Digital China Announces Interim Result for FY2010/11

Transformation through Service to Enhance Business Value

Profitability Sustains Robust Growth

Highlights:

For the six months ended 30 September 2010:

-- Turnover was HK$27,560 million, up 12.65% over the corresponding period in FY09/10

-- Operating profit was HK$529 million, an increase of 96.64% over the corresponding period in FY09/10

-- Profit attributable to the equity holders of the parent was HK$537 million, a 30.42% growth as compared to corresponding period in FY09/10

HONG KONG, Nov. 10, 2010 /PRNewswire-Asia/ -- Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK), China's leading integrated IT service provider, today announced its results for the six months ended 30 September 2010. ("Period")

For the six months ended 30 September 2010, the Group implemented a customer-focused marketing strategy and explored business opportunities in regional markets. As a result, it achieved robust growth in profitability. Meanwhile, it carried out effective risk control measures to ensure strong net cash flow growth, thereby laying a solid foundation for its business expansion in future.

Mr. Guo Wei, Chairman and CEO of Digital China, commented, "In the face of market recovery, Digital China grasped opportunities in the market by accelerating its transformation using a service-oriented approach. IT services operations made a larger contribution to our overall business and reinforced our profitability. After 10 years' of effort, we have made achievements in our development strategy. This not only strengthened our leading position in the market, but also significantly enhanced our profitability."

Financial Review

The Group recorded turnover of HK$27,560 million for the six months ended 30 September 2010, an increase of 12.65% from HK$24,464 million for the corresponding period of last financial year. The growth rate was significantly higher than that of China's IT market average. During the Period, operating profit increased significantly by 96.64% to HK$529 million from HK$269 million for the corresponding period of last financial year. Profit attributable to shareholders of the parent amounted to HK$537 million, representing a 30.42% growth from HK$412 million for the corresponding period of last financial year. Basic earnings per share grew 23.07% year-on-year to 52.60 HK cents.

Benefiting from stringent risk control measures, the Group's cash flow from operations grew considerably and its cash turnover rate remained the best in the industry. During the Period, net cash inflow from operating activities was HK$579 million, while cash turnover cycle significantly dropped by 3.84 days to 15.36 days from the same period of previous financial year. Through effective cost control, the Group's overall operating expenses ratio decreased to 4.75% from 4.99% for the same period of last financial year.

Services Business (with a primary focus on Industry Market)

During the Period, turnover of the Group's Services Business amounted to HK$2,649 million. The contribution of software and IT services operations to our overall business increased substantially and accounted for 56% of total turnover of Services Business. The profitability of software and IT services operations achieved significant gains. Gross profit margin of this segment increased to 14.55% from 13.09% for the corresponding period of last financial year. Gross profit margin for the second quarter was 16.48% as compared to 13.43% for the corresponding period of last financial year. The significant increase in gross profit margin reflected the increased overall profitability of Services Business.

The Group's role as a leading IT service provider was strengthened as the contract signed of Services Business increased 37% year-on-year in the Period, of which turnover of proprietary services operation advanced by 40% year-on-year. Subsequent to the launch of the Sm@rt City Project Solution Version 1.0, the Group rolled out Version 3.0 in the second quarter of current financial year. In addition to citizen cards, data exchange, integrated tax collection and customs logistics, the latest version is also applicable to new areas such as regional hygiene, smart tourism and information security. As at 30 September 2010, the Group began preparations for the project underway in 47 cities throughout the country. After the successful launch of the "Citizen Card" Project in Yangzhou, Wuxi and Zhangjiagang in the previous financial year, the Group won the "Zhenjiang Citizen Card Full Integration & Application Engineering Project" contract during the second quarter of current financial year. This signifies another landmark triumph for the Group's Sm@rt City business.

