CONTENTS Corporate Information Corporate Events Honours & Awards Chief Executive s Statement Man

Transcription

1 Annual Report 2009 Brand of Hong Kong Sparkling the World

2 CONTENTS Corporate Information Corporate Events Honours & Awards Chief Executive s Statement Management Discussion and Analysis Corporate Governance Report Report of the Directors Independent Auditor s Report Consolidated Income Statement Consolidated Balance Sheet Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial Statements Business Structure Distribution of Luk Fook Licensee Shops in the PRC Distribution of the Group s Retail Chain CORPORATE PROFILE Established in 1991, Luk Fook Holdings (International) Limited is one of the leading jewellery retailers in Hong Kong and the PRC. The Group principally engages in the sourcing, designing, wholesaling and retailing of a variety of gold jewellery, gold ornaments, gem-set jewellery, jadeite, gemstones and other accessory items, with a total of over 470 retail outlets in Hong Kong, the PRC, Macau, Canada and the United States. The Group was listed on the Main Board of the Hong Kong Stock Exchange in May

3 Luk Fook Holdings (International) Limited CORPORATE INFORMATION DIRECTORS Executive Directors: Mr. WONG Wai Sheung (Chief Executive) Mr. TSE Moon Chuen Mr. LAW Tim Fuk, Paul Mr. LAU Kwok Sum Mr. WONG Ho Lung, Danny Miss WONG Lan Sze, Nancy Non-executive Directors: Mr. WONG Koon Cheung Mr. CHAN Wai Mr. LEE Shu Kuan Miss YEUNG Po Ling, Pauline Mr. HUI King Wai Independent Non-executive Directors: Mr. HUI Chiu Chung, JP Mr. LO Mun Lam, Raymond (Chairman) Mr. TAI Kwok Leung, Alexander AUDIT COMMITTEE Mr. HUI Chiu Chung, JP Mr. LO Mun Lam, Raymond (Committee Chairman) Mr. TAI Kwok Leung, Alexander REMUNERATION COMMITTEE Mr. WONG Wai Sheung Mr. TSE Moon Chuen Mr. HUI Chiu Chung, JP (Committee Chairman) Mr. LO Mun Lam, Raymond Mr. TAI Kwok Leung, Alexander COMPANY SECRETARY Mr. LAW Tim Fuk, Paul QUALIFIED ACCOUNTANT Mr. LAW Tim Fuk, Paul LEGAL ADVISERS Kirkpatrick & Lockhart Preston Gates Ellis Solicitors AUDITOR PricewaterhouseCoopers Certified Public Accountants

4 Annual Report REGISTERED OFFICE Canon s Court 22 Victoria Street Hamilton HM 12 Bermuda HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS 25th Floor BEA Tower, Millennium City Kwun Tong Road, Kwun Tong Kowloon, Hong Kong Tel: (852) Fax: (852) group@lukfook.com.hk Website: PRINCIPAL BANKERS Hang Seng Bank Limited The Bank of East Asia Limited Bank of China (Hong Kong) Limited DBS Bank (Hong Kong) Limited Wing Hang Bank, Limited Bank of Tokyo-Mitsubishi UFJ Dah Sing Bank Limited Chong Hing Bank Limited SHARE REGISTRAR The Bank of Bermuda Limited SHARE REGISTRAR AND TRANSFER OFFICE IN HONG KONG Computershare Hong Kong Investor Services Limited Rooms th Floor Hopewell Centre 183 Queen s Road East Hong Kong INVESTOR RELATIONS CONSULTANT JOVIAN Financial Communications Limited Rooms , 9th Floor Sun Hung Kai Centre 30 Harbour Road Wan Chai, Hong Kong Tel: (852) Fax: (852) jovian@joviancomm.com Website: Both the English and Chinese versions of this Annual Report can be accessed through the Internet at: Canon s Court 22 Victoria Street Hamilton HM 12 Bermuda (852) (852) group@lukfook.com.hk UFJ The Bank of Bermuda Limited (852) (852) jovian@joviancomm.com

5 Luk Fook Holdings (International) Limited CORPORATE EVENTS Dancing Butterfly and Tempting Heart Series of K-gold 18K Gold Collection K-gold 18K Hugging Panda Collection to welcome the Beijing Olympics Launch of the newly introduced Wedding Ring Collection for National Day Promotion Pure gold ornaments Lucky OX Collection and mini gold accessories of 12 Chinese Zodiac to celebrate the Lunar Chinese New Year Everlasting Series & Passionate Series of Sol Diamond Collection to represent a token of love and romance on Valentine s Day Q Sponsored the diamond crown and jewellery pieces for the winners of Miss Hong Kong Pageant for 11 consecutive years 11

6 Annual Report Participated in exhibition activities including Hong Kong International Wedding Trade Fair 2008 and Hong Kong International Wedding Trade Fair 2009 held in Hong Kong Convention and Exhibition Centre in November 2008 and March 2009 respectively Being the exclusive sponsor for the winners jewellery pieces in Miss Asia Pageant for several years Obtained 4 awards in Worldmart Panyu International Colored Gems Design Competition The Best Brand Enterprise Award (Greater China) for 3 consecutive years 4 Exclusive jewellery sponsor of the fashion show at Vivienne Westwood Opus Exhibition of Giant Polaroid Photographs Vivienne Westwood Opus Invited by the Leisure and Cultural Services Department to join the Hong Kong Design Series 6: Jewellery for Life exhibition

