THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in VST Holdings Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular sets out the information with respect to the very substantial acquisition and is for information only and does not constitute an intention or offer to acquire, purchase or subscribe for any securities.

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(Stock Code: 856)

PROPOSED VERY SUBSTANTIAL ACQUISITION AGREEMENT RELATING TO THE CONDITIONAL SALE AND PURCHASE OF SHARES IN ECS HOLDINGS LIMITED AND

POSSIBLE UNCONDITIONAL MANDATORY GENERAL CASH OFFER IN SINGAPORE

by

ABN AMRO BANK N.V., SINGAPORE BRANCH for and on behalf of

VST HOLDINGS LIMITED or its wholly-owned subsidiary

to acquire all of the issued and paid-up ordinary shares in the capital of ECS HOLDINGS LIMITED

(other than those already owned, controlled or agreed to be acquired by the Offeror and parties acting in concert with it)

Financial Adviser to the Company

A letter from the board of directors of VST Holdings Limited is set out on pages 5 to 21 of this circular.

A notice convening the extraordinary general meeting of VST Holdings Limited to be held at 10:30 a.m. on 23 October 2007 at the Dynasty Club, 7th Floor, South West Tower, Convention Plaza, 1 Harbour Road, Hong Kong, is set out on pages 235 to 236 of this circular. If you are unable to attend the extraordinary general meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon. In order to be valid, the proxy form must be deposited by hand or post to the Company’s Hong Kong branch share registrar, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the extraordinary general meeting or adjourned meeting or not less than 24 hours before the time appointed for taking the poll (as the case may be). If the proxy form is signed by a person under a power of attorney or other authority, a notarially certified copy of that power of attorney or authority shall be deposited at the same time as mentioned in the proxy form. Completion and return of the proxy form will not preclude you from subsequently attending and voting at the extraordinary general meeting or any adjournment thereof should you so wish.

For identification only

2 October 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . . .	22
Appendix II – Financial Information of the ECS Group. . . . . . . . . . . . . . . .	72
Appendix III – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	229
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	235

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following words and expressions have the following meanings:

“Acquisition” the acquisition of the ECS Shares from the Vendors pursuant to the Agreement and from ECS Shareholders other than the Vendors by way of making the Offer to such ECS Shareholders in accordance with the Singapore Code

“Agreement”	the agreement dated 7 August 2007 entered into between	the agreement dated 7 August 2007 entered into between
	the Vendors and the Company for the sale and purchase of
	the Sale Shares
“Announcement”	the announcement relating to the Acquisition dated 7
	August 2007 issued by the Company
“Board”	the board of directors of the Company
“Bridge Loan”	bridge loan facility of up to HK$1,000,000,000 expected
	to be granted to the Company for financing	the
	Acquisition by ABN AMRO Bank N.V., Hong Kong
	branch
“Business Day”	a day (excluding Saturdays, Sundays and public holidays)
	on which banks generally are open in Singapore for	the
	transaction of normal banking business
“Company”	VST Holdings Limited, a company incorporated	in
	Cayman Islands with limited liability, the shares of which
	are listed on the main board of the Stock Exchange
“completion of the Agreement”	completion of the sale and purchase of the Sale Shares
	pursuant to the Agreement
“Conditions Precedent”	the conditions precedent to the completion of	the
	Agreement
“Consideration”	the total consideration payable by the Company to	the
	Vendors in respect of the Sale Shares pursuant to	the
	Agreement
“Deposit”	has the meaning as defined in this circular
“Directors”	directors of the Company for the time being

– 1 –

DEFINITIONS

“ECS”	ECS Holdings Limited, a company incorporated in
	Singapore and whose shares are listed on the SGX-ST
	Mainboard
“ECS Annual Report”	the audited annual report of ECS for the year ended 31
	December 2006 published by ECS
“ECS Group”	ECS and its subsidiaries
“ECS Options”	an aggregate of 20,299,000 (as at the date of the
	Announcement) outstanding options granted by ECS
	under the ECS Share Option Scheme II of ECS adopted
	on 13 December 2000 each conferring on the grantee
	thereof the right to subscribe for one new ECS Share at
	the exercise price ranging from S$0.41 (approximately
	HK$2.11) to S$0.72 (approximately HK$3.71)
“ECS Share(s)”	ordinary share(s) with par value of S$0.10 each in the
	capital of ECS
“ECS Shareholder(s)”	holder(s) of ECS Shares
“EGM”	extraordinary general meeting of the Company
“Enlarged Group”	the Group and the ECS Group
“Escrow Agreement”	the agreement dated 7 August 2007 entered into among
	the Company, Vendors and an escrow agent in respect of
	the holding of the Deposit by the escrow agent pursuant
	to the terms and conditions thereof
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Hong Kong Takeovers Code”	The Codes on Takeovers and Mergers and Share
	Repurchases of Hong Kong
“Independent Third Party”	a third party independent from and not connected with the
	directors, the chief executive or the substantial
	shareholders of the Company or its subsidiaries and/or
	their respective associates (as defined in the Listing
	Rules)

– 2 –

DEFINITIONS

“Latest Practicable Date”	25 September 2007, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Longstop Date”	30 October 2007, being the date falling 12 weeks from
	the date of the Agreement
“Management Vendors”	Tay Eng Hoe, Narong Intanate and Foo Sen Chin, who are
	some of the Vendors
“Offer”	the mandatory unconditional cash offer to acquire all the
	ECS Shares (other than those already owned, controlled
	or agreed to be acquired by the Offeror and parties acting
	in concert with it)
“Offer Announcement”	the announcement to be issued by the Offeror in
	Singapore in relation to the making of the Offer after
	obtaining of Shareholders’ Approval and completion of
	the Agreement
“Offer Document”	the document to be issued by or on behalf of the Offeror
	to all holders of ECS Shares in accordance with the
	Singapore Code containing, inter alia, details of the
	Offer, the acceptance and transfer forms, and the terms
	and conditions of the Offer
“Offeror”	the Company or its wholly-owned subsidiary which is to
	make the Offer
“PRC”	People’s Republic of China
“S$”	Singapore dollars, the lawful currency of Singapore
“Sale Price”	S$0.668 (or approximately HK$3.44) being the price per
	ECS Share payable by the Company for the purchase of
	the Sale Shares from the Vendors pursuant to the
	Agreement
“Sale Shares”	an aggregate of 191,604,009 ECS Shares to be sold and
	transferred by the Vendors to the Company pursuant to
	the Agreement
“SEHK Confirmation”	one of the Conditions Precedent as defined in this
	circular

– 3 –

DEFINITIONS

“SFO”	the Securities and Futures Ordinance, Chapter 571 of the
	laws of Hong Kong
“SGX-ST”	Singapore Exchange Securities Trading Limited
“Shareholder(s)”	holder(s) of VST Shares
“Shareholders’ Approval”	the passing of a resolution by the Shareholders approving
	the Agreement, the making of the Offer and the
	Acquisition contemplated thereunder at the EGM
	convened for this purpose
“Singapore”	The Republic of Singapore
“Singapore Code”	The Singapore Code on Take-Overs and Mergers
“Singapore GAAP”	generally accepted accounting principles applicable in
	Singapore
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Third Party Consents”	one of the Conditions Precedent as defined in this
	circular
“Vendors”	Glorious Success Limited, ST Electronics (Info-Software
	Systems) Pte. Ltd., Sengin Sdn Bhd, V Investment
	Holdings Limited, Pacific City International Holdings
	Limited, Lin Chien, Liu Wei, Tay Eng Hoe, Narong
	Intanate, Foo Sen Chin and Foong Kam Tho who are ECS
	Shareholders and have agreed to sell the Sale Shares to
	the Company pursuant to the Agreement
“VST Share(s)”	ordinary share(s) of HK$0.10 each in the share capital of
	the Company
“Waiver”	a waiver from strict compliance with certain provisions
	of the Listing Rules relating to disclosure of certain
	information in this circular granted by the Stock
	Exchange as detailed in the section “Further Information
	and Waiver from Strict Compliance with the Listing
	Rules” in this circular

The exchange rate of S$1.00 to HK$5.1549 is used throughout this circular for illustration purposes. No representation is made as to whether S$ has been/can be converted into HK$ at such rate or any other rate.

– 4 –

LETTER FROM THE BOARD

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(Stock Code: 856)

Executive Directors:

Mr. Li Jialin (Chairman) Mr. William Choo

Registered office:

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

Independent Non-Executive Directors:

Mr. Ni Zhenwei Dr. Chan Po Fun Peter Madam Hui Hiu Fai Mr. Li Wei

Principal place of business: Unit 1901, 19/F, West Tower Shun Tak Centre 168 Connaught Road Central Hong Kong

2 October 2007

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION

INTRODUCTION

In the Announcement, the Board announced that:

(1) On 7 August 2007 the Company and the Vendors entered into the Agreement to purchase 191,604,009 ECS Shares representing approximately 52.5% of the entire issued capital of ECS at a price per Sale Share of S$0.668 (or approximately HK$3.44). Completion of the sale and purchase of the Sale Shares is subject to certain Conditions Precedent including obtaining the Shareholders’ Approval. The total consideration payable in cash to the Vendors for the Sale Shares is approximately S$127,990,000 (or approximately HK$659,776,000).
(2) Pursuant to the Agreement, each of Li Jialin, L&L Limited, Liu Li, CKC Holdings Limited and Cheng Kam Chung then collectively holding approximately 56.29% of the entire issued share capital of the Company has executed an irrevocable letter of undertaking to undertake to use their best endeavours to procure the holding of an
For identification only

– 5 –

LETTER FROM THE BOARD

EGM no later than eleven (11) weeks from the date of the Agreement and to exercise or procure the exercise at the EGM and such adjournments thereof, all voting rights attached to the VST Shares held by them in favour of the resolution approving the transactions contemplated by the Agreement and the Offer and any related resolutions necessary or expedient for such purposes.

(3) Upon obtaining the Shareholders’ Approval and completion of the Agreement, the Offeror will be under an obligation to make, and will make, through ABN AMRO Bank N.V., Singapore branch, its financial adviser in Singapore, a mandatory unconditional cash offer in Singapore to acquire all the issued and paid-up ECS Shares (other than those already owned, controlled or agreed to be acquired by the Offeror and parties acting in concert with it) in accordance with the Singapore Code.
(4) The Offer, if made, will be on the basis of S$0.668 (or approximately HK$3.44) in cash for each ECS Share which is the same as the Sale Price. Assuming that the Offer is accepted in full and all holders of the ECS Options will exercise their ECS Options in full, at see through pricing, prior to the close of the Offer, the aggregate value of the consideration payable by the Offeror pursuant to the Offer, when made, would be approximately S$118,749,000 (or approximately HK$612,139,000).
(5) As the Acquisition constitutes a very substantial acquisition of the Company under the Listing Rules, the Agreement, the making of the Offer, the Acquisition, and the transactions contemplated thereunder is subject to the approval of the Shareholders at an EGM. The Company will convene an EGM to seek such approval.

The purpose of this circular is to provide you with further details of the Agreement, the Offer, the Acquisition, and the transactions contemplated thereunder and other information in compliance with the requirements of the Listing Rules.

THE AGREEMENT

Parties

(i) Purchaser – the Company; and

(ii) Vendors – Glorious Success Limited ST Electronics (Info-Software Systems) Pte. Ltd. Sengin Sdn Bhd V Investment Holdings Limited Pacific City International Holdings Limited Lin Chien, a director of ECS Liu Wei, an executive director of ECS Tay Eng Hoe, an executive director of ECS Narong Intanate, an executive director of ECS Foo Sen Chin, an executive director of ECS Foong Kam Tho

– 6 –

LETTER FROM THE BOARD

The Vendors are all ECS Shareholders. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Vendors and their ultimate beneficial owners are Independent Third Parties and none of them holds any VST Shares.

Date of the Agreement

7 August 2007

Purchase of Sale Shares

Pursuant to the Agreement, the Vendors have agreed to sell and the Company has agreed to purchase, subject to fulfillment of the Conditions Precedent, a total of 191,604,009 ECS Shares, representing approximately 52.5% of the entire issued share capital of ECS, held by the Vendors.

Consideration

The price per Sale Shares is S$0.668 (or approximately HK$3.44) and accordingly the total consideration payable in cash to the Vendors for the Sale Shares is approximately S$127,990,000 (or approximately HK$659,776,000).

The Sale Price was arrived at on an arm’s length basis and determined by reference to the average closing price of ECS Shares as quoted on the SGX-ST for the last 20 trading days prior to the date of the Agreement plus a premium of approximately 10% as agreed after extensive negotiations. The Company believes that the premium is reasonable in order to secure the Vendors to sell the Sale Shares (which represent more than 50% of the entire issued share capital of ECS) and in view of the benefit that the Company may derive from the Acquisition as more particularly described in the paragraph headed “Reasons For and Benefits of the Acquisition”.

The Sale Price represents

(a) a premium of approximately 4.4% over the closing price of S$0.640 per ECS Share as quoted on the SGX-ST on the Latest Practicable Date;
(b) a premium of approximately 6.0% over the closing price of S$0.630 per ECS Share as quoted on the SGX-ST on 3 August 2007, being the last day on which the ECS Shares were traded prior to the date of the Announcement;
(c) a premium of approximately 10.2% over the average closing price of S$0.606 per ECS Share as quoted on the SGX-ST for the last five trading days up to and including 3 August 2007;

– 7 –

LETTER FROM THE BOARD

(d) a premium of approximately 11.1% over the average closing price of S$0.602 per ECS Share as quoted on the SGX-ST for the last ten trading days up to and including 3 August 2007;
(e) a premium of approximately 10.4% over the average closing price of S$0.605 per ECS Share as quoted on the SGX-ST for the last twenty trading days up to and including 3 August 2007; and
(f) a premium of approximately 27.8% over the net asset value of the ECS Group as at 31 December 2006.

Deposit

Pursuant to the Agreement, the Company has paid to the Vendors’ solicitors to hold in escrow a deposit of 10% of the Consideration (the “ Deposit ”) as security for performance of its obligations under the Agreement. Subject to the Conditions Precedent (other than the Condition Precedent relating to Shareholders’ Approval), provided that where any Third Party Consent is required to be applied for by the Company, the Company has made such application(s), having been fulfilled or waived on or before the Longstop Date (as may be extended in accordance with the Agreement), in the event that completion of the Agreement does not take place for any other reason whatsoever by the Longstop Date (as may be extended in accordance with the Agreement) other than as a result of (a) any default or breach of the terms of the Agreement by any Vendor; or (b) the Vendors and the Company having terminated the Agreement, the Vendors shall be entitled to forfeit the Deposit together with bank interest thereon (if any) to be generated from the accounts held by the Vendors’ solicitors as escrow agent. The Deposit together with interest shall be refunded to the Company in any other cases if the Conditions Precedent are not satisfied or waived by the Longstop Date.

Financing

The Company will finance the Consideration from bank borrowings including the Bridge Loan, out of its own internal resources, by way of placing of new VST Shares, issue of convertible securities and/or a combination of any of the foregoing. Details of the combination of the funding have not yet been determined as at the date of this circular. The Directors are of the view that the Company will have sufficient financial resources to complete the Agreement and that the completion of the Agreement will not have any adverse impact on the Company’s financial position or business operation. The Company does not intend to, for the purpose of financing the entire Acquisition, issue new VST Shares or any convertible securities which may result in a change of control (as defined in the Hong Kong Takeovers Code) of the Company. Should there be such a change of control, the Stock Exchange reserves the right to consider whether the provisions of Chapter 14 of the Listing Rules relating to reverse takeovers should apply to the Acquisition.

– 8 –

LETTER FROM THE BOARD

Conditions Precedent

Completion of the sale and purchase of the Sale Shares shall be conditional upon the following conditions having been fulfilled (or waived):

(a) the Stock Exchange having confirmed to the Company that it has no further comments on the circular relating to the Agreement and the Offer to be despatched to the Shareholders for approving the same as a very substantial acquisition pursuant to Chapter 14 of the Listing Rules (“ SEHK’s Confirmation ”);
(b) the Shareholders’ Approval at an EGM for the purposes of tabling such resolution to be convened within four weeks from the date of the SEHK’s Confirmation;
(c) all necessary consents, approvals and waivers from any relevant governmental or regulatory authority or agency for the transactions contemplated under the Agreement having been obtained, and such consents, approvals and waivers not having been amended or revoked before completion of the Agreement or the Longstop Date (whichever is the earlier), and if any such consents, approvals or waivers are subject to conditions, such conditions being acceptable to the Vendors and the Company (“ Third Party Consents ”);
(d) all representations, undertakings and warranties of the Vendors and the Company under the Agreement being complied with, true, complete, accurate and correct as at the date of the Agreement and as at completion of the Agreement or the Longstop Date (whichever is the earlier);
(e) no relevant authority taking, instituting, implementing or threatening to take, institute or implement any action, proceeding, suit, investigation, inquiry or reference, or made, proposed or enacted any statute, regulation, decision, ruling, statement or order or taken any steps, and there not continuing to be in effect or outstanding any statute, regulation, decision, ruling, statement or order which would or might:
(i) make the transactions contemplated under the Agreement void, illegal and/or unenforceable or otherwise restrict, restrain, prohibit or otherwise frustrate or be adverse to the same; and/or
(ii) render the Company unable to acquire all or any of the Sale Shares or unable to control the ECS Group;
(f) there not having been after the date of the Agreement and prior to completion of the Agreement or the Longstop Date (whichever is the earlier):
(i) any allotment or issue of ECS Shares or other securities convertible into ECS Shares, or grant of options or other rights to subscribe for ECS Shares by ECS, other than ECS Shares to be issued as a result of the exercise of any options by any person(s) other than the Vendors;

– 9 –

LETTER FROM THE BOARD

(ii) any disposal by ECS or its subsidiaries (other than disposals which are in or in connection with the ordinary course of the ECS Group’s business) of any assets which are material or substantial in the context of ECS and its subsidiaries taken as a whole or which would (regardless of whether or not they are transactions in the ordinary course of business) fall within the relevant thresholds in Rules 1013 or 1015 of the Listing Manual of SGX-ST; or
(iii) any declaration of any dividend or other distribution (whether in cash or otherwise) by ECS;
(g) a suspension in trading in the ECS Shares not any time prior to completion of the Agreement or the Longstop Date (whichever is the earlier) being imposed by the SGX-ST for any reason whatsoever other than at the request of ECS for purposes of releasing announcements; and
(h) the Sale Shares representing not less than 30.1% of the issued ordinary shares of ECS (assuming that all options held by persons other than the Vendors have been exercised in full) as at completion of the Agreement or the Longstop Date (whichever is the earlier).

If any of the Conditions Precedent has not been fulfilled (or waived) on or before the Longstop Date, the parties shall consult in good faith to determine whether the sale and purchase of the Sale Shares may proceed by alternative means or methods or to extend the Longstop Date, failing which the Agreement shall automatically terminate and no party shall have any claim of any nature whatsoever against any other party under the Agreement (save in respect of any antecedent breaches or any other rights and liabilities of the parties relating to the Deposit or which have accrued prior to termination). The Company shall be entitled to waive any of the Conditions Precedent under items (c) to (h) above other than those relating to SEHK Confirmation and the Shareholders’ Approval and those not in respect of the Vendors’ representations, undertakings and warranties, either in whole or in part. The Vendors shall be entitled to waive the Condition Precedent under item (d) above only in respect of the Purchaser’s representations, undertakings and warranties.

Based on information available to the Company having made all reasonable enquiries by the Directors as of the date hereof, no consents, waivers or approvals for the Acquisition from the ECS Shareholders or the SGX-ST should be required for fulfilling the Conditions Precedent relating to the Third Party Consents referred to item (c) above.

Completion

Subject to the Conditions Precedent (other than those relating to the Shareholders’ Approval and Third Party Consents) being satisfied, fulfilled and/or waived as at completion of the Agreement, completion of the Agreement shall take place on the date falling five (5) Business Days after the Conditions Precedent relating to the Shareholders’ Approval and Third Party Consents are satisfied and fulfilled but in any event no later than the date falling five (5) weeks from the date of SEHK’s Confirmation and before the expiration of the Longstop Date or such other date as the parties may agree on in writing. Both the Agreement and the Offer have to be approved by the Shareholders in order to satisfy the Condition Precedent relating to the Shareholders’ Approval. If only the Agreement or the Offer is approved by the Shareholders, neither the Agreement nor the Offer will be proceeded with.

– 10 –

LETTER FROM THE BOARD

Other Material Terms

Each of the Management Vendors (namely Tay Eng Hoe, executive director and group CEO of ECS, Narong Intanate, executive director of ECS, and Foo Sen Chin, executive director and group human resource director of ECS) has undertaken to the Company that save for the prior written consent of the Company, he shall not terminate his employment with any member of the ECS Group for a period commencing on the date of the Agreement and ending on the date falling one year after the date of completion of the Agreement and that he will not compete with the ECS Group during the period starting on the date of the Agreement and terminating 12 months from the date on which the relevant Management Vendor shall cease to be employed by the ECS Group subject to certain exceptions.

Undertaking by Certain Shareholders

Pursuant to the Agreement, each of Li Jialin, L&L Limited, Liu Li, CKC Holdings Limited and Cheng Kam Chung, then collectively holding approximately 56.29% of the entire issued share capital of the Company, has executed an irrevocable letter of undertaking to undertake, among others:

(i) to use their best endeavours to procure the holding of an EGM no later than eleven (11) weeks from the date of the Agreement; and
(ii) to exercise or procure the exercise at the EGM and such adjournments thereof, all voting rights attached to the VST Shares held by them in favour of the resolution approving the transactions contemplated by the Agreement and the Offer and any related resolutions necessary or expedient for such purposes.

THE OFFER

Upon obtaining the Shareholders’ Approval and completion of the Agreement, the Offeror will be under an obligation to make, and will make, through ABN AMRO Bank N.V., Singapore branch, its financial adviser in Singapore, a mandatory unconditional cash offer in Singapore to acquire all the issued and paid-up ECS Shares (other than those already owned, controlled or agreed to be acquired by the Offeror and parties acting in concert with it) in accordance with the Singapore Code. The Offer, when made, will be unconditional in all respects and in accordance with the relevant rules and regulations of Singapore. The Offeror will make the Offer Announcement in Singapore in relation to the making of the Offer in accordance with the Singapore Code. The ECS Shares are to be acquired fully paid and free from all liens, charges, pledges and other encumbrances and together with all rights, benefits and entitlements attached thereto as of the date of the Offer Announcement and thereafter attaching thereto, including the right to all dividends, rights and other distributions (if any) declared thereon or that have a record date on or after the date of the Offer Announcement.

– 11 –

LETTER FROM THE BOARD

As of the date of the Announcement, a total of 365,085,174 ECS Shares were in issue, of which 173,481,165 ECS Shares were owned by ECS Shareholders (excluding ECS Shares owned by the Vendors) which will be subject to the Offer. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, such ECS Shareholders and their ultimate beneficial owners are Independent Third Parties and do not hold any VST Shares.

ECS Options

As at the date of the Announcement, there were ECS Options outstanding with respect to approximately 20,299,000 ECS Shares (equivalent to approximately 5.6% of all the ECS Shares in issue) granted under the ECS Share Option Scheme II. Under the rules of the Share Option Scheme II, the ECS Options are not freely transferable by the holders of the ECS Options. However, the Offeror, will, subject to and in accordance with the provisions of the Singapore Code, make an offer to acquire the ECS Options on a see-through price basis to the holders of the ECS Options if the Offer is made. To the best knowledge, information and belief of the Directors having made all reasonable enquiries, holders of such ECS Options are Independent Third Parties and do not hold any VST Shares.

The Offer, if made, will be extended to all new ECS Shares unconditionally issued or to be issued pursuant to the valid exercise prior to the close of the Offer of any ECS Options granted under the ECS Share Option Scheme.

Consideration

The Offer, if made, will be on the basis of S$0.668 (or approximately HK$3.44) in cash for each ECS Share which is the same as the Sale Price. The Offer Price is determined based on the requirement of the Singapore Code that the Offer Price must not be less than the highest price that the Offeror and any party acting in concert with it has paid for ECS Shares in the past 6 months immediately preceding the date of the Announcement and during the period of the Offer.

Assuming that the Offer is accepted in full and all holders of the ECS Options will exercise their ECS Options in full, at see through pricing, prior to the close of the Offer, the aggregate value of the consideration payable by the Offeror pursuant to the Offer, when made, would be approximately S$118,749,000 (or approximately HK$612,139,000). The Company will finance the Offer from bank borrowings including the Bridge Loan, out of its own internal resources, by way of placing of new VST Shares, issue of convertible securities and/or a combination of any of the foregoings. Details of the combination of the funding have not yet been determined as at the date of this circular. The Directors are of the view that the Company will have sufficient financial resources to complete the acquisition of ECS Shares pursuant to the Offer and that such acquisition will not have any adverse impact on the Company’s financial position or business operation.

On the basis of the Offer Price of S$0.668 (or approximately HK$3.44) per ECS Share and 365,085,174 ECS Shares in issue as at the date hereof, the value of the entire issued share capital of ECS is approximately S$243,877,000 (or approximately HK$1,257,161,000).

– 12 –

LETTER FROM THE BOARD

Further Information and Waiver from Strict Compliance with the Listing Rules

ECS is a company whose shares are listed on SGX-ST. The securities laws of Singapore and the listing rules of the SGX-ST to which ECS is subject prohibits ECS from disclosing unpublished information which is of a price sensitive nature to selected potential investors only. As a result, the Company has not been able to collect the necessary information relating to the ECS Group in strict compliance with certain disclosure requirements of the Listing Rules applicable to a very substantial acquisition.

The Company has applied for, and the Stock Exchange has granted, a waiver from strict compliance with the following provisions of the Listing Rules relating to disclosure of certain information in this circular:

(a) Rules 4.01(3) and 14.69(4)(a)(i) – an accountants’ report on ECS Group prepared using accounting policies which are materially consistent with those of the Group;
(b) Rule 14.69(4)(a)(ii) – a pro forma income statement, balance sheet and cash flow statement of the Enlarged Group on the same accounting basis and in compliance with Chapter 4 of the Listing Rules;
(c) Paragraph 28 and note 2 to Appendix 1B of the Listing Rules – the statement on the indebtedness of the Enlarged Group;
(d) Rule 14.66(4) and Paragraph 30 and note 2 to Appendix 1B of the Listing Rules – the statement of sufficiency of working capital available to the Enlarged Group;
(e) Paragraph 33 and note 2 to Appendix 1B of the Listing Rules – particulars of any litigation or claims of material importance pending or threatened against any member of the Enlarged Group;
(f) Paragraphs 42 and 43(2)(b) and note 2 to Appendix 1B of the Listing Rules – the dates of and parties to all material contracts entered into by any member of the Enlarged Group within the two years immediately preceding the issue of this circular together with a summary of the principal contents of such contracts and particulars of any consideration passing to or from any member of the Enlarged Group and inspection of such contracts; and
(g) Rule 14.69(7) – the discussion and analysis of the performance of the ECS Group for the three preceding financial years covering all those matters set out in Paragraph 32 of Appendix 16 of the Listing Rules.
((b) to (g) above shall collectively be defined as the “Further Information”.)

– 13 –

LETTER FROM THE BOARD

The Waiver has been granted subject to the following conditions:

(a) This circular will include the following information:
(i) ECS’s audited financial statements for each of three years ended 31 December 2004, 2005 and 2006 (as extracted from ECS’s published audited annual reports prepared in accordance with Singapore GAAP for the relevant years) (Please refer to pages 72 to 186 of this circular);
(ii) ECS’s unaudited financial statements for each of the six months ended 30 June 2006 and 30 June 2007 (as extracted from ECS’s published unaudited interim reports prepared in accordance with Singapore GAAP for the relevant periods) (Please refer to pages 187 to 213 of this circular);
(iii) a qualitative explanation of the differences between Singapore GAAP and HKFRS which may have a material impact on the audited financial statements of ECS (Please refer to pages 214 to 216 of this circular);
(iv) the statement of the indebtedness of the Group (Please refer to page 71 of this circular);
(v) the statement of the indebtedness of ECS Group (Please refer to page 213 of this circular);
(vi) the statement of sufficiency of working capital available to the Group (Please refer to page 70 of this circular);
(vii) particulars of any litigation or claims of material importance pending or threatened against any member of each of the Group and ECS Group respectively (Please refer to page 232 of this circular);
(viii)particulars of all material contracts (not being contracts entered into in the ordinary course of business) entered into by the Group and ECS Group within the two years immediately preceding the issue of this circular (Please refer to pages 232 to 233 of this circular); and
(ix) the discussion and analysis of the performance of each of the Group and the ECS Group for the three preceding financial years covering all those matters set out in paragraph 32 of Appendix 16 of the Listing Rules (Please refer to pages 22 to 228 of this circular).

(The information mentioned in paragraphs (a)(v), (vii), (viii) and (ix) above refers to the information of ECS as extracted from ECS’s published information.)

(b) Material contracts of the Group will be available for inspection pursuant to paragraph 43(2)(b) of Appendix 1B.
(c) After taking into account the due diligence work performed by the Company, the Board confirms that the content of this circular complies with the requirements under Rule 2.13 of the Listing Rules.

– 14 –

LETTER FROM THE BOARD

(d) The Company will comply with Rule 14.52 of the Listing Rules and issue announcement(s) in accordance with Rule 2.07C of the Listing Rules not less than 14 days before the date of the EGM for approving the Acquisition, providing any material information of ECS that has come to the attention of the Directors after the issue of this circular and distribute the same to the Shareholders at the EGM. Such announcements would be issued as soon as practicable once the Directors are aware of any material developments of ECS. This would ensure that the Shareholders are kept fully informed of all the material developments of ECS before making their decision to vote for or against the Acquisition.
(e) The Company will issue a supplemental circular within 60 days from the earliest date that persons nominated by the Company are appointed as directors of ECS upon completion of the Acquisition, and in any event on or before 31 December 2007. The supplemental circular will include the following information:
(i) an accountants’ report of the ECS Group for each of the three years ended 31 December 2004, 2005 and 2006 and for each of the nine months ended 30 September 2006 and 2007 prepared in accordance with Chapter 4 and Rule 14.69(4)(a)(i) of the Listing Rules; and
(ii) the Further Information.

After taking into account the due diligence work performed by the Company, the Board confirms that the content of this circular complies with the requirements under Rule 2.13 of the Listing Rules.

The Company will issue announcements in accordance with Rule 2.07(C) not less than 14 days before the date of the EGM for approving the Acquisition providing any material information which has come to the attention of the Directors after the issue of this circular and distribute the same to the Shareholders at the EGM. Such announcements would be issued as soon as practicable once the Directors are aware of any material developments of ECS. This will ensure that the Shareholders are kept fully informed of all the material developments of ECS before making their decision to vote for or against the Acquisition.

The Company will, within 60 days from the earliest date that persons nominated by the Company are appointed as directors of ECS upon completion of the Acquisition and in any event, no later than 31 December 2007, issue a supplemental circular which will include the following information:

(a) an accountants’ report of the ECS Group for each of the three years ended 31 December 2004, 2005 and 2006 and for each of the nine months ended 30 September 2006 and 2007 prepared in accordance with Chapter 4 and Rule 14.69(4)(a)(i) of the Listing Rules; and
(b) the Further Information.

– 15 –

LETTER FROM THE BOARD

INFORMATION ON THE ECS GROUP

According to the ECS Annual Report, ECS was incorporated in Singapore with limited liability and its shares are listed on the SGX-ST. It is an investment holding company and its subsidiaries are principally engaged in the business of distribution of information technology products and provision of a range of e-enabling infrastructure products, IT services and IT products to application service providers, internet service providers, commerce service providers, network service providers, full service providers and corporate resellers in Singapore, Malaysia, the PRC, Hong Kong, Indonesia, Thailand and the Philippines.

Based on the ECS Annual Report, the audited consolidated turnover and profit recorded by the ECS Group in Singapore dollars and for illustration purposes converted into Hong Kong dollars using a fixed exchange rate as set out in page 4 of this circular for the two years ended 31 December 2005 and 31 December 2006 respectively were as follows:

		Year ended 31 December	Year ended 31 December
	2005		2006
		Equivalent		Equivalent
	S$’000	in HK$’000	S$’000	in HK$’000
Turnover	2,036,278	10,496,809	2,339,309	12,058,904
Profit before tax	22,484	115,903	27,009	139,229
Tax	(3,887)	(20,037)	(5,507)	(28,388)
Profit before minority interest	18,597	95,866	21,502	110,841
Minority interest	1,284	6,619	1,450	7,475
Net profit attributable to ECS
Shareholders	17,313	89,247	20,052	103,366

Based on the ECS Annual Report, the audited total assets and liabilities of the ECS Group in Singapore dollars and for illustration purposes converted into Hong Kong dollars using a fixed exchange rate as set out in page 4 of this circular as at 31 December 2005 and 31 December 2006 respectively were as follows:

			As at 31	December
		2005		2006
			Equivalent		Equivalent
		S$’000	in HK$’000	S$’000	in HK$’000
Total	assets	585,750	3,019,483	568,956	2,932,911
Total	liabilities	403,976	2,082,456	370,653	1,910,679

After completion of the Agreement assuming no Vendor is in default, the Company’s interest in ECS will be more than 50% of all the ECS Shares and the companies in the ECS Group will be treated as subsidiaries of the Company and their results will be consolidated by purchase method of accounting into the consolidated accounts of the Company. If some Vendors are in default of completion of the Agreement and the Company, nonetheless, proceeds with the Acquisition but has not purchased more than 50% of all the ECS Shares after completion of the Offer, the ECS Group will not become a subsidiary of the Company. In that event, the results, assets and liabilities of the ECS Group will be incorporated in the consolidated accounts of the Company using the equity method of accounting.

– 16 –

LETTER FROM THE BOARD

The financial information of the ECS Group is prepared in accordance with Singapore Financial Reporting Standards.

COMPANY’S AND OFFEROR’S INTENTION IN RELATION TO THE ECS GROUP

It is the intention of the Company and the Offeror that ECS will, if the Agreement and the Offer are completed, continue to carry on the business of engaging in the distribution of IT products and provision of IT services in Asia and maintain its listing status on the SGX-ST in the event the Offeror holds less than 90% of the total shares outstanding in ECS after the Offer is completed.

The Company proposes to nominate and procure the appointment of additional directors to the board of ECS after completion of the Acquisition. Other than such new appointment, the Company does not expect any change to the board of directors of ECS after completion of the Acquisition.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group and the ECS Group are both engaged in the distribution of IT products with different product ranges and different brands. The ECS Group also has a distribution network in Asia through which the Group may geographically expand its distribution channels. The Company believes that through the Acquisition, the Group shall be able to effectively expand its range of products and services and increase its penetration into different Asian markets. The Company expects the Acquisition to create certain synergies due to economies of scale and sharing of costs as well as enhance the Company’s overall relationships with certain customers and suppliers.

The Directors (including the independent non-executive Directors) are of the view that the terms of the Agreement and the Offer are fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders as a whole.

GENERAL

The Group’s principal activity is the distribution of computer and peripheral products and other information technology products of well-known brands principally in the PRC. The Company is also an investment holding company.

The Company has no intention to change its principal business activities after the Acquisition.

The Company has not undertaken any fund raising activity in the twelve months immediately preceding the date of this circular.

– 17 –

LETTER FROM THE BOARD

The following table summarizes the existing shareholding structure of the Company as of the date of this circular:

Name of Shareholder	Shareholding	Shareholding
	No. of VST
	Shares	_Per _	cent (%)
Li Jialin(1)	42,296,000		4.54
L&L Limited(1)	241,500,000		25.92
Liu Li(1)	165,000,000		17.71
subtotal	448,796,000		48.17
CKC Holdings Limited(2)	62,950,000		6.76
Cheng Kam Chung(2)	9,000,000		0.96
subtotal	71,950,000		7.72
Public	410,920,666		44.11
TOTAL:	931,666,666		100.00

Notes

The entire issued share capital of L & L Limited is held equally by Mr. Li Jialin (the Chairman, Chief Executive Officer and an executive Director of the Company) and his spouse, Madam Liu Li. Mr. Li Jialin is therefore deemed to be interested in all the VST Shares held by L&L Limited and Madam Liu Li. Madam Liu Li is also deemed to be interested in all the VST Shares held by Mr. Li Jialin and L&L Limited. None of Li Jialin, L&L Limited and Liu Li currently holds any ECS Shares.
The entire issued share capital of CKC Holdings Limited is held by Infinity Fortune Limited, a company incorporated in the British Virgin Islands, as a trustee of Infinity Fortune Unit Trust. Infinity Fortune Unit Trust is a unit trust of which 1 unit is held by Madam Kwan How Yin, the spouse of Mr. Cheng Kam Chung and 9,999 units are held by HSBC International Trustee Limited as trustee for the CKC Family Trust, a discretionary trust which objects include Madam Kwan How Yin and her children. In addition, 9,000,000 shares of the Company are held by Mr. Cheng Kam Chung. The total approximate shareholding held by CKC Holdings Limited and Mr. Cheng Kam Chung as at the Latest Practicable Date is 7.72%. Neither CKC Holdings Limited nor Cheng Kam Chung currently holds any ECS Shares.

FINANCIAL AND TRADING PROSPECT OF THE GROUP

The Group is progressively expanding its range of products and services to increase penetration into different Asian markets. The Group’s management standards have led to evident results, with improved inventory and accounts receivable turnover days and return on equity better than the industry average. Following the application of the Group’s core management competencies to the Enlarged Group, the Group’s profitability and competitiveness will be enhanced due to created synergies and economies of scale.

– 18 –

LETTER FROM THE BOARD

The Group continues to geographically expand its distribution channels and footprint in Asia Pacific and strengthen its management team to become a leading information technology products distributor in Asia.

Assuming the Acquisition is successfully completed and barring unforeseen circumstances, the Company expects the Enlarged Group to achieve improved earnings for the financial year ending 31 March 2008 as compared with the Company’s last financial year ended 31 March 2007.

FINANCIAL EFFECTS OF THE ACQUISITION

(a) Net assets

As at 31 March 2007, the audited net assets and total assets of the Group were approximately HK$419.1 million and HK$773.9 million respectively. As at 31 December 2006, the audited net assets and total assets of ECS Group were approximately S$198.3 million (HK$1,022.2 million) and S$569.0 million (HK$2,932.9 million) respectively.

(b) Earnings

The Group recorded an audited consolidated net profit after tax of approximately HK$161.3 million for the year ended 31 March 2007. The ECS Group recorded an audited net profit after tax of approximately S$21.5 million (HK$110.8 million) for its latest year ended 31 December 2006. Given the track record, earnings ability, distribution network and customer base of the ECS Group, and the synergies that may be realized by the Group from the Acquisition, the Acquisition is expected to improve the earnings of the Enlarged Group for the financial year ending 31 March 2008.

(c) Liabilities

As at 31 March 2007, the Group had a net cash balance of approximately HK$113.9 million as the Group did not have any borrowings. After the Acquisition is completed, the Group will have up to HK$1,000,000,000 of bank borrowings.

THE EGM

As the Acquisition constitutes a very substantial acquisition of the Company under the Listing Rules, the Agreement, the making of the Offer, the Acquisition, and the transactions contemplated thereunder in connection thereto are subject to the approval of the Shareholders in an EGM. The Company has convened the EGM to seek such approval. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, no Shareholder has a material interest in the Agreement and the Acquisition and therefore no Shareholder is required to abstain from voting at the EGM. As at the Latest Practicable Date, ABN AMRO Bank N.V. and its affiliated companies which beneficially own an aggregate of 90,805,333 VST Shares, representing approximately 9.75% of the issued capital of the Company, have indicated that they will voluntarily abstain from voting at the EGM.

– 19 –

LETTER FROM THE BOARD

Upon obtaining the Shareholders’ Approval and completion of the Agreement, ABN AMRO Bank N.V., Singapore Branch for and on behalf of VST or its wholly-owned subsidiary will make the Offer Announcement in accordance with the relevant rules and regulations of Singapore. Between 14 days and 21 days from the date of such announcement, if any, VST will despatch the Offer Document to the ECS Shareholders. The Offer is expected to close and the transaction will be completed within 2 months from the making of the Offer.

The Offeror has not commenced the Offer. The Offer will only be made after obtaining Shareholders’ Approval and completion of the Agreement. However, there is no certainty that all or any of the Conditions Precedent will be satisfied or waived and that completion of the Agreement will take place. Accordingly, all references to the Offer in this circular refer to the possible Offer which will only be made if and when completion of the Agreement takes place and the Shareholders’ Approval is obtained. Shareholders and investors should exercise caution in deciding whether to deal in and when dealing in the VST Shares.

THE EXTRAORDINARY GENERAL MEETING

A notice of the EGM to be convened and held at the Dynasty Club, 7th Floor, South West Tower, Convention Plaza, 1 Harbour Road, Hong Kong on 23 October 2007 at 10:30 a.m. for the purpose of considering the Agreement, the making of the Offer, the Acquisition, and the transactions contemplated thereunder is set out on pages 235 to 236 of this circular.

Pursuant to the Listing Rules, the Company will procure that the chairman of the EGM will demand the vote for the resolutions relating to the Agreement, the making of the Offer, the Acquisition, and the transactions contemplated thereunder to be taken by a poll. Please refer to Appendix III for the procedure by which you may demand a poll pursuant to the articles of association of the Company. If you are unable to attend the EGM in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon. In order to be valid, the proxy form must be deposited by hand or post to the Company’s Hong Kong branch share registrar, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, not less than 48 hours before the time for holding the EGM or adjourned meeting or not less than 24 hours before the time appointed for taking the poll (as the case may be). If the proxy form is signed by a person under a power of attorney or other authority, a notarially certified copy of that power of attorney or authority shall be deposited at the same time as mentioned in the proxy form. Completion and return of the proxy form will not preclude you from subsequently attending and voting at the EGM.

– 20 –

LETTER FROM THE BOARD

RECOMMENDATION

Having taken into account of the information set out above, the Board considers that the terms of the Agreement, the Offer, the Acquisition, and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole and so recommends the Shareholders to vote in favour of the resolutions relating to the aforesaid matters at the EGM.

ADDITIONAL INFORMATION

Your attention is drawn to the information set out in the appendices to and the notice of the EGM set out in this circular.

Yours faithfully, For and on behalf of the Board

VST Holdings Limited Li Jialin

Chairman

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. FINANCIAL SUMMARY

The following is a summary of the consolidated financial information for the three financial years ended 31 March 2007 extracted from the published annual financial statements of the Group for the years ended 31 March 2006 and 2007:

Consolidated Balance Sheet

Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) 2,793 2,653 2,868 9,467 10,000 –	Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) 2,793 2,653 2,868 9,467 10,000 –	Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) 2,793 2,653 2,868 9,467 10,000 –
12,260 - - - - - - - - - - - - – 346,434 3,620 287,661 10,000 113,926	12,653 - - - - - - - - - - - - 17,908 141,203 1,708 163,419 – 219,129	2,868 - - - - - - - - - - - - – 211,790 1,296 179,134 19,244 46,884
761,641 - - - - - - - - - - - - 773,901	543,367 - - - - - - - - - - - - 556,020	458,348 - - - - - - - - - - - -
		461,216

93,167 283,069 42,857	84,000 134,248 39,863	84,000 72,006 5,880
419,093	258,111	161,886

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) – 63,544 – 200 237 171	Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) – 63,544 – 200 237 171	Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) – 63,544 – 200 237 171
200 - - - - - - - - - - - - 333,235 3,691 – – 17,682	63,781 - - - - - - - - - - - - 213,233 1,978 – – 18,917	171 - - - - - - - - - - - - 204,390 3,129 89,636 97 1,907
354,608 - - - - - - - - - - - - 354,808 773,901 407,033 419,293	234,128 - - - - - - - - - - - - 297,909 556,020 309,239 321,892	299,159 - - - - - - - - - - - -
		299,330

		461,216

		159,189

		162,057

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Profit and Loss Account

Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) 4,236,829 3,705,633 2,801,165 (4,001,594) (3,534,497) (2,738,534) 235,235 171,136 62,631 2,578 1,485 2,006 (36,963) (31,094) (28,096) 200,850 141,527 36,541 (5,256) (5,668) (2,987) 195,594 135,859 33,554 (34,261) (24,091) (6,130) 161,333 111,768 27,424 72,670 52,463 9,380 18.07 cents 13.31 cents 3.71 cents 17.55 cents 13.24 cents 3.71 cents	Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) 4,236,829 3,705,633 2,801,165 (4,001,594) (3,534,497) (2,738,534) 235,235 171,136 62,631 2,578 1,485 2,006 (36,963) (31,094) (28,096) 200,850 141,527 36,541 (5,256) (5,668) (2,987) 195,594 135,859 33,554 (34,261) (24,091) (6,130) 161,333 111,768 27,424 72,670 52,463 9,380 18.07 cents 13.31 cents 3.71 cents 17.55 cents 13.24 cents 3.71 cents	Year ended 31 March 2007 2006 2005 HK$’000 HK$’000 HK$’000 (As restated) 4,236,829 3,705,633 2,801,165 (4,001,594) (3,534,497) (2,738,534) 235,235 171,136 62,631 2,578 1,485 2,006 (36,963) (31,094) (28,096) 200,850 141,527 36,541 (5,256) (5,668) (2,987) 195,594 135,859 33,554 (34,261) (24,091) (6,130) 161,333 111,768 27,424 72,670 52,463 9,380 18.07 cents 13.31 cents 3.71 cents 17.55 cents 13.24 cents 3.71 cents
235,235 2,578 (36,963) 200,850 (5,256) 195,594 (34,261)	171,136 1,485 (31,094) 141,527 (5,668) 135,859 (24,091)	62,631 2,006 (28,096
		36,541 (2,987
		33,554 (6,130
161,333 72,670 18.07 cents 17.55 cents	111,768 52,463 13.31 cents 13.24 cents

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. FINANCIAL INFORMATION OF THE GROUP

The following is the audited financial statements of the Group for the financial year ended 31 March 2007 extracted from the Annual Report 2007 of the Group which is not qualified.

