Digital China Announces FY2012/13 Interim Results Top Line and Bottom Line Achieved Stable Growth amidst Headwinds

  Digital China Announces FY2012/13 Interim Results Top Line and Bottom Line
                   Achieved Stable Growth amidst Headwinds

PR Newswire

HONG KONG, Nov. 20, 2012

HONG KONG, Nov. 20, 2012 /PRNewswire/ -- Digital China Holdings Limited
("Digital China"; Stock Code: 00861.HK), China's largest integrated IT
services provider, today announced the unaudited consolidated interim results
of the Company and its subsidiaries (collectively the "Group") for the six
months ended 30 September 2012 (the "Period").

Results Highlights:

  oFor the six months ended 30 September 2012:
  oThe Group recorded turnover of HK$37,404 million, up 9.57% year-on-year as
    compared to HK$34,138 million for the corresponding period of last fiscal
    year. Turnover for the second quarter alone amounted to approximately
    HK$19,627 million, a record high for quarterly results.
  oThe Group timely liquidated inventories to avoid risks, resulting in an
    overall gross profit margin of 6.87%.
  oCredit to stronger cost control measures, the expense ratio was lowered by
    0.63 percentage point to 5.02% year-on-year.
  oProfit attributable to equity holders of the parent amounted to HK$741
    million, up 11.39% as compared to HK$665 million for the corresponding
    period of last fiscal year.
  oBasic earnings per share were 69.39 HK cents, up 11.92% from 62.00 HK
    cents for the corresponding period of last fiscal year.

The Group meticulously advanced its Sm@rt City-focused operating approach and
proactive customer development plans formulated earlier in the year. During
the Period, the Group reported trend-bucking business growth overall. In
particular, turnover for the second quarter achieved another breakthrough and
recorded a record high for quarterly results. Owing to its comprehensive and
balanced business portfolio, the Group reported stable growth which reflected
its strong resilience in outperforming its peers despite ongoing volatility in
the consumer market. The Group's Systems Business continued to reap additional
market share by closely tracking demand for the construction of data centres
and cloud computing centres. At the same time, the development of CES and
e-commerce channels supported the positive growth of the Group's Distribution
Business. The Supply Chain Services Business reported business value
enhancements following continual initiatives in structural optimization.
Meanwhile, the prudent advancement of the "Sm@rt City" strategy has cemented
the foundation for the Group to carry on its service-oriented transformation
in greater depth.

Financial Review

During the Period, the Group recorded turnover of approximately HK$37,404
million, a growth of 9.57% as compared to approximately HK$34,138 million for
the corresponding period of last fiscal year. Gross profit margin declined to
6.87% as the Group cleared its stocks swiftly in a judicious move to avoid
risks amidst soft demand in the consumer market and increasing competition and
uncertainties in technologies and products since the beginning of the fiscal
year. Meanwhile the Group's expense ratio during the Period was lowered by
0.63 percentage point year-on-year to 5.02% due to stronger cost control
measures in line with our persistent implementation of the operating principle
of "prudent progress and streamlined establishment with enhanced efficiency".
Other positive contributing factors included proactive stock clearance and
enhanced trade receivables management. Profit attributable to equity holders
of the parent during the Period amounted to approximately HK$741 million, up
11.39% as compared to approximately HK$665 million for the corresponding
period of last fiscal year. Basic earnings per share were 69.39 HK cents, up
11.92% from 62.00 HK cents for the corresponding period of last fiscal year.

Since the beginning of the current fiscal year, risk control and cash flow
management have been the Group's priority tasks for this fiscal year, fully
considering the risks associated with market volatility. The Group's efforts
have paid off well, assuring ongoing sound and stable business growth. Net
cash inflow from operating activities amounted to approximately HK$338 million
for the six months ended 30 September 2012 in sustained positive performance.
Meanwhile, the Group stood at the industry's top levels in terms of working
capital efficiency with further improvements, as represented by a cash
turnover of 14.20 days for the period, being 1.35 days less than 15.55 days
reported for the corresponding period of last fiscal year.

