Digital China Announces FY09/10 Interim Results

HONG KONG, Nov. 10 /PRNewswire-Asia/ --

Highlights:

For the six months ended 30 September 2009: -- Turnover amounted to HK$24,464 million, an increase of 15.94% year-on-year, far higher than the growth rate of China's IT market -- Gross profit margin was 6.24%, representing a slight decrease from the same period last year -- Profit attributable to shareholders increased by 69.10% year-on-year to HK$412 million -- Net cash inflow from overall operating activities was HK$568 million

China's leading integrated IT service provider, Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK), announced its results for six months ended 30 September 2009 ("1H FY09/10").

Financial Review

During the period under review, the Group continued to implement its core strategy of focusing on the development of services and addressing the operational improvement of groundwork. Turnover for 2Q FY09/10 hit a new record of HK$13,804 million, while turnover for the six-month period was

HK$24,464 million, an increase of 15.94% year-on-year, far higher than the overall growth rate of China's IT market. Gross profit was HK$1,527 million, up 4.46% over 1H08/09. Due to effective cost management, profit attributable to shareholders increased 69.10% year-on-year to HK$412 million. Return on shareholders' equity was 10.89%, up 22.50% year-on-year. Basic earnings per share were 42.74 HK cents.

After a rigorous screening of 910 enterprises in the Asia Pacific region, the Group was included in Forbes Asia's Fab 50 companies. The ranking reflects the significant growth of the Group's revenue and sales and recognition of its robust earnings potential.

Mr. Guo Wei, Chairman and CEO of Digital China commented, "We succeeded in attaining targets for major operating indicators by being customer-focused and service-oriented. It is our great honor to be listed as one of the best

Asia-Pacific companies by Forbes Asia, which also demonstrated our achievements through implementing our strategy successfully. To capture opportunities arising from generally improved economic sentiment in China, the Group emphasized marketing management, swift business expansion and pre-emptive moves for gaining market share. Meanwhile, we sustained overall business growth that considerably outperformed the market through improved cash flow management and cash turnover, while achieving balance in business growth and risk control underpinned by a diminishing cost ratio."

For the 1H of FY09/10: -- Significantly improved operational efficiency brought down overall operating costs by 5.62% year-on-year. -- Cash turnover in 2Q FY09/10 fell from 28.4 days to 15.98 days, well below the average level of our industry peers.

For the six months ended 30 September 2009, overall operating costs were 4.99%, compared to 6.13% for the corresponding period last year. The Group's cash turnover cycle was 19.20 days, compared to 25.78 days a year ago. Moreover, our cash turnover in 2Q FY09/10 dropped to 15.98 days, which was well below the average level for our industry peers.

Segment Results For the six months ended 30 September Change (%) (HK$ million) 2009 2008 year-on-year Distribution Business Turnover 11,149 9,706 14.87 Gross profit 474 444 6.78 Segment Results 140 176 (20.60) Systems Business Turnover 6,519 6,407 1.73 Gross profit 584 591 (1.25) Segment Results 182 178 2.42 Supply Chain Services Business Turnover 4,686 2,428 92.99 Gross profit 150 94 60.43 Segment Results 40 25 60.20 Services Business Turnover 2,110 2,560 (17.56) Gross profit 318 332 (4.28) Segment Results 69 54 27.84

Business Review

Services Business (with a primary focus on Industry Market)

During the period under review, turnover of the Services business decreased by 17.56% year-on-year to HK$2,110 million, although gross profit margin increased to 15.08%. In order to sustain profitability growth, the Group's Services business focused on customer value enhancement, emphasizing software and services while reducing the weighting of the hardware-related businesses.