Consolidated Balance Sheet

As at 31 March 2007

Note ASSETS Non-current assets Property, plant and equipment 5 Available-for-sale financial assets 6 Current assets Bills receivable Trade receivables 9 Prepayments and other receivables Inventories 10 Pledged bank deposits Cash and cash equivalents 11 Total assets EQUITY Capital and reserves attributable to the equity holders of the Company Share capital 12 Reserves 14 Proposed dividend 14 Total equity	2007 HK$’000 2,793 9,467	2006 HK$’000 2,653 10,000
	12,260 - - - - - - - - - - - - – 346,434 3,620 287,661 10,000 113,926	12,653 - - - - - - - - - - - - 17,908 141,203 1,708 163,419 – 219,129
	761,641 - - - - - - - - - - - - 773,901	543,367 - - - - - - - - - - - -
		556,020

	93,167 283,069 42,857	84,000 134,248 39,863
	419,093 - - - - - - - - - - - -	258,111 - - - - - - - - - - - -

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note LIABILITIES Non-current liabilities Convertible bonds 16 Deferred taxation 17 Current liabilities Trade payables 15 Accruals and other payables Taxation payable Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	2007 HK$’000 – 200 200 - - - - - - - - - - - - 333,235 3,691 17,682 354,608 - - - - - - - - - - - - 354,808 - - - - - - - - - - - - 773,901 407,033 419,293	2006 HK$’000 63,544 237
		63,781 - - - - - - - - - - - - 213,233 1,978 18,917
		234,128 - - - - - - - - - - - -
		297,909 - - - - - - - - - - - -
		556,020

		309,239

		321,892

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

As at 31 March 2007

Note ASSETS Non-current asset Investments in subsidiaries 7 Current assets Amounts due from subsidiaries 8 Prepayments and other receivables Cash and cash equivalents 11 Total assets EQUITY Capital and reserves attributable to the equity holders of the Company Share capital 12 Reserves 14 Proposed dividend 14 Total equity LIABILITIES Non-current liabilities Convertible bonds 16 Current liabilities Accruals and other payables Taxation payable Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	2007 HK$’000 83,154 - - - - - - - - - - - - 228,352 232 332 228,916 - - - - - - - - - - - - 312,070	2006 HK$’000 63,683 - - - - - - - - - - - - 180,426 306 83
		180,815 - - - - - - - - - - - -
		244,498

	93,167 174,938 42,857 310,962 - - - - - - - - - - - - – - - - - - - - - - - - - 54 1,054	84,000 56,586 39,863
		180,449 - - - - - - - - - - - - 63,544 - - - - - - - - - - - - 505 –
	1,108 - - - - - - - - - - - - 1,108 - - - - - - - - - - - - 312,070 227,808 310,962	505 - - - - - - - - - - - -
		64,049 - - - - - - - - - - - -
		244,498

		180,310

		243,993

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Profit and Loss Account

For the year ended 31 March 2007

Note Turnover 18 Cost of sales Gross profit Other gains, net 19 Administrative expenses Operating profit 20 Finance costs 21 Profit before taxation Taxation 22 Profit for the year attributable to equity holders of the Company 23 Dividends 24 Earnings per share for profit attributable to equity holders of the Company (expressed in HK cents per share) 25 – Basic – Diluted	2007 HK$’000 4,236,829 (4,001,594)	2006 HK$’000 3,705,633 (3,534,497) 171,136 1,485 (31,094) 141,527 (5,668) 135,859 (24,091) 111,768 52,463 13.31 cents 13.24 cents
	235,235 2,578 (36,963) 200,850 (5,256) 195,594 (34,261)	171,136 1,485 (31,094
		141,527 (5,668
		135,859 (24,091
	161,333 72,670 18.07 cents 17.55 cents

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2007

Balance at 1 April 2005 Net profit for the year Convertible bonds, equity component, net of tax 2005 final dividend paid 2006 interim dividend – proposed – paid 2006 final dividend proposed Balance at 31 March 2006 Balance at 1 April 2006 Net profit for the year Currency translation difference Increase in fair value of available-for-sale financial assets Issue of ordinary shares upon conversion of convertible bonds 2006 final dividend paid 2007 interim dividend – proposed – paid 2007 final dividend proposed Balance at 31 March 2007	Share capital HK$’000 84,000 – – – – – – 84,000	Other reserves HK$’000 (Note 14) 30,411 – 996 – – – – 31,407	Retained earnings HK$’000 43,536 111,768 – – (12,600) – (39,863) 102,841	Proposed dividends HK$’000 5,880 – – (5,880) 12,600 (12,600) 39,863 39,863	Total HK$’000 163,827 111,768 996 (5,880) – (12,600) – 258,111 258,111 161,333 678 2,467 66,180 (39,863) – (29,813) – 419,093
	84,000 – – – 9,167 – – – –	31,407 – 678 2,467 57,013 – – – –	102,841 161,333 – – – – (29,813) – (42,857)	39,863 – – – – (39,863) 29,813 (29,813) 42,857	258,111 161,333 678 2,467 66,180 (39,863 – (29,813 –
	93,167	91,565	191,504	42,857

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2007

Note Cash flows from operating activities Net cash generated from operations 28(a) Hong Kong profits tax paid PRC income tax paid Interest paid Net cash (used in)/generated from operating activities Cash flows from investing activities Interest received Purchase of property, plant and equipment (Increase)/decrease in pledged bank deposits Purchase of available-for-sale financial assets Proceeds from disposal of available-for-sale financial assets Net cash (used in)/generated from investing activities Cash flows from financing activities 28(b) Dividends paid Net proceeds from the issue of convertible bonds Repayment of obligation under finance lease New import loans Repayment of import loans Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at the end of year 11	2007 HK$’000 7,633 (35,441) (92) (2,620)	2006 HK$’000 218,664 (6,933) (82) (5,148) 206,501 - - - - - - - - - - - - 1,524 (831) 19,244 (10,000) – 9,937 - - - - - - - - - - - - (18,480) 64,020 (97) 723,861 (813,497) (44,193) - - - - - - - - - - - - 172,245 46,884 – 219,129
	(30,520) - - - - - - - - - - - - 4,895 (1,580) (10,000) (7,000) 8,000 (5,685) - - - - - - - - - - - - (69,676) – – 182,845 (182,845) (69,676) - - - - - - - - - - - - (105,881) 219,129 678	206,501 - - - - - - - - - - - - 1,524 (831 19,244 (10,000 –
		9,937 - - - - - - - - - - - - (18,480 64,020 (97 723,861 (813,497
		(44,193 - - - - - - - - - - - -
		172,245 46,884 –
	113,926

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Accounts

1 GENERAL INFORMATION

VST Holdings Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in the distribution of information technology (“IT”) products.

The Company is a limited liability company incorporated in the Cayman Islands. Its principal place of business is at Unit 1901, 19th Floor, West Tower, Shun Tak Centre, 168 Connaught Road Central, Hong Kong.

The Company’s shares are listed on the Main Board of the Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

These consolidated accounts are presented in thousands of units of Hong Kong dollars (HK$’000), unless otherwise stated. These consolidated accounts have been approved for issue by the Board of Directors on 9 July 2007.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated accounts are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated accounts of the Company have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”). The consolidated accounts have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets which are carried at fair value.

The preparation of accounts in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated accounts, are disclosed in Note 4.

(a) Effect of adopting new/revised HKFRS

In the current year, the Group adopted the following amendments of HKFRS which are effective in the current year and are relevant to the Group’s operations:

HKAS 21 Amendment, Net Investment in a Foreign Operation
HKAS 39 & HKFRS 4 Amendments, Financial Guarantee Contracts

The adoption of the above new/revised HKFRSs has no material impact on the Group’s consolidated accounts.

The following standards, amendments and interpretations of HKFRS are effective in the current year but are not relevant to the Group’s operations:

HKAS 19 Amendment, Employee Benefits
HKAS 39 Amendment, Cash Flow Hedge Accounting of Forecast Intragroup Transactions
HKAS 39 Amendment, The Fair Value Option
HKFRS 1 Amendment, First-time Adoption of Hong Kong Financial Reporting Standards and HKFRS 6 Amendment, Exploration for and Evaluation of Mineral Resources
HKFRS 6, Exploration for and Evaluation of Mineral Resources
HK(IFRIC)-Int 4, Determining whether an Arrangement Contains a Lease

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HK(IFRIC)-Int 5, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
HK(IFRIC)-Int 6, Liabilities arising from Participating in a Specific Market-Waste Electronical and Electronic Equipment
HK(IFRIC)-Int 7, Applying the Restatement Approach under HKAS 29, Financial Reporting in Hyperinflationary Economies
(b) Standards, interpretations and amendments to published standards that are not yet effective

The following new standards and interpretation of HKFRS have been issued and are relevant to the Group’s operations:

HKFRS 7, Financial instruments: Disclosures, and the complementary Amendment to HKAS 1, Presentation of Accounts – Capital Disclosures (effective for accounting periods commencing on or after 1 January 2007). The Group assessed the impact of HKFRS 7 and the amendment to HKAS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of HKAS 1. The Group will apply HKFRS 7 and the amendment to HKAS 1 from annual period beginning 1 April 2007.
HKFRS 8, Operating Segments (effective for accounting periods commencing on or after 1 January 2009). The Group will apply HKFRS 8 from annual period beginning 1 April 2009, but it is not expected to have any significant impact on the Group’s consolidated accounts other than presentational changes and additional disclosures in respect of segment information.
HK(IFRIC)-Int 10, Interim Financial Reporting and Impairment (effective for accounting periods commencing on or after 1 November 2006). The Group will apply HK(IFRIC)-Int 10 from annual period beginning 1 April 2007, but it is not expected to have any significant impact on the Group’s consolidated accounts.

The following interpretations of HKFRS have been issued and are not relevant to the Group’s operations:

HK(IFRIC)-Int 8, Scope of HKFRS 2 (effective for accounting periods commencing on or after 1 May 2006)
HK(IFRIC)-Int 9, Reassessment of embedded derivatives (effective for accounting periods commencing on or after 1 June 2006)
HK(IFRIC)-Int 11, HKFRS 2 – Group and Treasury Share Transaction (effective for accounting periods commencing on or after 1 March 2007)
HK(IFRIC)-Int 12, Service Concession Arrangements (effective for accounting periods commencing on or after 1 January 2008)

2.2 Consolidation

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an indicator of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

– 32 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In the Company’s balance sheet, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the accounts of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated accounts are presented in Hong Kong dollars (“HK dollars”), which is the Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account.

Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences are recognised in equity.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the available- for-sale investments reserve in equity.

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each profit and loss account are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the consolidated profit and loss account as part of the gain or loss on sale.

2.4 Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the profit and loss account during the financial period in which they are incurred.

– 33 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate costs to their residual values over their estimated useful lives, as follows:

Leasehold improvements 20% or lease period whichever is shorter Furniture and fixtures 20% Office equipment 20% Motor vehicles 20%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet

date.

An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount (Note 2.5).

Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the profit and loss account.

2.5 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation, which are tested at least annually for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

2.6 Financial assets

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. The management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.

(a) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date. During the year, the Group did not hold any investments in this category.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as “trade and other receivables” in the balance sheet (Note 2.8).

(c) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to-maturity financial assets, the whole

– 34 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

category would be tainted and reclassified as available-for-sale. Held to maturity financial assets are included in non-current assets, except for those with maturities less than 12 months from the balance sheet date, which are classified as current assets. During the year, the Group did not hold any investments in this category.

(d) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Regular purchases and sales of investments are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the profit and loss account. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences are recognised in the profit and loss account, and other changes in carrying amount are recognised in equity. Changes in the fair value of monetary securities classified as available-for-sale and non-monetary securities classified as available-for-sale are recognised in equity.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the profit and loss account as “gains/losses on disposal of investments”. Interest on available-for-sale securities calculated using the effective interest method is recognised in the profit and loss account. Dividends on available-for-sale equity instruments are recognised in the profit and loss account when the Group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the profit and loss account – is removed from equity and recognised in the profit and loss account. Impairment losses recognised in the profit and loss account on equity instruments are not reversed through the profit and loss account. Impairment testing of trade and other receivables is described in Note 2.8.

2.7 Inventories

Inventories comprise IT products for distribution and are stated at the lower of cost and net realisable value.

Cost is determined using the first-in, first-out method. The cost of finished goods comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. It excludes borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

– 35 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2.8 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the profit and loss account.

2.9 Cash and cash equivalents

Cash and cash equivalents include cash on hand and deposits held at call with banks.

2.10 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2.11 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.

The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bond. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders’ equity, net of income tax effects.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

All borrowing costs are charged to the profit and loss account in the period in which they are incurred.

2.12 Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted at the balance sheet date and are expected to apply when the related deferred income tax assets are realised or the deferred income tax liabilities are settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.13 Employee benefits

(a) Pension obligations

For eligible employees in Hong Kong, the Group operates defined contribution plans, the assets of which are held in separate trustee-administered funds. The retirement plans are generally funded by payments from employees and by the relevant group companies. For employees in the People’s Republic of China (the “PRC”), the Group participates in defined contribution retirement schemes organised by the relevant local government in the PRC.

The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

(b) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(c) Bonus plans

The Group recognises a liability and an expense for bonuses based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

2.14 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

2.15 Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged in the profit and loss account on a straight-line basis over the period of the lease.

2.16 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

2.17 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown, net of returns and discounts and after eliminating sales within the Group. Revenue is recognised as follows:

(i) Sale of goods

Sale of goods are recognised when products have been delivered to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured.

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

2.18 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s consolidated accounts in the period in which the dividends are approved by the Company’s shareholders.

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to foreign exchange risk, interest rate risk, credit risk and liquidity risk.

(a) Foreign exchange risk

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States dollar and the PRC Renminbi. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

To manage the foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, the Group uses foreign currency forward contracts to reduce foreign exchange risk. As at 31 March 2007, the Group had no outstanding foreign currency forward contracts.

(b) Interest rate risk

The Group’s interest rate risk arises mainly from bank balances and deposits. Bank balances and deposits that are subject to variable rates expose the Group to cash flow interest rate risk. Bank balances and deposit that are subject to fixed rates expose the Group to fair value interest rate risk. The Group has not hedged its cash flow and fair value interest rate risks.

(c) Credit risk

The carrying amount of trade receivables included in the consolidated balance sheet represents the Group’s maximum exposure to credit risk in relation to its financial assets.

The Group has put in place policies to ensure that sales of products are made to customers with an appropriate credit history and the Group performs periodic credit evaluations of its customers. The Group’s historical experience in collection of trade receivables falls within the recorded allowances. At 31 March 2007, no provision for uncollectible trade receivables had been made.

(d) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Directors aim to maintain flexibility in funding by keeping credit lines available.

3.2 Fair value estimation

The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices on the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.

The fair values of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) are determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing on each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debts. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments.

The nominal values less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Income taxes

The Group is subject to income taxes in Hong Kong and the PRC. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(b) Estimated write-down of inventories to net realisable value

The Group writes down inventories to net realisable value based on an assessment of the realisability of inventories. Write-downs of inventories are recorded where events or changes in circumstances indicate that the balances may not be realised.

The identification of write-downs requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of inventories and write-downs of inventories in the period in which such estimate has been changed.

(c) Estimated provision for impairment of trade receivables

The Group makes provision for impairment of trade receivables based on an assessment of the recoverability of trade receivables. Provisions are applied to trade receivables where events or changes in circumstances indicate that the balances may not be collectible.

The identification of impairment of trade receivables requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact the carrying value of trade receivables and impairment loss in the period in which such estimate has been changed.

– 39 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

5 PROPERTY, PLANT AND EQUIPMENT

Leasehold improve- ments HK$’000 1,525 (476) 1,049	Furniture fixtures HK$’000 362 (185) 177	Group Office and equipment HK$’000 6,110 (4,774) 1,336	Motor vehicles HK$’000 1,485 (1,179) 306	Total HK$’000 9,482 (6,614) 2,868 2,868 831 (4) (1,042) 2,653 10,298 (7,645) 2,653 2,653 1,580 (317) (1,123) 2,793 11,111 (8,318) 2,793
1,049 228 – (303)	177 131 – (68)	1,336 472 (4) (593)	306 – – (78)	2,868 831 (4 (1,042
974	240	1,211	228
1,753 (779)	493 (253)	6,567 (5,356)	1,485 (1,257)	10,298 (7,645
974	240	1,211	228
974 848 (230) (342)	240 23 (4) (75)	1,211 709 (83) (629)	228 – – (77)	2,653 1,580 (317 (1,123
1,250	184	1,208	151
2,070 (820)	488 (304)	7,069 (5,861)	1,484 (1,333)	11,111 (8,318
1,250	184	1,208	151

Note:

Depreciation expense of HK$1,123,000 (2006: HK$1,042,000) has been expensed in administrative expenses.

– 40 –

APPENDIX I

7 INVESTMENTS IN SUBSIDIARIES

FINANCIAL INFORMATION OF THE GROUP

6 AVAILABLE-FOR-SALE FINANCIAL ASSETS

Beginning of year Disposals Additions Increase in fair value credited to equity End of year Available-for-sale financial assets include the following: Quoted investment: – PRC Unlisted equity securities: – Hong Kong – PRC INVESTMENTS IN SUBSIDIARIES Unlisted investments, at cost Note:	Group 2007 2006 HK$’000 HK$’000 10,000 – (10,000) – 7,000 10,000 2,467 – 9,467 10,000 Group 2007 2006 HK$’000 HK$’000 9,467 –	Group 2007 2006 HK$’000 HK$’000 10,000 – (10,000) – 7,000 10,000 2,467 – 9,467 10,000 Group 2007 2006 HK$’000 HK$’000 9,467 –

	– –	488 9,512
	– 10,000 Company 2007 2006 HK$’000 HK$’000 83,154 63,683	10,000

On 14 April 2006, the Company established a new subsidiary, , in the PRC with registered and paid-up capital of Rmb20,000,000 (equivalent to approximately HK$19,471,000).

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Particulars of the subsidiaries as at 31 March 2007 are as follows:

		Principal	Particulars of
	Place of	activities and	issued share	Percentage of
	incorporation/	place of	capital/	interest	held
Name	establishment	operations	registered capital	Directly	Indirectly
VST Group Limited	British Virgin	Investment	4 ordinary shares	100	–
(“VSTG”)	Islands	holding, British	of US$1 each
		Virgin Islands
	PRC	Distribution of IT products in the	Rmb20,000,000	100	–
		PRC
VST Computers (H.K.)	Hong Kong	Distribution of IT	2 ordinary shares	–	100
Limited		products in	of HK$1 each
		Hong Kong
			62,000,000 non-
			voting deferred
			shares of HK$1
	PRC	Distribution of IT products and	each US$1,000,000	–	100
		investment
		holding in the
		PRC
VST Computers	Singapore	Distribution of IT	10 ordinary	–	100
(Singapore) Pte. Ltd.		products in	shares of
		Singapore	SGD10 each

8 AMOUNTS DUE FROM SUBSIDIARIES

The amount due from VSTG of HK$130,000,000 as at 31 March 2007 (2006: Nil) is unsecured, interest-free and repayable on demand.

The amount due from VST Computers (H.K.) Limited of HK$98,352,000 (2006: HK$180,426,000) is unsecured, interest bearing at a rate between 7.75% and 8.00% per annum (2006: 4.42% and 8.00% per annum) and is repayable on demand.

9 TRADE RECEIVABLES

Trade receivables Less: Provision for impairment of receivables	Group 2007 2006 HK$’000 HK$’000 346,434 141,740 – (537) 346,434 141,203	Group 2007 2006 HK$’000 HK$’000 346,434 141,740 – (537) 346,434 141,203
		141,203

There is concentration of credit risk with respect to trade receivables as the Group’s sales are concentrated on several key customers. The Group’s control over credit risk is disclosed in Note 3.

– 42 –

10 INVENTORIES

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group grants a credit period to third party customers ranging from 7 to 60 days, which may be extended for selected customers depending on their trade volume and settlement history with the Group. However, sales to new customers are only conducted on a cash basis in accordance with the Group’s credit control policy. The ageing analysis of gross trade receivables is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	Group 2007 2006 HK$’000 HK$’000 345,209 140,388 25 427 – 550 1,200 375 346,434 141,740	Group 2007 2006 HK$’000 HK$’000 345,209 140,388 25 427 – 550 1,200 375 346,434 141,740
		141,740

The carrying amounts of trade receivables approximate their fair values.

Inventories on hand – Held for re-sale – Held for return to suppliers or exchange to customers Inventories-in-transit Less: provision	Group 2007 2006 HK$’000 HK$’000 184,920 122,483 5,616 7,365 97,829 36,879 (704) (3,308) 287,661 163,419	Group 2007 2006 HK$’000 HK$’000 184,920 122,483 5,616 7,365 97,829 36,879 (704) (3,308) 287,661 163,419
		163,419

The cost of inventories recognised as expense and included in cost of sales amounted to HK$4,448,924,000 (2006: HK$3,818,784,000).

11 CASH AND CASH EQUIVALENTS

Group 2007 2006 HK$’000 HK$’000 33,596 174,129 80,330 45,000 113,926 219,129	Group 2007 2006 HK$’000 HK$’000 33,596 174,129 80,330 45,000 113,926 219,129	Company 2007 2006 HK$’000 HK$’000 332 83 – – 332 83	Company 2007 2006 HK$’000 HK$’000 332 83 – – 332 83
			83

34,371 69,381 10,174	72,149 146,830 150	332 – –	83 – –
113,926	219,129	332	83

– 43 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(a) The effective interest rate on short-term bank deposits was 4.07% per annum (2006: 3.65%); these deposits have an average maturity of 2 days (2006: 7 days).
(b) The Group’s bank balances and deposits denominated in Renminbi are deposited with banks in the PRC. The conversion of these Renminbi denominated balances into foreign currencies and the remittance of funds out of the PRC is subject to the rules and regulations of foreign exchange control promulgated by the government of the PRC.

12 SHARE CAPITAL

Authorised: 2,000,000,000 (2006: 2,000,000,000) ordinary shares of HK$0.10 each Issued and fully paid: 931,666,666 (2006: 840,000,000) ordinary shares of HK$0.10 each	2007 HK$’000 200,000 93,167	2006 HK$’000 200,000

		84,000

A summary of the movements in issued share capital of the Company is as follows:

Beginning of year Issue of shares (note a) End of year	2007 Number of issued ordinary shares of HK$0.10 each Par value HK$’000 840,000,000 84,000 91,666,666 9,167 931,666,666 93,167	2006 Number of issued ordinary shares of HK$0.10 each Par value HK$’000 840,000,000 84,000 – – 840,000,000 84,000	2006 Number of issued ordinary shares of HK$0.10 each Par value HK$’000 840,000,000 84,000 – – 840,000,000 84,000
			84,000

(a) During the year ended 31 March 2007, 91,666,666 ordinary shares were issued upon conversion of convertible bonds. These shares rank pari passu with the existing shares. Further details are set out in Note 16 to the accounts.

13 SHARE OPTION SCHEME

On 17 April 2002, the Company approved a share option scheme under which the Directors may, at their discretion, invite employees (including both full time and part time employees, and executive Directors), non-executive Directors, suppliers, customers and other corporations or individuals that provide support to the Group (as defined in the share option scheme) to take up options to subscribe for shares in the Company. The maximum number of shares in respect of which options may be granted under the share option scheme may not exceed 10% of the issued share capital of the Company. The subscription price will be determined by the Company’s Board of Directors and will not be less than the higher of (i) the nominal value of the Company’s ordinary shares; (ii) the closing price of the Company’s ordinary shares as stated in the daily quotation sheets issued by the Stock Exchange on the date of offer; and (iii) the average closing price of the Company’s ordinary shares as stated in the daily quotation sheets issued by the Stock Exchange for the five business days immediately preceding the date of offer. The share option scheme became effective upon the listing of the Company’s shares on 9 May 2002.

Up to 31 March 2007, no options had been granted pursuant to the above share option scheme.

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14 RESERVES

(a) Group

Share premium HK$’000 (Note i) 30,411 – – – – 30,411 30,411 – – 58,009 – – –	Convertible bonds reserve HK$’000 (Note ii) – – 996 – – 996	Available- for-sale investments reserve HK$’000 – – – – – –	Translation reserve HK$’000 – – – – – –	Retained earnings HK$’000 49,416 111,768 – (5,880) (12,600) 142,704	Total HK$’000 79,827 111,768 996 (5,880 (12,600
					174,111

					134,248 39,863
					174,111

	996 – – (996) – – –	– – 2,467 – – – –	– 678 – – – – –	142,704 – – – 161,333 (39,863) (29,813)	174,111 678 2,467 57,013 161,333 (39,863 (29,813
88,420	–	2,467	678	234,361	325,926

					283,069 42,857
					325,926

Notes:

(i) The share premium account of the Group includes: (a) the difference between the nominal values of the share capital of the subsidiaries acquired and that of the Company issued in exchange pursuant to the group reorganisation in April 2002; (b) the capitalisation issue in April 2002; and (c) the premium arising from the new issue of shares, net of share issuance costs.
(ii) Convertible bonds in reserves represent the value of the equity conversion component. Details of the convertible bonds are set out in Note 16.

– 45 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Company

Balance at 1 April 2005 Profit for the year Convertible bonds, equity component (Note 16) 2005 final dividend paid 2006 interim dividend paid Balance at 31 March 2006 Representing: Reserves 2006 final dividend proposed (Note 24) Balance at 31 March 2006 Balance at 1 April 2006 Profit for the year Issue of ordinary shares upon conversion of convertible bonds (Note 16) 2006 final dividend paid 2007 interim dividend paid Balance at 31 March 2007 Representing: Reserves 2007 final dividend proposed (Note 24) Balance at 31 March 2007	Share premium HK$’000 32,094 – – – – 32,094 32,094 – 58,009 – –	Share premium HK$’000 32,094 – – – – 32,094 32,094 – 58,009 – –	Convertible bonds HK$’000 – – 996 – – 996	Retained earnings HK$’000 29,138 52,701 – (5,880) (12,600) 63,359	Total HK$’000 61,232 52,701 996 (5,880) (12,600) 96,449 56,586 39,863 96,449 96,449 134,009 57,013 (39,863) (29,813) 217,795 174,938 42,857 217,795
			996 – (996) – –	63,359 134,009 – (39,863) (29,813)	96,449 134,009 57,013 (39,863 (29,813
	90,103		–	127,692

The share premium account of the Company represents: (a) the difference between the book values of the underlying net assets of the subsidiaries at the date on which they were acquired by the Company and the nominal values of the Company’s shares issued under the group reorganisation in April 2002; (b) the capitalisation issue in April 2002; and (c) the premium arising from the new issue of shares, net of share issuance costs.

In accordance with the Companies Law (revised) of the Cayman Islands, the share premium account is distributable to the shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of business. The share premium may also be distributed in the form of fully paid bonus shares.

– 46 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

15 TRADE PAYABLES

The Group’s suppliers grant credit periods ranging from 30 to 90 days to the Group. The ageing analysis of trade payables is as follows:


				2007	2006
				HK$’000	HK$’000
0	–	60	days	333,235	213,233

The carrying amounts of trade payables approximate their fair values.

16 CONVERTIBLE BONDS

The Company issued to ABN AMRO Bank NV (“ABN”) zero coupon convertible bonds at a nominal value of HK$66,000,000 on 2 March 2006. Net proceeds from the convertible bonds amounted to HK$64,020,000, after netting off the direct transaction costs of HK$1,980,000.

The bonds mature two years from the issue date at their maturity value of approximately HK$76,470,000 or can be converted into shares at the holder’s option at a conversion price of HK$0.72 per share.

At any time prior to the maturity date, the Company may redeem the convertible bonds at the redemption price and in the specified redemption period if at least 90 percent in principal amount of the bonds has already been converted, redeemed or purchased and cancelled.

The conversion price will be subject to adjustment for consolidation, subdivision or reclassification of shares, capitalisation of profits or reserves, capital distributions, rights issues, issues at less than current market price, modification of rights of conversion, and other dilutive events.

The fair values of the liability component and the equity conversion component were determined at date of issuance of the bonds.

The fair value of the liability component was calculated using a market interest rate for an equivalent non-convertible bond. The residual amount, representing the fair value of the equity conversion component, is included in shareholders’ equity, net of tax (Note 14).

Equity component: Beginning of year Initial recognition at 2 March 2006 Conversion of bonds into the Company’s new ordinary shares during the year End of year Liability component: Beginning of year Initial recognition at 2 March 2006 Interest accrual (Note 21) Conversion of bonds into the Company’s new ordinary shares during the year End of year	Group and Company 2007 2006 HK$’000 HK$’000 996 – – 996 (996) – – 996	Group and Company 2007 2006 HK$’000 HK$’000 996 – – 996 (996) – – 996
		996

	63,544 – 2,636 (66,180)	– 63,024 520 –
	–	63,544

– 47 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Up to 21 December 2006, all the convertible bonds had been converted into 91,666,666 new shares of the Company, representing 9.84% of the Company’s enlarged issued share capital of 931,666,666 shares at that time.

Interest expense on the convertible bonds for the year ended 31 March 2007 is calculated using the effective interest method by applying the effective interest rate of 10.15% (2006: 10.15%) to the liability component.

17 DEFERRED TAXATION

Deferred taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2006: 17.5%).

The movement of the deferred tax liability during the year is as follows:

Accelerated tax depreciation Beginning of year (Credited)/charged to the consolidated profit and loss account (Note 22) End of year	Group 2007 2006 HK$’000 HK$’000 237 171 (37) 66 200 237	Group 2007 2006 HK$’000 HK$’000 237 171 (37) 66 200 237
		237

There were no significant unprovided deferred tax assets as at 31 March 2007 (2006: Nil).

18 TURNOVER AND SEGMENT INFORMATION

Turnover represents gross invoiced sales, net of discounts and returns. Revenue recognised during the year is as follows:

					2007	2006
					HK$’000	HK$’000
Turnover	–	Sale	of	goods	4,236,829	3,705,633

No business segment information (primary segment information) is presented as the Group is operating in a single business segment which is the distribution of IT products.

No geographical segment information is presented as all the Group’s turnover and contribution to operating results were substantially derived from the distribution of IT products carried out in Hong Kong.

19 OTHER GAINS, NET

Interest income Loss on disposal of available-for-sale financial assets Loss on disposal of property, plant and equipment Derivative financial instruments: forward contracts, transactions not qualifying as hedges – Changes in fair value of forward contracts – Gain on settlement of forward contracts upon maturity	2007 HK$’000 4,895 (2,000) (317) – – 2,578	2006 HK$’000 1,524 – (4) (1,941) 1,906
		1,485

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20 OPERATING PROFIT

Operating profit is stated after crediting and charging the following:

Crediting Rebates and discounts from suppliers Charging Cost of inventories Staff costs, including directors’ emoluments – Salaries, allowance and welfare – Provident fund contributions Operating lease rentals in respect of premises and warehouse Net exchange loss Bad debt written off Auditor’s remuneration Depreciation of property, plant and equipment – Owned – Leased Inventory provision Loss on disposal of property, plant and equipment Impairment of trade receivables	2007 HK$’000 460,446 4,448,924 20,860 766 3,811 1,221 1,206 1,128 1,123 – 685 317 –	2006 HK$’000 302,470

		3,818,784 17,542 664 2,744 150 – 700 964 78 2,940 4 537

FINANCE COSTS

Interest expense on: – Bank overdrafts and import loans – Interest on convertible bonds (Note 16) – Finance lease	2007 HK$’000 2,620 2,636 – 5,256	2006 HK$’000 5,146 520 2
		5,668

22 TAXATION

The amount of taxation charged to the consolidated profit and loss account represents:

Current taxation – Hong Kong profits tax – PRC income tax Over-provision of Hong Kong profits tax in prior years Deferred taxation (Note 17)	2007 HK$’000 34,741 92 (535) (37) 34,261	2006 HK$’000 24,022 82 (79) 66
		24,091

Hong Kong profits tax has been provided at the rate of 17.5% (2006: 17.5%) on the estimated assessable profit for the year.

– 49 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

PRC income tax represents the Enterprise Income Tax of the representative offices established in the PRC and has been calculated based on the estimated deemed taxable profit for the year in accordance with the relevant PRC tax laws at rates between 15% to 33% (2006: 15% to 33%) prevailing in the PRC municipal jurisdiction.

On 16 March 2007, the National People’s Congress of the PRC approved the Corporate Income Tax Law (the “new CIT Law”). The new CIT Law reduces or increases the corporate income tax rate for domestic enterprises or foreign invested enterprises from 33% or 24% or 15% to a fixed rate of 25% with effect from 1 January 2008. The new CIT Law provides that further detailed measures and regulations on the determination of taxable profit, tax incentives and grandfathering provisions will be issued by the State Council in due course. As and when the State Council announces the additional regulations, the Group will assess their impact, if any, and this change in accounting estimate will be accounted for prospectively.

The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the taxation rate of Hong Kong as follows:

Profit before taxation Calculated at a taxation rate of 17.5% (2006: 17.5%) Effect of different tax rates in different tax jurisdictions Income not subject to taxation Expenses not deductible for taxation purposes Over-provision in prior years Utilisation of previously unrecongised tax losses Deemed Enterprise Income Tax in the PRC Taxation charge	2007 HK$’000 195,594	2006 HK$’000 135,859
	34,229 70 (918) 1,323 (535) – 92	23,775 – (236) 624 (79) (75) 82
	34,261	24,091

23 PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

The profit attributable to shareholders of the Company is dealt with in the accounts of the Company to the extent of HK$134,009,000 (2006: HK$52,701,000).

24 DIVIDENDS

Interim, paid, of HK3.2 cents (2006: HK1.5 cents) per ordinary share Final, proposed, of HK4.6 cents (2006: HK4.5 cents) per ordinary share	2007 HK$’000 29,813 42,857 72,670	2006 HK$’000 12,600 39,863
		52,463

At a meeting held on 9 July 2007, the Directors proposed a final dividend of HK4.6 cents per ordinary share. The 2007 proposed final dividend is based on 931,666,666 shares in issue at 9 July 2007. This proposed dividend is not reflected as a dividend payable in these consolidated accounts.

Such dividend represented HK$42,857,000 for the 931,666,666 shares in issue as at 31 March 2007.

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

25 EARNINGS PER SHARE

Basic

The calculation of basic earnings per share is based on the profit attributable to shareholders of HK$161,333,000 (2006: HK$111,768,000) and the weighted average of 892,740,000 shares (2006: 840,000,000 shares) in issue during the year.

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding assuming conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares which is convertible bonds. The convertible bonds are assumed to have been converted into ordinary shares and the net profit is adjusted to eliminate the interest expense less the tax effect. The weighted average number of ordinary shares in issue is compared with the number of shares that would have been issued assuming the conversion of the convertible bonds.

Profit attributable to equity holders of the Company Interest expense on convertible bonds (net of tax) Profit used to determine diluted earnings per share Weighted average number of ordinary shares in issue (thousands) Adjustments for – assumed conversion of convertible bonds (thousands) Weighted average number of ordinary shares for diluted earnings per share (thousands) Diluted earnings per share (HK cents per share)	2007 HK$’000 161,333 2,175 163,508	2006 HK$’000 111,768 429
		112,197

	892,740 38,927	840,000 7,534
	931,667 17.55	847,534

		13.24

(a) Directors’ emoluments

The aggregate amounts of emoluments paid or payable to Directors of the Company during the year are as follows:

Fees Other emoluments – Basic salaries and housing allowances – Discretionary bonus – Contributions to pension scheme	2007 HK$’000 340 3,562 100 101 4,103	2006 HK$’000 335 3,718 1,000 186
		5,239

– 51 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The remuneration of each Director for the year ended 31 March 2007 is set out below:

Name of Director Executive Directors Li Jialin William Choo (i) Non-executive Directors Sun Ali (v) Cheng Kam Chung (ii) Independent Non-executive Directors Chan Po Fun, Peter Ni Zhenwei Hu Yebi (iv) Hui Hiu Fai (iii)	Fees HK$’000 – – 60 – 120 60 11 89 340	Basic salaries and housing allowance HK$’000 1,924 1,638 – – – – – – 3,562	Discretionary bonus HK$’000 100 – – – – – – – 100	Contribution to pension scheme HK$’000 101 – – – – – – – 101	Total HK$’000 2,125 1,638 60 – 120 60 11 89
					4,103

Notes:

(i) Appointed on 28 April 2006
(ii) Changed from executive Director to non-executive Director on 11 August 2006
(iii) Appointed on 9 May 2006
(iv) Resigned on 8 May 2006
(v) Resigned on 8 May 2007

– 52 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The remuneration of each Director for the year ended 31 March 2006 is set out below:

Name of Director Executive Directors Li Jialin Cheng Kam Chung Non-executive Director Sun Ali Independent Non-executive Directors Chan Po Fan Peter (i) Hu Yebi (ii) Liu Yong Ping (iii) Ni Zhenwei	Fees HK$’000 – – 60 115 89 11 60 335	Basic salaries and housing allowance HK$’000 1,924 1,794 – – – – – 3,718	Discretionary bonus HK$’000 1,000 – – – – – – 1,000	Contribution to pension scheme HK$’000 96 90 – – – – – 186	Total HK$’000 3,020 1,884 60 115 89 11 60
					5,239

Notes:

(i) Appointed on 16 April 2005
(ii) Appointed on 9 May 2005 and resigned on 8 May 2006
(iii) Resigned on 8 May 2005

Directors’ emoluments disclosed above include approximately HK$280,000 (2006: HK$275,000) paid to independent non-executive Directors.

No emoluments have been paid to these individuals as an inducement to join or upon joining the Group or as compensation for loss of office during year (2006: Nil).

During the year, no Director of the Company waived any emoluments (2006: Nil).

– 53 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year included two (2006: two) Directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining three (2006: three) individuals during the year are as follows:

Basic salaries and allowances Discretionary bonuses Contributions to pension schemes	2007 HK$’000 1,656 360 77 2,093	2006 HK$’000 1,602 450 81
		2,133

The emoluments fell within the following bands:

	Number of individuals
	2007	2006
Emolument band
Nil – HK$1,000,000	3	3

27 RETIREMENT SCHEME ARRANGEMENTS

The Group arranges for the employees of its subsidiaries and representative offices to join retirement schemes operated in Hong Kong and the PRC.

Prior to 1 December 2000, certain companies now comprising the Group had arranged for their employees to join a defined contribution scheme in Hong Kong. The scheme covered full-time employees and provided for contributions ranging from 5% to 10% of the employees’ earnings.

Since 1 December 2000, the subsidiary in Hong Kong has arranged for its employees to join the Mandatory Provident Fund Scheme (the “MPF Scheme”) pursuant to the Mandatory Provident Fund Legislation. Under the MPF Scheme, the Group and each of the employees make monthly contributions to the scheme at 5% of the employees’ earnings as defined under the Mandatory Provident Fund Legislation. For those employees who joined the Group on or before 1 December 2000, the employees’ contribution is subject to a cap of monthly earnings of HK$20,000 per employee. For those employees who joined the Group after 1 December 2000, both the employer’s and employees’ contributions are subject to a cap of monthly earnings of HK$20,000 per employee.

The Group’s employees of the subsidiaries and representative offices in the PRC participate in the retirement schemes regulated by the respective province. In accordance with the respective provincial laws and regulations, the Group is required to contribute a sum of not more than 20% of the total wages payable to each employee of the subsidiaries and the registered representative offices established in the PRC whilst the relevant employees are required to contribute a sum of not more than 8% of their respective wages as the employees’ basic contribution. The Group has no further retirement benefit obligation beyond the above required contributions to the retirement schemes.

The aggregate net amount of employer’s contributions made by the Group to the retirement schemes for employees is approximately HK$786,000 (2006: HK$664,000).

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of profit before taxation to net cash generated from operations

Profit before taxation Interest income Interest expense Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Loss on disposal of available-for-sale financial assets Fair value change on derivative financial instruments Operating profit before working capital changes Changes in working capital Trade receivables Bills receivable Prepayments and other receivables Inventories Trade payables Accruals and other payables Net cash generated from operations	2007 HK$’000 195,594 (4,895) 5,256 1,123 317 2,000 –	2006 HK$’000 135,859 (1,524) 5,668 1,042 4 – 1,941
	199,395 (205,231) 17,908 (1,912) (124,242) 120,002 1,713	142,990 70,587 (17,908) (412) 15,715 8,843 (1,151)
	7,633	218,664

(b) Analysis of changes in financing activities

Share capital HK$’000 84,000 – – – – – 84,000	Share premium HK$’000 30,411 – – – – – 30,411	Import loans Obligation under finance lease Convertible bonds Equity component Liability component HK$’000 HK$’000 HK$’000 HK$’000 89,636 97 – – 723,861 – – – (813,497) – – – – (97) – – – – 996 63,024 – – – 520 – – 996 63,544	Import loans Obligation under finance lease Convertible bonds Equity component Liability component HK$’000 HK$’000 HK$’000 HK$’000 89,636 97 – – 723,861 – – – (813,497) – – – – (97) – – – – 996 63,024 – – – 520 – – 996 63,544	Import loans Obligation under finance lease Convertible bonds Equity component Liability component HK$’000 HK$’000 HK$’000 HK$’000 89,636 97 – – 723,861 – – – (813,497) – – – – (97) – – – – 996 63,024 – – – 520 – – 996 63,544	Import loans Obligation under finance lease Convertible bonds Equity component Liability component HK$’000 HK$’000 HK$’000 HK$’000 89,636 97 – – 723,861 – – – (813,497) – – – – (97) – – – – 996 63,024 – – – 520 – – 996 63,544
					63,544

84,000 – – – 9,167	30,411 – – – 58,009	– 182,845 (182,845) – –	– – – – –	996 – – – (996)	63,544 – – 2,636 (66,180)
93,167	88,420	–	–	–	–

– 55 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

29 COMMITMENTS UNDER OPERATING LEASES

As at 31 March 2007, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Not later than one year Later than one year and not later than five years	Land and buildings 2007 2006 HK$’000 HK$’000 4,723 2,983 3,191 678 7,914 3,661	Land and buildings 2007 2006 HK$’000 HK$’000 4,723 2,983 3,191 678 7,914 3,661
		3,661

RELATED PARTY TRANSACTIONS

The following transactions were carried out with related parties:

(a) Director’s quarter

On 31 March 2006, the Group entered into a rental agreement with Mr. Li Jialin, the Chairman and an executive Director of the Company, in respect of director’s quarter. Pursuant to the agreement, the Group paid a monthly rental of HK$80,000 to Mr. Li Jialin for a term of 12 months from 1 April 2006 to 31 March 2007 (2006: monthly rental of HK$80,000 to Mr. Li Jialin for a term of 12 months from 1 April 2005 to 31 March 2006).

(b) Key management compensation

Basic salaries and allowances Discretionary bonuses Contribution to pension scheme	2007 HK$’000 3,562 100 101 3,763	2006 HK$’000 3,718 1,000 186
		4,904

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP FOR EACH OF THE LAST THREE FINANCIAL YEARS ENDED 31 MARCH 2007
C-1. Financial Years Ended 31 March 2007

Business Review

In keeping abreast of the fast-changing market conditions and product trend in the IT industry, the Group has closely monitored its performance and aligned itself by undertaking various measures which include establishing representative offices and liaison points throughout major cities in the PRC so as to strengthen ties with its customers. This allowed the Group to be closer to its end-users thus enabling it to react swiftly to the changing market needs and continuously provide customized value-added services.

The Group has been keeping pace with the market development in order to strengthen its competitiveness and has been actively undertaking “Three Enhancement” development strategy. These are continual improvement in the corporate management, products and distribution channels. Remarkable results have been derived and disclosed in the current year’s annual report. Moreover, by means of widening our products and distribution channels, our market share in the PRC has markedly increased and which has become a strong foundation for future development.

In the past few years, there has been intense competition in the global IT industry, and many IT companies continuously adjusted their products, prices and service strategies in an attempt to stay competitive. In order to stay in the market forefront, the Group not only expanded its sales and distribution network and enriched its product portfolio, but also enhanced its distribution efficiency with improved after-sales services and other value-added services, so as to boost its market competitiveness. In 2006, the Group was once again honorably bestowed by its suppliers various awards which included Seagate’s “Distributor of The Year Award FY2006”; AMD’s “Distributor of The Year 2006 China”, Maxtor’s “Fastest Growing Distributor of The Year 2006 – APAC” as well as “Best Product Manager of the Year 2006” for the recognition of the Group’s outstanding performance; and also Corsair’s Top Business Partner 2006 as well as 2006 Award for Outstanding Contribution & Co-operation.

During the year under review, our Group has continually and successfully obtained the authorized distributorship for three new international brands, namely Western Digital’s disk drive products in Hong Kong and the PRC, the respective exclusive distributorship for PDP Systems Inc.’s DRAM and flash memory modules, as well as Walton Chaintech’s memory module in the PRC. As a result of the Group’s dedicated efforts, the Group has achieved another record high in turnover and net profit as stated in the consolidated profit and loss account session of this annual report.

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Prospects

The IT sector has been one of the fastest growing industries and the PRC will remain as one of the vital supply bases for the semiconductor and IT industry in the world. Under the development blueprint for the 11th Five-Year Plan of the PRC, the mainland has set to fully open its market to foreign competitors under the agreements it made for the membership of the World Trade Organization. Moreover, the PRC government’s determination to move the whole nation into the “Digital Age” and IT development has become the foundation of the nation’s policy. As a result, the huge potential for the IT market have attracted many foreign as well as local players to set foot in the PRC market to grab new business opportunities. Major foreign IT products manufacturers including Seagate, Western Digital and AMD are targeting the PRC to be their key growth drivers.

Pursuant to the release of the Microsoft Vista during early 2007, there will be a large demand for IT products in the region which will inevitably give rise to positive effect to our Group. Given the PRC’s continuous and concrete economy, whilst coupled with the improving global economic outlook, Hong Kong’s economy has in return exhibited a solid upturn. Our Group will capitalize such positive sentiment and increase its sales by proactively seeking opportunities to strengthen our distribution network through expanding the sales network in Hong Kong and the PRC.

Leveraging on its internationally reputable IT and digital media products manufacturers including Seagate, Maxtor, Western Digital, AMD, and Corsair in the global IT and digital media market, our Group has positioned itself as the distributor of high-quality and reliable IT and digital media products and has earned considerable trust from its customers. Besides, our Group will continue to gauge the market demand and look for reputable IT and digital products to enrich its distribution portfolio. In order to ensure value-for-money, our Group will continually improve the before-sale, after-sale and technical support services to our customers.

On the product front, the Group will also continue its endless pursuit to look for a variety of modern and functional digital products for its customers. Through the introduction of new products, the Group is able to diversify its revenue stream and appeal to a wide range of customer tastes. As a result of the Group’s achievement in obtaining the authorized distributorship for additionally three new international brands, namely Western Digital’s disk drive products in Hong Kong and the PRC, the respective exclusive distributorship for PDP Systems Inc.’s DRAM and flash memory modules, as well as Walton Chaintech’s memory module in the PRC, our business will definitely continue to expand and attract more customers through offering them with the latest and a wider range of high quality IT products.