7 Luk Fook Holdings (International) Limited HONOURS & AWARDS Jun 2008 Capital Weekly Service Awards Organizer: Capital Weekly Magazine Most Favorable Enterprise with Good Credibility & Consumers Most Favorable Hong Kong Brands in the PRC Consumers Most Favorable Hong Kong Brands Campaign Organizer: China Enterprise Reputation and Credibility Association (Overseas) Limited Aug 2008 The 5th Hong Kong Merchants of Integrity Award and The 5th Macau Merchants of Integrity Award My Favourite Top Ten Brands of Hong Kong and My Favourite Top Ten Brands of Macau Organizer: Guangzhou Daily Sept 2008 The Best Brand Enterprise Award 2008 (Greater China) 2008 Organizer: Hong Kong Productivity Council The Most Outstanding Brand 2008 (Greater China) 2008 Organizer: Eastweek Magazine Nov 2008 The Retail Asia Pacific Top 500 Awards & One of the Top Ten Retailers in Hong Kong 500 Organizer: Retail Asia and Euromonitor International Retail Asia Euromonitor International 4 awards in Worldmart Panyu International Colored Gems Design Competition 4 Organizers: Gems & Jewelry Trade Association of China, Guangzhou Panyu Government, and International Colored Gemstone Association

8 Annual Report Dec 2008 Silver Prize of Rings Group in Buyers Favorite Jewelry Design Competition Organizer: Hong Kong Jewelry Manufacturers Association Feb awards in The 10th Hong Kong Jewellery Design Competition 3 Organizers: Hong Kong Trade Development Council, Hong Kong Jewellers & Goldsmiths Association, Hong Kong Jewellery & Jade Manufacturers Association, Hong Kong Jewelry Manufacturers Association and Diamond Federation of Hong Kong, China Mar 2009 Numerous Certificates of Merit in The 7th International South Sea Pearl Jewellery Design Competition Organizer: South Sea Pearl Consortium Hong Kong Service Award Quality Living Category Organizer: Eastweek Magazine

9 Luk Fook Holdings (International) Limited HONOURS & AWARDS AWARDED JEWELLERY PIECES AT A GLANCE The Buyers Favorite Jewelry Design Competition The 10th Hong Kong Jewellery Design Competition Product : Motion Award : Silver Prize Category : Rings Group Product : Suspension Award : Merit Award The 10th Hong Kong Jewellery Design Competition The 10th Hong Kong Jewellery Design Competition Product : Energy Award : Merit Award Product : City Award : Merit Award The 7th International South Sea Pearl Jewellery Design Competition The 7th International South Sea Pearl Jewellery Design Competition Product : The Drops Award : Certificate of Merit Product : Heart-Beat Award : Certificate of Merit

10 Annual Report AWARDED JEWELLERY PIECES AT A GLANCE Worldmart Panyu International Colored Gems Design Competition Worldmart Panyu International Colored Gems Design Competition Product : Birds Award : Creativity Prize Category : Earrings Product : Award : Entries award Category : Bracelets / Worldmart Panyu International Colored Gems Design Competition Worldmart Panyu International Colored Gems Design Competition Product : Award : Entries Award Category : Bracelets Product : Award : Entries Award Category : Rings Group The 7th International South Sea Pearl Jewellery Design Competition The 7th International South Sea Pearl Jewellery Design Competition Product : Animated & Calm Award : Certificate of Merit Product : Aroma Award : Certificate of Merit

11 Luk Fook Holdings (International) Limited CHIEF EXECUTIVE S STATEMENT WONG Wai Sheung Chief Executive Dear Shareholders, On behalf of Luk Fook Holdings (International) Limited ( Luk Fook or the Group ), I am pleased to present to you the Group s annual results for the year ended 31st March Year 2008 was an exciting and challenging year. The Beijing Olympics offered opportunities for the expansion of our retail business in the PRC. However, in the fourth quarter, the world was hit and shocked by a financial crisis that posed a lot of uncertainties and adversities to the global economic environment. Thanks to our established brand name, our quality service and our exquisite product craftsmanship, we could maintain a satisfactory performance during the year under review. We could say that our business experienced an uninterrupted growth, especially in the PRC market as the PRC economy continued to stay strong amidst the global financial crisis Moving on to year 2009 we will continue to dedicate unceasing effort in promoting our business. We know that 2009 will be a challenging year for the retail industry. In such a challenging market environment, we believe that only the strongest brands win, and even gaining more in market share. Our long-term strategy is anchored on maximizing the earnings potential of our brand. Our growth objectives are clear: to develop our brand mainly in the PRC and Hong Kong and extend them into global platform

12 Annual Report Our retail stores are well positioned given the recent economic shifts. Our presence in China became more successful in 2008, and that has motivated us to expand further. With more than 470 stores globally, scattering in the PRC, Hong Kong, Macau, Canada and the United States, we are offering customers the products at exceptional value The Group acquired the whole block of commercial building in Jordan district, Hong Kong in June 2009 with consideration of HK$254,350,000. The Group intends to use part of the property as its head office, and it will also use the remaining portion of the property to provide office, show room and other related facilities for business partners. In addition, the Group opened a retail outlet in Nathan Road, Tsim Sha Tsui, Hong Kong in June 2009, bringing the total number of retail outlets in Hong Kong to 31 at present. The Group will also open another retail outlet in Star House, Tsim Sha Tsui, in September 2009, in the hope of expanding its sales network in local tourist district ,350,

