Contents 02 Corporate Information 05 Unaudited Consolidated Income Statement 06 Unaudited Consolidated Statement of Comprehensive Income 07 Unaudited Consolidated Balance Sheet 08 Unaudited Condensed Consolidated Cash Flow Statement 09 Unaudited Consolidated Statement of Changes in Equity 10 Notes to Unaudited Interim Financial Report 22 Independent Review Report 24 Management Discussion and Analysis 27 Other Information
Corporate Information 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 Independent Non-executive Directors Dr. Chan Po Fun Peter Mr. Li Wei Mr. Ng Yat Cheung Company Secretary Ms. Yue Cheuk Ying Qualified Accountant Mr. Ong Wei Hiam, William Audit Committee Dr. Chan Po Fun Peter (Chairman) Mr. Li Wei Mr. Ng Yat Cheung Remuneration Committee Mr. Li Wei (Chairman) Dr. Chan Po Fun Peter Mr. Ng Yat Cheung Nomination Committee Mr. Li Jialin (Chairman) Dr. Chan Po Fun Peter Mr. Li Wei Mr. Ng Yat Cheung 2 VST HOLDINGS LIMITED Interim Report 2012
Corporate Information (continued) Auditors KPMG Certified Public Accountants 8th Floor, Prince s Building 10 Chater Road Central, Hong Kong 10 8 Principal Bankers Australia and New Zealand Banking Group Bank of China Bank of Communications Bank of Hangzhou Bank of Tokyo-Mitsubishi UFJ China Bohai Bank China Citic Bank China Construction Bank China Merchants Bank Chinatrust Commercial Bank Citibank, N.A., Hong Kong Branch Citic Bank International DBS Bank Deutsche Bank AG, Hong Kong Branch Fubon Bank Hang Seng Bank Industrial and Commercial Bank of China KBC Bank N.V. Oversea-Chinese Banking Corporation Shenzhen Development Bank Standard Chartered Bank Sumitomo Mitsui Banking Corporation The Hongkong and Shanghai Banking Corporation The Royal Bank of Scotland United Overseas Bank (The above are shown according to alphabetical order) Investor and Media Relations Consultant Aries Consulting Limited Aries Consulting Limited 3
Corporate Information (continued) 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 200 33 3312 Registered Office Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands Cayman Islands Principal Share Registrar and Transfer Office Butterfield Fulcrum Group (Cayman) Limited Butterfield House 68 Fort Street P.O. Box 609 Grand Cayman KY1-1107 Cayman Islands Butterfield Fulcrum Group (Cayman) Limited Butterfield House 68 Fort Street P.O. Box 609 Grand Cayman KY1-1107 Cayman Islands Hong Kong Branch Share Registrar and Transfer Office Tricor Abacus Limited 26th Floor, Tesbury Centre 28 Queen s Road East Hong Kong 28 26 Stock Code 856 856 Website http://www.vst.com.hk http://www.vst.com.hk 4 VST HOLDINGS LIMITED Interim Report 2012
Unaudited Consolidated Income Statement For the six months ended 30 June 2012 5 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 2012 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 22. The Interim Financial Report has also been reviewed by the Company s audit committee. 2410 22 Unaudited Six months ended 30 June 2012 2011 Note Turnover 2 17,888,489 15,154,698 Cost of sales (17,183,298) (14,424,751) Gross profit 705,191 729,947 Other gains, net 3 12,789 11,942 Selling and distribution expenses (260,456) (271,754) Administrative expenses (143,771) (150,330) Operating profit 4 313,753 319,805 Finance costs 5 (34,184) (47,215) Share of associates profits 16,910 17,375 Profit before taxation 296,479 289,965 Taxation 6 (55,058) (65,557) Profit for the period 241,421 224,408 Attributable to: Equity shareholders of the Company 231,216 210,489 Non-controlling interests 10,205 13,919 Profit for the period 241,421 224,408 Earnings per share (HK cents per share) 7 Basic 18.65 cents 16.72 cents Diluted 18.60 cents 16.67 cents The notes on pages 10 to 21 form part of this Interim Financial Report. 10 21 5
Unaudited Consolidated Statement Of Comprehensive Income For the six months ended 30 June 2012 6 Interim Report 2012 Unaudited Six months ended 30 June 2012 2011 Profit for the period 241,421 224,408 Other comprehensive income for the period, net of tax: Exchange difference 2,013 44,852 Total comprehensive income for the period 243,434 269,260 Attributable to: Equity shareholders of the Company 233,053 251,083 Non-controlling interests 10,381 18,177 Total comprehensive income for the period 243,434 269,260 The notes on pages 10 to 21 form part of this Interim Financial Report. 6 VST HOLDINGS LIMITED Interim Report 2012 10 21