In view of the Group’s highly responsive and efficient management team together with its extensive distribution network, our suppliers will continue to rank the Group as one of the chosen authorized distributors for internationally reputable IT and digital media products. Not resting on its laurels, the Group will continually look for opportunities to further expand its supplies and network in the region so as to reinforce its competitive edge in the marketplace and bring even more sales revenue and profits to the Group. Without losing focus, our Group will continue to make use of these competitive advantages and expand our core business of distributing computer, digital and multimedia products business.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Whilst the IT and digital media industry in the PRC is still enjoying a fast and healthy growth, the management admits that the competitive landscape remains tough and our Group is fully prepared to meet the challenges. Nevertheless, the management firmly believes that the IT and digital media industry in the PRC will continue to be one of the fastest growing areas in the world and will offer great potential and opportunities. Based on sound experience in the IT and digital media industry, the Group will endeavour to enhance its value by various measures including effective cost control, risk management, acute responsiveness to market changes, strong capabilities in sales and marketing in order to stay ahead of the competition and achieve even better returns for its shareholders in the coming years.

Financial Review

The Group’s turnover for the year ended 31 March 2007 amounted to approximately HK$4,236,829,000 (2006: approximately HK$3,705,633,000), representing an increase of approximately 14% as compared with that of last year. Profit attributable to shareholders amounted to approximately HK$161,333,000 (2006: approximately HK$111,768,000), representing an increase of approximately 44% as compared with that of last year. The main reason for the increase in net profit was mainly due to the maiden launch of a new brand product named Western Digital and the marked increase in the sale of Maxtor and Corsair products. The basic earnings per share for the year amounted to HK18.07 cents (2006: HK13.31 cents), while diluted earnings for share was approximately HK17.55 cents (2006: approximately HK13.24 cents).

The Group endeavoured to control its operating expenses and finance costs whilst increasing its interest income substantially through frequently placing surplus funds in short term deposits during the year under review. The continued improvement in the working capital management has resulted in less reliance on interest-bearing advances.

Liquidity and Financial Resources

As at 31 March 2007, the Group’s cash and bank deposits were approximately HK$123.9 million (2006: approximately HK$219.1 million).

As at 31 March 2007, the Group had no borrowings (2006: HK$63.5 million). The gearing ratio, calculated as the total borrowings less pledged bank deposits and divided by shareholders’ equity, was nil (2006: approximately 0.25).

During the year under review, all the convertible bonds at the aggregate principal amount of HK$66,000,000 at conversion price of HK$0.72 have been converted into 91,666,666 shares representing approximately 9.84% of the enlarged issued share capital of the Company.

As at 31 March 2007, the Group recorded total current assets of approximately HK$761.6 million (2006: approximately HK$543.4 million) and total current liabilities of approximately HK$354.6 million (2006: approximately HK$234.1 million). The current ratio of the Group, calculated by dividing the total current assets by the total current liabilities, was approximately 2.15 times as at 31 March 2007 (2006: approximately 2.32 times).

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group recorded an increase in shareholders’ funds from approximately HK$258.1 million as at 31 March 2006 to approximately HK$419.1 million as at 31 March 2007. The increase was mainly derived from the net increase in net profit after tax.

Treasury Policies

The Group generally finances its operations with internally generated resources and banking facilities provided by banks in Hong Kong. The bank borrowings of the Group were predominantly subject to floating interest rates.

Cash and bank deposits of the Group were mainly denominated in Hong Kong dollars, United States dollars and Renminbi.

Transactions of the Group are mainly denominated either in Hong Kong dollars or United States dollars. For the purpose of optimization of cash resources, the Group regularly placed surplus funds into short term deposits and interest received from banks during the year ended 31 March 2007 was approximately 4.895 million (2006: approximately HK$1.524 million).

Material Acquisition/Disposal and Significant Investments

During the year under review, the Group has disposed of its investments in two companies, namely Dic Video Technology Company Limited (“DIC”) and (“DVT Company Limited”). DIC and DVT Company Limited were authorized distributor of Western Digital’s hard disk drives. As one of the Company’s subsidiary, VST Computers (H.K.) Limited has already obtained the distribution right of Western Digital’s hard disks drives, the Directors considered that the investments in the aforesaid companies were unnecessary.

Save as disclosed herewith, the Group did not have any material acquisition, disposal and significant investments during the year under review.

Charge on Assets

As at 31 March 2007, the Group had pledged bank deposits of RMB10 million (equivalent to approximately HK$10 million) for PRC custom purpose.

Contingent Liabilities

As at 31 March 2007, the Group did not have any significant contingent liabilities.

Employees

As at 31 March 2007, the Group had 162 (2006: 71) full time employees.

The Group remunerated its employees mainly based on the industry practice, individual’s performance and experience. Apart from the basic remuneration, discretionary bonus and share

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

option may be granted to eligible employees by reference to the Group’s performance as well as individual’s performance. Other benefits include medical, annual leave and retirement schemes. The net total remuneration paid for the year ended 31 March 2007 amounted to approximately HK$21,626,000 (2006: HK$18,206,000). The Group also provides training courses or seminars to its staff.

Save as disclosed herewith, no information in relation to the Group’s performance has changed materially from the information disclosed in the annual report of the Company for the year ended 31 March 2006.

Foreign Exchange Risk

C-2. Financial Years Ended 31 March 2006

Business Review

In keeping abreast of the fast-changing market conditions and product trend in the information technology (“IT”) industry, the Group has closely monitored its performance and aligned itself by undertaking various measures which include establishing representative offices and liaison points throughout major cities in the PRC so as to strengthen ties with its customers. This allowed the Group to be closer to its end-users thus enabling it to react swiftly to the changing market needs and continuously provide customized value-added services.

In order to strengthen our market competitiveness, we aimed to widen our product range and provide more choices in the IT and multimedia products market for our customers. The introduction of our digital electronics products like MP3 and Portable Multimedia Players have been trading under the brand name “KISS” since 2004. Such products have generated a positive and warm response from the market in light of its advanced functions and customized features which include lighting, handy size and fashionable outlook.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

services, so as to boost its market competitiveness. In 2005, the Group was once again honorably bestowed by its suppliers various awards which included Seagate’s “Outstanding Contributions: Key Market Segments FY2005”; AMD’s “PC Best PIB Distributor China” and “Top Performing Distributor 2005 (China)”; Maxtor’s “Outstanding Contributions: Key Market Segments FY2005” and also Corsair’s “Award for Outstanding Contribution and Co-operation” for the recognition of the Group’s outstanding performance.

During the year under review, our Group successfully obtained the authorized distributorship for four new international brands which included Maxtor’s hard disk drive in Hong Kong and the PRC, Lexar Media’s complete line of memory product in the PRC, Asrock’s motherboard in the PRC and the exclusive distributorship for Corsair memory products in the PRC. As a result of the Group’s dedicated efforts, the Group has achieved another record high in turnover and net profit during the year under review.

Prospects

The IT sector has been one of the fastest growing industries and the PRC will remain as one of the vital supply bases for the semiconductor and IT industry in the world. Under the development blueprint for the 11th Five-Year Plan of the PRC, the mainland is set to fully open its market to foreign competitors by the end of this year under the agreements it made for the membership of the World Trade Organization. Moreover, the organization of Beijing 2008 Olympic Games, the Shanghai 2010 World Expo as well as the PRC government’s determination to move the whole nation into the “Digital Age”, the huge potential risen from this burgeoning market have attracted many foreign as well as local players to set foot in the mainland market to grab new business opportunities. Major foreign manufacturers including Seagate and AMD are targeting the PRC to be their key growth driver.

With effect from 1 January 2006, Hong Kong and the PRC have commenced the third phase of Closer Economic Partnership Arrangement (CEPA III) which will result in further liberalization in the scope and depth of participation of Hong Kong business in the PRC market. Given the PRC’s continuous and concrete economy, whilst coupled with the improving global economic outlook, Hong Kong’s economy has in return exhibited a solid upturn. Our Group will capitalize such positive sentiment and increase its sales by proactively seeking opportunities to strengthen our distribution network through expanding the sales network in Hong Kong and the PRC.

Leveraging on its internationally reputable IT and digital media products manufacturers including Seagate, AMD, Maxtor, Lexar, Corsair and Asrock in the global IT and digital media market, our Group has positioned itself as the distributor of high-quality and reliable IT and digital media products and has earned considerable trust from its customers. Besides, our Group will continue to gauge the market demand and source for reputable IT and digital products to enrich its distribution portfolio. In order to provide superior value-added services, our Group will continually improve the before-sale, after-sale and technical support services to our customers.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On the product front, the Group will also continue its endless pursuit to source for a variety of modern and functional digital products for its customers. Through the introduction of new products, the Group is able to diversify its revenue stream and appeal to a wide range of customer tastes. During the year under review, our Group has successfully obtained the authorized distributorships for Maxtor Corporation’s storage products in the PRC and Hong Kong, Lexar Media, Inc’s digital media products in the PRC; exclusive distributorship for Corsair Memory’s personal computer memory products in the PRC and also Asrock’s motherboard in the PRC. As a result, our business will continue to expand and attract more customers through offering them with the latest and a wider range of high quality IT products.

Financial Review

The Group’s turnover for the year ended 31 March 2006 amounted to approximately HK$3,705,633,000 (2005: approximately HK$2,801,165,000), representing an increase of approximately 32% as compared with that of last year. Profit attributable to shareholders amounted to approximately HK$111,768,000 (2005: approximately HK$27,424,000), representing an increase of approximately 308% as compared with that of last year. The main reason for the increase in net profit was mainly due to a marked increase in the sale of Seagate, AMD and KISS as well as the maiden launch of other new brand products including Maxtor and Corsair. The basic earnings per share for the year amounted to HK13.31 cents (2005: HK3.71 cents), while diluted earnings for share was approximately HK13.24 cents (2005: approximately HK3.71 cents).

The Group endeavoured to control its operating expenses and net finance cost during the year under review. The Group has implemented an effective control in operating costs. Furthermore, the continued improvement in the application of working capital have resulted in less reliance on interest-bearing advances.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and Financial Resources

As at 31 March 2006, the Group’s cash and bank deposits were approximately HK$219.1 million (2005: approximately HK$46.9 million).

As at 31 March 2006, the Group’s borrowings were HK$63.5 million (2005: HK$89.6 million). The gearing ratio, calculated as the total borrowings less pledged bank deposits and divided by shareholders’ equity, was approximately 0.25 (2005: approximately 0.43).

The Company issued to ABN AMRO Bank N.V. (“ABN”) zero coupon convertible bonds at a nominal value of HK$66,000,000 on 2 March 2006. Net proceeds from the convertible bonds amounted to HK$64,020,000, after netting off the direct transaction costs of HK$1,980,000.

The bonds mature two years from the issue date at their maturity value of approximately HK$76,470,000 or can be converted into shares at the holder’s option at conversion price of HK$0.72 per share.

As at 31 March 2006, the Group recorded total current assets of approximately HK$543.4 million (2005: approximately HK$458.3 million) and total current liabilities of approximately HK$234.1 million (2005: approximately HK$299.2 million). The current ratio of the Group, calculated by dividing the total current assets by the total current liabilities, was approximately 2.32 times as at 31 March 2006 (2005: approximately 1.53 times).

The Group recorded an increase in shareholders’ funds from approximately HK$161.9 million as at 31 March 2005 to approximately HK$258.1 million as at 31 March 2006. The increase was mainly derived from the net increase in net profit after tax.

Treasury Policies

Cash and bank deposits of the Group were mainly denominated in Hong Kong dollars and United States dollars.

Transactions of the Group are mainly denominated either in Hong Kong dollars or United States dollars. For hedging purpose, the Group entered into foreign exchange forward agreements with some banks during the year under review for purchasing foreign currency to settle foreign currency transactions.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Material Acquisition/Disposal and Significant Investments

During the year under review, the Group has invested an aggregate of HK$10,000,000 in two companies, namely Dic Video Technology Company Limited (“DIC”) and (“DVT Company Limited”) for the acquisition of 10% of shareholding interests in each of these companies. The principal activity of DIC is the trading of hard disk drives whereas that of DVT is the trading of hard disk drives, motherboards and MP3.

Save as disclosed herewith, the Group did not have any material acquisition, disposal and significant investments during the year under review.

Charge on Assets

The Group’s banking facilities were not secured by pledged bank deposits as at 31 March 2006 (2005: approximately HK$19,244,000).

Contingent Liabilities

As at 31 March, 2006, the Group did not have any significant contingent liabilities.

Events After the Balance Sheet Date

On 14 April 2006, the Company injected RMB20,000,000 as registered capital into a newly incorporated wholly foreign owned enterprise (“WFOE”) named “

” (“Shenzhen VST Wang Yip Electronic Company Limited”). Such WFOE will be engaged in wholesale and distribution of IT products within the PRC.

On 11 May 2006, the Company allotted 45,833,333 ordinary shares with par value of HK$0.1 each upon the conversion of convertible bonds by ABN AMRO Bank N.V. with the principal consideration of HK$33,000,000 at the conversion price of HK$0.72. Such ordinary shares rank pari passu with the existing ordinary shares.

Details of the convertible bonds are set out in the announcement of the Company dated 16 February 2006.

Employees

As at 31 March 2006, the Group had 71 (2005: 56) full time employees.

In order to ensure a formal and transparent procedure for fixing the remuneration of Directors and senior management, a remuneration committee consisting of three independent non-executive directors and not more than two executive Directors was established on 29 September 2005.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group remunerated its employees mainly based on the industry practice, individual’s performance and experience. Apart from the basic remuneration, discretionary bonus and share option may be granted to eligible employees by reference to the Group’s performance as well as individual’s performance. Other benefits include medical, annual leave and retirement schemes.

Foreign Exchange Risk

To manage the foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, the Group enters into foreign currency forward contracts to reduce foreign exchange risk.

C-3. Financial Year Ended 31 March 2005

Business Review

As the Information Technology (“IT”) industry in the PRC continued to grow and present unlimited opportunities for all industry players, the Group rode on the wave and delivered a satisfactory result for the year under review. Turnover for the year under review grew by about 13% to approximately HK$2,801.2 million (2004: approximately HK$2,489.3 million) and net profit attributable to shareholders increased by about 37% to approximately HK$27.4 million (2004: approximately HK$20.1 million).

In keeping abreast with the fast-changing market conditions and product trend in the IT industry, the Group has closely monitored its performance and aligned itself by undertaking various measures. Firstly, our Group has established representative offices and liaison points throughout the major cities such as Beijing, Shanghai and Shenzhen in the PRC so as to tie up more closely with its customers. This allowed the Group to be closer to its end-users thus enabling it to react swiftly to the changing market needs and continuously provide customized value-added services.

Secondly, with the rapid expansion of the digital product market in the PRC in recent years, the sale of digital products has been growing rapidly. Our Group has set up a digital department during the year under review to focus solely on the distribution of digital electronics products including MP3 and Portable Multimedia Players with a brand name “KISS”. The management expects that this new business sector will become one of the major growth drivers for the Group in the future.

In the past few years, there has been intense competition in the global IT industry, and many IT companies continuously adjusted their products, prices and service strategies, in an

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

attempt to stay competitive. The Group not only expanded its sales and distribution network and enriched its product portfolio, but also enhanced its distribution efficiency, and improved its after-sales and other value-added services, to boost its market competitiveness. As a result of the Group’s aggressiveness and dedicated efforts, in 2004, the Group was once again honorably bestowed by Seagate Singapore International Headquarters Pte. Ltd., one of its major suppliers, the “Outstanding Achievement: Personal Storage FY2004” Award. In addition, the Group was awarded by AMD the “PC Best PIB Distributor 2004” in the AMD Global Distributors Conference held in Maranello, Italy in 2005 in recognition of the Group’s outstanding performance during the year under review.

Prospects

In light of the PRC’s entry into the WTO, the organization of Beijing 2008 Olympic Games, Shanghai 2010 World Expo as well as the PRC government’s determination to move the whole nation into the “Digital Age”, the IT sector has been one of the fastest growing industries and the PRC will remain as one of the fastest growing IT markets in the world in the next few years. The huge potential arisen from this burgeoning market has attracted many foreign as well as local players to set foot in the mainland market so as to grab new business opportunities and major foreign manufacturers such as Seagate and AMD are targeting the PRC to be their key growth driver.

Benefited from the Closer Economic Partnership Arrangement (CEPA) signed by the government of Hong Kong Special Administrative Region (“HKSAR”) and the PRC together with the introduction of the Individual Mainland Tourists Scheme which enables many PRC tourists visiting HKSAR to help stimulating HKSAR’s economy, the Group expects to increase its sales through a better spending atmosphere in the local market.

Leveraging on its internationally reputable IT product manufacturers such as Seagate and AMD in the global IT market, our Group has positioned itself to be the distributor of high-quality and reliable IT products and earned considerable trust from its customers. Besides, our Group will continue to gauge the market demand and source for reputable IT and digital products to enrich its distribution portfolio. In order to provide superior value-added services, our Group will continually improve the before-sale, after-sale and technical support services to our customers.

As for the relationship with its suppliers, the Group’s highly responsive and efficient management team and extensive distribution network will continue to rank the Group as one of the choice authorized distributors for internationally reputable IT and digital product manufacturers which wish to enter the PRC market. Not resting on its laurels, the Group will continually look for opportunities to further expand its network in the region so as to reinforce its competitive edge in the marketplace and bring even more sales revenue and profit for both the Group and its suppliers.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Whilst the IT industry in the PRC is still enjoying stable and healthy growth, the management admits that the competitive landscape remains tough and the Group is fully prepared to meet the challenges. Nevertheless, the management firmly believes that the IT industry in the PRC will continue to be the fastest growing area in the world and will offer great potential and opportunities. Based on sound experience in the IT industry, the Group will endeavour to enhance its value by various measures including effective cost control, risk management, responsiveness to market changes, strong capabilities in sales and marketing so as to stay ahead of the competition and achieve even more promising returns for its shareholders in coming years.

Financial Review

The Group’s turnover for the year ended 31 March 2005 amounted to approximately HK$2,801,165,000 (2004: approximately HK$2,489,257,000), representing an increase of approximately 13% as compared with last year. Profit attributable to shareholders amounted to approximately HK$27,424,000 (2004: approximately HK$20,057,000), representing an increase of approximately 37% as compared with last year. The main reason for the increase in net profit was mainly due to a marked increase in the sale of Seagate and AMD products. The basic earnings per share for the year amounted to HK3.71 cents (2004: HK2.87 cents).

The Group endeavoured to control its operating expenses and net finance cost during the year under review. The Group has implemented an effective control on operating cost successfully. Furthermore, net finance costs were lowered because of decreasing borrowing cost and continued improvement in the application of working capital resulting in less reliance on interest-bearing advances.

Liquidity and Financial Resources

As at 31 March 2005, the Group’s cash and bank deposits were approximately HK$46.9 million (2004: approximately HK$27.8 million).

As at 31 March 2005, the Group’s bank borrowings were approximately HK$89.6 million (2004: HK$120.7 million). The gearing ratio, calculated as the total bank borrowings less pledged bank deposits and divided by shareholders’ equity, was approximately 0.43 (2004: approximately 0.78).

As at 31 March 2005, the Group recorded total current assets of approximately HK$458.3 million (2004: approximately HK$484.9 million) and total current liabilities of approximately HK$299.2 million (2004: HK$372.8 million). The current ratio of the Group, calculated by dividing the total current assets by the total current liabilities, was approximately 1.53 times as at 31 March 2005 (2004: approximately 1.30 times).

The Group recorded an increase in shareholders’ funds from approximately HK$123.0 million as at 31 March 2004 to approximately HK$161.9 million as at 31 March 2005. The increase was mainly derived from the net increase in net profits after tax plus the placing of shares on 20 December 2004.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Treasury Policies

The Group generally finances its operations with internally generated resources and banking facilities provided by banks in Hong Kong. The bank borrowings of the Group was predominantly subject to floating interest rates.

Cash and bank deposits of the Group was mainly denominated in Hong Kong dollars and United States dollars.

Placing of Shares

On 20 December 2004, the Company has placed 140,000,000 ordinary shares of HK$0.10 each (the “Shares”) in the share capital of the Company to independent investors who were not connected persons (as defined in the Rules (the “Listing Rules”) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”)) and who were independent of other places of the Company and its connected persons, at a price of HK$0.139 per Share (the “Placing”). The 140,000,000 Shares represented 20% of the issued share capital of the Company of 700,000,000 Shares as at the time of the Placing and about 16.67% of the Company’s issued share capital of 840,000,000 Shares as enlarged by the Placing.

The Placing price of HK$0.139 represented (a) a discount of about 12.58% to the closing price per Share of HK$0.159 as quoted on the Stock Exchange on 3 December 2004; and (b) a discount of about 11.69% to the average of the closing price per share of HK$0.1574 as quoted on the Stock Exchange for the last five trading days immediately prior to the date of the announcement of the Placing on 3 December 2004.

The gross proceeds from the Placing were about HK$19,460,000. The net proceeds of about HK$19,168,100 from the Placing would be used for strengthening the working capital requirements of the Company and development of the business relating to new digital electronic products.

Further details of the Placing have been disclosed in the announcement of the Company dated 3 December 2004.

Material Acquisition/Disposal and Significant Investments

Save as disclosed herewith, the Group did not have any material acquisition, disposal and significant investments during the year under review.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Charge on Assets

The Group’s banking facilities were secured by pledged bank deposits of HK$19,244,000 (2004: approximately HK$24,744,000).

Contingent Liabilities

As at 31 March 2005, the Group did not have any significant contingent liabilities.

Employees

As at 31 March 2005, the Group had 56 (2004: 44) full time employees.

The Group remunerated its employees mainly based on industry practice, individual’s performance and experience. Apart from the basic remuneration, discretionary bonus and share option may be granted to eligible employees by reference to the Group’s performance as well as individual performance. Other benefits include medical, annual leave and retirement schemes.

Foreign Exchange Risk

D. WORKING CAPITAL OF THE GROUP

The Directors, after due and careful consideration, are of the opinion that, based on available banking facilities and other facilities and internal resources of the Group, and subject to the completion of the following arrangements to finance the Acquisition, the Group has sufficient working capital for its present requirement and for the period ending twelve months from the date of this circular.

As at the date of this circular, the Company is in negotiation with certain financial institutions to finance the Acquisition by way of granting the Bridge Loan and term loan facilities to the Company and placing agents for the placing of VST Shares. The Directors expect to finalise such financing arrangements before completion of the Agreement.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

E. INDEBTEDNESS, LIQUIDITY AND FINANCIAL RESOURCES

Borrowings

As at the close of business on 31 July 2007 (being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular), the Group had total outstanding borrowings of approximately HK$22,054,000, comprising unsecured import loans.

Contingent Liabilities

As at 31 July 2007, the Group had no material contingent liabilities.

Apart from intra-group liabilities, none of the companies in the Group had outstanding at the close of business on 31 July 2007 any bank overdrafts, loans or other similar indebtedness, mortgages, charges, guarantees or other material contingent liabilities.

Subsequent to 31 July 2007, the Directors have confirmed that, save as disclosed above, there has not been any other material change in the indebtedness and contingent liabilities of the Group since 31 July 2007.

– 71 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

The following is a summary of the audited consolidated results for the three financial years ended 31 December 2006 extracted from the published annual financial statements of the ECS Group (presented in Singapore dollars):

A. FINANCIAL INFORMATION

The following financial information has been extracted from ECS’s published audited annual reports and unaudited interim reports prepared in accordance with Sinapore GAAP for the relevant periods.

A-1. ECS’s audited financial statements for year ended 31 December 2006

The following is the audited financial statements of ECS Group for the financial year ended 31 December 2006 extracted from the Annual Report 2006 of ECS Group which is not qualified.

Balance Sheet

As at 31 December 2006

Group 2006 2005 S$’000 S$’000 10,323 11,651 33,522 33,522 – – 6,428 – 667 695 1,987 958	Group 2006 2005 S$’000 S$’000 10,323 11,651 33,522 33,522 – – 6,428 – 667 695 1,987 958	Company 2006 2005 S$’000 S$’000 115 147 – – 139,340 160,368 – – 147 201 – –	Company 2006 2005 S$’000 S$’000 115 147 – – 139,340 160,368 – – 147 201 – –
52,927 123,324 363,305 29,400 516,029 568,956 112,016 78,039 190,055 8,248 198,303	46,826 124,870 360,331 53,723 538,924 585,750 36,360 137,825 174,185 7,589 181,774	139,602 – 57,762 505 58,267 197,869 112,016 6,267 118,283 – 118,283	160,716
			– 41,104 2,414
			43,518
			204,234
			36,360 81,418
			117,778 –
			117,778

– 72 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Note Non-Current Liabilities Financial liabilities 18 Deferred income 19 Deferred tax liabilities 8 Current Liabilities Financial liabilities 18 Deferred income 19 Other borrowings 20 Trade and other payables 21 Current tax payable Total Liabilities Total Equity and Liabilities	Group 2006 2005 S$’000 S$’000 48,789 70,966 239 239 398 436 49,426 71,641 124,906 134,811 321 264 77 84 193,253 195,242 2,670 1,934 321,227 332,335 370,653 403,976 568,956 585,750	Company 2006 2005 S$’000 S$’000 44,822 66,600 – – 27 27 44,849 66,627 31,928 16,650 – – – – 2,809 3,179 – – 34,737 19,829 79,586 86,456 197,869 204,234	Company 2006 2005 S$’000 S$’000 44,822 66,600 – – 27 27 44,849 66,627 31,928 16,650 – – – – 2,809 3,179 – – 34,737 19,829 79,586 86,456 197,869 204,234
			66,627
			16,650 – – 3,179 –
			19,829
			86,456
			204,234

– 73 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Consolidated Income Statement

Year ended 31 December 2006

Note Revenue 23 Cost of sales Gross profit Other income 24 Selling and distribution expenses General and administrative expenses Profit from operations 24 Finance costs 25 Share of profit of associate Profit from operations before tax Income tax expense 26 Profit for the year Attributable to: Equity holders of the parent Minority interests Earnings per share 27 – Basic – Fully diluted	Group 2006 2005 S$’000 S$’000 2,339,309 2,036,278 (2,225,984) (1,940,966) 113,325 95,312 3,852 5,529 (46,828) (42,006) (36,788) (28,953) 33,561 29,882 (8,685) (7,398) 2,133 – 27,009 22,484 (5,507) (3,887) 21,502 18,597 20,052 17,313 1,450 1,284 21,502 18,597 5.5 cents 4.9 cents 5.5 cents 4.8 cents	Group 2006 2005 S$’000 S$’000 2,339,309 2,036,278 (2,225,984) (1,940,966) 113,325 95,312 3,852 5,529 (46,828) (42,006) (36,788) (28,953) 33,561 29,882 (8,685) (7,398) 2,133 – 27,009 22,484 (5,507) (3,887) 21,502 18,597 20,052 17,313 1,450 1,284 21,502 18,597 5.5 cents 4.9 cents 5.5 cents 4.8 cents
	113,325 3,852 (46,828) (36,788) 33,561 (8,685) 2,133 27,009 (5,507)	95,312 5,529 (42,006 (28,953
		29,882 (7,398 –
		22,484 (3,887
	21,502
	20,052 1,450	17,313 1,284
	21,502 5.5 cents 5.5 cents

– 74 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Consolidated Statement of Changes in Equity

Year ended 31 December 2006

Share capital S$’000 35,525	Share premium S$’000 75,656	Dividend reserve S$’000 2,938	Currency translation reserve S$’000 (5,865)	Hedging reserve S$’000 –	Accumulated profits S$’000 51,292	Total attributable to equity holders of the parent S$’000 159,546	Minority interests S$’000 6,257	Minority interests S$’000 6,257
– –	– –	– –	1,189 –	– (1,856)	– –	1,189 (1,856)	210 –
– –	– –	– –	1,189 –	(1,856) –	– 17,313	(667) 17,313	210 1,284
– 835 – – –	– – – – –	– – (2,842) 5,100 –	1,189 – – – –	(1,856) – – – –	17,313 – – (5,100) –	16,646 835 (2,842) – –	1,494 – – – (162)	18,140
								835 (2,842 – (162
36,360	75,656	5,196	(4,676)	(1,856)	63,505	174,185	7,589
36,360	75,656	5,196	(4,676)	(1,856)	63,505	174,185	7,589	181,774
– –	– –	– –	(947) –	– 1,856	– –	(947) 1,856	(254) –	(1,201) 1,856
– – – 75,656 – – –	– – – (75,656) – – –	– – – – (5,091) 5,550 –	(947) – (947) – – – –	1,856 – 1,856 – – – –	– 20,052 20,052 – – (5,550) –	909 20,052 20,961 – (5,091) – –	(254) 1,450 1,196 – – – (537)	655 21,502 22,157 – (5,091) – (537)
112,016	–	5,655	(5,623)	–	78,007	190,055	8,248

– 75 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Consolidated Cash Flow Statement

Year ended 31 December 2006

Note Operating Activities Profit from operations before tax Adjustments for: Share of profit of associate Net fair value changes on financial instruments Depreciation of property, plant and equipment Loss/(gain) on disposal of property, plant and equipment Finance costs Interest income Operating profit before working capital changes Changes in working capital: Inventories Trade and other receivables Trade and other payables Cash generated from operations Income taxes paid Cash flows from/(used in) operating activities Investing Activities Interest received Investment in associate Loan to associate Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Purchase of other assets Cash flows used in investing activities	Group 2006 2005 S$’000 S$’000 27,009 22,484 (2,133) – 4,860 – 3,621 3,574 165 (4) 8,685 7,398 (990) (1,113) 41,217 32,339 (3,180) 9,075 (13,843) (75,375) 11,464 18,711 35,658 (15,250) (5,737) (4,216) 29,921 (19,466) 989 1,113 (3,779) – (691) – (2,667) (4,141) 156 61 (14) (61) (6,006) (3,028)	Group 2006 2005 S$’000 S$’000 27,009 22,484 (2,133) – 4,860 – 3,621 3,574 165 (4) 8,685 7,398 (990) (1,113) 41,217 32,339 (3,180) 9,075 (13,843) (75,375) 11,464 18,711 35,658 (15,250) (5,737) (4,216) 29,921 (19,466) 989 1,113 (3,779) – (691) – (2,667) (4,141) 156 61 (14) (61) (6,006) (3,028)
	41,217 (3,180) (13,843) 11,464 35,658 (5,737) 29,921 989 (3,779) (691) (2,667) 156 (14) (6,006)	32,339 9,075 (75,375 18,711
		(15,250 (4,216
		(19,466
		1,113 – – (4,141 61 (61
		(3,028

– 76 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Note
Financing Activities
Interest paid
Proceeds from issue of shares
Proceeds from bank loans
Repayment of bank loans
Payment of finance lease instalments
Dividends paid to equity holders of parent
Dividends paid to minority shareholders
Loans from minority shareholders of a subsidiary
Loan to associate
Cash flows (used in)/ from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of
the year
Effect of exchange rate changes on balances
held in foreign currencies
Cash and cash equivalents at end of the year
14

Group
2006
2005
S$’000
S$’000
(8,200)
(5,224)
–
835
52,161
27,038
(79,597)
(2,277)
(24)
(22)
(5,091)
(2,842)
(537)
(162)
524
–
(4,605)
–
(45,369)
17,346
(21,454)
(5,148)
53,673
58,114
(2,838)
707
29,381
53,673

– 77 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Notes to the Financial Statements

Year ended 31 December 2006

These notes form an integral part of the financial statements.

The financial statements were authorised for issue by the directors on 21 February 2007.

1 DOMICILE AND ACTIVITIES

ECS Holdings Limited (the “Company”) is incorporated in the Republic of Singapore and has its registered office at 19 Kallang Avenue, #07-153, Singapore 339410.

The principal activities of the Company are those relating to investment holding and the distribution of information technology products. The principal activities of the subsidiaries are set out in note 5 to the financial statements.

The consolidated financial statements relate to the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interests in associates.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of Preparation

The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS).

The financial statements are prepared on the historical cost basis except for certain financial assets and financial liabilities as described below.

The financial statements are presented in Singapore dollars which is the Company’s functional currency. All financial information presented in Singapore dollars has been rounded to the nearest thousand, unless stated otherwise.

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in note 4 on assumptions relating to recoverable amounts of goodwill.

The accounting policies used by the Group have been applied consistently to all periods presented in these financial statements.

2.2 Consolidation

Business combinations

Business combinations are accounted for under the purchase method. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

The excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is credited to the income statement in the period of the acquisition.

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern, directly or indirectly, the financial and operating policies of a company so as to obtain benefits from

– 78 –

2.3 Foreign Currencies

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Associates

Associates are those entities in which the Group has significant influence, but not control, over financial and operating policies.

Associates are accounted for using the equity method. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate.

Transactions eliminated on consolidation

Intra-group balances, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Accounting for subsidiaries and associates by the Company

Investments in subsidiaries and associates are stated in the Company’s balance sheet at cost less accumulated impairment losses.

Accounting policies of subsidiaries

The accounting policies for subsidiaries (and associates) are adjusted to be consistent with the policies adopted by the Group, where it is material and necessary.

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date on which the fair value was determined.

Foreign currency differences arising on retranslation are recognised in the income statement, except for differences arising on the retranslation of monetary items that in substance form part of the Group’s net investment in a foreign operation (see below).

Foreign operations

The assets and liabilities of foreign operations are translated to Singapore dollars at exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to Singapore dollars at exchange rates prevailing at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operation and translated at the closing rate. For acquisitions prior to 1 January 2005, the exchange rates at the date of acquisition were used.

Foreign currency differences are recognised in the foreign currency translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign exchange translation reserve is transferred to the income statement.

– 79 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Net investment in foreign subsidiaries and associates

Exchange differences arising from monetary items that in substance form part of the Company’s net investment in foreign subsidiaries and associates are reclassified to equity in the consolidated financial statements.

2.4 Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred.

Except for assets under construction, depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives (or lease term, if shorter) of each part of an item of property, plant and equipment.

The estimated useful lives are as follows:

Freehold building	–	50 years
Leasehold improvements	–	10 years
Office equipment	–	5 years
Furniture and fittings	–	5 years
Computers	–	5 years
Motor vehicles	–	5 years

Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate, at each reporting date.

Fully depreciated assets are retained in the financial statements until they are no longer in use.

2.5 Goodwill on Consolidation

Goodwill

Goodwill and negative goodwill arise on the acquisition of subsidiaries and associates.

Acquisitions occurring before 1 January 2005

Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets and liabilities of the acquiree. Goodwill arising on the acquisition of subsidiaries is presented in intangible assets.

Goodwill was stated at cost from the date of initial recognition and amortised over its estimated useful life of not more than 20 years. On 1 January 2005, the Group discontinued amortisation of this goodwill. The remaining goodwill balance is subject to testing for impairment, as described in note 2.8.

Negative goodwill was derecognised by crediting accumulated profits on 1 January 2005.

Acquisitions after 1 January 2005

Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill arising on the acquisition of subsidiaries is presented in intangible assets.

– 80 –

2.6 Financial Instruments

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Goodwill is measured at cost less accumulated impairment losses. Goodwill is tested for impairment as described in note 2.8. Negative goodwill is recognised immediately in the income statement.

Acquisitions of minority interest

Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange.

Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity securities, trade and other receivables, cash and cash equivalents, financial liabilities, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs, except as described below. Subsequent to initial recognition, non-derivative financial statements are measured as described below.

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or transfers substantially all the risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

Cash and cash equivalents comprise cash balances and bank deposits. Bank overdrafts that are repayable on demand and that form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Available-for-sale financial assets

The Group’s investments in equity securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than for impairment losses and foreign exchange gains and losses on available-for-sale monetary items, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to the income statement.

Equity securities available-for-sale which do not have a quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less impairment losses which, in the opinion of the directors, are other than temporary.

Other

Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.

Derivative financial instruments and hedging activities

Derivative financial instruments are used to manage exposure to foreign exchange and interest risks arising from operational, financial and investing activities. Derivative financial instruments are not used for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in the income statement when incurred. Subsequent to initial recognition, derivative financial instruments are measured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged as described below.

– 81 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current credit-worthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

Cash flow hedges

Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the income statement.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged-item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases, the amount recognised in equity is transferred to the income statement in the same period that the hedged item affects profit or loss.

Impairment of financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-use financial asset is calculated by reference to its current fair value.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the income statement. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to the income statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the income statement. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity.

Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity.

Where share capital recognised as equity is repurchased (treasury shares), the amount of the consideration paid, including directly attributable costs, is presented as a deduction from equity. Where such shares are subsequently reissued, sold or cancelled, the consideration received is recognised as a change in equity. No gain or loss is recognised in the income statement.

– 82 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

2.7 Leases

When entities within the group are lessees of a finance lease

Leased assets in which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, property, plant and equipment and investment properties acquired through finance leases are capitalised at the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that assets.

Leased assets are depreciated over the shorter of the lease term and their useful lives. Lease payments are apportioned between finance expense and reduction of the lease liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

When entities within the group are lessees of an operating lease

Where the Group has the use of assets under operating leases, payments made under the leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease payments made. Contingent rentals are charged to the income statement in the accounting period in which they are incurred.

2.8 Impairment – non-financial assets

The carrying amounts of the Group’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated.

Goodwill is tested for impairment annually and as and when indicators of impairment are identified.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2.9 Inventories

Inventories are stated at the lower of cost and net realisable value.

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

– 83 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Work-in-progress is stated at cost incurred plus attributable profits. Cost includes direct materials, sub-contracted costs, an appropriate share of production overheads based on normal operating capacity and other related costs incurred. Progress billings received and receivable are shown as a deduction from the value of work-in-progress. Provision is made for anticipated losses on uncompleted projects when foreseeable.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. In arriving at net realisable value, due allowance is made for all obsolete and slow moving inventories.

2.10 Dividends

Dividends on ordinary shares are recognised as a liability in the period in which it is declared.

2.11 Employee Benefits

Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

2.12 Revenue Recognition

Sale of goods

Revenue from the sale of goods which encompasses distribution of e-enabling infrastructure and IT products is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods.

Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For sales of IT products, transfer usually occurs when the product is received at the customer’s warehouse; however, for some international shipments, transfer occurs upon loading of the goods on to the relevant carrier.

Service fees

Fees from service maintenance contracts are recognised over the period of the contract.

Project revenue

When the outcome of the project can be estimated reliably, revenue on projects is recognised in the income statement in proportion to the stage of completion which is assessed by reference to surveys of work performed. When the outcome of the project cannot be estimated reliably, project revenue is recognised only to the extent of project expenses incurred that are likely to be recoverable.

– 84 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

2.13 Finance Income and Expenses

Finance income comprises interest income on funds invested, dividend income, gains on the disposal of available-for-sale financial assets and gains on hedging instruments that are recognised in the income statement. Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date that the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

Finance expenses comprise interest expense on borrowings, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in the income statement. All borrowing costs are recognised in the income statement using the effective interest method, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to be prepared for its intended use or sale.

2.14 Income Tax Expense

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of prior years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not recognised for goodwill not deductible for tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not be reversed in the foreseeable future.

– 85 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

3 PROPERTY, PLANT AND EQUIPMENT

Freehold Building Leasehold Improvements S$’000 S$’000 1,524 1,183 – 645 – (21) – – 63 15	Freehold Building Leasehold Improvements S$’000 S$’000 1,524 1,183 – 645 – (21) – – 63 15	Office Equipment S$’000 1,397 494 (10) – 64	Furniture and Fittings S$’000 1,180 267 (217) 241 10	Computers S$’000 12,378 1,701 (197) 189 240	Motor Vehicles C S$’000 1,059 407 (23) – 36	Assets under onstruction S$’000 116 627 – (430) –	Total S$’000 18,837 4,141 (468) – 428
1,587 52 – – (43) 1,596 112 45 – 14 171 39 – (11) 199	1,822 219 – (24) (40) 1,977 528 246 (3) 8 779 191 – (18) 952	1,945 354 (1) 12 (59) 2,251 529 415 (6) 50 988 369 – (26) 1,331	1,481 112 (216) 51 35 1,463 623 258 (212) 10 679 271 (308) 18 660	14,311 1,222 (1,676) 273 (69) 14,061 5,593 2,365 (175) 97 7,880 2,512 (1,299) (66) 9,027	1,479 356 (263) – (35) 1,537 536 245 (15) 24 790 239 (227) (26) 776	313 366 – (312) 16 383 – – – – – – – – –	22,938
							2,681 (2,156) – (195)
							23,268
							7,921 3,574 (411) 203
							11,287
							3,621 (1,834) (129)
							12,945
1,412 1,416 1,397	655 1,043 1,025	868 957 920	557 802 803	6,785 6,431 5,034	523 689 761	116 313 383	10,916

							11,651

							10,323

The Group leases property, plant and equipment under a number of finance lease agreements. During the year, the Group acquired property, plant and equipment with an aggregate cost of S$2,681,000 (2005: S$4,141,000), of which S$13,600 (2005: Nil) was acquired under finance leases. The net carrying amount of property, plant and equipment under finance leases as at 31 December 2006 was S$86,400 (2005: S$129,600).

– 86 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

The freehold building of the Group with a carrying value of S$1,397,000 (2005: S$1,416,000) was previously pledged as security for banking facilities granted. The pledge was discharged on 21 August 2006.

4

Company Leasehold Improvements S$’000 Cost At 1 January 2005 191 Additions – At 31 December 2005 191 Additions – Disposals – At 31 December 2006 191 Accumulated Depreciation At 1 January 2005 56 Depreciation charge for the year 19 At 31 December 2005 75 Depreciation charge for the year 19 Disposals – At 31 December 2006 94 Carrying Amount At 1 January 2005 135 At 31 December 2005 116 At 31 December 2006 97 GOODWILL ON CONSOLIDATION Goodwill on consolidation	Office equipment S$’000 10 –	Furniture and Fittings S$’000 22 –	Computers S$’000 64 11	Total S$’000 287 11 298 3 (2) 299 117 34 151 35 (2) 184 170 147 115 2005 S$’000 33,522
191 – – 191 56 19 75 19 – 94	10 – – 10 7 2 9 1 – 10	22 – – 22 13 4 17 4 – 21	75 3 (2) 76 41 9 50 11 (2) 59	298 3 (2
				299
				117 34
				151 35 (2
				184
	3 1 –	9 5 1	23 25 17 2006 S$’000 33,522

Impairment testing for goodwill

For the purpose of impairment testing, goodwill is allocated to the Group’s cash-generating unit (CGU) in a group of subsidiaries with similar business activities located in China and Hong Kong.

The recoverable amount of each CGU is based on its value-in-use. Value-in-use is determined by discounting the future cash flows generated from the continuing use of the unit and is based on the following key assumptions:

Cash flows were projected based on actual operating results and the five-year business plan.

– 87 –

5 SUBSIDIARIES

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

The anticipated annual revenue growth included in the cash flow projections ranges from 9.5% to 11.4% for the years 2007 to 2011.
A pre-tax discount rate of 8.9% was applied in determining the recoverable amount of the units. The discount rate used reflect the risk-free rate and the premium for specific risks relating to the business unit.
No terminal value was attributed to the CGU.

The values assigned to the key assumptions represent management’s assessment of future trends in the IT industry and are based on both external sources and internal sources and both past performance (historical data) and its expectations for developments in the market.

The Group management believes that any reasonably possible changes in the above key assumptions applied are not likely to materially cause the recoverable amount to be lower than its carrying amount.

Note Unquoted equity shares, at cost Quasi-equity loans to subsidiaries, at cost (a) Loan to subsidiary (b)	Company 2006 2005 S$’000 S$’000 87,008 87,008 7,510 6,760	Company 2006 2005 S$’000 S$’000 87,008 87,008 7,510 6,760
	94,518 44,822	93,768 66,600
	139,340	160,368

(a) The loans to subsidiaries are unsecured and interest-free. The settlement of these loans are neither planned nor likely to occur in the foreseeable future. As these loans are, in substance, part of the entity’s net investments in the subsidiaries, the loans are stated at cost.
(b) The loan is unsecured and bears annual interest at 5.26% to 6.91% (2005: 2.70% to 5.26%) and is due on 28 January 2008.

Details of the subsidiaries held directly by the Company are set out below.

		Place of	Group’s	Effective
		Incorporation/	Equity	Interest
Name of Company	Principal Activities	Business	2006	2005
			%	%
ECS Computers (Asia)	Provider of information	Singapore	100	100
Pte Ltd	technology products and
	services for IT infrastructure
ECS Indo Pte Ltd	Distributor of information	Singapore	60	60
	technology products
The Value Systems	Provider of information	Thailand	100	100
Co., Ltd	technology products and
	services for IT infrastructure
ECS KUSH Sdn Bhd	Investment holding	Malaysia	60	60

– 88 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

		Place of	Group’s	Effective
		Incorporation/	Equity	Interest
Name of Company	Principal Activities	Business	2006	2005
			%	%
ECS Technology (China)	Investment holding, provider of	Hong Kong	100	100
Limited	information technology
	products and services for IT
	infrastructure
EC Sure Holdings	Investment holding	Thailand	99.9	99.9
(Thailand) Co., Ltd
ECS Infocom (Phils)	Investment holding	Singapore	100	100
Pte. Ltd.

Details of the subsidiaries held by the direct subsidiaries of the Group are set out below.

			Country of	Group’s	Effective
			Incorporation/	Equity	Interest
Name of Company		Principal Activities	Business	2006	2005
				%	%
Subsidiaries of ECS
Computers (Asia) Pte
Ltd
Pacific City (Asia		Retail of information	Singapore	100	100
Pacific) Pte Ltd		technology products, IT
(formerly known as		equipment and accessories
Astar Technology (S)
Pte. Ltd.)
Isan System Pte. Ltd.		Provision and distribution of	Singapore	100	100
		information technology
		products and general trading
		of IT equipment
Subsidiary of ECS Indo	Pte	Ltd
PT ECS Indo Jaya		Distributor of information	Indonesia	60	60
		technology products
Subsidiaries of ECS
KUSH Sdn Bhd
ECS KU Sdn Bhd	)	Provider of information	Malaysia	60	60
	)	technology products and
ECS Pericomp Sdn Bhd	)	services for IT infrastructure	Malaysia	48	48
	)
ECS Astar Sdn Bhd	)		Malaysia	60	60
ECS ICT Sdn Bhd		Provision of IT Services	Malaysia	59	42
Subsidiaries of ECS
Technology (China)
Limited
ECS Technology Co., Ltd)		Provider of information	People’s Republic	100	100
(a)	)	technology products and	of China
	)	services for IT infrastructure
ECS Technology	)		People’s Republic	100	100
(Guangzhou) Co., Ltd	)		of China
(a)	)

– 89 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

			Country of	Group’s	Effective
			Incorporation/	Equity	Interest
Name of Company		Principal Activities	Business	2006	2005
				%	%
ECS International Trading	)		People’s Republic	100	100
(Shanghai) Co.,)	)		of China
Limited (a)	)
	)
ECS Technology	)		People’s Republic	100	100
(Shanghai) Co., Ltd (a)	)		of China
	)
PCS Trading Limited (b)	)		British Virgin	100	100
	)		Islands
ECS IT Services (China)		Inactive	Hong Kong	100	100
Limited (b)

(a) Audited by other member firm of KPMG International for consolidation purposes.

