Strategic Marketing to Promote Transformation to IT Services
Turnover Growth Continues to Outperform the Market Average
HONG KONG, July 20 /PRNewswire-Asia/ --
Results Highlights:
For the year ended 31 March 2010:
-- Turnover increased by 18.55% year-on-year to HK$50,178 million, far
exceeding the growth rate of China's IT market.
-- Cash flow performance remained sound, with net cash inflow from
operating activities amounted to HK$1,008 million as compared to HK$727
million in the previous financial year.
-- Profit attributable to the equity holders of the parent increased by
28.57% to HK$824 million. Basic earnings per share were 83.12 HK cents,
an increase of 24.84% year-on-year.
-- Overall operating expense ratio fell to 5.49% from 5.96% in FY08/09.
Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK), China's leading integrated IT service provider, today announced its annual results for the year ended 31 March 2010 (the "Review Period").
Mr. Guo Wei, Chairman and CEO of Digital China, commented, "The market conditions around the world and in China were very difficult and full of uncertainties over the past year. However, we were well prepared to tackle the challenges. We took an active approach to respond to the changes in market environment and captured the opportunities that arose. During the period under review, the Group achieved all targets in the fields of corporate management, operating results and risk control. The value and profitability of our IT service business continued to improve. Besides, the extensive market coverage of our software service business helped us preempt and outperform our peers in the development of government software solutions business. Our software solution products experienced phenomenal growth and we got the contracts for projects with high growth potential including the 'Sm@rt City', state and local taxation system project. Meanwhile, our core banking products were widely acclaimed in the market for their supreme quality. These products further strengthened our competitive edges. The Group's exposure to the telecommunication sector was well-balanced, with coverage of China Mobile, China Unicom and China Telecom."
Financial Review
During the Review Period, various sectors in China operated in a complicated and severe environment due to the impact of the financial crisis. In response to the difficult conditions, management of the Group further proceeded with the "customer-focused and service-oriented" strategy. By defining the Review Period as "Year of Strategic Marketing", the Group shrewdly explored and seized opportunities in different sectors arising from the ever-changing macro-environment and launched large-scale customer-focused marketing campaigns. As a result, the Group met various operational targets and achieved excellent operating results.
The Group recorded turnover of HK$50,178 million for the Review Period, representing an increase of 18.55% from HK$42,326 million in the previous financial year. The growth rate stayed above that for China's IT industry. Gross profit was HK$3,300 million, an increase of 11.53% year-on-year. Profit attributable to the equity holders of the parent reached HK$824 million, an increase of 28.57% year-on-year. Basic earnings per share amounted to 83.12 HK cents, an increase of 24.84% year-on-year. Due to its enhanced efforts in cost management, operating expense ratio continued to decrease. Overall operating expense ratio declined to 5.49% in the Review Period from 5.96% in the previous financial year. During the Review Period, cash turnover ratio decreased by 4.44 days to 19.22 days from the previous financial year, which was among the lowest in the industry.
Segment Results
For the year ended 31 March
(HK$ million) 2010 2009 Change (%) YoY
Distribution Business
Turnover 22,722 18,797 20.88
Gross profit 999 821 21.67
Segment Results 235 213 10.05
Systems Business
Turnover 13,983 13,356 4.70
Gross profit 1,298 1,268 2.40
Segment Results 442 429 3.04
Supply Chain Services
Business
Turnover 8,775 5,290 65.89
Gross profit 306 215 42.53
Segment Results 91 76 20.25
Services Business
Turnover 4,698 4,883 -3.80
Gross profit 696 655 6.32
Segment Results 140 88 59.50
Business Review
Services Business (primary focus on Industry Market)
During the Review Period, the Group stepped up efforts in raising the contribution of software and IT service operations to Services Business segment and reduced its reliance of hardware delivery business. As a result, the value and profitability of Services Business segment made a significant improvement. Turnover from this segment was approximately HK$4,698 million, a slight decrease from the previous financial year. Nevertheless, gross profit margin increased remarkably to 14.82% from 13.41% in the previous year. Software solutions business grew robustly, with the Group's successful implementation of a number of large IT solutions projects. In the financial sector, the Group helped Qilu Bank and Jinshang Bank launch their core banking systems and Jinzhong City Commercial Bank launch a debit card system. Moreover, it signed a contract with Bank of Xuchang for the application software of core banking system and related services.
