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					                                          VADS BERHAD
                                                                                   VADS BERHAD
                                                                            ANNUAL REPORT 2006

VADS BERHAD (208739-W)
15th Floor, Plaza VADS
No. 1, Jalan Tun Mohd. Fuad
Taman Tun Dr. Ismail
60000 Kuala Lumpur

Tel : 603 7712 8888 Fax : 603 7728 2584
E-mail :
Website :

                                          ANNUAL REPORT 2006
                                                               e n h a n ce . i n t e g ra t e . e x p a n d

06           OUR VISION
             To be a leading Managed ICT Services Provider in Malaysia

             OUR MISSION
             Empower companies with Managed ICT Services to be
             efficient and productive

                                                  TABLE OF CONTENTS

                                                  15 Years of Growth                         01
                                                  Financial Highlights                       02

                                                  Revenue by Business Segment
                                                  Share Price Movements
                                                  VADS Profile                               05
                                                  Milestones and Achievements                06
                                                  2006 Key Achievements                      08
                                                  Chairman’s Statement                       10
                                                  Operations Review                          16
                                                  Directors’ Profile                         26
                                                  Management Team                            32
                                                  Corporate Structure                        33

                                                  Corporate Information
                                                  Statement on Corporate Governance
                                                  Additional Compliance Statement
    REVIEW                                        Statement on Internal Control              49
                                                  Audit Committee Report                     53
                                                  Terms of Reference of the                  56
                                                    Board Audit Committee
                                                  Financial Calendar                          58
                                                  Statement of Responsibility by Directors    59
                                                  Financial Statements                        60
                                                  Notice of Annual General Meeting           125

                                                  Statement Accompanying
                                                    the Notice of Annual General Meeting

                                                  Shareholdings Statistics                   128
GOVERNANCE                                        Form of Proxy
                              15 YEARS OF GROWTH

(RM Million)



  1992   1993   1994   1995    1996    1997    1998    1999    2000    2001     2002     2003     2004     2005     2006

                                             FINANCIAL HIGHLIGHTS

                                                                               2002        2003      2004         2005         2006
                                                                             RM’000      RM’000    RM’000       RM’000       RM’000

    Revenue                                                                  148,943     151,283   194,280      266,283      368,088

    Profit before taxation                                                    13,641      14,736    16,271       20,167       34,473

    Profit after taxation                                                     10,296      10,574    12.136       17,262       32,381

    Shareholder's Fund                                                        67,449      76,583    83,719       95,683      125,246

    NTA per share                                                               ^1.69      ^1.91        ^2.09     ∆1.59        +2.02

                                                                            ***32.36      ^26.44    #            X            ◊52.92
    Earnings per share (sen)                                                                            20.23        28.74

    Dividend per share (sen)                                                     5.00       7.50        12.00        14.00     25.00

    ^     These figures are based on a paid up capital of 40,000,000 shares
    ∆     These figures are based on a paid up capital of 60,178,000 shares
    +     These figures are based on a paid up capital of 62,108,000 shares
    ***   These figures are based on a weighted average number of 31,808,219 shares
    #     These figures are based on a paid up capital of 60,000,000 shares
    x     These figures are based on a weighted average number of 60,054,312 shares
          and have been restated to take into account the changes in accounting policy
    ◊     These figures are based on a weighted average number of 61,192,734 shares

2         VADS BERHAD 208739-W
                                                        PROFIT BEFORE                                      SHAREHOLDERS’
REVENUE                                                 TAXATION                                           FUNDS
RM ‘000                                                 RM ‘000                                            RM ‘000







 ’02        ’03        ’04        ’05        ’06         ’02       ’03       ’04       ’05       ’06        ’02         ’03       ’04       ’05       ’06

NTA PER SHARE                                           PER SHARE                                          DIVIDEND
RM ‘000                                                 RM ‘000                                            RM ‘000









 ’02        ’03        ’04        ’05        ’06         ’02       ’03       ‘04       ’05       ’06        ’02         ’03       ’04       ’05       ’06

                                                                                                                      VADS BERHAD 208739-W                       3

                           REVENUE BY BUSINESS SEGMENT

                                                  2005                                                          2006




                                     MNS                SIS                CCS                         MNS        SIS           CCS

                             Total Operating Revenue: RM266.3 million                      Total Operating Revenue: RM368.1 million

                           SHARE PRICE MOVEMENTS

                                                                                                                  6.60   6.65
                                                                                                         6.30                         6.40


                                                              4.42                      4.46
                                                                       4.34      4.22
                                    3.94         4.06


                             JAN    FEB      MAR              APR      MAY       JUN    JUL     AUG      SEP      OCT    NOV          DEC

4   VADS BERHAD 208739-W


At VADS, we strive to be a leading Managed ICT Services Provider and empower companies to
be more productive and efficient with the industry’s most advanced information,
communications and technology.

We aim to add value for our customers through our innovative solutions and services in the
business areas of:

  MANAGED NETWORK SERVICES (MNS)                Providing Simple Solutions for Complex
  ■ Managed National Network                    Business Challenges
  ■ Managed International Network               The ever-increasing reliance of your
  ■ Managed Data Centre                         organisation on the network can mean
  ■ Managed Security                            substantial investments in infrastructure,
  ■ Managed IP Telephony                        as well as in the time and staff resources
  ■ Network Systems Integration                 required to maintain and secure it. Managed
                                                Network Services offer companies a cost-
                                                effective way to meet the challenges of
                                                today’s fast paced business environment
                                                with comprehensive networking solutions
                                                to use resources more efficiently, and
                                                reduce risks of service interruptions.

  SYSTEMS INTEGRATION SERVICES (SIS)            IT Solutions to Let You Focus on Key
  ■ e-Infrastructure Solutions                  Business Objectives
  ■ Managed Messaging and Mobility              Enhancing your business agility calls for a
                                                stable yet flexible IT infrastructure that
                                                helps you react quickly to changing
                                                business conditions. From e-Infrastructure
                                                requirements, IT Solutions such as e-
                                                business, data warehousing, business
                                                intelligence to Managed ICT Services, our
                                                experienced professionals can make SIS
                                                an invaluable extension of your IT
                                                organisation to deliver complete end-to-
                                                end integrated IT solutions.

  CONTACT CENTRE SERVICES (CCS)                 Improving Contact Centre Performance and
  ■ Contact Centre Technologies                 Efficiency
  ■ Contact Centre Consulting                   Committed to delivering exceptional
  ■ Contact Centre Training                     results, CCS helps clients to manage the
  ■ Contact Centre Managed Facilities           customer experience through innovative
  ■ Contact Centre Sourcing                     and proven processes and technology to
                                                maximise the value of customer
                                                communications within their sales and
                                                service operations. With CCS, you can
                                                remain focused on growing your business.

                                                                      VADS BERHAD 208739-W    5

                           MILESTONES AND ACHIEVEMENTS

                           VADS was incorporated as a joint venture         The Managed Network Services National
                           between TM and IBM to offer IBM Global           was launched.
                           Network Services. The company commenced
                           business at Plaza IBM with a total of
                           11 employees.                                    1996
                                                                            VADS signed with Hughes Network Systems
                                                                            for the provision of networking equipment
                           1992                                             to facilitate Frame Relay Network Services
                           VADS won its first national network service      within Malaysia.
                           customer; a direct-selling company and
                           provided Wide Area Network (WAN) services        Won its first National Point of Sales
                           on the PNB/ BT network.                          outsource contract for an international oil
                                                                            and gas company.
                           Together with IBM, VADS provided consulting
                           services to TM for their Corporate Data          Started IBM Global Network Internet
                           Network, which eventually led to the             Service which provided global roaming
                           establishment of Corporate Information           internet access.
                           Network Services (COINS) by TM.
                                                                            VADS was appointed as a COINS Franchisee
                                                                            by TM.
                           PNB invested and became the third major
                           shareholder in VADS.                             1997
                                                                            TM acquired equity in VADS from the other
                           The first Electronic Data Interchange (EDI)      partners and VADS became its wholly owned
                           mailbox in Malaysia was started by VADS.         subsidiary.
                           Later in the year, Supply*Link and
                           Medi*Link services were launched to facilitate   Electronic Commerce Services Sdn Bhd
                           EDI Services.                                    received MSC status from the Multimedia
                                                                            Development Corporation.

                           VADS closed its first multimillion dollar deal   1998
                           for a local major shipping company to connect    The VADS Managed Network Services
                           its offices world wide.                          International portfolio was expanded with
                                                                            the WorldCom partnership.
                           Leading from this win, VADS invested in its
                           own national network: VADS*Net, whereby
                           20 node locations were created throughout        1999
                           Malaysia.                                        VADS      Managed      Network    Services
                                                                            International was further enhanced with the
                                                                            British Telecom partnership.
                           KWSP invested in VADS and became the             Commerce City was launched to facilitate
                           fourth major shareholder. This led to the        and support e-business in Malaysia.
                           formation of Electronic Commerce Services
                           Sdn Bhd, whereby electronic contribution to
                           KWSP was conducted via the EC*Link service.

6   VADS BERHAD 208739-W

2000                                              2003
VADS’s new corporate identity was revealed        Signed with AT&T for a global network
to reflect its new millennium positioning and     cooperation     to  provide  high-speed
service offerings.                                international Managed Network Services to
                                                  over 60 countries.
Acquired The Network Connections
Sdn Bhd (TNC) and renamed it as VADS
Solutions Sdn Bhd.                                2004
                                                  Partnered Teletech Inc to launch Managed
VADS signed a partnership with Surf 88 as         Contact Centre Services.
its technology partner, providing the
e-infrastructure to support the first bilingual   Formed VADS Professional Services Sdn
financial investment portal.                      Bhd to support the Contact Centre business.

                                                  Won first outsourced Contact Centre for a
2001                                              local broadband company.
Electronic Commerce Services Sdn Bhd was
renamed as VADS e-Services Sdn Bhd.               Achieved Cisco Silver Partner status.

Partnered with Onyx Software to offer
Customer      Relationship    Management          2005
Solutions for Malaysian corporates.               Transferred to the Bursa Securities Main
Received ASP Class and Individual License
from Malaysian Communications and                 Acquired REACH Data Centre at KLCC to
Multimedia Commission (MCMC).                     expand Managed Data Centre Services.
VADS IPO approved by Securities                   Expanded and established nation wide
Commission. VADS was converted into a             VADS’ Services Centres.
public company known as VADS Berhad.
                                                  Launched the Security Operations Centre
Cross the RM100 million revenue mark.             (SOC) to enhance service support for
                                                  Managed Security Services.
2002                                              Secured major Contact Centre sourcing
Listed on Second Board with an offer share        contract for one of the leading mobile
price of RM2.10.                                  operators in Malaysia.

Received NSP License from MCMC.                   Won 2 major awards - Cisco Best Managed
                                                  Services Partner as well as IBM Platinum
Launched VADS PREMIER, an IP Managed              Club Award.
Network Services.
                                                  Cross the RM200 million revenue mark.
Achieved ISO9001: 2000 certification by SGS.

                                                                         VADS BERHAD 208739-W   7

                           2006 KEY ACHIEVEMENTS

                                Cisco Best Managed              SIS wins
                               Service Provider Award   IBM Platinum Club Award

                               Microsoft Gold Partner   CCAM Prestige Class Award

8   VADS BERHAD 208739-W

    Largest Contact Centre                                    New International
         in Malaysia                                            Partnerships

      RM ‘000

       ’02        ’03        ’04        ’05        ’06

    Cross the RM300 Million
                                                                 Plaza VADS
        Revenue marks

                                                                        VADS BERHAD 208739-W   9

                                   IN THE DYNAMIC ICT MARKET PLACE,

                                     ONE NEEDS TO CONSTANTLY KEEP

                                          ABREAST OF EVER EVOLVING

                                     TECHNOLOGY, APPLICATIONS AND

                                         CHANGING BUSINESS NEEDS.

10   VADS BERHAD 208739-W


 We are particularly encouraged as we were able to strengthen the
 foundation of our triple pillars of Managed Network Services (MNS),
 Systems Integration Services (SIS) and Contact Centre Services (CCS),
 and also made good progress in harnessing synergy among the three
 divisions. We managed to do so through a dedicated management
 team who are able to anticipate, deliver and grow with our customers’
 needs and at the same time, pay equally strong emphasis on costs,
 efficiency and service quality.