(b) Not required to be audited.

KPMG Singapore is the auditor of all significant Singapore-incorporated subsidiaries. Other member firm of KPMG International are auditors of significant foreign-incorporated subsidiaries except for EC Sure Holdings (Thailand) Co., Ltd and PT ECS Indo Jaya, which are audited by M.R. & Associates Co., Ltd and Johan Malonda Astika & Rekan respectively.

6 INTEREST IN ASSOCIATE

Investment in associate Loan to associate	Group 2006 2005 S$’000 S$’000 5,737 – 691 – 6,428 –	Group 2006 2005 S$’000 S$’000 5,737 – 691 – 6,428 –
		–

The loan to the associate is denominated in US dollars, unsecured and interest-free. The settlement is neither planned nor likely to occur in the foreseeable future. As this loan is, in substance, part of the Company’s net investment in the associate, it is stated at cost.

On 4 January 2006, the Group acquired a 49.99% interest in the associate for a total consideration of S$3,840,000, inclusive of transactions costs directly attributable to the acquisition of S$93,000.

The Group’s share of the net identifiable assets of the associate at the date of acquisition was approximately S$5,146,000. A negative goodwill of S$1,306,000 was recognised in accordance with note 2.5 to the financial statements.

Details of the associate, which is audited by Pelayo Teodoro Santamaria & Co., are as follows:

		Effective equity
	Country of	held by the Group
Name of associates	incorporation	2006	2005
MSI-ECS Phils., Inc. (formerly known as
MSI Digiland Phils., Inc)	Philippines	49.99%	–

– 90 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Summarised financial information of the associate is set out below. The summarised financial information relating to the associate is not adjusted for the percentage of ownership held by the Group.

	2006
	S$’000
Revenue	108,631
Profit after taxation	1,182
Total assets	39,593
Total liabilities	28,038

7 OTHER FINANCIAL ASSETS

Available-for-sale Unquoted equity investments, at cost Club memberships, at cost Others	Group 2006 2005 S$’000 S$’000 387 369 273 265 7 61 667 695	Company 2006 2005 S$’000 S$’000 – – 140 140 7 61 147 201	Company 2006 2005 S$’000 S$’000 – – 140 140 7 61 147 201
			201

8 DEFERRED TAXATION

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

Group Deferred Tax Assets Provisions Deferred Tax Liabilities Accelerated tax depreciation Company Deferred Tax Liabilities Accelerated tax depreciation	At 1/1/2005 S$’000 875 (527) (27)	Credit/ (Charge) to profit and loss account (note 26) S$’000 89 101 –	Translation adjustment S$’000 (6) (10) –	At 31/12/2005 S$’000 958 (436) (27)	Credit/ (Charge) to profit and loss account (note 26) S$’000 989 33 –	Translation adjustment S$’000 40 5 –	At 31/12/2006 S$’000 1,987

							(398)

							(27)

– 91 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

9 INVENTORIES

Trading inventories Work-in-progress Goods in transit Allowance for obsolete inventory Comprises: Inventories, at cost Inventories, at net realisable value Work-in-progress comprises: Work-in-progress, at cost Attributable profits Progress payments received and receivable	Group 2006 2005 S$’000 S$’000 115,557 122,858 (95) (208 13,128 5,969	Group 2006 2005 S$’000 S$’000 115,557 122,858 (95) (208 13,128 5,969
	128,590 (5,266)	128,619 (3,749
	123,324	124,870

	13,033 110,291	5,761 119,109
	123,324	124,870

	5,149 506 5,655 (5,750)	5,150 392
		5,542 (5,750
	(95)	(208

Trading inventories and changes in work-in-progress recognised in cost of sales amounted to S$2,290,722,000 (2005: S$1,989,314,000).

10 TRADE AND OTHER RECEIVABLES

Note Trade receivables 11 Deposits, prepayments and other receivables 12 Amount due from related corporations 13	Group 2006 2005 S$’000 S$’000 339,172 352,582 19,030 7,749 5,103 – 363,305 360,331	Company 2006 2005 S$’000 S$’000 12 67 372 576 57,378 40,461 57,762 41,104	Company 2006 2005 S$’000 S$’000 12 67 372 576 57,378 40,461 57,762 41,104
			41,104

– 92 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

11 TRADE RECEIVABLES

Trade receivables Bills receivable Amounts due from affiliated companies Allowance for doubtful receivables	Group 2006 2005 S$’000 S$’000 343,428 330,482 1,217 18,445 3,411 9,386 348,056 358,313 (8,884) (5,731) 339,172 352,582	Company 2006 2005 S$’000 S$’000 12 67 – – – – 12 67 – – 12 67	Company 2006 2005 S$’000 S$’000 12 67 – – – – 12 67 – – 12 67
			67 –
			67

An affiliated company is a company, other than a related corporation, which directly or indirectly through one or more intermediaries is under common significant influence.

Receivables denominated in currencies other than the Company’s functional currency comprise S$36,527,000 (2005: S$44,830,000) of trade receivables denominated in US dollars, S$169,637,000 (2005: S$178,133,000) denominated in Chinese Renminbi, S$51,906,000 (2005: S$47,104,000) denominated in Thai Baht and S$37,715,000 (2005: S$34,060,000) denominated in Ringgit Malaysia.

12 DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

Deposits Prepayments Recoverables Tax recoverables Other receivables	Group 2006 2005 S$’000 S$’000 853 1,114 12,471 3,597 2,413 1,271 389 847 2,904 920 19,030 7,749	Company 2006 2005 S$’000 S$’000 – – 96 144 – 7 200 342 76 83 372 576	Company 2006 2005 S$’000 S$’000 – – 96 144 – 7 200 342 76 83 372 576
			576

– 93 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

14 CASH AND CASH EQUIVALENTS

13 AMOUNTS DUE FROM/TO RELATED CORPORATIONS

Group 2006 2005 S$’000 S$’000 – – – – – –	Group 2006 2005 S$’000 S$’000 – – – – – –	Company 2006 2005 S$’000 S$’000 181 651 2,226 1,897 54,502 37,913	Company 2006 2005 S$’000 S$’000 181 651 2,226 1,897 54,502 37,913
– 498 4,605 5,103	– – – –	56,909 469 – 469	40,461
			– –
			–
5,103	–	57,378	40,461

– –	– –	23 54	167 616
–	–	77	783

The loans due from subsidiaries and the associate are unsecured, are repayable on demand and bore interest at 4.00% to 8.24% (2005: 2.6% to 5%) and 6.5% to 7.5% (2005: Nil) per annum respectively. Interest rates reprice at intervals of one, three or six months. The non-trade balances are unsecured, interest-free and repayable on demand.

There is no allowance made for doubtful receivables arising from the outstanding balances.

Amounts due from the associate are denominated in US dollars.

Note Cash at bank and in hand Bank overdrafts 18 Cash and cash equivalents in cash flow statement	Group 2006 2005 S$’000 S$’000 29,400 53,723 (19) (50) 29,381 53,673	Company 2006 2005 S$’000 S$’000 505 2,414	Company 2006 2005 S$’000 S$’000 505 2,414

The weighted average effective interest rates per annum relating to cash and cash equivalents, excluding bank overdrafts, at the balance sheet date for the Group are 0.25% – 2.75% (2005: 0.25% – 1.75%). Interest rates reprice at intervals of one month.

– 94 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

15 SHARE CAPITAL

Issued and fully paid: At 1 January Issue of shares Transfer from share premium At 31 December	2006 ’000 363,599 – – 363,599	No. of shares 2005 2006 ’000 S$’000 355,248 36,360 8,351 – – 75,656 363,599 112,016	2005 S$’000 35,525 835 –
			36,360

In 2005, the Company issued a total of 8,351,000 ordinary shares for cash upon exercise of share options granted under the Company’s share option plans. The Company did not issue any ordinary shares in 2006.

At 31 December 2006, options for 22,021,000 (2005: 25,241,000) unissued ordinary shares of the Company granted under the ECS Share Option Scheme II were outstanding.

Immediately prior to the date of commencement of the Companies (Amendment) Act 2005 on 30 January 2006, the authorised share capital of the Company was S$50,000,000 comprising 500,000,000 ordinary shares with par value of S$0.10 each.

16 RESERVES

Share premium (a) Currency translation reserve (b) Dividend reserve (c) Hedging reserve (d) Accumulated profits	Group 2006 2005 S$’000 S$’000 – 75,656 (5,623) (4,676) 5,655 5,196 – (1,856) 78,007 63,505 78,039 137,825	Company 2006 2005 S$’000 S$’000 – 75,656 – – 5,655 5,196 – – 612 566 6,267 81,418	Company 2006 2005 S$’000 S$’000 – 75,656 – – 5,655 5,196 – – 612 566 6,267 81,418
			81,418

(a) Share Premium

On the date of commencement of the Companies (Amendment) Act 2005 on 30 January 2006, the amount standing to the credit of the Company’s share premium account became part of the Company’s share capital.

(b) Currency Translation Reserve

The currency translation reserve of the Group comprises foreign exchange differences arising from the translation of the financial statements of foreign entities.

(c) Dividend Reserve

The dividend reserve of the Group represents dividends proposed which are subject to approval of the shareholders at a general meeting.

(d) Hedging Reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of a cash flow hedging instrument relating to hedged transactions that have not occurred. The hedge was derecognised during the year and the balance was released to the income statement.

– 95 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

17 EQUITY COMPENSATION BENEFITS

The ECS Share Option Scheme II (“Scheme II”) was approved and adopted by its members at an Extraordinary General Meeting held on 13 December 2000. Scheme II provides an opportunity for employees and directors, including non-executive directors, of the Group who have contributed significantly to the growth and performance of the Group to participate in the equity of the Company.

The above scheme is administered by the Compensation Committee (the “Committee”) which comprises the following directors:

Teo Ek Tor (Chairman) Lin Chien Chang Yew Kong

Information regarding the scheme is set out below:

Scheme II

(a) The exercise price of the options exercisable pursuant to Scheme II is set either at:
a price equal to the average of the last dealt price for the three consecutive trading days immediately preceding the grant of the option; or
a discount to the market price not exceeding 20% of the market price in respect of that option.
(b) Options granted are exercisable at any time after the first anniversary of the grant date and in the case of options with exercise price set at a discount, at any time after the second anniversary of date of grant. Options granted to employees and executive directors are exercisable up to the tenth anniversary of date of grant and those granted to non-executive directors are exercisable up to the fifth anniversary of the date of grant.
(c) The scheme will continue to be in force at the discretion of the Committee, subject to a maximum period of 10 years commencing 13 December 2000.

At 31 December 2006, details of the options granted under the Company’s option schemes for unissued ordinary shares of the Company were as follows:

Date of grant of options Exercise price Scheme II: 2001 S$0.51 2001 S$0.51 2002 S$0.72 2002 S$0.55 2002 S$0.60 2003 S$0.41 2003 S$0.41	Options outstanding 1 Jan 2006 452,000 8,756,000 4,672,000 1,100,000 3,500,000 530,000 6,231,000 25,241,000	Options exercised – – – – – – – –	Options cancelled or lapsed (452,000) (213,000) (1,622,000) – – – (933,000) (3,220,000)	Options outstanding 31 Dec 2006 – 8,543,000 3,050,000 1,100,000 3,500,000 530,000 5,298,000 22,021,000	Options vested 1 Jan 2006 452,000 8,756,000 4,672,000 1,100,000 3,500,000 530,000 6,231,000 25,241,000	Options vested 31 Dec 2006 Exercise period – 03/09/2002 to 02/09/2006 8,543,000 03/09/2002 to 02/09/2011 3,050,000 11/03/2003 to 10/03/2012 1,100,000 24/01/2004 to 23/01/2012 3,500,000 11/03/2004 to 10/03/2012 530,000 27/06/2004 to 26/06/2008 5,298,000 27/06/2004 to 26/06/2013 22,021,000

– 96 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

18 FINANCIAL LIABILITIES

Group 2006 2005 S$’000 S$’000 44,822 66,654 31 43 3,936 4,269	Group 2006 2005 S$’000 S$’000 44,822 66,654 31 43 3,936 4,269	Company 2006 2005 S$’000 S$’000 44,822 66,600 – – – –	Company 2006 2005 S$’000 S$’000 44,822 66,600 – – – –
48,789 19 20,922 – 98,808 22 521 4,614 124,906	70,966 50 36,742 722 95,419 22 – 1,856 134,811	44,822 – – – 31,928 – – – 31,928	66,600
			– – – 16,650 – – –
			16,650
173,695	205,777	76,750	83,250

(a) A negative pledge has been given in respect of all of the assets of certain subsidiaries with a total net book value at 31 December 2006 of S$120,541,000 (2005: S$111,364,000). The non-current bank loans are repayable on 28 January 2008.
(b) The non-current loans due to minority shareholders of a subsidiary are unsecured and are not repayable within the next 12 months. The loans are subordinated to the repayment of bank loans of the subsidiary.
(c) On 21 August 2006, a fixed charge over the freehold building of a subsidiary as well as personal guarantees provided by certain directors of a subsidiary relating to the secured bank facilities of the Group were discharged. The loans were reclassified as unsecured bank loans thereafter.
(d) The current loans due to minority shareholders of a subsidiary are unsecured, interest-free and repayable within the next 6 months.

Financial liabilities of the Group denominated in currencies other than the Company’s functional currency comprise S$98,868,000 (2005: S$128,378,000) of liabilities denominated in US dollars, S$7,113,000 (2005: S$18,445,000) denominated in Chinese Renminbi, S$33,989,000 (2005: S$30,238,000) denominated in Thai Baht and S$26,067,000 (2005: S$25,742,000) denominated in Ringgit Malaysia.

– 97 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Finance Lease Liabilities

At 31 December, the Group has obligations under finance leases that are payable as follows:

Principal S$’000 22 31 53	Interest S$’000 3 6 9	Payments S$’000 25 37
		62

22 43	2 5	24 48
65	7	72

Effective Interest Rates and Repricing Analysis

Floating interest S$’000 19 164,552 (61,400) – 4,457 107,628	Fixed interest rate maturing Within 1 year Between 1 to 5 years S$’000 S$’000 – – – – – 61,400 22 31 – – 22 61,431	Fixed interest rate maturing Within 1 year Between 1 to 5 years S$’000 S$’000 – – – – – 61,400 22 31 – – 22 61,431	Total S$’000 19 164,552 – 53 4,457
			169,081

50 722 198,815 (66,600) – 4,269	– – – – 22 –	– – – 66,600 43 –	50 722 198,815 – 65 4,269
137,256	22	66,643	203,921

– 98 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

					Fixed interest	rate maturing
			Effective	Floating	Within 1	Between 1
			interest rate	interest	year	to 5 years	Total
			%	S$’000	S$’000	S$’000	S$’000
Company
2006
Unsecured	bank	loans	5.26% –	76,750	–	–	76,750
			6.91%
2005
Unsecured	Bank	loans	2.70% –	83,250	–	–	83,250
			5.26%

19 DEFERRED INCOME

Deferred income relates to fees billed in advance on service maintenance contracts and consists of:

Current portion Non-current portion	Group 2006 2005 S$’000 S$’000 321 264 239 239 560 503	Group 2006 2005 S$’000 S$’000 321 264 239 239 560 503
		503

20 OTHER BORROWINGS

25 Class A-1 Non-Cumulative Redeemable Preference Shares of US$1 each 15 Class A-2 Non-Cumulative Redeemable Preference Shares of US$1 each 10 Class B Non-Cumulative Redeemable Preference Shares of US$1 each	Group 2006 2005 S$’000 S$’000 39 42 23 26 15 16 77 84	Group 2006 2005 S$’000 S$’000 39 42 23 26 15 16 77 84
		84

These borrowings represents redeemable preference shares of a subsidiary and the borrowings are subordinated to all liabilities of the subsidiary.

– 99 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

21 TRADE AND OTHER PAYABLES

Note Trade payables Accruals and other payables 22 Amounts due to subsidiaries 13	Group 2006 2005 S$’000 S$’000 160,994 163,007 32,259 32,235 – – 193,253 195,242	Company 2006 2005 S$’000 S$’000 – – 2,732 2,396 77 783 2,809 3,179	Company 2006 2005 S$’000 S$’000 – – 2,732 2,396 77 783 2,809 3,179
			3,179

Payables denominated in currencies other than the Company’s functional currency comprise S$53,224,000 (2005: S$53,064,000) denominated in US dollars, S$70,170,000 (2005: S$87,826,000) denominated in Chinese Renminbi, S$2,969,000 (2005: S$4,449,000) denominated in Thai Baht and S$7,844,000 (2005: S$7,557,000) denominated in Ringgit Malaysia.

22 ACCRUALS AND OTHER PAYABLES

Accrued operating expenses Deposits received Other payables	Group 2006 2005 S$’000 S$’000 24,083 22,995 5,957 6,688 2,219 2,552 32,259 32,235	Company 2006 2005 S$’000 S$’000 2,710 2,363 – – 22 33 2,732 2,396	Company 2006 2005 S$’000 S$’000 2,710 2,363 – – 22 33 2,732 2,396
			2,396

23 REVENUE

Sale of IT products IT services	Group 2006 2005 S$’000 S$’000 2,316,171 2,014,253 23,138 22,025 2,339,309 2,036,278	Group 2006 2005 S$’000 S$’000 2,316,171 2,014,253 23,138 22,025 2,339,309 2,036,278
		2,036,278

Transactions within the Group have been excluded in arriving at revenue for the Group.

– 100 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

24 PROFIT FROM OPERATIONS

The following items have been included in arriving at profit from operations:

(a) Other Income includes

	Group
	2006	2005
	S$’000	S$’000
Exchange gains (net)	443	3,046
Interest income
– banks	661	1,113
– associates	329	–

(b) Staff Costs

Wages and salaries Contributions to defined contribution plans	Group 2006 2005 S$’000 S$’000 41,743 38,656 3,987 3,514 45,730 42,170	Group 2006 2005 S$’000 S$’000 41,743 38,656 3,987 3,514 45,730 42,170
		42,170

(c) Other Expenses/(Income)

	Group
	2006	2005
	S$’000	S$’000
Allowances made/(written back) for
– obsolete inventories	1,322	(816)
– doubtful trade receivables	4,394	2,733
Bad debts written off/ (recovered) – trade	75	(60)
Depreciation of property, plant and equipment (note 3)	3,621	3,574
Directors’ fees	315	274
Inventories written off	650	289
Loss/(gain) on disposal of property, plant and
equipment	165	(4)
Non-audit fees to auditors of the Company	32	42
Negative goodwill arising from acquisition of associate	(1,306)	–
Net fair value changes on financial instruments	4,860	–
Operating lease expenses	4,072	3,900

– 101 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

25 FINANCE COSTS

Interest paid and payable on – bank overdrafts – finance leases – short-term loans	Group 2006 2005 S$’000 S$’000 29 14 3 2 8,653 7,382 8,685 7,398	Group 2006 2005 S$’000 S$’000 29 14 3 2 8,653 7,382 8,685 7,398
		7,398

26 INCOME TAX EXPENSE

Tax Expense Current tax expense – Current year – Underprovided in prior years Deferred tax expense – Movements in temporary differences – Overprovided in prior years Income tax expense for the year Reconciliation of Effective Tax Rate Profit before tax Income tax at 20% (2005: 20%) Non-deductible expenses Tax rebate/relief/exemption Income not subject to tax Effect of different tax rates in foreign jurisdictions Utilisation of tax losses previously not recognised Underprovision of tax Others Income tax expense for the year	Group 2006 2005 S$’000 S$’000 6,486 3,909 43 168	Group 2006 2005 S$’000 S$’000 6,486 3,909 43 168
	6,529 (998) (24) (1,022)	4,077
		(89 (101
		(190
	5,507	3,887

	27,009 5,402 449 (106) (251) (75) – 19 69	22,484
		4,497 157 (71 (58 (510 (141 67 (54
	5,507	3,887

– 102 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

27 EARNINGS PER SHARE

Basic earnings per share is based on: Net profit for the year (S$’000) Number of shares outstanding at the beginning of the year (’000) Weighted average number of shares issued during the year (’000) Weighted average number of shares in issue during the year (’000)	Group 2006 2005 20,052 17,313 363,599 355,248 – 696 363,599 355,944	Group 2006 2005 20,052 17,313 363,599 355,248 – 696 363,599 355,944
		355,944

In calculating fully diluted earnings per share, the weighted average number of ordinary shares in issue during the year is adjusted for the effects of all dilutive potential ordinary shares:

Weighted average number of shares used in calculation of basic earnings per share Weighted average number of dilutive potential ordinary shares Number of shares that would have been issued at fair value Weighted average number of ordinary shares (diluted)	Number of Shares 2006 2005 ’000 ’000 363,599 355,944 – 7,655 – (2,577) 363,599 361,022	Number of Shares 2006 2005 ’000 ’000 363,599 355,944 – 7,655 – (2,577) 363,599 361,022
		361,022

Options to purchase 22,021,000 ordinary shares at exercise prices ranging between S$0.41 to S$0.72 per share were outstanding but were not included in the computation of diluted earnings per share because these options were anti-dilutive.

28 BUSINESS SEGMENTS (GROUP)

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest- earning assets and related revenue, interest in associate, interest-bearing loans, borrowings and related expenses, income tax assets and liabilities and corporate assets and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

– 103 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

The main business segments of the Group are the following:

Segments Principal Activities

Enterprise systems Provider of enterprise systems tools (middleware, operating systems, Unix/NT servers, databases, storage and security products) for IT infrastructure.

IT services IT infrastructure design and implementation, training, maintenance and support services.

Distribution Distribution of IT products (desktop PCs, notebooks, handhelds, printers, etc) for the commercial and consumer markets.

Revenue 2006 Total revenue from external customers Segment results Share of associate’s profit Net fair value changes on financial instruments Finance costs Taxation Profit from ordinary activities after taxation Minority interests Net profit for the year 2005 Total revenue from external customers Segment results Finance costs Taxation Profit from ordinary activities after taxation Minority interests Net profit for the year	Enterprise Systems S$’000 900,132 18,691 781,098 14,881	IT Services S$’000 23,138 2,707 22,025 2,022	Distribution S$’000 1,416,039 17,023	Consolidated S$’000 2,339,309 38,421 2,133 (4,860) (8,685) (5,507) 21,502 (1,450) 20,052 2,036,278 29,882 (7,398) (3,887) 18,597 (1,284) 17,313
				2,133 (4,860 (8,685 (5,507
				21,502 (1,450
			1,233,155 12,979
				(7,398 (3,887
				18,597 (1,284

– 104 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Assets and Liabilities 2006 Segment assets Unallocated assets Tax assets Others Total assets Segment liabilities Unallocated liabilities Tax liabilities Financial liabilities Others Total liabilities 2005 Segment assets Unallocated assets Tax assets Others Total assets Segment liabilities Unallocated liabilities Tax liabilities Financial liabilities Others Total liabilities Capital Expenditure 2006 Capital expenditure 2005 Capital expenditure	Enterprise Systems S$’000 180,539 78,827 203,796 79,066 848 1,304	IT Services S$’000 24,993 2,155 4,935 2,293 33 66	Distribution S$’000 300,809	Consolidated S$’000 506,341
				1,987 60,628
			112,831	568,956

				193,813
				3,068 173,695 77
			313,927	370,653

				522,658
				958 62,134
			114,385	585,750

				195,744
				2,370 205,777 85
			1,800 2,771	403,976

				2,681

				4,141

– 105 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Significant Non-Cash Expenses 2006 Depreciation of property, plant and equipment 2005 Depreciation of property, plant and equipment	Enterprise Systems S$’000 1,393 1,371	IT Services S$’000 36 39	Distribution S$’000 2,192 2,164	Consolidated S$’000 3,621

				3,574

29 GEOGRAPHICAL SEGMENTS (GROUP)

The Group operates principally in Singapore, Thailand, Malaysia, Indonesia and China. In presenting information on the basis of geographic segments, segment revenue is based on the geographic location of operations. Segment assets are based on the geographic location of the assets.

2006 Total revenue from external customers Segment assets Segment liabilities Capital expenditure 2005 Total revenue from external customers Segment assets Segment liabilities Capital expenditure	North Asia S$’000 1,155,578 229,921 105,331 773 1,013,521 259,219 102,459 1,003	South East Asia S$’000 1,183,731 276,420 88,482 1,908 1,022,757 263,439 93,285 3,138	Consolidated S$’000 2,339,309

			506,341

			193,813

			2,681

			2,036,278

			522,658

			195,744

			4,141

Financial Risk Management Objectives and Policies

Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. The Group has established risk management policies and guidelines which set out its overall business strategies, its tolerance of risk and its general risk management philosophy and has established processes to monitor and control the hedging of transactions in a timely and accurate manner. Such established policies are reviewed annually by the Group’s management, and periodic reviews are undertaken to ensure that the Group’s policy guidelines are adhered to.

30 FINANCIAL INSTRUMENTS

– 106 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Credit Risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.

Investments and transactions involving derivative financial instruments are allowed only with counterparties that are of high credit quality. As such, management does not expect any counterparty to fail to meet their obligations.

Interest Rate Risk

The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s debt obligations. The Group manages some of its exposure to floating rate interest by entering into fixed rate interest swaps which are denominated in United States dollars.

Effective Interest Rates

The Group’s exposure to market risk in respect of changes in interest rates relates principally to the Group’s debt obligations. The preferred approach to the management of interest rate risk is to fix interest rates over longer durations directly or via derivative financial instruments.

In respect of interest earning financial assets and liabilities, the effective interest rates at the balance sheet date and the periods in which they reprice are set out in notes 13, 14 and 18 to the financial statements.

Foreign Currency Risk

The Group incurs foreign currency risk mainly from foreign currency denominated sales, purchases and operating expenses. In view of the nature of the Group’s business which spans several countries, foreign exchange risks will continue to be an integral aspect of the Group’s risk profile in the future. These currencies include US dollars, Thai Baht, Malaysia Ringgit and Renminbi.

The Group recognises that any significant fluctuation in the US dollar may affect the Group’s foreign currency risk on its US dollar loans. As a result, the Group actively monitors its exposure and uses forward foreign exchange contracts and currency swaps to hedge against US dollar loan exposures, as and when necessary and where possible.

As at 31 December 2006, the Group has outstanding forward exchange contracts with notional amounts of approximately S$26,281,000 (2005: S$27,521,000). The Group has also entered into a hybrid swap contract with notional principal values of S$61,400,000 (2005: S$66,600,000) to hedge the Group’s exposures arising from foreign exchange and interest rate risks.

Sensitivity Analysis

In managing its interest rate and currency risks, the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer term, however, any prolonged adverse changes in foreign exchange and interest rates would have an impact on consolidated earnings.

At 31 December 2006, it is estimated that a general increase of one percentage point in interest rates would decrease the Group’s profit before tax by approximately S$1.1 million (2005: S$1.3 million).

At 31 December 2006, it is estimated that a general increase of one percentage point in value of the Singapore dollar against other foreign currencies would decrease the Group’s profit before tax by approximately S$234,000 (2005: S$243,000). Forward exchange contracts have been included in this calculation.

– 107 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

31 COMMITMENTS

Estimating Fair Values

Financial liabilities

Group Unsecured bank overdrafts Unsecured trade financing Secured bank loans Unsecured bank loan Finance lease liabilities Loan from minority shareholders of a subsidiary Derivative liabilities Company Unsecured bank loans	2006 Carrying amount Fair value S$’000 S$’000 19 19 20,922 20,922 – – 143,630 141,111 53 53 4,457 4,457 4,614 4,614 173,695 171,176 76,750 74,488	2005 Carrying amount Fair value S$’000 S$’000 50 50 36,742 36,742 722 722 162,073 157,097 65 65 4,269 4,269 1,856 1,856 205,777 200,801 83,250 78,481	2005 Carrying amount Fair value S$’000 S$’000 50 50 36,742 36,742 722 722 162,073 157,097 65 65 4,269 4,269 1,856 1,856 205,777 200,801 83,250 78,481
			200,801
			78,481

Other current financial assets and liabilities

The notional amounts of financial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents, and trade and other payables) are assumed to approximate their fair values due to the short period to maturity.

Operating Lease Commitments

At 31 December, the Group has commitments for future minimum lease payments under non-cancellable operating leases as follows:

Payable: Within 1 year After 1 year but within 5 years After 5 years	Group 2006 2005 S$’000 S$’000 2,467 1,813 4,622 3,802 – 145 7,089 5,760	Group 2006 2005 S$’000 S$’000 2,467 1,813 4,622 3,802 – 145 7,089 5,760
		5,760

The Group leases office premises and warehouse facilities under operating leases. The leases typically run for an initial period of three years, with an option to renew the lease after that date.

– 108 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Interest Rate Swaps

At 31 December 2006, the Group had entered into interest rate swaps with notional principal values as follows:

Interest rate swaps Maturity dates due: From 1 to 2 years	Group 2006 2005 3.95% 3.95% S$’000 S$’000 61,400 66,600	Group 2006 2005 3.95% 3.95% S$’000 S$’000 61,400 66,600

		S$’000 66,600

Proposed Dividend

The Company is proposing to declare a one-tier tax exempt first and final dividend of 1.5 cents per ordinary share for the year ended 31 December 2006. As this dividend has not been declared as at the balance sheet date, it is not presented as a liability in the consolidated financial statements.

CONTINGENT LIABILITIES (UNSECURED)

Guarantees Issued

At 31 December 2006, there were contingent liabilities in respect of the following:

(a) Guarantees given to suppliers by the Company in respect of credit facilities extended to certain subsidiaries amounted to S$145,902,000 (2005: S$143,606,000), of which the amount utilised was S$57,483,000 (2005: S$43,495,000). The guarantees are renewed on a yearly basis.
(b) Guarantees given to financial institutions by the Company in respect of credit facilities extended to certain subsidiaries amounted to S$149,119,000 (2005: S$145,956,000), of which the amount utilised was S$50,423,000 (2005: S$76,254,000). The guarantees are renewed on a yearly basis.
(c) Guarantees given to financial institutions by the subsidiaries in respect of credit facilities extended to the Company amounted to S$92,100,000 (2005: S$99,900,000), of which S$76,750,000 (2005: S$83,250,000) had been utilised.
(d) Guarantees given by a subsidiary to a bank for trade financing facilities extended to a third party in respect of import and export services provided to its subsidiaries in China amounted to Nil (2005: S$10,323,000).

The Company has adopted FRS104 – Insurance Contracts during the year and has accounted for these corporate guarantees as insurance contracts. There are no terms and conditions attached to the guarantee contracts that would have a material effect on the amount, timing and uncertainty of the Company’s future cash flows.

The Company has undertaken to provide continued financial support to certain subsidiaries to enable them to continue to operate as a going concern and to meet its obligations as and when they fall due.

– 109 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

33 RELATED PARTY TRANSACTIONS

Transactions with directors and other key management personnel

Key management personnel compensation comprises remuneration of directors and other key management personnel as follows:

Directors of the Company – Short-term employment benefits – Other long-term benefits Directors of the subsidiaries – Short-term employment benefits – Other long-term benefits Executive officers – Short-term employment benefits – Other long-term benefits Number of employees as at 31 December	Group 2006 2005 S$’000 S$’000 1,769 1,972 73 72 2,476 927 85 43 909 1,115 15 51 5,327 4,180 Group 2006 2005 1,708 1,685

The remuneration of the Company’s directors fall within the following remuneration bands:

S$750,000 to S$1,000,000 S$500,000 to S$749,999 S$250,000 to S$499,999 Below S$250,000	Numbers of 2006 Executive Directors Non- Executive Directors 1 – 1 – 1 – 1 8 4 8	Directors 2005 Executive Directors Non- Executive Directors 1 – 1 – 2 – 1 7 5 7	Directors 2005 Executive Directors Non- Executive Directors 1 – 1 – 2 – 1 7 5 7
			7

During the financial year, the Company and certain of its subsidiaries have, in the normal course of business entered into transactions with companies in which Mr. Narong Intanate and Mr. Liu Wei have an interest. These transactions include the purchase and sale of information technology products and services of S$1,104,456 (2005: S$598,578) and S$10,429,566 (2005: S$4,703,188) respectively and are carried out on normal commercial terms.

In addition, professional services amounting to S$58,974 (2005: S$34,000) were provided to the Company by a firm in which Mrs. Lee Suet Fern is a member. Security rental deposit amounting to S$313,200 (2005: Nil) was paid by a subsidiary, ECS KUSH Sdn Bhd to a firm in which Mr. Foo Sen Chin has an interest. Consultancy services amounting to S$32,710 (2005: S$73,000) were provided to the Company by a firm in which Mr. Teo Ek Tor has an interest.

– 110 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

The directors and other key management personnel participate in the Company’s share option plans, the terms and conditions of which are stated in note 17. Details of options granted, exercised and outstanding at 31 December 2006 are set out below:

Name of key management personnel Executive directors – Tay Eng Hoe – Narong Intanate – Foo Sen Chin Non-executive directors – Lin Chien – Chay Yee Meng – Leong Horn Kee – Lee Suet Fern – Teo Ek Tor Former directors – Wong Heng Chong – Wang Fangmin Executive officers – Foong Kam Tho – Jansen Ek Boo Ong – Wang Lixin – Soong Jan Hsung – Somsak Pejthavaeeporndej – Chong Cher Kwang	Options outstanding 1 Jan 2006 2,750,000 600,000 520,000 128,000 188,000 278,000 258,000 130,000 600,000 50,000 1,950,000 1,200,000 250,000 165,000 870,000 490,000 10,427,000	Options exercised – – – – – – – – – – – – – – – – –	Options cancelled or lapsed – – – (128,000) (88,000) (128,000) (108,000) – – – – – – – – – (452,000)	Options outstanding 31 Dec 2006 2,750,000 600,000 520,000 – 100,000 150,000 150,000 130,000 600,000 50,000 1,950,000 1,200,000 250,000 165,000 870,000 490,000
				9,975,000

Other Related Party Transactions

For the purpose of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making the financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

During the financial year, there were the following significant transactions with related parties, based on terms agreed by the parties:

Subsidiaries – sales – purchases – interest paid Affiliates – sales	Group 2006 2005 S$’000 S$’000 – – – – – – 36,229 28,013	Company 2006 2005 S$’000 S$’000 31 1,039 31 1,034 580 506 – –	Company 2006 2005 S$’000 S$’000 31 1,039 31 1,034 580 506 – –

			–

– 111 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

34 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

The Group has not applied the following standards and interpretations that have been issued as of the balance sheet date but are yet effective:

FRS	40		Investment Property
FRS	107		Financial Instruments: Disclosures and the Amendment to FRS 1
			Presentation of Financial Statements: Capital Disclosures
INT	FRS	107	Applying the Restatement Approach under FRS 29 Financial Reporting in
			Hyperinflationary Economies
INT	FRS	108	Scope of FRS 102 Share-based Payment
INT	FRS	109	Reassessment of Embedded Derivatives
INT	FRS	110	Interim Financial Reporting and Impairment

FRS 40, which becomes mandatory for the Group’s 2007 financial statements, permits investment property to be stated at either fair value or cost less accumulated depreciation and accumulated impairment losses. This standard does not have any material impact on the recognition and measurement of the Group’s financial statements.

FRS 107 and amended FRS 1, which become mandatory for the Group’s 2007 financial statements, will require extensive additional disclosures with respect to the Group’s financial instruments and share capital. This standard does not have any significant impact on the recognition and measurement of the Group’s financial statements.

INT FRS 110 prohibits the reversal of an impairment loss recognised in an interim period during the financial year in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost. INT FRS 110 will become mandatory for the Group’s 2007 financial statements, and will apply to goodwill, investments in equity instruments, and financial assets carried at cost prospectively from the date the Group first applied the measurement criteria of FRS 36 and FRS 39 respectively (i.e. 1 January 2005).

The initial application of these standards and interpretations are not expected to have any material impact on the Group’s financial statements. The Group has not considered the impact of accounting standards issued after the balance sheet date.

– 112 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

A-2. ECS’s audited financial statements for year ended 31 December 2005

The following is the audited financial statements of ECS Group for the financial year ended 31 December 2005 extracted from the Annual Report 2005 of ECS Group which is not qualified.

Balance Sheet

As at 31 December 2005

Group 2005 2004 S$’000 S$’000 11,651 10,916 – – 695 634 – – 33,522 32,635 958 875	Group 2005 2004 S$’000 S$’000 11,651 10,916 – – 695 634 – – 33,522 32,635 958 875	Company 2005 2004 S$’000 S$’000 147 170 87,008 87,008 201 140 66,600 – – – – –	Company 2005 2004 S$’000 S$’000 147 170 87,008 87,008 201 140 66,600 – – – – –
46,826 124,870 360,331 53,723 538,924 50 197,098 264 132,883 22 84 1,934 332,335 206,589 253,415	45,060 132,295 281,505 58,374 472,174 260 171,690 741 172,262 22 82 2,058 347,115 125,059 170,119	153,956 – 47,864 2,414 50,278 – 3,179 – 16,650 – – – 19,829 30,449 184,405	87,318
			– 110,399 649
			111,048
			– 1,377 – 82,000 – – –
			83,377
			27,671
			114,989

– 113 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Group 2005 2004 S$’000 S$’000 239 313 66,654 93 43 65 4,269 4,205 436 527	Group 2005 2004 S$’000 S$’000 239 313 66,654 93 43 65 4,269 4,205 436 527	Company 2005 2004 S$’000 S$’000 – – 66,600 – – – – – 27 27	Company 2005 2004 S$’000 S$’000 – – 66,600 – – – – – 27 27
71,641 181,774 36,360 137,825 174,185 7,589	5,203 164,916 35,525 123,134 158,659 6,257	66,627 117,778 36,360 81,418 117,778 –	27
			114,962
			35,525 79,437
			114,962
			–
181,774	164,916	117,778	114,962

– 114 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Profit and Loss Accounts

Year ended 31 December 2005

Group 2005 2004 S$’000 S$’000 2,036,278 1,865,658 (1,940,966) (1,778,172)	Group 2005 2004 S$’000 S$’000 2,036,278 1,865,658 (1,940,966) (1,778,172)	Company 2005 2004 S$’000 S$’000 7,656 7,215 (1,034) (3,581) 6,622 3,634 4,879 3,088 (274) (251) (933) (797) 10,294 5,674 (4,321) (2,623) 5,973 3,051 (1,150) (579) 4,823 2,472 4,823 2,472 – – 4,823 2,472	Company 2005 2004 S$’000 S$’000 7,656 7,215 (1,034) (3,581) 6,622 3,634 4,879 3,088 (274) (251) (933) (797) 10,294 5,674 (4,321) (2,623) 5,973 3,051 (1,150) (579) 4,823 2,472 4,823 2,472 – – 4,823 2,472
95,312 5,529 (42,006) (28,953) 29,882 (7,398) 22,484 (3,887)	87,486 1,462 (34,989) (28,316) 25,643 (6,527) 19,116 (4,133)	6,622 4,879 (274) (933) 10,294 (4,321) 5,973 (1,150)	3,634 3,088 (251 (797
			5,674 (2,623
			3,051 (579
18,597	14,983	4,823
17,313 1,284	13,463 1,520	4,823 –	2,472 –
18,597 4.9 cents 4.8 cents	14,983 3.8 cents 3.7 cents	4,823

– 115 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Statements of Changes in Equity

Year ended 31 December 2005

Group 2005 2004 S$’000 S$’000 35,525 34,634 835 891	Group 2005 2004 S$’000 S$’000 35,525 34,634 835 891	Company 2005 2004 S$’000 S$’000 35,525 34,634 835 891 36,360 35,525 2,938 1,167 (2,842) (1,138) 5,100 2,909 5,196 2,938 75,656 75,656 843 1,280 – – 843 1,280 4,823 2,472 – (2,909) (5,100) – 566 843	Company 2005 2004 S$’000 S$’000 35,525 34,634 835 891 36,360 35,525 2,938 1,167 (2,842) (1,138) 5,100 2,909 5,196 2,938 75,656 75,656 843 1,280 – – 843 1,280 4,823 2,472 – (2,909) (5,100) – 566 843
36,360 2,938 (2,842) 5,100 5,196 75,656 50,405 887 51,292 17,313 – (5,100) 63,505	35,525 1,167 (1,138) 2,909 2,938 75,656 39,851 – 39,851 13,463 (2,909) – 50,405	36,360 2,938 (2,842) 5,100 5,196 75,656 843 – 843 4,823 – (5,100) 566	35,525
			1,167 (1,138 2,909
			2,938
			75,656
			1,280 –
			1,280 2,472 (2,909 –
			843

– 116 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Group 2005 2004 S$’000 S$’000 (5,865) (2,881) 1,189 (2,984)	Group 2005 2004 S$’000 S$’000 (5,865) (2,881) 1,189 (2,984)	Company 2005 2004 S$’000 S$’000 – – – –	Company 2005 2004 S$’000 S$’000 – – – –
(4,676) – (1,856) (1,856) 174,185 174,185 6,257 1,284 – (162) 210 7,589	(5,865) – – – 158,659 158,659 4,679 1,520 400 – (342) 6,257	– – – – 117,778 117,778 – – – – – –	–
			– –
			– 114,962
			114,962
			– – – – –
			–
181,774	164,916	117,778	114,962

– 117 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Statement of Cash Flows

Year ended 31 December 2005

Operating Activities Profit from ordinary activities before taxation Adjustments for: Allowances made/(write back) for – obsolete inventories – doubtful trade receivables Amortisation of goodwill Bad debts written off Depreciation of property, plant and equipment (Gain)/Loss on disposal of property, plant and equipment Interest expense Interest income Inventories written off Operating profit before working capital changes Changes in working capital: Inventories Trade and other receivables Trade and other payables Cash generated from operations Income taxes paid Cash flows from operating activities Investing Activities Interest received Contribution from minority shareholders Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Purchase of other assets Cash flows from investing activities	Group 2005 2004 S$’000 S$’000 22,484 19,116 (816) 1,033 2,733 1,824 – 2,717 (60) – 3,574 3,311 (4) 36 7,398 6,527 (1,113) (838) 289 829 34,485 34,555 9,602 59,414 (78,048) (129,385) 18,711 16,775 (15,250) (18,641) (4,216) (3,834) (19,466) (22,475) 1,113 838 – 400 (4,141) (2,148) 61 36 (61) – (3,028) (874)	Group 2005 2004 S$’000 S$’000 22,484 19,116 (816) 1,033 2,733 1,824 – 2,717 (60) – 3,574 3,311 (4) 36 7,398 6,527 (1,113) (838) 289 829 34,485 34,555 9,602 59,414 (78,048) (129,385) 18,711 16,775 (15,250) (18,641) (4,216) (3,834) (19,466) (22,475) 1,113 838 – 400 (4,141) (2,148) 61 36 (61) – (3,028) (874)
	34,485 9,602 (78,048) 18,711 (15,250) (4,216) (19,466) 1,113 – (4,141) 61 (61) (3,028)	34,555
		59,414 (129,385 16,775
		(18,641 (3,834
		(22,475
		838 400 (2,148 36 –
		(874

– 118 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Financing Activities Interest paid Proceeds from issue of shares Proceeds from bank loans Repayment of bank loans Payment of finance lease instalments Dividends paid Dividends paid to minority shareholders Loans from minority shareholders of a subsidiary Repayment of shareholder’s loan Cash flows from other financing activities Cash flows from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of exchange rate changes on balances held in foreign currencies Cash and cash equivalents at end of the year Comprising: Cash and bank balances Bank overdrafts	Group 2005 2004 S$’000 S$’000 (5,224) (5,476) 835 891 27,038 38,372 (2,277) (3,256) (22) (27) (2,842) (1,138) (162) – – 4,205 – (6,560) – 113 17,346 27,124 (5,148) 3,775 58,114 55,988 707 (1,649) 53,673 58,114 53,723 58,374 (50) (260) 53,673 58,114	Group 2005 2004 S$’000 S$’000 (5,224) (5,476) 835 891 27,038 38,372 (2,277) (3,256) (22) (27) (2,842) (1,138) (162) – – 4,205 – (6,560) – 113 17,346 27,124 (5,148) 3,775 58,114 55,988 707 (1,649) 53,673 58,114 53,723 58,374 (50) (260) 53,673 58,114
	17,346 (5,148) 58,114 707 53,673 53,723 (50)	27,124
		3,775 55,988 (1,649
		58,114
		58,374 (260
	53,673

– 119 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Notes to the Financial Statements

Year ended 31 December 2005

These notes form an integral part of the financial statements.

The financial statements were authorised for issue by the directors on 21 February 2006.

1 DOMICILE AND ACTIVITIES

ECS Holdings Limited (the “Company”) is incorporated in the Republic of Singapore and has its registered office at 19 Kallang Avenue, #07-153, Singapore 339410.

The consolidated financial statements relate to the Company and its subsidiaries (referred to as the “Group”).

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of Preparation

The financial statements are prepared in accordance with Singapore Financial Reporting Standards (FRS) including related Interpretations promulgated by the Council on Corporate Disclosure and Governance.

In 2005, the Group adopted the following new/revised FRSs which are relevant to its operations:

FRS	1 (revised)	Presentation of Financial Statements
FRS	2 (revised)	Inventories
FRS	8 (revised)	Accounting Policies, Changes in Accounting Estimates and Errors
FRS	10 (revised)	Events After the Balance Sheet Date
FRS	16 (revised)	Property, Plant and Equipment
FRS	17 (revised)	Leases
FRS	21 (revised)	The Effects of Changes in Foreign Exchange Rates
FRS	24 (revised)	Related Party Disclosures
FRS	27 (revised)	Consolidated and Separate Financial Statements
FRS	28 (revised)	Investment in Associates
FRS	32 (revised)	Financial Instruments: Disclosure and Presentation
FRS	33 (revised)	Earnings Per Share
FRS	36 (revised)	Impairment of Assets
FRS	38 (revised)	Intangible Assets
FRS	39 (revised)	Financial Instruments: Recognition and Measurement
FRS	102	Share-based Payment
FRS	103	Business Combinations
FRS	105	Non-Current Assets Held for Sale and Discontinued Operations

Except as disclosed in note 6 to the financial statements, the adoption of the new/revised FRS in 2005 has not resulted in any adjustment to comparatives or the opening balances of accumulated profits for the Group or the Company nor have significant impact on results for the year.

The financial statements are presented in Singapore dollars and rounded to the nearest thousand, unless otherwise stated. They are prepared on the historical cost basis except for certain financial assets and financial liabilities which are stated at fair value.

The preparation of financial statements in conformity with FRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

FRSs yet to be adopted

Certain new accounting standards and interpretations beginning on or after 1 January 2006. The Company has assessed those standards and interpretations issued as of balance sheet date. The initial application of these standards and interpretation are not expected to have material impact on the Company’s financial statements.

The Group has not considered the impact of accounting standards issued after the balance sheet date.

