Digital China Announces FY2014 First Quarterly Results

HONG KONG, May 28, 2014 /PRNewswire/ --

Results Highlights:

For the three months ended 31 March 2014:

• Thanks to the effective implementation of measures in business adjustment, For the first quarter, the Group reported revenue of approximately HK$16,544 million, a decrease of 1.7% as compared to the corresponding period of last financial year.
• The overall gross profit margin was 6.19%, the gross profit margin figures for our principal business segments were steady or higher as compared to the previous quarter.
• For the first quarter, profit attributable to equity holders of the parent amounted to approximately HK$198 million, an increase of 0.9% as compared to the corresponding period of last financial year.
• Basic earnings per share amounted to 18.56 HK cents, an increase by 0.18 HK cents over 18.38 HK cents reported for the corresponding period of last financial year.
• In view of complicated market conditions, the Group continued to exercise stringent cost control. For the first quarter of the current financial year, the Group's selling and distribution expenses, administrative expenses and total operating expenses decreased by 28.4%, 48.9% and 19.5%, respectively, as compared to the corresponding period of last financial year.

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

During the period under review, China's economic situation remains grim and the IT sub-segment markets showed little signs of improvement. Nevertheless, the Group reported stabilised revenue and profit thanks to the effective implementation of measures in "Controlling Costs" and "Adjusting Structures". For the first quarter, the Group reported revenue of approximately HK$16,544 million, a decrease of 1.7% as compared to the corresponding period of last financial year; While our overall gross profit margin decreased by 129 basic pints to 6.19% , gross profit margin figures for our principal business segments were steady or higher during the period. For the first quarter, profit attributable to equity holders of the parent amounted to approximately HK$198 million, an increase of 0.9%; Basic earnings per share amounted to 18.56 HK cents, an increase by 0.18 HK cents over 18.38 HK cents.

In view of complicated market conditions, the Group continued to exercise stringent cost control and business structure adjustment. During the period, the Group's selling and distribution expenses, administrative expenses and total operating expenses decreased by 28.4%, 48.9% and 19.5%, respectively. While consolidating its fundamental businesses, the Group also enhanced its effort in business mix adjustment, with the aim of mitigating the impact of declining business through continuous development of high-growth segments, the Group achieved a very successfully cash flow management progress, net cash inflow from operating activities of approximately HK$655 million during the period, providing a solid foundation for reaching cash flow target throughout the financial year.

To address the medium- to long-term impact of market changes, the Group sought to make more in-depth efforts in innovation and transformation with reference to certain breakthrough points. In connection with our traditional businesses, the Distribution Business was focused on implementing "Omni-Channel" marketing during the period with the aim of enhancing values on the vendors' side, while our Systems Business was stepping up with its planning for the domestic brand business. The Group's Sm@rt City Business provided support to 12 cities in applying for national pilots cities and provinces. This Business has also expanded the functions of the Public Information Service Platform and further improved the Enterprise Integrated Service Platform, while completing the prototype development for the City Operations and Management Centre. During the first quarter of the current financial year, the Group entered into Sm@rt City strategic cooperation agreements with cities such as Xuzhou and Qinhuangdao, bringing the total number of cities signed up for strategic cooperation to 21.

To review the distribution business of group, though the market is still in low level, the Group's Distribution Business made a balanced effort in three major channel formats and achieved positive revenue growth with its major brands outperforming. Revenue of the Group's Distribution Business amounted to approximately HK$9,585 million, representing an increase by 4.0% as compared to the corresponding period of last financial year; Gross profit margin of the Distribution Business for the first quarter was 2.97%, reflecting consolidation of the much improved margin recorded for the previous quarter.

During the period, revenue from notebook sales (excluding CES channels) was largely unchanged from the corresponding period of last financial year, while revenue from accessories sales (excluding CES channels) and the sales of Mobile Internet business increased by 31% and 14%, respectively. Substantial growth was reported in the sales of major cooperating brands with CES partners for the first quarter as we continued to enhance our capabilities in CES retail management, while closer cooperation with e-commerce customers was fostered by seeking steady progress in the scope and model of collaboration with mainstream e-commerce customers, resulting in a year-on-year growth of over 20% in revenue for the first quarter.