Unaudited Consolidated Balance Sheet As at 30 June 2012 Unaudited Audited As at As at 30 June 31 December 2012 2011 Note NON-CURRENT ASSETS Property, plant and equipment 8 125,188 127,351 Goodwill 332,046 327,689 Interest in associates 285,539 277,047 Deferred expenses 27,409 19,854 Deferred tax assets 49,412 49,622 819,594 801,563 CURRENT ASSETS Trade and other receivables 9 5,576,943 4,043,098 Inventories 2,575,071 2,127,320 Cash and cash equivalents 701,633 1,573,134 8,853,647 7,743,552 TOTAL ASSETS 9,673,241 8,545,115 EQUITY Share capital 10 124,004 124,066 Reserves 2,600,940 2,463,461 2,724,944 2,587,527 NON-CONTROLLING INTERESTS 217,676 209,702 TOTAL EQUITY 2,942,620 2,797,229 NON-CURRENT LIABILITIES Deferred income 32,279 23,549 Borrowings 12 674,522 697,427 Deferred tax liabilities 29,480 27,003 736,281 747,979 CURRENT LIABILITIES Trade and other payables 11 3,866,912 3,731,628 Borrowings 12 2,019,809 1,173,547 Taxation payable 107,619 94,732 5,994,340 4,999,907 TOTAL LIABILITIES 6,730,621 5,747,886 TOTAL EQUITY AND LIABILITIES 9,673,241 8,545,115 NET CURRENT ASSETS 2,859,307 2,743,645 TOTAL ASSETS LESS CURRENT LIABILITIES 3,678,901 3,545,208 The notes on pages 10 to 21 form part of this Interim Financial Report. 10 21 7
Unaudited Condensed Consolidated Cash Flow Statement For the six months ended 30 June 2012 Unaudited Six months ended 30 June 2012 2011 Net cash used in operating activities (1,561,698) (1,176,000) Net cash generated from/(used in) investing activities 7,410 (8,510) Net cash generated from financing activities 686,448 812,723 Net decrease in cash and cash equivalents (867,840) (371,787) Cash and cash equivalents at 1 January 1,573,134 1,015,251 Effect of foreign exchange rate changes (3,661) (35,005) Cash and cash equivalents at 30 June 701,633 608,459 Cash and cash equivalents represents short-term bank deposits, cash at bank and in hand. The notes on pages 10 to 21 form part of this Interim Financial Report. 8 VST HOLDINGS LIMITED Interim Report 2012 10 21
Unaudited Consolidated Statement of Changes in Equity For the six months ended 30 June 2012 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 2012 124,066 772,512 4,466 12,814 36,282 151,179 (181,371) 1,667,579 2,587,527 209,702 2,797,229 Profit for the period 231,216 231,216 10,205 241,421 Other comprehensive income 1,837 1,837 176 2,013 Total comprehensive income for the period 1,837 231,216 233,053 10,381 243,434 Dividends paid to non-controlling interests (5,170) (5,170) Equity-settled share base payment 5,114 5,114 5,114 Transfer of reserves 1,509 (1,509) Dividend paid (99,203) (99,203) (99,203) Changes in non-controlling interests arising from decrease of the Group s shareholding in subsidiary 68 (984) (916) 2,806 1,890 Acquisition of an additional interest in a subsidiary from non-controlling interests (43) (43) Repurchase of own shares par value paid (62) (62) (62) premium paid (569) (569) (569) transfer between reserves 62 (62) Balance as at 30 June 2012 124,004 772,512 4,528 17,928 37,791 153,084 (182,355) 1,797,452 2,724,944 217,676 2,942,620 Share capital Share premium Capital redemption reserve Capital reserve General reserve Translation reserve Retained earnings Equity attributable to the Company s equity shareholders Noncontrolling interests Other reserve Balance as at 1 January 2011 125,889 772,512 2,643 3,894 26,017 150,193 (181,371) 1,234,083 2,133,860 192,472 2,326,332 Profit for the period 210,489 210,489 13,919 224,408 Other comprehensive income 40,594 40,594 4,258 44,852 Total comprehensive income for the period 40,594 210,489 251,083 18,177 269,260 Dividends paid to non-controlling interests (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 2011 125,832 772,512 2,700 8,572 28,448 190,787 (181,371) 1,441,144 2,388,624 202,230 2,590,854 Total equity The notes on pages 10 to 21 form part of this Interim Financial Report. 10 21 9
Notes to Unaudited Interim Financial Report 1. 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 the 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 2011 and was authorised for issuance on 22 August 2012. 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 2011 except for the adoption of the standards, amendments and interpretations issued by the HKICPA mandatory for annual periods beginning on 1 January 2012. The HKICPA has issued a few amendments to Hong Kong Financial Reporting Standards ( HKFRSs ) that are first effective for the current accounting period of the Group. None of the developments are relevant to the Interim Financial Report and the Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. The preparation of an interim financial report in conformity with HKAS 34 requires management to make judgments, 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. 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 2011. The condensed consolidated financial statements and notes thereon do not include all of the information required for full set of financial statements prepared in accordance with HKFRSs. The financial information relating to the financial year ended 31 December 2011 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 2011 are available from the Company s registered office. The auditor has expressed an unqualified opinion on these financial statements in their report dated 22 March 2012. 1. 34 34 10 VST HOLDINGS LIMITED Interim Report 2012
