Digital China Announces FY2012/13 Annual Results

HONG KONG, June 18, 2013 /PRNewswire/ --

Results Highlights:

For the 12 months ended 31 March 2013:

• The Group achieved a trend-bucking growth in revenue, which amounted to approximately HK$73,499 million, up 4.52% year-on-year.
• Gross profit margin for the financial year stabilised at 7.31%.
• Profit attributable to equity holders of the parent amounted to approximately HK$1,367 million, up 9.85% year-on-year.
• Basic earnings per share were HK$1.28, up 10.05% from HK$1.16 for the corresponding period of last financial year.
• Thanks to stringent cost control policies and ongoing optimization of business mix, operating expense ratio of the Group dropped remarkably to 5.55% from 5.85% for 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 consolidated annual results for the 12 months ended 31 March 2013 (the "Period").

Since the beginning of 2012/13 financial year, the Group has been facing unprecedented challenges in various market sub-segments amid severe economic conditions. Nevertheless, it completed business focusing and organisational adjustments in line with the "Sm@rt City" strategic deployment. The coverage of CES and e-commerce channels in the Distribution Business was expedited to partially offset the decline in the traditional market segments. For the Systems Business, market shares were enlarged in close tandem with the construction of data centres and Cloud Computing centres. Benefitted from the Sm@rt City strategy, both the Services Business and the Supply Chain Services Business reported continuous value enhancements. With a comprehensive and balanced business layout, the Group achieved healthy and stable growth in business results despite generally lacklustre macro-economic conditions. We achieved further breakthroughs in the development of Sm@rt Cities during the financial year, as the launch of the nation's first integrated citizen services platforms underscored our active exploration of transition from solution business to operating services in connection with the "Sm@rt City" and further reinforced Digital China's leading position in the "Sm@rt City" business sector. The Group was included in "Forbes Asia Fab 50" for the fourth year in a row in the 2012/13 financial year, reflecting ongoing recognition of the Group's business endeavours by the capital market.

Financial Review

During the Period, the Group reported revenue of approximately HK$73,499 million, with an increase of 4.52% as compared to the corresponding period of last financial year. Against grim market conditions, all business units strictly adhered the principle of "Prudent Progress" and sought to reinforce our existing business foundation and identify new business opportunities. Cooperation with strategic vendors and core customers was enhanced on an ongoing basis and thus the Group reported stable growth in revenue and profit. In response to intense market competition, the Group sought to stabilise and improve its gross profit margin by engaging in continuous efforts to optimise its business mix. Gross profit margin for the financial year stabilised at 7.31%. For the year ended 31 March 2013, the Group reported profit attributable to equity holders of the parent of approximately HK$1,367 million, sustaining growth of 9.85% as compared to the corresponding period of last financial year. Basic earnings per share amounted to HK$1.28, a 10.05% growth compared to HK$1.16 for the corresponding period of last financial year.

The Group persistently adopted stringent risk management and control policies to streamline its business flows and implement key tasks in risk management and cash flow management. The Group's net cash inflow from operating activities amounted to approximately HK$469 million for the year ended 31 March 2013, ensuring healthy and stable development for the Group's business. Meanwhile, against the backdrop of escalating market risks and the slowdown in revenue growth, the Group formulated stringent cost management and control policies in persistent adherence to the principle of "streamlined establishment with enhanced efficiency" and secured more efficient resource utilisation by forming business focuses through organisational optimisation. The Group's operating expense ratio for the year ended 31 March 2013 was obviously lower at 5.55% as compared to 5.85% reported for the corresponding period of last financial year, underpinning negative growth in the aggregate amount of operating expenses.

Segment Results

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, Services Business reported revenue of approximately HK$9,013 million, representing an increase of 14.20% as compared to the corresponding period of last financial year. Substantial growth in our Services Business was driven by diligent efforts on the part of our Group management to drive customer plans, build services support regimes with integrated resources and secure notable progress for business development in the government & corporation industry and the financial industry. The government & corporation and financial sectors achieved fast growth of 48.62% and 58.28% year-on-year, respectively, driving a significant progress of overall Service Business.

During the Period, the Group's Services Business reported consecutive rapid growth in proprietary services and ongoing optimisation of its business mix, as we pursued strategic transformation in persistent efforts. In the financial sector, our financial SaaS business has become a pioneering force in the Cloud Computing sector, registering fast expansion with 51 township banks signed up for the provision of operational services such as core banking systems, credit systems and Internet banking systems. Moreover, our taxation business continued to sign up new customers including the Hainan Local Taxation Bureau, Liaoning Local Taxation Bureau and Shenzhen Local Taxation Bureau.

The Group stepped up with its work to expand the geographic coverage of its "Sm@rt City" business, leveraging its leadership in this sector. During the Period, the Sm@rt City business was strategically deployed in 69 cities across the nation, while 14 cities had signed strategic cooperation framework agreements. Following the implementation in various cities of the meat and vegetable source tracking system and citizen card project, data application solutions and Cloud Computing solutions have also been commercialised with significant growth in contract amounts as compared to the same period of last financial year, effectively driving transformation of this business segment. The exponential growth in signed-up contract amounts was underpinned by solution projects signed up for Xi'an, Shunde and Xinjiang etc. during the fourth quarter.