 In the dynamic ICT market place, one needs to constantly keep abreast
 of ever evolving technology, applications and changing business needs.
 In 2006, we built on our strength as we developed new business areas
 to move up the value chain in our traditional stronghold of Managed
 Network Services. This has helped to fortify our leadership, enhance
 margins while meeting our customers’ needs. In Contact Centre
 Services, we established a new company, VADS Contact Centre
 Services Sdn Bhd, to better serve our expanding business.

                                                                          VADS BERHAD 208739-W   11

                            CHAIRMAN’S STATEMENT

                            While we worked hard to explore the potential of in-sourcing business from the TM group, no
                            efforts were spared to diversify our customer base. Indeed, we have made inroads with new
                            customers from diverse industries including banking, insurance, shipping, power and
                            telecommunications. This, coupled with the rising stream of recurring CCS earnings, has
                            fortified the overall profile of the Group.

                            NEW FINANCIAL MILESTONES
                            Financially, VADS comfortably crossed the RM300 million revenue mark for the first time
                            in history. We chalked up record turnover of RM368.1 million and profit after tax of RM32.4
                            million in 2006, up 38 percent and 87 percent respectively from 2005. Net earnings
                            per share rose from 28.7 sen in 2005 to 52.9 sen in 2006. Notwithstanding our rising working
                            capital needs, VADS’ balance sheet remained strong with a net cash position of RM19 million or
                            30.8 sen per share on 31 December 2006.

                            Driven by its strong financial results, VADS’ share price appreciated from RM3.42 on 31 December
                            2005 to RM6.80 on 31 December 2006. We return value to shareholders not only through our
                            encouraging share price performance, but also directly via progressively higher dividend
                            payments backed by our strong balance sheet. The Board of Directors is proposing a final tax-
                            exempt dividend of 15 sen per share on top of the interim tax-exempt dividend of 10 sen per
                            share. This represents a total tax-exempt dividend of 25 sen per share, translating to dividend
                            payout of 47.8% for 2006. The dividend payout, coupled with the increase in share price,
                            contributed to a total shareholders return of 92% for 2006.

                            BUSINESS ACHIEVEMENTS
                            In 2006, VADS continued to receive awards in our core business areas. In Managed Network
                            Services, we were awarded for the second year in a row the Cisco Best Managed Services Partner
                            Award. In Systems Integration Services, we are delighted to have clinched the IBM Platinum Club
                            Award for the second year running; and for the first time, we received certification as a Microsoft
                            Gold Certified Partner which enables us to deploy complex Microsoft-based solutions. In the
                            relatively new area of Contact Centre Services, we were conferred the Contact Centre Association
                            Malaysia’s Prestige Class Award. These awards are gratifying achievements which will propel the
                            Group to aim for more in the coming year.

                            CORPORATE GOVERNANCE
                            Mindful of our responsibilities to all stakeholders, VADS strives to maintain the highest level of
                            corporate governance. As we work to enhance shareholders’ wealth, management
                            accountability, adherence to principles of good corporate governance at all times, as well as
                            fairness and transparency to all stakeholders remain upper most on our minds.

12   VADS BERHAD 208739-W
                                The Board of Directors adopts a proactive approach as it fully supports VADS efforts to excel in
                                the industry. The Board is fully briefed on VADS’ business operations and provides valuable
                                guidance on its strategy, goals and major business decisions.

                                PROSPECTS FOR 2007
                                As we emerge with a stronger foundation across our core businesses, we believe we are well
                                positioned to tap exciting opportunities in 2007, coming from both existing and new customers
                                who are operating in an increasingly linked world facilitated by rapid ICT advancements. While
                                we continue to focus on leading and growing our triple pillars of Managed Network Services,
                                Systems Integration Services and Contact Centre Services, even greater efforts would go
                                towards extracting synergy and cross-selling potential through which we can anticipate, meet
                                and grow with the needs of our customers. In particular, we expect to further broaden and
                                deepen our offerings within each segment, including the expansion into selected IT services
                                business for Systems Integration Services. Overall, we aim to deliver another year of good
                                performance and achievements in 2007, riding on positive outlook for the Malaysian economy
                                which should underpin another year of strong expansion for the ICT industry.













             OUR CUSTOMERS.
                                                                                                           VADS BERHAD 208739-W    13

                            CHAIRMAN’S STATEMENT

                            Alongside our optimism, we are mindful of the challenging business environment amidst rising
                            operating costs, competition for both customers and skilled employees, and also the rapidly
                            changing technology landscape. Our uninterrupted growth has also imposed greater financial
                            needs which require even more dynamic management of our balance sheet. We cannot afford to
                            be complacent as we aim for a bigger slice of the growing pie. As much as we focus on growing
                            revenue, we would devote equal attention to deliver service, manage costs, margins, efficiency
                            and productivity, and recruit and retain motivated employees who can support VADS’ vision and
                            aspirations. Indeed, we are proud of our professional employees who are dedicated and aspire
                            to upskill themselves. Against the 38 percent increase in revenue and 87 percent increase in
                            profit, the fact that our full-time workforce only grew 36 percent to 300 employees on
                            31 December 2006 underscored the strong growth in staff productivity.

                            CORPORATE SOCIAL RESPONSIBILITY
                            Over the last few years, we are also pleased to have played a role in providing employment
                            opportunities for fresh graduates and student work experience as part of our social
                            contribution to the country. In 2006 for Contact Centre Services, we had more than 1,600
                            contract Customer Service Representatives who are given technical training and
                            opportunities to progress in their career path. We expect to create even more employment
                            opportunities in 2007 in line with the expected growth of the division.

                            PLAZA VADS
                            Five years ago, we had the vision of Plaza VADS and today we have achieved this goal. Our
                            requirement for office space has increased sharply with Contact Centre Services, and at the
                            same time, we are also migrating our staff to be under one roof for greater effectiveness.

14   VADS BERHAD 208739-W
                                 On behalf of the Board of Directors, it is my pleasure to extend a warm welcome to Encik
                                 Khairussaleh bin Ramli who was appointed as a Director in 2006.

                                 Last but not least, we would like to express our appreciation to all who have contributed in many
                                 ways to another fruitful year for VADS. To start with, we would like to thank our customers for their
                                 vote of confidence, and also our staff who have accepted the challenge to grow and excel with the
                                 Group. Our appreciation also goes to suppliers, contractors and business partners for their
                                 support throughout the year, helping us to deliver high quality service to meet customers’ needs.

                                 To my fellow Board members, I would like to thank you for your generous contribution and wise
                                 counsel which has underpinned VADS’ success in a challenging industry. As we close the
                                 chapter for 2006, let us not rest on our laurels and aim for even greater heights in 2007.

                                 Dato’ Haji Abdul Rahim bin Haji Abdul Razak










                                                                                                               VADS BERHAD 208739-W      15

                               WE CONTINUE TO STRENGTHEN OUR
                               MARKET POSITION AS REFLECTED IN
                            OUR FIFTEEN YEARS OF UNINTERRUPTED
                                    REVENUE GROWTH. THIS WAS
                              ACHIEVED BY EFFECTIVELY MANAGING
                                  COSTS AND IMPROVING OVERALL
                                  MARGINS BASED ON GROWTH IN
                                     SERVICES IN ANTICIPATION OF
                                            CUSTOMERS’ NEEDS.

16   VADS BERHAD 208739-W
Chief Executive Officer


  In the relatively new area of Contact Centre Services (CCS), our
  emphasis was on quality execution to manage the strong business
  growth. At the same time, we worked hard to explore synergy among
  the three core areas, which we expect to offer significant potential in
  the coming years. As we constantly innovate to keep abreast of
  market trends, we also focus on execution to increase customers’
  satisfaction, and the management of costs and efficiency to improve
  margins and profitability. Along the way, we continue to provide a
  dynamic human capital development programme to meet the needs
  of our employees who have contributed to where VADS is today.

                                                                            VADS BERHAD 208739-W   17

                                 OPERATIONS REVIEW

                                              A SNAPSHOT OF 2006
                                              •   We continue to strengthen our market position as
             OUR VALUE-ADDED                      reflected in our fifteen years of uninterrupted revenue
                                                  growth. This was achieved by effectively managing costs
       OFFERINGS REFLECT OUR                      and improving overall margins based on growth in
                                                  services in anticipation of customers’ needs. Our efforts
                                                  drove 2006 turnover and profit to new records, rising
       INNOVATE BY TAPPING ON                     38 percent and 87 percent to RM368.1 million and RM32.4
                                                  million respectively
      MARKET TRENDS AND OUR                   •   We managed to diversify our customer base as we added
                                                  new clients from diverse industries including banking,
                                                  insurance, shipping, power and telecommunications
           CUSTOMERS’ NEEDS.                  •   MNS remained a major contributor, posting strong
                                                  revenue growth of 55% to RM202.1 million. This division
                                                  continued its focus on corporate and government sector
                                                  networking requirements, closing more accounts with
                                                  greater number of customers connections in 2006
                                              •   We grew our accounts in the challenging SIS market with
                                                  the introduction of Managed Messaging services. SIS
                                                  brought in RM57.6 million for the VADS Group in 2006
                                              •   VADS CCS established itself as of one the largest Contact
                                                  Centre Service Operators in Malaysia, registering a 60%
                                                  growth in revenue to RM108.4 million in 2006. The
                                                  recurring nature of CCS revenue has also fortified our
                                                  earnings profile. Indeed, this division is now the largest
                                                  profit contributor to the Group, thanks to strong revenue
                                                  growth and the availability of tax incentives
                                              •   The increase in VADS’ share price from RM3.44 on
                                                  31 December 2005 to RM6.40 on 31 December 2006,
                                                  coupled with total tax-exempt dividends of 25 sen per
                                                  share, contributed towards total shareholders return of
                                                  92% in 2006.
                                              •   We continued to receive awards in our three core
                                                  MNS – We were awarded for the second year in a row the
                                                         Cisco Best Managed Services Partner Award.
                                                  SIS – We have clinched the IBM Platinum Club Award
                                                         for the second year running; and for the first time,
                                                         we received certification as a Microsoft Gold
                                                         Certified Partner.
                                                  CCS – We were conferred the Contact Centre Association
                                                         Malaysia’s Prestige Class Award.

18       VADS BERHAD 208739-W
                             2006 HIGHLIGHTS
                             MNS focuses on corporate and government          Our value-added offerings reflect our
                             networking requirements with a suite of          commitment to constantly innovate by
                             products differentiated in service levels to     tapping on market trends and our proactive
                             meet diverse customer requirements.              anticipation of customers’ needs. We
                                                                              made significant headway in Managed
                             2006 was a year of considerable                  IP Telephony in 2006, riding on the
                             opportunities and challenges for MNS.            increasing convergence of data and voice
                             Demand was strong, driven by mergers and         communications.       Managed     Security
                             acquisitions, rising need for remote branch      continued to grow in response to rising
                             connectivity and new demand for value adds       security threats on the internet alongside
                             due to higher network complexity and             growing awareness of the severity of
                             change management. On the other hand,            damage, shortage of qualified personnel,
                             challenges came from competitive pricing         and increasing regulatory compliance
                             and the consolidation of networks after          needs. Meanwhile, Managed Data Centre
                             corporate mergers. On our part, we also          aims to tap demand from global customers
                             faced slower deployment in certain cases         and computing hosting requirements
                             caused by internal issues of customers           coming into Malaysia.
                             which slowed down revenue recognition.
                                                                              VADS actively collaborates with international
                             On the whole, the MNS division has made good     and regional telecommunication companies
                             progress in 2006 both in terms of new services   to offer a portfolio of managed global and
                             and customers, as well as service delivery:      local networking services in Malaysia. In
ON OUR SKILLS, KNOWLEDGE                                                      2006, we added two new partnerships –
                             •    Our close collaboration with TM Retail      Orange Business and Asia Netcom to our
       AND EXPERIENCE FOR         in VADS TMPremier yielded a record          existing panel of Global Service Partners
                                  breaking number of 33 accounts closed       including AT&T, Verizon, BT, Singtel, PCCW
                                  during the year                             and Vanco. With these new partners, we will
           WHILST ACTIVELY   •    We achieved an encouraging score of         be able to further capitalise on their global
                                  7.6 on scale of 10 in a customer survey     experience and expertise to reap benefits for
  COLLABORATING WITH OUR          with 89% total response                     our corporate customers.
                             •    We enhanced our offerings with value-
                                  added services such as Managed IP           In 2006, we were awarded for the 2nd year the
 TO ADVANCE AND EMPOWER           Telephony, Managed Security, and            Cisco Best Managed Services Partner Award
                                  Managed Data Centre Services to move        which, together with our recertification as
  COMPANIES IN THEIR QUEST        up the MNS value chain and to gain          Cisco’s Silver Partner, underscores our
                                  further traction into corporate and         quality as a leading MNS provider.
                                  government sectors

                                                                                                     VADS BERHAD 208739-W     19

                            OPERATIONS REVIEW

                            2006 HIGHLIGHTS
                            SIS, which provides e-infrastructure           We continue to build on our skills,
                            solutions in areas such as hardware            knowledge and experience for our products
                            (servers and PCs), software, maintenance       and services whilst actively collaborating
                            and performance monitoring services,           with our alliance partners including
                            posted a commendable performance               Microsoft and IBM to advance and empower
                            despite the intensely competitive business     companies in their quest for efficiency and
                            environment in 2006. The performance was       productivity.
                            partly aided by the review and realignment
                            of our product and service offerings in 2005   In the SIS division, VADS was awarded the
                            to better meet customers’ needs and also to    IBM Platinum Club Award for the 2nd year
                            establish greater synergy with the TM Group    running, and achieved Microsoft Gold
                            of Companies.                                  certification for the first time in 2006. As a
                                                                           Microsoft Gold Certified Partner, VADS has
                            VADS’ Managed Messaging Service made           the certification and expertise to plan and
                            headway in 2006, being well received by the    deploy complex Microsoft-based solutions
                            corporate sector as messaging becomes a        and is also entitled to a host of benefits
                            critical business communication tool.          including software licenses and technical
                            Among which, VADS won a contract from a        support.
                            major shipping company for Centralised
                            Event Management and another from a
                            Government Linked Company for the
                            consolidation of Messaging Systems.