Notes to Unaudited Interim Financial Report (continued) 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. 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: (a) Segments Principal Activities Distribution Distribution of IT products (desktop PCs, notebooks, tablets, handhelds, printers, CPUs, hard disks, memory devices, etc) for the commercial and consumer markets. Enterprise systems Provider of enterprise systems tools (middleware, operating systems, Unix/NT servers, databases, storage and security products) for IT infrastructure. Unix NT IT services IT infrastructure design and implementation, training, maintenance and support services. 11
Notes to Unaudited Interim Financial Report (continued) 2. Turnover and Segment information (continued) 2. (a) Business segments (continued) Segment results The segment results for the period ended 30 June 2012 are as follows: (a) Distribution Enterprise Systems IT services Group Total segment revenue 14,959,776 2,828,373 100,340 17,888,489 Segment results 257,474 52,006 4,273 313,753 Finance costs (34,184) Share of associates profits 16,910 Profit before taxation 296,479 Taxation (55,058) Profit for the period 241,421 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 5,472 319,805 Finance costs (47,215) Share of associates profits 17,375 Profit before taxation 289,965 Taxation (65,557) Profit for the period 224,408 12 VST HOLDINGS LIMITED Interim Report 2012
Notes to Unaudited Interim Financial Report (continued) 2. Turnover and Segment information (continued) 2. (b) Geographical information The Group s two business segments operate principally in North Asia and South East Asia. (b) Unaudited Six months ended 30 June 2012 2011 Revenue North Asia 13,772,589 11,241,609 South East Asia 4,115,900 3,913,089 Total segment revenue 17,888,489 15,154,698 Revenue is allocated based on the region in which the customer is located. 3. Other gains, net 3. Unaudited Six months ended 30 June 2012 2011 Interest income 5,329 4,667 Loss on disposal of property, plant and equipment (86) (8) Others 7,546 7,283 12,789 11,942 13
Notes to Unaudited Interim Financial Report (continued) 4. Operating profit 4. Operating profit is derived after charging/(crediting) the following: Unaudited Six months ended 30 June 2012 2011 Depreciation of property, plant and equipment 9,503 8,239 Provision for and written off of trade receivables 11,988 19,159 Provision for and written off of inventories 399 15,865 Write-back of obsolete inventories (4,372) 5. Finance costs 5. Finance costs for the two periods ended 30 June 2012 and 30 June 2011 relate to bank interest expenses. 6. Taxation 6. Hong Kong Profits Tax has been provided at the rate of 16.5% (2011: 16.5%) on the estimated assessable profits for the period. 16.5%16.5% 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. 14 VST HOLDINGS LIMITED Interim Report 2012
Notes to Unaudited Interim Financial Report (continued) 6. Taxation (continued) 6. The amount of taxation charged to the unaudited consolidated income statement represents: Unaudited Six months ended 30 June 2012 2011 Current taxation: Hong Kong Profits Tax 32,953 12,962 Overseas taxation 21,786 42,591 Under-provision of Hong Kong Profits Tax in prior years 359 (Over)/under-provision of overseas taxation in prior years (2,092) 1,785 Deferred taxation 2,411 7,860 55,058 65,557 7. 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$231,216,000 (2011: HK$210,489,000) and the weighted average of 1,240,070,000 shares (2011: 1,258,772,000 shares) in issue during the period. 7. 231,216,000 210,489,000 1,240,070,000 1,258,772,000 15
Notes to Unaudited Interim Financial Report (continued) 7. Earnings per share (continued) 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$231,216,000 (2011: HK$210,489,000) and the weighted average number of shares of 1,243,298,000 shares (2011: 1,262,590,000 shares), calculated as follows: 7. 231,216,000 210,489,000 1,243,298,000 1,262,590,000 Unaudited Six months ended 30 June 2012 2011 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) () 1,240,070 1,258,772 3,228 3,818 1,243,298 1,262,590 8. Property, plant and equipment 8. During the period, the Group acquired and disposed of property, plant and equipment amounting to approximately HK$7,859,000 (31 December 2011: HK$31,042,000) and HK$422,000 (31 December 2011: HK$1,705,000) respectively. 7,859,000 31,042,000422,200 1,705,000 16 VST HOLDINGS LIMITED Interim Report 2012
