX 6 26,266 24,138
Tax 7 (3,146) (3,326)
PROFIT FOR THE PERIOD ATTRIBUTABLE TO
EQUITY HOLDERS OF THE PARENT 23,120 20,812
DIVIDEND 8
Interim 8,986 8,766
DIVIDEND PER SHARE 8
Interim HK2.5 cents HK2.5 cents
EARNINGS PER SHARE — BASIC 9 HK6.4 cents HK5.9 cents
Condensed Consolidated Income Statement
For the six months ended 30 September 2007
06
30 September
2007
31 March
2007
Notes (Unaudited) (Audited)
HK$’000 HK$’000
NON-CURRENT ASSETS
Property, plant and equipment 42,771 31,009
Prepaid land lease payments 7,096 7,174
Intangible assets 1,770 1,898
Available-for-sale financial asset 5,400 3,900
Deferred tax assets 7,421 6,989
Rental, utility and other non-current
deposits 37,507 30,395
Total non-current assets 101,965 81,365
CURRENT ASSETS
Inventories 10 104,499 98,248
Trade and bills receivables 11 19,639 19,201
Prepayments, deposits and other
receivables 12 17,177 11,116
Prepaid land lease payments,
current portion 155 155
Tax recoverable 1,230 2,205
Cash and cash equivalents 13 131,696 161,099
Total current assets 274,396 292,024
CURRENT LIABILITIES
Trade and bills payables 14 13,211 9,553
Accruals and other payables 15 32,129 27,868
Due to a related company 19(b) — 198
Dividend payable 8,994 —
Tax payable 5,178 5,272
Total current liabilities 59,512 42,891
NET CURRENT ASSETS 214,884 249,133
Condensed Consolidated Balance Sheet
30 September 2007
07
30 September
2007
31 March
2007
Notes (Unaudited) (Audited)
HK$’000 HK$’000
TOTAL ASSETS LESS CURRENT LIABILITIES 316,849 330,498
NON-CURRENT LIABILITIES
Deferred tax liabilities 966 682
Total non-current liabilities 966 682
Net assets 315,883 329,816
EQUITY
Equity attributable to equity holders of
the parent
Issued capital 16 35,945 35,945
Reserves 279,938 263,318
Proposed dividends — 30,553
Total equity 315,883 329,816
Condensed Consolidated Balance Sheet
30 September 2007
08
Attributable to equity holders of the parent
Issued
share
capital
Share
premium
account
Contributed
surplus
Exchange
fluctuation
reserve
Reserve
funds
Proposed
dividends
Retained
profits
Total
equity
Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 April 2006 (audited) 35,065 77,447 744 407 — 21,916 155,403 290,982
Exchange realignment —— — 291 ———291
Total income for the period
recognised directly in
equity —— — 291 ———291
Net profit for the period ——————20,812 20,812
Total income for the period —— — 291 ——20,812 21,103
Final dividend declared and
paid —————(9,117) — (9,117)
Special dividend declared and
paid —————( 12,799) — (12,799)
Interim dividend declared 8 —(8,766) (8,766)
At 30 September 2006
(unaudited) 35,065 77,447 744 698 ——167,449 281,403
At 1 April 2007 (audited) 35,945 87,875 744 1,390 1,146 30,553 172,163 329,816
Exchange realignment —— —2,429 57 ——2,486
Total income for the period
recognised directly in
equity —— —2,429 57 ——2,486
Net profit for the period ——————23,120 23,120
Total income for the period —— —2,429 57 — 23,120 25,606
Transfer to reserve funds ————48 (48) —
Final dividend declared and
paid —————(10,783) — ( 10,783)
Special dividend declared and
paid —————(19,770) — (19,770)
Interim dividend declared 8 —(8,986) (8,986)
At 30 September 2007
(unaudited) 35,945 87,875 744 3,819 1,251 — 186,249 315,883
These reserve accounts comprise the consolidated reserves of HK$279,938,000 (31 March 2007:
HK$263,318,000) in the condensed consolidated balance sheet.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 September 2007
09
Six months ended
30 September
2007 2006
Notes (Unaudited) (Unaudited)
HK$’000 HK$’000
Net cash inflow from operating activities 18,168 1,317
Net cash outflow from investing activities (19,237) (5,204)
Net cash outflow from financing activities (30,545) (20,847)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (31,614) (24,734)
Cash and cash equivalents at beginning of
period 161,099 139,660
Effect of foreign exchange rate changes,
net 2,211 224
CASH AND CASH EQUIVALENTS AT END
OF PERIOD 131,696 115,150
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances 13 86,277 71,374
Non-pledged time deposits with original
maturity of less than three months 13 45,419 43,776
131,696 115,150
Condensed Consolidated Cash Flow Statement
For the six months ended 30 September 2007
10
1. Group Reorganisation, Basis of Presentation and Preparation
The Company was incorporated in the Cayman Islands as an exempted company with
limited liability on 8 October 2004 under the Companies Law of the Cayman Islands.
