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2 CORPORATE INFORMATION BOARD OF DIRECTORS Mr. Yeung Ming Biu (Chairman) Mr. Yeung Him Kit, Dennis (Managing Director) Mr. Fung Kwong Yiu (Executive Director) Madam Yeung Man Yee, Shirley (Executive Director) Mr. Lam Hing Lun, Alain (Finance Director) Mr. Choi Kwok Yum (Executive Director) Dr. Sun Ping Hsu, Samson (Independent Non-executive Director) Dr. Li Sau Hung, Eddy (Independent Non-executive Director) Mr. Choi Man Chau, Michael (Independent Non-executive Director) COMPANY SECRETARY Mr. Lam Hing Lun, Alain PRINCIPAL BANKERS Hang Seng Bank Limited Bank of China (Hong Kong) Limited AUDITOR Deloitte Touche Tohmatsu Certified Public Accountants HONG KONG BRANCH SHARE REGISTRARS Tricor Secretaries Limited 26/F, Tesbury Centre 28 Queen s Road East Wanchai Hong Kong HONG KONG LEGAL ADVISER Jennifer Cheung & Co BERMUDA LEGAL ADVISER Conyers, Dill & Pearman Conyers, Dill & Pearman REGISTERED OFFICE Clarendon House Church Street Hamilton HM 11 Bermuda Clarendon House Church Street Hamilton HM 11 Bermuda PRINCIPAL PLACE OF BUSINESS Room China Insurance Group Building 141 Des Voeux Road Central Central Hong Kong Interim Report

3 INTERIM RESULTS 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 September, 2010 together with the comparative figures for the corresponding period in 2009 as follows: CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended September, 2010 (Unaudited) Six months ended September, September, Notes HK$ 000 HK$ 000 Turnover 1,678,823 1,417,809 Cost of goods sold (1,419,147) (1,223,629) Gross profit 259, ,180 Other income 24,156 20,345 Distribution and selling expenses (69,089) (53,724) Administrative expenses (118,688) (106,776) Finance costs (5,733) (7,701) Profit before taxation 4 90,322 46,324 Taxation 5 (19,868) (12,011) Profit for the period attributable to owners of the Company 70,454 34,313 Other comprehensive income (expense) Exchange difference arising on translation of foreign operations Change in fair value of available-for-sale financial assets Other comprehensive income (expense) for the period Total comprehensive income for the period attributable to owners of the Company 8, (1,155) 9,163 (1,155) 79,617 33,158 Earnings per share 7 Basic HK cents 9.56 HK cents Diluted HK cents 9.56 HK cents 2 Oriental Watch Holdings Limited

4 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION At September, 2010 (Unaudited) (Audited) 31st September, March, Notes HK$ 000 HK$ 000 Non-current assets Property, plant and equipment 8 139, ,883 Available-for-sale financial assets 23,020 43,694 Property rental deposits 20,995 24,978 Deposit paid for acquisition of associates 6, , ,555 Current assets Inventories 1,347,305 1,247,838 Trade and other receivables 9 165, ,221 Taxation recoverable Bank balances and cash 197, ,881 1,710,535 1,605,337 Current liabilities Trade and other payables , ,466 Taxation payable 21,285 12,921 Current portion of secured longterm bank loans 30,000 30,000 Short-term bank loans 117, , , ,249 Net current assets 1,344,034 1,274,088 Total assets less current liabilities 1,534,681 1,485,643 Non-current liabilities Secured long-term bank loans 75,000 90,000 Net assets 1,459,681 1,395,643 Capital and reserves Share capital 11 38,948 38,948 Reserves 1,420,733 1,356,695 Total equity 1,459,681 1,395,643 Interim Report

