Digital China Announces FY2013/14 Interim Results

              Digital China Announces FY2013/14 Interim Results

Leveraging Sm@rt City Strategy to Further Enhance Servicing Capabilities

PR Newswire

HONG KONG, Nov. 19, 2013

HONG KONG, Nov. 19, 2013 /PRNewswire/ --

Results Highlights:

For the six months ended 30 September 2013:

  oAffected by lacklustre macro-economic and IT market conditions, the Group
    recorded turnover of approximately HK$33,629 million, decreased 10.09%
    year-on-year. Overall gross profit margin was 6.16%. Profit attributable
    to equity holders of the parent amounted to approximately HK$633 million.
    Basic earnings per share were 59.24 HK cents.
  oExpenditure and operating expense ratio kept decreasing on the back of
    ongoing cost structure optimisation. Total operating expense decreased
    9.15% year-on-year.
  oThanks to stringent risk control policies, net cash inflow from operating
    activities for the second quarter of the current financial year amounted
    to approximately HK$150 million, ensuring stable operation of the Group's
    business.

Digital China (the "Group"; Stock Code: 00861.HK; 910861.TW), the largest
integrated IT services provider in China, today announced its consolidated
interim results for the six months ended 30 September 2013 (the "Period").

The continuous slowdown in China's macro-economic growth since the 2012/13
financial year has resulted in unprecedented challenges for each IT
sub-segment market and exerted obvious impacts on the Group's operations. The
Group's management has devised an operating strategy focused on "Stabilizing
Fundamentals, Adjusting Structures and Controlling Risks". While seeking to
reinforcing leadership in our traditional strongholds, we also made proactive
moves to adjust our business structure, strengthen the operation of high-value
businesses and step up efforts to foster new niches for business growth in the
emerging sectors. Meanwhile, the Group continued to enhance its Sm@rt City
servicing capabilities to drive implementation at cities which had signed up
for Sm@rt City. During the Period, the final inspection of the Wujiang Meat
and Vegetable Circulation Tracking System was completed, while the Foshan
integrated citizen services platform has become a major channel of citizen
services for the Municipal Party Committee and Municipal Government of Foshan.
Also, the Group continued to enrich the contents of Sm@rt City business
through cooperation at capital level and setting up a joint venture in Nanjing
to operate the citizen card business. These developments have further
reinforced the Group's leadership in Sm@rt City expertise. During the second
quarter of the current financial year, the Group invested HK$170 million to
increase in the shareholding of HC International, Inc. (Stock Code: 08292.HK)
and became the latter's single largest shareholder. This investment will allow
the Group to accumulate experience for the expansion of its Internet business,
while facilitating future business cooperation between the two companies.

Financial Review

From the beginning of this financial year, competition was intensifying in an
increasingly complicated IT market, where the profiles of products and
competition were rapidly changing amid continued doldrums. Affected by such
factors, the Group reported revenue of approximately HK$33,629 million for the
six months ended 30 September 2013, a decrease of 10.09% as compared to the
corresponding period of last financial year. Overall gross profit margin for
the first six months of the current financial year was 6.16%. For the six
months ended 30 September 2013, profit attributable to equity holders of the
parent amounted to approximately HK$633 million, a decrease of 14.58% as
compared to the corresponding period of last financial year. Basic earnings
per share amounted to 59.24 HK cents. Excluding one-off gain arising from the
disposal of a subsidiary, profit attributable to equity holders of the parent
for the second quarter of the current financial year actually increased by
22.20% as compared to the corresponding period of last financial year.