On 21 April 2005, pursuant to a reorganisation scheme to rationalise the structure of the
Group in preparation for the listing of the Company’s shares on the Main Board of The
Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) on 12 May 2005, the
Company acquired the entire issued share capital in Bauhaus Investments (BVI) Limited
(‘‘Bauhaus (BVI)’’), the then holding company of the subsidiaries, in consideration for the
aggregate allotment and issuance of 1,000,000 ordinary shares of HK$0.1 each in the
share capital of the Company to the then shareholders of Bauhaus (BVI). The Company
then became the holding company of the companies now comprising the Group (the
‘‘Group Reorganisation’’).
Further details of the Group Reorganisation are set out in the Company’s listing prospectus
(the ‘‘Prospectus’’) dated 29 April 2005.
The shares of the Company were listed on the Stock Exchange on 12 May 2005.
The Group Reorganisation above involved companies under common control, and the
Group resulting from the Group Reorganisation is regarded and accounted for as a
continuing group. Accordingly, the Interim Financial Statements have been prepared on
the merger basis as if the Company had been the holding company of the companies
comprising the Group since 1 April 2004. Under this basis, the Company has been treated
as the holding company of its subsidiaries pursuant to the Group Reorganisation for the
financial years presented, rather than from the date of acquisition of the subsidiaries. In
the opinion of the Directors, the Interim Financial Statements prepared on the above basis
present more fairly the results, cash flows and state of affairs of the Group as a whole.
These Interim Financial Statements are prepared in accordance with Hong Kong
Accounting Standard (‘‘HKAS’’) 34, ‘‘Interim Financial Reporting’’, issued by the Hong
Kong Institute of Certified Public Accountants, and Appendix 16 of the Rules Governing
the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’).
The accounting policies and basis of preparation adopted in the preparation of the Interim
Financial Statements are the same as those used in the annual financial statements for the
year ended 31 March 2007, except for the adoption of certain new and revised Hong
Kong Financial Reporting Standards (‘‘HKFRS’’) (which also include HKASs and
Interpretations) in current period for the first time as disclosed in note 2 below. These
Interim Financial Statements should be read in conjunction with the 2007 annual report.
Notes to Condensed Consolidated Financial Statements
30 September 2007
11
2. Impact of New and Revised Hong Kong Financial Reporting
Standards
The following new and revised HKFRSs are adopted for the first time for the current
period’s financial statements:
HKAS 1 Amendment Capital Disclosures
HKFRS 7 Financial Instruments: Disclosures
HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29
Financial Reporting in Hyperinflationary Economies
HK(IFRIC)-Int 8 Scope of HKFRS 2
HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives
HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment
HK(IFRIC)-Int 11 HKFRS 2 — Group and Treasury Share Transfer
The adoption of the above new and revised HKASs, HKFRS and Interpretations has had no
material impact on the accounting policies of the Group and the methods of computation
in the Interim Financial Statements.
Certain new standards, amendments and interpretations to existing standards have been
published that are relevant to the Group’s business and are mandatory for the Group’s
accounting periods beginning on or after 1 January 2008 or later periods. The Group has
not early adopted these standards, amendments and interpretations for the six months
ended 30 September 2007. The Group has already commenced an assessment of their
impact but is not yet in a position to state whether they would have a material impact on
its Group’s results and financial positions.
3. Segment Information
The Group is principally engaged in retailing, wholesaling and manufacturing of apparel
products and accessories.
Segment information is presented by way of two segment formats: (i) on a primary
segment reporting basis, by geographical segment; and (ii) on a secondary segment
reporting basis, by business segment.
Notes to Condensed Consolidated Financial Statements
30 September 2007
12
3. Segment Information (continued)
Each of the Group’s geographical segments represents a strategic business unit that offers
products to customers located in different geographical areas which are subject to risks
and returns that are different from those of the other geographical segments. The Group’s
customer-based geographical segments are as follows:
(a) Hong Kong and Macau
(b) Taiwan
(c) Mainland China
(d) Japan
(e) Elsewhere
In determining the Group’s geographical segments, revenues are attributed to the
segments based on the location of customers. Intersegment sales and transfers are
transacted with reference to the selling prices used for sales made to third parties at the
then prevailing market prices.
With respect to the Group’s secondary reporting by business segment, the Group has
three business segments and each of them represents a strategic business unit that offers
products and services which are subject to risks and returns that are different from those
of the other business segments. The Group’s business segments comprise:
(a) Retail operation which is engaged in retail business through the operations of the
Group’s retail outlets;
(b) Wholesale operation which is engaged in the sale of garments and accessories to
customers for distribution; and
(c) Franchise business which is engaged in the sale of garments and accessories to the
designated franchisees for their own operations of retail business in the designated
locations.
13
3. Segment Information (continued)
Geographical segments
An analysis of the Group’s turnover and contribution to operating results by geographical
segments is presented below.
Six months ended
30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
TURNOVER
Hong Kong and Macau 182,007 166,059
Taiwan 36,884 22,643
Mainland China 23,735 13,511
Japan 9,221 10,659
Elsewhere 13,361 12,578
less: Inter-segment sales (11,072) (5,994)
254,136 219,456
RESULTS
Hong Kong and Macau 20,256 20,588
Taiwan 5,107 318
Mainland China 7,965 4,904
Japan 2,780 3,685
Elsewhere 2,480 2,541
38,588 32,036
Interest income 1,382 1,242
Unallocated corporate expenses (13,704) (8,982)
Finance costs — (158)
Profit before taxation 26,266 24,138
Taxation (3,146) (3,326)
Profit for the period 23,120 20,812
Notes to Condensed Consolidated Financial Statements
30 September 2007
14
3. Segment Information (continued)
Business segments
An analysis of the Group’s turnover by business segments is presented below.
