Mobile Communications Services

Turnover for the whole segment, which principally includes both the Mobile Virtual Network Operators ("MVNO") and Trunked Radio businesses, decreased slightly by 3% to HK$105,870,000 for the financial year ended 31 March 2009. This turnover accounted for 51% of Group's continuing operation. Gross margin stood at 38% and operating profit amounted to HK$8,937,000, down by 38% when compared to last corresponding year. The sharp decline in operating profit was mainly attributed to the downward pricing pressure due to the slow down in the economy and the higher overhead cost incurred.

With the disposal of the wholesale IDD and overseas calling card business, the MVNO, under the "CM Mobile" brand, became a core business and a major revenue and profit driver for the Group. During the financial year ended 31 March 2009, MVNO introduced a new marketing campaign and aggressively focused on subscriber acquisition. It ended the year with an increase of 26% in total subscribers. The increase was across the broad for all customer segments including the core Single SIM Dual Number ("SSDN") service. Despite the success in customer acquisition, MVNO business had faced significant downward pricing pressure. The most significant impact was the financial turmoil that began in late 2008, resulting in the closing of manufacturing plants and facilities in southern China and the reduction of travel by local Hong Kong manufacturers and multinational corporations. This slowdown in travelling across the border had a profoundly negative impact on usage of MVNO's SSDN service. As companies began to downsize its operations in both Hong Kong and China, the telecommunications usage and services were greatly affected. Second, the single direction calling party pay charging scheme introduced by China carriers in China had substantially lowered the average revenue per customer. Third, key local mobile operators were stepping up their marketing efforts and increasingly using price as a marketing tool, forcing the MVNO business to reduce prices to match competitive offers. The lower usage and pricing pressure were more than offset by the increasing number of customers, resulting in the decline in overall revenue and operating profit for the MVNO business. MVNO business during the financial year ended 31 March 2009 recorded a turnover of HK$97,193,000 and operating profit of HK$12,375,000, down 4% and 29% versus the same period a year ago with a gross profit margin of 40%.

As competition continues to heat up in the mobile segment, apart from continuing to expand sales channels and dealerships, the Group will continue to strengthen its sales team to serve targeted corporate clients, implement credit measures and focus on higher margin value-added services so as to protect and grow its core revenue base.

The Trunked Radio business, is one of the few licensed Public Radiocommunications Services ("PRS") operators in Hong Kong. Through the platform co-ordination with its partner in Shenzhen, the Group offers the only cross border trunked radio service to companies mostly in the transportation industry. Although the demand of the PRS continues to shrink over the year, Trunked Radio business had managed to maintain its customer base. Turnover for the business was HK$8,677,000, an increase of 10% versus last year. During the financial year ended 31 March 2009, the business recorded an operating loss of HK$1,000,000 with a gross profit margin of 24%