FY2006: The Year In Review

Market conditions continued to be competitive for FY2006. The Group recorded a sales turnover of $45 million with a net profit after tax contribution of $1.5 million.

Turnover

Group turnover decreased by 26.9% to $45 million.

Turnover for Industrial Distribution decreased by 26.0% to $35 million due mainly to the decrease of sales of memory devices and the exit from a low margin/high volume customer in September 2004 in the traditional distribution segment. Turnover in the 75% owned subsidiary, CP Solutions Pte Ltd (“CPS”), a turnkey materials supply chain solutions provider that is under judicial management, decreased by 20% to $2.2 million.

Manufacturing turnover in Ranoda Electronics Pte Ltd (“Ranoda”), a 100% subsidiary manufacturer of customer-specific connectors, decreased by 29.0% to $10.9 million due mainly to product transition by a customer in the first half and the acquisition of a major customer by its competitor in the second half.

Profitability

Due to lower turnover, Group's gross profit decreased by 2.5% to $3.8 million. However, the gross margin percentage of the Group has increased to 8.6% against 6.4% as recorded in FY2005.

Operating expenses decreased by $23.5 million mainly due to lower provisions, depreciation,  amortisation expenses and other cost savings. With the foreign exchange gain and the $2.7 million exceptional gain from the sale of 15% equity interest in associated company, Altum Precision Pte Ltd (“Altum”), loss before tax and share of profits of associated companies decreased from $29.2 million in FY2005 to $2.2 million in FY2006, a decrease of 92.5%. As previously announced,  CPS is still embroiled in a legal suit against General Electric Company (“GE”) seeking damages for breach of contract. Until the lawsuit is resolved, CPS will continue to incur exceptional legal and professional fees. The case is progressing well and we are hopeful that the matter could possibly be resolved in FY2007.

Altum, currently a 25% owned associate company, achieved record growth in both sales turnover and profits for the 12 months ended 30 June 2006. Profit contribution from Altum is $4.5 million an increase of 87% over the same period in FY2005.

The Group recorded a profit after tax of $1.4 million for FY2006 from a loss of $26.8 million in FY2005.

Prospects

Business and market conditions are expected to remain challenging in FY2007.

Distribution Activities:

In the industrial distribution business, the Group will focus on selective investment in opening up new market segments for its range of semiconductor and passive electronics components as well as finished product solutions in China and India through its fully owned subsidiaries in India and China.

Through its 75% owned subsidiary, CP Solutions Pte Ltd (“CPS”), the Group is hopeful that the lawsuit that CPS has taken against GE for breach of contract  is at the final phase of the legal proceedings. The status of the lawsuit through evidence and documents gathered during the discovery process and deposition of key GE witnesses is encouraging and the Group is hopeful of a positive outcome arising from this matter.

Manufacturing Activities:

 As for the Group's manufacturing activities, through its wholly owned subsidiary, Ranoda Electronics Pte Ltd; recent event leading to the acquisition of its key customer Maxtor by Seagate in the early part of the current Calendar year, will have some short term impact on Ranoda's revenue but some recovery is expected in the second half of the financial year due to positive developments as a consequence of the acquisition:

1.      In the shorter term, Ranoda will experience a lower than expected sales revenue in the 1^st half of the current financial year in FY2007 due to rationalization of Maxtor's products by Seagate following the acquisition.

2.      In the second half of FY2007, Ranoda should recover from this temporary setback and possibly emerge a stronger player in the Hard Disk Drive (HDD) industry in the years to come as it has been pre-qualified as a prospective supplier to supply electronic connectors to two of the world's largest HDD companies for their interconnect requirement.  Samples of one of these connectors have been submitted for qualification to one of them and full approval is expected some time in the last quarter of the Calendar year. Ranoda is targeting to go into mass  production of this connector in the second half of the financial year.

Altum  will continue to perform well as a result of the buoyant HDD industry and from sales to a new customer but pressure on gross margin is envisaged due to increase in the price of raw aluminium ingots. New production machines and equipments are being installed to significantly expand the production capacity to cater to increased demand.

Appreciation

On behalf of the Board, I thank our management and staff for their dedication and perseverance in a challenging and difficult year. In addition, I would also like to thank all our customers, shareholders, bankers, business associates, partners and suppliers for their continuing support.

Lim Ee Ann

Non-Executive Chairman