The Hour Glass

[Choon]

AGM next week.

Just submitted my below questions (already late) to the Company. 

Current market conditions and business performance - Chairman concluded his FY2023 Chairman Statement with the statement that “the short-term outlook has dimmed”. Could the Company provide a general commentary on how business performance has been for year-to-date FY2024? Are any of the Company’s markets showing particular weakness (e.g. Hong Kong, given the weakening Chinese economy)?
 
Near-term outlook – Over the next 2-3 years, would revenue growth be pressured/constrained by demand (due to a less hyped secondary market and a weaker global economy than in previous years) or supply (availability of watches to sell) or both? Does the Company think that there could be a glut of inventory in global wholesale networks in the years ahead (similar to the 2015-2017 period) with a consequent negative impact on the Company’s prices and margins?
 
Rolex Certified Pre-Owned – For years, the Company has deliberated on the pre-owned business and has been careful (and rightly so) not to enter the business yet. Now that Rolex has rolled out its CPO programme, would Rolex CPO be compatible or be at odds with the Company’s multi-brand retailing model? Would Rolex CPO weaken the Company’s multi-brand retailing model? Any particular reason why Asia is the last region (after US, Europe, Middle East) for Rolex CPO programme?
 
Share buyback – How does the Company prioritise between (i) maintaining a DPS of 8cts and growing it and (ii) conducting share buybacks? If there are limited funds, which would be prioritised?

Attended the AGM, I will just share snippets of what I find interesting:

On shareholder returns, share price, dividends, share buyback:

- Michael shared that his one goal is to ensure the survivability of THG.  He is thus always thinking about how can THG add value to customers and brand partners. If THG can, THG will always be relevant. If THG can't, THG will become nothing. He hopes shareholders will share this mindset.

- On dividends vs share buyback, Michael shared that THG had historically, consistently paid out about 20%-30% earnings as dividends. My takeaway from this statement is dividend payout will probably stay at the higher of 20-30% level and 8cents/share; the Company probably wants to have much buffer so that it can continue to pay 8cents/share even if earnings decline. Excess earnings will be returned via share buybacks when market allows.

Attended the AGM, I will just share snippets of what I find interesting:

On pre-owned business in general and ROLEX's CPO programme:

- Michael shared that THG has studied the pre-owned business since 2016 and made many study trips abroad. THG is still studying. THG's takeaways are: (i) there is no first mover advantage in this business; and (ii) this is a business with low margins and returns.

- On executing ROLEX's CPO programme, Michael shared that his main consideration is how can THG execute the selling of pre-owned watches with the same precision as selling brand new watches. I think he is coming from a customer experience angle.

- On Rolex's objective, Rolex is thinking about its ecosystem and the problem of fake Rolexes. Rolex is figuring out its CPO programme while rolling it out.

[Choon]

AGM next week.

Just submitted my below questions (already late) to the Company. 

Current market conditions and business performance - Chairman concluded his FY2023 Chairman Statement with the statement that “the short-term outlook has dimmed”. Could the Company provide a general commentary on how business performance has been for year-to-date FY2024? Are any of the Company’s markets showing particular weakness (e.g. Hong Kong, given the weakening Chinese economy)?
 
Near-term outlook – Over the next 2-3 years, would revenue growth be pressured/constrained by demand (due to a less hyped secondary market and a weaker global economy than in previous years) or supply (availability of watches to sell) or both? Does the Company think that there could be a glut of inventory in global wholesale networks in the years ahead (similar to the 2015-2017 period) with a consequent negative impact on the Company’s prices and margins?
 
Rolex Certified Pre-Owned – For years, the Company has deliberated on the pre-owned business and has been careful (and rightly so) not to enter the business yet. Now that Rolex has rolled out its CPO programme, would Rolex CPO be compatible or be at odds with the Company’s multi-brand retailing model? Would Rolex CPO weaken the Company’s multi-brand retailing model? Any particular reason why Asia is the last region (after US, Europe, Middle East) for Rolex CPO programme?
 
Share buyback – How does the Company prioritise between (i) maintaining a DPS of 8cts and growing it and (ii) conducting share buybacks? If there are limited funds, which would be prioritised?