Segment Results

                        Six months ended 30 September
(HK$ million)           FY 2012/2013   FY 2011/2012   Change (%) YoY
Distribution*
Segment revenue         19,547         19,329         +1.13%
Segment gross profit    619            860            -28.00%
Segment results         145            290            -49.79%
Systems*
Segment revenue         13,350         10,699         +24.77%
Segment gross profit    1,203          1,007          +19.41%
Segment results         621            518            +19.90%
Supply Chain Services *
Segment revenue         550            584            -5.85%
Segment gross profit    117            103            +13.09%
Segment results         27             17             +54.42%
Services
Segment revenue         3,958          3,526          +12.25%
Segment gross profit    630            590            +6.90%
Segment results         311            138            +124.62%

*Restate: The Group started to make adjustments to business segments in the
current fiscal year:

1. A sub-segment of the "Supply Chain Services Segment" will be devoted to the
provision of professional supply chain management services including one-stop
logistics and maintenance services, to hi-tech corporate customers and
industry customers; another sub-segment will provide purchasing services to
chain electronic stores (CES) for terminal products such as PC, notebook,
smart devices, digital products, where CES is deemed as a retail format and an
effective complement to the Distribution Segment which aims at a comprehensive
coverage of all business formats. Therefore, this sub-segment has been
reallocated to the Distribution Segment.

2. A sub-segment of the "Distribution Segment" will continue to focus on full
channel coverage for all retail formats for IT products and devices,
developing and supplying IT products and solutions of broader variety and
higher value to consumer and SMB customers. Another sub-segment in the
original Distribution Segment, covering products such as PC, servers, will
become an important part of IT infrastructure building in line with the
development of cloud computing, which will be more compatible with the
business positioning of the Systems Segment, which aims to become a supplier
of IT infrastructure products and solutions. Therefore, this sub-segment has
been reallocated to the Systems Segment.

Business Review

Services Business (primary focus on the Industry Market, offering IT planning
and IT systems consultation, design and implementation of industry application
software and solutions, outsourcing of IT system operation and maintenance, as
well as products and services in systems integration and maintenance)

During the Period, the Group reported turnover of approximately HK$3,958
million for the Services Business, up 12.25% as compared to approximately
HK$3,526 million for the corresponding period of last fiscal year while gross
profit margin remained at 15.92%. The Group assured stable growth in its
Services Business by taking the initiative to reallocate resources, making the
decision to dispose of its Telecom software business and focusing on the
government corporation sectors instead where it had traditionally been a
market leader as well as the fast-growing banking sector. The financial and
government corporation sectors reported robust revenue growth of 71.18% and
38.91%, respectively.

During the Period, more projects streaming in for pure software as well as
pure services and the transformation of Services Business continued to reach
further depths. In the financial sector, the Group reported rapid growth in an
emerging business known as "Financial Cloud Services," signing up more than 40
small and medium-sized financial institutions. In addition, the Group also
secured important projects such as the core banking systems of Bank of
Qinghai, Bank of Cangzhou, Bank of Beijing and China Merchants Bank and
Enterprise Service Bus of Fujian Nongxin. Meanwhile, it maintained software
development and testing service contracts with existing customers such as
China Construction Bank, contributing to a substantial year-on-year growth of
over 50% in contract amount from the financial sector. In the government
corporation sector, new customers signed up for software and services projects
included the Hebei Bureau of the State Administration of Taxation, Anhui Local
Taxation Bureau, Ningbo Local Taxation Bureau, Shenyang Local Taxation Bureau
and Tianjin Municipal Trade Union.