20   VADS BERHAD 208739-W
                              2006 HIGHLIGHTS
                              Through CCS, VADS strives to help                In 2006, the CCS segment posted a 60% jump
                              corporations to effectively and productively     in revenue to RM108.4 million. In terms of new
                              manage their customer relationships. We          customers, we secured a sizeable contract
                              provide primarily Inbound and Outbound           from a leading telecommunication company
                              Customer Service and Technical Support           and also welcomed our first Hosted Contact
                              through integrated multi-lingual and multi-      Centre customer, a multinational insurance
                              channel interaction. In addition, we also        company. Today, VADS is the largest
                              offer Contact Centre Technologies, Training      CCS Provider in Malaysia with over 2,900
                              and Consultancy.                                 Customer Service Representatives, providing
                                                                               employment and training opportunities for
                              Our key focus is to ensure a better service      Malaysians. We started certification from the
                              experience for customers calling into VADS’      internationally    recognized        Customer
                              contact centres whilst increasing the value      Operations Performance Centre (COPC) to
                              of these interactions for our clients. Our key   ensure world class standards for CCS. We
                              projects in 2006 include:                        have one of the most number of COPC
                                                                               graduates, one lead COPC auditor and 11
                              •    Assuming full control of VADS’ Contact      COPC Registered Coordinators, again the
                                   Centre following the exit of our            most number registered in Malaysia.
                                   American partner
                              •    Developing internal applications to         VADS was conferred the 2006 Contact
                                                                               Centre Association Malaysia’s Prestige
                                   help improve workforce management
                                                                               Class Award for consistently executing to
                                   and service level efficiencies
                                                                               improve service operations. This award is
                              •    Building a work culture that fosters
                                                                               the best testimony to our technical
                                   team spirit and greater peer working        expertise, innovativeness and commitment
                                   relationship through training and           to deliver a high level of customer service
         TODAY, VADS IS THE        special programmes                          with the backing of technology partners
                              •    Raising the knowledge base of Customer      including Interactive Intelligence and AVAYA.
  LARGEST CCS PROVIDER IN          Service Representatives through skills
 MALAYSIA WITH OVER 2,900          development training
                              •    Completing a major consultancy
         CUSTOMER SERVICE          project for a leading telecommunications




                                                                                                       VADS BERHAD 208739-W     21

                            OPERATIONS REVIEW

                            In our quest for excellence, the importance of human resource cannot be over-emphasized. As
                            a service-oriented company, it is our vision to foster a dynamic and challenging working
                            environment for employees to contribute, upgrade and push their potential to propel the Group
                            to further growth. As part of strengthening our corporate infrastructure, VADS invested in the
                            following human resource and corporate development:
                            •    Quality initiatives such as ISO9001: 2000, an international certification from SGS Yarsley
                                 International for continuous improvement and refinement of VADS’ business processes
                            •    Recertification as Cisco’s Silver Partner which reflects our strong commitment to customer
                                 service and to enhance MNS' value and capabilities
                            •    Gold Certification for Microsoft in SIS
                            •    Certification for the internationally recognised Customer Operations Performance Centre
                                 to ensure world class standards for CCS

                            To further enhance corporate effectiveness, we worked towards migrating our employees to be
                            under one roof. In line with the increase in our requirements for office space, we became the
                            largest tenant which led to the renaming of the building as Plaza VADS.

                            GROWING OUR FUTURE - 2007 AND BEYOND
                            Against the favourable economic backdrop in 2007, we target to deliver another year of good
                            performance as we reap the benefits of progress made across our core businesses last year. We
                            will continue to invest and develop innovative customer solutions, synergising with TM Group
                            offerings in our core areas of MNS, SIS and CCS to sustain growth momentum. We should also
                            highlight that several MNS and CCS contracts clinched towards the later part of 2006 would only
                            make their full impact this year.

22   VADS BERHAD 208739-W
                           Industry wise, demand is expected to be underpinned by increasing globalisation and
                           competition which drive the need for corporates to improve their communication linkages.
                           Indeed, globalisation has imposed greater needs for companies to communicate with global
                           branches, customers, suppliers, employees and partners, a still evolving trend which augurs
                           well for our Managed Network, Systems Integration and Contact Centre Services. Through the
                           outsourcing of Managed IT Services, companies can free up valuable management time and
                           resources to focus on their core competency. Locally, the transformation programme for
                           Government Linked Companies also offers opportunities for VADS to customise solutions to
                           improve productivity and efficiency.

                           In the fast-paced and competitive industry, we have to constantly upgrade ourselves to stay ahead.
                           We aim to grow our future in three key areas as we continue to focus on quality service delivery
                           alongside the emphasis on innovation to anticipate and keep abreast of customers’ needs:
                           •     People – we would continue to invest in our most valuable capital through the upgrading
                                 of knowledge and professionalism based on our core values
                           •     Business – we will continue developing innovative service offerings in MNS, SIS and CCS;
                                 broaden our customer base and continue to keep a tight rein on costs to improve margins
                                 and profitability
                           •     Company – we would fulfill our role as a socially responsible corporate citizen in the areas
                                 of environment, workplace, community and market place

           THROUGH THE






          ON THEIR CORE


                                                                                                       VADS BERHAD 208739-W     23

                            OPERATIONS REVIEW

                            In our traditional stronghold of MNS, we are optimistic about industry demand and are
                            particularly encouraged by the marketplace’s receptiveness to our value-added offerings of
                            Managed IP Telephony, Managed Security and Managed Data Centre. Among which, we see huge
                            potential for Managed Security in Malaysia which according to Frost & Sullivan, has an estimated
                            market size of as much as RM240 million in 2007. We look to grow and enhance our value-added
                            services, and will work hard to develop our pipeline of new offerings in 2007. At the same time,
                            we aim to raise engineering execution through improvements in consulting, solutioning and
                            project management, while improving customer service delivery with our Network Operations
                            Centre (NOC) and Network Operations Service (NOS). Besides this, we will strengthen our
                            network facilities and infrastructure.

                            We anticipate to secure new MNS contracts from the corporate and government sectors in 2007
                            as they face challenges in hiring experienced IT personnel amidst rising demand for
                            communications beyond geographical boundaries and swift changes in technology.

24   VADS BERHAD 208739-W
                               As for the highly competitive and project-       customer care operations to Malaysia,
                               based business of SIS, our strategy and          supported by factors such as multilingual
                               focus will be to grow Managed Messaging          capabilities, multicultural society, political
                               and Mobility Services as electronic business     and infrastructure stability. Coupled
                               communications become a basic tool for           with greater awareness among local
                               organisations to conduct their businesses.       conglomerates of the benefits of CCS
                               We will continue to build on our success with    outsourcing, IDC has forecast a strong
                               corporates in 2006, and position ourselves to    industry CAGR of 29.1% from 2006 to 2010.
                               participate in total IT allocations of RM12.88
                               billion under the 9th Malaysian plan, of
                               which RM5.7 billion is slated for the            APPRECIATION
                               computerisation of the public sector.            VADS owes its robust performance in 2006
                                                                                to the contributions of many parties, to
                               Turning to CCS, our top priority in 2007 is to   whom I would like to take this opportunity to
                               ensure a smooth transition and high quality      express my heartfelt appreciation. Firstly, I
                               service levels for the contracts that we have    would like to thank our customers for their
                               secured. At the same time, we will work to       support and confidence, and also our
                               deepen service knowledge and raise service       business      partners,    suppliers     and
                               levels for our customers. We also aim to         contractors who have helped in our delivery
                               secure more customers for Hosted Contact         of quality service to maximise customers’
                               Centre, outbound call centre and disaster        satisfaction. My sincere appreciation goes to
                               recovery services. This focus on execution       the Chairman and Board of Directors for
                               and service quality will help in our quest to    their valuable support and guidance, and
                               garner a bigger slice of the huge CCS pie,       last but not least, a big thanks to our
                               estimated by IDC to be worth USD144.75           management and staff, whose dedication
                               million for Malaysia in 2007. In particular,     and professionalism has brought VADS to
                               IDC expects more MNCs to outsource their         where it is today.


                                                                                Dennis Koh
    AND POSITION OURSELVES                                                      Chief Executive Officer








                                                                                                          VADS BERHAD 208739-W   25

                                      DIRECTORS’ PROFILE

 Independent Non-Executive Director
 53 years of age – Malaysian

 DATO’ HAJI ABDUL RAHIM HAJI ABDUL RAZAK has been a Director and the Chairman of VADS since 22 January 2001.

 He holds a Bachelor of Arts Degree in History from University of Malaya in 1977 and served as a history tutor with University of
 Malaya upon his graduation and was appointed the Administrative and Diplomatic officer to the Public Service Department in
 1978. Dato’ Haji Abdul Rahim was later appointed as Senior Private Secretary to the Ministry of Trade and Industry in 1981 and
 was made Special Officer to the Prime Minister in the Prime Minister Department in 1983. He was subsequently appointed as
 Senior Private Secretary to the Minister of the Ministry of Foreign Affairs, Ministry of Information and Ministry of Defence in
 succession from 1986 to 1999. His last appointment in the public service sector was with the Ministry of Home Affairs where he
 served as Senior Private Secretary to the Minister of Home Affairs from 8 January 1999 to 1 January 2001.

 Dato’ Haji Abdul Rahim currently serves as an Independent Non-Executive Chairman of VADS’ Board Nominating and
 Remuneration Committee and a member of VADS’ Board Employees’ Share Option Scheme Committee. He has attended all
 the four (4) Board of Directors’ Meetings of the Company held during the financial year. He has never been charged for any
 offence and has no family relationship with any Director and/or major shareholder of the Company nor any conflict of interest
 with the Company.

26    VADS BERHAD 208739-W
Chief Executive Officer
Non-Independent Executive Director
45 years of age – Malaysian

DENNIS KOH SENG HUAT is the Executive Director since 5 January 2004 and was appointed as the Chief Executive Officer of VADS
with effect from 1 June 2005. He graduated with a Bachelor of Science (Engineering) in Computer Science Degree from the
Imperial College, University of London, United Kingdom in 1984.

He began his career in computer networking in 1985 with Malaysian Airlines Systems Berhad (MAS). In 1990, he moved to Paris,
France to join Societe Internationale de Telecommunications Aeronautiques (SITA) as a Project Manager. After two (2) years, he
joined a new start-up company, VADS, a joint-venture between IBM (Malaysia) Sdn Bhd and Telekom Malaysia Berhad then. Over
the following thirteen (13) years, he held various senior positions before assuming his current position as the Chief Executive
Officer on 1 June 2005.

Dennis Koh is currently a member of VADS’ Board Employees’ Share Option Scheme Committee and a Board member of VADS’
subsidiaries. He has attended all the four (4) Board of Directors’ Meetings of the Company held during the financial year. He has
never been charged for any offence and has no family relationship with any Director and/or major shareholder of the Company
nor any conflict of interest with the Company.

