ANNOUNCEMENT OF THE THIRD QUARTERLY RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2015

Transcription

1 Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. ANNOUNCEMENT OF THE THIRD QUARTERLY RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2015 UNAUDITED CONSOLIDATED RESULTS The board of directors (the Board ) of Digital China Holdings Limited (the Company ) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (collectively the Group ) for the nine months ended 30 September 2015 together with comparative figures for the corresponding period of last financial year (restated) as follows: 1

2 CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS Three months ended 30 September 2015 Nine months ended 30 September 2015 Three months ended 30 September 2014 Nine months ended 30 September 2014 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Notes (Restated) (Restated) CONTINUING OPERATIONS REVENUE 3 3,583,000 10,008,454 2,849,061 8,003,885 Cost of sales (3,013,875) (8,552,717) (2,403,344) (6,785,682) Gross profit 569,125 1,455, ,717 1,218,203 Other income and gains 3 109, ,834 17, ,985 Selling and distribution expenses (262,412) (654,867) (207,721) (571,381) Administrative expenses (38,338) (97,241) (28,683) (96,118) Other expenses, net (239,354) (576,970) (170,221) (402,323) Finance costs (29,455) (51,145) (9,849) (38,091) Share of profits and losses of: Joint ventures 20,962 37,170 (3,642) (2,346) Associates 7,484 25,219 16,006 50,096 PROFIT BEFORE TAX FROM CONTINUING OPERATIONS 4 137, ,737 59, ,025 Income tax expense 5 (24,006) (63,383) (20,421) (29,851) PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS 113, ,354 38, ,174 DISCONTINUED OPERATION Profit for the period from a discontinued operation 6 143, , , ,980 PROFIT FOR THE PERIOD 257, , , ,154 Attributable to: Equity holders of the parent 201, , , ,107 Non-controlling interests 56, ,584 2,240 66, , , , ,154 EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT 7 Basic - For profit for the period HK cents HK cents - For profit from continuing operations HK cents HK cents Diluted - For profit for the period HK cents HK cents - For profit from continuing operations HK cents HK cents 2

3 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Nine months ended 30 September (Unaudited) (Unaudited) PROFIT FOR THE PERIOD 665, ,154 OTHER COMPREHENSIVE INCOME/(LOSS) Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods: Available-for-sale investments: Changes in fair value (31,878) (20,403) Reclassification adjustments for losses/(gains) included in the consolidated statement of profit or loss: - impairment loss - 46,867 - loss/(gain) on disposal (17,313) 21,343 (49,191) 47,807 Exchange differences on translation of foreign operations (182,910) (39,922) Share of other comprehensive income of an associate Net other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods (231,789) 7,885 Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Gain on property revaluation 987 5,239 Income tax effect (247) (1,310) Net other comprehensive income not to be reclassified to profit or loss in subsequent periods 740 3,929 OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE PERIOD, NET OF TAX (231,049) 11,814 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 434, ,968 Attributable to: Equity holders of the parent 384, ,645 Non-controlling interests 49,503 77, , ,968 3

4 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 30 September December 2014 (Unaudited) (Audited) Notes NON-CURRENT ASSETS Property, plant and equipment 829,213 1,323,438 Investment properties 2,025,824 1,744,226 Prepaid land premiums 119, ,960 Goodwill 1,242,736 1,274,815 Other intangible assets 35,073 65,786 Investments in joint ventures 955, ,579 Investments in associates 1,590,289 1,191,959 Available-for-sale investments 474,724 1,916,433 Finance lease receivables 244,649 7,686 Prepayments, deposits and other receivables 254,067 - Deferred tax assets 113, ,609 Total non-current assets 7,884,778 8,532,491 CURRENT ASSETS Inventories 526,775 6,175,416 Properties under development 437, ,445 Completed properties held for sale 252,317 - Trade and bills receivables 8 4,223,581 9,601,923 Prepayments, deposits and other receivables 1,486,341 3,683,099 Derivative financial instruments - 32,841 Available-for-sale investments 11,625 1,000,000 Cash and cash equivalents 2,254,885 4,119,557 9,193,299 25,175,281 Assets of a disposal group classified as held for sale 6 21,183,769 - Total current assets 30,377,068 25,175,281 CURRENT LIABILITIES Trade and bills payables 9 2,357,033 10,301,179 Other payables and accruals 1,722,402 4,021,434 Tax payable 50, ,318 Interest-bearing bank and other borrowings 4,440,995 7,060,139 8,571,010 21,742,070 Liabilities directly associated with the assets classified as held for sale 6 17,315,066 - Total current liabilities 25,886,076 21,742,070 NET CURRENT ASSETS 4,490,992 3,433,211 TOTAL ASSETS LESS CURRENT LIABILITIES 12,375,770 11,965,702 4