5 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended September, 2010 Share Capital Subscription Asset Share Share option redemption right revaluation Special Translation Retained Dividend capital premium reserve reserve reserve reserve reserve reserve profits reserve Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1st April, 2010 (audited) 38, ,188 1, ,129 5,180 39,989 1,030,431 15,579 1,395,643 Exchange difference arising on translation of foreign operations 8,437 8,437 Change in fair value of availablefor-sale financial assets Profit for the period 70,454 70,454 Total comprehensive income for the period 726 8,437 70,454 79, final dividend paid (15,579) (15,579) 2011 interim dividend declared (11,932) 11,932 At September, 2010 (unaudited) At 1st April, 2009 (audited) 38, ,188 1, ,855 5,180 48,426 1,088,953 11,932 1,459,681 32, ,938 1, ,551 5,180 38, ,683 11,314 1,244,511 Change in fair value of availablefor-sale financial assets (1,155) (1,155) Profit for the period 34,313 34,313 Total comprehensive income for the period (1,155) 34,313 33,158 Issue of new shares upon exercise of warrants ,570 (180) 16,290 Bonus issue of shares 3,323 (3,323) 2009 final dividend paid in respect of shares issued since the approval of the 2009 consolidated financial statements (315) (315) 2009 final dividend paid (11,314) (11,314) 2010 interim dividend declared (5,827) 5,827 At September, 2009 (unaudited) 36, ,508 1, ,396 5,180 38, ,531 5,827 1,282,330 The special reserve of the Group comprises the difference between the nominal amount of the share capital issued by the Company and the nominal amount of the issued share capital and special reserves of those companies which were acquired by the Company pursuant to a group reorganisation in The special reserves of these acquired subsidiaries represent the credit arising on reduction of their paid up share capital under the group reorganisation. 4 Oriental Watch Holdings Limited

6 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended September, 2010 (Unaudited) Six months ended September, September, HK$ 000 HK$ 000 Net cash from (used in) operating activities 72,133 (12,324) Investing activities Purchase of property, plant and equipment (7,517) (16,353) Deposit paid for acquisition of associates (6,800) Proceeds from disposal of available-forsale financial assets 22,900 Proceeds from disposal of property, plant and equipment 2 Other investing activities 203 1,038 Net cash from (used in) investing activities 8,788 (15,315) Financing activities Interest paid (5,936) (7,791) Proceeds from issue of new shares 16,290 New bank loans raised 324, ,272 Repayment of bank loans (411,939) (578,182) Dividends paid (15,579) (11,629) Net cash used in financing activities (109,445) (9,040) Net decrease in cash and cash equivalents (28,524) (36,679) Cash and cash equivalents at beginning of the period 224, ,618 Effect of foreign exchange rate changes 1,538 Cash and cash equivalents at end of the period, represented by bank balances and cash 197, ,939 Interim Report

7 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended September, Basis of preparation The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Stock Exchange ) and with Hong Kong Accounting Standard 34 ( HKAS ) Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ). 2. Principal accounting policies The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values. The accounting policies adopted in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual audited financial statements for the year ended 31st March, 2010, except for the accounting policies described below. In the current interim period, the Group has applied, for the first time, a number of new and revised standards, amendments and interpretation ( new or revised HKFRSs ) issued by the HKICPA. The Group has applied Hong Kong Financial Reporting Standard ( HKFRS ) 3 (Revised) Business Combinations prospectively to business combinations of which the acquisition date is on or after 1st April, The requirements in HKAS 27 (Revised) Consolidated and Separate Financial Statements in relation to accounting for the Group s changes in ownership interests in a subsidiary after control is obtained and for loss of control of a subsidiary have also been applied prospectively by the Group on or after 1st April, As there was no transaction during the current interim period to which HKFRS 3 (Revised) and HKAS 27 (Revised) are applicable, the application of HKFRS 3 (Revised), HKAS 27 (Revised) and the consequential amendments to other new or revised HKFRSs has had no effect on the condensed consolidated financial statements of the Group for the current or prior accounting periods. Results of the Group in future periods may be affected by future transactions to which HKFRS 3 (Revised), HKAS 27 (Revised) and the consequential amendments to the other new or revised HKFRSs are applicable. The application of the other new and revised HKFRSs had no effect on the condensed consolidated financial statements of the Group for the current or prior accounting periods Oriental Watch Holdings Limited

