In the year under review, turnover for the segment increased by 27% to HK$112,884,000 which reflected the divestiture of prepaid calling card business and the addition of Shanghai-based sales and retail management service business. The distribution and retail segment accounted for 52% of the Group’s turnover or 53% of the Group’s turnover from continuing operations. Gross profit and margin improved from HK$29,845,000 and 33% in the prior year to HK$49,206,000 and 44% respectively. The increase was attributed to the strong contribution from the Shanghai-based operation that the Group acquired in July 2009. Excluding the one-time gain from the sales of the prepaid calling card business and the loss of disposal on investment, the Group has substantially reduced the segment’s operating loss to HK$2,108,000 from HK$18,786,000 in the previous year.

In July 2009, the Group completed the acquisition of the Shanghai-based retail sales and management service business and took over an operation that consisted primarily of retail, enterprise and distribution business. It became one of the major turnover and profit contributors of the Group. Turnover for the operation reached HK$65,795,000 during the year. Gross margin maintained at 50% with an operating profit of HK$14,368,000. The Shanghai business in the past had undergone substantial changes in its strategic direction, moving from a traditional retail operation where margin was made through sales of handsets and services to a service-based operation where income was received for services performed on behalf of mobile operators. The change raised its profit margin substantially and provided stability to its on-going income stream. At the end of the year under review, the Shanghai unit operates 30 stores, up from the 27 earlier in the year, on behalf of one of the national mobile operators in China and maintains a group of authorized resellers that distribute a range of telecom and value-added services to consumers and enterprise customers.

CM Concept, an operator of a chain of retail stores in the Hong Kong, continued to under-perform in the telecom retail market. Turnover for the business dropped to HK$45,518,000, representing 14% decline from the year before. Gross margin dropped from 39% to 34% reflecting a higher mix of handset turnover. The business continued as a drag to the Group’s operating profit with an operating loss of HK$15,845,000, which was 8% higher than the year before.

As the economy continued to pick up during the year primarily due to the visitors from Mainland China, local consumer retail market remained relatively sluggish. In addition, the telecom market had undergone some fundamental changes with the increasing popularity of high end PDA devices. The long period commitment required by mobile network operators for subsidising the high end PDA devices had substantially reduced the overall addressable churn market. The number of successful porting of mobile number, according to Office of Telecommunications Authority, has declined by more than 19% during the year. This shift reduced our dealer service business substantially and thus our income received from mobile operators. As a result, the handset and dealer service plan sold were down 7% and 48% respectively. As the business continued to deteriorate, the Group has adopted various measures to reduce the exposure and to improve its efficiency of operation. It is consolidating its retail operations and attempting to broaden its product and service portfolio offered in order to improve the productivity. At the end of the year under review, there were a total of 18 CM Concept retail shops, down from 19 from a year ago.

During the year, the Group had divested the local prepaid calling card business which consisted of IDD and mobile prepaid calling card services. The disposal resulted in a gain of HK$8,669,000 for the Group. The divestiture allowed the Group’s MVNO business increased flexibility to broaden its channel capability.