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2 CONTENTS Corporate Information Unaudited Consolidated Income Statement Unaudited Consolidated Statement of Comprehensive Income Unaudited Consolidated Statement of Changes in Equity Notes to Unaudited Interim Financial Report Independent Review Report 7 Unaudited Consolidated Balance Sheet 25 Management Discussion and Analysis 8 Unaudited Condensed Consolidated Cash Flow Statement 30 Other Information

3 CORPORATE INFORMATION 2 VST Holdings Limited Interim Report 2011 BOARD OF DIRECTORS Executive Directors Mr. Li Jialin (Chairman and Chief Executive Officer) Mr. Ong Wei Hiam, William Mr. Chan Hoi Chau Mr. Mao Xiangqian Non-executive Directors Mr. Tay Eng Hoe Ms. Liu Li (Appointed on 8 June 2011) Independent Non-executive Directors Dr. Chan Po Fun Peter Mr. Li Wei COMPANY SECRETARY Mr. Chow Yiu Tat QUALIFIED ACCOUNTANT Mr. Ong Wei Hiam, William AUDIT COMMITTEE Dr. Chan Po Fun Peter (Chairman) Mr. Li Wei REMUNERATION COMMITTEE Mr. Li Wei (Chairman) Dr. Chan Po Fun Peter AUDITORS KPMG Certified Public Accountants 8th Floor, Prince s Building 10 Chater Road Central, Hong Kong 10 8

4 3 PRINCIPAL BANKERS Standard Chartered Bank The Hongkong and Shanghai Banking Corporation Deutsche Bank AG, Hong Kong Branch The Royal Bank of Scotland United Overseas Bank KBC Bank N.V. Fubon Bank Hang Seng Bank Citic Bank International Bank of Tokyo-Mitsubishi UFJ Oversea-Chinese Banking Corporation Bank of Communications China Citic Bank China Merchants Bank Bank of China Shenzhen Development Bank China Construction Bank Industrial and Commercial Bank of China Bank of Hangzhou INVESTOR AND MEDIA RELATIONS CONSULTANT Strategic Financial Relations (China) Limited HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG Unit 3312, 33rd Floor China Merchants Tower Shun Tak Centre 200 Connaught Road Central Hong Kong REGISTERED OFFICE Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands

5 4 VST Holdings Limited Interim Report 2011 CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE Butterfield Fulcrum Group (Cayman) Limited Butterfield House 68 Fort Street P.O. Box 609 Grand Cayman KY Cayman Islands HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE Tricor Abacus Limited 26th Floor, Tesbury Centre 28 Queen s Road East Hong Kong Butterfield Fulcrum Group (Cayman) Limited Butterfield House 68 Fort Street P.O. Box 609 Grand Cayman KY Cayman Islands STOCK CODE WEBSITE

6 UNAUDITED CONSOLIDATED INCOME STATEMENT For the six months ended 30 June The board of directors (the Board ) of VST Holdings Limited (the Company ) is pleased to present the interim report (the Interim Report ) which contains unaudited condensed consolidated financial statements of the Company and its subsidiaries (collectively the Group ) and selected explanatory notes (collectively the Interim Financial Report ) for the six months ended 30 June 2011 as follows: The Interim Financial Report is unaudited, but has been reviewed by KPMG in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). KPMG s independent review report to the board of directors is included on page 23. The Interim Financial Report has also been reviewed by the Company s audit committee Unaudited Six months ended 30 June Note Turnover 2 15,154,698 12,291,511 Cost of sales (14,424,751) (11,750,178) Gross profit 729, ,333 Other gains, net 3 11,942 56,448 Selling and distribution expenses (271,754) (202,178) Administrative expenses (150,330) (116,839) Operating profit 4 319, ,764 Finance costs 5 (47,215) (27,292) Share of associates profits 17,375 11,915 Profit before taxation 289, ,387 Taxation 6 (65,557) (54,011) Profit for the period 224, ,376 Attributable to: Equity shareholders of the Company 210, ,095 Non-controlling interests 13,919 19,281 Profit for the period 224, ,376 Earnings per share (HK cents per share) 7 Basic cents cents Diluted cents cents Note: The Group s Malaysia subsidiary, ECS ICT Berhad ( ECSB ) was listed on the Main Market of Bursa Malaysia Securities on 15 April It ceased to be a subsidiary and became an associate of the Group and was deconsolidated from the consolidated financial statements upon its Initial Public Offering ( IPO ). The notes on pages 10 to 22 form part of this Interim Financial Report. ECS ICT BerhadECSB 10 22

7 UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 30 June VST Holdings Limited Interim Report 2011 Unaudited Six months ended 30 June Profit for the period 224, ,376 Other comprehensive income for the period, net of tax: Exchange difference 44,852 28,785 Total comprehensive income for the period 269, ,161 Attributable to: Equity shareholders of the Company 251, ,957 Non-controlling interests 18,177 23,204 Total comprehensive income for the period 269, ,161 The notes on pages 10 to 22 form part of this Interim Financial Report