Six months ended
30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
TURNOVER
Retail operation 210,064 182,858
Wholesale operation 23,201 23,603
Franchise business 20,871 12,995
254,136 219,456
4. Other Income and Gains
Six months ended
30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
Other income:
Interest income 1,382 1,242
Others 754 1,649
2,136 2,891
Gains:
Foreign exchange differences, net 399 —
2,535 2,891
5. Finance Costs
Six months ended
30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
Interest on bank overdrafts — 3
Interest on bank loans wholly repayable
within five years — 137
Others — 18
— 158
15
6. Profit Before Tax
Profit before tax is arrived after charging the following:
Six months ended
30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
Cost of inventories sold 81,556 74,441
Provision for slow-moving inventories, net 5,176 6,478
Depreciation 5,972 5,847
Loss on disposal of fixed assets, net 224 533
Amortisation of prepaid land lease payments 78 78
Amortisation of intangible assets 182 170
Rental deposits written off — 631
Rental expenses under operating leases in respect
of equipments: 268 —
Rental expenses under operating leases in respect
of land and buildings:
Minimum lease payments 50,423 40,525
Contingent rents 7,084 4,506
57,507 45,031
Employee benefits expenses (including directors’
remuneration)
Wages, salaries and other benefits 48,019 39,480
Pension scheme contributions 2,122 1,772
50,141 41,252
7. Tax
Six months ended
30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
Current tax — Hong Kong 1,596 4,649
Current tax — Elsewhere 1,683 151
Deferred tax credit (133) (1,474)
Total tax charge for the period 3,146 3,326
Hong Kong profits tax has been provided at a rate of 17.5% (2006: 17.5%) on the
estimated assessable profits arising in Hong Kong during the period. Taxes on profits
assessable elsewhere had been calculated at the rates of tax prevailing in the countries/
jurisdictions in which the Group operates, based on existing legislation, interpretations and
practices in respect thereof.
Notes to Condensed Consolidated Financial Statements
30 September 2007
16
8. Dividend
Six months ended
30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
Interim — HK2.5 cents (2006: HK2.5 cents) per
ordinary share 8,986 8,766
9. Earnings Per Share
The calculation of basic earnings per share amounts is based on the profit for the period
attributable to ordinary equity holders of the parent of HK$23,120,000 (2006:
HK$20,812,000) and the weighted average number of ordinary shares in issue during the
period of 359,450,000 (2006: 350,650,000).
Diluted earnings per share amounts have not been presented as no diluting events existed
during the periods ended 30 September 2006 and 2007.
10. Inventories
30 September
2007
31 March
2007
(Unaudited) (Audited)
HK$’000 HK$’000
Raw materials 19,886 16,995
Work in progress 359 2,227
Finished goods 84,254 79,026
104,499 98,248
11. Trade and Bills Receivables
Retail sales are made on cash terms or by credit card with very short credit terms.
Wholesale sales are made to customers with general credit terms ranging from 30 days to
60 days, except for certain well-established customers with a long business relationship
with the Group, where the terms are extended. The Group seeks to maintain strict control
over its outstanding receivables to minimise credit risk. Overdue balances are regularly
reviewed by senior management of the Group. In view of the aforementioned and the
fact the Group’s trade receivables relate to a large number of diversified customers, there
is no significant concentration of credit risk. The Group’s bills receivable are normally
settled on 30-day to 60-day terms. Trade and bills receivables are non-interest-bearing.
17
11. Trade and Bills Receivables (continued)
An aged analysis of the trade and bills receivables as at the balance sheet date, based on
the invoice date and net of provisions, is as follows:
30 September
2007
31 March
2007
(Unaudited) (Audited)
HK$’000 HK$’000
Within 90 days 19,577 18,170
91 to 180 days 62 1,031
19,639 19,201
12. Prepayments, Deposits and Other Receivables
The carrying amounts of the prepayments, deposits and other receivables approximate to
their fair values.
13. Cash and Cash Equivalents
An aged analysis of the trade and bills payables as at the balance sheet date, based on
invoice date, is as follows:
30 September
2007
31 March
2007
(Unaudited) (Audited)
HK$’000 HK$’000
Cash and bank balances 86,277 105,497
Non-pledged time deposits with original maturity of
less than three months when acquired 45,419 55,602
Cash and cash equivalents 131,696 161,099
14. Trade and Bills Payables
An aged analysis of the trade and bills payables as at the balance sheet date, based on
invoice date, is as follows:
30 September
2007
31 March
2007
(Unaudited) (Audited)
HK$’000 HK$’000
Within 90 days 13,121 9,194
91 to 180 days 26 346
181 to 365 days 64 13
13,211 9,553
Notes to Condensed Consolidated Financial Statements
30 September 2007
18
14. Trade and Bills Payables (continued)
The trade payables are non-interest-bearing and are normally settled on 30-day to 60-day
terms. The carrying amounts of trade and bills payables approximate to their fair values.
