Comba Telecom Systems Holdings Limited

==> picture [215 x 80] intentionally omitted <==

2012 Annual Report 年報

Company Profi le 公司概況

Established in 1997 and listed on the Main Board of the Hong Kong Stock Exchange in 2003, Comba Telecom Systems Holdings Limited (the “Company”) is a leading supplier of mobile communications equipment with R&D facilities, manufacturing base and sales and service teams. Leading through innovative technology, the Company offers a comprehensive suite of products including wireless access, wireless enhancement, antennas and subsystems and wireless transmission, etc. The Company also provides complete turnkey solutions and services to its global customers.

The Company has established its R&D headquarters based in Guangzhou Science City, three research institutions in Nanjing in China, Washington City and California in the USA respectively with more than 1,300 Chinese and international patents applied. Our global manufacturing base, located in Guangzhou, covers an area of over 56,000 square meters.

The Company has established more than 30 offi ces in China and more than 10 overseas offi ces worldwide, providing products and services in more than 80 countries and regions.

Since December 2003, the Company has been a constituent of the MSCI China Small Cap Index. In September 2009, the Company was named “Asia’s 200 Best Under A Billion” by Forbes. In March 2010, the Company was included into the Hang Seng Composite Index Series (under the Information Technology category) and Hang Seng Composite Small Cap Index.

京信通信系統控股有限公司（「本公司」）成立於1997年，於2003年在香港聯交所主板上市，是一家全球領先並集研發、生產、銷售及服務於一體的移動通信設備供應商。憑藉創新科技，本公司提供無線接入、無線優化、天線及子系統、無線傳輸等多元化產品，同時為全球客戶提供整體解決方案及服務。

本公司在中國廣州科學城設有總部研發基地，並在中國南京、美國華盛頓市及加利福尼亞州分別設有研究所，已申請國內外專利1,300餘項。在中國廣州經濟技術開發區，本公司建有全球生產基地，擁有超過56,000平方米的通信設備製造廠房。

本公司在中國內地設有超過30多家分公司覆蓋整個中國市場，並在海外設有10餘個分支機構，於全球80多個國家和地區開展產品銷售和技術服務。

本公司自2003年12月起獲納入MSCI中國小型股指數，於2009年9月獲《福布斯》選為「亞太區中小企200強」，並於2010年3月納入恆生綜合指數系列（信息技術分類方面）及恆生綜合小型股指數。

==> picture [596 x 285] intentionally omitted <==

==> picture [253 x 285] intentionally omitted <==

Corporate Information	2–3
Financial Summary	4–5
Corporate Milestone 2012	6–7
Chairman’s Statement	8–11
Management Discussion and Analysis	12–22
Directors and Senior Management	23–30
Corporate Governance Report	31–37
Report of the Directors	38–44
Independent Auditors’ Report	45
Consolidated Income Statement	46
Consolidated Statement of Comprehensive Income	47
Consolidated Statement of Financial Position	48–49
Consolidated Statement of Changes in Equity	50–51
Consolidated Statement of Cash Flows	52–53
Statement of Financial Position	54
Notes to Financial Statements	55–115
Five Year Financial Summary	116

==> picture [274 x 139] intentionally omitted <==

==> picture [109 x 220] intentionally omitted <==

Corporate Information

REGISTERED OFFICE

Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

611 East Wing No. 8 Science Park West Avenue Hong Kong Science Park Tai Po Hong Kong

==> picture [250 x 237] intentionally omitted <==

----- Start of picture text -----

USA
R&D Center
USA
R&D Center and
North America Regional Sales Office
Mexico
Brazil
Peru
----- End of picture text -----

COMPANY SECRETARY

Tong Chak Wai, Wilson

AUDIT COMMITTEE AND REMUNERATION COMMITTEE

Lau Siu Ki, Kevin (Chairman) Liu Cai Lin Jin Tong Qian Ting Shuo

NOMINATION COMMITTEE

Liu Cai (Chairman) Lau Siu Ki, Kevin Lin Jin Tong Qian Ting Shuo

PRINCIPAL BANKERS

AUTHORIZED REPRESENTATIVES

The Hongkong and Shanghai Banking Corporation Limited Level 9, HSBC Main Building 1 Queen’s Road Central Hong Kong

Fok Tung Ling Tong Chak Wai, Wilson

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Royal Bank of Canada Trust Company (Cayman) Limited 4th Floor, Royal Bank House 24 Shedden Road, George Town Grand Cayman KY1-1110 Cayman Islands

Bank of China (Hong Kong) Limited Unit 701–706, The Gateway Tower 3 (Prudential Tower) 21 Canton Road Tsim Sha Tsui, Kowloon Hong Kong

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Svenska Handelsbanken AB (publ) Hong Kong Branch 2008 Hutchison House 10 Harcourt Road Central Hong Kong

Computershare Hong Kong Investor Services Limited Shops 1712–1716, 17th Floor Hopewell Center 183 Queen’s Road East Wanchai, Hong Kong

2 Comba Telecom Systems Holdings Limited

==> picture [536 x 581] intentionally omitted <==

----- Start of picture text -----

Corporate Information
Sweden
Europe
Regional Sales Office
PRC
Nationwide Sales and
Spain Services Network
Nanjing
R&D Center
Guangzhou
Dubai India R&D Center and
Middle East Manufacturing Base
Regional Sales Office
Thailand Hong Kong
Headquarters and
Asia Pacific Regional Sales Office
Malaysia
Macau
Singapore
Indonesia
----- End of picture text -----

Corporate Information

Standard Chartered Bank (Hong Kong) Limited 13th Floor Standard Chartered Bank Building 4–4A Des Voeux Road Central Hong Kong

Industrial and Commercial Bank of China Limited GETD District Sub-branch No.2 Xiangxue Road Kaichuang High Road North Guangzhou Science City, Luogang District Guangzhou, PRC

Hang Seng Bank Limited 20/F 83 Des Voeux Road Central Hong Kong

China Merchants Bank Co., Ltd. Guangdong Branch Gaoxin Sub-branch 1 Huajing Road, 1st Floor, Southern Communication Plaza Guangzhou, PRC

Bank of China Limited Guangzhou Development Zone Branch 2 Qingnian Road, GETD District Guangzhou, PRC

Annual Report 2012 3

Financial Summary

==> picture [181 x 594] intentionally omitted <==

----- Start of picture text -----

Revenue
HK$/M
7,000
6,354.2 [6,332.9]
6,000
5,191.4
5,000
4,440.0
4,000
3,000
2,525.9
2,000
1,000
0
2008 2009 2010 2011 2012
Revenue Breakdown by Businesses
/ = YoY change
30.2% Services 43.5%
35.6% Wireless Enhancement 19.8%
1.3% Antennas & Subsystems 28.7%
2.1% Wireless Access and Transmission 8.0%
CAGR +25.8%
----- End of picture text -----

Revenue Breakdown by Businesses

==> picture [9 x 8] intentionally omitted <==

==> picture [251 x 394] intentionally omitted <==

----- Start of picture text -----

Total Assets
HK$/M
12,000
10,091.7
10,000 9,581.3
8,000 7,262.4
5,725.1
6,000
4,000 3,452.4
2,000
0
2008 2009 2010 2011 2012
CAGR +30.8%
----- End of picture text -----

Revenue Breakdown by Customers

==> picture [182 x 250] intentionally omitted <==

----- Start of picture text -----

/ = YoY change
7.5% China Mobile 52.3%
4.3% China Unicom 22.0%
9.1% China Telecom 7.3%
20.9% International Customers &
Core Equipment Manufacturers 16.3%
16.0% Others 2.1%
----- End of picture text -----

4 Comba Telecom Systems Holdings Limited

Financial Summary

FINANCIAL SUMMARY

==> picture [484 x 133] intentionally omitted <==

----- Start of picture text -----

For the year ended 2012 2011
31 December HK$’000 HK$’000 Change
Revenue 6,332,867 6,354,218 (0.3%)
Operating (loss)/profi t (105,495) 805,919 (113.1%)
(Loss)/profi t attributable to shareholders (202,364) 659,084 (130.7%)
Basic (loss)/earnings per share (HK cents) (13.43) 43.99 (130.5%)
Weighted average number of shares (million shares) 1,506.9 1,498.3 +0.6%
Operating cash fl ow 201,320 (278,670) +172.2%
----- End of picture text -----

KEY FINANCIAL FIGURES

==> picture [483 x 183] intentionally omitted <==

----- Start of picture text -----

2012 2011
As at 31 December HK$’000 HK$’000 Change
Total assets 10,091,711 9,581,332 +5.33%
Net assets (before non-controlling interest) 3,805,622 4,014,064 (5.2%)
Net assets value per share (HK dollars) 2.49 2.63 (5.3%)
Cash and bank balances 1,568,655 1,201,258 +30.6%
Inventory turnover days 180 188 (8) days
A/R turnover days 259 209 +50 days
A/P turnover days 242 233 +9 days
Return on average equity (5.2%) 18.2% (23.4)pp
Gross gearing ratio 15.4% 11.7% +3.7pp
----- End of picture text -----

Annual Report 2012

==> picture [252 x 153] intentionally omitted <==

Corporate Milestone 2012

==> picture [57 x 68] intentionally omitted <==

==> picture [59 x 68] intentionally omitted <==

==> picture [195 x 126] intentionally omitted <==

Hong Kong – Shenzhen Multi-system network coverage solution for “MTR Express Rail Link” — Hong Kong’s high speed rail

==> picture [164 x 109] intentionally omitted <==

Malaysia Wireless coverage solution for SMART Tunnel

Russia Wireless coverage solution for 2014 Winter Games Stadiums in Sochi

Brazil 2G/3G/4G and Wifi coverage solutions for 2014 World Cup Brazil stadiums

Thailand Wireless coverage solution for Bangkok Metro Railway

Guangdong Wireless coverage solution for Line 6 of Guangzhou Metro

6 Comba Telecom Systems Holdings Limited

Corporate Milestone 2012

==> picture [484 x 88] intentionally omitted <==

----- Start of picture text -----

Continual Innovation
----- End of picture text -----

==> picture [58 x 68] intentionally omitted <==

==> picture [154 x 17] intentionally omitted <==

==> picture [219 x 17] intentionally omitted <==

==> picture [130 x 20] intentionally omitted <==

----- Start of picture text -----

Launch of a newly self-developed
small cell (IB-WAS) coverage system
----- End of picture text -----

Nationwide deployment of MDAS products

==> picture [272 x 222] intentionally omitted <==

----- Start of picture text -----

Signed MOU with China Mobile
Research Institute for joint
development of Nanocell
Technology breakthrough in
WCDMA compact BTS antenna
Became the 3 [rd] largest MCPA supplie r
for major North American operators
----- End of picture text -----

==> picture [169 x 8] intentionally omitted <==

----- Start of picture text -----

LTE antennas launched in Latin America market
----- End of picture text -----

Guangzhou Patent Award (Patent Implementing Effi ciency Award)

==> picture [136 x 20] intentionally omitted <==

----- Start of picture text -----

Guangzhou Patent Award
(Patent Invention Contribution Award)
----- End of picture text -----

==> picture [102 x 21] intentionally omitted <==

----- Start of picture text -----

Named an A-Class Taxpayer
in Guangzhou
----- End of picture text -----

Annual Report 2012

==> picture [37 x 196] intentionally omitted <==

Chairman’s Statement

==> picture [273 x 211] intentionally omitted <==

==> picture [288 x 211] intentionally omitted <==

==> picture [37 x 211] intentionally omitted <==

Mr. Fok Tung Ling Chairman

On behalf of Comba Telecom Systems Holdings Limited (the “Company”), I hereby present to the shareholders the annual report of the Company and its subsidiaries (“Comba Telecom” or the “Group”) for the year ended 31 December 2012 (the “Current Year”).

down the capital expenditure, posting an unprecedented challenge to the sector. In the face of adversity, the Group, rather than standing still, has become even stronger by quickening the pace of research and development (“R&D”) of innovative products in order to create new growth drivers. On the other hand, the Group proactively enhanced the revenue contribution from the international markets by capitalizing on the opportunities arising from the emerging markets where the demand is growing.

==> picture [37 x 196] intentionally omitted <==

The development of Comba Telecom during the last year has not been without diffi culties. In addition to the challenges brought by the competition from its peers, Comba Telecom has had to endure the impact of the global economic downturn, which has caused some worldwide mobile operators to slow

8 Comba Telecom Systems Holdings Limited

==> picture [252 x 196] intentionally omitted <==

==> picture [59 x 808] intentionally omitted <==

----- Start of picture text -----

9
----- End of picture text -----

Chairman’s Statement

==> picture [252 x 211] intentionally omitted <==

==> picture [289 x 211] intentionally omitted <==

To date, the presence of the Group has spanned across many countries and regions of the globe, including China, the North America and South America, Europe, the Middle East, Russia, India and Southeast Asia such as Singapore, Thailand, Indonesia, Taiwan and etc. Moreover, the Group has further diversifi ed its product portfolio to cover wireless enhancement, antennas and subsystems, wireless access (including Small Cell and WiFi) and wireless transmission (including microwave and satellite communications products), etc.

With all of our staff working together in concert, the Group has striven its utmost in developing relationships with customers, boosting our R&D capabilities and bolstering our management skills. Our dedication and sharp focus have enabled us, regardless of the tough environment, to maintain the revenue of the Group at HK$6,332,867,000. Among the revenue streams, the international customers and core equipment manufacturers segment has achieved satisfactory results with its revenue more than HK$1.0 billion, representing an increase of 20.9% year-on-year. In respect of profit, the Group has experienced an exceptionally tough time during

Annual Report 2012 9

Chairman’s Statement

the Current Year. Despite several initiatives tightening cost controls and boosting profitability as well as its strenuous efforts to overcome the adverse impact resulting from rising operating costs and staff salary and raw material prices, the lower-than-expected capital expenditure of domestic mobile operators, the declines in the revenue and gross profi t margins of existing products and the unrealized sales scalability of new products have contributed to the Group’s inability to resume profi tability. As more time is needed for such measures to take full effect, the Group, during the Current Year, recorded a loss of HK$202,364,000 for the fi rst time since its listing in 2003.

It is generally expected that the global economy will be recovering from recession in 2013. However, lingering uncertainties still loom large. Nevertheless, backed by a list of favorable factors such as domestic political policy support, economic development and industry transformation, the telecommunications industry in the PRC, which accounts for a higher revenue contribution to the Group, managed to perform well. In 2012, the core business revenue of the telecommunications industry in the PRC has outperformed GDP growth, increasing by 9.0% over last year to RMB1.0763 trillion. Currently, the PRC has built the largest mobile network in the world. As at the end of the previous year, the number of mobile subscribers in the PRC reached 1.11 billion, among which, the number of 3G mobile subscribers exceeded 230 million, a penetration rate of more than 20%. I am confi dent that the telecommunications industry in the PRC has a bright

future. As for the international markets, while there are signs of improvement in the global macro-economic environment and the construction of 4G network commences gradually, the Group is deepening its existing market and prudently extending its presence in new markets. Recently, the Group won important projects in international markets such as Brazil and the U.S. The Group remains optimistic about the prospects of its future development. Still, we remain alert and closely monitor the ever-changing market so as to seize opportunities and respond in a timely manner.

“Embracing new challenges and ushering in a new era.” Going forward, there are numerous opportunities available in the telecommunications industry. For instance, the upcoming commercialization of 4G mobile networks in China; the world is entering the digital era; mobile internet is widely used together with new breakthroughs and wide application of smartphones. All these will definitely push-up the demand for wireless access system and wireless enhancement equipment and services. Recently, the related PRC Government department proposes to open up part of the mobile communication services to private capital investment in a bid to promote the open up of the telecommunications industry and propel the industry development, etc. All these outline an abundance of opportunities. Through a decade of efforts, Comba Telecom has laid a solid foundation for future development. During the past two years, the Group has committed signifi cant resources to scientifi c research projects associated with IB-WAS, MDAS

10 Comba Telecom Systems Holdings Limited

Chairman’s Statement

and LTE, which have demonstrated considerable progress. Particularly, the IB-WAS product line has been expanding over the last year since its launch and its commercialization is also very promising. IB-WAS was put into commercial use in several provinces last year. It is believed that these strategic products will be able to deliver important contribution to the Group. At the same time, the Group endeavours to enhance its management and organization structure; attract and nurture a new team of modern technology experts, thus building a new core competitiveness for Comba Telecom and laying a solid foundation for its future development. Therefore, with the gradual improvement of the global economy in the coming year and the coming of new demand for our new businesses, we are confi dent to yield satisfactory results and bring fruitful returns to our shareholders.

Lastly, on behalf of the board of directors of the Company, I would like to express my heartfelt thanks to the shareholders for their unwavering support and trust over the long run. I believe that each of the directors will continue to pursue excellence for our shareholders. In addition, I would like to convey my sincere gratitude to the management team and all the staff for their commitment and their sustained efforts in contributing to the success of the Group. However, we understand that sustainability is the ultimate pursuit of an enterprise. Therefore, we resolve to spare no efforts to scale new heights and march towards the goal of becoming a worldclass enterprise.

Fok Tung Ling Chairman Hong Kong 22 March 2013

Annual Report 2012 11

==> picture [37 x 196] intentionally omitted <==

Management Discussion and Analysis

==> picture [273 x 211] intentionally omitted <==

==> picture [288 x 211] intentionally omitted <==

==> picture [37 x 211] intentionally omitted <==

Mr. Zhang Yue Jun Vice Chairman and President

By customers

BUSINESS AND FINANCIAL REVIEW

During the Current Year, revenue generated from China Mobile Communications Corporation and its subsidiaries (“China Mobile Group”) decreased by 7.5% to HK$3,313,447,000 (2011: HK$3,582,584,000), accounting for 52.3% of the Group’s revenue in the Current Year, compared to 56.4% in the Prior Year.

Revenue

For the year ended 31 December 2012 (the “Current Year”), Comba Telecom Systems Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) reported stable revenue amounting to HK$6,332,867,000 (2011: HK$6,354,218,000) as compared to the year ended 31 December 2011 (the “Prior Year”). The continuously increasing number of mobile subscribers, the growing popularity of smart devices and expansion of data traffi c drove the demand for wireless solutions but was offset by the CAPEX concerns of mobile operators.

==> picture [37 x 196] intentionally omitted <==

Revenue generated from China United Telecommunications Corporation and its subsidiaries (“China Unicom Group”) increased by 4.3% to HK$1,390,107,000 (2011: HK$1,333,343,000) and accounted for 22.0% of the Group’s revenue in the Current Year, compared to 21.0% in the Prior Year.

12 Comba Telecom Systems Holdings Limited

==> picture [252 x 196] intentionally omitted <==

Management Discussion and Analysis

==> picture [252 x 211] intentionally omitted <==

==> picture [289 x 211] intentionally omitted <==

Revenue generated from China Telecom Corporation and its subsidiaries (“China Telecom Group”) increased by 9.1% to HK$464,888,000 (2011: HK$426,195,000), accounting for 7.3% of the Group’s revenue in the Current Year, compared to 6.7% in the Prior Year.

Through constant efforts in expanding the business in emerging markets and some Southeast Asian countries, revenue generated from international customers and core equipment manufacturers also increased significantly by 20.9% to HK$1,029,375,000 (2011: HK$851,238,000). This accounted for 16.3% of the Group’s revenue in the Current Year, compared to 13.4% in the Prior Year.

As a result of the ongoing investment in 3G mobile networks by mobile operators, the Group’s 3G business increased by 32.6% to HK$2,711,000,000 (2011: HK$2,045,000,000) and accounted for 42.8% of the Group’s revenue in the Current Year, compared to 32.2% in the Prior Year.

Annual Report 2012 13

Management Discussion and Analysis

==> picture [483 x 242] intentionally omitted <==

By businesses

Driven by the ongoing replacement cycles of antennas and the continuous network build-outs by the mobile operators, revenue generated from antennas and subsystems business in the Current Year increased by 1.3% to HK$1,818,823,000 (2011: HK$1,795,136,000), accounting for 28.7% of the Group’s revenue, compared to 28.2% in the Prior Year.

Many mobile operators expedited WLAN (WiFi) deployment to cope with the growth of data usage by mobile subscribers. Hence, revenue generated from the wireless access and transmission business in the Current Year increased by 2.1% to HK$505,884,000 (2011: HK$495,474,000) and accounted for 8.0% of the Group’s revenue, compared to 7.8% in the Prior Year. The Indoor Broadband Wireless Access System (“IBWAS”) business started to provide modest contributions in the second half of the Current Year, and the Group is seeing the positive momentum continuing into 2013.

As a result of the postponement of certain investment activities and inspection processes conducted by PRC mobile operators, and the fact that revenue from some of the Group’s projects was not recognized in the Current Year, revenue generated from wireless enhancement business in the Current

Year decreased by 35.6% to HK$1,254,085,000 (2011: HK$1,948,091,000) and accounted for 19.8% of the Group’s revenue, compared to 30.7% in the Prior Year.

Demand from services, including consultation, commissioning, network optimization, project management and after-sales maintenance services, has been trending upwards as a result of the increase of data traffi c and growing complexity of network systems. Consequently, revenue from services increased by 30.2% to HK$2,754,075,000 (2011: HK$2,115,517,000) in the Current Year and accounted for 43.5% of the Group’s revenue, compared to 33.3% in the Prior Year.

Gross profi t

During the Current Year, gross profit decreased by 30.6% to HK$1,615,879,000 (2011: HK$2,326,697,000). The Group’s gross profit margin was 25.5% in the Current Year compared to 36.6% in the Prior Year. The decrease in gross profit margin was mainly due to increase in the cost of sales caused by inflation, increasingly fierce competition in the telecommunications industry and the unrealized sales scalability of new products and new businesses. During the Current Year, obsolete inventories write-off of HK$146,284,000 (2011: Nil) was recorded.

14 Comba Telecom Systems Holdings Limited

Management Discussion and Analysis

To improve the gross margin, the Group will: 1) continue to adopt stringent cost control initiatives including optimizing the product design through advanced research and development (“R&D”), streamlining the manufacturing process, improving logistics management and optimizing the internal organization and functions of the Group. 2) Moreover, the Group will continue to expand its market coverage and broaden its revenue sources to achieve economies of scale. The Group will also continue to provide installation, network optimization, network enhancement and after-sales maintenance services to customers in order to achieve higher product sales. 3) Meanwhile, the Group will continue to focus on developing advanced and high value-added products for customers.

Research and development costs

“Innovation” is one of the core values of the Group through which it differentiates itself from its peers. As such, the increased investment in R&D is necessary to maintain the Group’s competitive advantages and continuous investments were made in the development and expansion of the product portfolios of IB-WAS and 2G, 3G, WLAN and LTE mobile networks. During the Current Year, R&D costs increased slightly by 4.1% to HK$376,766,000 (2011: HK$361,914,000) during the Current Year, representing 5.9% (2011: 5.7%) of the Group’s revenue.

With its strong commitment to R&D, the Group has achieved significant accomplishments in creating solutions with intellectual property rights and has applied for more than 1,300 patents as at the end of the Current Year (As at 31 December 2011: more than 940 patents).

Selling and distribution expenses

During the Current Year, selling and distribution expenses surged by 15.3% to HK$503,749,000 (2011: HK$437,088,000), representing 8.0% (2011: 6.9%) of the Group’s revenue. The increase in selling and distribution expenses was mainly due to the increases in sales staff salaries and continuous global expansion of the sales and service networks of the Group.

==> picture [222 x 143] intentionally omitted <==

Administrative expenses

During the Current Year, administrative expenses increased by 8.9% to HK$904,640,000 (2011: HK$830,714,000), representing 14.3% (2011: 13.1%) of the Group’s revenue. The higher administrative expenses was mainly due to increases in administration staff salaries and offi ce expenses as a result of the enlarged support teams for global operations.

Awarded shares expenses

On 12 April 2011, the board of directors of the Company resolved to award 26,000,000 awarded shares to 365 selected persons under the share award scheme adopted on 25 March 2011, by way of issue and allotment of new shares pursuant to the general mandate granted by the shareholders of the Company at the annual general meeting of the Company held on 24 May 2010. These awarded shares will be held in trust for the selected persons by the trustee appointed by the Company until the end of each vesting period. For these awarded shares, there are four vesting dates, which are 12 July 2011, 12 April 2012, 12 April 2013 and 12 April 2014. Upon each vesting date, those awarded shares will be transferred at no cost to the selected persons.

The fair value of the 26,000,000 awarded shares was approximately HK$226 million, measured at the closing market price of HK$9.32 per share as of the date of the grant and amortized over each of the vesting period up to 12 April 2014. During the Current Year, the awarded shares expenses amounted to approximately HK$54 million. For the full years of 2013 and 2014, the awarded shares expenses are estimated at approximately HK$23 million and HK$4 million respectively.

Annual Report 2012 15

Management Discussion and Analysis

Finance costs

During the Current Year, fi nance costs increased by 45.0% to HK$42,635,000 (2011: HK$29,403,000), representing 0.7% (2011: 0.5%) of the Group’s revenue. The rise in finance costs was mainly due to increases in the interest rates and bank borrowings as a consequence of the expanding business activities.

The management has always been prudent in managing the credit risk and improving the cash fl ow in order to lower the bank borrowings level. To cope with the growth of the business, the management has closely monitored the latest developments of the fi nancing market and arranged the most appropriate fi nancing for the Group. In June 2012, the Group signed a US$210 million (approximately HK$1.63 billion) three-year term loan facility (the “Facility”) with fi ve fi nancial institutions including Bank of China (Hong Kong) Limited, The Hongkong and Shanghai Banking Corporation Limited, Svenska Handelsbanken AB (publ), Hong Kong Branch, Hang Seng Bank Limited and Standard Chartered Bank (Hong Kong) Limited. The Facility served to further optimize the Group’s capital structure and fuel the continued business development.

In addition, the management also utilized the advantages of interest and foreign exchange rates differentiation among different countries in order to minimize the fi nance costs. As of 31 December 2012, the gross gearing ratio of the Group, defined as total interest-bearing borrowings divided by total assets, stood at a manageable level of 15.4% compared to 11.7% as of 31 December 2011.

Operating loss

During the Current Year, the operating loss was H K $ 1 0 5 , 4 9 5 , 0 0 0 ( 2 0 1 1 : o p e r a t i n g p r o f i t o f HK$805,919,000) which were attributable to a number of reasons including: 1) the decrease in the Group’s overall gross profi t margin due to the increase in the cost of sales caused by infl ation, the unrealized sales scalability of new products and new businesses and the increasingly fierce competition; 2) continuous global expansion of the sales and service networks of the Group resulted in the surge in operating costs; and 3) obsolete inventories write-off resulted in the decrease in the overall gross profi t margin of the Group.

Tax

During the Current Year, the overall taxation charge of HK$67,515,000 (2011: HK$121,772,000) was composed of profits tax charge of HK$62,861,000 (2011: HK$120,960,000) and deferred tax charge of HK$4,654,000 (2011: HK$812,000). The decrease in overall taxation charge was mainly due to the net loss recorded during the Current Year.

Details of tax holiday and/or reduced tax rates enjoyed by major operating subsidiaries are set out in note 9 to the financial statements.

Net loss

During the Current Year, loss attributable to shareholders (“Net Loss”) was HK$202,364,000 (2011: net profit of HK$659,084,000). The record of Net Loss was mainly due to: 1) the decrease in the Group’s overall gross profi t margin and 2) the increase in the operating expenses during the Current Year.

Cost saving program

With an emphasis on profitability and liquidity, the Group has exercised a stringent control over cost and enhanced its operational efficiency proactively. The management of the Group has introduced different cost control measures by phases since the second half of the Current Year: 1) The management team has voluntarily taken the lead to reduce part of their remunerations, while the senior and middle-level employees have also undergone a salary reduction; 2) the Group’s operations management team has taken adjustments and optimization procedures with regard to the staff hierarchy from the headquarter-level and each of the branch offices, established a simplified organizational structure and strictly controlled the scope of management; 3) the integration of job functions and streamlining of workfl ow have been carried out concurrently whilst the sharing of resources have been introduced, all of which are expected to enhance the synergistic effects among the business units, functional units and branch offi ces of the Group.

