The mobile communications services segment remained the Group’s main source of revenue and profit. During the year ended 31 March 2011, the segment (including the Mobile Virtual Network Operators business (“MVNO Business”) and the divested two-way trunked radio business) recorded a slight drop in turnover of 2% to HK$97,952,000 and a drop in operating profit of 12% to HK$5,640,000. This turnover amounted for 52% of the Group’s turnover with a gross margin of 32%. The results reflected the continuous net loss associated with the two-way trunked radio business, the negative impact arisen from the appreciation of Renminbi and the increase in discount and rebate to retain existing customers and acquire new customers.

During the year, MVNO Business had stepped up its aggressive marketing efforts and developed new channels resulting in a significant increase in the overall subscribers. At the end of the fiscal year under review, the number of post-paid subscribers for MVNO Business was 17% more than a year ago which provided a base from which we can grow. Although the number of subscribers grew markedly, the MVNO Business was negatively impacted by a number of key market factors. First, the intense competitive pressure had forced us to lower our price and give a higher discount so as to keep the customers or to attract new ones. Second, the appreciation of Renminbi and the inflation had raised our cost and expenses. Third, because of the continuous losses incurred, the CM Concept retail shops had all been closed during the year, depriving us the opportunity to serve the mass markets and our customers. During the year, despite MVNO Business’s turnover went up by 3% to HK$94,895,000, its operating profit lowered 16% to HK$6,945,000 with a decline of 300 basis points in gross margin to 32%.

Facing the challenges, the Group has initiated a number of new measures to upgrade services and expand product portfolio so as to maintain Group’s leading position in the cross-border communications services. The Group began in the second half of the year to provide and upgrade its services to 3G in Hong Kong for all existing subscribers. This was the most significant service enhancement since the launch of the MVNO’s “dual number single SIM” mobile services in 2002. These new initiatives enhance the service quality that we need to compete effectively in the market place without solely dependence on price and discount.

The trunked radio business was one of Hong Kong’s few licensed operators of Public Radiocommunications Services (“PRS”). As competitors stepped up their pressure in sales and marketing efforts with new digital platforms that offer superior services, the two-way trunked radio business was deteriorating in an accelerated rate with a much higher customer churn over the year. The business had become a drag to the Group’s operating performance. As such, the Group had reached an agreement with a third party to exit the business in September 2010. During the year under review, the turnover for five months encompassed by the business was HK$3,057,000 with a gross margin of 38% and an operating loss of HK$1,241,000.

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