On behalf of the Board of Directors, the business performance of CASIL Telecommunications Holdings Ltd. (the ¡§Company¡¨) and its subsidiaries (collectively the ¡§Group¡¨) for the financial year ended 31 December 2007 is summarized in the following paragraphs.

 

 

As of 31 December 2007, the Group´s turnover for the year 2007 amounted to HK$178.8 million with a loss of HK$572.0 million in contrast to those for the year 2006 of HK$156.2 million and HK$65.2 million respectively. The loss for the year was primarily attributable to impairment losses recognised in respect of interest in an associate and jointly controlled entities arising on acquisition of Advanced Grade Holdings Ltd. (¡§Advanced Grade¡¨) amounting to HK$484.0 million and various allowances relating to the telecommunication business made. The impairment loss recognised represented the difference of carrying amounts of an associate and jointly controlled entities and their recoverable amounts. In applying HKFRS 3 Business Combinations, the basis for computing the fair value of 2.2 billion consideration shares be the market price of the shares at the acquisition date of HK$0.87 albeit the value of HK$0.35 as agreed during the course of negotiation. This gave rise of variance of fair value of net assets acquired amounting to HK$1.16 billion in terms of goodwill which is subject to impairment test annually though. The HK$484.0 million impairment was in effect an adjustment of the portion of fair value of the business acquired attributable to the rise of share price as aforesaid in the context. The allowances made included allowances for doubtful debts of HK$26.3 million and for aged inventory of HK$38.7 million.

 

 

In continuing the sales of communication equipment, and the application services of Global Positioning System for 2007, the Group was pursuing the acquisition of different businesses with the aim of exploring diversified operations and diversified earning sources for its future development in the years ahead. On 15 February 2007 and 27 March 2007, the Group entered into agreements whereby the Group was to acquire from CALT businesses comprising three segments, namely, the automotive component parts, rare-earth permanent magnetic motor business and alternate energy through acquisition of Advanced Grade and its wholly-owned subsidiary, Beijing Wan Yuan Industry Corporation (¡§Wan Yuan Industry¡¨) at a purchase consideration of HK$900 million which was satisfied by cash of HK$130 million and allotment and issue of 2.2 billion consideration shares at HK$0.35 per share. Wan Yuan Industry holds a 49% equity interest in Beijing Delphi Wan Yuan Engine Management Systems Co., Ltd. (¡§Beijing Delphi¡¨), a 40% equity interest in Beijing Wanyuan GDX Automotive Sealing Products Co. Ltd. (¡§Wanyuan GDX¡¨), a 29% equity interest in Hangzhou Aerospace Wan Yuan REPM Motor Application Technology Co., Ltd. (¡§Hangzhou REPM¡¨), a 45% equity interest in Nantong CASC Wanyuan Accoina Wind Turbine Manufacture Corp. Ltd. (¡§Nantong Accoina¡¨) and a 45% equity interest in Beijing CASC Wanyuan Accoina Renewable Energy Corp. Ltd. (¡§Beijing Accoina¡¨) (the entities engaging the acquired businesses). The said cash consideration was raised by an open offer in issuing 406,855,905 offer shares at a price of HK$0.35 per offer share on the basis of 4 offer shares for every 10 existing shares in issue on 18 September 2007.

 

 

The automotive component parts comprise a wide range of components of automobiles such as brakes, clutch, fuel tank, muffler and tires. The automotive engine management systems and components manufactured by Beijing Delphi and the car body sealing system, vessel sealing system and accessories manufactured by Wanyuan GDX are also classified as automotive component parts.

 

Beijing Delphi is principally engaged in the manufacture and sale of automotive engine management systems and components for mini-vehicles and vehicles. Beijing Delphi has captured a market share of one fifth of the domestic market of passenger vehicle engine management systems. The customers of Beijing Delphi are primarily domestic automobile manufacturers in the PRC, two of which were ranked among the top ten PRC automobile manufacturers in 2006 by the China Association of Automobile Manufacturers. Delphi is also the second largest automotive parts suppliers in the world.

 

Wanyuan GDX is principally engaged in the manufacture and sale of car body sealing system, vessel sealing system and accessories. Its car body sealing systems, which target the medium to high end sedan market, have been widely adopted by the major automobile manufacturers in the PRC in a wide range of brands such as Volkswagen, General Motors, Audi, Toyota, BMW, Mazda, Peugeot, Citrogen and other domestic brands such as ¬õºX. Six customers of Wanyuan GDX were ranked among the top ten PRC automobile manufacturers in 2006 by the China Association of Automobile Manufacturers. Wanyuan GDX was also awarded, among others, by FAW-VW Automobile Co., Ltd.¡]¤@¨T¤j²³¡^, FAW Car Co., Ltd. ¡]¤@¨TÃ⨮¡^and China FAW Group Corporation¡]¤@¨T¶°¹Î¡^as one of the ¡§Ten Best Suppliers¡¨ in 2005 and by Shanghai Volkswagen as ¡§Distinguished Supplier¡¨.

