Operations Performance Review
In the first nine months of 2008, strong demand for fine jewellery contributed to impressive revenue and earnings performance of the Group during that period. However, the global economic downturn in the final quarter of 2008 dampened consumer sentiments, causing a drop in demand for luxury products, which in turn affected the performance of the Group.
To counter the drop in demand, the Group embarked on an aggressive marketing campaign, organising numerous events and road shows to promote its products. In addition, in order to reduce its domestic inventory level, the Group undertook a competitive pricing sales strategy to clear its slow-moving products.
The Group's forays into the overseas market have paid off, with the overseas market segment returning a consistent and satisfactory growth in revenue and earnings. The inventory levels of its overseas operations were increased to meet the market demand and dynamic landscape of the respective overseas outlets. As a result, the revenue contribution from the overseas markets has improved further, with the ratio of overseas market revenue against domestic market revenue increasing from 15:85 to 22:78 y-o-y.
The Group's ability to adapt quickly to the changing circumstances has enabled it to thrive successfully in the past two decades. The Group's resilience in weathering the various market cycles is an indication that its long term strategies have been successful.
Industry Outlook
Long term demand trend of the jewellery remains promising. The market for the jewellery industry have been expanding rapidly in the last few years, aided by the buoyant economy and entry of new players from China, India, Middle East, Russia and Latin America. This period also see a marked hike in the prices of the raw materials used in the jewellery trade, namely precious metals, diamond and precious stones.
Demand took a sharp downtrend in the last quarter of 2008 following the financial meltdown. Comparatively, precious metals, diamond and precious stones are holding their prices quite well. Demand for gold in the current economic climate remains strong as a safe asset and is the only investment that gave a positive return for the year 2008 and in the first quarter of 2009. Brisk trading of jewellery was seen at the recent Trade Fair at Basel, Switzerland in early April 2009 as players took the opportunity to buy quality jewels at affordable prices. The basic demand for engagement and wedding rings as well as other jewellery to mark celebration of marriages and special events is still resilient as this spending allocation is not compromised significantly.
Following the weaker demand in the late 2008, many diamond and gemstones cutting factories have either slowed or ceased production while some mines with lower productivity have closed. De Beers, a key diamond player have curtailed the supply of rough diamond to check excess inventory in the market. Initial dumping of goods by weak holders has abated and prices have rebound in April 2009.
There is now a shortage of certain bigger sizes premium quality diamond and gemstones in the market. The Group believes that supply and demand equilibrium are in place and anticipates future price hike can be steep when demand return as supply play catch up with the present low investment in exploration and manufacturing.
Overall, the fundamentals for the long term are sound, as demand growth in emerging markets is expected to outstrip a diminishing global supply of the component raw material used in the fine jewellery industry.
Management Strategy
The Group had initiated an inventory rationalisation program in September 2008 which will continue into 2009. Going into 2009, the Group is pleased to report that it had already achieved 75% of the target set, which had reduced the gearing of the Group. To meet the challenges ahead, the Group will focus on prudent cost control measures, adopt dynamic business strategy to meet prevailing and anticipated demand and monitor and maintain optimum inventory level. Other areas will include the enhancement of the distribution system and promotional campaigns to stimulate consumer demand. These measures will enable the Group to not only sustain the short or long-term volatility but also position the Group to grow on a stronger footing in the long run.