The Shanghai retail sales and management services business (“Shanghai Business”) was a major contributor of turnover and net income for the Group during the year ended 31 March 2011. Turnover for the Shanghai Business declined 8% to HK$60,682,000 with an operating profit of HK$7,288,000 and gross margin of 58%. The decline was mainly due to the adjustments of the Shanghai’s business model in response to the changing landscape in the Shanghai’s retail and consumer mobile telecommunications market.

We managed 28 retail services stores at end of the fiscal year for one of the major mobile telecommunications operators in Shanghai (“Shanghai Telecommunications Operator”). Due to renovation of certain shopping malls and the government’s redevelopment projects, two retail services stores were temporarily closed as a result. The Shanghai Business had been impacted negatively by the increasing competition in the Shanghai mobile telecommunications market. The high penetration in the Shanghai mobile market coupled with the heavily subsidised program for the 3G handset forced Shanghai Telecommunications Operator to tightly control marketing costs and expenses and this affected our service income during the year. With the changing of the market and consumer landscape in the mobile segment, the retail business was undergoing some fundamental changes in its structure and purpose, evolving from a traditional service-oriented outlet to a sales-and-marketing-oriented retail store in order to cater the need of the consumer in the growing popularity of the smartphone and mobile applications. In anticipation of the changes, we had invested heavily in a comprehensive and in-depth training program to upgrade the staff’s professional skills and productivity. This investment in human resources seems to generate initial success.  The Shanghai Business had been recognised as and awarded with the “Best Co-operative Partner” in 2010 by the Shanghai Telecommunications Operator. Although  the changing competitive landscape in the Shanghai market continues to pose challenges to our continuous and stable income, it opens up opportunities to create new market and services to enhance our relationships with the Shanghai Telecommunications Operators. We also began exploring market opportunities outside of Shanghai to leverage our experience and expertise in the retail sector as part of plan to expand our business nationwide.