Digital China Announces FY2015 First Quarter Financial Results

HONG KONG, April 27, 2015 /PRNewswire/ --

Results Highlights:

For the three months ended 31 March 2015:

• The Group recorded revenue of HK$16.9 billion, a slight increase of 1.77% compared to the same period of last financial year.
• Gross profit margin was 7.18%, a year-on-year increase of 72 percentage points.
• Profit attributable to equity holders amounted to HKD171 million, a decrease of 13.80% compared to the same period of last year. Excluding the effect of exchange rate changes on the Company's profit, profit attributable to shareholders for the first quarter of 2015 increased by 6.23%.

Digital China (the "Group"; Stock Code: 00861.HK; 910861.TW), the largest integrated IT services provider in China, today announced its financial results for the first quarter of fiscal year 2015 ended on 31 March, 2015 (the "Period").

During the reporting period, China GDP growth slowed down and dropped to 7%. Despite the pressure of the economy slowdown, the Digital China management continued to drive its key tasks and various measures relating to its transformation in a prudent manner and maintained stability in revenue and profit. During the first quarter of 2015, the Company reported revenue of approximately HK$16.90 billion, with a mild increase of 1.77 % compared to the same period of last year. Overall gross profit margin was 7.18%, with a year-on-year slight increase of 72 basis points. Profit attributable to shareholders amounted to approximately HK$171 million, representing a decrease of 13.80% compared to the corresponding period of last year. Excluding the effect of exchange rate changes on the Company's profit, profit attributable to shareholders for the first quarter of 2015 increased by 6.23%.

Seizing the opportunities presented by Internet+ and proactively responding to the Nation's call for smart city construction, Digital China expedited the promotion of "one center and three platforms" throughout the nation and accelerated contracting and implementation of corresponding projects. During the first quarter of 2015, the Group entered into agreements in respect of Sm@rt City operations with Yibin, Longyan and Tianjin. The Group will further improve the construction and management of the integrated citizen service platform, integrated enterprise service platform and integrated city administration platform based on experience generated from operations, so as to lay a solid foundation to commence the platform operation in 100 cities in three years. Currently Digital China's "one centre and three platforms" Sm@rt City business has entered into cooperation with 16 cities, with platforms launched in 6 cities, including the Chengdu platform that was signed up in the first quarter of this financial year.

Driven by the trend of "Internet+", Digital China does not only seek its own transformation into an Internet-based corporation, but also get engaged in active cooperation with operators of existing large Internet platforms to explore models for close strategic cooperation, bringing together Digital China's technology in Sm@rt City platform and its rich experience through involvements in numerous Sm@rt City solutions over the years and well-developed user bases and efficient promotion provided by Internet platform operators to forge an Internet-based model for the Sm@rt City operation. Meanwhile, the Group will gradually develop Internet finance business to unleash the value embedded in our Sm@rt City Internet platforms.

DCITS: Persistent Drive of Business Upgrade and Optimization, Fueling Strong Growth in New Business

During the first quarter, the Company's Service Business reported revenue of HK$1.41 billion, with a 16.45% decline year-over-year. The Company persisted in strategic upgrade and business transformation. Within the Service Business, technical services, agricultural informatization, industry application software and equipment under owned brands reported revenue of HK$643 million, representing a 17.19% increase year-over-year. The Group continued to optimize it business mix and quality. During the first quarter of this financial year, the Company's gross profit margin grew by 531 basis points to 20.48% as compared with the corresponding period of last financial year, underpinning a notable improvement in profitability.

The Group's technical service business reported revenue of HK$439 million, for the first quarter of this financial year, representing a 17.96% growth year-over-year. New customers signed up including Pudong Development Bank, Southwest Securities and China Merchants Securities.

The agricultural informatization business reported a fourfold growth in signed contract compared with the corresponding period of 2014 as it seized market opportunities to expand its market coverage at a faster pace and made a major effort to realize business services for the registration and transfer of agricultural land use rights. In addition to Hebei Province, full-scale cooperation was sought in other regions of the country.

Digital China Group: Achieving Overall Stability by Focusing on both Corporate IT and Consumer Electronics Sectors

Digital China achieved a rapid growth and overall stability by persistently adopting market share management and business transformation, and seizing opportunities in sub-sectors.