8 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Principal accounting policies (Continued) The Group has not early applied the following new or revised standards, amendments or interpretations that have been issued but are not yet effective: 2. HKFRSs (Amendments) Improvements to HKFRSs HKAS 24 (Revised) Related party disclosures 3 HKFRS 1 (Amendment) Limited exemption from comparative HKFRS 7 disclosures for first-time adopters 2 HKFRS 9 Financial instruments 4 HK(IFRIC) INT 14 (Amendment) HK(IFRIC) INT 19 Prepayments of a minimum funding requirement 3 Extinguishing financial liabilities with equity instruments Effective for annual periods beginning on or after 1st July, 2010 and 1st January, 2011, as appropriate. Effective for annual periods beginning on or after 1st July, Effective for annual periods beginning on or after 1st January, Effective for annual periods beginning on or after 1st January, HKFRS 9 Financial Instruments introduces new requirements for the classification and measurement of financial assets and will be effective from 1st April, 2013, with earlier application permitted. This Standard requires all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement to be measured at either amortised cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost. All other debt investments and equity investments are measured at fair value. The application of HKFRS 9 might affect the classification and measurement of the Group s financial assets. The directors of the Company anticipate that the application of other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group (i) (ii) 9 Interim Report

9 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Segment information The Group s operation is sales of goods. The Group s turnover represents consideration received and receivable from sales of watches. The Group has two operating segments, which are analysed based on geographical location of customers, being (a) Hong Kong, and (b) Macau and the People s Republic of China (the PRC ), which are managed separately. The Group determines its operating segments based on the internal reports reviewed by the Managing Director of the Group that are used to allocate resources and assess performance. The following is an analysis of the Group s segment revenue and results by operating segments. 3. (a) (b) Turnover Results Six months ended Six months ended September, September, September, September, HK$ 000 HK$ 000 HK$ 000 HK$ 000 Hong Kong 1,135, ,576 80,461 40,652 Macau and the PRC 543, ,233 31,426 23,160 1,678,823 1,417, ,887 63,812 Unallocated other income 203 1,038 Unallocated corporate expenses (16,035) (10,825) Finance costs (5,733) (7,701) Profit before taxation 90,322 46,324 Segment profit represents the profit earned by each segment without allocation of directors salaries, unallocated other income and expenses and finance costs. This is the measure reported to the Managing Director of the Group for the purposes of resources allocation and performance assessment. Inter-segment sales are charged at the prevailing market rate. 8 Oriental Watch Holdings Limited

10 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Profit before taxation 4. Six months ended September, September, HK$ 000 HK$ 000 Profit before taxation has been arrived at after charging: Depreciation of property, plant and equipment 11,979 13,868 Directors remuneration (note) 14,907 9,730 Loss on disposal of property, plant and equipment 1,080 and after crediting: Dividend income from available-for-sale financial assets 1,000 Interest income Note: Key management personnel of the Group mainly include directors of the Company. 5. Taxation 5. Six months ended September, September, HK$ 000 HK$ 000 Hong Kong Profits Tax calculated at 16.5% (2009: 16.5%) on the estimated assessable profit for the period 16.5%16.5% (11,415) (6,915) Taxation in other jurisdictions (8,453) (5,096) (19,868) (12,011) Taxation in other jurisdictions is calculated at the rates prevailing pursuant to the relevant laws and regulations. Interim Report