The Group's software solution business reported encouraging progress in three major sectors. In financial sector, a deal was signed with Xuchang Commercial Bank, for "Model-Bank Express" core banking application software and related services, following the successful launch of a new-generation core banking system for Qilu Bank. In the telecommunications sector, we made aggressive moves to increase our market share with China Telecom and China Unicom, while maintaining our existing business with China Mobile. In this connection, deals involving the Beijing Unicom 3G Support System and Xinjiang Unicom BSS project were concluded. In the government sector, the Group won the bid for two consultancy projects pertaining to the Phase III financial and taxation system project of the State Administration of Taxation in August, paving the way for further involvement in Phase III projects and reinforcing our leadership in the State tax sector. The Group also won government projects in the Miyun District of Beijing and Wuxi in Jiangsu Province, following the successful launch of the Yangzhou Citizen Card in May.

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

During the period under review, Supply Chain Services business turnover was HK$4,686 million, up 92.99% year-on-year. Our Supply Chain Services sustained rapid growth to provide strong support for the Group's overall business growth. Turnover from the fulfillment business (FA) reported growth of 103.12% over a year ago, while turnover from Chain Electronic Stores grew 72.86% on the back of business model innovations, process re-engineering, introduction of new products and expanded scope for partnerships. Turnover contributions from logistics and maintenance services within the supply chain sector also improved following initiatives in internal capacity building, process streamlining and re-structuring.

Systems Business (with a primary focus on Enterprise Market)

During the period under review, turnover of the Systems business was

HK$6,519 million, up 1.73% year-on-year. The Group survived the doldrums of a weakening corporate market and severe economic conditions during the first quarter of the current financial year. In particular, turnover growth for the second quarter was well above the overall growth rate of the market. Regional customer business grew by 41.34% compared to the corresponding period last year. We endeavoured to improve our ability to provide solutions that address the needs of our customers. In this regard, we have made groundbreaking progress in the building of Urban Contingency Systems and the development of Smart Network solutions. Contributions from storage equipment and Unix servers grew by 39.41% and 14.14% year-on-year, respectively.

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

During the period under review, turnover for the Group's Distribution business amounted to HK$11,149 million, representing a 14.87% year-on-year growth that also outperformed the market in the same segment. The Distribution business delivered outstanding performance in terms of expansion in the consumer and commercial application sectors. The Group signed a national partnership agreement with China Unicom during the second quarter in relation to its WO-3G business, with special emphasis on the iPhone. This deal completed our coverage of China's big-three telecommunications carriers (China Mobile, China Unicom and China Telecom) as a nationwide service provider.

As of 30 September 2009, turnover contributions from tier-4 to 6 cities increased by 59% as compared to the corresponding period of last financial year as the number of effective channels for the Group's Distribution business grew 40% year-on-year, underpinned by the opening of an additional "@PORT" of Digital China. Turnover for notebooks, PC server and consumer IT products sectors grew by 51.78%, 41.02% and 22.49%, respectively.

Outlook

Looking forward, we will continue to persist in our strategy of being customer-focused and service-oriented, in a bid to enhance our profitability and add value for customers on a continuing basis. We intend to devise effective marketing strategies to address the varied pace of recovery in different market segments amid albeit generally improved economic sentiment. Meanwhile, we will continue to ensure stable business operations by maintaining sound cash flow and stringent management over trade receivables and inventory, monitoring any changes in economic indicators and market data. "The management believes that we will maintain growth for the full financial year on the back of our dominance in various customer segment groups and an effective risk control regime, in order to create greater value for shareholders," Mr. Guo Wei said.

About Digital China

Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK) is the largest IT services provider in China. Headquartered in

Beijing, Digital China has regional centres in 19 major cities nationwide with 9,300 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. Digital China remained as one of the top 5 IT services providers across various sectors in China including telecommunication, finance and government by providing self-developed and proprietary products that are customised for specific industry needs. For additional information about Digital China, please visit the Company's website at http://www.digitalchina.com.hk .