After years of development effort, the Group achieved steady progress of Sm@rt
City. Contract signings for Sm@rt City solutions recorded year-on-year growth
of 52%. As at 30 September 2012, the Group's Sm@rt City national footprint has
extended to 69 cities and we have signed strategic cooperation plans with 14
cities. The Group continued to launch successful executions for numerous
maturing business types in various cities across the nation. Further to
growing sophistication of the operation of the meat- and vegetable- source
tracking system since its introduction to Suzhou, Wujiang and Taicang, among
others, the Group has recently added the cities of Changshu and Kunshan to its
clientele for this system, signifying the Group's full-scale development in
the urban food safety sector and its ability to grasp more opportunities in
these sectors. Meanwhile, the citizen card business continued to enjoy stable
development, underpinned by recently signed up projects such as citizen card
operation services for Zhangjiagang, the Karamay citizen card project, etc.

Distribution Business (primary focus on the SMB & Consumer Markets, engaging
in the distribution of general IT products such as notebook computers, desktop
computers, peripherals, accessories and consumer IT products)

Against a notable slowdown in the overall demand from the consumer market
since the beginning of the current fiscal year in line with the macroeconomic
downturn, the Group effectively neutralised the impact of lower turnover from
the notebook computers business due to a lacklustre market by its strategy of
detailed channel development to capitalize on the growth opportunities in CES
and e-commerce businesses. The Group's Distribution Business reported turnover
of approximately HK$19,547 million during the Period, an 1.13% growth
year-on-year. In the meantime, the Group adopted more proactive measures to
avert potential business risks through a variety of marketing initiatives to
clear stock, which resulted in the gross profit margin declining to 3.17%
year-over-year.

During the Period, the Group enhanced the coverage of CES and e-commerce
channels, which resulted in strong turnover growth of 48.31% year-on-year in
its CES business. In addition, the Group built this business into another
important source of revenue on the back of long-term working relationships
with key e-commerce customers. In the meantime, the Group has secured a solid
foundation for the Distribution Business to achieve sound results in the
second half of the fiscal year by making active preparations and deployments
in a bid to capture new growth opportunities driven by more diverse
applications and lower prices in an emerging market landscape featuring
multiple competing platforms, following the launch of Microsoft's new
operating system.

Systems Business (primary focus on the Enterprise Market, offering value-added
distribution of systems products such as servers, networking products, storage
products and packaged software)

During the Period, the Group outperformed the industry and it expanded market
share reflecting its dominance in the Enterprise Market and value-added
distribution segments. Turnover amounted to approximately HK$13,350 million,
an increase of 24.77% as compared to approximately HK$10,699 million reported
for the corresponding period of last fiscal year, while gross profit margin
was 9.01%. The Systems Business contributed significantly to the Group's
achieving its overall results during the Period.

In view of the growing maturity of cloud computing technologies, the Group's
Systems Business developed more sophisticated models for strategic cooperation
with leading vendors in cloud computing such as CISCO, Oracle and IBM during
the Period. By integrating the strengths of partners with those of our own,
the Group rolled out close cooperation in research and development,
consultancy, pre-sale operations to sale. In addition to focusing on cloud
computing data centre solutions by introducing leading-edge large-scale data
centre products and solutions to meet the growing demand for cloud computing
data centres, such cooperation initiatives also aimed to explore jointly the
market for industry systems products in the financial, telecommunications and
government sectors to enhance our strengths in these sectors.

Supply Chain Services Business (primary focus on the markets of Hi-tech
Industries, Branded e-Commerce Platform Operators and Branded Service
Providers, providing "one-stop" supply chain consultancy and execution in
logistics, business flow, capital flow and information flow)