13 Luk Fook Holdings (International) Limited CHIEF EXECUTIVE S STATEMENT I am also glad to announce the Group s wholly owned subsidiary, China Gems Laboratory Limited, is being accredited the ISO17025 accreditation on diamond testing by the Hong Kong Accreditation Services in April Laboratories passing assessment procedures can issue reports of diamond authentication bearing the Hong Kong Laboratory Accreditation Scheme (HOKLAS) logo. It is a proof of authority for the authentication reports of diamonds that the laboratory tests, and also strengthens the confidence of consumers, jewellery traders and manufacturers in Hong Kong diamond products. Together with the ISO17025 accreditation on jadeite testing obtained in 2005, the laboratory is the only jewellery authentication laboratory obtaining both accreditations in Hong Kong, signifying authentication professionals, authentication facilities and management systems of China Gems Laboratory reach first class international standards ISO17025 (HOKLAS) 2005 ISO17025 OUTLOOK Looking ahead, the Group shall concentrate its effort on developing the PRC market. The new policy of one issuance, multiple entries for Shenzhen residents and the promotion of domestic consumption by the PRC government provided favourable factors to the Group s business. In addition, economic growth was sustained in the PRC economy despite the financial crisis. The Group sees great potential in the development of the PRC market and is determined to further increase its market share in the PRC.

14 Annual Report With the Group s Hong Kong business becoming mature and remaining steady, we believe that the PRC market shall be the key growth driver in the future. The Group will continue to promote the Luk Fook brand through various promotion opportunities. Not only will the Group accelerate its speed in opening self-operated shops in the PRC, but will also look for suitable expansion opportunities in second and third tier cities in the PRC. The Group will also establish its presence in overseas markets when opportunities arise. Last but not least, the hard work of our staff cannot go unnoticed. Our success relies on the outstanding efforts of our staff in providing the best service to our valuable customers. Their effort undoubtedly contributed to the great success of our business performance worldwide. In the years to come, we will continue to strive for business growth with exceptional energy and seize opportunities to further expand our sales network on the international platform. We will also engage our customers and repay their loyalty to the Group by designing products with greater creativity and excellence. By order of the Board Wong Wai Sheung Chief Executive Hong Kong, 22 July

15 Luk Fook Holdings (International) Limited MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL PERFORMANCE Results For the year ended 31st March 2009, the Group s total turnover was approximately HK$3,856,984,000, which represented a 14.5% growth as compared to HK$3,367,182,000 in the previous year. Profit attributable to shareholders dropped 12.4% to approximately HK$275,160,000 from HK$313,989,000 of last year. Operating profit margin decreased from 11.1% to 8.3%. Basic earnings per share were HK 55.9 cents (2008: HK 63.8 cents). Dividend The Directors proposed a final dividend of HK 12 cents per share (2008: HK 15.5 cents per share) for the year ended 31st March In addition to the interim dividend of HK 5 cents per share already paid, the dividend for the full year amounted to HK 17 cents per share (2008: HK 25.5 cents per share). The proposed dividend will be paid on 11th September 2009 following the approval at the Annual General Meeting. Overview The overall performance in the financial year 2008/09 was satisfactory. The Group s total turnover maintained a growth in face of the slowing down of the economy. The economy of the PRC stayed strong in spite of the global financial crisis. Appreciation of Renminbi and the continued influx of the PRC tourists benefited the Group s retail business. The Group s turnover from the retail business accounted for 79.7% of the total turnover, registering a 23% growth compared to the previous year, amounting to HK$3,075,565,000. Sales for gemstone jewellery products increased by 6.3% while sales for gold products excluding trade-in transactions surged by 42.2% because customers see gold as a more reliable investment product than currencies and the stock market. Turnover from wholesale business reached HK$777,870,000, which accounted for 20.2% of the total turnover. For the year ended 31st March 2009, the Group s turnover in gold products and gemstone jewellery products, excluding trade-in transactions, accounted for 54% and 46% respectively. From the figures of the Hong Kong Tourism Board, tourists arrivals from the PRC in 2008 increased by 11.9% as compared to that of The increase in the number of the PRC tourists visiting Hong Kong offset the negative effect that the financial crisis caused on their spending habits. The Group therefore could still benefit from the growing number of the PRC tourists who demanded for luxury and quality jewellery items in Hong Kong ,856,984,0003,367,182, %313,989, %275,160, % 8.3% / % 23% 3,075,565, % 42.2% 777,870, % % 46% %

16 Annual Report BUSINESS PERFORMANCE Hong Kong Market The Hong Kong market remained the key market of the Group, taking up 80.7% of the Group s total turnover. As at 31st March 2009, the Group operated a total of 30 retail outlets in Hong Kong. During the year under review, the Group opened two self-operated shops in Tseung Kwan O and Causeway Bay, Hong Kong. The Group has mostly finished reimaging all retail outlets in Hong Kong during the year under review. Over 50% of Hong Kong sales were contributed by the PRC tourists. The appreciation of Renminbi and the opening up of second and third tier cities in the PRC for Individual Visiting Scheme benefited the Group. In the year under review, the global financial crisis weakened the purchasing desire of local customers, but the increasing demand for gold products for marriage and investment purposes from the PRC tourists sustained the Group s business. PRC Market The Group s business benefited greatly from the strong growth of the PRC economy as well as the Beijing Olympic Games. The Group will focus its efforts on developing the PRC market as the major market contributor. During the year under review, turnover from the PRC market accounted for 11.7% of the Group s total turnover, amounting to HK$449,472,000 (2008: HK$263,064,000), representing a 71% increase as compared to the previous year. As at 31st March 2009, the Group operated a total of 400 licensee shops. The Group has also opened up 8 self-operated shops in first tier cities in the PRC including Beijing, Wuhan, Hangzhou and Nanjing in the year under review, bringing the total number of self-operated shops in the PRC to 19. The Group shall further expand in the PRC market by opening self-operated shops in second and third tier cities. 80.7% % 11.7% 71% 449,472, ,064,