15. Accruals and Other Payables
Accruals and other payables are non-interest-bearing and are normally settled on
30-day to 60-day terms. The carrying amounts of the accruals and other payables
approximate to their fair values.
16. Share Capital
Shares
30 September
2007
31 March
2007
(Unaudited) (Audited)
HK$’000 HK$’000
Authorised:
2,000,000,000 (31 March 2007: 2,000,000,000)
ordinary shares of HK$0.1 each 200,000 200,000
Issued and fully paid:
359,450,000 (31 March 2007: 359,450,000)
ordinary shares of HK$0.1 each 35,945 35,945
Shares options scheme
On 22 April 2005, the Company adopted a share option scheme (the ‘‘Scheme’’) for the
purpose of providing incentives and rewards to eligible participants who contribute to the
success of the Group’s operations. Eligible participants of the Scheme include the
Company’s directors, including independent non-executive directors, other employees of
the Group, suppliers of goods or services to the Group, customers of the Group, any
consultants, advisers, managers or officers of the Group, and the Company’s shareholders.
The Scheme will remain in force for 10 years from the date of its adoption.
During the six months ended 30 September 2007, no option has been granted or agreed
to be granted pursuant to the Scheme.
19
17. Contingent Liabilities
At the balance sheet date, contingent liabilities not provided for in the financial statements
were as follows:
30 September
2007
31 March
2007
(Unaudited) (Audited)
HK$’000 HK$’000
Bank guarantees given in lieu of utility and
property rental deposits 5,608 4,907
The Group or the Company had no other significant contingent liabilities at the balance
sheet date (31 March 2007: Nil).
18. Commitments
(i) Commitments under operating leases
The Group, as lessee, leases its retail shops and certain of its warehouse under
operating lease arrangements with lease terms ranging from one to five years.
At the balance sheet date, the Group had total future minimum lease payments
under non-cancellable operating leases falling due as follows:
30 September
2007
31 March
2007
(Unaudited) (Audited)
HK$’000 HK$’000
Within one year 94,950 88,512
In the second to fifth year, inclusive 72,823 59,296
167,773 147,808
The operating lease rentals of certain retail shops are based on the higher of a
fixed rental or contingent rent based on the sales of the retail shops pursuant to
the terms and conditions as set out in the respective rental agreements. As the
future sales of these retail shops could not be estimated reliably, the relevant
contingent rent has not been included above and only the minimum lease
commitment has been included in the above table.
(ii) Other commitment
The Group or the Company had no other significant capital commitments at the
balance sheet date (31 March 2007: Nil).
Notes to Condensed Consolidated Financial Statements
30 September 2007
20
19. Related Party Transactions
(a) Transactions with related parties
Six months ended 30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
Rental expenses paid to a minority
shareholder — 28
Rental expenses paid to a related company 99 —
Purchases of computer equipment from a
related company 744 527
Computer system maintenance charges
paid to a related company 512 931
(b) At 30 September 2007, there was no balance with related parties at the balance
sheet date (31 March 2007: HK$198,000). The balance was unsecured, interest-
free and repayable on demand.
(c) Compensation of key management personnel of the Group
Six months ended 30 September
2007 2006
(Unaudited) (Unaudited)
HK$’000 HK$’000
Short term employee benefits 1,896 1,344
Post-employment benefits 33 33
Total compensation paid to key
management personnel 1,929 1,377
20. Approval of the Interim Financial Statements
The Interim Financial Statements were approved and authorised for issue by the Directors
on 18 December 2007.
21
Business and Financial Review
Retail Operation
The Group’s retail operation maintained strong in the six months ended 30 September
2007, with total turnover up 14.9% to about HK$210.1 million (2006: HK$182.9
million). Retail operation in Hong Kong, which accounted for about 69.1% of the
Group’s turnover during the period under review, sustained steady growth of about
5.9%, supported by its diverse retail network covering prime shopping areas and
effort to customise outlets in strategic areas for optimum utilisation of space and
keeping rentals in check at all times.
As for the retail operation in Taiwan, it continued to record encouraging results.
During the period under review, turnover from the segment jumped a remarkable
56.0%, thanks to enhanced management effort, intensive training provided to sales
teams and solid support of an extensive retail network. The Group sustained its
position as the leading trendy fashion retailer in Taiwan with sales performance
surpassing the industry average.
The Group took an important strategic move last year to set up self-managed retail
operation in Shanghai to capture the immense potential of the market. The retail
operation has grown steadily with the Group’s own brands have been gradually
gaining acceptance among the high-spending consumers they target. The Group also
started self-managed retail operation in Macau in April 2007, which recorded
encouraging sales performance during the period under review.
