Digital China Announces FY2014 Annual Results

HONG KONG, 30 March, 2015 /PRNewswire/ --

• Optimized Organizational Structure
• Accelerated the Implementation of Sm@rt City Strategy
• Results Highlights:

Digital China (the "Group"; Stock Code: 00861.HK; 910861.TW), the largest integrated IT services provider in China, today announced its annual results for the 12 months ended 31 December, 2014 (the "Period").

During the Period, the Group maintained stability or made improvements in a number of business indicators as we persisted in "focusing on strategies, fortifying foundation and transforming to upgrade" in response to challenges posed by the rapid changes in the macro-economy and industry structure. The Group recorded revenue of approximately HK$68.34 billion. The overall gross profit margin for the Period improved by 34 basis points to 7.05%, compared with the corresponding period of last financial year. Profit attributable to equity holders amounted to HK$701 million, an increase of 149.91% year-over-year. If the one-off expenses related to DCITS listing in 2013 were excluded, it would decrease by 15.53% (If we exclude the loss from foreign exchange gains or losses occurred in the financial year under review as well as the corresponding period of last year and add back one-off expenses related to DCITS listing, it would increase by 50.15% year-over-year).

The Group persisted in maintaining stringent controls over business risks and operating costs. Through enhanced management of trade receivables, the Group sustained strong cash flow from operating activities and reported cash flow from operating activities of approximately HK$2.08 billion for 2014, representing a significant increase from HK$389 million in 2013. Due to downsizing and organizational restructuring, overall operating expenses decreased by 25.77% , as compared to the corresponding period of last year.

Confronted with the enormous challenges and changes from both inside and outside the company, the Group instituted the most significant organizational restructuring in the model of management and control since its incorporation. The management framework comprised five principal business groups: Sm@rt City Service Group, Digital China Group, Digital China Information Service Company Ltd. (DCITS), Supply Chain Management Strategy Unit and Financial Service Strategy Unit. This is a fleet management model under which the business groups can complement each other as one unit while operating independently as a standalone group. The model cements the organizational infrastructure for the Group's sustainable development in the future.

Sm@rt City Service Group: progressing in full speed with active exploration of commercial operation model.

During the Period, the government announced a number of guiding policies in connection with Sm@rt City, which brought tremendous opportunities for the implementation of the Group's Sm@rt City strategy. The Group enhanced product research and development, and formed the comprehensive framework of "one center and three platforms", which will lay a firm foundation for the full-scale expansion of the Sm@rt City. The Group implemented the platform construction of Sm@rt City in 13 cities in 2014 and signed a Sm@rt City strategic cooperation agreement with Hebei Province. This development signified the success of the promotion model on the provincial level and brought new ideas for the accelerating city coverage.

As the Urban Public Information Service Platform Version 3.0, a Sm@rt City core supporting system based on the urban virtual image infrastructure, was launched in 2014, the Group expedited the Sm@rt City promotion and the implementation of the integrated citizen service platform, integrated enterprise service platform and integrated urban administration platform (three platforms) as well as the urban information management centre (one centre). The Group actively explored the commercial operation of Sm@rt City based on public information service platforms. The two cities Weihai and Benxi were added to the commercial operations along with Foshan, Fuzhou and Zhangjiagang. The Group will continue to focus on expanding its data resources and enhancing its ability in data analysis, and roll out a broad range of Sm@rt City application services to strive for a steady increase in revenue

DCITS: Ongoing optimization of business structure following successful listing in the stock market, tapping into the Sm@rt Agriculture sector through acquisition of Zhongnong Xinda

During the Period, the Group completed the asset reorganization of its IT business group and successfully listed DCITS on the A-share market. The awarding of the "Certificate of National Chartered System Integration Enterprises in Safety and Reliability Computing Information" by the Ministry of Industry and Information Technology to the Company will favor its rapid business expansion. DCITS continued to drive the optimization of its business structure and focus on technical services, application software development and specialized equipment for the finance industry, which in aggregate accounted for approximately 41% of the total revenue for the year. This drove up the overall gross profit margin for the full year to 17.95%. Revenue of DCITS for the reporting period was HK$8.14 billion. Net profit grew 15.67% year-on-year to HK$361 million.

In mid-2014, DCITS successfully acquired Zhongnong Xinda and launched the Digital China Sm@rt Agriculture Strategy. Zhongnong Xinda is in the vanguard of China's agricultural informatisation, with comprehensive business setups in the three major sectors of e-government, e-commerce and e-agriculture for villages. Zhongnong Xinda holds the No.1 position in market share. Upon the completion of the acquisition, revenue from agricultural IT amounted to HK$37.92 million (Zhongnong Xinda's financial data were consolidated into the Group's financial statement since December 2014 so revenue of agricultural informatisation only reflected the data in December 2014) with gross margin reaching 53.49%. The company's land use right registration business newly entered into 15 provinces with dominant market shares.

Digital China Group: Systems Business stabilized and rebounded as the Group cemented its dominant position in traditional businesses; Distribution Business revenue stabilized and increased.

