Dear Sir/Madam
Re: Benefits of product diversification confirmed by latest weekly sales
Sino Strategic International Ltd (“SSI”) is pleased to report that as at week ended 26 August, 2007, the number of VLT, keno and lotto retail points of sales (“POS”) was 423, compared to 467 last reported on 7 March 2007, a reduction of 44 POSs or 9.4 %. Total weekly sales for week ended 26 August 2007 was RMB 2.205 million compared to RMB 2.221 million for week ended 4 March 2007 last reported, a decrease of 0.7% over this period.
Up till the beginning of March 2007, the Company’s strategy was the rapid establishment of the largest gaming retail network in China. This was achieved over a period of 15 months from early 2006 with the opening of over 400 gaming POSs in Shanghai. Since the beginning of March this year, the company’s Shanghai operation has begun shifting its focus to improving the quality of our sales in order to improve profitability of our total operation. The strategy is to continue to add new legalized gaming products to our existing POSs as well as diversifying from Welfare keno into traditional lotto products and Video Lottery Terminal (“VLT”) or slot machine games. At the same time, management has begun to rationalize the POS network so that non-performing POSs were closed while it continues to identify more suitable locations for new POSs. This rationalization has resulted in the reduction in the number of POSs by approximately 10% with only a marginal loss of total sales, thus improving the sales performance of the average POS. The rationalization implemented since early March 2007 will provide a more solid foundation for the Company’s future growth from here on.
Diversification of product offerings has led to significant increases being achieved in VLT and Lotto sales. Total VLT sales for week ended 26 August 2007 of RMB 203,671 compared to RMB 21,470 last reported for week ended 4 March 2007, achieved an increase of 849 %, while Lotto sales for week ended 26 August 2007 was RMB 525,920 compared to RMB 178,288, an increase of 195%. Even more pleasing was the fact that these increases were achieved with a lesser number of POSs within our existing network. This proves that the rationalization strategy to improve quality of sales with new products and better location of POSs has been successful to-date.
Diversification of product offerings was given a significant boost with the signing of the Memorandum of Cooperation with Shanghai Sports Lottery Administration as reported on 16 July 2007. Implementation of Sports Lottery terminals into the Shanghai POSs is expected to commence from early September 2007. By end of October 2007, up to 200 Sports Lottery terminals are expected to have been installed, enabling the Company to add significant sales of Sports Lottery products through our POS network with minimal increase in operating overheads.
Shanghai Sports Lottery Administration will also be launching a new high frequency game in Shanghai and the Company’s POS network will become a vital part of their distribution network for the launch. Our Shanghai management is targeting significant increase in sales with the addition of Sports Lottery’s new and traditional gaming products.
From September 2007 onward, SSI will become the only major distributor of gaming products in China that is able to distribute the full range of legalized games from the only two legalized gaming operators in the country, namely Welfare Lottery and Sports Lottery, thus adding significant value to our retail network and our gaming license position.
The chart below illustrates the sales performance of the Company’s VLT, keno, and lotto POSs since early 2006. Please note that A$1.00 is equivalent to RMB 6.1944 as at 29 August 2007.
Yours sincerely Richard Li Chief Operating Officer, Australia and Director, Group Corporate Strategy |