As at 30 September 2007, the Group had the following self-managed retail outlets:
As at 30 September
2007 2006
Hong Kong 48 46
Taiwan 21 18
Mainland China 4 1
Macau 1 —
Total number of outlets 74 65
Aggregate floor area (sq.ft.) 90,951 76,665
Management Discussion and Analysis
22
Wholesale Operation
The turnover from the Group’s wholesale operation dropped slightly by about 1.7% to
about HK$23.2 million during the period under review (2006: HK$23.6 million). The
decrease was mainly attributable to fluctuating retail demands in the European and
Japanese markets. To minimise the impact of fluctuation in overseas demands on its
wholesale business, the Group has been diversifying its customer base aiming for
balance among different regions. At the Group’s enhanced effort to develop
businesses in Southeast Asia during the period under review, the region reported
growth in sales that almost fully compensated the drop in other areas. The Group
continued to participate in different international fashion shows and streamlined
certain distribution channels to ensure sales efficiency. As at 30 September 2007, the
Group’s wholesale businesses covered over 20 countries in Southeast Asia, the Middle
East, Europe and North America.
Franchise Business
Franchise business in China continues to be one of the Group’s growth engines. As
demand continued to rise in the country during the period under review, so did the
Group’s franchise network. Turnover from the segment grew an impressive 60.8% to
about HK$20.9 million for the six months ended 30 September 2007 (2006: HK$13.0
million). Years of dedicated effort of the Group in establishing systematic and well-
coordinated franchise networks in different markets in China have seen ‘‘TOUGH’’
emerged as an acclaimed brand in the country. As at 30 September 2007, the Group
had 46 franchised outlets (2006: 20) operating in the PRC and Macau.
Segment Information
Detailed information of the Group’s turnover and contribution to profit before tax by
segment is shown in note 3 to the Interim Financial Statements.
Gross Profit
The Group’s gross profit increased by 20.9% to about HK$167.4 million in the six
months ended 30 September 2007 against about HK$138.5 million in the last
corresponding period. As for gross margin, it improved to 65.9% from about 63.1%
in the same period last year. The wider margin was primarily the result of the
increased average retail price of the Group’s own brand products and the increased
proportion of these products in overall sales. The Group’s own brand products also
boast higher average margin than goods of other brands sold by the Group.
Furthermore, as a result of more effective inventory control, net provision for slow-
moving inventories dropped by 20.0% to about HK$5.2 million (2006: HK$6.5
million).
23
Operating Expenses
The Group’s operating expenses surged by about 22.5% to about HK$143.7 million
during the six months ended 30 September 2007 (2006: HK$117.3 million),
representing 56.5% of total turnover (2006: 53.4%). One of the major operating
expenses of the Group, rental expenses soared by about 27.8% to about HK$57.5
million during the period under review (2006: HK$45.0 million), mainly attributable to
increase in market rents, number of stores and gross shop areas. The rental expenses,
accounting for about 40.0% (2006: 38.4%) of the Group’s total expenses for the
review period, represented a comparable about 22.6% of the Group’s turnover (2006:
20.5%). Heeding the impact of increase in rental expenses on its profit margin, the
Group is prudent in adding outlets and has kept rental cost under control through
shop optimisation and relocation.
Staff cost is another key operating cost, which increased by about 21.3% to about
HK$50.1 million during the six months ended 30 September 2007 (2006: HK$41.3
million). Realising that human resources is a vital to supporting its sustainable
expansion, the Group has kept investing in its people and made sure it offers
competitive remuneration packages to attract and retain quality employees.
As part of its continuous effort to reinforce brand equity, the Group organised an
array of promotional and public relation events during the period under review to
publicise the opening of its new flagship shop in April 2007. As a result, advertising,
promotion and exhibition expenses increased by about 20.0% to about HK$3.6
million (2006: HK$3.0 million).
To manage cost increment effectively, the Group has kept streamlining its local and
overseas distribution networks and enforcing stringent cost control.
Net Profit
The Group’s net profit attributable to shareholders reached about HK$23.1 million for
the six months ended 30 September 2007, up about 11.1% from about HK$20.8
million in the same period last year. Net profit margin, however, dropped slightly from
about 9.5% to about 9.1% as a result of increased operating costs, especially rentals.
Although some operating conditions were challenging, both the local and overseas
markets continued to provide opportunities for the Group to sustain growth. With
prudence in managing risks and adopting solid development approaches, the Group is
confident of achieving sustainable profit growth in coming years.
Management Discussion and Analysis
24
Capital Structure
As at 30 September 2007, the Group had net assets of approximately HK$315.9
million (31 March 2007: HK$329.8 million), comprising non-current assets of about
HK$102.0 million (31 March 2007: HK$81.4 million), net current assets of about
HK$214.9 million (31 March 2007: HK$249.1 million) and non-current liabilities of
about HK$1.0 million (31 March 2007: HK$0.7 million).
The Group had no borrowings as at 30 September 2007 (31 March 2007: Nil).
Liquidity and Financial Resources
As at 30 September 2007, the Group had cash and cash equivalents of approximately
HK$131.7 million (31 March 2007: HK$161.1 million) and had no bank borrowings
(31 March 2007: Nil). As at 30 September 2007, the Group had aggregate banking
facilities of approximately HK$19.0 million (31 March 2007: HK$19.0 million)
comprising interest-bearing bank overdraft and borrowings, rental and utility
guarantees as well as import and export facilities, of which about HK$13.2 million
had not been utilised at the balance sheet date.
