Digital China Reports its FY2006/2007 Annual Results.HIGHLIGHTS For the fiscal year ended 31 March 2007 * Net Revenues increased by 27.96% year-over-year to HK$25.418 billion from HK$19.865 billion in FY2005/2006. * Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. increased 10.60% to HK$415 million from HK$375 million. * Net profit was HK$208 million, a decrease of 17.26% compared to HK$252 million last year. * Gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. was 7.27% compared to 7.07% last year. * Basic earnings per share decreased to HK$23.92 cents from HK$29.19 cents last year. * Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of decreased to HK$23.78 cents from HK$29.07 cents last year. HONG KONG Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. -- Digital China Holdings Limited ("Digital China" or "the Group", stock code: 861), a leading information technology services company in the People's Republic People's Republic n. A political organization founded and controlled by a national Communist party. of China ("PRC"), today announced its FY2006/07 annual results for the year ended March 31, 2007. Commenting on the results, Mr. LI Qin, Chairman of Digital China, said, "We had a very successful year at the operating level, though unfortunately a number of factors pressured on our net results. Fundamentally, however, our business is quite healthy. During the year, we established our Company as the most valuable Information Technology service provider in China by anticipating market trends and customer demand, and by daring to improve and innovate in·no·vate v. in·no·vat·ed, in·no·vat·ing, in·no·vates v.tr. To begin or introduce (something new) for or as if for the first time. v.intr. To begin or introduce something new. . As we head into our 2007/2008 fiscal year, we plan to continue our transformation into a services-focused business. By working more closely with our customers at every level of the business, we will be able to provide higher value-added services A value-added service (VAS) is a telecommunications industry term for non-core services or, in short, all services beyond standard voice calls and fax transmissions. that specifically cater to their needs, which we believe should help us drive our revenues and overall profitability." Digital China maintained stable growth in turnover for the year primarily because of the successful execution of its business strategy, which is focused on building sound corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. , effective business development and improving execution capabilities as well as leveraging its extensive understanding of the Chinese market. The Group substantially improved its cash flow and cash cycle. The Systems Business recorded strong growth through regional expansion to meet the expansion needs of its suppliers into small and medium-sized cities. The Distribution Business saw rapid growth in product turnover, led by major brand names, while the Service Business maintained steady growth. BUSINESS HIGHLIGHTS * Digital China continued to build strong relationships with vendors and partners to establish full coverage of the Chinese market, from retail consumers to large companies in major business sectors, providing various from high to mid & to low-end consumer IT products in mainland China. * The Group established the Xi'an software laboratory, helping to lay a solid foundation for technological leadership in software development. * The Group established three new subsidiaries in Changsha, Fuzhou and Hefei to expand coverage in third- and fourth-tier cities as well as for large-scale corporate customers, and created business platforms to penetrate regional markets more deeply. * Digital China's continued its transformational shift towards IT services by increasing investments in application development and standardization standardization In industry, the development and application of standards that make it possible to manufacture a large volume of interchangeable parts. Standardization may focus on engineering standards, such as properties of materials, fits and tolerances, and drafting of software products in order to strengthen the core competitive strengths of the Group's service business. FINANCIAL RESULTS Revenue for the fiscal year ended 31 March 2007 (FY2006/2007) was HK$ 25.418 billion, an increase of 27.96 %, compared to HK$19.865 billion last year. Revenue grew at a much higher rate than the estimated 15.7% growth rate of the PRC IT Market1 and helped the Group sustain its leading position and competitive edge in the market. The growth was mainly attributable to better implementation of the specific growth strategies set by the Group for each of the three business segments. The gross profit margin of Digital China in FY2006/2007 was 7.27 % compared to 7.07% in the corresponding period of 2005/2006. Profit attributable to equity holders of the parent in FY2006/2007 decreased slightly to HK$ 208 million from HK$252 million last year. The drop was primarily due to charges to goodwill and other contingent costs related to an acquisition in the previous fiscal year, software development investments and other market developments, including publicity and advertising. Some of the related charges included (i) a