17 Luk Fook Holdings (International) Limited MANAGEMENT DISCUSSION AND ANALYSIS Macau Market For the Macau market, the Group held an optimistic view in the retail industry of Macau. The business performance of the Macau shops was satisfactory during the year under review. The Group opened its fourth retail outlet in Macau in December Turnover from the Macau shops amounted to HK$268,411,000 (2008: HK$151,415,000), representing a 77% increase as compared to the previous year. Overseas Market The Group will continue to work according to the corporate motto of Brand of Hong Kong, Sparkling the World, to expand our retail network in local, Macau and the PRC markets, and to look for suitable opportunities to broaden our network internationally ,411, ,415,000 77% BUSINESS REVIEW Products The Group launched a series of new products with exquisite designs and craftsmanship during the year to cater for our diversified customer segments and different occasions. Promotional series are as follows: Beauty of Love Series for Mother s Day Promotion Dancing Butterfly and Tempting Heart Series of K-gold 18K Gold Collection Hugging Panda Collection to welcome the Beijing Olympics Pure gold Xifu Collection for wedding couples Newly launched Wedding Ring Collection for National Day Promotion Praising Series of Sol Diamond Collection specially designed for sparkling Christmas Pure gold ornaments Lucky OX Collection, mini gold accessories of 12 Chinese Zodiac and Lucky OX Gold Bar Collection to celebrate the Lunar Chinese New Year Everlasting Series & Passionate Series of Sol Diamond Collection to represent a token of love and romance on Valentine s Day K-gold 18K

18 Annual Report Sales Network As at 31st March 2009, the Group had 55 wholly owned retail outlets under the brand name of Luk Fook Jewellery in the PRC, Hong Kong, Macau, the United States and Canada. Besides, the Group operated a retail outlet namely Luvina Jewelers in San Jose, California of the United States. 2 new shops were opened in Hong Kong during the year: they are located at Tseung Kwan O and Causeway Bay respectively, bringing the number of shops in Hong Kong to a total of 30. The Group also opened its fourth retail outlet in Macau located at Avenida Do Infante D.Henrique, to cater for the growing demand of customers. During the year, the Group operated a total of 19 self-operated shops in Guangzhou, Beijing, Nanjing, Shanghai, Hangzhou, Lanzhou, Ningbo, Wuhan and Jinan in the PRC. Nine of them are located in Beijing, taking the advantages of domestic retail industry brought about by the Beijing Olympics. Moreover, majority of the self-operated shops were opened in large-scale department stores to accommodate the consumption behavior of the PRC customers. The Group s licensee shops in the PRC were also increased to 400. Marketing and Promotion To further strengthen Luk Fook s corporate brand image and operate consistently with the corporate motto of Brand of Hong Kong, Sparkling the World, the Group actively participated in a wide range of marketing activities and publicity campaigns in order to further consolidate its brand positioning, increase its popularity and facilitate the expansion of its global retail network. Meanwhile, the Group also adopted both long-term and creative marketing strategies in its key markets to publicize its revamped brand image to more customer segments and also boost sales. During the year, the Group continued to actively design and execute various initiatives including TV, print, outdoor and internet advertising, direct marketing, public relations activities, and events such as jewellery sponsorship and exhibitions. Below are some highlights: Sponsored the diamond crown and jewellery pieces for the winners of Miss Hong Kong Pageant for 11 consecutive years Being the exclusive sponsor for the winners jewellery pieces in Miss Asia Pageant for several years Being the sponsor for The 58th Miss World Pageant Guangdong Region Competition Sponsored the Miss Chinese Pageant in Vancouver and Toronto, Canada, for several years Luvina Jewelers

19 Luk Fook Holdings (International) Limited MANAGEMENT DISCUSSION AND ANALYSIS Exclusive jewellery sponsor of the fashion show at Vivienne Westwood Opus Exhibition of Grant Polaroid Photographs Invited by the Leisure and Cultural Services Department to join the Hong Kong Design Series 6: Jewellery for Life exhibition Participated in well-recognized jewellery exhibitions including Style Hong Kong, Hangzhou, China International Gold, Jewellery and Gem Fair (Guangzhou) 2008, 2008 Shenzhen International Jewellery Fair and JMA Macau Jewellery Show 2008 Participated in exhibition activities including Hong Kong International Wedding Trade Fair 2008 and Hong Kong International Wedding Trade Fair 2009 held in Hong Kong Convention and Exhibition Centre in November 2008 and March 2009 respectively Broadcasted large volume of TV commercials through mainstream TV channels in Hong Kong and the PRC, and sponsored products for TV programmes and key dramas Invited celebrity Mr. Raymond Lam to participate in ribbon cutting activities for debut of the PRC shops Sponsored Aaron Kwok De Show Reel Live in Concert 2008 Macau Enhanced the advertising impact by strategically placing outdoor advertisements at the back of KMB buses of different routes throughout Hong Kong and Kowloon. Actively explored online promotion platform by putting banner advertisements, advertorial write-up and launching online games Launching new products and key promotion items in festivals including Mother s Day, National Day of the PRC, Christmas, Chinese New Year and Valentine s Day, stimulating the consumers demand through largescale publicity programmes in order to achieve better promotion results Effectively delivering promotional messages to targeted individual travelling scheme tourists through print advertisements on guide maps Sponsored the gold price index on wedding portal to maximise the exposure of the Group s Wedding Collection in the Hong Kong market Donation to assist the victims of Sichuan Earthquake Vivienne Westwood Opus JMA Macau