5 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) 30 September 2015 (Unaudited) 31 December 2014 (Audited) TOTAL ASSETS LESS CURRENT LIABILITIES 12,375,770 11,965,702 NON-CURRENT LIABILITIES Interest-bearing bank borrowings 1,188,087 1,064,848 Deferred tax liabilities 60,079 - Deferred income 59,912 36,679 Total non-current liabilities 1,308,078 1,101,527 NET ASSETS 11,067,692 10,864,175 EQUITY Equity attributable to equity holders of the parent Issued capital 109, ,374 Reserves 8,664,423 8,276,528 Proposed final dividend - 214,454 8,773,847 8,600,356 Non-controlling interests 2,293,845 2,263,819 TOTAL EQUITY 11,067,692 10,864,175 5

6 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Nine months ended 30 September (Unaudited) (Unaudited) Cash flows from operating activities Decrease/(increase) in inventories (188,395) 271,433 Decrease/(increase) in trade and bills receivables (1,297,577) 814,605 Increase/(decrease) in trade and bills payables 253,015 (1,434,886) Decrease in other working capital and adjustments for non-cash transactions 333,340 1,063,394 Net cash flows from/(used in) operating activities (899,617) 714,546 Cash flows from investing activities Purchases of items of property, plant and equipment (116,971) (121,312) Additions to investment properties (212,711) (408,561) Additions to properties under development (170,072) (90,373) Proceeds from disposal of items of property, plant and equipment 4, Additions to other intangible assets (3) (2,882) Disposal of a subsidiary 62,289 - Proceeds from disposal of a joint venture - 2,294 Proceeds from disposal of an associate 1,823 - Proceeds from disposal of available-for-sales investments 204,840 23,244 Dividends received from a joint venture 4,823 6,175 Dividends received from associates 8,761 8,796 Dividends received from an available-for-sale investment 7,978 6,552 Investments in joint ventures (265,560) (280,797) Investments in associates (359,520) (82,569) Investments in available-for-sale investments (165,805) (2,102,624) Decrease/(increase) in other receivables (445,530) 102,665 Net cash flows used in investing activities (1,441,422) (2,938,979) Cash flows from financing activities Exercise of share options 2,981 - Contribution to an employee share trust - (10,008) New bank loans 19,488,219 9,566,658 Repayment of bank and other loans (14,836,213) (7,483,411) Interest paid (205,540) (192,898) Dividends paid (214,454) (190,037) Dividends paid to non-controlling shareholders (27,452) - Acquisitions of non-controlling interests - (27,500) Contribution from non-controlling shareholders of subsidiaries 7,975 8,237 Net cash flows from financing activities 4,215,516 1,671,041 Net increase/(decrease) in cash and cash equivalents 1,874,477 (553,392) Cash and cash equivalents at the beginning of the period 4,119,557 3,894,211 Effects of foreign exchange rate changes, net (87,059) (44,257) Cash and cash equivalents at the end of the period 5,906,975 3,296,562 6

7 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued) Nine months ended 30 September (Unaudited) (Unaudited) Analysis of balances of cash and cash equivalents Cash and cash equivalents as stated in the condensed consolidated statement of financial position 2,254,885 3,296,562 Cash and cash equivalents attributable to a discontinued operation 3,652,090 - Cash and cash equivalents as stated in the condensed consolidated statement of cash flows 5,906,975 3,296,562 7

8 NOTES: 1. Basis of preparation These unaudited condensed consolidated financial information for the nine months ended 30 September 2015 has been prepared in accordance with Hong Kong Accounting Standard ( HKAS ) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). In preparing the unaudited condensed consolidated financial information, the same basis of presentation, accounting policies and methods of computation as set out in the annual financial statements for the year ended 31 December 2014 had been consistently applied except in relation to the following revised Hong Kong Financial Reporting Standards ( HKFRSs ) (which include all Hong Kong Financial Reporting Standards, HKASs and interpretations) that affect the Group and has adopted the first time for the current period s unaudited condensed consolidated financial information: Amendments to HKAS 19 Annual Improvements Cycle Annual Improvements Cycle Defined Benefit Plans: Employee Contributions Amendments to a number of HKFRSs Amendments to a number of HKFRSs The adoption of these revised HKFRSs has had no significant financial effect on the unaudited condensed consolidated financial information. 8

