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BUSINESS Noble Jewelry Ltd by jennyyingdi

VIEWS: 35 PAGES: 34

									                                      BUSINESS


OVERVIEW

      We are a Hong Kong-based integrated fine jewelry designer, manufacturer and
related integrated service provider to jewelry retailers and wholesalers in the US and
countries and territories in the Middle East, Europe and the Asia-Pacific region. Our
business objective is to become a fine jewelry service provider providing our customers
with a variety of fine jewelry products, together with supply-chain and management services,
ranging from branding and product support, sales and marketing management, inventory
management and technology support.

       Our products can be broadly categorised into (i) diamond jewelry products and (ii)
diamond jewelry products with semi-precious and synthetic stones. Our products include
rings, earrings, bracelet and bangle, pendant and brooch and necklace with a wide range
of designs and styles.

      Our headquarters are located in Hong Kong with production support from the Panyu
Plant. We also have business presences in London and New York to keep us abreast of
the latest market trends and developments. We are also one of the foreign fine jewelry
companies with a liaison office in India for purchase of diamond.

OUR OSM BUSINESS MODEL

       We started as a generic ODM fine jewelry manufacturer in 1995. We are focusing
on ODM and OBM business models, with the business objective to establish a strategic
alliance with our business partners and customers.

      The following diagram illustrates our current business model:—

                                Our OSM business model


                           Acquisitions and mergers
                              Strategic alliance
                                                                        of products, services




                                      OBM
                                                                            and customers
                                                                            Diversification




                                 Exclusive ODM


                               Tailor-made ODM


                                  Generic ODM


                           Diversification of markets




                                          – 50 –
                                      BUSINESS


      Whilst most of our business activities, as of the Latest Practicable Date, were
focusing on tailor-made ODM, exclusive ODM and generic ODM, we have a selected
number of customers to whom we are currently providing OBM services. Our business
strategy is to assist the growth of the business of our customers, so that our business will
continue to grow.

      The Directors consider that we have successfully implemented our business model.
In April 2006, we completed the acquisition of the assets and liabilities of Chad Allison
Designs, LLC which was one of our customers and explored the branded jewelry market
in the US. The acquisition forms part of the OSM business model and represents a step
for us to enter into the branded fine jewelry market through mergers and acquisitions. In
June 2005, we established Noblediam as a joint venture with a number of individuals who
are our customers in Spain. Jewelry products are sold by Noblediam through consignment
sales at department stores in Spain. Through these transactions, we implement our strategy
to establish strategic alliances with our customers and demonstrate our implementation of
the OSM business model at the different levels. In the future, we will continue to locate
appropriate targets for mergers and acquisitions.

       The Directors believe that we adopt a different business model, as compared with
most other medium-size fine jewelry manufacturers in South China engaging in OEM and
generic ODM business, by providing value-added management and marketing services to
our customers. We place strong emphasis on product design and quality control and lean
manufacturing, so that we can provide our customers not only with quality fine jewelry
products, but also related marketing and management services, to assist them to explore
their markets. The Directors believe that this business strategy is important to the fine
jewelry industry which is dominated by small and independent jewelry wholesalers and
retailers with niche brands.

COMPARATIVE ADVANTAGES

      We have the following comparative advantages:—

Leading player in the fine jewelry industry

      Based on the statistics for the total export of fine jewelry conducted by the Census
and Statistics Department of Hong Kong and our actual results, the Directors believe that
we are one of the largest fine jewelry exporters in Hong Kong to countries in the Middle
East. In addition, as at the Latest Practicable Date, we had over 600 active customers
around the world, which have had business relationships with us during the previous
financial year. We have been engaged in the fine jewelry business since 1992 with an
established business in Hong Kong and a long-standing reputation amongst our customers
and suppliers. All of these enable us to be in a good position to maintain and further
strengthen our leading position in the fine jewelry industry.

Integrated customer-oriented business model

     Our business model, targeting different customer segments with different products
and services, allows us to integrate into the business operation of our customers so as to

                                          – 51 –
                                        BUSINESS


create a closely allied business partnership. The Directors consider this cooperative
relationship to be important to the growth of our business alongside the businesses of our
customers. We constantly review both the scope and the quality of our services and
products provided to our customers for the purpose of maintaining our competitiveness
and improving the understanding of our customers’ requirements in their respective
markets.

Well-established sales and marketing network

       We have established business presences in London and New York. Our headquarters
are in Hong Kong which coordinate all our sales and marketing activities. This enables us
to collect the latest market trends in this industry. We also actively participate in tradeshows
and exhibitions around the world in order to further strengthen our business network.
During the financial year ended 31 March 2006, we attended 23 tradeshows and exhibitions
around the world.

      We divide our target markets into four sales divisions, namely North and South
America, the Middle East, Europe and Asian-Pacific countries, and have one division
designated for selected customer segments. As at the Latest Practicable Date, we had
over 20 sales and business development representatives stationed in our Hong Kong
headquarters responsible for our target markets around the world. In order to provide
prompt services to our customers, we had staffed the Panyu Plant with over 30 customer
service representatives as at the Latest Practicable Date taking orders and answering
enquiries from our customers via phone or via email communications.

Strategically located production facilities

      Our production facilities are strategically located at Panyu, Guangdong Province,
which is the center of the fine jewelry manufacturing industry in Southern China. The
location provides us with a secured source of labor, good infrastructure, a suitable
environmental policy and efficient source of raw materials for our business operations.

Sophisticated information technology platform for control and customers’ monitoring

       We have equipped ourselves with an ORACLE enterprise resources planning system,
which is believed to be one of the most sophisticated systems used by fine jewelry
manufacturers of similar size in China. The system allows us to effectively control each
step in the production and operation process. The integrated system also allows us to
implement real-time control of our inventory so that we can increase our production
efficiency and minimize our working capital requirements. As such, it provides effective
and timely information for management to make decisions. All of these allow us to conduct
our business in a competitive manner.

      In January 2003, we launched a business-to-business portal which enables our
customers to have updated information on the production process of their orders and the
related purchase order handling and shipping arrangements as well as the latest statement
of accounts. This information is important to our customers which are geographically
diverse.

                                              – 52 –
                                      BUSINESS


Experienced management team

      We have an experienced management team which focuses on different areas ranging
from sales and marketing management, logistics and technology support, inventory
management and branding and product support. Our sales teams are experienced in the
jewelry markets in Hong Kong, the US, Europe, the Middle East and Japan. Our founder,
Mr. Johnny CHAN, has approximately 20 years of experience in the fine jewelry industry.
All of the executive Directors have more than 10 years of experience in business
management of the fine jewelry industry. This experience and expertise are instrumental
to our success.

GROWTH STRATEGIES

     The Directors intend to adopt the following strategies in order to further develop our
business:—

Expand our customer segment

       Due to the nature of the fine jewelry industry, most of our customers are independent
retailers and wholesalers which are relatively small compared with chain stores and
nation-wide branded apparel items. Whilst the Directors anticipate that independent stores
will continue to be dominant players in the industry, the role of leading chain stores is
likely to expand with their established brands and after-sales services. We therefore
intend to strengthen our marketing efforts to focus on these chain stores by developing
fine jewelry products with unique designs and high quality for them. We also need to
adjust the components of our services with an emphasis on our OSM business approach.

      Chain store customers require a variety of sales-related services, including product
development and design services; inventory management services such as monitoring of
inventory level, inventory replenishment and return of aged inventory; branding and product
support services such as promotional materials, brochures and catalogues for specific
themes; logistics and technology support services such as price tag printing and packaging
materials, in addition to the fine jewelry products. These value-adding services are the
core components of the OSM business model adopted by the Group. Hence, we need to
adjust the components of our services with an emphasis on our OSM business approach.

Expand our sales and distribution to product brand

      The Directors consider that product branding is also one of our future growth areas.
As of the Latest Practicable Date, we provided exclusive ODM services to a selected
group of product brands and will continue to devote resources to expand this business.
The Directors believe that the feature of branded fine jewelry products, with relatively
small production volume, is suitable for our business model with an emphasis on product
designs and uniqueness.




                                          – 53 –
                                      BUSINESS


Expand the business of our existing branded fine jewelry business

       As at the Latest Practicable Date, we operated two product brands of fine jewelry
products, i.e. Chad Allison in the US and Oridiam in Spain. The Directors believe that
these two brands can be further developed and fully integrated into our business models.
The Directors intend to expand the distribution networks of these two brands and strengthen
their images in their respective markets. The Directors may also acquire additional brands
of fine jewelry in order to strengthen the distribution network.