20 Annual Report Donation and jewellery gift coupons sponsor to Tung Wah Charity Show Marketing Research Scheme Ming Chee Sing Chinese Opera shows exclusively for Luk Fook Jewellery s customers and staff Special joint promotion programmes with P&G, Shiseido, Hang Seng Bank, Bank of China, etc Brand Management The Group strongly believes that sales performance will be greatly influenced by brand reputation, and a reputable brand helps bolster customers purchasing confidence. Therefore, the Group exerts unceasing effort to work for a well-developed brand management system, which strives to convey a consistent brand image and enhance its superior brand equity in the markets, continuing to reinforce its trusted brand image. During the year, the Group obtained a number of awards in recognition of its outstanding achievements in brand building and management. They included: Capital Weekly Service Awards 2008 Most Favorable Enterprise with Good Credibility and Consumers Most Favorable Hong Kong Brands in the PRC Consumers Most Favorable Hong Kong Brands Campaign for 3 consecutive years The 5th Hong Kong Merchants of Integrity Award for 4 consecutive years The 5th Macau Merchants of Integrity Award My Favorite Top Ten Brands of Hong Kong for 4 consecutive years My Favorite Top Ten Brands of Macau The Best Brand Enterprise Award (Greater China) for 3 consecutive years The Most Outstanding Brand 2008 (Greater China) The Retail Asia Pacific Top 500 Awards and ranked as one of the Top Ten Retailers in Hong Kong by Retail Asia and Euromonitor International Hong Kong Service Award Quality Living Category from Eastweek Magazine P&G Retail AsiaEuromonitor International 500

21 Luk Fook Holdings (International) Limited MANAGEMENT DISCUSSION AND ANALYSIS Production In order to enhance cost effectiveness and production efficiency, the Group has adopted a certain degree of vertical integration and utilized its production facilities in Hong Kong and the PRC to operate a portion of the gold and gemset jewellery s production processes. Portal Operation The Group s website or is an electronic gateway for the global jewellery industry. It aims to serve as a business-to-business trading platform among manufacturers, wholesalers and retailers all over the world. The portal also acts as an additional promotion channel for the Group. It is regarded as a long-term plan for the Group to penetrate into the PRC as well as global market, and paves the way for exploring jewellery markets worldwide. The Group believes that every internet user is their potential customer; and jewelers will use website more frequently to view product samples and to order jewellery as to streamline their operation procedures. It will enhance business potential. Design The Group is famous for its stylish designs of jewellery products. With the Group s outstanding and award-winning design team, the Group has designed a wide range of products for customers selections. Those creative, attractive and fashionable new products were well received by the markets all these years. On top of that, with the Group s experienced management team, the Group has proved to be capable of anticipating changes in the consumers tastes and preferences, this has helped to ensure a promising future for the Group. The Group was also keen on participating in various local and international jewellery design competitions during the year. A number of awards were gained in these competitions, which included: 4 awards in Worldmart Panyu International Colored Gems Design Competition Silver Award of Rings Group in Buyers Favourite Jewellery Design Competition awards in The 10th Hong Kong Jewellery Design Competition Numerous Certificates of Merit in The 7th International South Sea Pearl Jewellery Design Competition

22 Annual Report Quality Assurance The Group is committed to maintain the highest levels of product quality. To ensure the best quality of products, the Group set up its wholly owned subsidiary gems laboratory China Gems Laboratory Limited in Its scope of services includes authentication, grading of diamonds, and authentication of jades and colored gemstones and quality assessment of jewellery. The Laboratory is operated by a group of certified gemologists who specialize in the authentication of gemstones and jade. With the ISO accreditation on both diamond and jadeite testing from the Hong Kong Accreditation Service, the Laboratory has also successfully met the principles of ISO 9001:2000 Quality Management Systems Requirements, demonstrating the professional quality assurance system of the Group. China Gems Laboratory is the only jewellery authentication laboratory obtaining both accreditions in Hong Kong. Environmental Protection In response to the growing corporate awareness in environmental protection and to show the determination to save our planet, the Group joined the Earth Hour It is initiated by WWF in 2007, had 2.2 million people and 2,100 businesses in Sydney, Australia turned off their lights for one hour. On 28th March 2009, as one of the participants representing Hong Kong, part of the Group s retail outlets turned off the lights for one hour from 8:30pm to 9:30pm to show our support ISO ISO 9001: ,200,0002, :30 9:30 FINANCIAL REVIEW Liquidity and Financial Resources The Group s core business is gold and jewellery retailing. As at 31st March 2009, the Group s cash on hand reached approximately HK$280 million (2008: HK$185 million). The Group s bank borrowings-to-equity ratio at the year-end, being the proportion of total bank borrowings of approximately HK$169 million (2008: HK$273 million) against total shareholders equity of approximately HK$1,256 million (2008: HK$1,082 million), was 13.5% (2008: 25.2%). The Group s income and expenditure streams are mainly denominated in Hong Kong dollars ,000, ,000, % % 169,000, ,000,000 1,256,000, ,082,000,000

23 Luk Fook Holdings (International) Limited MANAGEMENT DISCUSSION AND ANALYSIS Capital Expenditure During the year under review, the Group incurred capital expenditures of approximately HK$30 million (2008: HK$52 million), including the costs of properties, leasehold improvement, furniture, fixture and equipment. Capital Commitments As at 31st March 2009, the Group had total capital commitments in respect of acquisition of property, plant and equipment of approximately HK$1 million (2008: HK$4 million). Contingent Liabilities The Group did not have any significant contingent liabilities at 31st March 2009 and 31st March Employment, Training, Development and Recruitment Remuneration Policy As at 31st March 2009, the number of employees of the Group was approximately 2,445 (2008: 2,377). Remuneration policies are reviewed and approved by the management on a regular basis. Remuneration packages are structured to take into account the comparable level of the market. Bonus and other merit payments are linked to the success of the Group and the performance of individual employee. The policy is to encourage employees to optimize business performance by providing them with financial incentives. 30,000, ,000, ,000, ,000, , ,377