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 Distribution Business was subject to increasing market risks in 2012 as the businesses of our principal products of notebook computers and peripherals were negatively affected by the notable decline in IT consumer market demands amidst a grim macro-economic landscape, while the effect of new products and technologies as a market stimulant had yet to be realised. Under such circumstances, the Group managed to sustain stability in business results transition by diligently adjusting business mix, pro-actively streamlining and cutting back product lines with low output and enhancing efficiency in resource application. The Group's Distribution Business reported revenue of approximately HK$37,657 million during the Period, a decrease by 1% compared to the corresponding period of last financial year. Gross profit margin for the latter half of the year had improved notably subsequent to a temporary decline in the first half of the year owing to stock clearance measures to avert potential business risks.

While revenue of the Distribution Business was considerably affected by the decline in market demands for IT consumer products, the Group maintained its leadership in various sub-segments through persistent efforts in market share management during the Period. Meanwhile, the Group made diligent efforts to develop businesses in accessories and secure opportunities in high-end product lines. We have also strengthened our cooperation with Apple in the Mobile Internet sector to tap new business opportunities.

During the Period, the Group made diligent efforts to drive the full coverage of CES and e-commerce channels, leveraging opportunities arising from changes in retail business formats. In the CES business, we continued to enhance cooperation with large-scale retail hypermarkets, underpinned by increasing collaboration with Gome and Walmart for the development of service regimes in connection with Apple products. During the Period, our CES business reported rapid growth of 59.60% as compared to the corresponding period of last financial year. In connection with e-commerce, the Group strengthened strategic cooperation with core customers such as Jingdong, 51buy and Suning, etc and expanded its coverage of e-commerce channels, leveraging opportunities presented by the rapid growth of the sector. Currently, CES and e-commerce channels have become the largest source of revenue besides our traditional IT product channels.

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)

In 2012, the Systems Business of the Group reported outperforming growth as it closely tracked Enterprise Market trends and capitalised on growth opportunities for new businesses. During the Period, revenue amounted to approximately HK$25,618 million, an increase of 10.20% as compared to the corresponding period of last financial year, while gross profit margin also increased by 60 basis points to 9.54%, effectively supporting the achievement of the Group's overall results.

Amidst changing demands in the Enterprise Market, the Group's Systems Business sustained stable growth in key product areas such as networking, servers and storage, as it continued to upgrade its capabilities in specialised services for various sub-segments, leveraging opportunities in the construction of data centres and Cloud-computing facilities. During the Period, revenues from servers, storage products and networking products increased significantly by 15.30%, 24.42% and 14.46% year-on-year, respectively. The Group's Systems Business continued to enhance strategic cooperation with key vendors, as business cooperation plans were drawn up in collaboration with Cisco, IBM, Oracle and Microsoft and product layout was improved to assure stable growth for its existing business. Moreover, we also worked with key vendors to develop novel sector markets, such as Cloud Computing and Big Data, in close tandem with market trends.

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)

During the Period, the Group's Supply Chain Services Business optimised its business mix by adjusting businesses that commanded lower value as part of its ongoing efforts to improve business layout in tandem with market development trends. In logistics business, the scale of cooperation was increased in IT, communications and apparel sectors, while in service station business, the weighting of the services business was increased. Such efforts have driven substantial growth in the overall profitability of the Supply Chain Services Business. Our Supply Chain Services Business reported overall revenue of approximately HK$1,211 million during the Period. Gross profit margin was 20.28%, an increased by 134 basis points year-on-year. On the back of ongoing implementation of industry development plans leveraging opportunities brought by the growth of emerging markets, the logistics business reported overall revenue of approximately HK$440 million, sustaining rapid growth with a 54.74% increase year-on-year. Service station business continued to improve its capabilities in maintenance and services and optimize store layout, thereby significantly improving its profitability.

Market Outlook

The negative impact of the notable pressure for a slowdown in macro-economic growth and an increasingly complicated external market landscape will become more evident for the IT market in 2013. Demands in the Consumer Market will remain weak, while structural changes in products and channels will become more apparent, and we also feel pronounced pressure in the Enterprise Market. As the Consumer and Enterprise Market accounted for a rather large portion of the Group's results, the Group is facing an unprecedented declining pressure for the 2013/14 financial year results. Against such a grim market condition, the Group will resolutely adhere to its strategic option of Sm@rt City, grasp any opportunities for Sm@rt City developments and actively explore operational models for Sm@rt City to expedite the transformation of our business. At the same time, the Group will also continue to improve its cost structure by stringently implementing its cost control policies, and optimise its business mix to improve the efficiency of resource utilisation and enhance organisational efficiency. Leveraging extensive experience in the business, the management should be able to deal with any impact of potential market upheavals in 2013 calmly, with an unwavering commitment to delivering value to shareholders as always.

- End -

About Digital China

Digital China (Stock Code: 00861.HK; 910861. TW) 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's Sm@rt City business 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.

SOURCE Digital China Holdings Limited

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