Notes to Unaudited Interim Financial Report (continued) 9. Trade and other receivables 9. Unaudited 30 June 2012 Audited 31 December 2011 Trade receivables, net 4,722,998 3,429,086 Other receivables and prepayments 841,864 599,104 Deferred expenses 39,490 34,762 5,604,352 4,062,952 Less: Non-current deferred expenses (27,409) (19,854) 5,576,943 4,043,098 The Group grants credit period to third party customers ranging from 7 to 150 days, which may be extended for selected customers depending on their trade volume and settlement history with the Group. The ageing analysis of net trade receivables by invoice date is as follows: 7 150 Unaudited 30 June 2012 Audited 31 December 2011 0 30 days 0 30 2,910,444 2,220,954 31 60 days 31 60 1,042,695 601,529 61 90 days 61 90 307,001 226,079 Over 90 days 90 462,858 380,524 4,722,998 3,429,086 17
Notes to Unaudited Interim Financial Report (continued) 10. Share capital 10. Unaudited 30 June 2012 Audited 31 December 2011 Number of Number of shares shares Authorised (ordinary shares of HK$0.10 each) Issued and fully paid (ordinary shares of HK$0.10 each) 0.10 2,000,000,000 200,000 2,000,000,000 200,000 0.10 1,240,036,665 124,004 1,240,656,665 124,066 Note: Repurchase of own shares During the six months ended 30 June 2012, the Company repurchased its own shares on the Stock Exchange as follows: Month of repurchase Number of ordinary shares repurchased Highest price paid per share Lowest price paid per share Aggregate purchase price paid HK$ HK$ HK$ January 2012 620,000 1.06 0.97 631,420 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 Companies Law (revised) of the Cayman Islands, an amount equivalent to the par value of the shares cancelled of HK$62,000 was transferred from the retained earnings to the capital redemption reserve. The premium paid on the repurchase of the shares of HK$569,420 was charged to the retained earnings. 62,000 569,420 18 VST HOLDINGS LIMITED Interim Report 2012
Notes to Unaudited Interim Financial Report (continued) 11. Trade and other payables 11. Unaudited 30 June 2012 Audited 31 December 2011 Trade payables 3,515,069 3,398,019 Other payables and accruals 336,776 314,748 Deferred income 47,346 42,410 3,899,191 3,755,177 Less: Non-current deferred income (32,279) (23,549) 3,866,912 3,731,628 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: 30 90 Unaudited 30 June 2012 Audited 31 December 2011 0 60 days 0 60 3,378,917 3,269,280 Over 60 days 60 136,152 128,739 3,515,069 3,398,019 19
Notes to Unaudited Interim Financial Report (continued) 12. Borrowings 12. Unaudited 30 June 2012 Audited 31 December 2011 Non-current Unsecured bank borrowings 644,284 665,403 Secured mortgage loan 29,632 31,414 Finance lease liabilities 606 610 674,522 697,427 Current Unsecured bank borrowings 2,015,903 1,169,188 Secured mortgage loan 3,564 3,564 Finance lease liabilities 342 795 2,019,809 1,173,547 Total borrowings 2,694,331 1,870,974 At 30 June 2012, the Group s borrowings were repayable as follows: Unaudited 30 June 2012 Audited 31 December 2011 The maturity of the above loans: Within 1 year 2,019,809 1,173,547 Between 1 and 5 years 659,146 680,269 After 5 years 15,376 17,158 2,694,331 1,870,974 20 VST HOLDINGS LIMITED Interim Report 2012
Notes to Unaudited Interim Financial Report (continued) 13. Commitments under Operating Leases 13. As at 30 June 2012, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows: Unaudited 30 June 2012 Audited 31 December 2011 Within 1 year 42,696 31,694 Between 1 and 5 years 33,512 47,955 76,208 79,649 14. Related Party Transactions 14. (a) Director s quarter 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 to Joint Honour Development Limited for the period ended 30 June 2012 (2011: HK$200,000). (a) 200,000 200,000 (b) License fee 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 Vehicle License to Kong Lung Ind Co. for the period ended 30 June 2012 (2011: HK$14,000). (b) 14,000 14,000 21
Independent Review Report 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 21 which comprises the consolidated balance sheet of VST Holdings Limited as at 30 June 2012 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 34. 5 21 34 34 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 22 VST HOLDINGS LIMITED Interim Report 2012
Independent Review Report (continued) 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 2012 is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34 Interim financial reporting. 34 KPMG Certified Public Accountants 8th Floor, Prince s Building 10 Chater Road Central, Hong Kong 10 8 22 August 2012 23