Attended the AGM, I will just share snippets of what I find interesting:

On shareholder returns, share price, dividends, share buyback:

- Michael shared that his one goal is to ensure the survivability of THG.  He is thus always thinking about how can THG add value to customers and brand partners. If THG can, THG will always be relevant. If THG can't, THG will become nothing. He hopes shareholders will share this mindset.

- On dividends vs share buyback, Michael shared that THG had historically, consistently paid out about 20%-30% earnings as dividends. My takeaway from this statement is dividend payout will probably stay at the higher of 20-30% level and 8cents/share; the Company probably wants to have much buffer so that it can continue to pay 8cents/share even if earnings decline. Excess earnings will be returned via share buybacks when market allows.

Attended the AGM, I will just share snippets of what I find interesting:

On pre-owned business in general and ROLEX's CPO programme:

- Michael shared that THG has studied the pre-owned business since 2016 and made many study trips abroad. THG is still studying. THG's takeaways are: (i) there is no first mover advantage in this business; and (ii) this is a business with low margins and returns.

- On executing ROLEX's CPO programme, Michael shared that his main consideration is how can THG execute the selling of pre-owned watches with the same precision as selling brand new watches. I think he is coming from a customer experience angle.

- On Rolex's objective, Rolex is thinking about its ecosystem and the problem of fake Rolexes. Rolex is figuring out its CPO programme while rolling it out.

Attended the AGM, I will just share snippets of what I find interesting:

On business growth,

By end of year (not sure if this refers to Dec23 or Mar24) retail network would have 57/58 boutiques. I recall at Dec22, the count was about 50-52. So quite a significant expansion, which I find encouraging.

Michael shared that THG's focus is on the qualitative aspects of the business, about improving customer service, trust with brand partners, customers' perception. He does not have a annual revenue target.

Michael reiterated a focus on serving local customers. He shared one anecdote - that in a meeting with IRAS, IRAS commented that THG's GST refunds are either higher/lower than its peers. He was encouraged by that remark because that shows that THG is executing well on its strategy to serve local customers.

[Choon]

AGM next week.

Just submitted my below questions (already late) to the Company. 

Current market conditions and business performance - Chairman concluded his FY2023 Chairman Statement with the statement that “the short-term outlook has dimmed”. Could the Company provide a general commentary on how business performance has been for year-to-date FY2024? Are any of the Company’s markets showing particular weakness (e.g. Hong Kong, given the weakening Chinese economy)?
 
Near-term outlook – Over the next 2-3 years, would revenue growth be pressured/constrained by demand (due to a less hyped secondary market and a weaker global economy than in previous years) or supply (availability of watches to sell) or both? Does the Company think that there could be a glut of inventory in global wholesale networks in the years ahead (similar to the 2015-2017 period) with a consequent negative impact on the Company’s prices and margins?
 
Rolex Certified Pre-Owned – For years, the Company has deliberated on the pre-owned business and has been careful (and rightly so) not to enter the business yet. Now that Rolex has rolled out its CPO programme, would Rolex CPO be compatible or be at odds with the Company’s multi-brand retailing model? Would Rolex CPO weaken the Company’s multi-brand retailing model? Any particular reason why Asia is the last region (after US, Europe, Middle East) for Rolex CPO programme?
 
Share buyback – How does the Company prioritise between (i) maintaining a DPS of 8cts and growing it and (ii) conducting share buybacks? If there are limited funds, which would be prioritised?

Attended the AGM, I will just share snippets of what I find interesting:

On shareholder returns, share price, dividends, share buyback:

- Michael shared that his one goal is to ensure the survivability of THG.  He is thus always thinking about how can THG add value to customers and brand partners. If THG can, THG will always be relevant. If THG can't, THG will become nothing. He hopes shareholders will share this mindset.

- On dividends vs share buyback, Michael shared that THG had historically, consistently paid out about 20%-30% earnings as dividends. My takeaway from this statement is dividend payout will probably stay at the higher of 20-30% level and 8cents/share; the Company probably wants to have much buffer so that it can continue to pay 8cents/share even if earnings decline. Excess earnings will be returned via share buybacks when market allows.