Cash Flows
For the six months ended 30 September 2007, net cash inflow from operating
activities was about HK$18.2 million (2006: HK$1.3 million). Resulting from strong
increase in sales level, the operating cash flows substantially improved. Net cash
outflow from investing activities significantly increased from about HK$5.2 million in
2006 to about HK$19.2 million in 2007 as a result of increase in capital expenditure
for new shop decoration. Net cash outflow from financing activities during the period
under review attributed to the payment of 2006/07 final and special dividend of about
HK$30.5 million.
Security
As at 30 September 2007, the Group’s banking facilities were secured by certain of its
leasehold buildings and prepaid land lease payments with aggregate carrying value of
approximately HK$6.6 million (31 March 2007: HK$6.7 million) and HK$3.4 million
(31 March 2007: HK$3.5 million), respectively.
25
Contingent Liabilities
As at 30 September 2007, the Group had contingent liabilities in respect of bank
guarantees given in lieu of rental and utility deposits amounting to approximately
HK$5.6 million (31 March 2007: HK$4.9 million). The Group or the Company had no
other significant contingent liabilities at the balance sheet date (31 March 2007: Nil).
Capital Commitment
The Group or the Company had no significant capital commitments at the balance
sheet date (31 March 2007: Nil).
Human Resources
Including all directors, the Group had 1,241 employees as at 30 September 2007 (31
March 2007: 999). To attract and retain high performance staff, the Group had
provided competitive remuneration packages with performance bonuses, mandatory
provident fund, insurance and medical coverage as well as entitlements to share
options to be granted under a share option scheme based on employees’
performance, experience and prevailing market rate. Remuneration packages are
reviewed regularly. Regarding staff development, the Group provides regular in-house
training to retail staff and subsidised them on external training programmes.
Foreign Exchange Risk Management
The Group’s sales and purchases during the period were mostly denominated in Hong
Kong dollar, US dollar and Renminbi. The Group is exposed to minimal foreign
currency exchange risk and does not anticipate future currency fluctuations to cause
material operational difficulties or liquidity problems. However, the Group will
continuously monitor its foreign exchange position and, when necessary, will hedge
its foreign exchange exposure arising from contractual commitments in sourcing
apparel from overseas suppliers.
Management Discussion and Analysis
26
Use of Proceeds
The proceeds from the Company’s issue of new shares at the time of its listing on the
Stock Exchange on 12 May 2005, after deduction of related issuance expenses,
amounted to about HK$112.4 million. As at 30 September 2007, these proceeds were
applied in accordance with the proposed applications set out in the Company’s listing
prospectus, as follows:
Per
Prospectus Utilised
Balances
as at 30
September
2007
HK$’000 HK$’000 HK$’000
Expansion of distribution network 46,000 (46,000) —
Expansion and upgrade of production
facilities 15,000 (6,791) 8,209
Development of ‘‘80/20’’ brandname 14,000 (11,582) 2,418
Marketing of in-house brandname 13,000 (10,840) 2,160
Diversification into high-end fashion
market 4,000 (4,000) —
Enhancement of in-house design and
merchandising team 2,000 (2,000) —
Sourcing of goods and fabrics 8,000 (8,000) —
General working capital 10,400 (10,400) —
112,400 (99,613) 12,787
The unutilised balance was placed with banks by the Company as short term bank
deposits.
Material Acquisition and Disposal of Subsidiaries and
Associated Companies
There were no material acquisition or disposal of subsidiaries and associated
companies by the Group for the six months ended 30 September 2007.
Disclosures under Listing Rules 13.13 to 13.19
There was no advance to entity, no financial assistance, and no guarantee to affiliated
companies of the Company as at 30 September 2007 which was discloseable under
Rules 13.13 and 13.19 of the Listing Rules.
27
Prospects
As the Chinese economy continues to grow rapidly and the Group’s self-managed
retail shops in the country starts to contribute revenues, sales from the China
operation will grow and translate into significant gains for the Group in the years to
come. The Group will seek to expand its presence gradually in major cities of China
including Shanghai and Beijing by opening at least 4 additional stores in Beijing and 3
in Shanghai by 2008. It will also expand the coverage of its franchise business in the
country to boost popularity of the ‘‘TOUGH’’ and ‘‘SALAD’’ brands in the PRC. In the
coming half year, the Group plans to open at least 10 new franchised stores in major
cities of China.
Although China will be the key growth driver of the Group in the medium and long
term, the Group sees maintained healthy growth for the Hong Kong market and
expects to derive stable revenue and cash flow from the market. Seeking to continue
the satisfactory performance of its Hong Kong business in the first half of this year,
the management will open more stores in the market to maintain growth momentum
of the business. 10 new retail shops will be opened during the last quarter of 2007
and in the first quarter of 2008.
Starting self-managed retail operation in Macau in April 2007 was an important
strategic move of the Group with the aim of capturing the city’s booming economy.
The shop reported encouraging sales performance during the period under review. To
continue to seise business opportunities as well as boost its brands in Macau, the
Group will open 4 more self-managed retail shops in the city by 2008.
Facing rising rental cost, the Group will continue to improve operational efficiency
through shop optimization and relocation, thereby keep increment of rental expense
in line with annual sales growth.
