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Financials

Second Quarter Financial Statement and Dividend Announcement

Income Statement

Balance Sheet

Review of Group Performance

(a) Revenue

The Group's revenue for the six months ended 30 June 2008 ("1H 2008") increased by 12.6% to $1.48b as compared to $1.31b for the six months ended 30 June 2007 ("1H 2007"). For 2Q 2008, the Group's revenue increased by 9.0% to $750.5m as compared to 2Q 2007, mainly led by the strong growth in servers, networking products and enterprise softwares, and higher revenue contribution in IT Services segment from Singapore and Malaysia. The slight decline in revenue for the Distribution business in 2Q 2008 was mainly attributed to the slowdown in consumer demand in China, as a result of the effect of Sichuan earthquake which occurred in May 2008.

9.6% growth year-on-year in the second quarter, with servers and enterprise softwares driving this growth. The main contribution of the revenue growth in 2Q 2008 vs 2Q 2007 in South East Asia is from the distribution sales of notebooks mainly in Malaysia and Thailand, which enjoyed growth over the same quarter last year of 77% and 22% respectively.

(b) Profitability

The Group's net profit after tax and minority interests ("NPATMI") for 1H 2008 increased by 31.3% to $13.9m as compared to $10.6m for 1H 2007. The Group's NPATMI for 2Q 2008 increased by 28.8% to $8.0m as compared to $6.2m over the same corresponding period in 2007. Significantly, net profit growth continued to outpace revenue growth in line with the Group's margins enhancement strategy.

Gross margin for 2Q 2008 grew to 5.39% vs 4.49% in 2Q 2007 due to higher Enterprise Systems sales mix and enhanced margin for consumer products. Selling and distribution expenses in 2Q 2008 increased by 37.6% to $17.4m as compared to 2Q 2007, due to higher salary costs in line with the increase in Enterprise Systems business as well as increased resources invested in developing our Indonesia and Philippines market. General and administrative expenses increased by 10.2% to $9.0m.

Finance costs were 33.2% higher in 2Q 2008 vs 2Q 2007, as a result of higher bank borrowings in 2Q 2008 as compared to 2Q 2007, coupled with higher market cost of funding.

The Group's net profit before interest and tax ("PBIT") for 2Q 2008 improved by 32.9% to $14.4m from $10.8m in 2Q 2007. Both Distribution and Enterprise business segments did very well, which registered double-digit growth in profitability. In the Distribution segment, the 33.1% year-on-year growth in PBIT for 2Q 2008 was mainly driven by phenomenal growth in the sales of notebooks within the Group. In the Enterprise Systems segment, the growth in PBIT of 47.0% for 2Q 2008 was attributed to higher margins in servers and enterprise softwares.

On a geographical basis, North Asia led the growth in profitability for 2Q 2008, registering a 96.2% improvement over the previous year corresponding period. South East Asia region, however, registered a modest decline of 7.9% in 2Q 2008 as compared to 2Q 2007, mainly contributed by higher salary costs in line with the increase in Enterprise Systems business.

(c) Balance Sheet

The Group's total shareholders funds were $214.6m as at 30 June 2008, an increase of $1.9m from $212.7m as compared to 31 December 2007. The Group generated a positive operating cash flow of $31.9m in 2Q 2008, as compared to a negative operating cash flow of $14.2m reported in 2Q 2007.

Group borrowings increased by $26.1m to $210.3m as at 30 June 2008, from $184.2m as at 31 December 2007.

Commentary

The stronger distribution product mix with new agencies that ECS has build up over the years will continue to allow ECS to deliver consistent revenue growth. With the cost efficient operational framework already in-place, operating margin is likely to improve.

According to a December 2007 IDC forecast for 2008, the ICT market in Asia/Pacific excluding Japan is projected to reach US$154 billion in 2008, a 10% rate of growth over 2007. Together, China and India will contribute close to half of the region's total IT spending in 2008. At the same time, the combined IT spending in the ASEAN ICT market will exceed that of even India, and become an important market for ICT investment in 2008 and beyond.

Looking ahead, the market where the group has strong regional presence remains positive for 2H 2008. Against this background and barring unforeseen circumstances, the Directors are confident that 3Q 2008 and FY 2008 will be better than that of last year.

With regard to ECS' listing on the SGX, the Group is confident of re-listing its shares in the near future.