The Group reported consistent reductions in expenditure following proactive
measures in cost structure adjustment, stringent expenditure control and
organisational optimisation. For the six months ended 30 September 2013, the
Group's total operating expense was 9.15% lower than that for the
corresponding period of last financial year. During the second quarter of the
current financial year, selling and distribution expenses and administrative
expenses decreased by 20.91% and 39.23%, respectively, as compared to the
corresponding period of last financial year. During the Period, the Group's
trade receivables turnover days was 58.74 days, being 2.46 days longer as
compared to the corresponding period of last financial year. The longer
turnover period was attributable to the adjustments of the Group's business
structure and the increase of businesses that have longer credit term. The
progress of collecting receivables was also affected by complicated inspection
and acceptance procedures owing to the diverse nature of certain projects.
Taking into full account risks associated with market volatility, the Group
implemented its risk management policy in a persistent manner. Net cash inflow
from operating activities for the second quarter of the financial year
amounted to approximately HK$150 million, providing an effective protection
for the stable operation of the Group's business.

Segment Results

                      Six months ended 30 
                      September
(HK$ million)         FY2013/2014    FY2012/2013    Change (%) YoY
Distribution
Segment revenue       17,218         19,547         -11.91%
Segment gross profit  350            619            -43.49%
Segment results       65             145            -55.42%
Systems
Segment revenue       12,015         13,350         -10.00%
Segment gross profit  1,007          1,203          -16.31%
Segment results       485            621            -21.86%
Supply Chain Services
Segment revenue       659            550            +19.85%
Segment gross profit  125            117            +7.30%
Segment results       42             27             +58.83%
Services
Segment revenue       3,738          3,958          -5.56%
Segment gross profit  589            630            -6.49%
Segment results       133            311            -57.11%

Business Review

Services Business (primary focus on the Industry Market, offering products and
services in 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 systems integration and maintenance)

During the current financial year, there was a trend of postponing IT
procurement among industry customers amidst a macro-economic downturn. The
Services Business reported stable growth with the effective support of the
Group's persistent drive of customer plans and ongoing market development
efforts in the financial and government & corporations sub-sectors, for which
notable results have been achieved. During the Period, the Services Business
of the Group reported revenue of approximately HK$3,738 million, a decline of
5.56% compared to the same period of last financial year. Revenue for the
second quarter of the current financial year increased by 5.53% compared to
the corresponding period of last financial year. Revenue generated from the
financial sector increased by 5.11%, as we continued to roll out core system
projects with large banks such as China Development Bank and signed up
regional banks such as Jilin Bank, Anhui Rural Credit Union and Shaanxi Rural
Credit Union as new customers. Revenue from the government & corporations
sector grew by 39.33% as we strengthened relationships with strategic
customers such as the State Grid Corporation of China and made progress in the
expansion of businesses with the local tax bureaus of Ningbo, Qingdao and
Tianjin.

During the Period, in persistent efforts to advance business transformation,
the Group's Services Business continued to expand into businesses commanding
high values and a high degree of stickiness, such as IT consultancy, industry
application software and warranty services, and achieved steady growth in the
proportion of pure Software and pure Services businesses. Meanwhile, the Group
kept fostering project management capabilities in response to market
volatility and changes in customers' requirements to enhance the
controllability of project delivery. The Services Business reported gross
profit margin of 15.77% for the first two quarters of the current financial
year, which was stable as compared to the same period last year.

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)

The IT Consumer Market remained in doldrums in the second quarter, marked by a
further dwindled market for PC notebooks amid the accelerated transformation
in the product profile. Affected by this development, revenue from the
Distribution Business of the Group for the first half of the financial year
amounted to approximately HK$17,218 million, representing a decrease by 11.91%
as compared to the corresponding period of last financial year. Revenue from
the notebook business (excluding CES channel) decreased by 19.31% as compared
to the corresponding period of last financial year. Overall gross profit
margin of the Distribution Business was lower as compared to the corresponding
period of last financial year following proactive adjustment of the CES
business. Gross profit margin declined to 2.03% in aggregate for the first
half of the current financial year.

During the Period, the Group proactively reinforced its business structure
adjustments. While securing our existing market shares in traditional
products, we increased our efforts in the development of mobile device
business and achieved breakthroughs in such emerging business sectors.
Significant growth was reported for the sales of Microsoft's Surface Tablet
and Apple products, contributing to an 85% year-on-year growth in the sales of
our mobile device business (excluding CES sales) in the second quarter.
Meanwhile, the Group was also identifying opportunities in the market of
Taobao e-commerce customers, in addition to ongoing progress in e-commerce
coverage and continuous enhancement in strategic cooperation with core
e-commerce customers.

