Chairman's Message

Dear Shareholders,

We have just come through the worst financial year since 2001 when we suffered the fallout from the 1997/98 Asian financial crisis which ravaged the regional retail landscape.

Consumer sentiment across our key markets was generally weak during the year, and it worsened in the fourth quarter from April to June. News of the mysterious disappearance of Malaysian Airlines MH370 in March severely hurt retail spending and tourism in Southeast Asia, which accounted for 86% of our Group turnover in FY14. Both Malaysia and Singapore sustained double-digit declines in Chinese tourist arrivals in the immediate aftermath of the MH370 tragedy.

While Chinese tourists in North Asia curtailed spending on luxury items following the Chinese government crackdown on gifts and conspicuous consumption, shoppers in Southeast Asia pulled back on their purchase of discretionary goods including fashion and timepieces. This led retailers in Singapore especially, to engage in rampant and almost yearlong price cutting in their bid to boost sales and clear stocks.

The decrease in sales in North Asia and the heavy discounting in Southeast Asia resulted in a marked deterioration in our margins. Our gross margin, which is a rough gauge of our operating performance and which measures our net sales less the cost of goods sold, fell below 40% for the first time in five years, from 43% in FY13 to 39%. Overall, the net loss of $22.1 million we sustained in FY14 was the biggest in 13 years. We believe the worst is behind us. Our focus in the new financial year ending 30 June 2015 is to return to profitability as soon as possible so that we can again deliver acceptable returns to our shareholders.

We believe that Asia will continue to be the engine driving global growth, even if the heady years of high growth give way to more moderate and sustainable levels as the region adjusts to the “new normal” global environment of volatility and unpredictability. We are also confident that our track record for managing brands will put us in good stead when economies in the region snap out from their sluggishness and Asia’s increasingly affluent customers start to spend again.

Meanwhile, we have taken steps to mitigate the effects of our external environment. We have cleared inventory, closed down or downsized underperforming stores, and cut costs across the Group.

We will also stay vigilant in ensuring that our brand portfolio mix is always in tune with the changing needs of our customers. In this regard, we are glad that in recent years, we have upscaled our fashion portfolio with the addition of luxury labels like Tom Ford, Goyard, Valextra, and Givenchy, which are more resistant to price undercutting seen in mass market lifestyle labels.

More recently, our continued strong performance in Indonesia has seen us taking another important step in that populous Asean country. In August, we forged an alliance with Saratoga, an Indonesian investment and business group controlled by Edwin Soeryadjaya and Sandiaga S Uno, which involved an investment of 25% in both equity and debt instruments in the Group’s Indonesian business. The Group will realise a net gain of about $11.5 million from the transactions. The alliance is a strategic milestone for F J Benjamin as Saratoga will assist in the Group’s growth in Indonesia with a view to an IPO of the business when market conditions allow.

For the period under review, some of the more significant developments in our business included the expiry of our exclusive distributorship agreements with Girard-Perregaux in North Asia and Southeast Asia in February 2014, the opening of Superdry, Tom Ford and Valextra stores in the region, and the addition of new timepiece labels.

The Group’s fashion business witnessed turbulent times, with tourist arrivals and spending down, and the rupiah depreciation making shopping more expensive for Indonesian visitors. Overall, the Group’s fashion business turnover managed a five percent increase.

Asian markets of Hong Kong, China and Taiwan contracted 36% in the fiscal year just passed on top of a 31% decline in the previous year. As we consolidate our retail network to improve yields, we expect the number of stores in Singapore to shrink to 35 by the end of FY15 from the current 40. The smaller footprint in Singapore, a developed economy with more moderate growth rate and where retailers suffer from the triple whammy of falling demand, rising costs and labour shortage, will allow us to focus on the larger and growing markets of Indonesia and Malaysia. We expect the total number of stores in these two countries to rise to 202 by end FY15 from the current 185.

Despite the challenges of market conditions and of breaking into overseas markets, it is heartening to note that our Group’s in-house brand, Raoul, has continued to make headway. We only started to roll out an international strategy for Raoul about four years ago, and today, it is already available in 25 countries, including the fashion capitals of London, Paris and New York. Raoul made its foray into China in September 2013 with a franchise agreement under which the franchisee will open 27 stores by 2017. Last December, the Group inked another franchise deal to expand in the Middle East with the leading player in the luxury business, the Chalhoub Group. The latter will open nine Raoul standalone stores by 2017.

During the financial year under review, Group turnover slipped 1% to $368.2 million. The FY14 net loss was $22.1 million compared with a profit of $4.0 million the year before. Operating expenses rose 2% to $167.0 million due to higher rentals, staff costs and depreciation charges. Group net gearing rose to 78%. The Board has recommended a first and final dividend payout of 0.25 cent per ordinary share (tax-exempt one-tier).

Looking ahead, I have confidence that our disciplined approach to rebalance our brand portfolio and cut costs would help us turn around the business and position the Group to resume sustainable growth.

Finally, I wish to thank our management and staff for their dedication and hard work during a trying 12 months. I am grateful for the support of our landlords, bankers, business partners and associates. My gratitude also goes to my fellow Board members whose wise counsel and guidance have been much appreciated by our management team and me.

Frank Benjamin
Executive Chairman
F J Benjamin Holdings Ltd.

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