Distribution and Retail Chain

During the financial year ended 31 March 2009, turnover from the segment, which include both the retail chain business and distribution channels for the prepaid calling card operation, decreased by 21% to HK$89,237,000. This turnover accounted for 43% of the Group's turnover for the continuing operations. The decrease was primarily attributed to the lower unit sales of handsets, which resulted from the weakening economy affected by the global financial industry meltdown. Gross margin improved to 33% from 29% a year ago due to a mix of revenues that shifted towards the higher margin service business. The segment incurred an operating loss of HK$18,780,000 because of higher rental expenses associated with the retail outlets and the high overhead cost.

As the economy began to worsen towards the second half of the fiscal year, consumers were reluctant to spend or began to reduce their spending on non-necessity goods and services. This slowdown in spending had impacted our retail chain business since the second half of the fiscal year. Handset and service plan unit sales were down 10% and 21% respectively versus the year before. In view of the uncertainty in the economy, the Group has adopted various measures to enhance competitiveness and efficiency in its operation. It had begun to swap out the high cost retail outlets with some lower cost ones in new development towns with the objective to align the overall cost of the rental with the turnover. At the end of the financial year ended 31 March 2009, there were 19 "CM Concept" retail shops, down from 22 at the beginning of the year, serving as a one-stop-shop platform for telecommunications products and services.

In early April 2009, the Group had decided to divest the local prepaid calling card business which consisted of IDD and mobile prepaid calling card services. The combined prepaid calling card service had a turnover of HK$30,501,000 during the year and incurred an operating loss of HK$2,992,000. The divestiture allows the Group's MVNO business more flexibility to develop other wholesale business and sales channels which otherwise would create channel conflict issues.