In the government sector, the Group got two consulting bids relating to the Golden Tax Project Phase III of the State Administration of Taxation in August 2009. Besides, the Sm@rt City project was successfully launched in various cities in the PRC, which not only greatly promoted the informatization development in the cities of the country, but also helped the Group firmly establish its leading position in this field. The citizen card program is a part of the Sm@rt City project. Citizen cards were issued in Wuxi and Zhangjiagang following their successful launch in Yangzhou in May 2009.
Supply Chain Services Business (primary focus on High-tech Industries Market)
During the Review Period, the Supply Chain Services Business segment reported turnover of HK$8,775 million, representing a substantial growth of 65.89% over the previous financial year. This business segment played an important role for the Group to realize operational targets and became a new driver of its business growth. Turnover from the Fulfillment business (FA business) grew by 60.15% over the previous financial year on the back of closer cooperation with manufacturers such as HP and Dell, while turnover from its mega Chain Electronic Stores (CES) significantly increased by 90.21% over the previous financial year owing to the introduction of new products, business model innovation and improved operating process. Meanwhile, the Group made breakthroughs in the development of corporate supply chain services business and became services provider to famous enterprises such as PetroChina and BYD.
Systems Business (primary focus on Enterprise Market)
Management of the Group actively adjusted business strategies to stimulate customers' demands. During the Review Period, Systems Business segment generated turnover of HK$13,983 million, an increase of 4.70% over the previous financial year. This segment experienced persistent growth over the past two years and achieved breakthroughs in the expansion of local customer business. The Group's IT solutions capabilities were therefore continuously improved. During the Review Period, business from local customers increased by more than 56% year-on-year, providing stable income to support the development of Systems Business. During the Review Period, driven by robust demand from China's telecommunications and financial sectors in 2009, turnover from the sale of storage products soared by 42.50% over the previous financial year.
Distribution Business (primary focus on SMB & Consumer Markets)
The Group reinforced its leading position in the distribution business sector through rapid expansion of business. Profitability of its Distribution Business segment was further improved. This segment reported turnover of HK$22,722 million, an increase of 20.88% over the previous financial year. Gross profit margin of this segment slightly increased and reached 4.40%. Sales of notebooks, PC servers, and consumer IT products grew significantly by 48.98%, 55.44% and 34.25% year-on-year, respectively, driving the vigorous growth of turnover in the Distribution Business segment.
The Group made breakthroughs in exploring new business in consumer and commercial business sectors. It was appointed by China Mobile as its Top Tier Distributor in the first quarter of FY09/10 and entered into an agreement with China Unicom in the second quarter to become its nation-wide partner for WO-3G business with special emphasis on the iPhone. Digital China is the national distributor in the country providing distribution services to the three domestic telecommunications giants: China Mobile, China Unicom and China Telecom. During the Review Period, its regional network and channel development were further expanded with franchised retail outlets of Digital China "@PORT" in Mainland China increasing to 422. The expansion of the distribution network led to an increase of more than 70% in turnover from fourth to sixth-tier cities over the previous financial year, thereby further enhancing the Group's leading position and competitive edges in distribution business in these cities.
Outlook
The Chinese and global economies have entered the "post-financial crisis era" since the beginning of 2010. While the macro economy is recovering gradually, the Chinese government is taking initiative to prevent the Chinese economy from overheating. As a result, the domestic economy is full of uncertainties this year. On the other hand, the IT industry in China has gradually transformed from distribution of hardware to IT services and this process is accelerating. The IT services sector will play a more important role in the future. In the face of challenges and opportunities, Digital China, as a pioneer of IT services in the country, will continue to implement its established strategies. Leveraging on its solid business foundation and extensive customer base, the Group will step up efforts in expanding IT services business in order to ensure its sustainable growth. Management believes that by sticking to these strategies, the Group will sustain persistent growth and deliver greater value to shareholders and customers.