Enhance the scope of marketing and management services provided to our customers

       Our business objective is to become an integrated service provider to our customers
which are wholesalers and retailers. We recognise that different customers have different
needs, and our provided services include not only manufacturing support, but also brand
management and positioning, so as to assist them to compete. The marketing and
management services offered by the Group to our customers include inventory management
(assisting in establishing an inventory management report system for managing the
inventory level, inventory replenishment and return of aged inventory), sales promotion
and brand building (assisting in designing and printing of product catalogues and brochures
with specific themes) and corporate identity building (assisting in developing corporate
logos and image for fine jewelry products). We will continue to strengthen and tailor-make
our marketing and management services to our customers. The Directors believe that this
will benefit us by establishing a close business partnership with our customers.

Diversification in markets

      Our customers are wholesalers and retailers in different locations. During the Track
Record Period, we did not expand our sales to customers in China because of our
business focus on overseas markets. Following the establishment of Sinoble Jewelry
(Hong Kong) and Sinoble Jewelry (PRC), we plan to expand our business reach to China
by providing OSM services to jewelry retail chain stores in certain major cities in China.
The Directors consider that the expansion of business to China will reduce our reliance
on selected markets, such as the US and countries in the Middle East.

BUSINESS MILESTONES

     In 1983, our business was founded by Mr. Johnny CHAN under the trade name
Johnny Jewellery Co. as a sole proprietorship engaging in jewelry retail business in Hong
Kong. In 1990, Noble Jewelry, another sole proprietorship firm owned by Mr. Johnny
CHAN, was also established for operating a jewelry factory in Hong Kong.

      In June 1992, Noble Jewelry (Hong Kong) was established in Hong Kong taking
over the then jewelry manufacturing and retail businesses owned by Mr. Johnny CHAN.




                                          – 54 –
                                      BUSINESS


     In November 1999, we implemented an ORACLE enterprise resources planning
system in our management functions and operational management.

      In December 1999, Noble Jewelry (Hong Kong) were accredited with the ISO 9001:
2000 in respect of our quality management system for the design, manufacture and sale
of jewelry products.

     In February 2000, Noble Jewelry (Hong Kong) was granted the Gold Prize (Earring
Group) in the Buyers’ Favorite Diamond Jewelry Design Competition 1999 organised by
the Hong Kong Jewelry Manufacturers’ Association.

     In September 2000, Noble Jewelry (Hong Kong) were accredited with the ISO
14001:2004 in respect of our environmental management system for the design,
manufacture and sale of jewelry products.

     In 2000, Noble Jewelry (Hong Kong) was granted the Certificate of Merit in
Productivity awarded by the Hong Kong Productivity Council.

      In July 2001, Noble Jewelry (Hong Kong) was granted the Certificate of Merit in the
Third Hong Kong SME Award: Best Managed SME Award awarded by the Hong Kong
Productivity Council and the Hong Kong General Chamber of Commerce.

      Before we established own manufacturing plant in Panyu, Guangdong Province,
Noble Jewelry (Hong Kong) cooperated with an Independent Third Party in China to
manufacture fine jewelry products from September 2001 to September 2004. Under the
cooperation arrangement, the Independent Third Party provided such labour as directed
by Noble Jewelry (Hong Kong) for the manufacturing of the jewelry products of the
Group. The production facilities of the Group including the equipment and machinery
used for the production of the Group’s jewelry products were located in Panyu, Guangzhou.
Noble Jewelry (Hong Kong) was responsible for the provision of the production facilities
and the raw materials and arranged for all necessary insurance to be maintained for the
manufacturing process.

      In consideration of the labour provided, Noble Jewelry (Hong Kong) paid a processing
fee to the Independent Third Party, a majority of which was applied in settling the wages
and salaries of the labour. This arrangement was terminated in September 2004 with the
establishment of Noble Jewelry (Guangzhou). The Directors confirm that, apart from
engaging such Independent Third Party to manufacture fine jewelry products during the
period from September 2001 to September 2004, no member of the Group entered into
any subcontracting arrangement during the Track Record Period. During the financial
year ended 31 March 2004 and the period from April 2004 to September 2004, the Group
paid a processing fee of approximately RMB20.4 million and RMB14.2 million respectively
to the Independent Third Party. As the Group’s business volume continues to increase,
Noble Jewelry (Guangzhou) has begun manufacturing of fine jewelry products since
September 2004. The Directors consider that the Group did not rely on any Independent
Third Party in the manufacturing of jewelry products during the Track Record Period.




                                         – 55 –
                                      BUSINESS


      In January 2003, we launched a business-to-business portal for our customers. The
portal has been connected with an ORACLE enterprise resources planning system so
that our customers can check the latest status of the purchase orders and the sales
records.

      In August 2003, Noble Jewelry (Hong Kong) entered into a joint venture agreement
                                      Graha”), a limited liability company incorporated
with P.T. Graha Pesonamas Abadi (“Graha
                                      Graha
under the laws of Indonesia and owned by an Independent Third Party in Indonesia, to
establish Pesona Noble. Under this joint venture agreement, Noble Jewelry (Hong Kong)
is responsible for the design and manufacture of jewelry products to be sold to Pesona
Noble whereas Graha is responsible for the marketing and distribution of such products.

       In November 2004, we established at the Panyu Plant our diamond-cutting operation
division and the precious metal recycling and refining plant.

      In March 2005, we collaborated with The Productivity (Guangzhou) Consulting Co,
Ltd., a subsidiary of the Hong Kong Productivity Council in implementing the Lean
Manufacturing Production Model.

       In April 2005, Noble Jewelry (Hong Kong) entered into a joint venture with four
individuals; namely, Mr. Alberto Javier Benman Israel, Mrs. Viviana Sandra Benman
Israel, Mr. Jaime Benman Benita and Mrs. Clara Israel Benchimol (all of whom are
Independent Third Parties) in Madrid, Spain to establish Noblediam. Under this joint
venture, Noble Jewelry (Hong Kong) had 50 per cent. interest, whereas the other four
individuals holding the remaining 50 per cent. Noblediam has four directors, of whom two
are nominated by Noble Jewelry (Hong Kong) with the remaining two nominated by the
other parties. In September 2006, the issued share capital of Noblediam has been
increased to €3 million with same shareholding percentage held by Noble Jewelry (Hong
Kong).

      Noblediam sources jewelry products from Noble Jewelry (Hong Kong) on normal
commercial terms and imports and distributes such jewelry products in Spain under the
Oridiam brand name with the logo “OD”.

      In December 2005, Noble Jewelry (Hong Kong) was granted the Second Runner-up
in the Diamond Necklace Group in the Seventh Buyers’ Favorite Jewelry Design
Competition 2005 organised by the Hong Kong Jewelry Manufacturers’ Association.

      In January 2006, we collaborated with The Productivity (Guangzhou) Consulting
Co, Ltd., a subsidiary of the Hong Kong Productivity Council in the Balanced Score Card
Project which is carried out in the Panyu Plant.

      In April 2006, the Group acquired the business (including the assets and liabilities)
of Chad Allison Designs, LLC for a consideration of approximately US$2.33 million. The
acquired business included inventory, customers’ lists, trademarks and trade names owned
by Chad Allison Designs LLC. Following the above acquisition, the business of Chad
Allison was reallocated from Arizona to New York in August 2006.


                                          – 56 –
                                                 BUSINESS


SHAREHOLDING AND CORPORATE STRUCTURE

      On 26 February 2007, we completed the Reorganisation, as a result of which the
Company became the holding company of all members of the Group. Further information
on the Reorganisation is set forth under “Corporate reorganisation” in appendix VI to this
prospectus. Following completion of the Share Offer and the Capitalisation Issue, and
assuming that none of the Adjustment Options is exercised, the following diagram illustrates
the shareholding structure of the Company:—


         Mr. Johnny CHAN


                  100%

          First Prospect
                           Mr. TANG Chee Kwong   Mr. YU Yip Cheong    Ms. CHAN    Public Shareholders
               (BVI)

                  66.5%              1.5%                  1.0%            1.0%             30.0%



                                                   The Company
                                                  (Cayman Islands)
                                                 Investment holding




Note:—

Mr. Johnny CHAN, Mr. TANG Chee Kwong, Mr. YU Yip Cheong and Ms. CHAN are the executive Directors. All
of them, together with First Prospect, are the Controlling Shareholders.




