Half-Year Financial Statement ended 30 September 2004

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Business Review
Starting from the beginning of this financial year, there was a general optimistic outlook for the electronics market. However, the subsequent imbalance demand and supply of electronics products has led to the build up of inventories for the industry. This was further affected by the macro economic measures adopted by the Chinese government in the first half year of 2004 to moderate the overheated economic growth. Although the above policy is anticipated to continue for the whole of 2004, the economic environment of China is expected to remain stable. Despite the unfavourable impacts on the electronics components industry, our Group has moved on with our expansion scheme in China, which embraced the broadening of customer base and the expansion of the territorial coverage and product segments. China market had thus posted a strong sales growth of 64.1% from HK$225.1 million for the six months ended 30th September 2003 to HK$369.3 million for the same period in 2004. Overall we achieved a growth of 32.1% in turnover to HK$1,069.6 million for the first six months ended 30th September 2004 from HK$809.6 million for the same period in 2003.

With this planned growth of scale, together with the competitive environment of the component industry, gross margins have come under pressure. The Group¡¯s overall gross margins decreased from 10.5% for the six months ended 30th September 2003 to 9.6% for the same period in 2004.

The Group was able to contain the increase in administrative expenses at a rate of 14.7%, which is substantially less than the corresponding rate of increase in sales revenue of 32.1%. This moderate increase was achieved through the cost savings measures introduced during the period. Nevertheless, overall administrative expenses increased were due to the increase in number of staff for the expansion scheme in China, and the increased provison for doubtful debts and inventories along with the increase in sales.

The Company was able to contain the increase in administrative expenses at a rate of 17.5%, which is substantially less than the corresponding rate of increase in sales revenue of 38.9%. This moderate increase was achieved through the cost savings measures introduced during the year. Nevertheless, overall administrative expenses increased were due to the increase in number of staff for the expansion scheme in China, training costs for the implementation of SAP system and the increased provison for doubtful debts and inventories along with the increase in sales.

Other operating income decreased was mainly attributable to the difference in commission income. During the six months ended 30th September 2003, HK$5.8 million was received from our major principal as an incentive rebate for achieving certain sales target. However there was no such income during the current period.

Financial Position
The increase in trade receivables was mainly attributable to the increase in sales in the current financial period when compared to the financial year 2004. The debtors turnover has maintained stable at the level of about 2 months.

The increase in inventories was due to purchase of inventories to accommodate increased sales for the coming months. Despite the higher inventory level, our stock holding period has only increased slightly to 2.3 months from 2 months in the financial year 2004.

The increase in other investment refers to an investment of HK$7.8 million, representing an equity interest of 7.4% in a company which specialised in smart card solutions including software and hardware development.

Cash Flow
At 30th September 2004, the Group had a working capital of HK$310.2 million, which included a cash balance of HK$180.3 million, compared to a working capital of HK$308.0 million, which included a cash balance of HK$270.1 million at 31st March 2004. The decrease in cash by HK$89.8 million was principally attributable to a cash outflow of HK$139.9 million from operating activities, a cash outflow of HK$12.0 million from investing activities and a cash inflow of HK$61.7 million from financing activities.

Cash outflow from operating activities was mainly attributable to an increase of trade receivables and inventories and an increase in trade payables.

Cash outflow from investing activities was due to investment in a company which specialised in smart card solutions and the implementation cost of SAP system.

Cash flows from financing activities increased as there were long-term bank loans and trust receipt loans raised to finance our growth in China and the purchase of inventories respectively.

Although the Chinese government imposed macro economic measures to discourage excessive investment, the overall environment of China has remained stable. However with such adopted measures, the overall economic, thus electronics industry, outlook is expected to face turbulences in the coming months.

In spite of the market uncertainties, we will continue with our 3-year growth plan and move on with our expansion program in China including hiring of staff and provision of training. The essence of this plan is to strive for sales growth by means of market expansion, industry breadth and depth, and human resource management.

By maintaining our continuous emphasis on China market, together with our effort in implementing our growth strategy and carrying on the continual cost savings program, barring any unforseeable circumstances, we are positive with our overall growth for the year although we anticipate a challenging market conditions for the next six months.