9 2. Operating segment information In the first quarter of 2015, the financial data of the Group was classified into the four business groups based on the relevance of the business for a more lucid and accurate reflection of the Group s strategic development planning. The Group has decided that, starting from the second quarter of 2015, its scope of its business groups will be adjusted as follows to reflect the impact of the proposed disposal of Digital China Group (note 6) on the Group s business classification: (1) the business of investing in financial products with surplus funds of the Distribution segment is transferred from the Financial Service Strategy Unit under the New Business Segment and aggregated under the discontinued Digital China Group segment; and (2) the service fee-based businesses in the discontinued Digital China Group is transferred to and aggregated under the Supply Chain Management Strategy Unit segment. There are no changes to the respective scopes of the Services segment (i.e. DCITS segment). Relevant results of comparative financial periods have been restated. Certain revenue previously accounted for under the Financial Strategy Service Unit of the New Business segment has been reclassified as other income and gains under the discontinued Digital China Group segment. Segment information of the three continuing business groups is summarised as follows: (a) (b) (c) the DCITS segment: Leading IT service provider in China s IT industry specialized in proprietary software, services, Cloud Computing and Big Data analysis persisting with the strategy of integrating Sm@rt City and Sm@rt Agriculture; the Supply Chain Management Strategy Unit segment: Operating through Instant Logistics to provide comprehensive intermediary and backstage logistics services for corporate customers, e-commerce platforms, branded service providers and individuals, while actively exploring Internet-based self-branded maintenance services; and the New Business segment: Including the Sm@rt City Service Group which is the provision of all-encompassing Sm@rt City services for city administrators, enterprises and citizens based on one centre and three platforms (the urban information management centre, the integrated citizen service platform, the integrated enterprise service platform and the integrated city administration platform); and the Financial Service Strategy Unit which is the provision of financial services, such as financing, investment, credit lending, financial risk management and financial information consultation, etc, to internal departments as well as third party customers. Management monitors the results of the Group s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on the reportable segment profit, which is a measure of adjusted profit before tax. The adjusted profit before tax is measured consistently with the Group s profit before tax except that unallocated interest income, unallocated finance costs, unallocated corporate income and gains and unallocated corporate expenses are excluded from such measurement. 9

10 The following table presents revenue and results for the Group s operating segments from continuing operations for the nine months ended 30 September 2015 and 2014: DCITS Supply Chain Management New Business Total continuing operations Strategy Unit Nine months ended 30 September (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Restated) (Restated) (Restated) Segment revenue: Sales to external customers 5,547,515 5,468,428 4,297,798 2,496, ,141 39,403 10,008,454 8,003,885 Segment gross profit 1,061, , , , ,169 37,184 1,455,737 1,218,203 Segment results 214, ,141 56,869 54,848 47,228 30, , ,334 Interest income, other unallocated revenue and gains 38,922 20, ,368 34,045 Other unallocated expenses - - (101,837) (19,013) Finance costs (24,856) (27,934) (51,145) (38,091) Share of profits and losses of: Joint ventures 3,171 2,829 37,170 (2,346) Associates 5,636 7,052 25,219 50,096 Profit before tax 237, , , ,025 Income tax expense (27,406) (11,504) (63,383) (29,851) Profit for the period 210, , , ,174 10

11 3. Revenue, other income and gains Revenue represents net invoiced value of goods sold, after allowances for returns and trade discounts and the value of services rendered to customers, net of business tax and government surcharges. An analysis of the Group s other income and gains from continuing operations is as follows: Nine months ended 30 September (Unaudited) (Unaudited) (Restated) Other income Government grants 42,625 25,318 Interest income 53,564 22,304 Income from financial products 8,108 11,763 Dividend income from an available-for-sale investment 8,864 7,280 Others 2,859 2, ,020 69,099 Gains Fair value gains on investment properties 24,394 - Gain on disposal of a subsidiary 35 - Gain on deemed partial disposal of the equity interests in associates 55,789 25,602 Gain on partial disposal of the equity interest in an associate Gain on disposal of a joint venture Gain on disposal of available-for-sale investments 26,270 - Others 1,326 6, ,814 33, Profit before tax 223, ,985 The Group s profit before tax from continuing operations is arrived at after charging: Nine months ended 30 September (Unaudited) (Unaudited) (Restated) Cost of inventories sold 6,819,216 5,402,570 Depreciation 75,646 77,425 Amortisation of prepaid land premiums 3,040 3,350 Amortisation of other intangible assets 10,096 8,062 Impairment loss on other intangible assets 19,586 - Minimum lease payments under operating leases in respect of land and buildings 57,941 60,425 Provisions for and write-off of obsolete inventories 13,372 6,421 Impairment of trade receivables 99,622 17,583 Loss on disposal of items of property, plant and equipment 2, Foreign exchange differences, net 87,712 4,493 11