16 Comba Telecom Systems Holdings Limited

Management Discussion and Analysis

With the collaborative efforts of all employees of the Group, the cost control measures, after being implemented for several months, have shown their effectiveness gradually. Total number of staff members of the Group decreased from 11,200 in the interim period this year to 9,900 by the end of the Current Year. In addition, the ratios of the selling and distribution expenses and administrative expenses to revenue recorded noticeable decreases in the second half of the Current Year. However, as the cost control measures have been launched for only a few months, the effects are expected to be fully revealed in 2013. As a result, the Group will maintain its vigilance and persistence, enhance the management and evaluate the progress and effectiveness of the measures, with a view to achieving various targeted performance indicators as soon as possible.

PROSPECTS

Economic environment

2012 was a year of pronounced economic uncertainty for many countries around the world resulting in a halt on the CAPEX plans by some mobile operators. The market believes that the headwinds may persist, and some structural issues of the global economy are expected to take a longer time to overcome. Nevertheless, the economic outlook of both China and the overseas markets is expected to be cautiously optimistic in 2013 resulting from a combination of a gradual recovery in the US economy and the easing of the European sovereign debt crises which in turn served as a backdrop for the recent turnaround in market sentiment. Moving into 2013, we see the global economy is on the mend, and there are some signs of improvements in both consumers’ and enterprises’ confidence. This confidence could play a significant role in driving economic growth during 2013.

Despite the slowdown for most of 2012, the PRC still managed to achieve a GDP growth of 7.8% to RMB51.93 trillion. In 2013, the environment for investment growth may benefit from favorable policies for private investments and strategies to bridge regional development gaps underpinned by growing disposable income per capita and accelerating urbanization. It is expected that the growth momentum in 2013 can be sustained.

Industry landscape

Following the gloomy economic sentiment in 2012, the telecom market is expected to revive in view of the solid demand from mobile users. According to the market’s estimation, the aggregate global mobile subscription has increased by 6.7% year-on-year to approximately 6.4 billion by the end of 2012, of which total smartphone subscriptions accounted for 17%, representing a year-on-year growth of 35.8%. Notably, total monthly mobile data traffic surged dramatically 1.83 times to 1,100 petabytes as compared to 2011.

Likewise, the PRC is expected to build on its positive momentum in 2012. The total number of mobile subscribers in China has reached more than 1.1 billion and 3G subscribers have skyrocketed 183% to more than 232 million by the end of 2012. More importantly, there was a phenomenal uptake in data services which will drive the demand for wireless enhancement. Mobile internet has become an integral part of our everyday life, and mobile internet users surged 9.9% to 564 million during 2012. Given the improving economic environment, mobile operators’ CAPEX outlay is expected to look brighter. As such, we are generally optimistic about the telecom industry environment.

Opportunities ahead

Data traffic and heterogeneous networks management are undeniably the major areas that every mobile operator has to put more efforts and investments in the future. Mobile operators must scale up their networks in terms of capacity, effi ciency and intelligence to support the exponential growth of data traffic and realize equitable and balanced resource allocation, while maximizing their network value and enhancing network quality for subscriber retention and growth.

Furthermore, Long Term Evolution (“LTE”) is the next generation of mobile communications technology which enables the fast transfer of huge amount of data in an effi cient and cost-effective manner. By the end of 2012, more than 140 mobile operators have launched LTE commercial services around the world. It is expected that LTE will continue to gain worldwide traction driven by the surge in network traffi c and subscriber uptake. Moreover, industry verticals will add further

Annual Report 2012 17

Management Discussion and Analysis

fi re to the exponential growth, such as mobile banking, online entertainment, etc. The mobile operators, in particular those within the PRC, have also shown greater assertiveness in accelerating network upgrades, and their investment in hightech and world-class telecommunications infrastructure have shown no sign of abating. Network upgrades include not only LTE deployment, but also maximization of existing networks’ capacity and efficiency where wireless enhancement could represent one of the best solutions. This will open countless opportunities to most wireless equipment suppliers. As a market leader in wireless solutions, the Group is LTE-ready and is well-poised to seize the opportunities via its strategic and innovative products and solutions including IB-WAS, MultiService Distributed Access System (“MDAS”), data capacity solutions, multi-operator and multi-band solutions etc., coupled with its uncompromising services to cater the needs of the customers.

Wireless Access

IB-WAS

IB-WAS is one of the small cell solutions. The small cell market is experiencing unprecedented growth. Nowadays, a number of leading mobile operators are offering small cell services, and the interest of mobile operators in small cell continues to grow. By the end of 2012, the number of small cells put into commercial use worldwide has surpassed 6 million. In the era of data booming, data traffi c management is crucial to every mobile operator. Small cells can be deployed in hotspot locations to carry data traffi c effectively while facilitating network optimization and in-depth network coverage. This delivers a better end-user experience within the challenging economic environment faced by the mobile operators. High cost and limited availability of licensed spectrum make spatial reuse via small cells an effective approach to achieve the additional capacity required.

In addition, mobile operators are facing issues about spectrum allocation and the cost involved in the network build-out in view of LTE rollouts. They are looking to leverage and re-use existing spectrum and also infrastructure as much as possible in order to optimize their return on investment which will eventually drive the demand for the Group’s cost-effective spectrum refarming of both 3G and 4G and new equipment for heterogeneous networks.

Over the years, the Group has continuously devoted efforts to expanding its market presence overseas. It is encouraging that the Group successfully penetrated several new markets, and we see growing opportunities in certain overseas markets. For instance, global sporting events including Football World Cup, Summer Games, Winter Games and transportation network projects around the world will drive the demand for wireless enhancement solutions. While maintaining its long-held leadership in the PRC, the Group will continue to deepen the business relationship with the existing overseas customers and to prudently extend its reach in potential high growth markets.

Relatively speaking, the small cell market is in its infancy within the PRC, and its enormous potential is yet to be realized. The Group has insightfully ridden on the mobile technology trend and successfully developed IB-WAS two years ago. This technological advance has fundamentally boosted the value proposition of the Group, and tremendous progress was made during 2012. Last August, the Group signed a memorandum of understanding with China Mobile Research Institute for a joint research project in nanocell technology. To date, certain mobile networks within various provinces in China have deployed the Group’s IB-WAS for commercial use, while a number of other provinces and municipalities have also commenced trial runs. Additionally, the strong R&D and unmatched service capabilities will help drive the IB-WAS success moving forward. The Group will proactively accelerate the proliferation of the small cell product portfolio and drive the commercialization in the PRC to achieve greater economies of scale in 2013 and is confi dent that IB-WAS will be the next growth engine of the Group in the near future.

18 Comba Telecom Systems Holdings Limited

Management Discussion and Analysis

WLAN (WiFi)

In addition to IB-WAS, WiFi is another strategic product line which the Group expects to undergo positive growth in the near future. Worldwide WiFi hotspots are set to rise from 1.3 million in 2011 to 5.8 million by 2015, according to the market predictions. In fact, many mobile operators consider WiFi as an essential component for mobile connectivity and also a strategic tool for effi cient data traffi c management across the network while diversifying their revenue base. Equipped with a complete WiFi product portfolio including access point, access controller, wireless bridge, PoE switch, etc., the Group can provide cost-effective end-to-end WiFi solutions that fulfi ll the requirements of various application scenarios.

Furthermore, the Group always emphasizes that small cell and WiFi are complementary to rather than competitive with each other. Both technologies are essential for supporting the exponential growth of data traffi c. The Group’s IB-WAS can also support WiFi, enabling mobile operators to deploy high-capacity access points to provide both WiFi and cellular connections for various indoor scenarios, leveraging broadband backhaul. Thus, mobile operators can then deliver a better experience for all users across all devices riding on IB-WAS which converges the two technologies.

the advantage of high flexibility of deployment, the MDAS solution enables multi-mode, multi-system, high-speed data transmission and in-depth coverage in a cost-effective manner. North America, South America and Asia have taken the lead in applying such products into practical use. The Group intends to further push ahead with the launch of new series of MDAS products and solutions and expects to greatly increase the sales scalability this year.

Globally, wireless enhancement is expected to achieve uninterrupted growth owing to the burgeoning demand for in-building systems (“IBS”), in particular active distributed antenna system solutions, in certain overseas markets. During 2012, the Group successfully secured wireless enhancement projects for Bangkok Metro Railway, Santiago Metro System in Chile, the venue hosting the CommunicAsia 2012 Exhibition and Conference in Singapore, SMART Tunnel in Malaysia, etc. Recently, the Group has also announced it is to supply wireless solutions for the 2014 Sochi Winter Games venues. All of these projects have not only signifi ed the growing importance of IBS for network optimization, but also demonstrated the capability of the Group in handling some prestigious projects. Looking ahead in 2013, the Group will be more proactive in delivering more top-notch IBS solutions and enhancing the long-term value already provided to its global customers.

Wireless Enhancement

Experiencing an unanticipated setback due to the postponement of certain investment activities and inspection processes by the PRC mobile operators last year, the Group expects wireless enhancement will gradually recover in light of the continuous growth in mobile subscribers, data usage and urbanization. Wireless enhancement is an effi cient and costeffective tool enabling mobile operators to provide extensive coverage. This enables the mobile operators to deliver a better user experience which is their foremost mission under the pressure by the explosion of data traffic created by the popularity of smart devices. As a pioneer in the wireless enhancement market, the Group is dedicated to developing more new innovative products to cater to the evolving needs of customers. Since last year, the Group launched MDAS solutions which have been well-received by the market. With

Antennas and Subsystems

Despite intense competition, the Group continued to maintain its position as one of the top three suppliers of base station antennas worldwide as well as the leader in the PRC market and again achieved stable growth in the Current Year. The achievement was a testament to the high standard and reliability of the Group’s products. Moving into 2013, the Group is confi dent that it can maintain its long-held leading position across the globe and aims to drive more sales via promoting the newly-launched antenna product series including multiband antennas, co-siting solutions and miniaturized antennas, etc. With the increasing sophistication of mobile networks, these products and solutions are gaining traction in a number of overseas markets as they can help deliver greater performance effi ciency to mobile networks.

Annual Report 2012 19

Management Discussion and Analysis

In addition, the continued deployment of 4G networks around the globe, in particular within emerging markets and the forthcoming commercialization of LTE in the PRC in the foreseeable future is expected to bring enormous opportunities to the Group. Currently, the Group is supplying its 4G antennas and subsystems to many global mobile operators for their network build-outs. With the growing demand for 4G products, the Group expects to achieve greater economies of scale to enhance operating effectiveness.

In addition to the total solutions wireless backhaul market, the Group has also been actively promoting the ODU and subsystems products to the ODM market. The experience and continuous investment in R&D have allowed the Group to become one of the major players in this ODM market and the recently launched Trunking Radio solution allow the Group to offer a complete end-to-end long haul and short haul product portfolio for its customers.

Satellite emergency communications

Wireless Transmission

Digital Microwave Systems

The drive for anytime, anywhere online life style has demanded a network with ubiquitous coverage and high capacity solution. This requires a high density of wireless equipment to be deployed in major areas in order to fulfill the high capacity need in addition to deployment of solutions in metropolitan and rural areas in order to provide the ubiquitous coverage requirement. These deployments all require high speed IP backhaul and are triggering a growing demand of wireless transmission and satellite communication solutions. The Group has devoted itself in the global original design manufacturing (“ODM”) market for years and has acquired a pivotal position in the global market of outdoor units (“ODU”) products leveraging on its extensive technical experience and innovation in the radio frequency/microwave area. The Group is specialized in providing the customers with professional, good value for money and customized products covering all microwave bands. The Group has recently launched the latest generation of wireless transmission product portfolio including the NIX and the Full Outdoor System series of products. These products are tailored design to address the LTE and high capacity network requirement in the metropolitan areas and can support high capacity backhaul with multiple services to address the growing demand. They are also designed to be readily upgradable to meet the growing capacity need on LTE deployment in the future.

The wireless backhaul solutions of the Group are deployed by its diversifi ed customers in various countries and verticals in both the fixed wireless and the wireless backhaul market segments. The new generation of solutions are going to allow the Group to offer its customers added value proposition and increase its market penetration.

With the drive of ubiquitous coverage and network offering in all areas, satellite communications is also becoming more important. This is compounded with the growing demand of satellite solutions for emergency communications and disaster relief. In recent years, the PRC’s Central Government has placed an emphasis on development emergency communications in view of more natural disasters and large scale events.

As an expansion of its ODM business of microwave products, the Group has expanded into the satellite communications solutions. Leveraging on the economies of scale in microwave technology and products, the Group will be able to redefi ne the value of block up converter (BUC) products and deliver a brand new experience to its customers in the global satellite communications market and contribute to the Group’s business revenue at the same time. Moreover, the Group is now offering various offerings including automatic tracking portable station and mobile satellite communications vehicle in addition to other satellite communications products to address the growing demand. These solutions are well aligned with the expanded product portfolio of the Group and allow the Group to offer complete end-to-end wireless solutions to the customers.

Services

Along with the complexity of network technologies, virtually all mobile operators nowadays attach more importance than ever before to quality service support with the aim to deliver a better user experience. As such, the Group continues to see a growing demand for all-round services in the wireless industry and expects an increasing contribution from the services segment in the future.

20 Comba Telecom Systems Holdings Limited

Management Discussion and Analysis

Specializing in the insights of value trends, value-based innovations and designs and value-added solutions, the Group’s service team, comprising highly-skilled professionals, qualified engineers and industry experts with technical know-how, is dedicated to providing best in-class services and customized solutions for customers. Aiming at maximizing network potential, the services offered by the Group encompass network planning and design, network optimization, network upgrade, project deployment, system installation and after-sales maintenance, and more. This wide range of services enables mobile operators to deliver a better end-user experience while reducing costs.

Over the years, the Group has been investing in its global capabilities in delivering value-added services to customers worldwide. Currently, the Group has a service team of more than 5,000 professionals spanning across the PRC, several emerging markets and Southeast Asian countries. Leveraging a complete product portfolio and extensive experience, the Group’s service team remains steadfast in its pursuit of excellence and commitment to exceed customers’ expectations.

Conclusion

The behavior and demand of mobile users are undergoing accelerating changes, and the Group strongly believes that its long-term strategy, which is focused on value creation for customers, is the right one to cope with the stream of both challenges and opportunities.

During 2012, the Group continued its focus on product transformation to lay the groundwork needed to position itself for the next stage of growth and profi tability. To address the dynamic and challenging market, the Group affi rmed its commitment to R&D with a planned investment in small cells and other strategic products in order to drive innovation and sustainable differentiation. The Group is able to surpass many of its competitors by delivering unique value to customers, for which we have achieved exceptional customer satisfaction levels.

The Group is well-poised to address opportunities through the depth and breadth of its market-leading portfolio. From the fi nancials standpoint, the Group will continue to strengthen its structure, streamline its processes, adopt stringent cost control measures and strive to maximize its operational effi ciency. The Group maintains a clear vision of its long-term goal and has the utmost confi dence in its leadership team and strategic roadmap to fuel its success over the long run.

LIQUIDITY, FINANCIAL RESOURCES & CAPITAL STRUCTURE

The Group generally finances for its operations from cash flows generated internally and bank borrowings. As at 31 December 2012, the Group had net current assets of HK$2,688,805,000. Current assets comprised inventories of HK$2,243,009,000, trade receivables of HK$4,452,866,000, notes receivable of HK$63,194,000, prepayments, deposits and other receivables of HK$580,957,000, restricted bank deposits of HK$24,367,000, and cash and cash equivalents of HK$1,536,638,000. Current liabilities comprised trade and bills payables of HK$3,281,193,000, other payables and accruals of HK$1,206,888,000, interest-bearing bank borrowings of HK$1,558,656,000, tax payable of HK$87,174,000 and provisions for product warranties of HK$78,315,000.

Growing demand from services led to the average receivable turnover for the Current Year increase to 259 days as compared to 209 days for the Prior Year. The Group’s trading terms with its customers are mainly on credit. The credit period is generally for a period of three months and is extendable up to two years depending on the customers’ credit worthiness, except for those retention money generally receivable after final certification of products by customers, which would be performed six to twelve months after sale, or upon completion of the one to two years warranty periods granted to customers. The average payable turnover for the Current Year was 242 days compared to 233 days for the Prior Year. The average inventory turnover for the Current Year was 180 days compared to 188 days for the Prior Year.

Annual Report 2012 21

Management Discussion and Analysis

As at 31 December 2012, the Group’s cash and bank balances were mainly denominated in Renminbi (“RMB”), Hong Kong dollars (“HK$”) and United States dollars (“US$”) while the Group’s bank borrowings were mainly denominated in US$. The interest rates on the Group’s bank borrowings are principally on a fl oating basis at prevailing market rates.

The Group’s revenue and expenses, assets and liabilities are mainly denominated in RMB, HK$ and US$. As the Group’s revenue is substantially denominated in RMB, the board of directors of the Company currently considers that the appreciation of RMB should have a mildly favorable impact on the Group’s business.

In addition to the short-term interest-bearing facilities, the Group had entered into two three-year term loan facility agreements respectively, one of which amounted to US$130,000,000 on 5 July 2010 and another of which amounted to US$210,000,000 on 26 June 2012 (collectively known as the “Facility Agreements”), with certain financial institutions.

Under the Facility Agreements, there are specifi c performance obligations that Mr. Fok Tung Ling who is the controlling shareholder of the Company and Mr. Zhang Yue Jun who is the substantial shareholder of the Company, shall maintain beneficial ownership in aggregate, directly or indirectly, of at least 35% of the entire issued shares (of each class) of and equity interests in the Company free from any security. Pursuant to the facility agreement dated 26 June 2012, both Mr. Fok Tung Ling and Mr. Zhang Yue Jun shall also maintain the ability in leading the management in determining the directions of overall strategies and business development for the Group. At the date of approval of the audited consolidated financial statements, such obligations have been complied with.

Details of the Facility Agreements are set out in note 27 to the

The interest rate swap contract, designated as hedges in respect of expected interest payments for the abovementioned US$ fl oating rate loan under the facility agreement dated 5 July 2010, was expired on 3 July 2012.

The Group’s gross gearing ratio, calculated as total interestbearing debts (including bank borrowings and advances) over total assets, was 15.4% as at 31 December 2012 (31 December 2011: 11.7%).

MATERIAL ACQUISITIONS AND DISPOSALS

The Group has not conducted any material acquisitions and disposals of subsidiaries and associated companies during the Current Year.

CHARGE ON ASSETS

As at 31 December 2012, there was no charge on the Group’s assets (31 December 2011: Nil).

CONTINGENT LIABILITIES

As at 31 December 2012, the Group had contingent liabilities of HK$39,072,000 (31 December 2011: HK$93,776,000), which mainly included guarantees given to banks in respect of performance bonds.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 December 2012, the Group had approximately 9,900 staff. The total staff costs for the Current Year were HK$1,337,663,000. The Group offers competitive remuneration schemes to its employees based on industry practices, legal requirements, as well as the employees’ and the Group’s performance. In addition, share options, awarded shares and discretionary bonuses are granted to eligible employees based on the employees’ performance, the Group’s results, and in accordance with the share option scheme and the share award scheme of the Company. Mandatory provident fund or staff pension schemes are also provided to relevant staff in Hong Kong, the PRC or elsewhere in accordance with relevant legal requirements. The Group also provides training to the staff to improve their skills and develop their respective expertise.

22 Comba Telecom Systems Holdings Limited

==> picture [36 x 768] intentionally omitted <==

Directors and Senior Management

DIRECTORS

Executive Directors

Mr. Fok Tung Ling (霍東齡), aged 56, chairman of the board of directors of Comba Telecom Systems Holdings Limited (the “Company”). Mr. Fok is primarily responsible for leading the board of directors of the Company in determining the directions of overall strategies and business development for the Company and its subsidiaries (collectively referred to as the “Group”). From 1982 to 1987, Mr. Fok worked as a technical engineer in the Microwave Telecommunications Main Station of the Guangdong Bureau of Post and Telecommunications (廣東省郵電局微波通信總站). In 1986, he graduated from Beijing Institute of Posts and Telecommunications (currently known as Beijing University of Posts and Telecommunications (北京郵電大學)), majoring in microwave communications. Prior to 1991, Mr. Fok worked as a marketing executive in China Electronics Import-Export Corporation, South China Branch (中國電子進出口總公司華南分公司) which was engaged in the import and export of electronic products. From 1991 to 1997, Mr. Fok was engaged in the trading of telecommunications and electronic equipment and components before co-founding the Group in 1997. Mr. Fok has over 31 years of experience in wireless communications. Mr. Fok is the sole director of Prime Choice Investments Limited, which is a controlling shareholder of the Company.

==> picture [247 x 246] intentionally omitted <==

==> picture [70 x 560] intentionally omitted <==

==> picture [247 x 246] intentionally omitted <==

Mr. Fok Tung Ling

Annual Report 2012 23

==> picture [107 x 220] intentionally omitted <==

Directors and Senior Management

==> picture [316 x 176] intentionally omitted <==

----- Start of picture text -----

Mr. Zhang Yue Jun
----- End of picture text -----

==> picture [247 x 176] intentionally omitted <==

----- Start of picture text -----

Mr. Wu Jiang Cheng
----- End of picture text -----

State University, and a bachelor’s degree in accounting from University of Southern California. Mr. Tong is a Fellow Certifi ed Practising Accountant of CPA Australia, a member of The Institute of Chartered Accountants in England and Wales, a fellow member of the Hong Kong Institute of Certified Public Accountants, an associate of the Institute of Chartered Secretaries and Administrators and an associate of The Hong Kong Institute of Chartered Secretaries. Mr. Tong has over 18 years of experience in fi nance and legal work in the listed and multinational companies. He joined the Group in 2008.

Mr. Zhang Yue Jun (張躍軍), aged 54, vice chairman and president. Mr. Zhang is responsible for the Group’s overall operation, management, business development, research and development of new technologies and products and supply chain system. He graduated from South China Institute of Technology (currently known as South China University of Technology (華南理工大學)) in 1982 and obtained a bachelor’s degree in wireless engineering. From 1982 to 1990, Mr. Zhang worked as a microwave telecommunications engineer in Nanjing and from 1990 to 1997 he was the deputy chief engineer of a joint venture company in Shenzhen and was mainly responsible for wireless telecommunications projects. Mr. Zhang has over 30 years of experience in wireless communications and he co-founded the Group in 1997. Mr. Zhang is the sole director of Wise Logic Investments Limited, which is a substantial shareholder of the Company.

Mr. Wu Jiang Cheng (伍江成), aged 53, executive director and senior vice president, PRC marketing and sales. He is responsible for the formulation and implementation of the Group’s overall sales and marketing strategies in the PRC and is also involved in the supervision of the implementation of such strategies. He graduated from the Southwest Jiaotong University (西南交通大學) in 1982 and obtained a bachelor’s degree in electrical engineering and an EMBA degree from School of Economics and Management of Tsinghua University (清華大學經濟管理學院) in 2006. Mr. Wu has been a lecturer of engineering department for over 10 years and in the last two years of which he taught at Guangzhou University (廣州大學). Mr. Wu also has over 20 years of experience in communications and marketing. He joined the Group in 1997.

Mr. Tong Chak Wai, Wilson (唐澤偉), aged 41, executive director and group fi nancial controller. Mr. Tong is also the authorized representative and company secretary of the Company. Mr. Tong is mainly responsible for the overall financial management, accounting, investor relations and company secretarial duties of the Group. Mr. Tong holds a master of business administration degree from University of San Francisco, a master’s degree in economics from Murray

24 Comba Telecom Systems Holdings Limited

==> picture [246 x 220] intentionally omitted <==

Directors and Senior Management

==> picture [318 x 176] intentionally omitted <==

----- Start of picture text -----

Mr. Yan Ji Ci Mr. Zheng Guo Bao
----- End of picture text -----

==> picture [246 x 176] intentionally omitted <==

----- Start of picture text -----

Mr. Zhang Yuan Jian
----- End of picture text -----

Mr. Yan Ji Ci (嚴紀慈), aged 58, executive director and senior vice president, operations management and logistic system. Mr. Yan is responsible for the operational management optimization and the logistic system of the Group. Mr. Yan graduated from South China Normal University (華南師範大學), majoring in political science. Mr. Yan has over 37 years of experience in operations and human resources management. He joined the Group in 1997.

vice president of strategy and business development and a founding employee of LGC Wireless, Inc. (“LGC”) based in the Silicon Valley, USA which was successfully acquired by ADC Telecommunications, Inc. and subsequently acquired by Tyco Electronics Ltd. Mr. Yeung also held various positions at LGC including the general manager of a business unit, director of technical marketing, general manager of Asia Pacifi c Region and principal engineer. Mr. Yeung holds a master of science degree in engineering from University of California at Berkeley and a bachelor of science degree in electrical engineering from Purdue University, the USA. Mr. Yeung has over 17 years of experience in the telecom industry. He joined the Group in 2004.

Mr. Zheng Guo Bao (鄭國寶), aged 47, executive director and the chief executive offi cer of WaveLab Holdings Limited, an indirect non wholly-owned subsidiary of the Company. Mr. Zheng is primarily responsible for the strategic development of the digital microwave systems products. Mr. Zheng graduated from the University of Science and Technology of China (中國科學技術大學) and obtained bachelor’s and master’s degrees in electrical engineering. From 2000 to 2002, Mr. Zheng served as chief engineer in Filtronic Sigtek, Inc., Maryland USA. Before joining the Group, he worked as an engineering manager in wireless communications division of L3 Communications (former EER Systems, Inc.), Virginia USA. He is a member of the Institute of Electrical and Electronics Engineers (IEEE). Mr. Zheng has over 26 years of experience in RF/microwave/millimeter-wave technology and wireless communications and specialized in the fi eld of research and development. He joined the Group in 2003.

Mr. Zhang Yuan Jian (張遠見), aged 55, executive director. He is also the senior vice president of the Group, the director of the Central Research Institute of the Group and the general manager of the wireless access product business division of the Group. He is in charge of the technical research of the Central Research Institute of the Group and responsible for the research and development and operational management of the product lines of wireless access products. He graduated from the University of Science and Technology of China (中國科學技術大學) and the Electronic Engineering Research Center of Nanjing (南京電子工程研究中心) (currently known as the Nanjing Institute of Electronic Technology (南京電子技術研究所)) and obtained a master’s degree in microwave technology in 1984. He has over 29 years of experience in the technical research on wireless communications, product development and relevant management. He joined the Group in 2004.

Mr. Yeung Pui Sang, Simon (楊沛燊), aged 40, executive director and president of Comba Telecom Systems International Limited, an indirect wholly-owned subsidiary of the Company. Prior to joining the Group, Mr. Yeung was the

Annual Report 2012 25

==> picture [460 x 385] intentionally omitted <==

----- Start of picture text -----

Mr. Liu Cai Mr. Lau Siu Ki, Kevin
----- End of picture text -----

Directors and Senior Management

Mr. Lau Siu Ki, Kevin (劉紹基) , aged 54, independent non-executive director. He is also the chairman of the audit committee and the remuneration committee and a member of the nomination committee of the Company. He has over 30 years of experience in corporate fi nance, fi nancial advisory and management, accounting and auditing. He is currently a consultant in the fi nancial advisory fi eld. Prior to that, Mr. Lau had worked in an international accounting fi rm for over 15 years. Mr. Lau is a fellow member of both the Association of Chartered Certified Accountants (“ACCA”) as well as the Hong Kong Institute of Certifi ed Public Accountants. He was a member of the world council of ACCA from 2002 to 2011 and was the Chairman of the Hong Kong Branch of ACCA for the year 2000/2001. Mr. Lau is also an independent non-executive director of Binhai Investment Company Limited, a company listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and fi ve other companies listed on the main board of the Stock Exchange namely TCL Communication Technology Holdings Limited, COL Capital Limited, Foxconn International Holdings Limited, Samson Holding Ltd. and Embry Holdings Limited. Mr. Lau had been an independent non-executive director of Carry Wealth Holdings Limited, Greenfi eld Chemical Holdings Limited and Proview International Holdings Limited until his resignation on 13 July 2011, 11 June 2010 and 24 August 2010 respectively. He joined the Group in 2003.