11 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Dividend During the six months ended September, 2010, a final dividend of 4.0 Hong Kong cents per share, totalling HK$15,579,000, in respect of the year ended 31st March, 2010 (2009: 3.5 Hong Kong cents per share, totalling HK$11,629,000) was approved at the annual general meeting held on 24th August, On 17th November, 2010, the directors resolved to declare an interim dividend of 3.0 Hong Kong cents per share in respect of the six months ended September, 2010 (2009: 1.5 Hong Kong cents per share), totalling HK$11,932,000 (2009: HK$5,827,000), to be paid in cash to those shareholders whose names appear on the Company s register of members on 10th December, Earnings per share ,579, ,629, ,932,000 5,827, Profit for the period attributable to owners of the Company for the purposes of basic and diluted earnings per share Six months ended September, September, HK$ 000 HK$ ,454 34,313 Number of shares Six months ended September, September, Weighted average number of ordinary shares for the purpose of calculating basic earnings per share Effect of dilutive potential ordinary shares 389,478, ,054,710 share options 9,448,205 Weighted average number of ordinary shares for the purpose of calculating diluted earnings per share 398,926, ,054, Oriental Watch Holdings Limited

12 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Property, plant and equipment During the six months ended September, 2010, the Group incurred HK$9,226,000 (2009: HK$16,753,000) to acquire plant and equipment for its operation. The Group has pledged certain land and buildings with an aggregate carrying value of HK$41,253,000 (31st March, 2010: HK$41,475,000) to a bank to secure the bank loan facilities granted to the Group. 9. Trade and other receivables 8. 9,226,000 16,753,000 41,253,000 41,475, st September, March, HK$ 000 HK$ 000 Trade receivables 137,806 93,523 Balance of consideration receivable from sale of available-for-sale financial assets 1,500 Property rental and utilities deposits 18,563 16,570 Advances to apparel suppliers 793 1,272 Advances to other suppliers 2, VAT receivables 4,521 16,591 Other receivables 1,113 2, , ,221 The Group maintains a general credit policy of not more than 30 days for its wholesales customers. Sales made to retail customers are made on a cash basis. The following is an aged analysis of trade receivables presented based on the invoice date at the end of the reporting period: 30 31st September, March, HK$ 000 HK$ 000 Age 0 to 30 days ,888 88, to 60 days ,928 3, to 90 days ,063 1,187 Over 90 days ,806 93,523 Interim Report

13 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. Trade and other payables st September, March, HK$ 000 HK$ 000 Trade payables 150,473 61,294 Payroll and welfare payables 22,826 14,807 Commission payables 3,659 7,433 Advances from customers 2,310 4,559 Renovation work payables 3,329 1,620 VAT payables 815 1,923 Interest payables 885 1,088 Property rental payables 128 Other payables 13,203 8, , ,466 The following is an aged analysis of trade payables presented based on the invoice date at the end of the reporting period: 31st September, March, HK$ 000 HK$ 000 Age 0 to 60 days ,517 58, to 90 days ,883 Over 90 days ,473 61, Oriental Watch Holdings Limited

14 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Share capital 11. Number of shares Amount HK$ 000 Ordinary shares of HK$0.10 each 0.10 Authorised: At 1st April, ,000,000 50,000 Increase on 26th August, ,000,000 50,000 At 31st March, 2010 and September, ,000,000, ,000 Issued and fully paid: At 1st April, ,253,200 32,325 Issue of shares upon exercise of warrants 33,000,000 3,300 Bonus issue of shares 33,225,320 3,323 At 31st March, 2010 and September, ,478,520 38,948 (a) An ordinary resolution was passed at the annual general meeting of the Company held on 26th August, 2009 such that the authorised share capital of the Company was increased from HK$50,000,000 to HK$100,000,000 by the creation of 500,000,000 ordinary shares of HK$0.10 each. (a) 500,000, ,000, ,000,000 Another ordinary resolution was passed at the same annual general meeting such that the issued share capital was increased by way of a bonus issue by charging HK$3,323,000 to the retained profits account in payment in full at par of 33,225,320 ordinary shares of HK$0.10 each on the basis of one new ordinary share for every ten ordinary shares held on 26th August, ,323,000 33,225, (b) During the year ended 31st March, 2010 and prior to the bonus issue of shares set out in (a) above, 9,000,000 shares were issued upon exercise of warrants at a subscription price of HK$1.81 per share, resulting in the issue of 9,000,000 ordinary shares of HK$0.10 each in the Company. (b) (a) 9,000, ,000, Subsequent to the bonus issue of shares set out in (a) above, 24,000,000 shares were issued upon exercise of warrants at an adjusted subscription price of HK$1.65 per share, resulting in the issue of 24,000,000 ordinary shares of HK$0.10 each in the Company. (a) 24,000, ,000, The new bonus shares issued on 26th August, 2009 are not entitled to the final dividend for the year ended 31st March, All other shares issued during that year rank pari passu with the then existing shares in all respects. Interim Report

