Digital China Announces 3Q FY09/10 Results

Turnover growth surpasses market trend

Hits monthly high of HK$5,000 million in December

HONG KONG, Feb. 9 /PRNewswire-Asia/ --

Highlights:

For the nine months ended 31 December 2009:

-- Turnover was HK$37,826 million, an increase of 17.30% year-on-year, far

higher than the growth rate of China's IT market. Turnover in December

hit a monthly high of HK$5,000 million

-- Gross profit margin was 6.44%

-- Profit attributable to the equity holders of the parent was HK$677

million, an increase of 33.75% year-on-year. Basic earnings per share

was 68.89 HK cents, an increase of 31.14% year-on-year

-- Net cash inflow from overall operating activities was HK$1,126 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 the nine months ended 31 December 2010 ("3Q FY09/10").

During the period under review, against a backdrop of gradual recovery in the PRC economy, the Group continued to enhance implementation of its customer-focused and service-oriented strategy. Turnover for nine month FY09/10 was approximately HK$37,826 million, an increase of 17.30% from HK$ 32,249 million last year, significantly higher than the average growth rate of China's IT market. In particular, the Group reported its highest-ever monthly turnover in December, hitting HK$5,000 million. Gross profit was HK$2,436 million, an increase of 8.96% year-on-year. The operating cost ratio continued to drop as overall operating expenses fell significantly. Profit attributable to the equity holders of the parent was approximately HK$677 million, an increase of 33.75% year-on-year. Basic earnings per share amounted to 68.89 HK cents, an increase of 31.14% year-on-year.

The Group was ranked by The Asset as one of China's Most Promising Companies of 2009 after being named by Forbes as one of the Asian Fab 50 companies, which demonstrates that both the Group's business transformation and leadership in China's IT industry are being widely acknowledged by the market.

In addition, The Group and SJI formed a strategic partnership to Jointly Develop Businesses in China and Japan. SJI Inc. is a company listed on the JASDAQ Securities Exchange, Inc. (Stock Code 2315). The Group and SJI agreed in principle to share specialties and intellectual property, technology, human resources and sales networks to jointly expand businesses in China and Japan.

"In the midst of an economic downturn last year, we adhered to our established strategies and formulated overall management and business plans accordingly," said Mr. Guo Wei, Chairman and CEO of Digital China. "By sticking to a 'customer-centered and service-oriented' approach, we have continuously made breakthroughs in our transition to an IT service company. The Group's achievements are being widely acknowledged by the market. Meanwhile, we successfully established a partnership with SJI, which will develop our IT operations in Japan and further enhance our outsourcing business and management capability."

For the nine months ended 31 December 2009:

-- Overall operating costs rose 2.04% year-on-year.

-- Cash turnover fell from 22.89 days to 16.79 days, well below the

average level of industry peers.

The Group's overall operating expenses ratio for the nine months ended 31 December 2009 continued to drop at 5.06%, compared to 5.82% for the corresponding period last year, as the Group continued to practice stringent cost control policies. The overall cash turnover cycle was 16.79 days, 6.01 days less than a year ago.

Segment Results

For the nine months ended

31 December

(HK$ million) 2009 2008 Change(%) YoY

Distribution Business

Turnover 17,034 14,527 17.26

Gross profit 727 636 14.43

Segment Results 188 217 (13.50)

Systems Business

Turnover 10,849 10,073 7.71

Gross profit 975 929 4.92

Segment Results 317 312 1.60

Supply Chain Services

Business

Turnover 6,650 3,545 87.58

Gross profit 225 147 53.43

Segment Results 62 45 35.67

Services Business

Turnover 3,293 4,103 (19.75)

Gross profit 508 524 (2.95)

Segment Results 188 78 140.68

Business Review

Services Business (primary focus on IndustryMarket)

Turnover contribution from software and services rose steadily with a 16.09% gross profit margin, which was 29.67% higher than the 12.40% reported last year, even though turnover for the third quarter decreased by 23.38% year-on-year to approximately HK$ 1,183 million. The Services Business reported a significant enhancement in value and profitability as its business mix was adjusted to put stronger emphasis on software and services while downscaling hardware-related businesses.

The Group continued to launch industry-specific software solutions for major sectors during the period. In the financial sector, the core banking system for Jinshang Bank went live during the third quarter, following the successful launch of Qilu Bank's core system. A contract was also signed with Xuchang Commercial Bank earlier in the year with respect to core business system application software and related services. In the government sector, the Group started to implement two consultancy projects in connection with the Phase III financial and taxation system project of the State Administration of Taxation following a successful bid in August 2009. Meanwhile, contracts for the issuance of citizen cards were signed with cities such as Wuxi and Zhangjiagang, following the successful debut of this product in Yangzhou earlier in May. This represented another important milestone in the Group's business of developing digitalised cities. The Group's new positioning as a service provider was further established with contract amount for professional service and solutions for the nine months ended 31 December 2009 increasing by 51% from a year ago.

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

Supply Chain Services, a new growth niche, reported turnover of approximately HK$1,964 million for the third quarter of the financial year, growing 75.81% year-on-year. For the nine months ended 31 December 2009, turnover amounted to approximately HK$6,650 million, an 87.58% growth year-on-year. Turnover from the Fulfillment business (FA business) reported growth of 52.01% year-on-year, while turnover from Chain Electronic Stores (CES) reported a substantial 208.16% growth over last year, as it continued to introduce new products, business model innovations and process re-engineering on the back of its existing strengths.