Independent Non-executive Directors

Mr. Liu Cai (劉彩), aged 72, independent nonexecutive director. He is also the chairman of the nomination committee and a member of the audit committee and the remuneration committee of the Company. He is the chairman of the Consultative Committee for Telecom Law Drafting of the Ministry of Information Industry. From 1988 to 2001, Mr. Liu worked with the former Ministry of Post and Telecommunications and the Ministry of Information Industry of the PRC (the “Ministries”). As the directorgeneral of the Policy and Regulation Department of the Ministries, he was directly involved and responsible for policy formulation, reform planning, laws and regulations drafting for the telecommunications industry of the PRC. Before joining the Ministries in 1988, Mr. Liu was engaged in research and development works at the China Academy of Post and Telecommunications after graduating from Beijing Institute of Posts and Telecommunications (currently known as Beijing University of Posts and Telecommunications (北京郵電大學)). Mr. Liu has also been an independent director of China United Network Communications Limited since November 2009, with its A shares listed on the Shanghai Stock Exchange. He joined the Group in 2003.

26 Comba Telecom Systems Holdings Limited

==> picture [246 x 220] intentionally omitted <==

Directors and Senior Management

==> picture [318 x 176] intentionally omitted <==

----- Start of picture text -----

Mr. Lin Jin Tong
----- End of picture text -----

==> picture [246 x 176] intentionally omitted <==

----- Start of picture text -----

Mr. Qian Ting Shuo
----- End of picture text -----

Mr. Qian Ting Shuo (錢庭碩), aged 64, independent non-executive director. He is also the member of the audit committee, the remuneration committee and the nomination committee of the Company. He is currently a secretary-general of Science and Technology Committee of Ministry of Industry and Information Technology. He graduated from Beijing University of Posts and Telecommunications (北京郵電大學 and obtained a bachelor’s degree in engineering. Mr. Qian was the deputy director and vice president of the Planning Institute of the Ministry of Post and Telecommunications of the PRC (later known as the Telecommunications Planning Research Institute of the Ministry of Post and Telecommunications), and was also the vice president of China Academy of Telecommunication Research of the Ministry of Information Industry (“MII”, currently known as the Ministry of Industry and Information Technology), the inspector and the deputy directorgeneral of the Department of Overall Planning of the MII. Mr. Qian has extensive experience in the telecommunications industry and is familiar with the optical telecommunications technology and broadband development. He joined the Group in 2012.

Mr. Lin Jin Tong (林金桐), aged 67, independent non-executive director. He is also the member of the audit committee, the remuneration committee and the nomination committee of the Company. He is currently a professor of Beijing University of Posts and Telecommunications (“BUPT”) (北京郵電大學). He graduated from Peking University (北京大學) majoring in Physics, and obtained a master’s degree in engineering from BUPT. He further obtained a doctorate degree in Philosophy and an honorary doctorate degree in Science from University of Southampton, UK. Mr. Lin has worked as lecturer, professor, department head, vice president of BUPT and was also the president of BUPT from 1998 to 2007. He was also a member of the 10th Beijing Municipal Committee of the Chinese People’s Political Consultative Conference from 2003 to 2008. He was a deputy director-general of China Institute of Communications and is currently a fellow member of The Institution of Engineering and Technology. Mr. Lin has long been engaged in optical communication engineering, including research and teaching in the aspects of high-speed optical communication system and broadband optical access network. Mr. Lin is an independent director of Bright Oceans Inter-Telecom Corporation, the shares of which are listed on the Shanghai Stock Exchange. He is also an independent director of Jiangsu Tongguang Electronic Wire & Cable Corp., Ltd, the shares of which are listed on the Shenzhen Stock Exchange. He joined the Group in 2012.

Annual Report 2012 27

Directors and Senior Management

SENIOR MANAGEMENT

Mr. Zhang Jin Yu, Charles (張金玉), aged 49, deputy financial controller of the Group, PRC finance. Mr. Zhang is responsible for the Group’s accounting and fi nancial management in the PRC. He is a member of the Certified General Accountants of Canada. He obtained a master’s degree in economic from South-western University of Economics and Finance (西南財經大學) in 1990 and a master of science degree in accounting from the University of New Haven in Connecticut, the United States of America in 1998. He has over 22 years of experience in accounting and fi nancial management. He joined the Group in 2004.

Mr. Chen Sui Yang (陳遂陽), aged 49, vice president and general manager of the Group’s wireless enhancement products division. Mr. Chen is mainly responsible for the R&D and operational management of the products lines of wireless enhancement products. He graduated from the Northwest Institute of Telecommunications Engineering (currently known as Xidian University (西安電子科技大學))and obtained a bachelor’s degree in antenna technology in 1985. He has also obtained an EMBA degree in China Europe International Business School (CEIBS) (中歐國際工商學院). Mr. Chen has over 27 years of experience in technology research of wireless communications. He joined the Group in 1998.

Mr. Bu Bin Long (卜斌龍), aged 50, vice president and general manager of the Group’s antennas and subsystems business unit. Mr. Bu is responsible for the research & development and operations management of mobile communications base stations and antenna products of subsystems. Mr. Bu graduated in 1985 from Northwest Institute of Telecommunications Engineering (currently known as Xidian University (西安電子科技大學)) and obtained a master’s degree in electronic magnetic fi eld and microwave technology. Mr. Bu has over 27 years of technical research experience in the domain of satellite antennas and mobile communications antennas. He joined the Group in 2003.

Ms. Li Yu Wen (李宇雯), aged 42, vice president of the Group. Ms. Li is responsible for the operation and management of the Group’s procurement system operations. She graduated from the Yunnan University (雲南大學) in 1992 and obtained a bachelor’s degree in physics. She also obtained an EMBA degree from School of Economics and Management of Tsinghua University (清華大學經濟管理學院) in 2006. Ms. Li has over 20 years of experience in the market of communications, operation and project management. Ms. Li served in the GMCC in engineering construction of wireless communications solution projects for many years. She joined the Group in 1997.

Mr. Deng Shi Qun (鄧世群), aged 31, deputy general manager of the Group’s wireless access business unit. Mr. Deng is responsible for the research & development and operations management of wireless access products. Mr. Deng graduated in 2007 from South China University of Technology (華南理工大學) and obtained a master’s degree in circuits and systems. Mr. Deng has many years of technical research experience in the domain of wireless communications technology and computer networking technology. He joined the Group in 2005.

Mr. Augustin Ping Chang (張平), aged 50, general manager of the Group’s international branch in North America. Mr. Chang is responsible for the business development & R&D activities for high power amplifi er in US & Canada. Prior to joining the Group, Mr. Chang was director of engineering at REMEC Inc. He also held various engineering management positions at Spectrian Inc. & Watkins-Johnson Company. Mr. Chang holds a master of science degree in electrical engineering from University of Illinois at Urbana-Champaign and a bachelor of science degree in electrical engineering from Carnegie-Mellon University. Mr. Chang has more than 27 years of experience in RF/microwave amplifi er development, from ultra-broadband MMIC amplifi er to high power linearized power amplifi er for cellular base station. Mr. Chang has co-authored numerous papers in the fields of GaAs FET amplifiers, and holds a patent on high linearity multi-carrier RF amplifi er. He joined the Group in 2005.

Mr. Lai Wen Qiang (賴文強), aged 35, vice president of the Group’s central research institute and deputy general manager of the Group’s wireless access product business unit. Mr. Lai is responsible for the technical research and product development of wireless access products at the central research institute. He fi nished two courses in Peking University (北京大學) in 2000 and 2003 and obtained a bachelor’s degree in telecommunications science and technology and master’s degree in communications and information system. Mr. Lai has many years of experience in technical research and development in the wireless communications area. He joined the Group in 2005.

Mr. Liu Yi Bo (劉義波), aged 44, general manager of the wireless solutions division of the Group. Mr. Liu is responsible for the management of the application of the Group’s products and related solutions. He graduated from University of Electronic Science and Technology of China (電子科技大學) and obtained a bachelor’s degree in electronic magnetic fi eld and microwave technology. Mr. Liu has over 21 years of experience in engineering management. He joined the Group in 1997.

28 Comba Telecom Systems Holdings Limited

Directors and Senior Management

Mr. Brian Donohue, aged 48, vice president of Comba Telecom Systems International Limited, an indirect whollyowned subsidiary of the Company. Mr. Donohue is also business development & general manager of the Group’s international branch in Europe. Mr. Donohue is responsible for business development and operations throughout Europe, Russia and CIS countries. Mr. Donohue has over 27 years of experience in the telecommunications industry with more than 17 years of combined international business experience in Latin America, Europe and Asia. Prior to joining the Group, Mr. Donohue was senior managing director of CommScope based in Beijing, China where he lived for ten years. He completed his undergraduate studies at Collin County College and attended University of Phoenix where he continued his graduate-level course work in business management. He was a member of MIMA (Midwest Industrial Management Association) where he holds a certifi cate in professional training and coaching. He joined the Group in 2010.

Ms. Ma Jing (馬靜), aged 30, director of product marketing of the Group’s international markets. Ms. Ma is responsible for overseeing the strategies and development of the product marketing. She graduated from Tsinghua University (清華大學) and obtained a bachelor’s degree in Electrical Engineering & Automation in 2004 and a master’s degree in Information & Communications Engineering in 2007. Ms. Ma has wide experience in product & program management. She joined the Group in 2007.

Mr. Johan Patrik Westfalk, aged 41, managing director of the Group’s international branch in Caribbean & Latin America with headquarters in São Paulo, Brazil. Mr. Westfalk is responsible for all operations throughout the Latin American countries, including Brazil, Mexicoas as well as the Caribbean Islands. He holds a master of science degree in engineering physics from Chalmers University of Technology in Gothenburg, Sweden, specializing in electromagnetic fi elds and microwave antenna design and has also completed finance and accounting education at the Business School of São Paulo, Brazil. Mr. Westfalk has over 17 years of experience in the telecommunication industry and over 13 years of experience in making business in the Latin American markets. He joined the Group in 2006.

Mr. Di Ying Jie (邸英傑), aged 51, technical expert of microwave RF passive accessories and senior research supervisor of the Group. Mr. Di is responsible for the Group’s product development works concerning microwave RF passive accessories. He graduated from Xidian University (西安電子科技大學), majoring in electronic magnetic fi eld and microwave technology and obtained his doctorate degree in engineering. He was subsequently engaged in the post-doctorate research work with the University of Birmingham in the United Kingdom (英國伯明罕大學). Mr. Di has been engaged in design and research of microwave RF accessories for many years. Mr. Di also has wide experience in product development of microwave RF passive accessories. He joined the Group in 2004.

Ms. Wong Siu Fan (黃少芬), aged 41, deputy fi nancial controller of the Group, group fi nance. Ms. Wong is responsible for the group financial reporting, financial management and company secretarial duties of the Group. She holds a bachelor of arts degree in accountancy from The Hong Kong Polytechnic University and a master of science degree in financial management from the University of London. Ms. Wong is a member of the Hong Kong Institute of Certified Public Accountants, an associate of the Institute of Chartered Secretaries and Administrators and an associate of The Hong Kong Institute of Chartered Secretaries. She has over 18 years of experience in auditing, accounting, fi nancial management and company secretarial in the international accounting fi rm and listed companies. She joined the Group in 2004.

Mr. Li Xue Feng (李學鋒), aged 40, deputy director of the Group’s internal audit department. Mr. Li is responsible for the internal audit of the Group. He is a member of China Institute of Internal Audit. He graduated from Northeast Forestry University (東北林業大學) with a bachelor’s degree in economics in 1997 and obtained a MBA degree from Royal Roads University through further education. Mr. Li has over 16 years of experience in fi nance and internal audit from domestic and international companies. He joined the Group in 2010.

Mr. Luo Rui Bo (駱瑞波), aged 39, deputy director of the Group’s human resource. Mr. Luo is responsible for the Group’s human resource planning, organization management, remunerations and benefits, employee relations and performance management. He graduated from the Business School of Sun Yat-Sen University (中山大學) in Guangdong Province, majoring in business administration, and has obtained a master’s degree. Mr. Luo has over 15 years of experience in human resource management and operational management of large enterprises. He joined the Group in 2005.

Annual Report 2012 29

Directors and Senior Management

Mr. Jiang Hong Ming (江洪明), aged 39, vice president of the Group’s sales system and Comba Telecom Systems (China) Limited, an indirectly wholly-owned subsidiary of the Company. Mr. Jiang is responsible for the human resources operations and management of the domestic sales platform. He graduated from the Renmin University of China (中國人民大學), majoring in human resources and labour economics, and has obtained a master’s degree in labour economics and is recognized as a senior economist. Mr. Jiang has over 16 years of experience in the management of human resources, corporate operation and management. He joined the Group in 2003.

Mr. Pan Shuan Long (潘栓龍), aged 49, vice president of the central research institute of the Group and director of the RF technology research division of the central research institute. Mr. Pan is responsible for the research and development and technology management of the Group’s power amplifi ers and related products with respect to active products. Mr. Pan obtained his bachelor’s degree in automated controls from Lanzhou Railway University (currently known as Lanzhou Jiaotong University (現稱蘭州交通大學)) in 1985. Mr. Pan has 27 years of experience in technology research and development in the mobile communications sector. He joined the Group in 2002.

Ms. Ip Choi Lin (葉彩蓮), aged 42, deputy director of the Group’s human resources. Ms. Ip is responsible for the overall human resources for the Group’s headquarters in Hong Kong; in charge of the overall human resources for the global businesses of the Group’s international operations and also for the R&D center in USA under the Group’s central research institute. She holds a bachelor of business administration degree from Newport University (currently known as Janus University), USA and a master of business administration degree from University of Management & Technology, USA. Ms. Ip is a member of Hong Kong Institute of Human Resource Management. Ms. Ip has over 19 years of experience in the HR development and management. She joined the Group in 2010.

Mr. Zheng Xiao Ming (鄭小明), aged 43, director of the operating center of the Group. He is mainly responsible for the orders from both domestic and international customers of the Group and the determination of the production schedule and schedule of the materials. He graduated from China University of Mining and Technology (中國礦業大學), and obtained a bachelor’s degree in 1993. Mr. Zheng has over 19 years of experience in formulating operation plans, materials management, production and product delivery. He joined the Group in 2001.

Mr. Rajiv Girotra, aged 40, managing director of the Group’s international branch in India taking care of India, Sri-Lanka, Nepal, Bhutan and Bangladesh markets. Mr. Girotra holds an executive master of business administration and international sales degree from the Indian Institute of Management (IIM-C). Before joining the Group in 2005, he was employed at ZTE and Subex. Mr. Girotra has a total of more than 17 years of telecommunications equipment sales, operations and management experience.

Mr. Li Jin Qing (李金擎), aged 43, general manager of the application services department of the Group. Mr. Li is mainly responsible for the Group’s technical research and business development of the network products in the application services department. He graduated from Jinggangshan University (井岡山大學) in 1994 and graduated from Sun Yat-Sen University (中山大學) and obtained a bachelor’s degree in science in 2001. Mr. Li has over 19 years of experience in the information and wireless communications, covering software technology research as well as the product development and management. He joined the Group in 2002.

Mr. Chen Liang (陳亮) , aged 38, director of procurement certification center of the Group. Mr. Chen is mainly responsible for the formation and management of the Group’s material procurement platform and suppliers platform. He graduated from Shanghai University (上海大學) in 1998, majoring in communications and information engineering. Mr. Chen has 15 years of experience in the technical research, product development and corporate management in the wireless communications area. He joined the Group in 1998.

Mr. Wang Hui (汪輝), aged 51, director of the manufacturing center of the Group. Mr. Wang is responsible for the production management of the supply chain system and the introduction of new products. He completed the undergraduate studies in Chongqing University (重慶大學) in 1984. Mr. Wang has 29 years of experience in the technology and production management in mechanical and communications industries. He joined the Group in 2010.

30 Comba Telecom Systems Holdings Limited

Corporate Governance Report

Comba Telecom Systems Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) is continuously committed to achieving high standards of corporate governance to ensure transparency and accountability. It believes that corporate governance is crucial to the development of the Group and helps safeguard the interests of the Company’s shareholders (the “Shareholders”).

The board of directors of the Company (the “Board”) reviewed daily governance of the Group in accordance with the code provisions (the “Code Provisions”) as set out in the Code on Corporate Governance Practices (effective until 31 March 2012) and Corporate Governance Code (effective from 1 April 2012) contained in Appendix 14 (collectively referred to as the “Corporate Governance Code”) to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and considered that, from 1 January 2012 to the date of this annual report, the Company regulated its operation and carried out appropriate governance in accordance with the Code Provisions. The Company has fully complied with the Code Provisions.

DIRECTORS’ SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules as its own code of conduct for dealings in securities transactions of the Company by its directors (the “Director(s)”). Specifi c enquiries have been made to all Directors, and they have confi rmed their compliance with the required standard as set out in the Model Code from 1 January 2012 to the date of this annual report.

BOARD OF DIRECTORS

As at the date of this annual report, the Board comprises 12 Directors, of whom 8 are executive Directors and 4 are independent non-executive Directors. Details of the composition of the Board, relationship among the Board (if any), terms of appointment of the Directors, and biographical information of the Directors are set out in the sections “Report of the Directors” and “Directors and Senior Management” of this annual report.

For the year ended 31 December 2012 (“ the Current Year”), 10 Board meetings and an annual general meeting were held and attendance of each Director at the Board meetings and the annual general meeting is set out as follows:

	Attendance at	Attendance at the
Name of Directors	the Board meetings	annual general meeting
		(Note 4)
Executive Directors:
Mr. Fok Tung Ling_(Chairman)_	10/10	1/1
Mr. Zhang Yue Jun_(Vice Chairman & President)_	10/10	1/1
Mr. Tong Chak Wai, Wilson	10/10	1/1
Mr. Wu Jiang Cheng	10/10	1/1
Mr. Yan Ji Ci	10/10	1/1
Mr. Zheng Guo Bao	10/10	1/1
Mr. Yeung Pui Sang, Simon	10/10	1/1
Mr. Zhang Yuan Jian (appointed on 10 February 2012)	7/7(Note 1)	1/1
Independent non-executive Directors:
Mr. Liu Cai	10/10	1/1
Mr. Lau Siu Ki, Kevin	10/10	1/1
Mr. Lin Jin Tong (appointed on 21 May 2012)	3/3(Note 2)	N/A(Note 2)
Mr. Qian Ting Shuo (appointed on 21 May 2012)	3/3(Note 2)	N/A(Note 2)
Mr. Yao Yan (resigned on 21 May 2012)	6/7(Note 3)	1/1(Note 3)

Note 1: There were 7 Board meetings held between 10 February 2012 to 31 December 2012.

Note 2: There were 3 Board meetings held and there was no general meetings held between 21 May 2012 to 31 December 2012.

Note 3: There were 7 Board meetings held and a general meeting held before 21 May 2012.

Note 4: Mr. Fok Tung Ling, Mr. Zhang Yue Jun, Mr. Tong Chak Wai, Wilson, Mr. Yeung Pui Sang, Simon, Mr. Liu Cai and Mr. Lau Siu Ki, Kevin attended the annual general meeting in person. Mr. Wu Jiang Cheng, Mr. Yan Ji Ci, Mr. Zheng Guo Bao, Mr. Zhang Yuan Jian and Mr. Yao Yan attended the annual general meeting by way of telephone conference.

Annual Report 2012 31

Corporate Governance Report

The Board meetings are held at least 4 times a year. The Board decides on corporate strategies, approves overall business plans and supervises the Group’s financial performance, management and organization on behalf of the Shareholders. The Board is also responsible for determining the policy for corporate governance and performed the duties under the terms of reference in Code Provision D.3.1 of Appendix 14 to the Listing Rules during the Current Year.

Specific tasks that the Board delegates to the Group’s management include the preparation of annual and interim financial statements for the Board’s approval before public reporting; implementation of strategies approved by the Board; the monitoring of operating budgets; the implementation of internal control procedures; and ensuring compliance with relevant statutory requirements and other rules and regulations.

The Board acknowledges its responsibilities for preparing the Company’s financial statements and ensuring the adequacy of resources, qualifications and experience of staff of the Group’s accounting and fi nancial reporting function, and their training programmes, budget and preparation of the fi nancial statements of the Group.

Chairman and chief executive

Mr. Fok Tung Ling is the chairman of the Board and Mr. Zhang Yue Jun is the vice chairman and president of the Company. The Company complied with the corporate governance of separating the roles of chairman and chief executive officer under the Corporate Governance Code.

Independent non-executive Directors

The Company has four independent non-executive Directors, representing one-third of the members of the Board of the Company, and at least one of the independent non-executive Directors has appropriate professional qualifications or accounting or related fi nancial management expertise.

Each of the independent non-executive Directors is appointed for a fi xed term of directorship of not more than three years and is subject to retirement by rotation and re-election at the annual general meeting of the Company. The Board evaluates the independence of all independent non-executive Directors on an annual basis and has received written confirmation from each independent non-executive Director regarding his independence. As at the date of this annual report, the Board is satisfi ed that all such Directors are in full compliance with the independence guidelines as laid down in the Listing Rules.

The Chairman held a meeting with all independent nonexecutive Directors without the presence of any executive Directors during the Current Year for discussing, inter alia, directors’ time commitments and contribution in performing their responsibilities to the Company.

Induction and continuing development for Directors

During the Current Year, the Company organized two training sessions to all Directors conducted by the qualified professionals on “Update of major amendments to the Listing Rules” in March and in May. Mr. Fok Tung Ling, Mr. Zhang Yue Jun, Mr. Tong Chak Wai, Wilson, Mr. Wu Jiang Cheng, Mr. Yan Ji Ci, Mr. Zheng Guo Bao, Mr. Yeung Pui Sang, Simon, Mr. Zhang Yuan Jian, Mr. Liu Cai, Mr. Lau Siu Ki, Kevin and Mr. Yao Yan attended the session in March.

Apart from the above training session, the Company has also arranged a comprehensive, formal and tailored induction to every newly appointed Director on appointment, to ensure that he has a proper understanding of the operations and business of the Company and is fully aware of his responsibilities in the Company. Mr. Lin Jin Tong and Mr. Qian Ting Shuo attended the session when both of them were appointed as Directors in May.

All Directors have provided records of the training they received to the Company. In addition, Mr. Tong Chak Wai, Wilson, an executive Director and the company secretary of the Company, has undertaken relevant professional training during the Current Year.

32 Comba Telecom Systems Holdings Limited

Corporate Governance Report

REMUNERATION COMMITTEE

The remuneration committee (the “Remuneration Committee”) of the Company comprises four independent non-executive Directors. The chairman of the Remuneration Committee is Mr. Lau Siu Ki, Kevin and other members included Mr. Liu Cai, Mr. Lin Jin Tong and Mr. Qian Ting Shuo.

The Remuneration Committee has adopted terms of reference which are in line with the Corporate Governance Code. Its primary duties are to recommend the Board on the remuneration policy for all Directors and senior management and to review and monitor the remuneration packages and any compensation arrangements made to the Directors and senior management. The Remuneration Committee has assessed performance of executive Directors and reviewed the terms of service contracts of Directors.

The Group offers competitive remuneration schemes to its employees (including Directors) based on industry practices, legal requirements as well as the employees’ and the Group’s performance. In addition, share options, awarded shares and discretionary bonuses are granted to eligible employees based on the employees’ performance, the Group’s results, and in accordance with the share option scheme and the share award scheme of the Company. The Group also provides training to employees to improve their skills and develop their respective expertise.

During the Current Year, there were 5 Remuneration Committee meetings held, at which the compensation packages of all Directors and senior management were discussed and approved. The attendance record is as follows:

	Number of
	meetings attended/
Members of	Total number of
Remuneration Committee	meetings held
Mr. Lau Siu Ki, Kevin	5/5
Mr. Liu Cai	5/5
Mr. Lin Jin Tong	1/1(Note 1)
(appointed on 21 May 2012)
Mr. Qian Ting Shuo	1/1(Note 1)
(appointed on 21 May 2012)
Mr. Yao Yan	4/4(Note 2)
(resigned on 21 May 2012)

Note 1: There was a meeting held between 21 May 2012 and 31 December 2012.

Note 2: There were 4 meetings held before 21 May 2012.

The remuneration, including sales commissions, equity-settled share option expense and awarded share expense, of the members of the senior management by band for the year ended 31 December 2012 is set out below:

Remuneration bands (HK$)	Number of person
Nil to 1,000,000	13
1,000,001 to 2,000,000	8
2,000,001 to 3,000,000	1
Over 3,000,001	1

Annual Report 2012 33

Corporate Governance Report

NOMINATION COMMITTEE

The nomination committee (the “Nomination Committee”) of the Company has been set up since 8 February 2012 and comprises four independent non-executive Directors. The chairman of the Nomination Committee is Mr. Liu Cai and other members included Mr. Lau Siu Ki, Kevin, Mr. Lin Jin Tong and Mr. Qian Ting Shuo.

The Nomination Committee has adopted terms of reference which are in line with the Corporate Governance Code. The Nomination Committee is responsible for formulating nomination policy for the consideration of the Board and to implement the Board’s approved nomination policy. During the nomination process, the Nomination Committee will consider the competency, independency (in case of independent nonexecutive Director), confl ict of interests, capacity, management experience of a candidate which makes him/herself suitable for the role as a director and make recommendation to the Board for consideration.

The Nomination Committee nominated Mr. Zhang Yuan Jian for an executive Director, and that was approved by the Board with effect from 10 February 2012. The Nomination Committee also nominated Mr. Lin Jin Tong and Mr. Qian Ting Shuo for independent non-executive Directors, and that were approved by the Board with effect from 21 May 2012.

During the Current Year, there were 3 Nomination Committee meetings held with the attendance record as follows:

	Number of
	meetings attended/
Members of	Total number of
Nomination Committee	meetings held
Mr. Liu Cai	3/3
Mr. Lau Siu Ki, Kevin	3/3
Mr. Lin Jin Tong	N/A(Note 1)
(appointed on 21 May 2012)
Mr. Qian Ting Shuo	N/A(Note 1)
(appointed on 21 May 2012)
Mr. Yao Yan	3/3(Note 2)
(resigned on 21 May 2012)

Note 1: There was no meeting held between 21 May 2012 and 31 December 2012.

AUDIT COMMITTEE

The audit committee (the “Audit Committee”) of the Company comprises four independent non-executive Directors. The chairman of the Audit Committee is Mr. Lau Siu Ki, Kevin and other members included Mr. Liu Cai, Mr. Lin Jin Tong and Mr. Qian Ting Shuo.

The Audit Committee has adopted terms of reference which are in line with the Corporate Governance Code. Its primary duties are to review the completeness, accuracy and fairness of the Company’s fi nancial statements, the Company’s fi nancial reporting system and internal control procedures, the scope and nature of the external audit and matters concerning the engagement of external auditors.

The Group’s financial statements for the Current Year were reviewed by the Audit Committee, who was of the opinion that such statements complied with applicable accounting standards and legal requirements, and that adequate disclosures had been made. During the Current Year, the Audit Committee also reviewed the interim and annual reports, and internal control system of the Group.

During the Current Year, there were 2 Audit Committee meetings held with the attendance record as follows:

	Number of
	meetings attended/
Members of	Total number of
Audit Committee	meetings held
Mr. Lau Siu Ki, Kevin	2/2
Mr. Liu Cai	2/2
Mr. Lin Jin Tong	1/1(Note 1)
(appointed on 21 May 2012)
Mr. Qian Ting Shuo	1/1(Note 1)
(appointed on 21 May 2012)
Mr. Yao Yan	1/1(Note 2)
(resigned on 21 May 2012)

Note 1: There was a meeting held between 21 May 2012 and 31 December 2012.