Wholesale business has always been one of the Group’s business focuses. To maintain
a balanced clientele for sustaining growth momentum, the Group will continue its
customer diversification strategy. The newly developed Southeast Asia region market
recorded satisfactory results and the Group’s distributor plans to open 1 more retail
shop in Singapore to cater to customer demand. In the second half of the financial
year, the Group will participate in certain international fashion shows held in
Barcelona, Spain to increase its market presence as well as explore potential markets
for business expansion.
In October 2007, the Group has made Forbes Asia’s Annual ‘‘Best 200 Under a Billion’’
list, demonstrating the Group’s proven track record and rewarding earnings
performance.
Looking ahead, the Directors believe that with the Group gaining foothold as well as
expanding its footprint in the China market and the Hong Kong market reporting
robust growth, the Group can look forward to expanding in both scale and
profitability in the next few years. The Group will continue to strengthen its brand
image and distribution network so as to realise the goals of becoming a leading
trendy fashion house and bringing quality fashion to consumers in different parts of
the world. More importantly, the Group will continue to explore promising business
opportunities to sustain growth and ultimately create value for all its shareholders.
Management Discussion and Analysis
28
The Directors declared to pay an interim dividend of HK2.5 cents per ordinary share
for the six months ended 30 September 2007 (2006: HK2.5 cents) payable on or
about 25 January 2008 to shareholders whose names appear on the register of
members of the Company on 11 January 2008.
Closure of Register of Members
The register of members of the Company will be closed from Wednesday, 9 January
2008 to Friday, 11 January 2008, both days inclusive, during which period no transfer
of shares will be effected. In order to qualify for the interim dividend, all transfer
documents accompanied by the relevant share certificates must be lodged for
registration with the Company’s branch share registrar in Hong Kong, Tricor Investor
Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong
Kong not later than 4:30 p.m. on Tuesday, 8 January 2008.
Dividend
29
Directors’ Interests In Securities
At 30 September 2007, the interests and short positions of the directors of the
Company in the shares and underlying shares of the Company or its associated
corporations (within the meaning of Part XV of the Securities and Futures Ordinance
(Chapter 571 of the Laws of Hong Kong) (the ‘‘SFO’’)), as recorded in the register
required to be kept by the Company pursuant to section 352 of the SFO, or as
otherwise notified to the Company and the Stock Exchange pursuant to the Model
Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’),
were as follows:
(a) Long positions in ordinary shares of the Company
Number of shares held, capacity
and nature of interest
Name of director
Directly
beneficially
owned
Through
controlled
corporation
Through a
discretionary
trust/as
beneficiary
or trustee of
trust Total
Approximate
percentage
of the
Company’s
issued share
capital
Mr. Wong Yui Lam — 29,752,000
(note 1)
179,376,000
(note 1)
209,128,000 58.18%
Madam Tong She
Man, Winnie
— 33,226,000
(note 2)
179,376,000
(note 2)
212,602,000 59.15%
Mr. Yeung Yat Hang 2,748,000 ——2,748,000 0.76%
Notes:
1. 29,752,000 shares are held by Wonder View Limited (‘‘Wonder View’’), the entire issued share
capital of which is beneficially owned by Mr. Wong Yui Lam. 179,376,000 shares are held by
Huge Treasure Investments Limited (‘‘Huge Treasure’’) as trustee of The Wong & Tong Unit
Trust, all units of which are owned by The Wong & Tong Family Trust, a discretionary trust
established by Mr. Wong Yui Lam and Madam Tong She Man, Winnie, both being executive
directors of the Company.
2. 33,226,000 shares are held by Great Elite Corporation (‘‘Great Elite’’), the entire issued share
capital of which is beneficially owned by Madam Tong She Man, Winnie. 179,376,000 shares
are held by Huge Treasure as trustee of The Wong & Tong Unit Trust, all units of which are
owned by The Wong & Tong Family Trust, a discretionary trust established by Mr. Wong Yui
Lam and Madam Tong she Man, Winnie, both being executive directors of the Company.
Other Information
30
(b) Long positions in shares of associated corporations
Name of associated
corporation Name of director Capacity
Number of
shares held
Percentage of the
associated
corporation’s
issued share
capital
Huge Treasure
(as trustee of
The Wong &
Tong Unit Trust)
Mr. Wong Yui Lam Beneficial owner 1 share of US$1 50%
Madam Tong She Man,
Winnie
Beneficial owner 1 share of US$1 50%
Tough Jeans Limited Mr. Wong Yui Lam Beneficial owner
(note)
3 non-voting
deferred shares of
HK$1 each
60% of the issued
non-voting
deferred shares
Madam Tong She Man,
Winnie
Beneficial owner
(note)
2 non-voting
deferred shares of
HK$1 each
40% of the issued
non-voting
deferred shares
Bauhaus Holdings
Limited
Mr. Wong Yui Lam Beneficial owner
(note)
1 non-voting
deferred shares of
HK$1 each
50% of the issued
non-voting
deferred shares
Madam Tong She Man,
Winnie
Beneficial owner
(note)
1 non-voting
deferred shares of
HK$1 each
50% of the issued
non-voting
deferred shares
Notes:
Mr. Wong Yui Lam and Madam Tong She Man, Winnie are non-voting shareholders of these
companies. The holders of these non-voting deferred shares are not entitled to any dividends and have
no voting rights.
