Financial Review

The Group reported a pre-tax profit of £7.1m (2002: £nil) on sales of £29.5m (2002: £23.3m). The earnings per share were 6.0p (2002: 0.5p).

The interim dividend is to be increased to 1.5p (2002: 0.8p) per ordinary share to be paid on 6 April 2004 to shareholders on the register as at 27 February 2004.

The Group balance sheet remains strong with net assets of £27.9m (2003: £23.4m) of which £22.6m (2002: £18.9m) was cash.

Operating Review

Amstrad Business

The Amstrad business made a profit before tax of £6.1m (2002: £5.5m) on sales of £23.0m (2002: £19.1m). Sales of digital decoders (“set top boxes”) were particularly strong with volumes significantly higher than the same period last year.

The Hong Kong business continues to perform well with direct shipments of audio products in the first half, mainly to the US market, significantly ahead of the same period last year.

Amserve Business

The Amserve business moved into profit in the period with a pre-tax profit of £1.0m (2002: £5.5m loss) on sales of £6.5m (2002: £4.2m).

As shareholders will recall, the e-m@iler business model is based on subsidising the sales price of the units with the subsidy to be recouped through a revenue stream derived from usage of the e-m@iler. We are currently manufacturing and selling an updated version of the “e-m@iler plus” which has some new features that increase the e-mail revenue potential. In view of the increased revenue generated and in keeping with accounting practice generally adopted in this industry where hardware sales are subsidised, we now consider it appropriate to take account of future revenue streams when assessing the net realisable value of stock.

A total of 298k e-m@iler units have now been bought and registered since the launch of the e-m@iler. As part of our strategy of increasing the installed base the retail price of the “e-m@iler plus” was significantly reduced after Christmas in most retail outlets from around £49 to around £29. Lower manufacturing costs together with additional revenue potential have made this price reduction possible and we believe this new price will provide a significant impetus to volumes.

In December 2003 the average revenue generated from the installed base was £21k per day (approximate annualised rate of £7.6m per annum). The majority of revenue continues to be derived from e-mail and surf usage; we are particularly encouraged by the contribution from other services such as the downloading of ring tones, games and SMS text messaging. Our new updated version of the “e-m@iler plus” is the first telephone in the UK to have a dedicated DQ button (directory enquiry button) which allows the user, at one touch, to be connected to one directory enquiry service of our choice and enables us to rent this feature to directory operators. We have recently entered a 12 month agreement with 11 88 66 Ltd, a wholly-owned subsidiary of Telegate AG, Europe’s largest independent directory service provider, who pay us for the use of this facility.

Advertising revenue is growing as the installed base is becoming more attractive for advertisers and our total audience reach is now believed to be over 1 million people. We have attracted leading names such as AOL, BT, Halifax, BSkyB and Onetel all of whom advertise regularly on the e-m@iler.

Outlook

In the second half of this financial year we expect to receive final technical approval from BSkyB and commence shipment of Sky+ set top box units. This will take the Company into a new and potentially high growth area of technology, personal video recorder (“ PVR”), through the incorporation of a hard disc drive in a set top box. I personally believe this generation of product is one of the best innovations to have been introduced in recent years in the consumer electronics industry and I feel that this generation of product will become a standard piece of equipment in homes in the same way as the VCR has. We have recently been advised of new volumes for supply in our next financial year for both standard set top boxes and PVRs. This demonstrates our competitive edge in a very demanding price orientated marketplace. We are able to achieve this by having a very compact and focused team of developers, manufacturing and logistics staff. We are currently developing new units and are confident that we will be supplying other geographic markets with set top boxes in the next financial year.

In the Amserve business we will continue to focus on both increasing the installed base and increasing the revenue generated per phone by adding new revenue earning services. In the second half of the financial year there will be a pilot introduction of a new third generation product which takes us into a new exciting level of technology. It will provide us with additional revenue earning functionality. We expect a full roll out for the Christmas season of 2004 thus impacting revenues for our next financial year.

Sir Alan Sugar
Chairman
19 February 2004