financials

Balance Sheet

Review of Performance

Revenue analysis on sale of goods

Revenue - Geographic market

Domestic sales in China for 1Q2009 decreased by 13% mainly due to the weaker economic sentiment in 1Q2009 as compared to 1Q2008. Notwithstanding the decrease, the 1Q2009 domestic sales figures rebounded from a sluggish 4Q2008 as market competitors sought to boost demand by cutting their selling prices in the short-term. To protect its market share, the Group responded with corresponding short-term price cuts as well, thereby leading to increased demand from customers. The number of Brush Cutter (anchor product of the Garden & Lawn segment) and Mist Duster (anchor product of the Agriculture & Forestry segment) sold in China in 1Q2009 increased by 44% and 77% respectively as compared to 1Q2008.

Export sales to Europe & Australia increased in 1Q2009 by RMB25.4 million and RMB30.2 million compared to 1Q2008 and 4Q2008 respectively mainly due to the higher demand for Brush Cutters following the reduction in selling prices. Selling prices were lowered in the short-term as the Group sought to protect and retain this group of customers from seeking alternative manufacturers in China during this period of reduced selling prices.

Export sales to South East Asia eased in 1Q2009 by RMB7.5 million and RMB6.4 million compared to 1Q2008 and 4Q2008 respectively. Selling prices in 1Q2009 were generally stable as the Group resisted from lowering its selling prices for this region. Consequently, the weak economic sentiment prevailed as customers continued to refrain from placing large orders and take a longer than usual break after the Chinese New Year.

Revenue - Business sector

Revenue from our Agriculture & Forestry segment in 1Q2009 eased by RMB5.4 million compared to 1Q2008 as the brunt of the global economic crisis was more acute in 1Q2009 compared to 1Q2008. Nevertheless, revenue in 1Q2009 represented an increase of RMB31.3 million over 4Q2008 as orders in China poured in following the reduction in selling prices. The number of Mist Duster sold in 1Q2009 increased by 62% on a quarter-on-quarter comparison and over 400% as compared to 4Q2008.

Revenue from our Garden & Lawn segment in 1Q2009 increased by RMB21.3 million and RMB33.2 million compared to 1Q2008 and 4Q2008 respectively mainly due to the increase in sales to Europe & Australia markets. As explained in the preceding paragraphs, the short-term lowering of prices by the Group to protect and retain this group of customers from seeking alternative manufacturers in China had resulted in larger orders received. The number of Brush Cutters sold in 1Q2009 increased by 78% on a quarter-on-quarter comparison and 154% as compared to 4Q2008.

Gross margins

The Group incurred a gross loss margin of 12.9% in 1Q2009 compared to a gross profit margin of 32.2% in 1Q2008. Within a span of 12 months, the general economic environment had deteriorated significantly and the Group had to operate under more difficult and challenging conditions in 1Q2009.

The short-term lowering of prices to protect market share had resulted in the erosion of margins as products were sold at unprecedented prices. Although the increased production increased efficiency through the enjoyment of economies of scale, prices of our raw materials could not match the decrease in the selling prices of our products, resulting in the gross loss.

Other income/expenses

Interest income decreased mainly due to lower fixed deposits placements.

Distribution expenses had increased by approximately RMB274,000 largely due to the increase in sales in 1Q2009 as compared to 1Q2008.

Administrative expenses had decreased by approximately RMB1.1 million largely due to the absence of certification fees which were incurred in the comparative period of 1Q2008 to certify that our products meet the Europe emission standards which had come into effect during 1Q2008.

Finance costs increased mainly due to the interest expenses incurred on the short-term bank loans.

Other charges increased mainly due to the 1Q2009 amortisation of the TOPSO trademark in which was acquired in December 2008.

Share of losses from equity-accounted associate arose from equity accounting for the Group's share of losses in China Steel Australia Ltd for the period.

Balance sheet

Investments in an Associate refer to the Group's investment in China Steel Australia Ltd and had decreased due to the accounting for its share of losses as well as foreign exchange adjustments.

Trade receivables and inventory had gone up due to increased production as well as larger orders received in late February and March. Taking into account the credit terms of 150 days as well as the management's analysis of the debtors aging, management concluded that it is not necessary for any doubtful debts allowance. As at the date of this report, approximately RMB20,000,000 of the trade receivables has been collected.

Prepayments had increased mainly due to higher advances paid to suppliers.

Trade payables and accrued liabilities had increased mainly due to higher advances from customers as well as an increase in purchases made by the Group. The increase in purchases is consistent with the increase in sales.

Cash flow

The Group registered an operational cash flow deficit of RMB41 million. The deficit arose mainly due to the losses incurred in 1Q2009 as well as higher level of trade receivables arising from sales made in February 2009 and March 2009. The increase in prepayments and inventory due to increased production and sales also contributed to the deficit while the increase in trade and other payables had offset the deficit partially.

Commentary On Prospects

The current global financial turmoil looks to persist for some time and this will continue to create a difficult operating environment for the Group. In the meantime, the industry is seeing intense competition among its various competitors in their bid to stimulate short-term demand and increase their market share. The Group will monitor the situation closely and carry out appropriate measures to safeguard the interests of the Company. The Group will also continue to adopt a more prudent stance in its impairment assessments on its assets and investments in light of the prevailing global financial crisis. Based on the performance of the Group, management expects its half year results for 2009 to be significantly lower than the corresponding period in 2008.