digital china holdings limited - todayirdigital china holdings limited fy2011/12 q3 results...

Digital China Holdings LimitedFY2011/12 Q3

Results Announcement

22 February 2012

IT·Service·Innovation

This presentation may contain certain projection and forward-looking statements that involve risks,

uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove

incorrect, the results of Digital China may differ materially from those expressed or implied by such

forward-looking statements and assumptions. All statements other than statements of historical fact are

statements that could be deemed forward-looking statement, including but not limited to any projections

of revenue, margins, expenses, charges, earnings or other financial items; any statements of the plans,

strategies, and objectives of management for future operations, including execution of any restructuring

plans; any statements concerning the expected development, performance or market share relating to

products or services; any statements of expectation or belief; and any statements of assumptions

underlying any of the foregoing. Risks, uncertainties and assumptions include macroeconomic and

geopolitical trends and events; execution and performance of contracts by suppliers, customers and

partners; employee management issues; the challenge of managing asset levels, including inventory;

the difficulty of aligning expense levels with revenue changes; expectations and assumptions relating to

the execution and timing of workforce restructuring programs.

In addition, statistical and other information relating to the PRC and the technology industry contained in

this presentation have been compiled from various publicly available official or unofficial sources

generally believed to be reliable. However, the quality of such source materials cannot be guaranteed.

Moreover, statistics derived from multiple sources may not be prepared on a comparable basis.

2

Disclaimer


Investment Highlights

Financial Review

Business Review by Segments

Distribution

Systems

Supply Chain Services

Services

Summary

Appendix

3

Agenda


4

Investment Highlights

Leading IT Player in China

One of the pioneers in the industry with 20+ years of track record in China

The market leader with an unparalleled network of over 12,000 channel partners in China

Long established relationship with customers from major sectors

Cover full value-chain of IT industry

Full coverage on customer segments, from consumers to key sectors; strategic partnerships with 300 leading global IT vendors

Integrated offerings from hardware integration to software development to services

Established capability in cloud-computing and SaaS delivery

IT·Service·InnovationInvestment Highlights

Key player in convergent IT services

Leading in the process of Sm@rt City constructions as part of China's urbanization under National 5-Year Plan

Benefiting all major business segments through the 5 strategic implementation paths of the Sm@rt City strategy

Industry Application Software &

Infrastructure

Smart Devices & Mobile

Solutions

Enterprise Application & Infrastructure

Sm@rt CityOperation

Service

Sm@rt City Collaborative

Industry

Sm@rt City Business Layout

• Services • Distribution • Systems• Distribution

• Services • Supply Chain Services

5


6

Financial Review

FY11/12 Q1-Q3

Revenue growth up 25.17% yoy

Overall gross profit margin increased to 7.52%, up 70 bps yoy; marginimprovement across all segments

Profit attributable to shareholders amounted to HK$1,051 million, representing ay-on-y growth of 26.74%; the profit in first 3 quarters exceeded the total profit inFY10/11

Basic EPS amounted to 98.11 HK cents, 22% higher than the correspondingperiod of last year

Sound cash flow performance and stable cash turnover; net cash inflow fromoperating activities amounted to HK$640 million