For investor and media inquiries:

Wycee Liu Digital China Holdings Limited Tel: +852-3416-8089 Email: liuyqa@digitalchina.com

Winnie Wang Digital China Holdings Limited Tel: +852-3416-8090 Email: wangminh@digitalchina.com

Vivian Shi Digital China Holdings Limited Tel: +852-3416-8076 Email: vivianshi@digitalchina.com

Jane Liu PRChina Tel: +852-2522-1838 Email: jliu@prchina.com.hk

Henry Chik PRChina Tel: +852-2522-1368 Email: hchik@prchina.com.hk

Eric Song PRChina Tel: +852-2522-1368 Email: esong@prchina.com.hk

CONDENSED CONSOLIDATED INCOME STATEMENT

Three months Six months Three months Six months ended ended ended ended 30 September 30 September 30 September 30 September 2009 2009 2008 2008 (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$'000 HK$'000 HK$'000 HK$'000

REVENUE 13,803,936 24,463,948 11,090,595 21,101,305

Cost of sales (12,961,190) (22,936,833) (10,290,844) (19,639,348)

Gross profit 842,746 1,527,115 799,751 1,461,957

Other income and gains 47,933 241,840 60,694 190,519

Selling and distribution costs (456,555) (872,086) (458,282) (855,706) Administrative expenses (87,111) (176,039) (94,753) (178,527) Other operating expenses, net (112,161) (172,800) (118,137) (259,373) Total operating expenses (655,827) (1,220,925) (671,172) (1,293,606)

Finance costs (30,089) (55,735) (46,693) (87,511) Share of profits and losses of: Jointly-controlled entities (1,228) 2,050 (253) 447 Associates 488 (1,241) 1,794 4,240

PROFIT BEFORE TAX 204,023 493,104 144,121 276,046

Tax (39,984) (57,877) (39,804) (58,835)

PROFIT FOR THE PERIOD 164,039 435,227 104,317 217,211

Attributable to: Equity holders of the parent 149,590 411,714 129,444 243,478 Minority interests 14,449 23,513 (25,127) (26,267)

164,039 435,227 104,317 217,211

EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic 42.74 HK 25.30 HK cents cents Diluted N/A N/A

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At At 30 September 31 March 2009 2009 (Unaudited) (Audited) HK$'000 HK$'000 NON-CURRENT ASSETS Property, plant and equipment 380,953 397,767 Investment properties 238,516 238,516 Prepaid land premiums 14,467 14,671 Intangible assets 3,527 4,233 Interests in jointly-controlled entities 6,477 6,201 Interests in associates 21,868 23,409 Available-for-sale investments 101,496 101,496 Deferred tax assets 15,987 24,176 Total non-current assets 783,291 810,469

CURRENT ASSETS Inventories 2,541,218 2,136,461 Trade and bills receivables 6,992,575 5,471,493 Prepayments, deposits and other receivables 1,438,185 1,366,277 Derivative financial instruments 21,031 27,097 Cash and bank balances 2,466,231 1,734,428 Total current assets 13,459,240 10,735,756

CURRENT LIABILITIES Trade and bills payables 6,971,920 4,697,703 Other payables and accruals 1,583,937 1,681,331 Tax payable 117,705 133,010 Interest-bearing bank borrowings 671,543 875,449 Total current liabilities 9,345,105 7,387,493

NET CURRENT ASSETS 4,114,135 3,348,263

TOTAL ASSETS LESS CURRENT LIABILITIES 4,897,426 4,158,732 NON-CURRENT LIABILITIES Interest-bearing bank borrowings 650,600 701,516 Bond payable 226,296 226,296 Total non-current liabilities 876,896 927,812

NET ASSETS 4,020,530 3,230,920

EQUITY Equity attributable to equity holders of the parent Issued capital 102,004 96,239 Reserves 3,679,481 2,903,667 Proposed final dividend -- 140,030 3,781,485 3,139,936 Minority interests 239,045 90,984

TOTAL EQUITY 4,020,530 3,230,920

SOURCE Digital China Holdings Limited