15 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. Share-based payment transaction The Company has share options scheme for eligible directors of the Company, 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. Details of specific categories of options are as follows: 12. Date of grant Number of share options outstanding at 1st April, 2010 and September, 2010 Vesting period Exercise price per share Exercisable period 16th January, ,820,000 Nil 16th January, 2004 to 15th January, th June, ,430,000 Nil 4th June, 2007 to 3rd June, 2017 HK$ HK$ No share option was exercised during the six months ended September, 2010 (2009: nil). 13. Warrants On 11th June, 2007, the Company entered into two warrants placing agreements with two independent subscribers in relation to private placing of an aggregate of 55,000,000 warrants to the subscribers, at an issue price of HK$0.02 per warrant, representing an aggregate subscription price of HK$1,100,000. The warrants entitle the subscribers to subscribe for new ordinary shares of the Company of HK$0.10 each at an initial subscription price of HK$1.81 per share (subject to anti-dilutive adjustment) for a period of 30 months commencing from the date of issue of warrants. Following the bonus issue of the Company s shares on the basis of one new share for every ten shares held on 26th August, 2009, the above subscription price per share was adjusted from HK$1.81 to HK$1.65. During the year ended 31st March, 2010, 33,000,000 new shares were issued on exercise of the warrants. The subscription rights conferred by the warrants lapsed during the year ended 31st March, Issue price of these unexercised rights, amounting to HK$260,000, was credited directly to retained profits ,000,000 1,100, ,000, , Oriental Watch Holdings Limited

16 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. Other commitments At the end of the reporting period, the Group committed to pay royalties for the usage of a fashion brand for manufacture and trading of apparels with a minimum guarantee royalties payment as follows: st September, March, HK$ 000 HK$ 000 Within one year 1,738 1,646 In the second to fifth year inclusive 7,353 8,249 9,091 9,895 The Group was also subject to pay royalties at 6% on total net wholesales made per annum on top of the above minimum guarantee royalties. 6% 15. Event after the reporting period On 3rd November, 2010, a wholly owned subsidiary of the Company entered into an agreement with an independent third party for the acquisition of 40% equity interest in each of two companies (the Target Companies ) for a consideration of NT$80,136,000 (equivalent to approximately HK$20 million). The Target Companies are incorporated in Taiwan. They are principally engaged in the sales of watches in Taiwan. Upon completion of the transaction, the Target Companies will become associates of the Group % 80,136,000 20,000,000 At September, 2010, a refundable deposit amounting to NT$27,200,000 (equivalent to HK$6,800,000) was paid to the seller. This deposit was included in the condensed consolidated statement of financial position at September, 2010 as a non-current asset. 27,200,000 6,800,000 Interim Report

17 DIRECTORS INTERESTS AND SHORT POSITIONS IN SECURITIES As at September, 2010, the interests and short positions of the directors of the Company in the shares and underlying shares of the Company, as recorded in the register required to be kept under Section 352 of the Hong Kong Securities and Futures Ordinance (the SFO ), or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the Stock Exchange ) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies were as follows: 352 Personal interest Number of shares held Family interest Corporate Interest Total number of shares Name of director Percentage of issued share capital of the Company Yeung Ming Biu 15,022,986 6,600, ,803, ,426, % (note (a)) (a) Yeung Him Kit, Dennis 2,970,000 (note (b)) 2,970, % (b) Fung Kwong Yiu 4,953,467 (note (c)) 4,953, % (c) Yeung Man Yee, Shirley 2,970, ,301 (note (d)) 3,154, % (d) Lam Hing Lun, Alain 2,970,000 2,970, % Choi Kwok Yum 2,970,000 2,970, % Sun Ping Hsu, Samson, Dr. 2,200,000 2,200, % (note (e)) (e) 16 Oriental Watch Holdings Limited