 

 

Rare earth of contemporary science and technology, when added to materials, either improves the quality of the materials, or creates totally new materials. The rare-earth permanent magnetic motors manufactured by Hangzhou REPM are considered innovative products to the market and the business is at its incubation stage with many rooms of growth. With their weight and size generally of more than 50% lighter and smaller than those of conventional motors, rare-earth permanent magnetic motors offer high performance in terms of high precision, low noise, high stability and heavy load as well as their significant energy saving. Yet their prices are of that level comparable to those of the conventional motors such that rare-earth-permanent magnetic motors will have the potential to tap into the conventional motors market.

 

 

The market of alternate energy in the PRC was boosted by the new Renewable Energy Law coming into force on 1 January 2006, which was promulgated with a view to (i) promoting the development and utilization of renewable energy (including non-fossil energy of wind energy, solar energy, water energy, biomass energy, geothermal energy, and ocean energy), (ii) improving the energy structure, (iii) diversifying energy supplies, (iv) safeguarding energy security, (v) protecting the environment, and (vi) realizing the sustainable development of the economy and society. The Law covers areas such as (i) economic incentives and supervisory measures, (ii) price management and fee sharing, and (iii) industry guidance and technology support.

 

The acquisitions were made on 16 October 2007 when the Group took over control of Advanced Grade and the acquired businesses started to make profit contribution to the Group therefrom.

 

The details of the acquisitions are set out in a circular thereon of 1 June 2007 and a prospectus on open offer of 406,855,905 offer shares in relation thereto of 20 September 2007. After the acquisitions, the Group is to further develop these businesses intensively for bringing better future on the foundation of the businesses acquired. The first move in this regard is to set up a production base in Liyang County, Changzhou City, Jiangsu for production and distribution of rare-earth permanent motors of medium to small size in the strategic location of the county with ready availability of materials and labour.

 

 

In keeping the Group¡¦s edge on provision of communication equipment of high capability to price value, the Group maintains the sales made to our customers including telecommunication operators, government authorities and system engineering companies and other public organizations.

 

 

The wind energy projects of Jiangsu Longyuan project and Jilin Longyuan project in building, maintenance and operation of wind energy plants and facilities have started to generate profit contributions during the year whereas the Liaoning Benxi project completed its final phase of implementation in the first half of the year and has since started to generate revenue in preparation for making profit contribution.

 

Further, in penetrating these investments of conservation of environment, Crownplus International Ltd. (¡§Crownplus¡¨), a wholly-owned subsidiary of the Company, on 21 January 2008, entered into agreement with the original joint-venture parties of Jiangsu Longyuan project to develop the Phase II thereof whose details are as follows:

 

Operation period                        :            25 years

Production capacity          :   49.5 megawatt

Total investment                        :                 RMB 486,850,000

Total registered capital             :                 RMB 121,710,000 (Crownplus¡¦ share : 25% RMB 30,427,500)

 

In addition, before the acquisition of Advanced Grade, Wan Yuan Industry had entered into an agreement for purchase of 55 900KW wind energy units at RMB 326.7 million in establishing foundation for its future development of wind energy plant and facilities in Xinghe, Inner Mongolia. In November 2007, Wan Yuan Industry paid total deposits of RMB 100.5 million of the purchase. The Group will announce more on this development when the detailed plan for this development is formulated.

 

 

As at 31 December 2007, the Group had 43 employees (2006: 37 employees) in the Hong Kong head office and 362 employees (2006: 428 employees) in the Mainland China offices. Remuneration of employee is determined according to individual employee´s performance and the prevailing trends in different areas and reviewed on an annual basis. The Group also provides Mandatory Provident Fund and medical insurance to its employees. In addition, discretionary performance bonus and share option schemes (expired on 23 July 2007) are available and are at the discretion of the Directors.

 

 

 

Total borrowings of the Group as at 31 December 2007 were HK$583,005,000 (2006: HK$265,667,000), which were fixed rate borrowings. All borrowings of the Group were determined at market interest rate. The Group has not issued any financial instruments for hedging or other purposes.

 

Gearing ratio (total borrowings over shareholders´ equity) as at 31 December 2007 was 37% (2006: 294%).

 

 

As at 31 December 2007, certain assets of the Group of HK$1,400,000 (2006: HK$1,537,000) have been pledged to secure bank facility.

 

 

Most of the Group´s business transactions were conducted in Hong Kong dollars, Renminbi and United States dollars. The Group expected that the exposure to exchange rates fluctuation was not significant and therefore has not engaged in any hedging activities

 

The Group did not have any contingent liabilities as at 31 December 2007.

 

 

I would like to take this opportunity to thank my fellow directors and all the staff members for their hard work and dedication during the year under review.

By Order of the Board

 

 

Hong Kong, 28 March 2008