12 5. Income tax expense Nine months ended 30 September (Unaudited) (Unaudited) (Restated) Continuing operations: Current Mainland China 102,723 57,737 Deferred (39,340) (27,886) Total tax charge for the period 63,383 29,851 (a) (b) (c) No provision for Hong Kong profits tax has been made as the continuing operations of the Group did not generate any assessable profits arising in Hong Kong for the nine months ended 30 September 2015 (nine months ended 30 September 2014: Nil). Corporate income tax of the People s Republic of China ( PRC ) represents tax charged on the estimated assessable profits arising in Mainland China. In general, the Group s subsidiaries operating in Mainland China are subject to the PRC corporate income tax rate of 25% except for certain subsidiaries which are entitled to preferential tax rates. The share of tax charge attributable to the joint ventures of approximately HK$12,243,000 (nine months ended 30 September 2014 (restated): HK$315,000) and the share of tax charge attributable to the associates of approximately HK$6,171,000 (nine months ended 30 September 2014 (restated): HK$10,882,000) of the continuing operations of the Group are included in Share of profits and losses of joint ventures and Share of profits and losses of associates, respectively, in the unaudited condensed consolidated statement of profit or loss. 6. Discontinued operation On 7 August 2015, the Company published an announcement in relation to its proposed disposal of the subsidiaries engaged in the distribution business (namely, Digital China Group ) to Shenzhen Shenxin Taifeng Group Co., Ltd.* ( 深 圳 市 深 信 泰 豐 ( 集 團 ) 股 份 有 限 公 司 ), the details of which have been set out in the circular entitled Very Substantial Disposal and Connected Transaction and Notice of Special General Meeting published on 9 August Following completion of the transaction, the entities engaged in the distribution business will cease to be the Company s subsidiaries. The disposal of Digital China Group was approved by the shareholders of the Company at the special general meeting held on 26 August 2015, but is subject to the approval of the PRC regulatory authorities. Digital China Group was classified as a disposal group held for sale and as a discontinued operation, and accordingly the distribution business is no longer included in the note for the continuing segment information. 12

13 The results of Digital China Group for the period, which are only from transactions with counterparties external to the Group and do not necessarily represent the activities of the operation as individual entities, are presented below: Nine months ended 30 September (Unaudited) (Unaudited) Revenue 44,021,790 41,559,488 Cost of sales (41,758,625) (39,432,171) Gross profit 2,263,165 2,127,317 Other income and gains 486, ,738 Expenses (2,110,773) (1,689,411) Finance cost (154,395) (154,807) Share of profits and losses of a joint venture and an associate (12,041) (11,451) Profit before tax from the discontinued operation 472, ,386 Income tax (105,410) (112,406) Profit for the period from the discontinued operation 367, ,980 The major classes of assets and liabilities of Digital China Group (excluding assets and liabilities with continuing operations eliminated as usual in the consolidation) classified as held for sale as at 30 September 2015 are as follows: 30 September December 2014 (Unaudited) (Audited) Assets Property, plant and equipment 371,277 - Investment in an associate 40,533 - Available-for-sale investments 2,364,121 - Deferred tax assets 224,555 - Inventories 5,763,896 - Trade and bills receivables 6,448,629 - Prepayments, deposits and other receivables 2,258,591 - Derivative financial instruments 60,077 - Cash and cash equivalents 3,652,090 - Assets classified as held for sale 21,183,769 - Liabilities Trade and bills payables 8,197,161 - Other payables and accruals 1,657,553 - Tax payable 201,529 - Interest-bearing bank borrowings 7,147,518 - Deferred tax liabilities 57,689 - Deferred income 53,616 - Liabilities directly associated with the assets classified as held for sale 17,315,066 - Net assets directly associated with the disposal group 3,868,703-13