Note 2: There was a meeting held before 21 May 2012.

Note 2: There were 3 meetings held before 21 May 2012.

34 Comba Telecom Systems Holdings Limited

Corporate Governance Report

RELATED PARTY/CONNECTED PARTY TRANSACTIONS POLICY

During the year, related party/connected party transactions if any, are periodically reviewed by the auditors of the Company.

INTERNAL CONTROLS

The Board acknowledges its responsibility to ensure that a sound and effective internal control system is maintained. The Board has therefore set up an internal audit department to assist the Board and the Audit Committee to ensure that the Group maintains a sound system of internal controls.

The internal audit department monitors the internal control procedures and systems of the Group and reports its fi ndings and recommendations to management and the Audit Committee.

written requisition to the Board or the company secretary of the Company, to require an extraordinary general meeting to be called by the Board for the transaction of any business specifi ed in such requisition; and such meeting shall be held within two (2) months after the deposit of such requisition. If within twenty one (21) days of such deposit the Board fails to proceed to convene such meeting the requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company. The above procedures are subject to the articles of association of the Company (as amended from time to time), and the applicable legislation and regulation, in particular the Listing Rules (as amended from time to time).

Procedures for putting forward enquiries to the Board

The internal audit department carried out audit in areas identifi ed as of high or medium signifi cance during the Current Year. This included sales and receivables, and inventories and costing. Recommendations were made to the relevant business functions and improvements have been made.

Shareholders may put forward enquiries to the Board through the company secretary of the Company who will direct the enquiries to the Board for handling. The contact details of the company secretary are as follows:

The Company Secretary

The Audit Committee reviewed the reports submitted by the internal audit department and reported semi-annually to the Board on such reviews.

In respect of the Current Year, the Board reviewed the effectiveness of the internal control system within the Group and is satisfied that the internal control systems within the Group are effective.

SHAREHOLDERS’ RIGHT

Procedures by which Shareholders may convene an extraordinary general meeting

The Board may whenever it thinks fi t call extraordinary general meeting. Any one or more Shareholders holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by

Comba Telecom Systems Holdings Limited 611 East Wing, No. 8 Science Park West Avenue, Hong Kong Science Park, Tai Po, Hong Kong Email: [email protected] Tel No.: (852) 2636 6861 Fax No.: (852) 2637 0966

Procedures for putting forward proposals at a Shareholders’ meeting

There are no provisions allowing Shareholders to move new resolutions at the general meetings under the Cayman Islands Companies Law (as amended from time to time). However, pursuant to the articles of association of the Company (as amended from time to time), Shareholders who wish to move a resolution may by means of requisition convene an extraordinary general meeting following the procedures set out above.

Annual Report 2012 35

Corporate Governance Report

Changes in the constitutional documents of the Company

The amendments to the Listing Rules as well as the Corporate Governance Code came into effect on 1 January 2012 and 1 April 2012. The Directors made certain amendments to the memorandum and articles of association (the “M&A”) of the Company and adopted the amended and restated M&A by way of special resolutions which approved by the Shareholders on 17 May 2012 so as to bring the M&A of the Company in line with current amendments made to the Listing Rules and relevant laws and enhance the fl exibility to manage the Company.

CORPORATE TRANSPARENCY AND INVESTOR RELATIONS

The Group always endeavours to improve transparency and accountability to the Shareholders in the best possible way. After reporting its interim and annual results, the Group holds press conferences and investor presentations where the financial performance, business review and prospect of the

Group are presented. This also sets an open communications platform for the Group’s senior management to address any questions that the investment community and the media may have. Web-cast presentation is then sent to shareholders and investors around the world to ensure information is disseminated on a fair and timely basis. The Group issues press releases and announcements where appropriate to provide updated information about the Group’s business development in a timely manner. The Group also updates its website regularly to ensure information about its latest development disseminated promptly.

During the Current Year, the Group’s senior management attended over 120 investor meetings, including participation in 5 investor conferences and 8 post-results roadshows, and a plant visit was arranged. This provided the investment community with an opportunity to understand the business of the Group better. As a result of various investor relations activities undertaken, as at the end of the Current Year, 21 securities companies provided research coverage on the Group.

Key Investor Relations Events in 2012:

Date		Event
January	:	UBS Greater China Conference 2012 (organized by UBS AG)
March	:	2011 annual results announcement (press conference and investor presentation)
April	:	Post-results roadshows in Hong Kong, Taiwan, Singapore, the U.S., Canada and Europe (arranged by various
		brokerage f rms)
	:	Plant visit for investors, fund managers and analysts (arranged by Bank of America Merrill Lynch)
May	:	2012 Annual General Meeting
	:	Hong Kong Investor Summit (organized by Morgan Stanley)
August	:	2012 interim results announcement (press conference and investor presentation)
	:	Post-results roadshows in Hong Kong and Beijing (arranged by various brokerage f rms)
September	:	Analyst Tour — P&T/Expo Comm China 2012
	:	CS Asian Technology Conference (organized by Credit Suisse)
October	:	Telecom & Technology Corporate Day (organized by Nomura)
November	:	China Conference 2012 (organized by Bank of America Merrill Lynch)
	:	CIMB 8th HongKong/China Conference (organized byCIMB)

36 Comba Telecom Systems Holdings Limited

Corporate Governance Report

AUDITORS’ REMUNERATION

The Company’s external auditors are Ernst & Young. The Audit Committee is mandated to ensure continuing auditors’ objectivity and safeguarding independence of the auditors. The Audit Committee considered and approved the engagement of Ernst & Young as auditors of the Company for the Current Year and the corresponding audit fees estimation. Such recommendation relating to the appointment of Ernst & Young was agreed and accepted by the Board. During the Current Year, the fees paid to the auditors for audit services amounted to HK$2,853,000; and non-audit services of interim fi nancial statements review, tax review and other professional services amounted to HK$338,000, HK$120,000 and HK$323,000 respectively. The auditors confirmed to the Board that they acknowledged their responsibilities of expressing an opinion on

ON BEHALF OF THE BOARD OF

Fok Tung Ling Chairman Hong Kong 22 March 2013

Annual Report 2012 37

Report of the Directors

The directors (the “Director(s)”) of Comba Telecom Systems Holdings Limited (the “Company”) present their report and the audited financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 December 2012 (the “Current Year”).

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. The principal activities of the subsidiaries of the Company comprise the research, development, manufacture and sale of wireless telecommunications network enhancement system equipment and the provision of related engineering services. There were no signifi cant changes in the nature of the Group’s principal activities during the Current Year.

RESULTS AND DIVIDENDS

The Group’s results for the year ended 31 December 2012 and the state of affairs of the Company and the Group at that date are set out in the fi nancial statements on pages 46 to 115.

To better maintain the fl exibility of the fi nancial position of the Group in view of the uncertain economic situation, the board of directors of the Company (the “Board”) does not recommend the payment of a fi nal dividend in respect of the Current Year (2011: HK7 cents per ordinary share).

SUMMARY FINANCIAL INFORMATION

A summary of the results and assets, liabilities and noncontrolling interests of the Group for the last fi ve fi nancial years, as extracted from the published audited fi nancial statements and restated/reclassified as appropriate, is set out on page 116. This summary does not form part of the audited fi nancial statements.

PROPERTY, PLANT AND EQUIPMENT

Details of movements in the property, plant and equipment of the Group during the Current Year are set out in note 13 to the

SHARE CAPITAL, SHARE OPTIONS AND AWARDED SHARES

Details of movements in the Company’s share capital, share options and awarded shares during the Current Year are set out

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company’s articles of association (the “Articles”) or the laws of the Cayman Islands which would oblige the Company to offer new shares on a pro rata basis to existing shareholders.

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

On 22 May 2012, the Board resolved to budget a sum of up to HK$35,000,000 (the “Budgeted Sum”) for the purchase of shares of the Company from the market under the share award scheme which adopted on 25 March 2011 (the “Share Award Scheme”). The trustee and/or the administrator of the Scheme applied approximately HK$5,021,000 out of the Budgeted Sum to purchase an aggregate of 1,402,000 shares at the prevailing market price on the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) during the period from 22 May 2012 to 7 June 2012 in accordance with the terms of the Share Award Scheme. Save as disclosed herein, neither the Company, nor any of its subsidiaries purchased, redeemed or sold on the Stock Exchange or otherwise any of the Company’s listed securities during the Current Year.

38 Comba Telecom Systems Holdings Limited

Report of the Directors

RESERVES

Details of movements in the reserves of the Company and the Group during the Current Year are set out in note 31 to the fi nancial statements and in the consolidated statement of changes in equity, respectively.

DIRECTORS

The directors of the Company during the Current Year were as follows:

Executive directors:

Mr. Fok Tung Ling (“Mr. Fok”) (Chairman)

DISTRIBUTABLE RESERVES

At 31 December 2012, the Company’s reserves available for distribution, calculated in accordance with the provisions of the Companies Law of the Cayman Islands, amounted to HK$370,212,000. In addition, the Company’s share premium account, in the amount of HK$643,764,000, may be distributed, provided that immediately following the date on which the distribution or dividends proposed to be paid the Company will be able to pay off its debts as they fall due in the ordinary course of business.

Mr. Zhang Yue Jun (“Mr. Zhang”) (Vice Chairman & President)
Mr. Tong Chak Wai, Wilson (“Mr. Tong”)
Mr. Wu Jiang Cheng (“Mr. Wu”)
Mr. Yan Ji Ci (“Mr. Yan”)
Mr. Zheng Guo Bao (“Mr. Zheng”)
Mr. Yeung Pui Sang, Simon (“Mr. Yeung”)
Mr. Zhang Yuan Jian (appointed on 10 February 2012)

Independent non-executive directors:

Mr. Liu Cai (“Mr. Liu”)
Mr. Lau Siu Ki, Kevin (“Mr. Kevin Lau”)

MAJOR CUSTOMERS AND SUPPLIERS

In the year under review, sales to the Group’s five largest customers accounted for approximately 84.4% of the total sales for the year and sales to the largest customer included therein accounted for approximately 52.3% of the total sales for the year. Purchases from the Group’s fi ve largest suppliers accounted for less than 30% of the total purchases for the year.

None of the directors of the Company or any of their associates or any shareholders (which, to the best knowledge, information and belief of the Directors, own more than 5% of the Company’s issued share capital) had any benefi cial interest in the Group’s fi ve largest customers.

Mr. Lin Jin Tong (“Mr. Lin”) (appointed on 21 May 2012) Mr. Qian Ting Shuo (“Mr. Qian”) (appointed on 21 May 2012) Mr. Yao Yan (“Mr. Yao”) (resigned on 21 May 2012)

In accordance with article 86(3) of the Company’s Articles, Mr. Lin and Mr. Qian will retire and being eligible and offer themselves for re-election at the forthcoming annual general meeting (the “AGM”) of the Company. In accordance with articles 87(1) and 87(2) of the Company’s Articles, Mr. Fok, Mr. Wu, Mr. Yan and Mr. Yeung will retire by rotation and, being eligible, will offer themselves for re-election at the forthcoming AGM.

The Company has received annual confirmations of independence from Mr. Liu, Mr. Kevin Lau, Mr. Lin and Mr. Qian as at the date of this report and considers them to be independent as each of them fulfi ls the requirement as set out in Rule 3.13 of the Listing Rules.

Annual Report 2012 39

Report of the Directors

BIOGRAPHIES OF DIRECTOR AND SENIOR MANAGEMENT

Biographical details of the Directors and the senior management of the Group are set out on pages 23 to 30 of the annual report.

will continue thereafter until terminated by not less than six months’ notice in writing served by either party on the other.

All the independent non-executive directors are appointed for an initial term of not more than three years.

DIRECTORS’ SERVICE CONTRACTS

Each of Mr. Fok, Mr. Zhang, Mr. Wu and Mr. Yan has entered into a service contract with the Company for an initial term of three years which commenced on 1 July 2003, and will continue thereafter until terminated by either party by giving not less than six months’ written notice. As these contracts were entered into on or before 31 January 2004, they are exempted from the shareholders’ approval requirement under Rule 13.68 of the Listing Rules. Each of Mr. Tong and Mr. Zhang Yuan Jian has entered into a service contract with the Company for an initial term of three years which commenced on 1 December 2008 and 10 February 2012, respectively and will continue thereafter until terminated by not less than six months’ notice in writing served by either party on the other. Each of Mr. Zheng and Mr. Yeung has entered into a service contract with the Company for an initial term of 18 months which commenced initially on 30 March 2008 and 7 April 2005, respectively and

Apart from the foregoing, no director of the Company proposed for re-election at the forthcoming AGM has a service contract with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

At 31 December 2012, the interests and short positions of the directors of the Company in the share capital and underlying shares of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)), as recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”), were as follows:

Long positions in ordinary shares of the Company:

==> picture [483 x 215] intentionally omitted <==

----- Start of picture text -----

No. of ordinary shares held,
capacity and nature of interest Percentage of
Directly Through the Company’s
benefi cially Through controlled issued
Name of Directors Notes owned spouse corporation Total share capital
Mr. Fok (a) 17,258,224 — 526,995,887 544,254,111 35.66
Mr. Zhang (b) — — 154,128,452 154,128,452 10.10
Mr. Tong (c) 3,676,060 — — 3,676,060 0.24
Mr. Wu (c) 9,451,987 — — 9,451,987 0.62
Mr. Yan (c) 7,974,435 — — 7,974,435 0.52
Mr. Zheng (c) 3,397,176 — — 3,397,176 0.22
Mr. Yeung (c) 7,028,912 — — 7,028,912 0.46
Mr. Zhang Yuan Jian (d) 564,456 80,000 — 644,456 0.04
49,351,250 80,000 681,124,339 730,555,589 47.86
----- End of picture text -----

40 Comba Telecom Systems Holdings Limited

Report of the Directors

Long positions in share options of the Company:

	No. of options
	directly
	benef cially
Name of Directors	owned
Mr. Tong	500,000
Mr. Wu	500,000
Mr. Yan	500,000
Mr. Yeung	500,000
Mr. Zhang Yuan Jian	500,000
Mr. Liu	342,000
Mr. Kevin Lau	342,000
	3,184,000

Notes:

(a) 525,710,701 shares and 1,285,186 shares are benefi cially owned by Prime Choice Investments Limited (“Prime Choice”) and Total Master Investments Limited (“Total Master”), respectively. By virtue of his 100% shareholding in each of Prime Choice and Total Master, Mr. Fok is deemed or taken to be interested in the total of 526,995,887 shares owned by Prime Choice and Total Master.
(b) These shares are beneficially owned by Wise Logic Investments Limited (“Wise Logic”). By virtue of his 100% shareholding in Wise Logic, Mr. Zhang is deemed or taken to be interested in the 154,128,452 shares owned by Wise Logic.

Certain Directors have non-benefi cial personal equity interests in certain subsidiaries held for the benefit of the Company solely for the purpose of complying with the minimum company membership requirements.

Save as aforesaid and save for Mr. Zheng benefi cially holding 32% equity interest in WaveLab Holdings Limited (an indirect non wholly-owned subsidiary of the Company), none of the Directors has any beneficial interest in any debt or equity securities of the subsidiaries of the Company.

(c) On 31 December 2012, each of Mr. Tong and Mr. Wu had 300,000 unvested awarded shares; each of Mr. Yan and Mr. Yeung had 260,000 unvested awarded shares; and Mr. Zheng had 60,000 unvested awarded shares under the Share Award Scheme. Subject to fulfi llment of vesting conditions of the award, the awarded shares shall be vested and transferred to the above Directors accordingly. Details of the Share Award Scheme are set out in note 30(b) to the

Save as disclosed above, as at 31 December 2012, none of the Directors had registered an interest or short position in the shares or underlying shares or debentures of the Company or any of its associated corporations that was required to be recorded pursuant to Section 352 of the SFO, or as otherwise notifi ed to the Company and the Stock Exchange pursuant to the Model Code.

(d) On 10 February 2012, Mr. Zhang Yuan Jian was appointed as an executive director of the Company. As at 31 December 2012, he had 176,000 unvested awarded shares under the Share Award Scheme. He is also deemed to be interested in 80,000 shares of the Company benefi cially held by his spouse personally, representing approximately 0.01% of the issued share capital of the Company.

DIRECTORS’ REMUNERATION

The Directors’ fees are subject to shareholders’ approval at general meetings of the Company. Other emoluments are reviewed by the Company’s remuneration committee with reference to Directors’ duties, responsibilities and performance and the results of the Group. In addition, share options and awarded shares are also offered to Directors.

Annual Report 2012 41

Report of the Directors

DIRECTORS’ INTERESTS IN CONTRACTS

Save for the Loan Agreement, the WTAP Agreement and the WTAP-Components Agreement in which Mr. Zheng has interest (as disclosed in the section “Connected Transactions” below), no contracts of signifi cance in relation to the Group’s business to which the Company, its holding company, or any of its subsidiaries or fellow subsidiaries, was a party, and in which a director of the Company or the controlling shareholder of the Company had a material interest, whether directly or indirectly, subsisted at the end of the Current Year or at any time during the Current Year.

Company granted to any Director or their respective spouses or minor children, or were any such rights exercised by them; or was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries a party to any arrangement to enable the Directors to acquire such rights in any other body corporate.

SHARE OPTION AND SHARE AWARD SCHEMES

Details of the share option scheme and Share Award Scheme

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURES

Save as disclosed in the share option scheme and Share Award Scheme in note 30 to the fi nancial statements, at no time during the Current Year were rights to acquire benefi ts by means of the acquisition of shares in or debentures of the

SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at 31 December 2012, the following interests of 5% or more of the issued share capital of the Company were recorded in the register of interests required to be kept by the Company pursuant to Section 336 of the SFO:

Long positions:

Long positions:
			Number of	Percentage of the
		Capacity and	ordinary	Company’s issued
Name	Notes	nature of interest	shares held	share capital
Prime Choice		Benef cial owner	525,710,701	34.45
Mdm. Chen Jing Na (“Mdm. Chen”)	(a)	Interest of spouse	544,254,111	35.66
Wise Logic		Benef cial owner	154,128,452	10.10
Mdm. Cai Hui Ni(“Mdm. Cai”)	(b)	Interest of spouse	154,128,452	10.10

Notes:

(a) Mdm. Chen is the spouse of Mr. Fok and is deemed to be interested in the 544,254,111 shares in which Mr. Fok is deemed or taken to be interested for the purposes of the SFO.
(b) Mdm. Cai is the spouse of Mr. Zhang and is deemed to be interested in the 154,128,452 shares in which Mr. Zhang is deemed or taken to be interested for the purposes of the SFO.

There are duplications of interests in the issued share capital of the Company in respect of:

(i) 525,710,701 shares between Prime Choice and Mdm. Chen; and
(ii) 154,128,452 shares between Wise Logic and Mdm. Cai.

Save as disclosed above, as at 31 December 2012, no person, other than the Directors, whose interests are set out in the section “Directors’ interests and short positions in shares and underlying shares” above, had registered an interest or short position in the shares or underlying shares of the Company that was required to be recorded pursuant to Section 336 of the SFO.

42 Comba Telecom Systems Holdings Limited

Report of the Directors

CONNECTED TRANSACTIONS

In the year under review, the Group had the following connected and continuing connected transactions, certain details of which are disclosed in compliance with the requirements of Chapter 14A of the Listing Rules.

Connected transaction: Loan

On 25 August 2010, Cascade Technology Limited (an indirect wholly-owned subsidiary of the Company) (the “Lender”) and WaveLab Holdings Limited (“WaveLab Holdings” or the “Borrower”) entered into a loan agreement with effect from 1 January 2011 (the “Loan Agreement”) pursuant to which the Lender agreed to lend a principal amount of US$8,500,000 (equivalent to approximately HK$66,300,000) (the “Loan”) to the Borrower at the rate of LIBOR at the date of drawing plus 1.8 per cent per annum. The interest period of the Loan is either 3 or 6 or 12 months at the selection of the Borrower. The drawing availability period shall be upto 31 December 2013 upon mutual agreement between the Lender and the Borrower. The Lender may, at any time upon giving notice in writing, demand repayment of the Loan in full or in part up to the outstanding amount of the Loan not yet repaid and/or payment of any part of the interest accrued thereon as at the date of the written demand of the Lender.

The purpose of the Loan is used for refi nancing all outstanding indebtedness amounted to US$6,000,000 (equivalent to approximately HK$46,800,000) under the loan agreements dated 18 July 2007, 25 June 2008 and 1 August 2008. Unless otherwise agreed by the Lender, the Loan is used for the working capital purpose of the Borrower and its subsidiaries. As at 31 December 2012, all outstanding indebtedness under the Loan Agreement amounted to US$7,000,000 (equivalent to approximately HK$54,600,000).

The Borrower is an indirect non wholly-owned subsidiary of the Company. As Mr. Zheng, an executive director and a connected person of the Company, is a shareholder of the Borrower holding 32% of the issued share capital of the Borrower, the Borrower (being an indirect non wholly-owned subsidiary of the Company and an associate of Mr. Zheng) is a connected person of the Company under the Listing Rules.

The Directors (including the independent non-executive directors) are of the view that the terms of the Loan Agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and its shareholders as a whole.

Continuing connected transactions

On 25 August 2010, the Group entered into an agreement (the “WTAP Agreement”) with WaveLab Holdings relating to the purchase of wireless transmission and access products (the “WTAP”) from WaveLab Holdings to the Group for the term from 1 January 2011 to 31 December 2013, subject to the early termination provisions in the WTAP Agreement. On the same day, the Group entered into an agreement (the “WTAPComponents Agreement”) with WaveLab Holdings relating to the sale of the components used in the manufacture of WTAP (the “WTAP-Components”) by the Group to WaveLab Holdings for the term from 1 January 2011 to 31 December 2013, subject to the early termination provisions in the WTAPComponents Agreement.

WaveLab Holdings, a 55% indirect subsidiary of the Company, and that Mr. Zheng, an executive director of the Company who is a 32% owner of WaveLab Holdings, both the transactions which the Group continued to carry out pursuant to the WTAP Agreement and WTAP-Components Agreement constitute nonexempt continuing connected transactions falling under Rule 14A.35 of the Listing Rules.

Annual Report 2012 43

Report of the Directors

The Independent non-executive directors of the Company have reviewed the continuing connected transactions set out above and have confirmed that these continuing connected transactions were entered into:

(i) in the ordinary and usual course of business of the Group;
(ii) on normal commercial terms or on terms no less favourable to the Group than terms available to or from independent third parties; and
(iii) in accordance with the relevant agreements governing such transactions on terms that were fair and reasonable and in the interests of the shareholders of the Company as a whole.

Ernst & Young, the Company’s auditors, were engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certifi ed Public Accountants. Ernst & Young have issued their unqualifi ed letter containing their fi ndings and conclusions in respect of the continuing connected transactions disclosed above by the Group in accordance with Rule 14A.38 of the Listing Rules. A copy of the auditors’ letter has been provided by the Company to the Stock Exchange.

DISCLOSURE PURSUANT TO RULE 13.21 OF THE LISTING RULES

Comba Telecom Systems Limited, an indirect whollyowned subsidiary of the Company, entered into two threeyear term loan facility agreements respectively, one of which amounted to US$130,000,000 on 5 July 2010 and another of which amounted to US$210,000,000 on 26 June 2012 (collectively known as the “Facility Agreements”) with certain fi nancial institutions, which contain covenants requiring specifi c performance obligations of the controlling shareholder, namely Mr. Fok, and the substantial shareholder, namely Mr. Zhang, of the Company. Details of the Facility Agreements are set out in

SUFFICIENCY OF PUBLIC FLOAT

Based on information that is publicly available to the Company and to the best knowledge of the Directors, at least 25% of the Company’s total issued share capital was held by the public as at 31 December 2012 and the date of this report.

EVENT AFTER THE REPORTING PERIOD

Details of the signifi cant event after the reporting period of the Group are set out in note 40 to the fi nancial statements.

AUDITORS

Ernst & Young will retire and a resolution for their reappointment as auditors of the Company will be proposed at the forthcoming AGM.

ON BEHALF OF THE BOARD OF

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

Fok Tung Ling

Chairman Hong Kong 22 March 2013

44 Comba Telecom Systems Holdings Limited

Independent Auditors’ Report

TO THE SHAREHOLDERS OF COMBA TELECOM SYSTEMS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Comba Telecom Systems Holdings Limited (the “Company”) and its subsidiaries (together the “Group”) set out on pages 46 to 115, which comprise the consolidated and company statements of financial position as at 31 December 2012, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of consolidated fi nancial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certifi ed Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated fi nancial statements that are free from material misstatement, whether due to fraud or error.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated fi nancial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2012, and of the Group’s loss and cash fl ows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certifi ed Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated

Ernst & Young

Hong Kong 22 March 2013

Annual Report 2012

Consolidated Income Statement

Year ended 31 December 2012

==> picture [483 x 470] intentionally omitted <==

----- Start of picture text -----

2012 2011
Notes HK$’000 HK$’000
REVENUE 5 6,332,867 6,354,218
Cost of sales (4,716,988) (4,027,521)
Gross profi t 1,615,879 2,326,697
Other income and gains 5 68,854 110,269
Research and development costs (376,766) (361,914)
Selling and distribution expenses (503,749) (437,088)
Administrative expenses (904,640) (830,714)
Other expenses (5,073) (1,331)
Finance costs 7 (42,635) (29,403)
(LOSS)/PROFIT BEFORE TAX 6 (148,130) 776,516
Income tax expense 9 (67,515) (121,772)
(LOSS)/PROFIT FOR THE YEAR (215,645) 654,744
Attributable to:
Owners of the parent 10 (202,364) 659,084
Non-controlling interests (13,281) (4,340)
(215,645) 654,744
(LOSS)/EARNINGS PER SHARE ATTRIBUTABLE TO
ORDINARY EQUITY HOLDERS OF THE PARENT (HK cents) 12
Basic (13.43) 43.99
Diluted (13.43) 42.95
----- End of picture text -----

Details of the dividends payable and proposed for the year are disclosed in note 11 to the fi nancial statements.