18 DIRECTORS INTERESTS AND SHORT POSITIONS IN SECURITIES (Continued) Notes: (a) Mr. Yeung Ming Biu and his wife, Madam Au Po Kee, are the beneficial owners of 45% and 22.5% respectively of the issued share capital of Realtower Holdings Limited. Realtower Holdings Limited is the beneficial owner of 65% of the issued share capital of Furama Investments Limited, which is the beneficial owner of 80% of the issued share capital of Datsun Holdings Limited. Datsun Holdings Limited is the beneficial owner of 106,480,000 shares in the Company. (a) Realtower Holdings Limited 45% 22.5% Realtower Holdings Limited Furama Investments Limited 65% Furama Investments Limited Datsun Holdings Limited 80% Datsun Holdings Limited 106,480,000 Mr. Yeung Ming Biu is the beneficial owner of 47.5% of the issued share capital of Y.H. Chan Limited, which is the beneficial owner of 25% of the issued share capital of Furama Investments Limited. Y.H. Chan Limited also directly holds 323,801 shares in the Company. 47.5%Furama Investments Limited 25% 323,801 (b) Mr. Yeung Him Kit, Dennis is the beneficial owner of 10% and 8% of the issued share capital of Realtower Holdings Limited and Real Champ Limited respectively. Real Champ Limited is the beneficial owner of 20% of the issued share capital of Datsun Holdings Limited. (b) Realtower Holdings Limited Real Champ Limited 10% 8% Real Champ Limited Datsun Holdings Limited 20% (c) Mr. Fung Kwong Yiu is the beneficial owner of 6% of the issued share capital of Real Champ Limited. (c) Real Champ Limited 6% (d) Madam Yeung Man Yee, Shirley is the beneficial owner of 7.5% of the issued share capital of Realtower Holdings Limited. (d) Realtower Holdings Limited 7.5% (e) Dr. Sun Ping Hsu, Samson and his family members are beneficial owners of the entire issued share capital of Sun International Limited, which is the beneficial owner of 2,200,000 shares in the Company. (e) Sun International LimitedSun International Limited2,200,000 (f) The personal interest of each of the above named directors (except Dr. Sun Ping Hsu, Samson) includes/refers to options to subscribe for 2,970,000 shares of the Company as detailed in the paragraph headed Share option scheme and directors rights to acquire shares or debentures below. (f) 2,970,000 Save as disclosed above, and other than certain nominee shares in subsidiaries held by a director in trust for the Company, none of the directors of the Company had any interest or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under 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 Companies. 352 XV Interim Report

19 SHARE OPTION SCHEME AND DIRECTORS RIGHTS TO ACQUIRE SHARES OR DEBENTURES Pursuant to an ordinary resolution passed in the Company s special general meeting held on 3rd November, 2003, the Company approved and adopted a Share Option Scheme. Under the Share Option Scheme, options may be granted to any director of the Company, employee, consultant, customer, supplier or advisor of the Company or a company in which the Company holds an interest or a subsidiary of such company (the Eligible Persons ), the trustee of the Eligible Persons or a company beneficially owned by the Eligible Persons. The purpose of the Share Option Scheme is to attract and retain quality personnel and other persons to provide incentive to them to contribute to the business and operation of the Company. The total number of shares available for issue under the Share Option Scheme is 38,947,852 shares, representing 10% of the issued share capital of the Company as at the date of this report. No Eligible Persons shall be granted an option in any 12-month period for such number of shares (issued and to be issued) which in aggregate would exceed 1% of the share capital of the Company in issue on the last day of such 12-month period unless approval of the shareholders of the Company has been obtained in accordance with the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules ). The exercisable period is determined by the directors, which shall not be more than 10 years from the date of grant, and may include a minimum period for which the options must be held before it can be exercised. An offer of the grant of an option shall be opened for acceptance in writing received by the secretary of the Company for a period of 21 days from the Eligible Persons without paying any consideration upon the acceptance of the offer. The exercise price per share payable on the exercise of an option equals to the highest of: 38,947,852 10% 1% 21 (a) the average closing price per share as quoted in the Stock Exchange s daily quotations sheet for the five business days immediately preceding the date of grant. (a) (b) the closing price per share as stated in the Stock Exchange s daily quotations sheet on the date of grant; and (b) (c) the nominal value of the share. (c) 18 Oriental Watch Holdings Limited