Management Discussion and Analysis Business and Financial Review The Group s unaudited consolidated turnover for the six months ended 30 June 2012 amounted to approximately HK$17,888,489,000 (2011: approximately HK$15,154,698,000), representing an increase of approximately 18%. 17,888,489,000 15,154,698,000 18% Revenue from distribution business for the six months ended 30 June 2012 amounted to approximately HK$14,959,776,000 (2011: approximately HK$12,039,451,000). Revenue from enterprise systems for the six months ended 30 June 2012 amounted to approximately HK$2,828,373,000 (2011: approximately HK$3,032,561,000) and IT services businesses for the six months ended 30 June 2012 was approximately HK$100,340,000 (2011: approximately HK$82,686,000). 14,959,776,000 12,039,451,000 2,828,373,000 3,032,561,000 100,340,000 82,686,000 Gross profit for the six months ended 30 June 2012 amounted to approximately HK$705,191,000 (2011: approximately HK$729,947,000). Gross margin for the six months ended 30 June 2012 is 3.94% as compared to 4.82% for the six months ended 30 June 2011. Operating profit for the six months ended 30 June 2012 amounted to approximately HK$313,753,000 (2011: approximately HK$319,805,000). Unaudited consolidated net profit attributable to equity shareholders for the six months ended 30 June 2012 amounted to approximately HK$231,216,000 (2011: approximately HK$210,489,000) representing an increase of approximately 9.85%. 705,191,000 729,947,000 3.94% 4.82% 313,753,000 319,805,000 231,216,000 210,489,0009.85% The basic earnings per share for the six months ended 30 June 2012 amounted to approximately HK18.65 cents (2011: approximately HK16.72 cents) per share, representing an increase of approximately 11.54%. The diluted earnings per share for the six months ended 30 June 2012 amounted to approximately HK18.60 cents (2011: approximately HK16.67 cents) per share, representing an increase of approximately 11.58%. 18.65 16.7211.54% 18.6016.67 11.58% The Group has shown strong growth during the six months ended 30 June 2012. This is mainly contributed by growth in the distribution segment because of the strong demands for hard disks and media tablets. Geographically, China market has shown growth with an increase of approximately 22.5% in terms of turnover compared with the six months ended 30 June 2011. South East Asia markets have shown a growth of approximately 5.18%. 22.5%5.18% 24 VST HOLDINGS LIMITED Interim Report 2012
Management Discussion and Analysis (continued) 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, Apple, Seagate, AMD, Intel, Western Digital, Lenovo, Dell, IBM, Acer, Microsoft, Oracle, Cisco and Asus to name a few. AMD IBM Prospects The continued uncertainties arising from Eurozone debt crisis, weaker economic recovery in the United States of America, slower growth in China and intense competition in the IT industry will continue to have an impact on the performance of the Group. The demand for consumer electronics, in particular mobile devices, will continue to grow. The Group is working with many leading vendors in a bid to established itself in the mobile devices segment. Despite the hard disks market is going through a period of consolidation and the effect caused by the flooding in Thailand last year. The Group has seen significant growth in this area because of our long term partnership with Seagate and Western Digital. Many of our distributorships are on a regional level. In turn, this has strengthen the Group s economies of scale especially in China and South East Asia. 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. Liquidity and Financial Resources As at 30 June 2012, the Group had total bank and cash balances and time deposits of approximately HK$701,633,000 (31 December 2011: approximately HK$1,573,134,000). Total borrowings amounted to approximately HK$2,694,331,000 (31 December 2011: approximately HK$1,870,974,000). 701,633,000 1,573,134,000 2,694,331,000 1,870,974,000 As at 30 June 2012, the net gearing ratio, calculated as total borrowings less cash and cash equivalents divided by total equity, was 0.68 (31 December 2011: 0.11). 0.680.11 25
Management Discussion and Analysis (continued) As at 30 June 2012, the Group has total current assets of approximately HK$8,853,647,000 (31 December 2011: approximately HK$7,743,552,000) and total current liabilities of approximately HK$5,994,340,000 (31 December 2011: approximately HK$4,999,907,000). The current ratio of the Group, calculated as the total current assets divided by the total current liabilities, was approximately 1.48 times (31 December 2011: approximately 1.55 times). 8,853,647,000 7,743,552,000 5,994,340,000 4,999,907,000 1.48 1.55 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. Employees As at 30 June 2012, the Group had 2,323 (2011: 2,484) full time employees. The remuneration paid for the six months ended 30 June 2012 amounted to approximately HK$211,584,000 (2011: HK$217,223,000). 2,323 2,484 211,584,000 217,223,000 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. 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 2011. 26 VST HOLDINGS LIMITED Interim Report 2012