Attended the AGM, I will just share snippets of what I find interesting:

On pre-owned business in general and ROLEX's CPO programme:

- Michael shared that THG has studied the pre-owned business since 2016 and made many study trips abroad. THG is still studying. THG's takeaways are: (i) there is no first mover advantage in this business; and (ii) this is a business with low margins and returns.

- On executing ROLEX's CPO programme, Michael shared that his main consideration is how can THG execute the selling of pre-owned watches with the same precision as selling brand new watches. I think he is coming from a customer experience angle.

- On Rolex's objective, Rolex is thinking about its ecosystem and the problem of fake Rolexes. Rolex is figuring out its CPO programme while rolling it out.

Attended the AGM, I will just share snippets of what I find interesting:

On business growth,

By end of year (not sure if this refers to Dec23 or Mar24) retail network would have 57/58 boutiques. I recall at Dec22, the count was about 50-52. So quite a significant expansion, which I find encouraging.

Michael shared that THG's focus is on the qualitative aspects of the business, about improving customer service, trust with brand partners, customers' perception. He does not have a annual revenue target.

Michael reiterated a focus on serving local customers. He shared one anecdote - that in a meeting with IRAS, IRAS commented that THG's GST refunds are either higher/lower than its peers. He was encouraged by that remark because that shows that THG is executing well on its strategy to serve local customers.

Attended the AGM, I will just share snippets of what I find interesting:

On near-term outlook,

"Consumer psychology has deferred to logical outcome" - wow, such elegant English. Michael thinks that outlook has dimmed as consumers have to pay more for mortgage in this higher interest rate environment and as consumers indulge in overseas travels post COVID. 

Drop in prices in the secondary market has helped to clean up some speculators and flippers with some of them burnt.

[dydx]

THG's business as a regional specialist distributor/retailer of high-end watches is anchored by (1) strong business relationships with the brand principals based on long-standing personal friendships between the Tays and their top management/owners and continuous superior business performance on THG's part in achieving increasing sales volume and helping to build/maintain/improve market image and consumer perception of the brands; (2) providing customers - especially resident customers in the respective cities/countries where the boutiques are located - continuous exceptional services and shopping experiences, and knowledge and learning about watch collecting, and also making them long-term repeat customers buying more expensive watches as their income and interest in watches increase with time; and (3) carefully selected locations for the boutiques which are very well designed and maintained and regularly refreshed to project a well-crafted, top-end beautiful image.

As investors, we can simply evaluate and validate the above by reviewing the customers'/visitors' Google reviews on THG's boutiques, by focussing on the number of positive reviews and their frequencies, as well as what the customers/reviewers write.

Having just gone through the Google reviews, I have a strong feeling that the business will continue to do well.

[Choon]

THG's business as a regional specialist distributor/retailer of high-end watches is anchored by (1) strong business relationships with the brand principals based on long-standing personal friendships between the Tays and their top management/owners and continuous superior business performance on THG's part in achieving increasing sales volume and helping to build/maintain/improve market image and consumer perception of the brands; (2) providing customers - especially resident customers in the respective cities/countries where the boutiques are located - continuous exceptional services and shopping experiences, and knowledge and learning about watch collecting, and also making them long-term repeat customers buying more expensive watches as their income and interest in watches increase with time; and (3) carefully selected locations for the boutiques which are very well designed and maintained and regularly refreshed to project a well-crafted, top-end beautiful image.

As investors, we can simply evaluate and validate the above by reviewing the customers'/visitors' Google reviews on THG's boutiques, by focussing on the number of positive reviews and their frequencies, as well as what the customers/reviewers write.

Having just gone through the Google reviews, I have a strong feeling that the business will continue to do well.

Having stay invested and observing THG for many years; and observing and working in T-companies, I arrived at the following ideas:

1) Strength of a honest family business (like THG) - mgmt thinks long term, focus on competitive position, focus on creating value for customers, not concerned with short-term financial results, not concerned with having to exhibit that it is doing well on corporate governance and transparency, corporate social responsibility.

2) Weakness of a family business - succession and continuity. I think that one of the greatest risk in investing in THG is the passing on of the current CEO (touch wood). For T-companies, you can just always promote from within or hire from outside. The simile would be US President vs China President. US with its institutional frameworks in place can survive and prosper even with a lousy President for 2 terms. But can China survive and prosper if it has a lousy President for 8 years?

