Digital China Announces 3Q Results for FY2010/11

HONG KONG, Feb. 22, 2011 /PRNewswire-Asia/ -- Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK), China's leading integrated IT service provider, today announced its results for the nine months ended 31 December 2010. ( "Period" )

Highlights:

For the nine months ended 31 December 2010:

• Turnover was HK$42,382 million, up 12.04% over the corresponding period in FY09/10
• Operating profit was HK$818 million, an increase of 90.12% over the corresponding period in FY09/10
• Profit attributable to the equity holders of the parent was HK$829 million, a 22.53% growth from the corresponding period in FY09/10

The Group achieved outstanding results in the first nine months ended 31 December 2010. Profit attributable to the equity holders of the parent for the first three quarters exceeded the annual figure of the previous financial year. Turnover for the third quarter reached HK$14,823 million, a record high of the Group's quarterly turnover. Profitability of its all major businesses grew significantly during the Period, with overall profit margin climbed to 6.82%, a 0.38 percentage point increase when compared to 6.44% for the corresponding period in the previous financial year. Sm@rt City projects were quickly deployed throughout the nation in line with our forward-looking strategic planning and the Group had established a strong presence in 51 cities. Following the successful launch of "Citizen Cards" in four cities, namely Yangzhou, Wuxi, Zhangjiagang and Zhenjiang, it made another successful move by launching the "Cloud-Based Platform for Smart Cards and related Demo Project" in Chancheng District, Foshan City, Guangdong. Moreover, it entered into Sm@rt City strategic cooperation agreements with Hainan, Shenzhen, Nanjing, Zhengzhou and Wuhan.

Mr. Guo Wei, Chairman and CEO of Digital China, commented, "Digital China has made its presence in the international capital market for ten years. During the period, we embraced the vision of promoting digitalization in China and strode out towards this goal. In this financial year, we continued transformation towards IT-serivce and captured market opportunities to implement Sm@rt City strategy in the Chinese cities. We strengthened our leadership in the market, with our business value and profitability continued to improve. During the Period, our various performance indicators outperformed management's expectations and were highly acclaimed by international investors. The Group was named Forbes Asia Fab 50 for the second consecutive year."

Financial Review

The Group recorded turnover of HK$42,382 million for the nine months ended 31 December 2010, an increase of 12.04% from HK$37,826 million for the corresponding period of last financial year. This growth rate was significantly higher than the average of China's IT market. During the Period, operating profit jumped 90.12% to HK$818 million from the corresponding period of last financial year. Profit attributable to shareholders of the parent amounted to HK$829 million, representing a 22.53% growth from HK$677 million for the corresponding period of last financial year. Basic earnings per share grew 16.74% year-on-year to 80.42 HK cents.

The Group made continuing efforts in proactive risk control and cash flow management. Cash flow from operations reached HK$1,075 million, ensuring healthy and stable growth of the Group's business. The Group continued to claim leadership among its peers in terms of cash turnover, as the cash turnover cycle of 14.86 days for the nine months was shortened by 1.93 days as compared to the corresponding period of last financial year, and meanwhile, it was reported a cash turnover cycle of 13.09 days for the third quarter of the current financial year, which was among the best benchmarking for the industry.

Segment Results

Business Review

Services Business (with a primary focus on Industry Market)

During the Period, turnover from the Group's Services Business amounted to HK$4,327 million. In terms of the Services Business, the Group has been focusing on value enhancement for customers with a special emphasis on software and services. During the nine months ended 31 December 2010, the Group's software and servicing capabilities continued to improve as the overall gross profit margin of the Services Business reached 16.62%, representing a substantial growth over 13.55% for the corresponding period of last financial year. In particular, gross profit margin for the third quarter of the current financial year reached 19.87%, which was significantly higher than 14.37% for the corresponding period of last financial year, underpinning breakthroughs in profitability.

The value of service contracts signed increased by 57% as compared to the corresponding period of last financial year, as the Group accelerated with business transformation in full swing to underpin significant improvements in the overall profitability of the Services Business. The brand influence of the Group's proprietary service continued to increase, as it received numerous awards and honors in recognition of its expertise in industry application solutions and service products and its ability to deliver standardized and efficient services. Digital China has been involved in the formulation of national IT service standards after being designated as Deputy Chief of the Working Group and the Head of the Supporting Team by the "Working Group on Standardization of China's IT services" under the Ministry of Industry and Information Technology in 2009. In this connection, the "White Paper on IT Services Standards (First Edition)" was officially published on 28 October 2010. Meanwhile, the Group received the "China's No.1 Influential IT Services Brand- Huazun Award" in the "Huazun Award – Annual Ranking in Large-scale Chinese Iconic Industrial Brands" jointly organized by Economy Magazine, China Business Times, Economic Newspaper and Magazine Association and the China Economy Innovation and Development League in November 2010, signifying another important recognition of the Group's leadership in IT services by industry peers and clients.

Currently, preparations for the "Sm@rt City" Project were expanded into 51 cities throughout the nation. Following the launching of "Citizen Cards" in four cities, namely Yangzhou, Wuxi, Zhangjiagang and Zhenjiang, the Group made another successful move by launching the "Cloud-Based Platform for Smart Cards and related Demo Project" in Chancheng District, Foshan City, Guangdong during the third quarter of the current financial year. The undertaking and delivery of this project will give a significant boost to the technological levels of Digital China's citizen card solutions and provide more possibilities for the business model of the citizen card service. Meanwhile, with the successful establishment of strategic cooperation agreements with Hainan , Shenzhen, Nanjing, Zhengzhou and Wuhan, the Group has become an increasingly influential player in the market as China's leading expert in Sm@rt City, on the back of a forward-looking theoretical structure and a larger portfolio of successful cases than anyone else.

