Excellent Operating Results and Improving Profitability Through Strategic Transformation to a "Customer-Focused and Service-Oriented" Business Approach
Highlights:
For the six months ended 30 September 2008:
-- Turnover amounted to HK$21,101 million, representing a 26.37% YoY
growth
-- Profit attributable to shareholders increased 65.32% YoY to HK$243
million
-- Gross profit was HK$1,462 million, up 33.36% over 1H07/08
-- Overall adjusted gross profit margin and net profit margin were 7.44%
and 1.15%, representing a improvement of 28 bps and 27 bps respectively
-- Basic earnings per share was 25.30 HK cents, increased 50.86% as
compared to 1H07/08
HONG KONG, Nov. 26 /PRNewswire-Asia/ -- China's leading IT service provider, Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK) today announces its results for the six months ended September 30, 2008, which is the first half of its fiscal year.
Financial Review
The Group recorded a turnover of HK$21,101 million in the first six months of FY08/09, a year on year increase of 26.37%. This growth is far higher than the overall growth rate of China's IT market and helped the Group extend its leading position and competitive edge in the market. Gross profit continued to grow, reaching HK$1,462 million, an increase of 33.36%. The Group's adjusted gross profit margin and net profit margin for the first half was 7.44% and 1.15% respectively, mainly attributable to continuous implementation of growth strategies for the Group's three business segments and stringent cost control measures. Profit attributable to shareholders has sustained its remarkable year on year growth of 65.32% and amounted HK$243 million. Basic earnings per share were 25.30 HK cents, representing growth of 50.86% compared to 16.77 HK cents for the same period of last year.
"Strong demand for technology services in China, combined with solid execution of our core strategy of service transformation, focusing on revenue growth, cost minimization and overall continued business value enhancement drove our results for the third quarter," said Mr. Guo Wei, Chairman of Digital China. "While growing our business at a healthy pace, we maintained a solid balance sheet and cash position through enhanced cash flow control, stringent inventory management over the process of order placement, sales, and storage which helped with linking the procurement process closer to the sales process. These initiatives, along with our Services Business advanced to the stage of profit contribution should keep us on the path towards increasing growth and profitability."
Segment Results
Six months ended 30 September
(HK$ million) 2008 2007 Change (%) YoY
Distribution Business
Turnover 12,134 10,343 17.32
Gross profit 538 460 16.91
Segment Results 201 171 17.22
Systems Business
Turnover 6,407 4,645 37.92
Gross profit 591 417 41.60
Segment Results 178 164 8.03
Services Business
Turnover 2,560 1,710 49.70
Gross profit 332 218 52.29
Segment Results 54 (47) --
Business Review
Services Business (with a primary focus on Industry Market)
During the six months ended September 30, 2008, turnover from the Services Business was HK$2,560 million, up 49.70% from HK$1,710 million in the same comparable period in 2007. In particular, turnover contributions from the financial sector and the telecommunications sector grew by 151.04% and 87.15%, respectively, significantly outpacing the average industry growth rates for these sectors. In the Banking sector, further progress was made in the Group's efforts to secure new customers among city banks. Also, the development of inter-bank deposit and cashing systems for city credit unions has further enriched the Group's range of solutions for the financial industry. In the telecommunications sector, telecommunications and mobile service companies were signed up for BOSS3.0, a new-generation core operating system. In the government sector, several solutions became ready for application during the period under review including the integrated servicing and business intelligence system for public transport, the Treasury Bureau budget management system and the grain reserve management information system.
With the stable expansion of the Group's our Products Support and IT Outsourcing and Maintenance services ('PSOM') business, revenue from this segment under the Group's Services Business was HK$263 million, up by 81.95% as compared to the corresponding period of last financial year. During the period under review, the Group launched "Proficient Service Package" covering the six product lines of consultancy, maintenance and repair, outsourcing of operations, system testing, professional services and training. These on-demand tailor made IT packages will further enhance the Group's Services Business and deepen its penetration into the market.
Systems Business (with a primary focus on Enterprise Market)
The Group's Systems Business maintained robust growth mainly attributable to its enhanced ability to deliver solutions by focusing on customer needs. Also, significant progress was reported in businesses with brand names including Cisco, Oracle, Microsoft and EMC enabled System's business to maintain its rising momentum in both revenue and profitability. For the six months ended 30 September 2008, turnover increased by 37.92% to HK$6,407 million compared to the corresponding period of last financial year. Resulting from the continuous efforts to explore the regional markets with a variety of innovative marketing models tailor made to customer needs, regional customer business under this segment grew by 76.83% as compared to the corresponding period of last financial year. Through sound cooperation with vendors and sales channels, turnovers from networking products, packaged software and storage products under the Systems Business for the six months ended 30 September 2008 increased by 46.94%, 42.21% and 104.42%, respectively.
Distribution Business (with a primary focus on SMB & Consumer Markets)
Turnover of the Distribution Business was HK$12,134 million, an impressive increase of 17.32% over the corresponding period of last financial year, outpacing the general growth rate in the PRC market. Effective regional network expansion strategy and sales channel development enabled the group to enhance its geographical coverage and deepen market penetration. Cities covered increased by 75.51% as compared to the corresponding period of last financial year. Turnovers from fourth-tier and fifth/sixth-tier cities also reported growth of 26.96% and 98.38%, respectively, as compared to the corresponding period of last financial year. The notebooks, desktops, PC servers and accessories sectors maintained robust performance with their turnovers increased by 28.55%, 7.20%, 11.03% and 29.47% respectively.