FY11/12 Q3

Revenue of HK$18,913 million, another historical high

Cash inflow of HK$382 million

IT·Service·InnovationConsolidated Income Statement Highlights

HK$ million FY2011/12 Q1-Q3 FY2010/11 Q1-Q3 Growth

Revenue 53,051 42,382 ↑25.17%

Gross profit 3,990 2,892 ↑37.97%

Other income and gains 590 458 ↑28.82%

Operating expenses 2,999 2,152 ↑39.36%

Profit from operating activities 1,581 1,198 ↑31.96%

Finance costs 229 150 ↑52.58%

Tax 258 182 ↑42.34%

Net profit attributable to shareholders 1,144 890 ↑28.49%

Basic EPS (HK cents) 98.11 80.42 ↑22.00%

DPS (HK cents) - - -

31 Dec. 2011 31 Dec. 2010

ROE (annualized) 21.35% 18.85%

ROA (annualized) 5.41% 5.63%

Current Ratio 1.42X 1.45X

Quick Ratio 1.13X 1.17X

Capital Expenditure (HK$ million) 396 100

7


8

Consolidated Statement of Financial Position

HK$ million 31 Dec. 2011 30 Sep 2011 31 Dec. 2010

Fixed assets

Other non-current assets

Inventories

Trade and bills receivables

Prepayments, deposits and other receivables

Cash and cash equivalents

Derivative financial instruments

Other current assets

1,275

1,524

4,688

10,896

3,810

3,984

28

-

1,184

1,361

4,212

10,416

3,653

3,818

8

-

696

1,554

3,387

8,819

1,689

3,757

24

-

Total assets 26,205 24,652 19,926

Trade and bills payables

Other current liabilities

Interest-bearing bank borrowings (current)

Interest-bearing bank borrowings (non-current)

Bond payables

Derivative financial instruments

12,185

2,931

1,423

2,367

37

-

11,434

2,676

2,898

883

36

-

9,403

2,425

363

1,269

35

1

Total liabilities 18,943 17,927 13,496

Share capital

Other reserves

Retained earnings

Proposed final dividend

Non-controlling interests

109

3,193

3,261

-

699

109

3,068

2,938

-

611

109

3,312

2,441

-

568

Total equity 7,262 6,726 6,430


9

Working Capital

Account Receivables

Account Payables

Inventory

Cash Cycle

23 25 24 21 23

FY10/11 Q3

Q4 FY11/12 Q1

Q2 Q3

52 53 49 49 50

FY10/11Q3

Q4 FY11/12 Q1

Q2 Q3

No. of Days FY2011/12 Q1-Q3 FY2010/11 Q1-Q3 Change

Account Receivables 48.91 48.52 0.39

Inventory 24.31 23.10 1.21

Account Payables 57.23 56.76 0.47

Cash Cycle 15.99 14.86 1.13

1320

15 15 14

FY10/11 Q3

Q4 FY 11/12 Q1

Q2 Q3

6258 58

5559

FY10/11 Q3

Q4 FY 11/12 Q1

Q2 Q3


Distribution28,298

53%

Systems13,765

26%

FY11/12 Q1-Q3 Revenue: HK$ 53,051 million

HK$ million

Services5,18810%

10

Supply Chain5,80011%

Distribution53135%

Systems66444%

FY11/12 1Q1-Q3 Segmental Results: HK$ 1,632 million*

HK$ million

Services23616%

Supply Chain835%

^ Expense of the group, includes headquarters expenses* After adjusting segmental results for interest income, unallocated income and gains, and unallocated

expenses

Segment Breakdown

HK$ million,FY11/12 Q1-Q3

Distribution Systems Supply Chain Services Consolidated

Revenue 28,298 13,765 5,800 5,188 53,051

Y/Y Growth, % +18.01% +30.19% +65.57% +19.88% +25.17%

Gross Profit Margin (%) 4.68% 9.60% 6.37% 18.80% 7.52%

Y/Y Growth, bps +58 bps +7bps +115bps +218bps +70bps

Operating expenses 877 876 284 786 2,999^

Y/Y Growth, % +23.53% +25.55% +103.51% +48.53% +39.36%^

Segmental Results 531 664 83 236 1,632*

Y/Y Growth, % +67.46% +56.25% +97.13% -8.18% +33.51%*

Net Profit 1,051

Y/Y Growth, % +26.74%


Segmental Review:

Distribution(SMB & Consumer Markets )

11


3.98% 4.29%5.12%

4.57% 4.42%

0

2000

4000

6000

8000

10000

12000

FY10/11

Q3

Q4 FY11/12

Q1

Q2 Q3

In Q1-Q3, revenue grew 18.01% yoy to HK$28,298 million, gross margin up 58 bps

In Q3, revenue increased by 23.54% yoy, gross margin improved to 4.42%, segmental result up 91.25%