                                                                                                        VADS BERHAD 208739-W    27

                                            DIRECTORS’ PROFILE

 DATO’ ABDUL WAHID OMAR                                                     TAN POH KEAT
 Non-Independent Non-Executive Director                                     Senior Independent Non-Executive Director
 43 years of age – Malaysian                                                70 years of age – Malaysian

 DATO’ ABDUL WAHID OMAR was appointed Director of VADS on
                                                                            TAN POH KEAT was appointed Director of VADS on
 1 July 2004. He is currently the Group Chief Executive Officer
                                                                            2 February 2001 and as Senior Independent Non-Executive
 (Group CEO) of Telekom Malaysia Berhad (TM).
                                                                            Director with effect from 25 May 2005. He graduated with a
 He was formerly the Managing Director / Chief Executive Officer of         Bachelor of Engineering (Electrical) Degree and Master of
 United Engineers (Malaysia) Berhad and UEM World Berhad. He was            Engineering Degree, both from Auckland University, New
 also the Executive Vice Chairman of PLUS Expressways Berhad. Prior to      Zealand under the Colombo Plan Scholarship.
 his stint at UEM Group, Dato’ Abdul Wahid had served TM as the Chief
 Financial Officer in 2001.
                                                                            He joined Jabatan Telekom Malaysia (JTM) in 1962 as an
                                                                            engineer and has served in various appointments, the last being
 A qualified accountant by training, Dato' Abdul Wahid is a Fellow of the
 Association of Chartered Certified Accountants (ACCA), United Kingdom      Deputy Director General. Subsequently he joined Telekom
 and a member of the Malaysian Institute of Accountants. He previously      Malaysia Berhad (TM), as Director, Networks Service and retired
 served as a Director of Group Corporate Services cum Divisional            at the end of 1991. Currently, he is an independent consultant to
 Director, Capital Market & Securities of Amanah Capital Partners           a number of local and international companies.
 Berhad, Chairman of Amanah Short Deposits Berhad as well as a
 Director of Amanah Merchant Bank Berhad and several other
                                                                            Mr. Tan was a Director of TM from 29 August 2000 to 1 June 2004.
 companies in the financial services sector.
                                                                            He is currently a Director of Celcom (Malaysia) Berhad and
 As the Group CEO of TM, Dato’ Abdul Wahid is also the Deputy Chairman      Technology Resources Industries Berhad as well as a member of
 of Celcom (Malaysia) Berhad and Director of several other companies in     VADS’ Board Audit Committee. He has attended all the four (4)
 the TM Group. In VADS, Dato’ Abdul Wahid serves as the Chairman of         Board of Directors’ Meetings of the Company held during the
 VADS’ Board Employees’ Share Option Scheme Committee and a                 financial year. He has never been charged for any offence and
 member of VADS’ Board Nominating and Remuneration Committee. He            has no family relationship with any Director and/or major
 is also currently a Director of Bursa Malaysia Berhad and member of
                                                                            shareholder of the Company nor any conflict of interest with the
 the Financial Reporting Foundation of Malaysia and the Investment
 Panel of Lembaga Tabung Haji.

 Dato’ Abdul Wahid has attended all the four (4) Board of Directors’
 Meetings of the Company held during the financial year. He has never
 been charged for any offence and has no family relationship with any
 Director and/or major shareholder of the Company nor any conflict of
 interest with the Company.

28     VADS BERHAD 208739-W
CHEN YOW SEONG                                                       ZAMZAMZAIRANI MOHD ISA
Independent Non-Executive Director                                   Non-Independent Non-Executive Director
45 years of age – Malaysian                                          46 years of age – Malaysian

CHEN YOW SEONG was appointed Director of VADS on                     ZAMZAMZAIRANI MOHD ISA was appointed Director of VADS on
14 June 2002. He is an accountant by profession having qualified     1 December 2004. He holds a Bachelor of Science Degree in
in 1990 as a Certified Public Accountant.                            Communication Engineering from Plymouth Polytechnic, United
                                                                     Kingdom and has attended the Kellog School of Management’s
He is a member of both the Malaysian Institute of Certified Public   programme on ‘Corporate Finance Strategies for Creating
Accountants and the Malaysian Institute of Accountants. He is        Shareholder Value’.
also a fellow member of the Malaysian Institute of Taxation. He
started his career with an international professional accounting     He is the Chief Executive Officer (CEO) Malaysia Business of
firm, Peat Marwick where he served his articleship. In 1988, he      Telekom Malaysia Berhad (TM), overseeing TM Retail, TM Net,
was appointed as Senior Auditor in another international             TM Wholesale and several other related subsidiaries of TM. Prior
professional accounting firm Ernst & Young.                          to his appointment as CEO Malaysia Business, he was the Senior
                                                                     Vice President, Group Strategy and Technology of TM.
With vast experience in audit and financial consulting, Mr. Chen
specialises in Organisation and Systems Review, Privatisation,       He has over 22 years of telecommunications industry
Mergers, Acquisition and Turnaround exercises. He has extensive      experience, starting his career with the then Jabatan Telekom
experience in reviewing and documenting clients’ operational         Malaysia in 1984, progressing to General Manager, Global
procedures and has been Project Manager for various                  Business, prior to his move to a local mobile operator in 1997.
assignments including corporatisation of Tenaga Nasional             Thereon, Zamzamzairani held senior leadership positions at
Berhad and the National Privatisation of Solid Waste                 several multinational companies such as Global One and Lucent
Management.                                                          (Malaysia) Sdn Bhd, where he led the company as the CEO.

Mr. Chen currently serves as an Independent Non-Executive            In addition to his executive responsibilities, Zamzamzairani also
Chairman of VADS’ Board Audit Committee and a member of              sits on the Board of several subsidiaries of TM. He served as a
VADS’ Nominating and Remuneration Committee and VADS’                member of VADS’ Board Audit Committee until his resignation on
Board Employees’ Share Option Scheme Committee. He is also a         9 November 2006. Zamzamzairani has attended all the four (4)
Board member of various private companies. He has attended all       Board of Directors’ Meetings of the Company held during the
the four (4) Board of Directors’ Meetings of the Company held        financial year. He has never been charged for any offence and has
during the financial year. He has never been charged for any         no family relationship with any Director and/or major shareholder
offence and has no family relationship with any Director and/or      of the Company nor any conflict of interest with the Company.
major shareholder of the Company nor any conflict of interest
with the Company.

                                                                                                           VADS BERHAD 208739-W      29

                                        DIRECTORS’ PROFILE

 DATO’ ADNAN ROFIEE                                                  KHAIRUSSALEH RAMLI
 Non-Independent Non-Executive Director                              Non-Independent Non-Executive Director
 52 years of age – Malaysian                                         39 years of age – Malaysian

 DATO’ ADNAN ROFIEE was appointed Director of VADS on                KHAIRUSSALEH RAMLI was appointed Director of VADS on
 30 August 2005. He graduated with a Bachelors Degree in             9 November 2006. He holds a Degree in Business Administration from
 Electronic Engineering from Brighton Polytechnic, United            Washington University, St Louis, Missouri, USA.
                                                                     With more than 16 years’ experience primarily in financial services,
 Dato' Adnan was appointed as the Chief Operating Officer of TM      Khairussaleh was appointed as the Chief Executive Officer of TM
 Retail, Telekom Malaysia Berhad (TM) on 1 July 2004. His            Ventures, Telekom Malaysia Berhad (TM) on 4 September 2006.
 29-year career in the telecommunications industry started in
 Jabatan Telekom Malaysia (JTM) in 1977, as a Planning               Prior to his appointment in TM, he was the Chief Financial Officer of Bursa
 Engineer, Customer Access Network for the Central Region. He        Malaysia Berhad (Bursa Malaysia), an organisation which he served from
 was later appointed as the General Manager of the Sarawak           July 1998 to August 2006. During his tenure in Bursa Malaysia, he held
 Operations Area in 1994. A year later, Dato' Adnan was appointed    senior positions in various divisions within the organisation, namely,
 as Head of a Major Business Unit, before being transferred          Strategic Planning and International Affairs, Business Development &
 overseas in 1997 as the Managing Director of Ghana                  International Affairs, Planning & Business Development, Policy &
 Telecommunication Co. Ltd, one of TM's associate companies. In      Development and Corporate Finance. Khairussaleh was Head of Strategy
 April 2000, he was selected to head TM Cellular Sdn Bhd, a          & Corporate Finance in Bursa Malaysia from September 2003 to May 2004
 wholly-owned subsidiary of TM as its Chief Executive Officer, and   prior to his promotion to Chief Financial Officer, a position which he held
 in February 2001, as the Senior Vice President of Major Business    from June 2004 to 31 August 2006.
 & Government before assuming his current position.
                                                                     Khairussaleh has also previously served the Public Bank Group for
 Dato’ Adnan is a Board member of several subsidiaries of TM. He     7 years, during which time he gained experience in corporate banking,
 has attended all the four (4) Board of Directors’ Meetings of the   equity research and futures broking, including serving as Executive
 Company held during the financial year. He has never been           Director, PB Futures from 1995 to 1997.
 charged for any offence and has no family relationship with any
 Director and/or major shareholder of the Company nor any            Khairussaleh currently serves as a member of VADS’ Board Audit
 conflict of interest with the Company.                              Committee as well as a Board member of a number of subsidiaries of
                                                                     TM. He is also a Board member of Measat Global Berhad, a company
                                                                     listed on the Bursa Malaysia Securities Berhad. After his appointment,
                                                                     he attended the last Board of Directors’ Meeting of the Company held
                                                                     during the financial year. He has never been charged for any offence and
                                                                     has no family relationship with any Director and/or major shareholder of
                                                                     the Company nor any conflict of interest with the Company.
30     VADS BERHAD 208739-W
(Alternate Director to Dato’ Abdul Wahid Omar)
Non-Independent Non-Executive Director
43 years of age – Malaysian

BAZLAN OSMAN was appointed Alternate Director to
Dato’ Abdul Wahid Omar on 5 May 2005. He is a Fellow of the
Association of Chartered Certified Accountants (UK) and also a
Chartered Accountant of the Malaysian Institute of Accountants.
Bazlan is also a member of the Issues Committee of the
Malaysian Accounting Standards Board.

He began his career as an auditor with a public accounting firm
from 1986 to 1989 and subsequently served the Sime Darby
Group, holding various positions in its corporate office, Singapore
and Melaka. He later had a brief stint in American Express
(Malaysia) Berhad before joining Kumpulan FIMA Berhad in 1994
where he was subsequently appointed Senior Vice President,
Finance/Company Secretary.

He joined Celcom (Malaysia) Berhad in 2001 and his last position
there was that of Chief Financial Officer (CFO) prior to his
appointment as Group CFO of Telekom Malaysia Berhad (TM) on
1 May 2005.

He currently sits on the Board of several subsidiaries and
associate companies of TM. He also sits on the Board of
Commissioners of PT Excelcomindo Pratama Tbk., a subsidiary
of TM and listed on the Jakarta Stock Exchange. He has never
been charged for any offence and has no family relationship with
any Director and/or major shareholder of the Company nor any
conflict of interest with the Company.

