MAINBOARD-LISTED Cortina Holdings Cortina: C41 0% ' earnings surged 74 per cent to S$25.4 million in the first half of its financial year ended Sep 30, 2021, from S$14.6 million a year ago.

 

Earnings per share stood at S$0.154 for the half year, up from S$0.088 a year earlier.

 

Revenue rose in tandem by 87 per cent to S$324.6 million for the same period, from S$173.8 million the year before.

 

The company attributed the increase in revenue to easing Covid-19 restrictions in Singapore and Thailand, as well as additional revenue from Sincere Watch, which the company acquired for S$84.7 million in March 2021.

 

Sales margins also contributed to higher profits, improving to 30 per cent in the latest half year, compared to 28 per cent from the year before.

 

However, the company also noted that its operating expenses rose 81.6 per cent to S$63.9 million, largely due to the additional expense of the newly acquired Sincere Watch, higher sales-related expenses such as salesman commission and credit card commission, as well as higher marketing expenses for brand development.

 

As uncertainties remain due to the continuing pandemic, the group has also drawn down S$50 million in bank borrowings to strengthen its working capital.

 

Cortina expects the group to remain profitable, barring any unforeseen circumstances.

 

No dividend was declared for this period of the financial year, as was the case a year ago.

 

MAINBOARD-LISTED luxury watch retailer Cortina Holdings has proposed to acquire privately-held Sincere Watch for S$84.5 million in cash, it said in an exchange filing early Tuesday morning.

 

Cortina shares traded at S$2.30 as at 10.07 am Tuesday, up S$0.23 or 11.1 per cent from the previous close, after the announcement.

 

Cortina said the proposed acquisition will provide it with exclusive distributorship rights to the Franck Muller brand in 12 countries within the Asia-Pacific.

 

It added that the deal will also give Cortina access to Sincere Watch' s arsenal of brands that can be distributed across 40 combined outlets, and create operational synergies that will increase the Cortina group' s value to both consumers and business partners.

 

The Business Times first reported in August that rumours of the possible deal had been swirling, and that an acquisition of Sincere would make sense as Cortina would be able to tap its peer' s retail network in the massive mainland China market.

 

The target group to be acquired - including Sincere Watch' s several subsidiaries and an associated company - operates 18 boutiques, with a portfolio including Omega, Audemars Piguet, Panerai and Tudor.

 

Sincere Watch runs multi-brand retail under the Sincere brand in Singapore and Malaysia, and under the Pendulum brand in Thailand. In addition, it runs mono-brand boutiques for Franck Muller in Singapore and Australia, A. Lange & Sö hne in Malaysia, as well as A. Lange & Sö hne, Breitling and IWC in Thailand.

 

The purchase price of S$84.5 million represents a discount of about 0.2 per cent from the target group' s net tangible assets as at June 30, 2020.

 

Cortina intends to raise around 60 per cent of the sum from bank borrowings and the remainder through internal resources.

 

As at Sept 30, the Cortina group had S$279.3 million in current assets, including S$122.3 million in cash and bank balances. It had current liabilities of S$74.9 million.

 

Cortina recorded a net profit of S$39.3 million for its financial year ended March 2020. According to Tuesday' s filing, Sincere Watch incurred a net loss of S$6.4 million for its FY2020.

 

The purchase price of S$84.5 million represents 25 per cent of Cortina&rsquo s market capitalisation based on a share price of S$2.04 -- the weighted average price of shares transacted on Nov 11.

 

The proposed acquisition constitutes a major transaction under listing rules, thus requiring Cortina' s shareholders' approval.

 

Cortina said it has received irrevocable undertakings from shareholders representing more than 50 per cent of the voting rights to vote in favour of the deal.

 

The proposed acquisition would mark the fourth change of ownership for Sincere Watch since it was founded in 1954. It was first sold by Tay Liam Wee, the founder' s son, in 2007 to now-defunct Hong Kong fashion and luxury watch retailer Peace Mark Holdings at S$530 million. Two years later, a consortium including Mr Tay bought back the watch retailer at S$112.7 million.

 

The company was subsequently sold to Hong Kong businesswoman Pollyanna Chu in 2012 for S$232 million, with Sincere Watch (Hong Kong) later carved out and listed.

 

Cortina said in the filing on Tuesday that completion of the proposed acquisition is also conditional upon Sincere Watch completing the disposal of its entire legal and beneficial interests in Sincere Watch (Hong Kong) to an entity wholly-owned by Mrs Chu. Sincere Watch owns 5.39 per cent of Sincere Watch (Hong Kong), as at end-March, according to the Hong Kong-listed firm' s website.

LUXURY watch retailer Cortina Holdings on Friday posted lower sales and earnings for its half year ended Sept 30, as its business took a hit from Covid-19.

 

Net profit fell 23 per cent to S$14.6 million revenue fell as well - by 32 per cent to S$173.8 million. Earnings per share was 8.8 Singapore cents, compared to 11.4 cents in the year-ago period.

 

This was despite its other gains and income of S$6.7 million, consisting mainly of grants from the government support scheme and rent concession from landlords because of the pandemic.

 

Operating expenses comprising staff costs, advertising expenses and depreciation and other expenses, fell 18.1 per cent finance cost was 34 per cent lower than a year ago.

 

The retailer said that it will continue to review and fine-tune its strategies to adapt to the changes and emerging trends in the industry and in the markets that it operates.