During the Period, the Group maintained stable performance across the core product lines by adopting market share management to address the adversity of global economic downtown. Revenue of the Systems Business for the fourth quarter of 2014 grew by 4.23% as compared to the same period of last year, whilefor the full year, revenue amounted to approximately HK$20.85 billion, a year-on-year decrease of 7.89%, and gross profit margin was stable at 8.76%. In view of the prevalence of "nationalization" in the longer term, the Group accelerated the development of other network brands and national brands in security products.

Gross profit margin was 3.28% as the Distribution Business implemented the omni-channel strategy and enhanced cooperation with major brands. The omni-channel strategy comprises four distinct business directions: online distribution, online retail sales, offline distribution and offline retail sales. CES revenue increased by 9.94%, as compared to the corresponding period of last financial year. Distribution business revenue reached HK$36.51 billion, with a year-on-year increase of 2.95%.

Supply Chain Management Strategy Unit: Establishing a "Large Customer Service"model for logistics business and exploring O2O business model.

The supply chain business reported overall revenue of approximately HK$2.85 billion for 2014, representing a year-on-year increase of 100.11%. In 2014, Instant Logistics reported an increase of 30.17% in revenue to HK$673 million, and established a basic "Large Customer Service" model. The business begins to enjoy scales of economy brought by the expansion, with the core customer contributing over revenue RMB 100 million. The e-commerce business reported breakthrough in the financial year under review with revenue growing to HK$1.92 billion, an increase of 183.78% as compared to the corresponding period of last year. The maintenance service business was stable with revenue growing to HK$253 million, an increase of 10.71% compared to the corresponding period of last year. In 2014, the maintenance service business created a new O2O model of "Internet marketing + remote support + in store delivery,"

Financial Service Strategy Unit: Breakthroughs in the financial institution business with persistent innovation and risk control.

In 2014, , the Group endeavored to maintain and increase its bank loan facilities against increasingly tough conditions in the domestic finance market and secured total credit lending of close to HK$37.24 billion to provide sufficient financial backing for the business development of Digital China. In 2014, the Group was engaged in full-scale development of its financial institution business, and commenced new institutional businesses such as financial leasing, commercial factoring and micro-credit loans. In addition, the Group completed financial leasing and commercial factoring businesses each over 100 projects, with the drawdown of loans having started in some cases. The self-operated micro-credit loan company completed dozens of deals. The micro-credit loan business operated in joint venture with HC International reported total loan drawdowns in excess of RMB1.3 billion as at the end of 2014.

Management Outlook

Looking to 2015, Group's core business and traditional business model face great challenges as China enters into a crucial period of transformation in line with adjustments in national policies, technological innovations and changing business patterns. Group management stated: "we will continue to drive the Sm@rt City strategy with strong determination and seek to enhance the core values of Sm@rt City and other business groups by forming significant synergies among such groups on the basis of the said core strategy. Our organizational structure will be further optimized and adjusted to gradually achieve a virtualized management organization, network-based management process and synergized strategy execution. Under the core Sm@rt City strategy, the Management will work diligently to drive the transformation of its traditional businesses, with ongoing efforts to optimize the business structure of DCITS, sustain rapid growth of the supply chain businesses and actively incubate innovative financial institution businesses, to unleash the energy and vitality of Digital China, and to build it into a leading brand of Sm@rt City in China."

~ The End ~

About Digital China

In 2000, to accommodating the development of the information industry in the era of internet, the original Legend Group was reorganized into two divisions, thereby Digital China was born. In 2001, Digital China was listed on the main board of the Hong Kong Stock Exchange (Stock Code: 00861.HK).

Since its establishment, Digital China has adhered to the objective of "Industry Serving the country" and the mission of "Digitalizing China". Through continuous innovation, a comprehensive IT services value chain is structured. Services involve areas such as IT planning consultation, IT infrastructure system integration, solution design and implementation, application design and development, outsourcing of IT system operation and maintenance, logistics maintenance and warranty, providing end-to-end integrated IT services to customers. As the largest integrated IT services provider in China, Digital China was widely recognized, as evidenced by its inclusion in "Forbes Asia's Fab 50 for four consecutive years," and "Fortune China 500" (Chinese edition) for five consecutive years.

Prospectively anticipating the significant changes in the information industry, Digital China launched Sm@rt City Strategy 2010, in response to the macro trend of "industrialization, informatization, urbanization, agricultural modernization with Chinese characteristics". With four years' efforts, Digital China has become the No.1 brand of China's smart city construction, driving the development of the industry as well as Digital China's overall operation.

Digital China Information Services Limited, Digital China's subsidiary, was listed in 2014 (Chinese Abbreviation: 神州信息; English Abbreviation: DCITS; Stock Code: 000555.SZ). DCITS successfully acquired Zhongnong Xinda , a leading company in agricultural IT services in China, and thus published a new strategy in Sm@rt Country. These moves have enhanced Digital China's strategic position for "Sma@t City+Sm@rt Country" in digitizing China.

For additional information about Digital China, please visit the Group's website at www.digitalchina.com.hk.

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SOURCE Digital China Holdings Limited

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