                                                    – 57 –
               The following diagram illustrates the corporate structure of the Group and associate companies of the Company:–

                                                                                                                    The Company
                                                                                                                   (Cayman Islands)
                                                                                                                  Investment holding
                                                                                                                            100%
                                                                                                                      NJ (BVI)
                                                                                                                       (BVI)
                                                                                                                 Investment holding


                                                      100%                  100%                                                        100%                                                         100%

                                              Noble Jewelry        Noble Jewelry                                                 Grandpower                                                      Farwin
                                                (Mauritius)         (Hong Kong)                                                   Holdings                                                     (Hong Kong)
                                                 (Mauritius)         (Hong Kong)                                                    (BVI)                                                  Diamond procurement
                                            Investment holding     Sale of jewelry                                            Investment holding


                                                      100%                                    100%                         100%                       100%                       100%

                                            Noble Jewelry (LA)                             NJUK                       Topwin                 Chad Allison            Noble Jewelry (NY)
                                              (California, US)                       (United Kingdom)              (Hong Kong)              (Delaware, US)             (New York, US)
                                             Trading of jewelry                       Sale of jewelry            Trading of jewelry        Trading of jewelry         Trading of jewelry
                                                  (Note1)                                                                                                                 (Note 1)




– 58 –
                                100%                  61%                  50%                          50%                              100%                             100%

                                                 Trinity                                                                         Noble Jewelry                   Sinoble Jewelry
                                                                                                                                                                                                                 BUSINESS




                         Noble Diamond                            Pesona Noble                  Noblediam                        (Guangzhou)
                                               (Hong Kong)                                                                                                         (Hong Kong)
                          (Hong Kong)                              (Hong Kong)                    (Spain)                           (PRC)
                                            (Ceased business)                                                                                                       (Hong Kong)
                            (Note2)                               Sale of jewelry              Sale of jewelry                Processing of jewelry
                                                 (Note3)                                                                                                        Investment holding

                                                                                                                                                                          100%

                                                                                                                                                             Sinoble Jewelry (PRC)
                                                                                                                                                                     (PRC)
                                                                                                                                                                 China business




         Notes:—

         1.    The business of Noble Jewelry (LA) ceased in June 2006. Noble Jewelry (NY) commenced its business from June 2006.

         2.    Noble Diamond has not yet commenced business.

         3.    Trinity was principally involved in the distribution of jewelry products to Japan. Following its cessation of business in February 2005, its business was taken up by
               Topwin.
                                       BUSINESS


PRODUCTS AND SERVICES

     The following diagram illustrates our products and services provided to our
customers:—




                                 Logistics
                                  and                Inventory
                          technology support          management


                                               ODM




                                         OUR FINE
                 Sales
                                          JEWELRY                   Branding
                  and
                                         PRODUCTS                    and
                 marketing
                                                                 product
                 management
                                                                support

                                               OBM




                                  Acquisitions and mergers
                                   and strategic alliances




Services

       With regard to branding and product support, the Group provides generic ODM,
tailor-made ODM as well as exclusive ODM to customers. The Directors believe the
Group’s strength lies in this area, with strong product development and design capabilities.
Apart from ODM services, the Group also provides OBM services to a selected group of
customers that have such needs. In this case, the Group, apart from providing ODM
services, also assists the customers to design promotional materials and related thematic
stories in order to assure that the series of the fine jewelry products will be successfully
launched.

       With regard to sales and marketing support, the Group’s customer service department
at the Panyu Plant was staffed with over 30 representatives as at the Latest Practicable
Date to take orders and deal with enquiries 18-hours a day over two shifts to ensure that
all orders and enquiries from customers are dealt with promptly.

      With regard to inventory management, the Group’s ORACLE enterprise resources
planning system provides the Group’s customers an information platform from which they
have access to their product ordering status (including past orders and designs) as well
as payment records.



                                           – 59 –
                                                                                BUSINESS


     On logistics and technology support, the Group provides primarily logistics support
to customers for product re-ordering. Such support includes such administrative
arrangements as doing up their price tags and customers’ product codes as well as in
some cases preparing customers’ sales catalogues.

Products

      All our fine jewelry products include diamond and comprise a wide range of products
with different styles that change from time to time. As a fine jewelry manufacturer, our
products predominantly consist of diamond, gemstone and semi-precious stone products.
We will also use other complementary materials and components, such as synthetic
stone and pearl, as and when required by our customers.

     The following table sets forth an analysis of the sales of our jewelry products by
product types for each Track Record Period:—

                            Our sales during the Track Record Period in terms of product types

                                                                                      Financial year ended 31 March                         Six months ended
Product type                                                           2004                      2005                       2006           30 September 2006
                                                                 HK$’000         %          HK$’000          %         HK$’000        %     HK$’000        %

Ring . . . . . . . . . . . . . . . . . . . . . . . . . . . .    107,729.4      30.1       142,163.5       31.3        179,201.9     32.7   109,689.8     34.6
Earring . . . . . . . . . . . . . . . . . . . . . . . . . .      63,113.4      17.7        90,755.4       20.0        122,622.9     22.4    74,190.6     23.4
Pendant/Brooch . . . . . . . . . . . . . . . . . .               45,487.3      12.7        62,408.4       13.7         83,960.4     15.3    47,602.0     15.0
Bracelet/Bangle . . . . . . . . . . . . . . . . . .              72,168.9      20.2        83,017.0       18.3         81,280.3     14.8    40,024.6     12.6
Necklace . . . . . . . . . . . . . . . . . . . . . . . .         63,768.4      17.8        69,292.6       15.3         69,426.2     12.7    37,958.0     12.0
Others (Note) . . . . . . . . . . . . . . . . . . . .             5,254.6       1.5         6,287.1        1.4         11,120.3      2.1     7,828.0      2.4


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .   357,522.0     100.0       453,924.0      100.0        547,612.0    100.0   317,293.0    100.0



Note:—

Others include cufflinks, keyholder, buckle, clasp, watch and tie-clip.




                                                                                        – 60 –
                                                                                BUSINESS


      The following table sets forth an analysis of the number of jewelry products sold by
us during each Track Record Period:—

                                    Our sales during the Track Record Period in terms of quantity

                                                                                      Financial year ended 31 March                         Six months ended
Product type                                                           2004                      2005                       2006           30 September 2006
                                                                    Units        %             Units         %            Units       %        Units       %

Ring . . . . . . . . . . . . . . . . . . . . . . . . . . . .      48,293       40.3          50,421       28.3          56,808      30.5     30,749      31.1
Earring . . . . . . . . . . . . . . . . . . . . . . . . . .       17,469       14.6          47,667       26.8          54,611      29.3     23,879      24.2
Pendant/Brooch . . . . . . . . . . . . . . . . . .                24,342       20.3          36,141       20.3          28,619      15.4     16,973      17.2
Bracelet/Bangle . . . . . . . . . . . . . . . . . .                9,968        8.3          11,501        6.5           7,887       4.2      3,248       3.3
Necklace . . . . . . . . . . . . . . . . . . . . . . . .           4,942        4.1           4,578        2.6           4,380       2.3      2,422       2.4
Others (Note) . . . . . . . . . . . . . . . . . . . .             14,743       12.4          27,548       15.5          34,119      18.3     21,548      21.8


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .    119,757      100.0         177,856      100.0         186,424     100.0     98,819     100.0



Note:—

Others include cufflinks, keyholder, buckle, clasp, watch and tie-clip.


      The following table illustrates the sales of our products during the Track Record
Period:—

                 Our sales during the Track Record Period by stone type of jewelry products

                                                                                      Financial year ended 31 March                         Six months ended
Stone type of jewelry products                                         2004                      2005                       2006           30 September 2006
                                                                 HK$’000         %          HK$’000          %         HK$’000        %     HK$’000        %

Diamond . . . . . . . . . . . . . . . . . . . . . . . . .       312,384.6      87.4       380,985.1       83.9        441,042.6     80.5   265,619.4     83.7
Diamond with semi-precious and
  synthetic stone . . . . . . . . . . . . . . . . .              11,086.8       3.1        38,231.7         8.4        70,119.5     12.8    32,800.4     10.4
Others (Note) . . . . . . . . . . . . . . . . . . . .            34,050.6       9.5        34,707.2         7.7        36,449.9      6.7    18,873.2      5.9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .   357,522.0     100.0       453,924.0      100.0        547,612.0    100.0   317,293.0    100.0


Note:—

Other jewelry products include precious stone, gold jewelry products, silver jewelry products and pearl jewelry
products, all with diamond.




                                                                                        – 61 –
                                                                                   BUSINESS


Diamond jewelry products

       Our diamond jewelry products use the diamond sourced by us from various countries,
such as India, Belgium, Russia and Israel. Particulars of our purchasing activities are set
forth under “Purchase of raw materials and suppliers” below. Our diamond jewelry products
include earrings, rings, pendants, necklaces, bracelets and bangles. The diamonds are
mainly inlaid or set in 18 karat white gold, yellow gold and platinum.

Diamond jewelry products with semi-precious/synthetic stone

      Diamond with semi-precious/synthetic stone jewelry products include earrings, rings,
pendants, necklaces, bracelets and bangles. The semi-precious/synthetic stones used by
us include citrine, smoky topaz and pink synthetic stone etc.