24 Annual Report CORPORATE GOVERNANCE REPORT CORPORATE GOVERNANCE PRACTICES For the year ended 31st March 2009, the Company had properly applied the principles of the Code on Corporate Governance Practices contained in Appendix 14 (the Code ) included in the Rules governing the listing of securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ) as follows: A. Directors A.1 The Company is supervised by a Board of Directors who assumes responsibility for leadership and control of the Company and is collectively responsible for promoting the success of the Company by directing and strategising the Company s affairs. They make decisions objectively in the interests of the Company. A.2 An independent non-executive director acts as the Board Chairman while an executive director acts as the Chief Executive. There is a clear division of responsibilities for the management of the Board and the day-to-day management of the Company s business to ensure a balance of power and authority. A.3 The Board comprises 6 executive directors, 5 non-executive directors and 3 independent non-executive directors. They include persons with a wealth of practical experiences in the jewellery industry, accountancy profession, legal profession, general trading and the securities industry. It has a balance of skills and experiences appropriate for the requirements of the Company s business. The directors respective roles and biographies are set out on pages 40 to 44. A.4 All directors are subject to retirement by rotation and re-election at the Company s annual general meeting in accordance with the Company s Bye-laws. A.5 Every director is continuously-reminded of the requirement to keep abreast of his responsibility as a director of the Company, with reference to the Listing Rules and the Company Laws inclusive, and of the conduct, business activities and development of the Company. Every independent non-executive director also confirms annually his independence status to the Company pursuant to the Listing Rules. A.6 Directors are provided with appropriate information to enable them to make an informed decision and to discharge their duties and responsibilities as directors of the Company A. A.1 A.2 A A.4 A.5 A.6

25 Luk Fook Holdings (International) Limited CORPORATE GOVERNANCE REPORT CORPORATE GOVERNANCE PRACTICES (Continued) B. Remuneration of Directors and Senior Management B.1 Information relating to the Company s directors remuneration policy and other remuneration related matters are disclosed in the Company s annual report. The Remuneration Committee is responsible for setting policy on the remuneration of executive directors and senior management and for fixing the remuneration packages. The level of remuneration is sufficient to attract and retain the directors needed to run the Company successfully. No director is involved in deciding his own remuneration. C. Accountability and Audit C.1 The directors are responsible for preparing the financial statements of each financial period, which give a true and fair view of the state of affairs of the Company and of the Group as at the financial period end and of the result and cash flows of the Group for the year. In the Company s interim and annual reports which are issued within the time limits stipulated by the Listing Rules, the Board presents a balanced, clear and comprehensive assessment of the Company s performance, position and prospects. The published financial statements adopt, and consistently apply, suitable accounting policies complying with Hong Kong Financial Reporting Standards. C.2 The Board ensures the Company maintains sound and effective internal control to safeguard the shareholders interest and the Company s assets. The Audit Committee, with the assistance of the Internal Audit Team, regularly reviews the effectiveness of the Company s internal control system. The Head of the Internal Audit Team directly reports to the Audit Committee. C.3 The Board establishes monitoring and procedural guidelines for considering how it will apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the Company s external auditors. The Audit Committee established by the Company pursuant to the Listing Rules has clear terms of reference. D. Delegation by the Board D.1 The Company has a formal schedule of matters specifically reserved to the Board for its decision. The Board gives clear directions to management as to the matters that must be approved by the Board before decisions are made on behalf of the Company. D.2 The Audit Committee and Remuneration Committee were formed with specific written terms of reference that deal clearly with the committees authority and duties. Such terms of reference are made available to the public. B. B.1 C. C.1 C.2 C.3 D. D.1 D.2

26 Annual Report CORPORATE GOVERNANCE PRACTICES (Continued) E. Communication with Shareholders E.1 The Board maintains an on-going dialogue with shareholders and in particular, endeavors to provide transparency and uses the annual general meetings to communicate with shareholders and invites their participation in certain marketing events. Besides, the Company s official website serves as a handy communication channel for the shareholders. Press releases and announcements about the Company s business affairs are made from time to time. E.2 The Company informs shareholders of the procedure for voting by poll in the circular to shareholders, and ensures compliance with the requirements about voting by poll contained in the Listing Rules and the Company s Bye-laws. None of the directors is aware of any information that would reasonably indicate that the Company is not, or was not for any part of the year ended 31st March 2009, in compliance with the Code. E. E.1 E DIRECTORS SECURITIES TRANSACTIONS The Company adopts the Model Code set out in Appendix 10 of the Listing Rules as a code of conduct regarding directors securities transactions. Having made specific enquiry of all directors, it is confirmed that they have complied with the required standard set out in the Model Code and its code of conduct regarding directors securities transactions in relation to the year ended 31st March

27 Luk Fook Holdings (International) Limited CORPORATE GOVERNANCE REPORT BOARD OF DIRECTORS During the year ended 31st March 2009, the Company s board of directors comprised 6 executive directors, 5 non-executive directors and 3 independent non-executive directors. Individual directors attendance at board meetings during the year were as follows: Attendance Total number of Board meetings: 9 9 Executive Directors Mr. WONG Wai Sheung (Chief Executive) 9/9 100% Mr. TSE Moon Chuen 7/9 78% Mr. LAW Tim Fuk, Paul 9/9 100% Mr. LAU Kwok Sum 5/9 56% Mr. WONG Ho Lung, Danny 3/4 75% (Appointed on 1 September 2008) Miss WONG Lan Sze, Nancy 3/4 75% (Appointed on 1 September 2008) Non-executive Directors Mr. WONG Koon Cheung 7/9 78% Mr. CHAN Wai 7/9 78% Mr. LEE Shu Kuan 7/9 78% Miss YEUNG Po Ling, Pauline 3/9 33% Mr. HUI King Wai 4/9 44% Independent Non-executive Directors Mr. CHIU Wai Mo 1/3 33% (Resigned on 24 July 2008) Mr. HUI Chiu Chung, JP 5/9 56% Mr. LO Mun Lam, Raymond (Chairman) 7/9 78% Mr. TAI Kwok Leung, Alexander 2/6 33% (Appointed on 24 July 2008) Average 66%