8 UNAUDITED CONSOLIDATED BALANCE SHEET As at 30 June Unaudited As at 30 June 2011 Audited As at 31 December 2010 Note NON-CURRENT ASSETS Property, plant and equipment 8 121, ,895 Goodwill 339, ,370 Interest in associates 270, ,005 Deferred tax assets 42,038 42, , ,278 CURRENT ASSETS Trade and other receivables 9 4,941,837 4,164,365 Inventories 2,706,823 1,985,616 Cash and cash equivalents 608,459 1,015,251 8,257,119 7,165,232 TOTAL ASSETS 9,030,159 7,905,510 EQUITY Share capital , ,889 Reserves 2,262,792 2,007,971 2,388,624 2,133,860 Non-controlling interests 202, ,472 TOTAL EQUITY 2,590,854 2,326,332 NON-CURRENT LIABILITIES Deferred income 3,950 3,454 Borrowings , ,104 Deferred tax liabilities 31,434 24, , ,644 CURRENT LIABILITIES Trade and other payables 11 3,710,492 3,716,513 Borrowings 12 1,925,108 1,123,296 Taxation payable 42,254 61,725 5,677,854 4,901,534 TOTAL LIABILITIES 6,439,305 5,579,178 TOTAL EQUITY AND LIABILITIES 9,030,159 7,905,510 NET CURRENT ASSETS 2,579,265 2,263,698 TOTAL ASSETS LESS CURRENT LIABILITIES 3,352,305 3,003,976 The notes on pages 10 to 22 form part of this Interim Financial Report

9 UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 June VST Holdings Limited Interim Report 2011 Unaudited Six months ended 30 June Net cash used in operating activities (1,176,000) (188,463) Net cash used in investing activities (8,510) (50,481) Net cash generated from financing activities 812, ,161 Net (decrease)/increase in cash and cash equivalents (371,787) 39,217 Cash and cash equivalents at 1 January 1,015, ,840 Effect of foreign exchange rate changes (35,005) 31,535 Cash and cash equivalents at 30 June 608, ,592 Cash and cash equivalents represents cash at bank and in hand. The notes on pages 10 to 22 form part of this Interim Financial Report

10 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June Balance as at 1 January 2011 Share capital Share premium Capital redemption reserve Capital reserve General reserve Translation reserve Other reserve Retained earnings Equity attributable to the Company s equity shareholders Noncontrolling interests Total equity 125, ,512 2,643 3,894 26, ,193 (181,371) 1,234,083 2,133, ,472 2,326,332 Profit for the period 210, ,489 13, ,408 Other comprehensive income 40,594 40,594 4,258 44,852 Total comprehensive income for the period Dividends paid to non-controlling interests 40, , ,083 18, ,260 (8,419) (8,419) Equity-settled share base payment 4,678 4,678 4,678 Transfer of reserves 2,431 (2,431) Repurchase of own shares Par value paid (57) (57) (57) Premium paid (940) (940) (940) transfer between reserves 57 (57) Balance as at 30 June , ,512 2,700 8,572 28, ,787 (181,371) 1,441,144 2,388, ,230 2,590,854 Share capital Share premium Capital redemption reserve Capital reserve General reserve Translation reserve Other reserve Retained earnings Equity attributable to the Company s equity shareholders Noncontrolling interests Total equity Balance as at 1 January , ,512 2,643 3,808 16,700 31,741 (183,871) 873,120 1,642, ,647 1,897,189 Profit for the period 190, ,095 19, ,376 Other comprehensive income (75) 24,937 24,862 3,923 28,785 Total comprehensive income for the period (75) 24, , ,957 23, ,161 Partial disposal of a subsidiary to an associate (2,974) (2,974) (108,018) (110,992) Dividends paid to non-controlling interests (6,302) (6,302) Transfer of reserves 939 (939) Balance as at 30 June , ,512 2,643 3,733 17,639 53,704 (183,871) 1,062,276 1,854, ,531 2,018,056 The notes on pages 10 to 22 form part of this Interim Financial Report

11 10 NOTES TO UNAUDITED INTERIM FINANCIAL REPORT For the six months ended 30 June 2011 VST Holdings Limited Interim Report BASIS OF PRESENTATION AND ACCOUNTING POLICIES The Interim Financial Report has been prepared in accordance with Hong Kong Accounting Standard ( HKAS ) 34 Interim Financial Reporting issued by HKICPA and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Stock Exchange ). The Interim Financial Report should be read in conjunction with the consolidated financial statements for the year ended 31 December 2010 and was authorised for issuance on 25 August The Interim Financial Report has been prepared in accordance with the same accounting policies adopted in the consolidated financial statements for the year ended 31 December 2010 except for the adoption of the standards, amendments and interpretations issued by the HKICPA mandatory for annual periods beginning on 1 January Details of these changes in accounting policies are set out below The preparation of an interim financial report in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates. 34 The Interim Financial Report contains condensed consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the consolidated financial statements for the year ended 31 December The condensed consolidated interim financial statements and notes thereon do not include all of the information required for full set of financial statements prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ). The financial information relating to the financial year ended 31 December 2010 that is included in the Interim Financial Report as being previously reported information does not constitute the Company s statutory financial statements for that financial year but is derived from those financial statements. Statutory financial statements for the year ended 31 December 2010 are available from the Company s registered office. The auditors have expressed an unqualified opinion on these financial statements in their report dated 22 March 2011.