 

" Due to the Covid-19 pandemic, the global economy remains volatile and continues to pose challenges to the group' s performance. With the travel restrictions still in place regionally and globally, the prospects of future growth will be affected," it said.

 

Its balance sheet remained healthy, however, with a total equity of S$234.8 million, up slightly from S$231.8 million as at end-March. Cash and bank balances were at S$122.3 million, compared with $114.4 million at end-March.

LUXURY watch retailer Cortina Holding said that it occasionally explores possible merger and acquisition opportunities including that with Sincere Watch Limited, but added that it has not inked any definitive agreement for the rumoured acquisition of the latter.

 

In a regulatory statement on Saturday, the retailer made the clarification as it noted a report by The Business Times about rumours that it is considering buying the privately-held Sincere Watch.

 

" The company will, in compliance with the relevant requirements under the listing manual of the Singapore Exchange Securities Trading Limited, make announcements as required if any such merger and acquisition opportunities crystalise or any significant developments arise," said Cortina.

RUMOURS are swirling that Cortina Holdings is considering buying privately-held Sincere Watches, and the price movements of Singapore Exchange-listed Cortina may be reflecting the murmurs on the grapevine.

 

Shares of Cortina rose from S$1.32 on July 30 to S$1.56 on Aug 3, an 18 per cent gain over the two trading sessions. The counter ended up S$0.05 to S$1.60 on Wednesday.

 

The mainboard-listed luxury watch retailer had on July 30 declared special and final dividends of 2.5 Singapore cents in total - on top of the four-Singapore cents interim dividend announced earlier that month - but the magnitude of the share price gain seems disproportionate to the dividends declared.

 

An acquisition of Sincere Watch would certainly make sense.

 

Cortina would be able to tap Sincere Watch' s retail network in the massive mainland China market.

 

China was the second-largest export destination for Swiss watches in the first half of this year, after the United States, statistics from the Federation of the Swiss Watch Industry showed. Exports values to most of the top 30 export markets declined in H1, but China saw the smallest drop at 14.6 per cent year-on-year to 790.9 million swiss francs (S$1.2 billion). Exports to China also staged a rebound of 47.7 per cent in June.

 

The Singapore market, down 31.7 per cent to 409.6 million swiss francs, was the fifth largest export destination.

 

One of the oldest luxury watch retailers in Singapore with a history of 66 years now, Sincere Watch runs four boutiques in mainland China, four in Hong Kong and three in neighbouring Macau. Cortina has just one shop in Hong Kong.

 

In total, Sincere Watch has 37 boutiques and points-of-sales. Cortina has 23.

 

Adding Sincere Watch could help Cortina close the gap with, or even leapfrog, its listed rival The Hour Glass. The latter clocked S$720.9 million in revenue for the financial year ended March 2019. Cortina' s revenue was S$460.8 million and Sincere Watch' s S$182.6 million. (No financial data was available for Sincere Watch for FY2020.)

 

Sincere Watch also owns Franck Muller Private Limited, which was one of the five largest suppliers of Sincere Watch (Hong Kong) in the past financial year. Sincere Watch (Hong Kong) is the sole distributor of Franck Muller watches and accessories in Hong Kong, Macau, Taiwan and mainland China.

 

Sincere Watch owns 5.39 per cent of Sincere Watch (Hong Kong), which is listed on the Stock Exchange of Hong Kong. Sincere Watch (Hong Kong) is currently loss making, but could perhaps benefit from a pair of fresh eyes.

 

In fact, there is generally room for improvement in Sincere Watch' s numbers. This could present some upside for Cortina. In FY2019, Sincere Watch' s net earnings from continuing operations came in at a mere S$278,000 - giving it a very slim net margin of 0.15 per cent.

 

The Hour Glass Group and Cortina registered net profit margin of 9.8 per cent and 6.7 per cent, respectively.

 

Both Cortina and The Hour Glass were able to improve their earnings in FY2019, by 31 per cent and 41 per cent, respectively. But Sincere Watch' s net earnings dipped 22.4 per cent despite a rise in revenue.

 

Given those numbers, the price tag for Sincere Watch should be affordable for Cortina.

 

Also, Cortina has the headroom to borrow for an acquisition. It only had short-term debts of S$4.96 million as at March. Its cash balances and inventories together amounted to S$257.7 million, against total liabilities of S$98 million.

 

According to someone with direct knowledge of the potential acquisition, " preliminary talks" of a deal were held last week. Market speculation is that the purchase could be tagged between S$100 million and S$180 million. It was also said that Cortina had sent a team to visit some of the Sincere Watch outlets in Singapore.

 

Cortina has denied the rumour, while Sincere Watch was silent when queried by The Business Times.

 

A sale of Sincere Watch, if it materialises, will mark the fourth change of ownership since it was founded in 1954. It was first sold by Tay Liam Wee, the founder' s son, in 2007 to now-defunct Hong Kong fashion and luxury watch retailer Peace Mark Holdings at S$530 million in 2007. Mr Tay was part of a consortium that bought back the watch retailer two years later at S$112.7 million.

 

The retailer was resold in 2012 to Pollyanna Chu for S$232 million, with Sincere Watch (Hong Kong) later being carved out and listed.

 

According to Forbes, Mrs Chu had a net worth of US$1.75 billion and was the 45th richest person in Hong Kong in this year' s ranking. She was once the richest woman in Hong Kong, but lost that title after more than half of her wealth (then US$12 billion) was wiped out after shares of Kingston Financial Group, a major source of her wealth, crashed in early 2018.