CEO's Message extracted from the Annual Report 2011

Challenge and Performance in FY11 - Initiative upon the Paradigm Shift

'Despite the recent argument of the probability of a double-dip recession in US and the PIIGS (Portugal, Italy, Ireland, Greece and Spain) national debt crisis in Europe, the probability of having a double-dip recession in China is low as China has strong GDP growth with low interest rate and mild inflation in the coming year. Nevertheless, Karin Group is preparing for a year of inflation or stagflation in FY11 and our management are working out a business plan which aimed at double digit growth in both revenue and net profit. However, sluggish consumer spending in US and Europe, the low corporate investment in Hong Kong and Singapore and the impact on the SME, OEM & ODM business in China, because of the CNY appreciation and wages increment, may slow down the growth of the customers' export business, capital spending and the rapid growth of Karin Group business as well.' This was what I wrote as the 'challenge ahead' in my CEO'S message and Operations Review in our FY10 annual report a year ago. Indeed, it was the big picture throughout FY11 and it may be the global business environment in the coming 12 months as well.

As a result of slow growth of the global markets in US, Europe and Japan; increasing costs of operations in China, in particular wage increments and the appreciation of Chinese Yuan (CNY) in the past year; and the unexpected supplychain problems resulting from the earthquake and tsunami crisis in Japan in March 2011, FY11 was a challenging year for the Karin Group and our strategic partners. Nevertheless, the Group's management have committed to what we said - a double-digit growth in FY11. Our revenue has grown 38.7% from HK$1,562,157,000 to HK$2,167,430,000 and profit for the year has grown 53.2% from HK$32,867,000 to HK$50,367,000, whilst selling and distribution costs have dropped 7.9% from HK$53,896,000 to HK$49,648,000 and administration expenses have grown 18.0% from HK$55,021,000 to HK$64,916,000.

Our Growing Platforms - Staying Ahead of the Market

Karin Group has four Strategic Business Units (SBUs): IT Solutions and Service (ITSS), Industrial Materials and Instrumentation Group (IMIG), Electronic and Electrical Component Group (EECG) and IC Application Design (ICAD). Among them, ITSS contributed the most revenue to the Group and grew quickly in FY11 because of the rapid growth of demand for Apple consumer products in the retail market, the strong demand for security and storage solutions by Brocade, F5, IBM, Oracle, Symantec, McAfee, Bluecoat, Checkpoint and the distribution of HP hardware products to the value-added-resellers (VAR). In FY12, our ITSS SBU expects the development of cloud computing and mobile solutions to be fast growing. To leverage these burgeoning trends, we will broaden our product portfolio and strengthen our technical capability in these market segments.

IMIG is a fast growing business for the Karin Group. IMIG focuses on distributing electrical and mechanical (E&M) components such as Shindengen and IXYS power semiconductor, Phoenix contacts, Hitachi capacitors, Cosel power-supply and a wide range of cables for industrial automation and infrastructure building in Hong Kong and China, and Rieff mechanical parts for industrial machinery manufacturing in China. IMIG works with Karin Group JVs including (a) IMI Kabel Singapore (IMIKS), a service provider in Singapore serving the ASEAN market, (b) Matrix Power, a designer and producer of power supplies in Shenzhen targeting the electric vehicle, infrastructure building and green power energy markets and (c) Cosel International Trading in Shanghai, which deals in the exporting and trading of switching mode power-supplies from China to overseas.

Our EECG and ICAD SBUs have focused on electronic components distribution and toy application-design-service since years ago. Today, EECG has steady business growth in supplying KDS Crystal oscillator, Hirose high precision connector and Nanya touch panel for the smartphone and mobile phone markets. In exploiting the growing potential of the automobile and health-care markets in China, EECG has set up a new team targeting 'autotronics' (electronics components for automobile manufacturing) as well as provides solutions by Nordic semiconductor for RFID (Radio Frequency Identification), wireless keyboard and mouse, and wireless health-care products.

Meanwhile, our ICAD unit is no longer solely a toy-dependent business unit as the ICAD FAE (Field Application Engineer) team now works with more non-toy projects incorporated with the Nuvoton ARM CORTEX MCU (Micro Controller Unit) series for consumer electronics and electrical appliances. ICAD has also developed solutions for the remote-control market with Nordic wireless solutions and Dragonchip MCU. Moreover, ICAD is getting into the audio market with support from VIA Technologies, Inc.

Cost and Risk Management - Surfing along the 'Perfect Storm'

Financially healthy, finance-driven, core-competency-building and 'doing better, faster and more with less' (DBFMw/L) have been our strategic management guidelines since the establishment of the Karin Group 35 years ago and they are also the keys to our growth continuity and business sustainability.

We continue to closely monitor account receivables and inventory levels to maintain healthy cash-flow. In addition, Karin also invests in long term core-competency-building-staff training through ISO quality control policies and procedures, FAE (Field Application Engineer) skill-set development and eBusiness 'management information system' (MIS) that is also a means to improve efficiency, productivity and profit-margin amidst the pressure of rapidly incremental costs of operation and keener competition in the electronics and IT industries. In fact, the Group is upgrading our logistic operations and risk management through the study and application of ISO 20000, ISO 27000 and CMMI (Capability Maturity Model Integration) policy and procedures to improve our Information Security Management System (ISMS), Information Technology Infrastructure Library (ITIL) and to back up our ITSS IT Outsourcing (ITO) business as well.

The Challenge Ahead - Response to the Uncertainty and Instability of the Global Economy

FY12 may be another tough year as the economy is still uncertain because of ongoing stagflation and weaker consumer-spending. The business environment is still insecure because the global economic crisis today is not temporary and businesses may not return to their normal business rhythm within a short time. Instead recovery will be slow in the coming years. The market is still unstable even though the capital and stock markets are driven by national fiscal policies and fund flows decided by fund managers. However, consumers tend to panic and lack confidence in US, European and Japanese governments in the management of their national debts.

Nevertheless the Karin Group believes that China can manage the global impact and pressure of any hard landing in the coming year. We will make every effort to guard against the risk of stagflation and raw materials and labor price pressures in Hong Kong and China. Indeed, the Karin Group plans to stick to our rule-of-thumb strategies in managing the stagflation in FY12. These include prudent financial management, reinforcement of professional engineering staff's value-added skill-set in developing the potential market in China, fully utilizing the Group's resources-based capability and duly assessing every investment risk which are aimed at achieving continued growth in revenue and profit in the coming year.

Ng Kin Wing, Raymond
CEO, Karin Group