12 11 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued) The HKICPA has issued revised number of amendments to HKFRSs and one new Interpretation that are first effective for the current accounting period of the Group. Of these, the following developments are relevant to the Group: Improvements to HKFRSs (2010) HKAS 24 (revised 2009), Related party disclosures The Improvements to HKFRSs (2010) consists of amendments to existing standards, including an amendment to HKAS 34, which provides for further disclosures in the interim financial report. The adoption of Improvements to HKFRSs (2010) has had no financial impact on the Group s Interim Financial Report. 34 The other developments related primarily to clarification of certain disclosure requirements applicable to the Group s financial statements. The developments have had no material impact on the contents of this Interim Financial Report. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. The adoption of these new and revised amendments and Interpretation have had no material impact on the contents of the Interim Financial Report. 2. TURNOVER AND SEGMENT INFORMATION 2. Segment information has been prepared in a manner consistent with the information used by the Group s most senior executive management for the purposes of assessing segment performance and allocating resources between segments. The Group s most senior executive management has been identified as the Board. In this regard, the Group s senior executive management monitors the results attributable to each reportable segment on the following bases: Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments.

13 12 VST Holdings Limited Interim Report TURNOVER AND SEGMENT INFORMATION (Continued) The measure used for reporting segment profit is the segment results, including items specifically attributed to individual segments, such as directors and auditors remuneration and other administration costs within the segment. Information regarding the Group s reportable segments for the purposes of resource allocation and assessment of segment performance for the period is set out below. (a) Business segments The main business segments of the Group are as follows: 2. (a) Segments Distribution Enterprise systems IT services Principal Activities Distribution of IT products (desktop PCs, notebooks, tablets, handhelds, printers, CPUs, hard disks, memory devices, etc) for the commercial and consumer markets. Provider of enterprise systems tools (middleware, operating systems, Unix/NT servers, databases, storage and security products) for IT infrastructure. Unix NT IT infrastructure design and implementation, training, maintenance and support services. Segment results The segment results for the period ended 30 June 2011 are as follows: Distribution Enterprise Systems IT services Group Total segment revenue 12,039,451 3,032,561 82,686 15,154,698 Segment results 235,342 78,991 5, ,805 Finance costs (47,215) Share of associates profits 17,375 Profit before taxation 289,965 Taxation (65,557) Profit for the period 224,408

14 13 2. TURNOVER AND SEGMENT INFORMATION (Continued) (a) Business segments (Continued) Segment results (Continued) The segment results for the period ended 30 June 2010 are as follows: 2. (a) Distribution Enterprise Systems IT services Group Total segment revenue 9,284,641 2,943,453 63,417 12,291,511 Segment results 193,495 82,011 3, ,764 Finance costs (27,292) Share of an associates profits 11,915 Profit before taxation 263,387 Taxation (54,011) Profit for the period 209,376 (b) Geographical information (b) The Group s two business segments operate principally in North Asia and South East Asia. Unaudited Six months ended 30 June Revenue North Asia 11,241,609 8,401,352 South East Asia 3,913,089 3,890,159 Total segment revenue 15,154,698 12,291,511 Revenue is allocated based on the region in which the customer is located.

15 14 VST Holdings Limited Interim Report OTHER GAINS, NET Unaudited Six months ended 30 June Interest income 4,667 3,389 Loss on disposal of property, plant and equipment Gain on dilution and partial disposal of a subsidiary to an associate 3. (8) 52,075 Others 7, ,942 56, OPERATING PROFIT 4. Operating profit is derived after charging the following: Unaudited Six months ended 30 June Depreciation of property, plant and equipment Provision for and written off of trade receivables Provision for and written off of inventories 8,239 7,649 19,159 9,938 15,865 13, FINANCE COSTS 5. Finance costs for the two periods ended 30 June 2011 and 30 June 2010 relate to bank interest expenses.

16 15 6. TAXATION Hong Kong Profits Tax has been provided at the rate of 16.5% (2010: 16.5%) on the estimated assessable profits for the period. Overseas taxation has been calculated on the estimated assessable profits for the period at rates of taxation prevailing in countries in which the Group operates. The amount of taxation charged to the unaudited consolidated income statement represents: % 16.5% Unaudited Six months ended 30 June Current taxation: Hong Kong Profits Tax 12,962 14,622 Overseas taxation 42,591 33,758 Under-provision of Hong Kong Profits Tax in prior years Under-provision of overseas taxation in prior years ,785 3,504 Deferred taxation 7,860 2,097 65,557 54,011

17 16 VST Holdings Limited Interim Report EARNINGS PER SHARE Basic The calculation of basic earnings per share for the period is based on the profit attributable to equity shareholders of the Company of HK$210,489,000 (2010: HK$190,095,000) and the weighted average of 1,258,772,000 shares (2010: 1,258,889,000 shares) in issue during the period. Diluted The calculation of diluted earnings per share for the period is based on the profit attributable to equity shareholders of the Company of HK$210,489,000 (2010: HK$190,095,000) and the weighted average number of shares of 1,262,590,000 (2010: 1,262,710,000 shares), calculated as follows: ,489, ,095,000 1,258,772,000 1,258,889, ,489, ,095,000 1,262,590,000 1,262,710,000 Unaudited Six months ended 30 June Weighted average number of ordinary shares in issue (thousand) Adjustment for assumed conversion of share options (thousand) Weighted average number of ordinary shares for diluted earnings per share (thousand) () 1,258,772 1,258,889 3,818 3,821 1,262,590 1,262, PROPERTY, PLANT AND EQUIPMENT 8. During the period, the Group acquired and disposed of property, plant and equipment amounting to approximately HK$13,253,000 (31 December 2010: HK$21,056,000) and HK$96,000 (31 December 2010: HK$747,000) respectively. 13,253,000 21,056,00096, ,000