Other Information Directors and Chief Executive s Interests and Short Positions in Shares, Underlying Shares and Debentures As at 30 June 2012, 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 Governing the Listing of Securities on the Stock Exchange ( the Listing Rules ) were as follows: 571 XV XV7 8 352 (a) Interests in shares and underlying shares of the Company (a) Name of Director Long/Short Position Capacity Number of ordinary shares or underlying shares held Approximate percentage of issued share capital of the Company Mr. Li Jialin Long Beneficial owner 56,146,000 4.53% Long Beneficial owner 1,500,000 Share options 0.12% Long Interest of a controlled corporation 241,950,000 (Note 1) 1 19.51% Long Family interest 168,168,000 (Note 2) 2 13.56% Mr. Ong Wei Hiam, Long Beneficial owner 208,000 0.02% William Long Beneficial owner 1,200,000 Share options 0.10% 27
Other Information (continued) Directors and Chief Executive s Interests and Short Positions in Shares, Underlying Shares and Debentures (continued) (a) Interests in shares and underlying shares of the Company (continued) (a) Name of Director Long/Short Position Capacity Number of ordinary shares or underlying shares held Approximate percentage of issued share capital of the Company Ms. Liu Li Long Beneficial owner 168,168,000 13.56% Long Interest of a controlled corporation 241,950,000 (Note 1) 1 Long Family interest 56,146,000 (Note 3) 3 Long Family interest 1,500,000 Share options Mr. Chan Hoi Chau Long Beneficial owner 1,200,000 Share options (Note 4) 4 19.51% 4.53% 0.12% 0.10% Mr. Mao Xiangqian Long Beneficial owner 671,000 0.05% Long Beneficial owner 200,000 Share options Mr. Tay Eng Hoe Long Beneficial owner 5,200,000 Share options 0.02% 0.42% Dr. Chan Po Fun Peter Long Beneficial owner 640,000 0.05% Long Beneficial owner 200,000 Share options Mr. Li Wei Long Beneficial owner 200,000 Share options 0.02% 0.02% 28 VST HOLDINGS LIMITED Interim Report 2012
Other Information (continued) Directors and Chief Executive s Interests and Short Positions in Shares, Underlying Shares and Debentures (continued) (a) Interests in shares and underlying shares of the Company (continued) Notes: (a) 1. 241,950,000 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. 1. 241,950,000 L & L Limited 2. 168,168,000 shares of the Company are held by Ms. Liu Li, the spouse of Mr. Li Jialin. 2. 168,168,000 3. 56,146,000 shares of the Company are held by Mr. Li Jialin, the spouse of Ms. Liu Li. 3. 56,146,000 4. 1,500,000 share options of the Company are held by Mr. Li Jialin, the spouse of Ms. Liu Li. 4. 1,500,000 (b)(i) Interests in shares and underlying shares of associated corporation ECS Holdings Limited ( ECS ) (b)(i) Long/Short Name of Director Position Capacity Number of ordinary shares or underlying shares held Approximate percentage of issued share capital of ECS Mr. Ong Wei Hiam, Long Beneficial owner 300,000 William Share options 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% 29
Other Information (continued) Directors and Chief Executive s Interests and Short Positions in Shares, Underlying Shares and Debentures (continued) (b)(ii) Interests in shares and underlying shares of associated corporation ECS ICT Berhad ( ECS ICT ) (b)(ii) ECS ICT BerhadECS ICT Long/Short Name of Director Position Capacity 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 250,000 0.21% Save as disclosed above, as at 30 June 2012, 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 XV7 8 352 30 VST HOLDINGS LIMITED Interim Report 2012
Other Information (continued) Substantial Shareholders and Other Persons Interests and Short Positions in Shares, Underlying Shares and Debentures As at 30 June 2012, 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: XV2 3 336 5% Long/Short Name of shareholder Position Capacity Number of ordinary shares or underlying shares held Approximate percentage of shareholding Mr. Li Jialin Long Beneficial owner 56,146,000 4.53% Long Beneficial owner 1,500,000 Share options 0.12% Long Interest of a controlled 241,950,000 corporation (Note 1) 1 19.51% Long Family interest 168,168,000 (Note 2) 2 13.56% 31
Other Information (continued) Substantial Shareholders and Other Persons Interests and Short Positions in Shares, Underlying Shares and Debentures (continued) Long/Short Name of shareholder Position Capacity Number of ordinary shares or underlying shares held Approximate percentage of shareholding Ms. Liu Li Long Beneficial owner 168,168,000 13.56% Long Interest of a controlled corporation 241,950,000 (Note 1) 1 Long Family interest 56,146,000 (Note 3) 3 Long Family interest 1,500,000 Share options (Note 4) 4 L & L Limited Long Beneficial owner 241,950,000 (Note 5) 5 Eternal Asia (HK) Limited Long Beneficial owner 159,159,999 (Note 6) 6 19.51% 4.53% 0.12% 19.51% 12.84% Long Interest of a controlled 159,159,999 corporation (Note 7) 7 12.84% Long Interest of a controlled 159,159,999 corporation (Note 8) 8 12.84% Zhou Guohui Long Interest of a controlled 159,159,999 corporation (Note 8) 8 12.84% Fidelity Long Investment manager 124,148,000 10.01% 32 VST HOLDINGS LIMITED Interim Report 2012