20 SHARE OPTION SCHEME AND DIRECTORS RIGHTS TO ACQUIRE SHARES OR DEBENTURES (Continued) The Share Option Scheme is valid for a period of ten years commencing on the adoption date on 3rd November, The following table discloses movements of the options granted under the Share Options Scheme to directors and certain employees during the year: Name or category of participant Directors At 1st April, 2010 Number of share options Granted during the period Lapsed during the period At September, 2010 Date of grant of share options Original exercise price per share HK$ Adjusted exercise price per share HK$ Exercisable period Yeung Ming Biu 2,970,000 2,970, Yeung Him Kit, Dennis 2,970,000 2,970, Fung Kwong Yiu 2,970,000 2,970, Yeung Man Yee, Shirley 2,970,000 2,970, Lam Hing Lun, Alain 2,970,000 2,970, Choi Kwok Yum 2,970,000 2,970, ,820,000 17,820,000 Other employees 12,430,000 12,430, Total 30,250,000 30,250,000 Interim Report

21 SUBSTANTIAL SHAREHOLDERS As at September, 2010, according to the register maintained by the Company pursuant to Section 336 of the SFO, the following persons (not being a director or chief executive of the Company) had interests in the share capital of the Company. 336 Name of shareholder Number of shares held Percentage of issued share capital of the Company Datsun Holdings Limited 106,480, % Furama Investments Limited 106,480, % Realtower Holdings Limited 106,480, % Realtower Holdings Limited holds 65% of the issued share capital of Furama Investments Limited which holds 80% of the issued share capital of Datsun Holdings Limited. Accordingly, both Realtower Holdings Limited and Furama Investments Limited are deemed under the SFO to be interested in the 106,480,000 shares in the Company held by Datsun Holdings Limited. Save as disclosed above, at September, 2010, there was no person who had any interests or short position in the shares or underlying shares of the Company according to the register maintained by the Company pursuant to Section 336 of the SFO. Realtower Holdings Limited Furama Investments Limited 65% Furama Investments Limited Datsun Holdings Limited 80% Realtower Holdings Limited Furama Investments Limited Datsun Holdings Limited 106,480, CLOSURE OF REGISTER OF MEMBERS The Register of Members of the Company will be closed from 7th December, 2010 to 10th December, 2010 (both days inclusive) during which period no transfer of shares will be registered. In order to qualify for the proposed interim dividend which will be payable on 17th December, 2010, all transfers accompanied by the relevant share certificates must be lodged with the Company s Branch Share Registrars, Tricor Secretaries Limited at 26/F., Tesbury Centre, 28 Queen s Road East, Hong Kong not later than 4:00 p.m. on 6th December, Oriental Watch Holdings Limited