HK$29 million charge for goodwill impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. related to the acquisition of Si-Tech Information Technology Co., Ltd last year and an investment loss of approximately HK$12 million as a result of impairment for the intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. contributed into Digital China System Access Holding Limited, a jointly-controlled entity, by both joint venture parties; (ii) a bad debt loss of approximately HK$4 million out of a HK$12 million trade receivable balance with a systems business customer- the remaining HK$8 million was recovered through a lawsuit; (iii) a HK$21 million amortization and impairment charge related to intangible assets (capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. development costs that were required to be reclassified following a change in accounting rules last year); Management believes these activities, along with a number of promotional events, summits and conferences were necessary to sharpen sharp·en tr. & intr.v. sharp·ened, sharp·en·ing, sharp·ens To make or become sharp or sharper. sharp the Group's capacity for innovation as well to achieve sustainable growth. Basic earnings per share and diluted earnings per share were HK$ 23.92 cents and HK$ 23.78 cents, respectively, compared to HK$ 29.19 cents and HK$ 29.07 cents on FY2005/2006. At the end of the FY2006/2007, the number of outstanding shares was 871,479,182 and the diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. number of outstanding shares was 876, 317,035. Net cash flow from operating activities was HK$ 571 million, an increase of 441 million compared to the FY 2005/2006, due principally to improved cash management as a result of improved credit terms Credit Terms The conditions under which credit will be extended to a customer. The components of credit terms are: cash discount, credit period, net period. with certain vendors. For the FY2006/2007, the cash cycle was 27.44 days decreased 7.16 days compared to FY2005/2006. Inventory turnover and turnover of trade receivables decreased by 2.97 days and 3.99 days respectively. SEGMENT ANALYSIS Distribution Turnover of the Distribution Business experienced impressive growth at HK$14,728 million, an increase of 26.79% over the corresponding period of last year, far exceeding the growth rate of the domestic IT market. The gross profit margin for this business increased to 4.79%, from 4.69% in FY2005/2006. Rapid growth in product turnover Turnover of major products experienced rapid growth. The turnover of notebook computers A laptop computer that weighs in a range from five to seven pounds. The term originated when laptops were routinely more than 10 pounds, and those that became lighter were placed in a special "notebook" category. In practice, notebook computer and laptop computer are synonymous. increased 41.73 % compared to the previous year, while the turnover of consumer IT products increased by 46.74 %, the turnover of PC servers and of accessories rose 41.27% and 38.16 %, respectively. The ACER notebook and desktop computers business, and the FULFILLMENT ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. business of the HP desktop computers, which was introduced by the Group last year, represent a significant increase of HK$2,054 million from last financial year. Strengthened Channel Relationships As of 31 March 2007, Digital China had 5,956 distribution partners, which represents an increase of 31.39% compared to last year. The Group hosted a number of summits and initiated several projects that aimed to further enhance cooperation and improve Digital China's visibility among various distributors. The projects were well received and were instrumental in improving the Group's performance during the year. Operational and management improvements The distribution business introduced a range of improvements based on its business process management system, this year focusing on the order process. In the previous fiscal year, the distribution business adopted a Continuous Process Innovation system, or CPI (1) (Characters Per Inch) The measurement of the density of characters per inch on tape or paper. A printer's CPI button switches character pitch. (2) (Counts Per I , which has been successfully used as the basis for quantitative analysis Quantitative Analysis A security analysis that uses financial information derived from company annual reports and income statements to evaluate an investment decision. Notes: of factors affecting order efficiency. Since the implementation of the system, the analysis has enabled the distribution business to improve its efficiency in handling orders, enhance operating efficiency, and increase customer satisfaction rates. Systems Strong growth in the System Business based on supplier expansion strategies The turnover of the Systems Business for the year ended 31 March 2007 was HK$ 7,352 million, an increase of 29.44% compared to the previous fiscal year. The gross profit margin was 9.51 % , up from 8.92% in FY2005/2006. During the year, the Group sought to work more closely with system integrators See systems integrator. and other customers to understand their specific needs and help them reach the best solution. Providing such customer-focused