At the start of the current fiscal year, the Group's Supply Chain Services
Business took the initiative to adjust businesses commanding lower gross
profit while actively developing new segments in the logistics business to
snatch market shares. Meanwhile, the proportion of services increased
substantially through strong demand for maintenance services. The Supply Chain
Services Business reported turnover of approximately HK$550 million during the
Period. Gross profit margin improved by 3.56 percentage points to 21.26% as
compared to the corresponding period of last fiscal year. In particular, the
logistics business reported overall revenue of approximately HK$206 million,
representing a growth of 59.09% as compared to the corresponding period of
last fiscal year. In addition, the Group vigorously developed its e-commerce
storage (B2C) business, increasing cooperation with existing strategic
partners while tapping new customers. Through business streamlining, we have
also secured improvements in our gross profit margin. Turnover generated from
the Group's service station business increased by 4.2% year-on-year, while its
gross profit margin was substantially increased by 4.05 percentage points
year-on-year.

Market Outlook

Mr. Lin Yang, CEO of Digital China, commented, "During the first half of the
fiscal year, the Group strictly advanced the principle of 'prudent progress,
streamlined establishment with enhanced efficiency, and with a focus on Sm@rt
City'. Both our top line and bottom line achieved stable trend-bucking growth.
In view of the complex market situation for the second half of the fiscal
year, we will adhere strictly to the principle and actively prepare for
various challenges arising from the volatile market. We will reinforce our
current business foundation and actively identify new niches of business
growth in order to mitigate the impact of macro-environment conditions and
changes in the IT market. Meanwhile, we will also earnestly explore other
models for Sm@rt City operations, with the aim of forging pilot cities in the
near future. While engaging in prudent business progress, we will continue as
always to strengthen risk controls and operating cash flow management,
continue reforms of internal administrative mechanisms, optimise staff
efficiency and enhance organisational effectiveness, with a view of
accomplishing of business targets for greater shareholders' value."

About Digital China

Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code:
00861.HK) is the largest integrated IT services provider in the Greater China
area. Digital China provides end-to-end integrated IT services for customers
on the back of a complete IT services value chain that 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 and maintenance, etc.

Digital China is driving the Sm@rt City initiative in tandem with China's 12th
Five-Year Plan. By facilitating consolidation and innovation through IT
advances such as cloud computing, mobile internet and the internet of things,
the Group seeks to advance China's new urbanization progress. As the largest
integrated IT services provider in China, Digital China has comprehensive
service capability and business coverage that ranges from Sm@rt City framework
design and planning, Sm@rt City IT infrastructure implementation to Sm@rt City
operational services. Leveraging on its extensive expertise and experience in
informatization, Digital China has become China's leading Sm@rt City expert
that boasts a forward-looking theoretical structure and has the largest stock
of successful cases.

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

For investor and media inquiries:

Neal He                            Henry Chik

Digital China Holdings Limited     PRChina

Tel: +86-10-8270-5635              Tel: +852-2522-1368

Email: heyongc@digitalchina.com    Email: hchik@prchina.com.hk

                                  