                                                                      VADS BERHAD 208739-W   31

                                          MANAGEMENT TEAM

                                                            DENNIS KOH
                                                            Chief Executive Officer

                                                            FATHI RIDZUAN AHMAD FAUZI
                                                            Chief Financial Officer

        KAM WAI PENG
        General Manager
        Business Development

        General Manager
        Human Resource & Organisational Development

                                                            MEGAT MAZHAR KHAIR
                                                            General Manager
                                                            Managed Network Services – National

                                                            DARREN TAN
                                                            General Manager
                                                            Managed Network Services – International

        JAMES KWAI
        Assistant General Manager
        Managed Network Services – National (Sales)

        General Manager
        Systems Integration Services

                                                            LEE SIAO YEN
                                                            General Manager
                                                            Contact Centre Services

                                                            SHARIFAH AAMENAH ALJUNID
                                                            General Manager
                                                            VADS Contact Centre Services Sdn Bhd

        Assistant General Manager
        Contact Centre Consulting and Training

        Assistant General Manager
        Contact Centre Outsourcing

32   VADS BERHAD 208739-W
                         CORPORATE STRUCTURE

VADS BERHAD   208739-W

                                        100%   VADS e-SERVICES SDN BHD 355899-W


                                        100%   VADS SOLUTIONS SDN BHD 356358-U


                                                                                  VADS BERHAD 208739-W   33

                            CORPORATE INFORMATION

                              BOARD OF DIRECTORS                         ZAMZAMZAIRANI MOHD ISA
                              DATO’ HAJI ABDUL RAHIM                     (Non-Independent Non-Executive Director)
                              HAJI ABDUL RAZAK
                              Chairman                                   DATO’ ADNAN ROFIEE
                              (Independent Non-Executive Director)       (Non-Independent Non-Executive Director)

                              DENNIS KOH SENG HUAT                       KHAIRUSSALEH RAMLI
                              Chief Executive Officer                    (Non-Independent Non-Executive Director)
                              (Non-Independent Executive Director)
                                                                         BAZLAN OSMAN
                              DATO’ ABDUL WAHID OMAR                     Alternate Director to Dato’ Abdul Wahid Omar
                              (Non-Independent Non-Executive Director)   (Non-Independent Non-Executive Director)

                              TAN POH KEAT
                              (Independent Non-Executive Director)

                              CHEN YOW SEONG
                              (Independent Non-Executive Director)

34   VADS BERHAD 208739-W
CHEN YOW SEONG               WANG CHENG YONG                Tenaga Koperat Sdn Bhd
Chairman                     MAICSA 0777702                 20th Floor, Plaza Permata
                                                            Jalan Kampar
TAN POH KEAT                 ZAITON AHMAD                   Off Jalan Tun Razak
                             MAICSA 7011681                 50400 Kuala Lumpur, Malaysia
KHAIRUSSALEH RAMLI                                          Tel       : 603-4041 6522
                                                            Fax       : 603-4042 6352
REMUNERATION COMMITTEE       Level 51, North Wing
DATO’ HAJI ABDUL RAHIM       Menara TM                      AUDITORS
HAJI ABDUL RAZAK             Jalan Pantai Baharu            PricewaterhouseCoopers
Chairman                     50672 Kuala Lumpur, Malaysia   11th Floor
                             Tel       : 603-2240 1211/     Wisma Sime Darby
DATO’ ABDUL WAHID OMAR                   1221/1225          Jalan Raja Laut
                             Fax       : 603-2283 2415/     50706 Kuala Lumpur, Malaysia
CHEN YOW SEONG                           2284 8039          Tel       : 603-2693 1077
                                                            Fax       : 603-2693 0997
Alternate Member to          HEAD OFFICE
Dato’ Abdul Wahid bin Omar   15th Floor, Plaza VADS         PRINCIPAL BANKER
                             No. 1, Jalan Tun Mohd Fuad     CIMB Bank Berhad
                             Taman Tun Dr Ismail            (formerly known as Bumiputra-
ESOS COMMITTEE               60000 Kuala Lumpur, Malaysia   Commerce Bank Berhad)
DATO’ ABDUL WAHID OMAR       Tel        : 603-7712 8888
Chairman                     Fax        : 603-7728 2584
                             E-mail :         STOCK EXCHANGE LISTING
DATO’ HAJI ABDUL RAHIM       Website :         Main Board,
HAJI ABDUL RAZAK                                            Bursa Malaysia Securities


                             Wang Cheng Yong      Zaiton Ahmad

                                                                 VADS BERHAD 208739-W   35

                            STATEMENT ON CORPORATE GOVERNANCE

                            COMPLIANCE WITH THE CODE
                            CODE) TO ENHANCE SHAREHOLDERS’ VALUE AND THE
                            FINANCIAL PERFORMANCE OF THE GROUP.

36   VADS BERHAD 208739-W
VADS, as a subsidiary of Telekom Malaysia Berhad (TM), one of the
major Government Linked Companies (GLC), would not only abide
by the principles and best practices of the Code, but also new
principles introduced by the Putrajaya Committee on GLC High

This Statement, together with other statements, such as the
Statement on Internal Control, set out the manner in which the
Company has applied the principles of the Code and its
compliance with the best practices of the Code for the financial
year ended 31 December 2006.


Roles and Responsibilities of the Board
VADS Group is led and controlled by an experienced Board
consisting of members with a wide range of business, financial,
technical and public service background. The Board has assumed
the following six (6) specific responsibilities in discharging its
• Review and adopt a strategic plan
• Oversee and evaluate the conduct of the Company’s business
• Identify and manage principal risks
• Succession planning
• Develop and implement an investor relations programme
• Review adequacy and integrity of the Company’s internal controls

Board Meetings
During the financial year, four (4) Board Meetings were held. All
Directors have complied with the minimum 50% attendance
requirement in respect of the Board Meetings as stipulated by the
Listing Requirements of Bursa Malaysia Securities Berhad (Bursa
Securities). The attendance of the individual Directors at Board
Meetings held in 2006 is recorded within the Directors’ Profile on
pages 26 to 31.

Board Composition and Balance
The Board consists of eight (8) members, comprising one (1)
Executive Director who is also the Chief Executive Officer (CEO),
four (4) Non-Executive Directors and three (3) Independent
Non-Executive Directors, representing one third of the Board.
There is also an Alternate Director to one of the Non-Executive
Directors. On 9 November 2006, the Board approved the
appointment of an additional Non-Independent Non-Executive
Director, Khairussaleh Ramli. The Board believes that its
current size which is in line with the GLC guidelines is
appropriate for its purpose.

                                                                     VADS BERHAD 208739-W   37

                            STATEMENT ON CORPORATE GOVERNANCE

                            Tan Poh Keat is the Senior Independent Non-Executive Director, called for in the Code and to
                            whom concerns pertaining to the Group may be conveyed by the shareholders and the public.

                            The Board members have a wealth of experience as well as skills and knowledge, ranging from
                            businesses, financial, technical to public service, which are relevant to the Group. The Board is
                            of the view that the interests of shareholders of the Company are fairly represented through the
                            current Board composition. The diversity in expertise and perspectives give added strength to
                            the leadership, which is necessary for the effective stewardship of the Group. The Directors’
                            Profile, appearing on pages 26 to 31 inclusive, demonstrate the range of experiences essential
                            for the management of the Group’s business.

                            Roles of the Chairman, CEO and Non-Executive Directors
                            The roles of the Non-Executive Chairman, Dato’ Haji Abdul Rahim Haji Abdul Razak and the
                            Executive Director/CEO, Dennis Koh Seng Huat are distinct and separate and their
                            responsibilities are clearly defined to ensure a balance of power and authority.

                            The main focus of the Board is on the overall strategic direction, development and control of the
                            Group. In discharging this duty, the Board approves the Group’s strategic plan and its annual
                            budget. Throughout the financial year, the Board reviews the performance of the individual
                            companies in the Group against their budgets and targets.

                            The Executive Director/CEO is responsible for the implementation of broad policies approved by
                            the Board and he is obliged to report and discuss at Board Meetings all material matters
                            currently or potentially affecting the Group and its performance, including all strategic projects
                            and regulatory developments. The Chairman, who presides over all Board Meetings, is
                            responsible in ensuring the integrity and effectiveness of the relationship between the Executive
                            and Non-Executive Directors.

                            The Non-Executive Directors contribute considerably to the formulation of policy and decision-
                            making through their knowledge and experience from other businesses and sectors, both
                            private and public. Chen Yow Seong, the Independent Non-Executive Chairman of the Company’s
                            Audit Committee is a member of both the Malaysian Institute of Certified Public Accountants and
                            the Malaysian Institute of Accountants. He is also a fellow member of the Malaysian Institute of

                            The Independent Non-Executive Directors are independent of management and free from any
                            business or other relationships, which could materially interfere with the exercise of their
                            independent judgement as defined under paragraph 1.01 of the Bursa Securities Listing
                            Requirements. Their role is particularly important as they ensure that the strategies proposed
                            by the Management are fully discussed and evaluated, taking into account the long term interest
                            of the stakeholders, namely the Company’s shareholders, employees, customers, business
                            associates and the communities as a whole.

                            Independence and Conflict of Interest
                            The independence of the Non-Executive Directors is under constant review against best
                            practices and regulatory provisions. The Directors acknowledged their responsibility to
                            determine whether they have a potential or actual conflict of interest in relation to any matter,
                            which comes before the Board. The Company and Group has adopted a process whereby each
                            Director is required to make written declarations whether they have any interest in transactions
                            tabled at regular Board Meetings.

38   VADS BERHAD 208739-W
Code of Business Ethics
Being a subsidiary of TM, VADS adopted and implemented TM’s Code of Business
Ethics soon after it was launched, whereby the CEO, Management and all employees
are required to declare their assets and interests. The Code of Business Ethics
supports the vision and core values in instilling, internalising and upholding the value
of "uncompromising integrity" in the behaviour and conduct of the Board of Directors,
Management, employees and all stakeholders of the Company.

Board Appointment Process
The Board has put in place a formal and transparent procedure for the appointment
of new Directors to the Board. According to the procedure, the Nominating and
Remuneration Committee which consists of three (3) Non-Executive Directors, out of
which two (2) are Independent will consider all nominations to the Board after taking
into account the required mix of skills and experience and other qualities, before
making a recommendation to the Board.

Board Appraisal Process
The formal Board Effectiveness Evaluation (BEE) Framework comprises a Board
Effectiveness Assessment and a Board of Directors’ Self/Peer Assessment, was
designed to maintain cohesiveness of the Board and at the same time serves to
improve the Board’s effectiveness.

                                                                             VADS BERHAD 208739-W   39

                            STATEMENT ON CORPORATE GOVERNANCE

                            The board performance indicators based           set out in the Directors’ Profile on pages
                            on the effectiveness evaluation includes,        26 to 31 inclusive. Their securities holdings
                            board composition, board administration,         in the Company and its holding company/
                            board accountability and responsibility and      related corporation are set out in the
                            board conduct. Performance indicators for        Directors’ Shareholdings on page 128.
                            individual directors include their interactive
                            contributions, understanding of their roles      Directors’ Training
                            and quality of input.                            The Board acknowledged the importance of
                                                                             continuous education and training to enable
                            In order to ensure integrity and independence    effective discharge of their responsibilities.
                            of the appraisal process, an external            All the Directors have successfully completed
                            independent advisor has been engaged to          the Mandatory Accreditation Programme
                            tabulate and report to the Chairman, the         (MAP) prescribed by Bursa Securities,
                            results of the evaluation process. Every board   including En. Khairussaleh who came on
                            member is provided with the results of the       Board during the financial year. Induction
                            self evaluation marked against the peer          briefing, which includes information on the
                            evaluation to allow for comparison.              corporate profile and activities of the Group as
                                                                             well as business plan targets and Group’s
                            VADS’ Board effectiveness evaluation has         performance are organised for newly
                            successfully facilitated in focusing the         appointed Board of Directors.
                            Board’s attention to areas to be addressed.
                                                                             Following the repeal of Practice Note no. 15
                            Re-Election of Directors                         on Continuing Education Programme (CEP)
                            In accordance with the Listing Requirements      prescribed by Bursa Securities, the Board of
                            of Bursa Securities and the Company’s            Directors of each listed issuers has a duty to
                            Articles of Association, all Directors who are   evaluate and determine the training needs
                            appointed by the Board are subject to            of its Directors on a continuous basis. The
                            election by the shareholders at the Annual       training must be one that aids the Director
                            General Meeting subsequent to their              in the discharge of his duties as a Director.
                            appointment. The Articles of Association
                            also provide that one third of the Directors     The Board of Directors has duly adopted a set
                            for the time being or, if their number is not    of Board Training Programme (BTP)
                            three or a multiple of three, then the number    Guidelines to address training needs of the
                            nearest to one third are subject to              Directors in the absence of the Bursa
                            re-election by rotation at each Annual           Securities’ CEP requirements. The BTP
                            General Meeting provided always that all         Guidelines imposed a minimum of 20 training
                            Directors including the Executive Director       hours to be accomplished by the Directors
                            shall retire from office once in every three     within a calendar year. The BTP Guidelines
                            years but shall be eligible for re-election.     allows for speaking roles at conferences to be
                                                                             allocated training hours. During the year, the
                            With the process on re-election of Directors,    Directors have attended various seminars,
                            shareholders are ensured of a regular            conferences or workshops, locally and
                            opportunity to reassess the composition of       internationally, to gain insight into the state
                            the Board. Names of Directors submitted          of the economy as well as latest regulatory
                            to shareholders for re-election are              and technological developments in relation to
                            enumerated in the Statement Accompanying         the Group’s business. Several Directors have
                            the Notice of Annual General Meeting on          also actively participated as speakers at local
                            page 127, while their respective profiles are    and/or international conventions on relevant

40   VADS BERHAD 208739-W
topics. In doing so, all Directors have acquired the minimum 20 training hours under the BTP or the minimum pro-rated training
hours for the newly appointed Director.

