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Headwinds Continue for The Hour Glass 1H 2017

The Hour Glass Logo

From the 1H FY2017 financial results below, we can see how much the current economic downturn has hurt the luxury business. On a positive note, the Group’s balance sheet remains robust with consolidated net assets of $444.2 million with cash and cash equivalents of $85.3 million.

Unaudited 1H FY2017 Results

For the Period ended:

3 Sep ’16

$’000

30 Sep ’15

$’000

Change %
Revenue 311,298 334,659 (7%)
Profit Before Taxation 21,734 25,049 (13%)
Profit After Taxation 16,885 20,722 (19%)
Earnings per Share (cents) 2.34 2.85 (18%)

The Hour Glass has businesses in Singapore, Hong Kong, Japan, Australia, Thailand and Malaysia. (more…)

How The Hour Glass Manages a Downturn

The Hour Glass Logo

We all know the luxury watch industry is cylindrical. With the luxury watch market facing headwinds, The Hour Glass announced a decline in net profit after tax by 10% for the financial year ended 31st March 2016.

What I like about the The Hour Glass is their prudent management. In the current market downturn, the senior management team brainstorm for ways to transform the way they do their business. The team looked at ways to achieving operational efficiency by performing an internal review of company policies and processes.

These are some of the steps taken by the management:

1. Fix Legacy Systems

By reorganizing the data and approval flow for payroll, The Hour Glass is able to save over 30 man days every year.

2. New Employee Development Initiative

The Hour Glass introduced new employee development initiatives aimed at retail succession and creating multiple career pathways for sales personnel to remain committed to the organization. What I noticed about The Hour Glass is the senior management is made up of majority of staff above 60 years old. Millennials make up 40% of the organization’s team composition. GenXers make up 45% and Baby Boomers make up 15%.

Personally, I can see the importance of laying a career path for the younger generation in order to retain them with the company. We all understand how costly it is to lose staff you have trained over the years.

3. Upgrade Technology Platforms

The Hour Glass will upgrade the current technological platforms and base ERP (Enterprise Resource Planning) infrastructure to achieve better operational efficiency. Currently, luxury watches are only sold in traditional physical stores. Perhaps we may see online platforms offering online sale of luxury watches?

4. Prepare for Contingency

The management foresee that access to funding may be curtailed in the coming years due to softening economy. Thus, they have worked with banks to prepare extra lines of credit. They have launched a $500 million medium term note programme in the event The Hour Glass needs to respond to any opportunity that may arise in the coming years.

Currently, The Hour Glass makes up 4% of my stock portfolio. Estimated 2.5% dividend yield. Vested for dividend + growth.

The Hour Glass Fell in Profit After Tax Partly due to Donation

The Hour Glass Logo

I invested in The Hour Glass in the year 2015 on the back of its strong cash position (My Personal Analysis of The Hour Glass).

On 24th May 2016, The Hour Glass announced its full year financial results (FY2016). Profit after tax fell by 10%.

What was surprising when I read the press release by the company was that the drop in profit after tax was partly due to a one time donation of S$5.0 million advance special needs, community and cultural causes in Singapore in conjunction with Singapore‟s 50th Anniversary. Although the donation partially caused the fell in profit before tax, I need to applaud the company for its philanthropic actions.

Below is the financial results that was released.

Unaudited Full Year Results

For the Year ended:

31 Mar ’16

$’000

31 Mar ’15

$’000

Change %
Revenue 707,525 734,938 (4%)
Profit Before Taxation 66,968 75,404 (11%)
Profit After Taxation 53,543 59,715 (10%)
Earnings per Share (cents) 7.42 8.22 (10%)

Will You Buy The Hour Glass?

A dividend of 2 cents was proposed. The Hour Glass last closed at S$0.805 on Friday, 3rd June 2016. At the closing price of S$0.805, the dividend yield translates to 2.48% which is not a fantastic yield. Thus if you are investing for its dividend, then you should take a look at other stock.

The current P/E stood at 10.85. My personal opinion is that the current economic remains weak and luxury goods businesses will suffer as tourists spend less. This will have an impact on The Hour Glass’s revenue where the main business lies in selling luxury watches. However, the Group’s balance sheet remains strong with consolidated net assets of $439.9 million and with cash and cash equivalents of $93.9 million.

I am currently vested and holding on to The Hour Glass for its potential growth when economy recovers and demand for luxury goods comes back.

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