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)

With the beginning of the 2013/14 financial year, the domestic Enterprise
Market for IT infrastructure facilities continued to decline. The rise of
domestic brands threatened the existing market profile, for which major
international vendors reported slower or even negative growth. Affected by
such factors, the Group's Systems Business reported revenue of approximately
HK$12,015 million for the six months ended 30 September 2013, a 10.00% decline
as compared to the corresponding period of last financial year. Gross profit
margin of the Systems Business was lower owing to escalating market
competition, decreasing to 8.07% for the second quarter.

In response to complicated market conditions, the Group's Systems Business
assured its leadership in market shares for core product lines thanks to
persistent efforts in market-share management. In the meantime, the Group
continued to enhance its expansion into the package software and domestic
brands. In the second quarter, revenue from package software recorded a growth
of 18% as compared to the corresponding period of last financial year. Rapid
growth was also reported for our business in domestic brands, as represented
by Huawei. Sales of Huawei products have increased by 33% in the second
quarter as compared to the corresponding period of last financial year.

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

During the Period, the Group's Supply Chain Services Business seized
opportunities arising from the rapid growth of the market for third-party
logistics and made major moves to expand its logistics services business.
Breakthroughs were achieved in the communications, automobile accessories and
apparels sub-sectors, providing effective support for the substantial revenue
growth of the Supply Chain Services Business. During the Period, the Supply
Chain Services Business of the Group reported overall revenue of approximately
HK$659 million, an increase by 19.85% compared to the same period of last
financial year.

Our Supply Chain Services Business reported improvements in operating
efficiency and business deployment as it continued to enhance its capabilities
in warehousing, transportation, delivery and maintenance services. In the
logistics business, we won the centralised logistics procurement bid from
China Mobile's terminal company, securing business in 14 provinces including
Guangdong and Zhejiang. Our outsourcing business with BYD increased to 60,000
square metres in terms of storage gross floor area and shifts in cities like
Shenzhen, Shanghai and Beijing have been completed. In the maintenance
business, we started Microsoft Surface tablet maintenance services during the
second quarter, while signing up Xiaomi as customer. The maintenance
cooperation with Yixun was also established. Meanwhile, our per-store
profitability continued to improve with the number of profitable stores
growing by 31% as compared to the same period of last financial year.

Market Outlook

Mr. Lin Yang, CEO of Digital China, said, "Given the enormous impact on the IT
market of worsening macro-economic conditions in 2013, the Group's operations
will continue to be adversely affected as a result. Against such complicated
market conditions, we will review market developments and make necessary
structural adjustments in line with new market trends and changes to accord
with the long-term interests of the Company. At the same time, we will step up
with the implementation of Sm@rt City in signed-up cities, while closely
monitoring industry developments under the "Guidance for Facilitating the
Healthy Development of Smart Cities" jointly prepared by 8 ministries and
commissions to seize any opportunities for enriching its service contents that
will benefit its overall objective of business transformation. We will also
expedite the deployment of its Mobile Internet business and develop businesses
with domestic brands in tandem with the changing profiles of the IT market,
with the aim of mitigating the impact of market factors in order to assure
sound business development and striving to enhance shareholders' value."