46 Comba Telecom Systems Holdings Limited

Consolidated Statement of Comprehensive Income

Year ended 31 December 2012

==> picture [483 x 482] intentionally omitted <==

----- Start of picture text -----

2012 2011
Notes HK$’000 HK$’000
(LOSS)/PROFIT FOR THE YEAR (215,645) 654,744
OTHER COMPREHENSIVE INCOME
Gains on property revaluation 13 — 27,646
Reclassifi cation adjustments for gains included in
the consolidated income statement (2,363) —
Income tax effect 16 355 (4,004)
(2,008) 23,642
Cash fl ow hedge:
Effective portion of changes in fair value of hedging instrument arising
during the year 26 — 2,275
Reclassifi cation adjustments for gain included in
the consolidated income statement 26 — 344
Loss on expiry of interest rate swap contract 26 (404) —
Income tax effect 26 (116) (250)
26 (520) 2,369
Exchange differences on translation of foreign operations 16,752 139,075
OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX 14,224 165,086
TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE YEAR (201,421) 819,830
Attributable to:
Owners of the parent (189,198) 821,286
Non-controlling interests (12,223) (1,456)
(201,421) 819,830
----- End of picture text -----

Annual Report 2012 47

Consolidated Statement of Financial Position

31 December 2012

==> picture [483 x 509] intentionally omitted <==

----- Start of picture text -----

2012 2011
Notes HK$’000 HK$’000
NON-CURRENT ASSETS
Property, plant and equipment 13 826,277 828,546
Prepaid land lease payments 14 30,807 31,374
Goodwill 15 28,571 28,571
Long-term trade receivables 20 134,695 118,648
Deferred tax assets 16 132,423 136,309
Intangible assets 17 30,257 28,216
Restricted bank deposits 23 7,650 7,033
Total non-current assets 1,190,680 1,178,697
CURRENT ASSETS
Inventories 19 2,243,009 2,421,044
Trade receivables 20 4,452,866 4,268,084
Notes receivable 21 63,194 68,472
Prepayments, deposits and other receivables 22 580,957 450,810
Restricted bank deposits 23 24,367 79,813
Cash and cash equivalents 23 1,536,638 1,114,412
Total current assets 8,901,031 8,402,635
CURRENT LIABILITIES
Trade and bills payables 24 3,281,193 2,981,163
Other payables and accruals 25 1,206,888 1,186,559
Derivative fi nancial instrument 26 — 698
Interest-bearing bank borrowings 27 1,558,656 719,272
Tax payable 87,174 119,001
Provisions for product warranties 28 78,315 69,232
Total current liabilities 6,212,226 5,075,925
NET CURRENT ASSETS 2,688,805 3,326,710
TOTAL ASSETS LESS CURRENT LIABILITIES 3,879,485 4,505,407
----- End of picture text -----

48 Comba Telecom Systems Holdings Limited

Consolidated Statement of Financial Position

31 December 2012

==> picture [483 x 314] intentionally omitted <==

----- Start of picture text -----

2012 2011
Notes HK$’000 HK$’000
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings 27 — 404,743
Deferred tax liabilities 16 17,326 17,840
Total non-current liabilities 17,326 422,583
Net assets 3,862,159 4,082,824
EQUITY
Equity attributable to owners of the parent
Issued capital 29 152,620 152,620
Treasury shares 29 (14,370) (9,661)
Reserves 31(a) 3,667,372 3,764,271
Proposed dividend 11 — 106,834
3,805,622 4,014,064
Non-controlling interests 56,537 68,760
Total equity 3,862,159 4,082,824
----- End of picture text -----

Fok Tung Ling

Director

Tong Chak Wai, Wilson

Director

Annual Report 2012 49

Consolidated Statement of Changes in Equity

Year ended 31 December 2012

==> picture [483 x 433] intentionally omitted <==

----- Start of picture text -----

Attributable to owners of the parent
Share-
Share based Asset Exchange Proposed Non-
Issued Treasury premium compensation Capital revaluation Hedging Statutory fl uctuation Retained fi nal controlling Total
Notes capital shares account reserve reserve reserve reserve reserve reserve profi ts dividends Total interests equity
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2011 132,305 — 482,453 21,386 44,630 50,557 (1,849) 90,526 397,752 1,862,998 158,766 3,239,524 69,501 3,309,025
Profi t for the year — — — — — — — — — 659,084 — 659,084 (4,340) 654,744
Other comprehensive income
for the year:
Gains on property revaluation,
net of tax — — — — — 23,642 — — — — — 23,642 — 23,642
Cash fl ow hedge, net of tax 26 — — — — — — 2,369 — — — — 2,369 — 2,369
Exchange differences on
translation of foreign operations — — — — — — — — 136,191 — — 136,191 2,884 139,075
Total comprehensive income
for the year — — — — — 23,642 2,369 — 136,191 659,084 — 821,286 (1,456) 819,830
Share Option Scheme
— exercise of share options 29(a) 4,131 — 45,090 (11,211) — — — — — — — 38,010 — 38,010
— value of services 6 — — — 15,790 — — — — — — — 15,790 — 15,790
— adjustment arising from lapse
of share options — — — (205) — — — — — 205 — — — —
— share options cancelled
at expiry date — — — (7) — — — — — 7 — — — —
Share Award Scheme
— value of services 6 — — — 145,028 — — — — — — — 145,028 — 145,028
— shares allotted 29(b) 2,600 (2,600) — — — — — — — — — — — —
— shares purchased 29(c) — (7,694) — — — — — — — — — (7,694) — (7,694)
— vested awarded shares
transferred to
selected persons 29(d) — 860 82,074 (82,934) — — — — — — — — — —
Issue of bonus shares 29(e) 13,584 (227) (13,357) — — — — — — — — — — —
Equity-settled share expenses — — — — 874 — — — — — — 874 715 1,589
Final 2010 dividend declared — — — — — — — — — — (163,005) (163,005) — (163,005)
Underprovision of fi nal
2010 dividend — — — — — — — — — (4,239) 4,239 — — —
Interim 2011 dividend 11 — — — — — — — — — (75,743) — (75,743) — (75,743)
Proposed fi nal 2011 dividend 11 — — — — — — — — — (106,834) 106,834 — — —
Appropriations of statutory reserve — — — — — — — 894 — (894) — — — —
Staff welfare fund — — — — — — — — — (6) — (6) — (6)
At 31 December 2011 152,620 (9,661) 596,260 87,847 45,504 74,199 520 91,420 533,943 2,334,578 106,834 4,014,064 68,760 4,082,824
----- End of picture text -----

50 Comba Telecom Systems Holdings Limited

Consolidated Statement of Changes in Equity Year ended 31 December 2012

==> picture [483 x 323] intentionally omitted <==

----- Start of picture text -----

Attributable to owners of the parent
Share-
Share based Asset Exchange Proposed Non-
Issued Treasury premium compensation Capital revaluation Hedging Statutory fl uctuation Retained fi nal controlling Total
Notes capital shares account reserve reserve reserve reserve reserve reserve profi ts dividends Total interests equity
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2012 152,620 (9,661) 596,260 87,847 45,504 74,199 520 91,420 533,943 2,334,578 106,834 4,014,064 68,760 4,082,824
Loss for the year — — — — — — — — — (202,364) — (202,364) (13,281) (215,645)
Other comprehensive income
for the year:
Cash fl ow hedge, net of tax 26 — — — — — — (520) — — — — (520) — (520)
Adjustment arising from
disposal of property, net of tax — — — — — (2,008) — — — — — (2,008) — (2,008)
Exchange differences on
translation of foreign operations — — — — — — — — 15,694 — — 15,694 1,058 16,752
Total comprehensive loss
for the year — — — — — (2,008) (520) — 15,694 (202,364) — (189,198) (12,223) (201,421)
Share Option Scheme
— value of services 6 — — — 38,495 — — — — — — — 38,495 — 38,495
— adjustment arising from lapse
of share options — — — (1,311) — — — — — 1,311 — — — —
Share Award Scheme
— value of services 6 — — — 53,793 — — — — — — — 53,793 — 53,793
— shares purchased 29(c) — (5,021) — — — — — — — — — (5,021) — (5,021)
— vested awarded shares
transferred to
selected persons 29(d) — 312 47,504 (47,816) — — — — — — — — — —
Equity-settled share expenses — — — — 323 — — — — — — 323 — 323
Final 2011 dividend declared 11 — — — — — — — — — — (106,834) (106,834) — (106,834)
At 31 December 2012 152,620 (14,370) 643,764 131,008 45,827 72,191 — 91,420 549,637 2,133,525 — 3,805,622 56,537 3,862,159
----- End of picture text -----

These reserve accounts comprise the consolidated reserves of HK$3,667,372,000 (2011: HK$3,764,271,000) in the consolidated statement of fi nancial position.

Annual Report 2012 51

Consolidated Statement of Cash Flows

Year ended 31 December 2012

==> picture [483 x 578] intentionally omitted <==

----- Start of picture text -----

2012 2011
Notes HK$’000 HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profi t before tax (148,130) 776,516
Adjustments for:
Bank interest income 5 (7,769) (9,364)
Finance costs 7 42,635 29,403
Depreciation 6 127,030 98,402
Recognition of prepaid land lease payments 6 754 563
Amortization of intangible assets 6 7,756 5,109
Equity-settled share option expense 6 38,495 15,790
Equity-settled share expense 323 1,589
Gain on bargain purchase 5 — (48,426)
Loss on disposal of items of property, plant and equipment 6 207 844
Awarded share expense 6 53,793 145,028
115,094 1,015,454
Decrease/(increase) in inventories 161,414 (556,380)
Increase in trade receivables (208,372) (1,165,869)
Increase in long-term trade receivables (16,047) (118,648)
Decrease/(increase) in notes receivable 4,723 (17,045)
Increase in prepayments, deposits and other receivables (133,797) (60,076)
Increase in trade and bills payables 329,190 622,490
Increase in other payables and accruals 32,945 192,917
Increase in provisions for product warranties 9,735 9,186
Cash generated from/(used in) operations 294,885 (77,971)
PRC profi ts tax paid (79,694) (197,371)
Overseas profi ts taxes paid (13,871) (3,328)
Net cash fl ows from/(used in) operating activities 201,320 (278,670)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 5 7,769 9,364
Purchases of items of property, plant and equipment 13 (136,341) (284,379)
Acquisition of intangible assets 17 (9,576) (4,662)
—
Acquisition of subsidiaries (77,549)
Proceeds from disposal of items of property, plant and equipment 15,480 21,004
Decrease/(increase) in restricted bank deposits 54,125 (54,557)
Net cash fl ows used in investing activities (68,543) (390,779)
----- End of picture text -----

52 Comba Telecom Systems Holdings Limited

Consolidated Statement of Cash Flows

Year ended 31 December 2012

==> picture [483 x 370] intentionally omitted <==

----- Start of picture text -----

2012 2011
Notes HK$’000 HK$’000
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares 29(a) — 38,010
New bank borrowings 2,262,684 1,476,518
Repayment of bank borrowings (1,828,043) (987,448)
Amount paid for shares purchased for Share Award Scheme 29(c) (5,021) (7,694)
Interest paid (43,737) (29,059)
Dividends paid (106,834) (238,748)
Net cash fl ows from fi nancing activities 279,049 251,579
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 411,826 (417,870)
Cash and cash equivalents at beginning of year 1,114,412 1,472,899
Effect of foreign exchange rate changes, net 10,400 59,383
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,536,638 1,114,412
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances 23 1,536,638 1,114,412
Cash and cash equivalents as stated in the consolidated statement
of fi nancial position 1,536,638 1,114,412
Cash and cash equivalents as stated in the consolidated statement
of cash fl ows 1,536,638 1,114,412
----- End of picture text -----

Annual Report 2012 53

Statement of Financial Position

31 December 2012

==> picture [483 x 484] intentionally omitted <==

----- Start of picture text -----

2012 2011
Notes HK$’000 HK$’000
NON-CURRENT ASSETS
Investments in subsidiaries 18 632,815 548,375
CURRENT ASSETS
Due from subsidiaries 18 1,038,200 1,038,200
Other receivables 22 — 5,454
Cash and cash equivalents 23 11,022 306
Total current assets 1,049,222 1,043,960
CURRENT LIABILITIES
Due to a subsidiary 18 299,621 176,320
Other payables and accruals 25 75,155 75,539
Total current liabilities 374,776 251,859
NET CURRENT ASSETS 674,446 792,101
TOTAL ASSETS LESS CURRENT LIABILITIES 1,307,261 1,340,476
NON-CURRENT LIABILITIES
Financial guarantee contracts 33 23,265 27,972
Net assets 1,283,996 1,312,504
EQUITY
Issued capital 29 152,620 152,620
Treasury shares 29 (14,370) (9,661)
Reserves 31(b) 1,145,746 1,062,711
Proposed dividend 11 — 106,834
Total equity 1,283,996 1,312,504
----- End of picture text -----

Fok Tung Ling

Director

Tong Chak Wai, Wilson

Director

54 Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

1. CORPORATE INFORMATION

Comba Telecom Systems Holdings Limited (the “Company”) was incorporated as an exempted company with limited liability in the Cayman Islands on 17 May 2002 under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands.

The head offi ce and principal place of business of the Company is located at 611 East Wing, No. 8 Science Park West Avenue, Hong Kong Science Park, Tai Po, Hong Kong.

During the year, the Company and its subsidiaries (the “Group”) principally engaged in the research, development, manufacture and sale of wireless telecommunications network enhancement system equipment and the provision of related engineering services.

2.1 BASIS OF PREPARATION

These fi nancial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certifi ed Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for certain buildings classifi ed as property, plant and equipment, and a derivative fi nancial instrument, which have been measured at fair value. These fi nancial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand except when otherwise indicated.

Basis of consolidation

The consolidated fi nancial statements include the fi nancial statements of the Group for the year ended 31 December 2012 (the “Current Year”). The fi nancial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated on consolidation in full.

Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a defi cit balance.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognizes (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognizes (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or defi cit in profi t or loss. The Group’s share of components previously recognized in other comprehensive income is reclassifi ed to profi t or loss or retained profi ts, as appropriate.

Annual Report 2012

Notes to Financial Statements

31 December 2012

2.2 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES

The Group has adopted the following revised HKFRSs for the fi rst time for the Current Year’s fi nancial statements.

HKFRS 1 Amendments	Amendments to HKFRS 1_First-time Adoption of Hong Kong Financial Reporting Standards_
	— Severe Hyperinf ation and Removal of Fixed Dates for First-time Adopters
HKFRS 7 Amendments	Amendments to HKFRS 7_Financial Instruments: Disclosures_
	— Transfers of Financial Assets
HKAS 12 Amendments	Amendments to HKAS 12_Income Taxes — Deferred Tax: Recovery of Underlying Assets_

Other than as further explained below regarding the impact of amendments to HKFRS 7, the adoption of the revised HKFRSs has had no signifi cant fi nancial effect on the fi nancial statements.

The principal effect of adopting the HKFRS 7 Amendments is as follows:

The HKFRS 7 Amendments require additional disclosures about fi nancial assets that have been transferred but not derecognized to enable users of the Group’s fi nancial statements to understand the relationship of those assets that have not been derecognized with their associated liabilities. In addition, the amendments require disclosures about the entity’s continuing involvement in derecognized assets to enable users to evaluate the nature of, and risks associated with, such involvement. Details of the transfers

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, which have been issued but are not yet effective, in these

HKFRS 1 Amendments Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards — Government Loans[2] HKFRS 7 Amendments Amendments to HKFRS 7 Financial Instruments: Disclosures — Offsetting Financial Assets and Financial Liabilities[2] HKFRS 9 Financial Instruments[4] HKFRS 10 Consolidated Financial Statements[2] HKFRS 11 Joint Arrangements[2] HKFRS 12 Disclosure of Interests in Other Entities[2] HKFRS 10, HKFRS 11 and Amendments to HKFRS 10, HKFRS 11 and HKFRS 12 — Transition Guidance[2] HKFRS 12 Amendments HKFRS 10, HKFRS 12 and Amendments to HKFRS 10, HKFRS 12 and HKAS 27 (2011) — Investment Entities[3] HKAS 27 (2011) Amendments HKFRS 13 Fair Value Measurement[2] HKAS 1 Amendments Amendments to HKAS 1 Presentation of Financial Statements — Presentation of Items of Other Comprehensive Income[1] HKAS 19 (2011) Employee Benefi ts[2] HKAS 27 (2011) Separate Financial Statements[2] HKAS 28 (2011) Investments in Associates and Joint Ventures[2] HKAS 32 Amendments Amendments to HKAS 32 Financial Instruments: Presentation — Offsetting Financial Assets and Financial Liabilities[3] HK(IFRIC)-Int 20 Stripping Costs in the Production Phase of a Surface Mine[2] Annual Improvements Amendments to a number of HKFRSs issued in June 2012[2] 2009-2011 Cycle

56 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

1 Effective for annual periods beginning on or after 1 July 2012
2 Effective for annual periods beginning on or after 1 January 2013
3 Effective for annual periods beginning on or after 1 January 2014
4 Effective for annual periods beginning on or after 1 January 2015

Further information about those HKFRSs that are expected to be applicable to the Group is as follows:

The HKFRS 7 Amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s fi nancial position. The new disclosures are required for all recognized fi nancial instruments that are set off in accordance with HKAS 32 Financial Instruments: Presentation . The disclosures also apply to recognized fi nancial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with HKAS 32. The Group expects to adopt the amendments from 1 January 2013.

HKFRS 9 issued in November 2009 is the fi rst part of phase 1 of a comprehensive project to entirely replace HKAS 39 Financial Instruments: Recognition and Measurement . This phase focuses on the classification and measurement of financial assets. Instead of classifying fi nancial assets into four categories, an entity shall classify fi nancial assets as subsequently measured at either amortized cost or fair value, on the basis of both the entity’s business model for managing the fi nancial assets and the contractual cash fl ow characteristics of the fi nancial assets. This aims to improve and simplify the approach for the classifi cation and measurement of fi nancial assets compared with the requirements of HKAS 39.

In November 2010, the HKICPA issued additions to HKFRS 9 to address fi nancial liabilities (the “Additions”) and incorporated in HKFRS 9 the current derecognition principles of fi nancial instruments of HKAS 39. Most of the Additions were carried forward unchanged from HKAS 39, while changes were made to the measurement of fi nancial liabilities designated at fair value through profi t or loss using the fair value option (“FVO”). For these FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in other comprehensive income (“OCI”). The remainder of the change in fair value is presented in profi t or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profi t or loss. However, loan commitments and fi nancial guarantee contracts which have been designated under the FVO are scoped out of the Additions.

HKAS 39 is aimed to be replaced by HKFRS 9 in its entirety. Before this entire replacement, the guidance in HKAS 39 on hedge accounting and impairment of fi nancial assets continues to apply. The Group expects to adopt HKFRS 9 from 1 January 2015. The Group will quantify the effect in conjunction with other phases, when the fi nal standard including all phases is issued.

HKFRS 10 establishes a single control model that applies to all entities including special purpose entities or structured entities. It includes a new defi nition of control which is used to determine which entities are consolidated. The changes introduced by HKFRS 10 require management of the Group to exercise signifi cant judgement to determine which entities are controlled, compared with the requirements in HKAS 27 and HK (SIC)-Int 12 Consolidation — Special Purpose Entities . HKFRS 10 replaces the portion of HKAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated fi nancial statements. It also addresses the issues raised in HK (SIC)-Int 12.

Annual Report 2012 57

Notes to Financial Statements

31 December 2012

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

HKFRS 11 replaces HKAS 31 Interests in Joint Ventures and HK (SIC)-Int 13 Jointly Controlled Entities — Non-Monetary Contributions by Venturers . It describes the accounting for joint arrangements with joint control. It addresses only two forms of joint arrangements, i.e., joint operations and joint ventures, and removes the option to account for joint ventures using proportionate consolidation.

HKFRS 12 includes the disclosure requirements for subsidiaries, joint arrangements, associates and structured entities previously included in HKAS 27 Consolidated and Separate Financial Statements , HKAS 31 Interests in Joint Ventures and HKAS 28 Investments in Associates . It also introduces a number of new disclosure requirements for these entities.

In July 2012, the HKICPA issued amendments to HKFRS 10, HKFRS 11 and HKFRS 12 which clarify the transition guidance in HKFRS 10 and provide further relief from full retrospective application of these standards, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. The amendments clarify that retrospective adjustments are only required if the consolidation conclusion as to which entities are controlled by the Group is different between HKFRS 10 and HKAS 27 or HK (SIC)-Int 12 at the beginning of the annual period in which HKFRS 10 is applied for the fi rst time. Furthermore, for disclosures related to unconsolidated structured entities, the amendments will remove the requirement to present comparative information for periods before HKFRS 12 is fi rst applied.

The amendments to HKFRS 10 issued in December 2012 include a defi nition of an investment entity and provide an exception to the consolidation requirement for entities that meet the defi nition of an investment entity. Investment entities are required to account for subsidiaries at fair value through profi t or loss in accordance with HKFRS 9 rather than consolidate them. Consequential amendments were made to HKFRS 12 and HKAS 27 (2011). The amendments to HKFRS 12 also set out the disclosure requirements for investment entities.

Consequential amendments were made to HKAS 27 and HKAS 28 as a result of the issuance of HKFRS 10, HKFRS 11 and HKFRS 12. The Group expects to adopt HKFRS 10, HKFRS 11, HKFRS 12, HKAS 27 (2011) and HKAS 28 (2011) and the subsequent amendments to these standards issued in July and December 2012 from 1 January 2013.

HKFRS 13 provides a precise defi nition of fair value and a single source of fair value measurement and disclosure requirements for use across HKFRSs. The standard does not change the circumstances in which the Group is required to use fair value, but provides guidance on how fair value should be applied where its use is already required or permitted under other HKFRSs. The Group expects to adopt HKFRS 13 prospectively from 1 January 2013.

The HKAS 1 Amendments change the grouping of items presented in OCI. Items that could be reclassifi ed (or recycled) to profi t or loss at a future point in time (for example, net gain on hedge of a net investment, exchange differences on translation of foreign operations, net movement on cash fl ow hedges and net loss or gain on available-for-sale fi nancial assets) would be presented separately from items which will never be reclassified (for example, actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendments will affect presentation only and have no impact on the fi nancial position or performance. The Group expects to adopt the amendments from 1 January 2013.

58 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

HKAS 19 (2011) includes a number of amendments that range from fundamental changes to simple clarifi cations and re-wording. The revised standard introduces signifi cant changes in the accounting for defi ned benefi t pension plans including removing the choice to defer the recognition of actuarial gains and losses. Other changes include modifi cations to the timing of recognition for termination benefi ts, the classifi cation of short-term employee benefi ts and disclosures of defi ned benefi t plans. The Group expects to adopt HKAS 19 (2011) from 1 January 2013.

The HKAS 32 Amendments clarify the meaning of “currently has a legally enforceable right to setoff” for offsetting fi nancial assets and fi nancial liabilities. The amendments also clarify the application of the offsetting criteria in HKAS 32 to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments are not expected to have any impact on the fi nancial position or performance of the Group upon adoption on 1 January 2014.

The Annual Improvements to HKFRSs 2009–2011 Cycle issued in June 2012 sets out amendments to a number of HKFRSs. The Group expects to adopt the amendments from 1 January 2013. There are separate transitional provisions for each standard. While the adoption of some of the amendments may result in changes in accounting policies, none of these amendments are expected to have a signifi cant fi nancial impact on the Group. Those amendments that are expected to have a signifi cant impact on the Group’s policies are as follows:

(a) HKAS 1 Presentation of Financial Statements : Clarifi es the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative period is the previous period. An entity must include comparative information in the related notes to the fi nancial statements when it voluntarily provides comparative information beyond the previous period. The additional comparative information does not need to contain a complete set of fi nancial statements.

In addition, the amendment clarifi es that the opening statement of fi nancial position as at the beginning of the preceding period must be presented when an entity changes its accounting policies; makes retrospective restatements or makes reclassifi cations, and that change has a material effect on the statement of fi nancial position. However, the related notes to the opening statement of fi nancial position as at the beginning of the preceding period are not required to be presented.

(b) HKAS 32 Financial Instruments: Presentation: Clarifi es that income taxes arising from distributions to equity holders are accounted for in accordance with HKAS 12 Income Taxes . The amendment removes existing income tax requirements from HKAS 32 and requires entities to apply the requirements in HKAS 12 to any income tax arising from distributions to equity holders.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity whose fi nancial and operating policies the Company controls, directly or indirectly, so as to obtain benefi ts from its activities.

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s investments in subsidiaries that are not classifi ed as held for sale in accordance with HKFRS 5 are stated at cost less any impairment losses.

Annual Report 2012 59

Notes to Financial Statements

31 December 2012

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measures the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifi able net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the fi nancial assets and liabilities assumed for appropriate classifi cation and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profi t or loss.

Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classifi ed as an asset or liability that is a fi nancial instrument and within the scope of HKAS 39 is measured at fair value with changes in fair value either recognized in profi t or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of HKAS 39, it is measured in accordance with the appropriate HKFRS. Contingent consideration that is classifi ed as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifi able net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognized in profi t or loss as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cashgenerating units, that are expected to benefi t from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

60 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of non-fi nancial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, fi nancial assets, goodwill and non-current assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash infl ows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Group;
(ii) has signifi cant infl uence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;

Annual Report 2012 61

31 December 2012

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Related parties (continued)

(b) (continued)

(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefi t plan for the benefi t of employees of either the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identifi ed in (a); and
(vii) a person identifi ed in (a)(i) has signifi cant infl uence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classifi ed as held for sale or when it is part of a disposal group classifi ed as held for sale, it is not depreciated and is accounted for in accordance with HKFRS 5. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where the recognition criteria are satisfi ed, the expenditure for a major inspection is capitalized in the carrying amount of the asset as a replacement. Where signifi cant parts of property, plant and equipment are required to be replaced at intervals, the Group recognizes such parts as individual assets with specifi c useful lives and depreciates them accordingly.

Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Changes in the values of property, plant and equipment are dealt with as movements in the asset revaluation reserve. If the total of this reserve is insuffi cient to cover a defi cit, on an individual asset basis, the excess of the defi cit is charged to the income statement. Any subsequent revaluation surplus is credited to the income statement to the extent of the defi cit previously charged. An annual transfer from the asset revaluation reserve to retained profi ts is made for the difference between the depreciation based on the revalued carrying amount of an asset and the depreciation based on the asset’s original cost. On disposal of a revalued asset, the relevant portion of the asset revaluation reserve realized in respect of previous valuations is transferred to retained profi ts as a movement in reserves.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Buildings 4.5% Plant and machinery 9%–18% Furniture, fi xtures and offi ce equipment 18%–30% Motor vehicles 18%

62 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment and depreciation (continued)

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each fi nancial year end.

An item of property, plant and equipment including any signifi cant part initially recognized is derecognized upon disposal or when no future economic benefi ts are expected from its use or disposal. Any gain or loss on disposal or retirement recognized in the income statement in the year the asset is derecognized is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalized borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassifi ed to the appropriate category of property, plant and equipment when completed and ready for use.

Intangible assets (other than goodwill)

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition. The useful lives of intangible assets are assessed to be either fi nite or indefi nite. Intangible assets with fi nite lives are subsequently amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a fi nite useful life are reviewed at least at each fi nancial year end.

Intangible assets with indefi nite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortized. The useful life of an intangible asset with an indefi nite life is reviewed annually to determine whether the indefi nite life assessment continues to be supportable. If not, the change in the useful life assessment from indefi nite to fi nite is accounted for on a prospective basis.

Computer software and technology

The purchased computer software and technology are stated at cost less any impairment losses and are amortized on the straightline basis over their estimated useful lives of 3 to 10 years.

Golf club membership

Golf club membership with an indefi nite useful live is tested for impairment annually. Such intangible asset is not amortized. The useful life is reviewed at the end of each reporting period to determine whether events and circumstances continue to support an

Research and development costs

All research costs are charged to the income statement as incurred.

Annual Report 2012 63

Notes to Financial Statements

31 December 2012

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible assets (other than goodwill) (continued)

Research and development costs (continued)

Expenditure incurred on projects to develop new products is capitalized and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefi ts, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure, which does not meet these criteria, is expensed when incurred.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as fi nance leases. At the inception of a fi nance lease, the cost of the leased asset is capitalized at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to refl ect the purchase and fi nancing. Assets held under capitalized fi nance leases, including prepaid land lease payments under fi nance leases, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The fi nance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a fi nancing nature are accounted for as fi nance leases, but are depreciated over their estimated useful lives.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the income statement on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognized on the straight-line basis over the lease terms.

Initial recognition and measurement

Financial assets within the scope of HKAS 39 are classifi ed as loans and receivables. The Group determines the classifi cation of its fi nancial assets at initial recognition. When fi nancial assets are recognized initially, they are measured at fair value plus transaction costs.

All regular way purchases and sales of fi nancial assets are recognized on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of fi nancial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of fi nancial assets depends on their classifi cation as follows:

64 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments and other fi nancial assets (continued)

Loans and receivables

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortized cost using the effective interest rate method less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in other income and gains in the income statement. The loss arising from impairment is recognized in the income statement in fi nance costs for loans and in other expenses for receivables.

Derecognition of fi nancial assets

A fi nancial asset (or, where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is derecognized when:

the rights to receive cash fl ows from the asset have expired; or
the Group has transferred its rights to receive cash fl ows from the asset or has assumed an obligation to pay the received cash fl ows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash fl ows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that refl ects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of fi nancial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a fi nancial asset or a group of fi nancial assets is impaired. A fi nancial asset or a group of fi nancial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash fl ows of the fi nancial asset or the group of fi nancial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing signifi cant fi nancial diffi culty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other fi nancial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash fl ows, such as changes in arrears or economic conditions that correlate with defaults.