In the financial sector, we maintained our leading edge in the core system building for domestic banks as we won the tender for the new generation of "core business system" of Qinhuangdao City Commercial Bank during the third quarter of the current financial year. We also signed up for our first IT Operation Outsourcing Service Project with a regional bank, marking another important progress in the regional banking market following our projects with Qilu Bank, Jinshang Bank and Bank of Chengdu and laying a solid foundation for future outsourcing services with other city commercial banks. In the telecommunications sector, the Group were awarded BOSS and CRM projects of a provincial branch of China Mobile during the third quarter of the current financial year, despite cutbacks in telecommunications carriers' investments in overall construction and deferred procurement for certain projects. As the 3G-user bases of the telecommunications carriers continue to expand with ongoing improvements in network building, abundant opportunities for core business systems and value-added operation and maintenance services will be in the pipeline. In the taxation sector, the Group made further inroads in Shenzhen and the South China market as a whole after its official takeover of the Shenzhen Local Taxation Collection and Administration Core System Project, a sub-provincial city that generates tax income of over RMB100 billion and ranks third in China in terms of local tax income. Following the local tax project of Hainan Province, and being the second local taxation collection and administration core system at sub-provincial level taken over by the Group, this project is set to bolster its regional development and market penetration in the taxation sector.

Supply Chain Services Business (with a primary focus on the High-tech Industries Market)

The Group's Supply Chain Services Business continued to enjoy strong momentum for growth subsequent to the exceptionally rapid growth recorded for the corresponding period of last financial year. During the nine months ended 31 December 2010, turnover of the Group's Supply Chain Services Business amounted to HK$7,226 million, representing a 8.66% growth over the corresponding period of last financial year. Meanwhile, the overall profitability of the Supply Chain Services Business was effectively boosted by ongoing optimization of its business structure, as evidenced by its gross profit margin of 3.94%, a significant improvement of 0.55 percentage points compared to 3.39% for the corresponding period of last financial year.

Turnover from the Chain Electronic Stores (CES) business grew significantly by 54.94% as compared to the corresponding period of last financial year, as we continued to enhance its cooperation with the stores, with special emphasis on regional players. As a value-added service for the supply chain, the Maintenance Service Business sustained rapid expansion with revenue from maintenance services growing approximately 30% over the corresponding period of last financial year. Over 290,000 maintenance orders were received for the period, with a 88% growth over the corresponding period of last financial year. For the Group's third-party logistics business, it continued to enhance inherent capabilities and develop new customers. For the nine months ended 31 December 2010, turnover grew by 53.52% as compared to the corresponding period of last financial year.

Systems Business (with a primary focus on Enterprise Market)

For the six months ended 30 September 2010, turnover from Systems Business increased 7.96% year-on-year to HK$10,573 million. Turnover from network products were driven by market demand to grow by 22.60% over the corresponding period of last financial year. The Group continued to optimize the regional distribution of its Systems Business in active response to market and customer changes. While pursuing steady development of the storage business, we were also actively engaged in new customer development with a view to sustaining high growth. During the nine months ended 31 December 2010, our regional customer business grew by 34.23% in comparison with the corresponding period of last financial year, fortifying our market leadership while positioning us to capture any market opportunities.

Distribution Business (with a primary focus on SMB & Consumer Markets)

The distribution business recorded approximately HK$20,256 million for the nine months ended 31 December 2010, an increase of 18.91% from the same period last year, higher than the average rate of growth among the peers. The gross margin is 4.35%, which is higher than the 4.27% for the previous fiscal year. The total number of Digital China "@PORT" franchise retail outlets is 597, increased by 43.86% from last year, when the number of the outlets was 415. The expansion objective is achieved one quarter ahead of the planned schedule, laying a solid foundation to enhance the market position and competitive edge of the distribution business. The two major segments of the distribution business, IT products and PC servers, increased by 39.99% and 31.83%, respectively, effectively drove an overall higher increase in the distribution business as compared to other industry players.  

Outlook

Mr. Guo Wei, Chairman and CEO of Digital China, commented, "According to China's 12th Five Year Plan, the nation will continue to advance its urbanization process, which will become a major driving force for the economic growth. The informatization is indispensable and supportive to the development of modern cities, in which Digital China will play a vital role. The construction and expansion of the Sm@rt City will contintue to be the Group's strategic focus and major driving force for the business growth. We believe that the effective management, continuous commitment to service-oriented business and strategic focus to construct Sm@rt City will help us achieve our our business objectives for the full fiscal year and create greater value for our shareholders."

About Digital China

Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code:00861.HK) is the largest integrated IT service provider in the Greater China area. Digital China has regional centers in 19 major cities nationwide with approximately 11,000 employees. The Group provides customers with comprehensive IT products and services, driving technological innovations for work and life and enhancing the digitalization process in China with four core businesses: IT Services, Enterprise Systems, IT Products Distribution and Supply Chain Services. The Group has maintained its No.1 position in IT product distribution while it has increasingly focused on expanding into IT services and is one of the top 5 IT services providers across various sectors in China including telecommunications, finance and government, providing self-developed and proprietary products that are customized for specific industry needs. For additional information about Digital China, please visit the Company's website at www.digitalchina.com.hk.

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