- End -

About Digital China

Digital China (Stock Code: 00861.HK) is the largest integrated IT services
provider in China. 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 capabilities 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 inquiries:


Neal He                         Alex Tso

Digital China Holdings Limited  Digital China Holdings Limited

Tel: 852-3416-8133              Tel: 852-3416-8077

Email: heyongc@digitalchina.com Email: alextso@digitalchina.com


For  media inquiries:
                               

Selena Li                       Henry Chik

Digital China Holdings Limited  PRChina Limited

Tel:86-10-8270-7192             Tel: 852-2522-1368

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

Ivy Lu                          David Shiu

PRChina Limited                 PRChina Limited

Tel: 852-2522-1838              Tel: 852-2521-2823

Email: ilu@prchina.com.hk       Email: dshiu@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
                           2013         2013         2012         2012
                           (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
                           HK$'000      HK$'000      HK$'000      HK$'000
REVENUE                    17,615,696   33,628,895   19,626,814   37,403,597
Cost of sales              (16,635,107) (31,557,634) (18,398,345) (34,834,401)
Gross profit               980,589      2,071,261    1,228,469    2,569,196
Other income and gains     257,319      509,486      316,806      418,039
Selling and distribution   (562,853)    (1,182,627)  (711,626)    (1,419,679)
expenses
Administrative expenses    (94,822)     (213,973)    (156,042)    (287,647)
Other operating expenses,  (227,317)    (308,421)    (137,600)    (169,489)
net
Finance costs              (53,718)     (120,369)    (79,883)     (156,856)
Share of profits and
losses of:
Jointly-controlled         (7,025)      (8,121)      2,133        1,179
entities
Associates                 11,279       42,464       (14,263)     (10,274)
PROFIT BEFORE TAX          303,452      789,700      447,994      944,469
Income tax expense         (31,885)     (109,096)    (30,672)     (99,340)
PROFIT FOR THE PERIOD      271,567      680,604      417,322      845,129
Attributable to:
 Equity holders of the    272,122      633,016      340,461      741,072
parent
 Non-controlling          (555)        47,588       76,861       104,057
interests
                           271,567      680,604      417,322      845,129
EARNINGS PER SHARE
ATTRIBUTABLE  TO ORDINARY
EQUITY HOLDERS OF THE
PARENT
Basic                                   59.24  HK                 69.39 HK
                                        cents                     cents
Diluted                                 58.49 HK                  68.57 HK
                                        cents                     cents





CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION


                                              At                 At

                                              30 September 2013  31 March 2013
                                              (Unaudited)        (Audited)
                                              HK$'000            HK$'000
NON-CURRENT ASSETS
Property, plant and equipment                 1,509,647          1,515,037
Investment properties                         592,984            335,197
Prepaid land premiums                         197,375            503,849
Goodwill                                      242,881            239,012
Intangible assets                             33,337             10,079
Investments in jointly-controlled entities    129,384            126,601
Investments in associates                     945,835            681,976
Available-for-sale investments                440,805            473,952
Deferred tax assets                           138,558            78,567
Total non-current assets                      4,230,806          3,964,270
CURRENT ASSETS
Inventories                                   5,529,023          5,793,742
Trade and bills receivables                   11,622,301         10,324,760
Prepayments, deposits and other receivables   3,647,268          4,082,068
Derivative financial instruments              75,965             53,511
Cash and cash equivalents                     3,901,247          4,189,519
Total current assets                          24,775,804         24,443,600
CURRENT LIABILITIES
Trade and bills payables                      11,166,824         10,873,485
Other payables and accruals                   2,811,120          3,041,381
Tax payable                                   309,572            306,462
Interest-bearing bank borrowings              3,052,628          2,765,891
Bond payable                                  -                  37,023
Total current liabilities                     17,340,144         17,024,242
NET CURRENT ASSETS                            7,435,660          7,419,358
TOTAL ASSETS LESS CURRENT LIABILITIES         11,666,466         11,383,628
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings              2,712,507          2,712,494
Total non-current liabilities                 2,712,507          2,712,494
NET ASSETS                                    8,953,959          8,671,134
EQUITY
Equity attributable to equity holders of the
parent
Issued capital                                109,373            109,346
Reserves                                      7,932,337          7,302,560
Proposed final dividend                     -                  414,592
                                              8,041,710          7,826,498
Non-controlling interests                     912,249            844,636
TOTAL EQUITY                                  8,953,959          8,671,134

SOURCE Digital China Holdings Limited
 
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