Moreover, the Group won the tender for the "Centralized Core Collection and Management System for Provincial Local Taxation" from Hainan's Provincial Local Taxation Bureau due to its extensive experience in the local taxation sector, premier solutions, outstanding service systems and proven track record in the national taxation system. It also won a contract from Bank of Chengdu for the development of a new-generation core business system and made breakthroughs in expanding business with regional banks in the second quarter. In the telecommunications sector, despite various uncertainties in the market, the Group signed an agreement with China Mobile for a Customer Relationship Management (CRM) project and an agreement with China Telecom for an Operational Data Store (ODS) project. The completion of infrastructure networks by telecommunication carriers and integration of three networks will provide the Group with tremendous opportunities in core business systems and value-added operational and maintenance services.

According to IDC, the Group has remained the leading IT service provider in China because of its professional application solutions and services for different industries and capability of delivering standardized and efficient services. It has received various honours including the award of the "2009-2010 Most Satisfactory IT Services Management Solution for State-invested Enterprises Award", "Innovation Award for the Commercialization of Communications Information Technology (IT) Services in China 2010" and the "Golden Award of Satisfaction 2010 for IT Operation Services". These awards should further enhance the market influence of our brand.

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

For the six months ended 30 September 2010, turnover of the Group's Supply Chain Services business amounted to HK$5,174 million, representing a growth of 10.42% year-on-year. The gross profit margin of this segment increased 0.75 basis points to 3.96%. Turnover from mega Chain Electronic Stores (CES) business jumped 68.69% year-on-year, making the Group the most important supplier to China's mega chain electronic stores. Moreover, Digital China became the largest IT products supplier to Suning and Gome. In order to provide value-added services to customers, our service stations were extended to over 500 nationwide. Turnover from maintenance services increased 34.40% from the previous year, with maintenance orders reaching about 200,000, which was the total number of contracts of last year. The competitiveness of our third-party logistics business continued to improve and we succeeded in getting many new customers. For the six months ended 30 September 2010, turnover for this business increased more than 70% over the same period of last financial year, providing us a solid background to expand our supply chain services business.

Systems Business (with a primary focus on Enterprise Market)

As the enterprise market picked up gradually, management adjusted its business strategy to expand its customer base by exploring and addressing customer needs. For the six months ended 30 September 2010, turnover from Systems Business increased 10.43% year-on-year to HK$6,468 million. Gross profit margin for this segment climbed to 9.33% from 9.21% for the same period of last financial year.

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

Turnover from the Distribution Business amounted to HK$13,269 million in the six months ended 30 September 2010, up 19.01% year-on-year and above the market average. With a balanced and comprehensive product mix, we cooperated with suppliers to actively expand our business. For the six months ended 30 September 2010, turnover from PC servers and consumer IT products increased 39.26% and 32.81%, respectively, from the same period of last financial year. The increases drove the growth of our overall operations and enhanced our market share. The number of Digital China "@PORT" franchise retail outlets in China increased to 570 from 313 for the corresponding period of last financial year, hence reinforcing our competitive edges in 4th to 6th tier cities.

Outlook

Mr. Guo Wei, Chairman and CEO of Digital China, said, "The urbanization process will power China's economic growth during the period of the 'Twelfth Five-year Plan'. We will address such change by strengthening our marketing and management systems based on our strategies on the development of Sm@rt City. These strategies will be the driving force behind our future growth. Meanwhile, the volume of imports and exports is set to balloon during the 'Twelfth Five-year Plan' and our business will benefit from the appreciation of Renminbi. Management believes that as the concept of Sm@rt City is fully realized, our business value will be further enhanced and hence lay a foundation for us to achieve the targets set for the full year."

About Digital China

Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK) is the largest integrated IT service provider in the Greater China area. Digital China has regional centers in 19 major cities nationwide with approximately 9,700 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 and is one of the top 5 IT services providers across various sectors in China including telecommunications, finance and government, providing self-developed and proprietary products that are customized for specific industry needs. For additional information about Digital China, please visit the Company's website at www.digitalchina.com.hk.