Bossini International Holdings Limited
(Incorporated in Bermuda with limited liability)

During the year under review, the economy of Hong Kong and other Asian regions continued to be adversely affected by the financial crisis. In particular, the performance of the retail market was weak and the business environment was difficult. At the beginning of 1998, our Group quickly evaluated the market situation and revised its business plan. Even though a loss was recorded for the first half of the year, improvement was evident with an overall profit for the year. A net profit attributable to shareholders of HK$17,594,000 was recorded, whereas in 1998 there was a loss of HK$45,508,000.

Over the past year, our Group has adopted various measures to counteract the negative effects of the financial crisis. These included:

• Initiating discussions with landlords on rent reduction and early termination of leases for stores and warehouses. Overall expenditure on rents was reduced by 25.4% compared to last year

• Streamlining corporate structure and downsizing. The number of employees at the end of this year was down by over 20%, and expenditure on employee salaries was reduced by 34.6%.

• Adjusting purchasing strategy and tightening inventory control by accelerating the purchase cycle, increasing efficiency in replenishing merchandise, and clearing inventory to maintain a healthy inventory ratio.

• To stimulate sales under weak market demand, our Group is offering a line of high quality fashion clothing with competitive prices for the discerning consumers. The product mix is frequently adjusted to meet customers' needs. A new line of girlswear introduced this year has received encouraging response from the market resulting in a rise in sales.

• To maintain financial stability under all circumstances, our Group has minimised borrowings wherever possible and increased cash holdings. As at 31 March 1999, our Group's financial position was healthy with adequate cash holdings and a low gearing ratio.

During the year, our Group has restructured its retail sales network in Hong Kong by reducing the number of stores in traditional tourist areas. In addition, stores with unsatisfactory contributions have been closed. Our Group operated 33 stores in Hong Kong and Macau as compared to 42 stores last year.

Our Group has repositioned the direction of our business operations in mainland China through increasing the ratio of directly managed stores, focusing on developing authorised dealer stores with potential, and discontinuing contracts with authorised dealers with poor performance history. Moreover, local management adheres consistently to the cash-on-delivery guidelines in operating the authorised dealer business to avoid the risk of bad debts. They are also actively clearing off-season stocks.

The business performance in Singapore was satisfactory with marked improvement in the second half of the year. Sales have been maintained at about the same level as last year. With improvements in gross margin and a reduction in operating expenses, net profit margin has increased significantly resulting in a pleasing profit contribution to our Group this year.

Looking ahead to the coming year, our Group will continue to operate with caution, increase the competitiveness of our products in the market place, and strengthen our business development in Hong Kong, China and Singapore. Hong Kong will continue to be our largest market and in the coming year, we plan to open 3 to 5 retail stores. After adjusting our business directions in China, a more healthy development is expected. The economy in Singapore has gradually recovered, and has had a positive impact on our Group's retail business there. In September this year, we will introduce a line of childrens' wear to provide a comprehensive and fashionable range of clothing products for consumers in Singapore. Our Group is committed to invest more resources to promote "bossini" products and brand image. Moreover, advertising, sponsorship and promotional activities will be increased to further enhance the market position of "bossini".

While the financial turmoil in Asia meant a painful consolidation for many enterprises, at the same time it has provided a great opportunity for companies with strong adaptability and sound financial resources. Through the business restructuring, not only has our Group improved its performance but our employees have also been able to realise their full potential and they have provided full support to the Company in this difficult time. We appreciate them as valuable assets and this has laid a good foundation for us in our future business development.

Our Group has great confidence in future operations. If the economies in Hong Kong and other Asian countries continue to improve steadily, we expect that our business will post satisfactory growth in earnings in the coming year.

Shuk Hoi LAW
Chairman

Hong Kong
16 July 1999

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