28 Annual Report BOARD OF DIRECTORS (Continued) The Board s role is to provide entrepreneurial leadership of the Company within a framework of prudent and effective controls which enables risk to be assessed and managed. The Board controls the business but delegates day-to-day responsibility to the executive management. The Board sets the Company s strategic aims, values and standards and ensures that its obligations to its shareholders and others are understood and met. In the interests of the Company, a number of matters are reserved by the Board. Certain matters are the subject of recommendations by the Audit Committee or Remuneration Committee. The Company Secretary, referring to the list of reserved matters for the Board, assists the Chairman in establishing the agenda of Board meetings. Each director may also request inclusion of items in the agenda. Minutes of the Board/Committee meetings are open for inspection by the directors. The Company confirms that it has received from each of the independent nonexecutive directors, namely, Mr. LO Man Lam, Raymond, Mr. HUI Chiu Chung, JP and Mr. TAI Kwok Leung, Alexander, an annual confirmation of his independence pursuant to Rule 3.13 of the Listing Rules, and that it still considers each independent non-execuitve director to be independent CHAIRMAN AND CHIEF EXECUTIVE Mr. LO Mun Lam, Raymond, an independent non-executive director, acts as Chairman of the Board, while Mr. WONG Wai Sheung, an executive director, acts as the Chief Executive. Their roles are segregated and therefore are not exercised by the same individual. The Chairman is responsible for the leadership and effective running of the Board. The Chief Executive is delegated with the authority and responsible for running the Company s business, implementing the Company s strategies in achieving business objectives. NON-EXECUTIVE DIRECTORS All the non-executive directors are appointed for two years, and the existing appointments last until 31st March

29 Luk Fook Holdings (International) Limited CORPORATE GOVERNANCE REPORT REMUNERATION OF DIRECTORS In compliance with the Code, the Board on 7th April 2005 established a Remuneration Committee comprising 3 independent non-executive directors and 2 executive directors. The remuneration committee is to make recommendations to the Board on the Company s policy and structure for all remuneration of directors and senior management; to determine the specific remuneration packages; to review and approve performancebased remuneration; to review and approve the compensation payable in connection with any loss or termination of office or appointment of directors and senior management; to oversee any major changes in employee benefits structures throughout the Company or the Group; and to review the ongoing appropriateness and relevance of the remuneration policy. Individual committee members attendance at Remuneration Committee meetings during the year were as follows: Total number of Attendance Remuneration Committee meetings: 2 2 Executive Directors Mr. WONG Wai Sheung 2/2 100% Mr. TSE Moon Chuen 2/2 100% Independent Non-executive Directors Mr. CHIU Wai Mo 0/1 0% (Resigned on 24 July 2008) Mr. HUI Chiu Chung, JP (Committee Chairman) 2/2 100% Mr. LO Mun Lam, Raymond 1/2 50% Mr. TAI Kwok Leung, Alexander 1/1 100% (Appointed on 24 July 2008) Average 75% In July and December 2008, the Remuneration Committee held 2 meetings to review the policies for determining annual salary increments for the calendar year 2009, to approve the payment of the discretionary year end bonus for 2008 and an incentive bonus scheme for all non-sales employees working at the Head Office. Particulars of the Directors emoluments disclosed pursuant to Appendix 16 of the Listing Rules are set out in note 16 to the financial statements

30 Annual Report NOMINATION OF DIRECTORS The Board is directly responsible for the nomination procedures, process and criteria adopted to select and recommend candidates for directorship. Two nominations of director were processed during the year ended 31st March AUDITOR S REMUNERATION Analysis of remuneration in respect of audit and non-audit services provided by the external auditor, PricewaterhouseCoopers, Certified Public Accountants, are as follows: HK$ 000 HK$ 000 Audit services 3,096 3,164 Non-audit services Total 3,164 3,232 The responsibilities of the external auditor with respect to financial reporting are stated in the Independent Auditor s Report. AUDIT COMMITTEE In compliance with the Code of Best Practice applicable before 1st January 2005, the Board established an Audit Committee on 1st February 1999, comprising 3 independent non-executive directors, in order to monitor the accounting and financial reporting practices and internal control systems of the Company. During the year ended 31st March 2009, the Audit Committee held 2 meetings to consider matters including the 2008 annual report of the Company, internal controls, the unaudited interim condensed consolidated financial information for the six months ended 30th September 2008, and the Company s IT control environment

31 Luk Fook Holdings (International) Limited CORPORATE GOVERNANCE REPORT AUDIT COMMITTEE (Continued) Individual committee members attendance at Audit Committee meetings during the year were as follows: Attendance Total number of audit committee meetings: 2 2 Independent Non-executive Directors Mr. CHIU Wai Mo 0/1 0% (Resigned on 24 July 2008) Mr. HUI Chiu Chung, JP 2/2 100% Mr. LO Mun Lam, Raymond (Committee Chairman) 2/2 100% Mr. TAI Kwok Leung, Alexander 1/1 100% (Appointed on 24 July 2008) INTERNAL CONTROL The Board is responsible for the Company s system of internal control and for reviewing its effectiveness through the Audit Committee. The internal control system is designed to provide assurance on the effectiveness and efficiency of operations, reliability of business record, and the compliance with Company s policies and procedures. The system aims to provide reasonable, but not absolute, assurance against material misstatement or loss rather than eliminate risks of failure in operational systems, and to ensure achievement of the Company s objectives. The Audit Committee has received the internal control evaluation report submitted by the Internal Audit Team. The report summarised information relating to the work carried out in the following areas: The results of selective testing of internal control procedures, assets, and financial records of the Company; A general evaluation of internal control system installed by the Company; and An outline of major control issues, if any noticed during the year. The Audit Committee has reviewed the report and discussed with the management.