18 17 9. TRADE AND OTHER RECEIVABLES 9. Unaudited 30 June 2011 Audited 31 December 2010 Trade receivables, net 4,117,061 3,593,978 Other receivables and prepayments 824, ,387 4,941,837 4,164,365 The Group grants credit period to third party customers ranging from 7 to 90 days, which may be extended for selected customers depending on their trade volume and settlement history with the Group. The ageing analysis by invoice date of trade receivables (net of provision for impairment) is summarised as follows: 7 90 Unaudited 30 June 2011 Audited 31 December days ,350,389 2,109, days , , days , ,609 Over 90 days , ,880 4,117,061 3,593,978

19 18 VST Holdings Limited Interim Report SHARE CAPITAL Authorised (ordinary shares of HK$0.10 each) Unaudited 30 June Number of shares Audited 31 December 2010 Number of shares ,000,000, ,000 2,000,000, ,000 Issued and fully paid (ordinary shares of HK$0.10 each) ,258,318, ,832 1,258,888, ,889 Notes: (a) Share option scheme of the Company (a) The Company has a share option scheme which was adopted on 17 April 2002 whereby the Directors of the Company are authorised, at their discretion, to 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 of 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 is 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 options vest immediately at the date of grant and are then exercisable within a period of ten years. Each share option gives the holders the right to subscribe for one ordinary share in the Company. 10% (i) (ii) (iii)

20 SHARE CAPITAL (Continued) Notes: (Continued) (a) Share option scheme of the Company (Continued) During the period, 10,400,000 and 4,900,000 share options had been granted to employees and directors (both executive and non-executive) on 17 February 2011 and 23 March 2011 respectively. No options were exercised during the six months ended 30 June 2011 (2010: nil). 10. (a) 10,400,0004,900,000 (b) Purchase of own shares (b) During the interim period, the Company repurchased its own shares on the Stock Exchange as follows: Date Number of shares repurchased Highest price paid per share Lowest price paid per share Aggregate price paid 24 May ,000 HK$1.76 HK$ The repurchased shares were cancelled and accordingly the issued share capital of the Company was reduced by the nominal value of these shares. Pursuant to The Cayman Islands Companies Law, an amount equivalent to the par value of the shares cancelled of HK$57,000 was transferred from retained earnings to the capital redemption reserve. The premium paid on the repurchases of the shares of HK$940,000 was charged to retained earnings. 57, ,000

21 20 VST Holdings Limited Interim Report TRADE AND OTHER PAYABLES 11. Unaudited 30 June 2011 Audited 31 December 2010 Trade payables 3,324,372 3,354,143 Other payables and accruals 382, ,086 Deferred income 3,779 5,284 3,710,492 3,716,513 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: Unaudited 30 June 2011 Audited 31 December days ,155,979 3,307,467 Over 60 days ,393 46,676 3,324,372 3,354,143

22 BORROWINGS 12. Unaudited 30 June 2011 Audited 31 December 2010 Non-current Unsecured bank borrowings 691, ,502 Secured mortgage loan 33,196 34,978 Finance lease liabilities 1,614 1, , ,104 Current Unsecured bank borrowings 1,921, ,720 Secured bank borrowings 132,000 Secured mortgage loan 3,564 3,564 Finance lease liabilities 494 1,012 1,925,108 1,123,296 Total borrowings 2,651,175 1,773,400 At 30 June 2011, the Group s borrowings were repayable as follows: Unaudited 30 June 2011 Audited 31 December 2010 The maturity of the above loans: Within 1 year 1,925,108 1,123,296 Between 1 and 5 years 707, ,382 After 5 years 18,940 20,722 2,651,175 1,773,400

23 22 VST Holdings Limited Interim Report COMMITMENTS UNDER OPERATING LEASES As at 30 June 2011, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows: 13. Unaudited 30 June 2011 Audited 31 December 2010 Within 1 year 26,135 25,283 Between 1 and 5 years 35,616 29,284 61,751 54, RELATED PARTY TRANSACTIONS 14. The Group entered into a rental agreement with Joint Honour Development Limited, a company in which Mr. Li Jialin ( Mr. Li ), the Chairman and an executive Director of the Company, is a major shareholder, in respect of a director s quarter. Pursuant to the agreement, the Group paid a monthly rental of HK$200,000 (2010: HK$200,000) to Joint Honour Development Limited. 200, ,000 The Group also entered into an agreement with Kong Lung Ind Co., a company in which Mr. Li is a major shareholder. Pursuant to the agreement, the Group paid a monthly license fee of HK$14,000 in respect of the China-Hong Kong License with effect from 1 January 2011 (2010: nil). 14,000