Other jewelry products

      Other jewelry products include precious stone, gold jewelry products, silver jewelry
products and pearl jewelry products, all with diamond. These products include earrings,
rings, pendants and necklaces. The pearls used by us include pearls sourced in China
and countries in Southeast Asia.

SALES AND MARKETING

Customers and markets

      Our customers include fine jewelry wholesalers and retailers in different countries
and territories around the world. The following table sets forth an analysis of our customers
by geographical locations:—

                                                                 Our sales during the Track Record Period
                                                                         by geographical locations

                                                                                         Financial year ended 31 March                         Six months ended
Countries/Territories                                                     2004                      2005                       2006           30 September 2006
                                                                    HK$’000         %          HK$’000          %         HK$’000        %     HK$’000        %

The Middle East (Note 1) . . . . . . . . . .                        62,503.3      17.5       100,802.5       22.2        161,169.8     29.4    91,960.0     29.0
US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     107,317.2      30.0       122,625.7       27.0        140,555.3     25.7    76,841.0     24.2
Europe (Note 2) . . . . . . . . . . . . . . . . . .                 80,939.2      22.6       104,679.6       23.1        126,829.8     23.2    69,081.0     21.8
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . .         45,654.5      12.8        51,408.7       11.3         52,996.3      9.7    22,444.0      7.1
Hong Kong (Note 3) . . . . . . . . . . . . . . .                    28,661.6       8.0        48,368.3       10.7         41,525.0      7.6    39,147.0     12.3
Other Asian-Pacific countries . . . . . . .                         32,446.2       9.1        26,039.2        5.7         24,535.8      4.4    17,820.0      5.6


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .      357,522.0     100.0       453,924.0      100.0        547,612.0    100.0   317,293.0    100.0




                                                                                           – 62 –
                                                                                BUSINESS


Notes:—

1.             Countries in the Middle East include Saudi Arabia, United Arab Emirates, Kuwait and Egypt.

2.             Countries in Europe include the United Kingdom, Germany, France, Italy and Spain.

3.             Sales to Hong Kong include sales to I-jewelry.

4.             Countries and territories in Asian-Pacific include Indonesia, the Philippines and Australia.


       During each Track Record Period, sales to our customers which were principally
engaged in the retailing business amounted to approximately HK$124.9 million, HK$166.4
million, HK$221.1 million and HK$144.4 million, respectively, representing approximately
34.9 per cent., 36.7 per cent., 40.4 per cent. and 45.5 per cent. of our total sales, with the
remaining balance being our sales to customers which were principally engaged in the
wholesale business.

       During each Track Record Period, sales to our top five major customers amounted
to approximately HK$55.5 million, HK$72.3 million, HK$103.2 million and HK$77.4 million,
respectively, representing approximately 15.5 per cent., 15.9 per cent., 18.8 per cent.
and 24.4 per cent. of our total sales. Sales to the largest customer during the Track
Record Period amounted to approximately HK$16.1 million, HK$21.0 million,
HK$22.5 million and HK$20.3 million, respectively, representing approximately 4.5 per cent.,
4.6 per cent., 4.1 per cent. and 6.4 per cent. of our total sales. During the Track Record
Period, sales to I-jewelry which is held by Mr. Johnny CHAN and Ms. CHAN amounted to
nil, HK$9.7 million, HK$20.0 million and HK$20.3 million respectively, representing
approximately nil, 2.1 per cent., 3.6 per cent. and 6.4 per cent. of our total sales. Save as
disclosed above, none of the Directors or so far as any of them is aware, any person who
owned five per cent. or more of our issued share capital as at the Latest Practicable Date
or any of their respective associates had any interest in any of our five largest customers
for the Track Record Period.

Business model

     The following table illustrates the percentage of sales categorized under the ODM
and OBM basis during each Track Record Period:—

                          Our sales during the Track Record Period by different business basis

                                                                                      Financial year ended 31 March                         Six months ended
Basis of sales                                                         2004                      2005                       2006           30 September 2006
                                                                 HK$’000         %          HK$’000          %         HK$’000        %     HK$’000        %

OBM . . . . . . . . . . . . . . . . . . . . . . . . . . . .      56,532.5      15.8        91,867.8       20.2        135,786.8     24.8   110,422.6     34.8
Exclusive and tailor-made ODM . . . . .                         124,355.0      34.8       162,200.7       35.7        162,538.4     29.7    77,959.0     24.6
Generic ODM . . . . . . . . . . . . . . . . . . . .             176,634.5      49.4       199,855.5       44.1        249,286.8     45.5   128,911.4     40.6


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .   357,522.0     100.0       453,924.0      100.0        547,612.0    100.0   317,293.0    100.0


                                                                                        – 63 –
                                        BUSINESS


ODM

      Sales under ODM were our focus during the Track Record Period, and the Directors
believe that our strength lies in this area, with strong product development and design
capabilities and good customer service support. Sales under ODM grew substantially
during the Track Record Period because of customer demand.

      The most important component for our ODM sales is product design. As part of our
regular sales and marketing activities, we provide our product designs for the selection of
our customers in different countries. During each Track Record Period, we produced
approximately 3,044, 4,909, 7,375 and 4,653 designs in-house. It is our policy to do all
major product design in-house, rather than retaining contracted designers, except for
major projects for which the Group may not have adequate resources or expertise. Our
customers may also provide their inputs to the product designs, such as the choice of
gems/diamonds and the casting techniques, according to their preferences. The Group
currently engages an independent product development consultant to develop, together
with the Group’s in-house design team, Chad Allison’s once-a-year jewelry collection.
This consultant is responsible to review Chad Allison’s existing product lines and to
develop new product lines for Chad Allison in 2007 for the US market.

      The ODM business may be further categorized into generic ODM, tailor-made ODM
and exclusive ODM depending on the scope of services provided by us to our customers.
Generic ODM is built on our regular product designs appealing to customers in different
markets. Fine jewelry products under tailor-made ODM are designed for particular
customers, but we will also promote such designs to other customers in the same market.
Exclusive ODM is an exclusive and tailor-made ODM service with exclusive jewelry designs
for particular customers that will not be used or modified in the market in which the
customers are based.

      Sales under ODM, in general, require us to maintain an inventory before selling
them to our customers. Hence sales under ODM will require a higher level of working
capital and we may need to bear increasing financing costs.

OBM and OSM

       We provide OBM services to a selected group of customers and consider that there
is significant potential for the further development of OBM and OSM businesses. For
OBM business, we have dedicated teams of designers and marketing professionals
discussing with our customers the product theme of each new series of fine jewelry and
will prepare all the required sketches and prototypes for our customers’ consideration.
We will also assist the customers to design promotional materials and the related thematic
stories so as to assure that the series of fine jewelry products will be successfully launched.
The services we currently provide include a wide range of management services ranging
from sales and marketing management, logistics and technology support, inventory
management and branding and product support.

      As sales under OBM are generally targeting chain store customers, these sales are
made to order and do not require an accumulation of inventory. The working capital
requirement and financing costs are relatively low compared to that of sales under ODM.


                                            – 64 –
                                      BUSINESS


Sales and marketing strategy

       We have adopted a coherent sales and marketing strategy for all our fine jewelry
products. Our sales and marketing strategy is approved by the Directors and implemented
by our sales and business development representatives. We divide our target markets
into four sales divisions, namely North and South America, the Middle East, Europe and
Asian-Pacific countries, and have one division designated for selected customer segments.
As at the Latest Practicable Date, we had over 20 sales and business development
representatives stationed in our Hong Kong office responsible for our target markets
around the world.

      In order to provide prompt services to our customers, as at the Latest Practicable
Date, we had staffed over 30 customer service representatives at the Panyu Plant who
take orders and answer enquiries, either by phone or via email communications, from our
customers. Our customer service department is manned 18 hours a day over two shifts
each day to ensure that all orders and enquiries from our customers, including those on
order status and follow-up questions, around the globe can be dealt with promptly.

      Our sales and marketing strategy is formulated each year with regular reviews
during the course of each year. The strategy is part of our business plan. One of our
important sales and marketing activities is attending tradeshows and exhibitions. During
the financial year ended 31 March 2006, we attended 23 tradeshows and exhibitions
around the globe, and they include Hong Kong International Jewelry show, the JCK Show
in Las Vegas, the Vicenza Fair in Italy and Baselworld in Switzerland. We also place
advertisements in industry journals and sponsor industry-related activities. Our sales and
marketing strategy is always targeting fine jewelry wholesalers and retailers at different
parts of the globe.

      In addition to sales and marketing strategy at the corporate level, our sales
representatives visit our customers on a regular basis to bring them updated product
catalogues and samples. All of these visits are planned in advance and are subject to
regular reporting to the relevant division heads.