Lily Lai                           Camille Xiong

Digital China Holdings Limited     PRChina

Tel: +852-3416-8133                Tel: +852-2522-1838

Email: lilylai@hk.digitalchina.com Email: cxiong@prchina.com.hk
                                  

Judie Zhu                          David Shiu

Digital China Holdings Limited     PRChina

Tel: +86-10-8270-7818              Tel: +852-2522-2823

Email: zhusjia@hk.digitalchina.com Email: dshiu@prchina.com.hk



CONDENSED CONSOLIDATED INCOME STATEMENT

                                                                    Threemonthsended Sixmonthsended  Threemonthsended Sixmonthsended

                                                                    30 September 2012  30September2012 30 September 2011  30September2011
                                                                    (Unaudited)        (Unaudited)       (Unaudited)        (Unaudited)
                                                                    HK$'000            HK$'000           HK$'000            HK$'000
REVENUE                                                             19,626,814         37,403,597        18,099,893         34,137,847
Cost of sales                                                       (18,398,345)       (34,834,401)      (16,763,558)       (31,577,521)
Grossprofit 1,228,469          2,569,196         1,336,335          2,560,326
Other income and gains                                              316,806            418,039           230,754            381,656
Selling and distribution costs                                      (711,626)          (1,419,679)       (759,605)          (1,366,100)
Administrative expenses                                             (156,042)          (287,647)         (144,081)          (264,941)
Other operating expenses, net                                       (137,600)          (169,489)         (163,925)          (297,507)
Total operating expenses                                            (1,005,268)        (1,876,815)       (1,067,611)        (1,928,548)
Finance costs                                                       (79,883)           (156,856)         (63,898)           (162,134)
Share of profits and losses of:
Jointly-controlled entities                                         2,133              1,179             (268)              (409)
Associates                                                          (14,263)           (10,274)          8,647              14,833
PROFIT BEFORE TAX                                                   447,994            944,469           443,959            865,724
Income tax expense                                                  (30,672)           (99,340)          (112,879)          (149,133)
PROFIT FOR THE PERIOD                                               417,322            845,129           331,080            716,591
Attributable to:
 Equity holders of the parent                                      340,461            741,072           308,150            665,320
 Non-controlling interests                                         76,861             104,057           22,930             51,271
                                                                    417,322            845,129           331,080            716,591
EARNINGS PER SHARE ATTRIBUTABLE  TO ORDINARY EQUITY HOLDERS OF THE
PARENT
Basic                                                                                  69.39 HK cents                       62.00 HK cents
Diluted                                                                                68.57 HK cents                       61.68 HK cents

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                              At                 At

                                              30 September 2012  31 March 2012
                                              (Unaudited)        (Audited)
                                              HK$'000            HK$'000
NON-CURRENT ASSETS
Property, plant and equipment                 1,372,202          1,236,475
Investment properties                         211,078            305,005
Prepaid land premiums                         189,062            163,215
Goodwill                                      236,762            236,377
Intangible assets                             7,176              4,591
Investments in jointly-controlled entities    79,850             33,224
Investments in associates                     683,892            780,739
Available-for-sale investments                557,231            214,321
Deposit paid for acquisition of property and                    

 land use right                              157,152            -
Deferred tax assets                           60,570             32,135
Total non-current assets                      3,554,975          3,006,082
CURRENT ASSETS
Inventories                                   4,737,215          5,154,490
Trade and bills receivables                   12,603,423         10,787,427
Prepayments, deposits and other receivables   4,451,091          3,527,378
Derivative financial instruments              61,934             92,440
Financial assets at fair value through        185,819            -
profit or loss
Cash and cash equivalents                     3,309,577          4,253,966
                                              25,349,059         23,815,701
Non-current asset classified as held for      12,467             -
sale
Total current assets                          25,361,526         23,815,701
CURRENT LIABILITIES
Trade and bills payables                      13,549,167         12,315,472
Other payables and accruals                   2,363,876          2,728,849
Tax payable                                   195,470            201,525
Interest-bearing bank borrowings              3,174,430          2,323,895
Bond payable                                  36,675             -
Total current liabilities                     19,319,618         17,569,741
NET CURRENT ASSETS                            6,041,908          6,245,960
TOTAL ASSETS LESS CURRENT LIABILITIES         9,596,883          9,252,042
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings              1,552,500          1,692,000
Bond payable                                  -                  36,615
Total non-current liabilities                 1,552,500          1,728,615
NET ASSETS                                    8,044,383          7,523,427



CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

                                              At                 At

                                              30 September 2012  31 March 2012
                                              (Unaudited)        (Audited)
                                              HK$'000            HK$'000
EQUITY
Equity attributable to equity holders of the
parent
Issued capital                                109,291            109,273
Reserves                                      7,132,057          6,286,928
Proposed final dividend                     -                  424,986
                                              7,241,348          6,821,187
Non-controlling interests                     803,035            702,240
TOTAL EQUITY                                  8,044,383          7,523,427

SOURCE Digital China Holdings Limited

Website: www.digitalchina.com.hk