Other Information (continued) Substantial Shareholders and Other Persons Interests and Short Positions in Shares, Underlying Shares and Debentures (continued) Notes: 1. 241,950,000 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. 1. 241,950,000 L & L Limited 2. 168,168,000 shares of the Company are held by Ms. Liu Li, the spouse of Mr. Li Jialin. 2. 168,168,000 3. 56,146,000 share of the Company are held by Mr. Li Jialin, the spouse of Ms. Liu Li. 3. 56,146,000 4. 1,500,000 share options of the Company are held by Mr. Li Jialin, the spouse of Ms. Liu Li. 4. 1,500,000 5. 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 7. 6.88% and 49.52% of the shares of are held by and respectively. 49.1% of the shares of are held by. 7. 6.88% 49.52% 49.1% 8. 92.5% of the shares of are held by Mr. Zhou Guohui. 8. 92.5% Save as disclosed above, as at 30 June 2012, so far is known to the Directors, 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. XV2 3 336 5% 33
Other Information (continued) Share Options (a) Share option scheme of the Company 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. (a) During the period under review, no share options have been granted, exercised or cancelled. Details of the share options movement under the Scheme are as follows: Name or category of participant Date of offer As at 1 January 2012 Lapsed during the period As at 30 June 2012 Exercise price per share (HK$) Exercise period Director Mr. Li Jialin 23/03/2011 1,500,000 1,500,000 2.434 23/03/2013 22/03/2021 Mr. Ong Wei Hiam, William 23/03/2011 1,200,000 1,200,000 2.434 23/03/2013 22/03/2021 Mr. Chan Hoi Chau 23/03/2011 1,200,000 1,200,000 2.434 23/03/2013 22/03/2021 Mr. Mao Xiangqian 23/03/2011 200,000 200,000 2.434 23/03/2013 22/03/2021 Mr. Tay Eng Hoe 20/02/2009 5,000,000 5,000,000 0.54 20/02/2009 19/02/2019 23/03/2011 200,000 200,000 2.434 23/03/2013 22/03/2021 Dr. Chan Po Fun Peter 23/03/2011 200,000 200,000 2.434 23/03/2013 22/03/2021 Mr. Li Wei 23/03/2011 200,000 200,000 2.434 23/03/2013 22/03/2021 Sub-total: 9,700,000 9,700,000 Employees 17/02/2011 10,400,000 (200,000) 10,200,000 2.672 17/02/2013 16/02/2021 Total: 20,100,000 (200,000) 19,900,000 34 VST HOLDINGS LIMITED Interim Report 2012
Other Information (continued) Share Options (continued) (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 authorised, 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) IIII During the period under review, no share options have been granted or cancelled. Details of the share options movement under the Scheme II are as follows: II Name or category of participant Date of offer As at 1 January 2012 Exercised during the period Lapsed during the period As at 30 June 2012 Exercise price per share (S$) Exercise period Director Mr. Tay Eng Hoe 15/10/2010 700,000 700,000 0.55 5 years from date of grant 5 Mr. Mao Xiangqian 15/10/2010 900,000 900,000 0.55 10 years from date of grant 10 Mr. Ong Wei Hiam, William 15/10/2010 300,000 300,000 0.55 5 years from date of grant 5 Sub-total: 1,900,000 1,900,000 Employees 15/10/2010 10,950,000 (550,000) (250,000) 10,150,000 0.55 5 to 10 years from date of grant 5 10 12,850,000 (550,000) (250,000) 12,050,000 35
Other Information (continued) Share Options (continued) (c) Share option scheme of a subsidiary ECS Indo Pte Ltd ( ECS Indo ) On 16 October 2009, the Company s subsidiary, ECS Indo granted 120,000 share options to four senior employees of a subsidiary of ECS Indo. (c) ECS Indo Pte LtdECS Indo ECS Indo ECS Indo 120,000 Name or category of participant Date of offer As at 1 January 2012 Exercised during the period Lapsed during the period As at 30 June 2012 Exercise price per share (US$) Exercise period Employees 16/10/2009 113,392 113,392 1.8156 16/10/2009 16/10/2012 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. 36 VST HOLDINGS LIMITED Interim Report 2012
Other Information (continued) Corporate Governance During the six months ended 30 June 2012, the Company has complied with the code provisions under the Code on Corporate Governance Practices (effective until 31 March 2012) and the Corporate Governance Code (effective from 1 April 2012) as set out in Appendix 14 of the Listing Rules, except code provisions A.2.1 and A.6.7 as explained below. A.2.1 A.6.7 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 holds the offices of Chairman and CEO. The Directors believe that vesting the roles of both Chairman and CEO in the same person will not impair the balance of power and authority between the Directors and the management of the Company and consider that this structure will enable the Group to make and implement decisions promptly and effectively. The Directors will meet regularly to consider major matters affecting the operations of the Company. A.2.1 Under the code provision A.6.7, independent non-executive directors and non-executive directors should attend general meetings and develop a balanced understanding of the views of shareholders. Two non-executive directors and one independent non-executive director were unable to attend the annual general meeting of the Company held on 24 May 2012 due to other important engagements. A.6.7 37