22 MANAGEMENT DISCUSSION AND ANALYSIS Group results The Group s unaudited consolidated turnover for the period under review was HK$1,679 million (2009: HK$1,418 million) whilst the profit for the period was HK$70 million (2009: HK$34 million). The basic earnings per share for the period was Hong Kong cents (2009: 9.56 Hong Kong cents). These figures reflected an increase of 18% for the turnover and 105% for the profit respectively, over the same period last year. Business review and prospects The management is very encouraged by the results. We have recorded an increase in sales and profit in all segments of our markets: Hong Kong, China and Macau. This is a solid proof that the purchasing power for the luxury market recovered fully from the economic turmoil in Mainland Chinese customers remain the major source of our growth. As our shops are in prime mainland tourist locations, we are well positioned to capture their business. Chinese economic growth is firmly in a secular uptrend, whist mainland tourists with their purchasing power rising, continue to make Hong Kong the top shopping destination. We are confident that the fast growth in Hong Kong and China s luxury markets would sustain. During the period, we have opened two new shops in China: a Rolex & Tudor boutique in Taiyuan, Shanxi province; one multi-brand store in Nanjing, Jiangsu province. A shop in Urumqi was closed due to a less than satisfactory performance. In Hong Kong, the shop opened in Yaumatei last year performed very well, already generating positive returns in the few months of operations. The Group remains committed in seeking for choice locations to expand our distribution network in China, Hong Kong and Macau. In order to broaden the Group s market scope, adding to our growth momentum, we have recently acquired a 40% interest in a Taiwanese watch company, as part of our long term strategic plan. This target company is a wellestablished retailer in Taiwan s high-end luxury market. This acquisition will allow the Group to partner with the target company in exploring the Taiwanese market s growth potential as mainland Chinese are now able to tour more freely. 1,679,000,000 1,418,000,00070,000,000 34,000, % 105% 40% Interim Report

23 MANAGEMENT DISCUSSION AND ANALYSIS (Continued) Business review and prospects (Continued) Internally, the Group has implemented a new service improvement programme: the Mystery Shoppers Programme. This is designed to further enhance the service level in our retail shops. The results so far are very encouraging with positive customer feedback. The Group is determined to maintain top service level as this is one of our competitive advantages in the luxury product business. The Group continues to exercise strict cost and stock control, maintaining our liquidity hence being able to respond quickly and aptly to any changes in the marketplace. On behalf of the Group, I would like to thank our customers, suppliers and shareholders for their loyalty and relentless support. Liquidity and financial resources At September, 2010, the Group s total equity reached HK$1,460 million, compared with HK$1,396 million as at 31st March, The Group had net current assets of HK$1,344 million, including bank and cash balances of HK$198 million as at September, 2010 compared with balances of HK$1,274 million and HK$225 million respectively as at 31st March, At September, 2010, bank loans totalled HK$223 million (31st March, 2010: HK$307 million). At September, 2010, the gearing ratio (defined as total bank borrowing on total equity) was 0.15 (31st March, 2010: 0.22). Management still 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. 1,460,000,000 1,396,000,000 1,344,000, ,000,000 1,274,000, ,000, ,000, ,000, Oriental Watch Holdings Limited

24 STAFF AND EMPLOYMENT As at September, 2010, the Group employed a total work force of about 820 staff. The staff turnover rate is low. The Group s policy is to review its employee s pay levels and incentive bonus. PURCHASE, SALE OR REDEMPTION OF THE COMPANY S LISTED SECURITIES During the six months ended September, 2010, neither the Company nor any of its subsidiaries had purchased, redeemed or sold any of the Company s listed securities on The Stock Exchange of Hong Kong Limited. CORPORATE GOVERNANCE The Company is committed to the establishment of good governance practices and procedures. The Company has met the code provisions set out in the Code on Corporate Governance Practices ( CG Code ) in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ( the Listing Rules ), throughout the six months ended September, 2010, 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 reelection. 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 September, A.4.1 A Interim Report

25 AUDIT COMMITTEE The Audit Committee comprises three Independent Nonexecutive 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 September, REMUNERATION COMMITTEE The Remuneration Committee of the Company ( the Remuneration Committee ) comprises three members, a majority of whom are Independent Non-executive Directors of the Company. The principal functions of the Remuneration Committee include reviewing the remuneration policies of the Company, assessing the performance of the directors and senior management of the Company and determining the policies in respect to their remuneration packages. Hong Kong, 17th November, 2010 By order of the Board Yeung Ming Biu Chairman 24 Oriental Watch Holdings Limited