Directors’ Remuneration
The framework for the remuneration of the Executive and Non-Executive Directors are reviewed regularly against market
practices. As an Executive Director, the CEO is paid a salary, allowances, bonuses and other customary benefits as
appropriate as a senior management member. Salary reviews take into account market rates and the performance of the
individual and the Group. Remuneration of the Non-Executive Directors is based on a standard fixed fee. Additional allowances
are also paid in accordance with the number of meetings attended during the financial year.

Details of the remuneration of each Director of the Company for the financial year ended 31 December 2006, are as follows:

 Directors                                          Salary               Fixed          Allowances              Bonuses              Benefits                 Total
                                                                       Monthly                                                       -In-Kind
                                                        RM                 RM                    RM                   RM                   RM                   RM

Dennis Koh Seng Huat                          #462,220.00                     —           48,540.00          ^321,900.00          **24,829.55           857,489.55


Dato’ Haji Abdul Rahim
  Haji Abdul Razak                                       —           60,000.00              3,000.00                    —           15,340.00            78,340.00
Dato’ Abdul Wahid Omar                                   —          *18,000.00             *2,300.00                    —                  —             20,300.00
Tan Poh Keat                                             —           18,000.00              3,200.00                    —                  —             21,200.00
Chen Yow Seong                                           —           18,000.00              4,300.00                    —            1,140.00            23,440.00
Zamzamzairani Mohd Isa                                   —          *18,000.00             *3,200.00                    —                  —             21,200.00
Dato’ Adnan Rofiee                                       —          *18,000.00             *2,000.00                    —                  —             20,000.00
Khairussaleh Ramli                                       —           *3,000.00               *500.00                    —                  —              3,500.00
Appointed w.e.f 9 November 2006

Alternate Director
Bazlan Osman                                             —                    —              *300.00                    —                   —              *300.00
Alternate Director to
Dato’ Abdul Wahid Omar

TOTAL                                          462,220.00           153,000.00            67,340.00           321,900.00            41,309.55         1,045,769.55

#    Inclusive of Company’s contribution to Employees Provident Fund (RM102,220.00).
^    Bonuses for 2005 and 2006.
*    Paid directly to Telekom Malaysia Berhad (TM) as management fee for nominees of TM.
**   In addition to the total benefits-in-kind, Dennis Koh Seng Huat is entitled to a benefit from ESOS options which resulted in a total cost of RM95,393.04 incurred
     by the Company pursuant to FRS2.

                                                                                                                                               VADS BERHAD 208739-W      41

                            STATEMENT ON CORPORATE GOVERNANCE

                            Availability of Information to the Board
                            It is crucial that relevant information required to make informed decisions are provided in a
                            timely manner. Recognising that fact, the Board and its Committees are supplied with an
                            agenda and relevant up-to-date information in good time prior to each meeting to enable
                            them to make informed decisions.

                            The information regularly supplied to the Board includes, inter alia, annual business plans
                            and budget, quarterly financial results, management performance reports which include
                            comprehensive reviews and analysis of major business and financial issues, key business
                            indicators and the quality of products and services, reports from meetings of Board
                            Committees, and details of corporate exercises (if any).

                            All Directors have access to the advice and services of the Company Secretary. Procedures
                            are in place for Directors and Board Committees to seek independent professional advice
                            where necessary, in the course of fulfilling their responsibility, at the Company’s expense.

                            BOARD COMMITTEES
                            The Board delegates certain responsibilities to Board Committees, namely the Audit
                            Committee, the Nominating and Remuneration Committee and the Employees’ Share Option
                            Scheme (ESOS) Committee. All Committees have written terms of reference and operating
                            procedures and the Board receives reports of their proceedings and deliberations. Where
                            Committees have no authority to make decisions on matters reserved for the Board,
                            recommendations would be highlighted for the Board of Directors’ approval. The Chairmen
                            of the various Committees report the outcome of Committee Meetings to the Board, and
                            these are incorporated in the minutes of the Board of Directors’ Meetings.

                            Audit Committee
                            A full Audit Committee Report enumerating its membership, role and activities during the
                            financial year is set out on pages 53 to 55 inclusive.

                            Nominating and Remuneration Committee
                            Dato’ Haji Abdul Rahim Haji Abdul Razak
                            (Chairman, Independent Non-Executive)

                            Dato’ Abdul Wahid Omar
                            (Non-Independent Non-Executive)

                            Chen Yow Seong
                            (Independent Non-Executive)

                            Bazlan Osman
                            Alternate Member to Dato’ Abdul Wahid Omar
                            (Non-Independent Non-Executive)

42   VADS BERHAD 208739-W
Main Objectives:                                  The Nominating and Remuneration
• To ensure that the Directors of the Board       Committee has the authority to examine a
   bring characteristics to the Board, which      particular issue within its terms of reference
   provide a required mix of responsibilities,    and report back to the Board with
   skills and experience.                         recommendations. The determination of
• To set the policy framework and to make         remuneration packages of Directors is a
   recommendations to the Board on all            matter for the Board as a whole and
   elements of the remuneration, terms of         individuals are required to abstain from
   employment, reward structure and fringe        discussion on their own remuneration.
   benefits for Executive Director and/or the
   CEO with the aim to attract, retain and        The Committee met once during the financial
   motivate individuals of the highest quality.   year. The meeting was convened to inter alia,
                                                  recommend to the Board of Directors on
Principal Duties and Responsibilities:            changes in Directors within the Group during
• Recommend to the Board candidates for           the year, evaluate the performance and
    directorship as well as membership of         decide on the remuneration of the Executive
    all Board Committees. In making               Director/CEO, the adoption of BTP Guidelines
    its recommendations, the Committee            and BEE Framework.
    considers      candidates     from      the
    Management for directorship in its Group      ESOS Committee
    of companies as proposed by the CEO.          Membership:
• Determine the most effective size of the        Dato’ Abdul Wahid Omar
    Board in terms of the number of               (Chairman, Non-Independent
    Directors and review the mix of skills,       Non-Executive)
    experience and other qualities required.
• Recommend           suitable    orientation,    Dato’ Haji Abdul Rahim Haji Abdul Razak
    educational and training programmes to        (Independent Non-Executive)
    continuously train and equip existing and
    new Directors.                                Chen Yow Seong
• Set, review, recommend and provide              (Independent Non-Executive)
    advice on the policy framework on all
    elements of remuneration such as reward       Dennis Koh Seng Huat
    structure, fringe benefits and other terms    (Non-Independent Executive)
    of employment of the Executive Director
    and/or the CEO in accordance with the         The ESOS Committee, established on
    Group’s policy guidelines and framework.      4 November 2004, has the principal duties
• Advise the Board on the performance of          and responsibilities of construing and
    the Executive Director and/or the CEO         interpreting the ESOS and options granted
    and assess their entitlement to               under it, defining the terms therein and
    performance-related pay.                      recommending to the Board to establish,
• Establish and recommend a formal                amend and resolve rules and regulations
    and transparent policy on the                 relating to the ESOS and its administration.
    remuneration of the Non-Executive
    Chairman, Non-Executive Directors and
    Board Committees, which recommendation
    shall be decided by the Board of
    Directors as a whole.

                                                                             VADS BERHAD 208739-W   43

                            STATEMENT ON CORPORATE GOVERNANCE

                            Authority was given to any two (2)                 The Company supports the Code’s principle
                            committee members to approve allotment             to encourage shareholders’ participation.
                            of shares pursuant to ESOS exercises by            The Company’s Articles of Association allow
                            employees. There was a total of 46 circular        a member entitled to attend and vote, to
                            resolutions passed by the ESOS Committee           appoint a proxy to attend and vote instead of
                            on share allotments and allocations during         the member and also provide that a proxy
                            the financial year, with 1,930,000 shares          need not be a member of the Company.
                            exercised pursuant thereto.
                                                                               Investor Relations
                            The Company’s ESOS was approved by                 VADS values the importance of transparency
                            the shareholders and implemented on                and accountability to its shareholders.
                            1 April 2005.                                      Through its Marketing and Communications
                                                                               (MarCom)        Unit,     VADS    proactively
                                                                               disseminates relevant information in a
                            RELATIONSHIP AND COMMUNICATION WITH                timely manner and regularly communicates
                            SHAREHOLDERS/INVESTORS                             with the investment community to ensure
                                                                               that Group’s strategies, operational
                            Relationship with Shareholders/ Investors          activities and financial performance are well
                            The Board acknowledges its role in                 understood and kept up to date.
                            representing and promoting the interests of
                            shareholders and that it is accountable to the     The Executive Director/CEO and the Chief
                            shareholders for the performance and               Financial Officer are actively involved in
                            activities of the Group. Care is taken to ensure   investor relations activities through regular
                            reporting to shareholders is balanced and          meetings with institutional fund managers
                            sufficiently comprehensive and objective to        and analysts.
                            allow performance to be measured. The Board
                            also maintains channels of communications          VADS takes great care to ensure that no
                            with its major shareholder to take heed of         market sensitive information, such as
                            their concerns over matters on corporate           corporate proposals, financial results or
                            governance and Group performance.                  other material information is disseminated
                                                                               to any party without first making an official
                            Annual Report and Annual General Meetings          announcement to Bursa Securities for
                            In addition to quarterly financial results and     public    release     to    ensure    equal
                            various other announcements made during            dissemination of information to all
                            the    financial    year,     the    Company       investors. Any information that is released
                            communicates with shareholders and                 strictly adheres to disclosure rules and
                            investors through its annual report, with          regulations of Bursa Securities Listing
                            comprehensive and sufficient details about         Requirements.
                            financial results and activities of the Group.
                                                                               Website Information
                            The Annual General Meeting remains the             In addition to the annual report, VADS
                            principal forum for dialogue with shareholders     maintains a website at
                            and provides an open forum at which                as a medium of communication and source
                            shareholders and investors are informed of         of information to shareholders and the
                            current developments and where ample time          general public.
                            is allowed for questions to be raised to Board
                            members and Committees’ Chairmen.

44   VADS BERHAD 208739-W
VADS website provides, inter alia, VADS’            Internal Controls
latest financial results and press releases.        The Board acknowledges its overall
Bursa Securities also provides for the              responsibility for maintaining a sound system
Company to electronically publish all its           of internal controls to safeguard shareholders’
announcements including its quarterly               investment and Group’s assets. The Statement
results and annual reports through                  on Internal Control set out on pages 49 to 52
Bursa Securities’ internet website at               inclusive, provides an overview of the state of
http://www.announcements.bursamalaysia.             internal controls within the Group.
                                                    Relationship with Auditors
                                                    The appropriate relationship is maintained
ACCOUNTABILITY AND AUDIT                            with the Company’s auditors through the
                                                    Audit Committee. The Audit Committee has
Financial Reporting                                 been explicitly accorded the power to
The Board is committed to provide and               communicate directly with both the external
present a balanced and meaningful                   auditors and internal auditors.
assessment of the Group’s financial
performance and prospects at the end of             The role of the Audit Committee in relation
each financial year, primarily through              to the auditors is set out in the Terms of
annual financial statements, quarterly and          Reference on pages 56 to 57 inclusive.
half-yearly announcement of results to
shareholders as well as the Chairman’s              Audit Committee
Statement and Review of Operations in the           The Audit Committee also conducts reviews of
annual report. The Board is assisted by the         the Internal Audit Function in terms of its
Audit Committee to oversee the Group’s              authority, resources and scope as defined in
financial reporting processes and the quality       the Internal Audit Charter. Furthermore, it
of its financial reporting.                         ensures the independence of the internal
                                                    auditor and unrestricted access to information
The Group benefited from the initiatives by         and people in the Group. Highlights of
TM, assisted by the external auditors, to           activities conducted by the Committee are
facilitate the adoption of the various              detailed in the Audit Committee Report on
Financial Reporting Standards (FRS)                 pages 53 to 55 inclusive.
affecting the Group’s financial reporting.
The FRS took effect on 1 January 2006,              Signed on behalf of the Board of Directors
following its official adoption by the
Malaysian Accounting Standards Board.