      We also adopt customer-oriented sales and marketing strategies for tailor-made
and exclusive ODM customers and OBM customers for the purpose of formulating an
overall product promotional strategy for different series of jewelry products. In this
connection, we have a dedicated team of cross-departmental staff to provide full support
to our important customers. Our target is to work with them to develop jewelry products in
a particular market for a niche group of customers.

      Apart from participation in international tradeshows and exhibitions, we also promote
our corporate image through advertising in international trade magazines such as Basel
Magazine, Hong Kong Jewellery Magazine and Jewelry Express and participating in design
competitions organized by the Hong Kong Jewelry Manufacturers’ Association.




                                          – 65 –
                                                                                BUSINESS


      We regularly evaluate our sales and marketing performance by holding monthly
meetings amongst our sales executives and division heads and our Directors responsible
for sales and customer services.

Pricing policy

       Our customers include wholesalers and retailers of fine jewelry products. As our
customers are not end users of our products, the prices of our products are determined
by reference of the retail prices of our jewelry products, so as to provide a reasonable
profit margin for our customers.

       Whilst we have an internal pricing guideline for our sales heads to determine base
prices, our sales executives, under the supervision of the division head, will determine
final prices on the basis that (i) the final prices cannot be lower than base prices and (ii)
different customer segments have different pricing standards. Hence, we have different
pricing strategies and have to make reference to all costing elements from time to time.
Prices for the Group’s jewelry products are determined based on standard costs of all
principal raw materials set by the Group, which takes into account purchase costs and
other ancillary procurement costs, plus a profit margin. The pricing of our products in
each market will have to be approved by the relevant division head. We adopt a transparent
pricing mechanism, and our executive Directors are accessible to all these data on a real-
time basis for control purposes.

      Our sales are settled in different currencies. The following table sets forth an analysis
of our sales in different currencies:—

                             Our sales during each Track Record Period by different currencies

                                                                                      Financial year ended 31 March                         Six months ended
Currencies                                                             2004                      2005                       2006           30 September 2006
                                                                 HK$’000         %          HK$’000          %         HK$’000        %     HK$’000        %

US dollars . . . . . . . . . . . . . . . . . . . . . . .        214,188.4      59.9       265,755.2       58.5        348,226.8     63.6   217,528.8     68.6
British Pound . . . . . . . . . . . . . . . . . . . . .          49,922.0      14.0        63,552.4       14.0         64,149.1     11.7    28,901.9      9.1
HK dollars . . . . . . . . . . . . . . . . . . . . . . .         27,783.9       7.8        48,238.2       10.6         49,615.1      9.1    41,699.3     13.1
Japanese Yen . . . . . . . . . . . . . . . . . . . .             42,064.7      11.8        43,332.5        9.6         39,676.1      7.2    16,471.9      5.2
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3,589.4       1.0         8,628.2        1.9         15,756.4      2.9     5,762.9      1.8
Others (Note) . . . . . . . . . . . . . . . . . . . .            19,973.6       5.5        24,417.5        5.4         30,188.5      5.5     6,928.2      2.2


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .   357,522.0     100.0       453,924.0      100.0        547,612.0    100.0   317,293.0    100.0



Note:—

Others include Arab Union Emirate dirham and Australian dollars.




                                                                                        – 66 –
                                                                                BUSINESS


Credit control policy

      We adopt a closely monitored credit control policy on our accounts receivable. It is
our policy to request the customers to settle their purchases by way of credit and cash-
on-delivery. The following table illustrates an analysis of our sales by payment methods:—

                               Our sales during each Track Record Period by payment methods

                                                                                      Financial year ended 31 March                         Six months ended
Currencies                                                             2004                      2005                       2006           30 September 2006
                                                                 HK$’000         %          HK$’000          %         HK$’000        %     HK$’000        %

Credit term . . . . . . . . . . . . . . . . . . . . . .         317,423.8      88.8       403,834.9       89.0        502,522.4     91.8   296,521.3     93.5
Cash-on-delivery . . . . . . . . . . . . . . . . .               40,098.2      11.2        50,089.1       11.0         45,089.6      8.2    20,771.7      6.5


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .   357,522.0     100.0       453,924.0      100.0        547,612.0    100.0   317,293.0    100.0


       Credit terms are only granted to major customers with an established business
relationship with us. Generally speaking, we will not grant credit terms to our customers
of more than 180 days. These terms vary on a case-by-case basis depending on our
business history with them and the creditworthiness of the relevant customer. We normally
grant credit terms to customers under exclusive ODM and OBM bases.

      We periodically review the credit terms and our customer’s payment track record
and if necessary we will revise the credit terms we grant to our customers. We will also
closely monitor any outstanding overdue debts and take measures to collect any
outstanding debts due to us.

       We periodically assess impairment of our accounts receivable based on our analysis
of collectibility and aging status of the receivables. In determining whether impairment is
required, we take into consideration the aging and recoverability of the accounts receivable.
During each Track Record Period, we provided an amount of approximately HK$5.0
million, HK$6.1 million, HK$0.7 million and nil, respectively, as provision for bad and




                                                                                        – 67 –
                                                       BUSINESS


doubtful debt. The following set forth an aging analysis of our accounts receivable (net of
impairment losses for bad and doubtful debts) as at 31 March 2004, 2005 and 2006 and
30 September 2006, respectively:—

                                     Aging analysis of our accounts receivable


                                                                                               As at 30
                                                                  As at 31 March              September
                                                      2004             2005         2006         2006
                                                     HK$’000          HK$’000      HK$’000     HK$’000

1 to 90 days . . . . . . . . . . . . . . . . . . .     41,466            49,914      50,060      70,621
91 to 180 days . . . . . . . . . . . . . . . . .       12,114            10,783      12,091      14,655
181 to 365 days . . . . . . . . . . . . . . .           1,856             1,133       2,321       1,761
Over 365 days . . . . . . . . . . . . . . . . .         1,956             1,784       1,099       1,521

                                                       57,392            63,614      65,571      88,558


       As the aging analysis of accounts receivable is prepared based on the invoice date
of sales, part of the balances over one year shown in the aging analysis above was, in
fact, within one year after the due date and was not fully provided for.

PRODUCTION

Production facilities

       The Panyu Plant is located at Panyu, Guangdong Province. According to an article
issued by the Hong Kong Trade Development Council, Panyu is one of the leading bases
of fine jewelry manufacturing activities in China. The Panyu Plant has a gross total floor
area of approximately 12,320 sq.m. comprising our production facilities, quality control
laboratory, warehouses and dormitory in China. Material production equipment used at
our production facilities are sourced from both China and overseas.

     Our Hong Kong headquarters have an aggregate gross floor area of approximately
655 sq.m. which house most of the administrative support departments, such as sales
and marketing, human resources and general administration, finance and accounts and
purchasing departments. No production activities are conducted at our Hong Kong
headquarters.

      We had, as at the Latest Practicable Date, an aggregate of approximately 1,600
employees working at the Panyu Plant, among which approximately 1,100 employees are
responsible for the production process of our fine jewelry products. Further information on
the production process is set forth under “Production process” below.




                                                             – 68 –
                                                                  BUSINESS


Production capacity and utilization rate

      We focus primarily on diamond clustered jewelry products that require more
sophisticated diamond setting workmanship as compared to simple jewelry items that are
only set with a few diamond pieces that can be mass produced. The table below illustrates
our production capacity and utilization rate during the Track Record Period.

                                                           Actual output Actual output
                                                            for diamond    for simple
                                                              clustered      jewelry         Total       Production   Utilization
                                                          jewelry products  products     actual output    capacity       rate
                                                              Units          Units          Units          Units

For the financial year ended
  31 March 2004 (Note 1) . . . . . . . . . . . . .            68,010         19,840         87,850       101,260         86.8%
For the financial year ended
  31 March 2005 (Note 1) . . . . . . . . . . . . .            75,350         70,035        145,385       197,750        73.5%
                                                                                                                      (Note 2)
For the financial year ended
  31 March 2006 . . . . . . . . . . . . . . . . . . . .       85,160         94,320        179,480       206,900         86.7%
For the six months ended
  30 September 2006 . . . . . . . . . . . . . . . .           43,300         57,530        100,830       117,440         85.9%


Notes:—

1.         The Group cooperated with an Independent Third Party in China to manufacture fine jewelry products
           from September 2001 to September 2004. Under the cooperation arrangement, such Independent Third
           Party provided such labour as directed by Noble Jewelry (Hong Kong) for the manufacturing of the
           jewelry products of the Group during such period. The production facilities of the Group including the
           equipment and machinery used for the production of the Group’s jewelry products were located in
           Panyu, Guangzhou. Noble Jewelry (Hong Kong) was responsible for the provision of production facilities
           and raw materials and arranged for all necessary insurance to be maintained for the manufacturing
           process.