During the first quarter of the fiscal year 2015, revenue was HK$14.41 billion, with a slight decline of 0.3% year-over-year. Overall gross profit margin was approximately 5.43%, a year-on-year increase of 53 basis points. The Consumer Business (formerly the Distribution Business), focused on the development of the omni-channel, and was affected by the lackluster demand of the offline distribution market. As a result, revenue of this segment dropped to HK$9.09 billion, an approximate 5.21% decrease year-on-year. Revenue of the international brand operations of the Corporate Business (formerly Systems Business) increased 221% year-over-year, resulting from the enhanced cooperation with major domestic brands, as well as the rapid expansion of online distribution business.

Corporate Business (formerly System Business) optimized its business planning and continued to drive its business transformation based on its "owned brands" and "Cloud Computing" strategy. Against the backdrop of macro-economic slowdown and the government policy of "autonomy and controllability," the Group outperformed the market by sticking to its market share management and international business. As a result, the revenue decline for the international brand operations of the Corporate Business (formerly Systems Business) has been narrowed. Revenue of Corporate Business increased 9.35% to HK$5.33 billion and overall gross profit margin decreased by 63 basis points to 8.04% resulting from the low gross profit margin of the domestic brand.

Supply Chain Management Strategy Unit: E-Commerce Business Continued to Grow Rapidly, Business Model Further Optimized, and Business Structure Moved towards a Stable Mix

The Supply Chain Business was engaged in vigorous market development, reporting revenue for the first quarter of 2015 approximately HK$1 billion, with a year-on-year increase of 151.32% as compared with the corresponding period of last financial year. The overall gross profit margin of the Supply Chain Business for the first quarter was 8.40%, representing a year-on-year decrease of 651 basis points, reflecting a substantial increase in the percentage share of the E-Commerce business which commanded a lower gross profit margin. Three major segments of the Supply Chain Business, namely e-Commerce Supply Chain, Logistics and Maintenance, reported year-on-year revenue growth of 283.67%, 21.83% and 16.52% respectively.

New Business based on "Internet+": speeding up developing the Internet-based Sm@rt City and Internet Finance Businesses Sm@rt City Service Group: Seizing the "Internet plus" Opportunities, Expediting the Implementation of Sm@rt City Operations.

For Sm@rt City Businesses, in 2015, the Group continued to further promote the implementation of the Sm@rt, City by following four product-oriented principal themes of "My Government, My Life, My Payments and My Communications".

Regarding the Sm@rt City project development, the Group entered into a Sm@rt City strategic cooperation agreement with Zhuhai Municipal Government, as well as a number of operating service contracts with a number of cities. The Sm@rt City revenue model has been further elucidated, Moreover, the Group successfully acquired equity interests in Fuzhou Rongcheng Universal Card Ltd. (Fu Zhou Rongcheng) which had issued 2 million cards covering the entire transportation system of Fuzhou and certain points of its commercial retail network. The cooperation with Fuzhou Rongcheng represented an important step for the Group to explore in the online and offline integration of the Sm@rt City model.

For Internet Finance Businesses, the Financial Services business continued to make strong efforts in the development of the financial institution business, while product development at the sub-segments of financial leasing, factoring and micro-credit loans were also enhanced to provide customers with a greater variety of financial products.

The financial leasing business has broadened its scope of business after obtaining the qualifications for operating lease-back businesses. It also actively explored the application of the finance lease model in PPP projects to generate synergies with the Sm@rt City Service Group by providing innovative financial services to the Sm@rt City operations of local governments.

Digital China Hui Cong Micro-Credit Co., Ltd., the micro-credit loan business formed by the Group in joint venture with HC International, broadened its product portfolio with the development of "loans for trading" and etc. While exercising stringent control over credit risks, more diversified financing services were provided to members of hc360.com and customers of Digital China. The loan balance as at the end of March 2015 exceeded RMB800 million.

Management Outlook: Opportunities and Challenges Co-exists in the Future, Continuing to Deepen management and Control

During the first quarter of 2015, the Group steadily advanced its business tasks and maintained stability in its revenue against the backdrop of the macro-economic downside and the ongoing impact of "Internet+" on the distribution and other business. Looking to the future, Mr. Yang Lin, CEO of Digital China, commented, "As we are facing new opportunities and challenges, we will carry on the steadfast implementation of our Sm@rt City strategy and vigorously develop new business models on the Internet platform, complemented by our strong efforts to develop high-margin and fast-growing new businesses such as IT technical services, agricultural informatization, supply chain and the financial institution business. Meanwhile, we will continue to strengthen our management and control with strong determination. Following the implementation of organizational and financial management, we will continue to optimize our corporate structure and formulate detailed provisions for the resources allocation to ensure the thorough implementation of the reorganization. The management will also continue to realize synergies based on the core Sm@rt City strategy, and create higher returns for our shareholders."

~ 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 (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 "Sm@rt 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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