24 INDEPENDENT REVIEW REPORT 23 REVIEW REPORT TO THE BOARD OF DIRECTORS OF VST HOLDINGS LIMITED (incorporated in the Cayman Islands with limited liability) INTRODUCTION We have reviewed the interim financial report set out on pages 5 to 22 which comprises the consolidated balance sheet of VST Holdings Limited as of 30 June 2011 and the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and condensed consolidated cash flow statement for the six-month period then ended and explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of an interim financial report to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34, Interim financial reporting issued by the Hong Kong Institute of Certified Public Accountants. The directors are responsible for the preparation and presentation of the interim financial report in accordance with Hong Kong Accounting Standard Our responsibility is to form a conclusion, based on our review, on the interim financial report and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. SCOPE OF REVIEW We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, Review of interim financial information performed by the independent auditor of the entity issued by the Hong Kong Institute of Certified Public Accountants. A review of the interim financial report consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 2410

25 INDEPENDENT REVIEW REPORT 24 VST Holdings Limited Interim Report 2011 CONCLUSION Based on our review, nothing has come to our attention that causes us to believe that the interim financial report as at 30 June 2011 is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34, Interim financial reporting. KPMG Certified Public Accountants 8th Floor, Prince s Building 10 Chater Road Central, Hong Kong 25 August

26 MANAGEMENT DISCUSSION AND ANALYSIS 25 BUSINESS AND FINANCIAL REVIEW The Group s unaudited consolidated turnover for the six months ended 30 June 2011 amounted to approximately HK$15,154,698,000 (2010: approximately HK$12,291,511,000), representing an increase of approximately 23.3%. The increase is mainly from the increased sales of hard disks, desktops, laptops and media tablets during the period. Excluding the results of our Malaysia subsidiary, ECS ICT Berhad, which was successfully listed on the Main Market of Bursa Malaysia Securities Berhad and ceased to be a subsidiary and became an associate of the Group on 15 April 2010 from our comparative numbers for the six months ended 30 June 2010, our turnover would have grown by approximately HK$3.6 billion, representing an increase of approximately 30.9%. 15,154,698,000 12,291,511, % ECS ICT Berhad 3,600,000, % Revenue from distribution business for the six months ended 30 June 2011 amounted to approximately HK$12,039,451,000 (2010: approximately HK$9,284,641,000). Revenue from enterprise systems for the six months ended 30 June 2011 amounted to approximately HK$3,032,561,000 (2010: approximately HK$2,943,453,000) and IT services businesses for the six months ended 30 June 2011 was approximately HK$82,686,000 (2010: approximately HK$63,417,000). Assuming revenue for the business segments for ECS ICT Berhad is excluded from our comparative numbers for the six months ended 30 June 2010, turnover for the distribution business and enterprise systems business for the six months ended 30 June 2011 would have increased by approximately HK$3,258,978,000 and HK$295,912,000 respectively, representing an increase of approximately 37.1% and 10.8% respectively. 12,039,451,000 9,284,641,000 3,032,561,000 2,943,453,000 82,686,000 63,417,000 ECS ICT Berhad 3,258,978, % 295,912, % Gross profit for the six months ended 30 June 2011 amounted to approximately HK$729,947,000 (2010: approximately HK$541,333,000). Gross margin for the six months ended 30 June 2011 is 4.82% as compared to 4.40% for the six months ended 30 June Operating profit for the six months ended 30 June 2011 amounted to approximately HK$319,805,000 (2010: approximately HK$278,764,000). Unaudited consolidated net profit attributable to 729,947, ,333, % 4.40% 319,805,000

27 26 VST Holdings Limited Interim Report 2011 equity shareholders for the six months ended 30 June 2011 amounted to approximately HK$210,489,000 (2010: approximately HK$190,095,000) representing an increase of approximately 10.7%. Excluding the deconsolidation of ECS ICT Berhad of approximately HK$52,075,000 from our comparative numbers for the six months ended 30 June 2010, net profit attributable to equity shareholders for the six months ended 30 June 2011 would have increased by approximately HK$67,679,000, representing an increase of approximately 47.4%. The basic earnings per share for the six months ended 30 June 2011 amounted to approximately HK16.72 cents (2010: approximately HK15.10 cents) per share, representing an increase of approximately 10.7%. The diluted earnings per share for the six months ended 30 June 2011 amounted to approximately HK16.67 cents (2010: approximately HK15.05 cents) per share, representing an increase of approximately 10.8%. 278,764, ,489, ,095, % ECS ICT Berhad52,075,000 67,679, % % % The Group has shown strong growth during the six months ended 30 June This is mainly contributed by growth in the distribution segment because of the strong demands for hard disks, desktops, notebooks and media tablets. Enterprise System segment has shown steady growth. Geographically, China market has shown growth with an increase of approximately 33.8% in terms of turnover compared with the six months ended 30 June Assuming revenue for ECS ICT Berhad is excluded in our comparative numbers for the six months ended 30 June 2010, South East Asia markets would have shown a growth of approximately 23.4%. 33.8% ECS ICT Berhad 23.4% The Group has continuously aimed to widen our product range in order to provide more choices to our customers. Our extensive and diversified products lines now include vendors such as HP, Seagate, AMD, Apple, Microsoft, Western Digital, Oracle, Cisco, Hitachi, Lenovo, IBM, Samsung, Intel, Dell, Asus and Acer to name a few. AMD IBM

