Digital China Announces Annual Results for FY2010/11

HONG KONG, June 14, 2011 /PRNewswire-Asia/ --

Highlights:

1. Record profit level with improving profitability:

• Profit attributable to shareholders grew 21.97% to HK$1,005 million, a historical high
• Basic EPS amounted to 96.13 HK cents, representing a 15.65% growth
• Gross profit margin of 6.89%, increased by 0.31 percentage point

2. A successful 10th anniversary since listing in 2001:

• Profit attributable to shareholders has been growing 21.64% p.a. on a compound basis between FY2000/01 and FY2010/11
• Net assets has also been growing 35.50% p.a. during the same period
• Share price of HK$14.66 per share as at 31 March 2011 represented an increase of 16.24% p.a. (including dividends) over IPO price of HK$3.68 in 2001

3. Good growth in turnover:

• Turnover of HK$56,804 million, representing a 13.20% growth
• Achieved record quarterly sales of HK$14,823 million in the third quarter in FY2010/11

4. Healthy financial position:

• Shareholders' equity of HK$6,033 million, increased by 43.61%
• Gross debt-to-equity ratio reduced from 41.01% to 32.64%
• Cash turnover reduced to 18.42 days, shortened by 0.8 day

5. Solid foundation and strategy for future growth:

• All segments recorded continuous growth outperforming the industry average
• Continued implementation of focus strategy on direct customers and services to further enhance profitability
• Establishing the Group as the leader in China's "Sm@rt City" development as part of its urbanisation

Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK), China's leading integrated IT service provider, today announced its annual results for the year ended 31 March 2011. ("Period")

During the Period, with the benefit of a balanced coverage of various industry segments, outstanding customer value and comprehensive product offerings, the Group assured notable enhancements in profitability for principal operations to sustain the stable revenue growth, bagging approximately HK$56,804 million for the full year which was 13.20% higher compared to approximately HK$50,178 million for the corresponding period of last financial year. More particularly, we finished the second and third quarters with successive record-high levels of quarterly sales to assure strong growth in annual results. Turnover for the fourth quarter of the financial year amounted to approximately HK$14,421 million, representing a growth of close to 17% as compared to the corresponding period of last financial year. Meanwhile, The "Citizen Card" projects for Yangzhou, Wuxi, Zhangjiagang and Zhenjiang were hugely successful, while the "Cloud-Based Platform for Smart Cards" in Foshan City was smoothly progressing. The successful conclusion of strategic cooperation agreements with Hainan Province and the cities of Shenzhen, Nanjing, Zhengzhou, Wuhan and Guilin during the year have also provided a solid foundation for the Group as China's Sm@rt City Expert.

Mr. Guo Wei, Chairman of Digital China, commented, "In 2010, being the final year of the 11th Five-Year-Plan period of China, the nation sustained stable economic growth with solid deliverables in the aftermath of the financial turmoil. It was also a spectacular year for the Group, in which the transformation from a 'product-oriented distribution business' into a 'customer-focused and service-oriented' integrated IT service provider for 10 years has finally been successfully achieved. While our Group was celebrating the 10th anniversary of public listing, we engineered the 'second wave' of our business transformation by remolding ourselves into an 'IT operation service provider' on top of being an 'IT service provider'. With proven experience and execution capabilities garnered through the construction of 'Digitized City' in the past two years, we commenced yet another transformation process to assume a strategic commanding position in the development of the 'Sm@rt City'. In overview of the financial year, the 'customer-focused and service-oriented' strategy was implemented in full swing, while the 'Digitized City / Sm@rt City' strategy was rolled out in a most favorable manner, with all segments reporting stable growth that outperformed the industry average in fulfillment of benchmarks set at the beginning of the year."

Financial Review

The Group's profit attributable to the equity holders of the parent (profit attributable to shareholders) for the year amounted to approximately HK$1,005 million, representing a 21.97% growth as compared to last financial year. Profit attributable to shareholders for the fourth quarter of the financial year under review was approximately HK$176.21 million, representing a 19.37% growth as compared to HK$147.61 million for the corresponding period of last financial year. Basic earnings per share amounted to 96.13 HK cents, which was 15.65% higher as compared to 83.12 HK cents for the corresponding period of last financial year.