[dreamybear]

Informative minutes of mtg. 

Well, it applies to other listed companies as well, doesn't it ?

Beyond what's frequently covered in investment courses, e.g. financial ratios, great investors, the "structure" component seems to be inadequately covered. 

Perhaps an interesting question to think about - how do OPMIs balance above index investment returns vs survivability(or controlling shareholders' prime objective) of companies they are invested in ? 

--------------
MINUTES OF THE 44TH ANNUAL GENERAL MEETING OF THE HOUR GLASS LIMITED HELD AT HILTON SINGAPORE ORCHARD, IMPERIAL BALLROOM, LEVEL 35, 333 ORCHARD ROAD, SINGAPORE 238867 ON TUESDAY, 25 JULY 2023 AT 10.00 A.M. (emphasis added)
https://links.sgx.com/FileOpen/Minutes%2...eID=769615
"....Capital allocation strategies
5.15 Regarding the questions submitted by shareholders in advance of the AGM as well as at this Meeting concerning stock split, driving shareholder returns and so on, Mr Tay asked shareholders present, and in this regard, he disclosed that he and his family were also shareholders, to consider whether their long term goals and those of the Company were aligned. Mr Tay stated that, first and foremost, his long term goal was to ensure the survivability of The Hour Glass as a group ... He hoped that shareholders shared this prime business objective. "

[CY09]

https://www.cnbc.com/2023/08/25/watches-...herer.html

Self-explanatory, Rolex has moved into the luxury watch retail market. This also explains why share prices of Hrglass has fallen

[dydx]

https://www.cnbc.com/2023/08/25/watches-...herer.html

Self-explanatory, Rolex has moved into the luxury watch retail market. This also explains why share prices of Hrglass has fallen

If Rolex chooses to buy THG - also family-controlled like Bucherer - too for the Asia and Oceania markets, it can be great news for us minority shareholders, as a deal like this should be at a generous price in line with the intrinsic value of THG. Just like what Bucherer has accumulated in Europe, THG holds some prime iconic retail properties in Australia and NZ.

[Big Toe]

There is a trend of brand owners buying up the best authorized agents not only in luxury watches space. While there is a possibility of them buying THG, chances are extremely remote. Here's why.

1. Swiss families that trade with each other usually have a very close relationship. Wont be surprised deal has been brought up long ago over dinner/golf behind closed doors and discussed over a long period of time. It is very unlikely to be a last minute deal.

2. In terms of history THG is nowhere close to Bucherer.

3. Asia is a key market for Rolex. But Rolex deosnt need THG. If you take Rolex away from THG, it can still sell on it own with a long waiting list for its popular models. THG on the hand wont be able find a Rolex replacement to cover the missed sales and push its bundle deals. Rolex doesnt need sales people to sell its watches, it sells on its own.

4. There is probably is a good working relationship between THG and Rolex but it were to turn awry, the brand owner holds all the cards. But having said that Swiss Family businesses are very conservative, they wont rock the boat without very good reasons. Rolex probably also learnt that buying over an authorized agent even with no intention of influencing its operations will have a big impact on all other authorized agents around the world.

5. Short term negative for authorized agents due to a slight increase in level of uncertainty. Mid to long term no effect unless Rolex decides to do something drastic. (Unlikely)

[weijian]

Watchmakers will do what they do best, ie. make watches.
Watchsellers will do what they do best, ie. sell watches.

It would be good to read the official statement. I thought it is interesting that Rolex uses the word "solution". I am reminded of what d.o.g. documented in terms of Sincere Watch's relationships with watchmakers getting decimated after multiple ownership changes.

The Rolex group is convinced that this acquisition is the best solution not only for its own brands but also for all the watch and jewellery partner brands, as well as for all the employees of the Bucherer group.
Rolex official statement: https://www.watchpro.com/cloud/2023/08/2..._PR_EN.pdf

That brings up the interesting question of who other than Rolex could have acquired Bucherer? Who else would have the money? Who else would know how to make money with a complicated and multi-faceted business such as Bucherer?
https://www.ablogtowatch.com/rolex-buys-...-what-now/