2.2 Functional Currency

The functional currency of the Company is the Singapore dollar. As the income and receipts from investing activities and expenses are denominated primarily in Singapore dollars, the Directors are of the opinion that the Singapore dollar reflects the economic substance of the underlying events and circumstances relevant to the Company.

2.3 Consolidation

Subsidiaries are companies controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of a company so as to obtain benefits from its activities.

Investments in subsidiaries are stated in the Company’s balance sheet at cost less impairment loses. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The difference between the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities and the cost of acquisition is accounted for in accordance with note 2.6.

2.4 Foreign Currencies

Foreign Currency Transactions

Transactions in foreign currencies are translated at foreign exchange rates ruling the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Singapore dollars at foreign exchange rate ruling at that date. Foreign exchange differences arising from translation are recognised in the profit and loss account. Non-monetary assets and liabilities measured at cost in a foreign currency are translated using exchange rates at the date of the transaction. Non-monetary assets and liabilities measured at fair value in foreign currencies are translated to Singapore dollars at foreign exchange rates ruling at the dates the fair value was determined.

Foreign Operations

Assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on the acquisition of foreign operations, are translated to Singapore dollars for consolidation at the rates of exchange ruling at the balance sheet date. Revenue and expenses of foreign operations are translated at exchange rates ruling at the dates of the transactions. Exchange differences arising on translation are recognised directly in equity. On disposal, accumulated translation differences are recognised in the consolidated profit and loss account as part of the gain or loss on sale.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

2.5 Property, Plant and Equipment

Owned Assets

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Leased Assets

Property, plant and equipment acquired through finance leases are capitalized at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated depreciation and impairment losses. Lease payments are apportioned between finance charges and reductions of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against the profit and loss account. Capitalised leased assets are depreciated over the shorter of the economic useful life of the asset and the lease term.

Disposals

Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised in the profit and loss account on the date of retirement or disposal.

Depreciation

Depreciation is provided on the straight-line basis so as to write off items of property, plant and equipment over their estimated useful lives as follows:

Freehold building	–	50 years
Leasehold improvements	–	10 years
Office equipment	–	5 years
Furniture and fittings	–	5 years
Computers	–	5 years
Motor vehicles	–	5 years

No depreciation is provided on assets under construction.

The useful lives and residual values, if not insignificant, are reassessed annually.

2.6 Goodwill on Consolidation

Goodwill/Negative Goodwill

Goodwill in a business combination represents the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired. Goodwill is stated at cost less impairment losses. Goodwill on the acquisition of subsidiaries is presented as intangible assets. Goodwill is tested for impairment on an annual basis as described in note 6.

Negative goodwill arising in business combination represents the excess of the net fair value of identifiable net assets, liabilities and contingent liabilities recognised over the cost of acquisition and is recognised immediately in the profit and loss account.

Goodwill/Negative Goodwill Previously Written Off Against Reserves

Goodwill that has previously been taken to reserves is not taken to the profit and loss account when (a) the business is disposed or (b) the goodwill is impaired. Similarly, negative goodwill that has previously been taken to reserves is not taken to the profit and loss account when the business is disposed of.

2.7 Other Financial Assets

Equity financial instruments held by the Group are classified as being available-for-sale and are stated at fair value, with any resultant gain or loss being recognised directly in equity. The exceptions are impairment losses and foreign exchange gains and losses, which are recognised in the profit and loss account. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in the profit and loss account.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

The fair value of financial instruments classified as available-for-sale is determined as the quoted bid price at the balance sheet date. Financial instruments classified as available-for-sale investments are recognised by the Group on the date it commits to purchase the investments, and derecognised on the date a sale is committed.

Equity securities available for sale which do not have a quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less impairment losses which, in the opinion of the directors, are other than temporary.

2.8 Derivatives

Derivative financial instruments are used to manage exposures to foreign exchange and interest rate risks arising from operational, financing and investment activities. Derivative financial instruments are not used for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are remeasured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the profit and loss account. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged as described in note 2.9.

2.9 Hedging

Cash Flow Hedges

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset of financial liability, the associated gains and losses that were recognised directly in equity are reclassified into the profit and loss account in the same period or periods during which the asset acquired or liability assumed affects the profit and loss account (i.e. when interest income or expense is recognised). For other cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the profit and loss account in the same period or periods during which the hedged forecast transaction affects the profit or loss account. The ineffective part of any gain and loss is recognised immediately in the profit and loss account.

When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the profit and loss account.

2.10 Inventories

Inventories are stated at the lower of cost and net realisable value.

Work-in-progress is stated at cost incurred plus attributable profits. Cost includes direct materials, sub-contracted costs and other related costs incurred. Progress billings received and receivable are shown as a deduction from the value of work-in-progress. Provision is made for anticipated losses on uncompleted projects when foreseeable.

2.11 Cash and Cash Equivalents

Cash and cash equivalents comprise cash balances and bank deposits. For the purpose of the statement of cash flows, cash and cash equivalents are presented net of bank overdrafts which are repayable on demand and which form an integral part of the Group’s cash management.

2.12 Impairment

The carrying amounts of the Company’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. The impairment loss is charged to the profit and loss account.

– 123 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

2.13 Liabilities and Interest-Bearing Borrowings

Interest-bearing liabilities are recognised initially at cost less attributable transaction costs. Subsequent to initial recognition, interest-bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the profit and loss account over the period of the borrowings on an effective interest basis.

2.14 Employee Share Options

The share option programme allows the Group employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. At each balance sheet date, the company revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates in employee expense and in a corresponding adjustment to equity over the remaining vesting period.

The proceeds received net of any directly attributable transactions costs are credited to share capital (nominal value) and share premium when the options are exercised.

2.15 Deferred Tax

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Temporary differences are not recognised for goodwill not deductible for tax purposes and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

2.16 Revenue Recognition

Sale of Goods

Revenue on sale of goods, which encompasses distribution of enterprise systems and IT products, is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue excludes goods and services taxes, and other sales taxes, and is arrived at after deduction of trade discounts. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

Service Fees

Fees from maintenance service contracts are recognised over the period of the contract.

Project Revenue

Revenue on projects is recognised in the profit and loss account based on the percentage of completion method.

Dividends

Dividend income is recognised in the profit and loss account when the Company’s right to receive payment is established.

Interest Income

Interest income from bank deposits is accrued on a time-apportioned basis.

2.17 Operating Leases

Where the Group has the use of assets under operating leases, payments made under the leases are recognised in the profit and loss account on a straight line basis over the term of the lease. Lease incentive received are recognised in the profit and loss account as an integral part of the total lease payments made.

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FINANCIAL INFORMATION OF THE ECS GROUP

2.18 Finance Costs

Interest expense and similar charges are expensed in the profit and loss account in the period in which they are incurred. The interest component of finance lease payments is recognised in the profit and loss account using the effective interest rate method.

3 PROPERTY, PLANT AND EQUIPMENT

Freehold Building Leasehold Improvements S$’000 S$’000 1,642 1,026 – 177 – – – – (118) (20)	Freehold Building Leasehold Improvements S$’000 S$’000 1,642 1,026 – 177 – – – – (118) (20)	Office Equipment S$’000 1,090 436 (29) – (100)	Furniture and Fittings S$’000 1,090 165 (16) 1 (60)	Computers S$’000 11,626 1,045 (100) 10 (203)	Motor Vehicles S$’000 795 293 (55) 74 (48)	Assets under Construction S$’000 48 243 – (85) (90)	Total S$’000 17,317 2,359 (200) – (639)
1,524 1,524 – – – 63 1,587 88 48 – (24) 112 112 45 – 14 171	1,183 1,183 645 (21) – 15 1,822 349 190 – (11) 528 528 246 (3) 8 779	1,397 1,397 494 (10) – 64 1,945 255 382 (22) (86) 529 529 415 (6) 50 988	1,180 1,180 267 (217) 241 10 1,481 449 218 (16) (28) 623 623 258 (212) 10 679	12,378 12,378 1,701 (197) 189 240 14,311 3,545 2,261 (90) (123) 5,593 5,593 2,365 (175) 97 7,880	1,059 1,059 407 (23) – 36 1,479 357 212 (2) (31) 536 536 245 (15) 24 790	116 116 627 – (430) – 313 – – – – – – – – – –	18,837
							18,837 4,141 (468) – 428
							22,938
							5,043 3,311 (130) (303)
							7,921
							7,921 3,574 (411) 203
							11,287
1,554 1,412 1,412 1,416	677 655 655 1,043	835 868 868 957	641 557 557 802	8,081 6,785 6,785 6,431	438 523 523 689	48 116 116 313	12,274

							10,916

							10,916

							11,651

– 125 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

The net book value of property, plant and equipment of the Group includes assets held under finance leases with a carrying value of S$129,600 (2004: S$172,800). The freehold building of the Group with carrying value of S$1,416,000 (2004: S$1,412,000) is pledged as security for banking facilities granted.

Leasehold Improvements S$’000 Company Cost At 1 January 2004 191 Additions – At 31 December 2004 191 At 1 January 2005 191 Additions – At 31 December 2005 191 Accumulated Depreciation At 1 January 2004 37 Depreciation charge for the year 19 At 31 December 2004 56 At 1 January 2005 56 Depreciation charge for the year 19 At 31 December 2005 75 Carrying Amount At 1 January 2004 154 At 31 December 2004 135 At 1 January 2005 135 At 31 December 2005 116	Office Equipment S$’000 10 –	Furniture and Fittings S$’000 22 –	Computers S$’000 61 3	Total S$’000 284 3
191 191 – 191 37 19 56 56 19 75	10 10 – 10 5 2 7 7 2 9	22 22 – 22 8 5 13 13 4 17	64 64 11 75 32 9 41 41 9 50	287 287 11
				298
				82 35
				117
				117 34
				151
154 135 135 116	5 3 3 1	14 9 9 5	29 23 23 25	202

				170

				170

				147

4 SUBSIDIARIES

					Company
					2005	2004
					S$’000	S$’000
Unquoted	equity	shares,	at	cost	87,008	87,008

– 126 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

On 15 January 2004, a subsidiary, ECS Indo Pte Ltd entered into a call option agreement with its affiliated company to acquire 100% equity interest in the affiliated company. The call option, which was initially exercisable within a 10-year period from 15 January 2006 at an option price of US$2 million has, subsequent to year end, been mutually agreed between the parties to be revised to be exercisable within a 10-year period from 15 January 2008.

Details of the subsidiaries directly held by the Company are set out below:

Name of Company Principal Activities Place of Incorporation/ Business Group’s Effective Equity Interest 2005 2004 % % ECS Computers (Asia)(a) Pte Ltd Provider of information technology products and services for IT infrastructure Singapore 100 100 ECS Indo(a) Pte Ltd Distributor of information technology products Singapore 60 60 The Value Systems Co., Ltd(b) Provider of information technology products and services for IT infrastructure Thailand 100 100 ECS KUSH Sdn(c) Bhd Investment holding Malaysia 60 60 ECS Technology (China)(d) Limited Investment holding, provider of information technology products and services for IT infrastructure Hong Kong 100 100 EC Sure Holdings (Thailand) Co., Ltd(g) Investment holding Thailand 99.9 99.9	Cost of Investment 2005 2004 S$ S$ 5,924 5,924 600 600 5,054 5,054 2,832 2,832 72,588 72,588 10 10 87,008 87,008	Cost of Investment 2005 2004 S$ S$ 5,924 5,924 600 600 5,054 5,054 2,832 2,832 72,588 72,588 10 10 87,008 87,008
		87,008

Details of the subsidiaries held by direct subsidiaries of the Group are set out below:

		Country of	Group’s Effective
	Principal	Incorporation/	Equity Interest
Name of Company	Activities	Business	2005	2004
			%	%
Subsidiaries of ECS
Computers (Asia) Pte Ltd
Astar Technology (S)(a)	Inactive	Singapore	100	100
Pte. Ltd.
Isan System Pte. Ltd.(a)	Provision and	Singapore	100	100
	distribution of
	information
	technology
	products and
	general trading
	of IT equipment

– 127 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

			Country of	Group’s Effective
		Principal	Incorporation/	Equity Interest
Name of Company		Activities	Business	2005	2004
				%	%
Subsidiary of ECS Indo Pte Ltd
PT ECS Indo Jaya(g)		Distributor of	Indonesia	60	60
		information
		technology
		products
			Country of
		Principal	Incorporation/	Group’s Equity
Name of Company		Activities	Business	2005	2004
				%	%
Subsidiaries of ECS KUSH
Sdn Bhd
ECS KU Sdn Bhd(c)	)	Provider of	Malaysia	60	60
	)	information
ECS Pericomp Sdn(c) Bhd	)	technology	Malaysia	48	48
	)	products and
ECS Astar(c) Sdn Bhd	)	services for IT	Malaysia	60	60
	)	infrastructure
ECS ICT Sdn Bhd(c)		Inactive	Malaysia	42	42
Subsidiaries of ECS
Technology (China) Limited
ECS Technology(e) Company	)	Provider of	People’s	100	100
Ltd	)	information	Republic of
	)	technology	China
	)	products and
	)	services for IT
	)	infrastructure
	)
ECS Technology (Guangzhou)	)		People’s	100	100
Co., Ltd(e)	)		Republic of
	)		China
	)
ECS International Trading	)		People’s	100	100
(Shanghai) Co., Limited(e) )	)		Republic of
	)		China
	)
ECS Technology (Shanghai)	)		People’s	100	100
Co., Ltd(e)	)		Republic of
	)		China
	)
PCS Trading Limited(f)	)		British Virgin	100	100
	)		Islands
ECS IT Services (China)		Inactive	Hong Kong	100	100
Limited(f)

(a) Audited by KPMG Singapore.
(b) Audited by KPMG Thailand.
(c) Audited by KPMG Malaysia.
(d) Audited by KPMG Hong Kong.
(e) Audited by KPMG People’s Republic of China for consolidation purposes.

– 128 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

(f) Not required to be audited.
(g) Audited by a local CPA firm. Not a significant subsidiary as defined under Clause 713 of SGX-ST Listing Manual.

5 OTHER FINANCIAL ASSETS

Available for sale Unquoted equity investments, at cost Club memberships, at cost Others	Group 2005 2004 S$’000 S$’000 369 369 265 265 61 – 695 634	Company 2005 2004 S$’000 S$’000 – – 140 140 61 – 201 140	Company 2005 2004 S$’000 S$’000 – – 140 140 61 – 201 140
			140

6 GOODWILL ON CONSOLIDATION

Cost S$’000 40,762 –	Accumulated Amortisation S$’000 5,410 2,717	Carrying Amount S$’000 35,352 2,717
40,762 (7,240)	8,127 (8,127)	32,635 887
33,522 33,522	– –	33,522

		33,522

With the adoption of FRS 103 Business Combinations, goodwill is stated at cost less accumulated impairment losses and is no longer amortised. Instead, goodwill impairment is tested annually or when circumstances change, indicating that goodwill might be impaired. Negative goodwill is recognised immediately in the profit and loss account, instead of being systematically amortised over its useful life. This has resulted in the derecognition of negative goodwill and an increase of accumulated profits for the Group as at 1 January 2005 by S$887,000.

Had there not been a change in accounting policy, the net profit attributable to shareholders for the financial year ended 31 December 2005 would decrease by S$2,717,000 as follows:

Goodwill amortisation which would be charged to the profit and loss account Negative goodwill amortisation which would be credited to the profit and loss account	Group 2005 S$’000 (2,784) 67
	(2,717)

Goodwill is allocated to the Group’s cash-generating unit (CGU) in a group of subsidiaries in the same geographical location with similar principal activities. The recoverable amount of a CGU is determined based on

– 129 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

value-in-use calculations. These calculations use cash flow projections based on financial budgets prepared by management covering a five-year period.

The key assumptions used for the value-in-use calculations were as follows:

		%
Average	sales growth rate	13.8
Average	net profits before interest and tax	1.3
Discount	rate	3.5

The management determined the budgeted gross margin based on past performance and its expectation for market development. The compounded average growth rate used is consistent with the forecast included in industry reports. The discount rate used is pre-tax and reflect specific risks relating to the business segment.

7 DEFERRED TAXATION

Movements in deferred tax assets and liabilities during the year were as follows:

Group Deferred Tax Assets Provisions Deferred Tax Liabilities Accelerated tax depreciation Company Deferred Tax Liabilities Accelerated tax depreciation	At 1/1/2005 S$’000 875 (527) (27)	Credit/ (Charge) to profit and loss account (note 26) S$’000 89 101 –	Translation adjustment S$’000 (6) (10) –	At 31/12/2005 S$’000 958

				(436)

				(27)

As at 31 December 2005, the Group had no tax losses (2004: S$2,160,000) which are available for carry forward and set off against future taxable income subject to agreement by the tax authority and compliance with tax regulations prevailing in the country in which the subsidiary incurring the loss operates. Deferred tax assets have not been recognised in respect of the tax losses in accordance with the Group’s accounting policy as set out in note 2.15.

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FINANCIAL INFORMATION OF THE ECS GROUP

8 INVENTORIES

At cost and at net realisable value: Trading inventories Work-in-progress Goods in transit Allowance for obsolete inventory Comprises: Inventories, at cost Inventories, at net realisable value Work-in-progress comprises: Work-in-progress, at cost Attributable profits Progress payments received and receivable	Group 2005 2004 S$’000 S$’000 122,858 125,992 (208) 253 5,969 10,746 128,619 136,991 (3,749) (4,696 124,870 132,295	Group 2005 2004 S$’000 S$’000 122,858 125,992 (208) 253 5,969 10,746 128,619 136,991 (3,749) (4,696 124,870 132,295
		136,991 (4,696
		132,295

	5,761 119,109	10,999 121,296
	124,870	132,295

	5,150 392 5,542 (5,750)	5,150 278
		5,428 (5,175
	(208)	253

9 TRADE AND OTHER RECEIVABLES

Note Trade receivables 10 Deposits, prepayments and other receivables 11 Amounts due from subsidiaries 12	Group 2005 2004 S$’000 S$’000 352,582 274,270 7,749 7,235 – – 360,331 281,505	Company 2005 2004 S$’000 S$’000 67 68 576 310 47,221 110,021 47,864 110,399	Company 2005 2004 S$’000 S$’000 67 68 576 310 47,221 110,021 47,864 110,399
			110,399

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APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

10 TRADE RECEIVABLES

Trade receivables Bills receivable Amounts due from affiliated companies Allowance for doubtful receivables	Group 2005 2004 S$’000 S$’000 330,482 272,889 18,445 – 9,386 5,876	Group 2005 2004 S$’000 S$’000 330,482 272,889 18,445 – 9,386 5,876	Company 2005 2004 S$’000 S$’000 67 68 – – – –	Company 2005 2004 S$’000 S$’000 67 68 – – – –
	358,313 (5,731)	278,765 (4,495)	67 –	68 –
	352,582	274,270	67	68

An affiliated company is a company, other than a related corporation, which directly or indirectly through one or more intermediaries is under common significant influence.

11 DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

Deposits Prepayments Recoverables Tax recoverables Other receivables	Group 2005 2004 S$’000 S$’000 1,114 1,053 3,597 3,245 1,271 638 847 252 920 2,047 7,749 7,235	Company 2005 2004 S$’000 S$’000 – – 144 16 7 – 342 209 83 85 576 310	Company 2005 2004 S$’000 S$’000 – – 144 16 7 – 342 209 83 85 576 310
			310

12 AMOUNTS DUE FROM/TO SUBSIDIARIES

Note Amounts due from: Trade receivables Non-trade receivables Loans receivable (current) 9 Loans receivable (non-current) Amounts due to: Trade payables Non-trade payables 13	2005 S$’000 651 8,657 37,913	2004 S$’000 143 7,725 102,153
	47,221 66,600	110,021 –
	113,821	110,021

	167 616	36 –
	783	36

Transactions with subsidiaries are unsecured and priced on an arm’s length basis. The loans due from subsidiaries are unsecured and bore interest at 2.6% to 5% (2004: 1.4% to 5%, per annum. The current loans receivable are repayable on demand and the non-current loans receivable are repayable on 28 January 2008. The non-trade balances are unsecured, interest-free and are repayable on demand.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

There is no allowance made for doubtful debts arising from the outstanding balances.

13 TRADE AND OTHER PAYABLES

Note Trade payables Accruals and other payables 14 Amounts due to subsidiaries 12 Derivative liability 31	Group 2005 2004 S$’000 S$’000 163,007 135,264 32,235 36,426 – – 1,856 – 197,098 171,690	Company 2005 2004 S$’000 S$’000 – – 2,396 1,341 783 36 – – 3,179 1,377	Company 2005 2004 S$’000 S$’000 – – 2,396 1,341 783 36 – – 3,179 1,377
			1,377

14 ACCRUALS AND OTHER PAYABLES

Accrued operating expenses Deposits received Other payables	Group 2005 2004 S$’000 S$’000 22,995 17,534 6,688 15,387 2,552 3,505 32,235 36,426	Company 2005 2004 S$’000 S$’000 2,363 1,316 – – 33 25 2,396 1,341	Company 2005 2004 S$’000 S$’000 2,363 1,316 – – 33 25 2,396 1,341
			1,341

15 DEFERRED INCOME

Deferred income relates to fees billed in advance on service maintenance contracts and consists of:

Current portion Non-current portion	Group 2005 2004 S$’000 S$’000 264 741 239 313 503 1,054	Group 2005 2004 S$’000 S$’000 264 741 239 313 503 1,054
		1,054

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FINANCIAL INFORMATION OF THE ECS GROUP

16 INTEREST-BEARING BANK LOANS

Secured Term loan Unsecured Term loans Trade financing Repayable: Within 1 year After 1 year but within 5 years	Group 2005 2004 S$’000 S$’000 722 148 162,073 159,006 36,742 13,201	Group 2005 2004 S$’000 S$’000 722 148 162,073 159,006 36,742 13,201	Company 2005 2004 S$’000 S$’000 – – 83,250 82,000 – –	Company 2005 2004 S$’000 S$’000 – – 83,250 82,000 – –
	199,537 132,883 66,654	172,355 172,262 93	83,250 16,650 66,600	82,000 82,000 –
	199,537	172,355	83,250	82,000

(a) The secured bank facilities of the Group bore interest at 4.9% (2004: 7.25% to 7.50%) per annum and are secured by a fixed charge over the freehold building of a subsidiary. In addition, the facilities are jointly and severally guaranteed by certain directors of certain subsidiaries.
(b) The unsecured bank facilities of the Group bore interest at rates ranging from 1.77% to 5.8% (2004: 1.41% to 5.22%) per annum. A negative pledge has been given in respect of the entire assets of certain subsidiaries.

17 OBLIGATIONS UNDER FINANCE LEASES

Group

Payments S$’000 24 48 72	Interest S$’000 2 5 7	Principal S$’000 22 43
		65

24 72	2 7	22 65
96	9	87

Information on interest rates and the Group’s exposure to interest rate and currency risks are set out in note

– 134 –

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FINANCIAL INFORMATION OF THE ECS GROUP

18 PREFERENCE SHARES

25 Class A-1 Non-Cumulative Redeemable Preference Shares of US$1 each 15 Class A-2 Non-Cumulative Redeemable Preference Shares of US$1 each 10 Class B Non-Cumulative Redeemable Preference Shares of US$1 each	Group 2005 2004 S$’000 S$’000 42 41 26 25 16 16 84 82	Group 2005 2004 S$’000 S$’000 42 41 26 25 16 16 84 82
		82

The principal terms of the RPS are contained in the Articles of Association of a subsidiary are summarised as follows:

(a) The issuer of the RPS may at any time redeem any or all of the RPS (including, but not exceeding, the premium paid on subscription) by giving not less than 30 days prior notice in writing to the holders of the RPS to be redeemed;
(b) The holders of RPS are not entitled to participate in the profits or assets of the issuer nor shall they confer a right to participate in any issue of ordinary shares in the capital of the issuer;
(c) The holders of RPS shall have the right to receive non-cumulative preferential dividends as recommended by the directors;
(d) Upon the winding up of the subsidiary, the holder of the preference shares have the right to the repayment of the capital paid up and premium paid on the RPS in the following priority:
(i) Class A-1 RPS holder shall rank senior to the holders of the subsidiary’s ordinary shares, Class A-2 RPS and Class B RPS;
(ii) Class A-2 RPS holder shall rank senior to the holders of the subsidiary’s ordinary shares and Class B RPS;
(iii) Class B RPS holder shall rank senior to the holders of the subsidiary’s ordinary shares.

19 LOANS DUE TO MINORITY SHAREHOLDERS OF A SUBSIDIARY

The loans due to minority shareholders of a subsidiary bore interest at 5% (2004: 5%) per annum and are not repayable within the next 12 months. The loans are subordinated to the repayment of bank loans of the subsidiary.

20 SHARE CAPITAL

No. of Shares 2005 2004 ’000 ’000 500,000 500,000	No. of Shares 2005 2004 ’000 ’000 500,000 500,000	2005 S$’000 50,000	2004 S$’000 50,000

355,248 8,351	346,342 8,906	35,525 835	34,634 891
363,599	355,248	36,360	35,525

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

During the year, the Company issued a total of 8,351,000 ordinary shares of S$0.10 each fully paid at par for cash upon the exercise of share options granted under the Company’s share option plans.

At 31 December 2005, options for 25,241,000 (2004: 35,223,000) unissued ordinary shares of S$0.10 each of the Company granted under the ECS Share Option Scheme II were outstanding.

21 RESERVES

Share premium Accumulated profits Currency translation reserve Dividend reserve Hedging reserve	Group 2005 2004 S$’000 S$’000 75,656 75,656 63,505 50,405 (4,676) (5,865) 5,196 2,938 (1,856) – 137,825 123,134	Company 2005 2004 S$’000 S$’000 75,656 75,656 566 843 – – 5,196 2,938 – – 81,418 79,437	Company 2005 2004 S$’000 S$’000 75,656 75,656 566 843 – – 5,196 2,938 – – 81,418 79,437
			79,437

Movements in reserves for the Group and the Company are set out in the statements of changes in equity.

(a) Share Premium

The application of the share premium account is governed by Section 69 of the Companies Act, Chapter 50.

(b) Currency Translation Reserve

The currency translation reserve of the Group comprises foreign exchange differences arising from the translation of the financial statements of foreign entities.

(c) Dividend Reserve

The dividend reserve of the Group represents dividends proposed which are subject to approval of the shareholders at a general meeting.

(d) Hedging Reserve

The hedging reserve relates to variability in future cash flows effectively hedged as at balance sheet date which will be released to profit and loss in subsequent periods.

22 REVENUE

Sale of IT products IT services Dividend from subsidiaries	Group 2005 2004 S$’000 S$’000 2,014,253 1,833,671 22,025 31,987 – – 2,036,278 1,865,658	Company 2005 2004 S$’000 S$’000 1,039 3,615 – – 6,617 3,600 7,656 7,215	Company 2005 2004 S$’000 S$’000 1,039 3,615 – – 6,617 3,600 7,656 7,215
			7,215

Transactions within the Group have been excluded in arriving at revenue for the Group.

– 136 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

23 PROFIT FROM OPERATIONS

The following items have been included in arriving at profit from operations:

Group 2005 2004 S$’000 S$’000 3,046 214 1,113 838 – – 1,370 410 5,529 1,462	Group 2005 2004 S$’000 S$’000 3,046 214 1,113 838 – – 1,370 410 5,529 1,462	Company 2005 2004 S$’000 S$’000 – – 3,868 2,381 968 690 43 17 4,879 3,088	Company 2005 2004 S$’000 S$’000 – – 3,868 2,381 968 690 43 17 4,879 3,088
			3,088

38,656 3,514	33,456 3,051	113 11	97 11
42,170	36,507	124	108

1,972 72 1,115 51	1,879 51 846 51	– – – –	– – – –
3,210 1,685 – (816) 2,733 82 178 – (60) 3,574 274 970 – 289 (4) 42 – 3,900 34 73	2,827 1,479 2,717 1,033 1,824 73 163 16 – 3,311 225 410 – 829 36 13 8 3,547 90 –	– 1 – – – 48 – – – 34 267 – 102 – – – – – 34 73	– 1 – – – 35 – – – 35 225 – 20 – – 8 – – 7 –

– 137 –

APPENDIX II

25 REMUNERATION

FINANCIAL INFORMATION OF THE ECS GROUP

24 FINANCE COSTS

Interest paid and payable on – bank overdrafts – finance leases – short-term loans – loan from subsidiary	Group 2005 2004 S$’000 S$’000 14 36 2 3 7,382 6,488 – – 7,398 6,527	Company 2005 2004 S$’000 S$’000 – – – – 3,884 2,411 437 212 4,321 2,623	Company 2005 2004 S$’000 S$’000 – – – – 3,884 2,411 437 212 4,321 2,623
			2,623

The remuneration of the Company’s directors fall within the following remuneration bands:

S$750,000 to S$1,000,000 S$500,000 to S$749,999 S$250,000 to S$499,999 Below S$250,000	Numbers of 2005 Executive Directors Non-Executive Directors 1 – 1 – 2 – 1 7 5 7	Directors 2004 Executive Directors Non-Executive Directors – – – – 3 – 3 6 6 6	Directors 2004 Executive Directors Non-Executive Directors – – – – 3 – 3 6 6 6
			6

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FINANCIAL INFORMATION OF THE ECS GROUP

26 TAXATION

Group 2005 2004 S$’000 S$’000 3,909 4,313 168 10 4,077 4,323	Group 2005 2004 S$’000 S$’000 3,909 4,313 168 10 4,077 4,323	Company 2005 2004 S$’000 S$’000 1,150 606 – (31 1,150 575	Company 2005 2004 S$’000 S$’000 1,150 606 – (31 1,150 575
			575

(89) (101) (190) 3,887 22,484 4,497 157 (71) (58) (510) – (141) 67 (54)	(130) (60) (190) 4,133 19,116 3,823 751 (38) – (824) 432 – (50) 39	– – – 1,150 5,972 1,194 4 (11) (48) – – – – 11	4 –
			4
			579
			3,051
			610 – (11 – – – – (31 11
3,887	4,133	1,150	579

Basic earnings per share is based on: Net profit for the year (S$’000) Number of shares outstanding at the beginning of the year (’000) Weighted average number of shares issued during the year (’000) Weighted average number of shares in issue during the year (’000)	Group 2005 2004 S$’000 S$’000 17,313 13,463	Group 2005 2004 S$’000 S$’000 17,313 13,463

	355,248 696	346,342 6,680
	355,944	353,022

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

In calculating fully diluted earnings per share, the weighted average number of ordinary shares in issue during the year is adjusted for the effects of all dilutive potential ordinary shares:

Weighted average number of shares used in calculation of basic earnings per share Weighted average number of dilutive potential ordinary shares Number of shares that would have been issued at fair value Weighted average number of ordinary shares (diluted)	Number of Shares 2005 2004 ’000 ’000 355,944 353,022 7,655 11,249 (2,577) (3,733) 361,022 360,538

28 EQUITY COMPENSATION BENEFITS

The ECS Share Option Scheme I (“Scheme I”) was approved and adopted by its members at an Extraordinary General Meeting held on 13 December 2000 to grant one-time share options to certain eligible directors and executives of the Company in recognition of their contribution to the growth and performance of the Company.

The above schemes are administered by the Compensation Committee (the “Committee”) which comprises the following directors:

Teo Ek Tor (Chairman) Lin Chien Chang Yew Kong

Information regarding the schemes are set out below:

Scheme I

(a) The exercise price of the options exercisable pursuant to Scheme I is the par value of the share.
(b) Options granted are exercisable after the first anniversary but before the fifth anniversary of the grant date, subject to the following:
up to 50% of the shares in respect of which option is granted may be exercised within the 12 month period after the first anniversary of the date of grant of the option; and
the balance of the shares in respect of which option is granted may be exercised at any time after the expiry of the aforesaid 12 month period.

Scheme II

(a) The exercise price of the options exercisable pursuant to Scheme II is set either at:
a price equal to the average of the last dealt price for the three consecutive trading days immediately preceding the grant of the option; or
a discount to the market price not exceeding 20% of the market price in respect of that option.
(b) Options granted are exercisable at any time after the first anniversary of the grant date and in the case of options with exercise price set at a discount, at any time after the second anniversary of date of grant. Options granted to employees and executive directors are exercisable up to the tenth anniversary of date of grant and those granted to non-executive directors are exercisable up to the fifth anniversary of the date of grant.

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APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

(c) The scheme will continue to be in force at the discretion of the Committee, subject to a maximum period of 10 years commencing 13 December 2000.

At 31 December 2005, details of the options granted under the Company’s option schemes for unissued ordinary shares of S$0.10 each of the Company were as follows:

Date of grant of options Exercise price Scheme I: 2000 S$0.10 2000 S$0.10 Scheme II: 2001 S$0.51 2001 S$0.51 2002 S$0.72 2003 S$0.55 2003 S$0.60 2003 S$0.41 2003 S$0.41	Options outstanding 1 Jan 2005 1,672,000 6,679,000 452,000 9,483,000 4,882,000 1,100,000 3,500,000 650,000 6,805,000 35,223,000	Options exercised (1,672,000) (6,679,000) – – – – – – – (8,351,000)	Options cancelled or lapsed – – – (727,000) (210,000) – – (120,000) (574,000) (1,631,000)	Options outstanding 31 Dec 2005 – – 452,000 8,756,000 4,672,000 1,100,000 3,500,000 530,000 6,231,000 25,241,000	Options vested 1 Jan 2005 1,672,000 6,679,000 452,000 9,483,000 4,882,000 1,100,000 3,500,000 650,000 6,805,000 35,223,000	Options vested 31 Dec 2005 Exercise period – 21/12/2001 to 20/12/2005 – 21/12/2002 to 20/12/2005 452,000 03/09/2002 to 02/09/2006 8,756,000 03/09/2002 to 02/09/2011 4,672,000 11/03/2003 to 10/03/2012 1,100,000 24/01/2004 to 23/01/2012 3,500,000 11/03/2004 to 10/03/2012 530,000 27/06/2004 to 26/06/2008 6,231,000 27/06/2004 to 26/06/2013 25,241,000

During the year, a total of 8,351,000 ordinary shares of S$0.10 each were issued fully paid at par for cash upon the exercise of share options. The proceeds of S$835,100 were credited to share capital. The market price of the shares at the date of issue pursuant to the exercise of share options was S$0.30 per share.

At 1 January 2005, the adoption of FRS 102 has not resulted in any adjustments to comparatives or the opening balances of accumulated profits of the Group or the Company as the share options had vested prior to the adoption of FRS 102.

29 RELATED PARTY TRANSACTIONS

Parties

Transactions with Directors and other key management personnel

Total directors’ remuneration is disclosed in note 23 and 25.

– 141 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

During the financial year, the Company and certain of its subsidiaries have, in the normal course of business entered into transactions with companies in which certain directors of the Company, Mr. Tay Eng Hoe, Mr. Narong Intanate, Mr. Liu Wei and Mr Wang Fangmin have an interest. These transactions include the purchase and sale of information technology product and services of S$598,578 (2004: S$4,111,188) and S$4,703,188 (2004: S$3,697,263) respectively and are carried out on normal commercial terms.

In addition, professional services, amounting to S$34,000 (2004: S$190,000) were provided to the Company by a firm in which Mrs Lee Suet Fern is a member. Consultancy services amounting to S$73,000 (2004: nil) were provided to the Company by a firm in which Mr Teo Ek Tor has an interest.

The directors and other key management personnel participate in the Company’s share option plans, the terms and conditions of which are stated in note 28. Details of options granted, exercised and outstanding at 31 December 2005 are set out below:

Name of key management personnel Executive directors – Tay Eng Hoe – Narong Intanate – Foo Sen Chin Non-executive directors – Lin Chien – Chay Yee Meng – Leong Horn Kee – Lee Suet Fern – Teo Ek Tor Former directors – Koh Soo Keong – Wong Heng Chong – Wang Fangmin Balance carried forward Name of key management personnel Balance brought forward Executive officers – Foong Kam Tho – Jansen Ek Boo Ong – Wang Lixin – Soong Jan Hsung – Somsak Pejthavaeeporndej – Chong Cher Kwang	Options outstanding 1 Jan 2005 3,863,000 600,000 3,860,000 128,000 188,000 278,000 258,000 130,000 120,000 1,157,000 50,000 10,632,000 Number of options outstanding 1 Jan 2005 10,632,000 5,291,000 1,200,000 250,000 165,000 870,000 490,000 18,898,000	Options exercised (1,113,000) – (3,340,000) – – – – – – (557,000) – (5,010,000) Aggregate options exercised (5,010,000) (3,341,000) – – – – – (8,351,000)	Options cancelled or lapsed – – – – – – – – (120,000) – – (120,000) Options cancelled or lapsed (120,000) – – – – – – (120,000)	Options outstanding 31 Dec 2005 2,750,000 600,000 520,000 128,000 188,000 278,000 258,000 130,000 – 600,000 50,000
				5,502,000

				Number of outstanding 31 Dec 2005 5,502,000 1,950,000 1,200,000 250,000 165,000 870,000 490,000
				10,427,000

– 142 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Other Related Party Transactions

During the financial year, there were the following significant transactions with related parties, based on terms agreed by the parties:

	Group		Company
	2005	2004	2005	2004
	S$’000	S$’000	S$’000	S$’000
Subsidiaries
– sales	–	–	1,039	3,586
– purchases	–	–	1,034	3,588
– interest paid	–	–	506	212
Affiliates
– sales	28,013	6,430	–	–
– purchases	–	5,042	–	–

30 OPERATING LEASE COMMITMENTS

At 31 December, the Group have commitments for future minimum lease payments under non-cancellable operating leases as follows:

Payable: Within 1 year After 1 year but within 5 years After 5 years	Group 2005 2004 S$’000 S$’000 1,813 2,760 3,802 4,019 145 3 5,760 6,782	Group 2005 2004 S$’000 S$’000 1,813 2,760 3,802 4,019 145 3 5,760 6,782
		6,782

The Group leases office premises and warehouse facilities under operating leases. The leases typically run for an initial period of three years, with an option to renew the lease after that date.

31 FINANCIAL RISK MANAGEMENT

Financial Risk Management Objectives and Policies

Credit Risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of financial assets.

– 143 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Interest Rate Risk

Effective Interest Rates

In respect of interest-bearing financial liabilities, the following table indicates their effective interest rates at balance sheet date and the periods in which they reprice:

Floating interest S$’000 722 198,815 (66,600) 50 – 132,987	Fixed interest rate maturing Within 1 year 1 to 5 years S$’000 S$’000 – – – – – 66,600 – – 22 43 22 66,643	Fixed interest rate maturing Within 1 year 1 to 5 years S$’000 S$’000 – – – – – 66,600 – – 22 43 22 66,643	Total S$’000 722 198,815 – 50 65
			199,652

148 172,207 (41,000) 260 –	– – 41,000 – 22	– – – – 65	148 172,207 – 260 87
131,615	41,022	65	172,702

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FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Floating interest S$’000 104,513 83,250 21,263	Fixed interest rate maturing Within 1 year 1 to 5 years S$’000 S$’000 – – – – – –	Fixed interest rate maturing Within 1 year 1 to 5 years S$’000 S$’000 – – – – – –	Total S$’000 104,513 83,250
			21,263

102,153 82,000 (41,000)	– – 41,000	– – –	102,153 82,000 –
61,153	41,000	–	20,153

Foreign Currency Risk

The Group incurs foreign currency risk mainly from foreign currency denominated sales, purchases and operating expenses. While there is a certain extent of natural hedge between sales receipts and purchases, any significant fluctuation in the US dollar, Thai Baht, Ringgit Malaysia against the Singapore dollar could result in the Group incurring for foreign exchange losses/gains. Any significant fluctuations in the US dollar against the Renminbi could also result in an exposure to its Chinese subsidiaries.

The Group recognises that any significant fluctuations in US dollar may affect the Group’s foreign currency risk. As a result, the Group actively monitors its exposure and uses forward foreign exchange contracts and currency swap to hedge against US dollar exposures, as and when necessary and where possible.

In view of the nature of the Group’s business which spans several countries, foreign exchange risks will continue to be an integral aspect of the Group’s risk profile in the future.

Cash Flow Hedge

During the financial year, the Group entered into a hybrid swap instrument (the “Swap”) to hedge the Group’s exposures arising from:

foreign exchange risk in relation to highly probable forecasted sales transactions denominated in Renminbi; and
interest rate risk in relation to US dollar Singapore Inter Bank Offering Rates (“USD SIBOR”) interest-bearing US dollar loans up to cap of 6%.

– 145 –

32 CONTINGENT LIABILITIES

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

The Group has established the hedging relationships as cash flow hedges and have recognised the fair value changes on the effective portion of the Swap amounting to S$1,856,000 at 31 December 2005 on the balance sheet as a derivative liability. The corresponding amount is recognised in the hedging reserve until the earliest of:

(a) the realisation of the forecasted sales transactions; or
(b) the repayment or termination of the interest-bearing loans; or
(c) USD SIBOR exceeding 6%.

Sensitivity Analysis

At 31 December 2005, it is estimated that a general increase of one percentage point in interest rates would decrease the Group’s profit before tax by approximately S$2 million (2004: S$1.7 million).

At 31 December 2005, it is estimated that a general increase of one percentage point in value of Singapore dollars against other foreign currencies would decrease the Group’s profit before tax by approximately S$243,000 (2004: S$266,000). Forward exchange contracts have been included in this calculation.

Fair Values

Interest-bearing loans and borrowings

The interest-bearing loans and borrowings are based on market rates.

Other financial assets

Other current financial assets and liabilities

At 31 December 2005, there were contingent liabilities in respect of the following:

(a) Guarantees given to suppliers by the Company in respect of credit facilities extended to certain subsidiaries amounted to S$143,606,000 (2004: S$147,320,000), of which the amount utilised was S$43,495,000 (2004: S$48,655,000).
(b) Guarantees given to financial institutions by the Company in respect of credit facilities extended to certain subsidiaries amounted to S$145,956,000 (2004: S$169,572,000), of which the amount utilised was S$76,254,000 (2004: S$55,792,000).
(c) Guarantees given to financial institutions by the subsidiaries in respect of credit facilities extended to the Company amounted to S$100 million (2004: S$82 million), of which S$83 million (2004: S$82 million) had been utilised.

– 146 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

(d) Guarantees given by a subsidiary to a bank for trade financing facilities extended to a third party in respect of import and export services provided to its subsidiaries in China amounted to S$10,323,000 (2004: S$9,906,000).
(e) Claim made on a subsidiary, The Value Systems Co., Ltd., as a second defendant in a law suit for copyright infringement amounted to Baht 170 million (equivalent to S$7 million). The court has ruled that The Value Systems was not liable for the damages claimed by the Plaintiff. Although the Plaintiff has filed an appeal, the Directors maintain that the claim has no merit.

33 BUSINESS SEGMENTS (GROUP)

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segement), which is subject to risks and rewards that are different from those of other segments.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise income-earning assets and revenue, income-bearing loans, borrowings and expenses, and corporate assets and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

The main business segment of the Group comprises the following:

Segments	Principal Activities
Enterprise systems	Provider of enterprise systems tools (middleware, operating systems,
	Unix/NT servers, databases, storage and security products) for IT
	infrastructure.
IT services	IT infrastructure design and implementation, training, maintenance and
	support services.
Distribution	Distribution of IT products (desktop PCs, notebooks, handhelds, printers,
	etc) for the commercial and consumer markets.

– 147 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Revenue 2005 Total revenue from external customers Segment results Finance costs Taxation Profit from ordinary activities after taxation Minority interests Net profit for the year 2004 Total revenue from external customers Segment results Finance costs Taxation Profit from ordinary activities after taxation Minority interests Net profit for the year	Enterprise Systems S$’000 781,098 14,881 625,586 10,475	IT Services S$’000 22,025 2,022 24,925 2,281	Distribution S$’000 1,233,155 12,979	Consolidated S$’000 2,036,278 29,882 (7,398) (3,887) 18,597 (1,284) 17,313 1,865,658 25,643 (6,527) (4,133) 14,983 (1,520) 13,463
				(7,398 (3,887
				18,597 (1,284
			1,215,147 12,887
				(6,527 (4,133
				14,983 (1,520

– 148 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Assets and Liabilities 2005 Segment assets Unallocated assets – Tax assets Others Total assets Segment liabilities Unallocated liabilities – Tax liabilities Others Total liabilities 2004 Segment assets Unallocated assets – Tax assets Others Total assets Segment liabilities Unallocated liabilities – Tax liabilities Others Total liabilities	Enterprise Systems S$’000 203,796 147,488 148,951 114,868	IT Services S$’000 4,935 5,985 5,600 8,044	Distribution S$’000 313,927 247,984	Consolidated S$’000 522,658 958 62,134
				585,750

				401,457
				2,370 149
			295,565	403,976

				450,116
				875 66,243
			226,652	517,234

				349,564
				2,585 169
				352,318

– 149 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Enterprise Systems S$’000 1,304 742 1,371	IT Services S$’000 66 49 39	Distribution S$’000 2,771 1,568 2,164	Consolidated S$’000 4,141

			2,359

			3,574

1,081 1,110	– 44	1,636 2,157	2,717 3,311
2,191	44	3,793	6,028

34 GEOGRAPHICAL SEGMENTS (GROUP)

The Group operates principally in Singapore, Thailand, Malaysia, Indonesia and China. In presenting information on the basis of geographic segments, segment revenue is based on the the geographic location of operations. Segment assets are based on the geographic location of the assets.

	North	South East
	Asia	Asia	Consolidated
	S$’000	S$’000	S$’000
2005
Total revenue from external customers	1,013,521	1,022,757	2,036,278
Segment assets	259,219	263,439	522,658
Segment liabilities	154,836	246,621	401,457
Capital expenditure	1,003	3,138	4,141
2004
Total revenue from external customers	1,032,121	833,537	1,865,658
Segment assets	220,543	229,573	450,116
Segment liabilities	125,906	223,658	349,564
Capital expenditure	554	1,805	2,359

– 150 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

35 SUBSEQUENT EVENTS

On 4 January 2006, the Company acquired approximately 50% interest in the equity of an associate, MSI Digiland Phils., Inc, (“MSI”) for a cash consideration of approximately S$3.7 million. The Company also entered into a call and put option agreement with the shareholders of MSI pursuant to which the Company was granted a right to purchase an additional 309,707 shares in MSI, thereby increasing the Company’s interest in MSI to 60% of the entire issued and paid-up capital of MSI. The call option is exercisable within a three year period commencing 3 July 2006.

The Company incorporated ECS Infocom (Phils) Pte Ltd, a wholly owned subsidiary of the Company, to hold its interest in the share capital of MSI on 4 January 2006.

36 ACCOUNTING ESTIMATES AND JUDGEMENT

Management discussed with the Audit Committee the development, selection and disclosure of the Group and the Company’s critical accounting policies and estimates and the application of these policies and estimates.