Systems Business (primary focus on Enterprise Market)

Turnover for the Group's Systems Business for Nine Month FY09/10 amounted to approximately HK$4,330 million, 18.14% growth year-on-year. In line with our customer-focused strategy, the Systems Business responded swiftly to market changes as it continued to expand its regional markets, while constantly upgrading its ability to provide solutions. For the nine months ended 31 December 2009, our regional customer business grew 52.99% over last year, providing a solid base for strong overall growth of the Systems Business. For the third quarter, contributions from storage products and Unix servers grew by 30.29% and 44.72%, respectively from a year ago.

Distribution Business (primary focus on SMB & Consumer Markets)

Third Quarter turnover for the Distribution Business was approximately HK$5,885 million, 22.07% growth year-on-year. The Distribution Business reported improvements in profitability as it capitalised on a recovering Chinese economy to expand swiftly and further reinforce market dominance. Notebooks, PC servers and consumer IT segments all sustained impressive growth. Management formulated effective sales strategies in response to growing demand for notebooks and consumer IT products, while enriching product lines by introducing over 10 new products, such as Fujitsu, AIGO and HANWANG.

As of 31 December 2009, Digital China "@PORT" franchise retail outlets numbered more than 415 in China and turnover contributions from tier-4 to 6 cities grew 70% year-on-year. Furthermore, turnover for notebooks, PC servers and consumer IT products grew by 52.43%, 48.54% and 25.29%, respectively.

Outlook

Looking to the fourth quarter, management will leverage on the favourable conditions fostered by the stable development of China's economy and continue with business expansion in all segments. The Group will endeavour to ensure stable business operations by maintaining positive operating cash flow, exercising stringent management of receivables and inventory, and reinforcing cost control. With the continued implementation of our strategy shift to services, management believes that the Company is well-positioned to attain our annual operating objectives and deliver greater value to shareholders.

About Digital China

Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK) is the largest IT services provider in China. Digital China has regional centres in 19 major cities nationwide with 9,400 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 Nine Three Nine

months ended months ended months ended months ended

31 December 31 December 31 December 31 December

2009 2009 2008 2008

(Unaudited) (Unaudited) (Unaudited) (Unaudited)

HK$'000 HK$'000 HK$'000 HK$'000

REVENUE 13,362,388 37,826,336 11,147,245 32,248,550

Cost of sales (12,453,924) (35,390,757) (10,373,976) (30,013,324)

Gross profit 908,464 2,435,579 773,269 2,235,226

Other income

and gains 226,915 468,755 138,788 329,307

Selling and

distribution

costs (455,433) (1,327,519) (492,314) (1,348,020)

Administrative

expenses (84,143) (260,182) (101,045) (279,572)

Other

operating

(expenses)/

income, net (153,369) (326,169) 11,364 (248,009)

Total

operating

expenses (692,945) (1,913,870) (581,995) (1,875,601)

Finance costs (36,821) (92,556) (47,446) (134,957)

Share of

profits and

losses of:

Jointly-

controlled

entities 26 2,076 78 525

Associates 928 (313) 6,189 10,429

PROFIT BEFORE TAX 406,567 899,671 288,883 564,929

Tax (98,968) (156,845) (24,754) (83,589)

PROFIT FOR THE

PERIOD 307,599 742,826 264,129 481,340

Attributable

to:

Equity

holders of

the parent 264,973 676,687 262,458 505,936

Minority

interests 42,626 66,139 1,671 (24,596)

307,599 742,826 264,129 481,340

EARNINGS PER

SHARE

ATTRIBUTABLE

TO ORDINARY

EQUITY HOLDERS

OF THE PARENT

Basic 68.89 HK 52.53 HK

cents cents

Diluted 68.82 HK N/A

cents

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At At

31 December 2009 31 March 2009

(Unaudited) (Audited)

HK$'000 HK$'000

NON-CURRENT ASSETS

Property, plant and equipment 379,383 397,767

Investment properties 238,516 238,516

Prepaid land premiums 14,365 14,671

Intangible assets 3,174 4,233

Interests in

jointly-controlled entities 6,503 6,201

Interests in associates 22,796 23,409

Available-for-sale

investments 101,496 101,496

Other receivables 327,938 --

Deferred tax assets 45,773 24,176

Total non-current assets 1,139,944 810,469

CURRENT ASSETS

Inventories 2,924,750 2,136,461

Trade and bills receivables 7,104,117 5,471,493

Prepayments, deposits and

other receivables 1,889,463 1,366,277

Derivative financial

instruments 17,200 27,097

Cash and bank balances 3,318,950 1,734,428

Total current assets 15,254,480 10,735,756

CURRENT LIABILITIES

Trade and bills payables 8,006,336 4,697,703

Other payables and accruals 1,795,942 1,681,331

Tax payable 236,066 133,010

Interest-bearing bank

borrowings 935,321 875,449

Bond payable 226,296 --

Total current liabilities 11,199,961 7,387,493

NET CURRENT ASSETS 4,054,519 3,348,263

TOTAL ASSETS LESS CURRENT

LIABILITIES 5,194,463 4,158,732

NON-CURRENT LIABILITIES

Interest-bearing bank

borrowings 650,600 701,516

Bond payable -- 226,296

Total non-current liabilities 650,600 927,812

NET ASSETS 4,543,863 3,230,920

EQUITY

Equity attributable to equity

holders of the parent

Issued capital 102,025 96,239

Reserves 3,946,649 2,903,667

Proposed final dividend -- 140,030

4,048,674 3,139,936

Minority interests 495,189 90,984

TOTAL EQUITY 4,543,863 3,230,920