value-added services enabled the Group's System's business to greatly increase its revenues and slowly start to raise its overall profitability. Additionally, by adopting a strategy of meeting suppliers' business requirements for expansion into medium and small cities, the Group recorded substantial growth in turnover of its four major products during the year, and further consolidated its advantageous position in the UNIX server A medium to large-scale computer system in a network that runs under Unix. Unix servers are widely used as application servers and database servers and are available from a variety of vendors, including Sun, IBM, HP and others. , network product and packaged software See software package. sectors. Compared to last year, turnover of network products increased by 28.03%, turnover of packaged software increased by 23.74%, turnover of storage products increased by 14.28%, and turnover of UNIX servers increased by 13.98%. Regional Development As of 31 March 2007, distribution channels had increased by 16 %compared to March 31, 2006 due to various conferences and marketing events with core channel partners that were launched throughout the year. Operating and Management Improvement The Group continued to reinforce its service capability during this financial year. As of 31 March 2007, the technical staff had increased to 208 from 178 a year earlier. During the year, the Systems Business made adjustments to its service and product mix, leading to 114% growth in turnover compared to the previous year. Services The Services Business developed three new core capabilities during the year: * Infrastructure facilities were completed at the Xi'an software development laboratory, including expansion and training of the workforce, in order centralize cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. software development capabilities and avoid more expensive on-site development work at customer locations. * The Services Business enhanced software development and strived to standardize stan·dard·ize v. 1. To cause to conform to a standard. 2. To evaluate by comparing with a standard. software products, which should help improve execution and delivery of new products for customers. * The service business expanded operations outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. services of labour, equipment and facilities as a part of its effort to develop IT operations outsourcing services. As a result, Digital China maintained rapid growth in its Services Business, generating turnover of HK$ 3,339 million, an increase of 29.97% over FY2005/2006. The business expanded in scale while maintaining profitability, with gross profit margin of 13.30%. Building key relationships and driving new innovations Backed by a strong focus on customer relationships, the Service Business maintained a strong position in the finance, telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. and government sectors and successfully built stable business relationships with leading companies such as China Mobile, China Netcom China Netcom, full name China Netcom Group Corporation (Hong Kong) Limited, abbreviated CNC, was originally formed in August 1999 by the People's Republic of China government to enable inward investments to build high speed Internet communications in the country. , and PetroChina, as well as government entities such as the State Administration of Taxation, the Shenzhen Municipal Office of the State Administration of Taxation, and the Ministry of Science and Technology. Throughout the fiscal year, Digital China's Service Business signed product support and IT outsourcing contracts valued at HK$ 400 million, an increase of more than 50 % over the previous fiscal year. During the current fiscal year, the service business also introduced several innovations aimed at improving quality and efficiency as it expands in scale and scope. It established a center for product support, IT outsourcing, and maintenance service delivery, which will lead to improvements in service processes and cost reductions. It established a software operating platform to strengthen process control and introduce a higher level of efficiency in terms of resource utilization. Finally, it increased investment in standards. It became the first domestic service company to be certified See certification. with ISO (1) See ISO speed. (2) (International Organization for Standardization, Geneva, Switzerland, www.iso.ch) An organization that sets international standards, founded in 1946. The U.S. member body is ANSI. 20000, an international certification for IT service management (ITIL/ITSM) after upgrading of the standard to ISO20000:2005. The Group's investments in human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. and research & development capabilities in the IT Services Business will continue to impact profitability at the net level. However, these investments are expected to raise the Group's core competitiveness and overall capabilities, and Management considers them essential for the Group's future growth. MANAGEMENT REVIEW During the year, in addition to business development, management focused on brand building, resource allocation resource allocation Managed care The constellation of activities and decisions which form