Revenue from accessories, PC servers, and notebook increased 62.16%, 30.21%, and 24.91% yoy respectively in Q3

71% revenue growth yoy for the sales from 790 “@PORT” outlets in Q1-Q3

NotebookComputers

36.03%

Others 2.78%

Consumer ITProducts

9.91%

Accessories11.40%

Peripherals10.06%

DataProjectors

2.02%

PC Servers14.84%

DesktopComputers

12.96%

FY11/12 Q1-Q3 Distribution Revenue:HK$28,298 million

12

HK$ million

Quarterly Revenue & Gross Margin

Distribution Segment


Segmental Review:

Systems (Industry and Enterprise Markets)

13


9.85% 10.42% 9.89% 10.91%8.41%

0

2000

4000

6000

8000

FY10/11 Q3

Q4 FY11/12 Q1

Q2 Q3

Others 15.12%

Packagedsoftware14.15%

Storageproducts16.60%

Networkingproducts36.86%

Unix servers17.27%

FY11/12 Q1-Q3 Systems Revenue: HK$ 13,765 million

14

HK$ million


In Q1-Q3, revenue grew 30.19% yoy to HK$13,765 million, segmental result up 56.25%, based on continuous channel consolidation and market share expansion

In Q3, revenue grew 37.80% yoy

Revenue of packaged software and storage products increased 89.06% and 52.41% yoy in Q3

Reported strong revenue growth of solution businesses : communications, video conferencing, and security totaled an increase of 44% yoy

Systems Segment


Segmental Review:

Supply Chain Services(Markets of Hi-tech Industries, Branded

e-Commerce and Online Service Providers

and Platform Operators)

15


FY11/12 Q1-Q3 Supply Chain Services Revenue:HK$ 5,800 million

Others14.17%

CES85.83%

16


HK$ million

In Q1-Q3, revenue up 65.57% yoy to HK$5,800 million, gross margin up 115 bps to 6.37%, segmental result up 97.13% to HK$83 million

CES business grew by 64.04% yoy due to strong market demand; and gross margin improved by better product mix

Logistics business expanded by 97.58% y-on-y in revenue for 3 quarters consolidated; businesses with major e-commerce players further enhanced

Supply Chain Services Segment

6.48% 6.47% 5.40% 6.21% 7.63%

0

1000

2000

FY10/11 Q3

Q4 FY11/12 Q1

Q2 Q3


Segmental Review:

Services(Provision of urban information infrastructure

and Sm@rt City operation services to the

Industry Market)

17


19.87%

14.57%17.00% 16.43%

23.22%

0

1000

2000

3000

FY10/11 Q3

Q4 FY11/12 Q1

Q2 Q3

Services Segment

0 100 200 300 400 500 600 700 800 900 1,000

BOC

ZoneJet

SDB

IT Center of MoR

PTAC

CCB

Alibaba

China Telcom

China Unicom

China Mobile

HK$ million

FY2011/12 Q1-Q3 Services Business:HK$ 5,188 million

Others4.57%

Finance21.95%

Telecom41.94%

Gov’t31.54%

18


HK$ million1.41%

1.73%

1.74%

2.26%

2.27%

2.85%

5.73%

17.02%

6.91%

6.44%

% as of Services Business’ revenue

Sales to Top 10 Customers accounted for 48.36% of Services Business’ revenue

Gross profit margin improved to 18.80%, up 218 bps yoy


Revenue grew 19.88% yoy to HK$5,188 million, for the reported three quarters

Blended gross margin up 218 bps to 18.80%

Banking – revenue grew 37.70% yoy

7 core banking systems to be completed within this year

Outsourcing banking solutions to 60+ township banks based on SaaS model (Software as a Service)

Sm@rt City & Government– revenue grew 46.51% y-on-y

Leveraging the advantages in state taxation market into local taxation markets in Hainan, Shaanxi, Shandong, etc.