Other Information (continued) Purchase, Sale or Redemption of Shares During the period under review, the Company repurchased 620,000 ordinary shares of the Company on the Stock Exchange. The repurchased shares were cancelled. Details of the repurchase of shares by the Company are as follows: 620,000 Highest price Month of repurchase No. of shares repurchased per share (HK$) Lowest price per share (HK$) Aggregate price paid (HK$) January 2012 620,000 1.06 0.97 631,420 Save as disclosed above, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company s shares during the period under review. Connected Transaction Connected transactions have been disclosed in Note 14 of the Interim Financial Report. 14 The above transactions constituted connected transactions under the Listing Rules. The Directors are of the opinion that the above transactions were entered into on normal commercial terms and on an arm s length basis and the terms of the above transactions are fair and reasonable so far as the shareholders of the Company are concerned and in the interests of the Company and the shareholders of the Company taken as a whole. The above connected transactions constituted exempted connected transactions under the Listing Rules as each of the percentage ratios is less than 0.1% as defined under the Listing Rules when the agreements were entered into. 0.1% 38 VST HOLDINGS LIMITED Interim Report 2012
Other Information (continued) Seasonality of Interim Operations The effect of seasonal fluctuation on the Group s interim operations was immaterial. Model Code of Securities Transactions by Directors The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules (the Model Code ). Following specific enquiry, each of the Directors confirmed that he has complied with the Model Code during the period. Interim Dividend The Directors do not recommend the payment of any interim dividend for the six months ended 30 June 2012 (2011: Nil). Audit Committee The Company has established an Audit Committee on 17 April 2002 consisting of three independent non-executive Directors with written terms of reference in compliance with Appendix 14 of the Listing Rules. The primary duties of the Audit Committee are to review and supervise the Group s internal control and financial reporting process (including the interim report before recommending them to the Board of Directors for approval). The Group s unaudited results for the six months ended 30 June 2012 have been reviewed by the Audit Committee of the Company, which was of the opinion that the preparation of such results complied with the applicable accounting standards and requirements and that adequate disclosures have been made. 39
Other Information (continued) Remuneration Committee The Company has established a Remuneration Committee on 29 September 2005 consisting of three independent non-executive Directors with written terms of reference in compliance with the Appendix 14 of the Listing Rules. The primary duties of the Remuneration Committee regarding the remuneration of directors and senior management include making recommendations on remuneration policy and structure, reviewing and approving the management s remuneration proposals, making recommendations on remuneration packages of all directors and senior management, reviewing and approving termination compensation, dismissal or removal compensation arrangements, and ensuring that no Director or any of his associates is involved in deciding his own remuneration, etc. Nomination Committee The Company has established a Nomination Committee on 22 March 2012 consisting of three independent non-executive Directors and the chairman of the board with written terms of reference in compliance with Appendix 14 of the Listing Rules. The primary duties of the Nomination Committee are to review the structure, size and composition of the board annually and make recommendations on any proposed changes to the board to complement the issuer s corporate strategy, identify individuals suitably qualified to become board members, assess the independence of independent non-executive Directors, and make recommendations to the board on the appointment or re-appointment of directors and succession planning for directors. By Order of the Board Li Jialin Chairman and Chief Executive Officer Hong Kong, 22 August 2012 40 VST HOLDINGS LIMITED Interim Report 2012