As proactive adjustment of business mix and efforts in new sector market development, the Group's Systems Business was to enhance development of the application sub-segment markets, year-on-year revenue decline for first quarter narrowed obviously versus comparable figures for previous financial year, the Group's Systems Business reported revenue of approximately HK$4,874 million, a 2.5% decline as compared to the corresponding period of last financial year. Gross profit margin of the Systems Business standing at 8.68%, was lower on a year-on-year basis but represented improvement over the same period last year.

However, due to the continued decline unfavorable conditions from some core vendors, the Group adhered to share management and stable a foundation for business advantage, while achieved a substantive breakthrough by increasing expansion of the domestic brands and subdivision applications. The Systems Business reported initial positive results in its efforts to enhance development of application sub-segment markets, as it seized growth opportunities in these sub-segments in close tracking of market trends. Revenue from packaged software products and data storage products grew by 54% and 22%, respectively, as compared to the corresponding period of last financial year.

For the service business, in 2014, following the government's call for deepening reforms on all fronts and encouragement of adequate market competition, it caused market competition increased in the first quarter. The Group's Services Business continued to drive its customer plans in a bid to broaden coverage of customers, as well as strength the risk prevention, while selecting customers and businesses in a prudent manner to ensure long-term business stability. Revenue from the Group's Services Business during the period decreased by 25.4% to approximately HK$1,685 million, as compared to the corresponding period of last financial year, Gross profit margin for the Services Business was 15.17%, an increase by 118 basis points as compared to the corresponding period of last financial year.  

The Group continuous drive of strategic transformation to enhance business deployment. The revenue from software, technology services, operation, proprietary brand equipment as a percentage of total revenue for the Services Business increased to 33%, an increase of 9 percentage points as compared to the corresponding period of last financial year, reflecting ongoing business mix optimisation of the segment.

During the period under review, the Supply Chain Services Business reported revenue of approximately HK$400 million, an increase by 12.2% as compared to the same period of last financial year. The logistics service business and maintenance service business grew by 33% and 7% respectively, as compared to the same period of last financial year. The logistics business continued to improve operation quality and customer satisfaction. Premium customers in the communications, IT, home appliances and home decoration sectors were solicited. The maintenance business extended its scope to cover new product lines in peripherals, tablets, Internet equipments and home appliances, while continuing to improve store profitability and new models for services sales in in internet marketing.

Looking ahead, the chief executive officer of Digital China, Mr.Lin Yang said, "The Group's business stabilised during the first quarter of 2014 despite the continued downturn of the macro-economy, thanks to the gradual implementation of its business adjustment measures. We believe that the macro-economy will not be subject to excessive volatility under the government's policy of setting upper and lower limits for economic growth. The Group will continue to pursue growth for its Distribution Business and seek to reverse the decline of its Systems Business through enhanced business adjustment. The promulgation of the 'National Planning for New Urbanisation (2014-2020)' and 'Notice on Tasks relating to the Acceleration of the IT For the People Project' at the start of 2014 in connection with the further drive of Sm@rt City at national level has created an excellent opportunity for the progress of our Sm@rt City business. The Group remains firmly committed to the objective of transforming its business towards the Internet-based Sm@rt City model, in a bid to deliver greater value for shareholders."

About Digital China

Digital China (Stock Code: 00861.HK), the largest integrated IT services provider in China, was listed on the main board of The Stock Exchange of Hong Kong on 1 June 2001. Its remarkable achievements have been widely recognized in various industries: the Group was included in the lists of "Forbes Asia's Fab 50" List, "Fortune China 500" by Fortune China and "Top 100 Chinese Software Companies by Revenue".

Digital China leverages global IT resources to establish a complete IT services value chain and offer customers end-to-end integrated IT services, which covers IT planning and consultation, IT infrastructure system integration, design and implementation of solutions, design and development of application software, outsourcing of IT system operations and maintenance, IT distribution, logistics and maintenance, etc.

Digital China takes the initiative to implement Sm@rt City strategy in accordance with China's 12th Five-Year Plan. It takes advantage of IT technologies such as cloud computing, mobile internet and the internet of things to drive consolidation and innovation in the IT industry, cultivate the information consumption market and help accelerate the urbanization process in China. With comprehensive service capabilities and business coverage, it offers integrated Sm@rt City services to customers, which ranges from Sm@rt City framework design and planning, Sm@rt City IT infrastructure implementation to Sm@rt City operational services. The Group has implemented a national expansion strategy for introduction of Sm@rt City operations throughout the country. Boasting a visionary theoretical framework, it has the largest number of success cases for implementing Sm@rt City projects.

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