Sm@rt City accomplished 166% of the total contract targets in FY11/12, presencing in 11 cities

Variety and maturity of Sm@rt City solutions further enhanced, 10+ application solutions have been accumulated

19

Services Segment

IT·Service·InnovationIT Outsourcing Operation for Rural/Township Banks(SaaS)

Function Modules in the Cloud: Core System, Credit System, Internet Banking System. etc.

Banking Operation in the Cloud: deposits, loans, payment, settlement, regulatory reporting,

Internet banking, credit management, etc.

Services we provide: hardware equipments, demand analysis, system configuration, application

installation, routine operation and maintenance, disaster recovery, application upgrading

Cloud Computing(Banking Operation

through Business

Application Software

Modules)

City/Rural Commercial Bank B

Township Bank A

Township Bank C

DC Data Center in Xi’an

20

Off-site disaster

recovery center

Secured Proprietary

Data Network


Summary

21

IT·Service·InnovationSummary

Under the guidance of the “Sm@rt City” strategy, the Group overcame the volatilities in the macro-market and perform well in the first 3 quarters and accomplished or outperformed goals measured by result or risk indicators

With the strategy of “driving growth” be consistently implemented at all levels of businesses, and with the support of a more comprehensive sales operation management mechanism, the goals of the whole finance year will be fully achieved

Efforts will be continued on speeding up the business transformation, in order to establish a mores service oriented organization with higher customer value

The Group will continue to follow the five strategic paths of Sm@rt City and better prepare the whole organization for new opportunities in the coming years within the third 5-year plan period

22

Thank You

Questions & Answers

23


Appendix

24


25

Sm@rt City

IT·Service·InnovationRe-Classification of Certain Distribution & Supply Chain Services

Fulfillment Agent business for HP & Dell has been re-classified from Supply Chain Services to Distribution in FY11/12, owing to change in vendor policy.

Distribution Supply Chain ServicesFY11/12Q1-Q3

FY10/11Q1-Q3

ChangeFY11/12Q1-Q3

FY10/11Q1-Q3

Change

New Classification (FA business within Distribution)

Revenue 28,298 23,979 +18.01% 5,800 3,503 +65.57%

Gross Profit Margin 4.68% 4.10% +58 bps 6.37% 5.22% +115 bps

Old Classification (FA businesswithin Supply Chain Services)

Revenue 24,173 20,256 +19.34% 9,925 7,226 +37.35%

Gross Profit Margin 4.78% 4.35% +43 bps 5.42% 3.94% +148 bps

* HKD million, except otherwise specified

26

IT·Service·InnovationQ3 Result

HK$ million Distribution Systems Supply Chain Services Consolidated

FY11/12Q1-Q3

FY11/12Q3

FY11/12Q1-Q3

FY11/12Q3

FY11/12Q1-Q3

FY11/12Q3

FY11/12Q1-Q3

FY11/12Q3

FY11/12Q1-Q3

FY11/12Q3

Revenue 28,298 9,851 13,765 5,657 5,800 1,743 5,188 1,662 53,051 18,913

Y/Y Growth, % +18.01% +23.54% +30.19% +37.80% +65.57% +63.60% +19.88% -0.98% +25.17% +27.59%

Gross Profit Margin (%) 4.68% 4.42% 9.60% 8.41% 6.37% 7.63% 18.80% 23.22% 7.52% 7.56%

Y/Y Growth, bps +58 bps +44bps +7bps -112bps +115bps +115bps +218bps +335bps +70bps -3bps

Operating expenses 877 281 876 316 284 101 786 311 2,999^ 1,071^

Y/Y Growth, % +23.53% +17.51% +25.55% +7.92% +103.51% +104.69% +48.53% +31.04% +39.36%^ +27.20%^

Segment Results 531 186 664 239 83 29 236 98 1,632* 604*

Y/Y Growth, % +67.46% +91.25% +56.25% +45.52% +97.13% +60.93% -8.18% -31.98% +33.51%* +24.67%*

Net Profit 1,051 386

Y/Y Growth, % +26.74% +31.93%

^ Expense of the group, includes headquarters expenses* After adjusting segment results for interest income, unallocated income and gains, and unallocated expenses

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