32 Annual Report INTERNAL CONTROL (Continued) The Audit Committee recognised that an examination of the internal control system has been adequately executed by the Internal Audit Team and the Committee acknowledged that the management has been progressively installing an adequate internal control system in order to ensure the effective functioning of the Company s operations. The Committee has also recommended furthering the system to the area of various risks protection aspect in order to safeguard the assets of the Company. INTERNAL AUDIT The internal audit is an independent function undertaken by the Internal Audit Team reporting administratively to the Company s management and functionally to the Audit Committee. The Internal Audit Team is authorized to obtain all information necessary to accomplish internal audit work. A risk based audit approach has been adopted by the Internal Audit Team. Internal control reviews are arranged regularly while paying close attention to business or operation changes. Regular audit tests are carried out to ensure key controls are operational. The Internal Audit Team conducts other projects and investigating work as may be required. Any significant internal audit findings are discussed with respective department heads to have actions agreed and subsequently followed up, in order to ensure that satisfactory control is maintained. In each half-yearly work plan, manning levels of the Internal Audit Team are agreed with the Audit Committee. A summary of the internal audit activities and audit results are also submitted to the Audit Committee twice a year.

33 Luk Fook Holdings (International) Limited CORPORATE GOVERNANCE REPORT DIRECTORS INTERESTS AND SHORT POSITIONS IN SECURITIES As at 31st March 2009, save as disclosed below, none of the directors and chief executive of the Company had interests and short positions in the shares, underlying shares and debentures of the issuer or any associated corporation (within the meaning of Part XV of the Securities and Futures Ordinance ( SFO )) which (a) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (b) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Exchange: I. Long positions in shares and underlying shares of the Company: XV(a) 352 (b) I. Beneficial Controlled Beneficiary TOTAL % of Name of Director Owner Spouse Corporation of Trust INTEREST Shares Mr. WONG Wai Sheung 7,583, , ,820,176 1,511, ,234, % note (d) note (a) &(b) note (c) (d) (a) (b) (c) Mr. TSE Moon Chuen 487, ,820, ,307, % note (a) &(b) (a) (b) Mr. WONG Koon Cheung 2,678, ,820, ,498, % note (a) &(b) (a) (b) Mr. CHAN Wai 3,899, ,820, ,719, % note (a) &(b) (a) (b) Mr. LEE Shu Kuan 6,370, ,406, ,777, % note (a),(b), (e) &( f) (a) (b) (e) (f) Mr. WONG Ho Lung, 420,000 22,000 1,511,050 1,953, % Danny note (g) note (c) (g) (c) Miss WONG Lan Sze, 232,000 1,511,050 1,743, % Nancy note (c) (c)

34 Annual Report DIRECTORS INTERESTS AND SHORT POSITIONS IN SECURITIES (Continued) I. Long positions in shares and underlying shares of the Company: (Continued) Note (a) Mr. WONG Wai Sheung, Mr. TSE Moon Chuen, Mr. CHAN Wai, Mr. LEE Shu Kuan and Mr. WONG Koon Cheung were also directors, and together with their associates collectively controlled over one-half of the voting power, of Luk Fook (Control) Limited which held 231,858,000 shares in the Company. These directors were deemed to be interested in the same shares, relevant disclosures were therefore duplicated for the purpose of SFO. Note (b) Mr. WONG Wai Sheung, Mr. TSE Moon Chuen, Mr. CHAN Wai, Mr. LEE Shu Kuan and Mr. WONG Koon Cheung were also directors, and together with their associates collectively controlled over one-third of the voting power, of Dragon King Investment Ltd. which held 12,962,176 shares in the Company. These directors were deemed to be interested in the same shares, relevant disclosures were therefore duplicated for the purpose of SFO. Note (c) Mr. WONG Wai Sheung, Ms. LUK Chui Yee, Mr. WONG Ho Lung, Danny and Miss WONG Lan Sze, Nancy were discretionary beneficiaries of the WONG s Family Trust (the Trust ). The Trust was the beneficial owner of the entire issued share capital of Kwai Kee Cheung Jewellery & Goldsmith Company Limited which was the beneficial owner of 1,511,050 shares of the Company. Note (d) Mr. WONG Wai Sheung s spouse, Ms. LUK Chui Yee, held 320,000 shares of the Company. Note (e) Mr. LEE Shu Kuan held 33.3% of the entire issued share capital of Wah Hang Kimon Investments Limited which in turn held 630,624 shares of the Company. Note (f) Mr. LEE Shu Kuan held 51% of the entire issued share capital of Wah Hang Kimon Holdings Limited which in turn held 1,956,000 shares of the Company. Note (g) Mr. WONG Ho Lung, Danny s spouse, Ms. CHEUNG Irene, held 22,000 shares of the Company. I. (a) 231,858,000 (b) 12,962,176 (c) 1,511,050 (d) 320,000 (e) 33.3%630,624 (f) 51%1,956,000 (g) 22,000