Outlook
Looking into the remaining financial year, the Group will continue to enhance its service in all its business segments and push to enlarge market share as well as consolidate its leading position in the China IT market. In doing so, Digital China believes it will create synergies among three business segments and in turn ensure steady implementation of its strategic transformation to a "customer-focused and service-oriented" business approach. In addition, the Group will focus on maintaining sound operating cash flow, stringent trade receivables and inventory management, optimizing internal process, rigorous staffing management and labour cost control to enhance the Group's competitiveness.
The Group will further enhance its ability to deliver solutions by focusing on customers' needs through improved research and development capabilities. The Group is also planning to market the "Proficient Service Package" to the securities and government sectors in addition to our existing customer base. Thereby strengthen its ties with customers and ultimately enhancing the Group's competitiveness in the market.
Mr. Guo Wei, Chairman of Digital China, said, "We believe Digital China is well positioned to weather the economic challenges based on our strong market leadership position, attractive business model and progress against our strategic growth initiatives. We will continue to build on our positive momentum while closely monitor the impact from current economic and market environment, in turn deliver a balanced profile of business growth and risk control."
About Digital China
Digital China was listed on the main board of The Stock Exchange of Hong Kong in 2001 under stock code "00861.HK" following a successful spin off from the Legend Group. In pursuit of its "Digitalized China" corporate strategy, Digital China is focused on providing its customers with pioneer electronic business platforms, solutions and services. A one-stop IT services concept, available to individual consumers and large enterprises alike, enables its client base to span across a wide range of different industries, from banking and telecommunications to government and public sectors. Leveraging on its strong partnership with over 100 top IT vendors world-wide, Digital China has become the largest integrated IT service provider in China.
Through effective guiding, Digital China provides fully integrated IT services to customers with different needs and at various stages of development to create value and success for them. For further information on its products and services, please visit http://www.digitalchina.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
2008 2008 2007 2007
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
HK$'000 HK$'000 HK$'000 HK$'000
Revenue 11,090,595 21,101,305 8,839,851 16,698,613
Cost of sales (10,290,844) (19,639,348) (8,240,643) (15,602,399)
Gross profit 799,751 1,461,957 599,208 1,096,214
Other income and
gains 60,694 190,519 65,894 157,199
Selling and
distribution
costs (458,282) (855,706) (379,252) (688,644)
Administrative
expenses (94,753) (178,527) (75,963) (146,569)
Other operating
expenses, net (118,137) (259,373) (81,252) (173,455)
Total operating
expenses (671,172) (1,293,606) (536,467) (1,008,668)
Finance costs (46,693) (87,511) (51,611) (91,050)
Share of profits
and losses of:
Jointly-controlled
entities (253) 447 2,223 1,068
Associates 1,794 4,240 1,483 1,316
Profit before tax 144,121 276,046 80,730 156,079
Tax (39,804) (58,835) 1,379 (11,035)
Profit for the
period 104,317 217,211 82,109 145,044
Attributable to:
Equity holders
of the parent 129,444 243,478 82,007 147,280
Minority
interests (25,127) (26,267) 102 (2,236)
104,317 217,211 82,109 145,044
Earnings per share
attributable to
ordinary equity
holders of the
parent
Basic 25.30 HK cents 16.77 HK cents
Diluted 25.30 HK cents 16.42 HK cents
CONDENSED CONSOLIDATED BALANCE SHEET
At At
30 September 31 March
2008 2008
(Unaudited) (Audited)
NON-CURRENT ASSETS HK$'000 HK$'000
Property, plant and equipment 416,031 401,124
Investment properties 240,364 234,212
Prepaid land premiums 14,948 14,765
Intangible assets 4,963 5,526
Interests in jointly-controlled entities 5,392 7,894
Interests in associates 42,683 35,612
Available-for-sale investments 31,611 31,611
Deferred tax assets 20,860 19,480
Total non-current assets 776,852 750,224
CURRENT ASSETS
Inventories 2,349,483 2,559,364
Trade and bills receivables 5,714,403 3,772,820
Prepayments, deposits and other receivables 1,276,627 1,233,629
Cash and bank balances 1,200,335 998,454
Total current assets 10,540,848 8,564,267
CURRENT LIABILITIES
Trade and bills payables 4,691,853 3,334,519
Other payables and accruals 1,719,271 1,695,420
Tax payable 96,874 66,405
Interest-bearing bank borrowings 1,119,454 400,066
Total current liabilities 7,627,452 5,496,410
NET CURRENT ASSETS 2,913,396 3,067,857
TOTAL ASSETS LESS CURRENT LIABILITIES 3,690,248 3,818,081
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings 704,946 952,803
Bond payable 227,402 221,582
Total non-current liabilities 932,348 1,174,385
NET ASSETS 2,757,900 2,643,696
EQUITY
Equity attributable to equity holders of
the parent
Issued capital 96,239 96,362
Reserves 2,641,936 2,389,347
Proposed final dividend -- 140,210
2,738,175 2,625,919
Minority interests 19,725 17,777
TOTAL EQUITY 2,757,900 2,643,696
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