Annual Report 2012 65

Notes to Financial Statements

31 December 2012

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of fi nancial assets (continued)

Financial assets carried at amortized cost

For fi nancial assets carried at amortized cost, the Group fi rst assesses individually whether objective evidence of impairment exists for fi nancial assets that are individually signifi cant, or collectively for fi nancial assets that are not individually signifi cant. If the Group determines that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, it includes the asset in a group of fi nancial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash fl ows is discounted at the fi nancial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash fl ows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other expenses in the income statement.

Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of HKAS 39 are classifi ed as loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

All fi nancial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, derivative financial instruments and interest-bearing bank borrowings.

Subsequent measurement

The subsequent measurement of fi nancial liabilities depends on their classifi cation as follows:

66 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial liabilities (continued)

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effective interest rate amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part

Financial guarantee contracts

Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specifi ed debtor fails to make a payment when due in accordance with the terms of a debt instrument. A fi nancial guarantee contract is recognized initially as a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, the Company measures the fi nancial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and (ii) the amount initially recognized less, when appropriate, cumulative amortization.

Derecognition of fi nancial liabilities

A fi nancial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.

When an existing fi nancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modifi ed, such an exchange or modifi cation is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in the income statement.

Offsetting of fi nancial instruments

Financial assets and fi nancial liabilities are offset and the net amount is reported in the statement of fi nancial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

The fair value of fi nancial instruments that are traded in active markets is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For fi nancial instruments where there is no active market, the fair value is determined using appropriate valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash fl ow analysis; and option pricing models.

Annual Report 2012 67

Notes to Financial Statements

31 December 2012

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Derivative fi nancial instruments and hedge accounting

Initial recognition and subsequent measurement

The Group uses derivative fi nancial instruments, such as an interest rate swap, to hedge its interest rate risk. Such derivative fi nancial instrument is initially recognized at fair value on the date on which a derivative contract is entered into and is subsequently remeasured at fair value. Derivative is carried as liability when the fair value is negative.

Any gain or loss arising from changes in fair value of derivative are taken directly to the income statement, except for the effective portion of cash fl ow hedges, which is recognized in other comprehensive income.

For the purpose of hedge accounting, hedges are classifi ed as cash fl ow hedges when hedging the exposure to variability in cash fl ows that is attributable to a particular risk associated with a recognized liability.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identifi cation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash fl ows attributable to the hedged risk. Such hedge is expected to be highly effective in achieving offsetting changes in cash fl ows and is assessed on an ongoing basis to determine that it actually has been highly effective throughout the fi nancial reporting periods for which it was designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Cash fl ow hedge

The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income in the hedging reserve, while any ineffective portion is recognized immediately in the income statement as other expenses.

Amounts recognized in other comprehensive income are transferred to the income statement when the hedged transaction affects profi t or loss, such as when hedged fi nancial income or fi nancial expense is recognized.

If the forecast transaction or fi rm commitment is no longer expected to occur, the cumulative gain or loss previously recognized in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognized in other comprehensive income remain in other comprehensive income until the forecast transaction or fi rm commitment affects profi t or loss.

Treasury shares

Own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration is recognized in equity.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined on the fi rst-in, fi rst-out basis and, in the case of work in progress and fi nished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realizable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

68 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and cash equivalents

For the purpose of the consolidated statement of cash fl ows, cash and cash equivalents comprise cash on hand and demand deposits, and short-term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignifi cant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the statement of fi nancial position, cash and cash equivalents comprise cash on hand and at banks.

Provisions

A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outfl ow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognized for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in fi nance costs in the income statement.

Provisions for product warranties granted by the Group on certain products are recognized based on sales volume and past experience of the level of repairs and returns, discounted to their present values as appropriate.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognized outside profi t or loss is recognized outside profi t or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profi t nor taxable profi t or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Annual Report 2012 69

Notes to Financial Statements

31 December 2012

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income tax (continued)

Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilized, except:

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profi t nor taxable profi t or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profi t will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that suffi cient taxable profi t will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Government grants

Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the periods that the costs, which it is intended to compensate, are expensed.

Revenue recognition

Revenue is recognized when it is probable that the economic benefi ts will fl ow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the signifi cant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the fi nancial instrument or a shorter period, when appropriate, to the net carrying amount of the fi nancial asset.

70 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Share-based payments

The Company operates a share option scheme (the “Share Option Scheme”) and a share award scheme (the “Share Award Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees for grants after 7 November 2002 is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, further details of which are given in note 30 to the fi nancial statements.

The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfi lled. The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date refl ects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in the cumulative expense recognized as at the beginning and end of that period.

No expense is recognized for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfi ed, provided that all other performance and/or service conditions are satisfi ed.

Where the terms of an equity-settled award are modifi ed, as a minimum an expense is recognized as if the terms had not been modifi ed, if the original terms of the award are met. In addition, an expense is recognized for any modifi cation that increases the total fair value of the share-based payments, or is otherwise benefi cial to the employee as measured at the date of modifi cation.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modifi cation of the original award, as described in the previous paragraph.

The dilutive effect of outstanding equity-settled awards is refl ected as additional share dilution in the computation of earnings per share.

Annual Report 2012 71

Notes to Financial Statements

31 December 2012

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Other employee benefi ts

Pension schemes

The Group operates a defi ned contribution Mandatory Provident Fund retirement benefi t scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for all of its employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries which operates in Mainland China are required to participate in a central pension scheme operated by the local municipal government. These PRC subsidiaries are required to contribute a certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. The capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specifi c borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalized. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Dividends

Final dividends proposed by the directors are classifi ed as a separate allocation of retained profi ts within the equity section of the statement of fi nancial position, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognized as a liability.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognized immediately as a liability when they are proposed and declared.

Foreign currencies

These fi nancial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the fi nancial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognized in the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation differences on the items whose fair value gain or loss is recognized in other comprehensive income or profi t or loss are also recognized in other comprehensive income or profi t or loss, respectively).

72 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currencies (continued)

The resulting exchange differences are recognized in other comprehensive income and accumulated in the exchange fl uctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in the income statement.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

For the purpose of the consolidated statement of cash fl ows, the cash fl ows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash fl ows. Frequently recurring cash fl ows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s fi nancial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most signifi cant effect on the amounts recognized in the fi nancial statements:

Recognition of a deferred tax liability for withholding taxes

The PRC New Corporate Income Tax Law, which became effective on 1 January 2008, states that the distribution of dividends by a foreign-invested enterprise established in Mainland China to its foreign investors, from its 2008 or thereafter earnings, shall be subject to withholding taxes at an applicable rate of 5% or 10%. The directors had assessed whether it is probable for the Group’s PRC subsidiaries to distribute dividends out of their profi ts earned after 1 January 2008. For details, refer to note 16 to the fi nancial statements.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year, are described below.

Impairment allowances for trade and other receivables

Impairment allowances for trade and other receivables are made on assessment of the recoverability of trade and other receivables. The identification of impairment allowances requires management judgement and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will have an impact on the carrying value of the receivables and the impairment or reversal of the receivables in the period in which such estimate has been changed.

Annual Report 2012 73

Notes to Financial Statements

31 December 2012

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Estimation uncertainty (continued)

Impairment of property, plant and equipment

The Group tests annually whether property, plant and equipment have suffered any impairment, which is in accordance with the accounting policy stated in note 2.4. The recoverable amounts of cash-generating units have been determined based on a value in use calculation. These calculations require the use of estimates such as the future revenue and discount rates.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating unit to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash fl ows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash fl ows. The carrying amount of goodwill at 31 December 2012 was approximately HK$28,571,000 (2011: HK$28,571,000). For details, refer to note 15 to the fi nancial statements.

Provisions for product warranties

The Group generally provides one to two year warranties to its customers on certain of its products, under which faulty products are repaired or replaced. The amount of provisions is estimated based on the sales volume and past experience of the level of repairs and returns. The estimation basis is reviewed on an ongoing basis and revised where appropriate. During the year, the provisions for product warranties were not discounted as the effect of discounting was not material.

Fair values

The fair values of the Group’s fi nancial instruments are not materially different from their carrying amounts. Fair value estimates are made at a specifi c point in time and based on relevant market information and information about the fi nancial instruments. These estimates are subjective in nature, involve uncertainties and matters of signifi cant judgement and therefore cannot be determined with precision. Changes in assumptions could signifi cantly affect the estimates.

4. OPERATING SEGMENT INFORMATION

The Group is principally engaged in the research, development, manufacture and sale of wireless telecommunications network enhancement system equipment and the provision of related engineering services. All of the Group’s products are of a similar nature and subject to similar risks and returns. Accordingly, the Group’s operating activities are attributable to a single operating segment.

Information about major customers

During the year, revenue of approximately HK$3,313,447,000 (2011: HK$3,582,584,000) and HK$1,390,107,000 (2011: HK$1,333,343,000) were derived from two major customers, which accounted for 52.3% (2011: 56.4%) and 22.0% (2011: 21.0%) of the total revenue of the Group respectively.

74 Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

5. REVENUE, OTHER INCOME AND GAINS

Revenue, which is also the Group’s turnover, represents the net invoiced value of goods sold and services rendered during the year, net of value-added tax (“VAT”), and after allowances for returns and trade discounts. All signifi cant intra-group transactions have been eliminated on consolidation.

An analysis of revenue, other income and gains is as follows:

==> picture [460 x 256] intentionally omitted <==

----- Start of picture text -----

2012 2011
HK$’000 HK$’000
Revenue
Manufacture and sale of wireless telecommunications network enhancement
system equipment and provision of related engineering services 6,010,771 6,108,832
Maintenance services 322,096 245,386
6,332,867 6,354,218
Other income and gains
Bank interest income 7,769 9,364
Exchange gain, net — 9,776
Government subsidy 33,786 7,741
VAT refunds 14,140 25,411
Gain on bargain purchase — 48,426
Others 13,159 9,551
68,854 110,269
----- End of picture text -----*

During the years ended 31 December 2012 and 2011, Comba Software Technology (Guangzhou) Limited (“Comba Software”) being designated as a software enterprise, was entitled to VAT refunds on the effective VAT rate in excess of 3% after the payment of statutory net output VAT of 17%. Such VAT refunds were approved by the Guangzhou State Tax Bureau (廣州市國家稅務局) and received by Comba Software.

Annual Report 2012 75

Notes to Financial Statements 31 December 2012

6. LOSS/PROFIT BEFORE TAX

The Group’s loss/profi t before tax is arrived at after charging/(crediting):

==> picture [460 x 367] intentionally omitted <==

----- Start of picture text -----

2012 2011
Notes HK$’000 HK$’000
Cost of inventories sold and services provided 4,482,997 3,925,108
Depreciation 13 127,030 98,402
Recognition of prepaid land lease payments 14 754 563
Amortization of intangible assets 17 7,756 5,109
Minimum lease payments under operating leases in respect of
land and buildings 104,568 90,495
Auditors’ remuneration 2,853 2,816
Employee benefi t expense (including directors’ remuneration (note 8)):
Salaries and wages 1,076,894 842,693
Staff welfare expenses 83,300 72,600
Equity-settled share option expense 30(a) 38,495 15,790
Awarded share expense 53,793 145,028
Pension scheme contributions (defi ned contribution scheme) [#] 85,181 73,025
1,337,663 1,149,136
Exchange loss/(gain), net 15,386 (9,776)
Write-off of obsolete inventories 146,284 —
Write-down of inventories to net realizable value — 27,254
Provisions for product warranties 28 53,889 45,401
Loss on disposal of items of property, plant and equipment 207 844
—
Gain on bargain purchase (48,426)
Bank interest income (7,769) (9,364)
----- End of picture text -----*

At 31 December 2012, the Group had no forfeited contributions available to reduce its contributions to the pension schemes in future years (2011: Nil).

Gain on bargain purchase is included in “Other income and gains” in the consolidated income statement.

76 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

7. FINANCE COSTS

==> picture [460 x 44] intentionally omitted <==

----- Start of picture text -----

2012 2011
HK$’000 HK$’000
Interest on bank loans wholly repayable within fi ve years 42,635 29,403
----- End of picture text -----

8. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID EMPLOYEES

Directors’ remuneration for the year, disclosed pursuant to the Rules (the “Listing Rules”) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and Section 161 of the Hong Kong Companies Ordinance, is as follows:

==> picture [460 x 200] intentionally omitted <==

----- Start of picture text -----

2012 2011
HK$’000 HK$’000
Fees 920 600
Other emoluments:
Salaries, allowances and benefi ts in kind 12,663 13,461
Performance related bonuses 9,273 8,447
Equity-settled share option expense 2,488 321
Awarded share expense 6,243 11,927
Pension scheme contributions 333 277
31,000 34,433
31,920 35,033
----- End of picture text -----

During the year, certain directors were granted share options, in respect of their services to the Group, under the Share Option Scheme of the Company, further details of which are set out in note 30 to the fi nancial statements. The fair value of such options, which has been recognized in the income statement over the vesting period, was determined as at the date of grant and the amount

Annual Report 2012 77

Notes to Financial Statements 31 December 2012

8. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID EMPLOYEES (continued)

(a) Executive and non-executive directors

==> picture [437 x 438] intentionally omitted <==

----- Start of picture text -----

Salaries, Equity-
allowances Performance settled Awarded Pension
and benefi ts related share option share scheme Total
Fees in kind bonuses expense expense contributions remuneration
2012 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Executive directors:
Mr. Fok Tung Ling — 1,552 2,132 — — 11 3,695
Mr. Zhang Yue Jun — 1,940 2,070 — — 63 4,073
Mr. Tong Chak Wai, Wilson — 1,947 299 442 1,415 14 4,117
Mr. Wu Jiang Cheng — 1,596 1,415 442 1,415 63 4,931
Mr. Yan Ji Ci — 1,353 1,463 442 1,227 63 4,548
Mr. Zheng Guo Bao 100 1,592 — — 283 48 2,023
Mr. Yeung Pui Sang, Simon — 1,996 305 442 1,227 14 3,984
Mr. Zhang Yuan Jian (appointed on
10 February 2012) — 687 1,589 442 676 57 3,451
100 12,663 9,273 2,210 6,243 333 30,822
Non-executive directors:
Mr. Liu Cai 200 — — 112 — — 312
Mr. Lau Siu Ki, Kevin 165 — — 112 — — 277
Mr. Lin Jin Tong (appointed on
21 May 2012) 123 — — — — — 123
Mr. Qian Ting Shuo (appointed on
21 May 2012) 123 — — — — — 123
Mr. Yao Yan (resigned on
21 May 2012) 209 — — 54 — — 263
820 — — 278 — — 1,098
920 12,663 9,273 2,488 6,243 333 31,920
----- End of picture text -----*

The remuneration was calculated from the respective appointment as a director.

78 Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

8. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID EMPLOYEES (continued)

(a) Executive and non-executive directors (continued)

==> picture [437 x 340] intentionally omitted <==

----- Start of picture text -----

Salaries, Equity-
allowances Performance settled Awarded Pension
and benefi ts related share option share scheme Total
Fees in kind bonuses expense expense contributions remuneration
2011 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Executive directors:
Mr. Fok Tung Ling — 2,343 2,450 — — 12 4,805
Mr. Zhang Yue Jun — 2,198 2,455 — — 59 4,712
Mr. Tong Chak Wai, Wilson — 2,012 139 — 3,032 12 5,195
Mr. Wu Jiang Cheng — 1,729 1,455 — 3,032 59 6,275
Mr. Yan Ji Ci — 1,456 1,338 — 2,628 59 5,481
Mr. Zheng Guo Bao 100 1,681 467 — 607 64 2,919
Mr. Yeung Pui Sang, Simon — 2,042 143 — 2,628 12 4,825
100 13,461 8,447 — 11,927 277 34,212
Non-executive directors:
Mr. Liu Cai 200 — — 107 — — 307
Mr. Lau Siu Ki, Kevin 150 — — 107 — — 257
Mr. Yao Yan 150 — — 107 — — 257
500 — — 321 — — 821
600 13,461 8,447 321 11,927 277 35,033
----- End of picture text -----

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

(b) Five highest paid employees

The fi ve highest paid (excluding sales commissions) employees during the year included fi ve (2011: fi ve) directors, details of whose remuneration are set out above.

Annual Report 2012 79

Notes to Financial Statements 31 December 2012

9. INCOME TAX

Hong Kong profi ts tax has been provided at the rate of 16.5% (2011: 16.5%) on the estimated assessable profi ts arising in Hong Kong during the year. Taxes on profi ts assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

==> picture [460 x 128] intentionally omitted <==

----- Start of picture text -----

2012 2011
HK$’000 HK$’000
Current — charge for the year
—
Hong Kong 6,619
Mainland China 48,830 118,890
Elsewhere 7,412 2,070
Deferred (note 16) 4,654 812
Total tax charge for the year 67,515 121,772
----- End of picture text -----

During the 5th Session of the 10th National People’s Congress, which was concluded on 16 March 2007, the PRC Corporate Income Tax Law (the “New Corporate Income Tax Law”) was approved and became effective on 1 January 2008. The New Corporate Income Tax Law introduces a wide range of changes which include, but are not limited to, the unifi cation of the income tax rate for the domestic-invested and foreign-invested enterprises, which results in an adjustment of the income tax rate to 25%.

Comba Telecom Systems (Guangzhou) Limited (“Comba Guangzhou”) and Comba Telecom Technology (Guangzhou) Limited (“Comba Technology”), being foreign invested enterprises located in Guangzhou, the PRC, are eligible to enjoy the transitional arrangement under the New Corporate Income Tax Law. In addition, Comba Guangzhou and Comba Technology were designated as High-New Technology Enterprises by the Guangdong Science and Technology Department on 14 December 2009 and 16 December 2008 respectively. The qualifi cation of Comba Technology as a High-New Technology Enterprise was renewed on 23 August 2011. Being High-New Technology Enterprises, Comba Guangzhou and Comba Technology were entitled to the preferential tax rate of 15% for the year of 2012.

According to the Income Tax Law of the PRC for Foreign Investment Enterprises and Foreign Enterprises, Comba Telecom Systems (China) Limited (“Comba China”), another subsidiary of the Company established in the PRC, was entitled to an exemption from PRC corporate income tax for the two years commencing from 1 January 2008 to 31 December 2009 and was entitled to a 50% reduction in PRC corporate income tax for the subsequent three years from 1 January 2010 to 31 December 2012. The applicable income tax rates for Comba China, which was located in the Guangzhou Economic and Technology Development Zone, were 0%, 0%, 11%, 12% and 12.5% in 2008, 2009, 2010, 2011 and 2012, respectively.

80 Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

9. INCOME TAX (continued)

A reconciliation of the tax expense applicable to profi t before tax at the statutory rates for the jurisdiction in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rate, and a reconciliation of the applicable rate to the effective tax rate, are as follows:

==> picture [460 x 242] intentionally omitted <==

----- Start of picture text -----

2012 2011
HK$’000 % HK$’000 %
(Loss)/profi t before tax (148,130) 776,516
Tax at the applicable tax rate (37,033) 25.00 194,129 25.00
Lower tax rates for specifi c provinces or
enacted by local authority 26,966 (18.21) (69,192) (8.91)
Effect on opening deferred tax of
increase in rates (10,232) 6.91 (16,173) (2.08)
Income not subject to tax (8,122) 5.48 (12,107) (1.56)
Expenses not deductible for tax 42,355 (28.59) 35,730 4.60
Additional deductible research and
development expenses (25,952) 17.52 (19,547) (2.52)
Tax losses utilized — — (15,035) (1.94)
Tax losses not recognized 79,533 (53.69) 23,967 3.09
Tax charge at the Group’s effective rate 67,515 (45.58) 121,772 15.68
----- End of picture text -----

The Group has tax losses arising in Hong Kong and other jurisdictions of HK$492,673,000 (2011: HK$118,683,000) that are available for offsetting against future taxable profi ts of the companies in which the losses arose. Deferred tax assets have not been recognized in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time. Apart from the above, there were no signifi cant unrecognized deferred tax assets at 31 December 2012.

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

10. LOSS/PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT

The consolidated loss attributable to owners of the parent for the year ended 31 December 2012 includes a loss of HK$8,941,000 (2011: profi t of HK$185,067,000) which has been dealt with in the fi nancial statements of the Company (note 31(b)).

11. DIVIDENDS

==> picture [460 x 87] intentionally omitted <==

----- Start of picture text -----

2012 2011
HK$’000 HK$’000
Interim — Nil (2011: HK5 cents) per ordinary share — 75,743
Proposed fi nal — Nil (2011: HK7 cents) per ordinary share — 106,834
— 182,577
----- End of picture text -----

The directors of the Company have resolved not to declare a fi nal dividend for the year ended 31 December 2012.

Annual Report 2012 81

Notes to Financial Statements 31 December 2012

12. LOSS/EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of the basic loss/earnings per share is based on the loss/profi t for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares of 1,506,884,000 (2011: 1,498,279,000) in issue during the year.

The calculation of the diluted earnings per share for the year ended 31 December 2011 is based on the profi t for the year attributable to ordinary equity holders of the parent. The weighted average number of ordinary shares used in the calculation is the ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all potential dilutive ordinary shares arising from share options and awarded shares granted by the Company into ordinary shares.

The computation of the diluted loss per share for the year ended 31 December 2012 does not assume the conversion of the Company’s outstanding share options as the exercise price is higher than the Company’s share price. The effects of awarded shares have also been excluded from the computation of the diluted loss per share for the year ended 31 December 2012 as their effects would be anti-dilutive.

The calculations of basic and diluted loss/earnings per share are based on:

==> picture [460 x 72] intentionally omitted <==

----- Start of picture text -----

2012 2011
HK$’000 HK$’000
Loss/earnings
(Loss)/profi t attributable to ordinary equity holders of the parent, used in the basic
and diluted loss/earnings per share calculations (202,364) 659,084
----- End of picture text -----

==> picture [460 x 142] intentionally omitted <==

----- Start of picture text -----

Number of shares
2012 2011
Shares
Weighted average number of ordinary shares in issue during the year
used in the basic loss/earnings per share calculation 1,506,884,000 1,498,279,000
Effect of dilution — weighted average number of ordinary shares:
Share options — 20,117,000
Awarded shares — 16,262,000
1,506,884,000 1,534,658,000
----- End of picture text -----

82 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

13. PROPERTY, PLANT AND EQUIPMENT

==> picture [460 x 499] intentionally omitted <==

----- Start of picture text -----

Furniture,
fi xtures and
Plant and offi ce Motor Construction
Buildings machinery equipment vehicles in progress Total
Group HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
31 December 2012
At 31 December 2011 and at 1 January 2012:
Cost or valuation 351,336 561,425 181,516 39,456 97,098 1,230,831
—
Accumulated depreciation (2,827) (283,792) (97,692) (17,974) (402,285)
Net carrying amount 348,509 277,633 83,824 21,482 97,098 828,546
At 1 January 2012,
net of accumulated depreciation 348,509 277,633 83,824 21,482 97,098 828,546
Additions 1,865 59,319 32,221 887 42,049 136,341
—
Disposals (2,588) (13,416) (1,814) (391) (18,209)
—
Depreciation provided during the year (19,897) (76,092) (24,860) (6,181) (127,030)
Transfer 139,934 — — — (139,934) —
Exchange realignment 2,837 2,280 580 145 787 6,629
At 31 December 2012,
net of accumulated depreciation 470,660 249,724 89,951 15,942 — 826,277
At 31 December 2012:
Cost or valuation 474,126 604,898 210,169 39,058 — 1,328,251
—
Accumulated depreciation (3,466) (355,174) (120,218) (23,116) (501,974)
Net carrying amount 470,660 249,724 89,951 15,942 — 826,277
Analysis of cost or valuation:
At cost 6,427 604,898 210,169 39,058 — 860,552
At valuation 467,699 — — — — 467,699
474,126 604,898 210,169 39,058 — 1,328,251
----- End of picture text -----

Annual Report 2012 83

Notes to Financial Statements 31 December 2012

13. PROPERTY, PLANT AND EQUIPMENT (continued)

==> picture [460 x 527] intentionally omitted <==

----- Start of picture text -----

Furniture,
fi xtures and
Plant and offi ce Motor Construction
Buildings machinery equipment vehicles in progress Total
Group HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
31 December 2011
At 31 December 2010 and at 1 January 2011:
Cost or valuation 242,691 395,171 139,645 33,244 24,148 834,899
—
Accumulated depreciation (2,195) (207,294) (75,088) (12,834) (297,411)
Net carrying amount 240,496 187,877 64,557 20,410 24,148 537,488
At 1 January 2011,
net of accumulated depreciation 240,496 187,877 64,557 20,410 24,148 537,488
Additions — 149,066 39,299 5,785 90,229 284,379
Acquisition of subsidiaries 65,633 12,565 2,059 469 — 80,726
— — — —
Surplus on revaluation 27,646 27,646
— —
Disposals (18,433) (2,674) (741) (21,848)
—
Depreciation provided during the year (12,091) (59,873) (21,256) (5,182) (98,402)
Transfer 18,457 — — — (18,457) —
Exchange realignment 8,368 6,431 1,839 741 1,178 18,557
At 31 December 2011,
net of accumulated depreciation 348,509 277,633 83,824 21,482 97,098 828,546
At 31 December 2011:
Cost or valuation 351,336 561,425 181,516 39,456 97,098 1,230,831
—
Accumulated depreciation (2,827) (283,792) (97,692) (17,974) (402,285)
Net carrying amount 348,509 277,633 83,824 21,482 97,098 828,546
Analysis of cost or valuation:
At cost 6,324 561,425 181,516 39,456 97,098 885,819
At valuation 345,012 — — — — 345,012
351,336 561,425 181,516 39,456 97,098 1,230,831
----- End of picture text -----

The aggregate open market value of buildings was HK$467,699,000 based on their existing use. The respective properties were revalued individually at the end of the reporting period by LCH (Asia-Pacifi c) Surveyors Limited, an independent professionally qualifi ed valuer.

84 Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

13. PROPERTY, PLANT AND EQUIPMENT (continued)

The Group’s buildings are situated in Mainland China and are held under the following lease terms:

==> picture [460 x 157] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
At valuation:
Long term leases 21,159 20,976
Medium term leases 446,540 324,036
467,699 345,012
At cost:
Medium term leases 6,427 6,324
474,126 351,336
----- End of picture text -----

14. PREPAID LAND LEASE PAYMENTS

==> picture [460 x 171] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Carrying amount at 1 January 32,124 14,533
Acquisition of subsidiaries — 17,225
Recognized during the year (754) (563)
Exchange realignment 191 929
Carrying amount at 31 December 31,561 32,124
Current portion included in prepayments, deposits and other receivables (754) (750)
Non-current portion 30,807 31,374
----- End of picture text -----

The leasehold land is held under a medium term lease and is situated in Mainland China.

15. GOODWILL

==> picture [460 x 72] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Cost and net carrying amount at 1 January 28,571 28,571
Cost and net carrying amount at 31 December 28,571 28,571
----- End of picture text -----

Impairment testing of goodwill

Goodwill acquired through business combinations has been allocated to the digital microwave system equipment and the wireless telecommunications equipment cash-generating units for impairment testing.

Annual Report 2012 85

Notes to Financial Statements

31 December 2012

15. GOODWILL (continued)

Impairment testing of goodwill (continued)

The recoverable amount of goodwill is determined based on a value in use calculation. The value in use calculation uses cash fl ow projections based on fi nancial budgets approved by management. The discount rate applied to the cash fl ow projections is approximately 15%.

Management has determined the budgeted gross margins based on past performance and its expectation for market development. The discount rate used is after tax and refl ects specifi c risks relating to the relevant cash-generating units.