           In consideration of the labour provided, Noble Jewelry (Hong Kong) paid a processing fee to the
           Independent Third Party. Such arrangement was terminated with the establishment of Noble Jewelry
           (Guangzhou) in September 2004. The Directors confirm that, apart from engaging such Independent
           Third Parties to manufacture fine jewelry products during the period from September 2001 to September
           2004, no member of the Group entered into any subcontracting arrangement during the Track Record
           Period.

2.         The decrease in the average monthly output per labour is due to the expansion of the Group’s factory
           with increase of less-skillful workers within the year.




                                                                       – 69 –
                                      BUSINESS


      During the first quarter of 2006, we have established four workshops. Their respective
functions and specifications are listed below:—

                                                                               Number of
Production lines        Functions and production specifications          workers allocated

(1) High-end            For the production of large necklace                            237
    diamond               & bracelet that usually require more
    Workshop              complicated styling & sophisticated
                          craftsmanship — principally for
                          customers in Europe, US and
                          Japan market

(2) Gemstone            For the production of gemstones and                             160
    & Pearls              pearls products, incorporating diamond,
    Workshop              pearls, precious or semi-precious
                          stones — principally for customers in
                          the Middle East market

(3) Micro-setting       For the production of micro-setting                             162
    & Sophisticated       products that requires more
    Workshop              sophisticated skills

(4) Batch Workshop      For the production of batch products                            154

Production process

       During each Track Record Period, we produced different kinds of fine jewelry
products from time to time with different combinations of principal raw materials. Each
fine jewelry product has its own specifications. Hence, we need to adjust and modify our
production process from time to time in order to meet the specific requirements of our
customers. Nonetheless, with the implementation of ORACLE enterprise resources planning
platform, our principle production steps can be better delineated and hence, we have a
better internal control:—




                                          – 70 –
                                              BUSINESS


     The following provides a diagrammatic illustration of our production process at the
Panyu Plant:—

                                   Production flow at the Panyu Plant

     Department/Workshop                      Production Process


     Production Planning and
                                                    Issue job order
     Material Control Department



     Wax Injection Workshop                         Wax injection            Stone matching



     Wax Setting Workshop                            Wax setting



     Casting Workshop                                Gold casting




                                          {
     Four lean manufacturing workshops:                  Filing



                                                    Stone setting



                                              Polishing and electroplating



     Quality Assurance Department                 Quality assurance



     Shipping team
                                                 Packing and delivery




                                                  – 71 –
                                                  BUSINESS


      The responsible works of the four lean manufacturing workshops is illustrated by
the diagram below:—


                                                                                          Polishing and
                            Filing                       Stone Setting
                                                                                          Electroplating




         High-end Diamond            Micro-setting and              Gemstone and Pearl
                                      Sophisticated                                                  Batch Wokshop
             Workshop                   Workshop                       Workshop
                                                                                                       (       )
             (       )                  (    p    )                    (        )


         Large Necklace &             Micro-setting                      Gemstone and                Batch Products
             Bracelet                   Products                         Pearl Products


Permits and approvals

     During the Track Record Period, the Group has obtained all necessary permits and
approvals required for conducting its business activities.

      Noble Jewelry (Guangzhou) obtained various permits, licenses and approvals for
our production requirements at the Panyu Plant as follows:—

Permit/certification                                     Issuing authority                                      Validity period

Guangdong Province Processing                            Guangzhou City Administration                       21 August 2006 –
 with Supplied Materials                                 of Industry and Commerce                              21 August 2007
 Operating Permit                                        Panyu Branch
 (
            )

PRC Kimberly Process International                       Panyu Entry-exit Inspection                       2 September 2006 –
 Certification (                                         and Quarantine Bureau                               1 September 2008
                                         )

PRC Customs Import and Export Goods                      Panyu Customs                                         17 June 2004 –
 Customs Declaration Registration                                                                                17 June 2008
 Certificate (
                                )

       Noble Jewelry (Guangzhou) has obtained all the necessary permits and approvals
for its current business activities, namely manufacturing and processing of diamonds,
precious stones, gold jewelry products, platinum jewelry products and silver jewelry
products and other jewelry products.

       Noble Jewelry (Hong Kong) has been registered as a rough diamond trader with the
Trade and Industry Department of the government of Hong Kong for carrying on business
of importing, exporting, buying, selling or carrying rough diamonds and the current
registration is valid for the period between 6 September 2006 and 5 September 2008.



                                                          – 72 –
                                                                                BUSINESS


     The Directors consider that there are no circumstances that may arise which may
revoke the above approvals and permits.

PURCHASE OF RAW MATERIALS AND SUPPLIERS

General information

      The principal raw materials used in our production processes include diamonds,
gold, precious stones and semi-precious stones. The following table illustrates an analysis
of our purchase of raw materials during each Track Record Period:—

                     Our purchase of principal raw materials during each Track Record Period

                                                                                      Financial year ended 31 March                         Six months ended
Raw materials                                                          2004                      2005                       2006           30 September 2006
                                                                 HK$’000         %          HK$’000          %         HK$’000        %     HK$’000        %

Diamond . . . . . . . . . . . . . . . . . . . . . . . . .       184,397.7      72.3       240,176.0       71.2        289,453.0     72.0   138,999.5     66.6
Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . .     48,095.8      18.9        70,147.9       20.8         86,008.7     21.4    58,503.2     28.0
Platinum and silver, etc. . . . . . . . . . . .                  14,452.2       5.7        15,163.2        4.5         11,282.1      2.8     6,398.5      3.1
Precious stones/
  semi-precious stones . . . . . . . . . . . .                    7,968.0       3.1        11,715.1         3.5        15,026.9      3.8     4,909.1      2.3


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .   254,913.7     100.0       337,202.2      100.0        401,770.7    100.0   208,810.3    100.0


Purchase of diamond

       One of the most important raw materials purchased by us is diamond. During each
Track Record Period, our purchase of diamond accounted for approximately HK$184.4
million, HK$240.2 million, HK$289.5 million and HK$139.0 million, respectively, representing
approximately 72.3 per cent., 71.2 per cent., 72.0 per cent. and 66.6 per cent. of our total
purchase of principal raw materials. We only purchase polished diamonds for our production
purposes but since September 2004, we also purchase rough diamonds for cutting and
polishing. As at the Latest Practicable Date, we employed over 30 technicians working at
our diamond processing factory at the Panyu Plant for cutting and processing diamonds
for our production requirements. Nonetheless, it continues to be our policy to purchase
polished diamonds for our production requirements. During each Track Record Period,
we purchased a total of approximately 101,837 karat, 120,893 karat, 133,346 karat and
64,364 karat diamonds for our jewelry production.

       None of the Directors or so far as any of them is aware, any person who owned five
per cent. or more of our issued share capital as at the Latest Practicable Date or any of
their respective associates had any interest in any of our five largest suppliers for the
Track Record Period.




                                                                                        – 73 –
                                                                                BUSINESS


      The following table sets out the purchase of principal raw materials by geographic
regions during the Track Record Period.

          Our purchase of principal raw materials during the Track Record Period by region

                                                                                      Financial year ended 31 March                         Six months ended
Region                                                                 2004                      2005                       2006           30 September 2006
                                                                 HK$’000         %          HK$’000          %         HK$’000        %     HK$’000        %

Diamond – Hong Kong . . . . . . . . . . . .                     109,440.4      42.9       136,614.4       40.5        172,373.3     42.9    86,042.6     41.2
Diamond – India . . . . . . . . . . . . . . . . . .              67,775.5      26.6        94,350.1       28.0         94,162.0     23.4    50,185.7     24.1
Diamond – through other
  countries . . . . . . . . . . . . . . . . . . . . . .           7,181.8       2.8          9,211.5        2.7        22,917.7      5.7     2,771.2      1.3
Gold, platinum, silver &
  other precious metal and stones . .                            70,516.0      27.7        97,026.2       28.8        112,317.7     28.0    69,810.8     33.4


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .   254,913.7     100.0       337,202.2      100.0        401,770.7    100.0   208,810.3    100.0


      Our purchases of diamond were made through two principal means: first, through
our headquarters in Hong Kong and second, through our liaison office in Mumbai. During
each Track Record Period, our purchases of diamonds in Hong Kong amounted to
approximately HK$109.4 million, HK$136.6 million, HK$172.4 million and HK$86.0 million,
respectively. We normally request representatives of our suppliers to come to our Hong
Kong office showing us the diamonds. We may confirm our orders immediately or request
the sales representatives to leave the diamonds with us for further consideration. The
Directors confirm that it is also a practice in Hong Kong that diamond suppliers will leave
the diamonds at our Hong Kong office on consignment sales. Although the legal title and
the ownership of the diamonds has yet to be passed to us, we have maintained appropriate
insurance policies to ensure that we do not bear the risks of loss and theft. Diamonds on
consignment do not form part of our inventory until we confirm to the suppliers that we
need them for production purposes. If we use the required diamond, we will inform the
suppliers and they will issue the relevant invoices to us, upon which the cost of the
diamond will be taken as our purchase cost. All of these purchases will be settled in Hong
Kong dollars or US dollars by way of bank draft or cheque.