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 centers 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 telecommunications, 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
Judie Zhu
Digital China Holdings Limited
Tel: +852-3416-8090
Email: zhusja@digitalchina.com
Lily Lai
Digital China Holdings Limited
Tel: +852-3416-8133
Email: lilylai@hk.digitalchina.com
Henry Chik
PRChina
Tel: +852-2522-1368
Email: hchik@prchina.com.hk
Eric Song
PRChina
Tel: +852-2522-1838
Email: esong@prchina.com.hk
Ada Tsang
PRChina
Tel: +852-2522-2823
Email: atsang@prchina.com.hk
CONSOLIDATED INCOME STATEMENT
Year ended 31 March 2010
2010 2009
HK$'000 HK$'000
TURNOVER 50,178,281 42,326,342
Cost of sales (46,878,503) (39,367,767)
Gross profit 3,299,778 2,958,575
Other income and gains 619,445 447,701
Selling and distribution costs (1,907,220) (1,701,244)
Administrative expenses (402,142) (372,297)
Other operating expenses, net (445,797) (449,053)
Total operating expenses (2,755,159) (2,522,594)
Finance costs (125,021) (159,091)
Share of profits and losses of:
Jointly-controlled entities (642) (40)
Associates 9,589 11,671
PROFIT BEFORE TAX 1,047,990 736,222
Tax (174,288) (126,936)
PROFIT FOR THE YEAR 873,702 609,286
Attributable to:
Equity holders of the Parent 824,299 641,145
Minority interests 49,403 (31,859)
873,702 609,286
EARNINGS PER SHARE ATTRIBUTABLE TO
ORDINARY EQUITY HOLDERS OF THE
PARENT
Basic 83.12 HK cents 66.58 HK cents
Diluted 82.93 HK cents N/A
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 March 2010
2010 2009
HK$'000 HK$'000
NON-CURRENT ASSETS
Property, plant and equipment 374,260 397,767
Investment properties 285,472 238,516
Prepaid land premiums 53,072 14,671
Intangible assets 2,822 4,233
Interests in jointly-controlled 3,785 6,201
entities
Interests in associates 265,173 23,409
Available-for-sale investments 101,496 101,496
Other receivables 332,849 --
Deferred tax assets 49,118 24,176
Total non-current assets 1,468,047 810,469
CURRENT ASSETS
Inventories 3,368,487 2,136,461
Trade and bills receivables 6,411,961 5,471,493
Prepayments, deposits and other
receivables 1,633,760 1,366,277
Derivative financial instruments 15,508 27,097
Cash and cash equivalents 2,772,026 1,734,428
Total current assets 14,201,742 10,735,756
CURRENT LIABILITIES
Trade and bills payables 7,209,673 4,697,703
Other payables and accruals 1,850,178 1,681,331
Derivative financial instruments 6,456 --
Tax payable 207,492 133,010
Interest-bearing bank borrowings 455,711 875,449
Bond payable 226,296 --
Total current liabilities 9,955,806 7,387,493
NET CURRENT ASSETS 4,245,936 3,348,263
TOTAL ASSETS LESS CURRENT 5,713,983 4,158,732
LIABILITIES
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings 1,040,600 701,516
Bond payable -- 226,296
Total non-current liabilities 1,040,600 927,812
NET ASSETS 4,673,383 3,230,920
EQUITY
Equity attributable to equity
holders of the parent
Issued capital 102,077 96,239
Reserves 3,810,246 2,903,667
Proposed final dividend 288,505 140,030
4,200,828 3,139,936
Minority interests 472,555 90,984
TOTAL EQUITY 4,673,383 3,230,920