the basis for prioritizing health care needs , and corporate culture. (1) Brand promotion following the theme of "Innovative IT Services" began to show results. The success of the innovation conferences and marketing activities conducted by the distribution and systems businesses contributed significantly to brand value and identity, leading to an improved environment for business expansion. (2) The Group stepped up its recruiting program in universities, and continued to develop its internal "talent ladder" through targeted training for high-potential individuals. (3) The Group further strengthened cash management as well as risk controls in order to improve investment returns. This is gradually becoming an area of core competitiveness for the company. (4) The Group conducted a series of activities to help ingrain in·grain tr.v. in·grained, in·grain·ing, in·grains 1. To fix deeply or indelibly, as in the mind: the Group's corporate culture with technical staff, sales personnel and support staff in order to ensure they identify with the Group's corporate values, foster innovation and remain motivated mo·ti·vate tr.v. mo·ti·vat·ed, mo·ti·vat·ing, mo·ti·vates To provide with an incentive; move to action; impel. mo . BUSINESS OUTLOOK Looking ahead, Digital China will continue its transformation into an IT services group, strive to improve its customer-oriented business model, accelerate innovation, improve relationships with customers, manage risks and create value for shareholders, The Group will continue to focus on its Service Business by increasing investment in product research and development. It will strongly focus on IT services, increasing investments in applications development and standardization of software products. All of these measures are expected to strengthen the core competitiveness of the services business. Yet, the Group still faces some challenges both internally and externally. The Distribution and Systems businesses are expected to be confronted with intensified in·ten·si·fy v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies v.tr. 1. To make intense or more intense: market competition which will continue to place pressure on the Group's ability to maintain gross margins. High levels of sales and marketing expenses are expected to continue as the Group attempts to maintain and raise market share in an increasingly competitive environment. * An increase in the interest rate of RMB RMB Right Mouse Button RMB Regional Management Board (USACE) RMB Rolf Maier Bode (musician, band) RMB Ren Min Bi (currency of People's Republic of China) and USD USD In currencies, this is the abbreviation for the U.S. Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. borrowings leads could increase the financing costs of the Group * Amortisation Noun 1. amortisation - the reduction of the value of an asset by prorating its cost over a period of years amortization reduction, step-down, diminution, decrease - the act of decreasing or reducing something 2. of the Group's intangible assets (development costs that were capitalized in prior years before an accounting change) will continue * Increasing investments in human resources and research and development capabilities within the IT services business will be needed to further improve the core competitiveness of the Group's Services business * Brand advertising and promotional expenses Noun 1. promotional expense - the cost of promoting a product business expense, trade expense - ordinary and necessary expenses incurred in a taxpayer's business or trade will be needed in order to improve the Group's market influence, competitiveness and relationships with the government, suppliers and other business partners Despite these longer-term challenges, Management is confident that the Group will increase top-line growth in the 2007/08 fiscal year. Additionally, Digital China believes that the promotional expenses and resource investments mentioned above will help lay a more solid foundation for the Group's continued growth and development in the coming years. About Digital China (HKEx: 0861) Digital China Holdings Limited ("Digital China", "the Group"; HKEx: 861) is an information technology services company. Headquartered in Beijing, Digital China has regional centers in 16 major cities in China China is a geographical area encompassing multiple territories, under two states. You may be looking for:
Digital China Annual Results Announcement Media and Analyst Meeting
Venue: Salon II-III M/F, Grand Hyatt, Hong Kong
1 Harbour Road, Hong Kong
Time: Press Conference: 4:15pm - 5:15pm HK Time
Analyst Meeting: 5:30pm - 6:30pm HK Time
For Dial-In conference call, details are:
1. Direct Access +852 3006 8101 (Password: Digital China)
2. Toll Free China Telecom 1080 015 211 53 (Password: Digital China)
3. Toll Free China Netcom 1080 085 207 71 (Password: Digital China)
A webcast replay of the FY06/07 Annual Results Announcement will also be available in our website www.digitalchina.com.hk after 8:00 am Hong Kong time Hong Kong Time (abbreviation: HKT ; Traditional Chinese: 香港時間) is the time in Hong Kong. The time is UTC+8 all year round. on July 14, 2007. [TABLE OMITTED] [TABLE OMITTED] 1 Source: IDC China May 2007 |
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