The carrying amount of goodwill allocated to each of the cash-generating units is as follows:

==> picture [460 x 141] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Research, development, manufacture and sale of digital microwave system
equipment 16,926 16,926
Trading of wireless telecommunications network enhancement system equipment
and provision of related engineering services 8,193 8,193
Manufacture and sale of wireless telecommunications network enhancement system
equipment and provision of related engineering services 3,452 3,452
Carrying amount at 31 December 28,571 28,571
----- End of picture text -----

16. DEFERRED TAX

The movements in deferred tax assets and liabilities during the year are as follows:

Deferred tax assets

==> picture [460 x 289] intentionally omitted <==

----- Start of picture text -----

Unrealized Products Cash fl ow
profi t Accruals warranty hedge Total
Group HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2011 96,123 26,928 7,802 366 131,219
Deferred tax (charged)/credited to
—
the income statement during the year (note 9) (15,972) 7,827 7,253 (892)
Deferred tax charged to statement of
comprehensive income during the year
— — —
(note 26) (250) (250)
Exchange realignment 4,167 1,506 559 — 6,232
At 31 December 2011 84,318 36,261 15,614 116 136,309
Deferred tax (charged)/credited to the
income statement during the year (note 9) (15,224) 9,445 966 — (4,813)
Deferred tax charged to statement of
comprehensive income during the year
— — —
(note 26) (116) (116)
Exchange realignment 500 405 138 — 1,043
At 31 December 2012 69,594 46,111 16,718 — 132,423
----- End of picture text -----

Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

16. DEFERRED TAX (continued)

Deferred tax liabilities

==> picture [460 x 325] intentionally omitted <==

----- Start of picture text -----

Fair value
adjustments
arising from
Revaluation of acquisition of
properties subsidiaries Total
Group HK$’000 HK$’000 HK$’000
—
At 1 January 2011 8,571 8,571
Deferred tax charged to statement of comprehensive income
—
during the year 4,004 4,004
—
Acquisition of subsidiaries 4,926 4,926
Deferred tax credited to the income statement
—
during the year (note 9) (80) (80)
Exchange realignment 419 — 419
At 31 December 2011 12,994 4,846 17,840
Deferred tax credited to statement of comprehensive income
—
during the year (355) (355)
Deferred tax credited to the income statement
—
during the year (note 9) (159) (159)
At 31 December 2012 12,639 4,687 17,326
----- End of picture text -----

At 31 December 2012, no deferred tax has been recognized for withholding taxes that would be payable on the unremitted earnings that are subject to withholding taxes of the Group’s subsidiaries established in Mainland China. In the opinion of the directors, it is not probable that these subsidiaries will distribute such earnings that are subject to withholding taxes in the foreseeable future.

Annual Report 2012 87

Notes to Financial Statements

31 December 2012

17. INTANGIBLE ASSETS

==> picture [460 x 485] intentionally omitted <==

----- Start of picture text -----

Computer
software and Golf Club
technology Membership Total
Group HK$’000 HK$’000 HK$’000
31 December 2012
Cost at 1 January 2012, net of accumulated amortization 27,102 1,114 28,216
Additions 9,576 — 9,576
—
Amortization provided during the year (7,756) (7,756)
Exchange realignment 221 — 221
At 31 December 2012 29,143 1,114 30,257
At 31 December 2012:
Cost 66,727 1,114 67,841
Accumulated amortization (37,584) — (37,584)
Net carrying amount 29,143 1,114 30,257
31 December 2011
Cost at 1 January 2011, net of accumulated amortization 8,028 1,114 9,142
Additions 4,662 — 4,662
—
Acquisition of subsidiaries 18,820 18,820
—
Amortization provided during the year (5,109) (5,109)
Exchange realignment 701 — 701
At 31 December 2011 27,102 1,114 28,216
At 31 December 2011:
Cost 57,151 1,114 58,265
Accumulated amortization (30,049) — (30,049)
Net carrying amount 27,102 1,114 28,216
----- End of picture text -----

88 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

18. INVESTMENTS IN SUBSIDIARIES

==> picture [460 x 101] intentionally omitted <==

----- Start of picture text -----

2012 2011
Company HK$’000 HK$’000
Unlisted shares, at cost 375,375 375,375
Capital contribution in respect of employee share-based compensation 234,175 145,028
Financial guarantees granted to subsidiaries (note 33) 23,265 27,972
632,815 548,375
----- End of picture text -----

The amounts due from subsidiaries and the amount due to a subsidiary included in the Company’s current assets and current liabilities of HK$1,038,200,000 (2011: HK$1,038,200,000) and HK$299,621,000 (2011: HK$176,320,000), respectively, are unsecured, interest-free and are repayable on demand.

Particulars of the principal subsidiaries are as follows:

==> picture [460 x 309] intentionally omitted <==

----- Start of picture text -----

Nominal
value of Percentage of
Place of issued equity
incorporation/ ordinary/ attributable to
registration registered the Company
Company name and operations share capital Direct Indirect Principal activities
Comba Telecom Systems British US$100 100 — Investment holding
Investments Limited Virgin Islands
Praises Holdings Limited British US$100 — 100 Investment holding
Virgin Islands
Comba Telecom Hong Kong HK$10,002 — 100 Investment holding
Systems Limited and trading
京信通信系統有限公司
Comba Telecom Systems PRC/ HK$45,000,000 — 100 Manufacture and sale of
(Guangzhou) Limited Mainland China wireless telecommunications
京信通信系統 (廣州) network enhancement system
有限公司 equipment and provision of
related engineering services
----- End of picture text -----*

Annual Report 2012 89

Notes to Financial Statements

31 December 2012

18. INVESTMENTS IN SUBSIDIARIES (continued)

==> picture [460 x 562] intentionally omitted <==

----- Start of picture text -----

Nominal
value of Percentage of
Place of issued equity
incorporation/ ordinary/ attributable to
registration registered the Company Principal
Company name and operations share capital Direct Indirect activities
Comba Telecom Technology PRC/ HK$65,000,000 — 100 Manufacture and sale of
(Guangzhou) Limited Mainland China wireless telecommunications
京信通信技術 (廣州) network enhancement system
有限公司 equipment and provision of
related engineering services
Comba Telecom Systems PRC/ US$41,865,000 — 100 Manufacture and sale of
(China) Limited Mainland China wireless telecommunications
京信通信系統 (中國) network enhancement system
有限公司 equipment and provision of
related engineering services
Comba Software Technology PRC/ HK$10,000,000 — 100 Provision of software
(Guangzhou) Limited Mainland China technology services
京信軟件科技 (廣州)
有限公司
Comba Telecom Systems PRC/ RMB30,000,000 — 100 Sale of wireless
Engineering Limited Mainland China telecommunications network
廣州京信通信系統工程 enhancement system
有限公司 equipment and provision of
related engineering services
Guangzhou Telink Telecom PRC/ HK$1,000,000 — 100 Manufacture and sale of
Equipment Ltd. Mainland China wireless telecommunications
廣州泰聯電訊設備 network enhancement system
有限公司 equipment and provision of
related engineering services
Guangzhou Tai Pu Wireless PRC/ RMB1,000,000 — 100 Trading of wireless
Telecommunications Mainland China telecommunications network
Equipment Limited enhancement system
廣州泰普無綫通信設備 equipment and provision of
有限公司 related engineering services
----- End of picture text -----

90 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

18. INVESTMENTS IN SUBSIDIARIES (continued)

==> picture [460 x 548] intentionally omitted <==

----- Start of picture text -----

Nominal
value of Percentage of
Place of issued equity
incorporation/ ordinary/ attributable to
registration registered the Company Principal
Company name and operations share capital Direct Indirect activities
Telink Telecom PRC/ HK$50,000,000 — 100 Manufacture and sale of
(China) Limited Mainland China wireless telecommunications
泰聯電訊 (中國) network enhancement system
有限公司 equipment and provision of
related engineering services
Cascade Technology Limited British US$1 — 100 Investment holding
Virgin Islands
WaveLab Holdings Limited Cayman Islands US$1,000 — 55 Investment holding
WaveLab, Inc. State of Virginia/ US$400,000 — 55 Research and development
United States of of digital microwave system
America equipment
WAVELAB GLOBAL, State of Virginia/ US$500,000 — 55 Trading of digital microwave
Incorporated United States of system equipment
America
WaveLab Asia British US$1 — 55 Investment holding
Holdings Limited Virgin Islands
WaveLab Telecom PRC/ US$3,400,000 — 55 Manufacture and sale of digital
Equipment (Guangzhou) Mainland China microwave system equipment
Limited
波達通信設備 (廣州)
有限公司
WaveLab Software PRC/ US$1,000,000 — 55 Provision of software
Technology (Guangzhou) Mainland China technology services
Limited
波達軟件科技 (廣州)
有限公司
----- End of picture text -----*

Annual Report 2012 91

Notes to Financial Statements

31 December 2012

18. INVESTMENTS IN SUBSIDIARIES (continued)

==> picture [460 x 590] intentionally omitted <==

----- Start of picture text -----

Nominal
value of Percentage of
Place of issued equity
incorporation/ ordinary/ attributable to
registration registered the Company Principal
Company name and operations share capital Direct Indirect activities
WaveLab Limited Hong Kong HK$1 — 55 Investment holding
波達有限公司
Comba Telecom Systems British US$1 — 100 Investment holding
International Limited Virgin Islands
Comba Telecom Limited Hong Kong HK$2 — 100 Trading of wireless
telecommunications network
enhancement system
equipment
Comba Telecom Systems Singapore SG$1,000,002 — 100 Provision of marketing services
(Singapore) Pte. Ltd.
Comba Telecom Co., Ltd. Thailand THB2,000,000 — 100 Trading of wireless
telecommunications network
enhancement system
equipment
Comban Telecom Sweden SEK100,000 — 100 Provision of marketing services
Systems AB
Noblefi eld International British US$1 — 100 Investment holding
Limited Virgin Islands
Comba Telecom Inc. State of Delaware/ US$1 — 100 Research and development
United States of and trading of wireless
America telecommunications network
enhancement system
equipment
Comba Indústria e Brazil BRL13,003,344 — 100 Production and assembling
Comércio de and trading of wireless
Equipamentos de telecommunications network
Telecomunicações Ltda. enhancement system
equipment
----- End of picture text -----

92 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

18. INVESTMENTS IN SUBSIDIARIES (continued)

==> picture [460 x 569] intentionally omitted <==

----- Start of picture text -----

Nominal
value of Percentage of
Place of issued equity
incorporation/ ordinary/ attributable to
registration registered the Company Principal
Company name and operations share capital Direct Indirect activities
Comba Telecom India INR500,000 — 100 Trading of wireless
India Private Limited telecommunications network
enhancement system
equipment
Comba Telecom Macau Macau MOP100,000 — 100 Trading of wireless
Limited telecommunications network
京信通信澳門有限公司 enhancement system
equipment and provision of
related engineering services
PT. Comba Telecom Indonesia US$100,000 — 100 Provision of management
consultancy services of
telecommunications
Comba Telecom & Mexico MXN50,000 — 100 Production, sale, leasing
Sistemas de México, and subleasing of wireless
S.A. de C.V. telecommunications network
enhancement system
equipment
Comba Telecom y Mexico MXN50,000 — 100 Provision of general and
Servicios de México, engineering services
S.A. de C.V.
Comba Telecom, S.L. Spain EUR100,000 — 100 Trading of wireless
telecommunications network
enhancement system
equipment and provision of
related engineering services
Comba Technologies Malaysia RM2 — 100 Trading of wireless
Sdn. Bhd. telecommunications network
enhancement system
equipment and provision of
related engineering services
----- End of picture text -----

Note:

These are wholly-foreign-owned enterprises under PRC law.

Annual Report 2012 93

Notes to Financial Statements

31 December 2012

19. INVENTORIES

==> picture [460 x 129] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Raw materials 168,603 210,640
Project materials 122,008 149,682
Work in progress 168,700 229,129
Finished goods 429,797 484,349
Inventories on site 1,353,901 1,347,244
2,243,009 2,421,044
----- End of picture text -----

20. TRADE RECEIVABLES AND LONG-TERM TRADE RECEIVABLES

==> picture [460 x 129] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Trade receivables 4,605,150 4,404,188
Impairment (17,589) (17,456)
4,587,561 4,386,732
Current portion (4,452,866) (4,268,084)
Long term portion 134,695 118,648
----- End of picture text -----

The Group’s trading terms with its customers are mainly on credit. The credit period is generally for a period of three months and is extendable up to two years depending on the credit worthiness of customers. The balance above also include retention money of approximately 10% to 20% of the total contract sum of each project, and is generally receivable after fi nal certifi cation of products by customers, which would be performed six to twelve months after sale, or upon completion of the one to two years warranty periods granted to customers. The credit terms for major customers are reviewed regularly by senior management. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise the credit risk. Overdue balances are reviewed regularly by senior management.

94 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

20. TRADE RECEIVABLES AND LONG-TERM TRADE RECEIVABLES (continued)

An aged analysis of the trade receivables as at the end of the reporting period, based on the invoice date, is as follows:

==> picture [460 x 199] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Within 3 months 1,928,491 2,334,378
4 to 6 months 723,420 424,407
7 to 12 months 823,579 728,759
More than 1 year 1,129,660 916,644
4,605,150 4,404,188
Provision for impairment (17,589) (17,456)
4,587,561 4,386,732
Current portion (4,452,866) (4,268,084)
Long term portion 134,695 118,648
----- End of picture text -----

The movements in the provision for impairment of trade receivables are as follow:

==> picture [460 x 86] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
At 1 January 17,456 16,693
Exchanged realignment 133 763
17,589 17,456
----- End of picture text -----

The impaired trade receivables relate to customers who have not settled the sales invoices when they fall due and it is expected that a portion of the receivables might not be recoverable. The Group does not hold any collateral or other credit enhancements over these balances.

The aged analysis of the trade receivables that are not considered to be impaired is as follows:

==> picture [460 x 86] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Neither past due nor impaired 4,167,781 4,133,158
Less than 1 year past due 213,497 109,822
4,381,278 4,242,980
----- End of picture text -----

Receivables that were neither past due nor impaired relate to a large number of diversifi ed customers for whom there was no recent history of default.

Annual Report 2012 95

Notes to Financial Statements

31 December 2012

20. TRADE RECEIVABLES AND LONG-TERM TRADE RECEIVABLES (continued)

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a signifi cant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral or other credit enhancements over these balances.

21. NOTES RECEIVABLE

At 31 December 2012 and 2011, none of the notes receivable were endorsed or discounted.

All notes receivables of the Group would mature within six months.

22. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

==> picture [460 x 114] intentionally omitted <==

----- Start of picture text -----

Group Company
2012 2011 2012 2011
HK$’000 HK$’000 HK$’000 HK$’000
Prepayments 227,998 173,020 — —
Deposits 36,606 72,822 — —
Other receivables 316,353 204,968 — 5,454
580,957 450,810 — 5,454
----- End of picture text -----

None of the above assets is either past due or impaired. The fi nancial assets included in the above balances related to receivables for which there was no recent history of default.

23. CASH AND CASH EQUIVALENTS AND RESTRICTED BANK DEPOSITS

==> picture [460 x 157] intentionally omitted <==

----- Start of picture text -----

Group Company
2012 2011 2012 2011
HK$’000 HK$’000 HK$’000 HK$’000
Cash and bank balances 1,536,638 1,114,412 11,022 306
Time deposits 32,017 86,846 — —
1,568,655 1,201,258 11,022 306
Less: Restricted bank deposits
— —
for performance bonds (32,017) (86,846)
Cash and cash equivalents 1,536,638 1,114,412 11,022 306
----- End of picture text -----

At the end of the reporting period, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to approximately HK$1,132,093, 000 (2011: HK$1,007,433,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.

Cash at banks earns interest at fl oating rates based on daily bank deposit rates. The bank balances and time deposits are deposited with creditworthy banks with no recent history of default.

96 Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

24. TRADE AND BILLS PAYABLES

An aged analysis of the trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows:

==> picture [460 x 114] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Within 3 months 1,474,001 1,811,429
4 to 6 months 678,770 614,598
7 to 12 months 759,928 415,022
More than 1 year 368,494 140,114
3,281,193 2,981,163
----- End of picture text -----

The trade payables are non-interest-bearing and are mainly settled for a period of three months and are extendable up to two years.

25. OTHER PAYABLES AND ACCRUALS

==> picture [460 x 114] intentionally omitted <==

----- Start of picture text -----

Group Company
2012 2011 2012 2011
HK$’000 HK$’000 HK$’000 HK$’000
Accruals 262,413 238,476 2,240 2,646
Deposits received 178,132 187,704 — —
Other payables 766,343 760,379 72,915 72,893
1,206,888 1,186,559 75,155 75,539
----- End of picture text -----

Other payables are non-interest-bearing and are mainly settled for a period of three months and are extendable up to two years.

Annual Report 2012 97

Notes to Financial Statements

31 December 2012

26. DERIVATIVE FINANCIAL INSTRUMENT

==> picture [460 x 58] intentionally omitted <==

----- Start of picture text -----

2012 2011
Liabilities Liabilities
Group HK$’000 HK$’000
Interest rate swap — 698
----- End of picture text -----

Interest rate swap — cash fl ow hedge

The Group held an interest rate swap contract designated as a hedge in respect of expected interest payments for fl oating rate debts incurred by the Group.

==> picture [460 x 129] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
—
Total fair value gain (2,275)
Reclassifi cation from other comprehensive income and recognized
in the consolidated income statement — (344)
Loss on expiry of interest rate swap contract 404 —
Income tax effect (note 16) 116 250
Net loss/(gain) on cash fl ow hedge 520 (2,369)
----- End of picture text -----

27. INTEREST-BEARING BANK BORROWINGS

==> picture [460 x 100] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
Analysed into:
Within one year 1,558,656 719,272
In the second year — 404,743
1,558,656 1,124,015
----- End of picture text -----

All the bank loans at 31 December 2012 and 31 December 2011 were unsecured. Loans denominated in Hong Kong dollars amounted to Nil (2011: HK$314,530,000) and loans denominated in United States dollars amounted to HK$1,558,656,000 (2011: HK$809,485,000).

In addition to the short-term interest-bearing facilities, the Group entered into two three-year term loan facility agreements respectively, one of which amounted to US$130,000,000 on 5 July 2010 (the “Facility Agreement 2010”), and another of which amounted to US$210,000,000 on 26 June 2012 (the “Facility Agreement 2012”) (collectively known as the “Facility Agreements”), with certain fi nancial institutions (the “Lenders”).

Under the Facility Agreements, there are specifi c performance obligations that Mr. Fok Tung Ling, who is the controlling shareholder of the Company and Mr. Zhang Yue Jun, who is the substantial shareholder of the Company, shall maintain benefi cial ownership in aggregate, directly or indirectly, of at least 35% of the entire issued shares (of each class) of and equity interests in the Company free from any security. Pursuant to the Facility Agreement 2012, both Mr. Fok Tung Ling and Mr. Zhang Yue Jun shall also maintain the ability in leading the management in determining the directions of overall strategies and business development for the Group. At the date of approval of the audited consolidated fi nancial statements, such obligations have been complied with.

98 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

27. INTEREST-BEARING BANK BORROWINGS (continued)

The Company and three of its wholly-owned subsidiaries, namely Comba Telecom Systems Investments Limited, Praises Holdings Limited and Comba Telecom Limited, were parties to the Facility Agreements who act as guarantors, to guarantee punctual performance of the obligations under the Facility Agreements which, inter alia include, the satisfaction of the fi nancial covenants under the Facility Agreements.

As at 31 December 2012, the Group had fully repaid all outstanding indebtedness under the Facility Agreement 2010.

As at 31 December 2012, the Group had utilized US$171,000,000 (equivalent to HK$1,325,862,000) under the Facility Agreement 2012.

For the year ended 31 December 2012, two of the fi nancial covenants under the Facility Agreement 2012 were not satisfi ed. According to the relevant accounting standard, the long term portion of the loans under the Facility Agreement 2012, which amounted to HK$795,517,000, was classifi ed as a current liability as at 31 December 2012.

Prior to the date of approval of the fi nancial statements, the Group had applied and the Lenders of the Facility Agreement 2012 had granted to the Group waivers from strict compliance with the said fi nancial covenants. All other terms of the Facility Agreement 2012 will continue in full force and effect.

The bank loans bore interest at rates ranging from 1.2% to 3.6% (2011: from 1.1% to 3.3%) per annum.

28. PROVISIONS FOR PRODUCT WARRANTIES

==> picture [460 x 129] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK$’000 HK$’000
At 1 January 69,232 57,038
Additional provisions 53,889 45,401
Amounts utilized during the year (45,458) (36,215)
Exchange realignment 652 3,008
At 31 December 78,315 69,232
----- End of picture text -----

The Group generally provides one to two years warranties to its customers on certain of its products, under which faulty products are repaired or replaced. The amount of provisions is estimated based on sales volumes and past experience of the level of repairs and returns. The estimation basis is reviewed on an ongoing basis and revised where appropriate. During the year, the provisions for product warranties were not discounted as the effect of discounting was not material.

Annual Report 2012 99

Notes to Financial Statements

31 December 2012

29. SHARE CAPITAL

==> picture [460 x 102] intentionally omitted <==

----- Start of picture text -----

2012 2011
Shares HK$’000 HK$’000
Authorized:
5,000,000,000 (2011: 5,000,000,000) ordinary shares of HK$0.10 each 500,000 500,000
Issued and fully paid or credited as fully paid:
1,526,196,229 (2011: 1,526,196,229) ordinary shares of HK$0.10 each 152,620 152,620
----- End of picture text -----

During the years ended 31 December 2011 and 2012, the movements in the Company’s issued capital were as follows:

==> picture [460 x 325] intentionally omitted <==

----- Start of picture text -----

Number of Share
shares Issued Treasury premium
in issue capital shares account Total
HK$’000 HK$’000 HK$’000 HK$’000
—
At 1 January 2011 1,323,051,235 132,305 482,453 614,758
Share Option Scheme
—
— exercise of share options (a) 41,307,499 4,131 45,090 49,221
Share Award Scheme
— —
— shares allotted (b) 26,000,000 2,600 (2,600)
— — —
— shares purchased (c) (7,694) (7,694)
— vested awarded shares transferred to
selected persons (d) — — 860 82,074 82,934
—
Issue of bonus shares (e) 135,837,495 13,584 (227) (13,357)
At 31 December 2011 and 1 January 2012 1,526,196,229 152,620 (9,661) 596,260 739,219
Share Award Scheme
— — —
— shares purchased (c) (5,021) (5,021)
— vested awarded shares transferred to
selected persons (d) — — 312 47,504 47,816
At 31 December 2012 1,526,196,229 152,620 (14,370) 643,764 782,014
----- End of picture text -----

As at 31 December 2012, the total number of issued ordinary shares of the Company was 1,526,196,229 shares (2011: 1,526,196,229 shares) which included 19,017,120 shares (2011: 20,733,270) held under the Share Award Scheme.

100 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

29. SHARE CAPITAL (continued)

Notes:

(a) During the year ended 31 December 2011, the subscription rights attaching to 41,307,499 share options were exercised at the adjusted exercise prices ranging from HK$0.434 to HK$6.570 per share, resulting in the issue of 41,307,499 shares of HK$0.10 each for a total cash consideration, before expenses of HK$38,010,000.
(b) Pursuant to the announcement dated 12 April 2011 and the subsequent extraordinary general meeting of the Company held on 23 May 2011, the Company allotted a total of 26,000,000 ordinary shares to the trustee for the purpose of granting awarded shares under the Share Award Scheme adopted on 25 March 2011.
(c) During the Current Year, the trustee and/or administrator of the Company of the Share Award Scheme (the “Trustee/Administrator”) acquired 1,402,000 shares (2011: 1,062,500 shares) of the Company through purchases on the open market at a total cost of approximately HK$5,021,000 (2011: approximately HK$7,694,000).
(d) During the Current Year, the Trustee transferred 3,118,150 ordinary shares of the Company (2011: 8,596,030 ordinary shares) to the selected persons upon vesting of the awarded shares.
(e) Pursuant to the annual general meeting held on 23 May 2011, a bonus issue of shares on the basis of one share for every ten shares held was approved. 135,837,495 bonus shares were issued under the bonus issue and the amount of HK$13,584,000 was capitalized from the Company’s share premium account and treasury shares. The bonus shares were credited as fully paid and rank pari passu with the then existing shares in all respects.

30. SHARE OPTION AND SHARE AWARD SCHEMES

(a) Share Option Scheme

The Company operates the Share Option Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Share Option Scheme include directors (including independent non-executive directors), employees, holders of any securities, business or joint venture partners, contractors, agents or representatives, persons or entities that provide research, development or technological support or any advisory, consultancy, professional services for the business of the Group, investors, vendors, suppliers, developers or licensors, customers, licencees, wholesalers, retailers, traders or distributors of goods or services of the Group, the Company’s controlling shareholders or companies controlled by the Company’s controlling shareholder. The Share Option Scheme became effective on 20 June 2003 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme, the Share Award Scheme (note 30(b)) and any other incentive or share option schemes of the Company shall not exceed 30% of the shares of the Company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the Share Option Scheme within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Annual Report 2012 101

Notes to Financial Statements

31 December 2012

30. SHARE OPTION AND SHARE AWARD SCHEMES (continued)

(a) Share Option Scheme (continued)

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the price of the Company’s shares at the date of grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 21 days from the date of offer, upon payment of a nominal consideration of HK$10 in total by the grantee. The exercise period of the share options granted is determinable by the directors, and commences after a certain vesting period and ends on a date which is not later than 10 years from the date of offer of the share options.

The exercise price of the share options is determinable by the directors, but may not be less than the higher of: (i) the nominal value of the Company’s shares; (ii) the Stock Exchange closing price of the Company’s shares on the date of offer of the share options; and (iii) the average Stock Exchange closing price of the Company’s shares for the fi ve trading days immediately preceding the date of offer.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

The following share options were outstanding under the Share Option Scheme during the year:

==> picture [437 x 198] intentionally omitted <==

----- Start of picture text -----

2012 2011
Weighted Weighted
average average
exercise price exercise price
of share Number of of share Number of
options share options options share options
HK$ per share ’000 HK$ per share ’000
At 1 January 6.57 34,400 3.48 78,333
Granted during the year 5.66 40,000 — —
Forfeited during the year 6.57 (3,500) 6.57 (1,308)
Exercised during the year — — 0.89 (42,573)
Expired during the year — — 1.22 (52)
At 31 December 6.06 70,900 6.57 34,400
----- End of picture text -----*

The weighted average exercise price of share options per share and the number of share options were adjusted as a result of the bonus issue of shares approved on 23 May 2011 (the “Bonus Issue”).

No options were exercised during the Current Year. The weighted average closing price of the Company’s shares at the dates of exercise of the share options for the year ended 31 December 2011 was HK$7.56.

102 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

30. SHARE OPTION AND SHARE AWARD SCHEMES (continued)

(a) Share Option Scheme (continued)

Movements in the number of the Company’s share options under the Share Option Scheme during the Current Year are as follows:

==> picture [437 x 469] intentionally omitted <==

----- Start of picture text -----

Exercise
price of
Number of share options Date of Exercise share
At Granted Exercised Expired Forfeited At grant of period of options [##]
Name or category 1 January during during during during 31 December share share HK$
of participant 2012 the year the year the year the year 2012 options [#] options per share
Executive Directors
Mr. Tong Chak Wai, Wilson — 500,000 — — — 500,000 12 Jan 12 12 Jan 13- 5.66
11 Jan 15
Mr. Wu Jiang Cheng — 500,000 — — — 500,000 12 Jan 12 12 Jan 13- 5.66
11 Jan 15
Mr. Yan Ji Ci — 500,000 — — — 500,000 12 Jan 12 12 Jan 13- 5.66
11 Jan 15
Mr. Yeung Pui Sang, Simon — 500,000 — — — 500,000 12 Jan 12 12 Jan 13- 5.66
11 Jan 15
Mr. Zhang Yuan Jian — 500,000 — — — 500,000 12 Jan 12 12 Jan 13- 5.66
11 Jan 15
Independent
non-executive Directors
Mr. Liu Cai 242,000 — — — — 242,000 22 Jul 10 22 Jul 11- 6.57 [##]
21 Jul 13
— 100,000 — — — 100,000 12 Jan 12 12 Jan 13- 5.66
11 Jan 15
242,000 100,000 — — — 342,000
Mr. Lau Siu Ki, Kevin 242,000 — — — — 242,000 22 Jul 10 22 Jul 11- 6.57 [##]
21 Jul 13
— 100,000 — — — 100,000 12 Jan 12 12 Jan 13- 5.66
11 Jan 15
242,000 100,000 — — — 342,000
Other employees 33,916,150 — — — (3,499,950) 30,416,200 22 Jul 10 22 Jul 11- 6.57 [##]
In aggregate 21 Jul 13
— 37,300,000 — — — 37,300,000 12 Jan 12 12 Jan 13- 5.66
11 Jan 15
33,916,150 37,300,000 — — (3,499,950) 67,716,200
34,400,150 40,000,000 — — (3,499,950) 70,900,200
----- End of picture text -----

The vesting period of the share options is from the date of grant until the commencement of the exercise period.
The exercise price of HK$6.57 of share options per share was adjusted as a result of the Bonus Issue.