During the Period, the Group's net cash inflow from operating activities for the financial year amounted to HK$433 million. The Group assured healthy business development and stable growth thanks to persistent efforts in stringent risk control measures and strengthened cash flow control. Fund efficiency was significantly improved as overall cash turnover for the financial year was reduced to 18.42 days, shortened by 0.8 days as compared to 19.22 days of the corresponding period of last financial year.

Business Review

Services Business (with a primary focus on Industry Market)

During the Period, IT Services continued to expand. Our software and servicing capabilities continued to improve as the overall gross profit margin of the Services Business reached 16.03%, representing a substantial growth over 13.32% for the corresponding period of last financial year. In particular, the Service Business bagged the year's highest quarterly turnover of approximately HK$1,715 million in the fourth quarter, providing a further boost to the Group's dominant position in the IT service market.

During the Period as at 31 March 2011, strategic deployment for the "Sm@rt City" Project had commenced in 57 cities throughout the nation. The "Citizen Card" projects for Yangzhou, Wuxi, Zhangjiagang and Zhenjiang were hugely successful, while the "Cloud-Based Platform for Smart Cards and related Demo Project" for the People's Government of Chancheng District, Foshan City, Guangdong was effectively implemented and smoothly progressing. Meanwhile, a publicity campaign promoting our brand new image as "China's Sm@rt City Expert" based on the concept of integrated and concerted service has also been launched in full scale. The successful conclusion of strategic cooperation agreements with Hainan Province and the cities of Shenzhen, Nanjing, Zhengzhou, Wuhan and Guilin have provided a solid foundation for the Group as China's Sm@rt City Expert. Also in the pipeline are solutions for citizen cards, regional health systems, smart tourism, government-business connection, general tax administration, data exchange, cloud servicing and safety surveillance, etc, offering solid support of our future business progress.

Software service projects accounted for an increasing share of our Group's business during the financial year. In the financial sector, we capitalized on opportunities in the market of regional banks to complete our coverage of the same and make breakthroughs in the sales of core systems with the Xi'an base grown into a settlement security center. Our pre-sale capabilities for core bank projects were also enhanced. The development of new solutions, such as the 2nd-generation payment system, was expedited. For the full year of 2010, more than 20 new customers were signed up (including 15 regional banks, 3 joint-stock banks, 2 foreign banks and 1 rural bank). Six new customers (including 4 regional banks and 2 foreign banks) for core banking systems were signed up, as regional banks proved to be the fastest-growing customer group. In the tax sector, active expansion of market coverage continued as customers were secured in various segments from the large-scale customer of head bureaus to core customers of local tax bureaus and individual taxpayer services. In the telecommunications sector, we were awarded BOSS and CRM projects of a provincial branch of China Mobile as well as the ODS project of China Telecom during the financial year, despite cutbacks in telecommunications carriers' investments in overall construction and deferred procurement for certain projects.

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 this connection, the "White Paper on IT Services Standards (First Edition)" was officially published on 28 October 2010 during our third quarter of the financial year. Leveraging the formulation and publication of national standards for IT services, the Group's Services Business accomplished the target of increasing contracts for proprietary services by 30% during the year ended 31 March 2011. We also assumed a dominant position in the formulation of national IT support standards and in China Mobile's first nationwide centralized procurement for third party services, while achieving initial success in the design and drive of management systems. In addition to honors and awards for IT services garnered during the financial year, we also received 3 commendations from the PBOC / CSRC for the development of 3 major marketable solutions including the operation management center and others for financial institutions / operators, which featured monthly updates of the proprietary solution and product road map and turned automated operation into a bright spot for the market. Our industry influence has been enhanced as a result.

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

The business structure of the Group's Supply Chain Services Business underwent significant modifications during the financial year in response to changes in the macro-economic environment and sustained sound growth as a result despite volatility in certain market sub-segments. The Group's Supply Chain Services Business reported turnover of approximately HK$10,021 million during the year ended 31 March 2011 which represented a 14.19% growth over the corresponding period of last financial year. The Supply Chain Services Business reported a record-high gross profit margin of 4.17% thanks to ongoing optimization of its business structure. In particular, the gross profit margin of 4.78% for the fourth quarter represented a significant improvement of 0.96 percentage points compared to 3.82% for the corresponding period of last financial year, effectively lifting the overall profitability of the Supply Chain Services Business.