Key sources of estimation uncertainty

Note 6 contains information about the assumptions and their risk factors relating to goodwill impairment. Note 31 contains information about the assumptions relating to hedge accounting.

– 151 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

A-3. ECS’s audited financial statements for year ended 31 December 2004

The following is the audited financial statements of ECS Group for the financial year ended 31 December 2004 extracted from the Annual Report 2004 of ECS Group which is not qualified.

Balance Sheet

As at 31 December 2004

Group 2004 2003 S$’000 S$’000 10,916 12,274 – – 634 643 32,635 35,352 875 835	Group 2004 2003 S$’000 S$’000 10,916 12,274 – – 634 643 32,635 35,352 875 835	Company 2004 2003 S$’000 S$’000 170 202 87,008 86,408 140 140 – – – –	Company 2004 2003 S$’000 S$’000 170 202 87,008 86,408 140 140 – – – –
45,060 132,295 281,505 58,374 472,174 260 171,690 741 172,262 22 – 82 2,058 347,115 125,059	49,104 199,775 158,788 56,181 414,744 193 157,664 940 142,268 – 6,800 85 1,601 309,551 105,193	87,318 – 110,399 649 111,048 – 1,377 – 82,000 – – – – 83,377 27,671	86,750
			– 111,740 474
			112,214
			– 1,204 – 85,000 – – – –
			86,204
			26,010
170,119	154,297	114,989	112,760

– 152 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Note Non-Current Liabilities Deferred income 15 Interest bearing bank loans 16 Obligations under finance leases 17 Loans due to minority shareholders of a subsidiary 20 Deferred tax liabilities 7 Minority Interests Net Assets Capital and Reserves Share capital 21 Reserves 22 Shareholders’ Equity	Group 2004 2003 S$’000 S$’000 313 371 93 146 65 – 4,205 – 527 675 5,203 1,192 6,257 4,678 158,659 148,427 35,525 34,634 123,134 113,793 158,659 148,427	Company 2004 2003 S$’000 S$’000 – – – – – – – – 27 23 27 23 – – 114,962 112,737 35,525 34,634 79,437 78,103 114,962 112,737	Company 2004 2003 S$’000 S$’000 – – – – – – – – 27 23 27 23 – – 114,962 112,737 35,525 34,634 79,437 78,103 114,962 112,737
			23 –
			112,737

			34,634 78,103
			112,737

– 153 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Profit and Loss Account

Year ended 31 December 2004

Group 2004 2003 S$’000 S$’000 1,865,658 1,422,792 (1,778,172) (1,354,182)	Group 2004 2003 S$’000 S$’000 1,865,658 1,422,792 (1,778,172) (1,354,182)	Company 2004 2003 S$’000 S$’000 7,215 7,003 (3,581) (4,162) 3,634 2,841 3,088 2,330 (251) (160) (797) (514) 5,674 4,497 (2,623) (2,101) 3,051 2,396 (579) (526) 2,472 1,870 – – 2,472 1,870	Company 2004 2003 S$’000 S$’000 7,215 7,003 (3,581) (4,162) 3,634 2,841 3,088 2,330 (251) (160) (797) (514) 5,674 4,497 (2,623) (2,101) 3,051 2,396 (579) (526) 2,472 1,870 – – 2,472 1,870
87,486 1,462 (34,989) (28,316) 25,643 (6,527) 19,116 (4,133) 14,983 (1,520)	68,610 1,438 (28,318) (25,388) 16,342 (6,686) 9,656 (2,780) 6,876 (581)	3,634 3,088 (251) (797) 5,674 (2,623) 3,051 (579) 2,472 –	2,841 2,330 (160 (514
			4,497 (2,101
			2,396 (526
			1,870 –
13,463 3.8 cents 3.7 cents	6,295 1.8 cents 1.8 cents	2,472

– 154 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Statement of Changes in Equity

Year ended 31 December 2004

Group 2004 2003 S$’000 S$’000 34,634 34,634 891 –	Group 2004 2003 S$’000 S$’000 34,634 34,634 891 –	Company 2004 2003 S$’000 S$’000 34,634 34,634 891 – 35,525 34,634 1,167 – – 1,167 (1,138) – 2,909 – 2,938 1,167 75,656 75,656 1,280 2,198 2,472 1,870 – (1,621) – (1,167) (2,909) – 843 1,280 – – – – – – 114,962 112,737	Company 2004 2003 S$’000 S$’000 34,634 34,634 891 – 35,525 34,634 1,167 – – 1,167 (1,138) – 2,909 – 2,938 1,167 75,656 75,656 1,280 2,198 2,472 1,870 – (1,621) – (1,167) (2,909) – 843 1,280 – – – – – – 114,962 112,737
35,525 1,167 – (1,138) 2,909 2,938 75,656 39,851 13,463 – – (2,909) 50,405 (2,881) (2,984) (5,865)	34,634 – 1,167 – – 1,167 75,656 36,344 6,295 (1,621) (1,167) – 39,851 (2,451) (430) (2,881)	35,525 1,167 – (1,138) 2,909 2,938 75,656 1,280 2,472 – – (2,909) 843 – – –	34,634
			– 1,167 – –
			1,167
			75,656
			2,198 1,870 (1,621 (1,167 –
			1,280
			– –
			–
158,659	148,427	114,962

– 155 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Statement of Cash Flows

Year ended 31 December 2004

Operating Activities Profit from ordinary activities before taxation Adjustments for: Amortisation of goodwill Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Interest expense Interest income Operating profit before working capital changes Changes in working capital: Inventories Trade and other receivables Trade and other payables Cash generated from operations Income taxes paid Cash flows from operating activities Investing Activities Interest received Contribution from minority shareholders Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Purchase of other assets Cash flows from investing activities	2004 S$’000 19,116 2,717 3,311 36 6,527 (838)	2003 S$’000 9,656 2,746 3,063 168 6,686 (517) 21,802 8,282 (23,440) 37,034 43,678 (2,869) 40,809 517 – (1,709) 173 (314) (1,333)
	30,869 61,276 (127,561) 16,775 (18,641) (3,834) (22,475) 838 400 (2,148) 36 – (874)	21,802 8,282 (23,440 37,034
		43,678 (2,869
		40,809
		517 – (1,709 173 (314
		(1,333

– 156 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Financing Activities Interest paid Proceeds from issue of shares Proceeds from bank loans Repayment of bank loans Payment of finance lease instalments Dividends paid Loans from minority shareholders of a subsidiary Repayment of shareholder’s loan Other cash flows from financing activities Cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of exchange rate changes on balances held in foreign currencies Cash and cash equivalents at end of the year Comprising: Cash and bank balances Bank overdrafts	2004 S$’000 (5,476) 891 38,372 (3,256) (27) (1,138) 4,205 (6,560) 113	2003 S$’000 (5,795) – 106,589 (116,615) (830) (1,621) – – – (18,272) 21,204 35,270 (486) 55,988 56,181 (193) 55,988
	27,124 3,775 55,988 (1,649)	(18,272
		21,204 35,270 (486
	58,114
	58,374 (260)	56,181 (193
	58,114

– 157 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Notes to the Financial Statements

Year ended 31 December 2004

These notes form an integral part of the financial statements.

The financial statements were authorised for issue by the directors on 22 February 2005.

1 DOMICILE AND ACTIVITIES

ECS Holdings Limited (the “Company”) is incorporated in the Republic of Singapore and has its registered office at 19 Kallang Avenue, #07-153, Singapore 339410.

The consolidated financial statements relate to the Company and its subsidiaries (referred to as the “Group”).

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of Preparation

The financial statements are prepared in accordance with Singapore Financial Reporting Standards including related Interpretations promulgated by the Council on Corporate Disclosure and Governance.

The financial statements, which are expressed in Singapore dollars, unless stated otherwise, are prepared on the historical cost basis.

2.2 Measurement Currency

The measurement currency of the Company is the Singapore dollar. As the receipts from investing activities and expenses are denominated primarily in Singapore dollar, the Directors are of the opinion that the Singapore dollar reflects the economic substance of the underlying events and circumstances relevant to the Company.

2.3 Consolidation

Subsidiaries

Investments in subsidiaries are stated in the Company’s balance sheet at cost less impairment losses.

The acquisition of subsidiaries are accounted for under the purchase method. Subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Transactions Eliminated on Consolidation

All significant intra-group transactions, balances and unrealised gains are eliminated on consolidation. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

2.4 Foreign Currencies

Foreign Currency Transactions

Monetary assets and liabilities in foreign currencies are translated into Singapore dollars at rates of exchange approximate to those ruling at the balance sheet date. Transactions in foreign currencies are translated at rates ruling on transaction dates. Translation differences are included in the profit and loss account.

– 158 –

2.5 Property, Plant and Equipment

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Foreign Entities

The assets and liabilities of foreign entities are translated to Singapore dollars at the rates of exchange ruling at the balance sheet date. The results and cash flows of foreign entities are translated at the average exchange rates for the year. Goodwill and fair value adjustments arising on acquisition of foreign entities are stated at exchange rates ruling on transaction date. Exchange differences arising on translation are recognised directly in equity.

Owned Assets

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Disposals

Depreciation

Depreciation is provided on the straight-line basis so as to write off items of property, plant and equipment over their estimated useful lives as follows:

Freehold building	–	50 years
Leasehold improvements	–	10 years
Office equipment	–	5 years
Furniture and fittings	–	5 years
Computers	–	5 years
Motor vehicles	–	5 years

No depreciation is provided on assets under construction.

2.6 Goodwill on Consolidation

Goodwill arising on acquisition represents the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired. Goodwill is stated at cost less accumulated amortisation and impairment losses. Goodwill is amortised from the date of initial recognition over its estimated useful life of not more than 15 years.

On disposal of a subsidiary, any attributable amount of purchased goodwill not previously amortised through the profit and loss account or which had previously been dealt with as a movement in Group reserves is included in the calculation of the profit or loss on disposal.

2.7 Other Assets

Equity securities held for the long-term are stated at cost less allowance for diminution in value which, in the opinion of the directors, are other than temporary.

Profits or losses on disposal of equity securities are determined as the difference between the net disposal proceeds and the carrying amount of the equity securities and are accounted for in the profit and loss account as they arise.

2.8 Inventories

Inventories are stated at the lower of cost and net realisable value.

– 159 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

2.9 Trade and Other Receivables

Trade and other receivables are stated at their cost less allowance for doubtful receivables.

2.10 Cash and Cash Equivalents

2.11 Impairment

The carrying amounts of the Company’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. The impairment loss is charged to the profit and loss account. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

2.12 Liabilities and Interest-Bearing Borrowings

Trade and other payables and interest-bearing borrowings are recognised at cost.

2.13 Employee Share Options

No compensation cost or obligation is recognised when share options are issued under employee incentive programmes. When options are exercised, equity is increased by the amount of the proceeds received.

2.14 Deferred Taxation

A deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

2.15 Revenue Recognition

Sale of Goods

Service Fees

Fees from maintenance service contracts are recognised over the period of the contract.

Project Revenue

Revenue on projects is recognised in the profit and loss account based on the percentage of completion method.

– 160 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Dividends

Dividend income is recognised in the profit and loss account when the Company’s right to receive payment is established.

Interest Income

Interest income from bank deposits is accrued on a time-apportioned basis.

2.16 Operating Leases

2.17 Finance Costs

Interest expense and similar charges are expensed in the profit and loss account in the period in which they are incurred.

3 PROPERTY, PLANT AND EQUIPMENT

Freehold Building S$’000 1,642 – – – (118)	Leasehold Improvements S$’000 1,026 177 – – (20)	Office Equipment S$’000 1,090 436 (29) – (100)	Furniture and Fittings S$’000 1,090 165 (16) 1 (60)	Computers S$’000 11,626 1,045 (100) 10 (203)	Motor Vehicles S$’000 795 293 (55) 74 (48)	Assets under Construction S$’000 48 243 – (85) (90)	Total S$’000 17,317 2,359 (200) – (639)
1,524 88 48 – (24) 112	1,183 349 190 – (11) 528	1,397 255 382 (22) (86) 529	1,180 449 218 (16) (28) 623	12,378 3,545 2,261 (90) (123) 5,593	1,059 357 212 (2) (31) 536	116 – – – – –	18,837
							5,043 3,311 (130) (303)
							7,921
1,412 1,554	655 677	868 835	557 641	6,785 8,081	523 438	116 48	10,916

							12,274

– 161 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

The net book value of property, plant and equipment of the Group includes assets held under finance leases with a carrying value of S$172,800 (2003: Nil).

Leasehold Improvements S$’000 Company Cost At 1 January 2004 191 Additions – At 31 December 2004 191 Accumulated Depreciation At 1 January 2004 37 Depreciation charge for the year 19 At 31 December 2004 56 Carrying Amount At 31 December 2004 135 At 31 December 2003 154 4 SUBSIDIARIES Unquoted equity shares, at cost	Office Equipment S$’000 10 –	Furniture and Fittings S$’000 22 –	Computers S$’000 61 3	Total S$’000 284 3
191 37 19 56	10 5 2 7	22 8 5 13	64 32 9 41	287
				82 35
				117
135 154 st	3 5	9 14	23 29 Company 2004 S$’000 87,008	170

				202

				2003 S$’000 86,408

During the financial year, the Group subscribed for a 60% equity interest in a subsidiary, ECS Indo Pte Ltd, for a cash consideration of approximately S$0.6 million. On 15 January 2004, the subsidiary entered into a call option agreement with the shareholders of an affiliated company to acquire 100% equity interest in the affiliated company. The call option is exercisable 2 years from 15 January 2006 at an option price of US$2 million.

– 162 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Details of the subsidiaries directly held by the Company are set out below.

Name of Company Principal Activities Place of Incorporation/ Business Group’s Effective Equity Interest 2004 2003 % % ECS Computers (Asia) Pte Ltd(a) Provider of information technology products and services for IT infrastructure Singapore 100 100 EC Sure Holdings (Thailand) Co., Ltd(b) Investment holding Thailand 99.9 99.9 ECS Indo Pte Ltd(a) Distributor of information technology products Singapore 60 – ECS KUSH Sdn Bhd(c) Investment holding Malaysia 60 60 ECS Technology (China) Limited(d) Investment holding, provider of information technology products and services for IT infrastructure Hong Kong 100 100 The Value Systems Co., Ltd(b) Provider of information technology products and services for IT infrastructure Thailand 100 100	Cost of In 2004 S$ 5,924 10 600 2,832 72,588 5,054 87,008	vestment 2003 S$ 5,924 10 – 2,832 72,588 5,054
		86,408

– 163 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Details of the subsidiaries held by the direct subsidiaries of the Group are set out below.

				Country of	Group’s	Effective
			Principal	Incorporation/	Equity	Interest
Name of Company			Activities	Business	2004	2003
					%	%
Subsidiaries of ECS Computers	(Asia)
Pte Ltd
Astar Technology (S) Pte. Ltd.(a)			Inactive	Singapore	100	100
Isan System Pte. Ltd.(a)			Provision and	Singapore	100	100
			distribution of
			information
			technology
			products and
			general trading of
			IT equipment
Subsidiary of ECS Indo Pte Ltd
PT ECS Indo Jaya(f)			Distributor of	Indonesia	60	–
			information
			technology
			products
Subsidiaries of ECS KUSH Sdn	Bhd
ECS KU Sdn Bhd(c)	)		Provider of	Malaysia	60	60
ECS Pericomp Sdn Bhd(c)	) ) )		information technology products and services for IT	Malaysia	48	48
ECS Astar Sdn Bhd(c)	)		infrastructure	Malaysia	60	60
ECS ICT Sdn Bhd(c)			Inactive	Malaysia	42	42
Subsidiaries of ECS Technology	(China)
Limited
ECS Technology Company Ltd(d)		)	Provider of	People’s Republic	100	100
		)	information	of China
ECS Technology (Guangzhou) Co., Ltd(d)		) ) )	technology products and services for IT infrastructure	People’s Republic of China	100	100
		)
ECS International Trading (Shanghai)		)		People’s Republic	100	100
Co., Limited(d)		)		of China
		)
ECS Technology (Shanghai) Co., Ltd(d)		)		People’s Republic	100	100
		)		of China
		)
PCS Trading Limited(e)		)		British Virgin	100	100
		)		Islands
ECS IT Services (China) Limited(d)			Inactive	Hong Kong	100	100

(a) Audited by KPMG Singapore
(b) Audited by KPMG Thailand
(c) Audited by KPMG Malaysia
(d) Audited by KPMG People’s Republic of China

– 164 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

(e) Not required to be audited by law in country of incorporation
(f) Audited by an Indonesian CPA firm. Not a significant subsidiary as defined under Clause 715 of SGX-ST Listing Manual

5 OTHER ASSETS

At cost Unquoted ordinary shares Club memberships	Group 2004 2003 S$’000 S$’000 369 378 265 265 634 643	Company 2004 2003 S$’000 S$’000 – – 140 140 140 140	Company 2004 2003 S$’000 S$’000 – – 140 140 140 140
			140

6 GOODWILL ON CONSOLIDATION

Cost At 1 January Fair value adjustments At 31 December Accumulated Amortisation At 1 January Amortisation during the year	Group 2004 2003 S$’000 S$’000 40,762 39,351 – 1,411	Group 2004 2003 S$’000 S$’000 40,762 39,351 – 1,411
	40,762 5,410 2,717 8,127	40,762
		2,664 2,746
		5,410
	32,635	35,352

The fair value adjustments arose from subsequent changes identified in the carrying value of identifiable net assets previously accounted for on the Group’s acquisition of additional interest in two subsidiaries in 2002.

Goodwill on consolidation is stated net of negative goodwill of S$1,044,624.

– 165 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

7 DEFERRED TAXATION

Movements in deferred tax assets and liabilities during the year were as follows:

		Credit/
		(Charge) to
		profit and
		loss account	Translation
	At 1/1/2004	(note 27)	adjustment	At 31/12/2004
	S$’000	S$’000	S$’000	S$’000
Group
Deferred Tax Assets
Provisions	835	60	(20)	875
Deferred Tax Liabilities
Accelerated tax depreciation	(675)	130	18	(527)
Company
Deferred Tax Liabilities
Accelerated tax depreciation	(23)	(4)	–	(27)

As at 31 December 2004, the Group has tax losses amounting to approximately S$2,160,000 (2003: Nil) which are available for carry forward and set off against future taxable income subject to agreement by the tax authority and compliance with tax regulations prevailing in the country in which the subsidiary incurring the loss operates. Deferred tax assets have not been recognised in respect of the tax losses in accordance with the Group’s policy set out in note 2.14.

8 INVENTORIES

At lower of cost and net realisable value Trading inventories Work-in-progress Goods in transit Allowance for obsolete inventory Comprises: Inventories, at cost Inventories, at net realisable value Work-in-progress comprises: Work-in-progress, at cost Attributable profits Progress payments received and receivable	Group 2004 2003 S$ 000 S$ 000 125,992 183,789 253 4,051 10,746 15,930 136,991 203,770 (4,696) (3,995) 132,295 199,775 10,999 19,981 121,296 179,794 132,295 199,775 5,150 4,740 278 – 5,428 4,740 (5,175) (689) 253 4,051	Group 2004 2003 S$ 000 S$ 000 125,992 183,789 253 4,051 10,746 15,930 136,991 203,770 (4,696) (3,995) 132,295 199,775 10,999 19,981 121,296 179,794 132,295 199,775 5,150 4,740 278 – 5,428 4,740 (5,175) (689) 253 4,051
	136,991 (4,696)	203,770 (3,995
	132,295
	10,999 121,296	19,981 179,794
	132,295
	5,150 278 5,428 (5,175)	4,740 –
		4,740 (689
	253

– 166 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

9 TRADE AND OTHER RECEIVABLES

Note Trade receivables 10 Deposits, prepayments and other receivables 11 Amounts due from subsidiaries 12	Group 2004 2003 S$’000 S$’000 274,270 151,078 7,235 7,710 – – 281,505 158,788	Company 2004 2003 S$’000 S$’000 68 529 1,280 1,207 109,051 110,004 110,399 111,740	Company 2004 2003 S$’000 S$’000 68 529 1,280 1,207 109,051 110,004 110,399 111,740
			111,740

10 TRADE RECEIVABLES

Trade receivables Amounts due from an affiliated company (trade) Allowance for doubtful receivables	Group 2004 2003 S$’000 S$’000 257,266 154,100 21,499 –	Group 2004 2003 S$’000 S$’000 257,266 154,100 21,499 –	Company 2004 2003 S$’000 S$’000 68 529 – –	Company 2004 2003 S$’000 S$’000 68 529 – –
	278,765 (4,495)	154,100 (3,022)	68 –	529 –
	274,270	151,078	68	529

An affiliated company is a company, other than a related corporation, which directly or indirectly through one or more intermediaries is under common significant influence with that of one of the subsidiaries in the Group.

The trade amount due from the affiliated company is guaranteed by the shareholders of the affiliated company and secured by a pledge of shares of a subsidiary and the affiliated company.

11 DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

Deposits Prepayments Recoverables Tax recoverables Other receivables	Group 2004 2003 S$’000 S$’000 1,053 307 3,245 3,641 638 543 252 351 2,047 2,868 7,235 7,710	Company 2004 2003 S$’000 S$’000 – – 16 23 – 1 209 207 1,055 976 1,280 1,207	Company 2004 2003 S$’000 S$’000 – – 16 23 – 1 209 207 1,055 976 1,280 1,207
			1,207

– 167 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

12 AMOUNTS DUE FROM/TO SUBSIDIARIES

Amounts due from (note 9) Trade receivables Non-trade receivables Loans receivable	Company 2004 2003 S$’000 S$’000 143 668 6,755 6,837 102,153 102,499 109,051 110,004	Company 2004 2003 S$’000 S$’000 143 668 6,755 6,837 102,153 102,499 109,051 110,004
		110,004

The loans due from subsidiaries are unsecured, bore interest at rates ranging from 1.4% to 5% (2003: 1.6% to 2.702%) per annum and have no fixed terms of repayment.

Amounts due to (note 13) Trade payables Non-trade payables	Company 2004 2003 S$’000 S$’000 36 2 – 29 36 31	Company 2004 2003 S$’000 S$’000 36 2 – 29 36 31
		31

13 TRADE AND OTHER PAYABLES

Note Trade payables Accruals and other payables 14 Amounts due to subsidiaries 12	Group 2004 2003 S$’000 S$’000 135,264 130,508 36,426 27,156 – – 171,690 157,664	Company 2004 2003 S$’000 S$’000 – – 1,341 1,173 36 31 1,377 1,204	Company 2004 2003 S$’000 S$’000 – – 1,341 1,173 36 31 1,377 1,204
			1,204

14 ACCRUALS AND OTHER PAYABLES

Accrued operating expenses Deposits received Other payables	Group 2004 2003 S$’000 S$’000 17,534 12,607 15,387 12,565 3,505 1,984 36,426 27,156	Company 2004 2003 S$’000 S$’000 1,316 1,162 – – 25 11 1,341 1,173	Company 2004 2003 S$’000 S$’000 1,316 1,162 – – 25 11 1,341 1,173
			1,173

– 168 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

15 DEFERRED INCOME

Deferred income relates to fees billed in advance on service maintenance contracts and consists of:

Current portion Non-current portion	Group 2004 2003 S$’000 S$’000 741 940 313 371 1,054 1,311	Group 2004 2003 S$’000 S$’000 741 940 313 371 1,054 1,311
		1,311

16 INTEREST-BEARING BANK LOANS

Group 2004 2003 S$’000 S$’000 148 205 159,006 129,408 13,201 12,801 172,355 142,414	Group 2004 2003 S$’000 S$’000 148 205 159,006 129,408 13,201 12,801 172,355 142,414	Company 2004 2003 S$’000 S$’000 – – 82,000 85,000 – – 82,000 85,000	Company 2004 2003 S$’000 S$’000 – – 82,000 85,000 – – 82,000 85,000
			85,000

172,262 93	142,268 146	82,000 –	85,000 –
172,355	142,414	82,000	85,000

(a) The secured bank facilities of the Group bore interest at rates ranging from 7.25% to 7.50% (2003: 7.39%) per annum and are secured by a fixed charge over the freehold office blocks of a subsidiary. In addition, the facilities are jointly and severally guaranteed by certain directors of certain subsidiaries.

(b) The unsecured bank facilities of the Group bore interest at rates ranging from 1.41% to 5.22% (2003: 1.5% to 5.04%) per annum. A negative pledge has been given in respect of the entire assets of certain subsidiaries.

(c) The unsecured bank loan of US$4 million (equivalent to S$6.7 million) bore interest at rates ranging from 3.15% to 3.36% per annum and was fully repaid on 28 January 2005.

– 169 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

18 LOANS DUE TO SHAREHOLDERS

17 OBLIGATIONS UNDER FINANCE LEASES

Group

2004 Repayable: Within 1 year After 1 year but within 5 years 2003 NIL	Payments S$’000 24 72 96	Interest S$’000 2 7 9	Principal S$’000 22 65
			87

Information on interest rates and the Group’s exposure to interest rate and currency risks are set out in note

The loans due to shareholders were unsecured, interest-free and were fully repaid in 2004.

19 PREFERENCE SHARES

25 Class A-1 Non-Cumulative Redeemable Preference Shares of US$1 each 15 Class A-2 Non-Cumulative Redeemable Preference Shares of US$1 each 10 Class B Non-Cumulative Redeemable Preference Shares of US$1 each	Group 2004 2003 S$’000 S$’000 41 43 25 25 16 17 82 85	Group 2004 2003 S$’000 S$’000 41 43 25 25 16 17 82 85
		85

The principal terms of the RPS are contained in the Articles of Association of the subsidiary and are summarised as follows:

(a) The issuer of the RPS may at any time redeem any or all of the RPS (including, but not exceeding, the premium paid on subscription) by giving not less than 30 days prior notice in writing to the holders of the RPS to be redeemed;
(b) The holders of RPS are not entitled to participate in the profits or assets of the issuer nor shall they confer a right to participate in any issue of ordinary shares in the capital of the issuer;
(c) The holders of RPS shall have the right to receive non-cumulative preferential dividends as recommended by the directors;

– 170 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

(d) Upon the winding up of the subsidiary, the holder of the preference shares have the right to the repayment of the capital paid up and premium paid on the RPS in the following priority:
(i) Class A-1 RPS holder shall rank senior to the holders of the subsidiary’s ordinary shares, Class A-2 RPS and Class B RPS;
(ii) Class A-2 RPS holder shall rank senior to the holders of the subsidiary’s ordinary shares and Class B RPS;
(iii) Class B RPS holder shall rank senior to the holders of the subsidiary’s ordinary shares.

20 LOANS DUE TO MINORITY SHAREHOLDERS OF A SUBSIDIARY

Loans due to minority shareholders of a subsidiary bore interest at 5% per annum and are not repayable within the next 12 months. The loans are subordinated to the repayment of bank loans of the subsidiary. During the year, interest on loans due to the minority shareholders was waived by the minority shareholders.

21 SHARE CAPITAL

No. of shares 2004 2003 ’000 ’000 500,000 500,000	No. of shares 2004 2003 ’000 ’000 500,000 500,000	2004 S$’000 50,000	2003 S$’000 50,000

346,342 8,906	346,342 –	34,634 891	34,634 –
355,248	346,342	35,525	34,634

At 31 December 2004, options for 35,223,000 (2003: 45,726,000) unissued ordinary shares of S$0.10 each of the Company granted under the ECS Share Options Scheme I and Scheme II were outstanding.

22 RESERVES

Share premium Accumulated profits Currency translation reserve Dividend reserve	Group 2004 2003 S$’000 S$’000 75,656 75,656 50,405 39,851 (5,865) (2,881) 2,938 1,167 123,134 113,793	Company 2004 2003 S$’000 S$’000 75,656 75,656 843 1,280 – – 2,938 1,167 79,437 78,103	Company 2004 2003 S$’000 S$’000 75,656 75,656 843 1,280 – – 2,938 1,167 79,437 78,103
			78,103

– 171 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Movements in reserves for the Group and the Company are set out in the statements of changes in equity.

(a) Share Premium

The application of the share premium account is governed by Section 69 of the Companies Act, Chapter

(b) Currency Translation Reserve

The currency translation reserve of the Group comprises foreign exchange differences arising from the translation of the financial statements of foreign entities.

(c) Dividend Reserve

The dividend reserve of the Group represents an appropriation from accumulated profits for dividends proposed.

23 REVENUE

Sale of IT products IT services Dividend from a subsidiary	Group 2004 2003 S$’000 S$’000 1,833,671 1,402,732 31,987 20,060 – – 1,865,658 1,422,792	Company 2004 2003 S$’000 S$’000 3,615 4,203 – – 3,600 2,800 7,215 7,003	Company 2004 2003 S$’000 S$’000 3,615 4,203 – – 3,600 2,800 7,215 7,003
			7,003

Transactions within the Group have been excluded in arriving at revenue for the Group.

– 172 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

24 PROFIT FROM OPERATIONS

The following items have been included in arriving at profit from operations:

Other Income Interest income – banks – subsidiaries Others Staff Costs Wages and salaries Contributions to defined contribution plans Number of employees as at 31 December Other (Income)/Expenses Amortisation of goodwill (note 6) Allowances for – obsolete inventory – doubtful trade receivables Audit fees – auditors of the Company – current year – prior year – other auditors – current year – prior year Bad debts recovered (trade) Depreciation of property, plant and equipment (note 3) Directors’ remuneration – directors of the Company – current year – prior year – other directors Exchange (gains)/losses (net) Inventories written off Loss on disposal of property, plant and equipment Non-audit fees – auditors of the Company – other auditors Operating lease expenses Professional fees paid to a firm in which a director is a member	Group 2004 2003 S$’000 S$’000 838 517 – – 624 921	Group 2004 2003 S$’000 S$’000 838 517 – – 624 921	Company 2004 2003 S$’000 S$’000 2,381 2,080 690 244 17 6 3,088 2,330 97 88 11 11 108 99 1 1 – – – – – – 35 35 – 13 – – – – – – 35 37 225 195 – (25) – – 20 48 – – – – 8 11 – – – – 73 15	Company 2004 2003 S$’000 S$’000 2,381 2,080 690 244 17 6 3,088 2,330 97 88 11 11 108 99 1 1 – – – – – – 35 35 – 13 – – – – – – 35 37 225 195 – (25) – – 20 48 – – – – 8 11 – – – – 73 15
	1,462 33,456 3,051	1,438 26,479 2,628	3,088 97 11	2,330 88 11
	36,507 1,479 2,717 1,033 1,824 73 – 163 16 – 3,311 2,155 – 410 (214) 829 36 13 8 3,547 90	29,107 1,187 2,746 1,787 2,075 64 13 131 – (5) 3,063 1,952 (25) 380 28 142 168 11 3 3,186 85	108 1 – – – 35 – – – – 35 225 – – 20 – – 8 – – 73

– 173 –

APPENDIX II

26 DIRECTORS’ REMUNERATION

FINANCIAL INFORMATION OF THE ECS GROUP

25 FINANCE COSTS

Interest paid and payable on – bank overdrafts – finance leases – short-term loans – loan from subsidiary	Group 2004 2003 S$’000 S$’000 36 29 3 37 6,488 6,620 – – 6,527 6,686	Company 2004 2003 S$’000 S$’000 – – – – 2,411 2,101 212 – 2,623 2,101	Company 2004 2003 S$’000 S$’000 – – – – 2,411 2,101 212 – 2,623 2,101
			2,101

The remuneration of the Company’s directors fall within the following remuneration bands:

S$500,000 and above S$250,000 to S$499,999 Below S$250,000	Number of 2004 Executive Directors Non- Executive Directors – – 3 – 3 6 6 6	Directors 2003 Executive Directors Non- Executive Directors – – 3 – 3 6 6 6	Directors 2003 Executive Directors Non- Executive Directors – – 3 – 3 6 6 6
			6

– 174 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

27 TAXATION

Group 2004 2003 S$’000 S$’000 4,313 3,091 10 (301)	Group 2004 2003 S$’000 S$’000 4,313 3,091 10 (301)	Company 2004 2003 S$’000 S$’000 606 520 (31) –	Company 2004 2003 S$’000 S$’000 606 520 (31) –
4,323 (130) (60) (190)	2,790 (350) 340 (10)	575 4 – 4	520 8 (2
			6
4,133	2,780	579	526

19,116 3,823 751 (38) (824) 432 (50) 39	9,656 2,124 766 (11) (71) – 39 (67)	3,051 610 – (11) – – (31) 11	2,396
			527 1 – – – (2 –
4,133	2,780	579	526

28 EARNINGS PER SHARE

Basic earnings per share is based on: Net profit for the year (’000) Number of shares outstanding at the beginning of the year (’000) Weighted average number of shares issued during the year (’000) Weighted average number of shares in issue during the year (’000)	Group 2004 2003 S$’000 S$’000 13,463 6,295	Group 2004 2003 S$’000 S$’000 13,463 6,295

	346,342 6,680	346,342 –
	353,022	346,342

– 175 –

29 EQUITY COMPENSATION BENEFITS

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

In calculating fully diluted earnings per share, the weighted average number of ordinary shares in issue during the year is adjusted for the effects of all dilutive potential ordinary shares:

Weighted average number of shares used in calculation of basic earnings per share Weighted average number of dilutive potential ordinary shares Number of shares that would have been issued at fair value Weighted average number of ordinary shares (diluted)	Number of Shares 2004 2003 353,022 346,342 11,249 17,257 (3,733) (4,482) 360,538 359,117

The above schemes are administered by the Compensation Committee (the “Committee”) which comprises the following directors:

Koh Soo Keong (Chairman) Lee Suet Fern Leong Horn Kee Lin Chien

Information regarding the schemes are set out below:

Scheme I

(a) The exercise price of the options exercisable pursuant to Scheme I is the par value of the share.
(b) Options granted are exercisable after the first anniversary but before the fifth anniversary of the grant date, subject to the following:
up to 50% of the shares in respect of which option is granted may be exercised within the 12 month period after the first anniversary of the date of grant of the option; and
the balance of the shares in respect of which option is granted may be exercised at any time after the expiry of the aforesaid 12 month period.

Scheme II

(a) The exercise price of the options exercisable pursuant to Scheme II is set either at:
a price equal to the average of the last dealt price for the three consecutive trading days immediately preceding the grant of the option; or
a discount to the market price not exceeding 20% of the market price in respect of that option.

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APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

(b) Options granted are exercisable at any time after the first anniversary of the grant date and in the case of options with exercise price set at a discount, at any time after the second anniversary of date of grant. Options granted to employees and executive directors are exercisable up to the tenth anniversary of date of grant and those granted to non-executive directors are exercisable up to the fifth anniversary of the date of grant.
(c) The scheme will continue to be in force at the discretion of the Committee, subject to a maximum period of 10 years commencing 13 December 2000.

At 31 December 2004, details of the options granted under the Company’s option schemes for unissued ordinary shares of S$0.10 each of the Company were as follows:

Date of grant of options Exercise price Scheme I: 2000 S$0.10 2000 S$0.10 Scheme II: 2001 S$0.51 2001 S$0.51 2002 S$0.72 2002 S$0.55 2002 S$0.60 2003 S$0.41 2003 S$0.41	Number of options outstanding 1 January 2004 6,125,000 11,132,000 452,000 10,138,000 5,172,000 1,100,000 3,500,000 650,000 7,457,000 45,726,000	Options granted – – – – – – – – – –	Options exercised 4,453,000 4,453,000 – – – – – – – 8,906,000	Options cancelled or lapsed – – – 655,000 290,000 – – – 652,000 1,597,000	Number of options outstanding 31 December 2004 1,672,000 6,679,000 452,000 9,483,000 4,882,000 1,100,000 3,500,000 650,000 6,805,000 35,223,000	Option vested 1 January 2004 6,125,000 11,132,000 452,000 10,138,000 5,172,000 – – – – 33,019,000	Option vested 31 December 2004 Exercise period 1,672,000 21/12/2001 to 20/12/2005 6,679,000 21/12/2002 to 20/12/2005 452,000 03/09/2002 to 02/09/2006 9,483,000 03/09/2002 to 02/09/2011 4,882,000 11/03/2003 to 10/03/2012 1,100,000 24/01/2004 to 23/01/2012 3,500,000 11/03/2004 to 10/03/2012 650,000 27/06/2004 to 26/06/2008 6,805,000 27/06/2004 to 26/06/2013 35,223,000

During the financial year, a total of 8,906,000 ordinary shares of S$0.10 each were issued fully paid at par for cash upon the exercise of share options. The proceeds of S$890,600 were credited to share capital. The market price of the shares at the date of issue pursuant to the exercise of share options were S$0.41 per share.

30 RELATED PARTY TRANSACTIONS

Definition of Related Parties

Transactions with Directors

Total directors’ remuneration is disclosed in notes 24 and 26.

During the financial year, the Company and certain of its subsidiaries have, in the normal course of business, entered into transactions with companies in which certain directors of the Company, Mr Tay Eng Hoe, Mr Narong Intanate, Mr Liu Wei and Mr Wang Fangmin have an interest. These transactions include the purchase and sale of information technology products and services of S$4,111,188 and S$3,697,263 respectively and are carried out on normal commercial terms.

– 177 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

In addition, fees paid during the year to a firm in which a director of the Company, Ms Lee Suet Fern is a member amounted to S$90,000.

The directors participate in the Company’s share option plans, the terms and conditions of which are stated in note 29. Details of options granted, exercised and outstanding at 31 December 2004 are set out below:

Name of Participants Executive directors – Tay Eng Hoe – Narong Intanate – Foo Sen Chin – Wang Fangmin Non-executive directors – Lin Chien – Chay Yee Meng – Leong Horn Kee – Lee Suet Fern – Teo Ek Tor – Koh Soo Keong Former director – Wong Heng Chong (resigned on 3 January 2005)	Options Outstanding 1 January 2004 3,863,000 9,506,000 3,860,000 50,000 128,000 188,000 278,000 258,000 130,000 120,000 1,157,000 19,538,000	Options Granted – – – – – – – – – – – –	Aggregate Options Exercised – 8,906,000 – – – – – – – – – 8,906,000	Options Cancelled/ Lapsed – – – – – – – – – – – –	Options Outstanding 31 December 2004 3,863,000 600,000 3,860,000 50,000 128,000 188,000 278,000 258,000 130,000 120,000 1,157,000
					10,632,000

Other Related Party Transactions

During the financial year, there were the following significant transactions with related parties, based on terms agreed by the parties:

	Group		Company
	2004	2003	2004	2003
	S$’000	S$’000	S$’000	S$’000
Subsidiaries
– sales	–	–	3,586	3,565
– purchases	–	–	3,588	4,162
– interest paid	–	–	212	–
Affiliates
– sales	6,430	1,288	–	–
– purchases	5,042	–	–	–

– 178 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

31 OPERATING LEASE COMMITMENTS

At 31 December, the Group had commitments for future minimum lease payments under noncancellable operating leases as follows:

Payable: Within 1 year After 1 year but within 5 years After 5 years	Group 2004 2003 S$’000 S$’000 2,760 2,090 4,019 1,245 3 – 6,872 3,335	Group 2004 2003 S$’000 S$’000 2,760 2,090 4,019 1,245 3 – 6,872 3,335
		3,335

The Group leases office premises and warehouse facilities under operating leases. The leases typically run for an initial period of three years, with an option to renew the lease after that date.

32 FINANCIAL RISK MANAGEMENT

Financial Risk Management Objectives and Policies

Credit Risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain over a certain amount. The Group does not require collateral in respect of financial assets.

At the balance sheet date, receivables due from an affiliated company represents 8% of total trade receivables. Management believes that the concentration of its credit risk in this debtor is mitigated substantially by its credit control and collection procedures and the personal guarantees given by shareholders of the affiliated company.

Interest Rate Risk

The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s debt obligations. The Group manages their exposure to floating rate interest by entering into fixed rate interest swaps, denominated in United States dollars. The swaps outstanding as at 31 December 2004 mature on 28 January 2005 and have interest rates ranging from 2.61% to 2.78% per annum.

– 179 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Effective Interest Rates and Repricing Analysis

In respect of interest-bearing financial liabilities, the following table indicates their effective interest rates at balance sheet date and the periods in which they reprice:

Floating interest S$’000 148 172,207 (41,000) 260 – 131,615	Fixed interest rate maturing Within 1 year 1 to 5 years S$’000 S$’000 – – – – – – – – 22 65 22 65	Fixed interest rate maturing Within 1 year 1 to 5 years S$’000 S$’000 – – – – – – – – 22 65 22 65	Total S$’000 148 172,207 (41,000) 260 87 131,702 205 142,209 (42,500) 193 100,107 102,153 82,000 (41,000) 143,153 102,499 85,000 (42,500) 144,999
205 142,209 (42,500) 193	– – – –	– – – –	205 142,209 (42,500 193
100,107	–	–
102,153 82,000 (41,000)	– – –	– – –	102,153 82,000 (41,000
143,153	–	–
102,499 85,000 (42,500)	– – –	– – –	102,499 85,000 (42,500
144,999	–	–

– 180 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Foreign Currency Risk

The Group incurs foreign currency risk mainly from foreign currency denominated sales, purchases and operating expenses. While there is a certain extent of natural hedge between sales receipts and purchases, any significant fluctuation in the US dollar, Thai Baht, Ringgit Malaysia against the Singapore dollar could result in the Group incurring foreign exchange losses/gains. Any significant fluctuations in the US dollar against the Renminbi could also result in an exposure to its Chinese subsidiaries.

The Group actively monitors its foreign currency exposures and uses forward foreign exchange contracts to hedge any net exposures, as and when necessary.

The Group entered into non-deliverable currency rate swaps with a financial institution to hedge 50% of the US dollar exposure arising from the US$50 million (equivalent to S$82 million) syndication loan raised to fund the working capital requirements of its Chinese subsidiaries. The Group has also implemented hedging strategies for other foreign exchange denominated transactions entered by its Chinese subsidiaries.

In view of the nature of the Group’s business which spans several countries, foreign exchange risks will continue to be an integral aspect of the Group’s risk profile in the future.

Sensitivity Analysis

At 31 December 2004, it is estimated that a general increase of one percentage point in interest rates would decrease the Group’s profit before tax by approximately S$1.7 million (2003: S$1.4 million).

Fair Values

Recognised Financial Instruments

The fair value of the financial assets and liabilities approximates to their carrying value and are disclosed in the balance sheet and in the notes to the financial statements.

It is not practicable to estimate the fair value of the Group’s long-term unquoted equity investments because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs. However, management believes that the carrying amounts recorded at the balance sheet date reflect the corresponding fair value.

Unrecognised Financial Instruments

The valuation of financial instruments not recognised in the balance sheet reflects amounts which the Group expects to pay or receive to terminate the contracts or replace the contracts at their market rates as at the balance sheet date.

– 181 –

33 CONTINGENT LIABILITIES

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

The notional amount and fair value gains/(losses) of financial instruments not recognised in the balance sheet as at 31 December are:

Group Notional Amount Fair Value S$’000 S$’000 4,541 – 40,985 48 41,000 118 86,526 166	Group Notional Amount Fair Value S$’000 S$’000 4,541 – 40,985 48 41,000 118 86,526 166	Company Notional Amount Fair Value S$’000 S$’000 – – – – 41,000 118 41,000 118	Company Notional Amount Fair Value S$’000 S$’000 – – – – 41,000 118 41,000 118
			118

9,895 42,536 42,500	(3) 50 –	– – 42,500	– – –
94,931	47	42,500	–

At 31 December 2004, there were contingent liabilities in respect of the following:

(a) Guarantees given to suppliers by the Company in respect of credit facilities extended to certain subsidiaries amounted to S$147,320,000 (2003: S$129,108,000), of which the amount utilised was S$48,655,000 (2003: S$55,864,000).
(b) Guarantees given to financial institutions by the Company in respect of credit facilities extended to certain subsidiaries amounted to S$169,572,000 (2003: S$188,360,000), of which the amount utilised was S$55,792,000 (2003: S$31,238,000).
(c) Guarantees given to financial institutions by the subsidiaries in respect of credit facilities extended to the Company amounted to S$82 million, which was fully utilised.
(d) Guarantees given by a subsidiary to a third party in respect of import and export services provided to its subsidiaries in China amounted to S$9,906,000 (2003: S$21,796,000).
(e) Claim made on a subsidiary, The Value Systems Co., Ltd., as a second defendant in a law suit for copyright infringement amounted to Baht 170 million (equivalent to S$7 million). Based on legal opinion obtained, the Directors are of the view that the claim has no merit and accordingly, no provision for the claim is required.

34 BUSINESS SEGMENTS (GROUP)

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses.

– 182 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

The main business segments of the Group comprises the following:

Segments
Enterprise systems
IT services
Distribution
Revenue
2004
Total revenue from external
customers
Segment results
Finance costs
Taxation
Profit from ordinary activities after
taxation
Minority interests
Net profit for the year
2003
Total revenue from external
customers
Segment results
Finance costs
Taxation
Profit from ordinary activities after
taxation
Minority interests
Net profit for the year

Principal Activities
Provider of enterprise systems tools (middleware, operating
systems, Unix/NT servers, databases, storage and security
products) for IT infrastructure.
IT
infrastructure
design
and
implementation,
training,
maintenance and support services.
Distribution of IT products (desktop PCs, notebooks, handhelds,
printers, etc) for the commercial and consumer markets.
Enterprise
Systems
IT Services
Distribution
Consolidated
S$’000
S$’000
S$’000
S$’000
625,586
24,925
1,215,147
1,865,658
10,475
2,281
12,887
25,643
(6,527)
(4,133)
14,983
(1,520)
13,463
569,772
20,060
832,960
1,422,792
6,699
2,098
7,545
16,342
(6,686)
(2,780)
6,876
(581)
6,295

Net profit for the year

– 183 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Assets and Liabilities 2004 Segment assets Unallocated assets Tax assets Others Total assets Segment liabilities Unallocated liabilities Tax liabilities Others Total liabilities 2003 Segment assets Unallocated assets Tax assets Others Total assets Segment liabilities Unallocated liabilities Tax liabilities Others Total liabilities	Enterprise Systems S$’000 148,951 114,868 160,915 114,958	IT Services S$’000 5,600 8,044 4,992 7,197	Distribution S$’000 295,565 226,652	Consolidated S$’000 450,116 875 66,243
				517,234

				349,564
				2,585 169
			232,573	352,318

				398,480
				835 64,533
			179,511	463,848

				301,666
				2,276 6,801
				310,743

– 184 –

FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Enterprise Systems S$’000 742 653 1,081 1,110 2,191	IT Services S$’000 49 22 – 44 44	Distribution S$’000 1,568 1,034 1,636 2,157 3,793	Consolidated S$’000 2,359

			1,709

			2,717 3,311
			6,028

1,230 1,227	– 43	1,516 1,793	2,746 3,063
2,457	43	3,309	5,809

– 185 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

35 GEOGRAPHICAL SEGMENTS (GROUP)

2004 Total revenue from external customers Segment assets Unallocated assets Tax assets Others Total assets Segment liabilities Unallocated liabilities Tax liabilities Others Total liabilities Capital expenditure 2003 Total revenue from external customers Segment assets Unallocated assets Tax assets Others Total assets Segment liabilities Unallocated liabilities Tax liabilities Others Total liabilities Capital expenditure	North Asia S$’000 1,032,121 220,543 125,906 554 817,449 205,889 116,307 709	South East Asia S$’000 833,537 229,573	Consolidated S$’000 1,865,658

			450,116
			875 66,243
		223,658	517,234

			349,564
			2,585 169
		1,805 605,343 192,591	352,318

			2,359

			1,422,792

			398,480
			835 64,533
		185,359	463,848

			301,666
			2,276 6,801
		1,000	310,743

			1,709

– 186 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

A-4. ECS’s unaudited financial statements for the six months ended 30 June 2007

The following is the unaudited financial statements of ECS Group for the six months ended 30 June 2007 extracted from the Second Quarter Financial Statement of ECS Group for the period ended 30 June 2007.