The Company granted 40,000,000 share options on 12 January 2012 with the exercise price of HK$5.66 per share. The closing price of the Company’s shares immediately before the date of such grant was HK$5.51 per share.

Annual Report 2012 103

Notes to Financial Statements

31 December 2012

30. SHARE OPTION AND SHARE AWARD SCHEMES (continued)

(a) Share Option Scheme (continued)

The exercise price and exercise period of the share options outstanding as at the end of the reporting period are as follows:

==> picture [437 x 100] intentionally omitted <==

----- Start of picture text -----

31 December 2012 Adjusted exercise price of
Number of share options share options
’000 HK$ per share Exercise period
30,900 6.570^ 22 July 2011 to 21 July 2013
40,000 5.660 12 January 2013 to 11 January 2015
70,900
----- End of picture text -----

==> picture [437 x 57] intentionally omitted <==

----- Start of picture text -----

31 December 2011 Exercise price of
Number of share options share options
’000 HK$ per share Exercise period
34,400 6.570^ 22 July 2011 to 21 July 2013
----- End of picture text -----

^ The exercise price of the share options was adjusted as a result of the Bonus Issue.

The fair value of the share options granted during the Current Year was HK$48,900,000 (approximately HK$1.22 each).

The fair value of equity-settled share options granted during the Current Year was estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the share options were granted. The following table lists the inputs to the model used:

Dividend yield (%)	2.73
Expected volatility (%)	40
Risk-free interest rate (%)	0.43
Expected life of share options (years)	3
Weighted average share price (HK$ per share)	5.72

The expected life of the share options is based on the historical data over the past three years and is not necessarily indicative of the exercise patterns that may occur. The expected volatility refl ects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

The expense recognized in the consolidated income statement for employee services received during the Current Year is approximately HK$38,495,000 (2011: HK$15,790,000).

104 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

30. SHARE OPTION AND SHARE AWARD SCHEMES (continued)

(a) Share Option Scheme (continued)

At the end of the reporting period, the Company had 70,900,200 share options outstanding under the Share Option Scheme, of which 30,900,200 share options were vested and 40,000,000 share options were unvested. The exercise in full of the remaining share options would, under the present capital structure of the Company, result in the issue of 70,900,200 additional ordinary shares of the Company and additional share capital of HK$7,090,000 and share premium of HK$422,323,000 (before issue expenses).

At the date of approval of these fi nancial statements, the Company had 68,154,300 share options outstanding under the Share Option Scheme, which represented approximately 4.5% of the Company’s shares in issue as at that date.

(b) Share Award Scheme

The Company adopted the Share Award Scheme on 25 March 2011 (the “Adoption Date”). The purposes and objectives of the Share Award Scheme are to recognize the contributions by certain employees and persons to the Group (the “Selected Persons”) and to provide them with incentives in order to retain them for the continual operation and development of the Group and to attract suitable personnel for further development of the Group.

Unless it is early terminated by the board of directors of the Company (the “Board”), the Share Award Scheme shall be valid and effective for a term of 10 years commencing on the Adoption Date.

Pursuant to the Share Award Scheme, (i) awarded shares (the “Awarded Shares”) will be acquired by the Trustee/ Administrator at the cost of the Company at the prevailing market price and be held in trust for the Selected Persons until the end of each vesting period; or (ii) new Awarded Shares may be allotted and issued to the Trustee/Administrator under general mandates granted or to be granted by the Shareholders at general meetings from time to time and be held in trust for the Selected Persons until the end of each vesting period.

The Board shall not make any further award of the Awarded Shares which will result in the nominal value of the shares awarded by the Board under the Share Award Scheme exceeding 5% of the issued share capital of the Company as at the Adoption Date. The maximum number of shares which may be awarded to a Selected Person under the Share Award Scheme shall not exceed 1% of the issued share capital of the Company as at the Adoption Date. The aforesaid limit may be refreshed or amended by approval of the shareholders in a general meeting. Nevertheless, the total number of the Awarded Shares which may be issued under the Share Award Scheme and the exercise of all options to be granted under other incentive and option schemes of the Company (including the Share Option Scheme) as so refreshed shall not exceed 10% of the shares in issue as at the date of approval of the limit. Awarded Shares or options previously granted under the Share Award Scheme or the Share Option Scheme (including those vested, outstanding, cancelled and lapsed) will not be counted for the purpose of calculating the limit as refreshed. The Company will not issue any Awarded Shares under the Share Award Scheme which would result in the total number of the Awarded Shares together with shares which may be issued upon exercise of all outstanding share options granted and yet to be exercised under the Scheme or any other incentive or share option schemes of the Company representing in aggregate over 30% of the shares in issue as at the date of such grant.

Annual Report 2012 105

31 December 2012

Notes to Financial Statements

30. SHARE OPTION AND SHARE AWARD SCHEMES (continued)

(b) Share Award Scheme (continued)

On 12 April 2011, the Board resolved to award 26,000,000 Awarded Shares to 365 Selected Persons under the Share Award Scheme by way of issue and allotment of new Awarded Shares pursuant to the general mandate granted by the shareholders of the Company at the annual general meeting of the Company held on 24 May 2010. Upon issue and allotment of the new Awarded Shares, the Trustee will hold the new Awarded Shares in trust for the Selected Persons and such new Awarded Shares shall be transferred to the Selected Persons upon the vesting conditions will have been met. The number of Awarded Shares granted to each of the Selected Persons is subject to their respective contributions to the Group. Among those 365 Selected Persons, there are 12 Selected Persons who are directors of members of the Group and accordingly connected persons (as defi ned in Chapter 14A of the Listing Rules) to the Company (the “Connected Selected Person(s)”) and the issue and allotment of the 3,332,000 new Awarded Shares to the Connected Selected Persons under the Share Award Scheme were approved by the independent shareholders other than the Connected Selected Persons and their respective associates in accordance with the Listing Rules at the extraordinary general meeting of the Company held on 23 May 2011.

Movements in the number of treasury shares held for the Share Award Scheme and Awarded Shares for the years ended 31 December 2011 and 2012 are as follows:

==> picture [437 x 344] intentionally omitted <==

----- Start of picture text -----

Treasury shares Awarded Shares
held for held for
the Share the Selected
Notes Award Scheme Persons
At 1 January 2012 2,329,170 18,404,100
Purchased at the market 29(c) 1,402,000 —
Lapsed and returned to the Share Award Scheme 897,390 (897,390)
Vested to the Selected Persons 29(d) — (3,118,150)
At 31 December 2012 4,628,560 14,388,560
Treasury shares Awarded Shares
held for held for
the Share the Selected
Notes Award Scheme Persons
— —
At 1 January 2011
Purchased at the market 29(c) 1,062,500 —
—
Newly allotted under the Share Award Scheme 29(b) 26,000,000
Bonus issue of shares 2,266,800 —
Granted to the Selected Persons (28,266,800) 28,266,800
Lapsed and returned to the Share Award Scheme 1,266,670 (1,266,670)
Vested to the Selected Persons 29(d) — (8,596,030)
At 31 December 2011 2,329,170 18,404,100
----- End of picture text -----

The 14,388,560 Awarded Shares outstanding as at 31 December 2012 have 2 remaining vesting dates, which are 12 April 2013 and 12 April 2014. Upon each vesting date, those Awarded Shares will be transferred at no cost to the Selected Persons.

106 Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

31. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on pages 50 and 51 of the fi nancial statements.

Pursuant to the relevant laws and regulations of the PRC, a portion of the profi ts of the Group’s subsidiaries which are established in the PRC has been transferred to the statutory reserve which is restricted as to use.

(b) Company

==> picture [437 x 447] intentionally omitted <==

----- Start of picture text -----

Share Share-based Retained
premium Contributed compensation Capital profi ts/
Notes account surplus reserve reserve (loss) Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 31 December 2010 482,453 373,108 21,386 762 6,271 883,980
Profi t and total comprehensive
income for the year 10 — — — — 185,067 185,067
Share Option Scheme
— exercise of share options 29 45,090 — (11,211) — — 33,879
— value of services 30(a) — — 15,790 — — 15,790
— adjustment arising from lapse of
share options — — (205) — 205 —
— share options cancelled at expiry date — — (7) — 7 —
Share Award Scheme
— value of services — — 145,028 — — 145,028
— vested awarded shares transferred
to Selected Persons 29 82,074 — (82,934) — — (860)
Issue of bonus shares (13,357) — — — — (13,357)
— — — —
Underprovision of fi nal 2010 dividend (4,239) (4,239)
Interim 2011 dividend — — — — (75,743) (75,743)
— — — —
Proposed fi nal 2011 dividend (106,834) (106,834)
At 31 December 2011 596,260 373,108 87,847 762 4,734 1,062,711
Loss and total comprehensive
loss for the year 10 — — — — (8,941) (8,941)
Share Option Scheme
— value of services 30(a) — — 38,495 — — 38,495
— adjustment arising from lapse of
share options — — (1,311) — 1,311 —
Share Award Scheme
— value of services — — 53,793 — — 53,793
— vested awarded shares transferred
to Selected Persons 29 47,504 — (47,816) — — (312)
At 31 December 2012 643,764 373,108 131,008 762 (2,896) 1,145,746
----- End of picture text -----*

The Company’s contributed surplus represents the excess of the fair value of the shares of the subsidiaries acquired pursuant to the Group reorganization before the listing of the company on the mainboard of The Stock Exchange of Hong Kong Limited, over the nominal value of the Company’s shares issued in exchange therefore. Under the Companies Law of the Cayman Islands, a company may make distributions to its members out of the contributed surplus under certain circumstances.

Annual Report 2012 107

Notes to Financial Statements 31 December 2012

32. TRANSFERRED FINANCIAL ASSETS

Financial assets that are not derecognized in their entirety

The Group entered into a trade receivable factoring arrangement (the “Arrangement”) and transferred certain trade receivables (the “Factored Trade Receivables”) to a bank (the “Bank”) with outstanding carrying amounts in aggregate of HK$127,862,000 as at 31 December 2012. The net proceeds from the Bank amounted to HK$112,026,000. Subsequent to the transfer, in accordance with the terms of the Arrangement, the Group was entitled to receive further payments, at an agreed proportion of the settled Factored Trade Receivables, up to a maximum of HK$14,661,000. Except for the rights associated with the further receipts above, the Group does not retain any rights on the use of the trade receivables, including sale, transfer or pledge of the trade receivables to any other third parties.

In the opinion of the directors, the Group transferred substantially all risks and rewards, including credit risks and late payment risks, of a fully proportional share of the Factored Trade Receivables, and as such, derecognized the trade receivables at an amount of HK$113,201,000 and continued to recognize HK$14,661,000 on the consolidated statement of fi nancial position.

33. CONTINGENT LIABILITIES

At the end of the reporting period, contingent liabilities not provided for in the fi nancial statements were as follows:

==> picture [460 x 128] intentionally omitted <==

----- Start of picture text -----

Group Company
2012 2011 2012 2011
HK$’000 HK$’000 HK$’000 HK$’000
Guarantees given to banks in
respect of performance bonds 39,072 93,776 — —
Guarantees given to banks in connection
with facilities granted to subsidiaries — — 2,900,440 1,701,285
39,072 93,776 2,900,440 1,701,285
----- End of picture text -----

As at 31 December 2012, the banking facilities granted to the subsidiaries subject to guarantees given to the banks by the Company and/or certain of its subsidiaries were utilized to the extent of approximately HK$1,564,429,000 (2011: HK$1,126,476,000). The carrying amount of the fi nancial guarantee contracts recognized in the Company’s statement of fi nancial position in accordance with HKAS 39 and HKFRS 4 was HK$23,265,000 (2011: HK$27,972,000). The fi nancial guarantee contracts were eliminated on consolidation.

34. OPERATING LEASE ARRANGEMENTS

As lessee

The Group leases certain of its office premises, warehouses, motor vehicles and staff dormitories under operating lease arrangements. Leases for these properties are negotiated for terms ranging from one to ten years.

108 Comba Telecom Systems Holdings Limited

Notes to Financial Statements 31 December 2012

34. OPERATING LEASE ARRANGEMENTS (continued)

As lessee (continued)

At 31 December 2012, the Group and the Company had total future minimum lease payments under non-cancellable operating leases falling due as follows:

==> picture [460 x 114] intentionally omitted <==

----- Start of picture text -----

Group Company
2012 2011 2012 2011
HK$’000 HK$’000 HK$’000 HK$’000
Within one year 64,953 55,660 — —
In the second to fi fth years, inclusive 48,169 51,129 — —
After fi ve years 3,733 5,865 — —
116,855 112,654 — —
----- End of picture text -----

35. COMMITMENTS

In addition to the operating lease commitments detailed in note 34 above, the Group and the Company had the following capital commitments for the procurement of production and offi ce facilities at the end of the reporting period:

==> picture [460 x 128] intentionally omitted <==

----- Start of picture text -----

Group Company
2012 2011 2012 2011
HK$’000 HK$’000 HK$’000 HK$’000
Contracted, but not provided for:
Buildings 1,825 43,040 — —
Plant and machinery 4,978 — — —
Furniture and fi xtures — 649 — —
6,803 43,689 — —
----- End of picture text -----

36. RELATED PARTY TRANSACTIONS

(a) The Group had no signifi cant transactions with related parties during the year and had no signifi cant outstanding balances with related parties as at the end of the reporting period.

(b) Compensation of key management personnel of the Group:

==> picture [437 x 114] intentionally omitted <==

----- Start of picture text -----

2012 2011
HK$’000 HK$’000
Short term employee benefi ts 22,856 22,508
Pension scheme contributions 333 277
Equity-settled share option expense 2,488 321
Awarded share expense 6,243 11,927
Total compensation paid to key management personnel 31,920 35,033
----- End of picture text -----

The related party transactions in respect of directors’ remuneration as above-mentioned were connected transactions as defi ned in Chapter 14A of the Listing Rules but exempt from the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Annual Report 2012 109

Notes to Financial Statements 31 December 2012

37. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of fi nancial instruments as at the end of the reporting period are as follows:

==> picture [460 x 491] intentionally omitted <==

----- Start of picture text -----

Group 2012 2011
Loans and Loans and
receivables receivables
Financial assets HK$’000 HK$’000
Trade receivables 4,452,866 4,268,084
Long-term trade receivables 134,695 118,648
Notes receivable 63,194 68,472
Financial assets included in prepayments, deposits and other receivables (note 22) 352,959 277,790
Restricted bank deposits 32,017 86,846
Cash and cash equivalents 1,536,638 1,114,412
6,572,369 5,934,252
Group 2012 2011
Financial Financial
liabilities at liabilities at
amortized cost amortized cost
Financial liabilities HK$’000 HK$’000
Trade and bills payables 3,281,193 2,981,163
Financial liabilities included in other payables and accruals (note 25) 766,343 760,379
Derivative fi nancial instruments — 698
Interest-bearing bank borrowings 1,558,656 1,124,015
5,606,192 4,866,255
Company 2012 2011
Loans and Loans and
receivables receivables
Financial assets HK$’000 HK$’000
Due from subsidiaries 1,038,200 1,038,200
Other receivables — 5,454
Cash and cash equivalents 11,022 306
1,049,222 1,043,960
----- End of picture text -----

110 Comba Telecom Systems Holdings Limited

Notes to Financial Statements

31 December 2012

37. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

==> picture [460 x 143] intentionally omitted <==

----- Start of picture text -----

Company 2012 2011
Financial Financial
liabilities at liabilities at
amortized cost amortized cost
Financial liabilities HK$’000 HK$’000
Due to a subsidiary 299,621 176,320
Financial liabilities included in other payables and accruals (note 25) 72,915 72,893
Financial guarantee contracts 23,265 27,972
395,801 277,185
----- End of picture text -----

38. FAIR VALUE AND FAIR VALUE HIERARCHY

The fair values of the fi nancial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

The fair values of cash and cash equivalents, restricted bank deposits, trade receivables, notes receivable, trade and bills payables, fi nancial assets included in prepayments, deposits and other receivables and fi nancial liabilities included in other payables and accruals, approximate to their carrying amounts largely due to the short term maturities of these instruments.

The fair values of the Group’s long-term trade receivables and interest-bearing bank borrowings have been calculated by discounting the expected future cash fl ows using rates currently available for instruments on similar terms, credit risk and remaining maturities.

The Group entered into an interest rate swap transaction with an international bank. The derivative fi nancial instrument, interest rate swap, was measured using valuation techniques similar to a swap model, using present value calculations. The model incorporates various market observable inputs including the forward rates and interest rate curves. The carrying amount of the interest rate swap was the same as its fair value as at 31 December 2011. The interest rate swap contract was expired on 3 July 2012.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of fi nancial instruments:

Level 1: fair values measured based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: fair values measured based on valuation techniques for which all inputs which have a signifi cant effect on the recorded fair value are observable, either directly or indirectly
Level 3: fair values measured based on valuation techniques for which any inputs which have a signifi cant effect on the recorded fair value are not based on observable market data (unobservable inputs)

As at 31 December 2011, the interest rate swap contract measured at fair value held by the Group only represented the derivative fi nancial instrument which belonged to level 2.

The carrying amounts of the Group’s and Company’s fi nancial assets and fi nancial liabilities approximate to their fair values.

Annual Report 2012 111

Notes to Financial Statements 31 December 2012

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal fi nancial instruments comprise interest-bearing bank borrowings, cash and short term deposits. The main purpose of these fi nancial instruments is to provide fi nance for the Group’s operations. The Group has various other fi nancial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

It is, and has been throughout the year under review, the Group’s policy that no trading in fi nancial instruments shall be undertaken.

The main risks arising from the Group’s fi nancial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations with fl oating rates.

The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s loss/profi t before tax and the Group’s equity.

==> picture [460 x 218] intentionally omitted <==

----- Start of picture text -----

Increase/ Increase/ Increase/
(decrease) in (decrease) in (decrease) in
basis points loss before tax equity
HK$’000 HK$’000
2012
United States dollars 50 3,978 —
United States dollars (50) (3,978) —
Increase/ (Decrease)/ Increase/
(decrease) in increase in (decrease) in
basis points profi t before tax equity
HK$’000 HK$’000
2011
United States dollars 50 (2,024) —
United States dollars (50) 2,024 —
----- End of picture text -----

Excluding retained profi ts/loss

112 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currency. Approximately 5.9% (2011: 6.8%) of the Group’s sales are denominated in currencies other than the functional currency of the operating units making the sales, whilst 91.2% (2011: 90.3%) of costs are denominated in the units’ functional currency.

The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in the United States dollars (“US$”) exchange rate, with all other variables held constant, of the Group’s loss/profi t before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity.

==> picture [460 x 216] intentionally omitted <==

----- Start of picture text -----

Increase/ Increase/ Increase/
(decrease) in (decrease) in (decrease) in
US$ rate loss before tax equity
% HK$’000 HK$’000
2012
If Hong Kong dollar weakens against US$ 5 59,080 —
—
If Hong Kong dollar strengthens against US$ (5) (59,080)
Increase/ (Decrease)/ Increase/
(decrease) in increase in (decrease) in
US$ rate profi t before tax equity
HK$’000 HK$’000
2011
If Hong Kong dollar weakens against US$ 5 (34,531) —
—
If Hong Kong dollar strengthens against US$ (5) 34,531
----- End of picture text -----

Excluding retained profi ts/loss

Credit risk

In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews regularly the recoverable amount of each of the individual trade receivables to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is minimal. The Group trades only with recognized and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not signifi cant.

The credit risk of the other fi nancial assets of the Group, which comprise cash and cash equivalents, notes receivable and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Since the Group trades only with recognized and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by counterparty, by geographical region and by industry sector. At the end of the reporting period, the Group had certain concentrations of credit risk as 26% (2011: 28%) and 84% (2011: 83%) of the Group’s trade receivables were due from the Group’s largest customer and the fi ve largest customers, respectively.

Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables and long-term trade

Annual Report 2012 113

Notes to Financial Statements

31 December 2012

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its fi nancial instruments and fi nancial assets (e.g., trade receivables) and projected cash fl ows from operations.

The Group’s objective is to maintain a balance between continuity of funding and fl exibility through the use of interest-bearing bank borrowings. In addition, banking facilities have been put in place for contingency purposes. The maturity profi le of the Group’s fi nancial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, is as follows:

==> picture [460 x 484] intentionally omitted <==

----- Start of picture text -----

2012
Within 1 year 1 to 5 years Total
Group HK$’000 HK$’000 HK$’000
Interest-bearing bank borrowings 1,560,798 — 1,560,798
Trade and bills payables 3,281,193 — 3,281,193
Other payables 766,343 — 766,343
5,608,334 — 5,608,334
2011
Within 1 year 1 to 5 years Total
Group HK$’000 HK$’000 HK$’000
Interest-bearing bank borrowings 719,272 404,743 1,124,015
—
Trade and bills payables 2,981,163 2,981,163
—
Other payables 760,379 760,379
4,460,814 404,743 4,865,557
2012
Within 1 year 1 to 5 years Total
Company HK$’000 HK$’000 HK$’000
Due to a subsidiary 299,621 — 299,621
Other payables 72,915 — 72,915
372,536 — 372,536
2011
Within 1 year 1 to 5 years Total
Company HK$’000 HK$’000 HK$’000
—
Due to a subsidiary 176,320 176,320
—
Other payables 72,893 72,893
—
249,213 249,213
----- End of picture text -----

Details of the interest-bearing bank borrowings are set out in note 27 to the fi nancial statements.

114 Comba Telecom Systems Holdings Limited

31 December 2012

Notes to Financial Statements

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Capital management

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2012 and 31 December 2011.

The Group monitors capital using a gearing ratio, which is interest-bearing bank borrowings divided by the total assets. The gearing ratios as at the end of the reporting periods were as follows:

==> picture [460 x 103] intentionally omitted <==

----- Start of picture text -----

2012 2011
Group HK’000 HK’000
Interest-bearing bank borrowings 1,558,656 1,124,015
Total assets 10,091,711 9,581,332
Gearing ratio 15.4% 11.7%
----- End of picture text -----

40. EVENT AFTER THE REPORTING PERIOD

No signifi cant event occurred after the end of the reporting period and up to the date of approval of the consolidated fi nancial statements.

41. COMPARATIVE AMOUNTS

During the year, certain comparative amounts have been adjusted to conform with the Current Year’s presentation.

42. APPROVAL OF THE FINANCIAL STATEMENTS

The fi nancial statements were approved and authorized for issue by the Board on 22 March 2013.

Annual Report 2012 115

Five Year Financial Summary

A summary of the results and of the assets, liabilities and non-controlling interests of the Group for the last fi ve fi nancial years, as extracted from the published audited fi nancial statements and restated/reclassifi ed upon the adoption of the new and revised HKFRSs as appropriate, is set out below:

==> picture [483 x 512] intentionally omitted <==

----- Start of picture text -----

Year ended 31 December
2012 2011 2010 2009 2008
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
RESULTS
REVENUE 6,332,867 6,354,218 5,191,358 4,439,991 2,525,895
Cost of sales (4,716,988) (4,027,521) (3,251,658) (2,758,068) (1,579,861)
Gross profi t 1,615,879 2,326,697 1,939,700 1,681,923 946,034
Other income and gains 68,854 110,269 44,499 38,807 19,083
Research and development costs (376,766) (361,914) (210,912) (167,024) (132,253)
Selling and distribution expenses (503,749) (437,088) (265,622) (234,153) (185,811)
Administrative expenses (904,640) (830,714) (627,514) (544,051) (370,112)
Other expenses (5,073) (1,331) (2,631) (10,171) (3,554)
Finance costs (42,635) (29,403) (20,790) (12,722) (13,405)
(LOSS)/PROFIT BEFORE TAX (148,130) 776,516 856,730 752,609 259,982
Income tax expense (67,515) (121,772) (119,540) (142,291) (27,493)
(LOSS)/PROFIT FOR THE YEAR (215,645) 654,744 737,190 610,318 232,489
Attributable to:
Owners of the parent (202,364) 659,084 724,326 564,500 227,512
Non-controlling interests (13,281) (4,340) 12,864 45,818 4,977
(215,645) 654,744 737,190 610,318 232,489
TOTAL ASSETS 10,091,711 9,581,332 7,262,426 5,725,107 3,452,397
TOTAL LIABILITIES (6,229,552) (5,498,508) (3,953,401) (3,131,992) (1,463,390)
NON-CONTROLLING INTERESTS (56,537) (68,760) (69,501) (56,773) (14,468)
3,805,622 4,014,064 3,239,524 2,536,342 1,974,539
----- End of picture text -----

116 Comba Telecom Systems Holdings Limited

==> picture [212 x 115] intentionally omitted <==

AI assistant

Comba Telecom Systems Holdings Limited — Annual Report 2012

50537_rns_2013-04-25_1f95444d-2b6f-48e9-9c99-59d7f1281443.pdf

Company Profi le 公司概況

Contents

Corporate Information

REGISTERED OFFICE

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

COMPANY SECRETARY

AUDIT COMMITTEE AND REMUNERATION COMMITTEE

NOMINATION COMMITTEE

PRINCIPAL BANKERS

AUTHORIZED REPRESENTATIVES

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Corporate Information

Financial Summary

Financial Summary

FINANCIAL SUMMARY

KEY FINANCIAL FIGURES

Corporate Milestone 2012

Chairman’s Statement

Mr. Fok Tung Ling Chairman

Chairman’s Statement

Chairman’s Statement

Chairman’s Statement

Management Discussion and Analysis

Mr. Zhang Yue Jun Vice Chairman and President

By customers

BUSINESS AND FINANCIAL REVIEW

Revenue

Management Discussion and Analysis

Management Discussion and Analysis

By businesses

Gross profi t

Management Discussion and Analysis

Research and development costs

Selling and distribution expenses

Administrative expenses

Awarded shares expenses

Management Discussion and Analysis

Finance costs

Operating loss

Tax

Net loss

Cost saving program

Management Discussion and Analysis

PROSPECTS

Economic environment

Industry landscape

Opportunities ahead

Management Discussion and Analysis

Wireless Access

IB-WAS

Management Discussion and Analysis

WLAN (WiFi)

Wireless Enhancement

Antennas and Subsystems

Management Discussion and Analysis

Satellite emergency communications

Wireless Transmission

Digital Microwave Systems

Services

Management Discussion and Analysis

Conclusion

LIQUIDITY, FINANCIAL RESOURCES & CAPITAL STRUCTURE

Management Discussion and Analysis

MATERIAL ACQUISITIONS AND DISPOSALS

CHARGE ON ASSETS

CONTINGENT LIABILITIES

EMPLOYEES AND REMUNERATION POLICIES

Directors and Senior Management

DIRECTORS

Executive Directors

Directors and Senior Management

Directors and Senior Management

Directors and Senior Management

Independent Non-executive Directors

Directors and Senior Management

Directors and Senior Management

Comba Telecom Systems Holdings Limited Annual Report 2012