       We also source diamonds in India. During each Track Record Period, our purchase
through our liaison office in Mumbai amounted to approximately HK$67.8 million, HK$94.4
million, HK$94.2 million and HK$50.2 million, respectively. As at the Latest Practicable
Date, our liaison office had 17 staff. Our staff are responsible for screening the quality of
the diamonds and check the quality by reference to the quality standards set by our
purchase department in Hong Kong.

      All purchases in India were settled in Rupees in cash or by way of credit term of
between 30 and 90 days. There were no long-term contracts entered into between us and
the brokers or the ultimate suppliers in order to maintain flexibility in sourcing.



                                                                                        – 74 –
                                      BUSINESS


       Except for one of the five major suppliers which was our supplier of gold and
platinum, all the other four major suppliers during each Track Record Period were suppliers
of diamond.

Purchase of gold, platinum, silver and other precious metals

       We purchase gold, platinum, silver and other precious metals as and when required
for our production requirements. Our gold, platinum, silver and other precious metals are
purchased from suppliers in Hong Kong who are Independent Third Parties. During the
Track Record Period, we were not engaged in any hedging activities despite the fluctuations
in the gold price. During each Track Record Period, our purchase of gold, platinum, silver
and other precious metals amounted to approximately HK$62.5 million, HK$85.3 million,
HK$97.3 million and HK$64.9 million, respectively.

Purchase of precious and semi-precious stones

      In addition to diamond, we also purchase precious stones and semi-precious stones
for our production purposes. During each Track Record Period, our purchase of precious
and semi-precious stones amounted to approximately HK$8.0 million, HK$11.7 million,
HK$15.0 million and HK$4.9 million, respectively. All of those suppliers are Independent
Third Parties.

Suppliers

       During each Track Record Period, purchase of principal raw materials from our five
major suppliers amounted to approximately HK$107.5 million, HK$149.8 million, HK$180.1
million and HK$88.3 million, respectively, representing approximately 41.4 per cent., 44.1
per cent., 44.7 per cent. and 42.2 per cent. of our total purchases. Purchases from the
largest supplier during the Track Record Period amounted to approximately HK$41.2
million, HK$74.2 million, HK$87.9 million and HK$55.6 million, respectively, representing
approximately 15.9 per cent., 21.8 per cent., 21.8 per cent. and 26.6 per cent. of our total
purchases. The Directors confirm that all of the five major suppliers during the Track
Record Period are Independent Third Parties.

      Our purchases are predominantly settled in Hong Kong dollars, Rupees and US
dollars. The Directors confirm that for the year ended 31 March 2006 approximately 76.6
per cent. of the Group’s purchases were made either in US dollars or Hong Kong dollars.
On this basis, the Directors considered that the Group was not facing any significant
foreign exchange risk and as such, the Group did not hedge in foreign currency movements,
save and except that it had entered into foreign currency forward contracts with a local
bank to hedge the rise in RMB against the US dollar.




                                          – 75 –
                                                                                 BUSINESS


       The following table sets forth an analysis of our purchase of principal raw materials
in different currencies:

                     Our purchase of principal raw materials during each Track Record Period
                                              by different currencies

                                                                                       Financial year ended 31 March                           Six months ended
Currencies                                                              2004                      2005                       2006             30 September 2006
                                                                  HK$’000         %          HK$’000          %         HK$’000           %    HK$’000         %

Hong Kong dollars . . . . . . . . . . . . . . . .                175,939.5      69.0       223,981.1       66.4        224,945.4      56.0    120,935.8      57.9
Rupee . . . . . . . . . . . . . . . . . . . . . . . . . . .       67,775.5      26.6        94,350.1       28.0         94,162.0      23.4     50,185.7      24.1
US dollars . . . . . . . . . . . . . . . . . . . . . . .          11,198.7       4.4        18,871.0        5.6         82,663.3      20.6     37,688.8      18.0


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .    254,913.7     100.0       337,202.2      100.0        401,770.7     100.0    208,810.3     100.0


               The following sets forth an aging analysis of our accounts payable:—

                                                                Aging analysis of our accounts payable


                                                                                                                                                   As at 30
                                                                                                  As at 31 March                                  September
Aging                                                                           2004                     2005                      2006              2006
                                                                               HK$’000                 HK$’000                 HK$’000              HK$’000

1 to 90 days . . . . . . . . . . . . . . . . . . .                                40,674                    37,776                  50,612                53,683
91 to 180 days . . . . . . . . . . . . . . . . .                                  15,552                    23,877                  35,755                28,480
181 to 365 days . . . . . . . . . . . . . . .                                        711                     2,248                   1,045                    22


                                                                                  56,937                    63,901                  87,412                82,185


INVENTORY CONTROL

      Our inventory comprises raw materials, work-in-progress and finished products.
With our ORACLE enterprise resources planning system, we monitor our inventory level
on a real-time basis so as to facilitate our material requirement planning and to make
sure that our working capital position will not be exhausted by excessive inventory. As a
matter of policy, we maintain such stock level the aggregate value of which shall not
represent more than one-half of our production and sales needs in a year.

      With regard to our finished products per our customers’ orders, we normally ship
them to the customers immediately after production. The consignment arrangements
described above effectively allow us to reduce our costs by maintaining appropriate
levels of inventory of raw materials for production use only. The gold bars will only be
purchased by us as and when necessary for our production requirements.


                                                                                         – 76 –
                                                       BUSINESS


     The security measures taken to safeguard the Group’s inventories such as diamonds
and precious metals include:—

—         a security system as required by the insurance company installed in the premises
          of Noble Jewelry (Hong Kong) including the alarm system, vault and safe box and
          24 hours surveillance system;

—         insurance coverage against any loss or theft on all inventories including raw
          materials, work in progress and finished goods within the Group’s premises, in
          transit or in exhibition; and

—         other administrative security control measures including regular stock taking and ad
          hoc quality checking, segregation of duties for responsible staff.

       We generally conduct comprehensive stock-taking on a quarterly basis to monitor
our inventory levels. It is our policy to review the stock levels of raw materials and
finished products through regular meetings between functional supervisors of the purchase
department, the sales department, the production department and the accounts department,
in order to ensure that the inventory of raw materials and finished products is maintained
at a reasonable and sufficient level to meet the demand of our customers and our
production schedule.

          The following table sets forth our stock loss during the Track Record Period:—

                                            Our stock loss during the Track Record Period


                                                                                              Six months ended
                                                      Financial year ended 31 March             30 September
                                                   2004               2005       2006               2006
                                                  HK$’000         HK$’000       HK$’000           HK$’000

Raw materials . . . . . . . . . . . . .                648               129           510                  (26)
Finished goods . . . . . . . . . . . .                 455                15           652                   89


Total . . . . . . . . . . . . . . . . . . . . .      1,103               144          1,162                 63


       We suffer stock loss of raw materials and finished goods from time to time. This is
due to production loss or scrap during production processes such as wax injection setting
processes as well as occasional misplacement during storage or trade shows. The stock
loss during the year ended 31 March 2005 was comparatively low as part of the stock
loss that incurred in financial year ended 31 March 2005 was accounted for in the financial
year ended 31 March 2006. Following improvements in the production process, stock loss
for the six months ended 30 September 2006 was reduced. During the same period, the
credit balance of stock loss for raw materials was attributable to the recovery of the raw
materials reported loss in the previous period.



                                                             – 77 –
                                       BUSINESS


     As at 30 September 2006, raw materials, work in progress and finished products
held by us amounted to approximately HK$73.6 million, HK$24.3 million and
HK$120.6 million, respectively.

      Inventories are stated at the lower of cost and net realisable value in accordance
with Hong Kong Accounting Standard 2. As such, the Company has not engaged any
independent valuer to carry out valuation on the diamond or jewelry products inventory
balance as at each year or period end.

       In general, we make specific provision for obsolete inventories when there is objective
evidence that we will not be able to use or otherwise dispose of the inventory. During
each of the three financial years ended 31 March 2006 and the six months ended 30
September 2006, we made provision for obsolete inventory of precious and semi-precious
stones amounting to approximately HK$4.0 million, HK$2.4 million, HK$3.0 million and
nil, respectively. The Directors consider that our provision policy on obsolete inventories
is adequate and reflective of the net realisable value of our inventory.