1(a) An income statement (for the group) together with a comparative statement for the corresponding period of the immediately preceding financial year.

1(a)(i) Income Statement for the second quarter and 6 months ended 30 June 2007.

Group

2Q 2007 S$’000 688,735 (657,804)	2Q 2006 Increase/ (Decrease) S$’000 % 559,784 23.0 (532,926) 23.4	1H 2007 S$’000 1,310,198 (1,250,213)	1H 2006 Increase/ (Decrease) S$’000 % 1,114,733 17.5 (1,061,103) 17.8 53,630 11.9 2,139 (30.2) (22,983) 8.3 (15,751) 5.9 17,035 16.9 (2,322) (55.5) (4,575) (6.4) 1,433 (80.7) 11,571 28.6 (2,334) 26.2 9,237 29.2 8,619 22.9 618 116.3 9,237 29.2
30,931 619 (12,626) (8,340) 10,584 147 (2,205) 95 8,621 (1,610)	26,858 15.2 1,261 (50.9) (11,339) 11.3 (7,598) 9.8 9,182 15.3 (466) Nm (2,341) (5.8) 385 (75.4) 6,760 27.5 (1,120) 43.8	59,985 1,493 (24,882) (16,679) 19,917 (1,033) (4,282) 276 14,878 (2,945)	53,630 2,139 (22,983 (15,751
			17,035 (2,322 (4,575 1,433
			11,571 (2,334
7,011	5,640 24.3	11,933
6,228 783	5,286 17.8 354 121.2	10,596 1,337	8,619 618
7,011	5,640 24.3	11,933

– 187 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Breakdown and explanatory Notes to Income Statement

The following items have been included in arriving at operating profit:

Group

			Increase/			Increase/
	2Q 2007	2Q 2006	(Decrease)	1H 2007	1H 2006	(Decrease)
	S$’000	S$’000	%	S$’000	S$’000	%
Depreciation and amortisation	(901)	(908)	(0.8)	(1,773)	(1,826)	(2.9)
Allowance made for doubtful
debts and bad debts written
off net of bad debts recovered	(468)	(605)	(22.6)	(891)	(1,500)	(40.6)
Allowance made for stocks
obsolescence and stocks
written off (note 1a)	(1,014)	(548)	85.0	(1,055)	(980)	7.7
Foreign exchange gain/(loss)	298	(28)	Nm	600	46	1,204.3
Gain on sale of property, plant
and equipment	29	–	Nm	55	–	Nm

(1a) The increase in allowance for stocks obsolescence was mainly due to specific provision for certain slow moving consumer products in the South East Asia region.

1(b)(i) A balance sheet (for the issuer and group), together with a comparative statement as at the end of the immediately preceding financial year.

Group 30 June 31 December 2007 2006 S$’000 S$’000 10,475 10,323 – – 6,665 6,428 713 667 33,522 33,522 2,605 1,987	Group 30 June 31 December 2007 2006 S$’000 S$’000 10,475 10,323 – – 6,665 6,428 713 667 33,522 33,522 2,605 1,987	Company 30 June 31 December 2007 2006 S$’000 S$’000 104 115 96,174 94,518 – – 148 44,969 – – – –	Company 30 June 31 December 2007 2006 S$’000 S$’000 104 115 96,174 94,518 – – 148 44,969 – – – –
53,980 154,691 397,212 32,293 584,196	52,927 123,324 363,305 29,400 516,029	96,426 – 85,416 700 86,116	139,602
			– 57,762 505
			58,267

– 188 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Group 30 June 31 December 2007 2006 S$’000 S$’000 15 19 235,534 197,867 611 321 187,685 119,730 – 521 24 22 – 77 2,755 2,670	Group 30 June 31 December 2007 2006 S$’000 S$’000 15 19 235,534 197,867 611 321 187,685 119,730 – 521 24 22 – 77 2,755 2,670	Company 30 June 31 December 2007 2006 S$’000 S$’000 – – 2,232 2,809 – – 66,618 31,928 – – – – – – – –	Company 30 June 31 December 2007 2006 S$’000 S$’000 – – 2,232 2,809 – – 66,618 31,928 – – – – – – – –
426,624 157,572 – – 400 399 16 815	321,227 194,802 44,822 3,936 398 239 31 49,426	68,850 17,266 – – 27 – – 27	34,737
			23,530
			44,822 – 27 – –
			44,849
210,737	198,303	113,665	118,283

112,561 715 87,934 201,210 9,527	112,016 32 78,007 190,055 8,248	112,561 199 905 113,665 –	112,016 5,655 612
			118,283 –
210,737	198,303	113,665	118,283

– 189 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Notes to Balance Sheet

1(b)(ii) Aggregate amount of group’s borrowings and debt securities.

Amount repayable in one year or less, or on demand

As at 30/06/2007	As at 30/06/2007	As at 31/12/2006	As at 31/12/2006
S$’000	S$’000	S$’000	S$’000
Secured	Unsecured	Secured	Unsecured
–	187,700	–	119,749

Amount repayable after one year

As at 30/06/2007	As at 30/06/2007	As at 31/12/2006	As at 31/12/2006
S$’000	S$’000	S$’000	S$’000
Secured	Unsecured	Secured	Unsecured
–	–	–	44,822

Details of any collateral

Nil.

1(c) A cash flow statement (for the group), together with a comparative statement for the corresponding period of the immediately preceding financial year.

2Q 2007 S$’000 8,621 (95) (147) 901 (29) 2,205 (147)	2Q 2006 S$’000 6,760 (385) 466 908 – 2,341 (348)	1H 2007 S$’000 14,878 (276) 1,033 1,773 (55) 4,282 (404)	1H 2006 S$’000 11,571 (1,433 2,322 1,826 – 4,575 (675
11,309 (17,255) (23,976) 18,139 (11,783) (2,431) (14,214)	9,742 (865) (13,483) (1,573) (6,179) (1,402) (7,581)	21,231 (28,435) (32,226) 37,813 (1,617) (3,388) (5,005)	18,186 (18,461 (10,853 9,414
			(1,714 (2,259
			(3,973

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

2Q 2007 S$’000 148 – (706) 36 (0)	2Q 2006 S$’000 348 – (555) 6 –	1H 2007 S$’000 404 – (1,482) 63 (1)	1H 2006 S$’000 675 (3,778) (1,203) 7 – (4,299) (4,360) (5,091) – 38,663 (35,897) (12) (5,504) – (12,201) (20,473) 53,673 (1,848) 31,352
(522) (1,851) (5,456) 545 16,185 (7,122) (6) 6,080 – 8,375 (6,361) 38,514 125	(201) (455) (5,091) – 11,654 (1,921) (6) (1,525) – 2,656 (5,126) 36,840 (362)	(1,016) (5,536) (5,456) 545 43,518 (24,349) (16) 4,605 (4,563) 8,748 2,727 29,381 170	(4,299
			(4,360 (5,091 – 38,663 (35,897 (12 (5,504 –
			(12,201
			(20,473 53,673 (1,848
32,278	31,352	32,278

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

1(d)(i) A statement (for the issuer and group) showing either (i) all changes in equity or (ii) changes in equity other than those arising from capitalisation issues and distributions to shareholders, together with a comparative statement for the corresponding period of the immediately preceding financial year.

Statement of Changes in Equity

(i) Consolidated statement of changes in equity for the six months ended 30 June 2007

Bal as at 1 Jan 2007 Transfer of profit Net profit for the period Exchange gain/(loss) on translation of net assets of foreign subsidiaries Bal as at 31 Mar 2007 Issue of shares Transfer of profit Net Profit for the period Final tax exempt one-tier dividend paid at 1.5 cents per share Exchange gain/(loss) on translation of net assets of foreign subsidiaries Bal as at 30 Jun 2007	Share Capital S$’000 112,016 – – –	Dividend Reserve S$’000 5,655 – – –	General Reserve R S$’000 – 361 – –	evaluation Reserve Ac S$’000 – (13) – –	cumulated Profits T S$’000 78,007 (348) 4,368 –	Currency ranslation Reserve S$’000 (5,623) – – 3,349	Total S$’000 190,055 – 4,368 3,349	Minority Interest S$’000 8,248 – 554 (61)	Total Equity S$’000 198,303 – 4,922 3,288
	112,016 545 – – – –	5,655 – – – (5,456) –	361 – 308 – – –	(13) – 13 – – –	82,027 – (321) 6,228 – –	(2,274) – – – – 2,121	197,772 545 – 6,228 (5,456) 2,121	8,741 – – 783 – 3	206,513 545 – 7,011 (5,456) 2,124
	112,561	199	669	–	87,934	(153)	201,210	9,527	210,737

(ii) Consolidated statement of changes in equity for the six months ended 30 June 2006

Bal as at 1 Jan 2006 Transfer to share capital Net profit for the period Fair value changes on hybrid swap instrument Exchange gain on translation of net assets of foreign subsidiaries Bal as at 31 Mar 2006 Net profit for the period Final tax exempt one-tier dividend paid at 1.4 cents per share Exchange gain on translation of net assets of foreign subsidiaries Bal as at 30 June 2006	Share Capital S$’000 36,360 75,656 – – –	Share Premium S$’000 75,656 (75,656) – – –	Dividend Reserve S$’000 5,196 – – – –	Hedging Reserve Ac S$’000 (1,856) – – 1,856 –	cumulated Profits T S$’000 63,505 – 3,333 – –	Currency ranslation Reserve S$’000 (4,676) – – – (275)	Total S$’000 174,185 – 3,333 1,856 (275)	Minority Interest S$’000 7,589 – 265 – (13)	Total Equity S$’000 181,774 – 3,598 1,856 (288)
	112,016 – – –	– – – –	5,196 – (5,091) –	– – – –	66,838 5,286 – –	(4,951) – – (1,142)	179,099 5,286 (5,091) (1,142)	7,841 354 – (32)	186,940 5,640 (5,091) (1,174)
	112,016	–	105	–	72,124	(6,093)	178,152	8,163	186,315

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APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

(iii) Statement of changes in equity of the company for the six months ended 30 June 2007

Share Capital S$’000 112,016 –	Share Capital S$’000 112,016 –	Dividend Reserve S$’000 5,655 –	Accumulated Profits/ (Losses) S$’000 612 339	Accumulated Profits/ (Losses) S$’000 612 339	Accumulated Profits/ (Losses) S$’000 612 339	Accumulated Profits/ (Losses) S$’000 612 339
112,016 545 – –		5,655 – – (5,456)	951 – (46) –		118,622 545 (46 (5,456
112,561 of the company for the Share Capital Share Premium S$’000 S$’000 36,360 75,656 75,656 (75,656) – –

112,016 – –	– – –	5,196 – (5,091)		275 (338) –		117,487 (338 (5,091
112,016	–	105		(63)

1(d)(ii) Details of any changes in the company’s share capital arising from rights issue, bonus issue, share buy-back, exercise of share options or warrants, conversion of other issues of equity securities, issue of shares or cash or as consideration for acquisition or for any other purpose since the end of the previous period reported on. State also the number of shares that may be issued on conversion of all the outstanding convertibles as at the end of the current financial period reported on and as at the end of the corresponding period of the immediately preceding financial year.

During the quarter ended 30 June 2007, the Company issued 1,222,000 shares arising from the exercise of stock options under ECS Employee Stock Option Scheme II. As at 30 June 2007, the Company has outstanding share options of 20,563,000 unissued ordinary shares. The outstanding share options as at 30 June 2006 amounted to 24,581,000 unissued ordinary shares.

2. Whether the figures have been audited, or reviewed and in accordance with which auditing standard or practice.

These figures have not been audited or reviewed. However, our auditors have performed certain procedures and enquiries. These procedures are substantially less in scope than an audit or a review in accordance with Singapore Standard on Review Engagements (SSRE) 2410.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

3. Where the figures have been audited or reviewed, the auditors’ report (including any qualifications or emphasis of a matter).

N.A.

4. Whether the same accounting policies and methods of computation as in the issuer’s most recently audited annual financial statements have been applied.

The Group has applied the same accounting policies and methods of computation in the preparation of the financial statements for the current reporting period compared with the audited financial statements as at 31 December 2006 except as described in paragraph 5.

5. If there are any changes in the accounting policies and methods of computation, including any required by an accounting standard, what has changed, as well as the reasons for, and the effect of, the change.

The Amendments and Interpretations to the Singapore Financial Reporting Standards (“FRSs”) for periods effective from 1 January 2007 are currently being assessed to have no material impact on the Group results.

6. Earnings per ordinary share of the group for the current period reported on and the corresponding period of the immediately preceding financial year, after deducting any provision for preference dividends.

		2Q 2007	2Q 2006	1H 2007	1H 2006
Earnings per ordinary share for the year based on
net	profit attributable to shareholders:
(i)	Based on weighted average number of
	ordinary shares in issue	1.71 cents	1.45 cents	2.91 cents	2.37 cents
	Weighted average number of shares (’000)	364,249	363,599	363,924	363,599
(ii)	On a fully diluted basis	1.70 cents	1.45 cents	2.90 cents	2.37 cents
	Weighted average number of shares (’000)	366,619	363,599	365,084	363,599

In arriving at the fully diluted earnings per share, only those potential ordinary shares arising from the exercise of options which would dilute the basic earnings per share of the Group are included in the computation.

7. Net asset value (for the issuer and group) per ordinary share based on issued share capital of the issuer at the end of the (a) current period reported on and (b) immediately preceding financial year.

	GROUP	GROUP
	30 June 2007	31 December 2006
Net asset value per ordinary share based on issued share	55.15 cents	52.27 cents
capital as at the end of the financial period
	COMPANY
	30 June 2007	31 December 2006
Net asset value per ordinary share based on issued share	31.16 cents	32.53 cents
capital as at the end of the financial period

– 194 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

8. A review of the performance of the group, to the extent necessary for a reasonable understanding of the group’s business. It must include a discussion of the following:

(a) any significant factors that affected the turnover, costs, and earnings of the group for the current financial period reported on, including (where applicable) seasonal or cyclical factors; and
(b) any material factors that affected the cash flow, working capital, assets or liabilities of the group during the current period reported on.

Review of Group Performance

Business Segment Information

Distribution Enterprise Systems IT Services Share of associate’s profit Fair value changes on financial instruments Total Distribution Enterprise Systems IT Services Share of associate’s profit Fair value changes on financial instruments Negative goodwill Total	2Q 2007 S$’000 450,838 231,669 6,228 – – 688,735 1H 2007 S$’000 852,657 444,810 12,731 – – – 1,310,198	Revenue 2Q 2006 Change S$’000 % 320,372 40.7 233,353 (0.7) 6,059 2.8 – Nm – Nm 559,784 23.0 Revenue 1H 2006 Change S$’000 % 656,372 29.9 446,547 (0.4) 11,814 7.8 – Nm – Nm – Nm 1,114,733 17.5	Profit before Interest & Taxation 2Q 2007 2Q 2006 Change S$’000 S$’000 % 4,980 4,159 19.7 5,124 4,476 14.5 480 547 (12.2) 95 385 (75.4) 147 (466) Nm 10,826 9,101 19.0 Profit before Interest & Taxation 1H 2007 1H 2006 Change S$’000 S$’000 % 9,702 8,059 20.4 9,080 7,875 15.3 1,078 1,101 (2.1) 276 561 (50.8) (1,033) (2,322) (55.5) 57 872 (93.5) 19,160 16,146 18.7

Geographical Segment Information

North Asia South East Asia Share of associate’s profit Fair value changes on financial instruments Total	2Q 2007 S$’000 344,765 343,970 – – 688,735	Revenue 2Q 2006 Change S$’000 % 270,502 27.5 289,282 18.9 – Nm – Nm 559,784 23.0	Profit before Interest & Taxation 2Q 2007 2Q 2006 Change S$’000 S$’000 % 4,689 3,887 20.6 5,895 5,295 11.3 95 385 (75.4) 147 (466) Nm 10,826 9,101 19.0

– 195 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

North Asia South East Asia Share of associate’s profit Fair value changes on financial instruments Negative goodwill Total	1H 2007 S$’000 642,301 667,897 – – – 1,310,198	Revenue 1H 2006 Change S$’000 % 539,925 19.0 574,808 16.2 – Nm – Nm – Nm 1,114,733 17.5	Profit before Interest & Taxation 1H 2007 1H 2006 Change S$’000 S$’000 % 7,927 6,481 22.3 11,933 10,554 13.1 276 561 (50.8) (1,033) (2,322) (55.5) 57 872 (93.5) 19,160 16,146 18.7

(a) Revenue

The Group’s revenue for the six months ended 30 June 2007 (“1H 2007”) increased by 17.5% to S$1.31b as compared to S$1.11b for the six months ended 30 June 2006 (“1H 2006”). For 2Q 2007, the Group’s revenue increased by 23.0% to S$688.7m as compared to 2Q 2006, mainly led by the strong Distribution growth in notebooks. The slight decline in revenue for the Enterprise Systems segment in 2Q 2007 was mainly due to a big project in 2Q 2006 for enterprise softwares. IT Services recorded a modest increase in revenue for the current quarter.

Geographically, both North Asia and South East Asia region performed well in 2Q 2007, with year-on-year growth rates exceeding industry average estimates. The main contribution of the revenue growth in 2Q 2007 vs 2Q 2006 arises from the distribution sales of notebooks, which enjoys over 100% growth within the Group.

(b) Profitability

The Group’s net profit after tax and minority interests (“NPATMI”) for 1H 2007 increased by 22.9% to S$10.6m as compared to S$8.6m for 1H 2006. The Group’s NPATMI for 2Q 2007 increased by 17.8% to S$6.2m as compared to S$5.3m over the same corresponding period in 2006.

Gross margin for 2Q 2007 was slightly lower at 4.49% vs 4.80% in 2Q 2006 due to higher Distribution sales mix. Selling and distribution expenses in 2Q 2007 increased by 11.3% to S$12.6m as compared to 2Q 2006, in line with the increase in revenue. General and administrative expenses increased by 9.8% to S$8.3m. Overall, total operating expenses as a % of revenue improved from 3.4% in 2Q 2006 to 3.0% in 2Q 2007 as the Group continues its tight management on costs.

Finance costs were 5.8% lower in 2Q 2007 vs 2Q 2006, as a result of lower bank borrowings in 2Q 2007 as compared to 2Q 2006.

The Group’s net profit before interest and tax (“PBIT”) for 2Q 2007 improved by 19.0% to S$10.8m from S$9.1m in 2Q 2006. Both Distribution and Enterprise business segments did well, which registered double-digit growth in profitability. In the Distribution segment, the 19.7% year-on-year growth in PBIT for 2Q 2007 was mainly driven by strong sales of notebooks within the Group. In the Enterprise Systems segment, the growth in PBIT of 14.5% for 2Q 2007 was attributed to higher margins in networking products. The lower share of associate profit was mainly due to contribution from a project completed in Q2 2006, which did not recur in Q2 2007.

On a geographical basis, North Asia led the growth in profitability for 2Q 2007, registering a 20.6% improvement over the previous year corresponding period. South East Asia region also performed well in 2Q 2007 with growth in profitability of 11.3% as compared to 2Q 2006.

(c) Balance Sheet

The Group’s total shareholders funds were S$201.2m as at 30 June 2007, an increase of S$11.2m from S$190.1m as compared to 31 December 2006.

Group borrowings increased by S$23.1m to S$187.7m as at 30 June 2007, from S$164.6m as at 31 December 2006.

– 196 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

9. Where a forecast, or a prospect statement, has been previously disclosed to shareholders, any variance between it and the actual results.

N.A.

10. A commentary at the date of the announcement of the significant trends and competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months.

According to industry estimates, ICT expenditure in Asia (excluding Japan) is expected to continue to be one of the fastest-growing across the globe; by 2009, ICT spending in Asia is expected to grow 8% annually, exceeding global spending growth of 5%. Against this backdrop, with the strong management team and well-established regional footprint, the Directors expect the Group’s performance for 3Q 2007 and for the whole of FY 2007 to be better than 3Q 2006 and FY 2006 respectively.

11. Dividend

(a) Present Period

Any dividend recommended for the current financial period reported on? None

(b) Previous Corresponding Period

Any dividend declared for the corresponding period of the immediately preceding financial year? None

(c) Date payable

N.A.

(d) Books closure date

N.A.

12. If no dividend has been declared/recommended, a statement to that effect.

N.A.

13. Segmented revenue and results for business or geographical segments (of the group) in the form presented in the issuer’s most recently audited annual financial statements, with comparative information for the immediately preceding year.

N.A.

14. In the review of performance, the factors leading to any material changes in contributions to turnover and earnings by the business or geographical segments.

N.A.

15. A breakdown of sales as follows:

N.A.

16. A breakdown of the total annual dividend (in dollar value) for the issuer’s latest full year and its previous full year as follows:

N.A.

– 197 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

17. Interested Person Transactions Under General Mandate.

			Aggregate value of all	Aggregate value of all
			interested transactions
			during the financial
			year under review		Aggregate value of all
			(excluding transactions		transactions conducted
			less than S$100,000 and		under shareholders’
			transactions concluded		mandate pursuant to
			under shareholders’		Rule 920 (excluding
			mandate pursuant to		transactions less than
Name	of	Interested Persons		Rule 920)	S$100,000)
(a)		Transactions for the sale of goods and		–	2,058,858
		services with Singapore Computer
		Systems Ltd and its subsidiaries
(b)		Transactions for the sale of goods and		–	504,629
		services with Starhub Ltd and its
		subsidiaries
(c)		Transactions for the sale of goods and		–	2,508,357
		services with Singapore
		Telecommunications Ltd and its
		subsidiaries
(d)		Transactions for the sale of goods and		–	392,615
		services with ST Engineering Ltd and
		its subsidiaries
(e)		Transactions for the sale of goods and		–	104,909
		services with Vnet Capital Co., Ltd
		and its subsidiaries

The above transactions are for the second quarter ended 30 June 2007.

BY ORDER OF THE BOARD Eddie Foo Toon Ee

Company Secretary

1 August 2007

– 198 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

A-5. ECS’s unaudited financial statements for the six months ended 30 June 2006

The following is the unaudited financial statements of ECS Group for the six months ended 30 June 2006 extracted from the Second Quarter Financial Statement of ECS Group for the period ended 30 June 2006.

1(a) An income statement (for the group) together with a comparative statement for the corresponding period of the immediately preceding financial year.

1(a)(i) Income Statement for the second quarter and 6 months ended 30 June 2006.

2Q 2006 S$’000 559,784 (532,926)	2Q 2005 Increase/ (Decrease) S$’000 % 491,557 13.9 (468,752) 13.7	1H 2006 S$’000 1,114,733 (1,061,103)	1H 2005 Increase/ (Decrease) S$’000 % 947,574 17.6 (903,194) 17.5 44,380 20.8 1,533 39.5 (19,722) 16.5 (13,262) 18.8 12,929 31.8 – Nm (3,419) 33.8 – Nm 9,510 21.7 (1,842) 26.7 7,668 20.5 7,164 20.3 504 22.6 7,668 20.5
26,858 1,261 (11,339) (7,598) 9,182 (466) (2,341) 385 6,760 (1,120)	22,805 17.8 824 53.0 (10,056) 12.8 (6,665) 14.0 6,908 32.9 – Nm (1,668) 40.3 – Nm 5,240 29.0 (811) 38.1	53,630 2,139 (22,983) (15,751) 17,035 (2,322) (4,575) 1,433 11,571 (2,334)	44,380 1,533 (19,722 (13,262
			12,929 – (3,419 –
			9,510 (1,842
5,640	4,429 27.3	9,237
5,286 354	4,298 23.0 131 170.2	8,619 618	7,164 504
5,640	4,429 27.3	9,237

– 199 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Breakdown and explanatory Notes to Income Statement

The following items have been included in arriving at operating profit:

Group

			Increase/			Increase/
	2Q 2006	2Q 2005	(Decrease)	1H 2006	1H 2005	(Decrease)
	S$’000	S$’000	%	S$’000	S$’000	%
Depreciation and amortisation	(908)	(845)	7.5	(1,826)	(1,667)	9.5
Allowance made for doubtful
debts and bad debts written
off net of bad debts
recovered	(605)	(741)	(18.4)	(1,500)	(1,832)	(18.1)
Allowance made for stocks
obsolescence and stocks
written off (see note a)	(548)	(402)	36.3	(980)	(1,356)	(27.7)
Foreign exchange gain/(loss)	(28)	(27)	3.7	46	42	9.5
Loss on sale of property, plant
and equipment	–	(4)	Nm	–	(21)	Nm

1(b)(i) A balance sheet (for the issuer and group), together with a comparative statement as at the end of the immediately preceding financial year.

Group 30 June 2006 31 December 2005 S$’000 S$’000 10,895 11,651 – – 5,273 – 634 695 33,522 33,522 1,334 958	Group 30 June 2006 31 December 2005 S$’000 S$’000 10,895 11,651 – – 5,273 – 634 695 33,522 33,522 1,334 958	Company 30 June 2006 31 December 2005 S$’000 S$’000 131 147 87,008 87,008 – – 63,620 66,801 – – –	Company 30 June 2006 31 December 2005 S$’000 S$’000 131 147 87,008 87,008 – – 63,620 66,801 – – –
51,658 140,250 366,299 31,375 537,924 23 199,279 214 132,998 24 79 2,306 334,923 203,001	46,826 124,870 360,331 53,723 538,924 50 197,098 264 132,883 22 84 1,934 332,335 206,589	150,759 – 48,292 565 48,857 – 8,181 – 15,870 – – – 24,051 24,806	153,956
			– 47,864 2,414
			50,278
			– 3,179 – 16,650 – – –
			19,829
			30,449

– 200 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Non-Current Liabilities Bank borrowings Loans due to minority shareholders of subsidiary Deferred tax liabilities Deferred income Finance lease liabilities Equity attributable to equity holders of the parent Share capital Other reserves Retained earnings Minority interests Total Equity	Group 30 June 2006 31 December 2005 S$’000 S$’000 63,503 66,654 4,069 4,269 490 436 239 239 43 43 68,344 71,641 186,315 181,774 112,016 36,360 (5,988) 74,320 72,124 63,505 178,152 174,185 8,163 7,589 186,315 181,774	Company 30 June 2006 31 December 2005 S$’000 S$’000 63,480 66,600 – – 27 27 – – – – 63,507 66,627 112,058 117,778 112,016 36,360 105 80,852 (63) 566 112,058 117,778 – – 112,058 117,778	Company 30 June 2006 31 December 2005 S$’000 S$’000 63,480 66,600 – – 27 27 – – – – 63,507 66,627 112,058 117,778 112,016 36,360 105 80,852 (63) 566 112,058 117,778 – – 112,058 117,778
			66,627
			117,778

			36,360 80,852 566
			117,778 –
			117,778

– 201 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Notes to Balance Sheet

1(b)(ii) Aggregate amount of group’s borrowings and debt securities.

Amount repayable in one year or less, or on demand

Amount repayable after one year

As at 30/06/2006	As at 30/06/2006	As at 31/12/2005	As at 31/12/2005
S$’000	S$’000	S$’000	S$’000
Secured	Unsecured	Secured	Unsecured
668	132,353	668	132,265
As at 30/06/2006		As at 31/12/2005
S$’000	S$’000	S$’000	S$’000
Secured	Unsecured	Secured	Unsecured
23	63,480	54	66,600

Details of any collateral

A fixed charge over the freehold office blocks of a subsidiary.

1(c) A cash flow statement (for the group), together with a comparative statement for the corresponding period of the immediately preceding financial year.

2Q 2006 S$’000 6,760 (385) 466 908 – 2,341 (348)	2Q 2005 S$’000 5,240 – – 845 4 1,668 (308)	1H 2006 S$’000 11,571 (1,433) 2,322 1,826 – 4,575 (675)	1H 2005 S$’000 9,510 – – 1,667 21 3,419 (601)
9,742 (865) (13,483) (1,573) (6,179) (1,402) (7,581)	7,449 3,418 (25,035) 13,191 (977) (1,299) (2,276)	18,186 (18,461) (10,853) 9,414 (1,714) (2,259) (3,973)	14,016 (11,609) (25,909 (1,313)
			(24,815 (1,753
			(26,568)

– 202 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

2Q 2006 S$’000 348 – (555) 6	2Q 2005 S$’000 308 – (1,015) 17	1H 2006 S$’000 675 (3,778) (1,203) 7	1H 2005 S$’000 601 – (1,574) 22 (951) (2,882) (2,842) 16,667 (5,648) (11) – 5,284 (22,235) 58,114 1,014 36,893
(201) (455) (5,091) 11,654 (1,921) (6) (1,525) 2,656 (5,126) 36,840 (362)	(690) (756) (2,842) 13,085 (2,063) (5) – 7,419 4,453 32,099 341	(4,299) (4,360) (5,091) 38,663 (35,897) (12) (5,504) (12,201) (20,473) 53,673 (1,848)	(951
			(2,882 (2,842 16,667 (5,648 (11 –
			5,284
			(22,235 58,114 1,014
31,352	36,893	31,352

– 203 –

APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

1(d)(i) A statement (for the issuer and group) showing either (i) all changes in equity or (ii) changes in equity other than those arising from capitalisation issues and distributions to shareholders, together with a comparative statement for the corresponding period of the immediately preceding financial year.

Statement of Changes in Equity

(i) Consolidated statement of changes in equity for the six months ended 30 June 2006

Bal as at 1 Jan 2006 Transfer to share capital Net profit for the period Fair value changes on hybrid swap instrument Exchange gain on translation of net assets of foreign subsidiaries Bal as at 31 Mar 2006 Net profit for the period Final tax exempt one-tier dividendpaid at 1.4 cents per share Exchange gain on translation of net assets of foreign subsidiaries Bal as at 30 June 2006	Share Capital S$’000 36,360 75,656 – – –	Share Premium S$’000 75,656 (75,656) – – –	Dividend Reserve S$’000 5,196 – – – –	Hedging Reserve S$’000 (1,856) – – 1,856 –	Accumulated Profits S$’000 63,505 – 3,333 – –	Currency Translation Reserve S$’000 (4,676) – – – (275)	Total S$’000 174,185 – 3,333 1,856 (275)	Minority Interest S$’000 7,589 – 265 – (13)	Total Equity S$’000 181,774 – 3,598 1,856 (288)
	112,016 – – –	– – – –	5,196 – (5,091) –	– – – –	66,838 5,286 – –	(4,951) – – (1,142)	179,099 5,286 (5,091) (1,142)	7,841 354 – (32)	186,940 5,640 (5,091) (1,174)
	112,016	–	105	–	72,124	(6,093)	178,152	8,163	186,315

– 204 –

APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

(ii) Consolidated statement of changes in equity for the six months ended 30 June 2005

Share Capital S$’000 35,525 –	Share Premium S$’000 75,656 –	Dividend Reserve S$’000 2,938 –	Hedging Reserve S$’000 – –	Accumulated Profits S$’000 50,405 887	Currency Translation Reserve S$’000 (5,865) –	Total S$’000 158,659 887	Minority Interest S$’000 6,257 –	Total Equity S$’000 164,916 887
35,525 – – 35,525 – – – –	75,656 – – 75,656 – – – –	2,938 – – 2,938 – – – (2,842)	– – – – – – (2,625) –	51,292 2,866 –	(5,865) – 508 (5,357) – 965 – –	159,546 2,866 508 162,920 4,298 965 (2,625) (2,842)	6,257 373 10 6,640 131 23 – –	165,803 3,239 518
				54,158 4,298 – – –				169,560 4,429 988 (2,625) (2,842)
35,525	75,656	96	(2,625)	58,456	(4,392)	162,716	6,794	169,510

(iii) Statement of changes in equity of the company for the six months ended 30 June 2006

Bal as at 1 Jan 2006 Transfer to Share Capital Net loss for the period Bal as at 31 Mar 2006 Net loss for the period Final tax exempt one-tier dividend paid at 1.4 cents per share Bal as at 30 June 2006	Share Capital S$’000 36,360 75,656 –	Share Premium S$’000 75,656 (75,656) –	Dividend Reserve Accumulated Profits/ (Losses) S$’000 S$’000 5,196 566 – – – (291)	Dividend Reserve Accumulated Profits/ (Losses) S$’000 S$’000 5,196 566 – – – (291)	Total S$’000 117,778 – (291)
	112,016 – –	– – –	5,196 – (5,091)	275 (338) –	117,487 (338) (5,091)
	112,016	–	105	(63)	112,058

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FINANCIAL INFORMATION OF THE ECS GROUP

(iv) Statement of changes in equity of the company for the six months ended 30 June 2005

Bal as at 1 Jan 2005 Net loss for the period Bal as at 31 Mar 2005 Net loss for the period Final tax exempt one-tier dividend paid of 0.8 cents per share Bal as at 30 Jun 2005	Share Capital S$’000 35,525 –	Share Premium S$’000 75,656 –	Dividend Reserve Accumulated Profits/ (Losses) S$’000 S$’000 2,938 843 – (204)	Dividend Reserve Accumulated Profits/ (Losses) S$’000 S$’000 2,938 843 – (204)	Total S$’000 114,962 (204) 114,758 (69) (2,842) 111,847
	35,525 – –	75,656 – –	2,938 – (2,842)	639 (69) –	114,758 (69 (2,842
	35,525	75,656	96	570

1(d)(ii) Details of any changes in the company’s share capital arising from rights issue, bonus issue, share buy-back, exercise of share options or warrants, conversion of other issues of equity securities, issue of shares or cash or as consideration for acquisition or for any other purpose since the end of the previous period reported on. State also the number of shares that may be issued on conversion of all the outstanding convertibles as at the end of the current financial period reported on and as at the end of the corresponding period of the immediately preceding financial year.

With effect from 30 January 2006, the concepts of “par value” and “authorized capital” were abolished under the Companies (Amendment) Act 2005. The amount reflected as a credit in the Company’s share premium account as at 30 January 2006 has become part of the Company’s share capital as at that date.

During the quarter ended 30 June 2006, the Company did not issue any shares. As at 30 June 2006, the Company has outstanding share options of 24,581,000 unissued ordinary shares. The outstanding share options as at 30 June 2005 amounted to 34,627,000 unissued ordinary shares.

2. Whether the figures have been audited, or reviewed and in accordance with which auditing standard or practice.

The figures have not been audited or reviewed.

3. Where the figures have been audited or reviewed, the auditors’ report (including any qualifications or emphasis of a matter).

N.A.

4. Whether the same accounting policies and methods of computation as in the issuer’s most recently audited annual financial statements have been applied.

In 2006, the Group:

(a) accounted for its hybrid swap instrument (“swap”) which had been entered into to manage the Group’s exposure to foreign currency and interest rate risks, by recognizing fair value changes on the swap in the profit and loss account. Previously, the Group had adopted hedge accounting and recognised fair

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

value changes in a hedging reserve which formed part of equity. Over the term of the swap, the Group’s exposure to foreign exchange risk on the USD loan amount being hedged will be negligible.

(b) adopted the following new/revised Singapore Financial Reporting Standards (“FRS”) and interpretations to FRS (“INT FRS”) that are applicable with effect from 1 January 2006:

FRS	19 (Amendments)	Employee Benefits
INT	FRS 104	Determining whether an Arrangement contains a Lease
FRS	39 (Amendments)	Financial instruments
FRS	21 (Amendments)	The Effect of Changes in Foreign Exchange Rates

The Amendments and Interpretations are currently assessed to have no material impact on the Group’s results.

6. Earnings per ordinary share of the group for the current period reported on and the corresponding period of the immediately preceding financial year, after deducting any provision for preference dividends.

		2Q 2006	2Q 2005	1H 2006	1H 2005
Earnings per ordinary share for the year based on
net	profit attributable to shareholders:
(i)	Based on weighted average number of
	ordinary shares in issue	1.45 cents	1.21 cents	2.37 cents	2.02 cents
	Weighted average number of shares (’000)	363,599	355,248	363,599	355,248
(ii)	On a fully diluted basis	1.45 cents	1.19 cents	2.37 cents	1.96 cents
	Weighted average number of shares (’000)	363,599	360,719	363,599	366,255

7. Net asset value (for the issuer and group) per ordinary share based on issued share capital of the issuer at the end of the (a) current period reported on and (b) immediately preceding financial year.

	GROUP	GROUP
	30 June 2006	31	December 2005
Net asset value per ordinary share based on issued share
capital as at the end of the financial period	49.00 cents		47.91 cents

8. A review of the performance of the group, to the extent necessary for a reasonable understanding of the group’s business. It must include a discussion of the following:

(a) any significant factors that affected the turnover, costs, and earnings of the group for the current financial period reported on, including (where applicable) seasonal or cyclical factors; and

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

(b) any material factors that affected the cash flow, working capital, assets or liabilities of the group during the current period reported on.

Review of Group Performance

Business Segment Information

Distribution Enterprise Systems IT Services Subtotal Fair value changes on financial instrument Provisional negative goodwill Total Distribution Enterprise Systems IT Services Subtotal Fair value changes on financial instrument Provisional negative goodwill Total	2Q 2006 S$’000 320,372 233,353 6,059 559,784 – – 559,784 1H 2006 S$’000 656,372 446,547 11,814	Revenue 2Q 2005 Change S$’000 % 308,646 3.8 178,744 30.6 4,167 45.4 491,557 13.9 – Nm – Nm 491,557 13.9 Revenue 1H 2005 Change S$’000 % 593,899 10.5 343,208 30.1 10,467 12.9	*Profit before Interest & Taxation** 2Q 2006 2Q 2005 Change S$’000 S$’000 % 4,379 3,107 40.9 4,631 3,299 40.4 557 502 11.0 9,567 6,908 38.5 (466) – Nm – – Nm 9,101 6,908 31.7 Profit before Interest & Taxation 1H 2006 1H 2005 Change* S$’000 S$’000 % 8,397 6,001 39.9 8,082 5,882 37.4 1,117 1,046 6.8 17,596 12,929 36.1 (2,322) – Nm 872 – Nm 16,146 12,929 24.9	*Profit before Interest & Taxation** 2Q 2006 2Q 2005 Change S$’000 S$’000 % 4,379 3,107 40.9 4,631 3,299 40.4 557 502 11.0 9,567 6,908 38.5 (466) – Nm – – Nm 9,101 6,908 31.7 Profit before Interest & Taxation 1H 2006 1H 2005 Change* S$’000 S$’000 % 8,397 6,001 39.9 8,082 5,882 37.4 1,117 1,046 6.8 17,596 12,929 36.1 (2,322) – Nm 872 – Nm 16,146 12,929 24.9
	1,114,733 – –	947,574 17.6 – Nm – Nm	17,596 (2,322) 872	12,929 – –
	1,114,733	947,574 17.6	16,146

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APPENDIX II

FINANCIAL INFORMATION OF THE ECS GROUP

Geographical Segment Information

2Q 2006 S$’000 270,502 289,282	Revenue 2Q 2005 Change S$’000 % 237,768 13.8 253,789 14.0	*Profit before Interest & Taxation** 2Q 2006 2Q 2005 Change S$’000 S$’000 % 3,887 3,176 22.4 5,680 3,732 52.2 9,567 6,908 38.5 (466) – Nm – – Nm 9,101 6,908 31.7 Profit before Interest & Taxation 1H 2006 1H 2005 Change* S$’000 S$’000 % 6,481 5,095 27.2 11,115 7,834 41.9 17,596 12,929 36.1 (2,322) – Nm 872 – Nm 16,146 12,929 24.9	*Profit before Interest & Taxation** 2Q 2006 2Q 2005 Change S$’000 S$’000 % 3,887 3,176 22.4 5,680 3,732 52.2 9,567 6,908 38.5 (466) – Nm – – Nm 9,101 6,908 31.7 Profit before Interest & Taxation 1H 2006 1H 2005 Change* S$’000 S$’000 % 6,481 5,095 27.2 11,115 7,834 41.9 17,596 12,929 36.1 (2,322) – Nm 872 – Nm 16,146 12,929 24.9
559,784 – –	491,557 13.9 – Nm – Nm	9,567 (466) –	6,908 – –
559,784 1H 2006 S$’000 539,925 574,808	491,557 13.9 Revenue 1H 2005 Change S$’000 % 451,095 19.7 496,479 15.8
1,114,733 – –	947,574 17.6 – Nm – Nm	17,596 (2,322) 872	12,929 – –
1,114,733	947,574 17.6	16,146

Includes share of associate’s profit.

(a) Revenue

The Group’s revenue for the six months ended 30 June 2006 (“1H 2006”) increased by 17.6% to S$1.11b as compared to S$947.6m for the six months ended 30 June 2005 (“1H 2005”). For the current quarter, the Group’s revenue increased by 13.9% to S$559.8m as compared to 2Q 2005.

The revenue growth in 2Q 2006 was mainly driven by a 30.6% increase in Enterprise Systems sales from networking products and enterprise servers led by a strong contribution from China. The stronger Enterprise Systems sales is a continuation of a trend from 1Q 2006. The Distribution segment meanwhile registered a 3.8% increase in revenue due to stronger distribution sales in supplies, notebooks and PDAs in Thailand and Indonesia. IT Services revenue also recorded a 45.4% increase in 2Q 2006 vs 2Q 2005, mainly due to more service projects in Singapore.

Geographically, both North Asia and South East Asia registered strong double-digit growth in revenues for 2Q 2006 vs 2Q 2005, with year-on-year growth of 13.8% and 14.0% respectively.

(b) Profitability

The Group’s net profit after tax and minority interests (“NPAT”) for 1H 2006 increased by 20.3% to S$8.6m as compared to S$7.2m for 1H 2005. The Group’s NPAT for 2Q 2006 increased by 23.0% to S$5.3m as compared to S$4.3m over the same corresponding period in 2005. Group’s gross profit margin in 2Q 2006 also improved to 4.8% versus 4.6% in 2Q 2005, as the Group improved its margin mix by focusing more resources on Enterprise Systems products.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

The Group’s net profit before interest and tax (“PBIT”) for 1H 2006 grew by 24.9% to S$16.1m from S$12.9m in 1H 2005. PBIT for 2Q 2006 improved by 31.7% to S$9.1m from S$6.9m in 2Q 2005.

Both the Distribution and Enterprise Systems segments did well, with their 2Q 2006 PBIT year-on-year growth rates at 40.9% and 40.4% respectively as the Group remained focused on delivering higher margin product sales. In the Distribution segment, the growth in PBIT was led by notebooks and PDAs, while in the Enterprise Systems segment, the growth in PBIT was driven by enterprise servers, softwares and networking products.

Total operating expenses were 3.38% of revenue in 2Q 2006 as compared to 3.40% of revenue in 2Q 2005, as the Group kept a tight rein on expenses.

Finance costs were 40.3% higher in 2Q 2006 as compared to previous corresponding period, which is in line with the higher interest rate environment.

On a geographical basis, the Group reported strong growth in PBIT for 2Q 2006 vs 2Q 2005 in both North Asia and South East Asia at 22.4% and 52.2% respectively. For 2Q 2006, particularly in South East Asia, our Indonesia and Thailand operations have reported strong profitability with 104.2% and 65.0% year-on-year growth rates respectively.

(c) Balance Sheet

The Group’s total shareholders funds attributable to shareholders of parent were S$178.2m as at 30 June 2006, an increase of S$4.0m as compared to 31 December 2005. The Company had paid dividends of S$5.1m in 2Q 2006.

Group borrowings decreased by S$3.1m to S$196.5m as at 30 June 2006, from S$199.6m as at 31 December 2005.

9. Where a forecast, or a prospect statement, has been previously disclosed to shareholders, any variance between it and the actual results.

N.A.

According to industry analysts, ICT spending in the Asia Pacific region will continue to grow. Independent analysts estimate the spending on software, hardware, IT solutions and communication services to grow from US$700 billion in 2006 to approximately US$800 billion by 2007.

While competitive conditions are expected to remain challenging, the Group believes that it is in a stronger position to leverage on favourable market developments in relevant Information & Communications Technology (“ICT”) sectors driven by regional economic growth, and tap opportunities presented by the continual consolidation in the regional ICT supply chain.

The Group has been accelerating its network expansion since FY 2004 and now has a distribution network of more than 17,000 channel partners and 32 offices in six countries. This network has been a strong reason behind the growth in turnover which crossed the S$2.0 billion mark for the first time in FY 2005.

The Group’s forward strategy is to expand the network further, deepen the penetration of both products to be distributed and improve yields through a combination of increased efficiency, higher-value products and services and by venturing into the sale of higher-margin IT accessories.

Expanding the network further

Specifically, the Group will accelerate its push into emerging regional markets that demonstrate strong resurgence in ICT spending or new potential in fresh market segments beyond the main capital or first-tier cities, such as Indonesia and China, where the Group has existing networks of branches supported by representative offices. In Indonesia, the Group has recorded strong sales due to increased IT spending while sales in China have been the strongest of any geographical market for higher-value Enterprise products and services.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Buoyed by the encouraging performance, particularly in Indonesia and China, the Group is upgrading more representative offices to full branch operations to tap the expected increases in ICT spending.

The Group is also actively considering mergers and acquisitions and joint ventures to open up new geographical markets such as Vietnam and India.

Improving margins

The Group is actively pursuing efforts to improve operating margins through a strategy which combines enhancing the product mix based on margin-accretive parameters; strengthen its portfolio of distribution agreements with best-of-class principal partners; building up countrywide infrastructure and channel coverage in selected geographical markets; sale of IT accessories and opening retail stores; the first of which was rolled out in Singapore in 2Q 2006.

Apart from these external initiatives as outlined above, the strategy also encompasses Group-wide programmes aimed at tightening working capital management and optimising the operational structure to extract maximum synergies, cost efficiencies and economies of scale.

