The Hour Glass

[shanrui_91]

I will prefer the company to stay conservative in finance as there is not a need for them to gear up unless they are seeking to expand aggressively. The best opportunity always occur during the worst time and that will be where money will be most needed. In 2008, the group took advantage of the recession to spend $25m in capex to open up 8 new stores

For the inventory turnover, it is the 2nd lowest ratio recorded since 2000 with the lowest record being 1.87 in 2003. The highest ratio was recorded in 2008 with 2.57 as the management starts to pull back orders in early 2008 in anticipation of the headwind. I supposed that they have learnt a lesson in the 2nd half of the 2011 as CHF strengthened tremendously and end up hurting the margin for Q4 2012

How much an impact will luxury watch retailer suffer during a recession? By looking at the 12 years revenue results, a maximum of 10% decrease is noted in 2001 and 2009.

In all matter, I will still say this is one of the best chairman's statement I have seen as it is full of insider knowledge. To quote an example:

Our business strategy for this market sees us closing the loop on what we define as the Orchard Road Quadrangle. The Orchard Road quad is a one square kilometer area of shopping malls anchored by ION Orchard, Tang Plaza, Ngee Ann City and Paragon that on aggregate account for 80% of all luxury goods sales in Singapore.

I don't supposed that anyone will know of that there is such a Quadrangle that can account for 80% of all luxury goods sales. Wodner how much are contributed by tourist and how much by Singapore?

This is reflected in our Group staff turnover rate where the average tenure of employment is 9 years.

I read in a 2008 Edge interview of Michael tay where he stated that their staffs are one of the highest paid in the industry. Staff retention is very important as this is a relationship-based business and intimate knowledge of watches are not acquired easily.

It is also heartening that the management uses profit margin and roce to assess their operation. Another positive point is that they have finally opened a 2nd shops in Hong Kong which is not only the largest but one of the fast-growing market.

as for the dealership wise, it seemed like it is only those listed firms who are aggressively pursuing a retail strategy. Mono-brand retailer often requires a higher inventory requirement than a multibrand point-of-sale as well as significant capex start-up cost. Only listed firm can have sufficient firepower to do so. For privately owned brands like Patek Phillipe which produces less than 50,000 watches a year, it is really hard for them to try to pursue their retail expansion in Asia without the help of a distributor like THG.

My greatest disappointment is still in the wages of the top management which accounted for 14% of net profit and 1.2% of revenue. I am not sure what is the benchmark but I am sure this is quite a high amount for the family.

(vested)