QUALITY CONTROL AND ASSURANCE

       We place strong emphasis on quality control and assurance, and the Directors
consider that this operational aspect is important in the fine jewelry industry. Our Quality
Control Team in each manufacturing workshop checks the quality of each piece of product
at different stages of production against customers’ requirements stated on the job order
so as to ensure that there is no defect in the production process. Our Quality Assurance
Technicians will conduct IPQA (In-Process Quality Assurance) by randomly re-checking
the product at different production stages before polishing and electroplating. At last, our
Quality Assurance Team will conduct a full quality check on each finished product against
the customer’s requirement stated on the job order.




                                           – 78 –
                                     BUSINESS


     The following diagram illustrates the quality control and assurance involved in our
production process:—


           Wax injection


                                          1. 100% In-Process Quality Check
            Wax setting                   Quality Control Team in each manufacturing
                                          workshop checks the quality of each piece of
                                          product at different production stages

           Gold casting
                                          2. Random In-Process Quality Assurance
                                          Quality Assurance Technicians randomly re-check
                                          the product at different production stages
               Filing                     before polishing and electroplating



           Stone setting




    Polishing and electroplating




        Quality assurance                 3. 100% Quality Assurance on Finished
                                          Product
                                          Quality Assurance Team conducts quality check on
                                          each finished product against customer’s
       Packing and delivery               requirement stated on the job order.


PRODUCT RESEARCH AND DEVELOPMENT

     The focus of our product research and development activities is to develop new
product designs for our OBM and ODM customers. Our product development and design
department had approximately 250 staff as at the Latest Practicable Date.

     Our product design and development teams are responsible for the following
matters:—

—    studying the latest trends in the fine jewelry industry in terms of product design and
     use of materials;

—    undertaking projects to develop new fine jewelry products or a series of fine jewelry
     products to be launched by our customers;

—    collecting customers’ feedback on fine jewelry products; and

—    recommending new product designs to our sales departments.




                                         – 79 –
                                              BUSINESS


AWARDS AND CERTIFICATIONS

     As at the Latest Practicable Date, we received the following awards and
accreditations:—

Year      Award/Achievements                   Awarding entity               Awarded to

1999      ISO 9001: 2000 Certification         Hong Kong Quality Assurance   Noble Jewelry (Hong Kong)
                                               Agency and IQNet

2000      Gold Prize (Earring Group) in the    Hong Kong Jewelry             Noble Jewelry (Hong Kong)
          Buyers’ Favorite Diamond Jewelry     Manufacturers’ Association
          Design Competition 1999

2000      ISO 14001: 2004 Certification        Hong Kong Quality Assurance   Noble Jewelry (Hong Kong)
                                               Agency and IQNet

2000      Certificate of Merit in              Hong Kong Productivity        Noble Jewelry (Hong Kong)
          Productivity                         Council

2001      Certificate of Merit in the Third    Hong Kong Productivity        Noble Jewelry (Hong Kong)
          Hong Kong SME Award: Best            Council and Hong Kong
          Managed SME Award                    General Chamber
                                               of Commerce

2005      Second Runner-up in Diamond          Hong Kong Jewelry             Noble Jewelry (Hong Kong)
          Necklace Group in the                Manufacturers’ Association
          Seventh Buyers’ Favorite
          Jewelry Design Competition 2005


COMPETITION

       The Directors consider that competition in the fine jewelry industry is keen, and our
competitors include companies from different countries. In terms of competition, the
Directors consider that we have a niche in terms of quality of our products and the
services provided. As mentioned above, we have a team of designers in Hong Kong and
China responsible for fine jewelry designs with the latest trends. Our business model also
allows us to provide our customers with not only quality fine jewelry products, but also
related marketing and management services, to assist them to grow their business.
Because our production facilities are located in Panyu, Guangdong Province, the center
of fine jewelry manufacturing in Southern China, we are able to secure a constant supply
of skilled labour for our production requirements. The Group did not experience any
skilled labour shortage during the Track Record Period. The Group conducts annual
reviews of the wages of its own workers with reference to the local business practice and
the performance of each individual worker. During the Track Record Period, the labour
costs of the Group were principally in line with the number of workers employed.

      One of our comparative advantages is that we have established an ORACLE
enterprise resources planning system for our business. This will not only allow us to
manage our business efficiently, but it also allows our customers to access real-time data
on the production and financial status of their orders and accounts.




                                                – 80 –
                                      BUSINESS


       Although we face competition as described above, given our comparative advantages
as set forth above, the Directors expect that we are well positioned to continue to succeed
in the fine jewelry industry.

INSURANCE

      Insurance is important to our business. We maintain sufficient insurance covering
our inventory (including raw materials, work in progress and finished goods) and the raw
materials under consignment to us within our premises, in transit or in exhibition.

        We have contributed or otherwise made all the statutory required provisions for our
full-time employees at the Panyu Plant to the Social Security Insurance Fund as required
under the PRC law which provides coverage for retirement, work-related accidents,
retrenchment, maternity benefits and medical expenses. We have also effected insurance
against loss or damages of our properties and production facilities. The aggregate amount
of insurance coverage of all of our inventory, the raw materials under consignment to us,
properties and production facilities as at the Latest Practicable Date was approximately
HK$574 million.

      The Directors believe that the coverage from these insurance policies is adequate
for our present operations. However, significant damage to our operations or any of our
properties, whether as a result of fire and/or other causes, may still have a material
adverse impact on the results of our operations or financial condition.

PRODUCT LIABILITY

      The Directors confirm that there was no claim or payment relating to product liability
during the Track Record Period.

ENVIRONMENTAL PROTECTION AND SAFETY MATTERS

Environmental protection

      Our production processes produce waste materials such as used chemical solutions
and industrial dust.

      The Group carries out the following measures to ensure that the relevant
environmental protection laws are complied with and to minimize adverse effects of the
industrial wastage to the environment:—

—     designates a team of experienced workers to test and monitor the discharge of
      liquid chemicals and ensure proper recycling of such chemicals, particularly in the
      case of gold recycling;

—     used chemical solutions are properly stored and collected by a designated waste
      treatment company; and

—     implements proper treatment of production fumes with advanced recycling equipment
      and facilities before discharging into atmosphere.


                                          – 81 –
                                       BUSINESS


      We also use advance technology in the electroplating and electrolysis processes.

      With a view to ensure protection to the environment, we have:—

—     electrolysis equipment to ensure cyanide-free plating;

—     energy saving equipment in production; and

—     equipment to ensure no leaking of oil during production.

     We engage Hong Kong Quality Assurance Agency, an independent environmental
assessment agency, to regularly assess our environmental compliance measures and
procedures.

      Our environmental compliance cost is estimated to be around RMB1 million a year.
This amount is primarily spent in recycling of precious metals such as gold.

       On 29 September 2006, the Guangzhou City Panyu District Environmental Protection
Bureau in China issued a confirmation which confirmed that Noble Jewelry (Guangzhou)
has been operating its business in compliance with the applicable environmental laws
and regulations and had not been penalised due to any breach of environmental laws or
regulations. We also obtained ISO14001:2004 certification in respect of our environmental
management system for the design, manufacture and sale of jewelry goods.

Safety matters

      We have established procedures to provide our workers with a safe and healthy
working environment including the establishment of working safety rules and regulations
by the factory safety committee.

      We have established a factory safety committee to assess potential risks of worker’s
health and safety issues to ensure workers’ safety. The measures adopted include:—

—     annual fire drill;

—     taking out workers’ insurance;

—     regular training for workers to ensure awareness and compliance;

—     regular safety checks by the factory safety committee.

     We have had no significant incidents and accidents in relation to workers’ safety
and non-compliance to the applicable laws and regulations relevant to the working safety
and health issues during Track Record Period. The costs of compliance in this respect is
estimated to be approximately RMB150,000 per year.




                                         – 82 –
                                      BUSINESS


INTELLECTUAL PROPERTY RIGHTS

      As at the Latest Practicable Date, the Company has registered 11 trademarks,
details of which are set out in the paragraph “Intellectual property” under the section
headed “Further information about the business” in appendix VI to this prospectus.

PROPERTY INTERESTS

       As at the Latest Practicable Date, we owned a flat unit in a residential building in
Hong Kong, which was used as staff quarters, and four office units with a total gross floor
area of approximately 650 square meters in a commercial building, which was used as an
office. We also owned a residential unit in a residential building in Japan, which was used
as staff quarters.

      As at the Latest Practicable Date, we leased over 14,690 square meters in China
for production, staff quarters, warehouses and car parking purposes. We also lease
properties in the United Kingdom, India and the US for office purposes.

      Savills Valuation and Professional Services Limited, an independent property valuer,
has valued the property interests of the Group as at 31 December 2006. Details of the
valuation and the text of the letter, summary of values and valuation certificate from
Savills Valuation and Professional Services Limited are set forth in appendix IV to this
prospectus.




                                          – 83 –

								
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