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Financials

First Quarter Financial Statement and Dividend Announcement

Income Statement

Balance Sheet

Review of Group Performance

(a) Revenue

In view of the current economic and financial challenges in the external environment, the Group has adopted a cash conservation strategy by not aggressively pursuing growth in the business for FY 2009. Instead, the Group will continue to tighten its credit management and focus on investing in key and strategic customers for future growth. The Group will also continue to place its emphasis on strengthening its balance sheet and its internal operations and processes to derive operational efficiencies and cost savings. Strengthening working capital management and driving strong operational cash flow would remain the key initiatives of the Group in FY 2009.

For 1Q 2009, the Group's revenue decreased marginally by 1.3% to $715.2m as compared to $724.8m for 1Q 2008 with the main decrease attributed to lower distribution sales of notebooks, printers, supplies and peripheral products.

Geographically, North Asia revenue registered a growth of 5.8% in 1Q 2009 as compared to 1Q 2008 mainly due to strong growth in servers and enterprise software products. Conversely, South East Asia revenue declined by 8.7% for 1Q 2009 against 1Q 2008 mainly due to the 12% decrease in distribution sales of consumer IT products and peripherals.

(b) Profitability

The Group's 1Q 2009 net profit after tax and minority interests ("NPATMI") grew by 17.5% to $6.9m as compared to $5.9m for 1Q 2008. This was achieved on the back of significant cost reductions and interest costs in line with the Group's strong focus on cost and working capital management.

Gross margin for 1Q 2009 declined to 4.3% from 4.9% in 1Q 2008 due to higher cost of inventory as a result of weaker Asian currencies against the US Dollar, and higher provisions for inventory obsolescence and losses, particularly in the Enterprise Systems segment.

Both selling and distribution expenses and general and administrative expenses in 1Q 2009 decreased by 6.8% and 18.4% to $13.4m and $8.3m respectively as compared to 1Q 2008. Overall, total operating expenses as a percentage of revenue improved from 3.39% in 1Q 2008 to 3.04% in 1Q 2009 as a result of cost savings from improved operational efficiencies and the continued tightening of its management of operating costs.

In line with lower working capital days, finance costs in 1Q 2009 were 43.7% lower than 1Q 2008, as evidenced by lower bank borrowings of $49.2m to $171.0m as at 31 March 2009 from $220.2m as at 31 March 2008.

The Group's net profit before interest and tax ("PBIT") for 1Q 2009 decreased by 11.9% to $10.6m from $12.1m in 1Q 2008. Both the Distribution and Enterprise business segments experienced a decrease in PBIT by 10.5% and 26.2% respectively as compared to 1Q 2008. In the Distribution segment, the decrease in PBIT was mainly from desktop PCs, printers and handheld devices. In 1Q 2009, although revenue in the Enterprise Systems segment grew by 6.3% against 1Q 2008, PBIT actually decreased by 26.2% mainly due to higher cost of inventory as a result of weaker Asian currencies against the US Dollar and higher provisions made for inventory obsolescence in the Enterprise Systems segment.

On a geographical basis, both North Asia and South East Asia recorded a decrease in PBIT by 27.0% and 6.8% respectively against 1Q 2008.

(c) Statement of Financial Position

The Group's total shareholders funds were $247.9m as at 31 March 2009, an increase of $10.1m from $237.8m as compared to 31 December 2008. The Group generated a positive operating cash flow of $16.5m in 1Q 2009, as compared to a negative operating cash flow of $47.5m reported in 1Q 2008.

Group bank borrowings decreased by $22.2m to $171.0m as at 31 March 2009, from $193.2m as at 31 December 2008. Net gearing has also been reduced to 0.53 as at 31 March 2009 from 0.60 as at 31 December 2008, and from 0.90 as at 31 March 2008.

Commentary

As the near-term outlook for the global economic and IT industry continues to be uncertain, the Group recognizes the importance of continuing to further strengthen its balance sheet and focus on strengthening its internal operations and processes to improve operational efficiencies and generate cost savings.

Over the next few quarters of FY 2009, the Group will continue with its strategy of improving its working capital and credit control management to strengthen its operating cash flows.

Despite the anticipated slowdown in demand for ICT products in 2009, the Directors are confident that in Q2 and FY 2009, ECS will remain profitable.