28 27 PROSPECTS Many international technology vendors continue to be upbeat about demand spurred by emerging Asian economies including those in China and South East Asia where the Group already has well established operating presence. According to industry forecasts, the bulk of this demand is expected to be driven by consumer electronics particularly mobile devices like tablets. In line with the growth trends in mobile devices, the Group has broadened its product portfolio to grow the media tablet business. Having already secured distributorships for Apple s ipad 2 and iphone, Samsung s Galaxy and Dell Streak, the Group is also working with other vendors in a bid to established itself as a leading player in the mobile devices segment. ipad 2 iphone Galaxy Streak The hard disks market is going through a period of consolidation. The Group has seen significant growth in this area because of our long term partnership with Seagate and Western Digital. Many of these distributorships are on a regional level. In turn, this has strengthen the Group s economies of scale especially in China and South East Asia. Equally important, in the second half of this year, the Group will commence further growth in the Enterprise System segment by focusing on more Oracle s hardware and software integrated solution where the Group is the regional Value Added Distributor in China and South East Asia. In addition, with new Enterprise networking regional agreement, the Group can further enhance its growing Enterprise System segment, Networking and Storage. At the same time, the Group remains cautious about global signs related to the Eurozone debt crisis and US slowdown and intends to manage future growth strategies accordingly. Barring any further severe deterioration in the world economy, the Directors expect the Group to perform well for the rest of FY2011.

29 28 VST Holdings Limited Interim Report 2011 LIQUIDITY AND FINANCIAL RESOURCES As at 30 June 2011, the Group had total bank and cash balances and time deposits of approximately HK$608,459,000 (31 December 2010: approximately HK$1,015,251,000). Total borrowings amounted to approximately HK$2,651,175,000 (31 December 2010: approximately HK$1,773,400,000). As at 30 June 2011, the net gearing ratio, calculated as total borrowings less cash and cash equivalents divided by total equity, was 0.79 (31 December 2010: 0.33). As at 30 June 2011, the Group has total current assets of approximately HK$8,257,119,000 (31 December 2010: approximately HK$7,165,232,000) and total current liabilities of approximately HK$5,677,854,000 (31 December 2010: approximately HK$4,901,534,000). The current ratio of the Group, calculated as the total current assets divided by the total current liabilities, was approximately 1.45 times (31 December 2010: approximately 1.46 times). 608,459,000 1,015,251,000 2,651,175,000 1,773,400, ,257,119,000 7,165,232,000 5,677,854,000 4,901,534, FOREIGN EXCHANGE RISK MANAGEMENT The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States Dollar, Chinese Renminbi, Singapore Dollar, Thai Baht and Malaysian Ringgit. The Group will enter into foreign currency forward contracts to manage and reduce the risk involved in the net position in each foreign currency, if necessary.

30 29 EMPLOYEES As at 30 June 2011, the Group had 2,484 (2010: 2,153) full time employees. The remuneration paid for the six months ended 30 June 2011 amounted to approximately HK$217,223,000 (2010: HK$179,164,000). The Group remunerated its employees mainly based on industrial practice, individual s performance and experience. Apart from the basic remuneration, discretionary bonus may be granted to eligible employees with reference to the Group s performance as well as the individual performance. Other benefits included medical and retirement schemes. In addition, share option may also be granted from time to time in accordance with the term of the Company s approved share option scheme. During the period, 10,400,000 and 4,900,000 share options had been granted to employees and directors (both executive and non-executive) on 17 February 2011 and 23 March 2011 respectively. 2,4842, ,223, ,164,000 10,400,0004,900,000 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 December 2010.

31 OTHER INFORMATION 30 VST Holdings Limited Interim Report 2011 DIRECTORS AND CHIEF EXECUTIVE S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As of 30 June 2011, the interests and short positions of the directors (the Directors ) and the chief executive of the Company in shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)) (the SFO ) which would have to be notified to the Company and The Stock Exchange of Hong Kong Limited (the Stock Exchange ) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest and/or short positions of which they were taken or deemed to have under such provisions of the SFO) and/or required to be entered in the register maintained by the Company pursuant to Section 352 of the SFO or which would have to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in The Rules Govering the Listing of Securities on the Stock Exchange ( the Listing Rules ) were as follows: 571XV XV (a) Interests in shares and underlying shares of the Company (a) Number of ordinary shares or Name of Director Long/Short Position Capacity underlying shares held Approximate percentage of issued share capital of the Company Mr. Li Jialin Long Beneficial owner 55,146, % Long Beneficial owner 1,500,000 Share options 0.12% Long Interest of a controlled corporation 241,500,000 (Note 1) % Long Family interest 166,000,000 (Note 2) % Mr. Ong Wei Hiam, William Long Beneficial owner 208, % Long Beneficial owner 1,200,000 Share options 0.10%