These efforts, in particular enhancing the product mix, have already borne fruit. In the first two quarters of FY 2006, net profit growth outpaced revenue growth, reflecting the improved margins. Net profit margin has improved to 1.0% in 2Q 2006 compared to 0.85% for the whole of FY 2005.

With a committed management team and a clear strategy in place, the Group has already built a strong foundation for future growth. Recovering from the regional slowdown in sales due to the SARS epidemic in FY 2003, the Group has recorded 11 consecutive quarters of profitability.

Outlook for 2H 2006 and FY 2006

In view of the above plans and barring unforeseen circumstances, the Directors remain optimistic that the Group’s net profit for the next quarter (“3Q 2006”) and for the 12 months ending 31 December 2006 (“FY 2006”) will be better than that achieved in FY 2005.

11. Dividend

(a) Present Period

Any dividend recommended for the current financial period reported on? None

(b) Previous Corresponding Period

Any dividend declared for the corresponding period of the immediately preceding financial year? None

(c) Date payable

N.A.

(d) Books closure date

N.A.

12. If no dividend has been declared/recommended, a statement to that effect.

N.A.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

N.A.

14. In the review of performance, the factors leading to any material changes in contributions to turnover and earnings by the business or geographical segments.

N.A.

15. A breakdown of sales as follows:

N.A.

16. A breakdown of the total annual dividend (in dollar value) for the issuer’s latest full year and its previous full year as follows:

N.A.

17. Interested Person Transactions Under General Mandate.

			Aggregate value of all
			interested transactions
			during the financial
			year under review	Aggregate value of all
			(excluding transactions	transactions conducted
			less than S$100,000 and	under shareholders’
			transactions concluded	mandate pursuant to
			under shareholders’	Rule 920 (excluding
			mandate pursuant to	transactions less than
Name	of	Interested Persons	Rule 920)	S$100,000)
(a)		Transactions for the sale of goods and	–	1,320,173
		services with Singapore Computer
		Systems Ltd and its subsidiaries
(b)		Transactions for the sale of goods and	–	1,593,115
		services with Starhub Ltd and its
		subsidiaries
(c)		Transactions for the sale of goods and	–	1,929,025
		services with Singapore
		Telecommunications Ltd and its
		subsidiaries
(d)		Transactions for the sale of goods and	–	1,198,111
		services with ST Engineering Ltd and
		its subsidiaries

The above transactions are for the second quarter ended 30 June 2006.

BY ORDER OF THE BOARD

Eddie Foo Toon Ee

Company Secretary

3 August 2006

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

B. INDEBTEDNESS

Borrowings

As at the close of business on 31 December 2006, being the most recent annual report date of the ECS Group, the information presented in the ECS Group’s annual report shows that the ECS Group had total outstanding financial liabilities and other borrowings of approximately S$173.8 million (HK$895.8 million) which are reproduced on pages 97 to 99 of this circular under the sections headed “Financial liabilities” and “Other borrowings” respectively.

Contingent liabilities

As at the close of business on 31 December 2006, being the most recent annual report date of the ECS Group, the information presented in the ECS Group’s annual report shows that the ECS Group had total contingent liabilities in respect of guarantees given to suppliers and financial institutions of approximately S$387.1 million (HK$1,995.6 million) which are reproduced on page 109 of this circular under the section headed “Contingent liabilities (Unsecured)”.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

C. QUALITATIVE ANALYSIS OF DIFFERENCES BETWEEN SINGAPORE FINANCIAL REPORTING STANDARDS AND HONG KONG FINANCIAL REPORTING STANDARDS

Summary of certain differences between Singapore Financial Reporting Standards and Hong Kong Financial Reporting Standards

The audited consolidated financial statements of ECS Group for each of the three years ended 31 December 2004, 2005 and 2006 and the unaudited consolidated financial statements of ECS Group for the six month ended 30 June 2006 and 2007 (altogether the “ECS Singapore Financial Information”) set forth herein have been prepared in accordance with Singapore Financial Reporting Standards (“SFRS”), which differ in certain respects from Hong Kong Financial Reporting Standards (“HKFRS”). Such differences include the methods for measuring amounts shown in the Singapore Financial Statements, as well as certain additional disclosures. As of the date of this circular, the Group has not completed its review of such differences applicable to ECS Group. For the benefit of shareholders, the Group has summarised below certain general differences between SFRS and HKFRS. This summary should not be construed to be exhaustive. No attempt has been made to quantify the impact of those differences.

Income taxes

Under SFRS, no deferred tax is accounted for temporary difference arising from foreign income not yet remitted to Singapore if: (a) the entity is able to control the timing of the reversal of the temporary difference; and (b) it is probable that the temporary difference will not reverse in the foreseeable future. Under HKFRS, deferred tax is required to be accounted for temporary difference arising from such unremitted foreign income.

Lease

SFRS allows leasehold lands to be treated as finance leases and leased assets be recorded as fixed assets or investment property which can then be stated at cost or at valuation. Under HKFRS, such leasehold lands, other than those held by lessee as investment properties which can be stated at cost or at valuation, are treated as prepaid lease payments which cannot be subsequently re-measured and carried at revalued amount.

Revenue

Under SFRS, equity interests on uncompleted properties are considered to have passed to the buyers of the properties upon the entering into the sale and purchase agreements. Accordingly, revenue and cost of sales on such properties are recognised on a percentage of completion basis. Under HKFRS, such revenue is recognised upon completion of sale agreements, which refers to the time when the relevant properties have been completed and delivered to the purchasers pursuant to the sale agreements.

Financial Instruments: Presentation

SFRS allows certain costs incurred for initial public offering to be deducted against equity under Recommended Accounting Practice 9. Under HKFRS, these costs may be required to be included in the income statement.

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FINANCIAL INFORMATION OF THE ECS GROUP

APPENDIX II

Employee benefits

SFRS 19 “Employee Benefits” is consistent with HKFRS in all material aspects except for HK(IFRIC)-Int 14 “Defined Benefit Assets and Minimum Funding Requirements”.

Consolidated and Separate Financial Statements

SFRS requires the ultimate holding company or any intermediate parent of a company that seeks exemption from consolidation to produce consolidated financial statements that are available for public use. These consolidated financial statements need not comply with any specific accounting framework.

HKFRS requires the ultimate holding company or any intermediate parent of a company that seeks exemption from consolidation to produce consolidated financial statements available for public use that comply with the International Financial Reporting Standards or Hong Kong Financial Reporting Standards.

Investments in Associates

SFRS 28 “Investments in Associates” is consistent with HKFRS in all material aspects, except in one of the conditions for exemption from equity accounting. The dissimilarity is as identified in SFRS 27 “Consolidated and Separate Financial Statements”.

Interests in Ventures

SFRS 31 “Interests in Joint Ventures” is consistent with HKFRS in all material aspects, except in one of the conditions for exemption from proportionate consolidation or equity accounting. The dissimilarity is as identified in SFRS 27 “Consolidated and Separate Financial Statements”.

The following SFRS are consistent with HKFRS in all material aspects except for the transitional arrangements and effective dates:

Property, Plant and Equipment
Impairment of Assets
Intangible Assets
Financial Instruments: Recognition and Measurement
Financial Instruments: Disclosures
Investment Property
Share-based Payments
Business Combinations

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

The following interpretations of SFRS are consistent with HKFRS in all material aspects except for the transitional arrangements and effective dates:

Introduction of the Euro
Government Assistance – No Specific Relation to Operating Activities
Consolidation – Special Purpose Entities
Jointly Controlled Entities – Non-Monetary Contribution by Ventures
Operating Leases – Incentives
Income Taxes – Recovery of Revalued Non-Depreciable Assets
Income Taxes – Changes in the Tax Status of an Entity or its Shareholders
Evaluating the Substance of Transactions Involving the Legal Form of a Lease
Disclosure: Service Concession Arrangements
Service Concession Arrangements: Disclosures
Revenue – Barter Transactions Involving Advertising Services
Intangible Assets – Web Site Costs
Changes in Existing Decommissioning, Restoration and Similar Liabilities

The following interpretations were issued under HKFRS but have not yet been adopted in Singapore:

Members’ Shares in Co-operative Entities and Similar Instruments
Customer Loyalty Programmes
Defined Benefit Assets and Minimum Funding Requirements

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

D. MANAGEMENT DISCUSSION AND ANALYSIS OF ECS GROUP FOR EACH OF THE LAST THREE FINANCIAL YEARS ENDED 31 DECEMBER 2006

D-1. Financial year ended 31 December 2006

The following is the management discussion and analysis of ECS Group for the financial year ended 31 December 2006 extracted from the Annual Report 2006 of ECS Group.

Overview

FY2006 was a sterling year for us. We reported a record net profit of S$20.1 million as our margin enhancement strategy paid off.

With revenue growth still as an important, secondary priority, throughout the past year, we concentrated on raising operating margins. As a result, our strong performance in FY2006, underscored the dedicated commitment of our management and staff to our multi-tiered programme that repositioned country-specific business thrusts and maximised leverage on local market trends.

Our extensive network of 33 offices and over 18,000 channel partners in some of the fastest-growing and rapidly-emerging markets including China, Thailand, Malaysia, Singapore, Indonesia and the Philippines made us a preferred strategic partner to any global ICT supplier intent on tapping the growth potential of this region. This compelling positioning contributed positively as we made a concerted push to garner a slice of the burgeoning regional economic growth especially in China, Indonesia and Thailand.

Our star performer on a per country basis this year was China which continued to deliver strong revenue growth and profitability. This is an important breakthrough for us because China accounts for almost half of our turnover and China is an important high-growth market that no global leading ICT player can ignore.

Furthermore, in line with our objective to increase bottom-line yields, we continued to improve our working capital management. Consequently, our working capital days sharply improved from 57.3 days to the lowest to date 47.6 days.

At the same time, we continued to remain alert to growth opportunities and this accelerated our move up the value chain by focusing on our higher-margin Enterprise Systems and IT Services businesses. Selectively, we also began extending our Distribution business into the regional retail segment; we opened our first three accessories retail stores called “Pacific City” in Singapore where we exclusively retail our own, in-house brands of IT accessories namely iSAN and PacGear. Although our retail strategy is still at a pilot stage, the initial results have been encouraging.

Hence, based on our solid performance in FY2006, we are pleased to report that we have delivered on our promise to shareholders to lift our margins and raise operational efficiencies in all aspects.

Earnings per share correspondingly rose to 5.51 cents versus 4.86 cents in FY2005 while Net Asset Value per share increased to 52.27 cents as at 31 December 2006 versus 47.91 cents a year ago.

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APPENDIX II FINANCIAL INFORMATION OF THE ECS GROUP

Financial & Operations Review

Financial Review

Buoyed by robust growth in higher-margin businesses, improved operational and financial efficiencies, the Group’s net profit attributable to equity holders rose 15.8% to a record-high S$20.1 million in FY2006 compared to S$17.3 million in FY2005 as all three business segments – Distribution, Enterprise Systems and IT Services demonstrated doubledigit net profit before interest and tax (“PBIT”) growth.

Group revenue grew 14.9% to S$2.3 billion, led by strong double-digit growth in Enterprise Systems and Distribution segments.

Gross profit margin increased to 4.84% in FY2006 from 4.68% in FY2005 mainly due to improved product mix with better margin yield from Enterprise Systems and IT Services while PBIT margin rose to 1.53% from 1.47% on better cost management and operational efficiencies. As a result, PBIT surged 19.4% to S$35.7 million in FY2006 and exceeded management expectations.

Due to better working capital management, the operating cash flow in FY2006 amounted to a positive S$29.9 million, reversing from FY2005’s negative S$19.5 million. The improved operating cash flows have led to a decrease in bank borrowings by 17.5% or by S$35.0 million to S$164.6 million at the end of FY2006.

Finance costs were however 17.4% higher in FY2006 as compared to a year earlier due to a higher interest rate environment.

Review By Business Segments

Enterprise Systems

Due to the Group’s strategy to focus on higher-margin businesses, our Enterprise Systems segment continued the momentum set last year as a key revenue driver. In FY2006, Enterprise Systems grew 15.2% to S$900.1 million as compared to S$781.1 million in FY2005 with stronger sales in networking hardware and enterprise servers led by an accelerated increase in corporate ICT investments in China, Thailand and Malaysia.

Likewise, segmental results for Enterprise Systems also jumped 25.6% to S$18.7 million in FY2006 from S$14.9 million in FY2005 as the strategy to move China from the higher-volume thin-margin distribution business to higher-margin Enterprise Systems sales began to bear fruit.

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FINANCIAL INFORMATION OF THE ECS GROUP

Distribution

Our Distribution segment also contributed strongly to top-line growth in FY2006 registering a robust 14.8% growth to S$1.4 billion from S$1.2 billion in FY2005. This was mainly driven by stronger distribution sales for consumer notebooks, printers and supplies in the rapidly-emerging markets of Thailand, Malaysia and Indonesia.

On the back of this strong revenue growth, segmental results from our Distribution business improved 31.2% to S$17.0 million in FY2006 from S$13.0 million in FY2005.

The selective roll-out of our Distribution business into the regional retail segment with the opening of three pilot stores in Singapore made a maiden contribution to the Group’s distribution sales of digital consumer electronics.

Strategic Agreements With New Partners

Not withstanding our strength in Distribution, in FY2006 we continued to pursue strategic partnerships that help us penetrate higher-margin markets or product categories. In line with this strategy, we collaborated with leading ICT players like Lenovo, Acer, EMC, Samsung, Symantec, Borland, Brocade, Red Hat, BEA and Avaya for business ventures in different regional markets or business verticals with growth potential. These agreements with key vendors saw us align our growth strategy with theirs to maximise the benefits of our partnership with them and jointly tap the ICT potential brimming in the region.

IT Services

As part of the Group’s strategic emphasis on higher-margin businesses, we were more selective in our choice of projects. As a result, our IT Services segment recorded a marginal 5.1% growth in revenue to S$23.1 million in FY2006 as compared to S$22.0 million in FY2005. However, segmental results for our IT Services business jumped 33.9% to S$2.7 million in FY2006 from S$2.0 million in FY2005.

Geographical Markets

Geographically, both South East Asia and North Asia registered strong revenue growth of 15.7% and 14.0% respectively as compared to FY2005 as the Group continued to deepen penetration in existing markets based on margin accretive parameters.

South East Asia

South East Asia continued to outpace North Asia albeit only slightly to contribute 50.6% of FY2006 revenue, underpinned by strong Distribution sales in Thailand, Malaysia and Indonesia on the back of improving disposable incomes. South East Asia’s PBIT growth of 41.6% outstripped revenue growth in FY2006 and South East Asia contributed 59.5% of FY2006’s PBIT.

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APPENDIX II

North Asia (China)

China continued to deliver strong revenue and PBIT growth of 14.0% and 18.7% respectively on the back of our focus on higher-margin Enterprise Systems and IT Services businesses while adopting a more selective strategy for Distribution. China’s contribution to overall revenue maintained within the range of almost 50.0% in FY2006.

This growth was mainly fuelled by fresh corporate ICT spending beyond the first-tier cities where we have been investing and upgrading selected representative offices to branch operations.

Outlook

In FY2007, we will continue to enhance profitability and margins based on higher-value business parameters and increased operating and financial efficiencies.

According to industry analysts, ICT spending in Asia Pacific is projected to grow strongly, especially in China, India, Indonesia and Vietnam fuelled by positive economic growth, foreign direct investments by MNCs, upgrading by SMEs and improving workforce disposable incomes. As one of the top three ICT products and services provider in Asia Pacific, we believe that we are in a compelling position today to leverage on these developments in relevant regional ICT sectors.

Against this backdrop and based on our FY2006 performance, we are upbeat about the Group’s business prospects in FY2007. We have renewed our earnings engine and strengthened our internal resources.

We believe we have put in place a firm foundation based on solid fundamentals to sustain ECS’ future growth and are now ready to jumpstart our expansion into high-growth segments. We are actively engaged in exploratory talks with potential partners in India and Vietnam with demonstrated competencies and established local networks that will provide a strong valueadd to the Group in the Enterprise Systems and IT Services businesses. These negotiations should shift into higher gear in FY2007.

Encouraged by the early results from our pilot ventures into IT-related accessories and selective retailing in Singapore, we intend to build on this momentum. Hence we will continue to explore business opportunities in IT accessories and IT retail businesses to complement our distribution partners.

Optimistic of unlocking the full potential of ECS China’s prime position in the world’s largest domestic market and one of the fastest-growing economies, we will continue to enlarge our local footprint in that country to ensure better market coverage.

Furthermore, revenue growth for our top seven brands – HP, Apple, Microsoft, SUN, IBM, Oracle and EMC – from this region has been strong and is forecasted to be bullish. Hence we expect stable organic growth for our Distribution segment and will pursue new agencies selectively.

Finally, we will continue to improve internal efficiencies through enhanced working capital management and optimum operational processes.

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Hence we remain confident about our near-term business outlook and are committed to raising margins to increase shareholder value.

D-2. Financial year ended 31st December 2005

The following is the management discussion and analysis of ECS Group for the financial year ended 31st December 2005 extracted from the Annual Report 2005 of ECS Group.

Overview

It was an invigorating year for ECS as we crossed 2005’s finish line with a record of over S$2.0 billion in revenue. The market environment remains challenging but we benefited from the ongoing build-out of our pan-Asia network.

Our ability to capture greater vendor and customer mindshare helped us gained market share, even as the regional Information & Communications Technology (ICT) supply chain continues to consolidate.

Our profit record is the culmination of our team’s in-depth market knowledge, careful planning and precise execution of a focused strategy, honed through years of operating in Asia Pacific.

Ever alert to growth opportunities, we accelerated our move up the value-added chain, with encouraging early results. Our concerted push into China’s Enterprise Systems business segment and the Accessories segment in Singapore contributed positively.

I am pleased to report ECS delivered again by maintaining our unbroken profit record, with 2005 group net profit attributable to shareholders hitting S$17.3 million. Net tangible assets per share leapt to 38.7 cents against 35.5 cents in 2004. Return on shareholders’ equity also rose to 10.4% from 8.8%.

Operational Review

Enterprise Systems

Enterprise Systems’ sales were 2005’s key revenue and earnings drivers, with revenue growing a robust 24.9% to S$781.1 million on strong demand for enterprise servers, software and network infrastructure products. Contribution to Group revenue rose to 38.4% in 2005, from 33.5% in 2004, while the share of profit before interest and tax (PBIT) increased to 49.8%, from 40.8%.

Taking advantage of buoyant corporate demand, to improve profitability, we shifted gears in China, pushing aggressively into the higher-margin Enterprise Systems business segment. Our success significantly boosted Enterprise Systems’ 2005 performance, with its PBIT roaring 42.1% to S$14.9 million, from S$10.5 million in 2004.

Distribution

Distribution sales improved marginally by 1.5% to S$1.23 billion in 2005. Growth moderated due mainly to our planned move away from the lower-margin distribution business

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in China. However, the strong 28.0% surge in South East Asia’s sales more than offset China’s Accessories Asia’s sales decline. In particular, Malaysia and Thailand exceeded expectations with sales up 59.9% and 30.3%, respectively.

Digital consumer electronics, the fastest-growing product segment product segment in 2005, contributed some in excess 10% to Group revenue. Our success with iPod opened up opportunities with other vendors and products. New products added during the year, such as HP iPAQ smartphone, O2 PDA phone, etc, also boosted our network’s revenue yield. The Group continues to be on the look out for exciting new products that enhance our consumer electronic product offerings.

IT Services

Performance for the IT Services segment was rather mixed. Revenue for China rose, as the Group secured more Enterprise Systems’ sales, but declined in Singapore primarily due to a lack of major projects in 2005. Singapore’s 2004 performance was boosted by a couple of major regional projects. Despite the competitive environment, Malaysia and Thailand reported steady IT services revenue from recurrent contracts.

During 2005, the Group invested and built up the infrastructure and training processes, to enhance and support the knowledge and expertise of the services teams in the various countries. In particular, the Group is positioning its team to capture the rising demand for IT services in China.

Accessories

After a successful pilot run in 1H05, we officially launched our accessories business in Singapore in mid 2005. From accessories bundling via existing dealers for Apple iPod, we expanded to other PDAs, phones, and PC accessories. The 2H’s results were very heartening with a fourfold revenue leap and a positive contribution to Group earnings.

We are excited about the business’ growth prospects. The regional market (excluding China) is currently fragmented and there are no dominant players as yet. With our extensive network, we are well positioned to capture more market share from the growing market in the next three years.

Geographical Market Review

South East Asia

South East Asia overlook China for the first time to contribution 50.2% to 2005’s revenue. South East Asia’s revenue grew 22.7% to S$1.02 billion, underpinned by the string resurgence in distribution sales growth in Malaysia, Indonesia, and Thailand. South East Asia also contributed to a higher share of 2005’s PBIT at 55.2%.

Malaysia

Malaysia was the star performer in 2005, with revenue revving 50.1% against 2004. The supply chain consolidation strengthened out partnership with leading PC vendors and we

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gained market share. Demand was particularly strong for desktops, notebooks, and printer supplies that drove the 59.9% surge in Distribution sales.

Enterprise Systems also did well with 31.9% rise in revenue. Several major projects for the Ministry of Education, Government Audit Department, and National Registration Department, and National Defence Department were completed during the year.

Singapore

Revenue improved by 6.3%, underpinned, by 13.0% growth in Enterprise Systems sales, Market condition remained competitive. To enhance our revenue yield and profitability, we extended our agency’s breadth and depth during the year. Using new, expanded channels in the audio/visual and telecom segment, from our success with the IPod’s launch in 2004, we pushed more products through, including the new Accessories business. Opening Apple service centres and HP parts distribution center are initiatives to enhance our value-added services.

Thailand

Thailand had a slow start to 2005 as there were fewer government projects. This affected the Enterprise Systems sales. But, overall revenue grew 17.8% on strong Distribution sales growth of 30.3% boosted by expanded products offerings such as O2 PDA phones, Nokia, NetApp, and Oracle.

Indonesia

Indonesia strengthened its infrastructure and regional coverage outside its traditional Jakarta stronghold, with key focus in the Surabaya and Yogyakarta. We were recognized by Cisco as the Best Distributor for 2005, and appointed by HP to be the top distributor for consumer products in Indonesia. Strong corporate demand, across a broad spectrum of Industries, boosted overall revenue growth of 35.4%

North Asia

Last year was challenging but rewarding for our China operations. The team’s steadfast execution of the business shift to focus on Enterprise Systems led to a 31.6% surge in Enterprise Systems’ sales. Overall revenue for North Asia eased 1.8% to S$1.01 billion, arising from a decline in Distribution sales as we scaled back lower-margin consumer ICT products.

Market consolidation following the merger of one of our key PC and notebook vendors also affected our China Distribution sales in the first half of 2005. Demand had bottomed out by the end of third quarter, with firm recovery in the fourth quarter.

One positive development was the revaluation of the renminbi in 2H05 that boosted our profitability. The improvement in revenue mix, coupled with positive currency effect, lifted PBIT margins for North Asia to 1.3% in 2005, up from 0.9% in 2004.

Financial Review

Key operating efficiencies and finance returns broadly improved in 2005. A better revenue mix stabilized the gross margin about 4.7%, similar to levels achieved in 2004.

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We diligently kept a tight rein on expenditure but continued to invest in selected areas which are crucial to sustaining earnings growth. As we added headcounts to push aggressively into the Enterprise Sector, especially in China, operating expenses rose by 12.1% to S$71.0 million, but still at a low 3.5% of sales, marginally higher than 2004’s 3.4%. However, we were able to keep our overheads low as a result from the significant economies of scale – which is a critical success factor in our business. Net profit margin rose to 0.9% in 2005, up from 0.7% in 2004.

Working capital remained a key focus area for management. Net gearing ratio stood at 0.8x, compared with 0.7x in 2004.

Team Work

ECS success is the culmination of years of hard work by our dedicated team. We have built an excellent IT infrastructure and operational processes to support inventory and logistics management, credit assessment and control.

Our robust risk management processes, supported by a solid team with strong market and operational expertise, have weathered the vicissitudes of major economic cycles and shakeouts in the ICT industry. ECS has emerged a stronger player, ranked among the top three in all our markets. We believe we are well-poised to seize business opportunities and sustain our profitable growth record.

Industry Recognition

Our partners and industry players recognized our continuous efforts to improve market reach and services. We won Apple’s coveted award of “Top Apple Distributor in Asia Pacific” for 3 consecutive years. We were named HP’s Top Master Parts Reseller for South East Asia, and Top Distribution Partner in various product categories. We also received many prestigious awards from leading vendors like Sun, IBM, Oracle, and Fuji-Xerox. In ZDNet Asia’s inaugural ranking, ECS was the 6th Fastest Growing Technology Company in Asia-Pacific.

Outlook – The Next Circuit

For 2006, management will stay focused on enhancing profitability. We are adopting a three-pronged approach to improve profits and returns:

Harvest the value of our extensive regional network

In January 2006, we acquired a 50% equity stake in MSI, the No. 2 ICT distributor in the Philippines. The deal strengthened our leading position in Asia Pacific, as we now cover six countries in 32 cities. While we still seek to expand geographically, our priority is to maximize the revenue stream from our existing network.

Leading vendors value our extensive network of over 17,000 partners across the ICT, audio/visual, and telco channels for their market breadth and depth. We are able to support vendors in their commercial and consumer product offerings region-wide.

Enhance profitability via improved product mix

We will keep accelerating the shift in China’s business mix to better-margined products and services by building on the growing demand for Enterprise Systems there. With the

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addition of Huawei-3Com in November 2005, we lined up aggressive initiatives to capture the growing network and communications market.

The Group has scored well with digital consumer electronic products such as iPod, Smart-phones and PDA phones. We see good regional opportunities to expand and scale our portfolio of new and exciting products in this fast-growing segment of the ICT market. We are excited about our Accessories business prospects. Our 2006 focus is to build a strong brand name and expand our regional markets – Malaysia, Indonesia and Thailand in 1H06, China in 2H06. We are confident of replicating our Singapore’s success in the other regional markets.

Increase operating and financial efficiencies

Our management will spare no efforts to improve productivity and operating efficiency. We will persevere in improving on our capital management to boost returns to shareholders.

We are committed to our mission to create shareholder value via medium and long term strategic initiatives. The industry has many challenges but we see opportunities too and we are optimistic that 2006 will be another good year.

D-3. Financial year ended 31st December 2004

The following is the management discussion and analysis of ECS Group for the financial year ended 31st December 2004 extracted from the Annual Report 2004 of ECS Group.

Overview

We have performed well in 2004 on almost all fronts, and succeeded in keeping our profit track record intact since our listing in 2001. We are able to achieve this because we stayed very focused on our business and understood the needs of our vendors and our customers. Our 2004 financial performance clearly bears testimony to our strengths and our ability to deliver good returns to our shareholders despite the tough business operating conditions of the industry.

The team’s year of experience in the business has enabled us to seize opportunities draw up the right strategies and implement there well to proactively react to the market’s needs. It is this team effort that contributed to our revenue hitting a new record of S$1.87 billion in 2004.

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We are also pleased that Group net profit after tax and minority interests rose 113.9 per cent to S$13.5 million compared to S$6.3 million in 2003. Basic earnings per share was up 109.3 per cent at 3.8 cents from 1.8 cents in the previous year. At the same time, the Group’s return on equity almost doubled to 8.5 per cent against 4.3 per cent in the previous financial year while net tangible asset per share rose to 35.48 cents, from 32.65 cents.

Operations Review

Group revenue growth of 31.1 per cent is in fact higher than the ICT industry’s growth rate. More importantly however, our growth was broad based. All three business segments, namely, Enterprise Systems, ICT Services, and Distribution recorded higher revenues and profits.

Our Group achieved double-digit growth in revenue and profits in both the North Asia and South East Asia markets – all countries registered double-digit growth, with Malaysia showing exceptionally strong growth. I am so happy to report that Indonesia contributed for the first time, accounting for more than 3 per cent of Group revenue.

We are beginning to see the fruit of our efforts in restructuring our China operations. Segmental profit from North Asia increased 64.9 per cent to S$9.6 million, on the back of a 26.3 per cent rise in revenue to S$1.03 billion. In addition to the strong growth momentum for the distribution business, our China operation is now positioned to capitalise on the growing ICT infrastructure demand from both the enterprise and government sectors. With our current network of over 13,000 channel partners, we see good potential to raise revenue yields, further boosting profitability of the Group in the coming year.

The Group’s gross margin stabilised at about 4.7 per cent in 2004 and management continues to exercise prudence in our expenditure. Operating expense fell to 3.4 per cent of 2004 revenue, down from 3.8 per cent in 2003. Management has also been keeping a tight rein on working capital management and our cash conversion cycle was maintained at 53 days in 2004 despite our start-up operations in Indonesia. If we exclude Indonesia, our cash conversion cycle was a very healthy 50 days.

Our fastest growing division. The Distribution business generally has shorter cash conversion cycles and requires lesser capital to fund its growth, contrary to market perception. We have utilized our debt financing well in funding our growth – the Group’s total borrowing increased by only 21 per cent to S$172.6 million against a sharper 31.1 per cent surge in 2004 revenue to S$1.87 billion. Group interest cover also improved to 4.9 times from 3.3 times in 2003.

Revenue from the distribution of ICT products rose 45.9 per cent to S$1.2 billion, driven by increased spending on desktop PCs, notebooks and consumer electronic products, such as the Apple iPod. Segment profit grew 70.8 per cent to S$12.9 million. Through the success of the Apple iPod, ECS has been able to open up new channels and business opportunities in the rapidly growing consumer electronics market segment. Our long-standing relationship with Apple has been further strengthened, and we look forward to growing this area of business with the support of our vendors.

The Enterprise Systems Division recorded a 56.4 per cent jump in segment profit to S$10.5 million on a modest 9.8 per cent higher revenue of S$625.6 million. Higher demand for enterprise softwares and high-end services was offset by a decline in revenue for network hardware.

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The ICT Services Division recorded a rise in revenue of 24.3 per cent to S$24.9 million and segment profit increased 8.7 per cent to S$2.3 million. The Singapore operation remained the dominant contributor in both revenue and profits.

Markets

We are now amongst the top three ICT players in the key markets of China, Singapore, Malaysia, Thailand and Indonesia. We will continue to build on our reputable as a leading ICT product and services provider, serving and supporting a wide regional customer base. We currently have offices in 29 cities covering China, Indonesia, Malaysia, Singapore and Thailand. China is particularly exciting to us, Last year, we opened a branch in Xi’an, in addition to the eight offices in China, and ECS now covers some 200 provinces and cities. There is still a lot of potential for China waiting to be exploited. The way ahead is for the Group to grow our market coverage in Asia.

Vendors

As a service provider, the Group will continue to strengthen its relationship with its vendor. We take pride in counting among our clients, the world’s top seven ICT vendors Apple, CISCO, Hewlett-Packard, IBM, Microsoft, Oracle and Sun Microsystems.

These Big Seven account for over 60 per cent of our total revenue and we continue to explore how we can create more opportunities to map out new business frontiers. The ICT supply chain has undergone a major consolidation in the last three years and the Group has emerged a stronger player with greater customer and vendor mind share. There is now greater inter-dependence by major vendors on channel network providers such as ECS to swiftly move their products into the main competitive global markets. Post consolidation, vendor focus on profitability should argur well for a more stable pricing environment in the coming years.

Milestones

During the year, our good performance did not go unnoticed. Our Group came in 14th in the inaugural Singapore International 100 Ranking of Companies with the highest overseas revenue. The award recognises companies by their audited revenue contributions from markets such as China, India, South East Asia, the Middle East, Europe, the Americas and North Asia for the fiscal year between 1st June 2003 and 31st May 2004.

2004 was also the year when we became the preferred channel partner for renowned ICT companies that offer a wide range of products and services, including ADIC, Emerson Networks, Epson, Fuji-Xerox, Lexmark, Secure Computing and Symantec.

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APPENDIX II

Outlook

We see continued growth for our Group as we work on enhancing revenue yields from our existing channel network and expanding our geographical reach. The robust demand for Apple iPod will keep us in pole position as leader in providing channel network services for the proliferation of new and exciting consumer electronic products.

Our top line vendors have chosen us because of our market reach and experience in efficient inventory management and sound credits. These same qualities will see us grow our business in the months ahead.

The ICT industry is expected to grow by between 8 to 10 per cent in 2005. ECS has outperformed the industry growth rate in the past few years and we will strive to outdo the industry once again. With out strong market positioning, management is optimistic of good performance in 2005.

In the early years, the Group focused on building market reach as well as vendor and customer mind share. Management has worked hard to build up an integrated regional network with a highly efficient inventory, logistics and working capital management system, supported by a solid team with strong market and operational expertise.

Going forward, the Group will focus on measures to further enhance our profitability, namely to improve revenue yields and returns on our channel assets, especially in China. Management will continue to explore opportunities to further expand our market reach in Asia, and improve on working capital management. ECS also intend to leverage on its extensive channel to grow the “new” brand ICT and accessories business, a highly fragmented market that offers potential to enhance our profitability and returns.

We will also be exploring ways to work closely with our new shareholder SES to provide our customers with better products and services to enhance the overall customer experience in the region, particularly in China.

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GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

Directors

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the VST Shares, underlying VST Shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) as required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code on Securities Transactions by Directors of Listed Companies were as follows:

Long Position in the issued VST Shares

			Percentage of
		Number of	the issued share
Name of		Issued VST	capital of the
Director	Capacity	Shares held	Company
Mr. Li Jialin	Beneficial interests,	448,796,000	48.17%
	family interests and
	interests in
	controlled
	corporation (Note 1)

Note:

(1) The entire issued share capital of L&L Limited is held equally by Mr. Li Jialin (the Chairman, Chief Executive Officer and an executive Director of the Company) and his spouse, Madam Liu Li. Mr. Li Jialin is therefore deemed to be interested in all the VST Shares held by L&L Limited and Madam Liu Li. Madam Liu Li is also deemed to be interested in all the VST Shares held by Mr. Li Jialin and L&L Limited. None of Li Jialin, L&L Limited or Liu Li currently holds any ECS Shares.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executives of the Company had any interests and short positions in the VST Shares, underlying VST Shares and debentures of the Company and its associated corporations

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GENERAL INFORMATION

(within the meaning of Part XV of the SFO) as required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Listing Rules, to be notified to the Company and the Stock Exchange.

Substantial Shareholders

As at the Latest Practicable Date, so far as is known to the Directors, the following persons (not being a Director or a chief executive of the Company) had an interest or short position in the VST Shares or underlying VST Shares of the Company which are required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, required to be entered in the register maintained by the Company pursuant to Section 336 of the SFO, or were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

		Number of issued	Percentage of
		VST Shares held	the issued share
Name of		(long position (L)/	capital of the
Shareholder	Capacity	short position (S))	Company
L&L Limited	Beneficial interests	241,500,000 (L)	25.92%
		(Note 1)
CKC Holdings	Beneficial interests	62,950,000 (L)	6.76%
Limited		(Note 2)
Liu Li	Beneficial interests,	448,796,000 (L)	48.17%
	family interests	(Note 3)
	and interests in
	controlled
	corporation
Mr. Cheng	Beneficial interests,	71,950,000 (L)	7.72%
Kam Chung	family interests	(Note 4)
	and other interests

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APPENDIX III

		Number of issued	Percentage of
		VST Shares held	the issued share
Name of		(long position (L)/	capital of the
Shareholder	Capacity	short position (S))	Company
Zhang Qing	Beneficial interests,	50,561,333 (L)	5.43%
	family interests
	and interests in
	controlled
	corporation
ABN AMRO	Beneficial interests	90,805,333 (L)	9.75%
Holding N.V.

Notes:

(1) The entire issued share capital of L&L Limited is equally held by Mr. Li Jialin (the Chairman, Chief Executive Officer and an executive Director of the Company) and his spouse, Madam Liu Li.
(2) The entire issued share capital of CKC Holdings Limited is held by Infinity Fortune Limited, a company incorporated in the British Virgin Islands, as a trustee of Infinity Fortune Unit Trust. Infinity Fortune Unit Trust is an unit trust of which 1 unit is held by Madam Kwan How Yin, the spouse of Mr. Cheng Kam Chung and 9,999 units are held by HSBC International Trustee Limited as trustee for the CKC Family Trust, a discretionary trust which objects include Madam Kwan How Yin and her children.
(3) 241,500,000 shares of the Company were held by L&L Limited, the entire issued share capital of which was equally held by Mr. Li Jialin (the Chairman, Chief Executive Officer and an executive Director of the Company) and his spouse, Madam Liu Li. In addition, each of Mr. Li Jialin and Madam Liu Li was personally interested in 42,296,000 VST Shares and 165,000,000 VST Shares of the Company respectively.
(4) 62,950,000 shares of the Company were held by CKC Holdings Limited, the entire issued share capital of which is held by Infinity Fortune Limited, a company incorporated in the British Virgin Islands, as a trustee of Infinity Fortune Unit Trust. Infinity Fortune Unit Trust is an unit trust of which 1 unit is held by Madam Kwan How Yin, the spouse of Mr. Cheng Kam Chung, and 9,999 units are held by HSBC International Trustee Limited as trustee for the CKC Family Trust, a discretionary trust which objects include Madam Kwan How Yin and her children. In addition, Mr. Cheng was personally interested in 9,000,000 shares of the Company.

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors, there was no person who had an interest and/or a short position in the VST Shares or underlying VST Shares which is required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 Part XV of the SFO or, who was, directly or indirectly, interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

3. COMPETING INTEREST

None of the Directors and their respective associates have any interests in a business or are interested in any business which competes or may compete either directly or indirectly with, or is similar to, the business of the Group as at the date of this circular.

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GENERAL INFORMATION

No Director had any interest, direct or indirect, in any assets which had been, since the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to or proposed to be acquired or disposed of by or leased to any member of the Group.

There are no contracts or arrangements subsisting as at the Latest Practicable Date in which a Director is materially interested or which is significant in relation to the business of the Group.

4. LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance or is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries as at the Latest Practicable Date.

According to the interim results of ECS for the 6 months ended 30 June 2007, no litigation or arbitration, which may be of material importance, is pending or threatened by or against the ECS Group.

5. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2007, the date to which the latest published audited accounts of the Company were made up.

6. SERVICE CONTRACTS

None of the Directors has an unexpired service contract which is not terminable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.

7. MATERIAL CONTRACTS

Save as disclosed below, as of the Latest Practicable Date, the Company or its subsidiaries had not entered into any material contracts (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular:

the Agreement;
the Escrow Agreement;
a subscription agreement entered into between the Company and ABN AMRO Bank N.V. on 16 February 2006 in connection with the issue by the Company of bonds in an aggregate principal amount of HK$66,000,000 (“Bonds”);

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APPENDIX III

a paying and conversion agency agreement entered into between the Company and the Bank of New York dated 2 March 2006 in respect of the Bonds; and
a trust deed entered into between the Company and the Bank of New York dated 2 March 2006.

According to the interim results of ECS for the 6 months ended 30 June 2007, the ECS Group had not entered into any material contracts (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular.

8. RIGHT TO DEMAND A POLL

Pursuant to the Listing Rules, any vote taken at a meeting held to seek approval of a very substantial acquisition must be taken by poll. Accordingly, the resolutions to be proposed at the EGM in respect of the Agreement, the making of the Offer, and the Acquisition shall be decided on poll. Set out below is the procedure by which the Shareholders may demand a poll pursuant to the constitutional document of the Company.

Pursuant to Article 66 of the articles of association of the Company, at any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is required under the Listing Rules, or (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the chairman of such meeting; or
(b) by at least three members present in person or in the case a member being a corporation by its duly authorized representative or by proxy for the time being entitled to vote at the meeting; or
(c) by a member or members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or
(d) by a member or members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right; or
(e) if required by the rules of the designated stock exchange, by any director or directors who, individually or collectively, hold proxies in respect of shares representing 5% or more of the total voting rights at such meeting.

9. GENERAL

(a) The registered office of the Company is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Its principal place of business in Hong Kong is Unit 1901, 19 Floor, Shun Tak Centre, 168 Connaught Road Central, Hong Kong.

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GENERAL INFORMATION

APPENDIX III

(b) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Abacus Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.
(c) As at the date of this circular, the Board comprised Mr. Li Jialin (Chairman and executive Director), Mr. Willian Choo (executive Director), Mr. Ni Zhenwei (independent non-executive Director), Dr. Chan Po Fun Peter (independent nonexecutive Director), Madam Hui Hiu Fai (independent non-executive Director) and Mr. Li Wei (independent non-executive Director).
(d) The secretary of the Company is Mr. Lung Cheuk Wah. Mr. Lung is a member of The Institute of Chartered Secretaries and Administrators in the United Kingdom; a fellow member of The Hong Kong Institute of Company Secretaries and from which Mr. Lung was granted the first Practitioner’s Endorsement on 1 December 2006; and an associate member of the Taxation Institute of Hong Kong.
(e) The qualified accountant of the Company is Mr. Chow Yiu Tat, a member of the Hong Kong Institute of Certified Public Accountants.
(f) The English text of this circular shall prevail over the Chinese text.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the Company’s principal place of business in Hong Kong from the date of this circular up to and including 1 November 2007 and at the EGM:

(a) the memorandum and articles of association of the Company;
(b) the material contracts referred to in paragraph 7 headed “Material Contracts” in this Appendix;
(c) the annual reports of the Group for each of the financial years ended 31 March 2005, 31 March 2006 and 31 March 2007;
(d) the annual reports of the ECS Group for each of the financial years ended 31 December 2004, 31 December 2005 and 31 December 2006;
(e) the unaudited interim results of the ECS Group for the six months ended 30 June 2006 and 30 June 2007; and
(f) this circular.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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(Stock Code: 856)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of VST Holdings Limited (the “Company”) will be held at the Dynasty Club, 7th Floor, South West Tower, Convention Plaza, 1 Harbour Road, Hong Kong on 23 October 2007 at 10:30 a.m. for the purpose of considering and, if thought fit, passing (with or without amendments) the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

(1) “ THAT :
(a) the agreement (the “Agreement”) dated 7 August 2007 entered into between VST Holdings Limited (the “Company”) and Glorious Success Limited, ST Electronics (Info-Software Systems) Pte. Ltd., Sengin Sdn Bhd, V Investment Holdings Limited, Pacific City International Holdings Limited, Lin Chien, Liu Wei, Tay Eng Hoe, Narong Intanate, Foo Sen Chin and Foong Kam Tho (the “Vendors”) relating to the sale and purchase of an aggregate of 191,604,009 ordinary share with par value of S$0.10 each (“ECS Shares”) in the capital of ECS Holdings Limited (“ECS”), and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) the directors of the Company (the “Directors”) be and are hereby authorised to do all acts and execute all documents they consider necessary or expedient to give effect to the transactions contemplated under the Agreement.”
(2) “ THAT :
(a) upon the completion of the Agreement, the making of a mandatory unconditional cash offer by ABN AMRO Bank N.V., Singapore branch for and on behalf of the Company or its wholly-owned subsidiary to acquire all the ECS Shares (other than those already owned, controlled or agreed to be acquired by the Company and parties acting in concert with it) (the “Offer”), and the transactions contemplated thereunder be and are hereby approved; and
(b) the Directors be and are hereby authorised to do all acts and execute all documents they consider necessary or expedient to give effect to the transactions contemplated under the Offer.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

(3) “ THAT :
(a) the acquisition of all the ECS Shares from the Vendors pursuant to the Agreement and from shareholders of ECS other than the Vendors by way of making the Offer to such shareholders of ECS in accordance with the Singapore Code (the “Acquisition”), and the transactions contemplated thereunder be and are hereby approved; and
(b) the Directors be and are hereby authorised to do all acts and execute all documents they consider necessary or expedient to give effect to the transactions contemplated under the Acquisition.”

By Order of the Board VST Holdings Limited Lung Cheuk Wah Company Secretary

Hong Kong, 2 October 2007

Notes:

(1) Any member entitled to attend and vote at the EGM of the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the EGM. A proxy need not be a member. A proxy or proxies representing either a member who is an individual or a member which is a corporation shall be entitled to exercise the same powers on behalf of the member which he or they represent as such member could exercise.
(2) Where there are joint holders of any share any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding. Several executors or administrators of a deceased member in whose name any share stands shall be deemed joint holders thereof.
(3) A form of proxy for use at the EGM is enclosed herewith.
(4) The form of proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power of attorney must be lodged at the Company’s Hong Kong branch share registrar, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the EGM or adjourned meeting or not less than 24 hours before the time appointed for taking the poll (as the case may be) and in default the form of proxy shall not be treated as valid. Completion and return of the form of proxy shall not preclude members from attending and voting in person at the EGM or at any adjourned meeting (as the case may be) should they so wish.

* For identification only

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AI assistant

VSTECS Holdings Limited — Proxy Solicitation & Information Statement 2007

49515_rns_2007-10-01_705c0bdf-d340-4450-9452-b79ea7d8a3f4.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

PROPOSED VERY SUBSTANTIAL ACQUISITION AGREEMENT RELATING TO THE CONDITIONAL SALE AND PURCHASE OF SHARES IN ECS HOLDINGS LIMITED AND

by

VST HOLDINGS LIMITED or its wholly-owned subsidiary

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

2 October 2007

To the Shareholders

VERY SUBSTANTIAL ACQUISITION

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Parties

LETTER FROM THE BOARD

Date of the Agreement

Purchase of Sale Shares

Consideration

LETTER FROM THE BOARD

Deposit

Financing

LETTER FROM THE BOARD

Conditions Precedent

LETTER FROM THE BOARD

Completion

LETTER FROM THE BOARD

Other Material Terms

Undertaking by Certain Shareholders

THE OFFER

LETTER FROM THE BOARD

ECS Options

Consideration

LETTER FROM THE BOARD

Further Information and Waiver from Strict Compliance with the Listing Rules

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

INFORMATION ON THE ECS GROUP

LETTER FROM THE BOARD

COMPANY’S AND OFFEROR’S INTENTION IN RELATION TO THE ECS GROUP

REASONS FOR AND BENEFITS OF THE ACQUISITION

GENERAL

LETTER FROM THE BOARD

Notes

FINANCIAL AND TRADING PROSPECT OF THE GROUP

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION

(a) Net assets

(b) Earnings

(c) Liabilities

THE EGM

LETTER FROM THE BOARD

THE EXTRAORDINARY GENERAL MEETING

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

VST Holdings Limited Li Jialin

A. FINANCIAL SUMMARY

Consolidated Balance Sheet

APPENDIX I

Consolidated Profit and Loss Account

B. FINANCIAL INFORMATION OF THE GROUP

Consolidated Balance Sheet

Balance Sheet

Consolidated Profit and Loss Account

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Accounts

1 GENERAL INFORMATION

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation

(a) Effect of adopting new/revised HKFRS

2.2 Consolidation

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

VSTECS Holdings Limited Proxy Solicitation & Information Statement 2007