Save as disclosed above, as at 30 September 2007, none of the directors and
their associates had any interests or short positions in any shares, underlying
shares and debentures of the Company or any of its associated corporations
(within the meaning of Part XV of the SFO) that was required to be recorded
pursuant to Section 352 of the SFO, or as otherwise notified to the Company
and the Stock Exchange pursuant to the Model Code.
Directors’ Rights to Acquire Shares or Debentures
At no time during the period were rights to acquire benefits by means of the
acquisitions of shares in or debentures of the Company granted to any director or
their respective spouse or minor children, or were any such rights exercised by them;
or was the Company, its holding company or any of its subsidiaries a party to any
arrangement to enable the directors to acquire such rights in any other body
corporate.
31
Substantial Shareholders’ and Other Persons’ Interests in
Shares and Underlying Shares
At 30 September 2007, the following interests of 5% or more of the issued share
capital of the Company were recorded in the register of interests required to be kept
by the Company pursuant to Section 336 of the SFO:
Number of shares
Name of shareholder Position
Directly
beneficially
owned
Through
discretionary
trust/as
beneficiary
or trustee
of trust
Number of
ordinary
shares held
Approximate
percentage
of the
Company’s
issued share
capital
Huge Treasure (note 1) Long position 179,376,000 — 179,376,000 49.90%
East Asia International Trustees
Limited (‘‘EAIT’’) (note 2)
Long position — 179,376,000 179,376,000 49.90%
Wonder View (note 3) Long position 29,752,000 — 29,752,000 8.28%
Great Elite (note 4) Long position 33,226,000 — 33,226,000 9.24%
Deutsche Bank Aktiengesellschaft Long position 30,962,000 — 30,962,000 8.61%
Galaxy China Opportunities Fund Long position 29,396,000 — 29,396,000 8.18%
Notes:
1. The 179,376,000 shares are held by Huge Treasure as trustee of The Wong & Tong Unit Trust, all units
of which are owned by The Wong & Tong Family Trust, a discretionary trust established by Mr. Wong
Yui Lam and Madam Tong She Man, Winnie, both being executive directors of the Company.
2. EAIT is a licensed trustee in the British Virgin Islands and acts as trustee of The Wong & Tong Family
Trust. By virtue of its capacity as trustee of The Wong & Tong Family Trust, EAIT is deemed to be
interested in the shares held by Huge Treasure (as trustee of The Wong & Tong Unit Trust) under the
SFO.
3. Wonder View is a company incorporated in the British Virgin Islands, the entire issued share capital of
which is owned by Mr. Wong Yui Lam.
4. Great Elite is a company incorporated in the British Virgin Islands, the entire issued share capital of
which is owned by Madam Tong She Man, Winnie.
Other Information
32
Save as disclosed above, as at 30 September 2007, no person, other than the
directors of the Company, whose interests are set out in the section ‘‘Directors’
interests in securities’’ above, has an interest or short position in the shares or
underlying shares of the Company that was required to be recorded pursuant to
Section 336 of the SFO.
Corporate Governance
The Company has complied with the applicable code provision of Code on Corporate
Governance Practices (the ‘‘CG Code’’) as set out in Appendix 14 of the Listing Rules
throughout the six months ended 30 September 2007 except that the Company does
not have a separate Chairman and Chief Executive Officer and Mr. Wong Yui Lam
(‘‘Mr. Wong’’) currently holds both positions.
Code Provision A.2.1 of the CG Code stipulates that the roles of chairman and chief
executive officer should be separate and should not be performed by the same
individual. Being the founder of the Group, Mr. Wong has substantial experience in
the fashion industry. The Directors consider that the present structure provides the
Group with strong and consistent leadership which facilitate the development of the
Group’s business strategies and execution of its business plans in a most efficient and
effective manner. The Directors believe that it is the best interest of the shareholders
that Mr. Wong continues to assume the roles of the Chairman and Chief Executive
Officer.
Model Code of Securities Transactions by Directors
The Company has adopted the Model Code as set out in Appendix 10 of the Listing
Rules as the Company’s code of conduct for dealing in securities of the Company by
the Directors. Based on specific enquiry with the Directors, all the Directors confirmed
that they have complied with the required standards as set out in the Model Code
throughout the six months period ended 30 September 2007.
Purchase, Sale or Redemption of the Company’s Listed
Securities
Neither the Company nor any of its subsidiaries purchased, sold or redeemed the
Company’s listed shares during the six months ended 30 September 2007.
33
Audit Committee
The Company established an audit committee on 22 April 2005 with terms of
references in compliance with the CG Code. The audit committee comprises three
independent non-executive directors, namely, Mr. Mak Wing Kit (‘‘Mr. Mak’’), Mr. Chu
To Ki and Dr. Wong Yun Kuen. Mr. Mak is the chairman of the audit committee. The
primary duties of the audit committee are to review and supervise the Group’s
financial reporting and auditing affairs and internal control systems.
The audit committee has reviewed with the management the accounting principles
and practices adopted by the Group and has also discussed internal control and
financial reporting matters, including the review of the Interim Financial Statements for
the six months ended 30 September 2007.
By Order of the Board
Wong Yui Lam
Chairman
Hong Kong, 18 December 2007
Other Information
34