32 31 Number of ordinary shares or Name of Director Long/Short Position Capacity underlying shares held Ms. Liu Li Long Long Long Beneficial owner Interest of a controlled corporation Family interest Approximate percentage of issued share capital of the Company 166,000, % 241,500,000 (Note 1) 1 55,146,000 (Note 3) % 4.38% Long Family interest 1,500,000 Share options (Note 4) % Mr. Chan Hoi Chau Long Beneficial owner 1,200,000 Share options 0.10% Mr. Mao Xiangqian Long Beneficial owner 200,000 Share options 0.02% Mr. Tay Eng Hoe Long Beneficial owner 5,200,000 Share options 0.41% Dr. Chan Po Fun Peter Long Beneficial owner 640, % Long Beneficial owner 200,000 Share options 0.02% Mr. Li Wei Long Beneficial owner 200,000 Share options 0.02% Mr. Ni Zhenwei (Note 5) 5 Long Beneficial owner 200,000 Share options 0.02%

33 32 VST Holdings Limited Interim Report 2011 Notes: ,500,000 shares of the Company are held by L & L Limited, the entire issued share capital of which is equally held by Mr. Li Jialin and his spouse, Ms. Liu Li ,000,000 shares of the Company are held by Ms. Liu Li, the spouse of Mr. Li Jialin ,146,000 shares of the Company are held by Mr. Li Jialin, the spouse of Ms. Liu Li. 4. 1,500,000 share options of the Company are held by Mr. Li Jialin, the spouse of Ms. Liu Li ,500,000L & L Limited ,000, ,146, ,500, Mr. Ni Zhenwei deceased on 25 July (b)(i) Interests in shares and underlying shares of associated corporation ECS Holdings Limited ( ECS ) (b)(i) Name of Director Long/Short Position Capacity Number of ordinary shares or underlying shares held Mr. Ong Wei Hiam, William Long Beneficial owner 300,000 Share Options Approximate percentage of issued share capital of ECS 0.08% Mr. Mao Xiangqian Long Beneficial owner 900,000 Share Options 0.25% Mr. Tay Eng Hoe Long Beneficial owner 700,000 Share Options 0.19%

34 33 (b)(ii) Interests in shares and underlying shares of associated corporation ECS ICT Berhad ( ECS ICT ) Name of Director Long/Short Position Capacity (b)(ii) ECS ICT BerhadECS ICT Number of ordinary shares or underlying shares held Approximate percentage of issued share capital of ECS ICT ECS ICT Mr. Tay Eng Hoe Long Beneficial owner 150, % Save as disclosed above, as of 30 June 2011, none of the Directors nor the chief executive of the Company had any interests or short positions in any shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which would have 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/or short positions of 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 Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules, to be notified to the Company and the Stock Exchange. XV XV

35 34 VST Holdings Limited Interim Report 2011 SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 30 June 2011, so far is known to the Directors, the following persons had an interest and/or a short position in the shares and/or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO and/or required to be entered in the register maintained by the Company pursuant to Section 336 of the SFO and/or were directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other members of the Group: XV % Name of shareholder Long/Short Position Capacity Number of ordinary shares or underlying shares held Approximate percentage of shareholding Mr. Li Jialin Long Beneficial owner 55,146, % Long Beneficial owner 1,500,000 Share options 0.12% Long Interest of a controlled corporation 241,500,000 (Note 1) % Long Family interest 166,000,000 (Note 2) %

36 35 Name of shareholder Long/Short Position Capacity Number of ordinary shares or underlying shares held Approximate percentage of shareholding Ms. Liu Li Long Beneficial owner 166,000, % Long Interest of a controlled 241,500,000 corporation (Note 1) 1 Long Family interest 55,146,000 (Note 3) % 4.38% Long Family interest 1,500,000 share options (Note 4) 4 L & L Limited Long Beneficial owner 241,500,000 (Note 5) 5 Eternal Asia (HK) Limited Long Beneficial owner 159,159,999 (Note 6) 6 Short Beneficial owner 150,000,000 (Note 6) % 19.19% 12.65% 11.92% Long Interest of a controlled corporation 159,159,999 (Note 7) 7 Short Interest of a controlled 150,000,000 corporation (Note 7) 7 Long Interest of a controlled 159,159,999 corporation (Note 8) 8 Short Interest of a controlled 150,000,000 corporation (Note 8) % 11.92% 12.65% 11.92% Zhou Guohui Long Interest of a controlled corporation 159,159,999 (Note 8) 8 Short Interest of a controlled 150,000,000 corporation (Note 8) % 11.92%

37 36 VST Holdings Limited Interim Report 2011 Name of shareholder Long/Short Position Capacity Number of ordinary shares or underlying shares held Potent Growth Limited Long Beneficial owner 174,100,000 (Note 9) 9 Zhang Qing Yuan Long Interest of a controlled corporation 174,100,000 (Note 9) 9 Approximate percentage of shareholding 13.84% 13.84% Fidelity Long Investment manager 88,366, % Notes: ,500,000 shares of the Company are held by L & L Limited, the entire issued share capital of which is equally held by Mr. Li Jialin and his spouse, Ms. Liu Li ,500,000 L & L Limited ,000,000 shares of the Company are held by Ms. Liu Li, the spouse of Mr. Li Jialin ,000, ,146,000 shares of the Company are held by Mr. Li Jialin, the spouse of Ms. Liu Li ,146, ,500,000 share options of the Company are held by Mr. Li Jialin, the spouse of Ms. Liu Li. 4. 1,500, The entire issued share capital of L & L Limited is equally held by Mr. Li Jialin and his spouse, Ms. Liu Li. 5. L & L Limited 6. The entire issued share capital of Eternal Asia (HK) Limited is held by. 6. Eternal Asia (HK) Limited % and 49.52% of the shares of are held by and respectively. 49.1% of the shares of are held by % 49.52% 49.1% % of the shares of are held by Mr. Zhou Guohui % 9. The entire issued capital of Potent Growth Limited is owned by Mr. Zhang Qing Yuan. 9. Potent Growth Limited