Directors’ Responsibility Statement
The Directors are required by the
Companies Act, 1965 to ensure that financial
statements prepared for each financial year         Dato’ Haji Abdul Rahim Haji Abdul Razak
give a true and fair view of the state of affairs   Chairman
of the Group and the Company as at the end
of the financial year and of the results and        15 February 2007
cash flows of the Group and Company for the
financial year.

The Statement of Responsibility by Directors
is as enumerated on page 59 of this
annual report.
                                                                              VADS BERHAD 208739-W    45

                            ADDITIONAL COMPLIANCE STATEMENT

                            The information provided in this Additional Compliance Statement
                            is in compliance with the Listing Requirements of Bursa Malaysia
                            Securities Berhad (Bursa Securities) for the financial year ended
                            31 December 2006.

46   VADS BERHAD 208739-W
     The Company did not enter into any share buyback transactions during the financial year.

     During the financial year, 1,930,000 shares were exercised pursuant to the Employees’
     Share Option Scheme (ESOS) which was implemented on 1 April 2005.

     The Company did not issue any warrants or convertible securities during the financial year.

     The Company did not sponsor any ADR or GDR programme during the financial year.

     There were no public sanctions and/or public penalties imposed on the Company and its
     subsidiaries, directors or management by the relevant regulatory bodies during the
     financial year.

     The amount of non-audit fees and/or other non-statutory audit fees paid and/or payable to
     the external auditors and their affiliated companies by the Group for the financial year
     ended 31 December 2006, are as follows:
     •    PricewaterhouseCoopers, Malaysia                                       RM40,000
     •    PricewaterhouseCoopers Advisory Services Sdn Bhd                       RM18,000

          Total                                                                     RM58,000

     There was no profit estimation, forecast or projection made or released by the Company
     during the financial year.

     However, the Company had on 15 May 2006 announced its Headline Key Performance
     Indicators (KPIs) for the financial year ended 31 December 2006 to enhance greater
     transparency to the public as part of the broader KPI framework prescribed under the
     Government Linked Company (GLC) Transformation Programme. These Headline KPIs are
     targets or aspirations set by the Company and shall not be construed as either forecasts,
     projections or estimates of the Company or representations of any future performance.

     During the financial year, the Company did not give any profit guarantee.

     There were no material contracts entered into by the Company and/or its subsidiaries
     involving Directors’ and major shareholder’s interests which were still subsisting as at the
     end of the financial year under review or which were entered into since the end of the
     previous financial year.

                                                                           VADS BERHAD 208739-W     47

                            ADDITIONAL COMPLIANCE STATEMENT

                            9.   REVALUATION POLICY
                                 Not applicable as the Company does not own any landed properties.

                            10. LIST OF PROPERTIES
                                Not applicable as the Company does not own any landed properties.

                                (RRPTS) OF A REVENUE OR TRADING NATURE
                                Bursa Securities has granted the Company vide a letter dated 27 January 2003, an
                                exemption for the following transactions from being considered as RPTs:

                                 1.   With Telekom Malaysia Berhad (TM) and companies in which TM has major
                                      shareholdings (direct or indirect); and
                                 2.   With TM’s major shareholders and companies in which they have major shareholdings
                                      (direct or indirect)

                                 (collectively referred to as “Potential Related Parties”) for the:
                                 •     Provision of managed network services by VADS Group to any of the Potential Related
                                 •     Provision of managed e-services and managed application services by VADS Group to
                                       any of the Potential Related Parties;
                                 •     Provision of systems integration services by VADS Group to any of the Potential
                                       Related Parties; and
                                 •     Receipt of telecommunication, multimedia and data services by VADS Group from any
                                       of the Potential Related Parties

                                 subject to the following conditions:
                                 (i) the goods or services are purchased, sold or rendered based on a non-negotiable fixed
                                      price or rate which is published or publicly quoted; and
                                 (ii) all material terms including the prices or charges are applied consistently to all
                                      customers or classes of customers.

                                 There were no RRPTs entered into by the Company and/or its subsidiaries involving
                                 Directors and related parties either subsisting as at 31 December 2006 or entered into
                                 since the end of the previous financial year ended 31 December 2005.

                                 Further, in view of the above exemption granted by Bursa Securities and having referred to
                                 Practice Note No. 14/2002, the Company do not foresee entering into any transactions with
                                 its related parties that would not be covered by the said exemption.

                                 The Company shall closely monitor all transactions with its related parties and shall make
                                 immediate announcements and apply the requirements of Chapter 10 of the Listing
                                 Requirements of Bursa Securities in the event that such transactions fall outside the ambit
                                 of the exemption.

                                 The Company shall also ensure that the transactions are in the best interest of the
                                 Company and not to the detriment of the minority shareholders.

48   VADS BERHAD 208739-W

The Board of Directors (Board) are committed to their responsibility in maintaining a sound
system of internal controls which covers, inter alia, governance, risk management, financial,
organisational, operational and compliance controls to safeguard shareholders’ investments,
customer’s interests and the Group’s assets. The Board recognises and affirms its overall
responsibility for the Group’s system of internal control which include the establishment of an
appropriate control environment and framework as well as reviewing its effectiveness, adequacy
and integrity. However, the Board recognises that this system is designed to manage, rather
than eliminate the risk of non-achievement of the Group’s objectives. It therefore provides
reasonable assurance, and not absolute assurance, against the occurrence of any material
misstatement or loss.

The Group has in place an on-going process for identifying, evaluating, monitoring and
managing significant risks affecting the achievement of its business objectives throughout the
year. The process which is reviewed regularly, takes into consideration changes in the regulatory
and business environment to ensure the adequacy and integrity of the system of internal
controls. Management assists the Board in the implementation of approved policies and
procedures by identifying and assessing risks and then designing, implementing and monitoring
appropriate internal controls to mitigate and control these risks.

This Statement on Internal Control has been prepared in compliance with the Listing
Requirements of Bursa Malaysia Securities Berhad.

                                                                           VADS BERHAD 208739-W     49

                            STATEMENT ON INTERNAL CONTROL

                            ENTERPRISE RISK MANAGEMENT (ERM) AND
                            The Board regards risk management to be an integral part of the
                            Group’s operations. Risk management is firmly embedded in the
                            Group’s system of internal control. The ERM Working Committee
                            chaired by the Chief Executive Officer, is responsible for steering
                            the ERM implementation, including the identification and
                            communication to the Board of the Group’s present and potential
                            critical risks, changes in the risk profile and management’s action
                            plans to manage these risks.

                            The ERM framework is formalised and widely implemented in the
                            Group. Employees are continuously being encouraged to
                            appreciate and be committed to a risk-based culture in their daily
                            work. The Group also participates in ERM Workshops organised by
                            the Risk Management Unit of Telekom Malaysia Berhad (TM), its
                            holding company, the purpose of which is to ensure that risk
                            management practices are effective and improved.

                            Group Internal Audit of TM complements the role of the Risk
                            Management Unit by performing post implementation reviews of
                            these Workshops to independently review the risk profiles, risk
                            management strategies and adequacy and effectiveness of the
                            controls identified and implemented in response to the identified

                            For the financial year ended 2006, the following are some of the
                            risks identified:

                            (a) Service Quality, Delivery and Restoration
                                The technical infrastructure is vulnerable against the
                                occurrence of natural disaster and any damage to or failure of
                                networks will result in service interruption. This will cause
                                customer dissatisfaction and create negative reputation

                            (b) Key Personnel
                                VADS recognises that human resources are important and its
                                future success will depend on its ability to attract and retain
                                skilled personnel. In view of this, every effort is taken to ensure
                                that there is continuity and expertise in the management of the

                            (c) Strategic Partnerships
                                VADS has forged strategic relationships with a growing
                                number of global partners. These partners provide marketing
                                and sales opportunities and in keeping pace with technological
                                changes and new services. Failure to maintain the existing
                                relationships will have a material adverse effect on the Group’s
                                business, operating results and financials.

50   VADS BERHAD 208739-W
Disclosures are made by the Chief Executive   STRATEGIC BUSINESS PLANNING,
Officer to TM on the overall effectiveness,   BUDGETING AND REPORTING
reliability and adequacy of the Group’s       •   Integrated business planning and
system of internal controls and financial         budgeting      processes     driven  by
controls respectively.                            commercial objectives, vetted and
                                                  approved by the Board and cascaded
                                                  throughout the organisation to ensure
OTHER KEY ELEMENTS OF INTERNAL                    effective execution and implementation.
CONTROLS                                          Periodic reviews are performed on
In addition to the above, the following are       achievement of business objectives/
other key elements of the Group’s internal        targets and financial performance.
control system reviewed and considered by     •   Structured review of all material
the Board:                                        capital and investment acquisitions by
                                                  Management prior to approval by the
•  Clearly    defined     delegation    of
   responsibilities to committees of the      HUMAN RESOURCE MANGEMENT
   Board through their respective terms       •  The Group carries out formal
   of reference, such as the Board Audit         appraisals, which are guided by Key
   Committee, the Board Nominating and           Performance Indicators (KPIs) and
   Remuneration Committee as well as             driven by the Balanced Scorecard
   the Board Employees’ Share Option             (BSC) system. The BSC provides a
   Scheme (ESOS) Committee.                      framework to translate strategy into
•  An organisational structure, with             operational terms and is being used as
   clearly defined lines of responsibility       a performance measurement tool.
   and accountability aligned to business     •  Continuous training and development is
   and operations requirements.                  emphasised and supported in the Group
                                                 to enhance the quality, ability and
                                                 competencies of the employees in the
POLICIES, PROCEDURES AND LIMITS OF               achievement of the Group’s objectives.
•   Clear definition of limits of authority
    and responsibilities through the          INSURANCE AND PHYSICAL SAFEGUARD
    Group’s Standard Operating Policies       •   To ensure that the Group’s assets are
    and Procedures as well as the TM’s            sufficiently covered against any mishap
    Group Subsidiaries Policy.                    that will result in material losses to
•   Procedures with embedded internal             the Group, adequate insurance and
    controls documented in a series of            physical safeguard on major assets are
    policies, procedures and guidelines           in place.
    including those relating to Financial
    Controls, Procurement, Business
    Operations, Human Resources,
    Occupational, Health and Safety.

                                                                    VADS BERHAD 208739-W    51

                            STATEMENT ON INTERNAL CONTROL

                            •   An Audit Committee, comprising a majority of independent non-executive directors was
                                maintained throughout the financial year. The composition of the Audit Committee brings a
                                wide range of deep experience, knowledge and expertise. They continue to meet, have full
                                and unimpeded access to both the internal and external auditors during the financial year.
                            •   The internal audit function, undertaken by the Group Internal Audit of TM, reports to the
                                Audit Committee, focuses on areas of priority as identified by risk analysis and in
                                accordance with the audit plans approved by the Audit Committee. Reviews on the
                                adequacy, integrity and effectiveness of the Group’s overall system of internal control and
                                governance for assurance, were conducted throughout the financial year and reported to
                                the Audit Committee, with recommendations for improvements to Management.

                            MANAGEMENT COMMITTEES
                            •  Senior Management Meetings are held on a regular basis to identify, discuss and resolve
                               strategic, operational, financial and key management issues.
                            •  Management Audit Issues Committee, comprising members of the Senior Management
                               assists the Audit Committee in monitoring significant internal and external audit issues and
                               to ensure their prompt and timely resolution.

                            MANAGEMENT’S TOOLS
                            •  The Secretary, together with the Group Internal Audit of TM, support the Board on the
                               proper management of effective corporate governance practices and requirements.
                            •  The Group further benefits from the support provided by TM, such as through the Company
                               Secretarial Division, Compliance Unit and Risk Management Unit for guidance and counsel
                               in observing listing requirements, regulatory processes and ensuring effective risk
                               management practices.

                            CORE VALUE AND CODE OF BUSINESS ETHICS
                            •   The Group’s culture is set around core values of uncompromising integrity, respect and
                                care with focus on providing total commitment to customers.
                            •   All employees are required to sign and adhere to a formal Code of Business Ethics, initiated
                                by TM for the Group, which outlines the minimum standard of behaviour and ethical
                                conduct expected of employees in business matters.

                            The Board considers the system of internal control described in this Statement on Internal
                            Control to be adequate and the risks are considered to be at an acceptable level within the
                            context of the Group’s business environment. The Board and Management continue to take
                            measures to strengthen the control environment.

                            For the financial year under review, the Board is satisfied that the system of internal control was
                            satisfactory and has not resulted in any material losses, contingencies or uncertainties.