Our Chain Electronic Stores (CES) business continued to expand its regional store operations, while maintaining our business volume with large electronic stores such as Gome and Suning as well as our market shares. These efforts combined to contribute to a substantial year-on-year growth of over 50% in CES turnover. For our third-party logistics business, we continued to develop new customers. For the year ended 31 March 2011, turnover of third-party logistics business grew by 78.19% as compared to the corresponding period of last financial year. As a value-added service for the supply chain, the Maintenance Service Business sustained rapid expansion with revenue from maintenance services growing approximately 25% over the corresponding period of last financial year.

Systems Business (with a primary focus on Enterprise Market)

Turnover from the Group's Systems Business for the year ended 31 March 2011 amounted to approximately HK$13,823 million, representing a 9.13% growth over the corresponding period of last financial year. The Group's Systems Business returned a gross profit margin of 9.74%, which was 0.32 percentage points higher as compared to 9.42% for the corresponding period of last financial year. In particular, gross profit margin reached 10.42% for the final quarter of the financial year, driving significant improvements in the overall profitability of the Systems Business.

The Group's Systems Business continued to capitalize on opportunities available to explore the regional market and expand its base of preferred customers, while constantly improving and substantiating its ability to provide solutions. During the year ended 31 March 2011, our regional customer business grew by 27.03% in comparison with the corresponding period of last financial year, contributing to our outperforming growth in overall turnover. Meanwhile, the Company's profitability was significantly improved on the back of stronger ability to provide solutions attributable to the increase in the number and business volume of large corporate customers.

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

Turnover from the Group's Distribution Business for the year ended 31 March 2011 grew 18.47%, as compared to the corresponding period of last financial year, to approximately HK$26,918 million, representing a higher growth rate than the average market level for the segment. Gross profit margin was 4.38%. In particular, turnover for the fourth quarter of the financial year grew 17.13%, year-on-year, to approximately HK$6,662 million, which far exceeded the industry average.

There were 634 Digital China "@PORT" franchise retail outlets operating in China as at 31 March 2011, representing a 50% growth as compared to 422 outlets at the end of the corresponding period of last financial year and effectively consolidating the Group's leadership in tiers 4-6 cities. In addition, SMB channels grew by over 20%. Our leading edge was further extended as our sales grids covered more than 594 cities in the 4th to 6th tiers.

On the back of a balanced and complete product portfolio as well as a proactive strategy in market coverage and expansion, we avoided declines or attained growth in various product lines for the year ended 31 March 2011 despite volatility in certain sub-segment markets during the year, thanks to timely strategies for sustaining current business volumes and seeking additional business volumes. We succeeded in preventing our percentage share in mainstream brands from shrinking, while reporting a 7% year-on-year growth for our notebook segment. Meanwhile, substantial year-on-year growth was reported for other product lines, such as PC servers, consumer IT products and peripherals, the sales of which increased by over 30%. In the mobile communications sector, the future driver for business volume growth, a smart phone business plan underpinning "Three Major Operators" and "Six Major Operating Systems" was devised, while MAA-based solutions and sales promotion were adopted. Proprietary intermediary products for mobile communications were also launched as part of our ongoing efforts to increase our ability to provide futuristic solutions.

Outlook

Mr. Guo Wei, Chairman of Digital China, commented, "Based on meticulous research on China's IT market in the context of complicated conditions of global economy in 2011/2012 and the macro-economic development of China under the 12th Five-Year Plan, we have defined the 2011/2012 financial year as the first year for the third five-year plan of our Group, and have adjusted our organization structure accordingly so that our Company's operation will be in closer tandem with the customers and the market and better positioned for sustainable development. We believe that urbanization will provide the major driving force for China's economic growth as the process rolls on, and urbanization cannot be successful without the support of informatization. As such, the Group will continue to roll out and consolidate its strategic planning for the "Sm@rt City" so that it would become the engine of Digital China's future growth. With our best-in-class management team and our proven management process and risk management system, we will be able to address the current challenges effectively and sustain strong growth that outperforms the industry."

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 11,400 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.

SOURCE Digital China Holdings Limited