38 37 Save as disclosed above, as at 30 June 2011, so far is known to the Directors, there was no person had an interest and/or a short position in the shares and/or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO and/or required to be entered in the register maintained by the Company pursuant to Section 336 of the SFO and/or were directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other members of the Group, or any options in respect of such capital. XV % SHARE OPTIONS (a) Share option scheme of the Company (a) The Company adopted a share option scheme (the Scheme ) on 17 April 2002 for the purpose of providing incentives and rewards to eligible participants for their contribution to the Group. During the period under review, 15,300,000 share options have been granted and no share options have been exercised/lapsed/ cancelled. Details of the share options granted under the Scheme are as follows: 15,300,000 Name or category of participant Date of offer As at 1 January 2011 Granted during the period As at 30 June 2011 Exercise price per share (HK$) Exercise period Director Mr. Li Jialin 23 March ,500,000 1,500, March March 2021

39 38 VST Holdings Limited Interim Report 2011 Name or category of participant Mr. Ong Wei Hiam, William Date of offer As at 1 January 2011 Granted during the period As at 30 June 2011 Exercise price per share (HK$) Exercise period 23 March ,200,000 1,200, March March 2021 Mr. Chan Hoi Chau 23 March ,200,000 1,200, March March 2021 Mr. Mao Xiangqian 23 March , , March March 2021 Mr. Tay Eng Hoe 20 February ,000,000 5,000, February February 2019 Dr. Chan Po Fun Peter 23 March , , March March March , , March March 2021 Mr. Li Wei 23 March , , March March 2021

40 39 Name or category of participant Date of offer As at 1 January 2011 Granted during the period As at 30 June 2011 Exercise price per share (HK$) Exercise period Mr. Ni Zhenwei 23 March , , March March 2021 Sub-total: 5,000,000 4,900,000 9,900,000 Employees 17 February ,400,000 10,400, February February 2021 Total: 5,000,000 15,300,000 20,300,000 (b) Share option scheme of a subsidiary ECS Holdings Limited ( ECS ) The Company s subsidiary, ECS, adopted a share option scheme, the ECS Share Option Scheme II (the Scheme II ) on 13 December 2000 whereby the directors of ECS are authorized, at their discretion, to invite ECS s employees and directors, including non-executive directors of ECS and its subsidiaries to take up options to subscribe for shares of ECS. (b) II II

41 40 VST Holdings Limited Interim Report 2011 During the period under review, no share options have been exercised/cancelled. The movement of the share options under the Scheme II are as follows: Name or category of participant Date of offer As at Granted Lapsed 1 January during the during the 2011 period period II As at Exercise 30 June price per 2011 share (S$) Exercise period Director Mr. Tay Eng Hoe 15 October , , years from date of grant 5 Mr. Mao Xiangqian 15 October , , years from date of grant 10 Mr. Ong Wei Hiam, William 15 October , , years from date of grant 5 Sub-total: 1,900,000 1,900,000 Employees 15 October ,870, ,000 11,540, to 10 years from date of grant 5 10 Total: 13,770, ,000 13,440,000

42 41 (c) Share option of a subsidiary ECS Indo Pte Ltd ( ECS Indo ) On 16 October 2009, the Company s subsidiary, ECS Indo granted 120,000 share options to four senior employees of a subsidiary of ECS Indo. Name or category of participant Date of offer As at 1 January 2011 Granted during the period (c) As at 30 June 2011 ECS Indo Pte LtdECS Indo ECS Indo ECS Indo 120,000 Exercise price per share (US$) Exercise period Employees 16 October , , October October 2012 DIRECTORS RIGHTS TO ACQUIRE SHARES IN THE COMPANY Save as disclosed above, at no time during the period under review was the Company or any of the companies comprising the group, a party to any arrangements to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in, or debenture of, the Company or any other body corporate and none of the Directors, their spouses or their children under the age of 18, had any right to subscribe for the securities of the Company, or had exercised any such right during the period under review. CORPORATE GOVERNANCE Throughout the six months ended 30 June 2011, the Company has complied with the code provisions on Corporate Governance Practices (the Code ) as set out in Appendix 14 of the Listing Rules which came into effect on 1 January 2005, except for code provision A.2.1 as explained below. A.2.1 Under the code provision A.2.1, the roles of chairman and chief executive officer ( CEO ) should be separated and should not be performed by the same individual. The division of responsibilities between the chairman and CEO should be clearly established and set out in writing. Mr. Li Jialin, one of the founders of the Group, currently A.2.1