52   VADS BERHAD 208739-W

The Audit Committee comprises two (2) Independent
Non-Executive Directors and one (1) Non-Independent
Non-Executive Director of the Board as follows:

Independent Non-Executive Director

Independent Non-Executive Director

Non-Independent Non-Executive Director

                                                      VADS BERHAD 208739-W   53

                            AUDIT COMMITTEE REPORT

                            During the financial year under review, Zamzamzairani Mohd Isa resigned as an Audit
                            Committee member and was replaced by Khairussaleh Ramli on 9 November 2006.

                            Members of the Audit Committee shall not have a relationship, which in the opinion of the Board
                            of Directors, would interfere with the exercise of independent judgement in carrying out the
                            functions of the Audit Committee. Members of the Audit Committee shall possess wisdom,
                            sound judgment, objectivity, independent attitude, management experience and knowledge of
                            the industry.

                            Chen Yow Seong who is an Independent Non-Executive Director and the Chairman of the Audit
                            Committee, is a member of the Malaysian Institute of Accountants (MIA).

                            The Audit Committee had four (4) meetings in the financial year 2006. The meeting attendance
                            of the Committee members was as follows:

                                                                                                           PERCENTAGE OF
                                                                                   ATTENDANCE               ATTENDANCE
                             Chen Yow Seong                                            4/4                     100%
                             Tan Poh Keat                                              4/4                     100%
                             Zamzamzairani Mohd Isa
                              (resigned w.e.f 9 November 2006)                           4/4                      100%
                             Khairussaleh Ramli
                              (appointed w.e.f 9 November 2006)                           –                         –

                            The Chief Financial Officer, who represented the Management, a representative from the Group
                            Internal Audit of Telekom Malaysia Berhad (TM) and the External Auditors attended these
                            meetings upon invitation to brief the Audit Committee on specific issues. The External Auditors
                            met with the Chairman of the Audit Committee in private without the Management’s presence to
                            discuss relevant audit matters prior to the meetings.
                            Minutes of meetings of the Audit Committee were circulated to all members of the Board and
                            significant issues were discussed at Board Meetings.

                            The Audit Committee carried out its duties as set out in the terms of reference as in pages
                            56 to 57 inclusive. Apart from its duties as set out in its terms of reference, the Audit Committee
                            also performed the following:
                            (a) Monitoring and coordinating reviews on the effectiveness of the Group’s system of internal
                                 controls, through reports furnished by the representative from Group Internal Audit of TM,
                                 the External Auditors and the Management.
                            (b)   Keeping abreast with new updates and developments of best business practices, principally
                                  on Corporate Governance, statutory and regulatory requirements, compliance to financial
                                  reporting standards and other business guidelines.
                            (c)   To be updated on Management actions to resolve significant internal controls and
                                  accounting issues as highlighted by the Internal and External Auditors.
54   VADS BERHAD 208739-W
The Audit Committee is strongly supported by a well established TM Group Internal Audit
function, which reports directly to the Audit Committee on its activities based on the approved
annual Internal Audit Plans. This arrangement is governed by a Service Level Agreement (SLA)
between VADS and TM, which was signed during the financial year 2005. The Group Internal
Audit is based at TM and for the financial year under review, it allocated auditors from various
mix of expertise and experiences, such as Finance, IT/MIS, Network/Engineering and Marketing
to perform the audits.

The Group Internal Audit of TM’s main focus is to evaluate and report on the adequacy, integrity
and effectiveness of the Group’s overall system of internal control and governance for
assurance. The risk based Internal Audit Plans are developed to cover:

(a)   Effectiveness and efficiency of operations through:
      •    Information Technology and System Reviews
      •    Business Process Reviews
      •    Post Implementation Reviews of Risk Assessment Activities (Control Self Assessment
           and Enterprise Risk Management)
      •    Revenue Assurance

(b)   Reliability of financial reporting through Interim Financial Reviews.

The Audit Committee receives regular and timely internal audit reports from the representative
of TM Group Internal Audit on audit work and the activities carried out based on the approved
Internal Audit Plans. The Group Internal Audit representative also works closely with the
External Auditors to review accounting and control issues to ensure that significant issues are
effectively addressed by the Management.

The Audit Committee reviews and approves the Group Internal Audit of TM’s allocated resource
man days to ensure that the function is adequately resourced.

The TM Group Internal Audit had carried out periodic assessment on its audit universe, including
annual internal quality assurance review (QAR) process and an external quality assessment by
a qualified independent reviewer every five years, in line with Institute of Internal Auditors (IIA)

The Audit Committee hereby verifies that during the financial year under review, the allocation
of option shares pursuant to the ESOS of VADS (Scheme) to eligible employees had been made
in accordance with the criteria of allocation of options shares as set out in the Bye-Laws and
guidelines governing the Scheme.

                                                                              VADS BERHAD 208739-W     55


                            1.   COMPOSITION
                                 The Board of Directors (Board) shall appoint a Board Audit Committee (BAC) amongst its
                                 members. The BAC shall consist no fewer than (3) three members and the majority shall
                                 be Independent Non-Executive Directors. The members of the BAC shall elect a Chairman
                                 from among them who shall be an Independent Non-Executive Director. All members of
                                 the BAC, including the Chairman, will hold office only so long as they serve as Directors of
                                 the Company.

                                 The composition of the BAC shall meet the independence and experience requirements of
                                 the Listing Requirements of Bursa Malaysia Securities Berhad (Bursa Securities) and other
                                 rules and regulations of the Securities Commission. The Board will review the term of
                                 office and performance of the BAC and each of its members at least once every three (3)
                                 years to determine whether the BAC has carried out its duties in accordance with its terms
                                 of reference.

                                 Members of the BAC shall possess sound judgment, objectivity, independent attitude,
                                 management experience and knowledge of the industry. At least one member of the BAC
                                 must be a member of the Malaysian Institute of Accountants (MIA) or fulfils such other
                                 requirements as prescribed by Bursa Securities.

                            2.   MEETINGS
                                 The BAC shall meet at least four (4) times a year and such additional meetings as the
                                 Chairman shall decide. The quorum of the BAC meetings shall consist at least two third of
                                 the members with Independent Non-Executive Directors forming the majority. Meeting
                                 agendas and briefing materials will be prepared and provided in advance to members.
                                 Meeting minutes will be prepared by the Secretary and circulated to all members of the BAC.

                            3.   AUTHORITY
                                 In carrying out its duties and responsibilities, the BAC has the explicit authority to
                                 investigate any matter within its terms of reference. It has full, free and unrestricted access
                                 to information, records, properties and personnel of the Group. The BAC also has direct
                                 communication channels with the External and Internal Auditors and is able to obtain
                                 independent professional or other advice as necessary.

                            4.   DUTIES AND RESPONSIBILITIES
                                 The following are the main duties and responsibilities of the BAC collectively:

                                 4.01 Consider the appointment of a suitable accounting firm to act as External Auditors and
                                      amongst the factors to be considered for the appointment are the adequacy of the
                                      experience and resources of the firm and the persons assigned to the audit, to
                                      consider any question of resignation or dismissal and to recommend the audit fee
                                      payable thereof;

                                 4.02 Discuss with the External Auditors before the audit commences, the audit plan,
                                      nature, approach and scope of the audit;

56   VADS BERHAD 208739-W
4.03 Review the quarterly interim results, half-yearly and annual financial statements prior
     to the approval of the Board;

4.04 Review with the External Auditors the financial statements for the purpose of approval
     before the audited financial statements are presented to the Board for adoption;

4.05 Discuss problems and reservations arising from the interim and final audits and any matter
     the auditor may wish to discuss in the absence of the Management where necessary;

4.06 Review the follow-up actions by the Management on the weaknesses of internal
     accounting procedures and controls as highlighted by the External and Internal
     Auditors as per management letters or audit reports;

4.07 Review the assistance and co-operation given by the Management to the External and
     Internal Auditors;

4.08 Review the Internal Audit Plans and results of the internal audit process and where
     necessary to ensure actions are taken on the recommendations made by the internal
     audit function;

4.9 Appoint and remove the Head of Internal Audit as well as review and appraise his
    performance and remuneration. Or alternatively, in the event the internal audit
    function of the Company is undertaken by an external organisation, the BAC may
    maintain and terminate the contractual arrangement with such organisation as well
    as review and appraise its performance and remuneration;

4.10 Review the adequacy and the integrity of the Group’s internal control systems and
     management information systems, including systems for compliance with applicable
     laws, rules, directives and guidelines;

4.11 Propose best practices on disclosure in financial results and annual reports of the
     Company in line with the principles set out in the Malaysian Code on Corporate
     Governance, other applicable laws, rules, directives and guidelines;

4.12 Propose an adequate system of internal control for the Management to safeguard the
     Group’s assets;

4.13 Consider and review any significant transactions which are not within the normal
     course of business and any related party transactions that may arise within the
     Company and the Group;

4.14 Prepare an Audit Committee Report to be included in the Company’s Annual Report;

4.15 Consider other matters related to the BAC as may be directed by the Board;

4.16 To report to Bursa Securities, if the BAC views that a matter resulting in a breach of
     the Bursa Securities Listing Requirements reported by the BAC to the Board has not
     been satisfactorily resolved by the Board.

                                                                         VADS BERHAD 208739-W     57

                            FINANCIAL CALENDAR

                            11 MAY 2006                                      9 NOVEMBER 2006
                            15th AGM of the Company                          Announcement of the unaudited consolidated
                                                                             3rd quarter results for the nine months
                                                                             ended 30 September 2006
                            15 MAY 2006
                            Announcement of the unaudited consolidated
                            1st quarter results for the three months         15 FEBRUARY 2007
                            ended 31 March 2006                              Announcement of the audited consolidated
                                                                             results and the declaration of the tax
                                                                             exempt final dividend of 15 sen per share for
                            17 MAY 2006                                      the financial year ended 31 December 2006
                            Book Closure for determining the
                            entitlement of the final tax exempt dividend
                            of 8 sen per share for the financial year        11 APRIL 2007
                            ended 31 December 2005                           Issuance of Notice of 16th AGM, Notice of
                                                                             Book Closure for Payment of Dividend and
                                                                             issuance of Annual Report for the financial
                            15 JUNE 2006                                     year ended 31 December 2006
                            Date of payment of the final tax exempt
                            dividend of 8 sen per share for the financial
                            year ended 31 December 2005                      4 MAY 2007
                                                                             16th AGM of the Company

                            28 JULY 2006
                            Announcement of the unaudited consolidated       11 MAY 2007
                            2nd quarter results for the six months ended     Book Closure for determining the entitlement
                            30 June 2006 and the declaration of the tax      of the tax exempt final dividend of 15 sen per
                            exempt interim dividend of 10 sen per share      share for the financial year ended
                            for the financial year ended 31 December 2006    31 December 2006

                            17 AUGUST 2006                                   4 JUNE 2007
                            Book Closure for determining the entitlement     Date of payment of the tax exempt final
                            of the tax exempt interim dividend of 10 sen     dividend of 15 sen per share for the financial
                            per share for the financial year ended           year ended 31 December 2006
                            31 December 2006

                            4 SEPTEMBER 2006
                            Date of payment of the tax exempt interim
                            dividend of 10 sen per share for the financial
                            year ended 31 December 2006

58   VADS BERHAD 208739-W


The Directors are required by the Companies Act, 1965 to prepare financial statements for each
financial year which have been made out in accordance with the applicable approved accounting
standards in Malaysia and give a true and fair view of the state of affairs of the Group and
Company at the end of the financial year and of the results and cash flows of the Group and
Company for the financial year.

In preparing the financial statements, the Directors have:

     •    adopted appropriate accounting policies, and applied them consistently;
     •    made reasonable and prudent judgments and estimates;
     •    ensured that all applicable approved accounting standards have been followed; and
     •    prepared financial statements on the going concern basis as the Directors have a
          reasonable expectation, having made enquires, that the Group and Company have
          adequate resources to continue in operational existence for the foreseeable future.

The Directors have the responsibility to ensure that the Group and Company keep accounting
records which disclose with reasonable accuracy, the financial position of the Group and
Company and which enable them to ensure the financial statements comply with the Companies
Act, 1965.

The Directors have the overall responsibilities to take such steps as are reasonably open to them
to safeguard the assets of the Group and for establishment and implementation of appropriate
accounting and internal control systems for the prevention and detection of fraud and other

                                                                           VADS BERHAD 208739-W     59

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