14 Nine months ended 30 September (Unaudited) (Unaudited) Earnings per share: Basic, from the discontinued operation HK cents HK cents Diluted, from the discontinued operation HK cents HK cents The calculations of basic and diluted earnings per share from the discontinued operation are based on: Nine months ended 30 September (Unaudited) (Unaudited) Profit attributable to ordinary equity holders of the parent from the discontinued operation HK$367,130,000 HK$456,714,000 Weighted average number of ordinary shares in issue less shares held the restricted share award during the period used in the basic earnings per share calculation (note 7) 1,072,556,180 1,072,267,396 Weighted average number of ordinary shares during the period used in the diluted earnings per share calculation (note 7) 1,074,061,743 1,073,380, Earnings per share attributable to ordinary equity holders of the parent The calculation of the basic earnings per share amount is based on the profit for the nine months ended 30 September 2015 attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares of 1,072,556,180 (nine months ended 30 September 2014: 1,072,267,396) in issue less shares held the restricted share award scheme during the nine months ended 30 September The calculation of the diluted earnings per share amount for the nine months ended 30 September 2015 is based on the profit for the nine months ended 30 September 2015 attributable to ordinary equity holders of the parent. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue less shares held the restricted share award scheme during the nine months ended 30 September 2015, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise of all the dilutive potential ordinary shares related to the Group s share-based incentive schemes into ordinary shares. 14

15 The calculations of basic and diluted earnings per share are based on: Nine months ended 30 September (Unaudited) (Unaudited) Earnings Profit attributable to ordinary equity holders of the parent, used in the basic and diluted earnings per share calculation: From continuing operations 184, ,393 From a discontinued operation 367, , , ,107 Number of shares Nine months ended 30 September (Unaudited) (Unaudited) Shares Weighted average number of ordinary shares in issue less shares held the restricted share award scheme during the period used in the basic earnings per share calculation 1,072,556,180 1,072,267,396 Effect of dilution weighted average number of ordinary shares: Share-based incentive schemes 1,505,563 1,112,731 Weighted average number of ordinary shares during the period used in the diluted earnings per share calculation 1,074,061,743 1,073,380, Trade and bills receivables The Group s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is generally 30 to 180 days. An aged analysis of the trade and bills receivables as at the end of the reporting period, based on the invoice date and net of impairment is as follows: 30 September 2015 (Unaudited) 31 December 2014 (Audited) Within 30 days 1,384,876 4,681, to 60 days 339,586 1,661, to 90 days 366, , to 180 days 1,214,516 1,019,605 Over 180 days 918,375 1,512,840 4,223,581 9,601,923 15

16 9. Trade and bills payables An aged analysis of the trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows: 30 September 2015 (Unaudited) 31 December 2014 (Audited) Within 30 days 1,131,906 5,573, to 60 days 280,553 2,181, to 90 days 327,998 1,020,765 Over 90 days 616,576 1,526,111 2,357,033 10,301,179 DIVIDENDS The Board does not recommend the payment of an dividend for the nine months ended 30 September 2015 (for the nine months ended 30 September 2014: Nil). MANAGEMENT DISCUSSION AND ANALYSIS For the first three quarters of 2015, China s macro-economy has been subject to enormous downside pressure, as GDP growth for the third quarter slowed down to 6.9%. Despite of rigorous challenges in the industry, Digital China reported strong growth in all segments results of its continuing business for the period, showing encouraging signs in its development. The disposal of the Company s traditional distribution business (namely Digital China Group, discontinued operation) during the third quarter (three months ended 30 September 2015) represents an important landmark in the Company s strategic transformation. Information technologies such as Cloud Computing, Mobile Internet, Internet of Things and Big Data have become importance forces for driving social development and industrial reforms. In future, the Company will pursue in-depth amalgamation with traditional industries leveraging on Internet, Cloud Computing and Big Data technologies and focus on building high value-added and high-growth businesses, such as Internet city services (Sm@rt City), Internet agriculture, Internet healthcare, Internet manufacturing, Internet logistics and related financial services, with the core of Sm@rt City strategy. 1.1 Smooth progress of disposal transaction and transparent presentation of business results The Company held a special general meeting in late August 2015 in connection with the proposed disposal of 100% interests in its traditional consumer and corporate distribution business (namely Digital China Group, discontinued operation) for approximately RMB4.01 billion and the resolution was duly passed. The transaction will be completed subject to the approval by the China Securities Regulatory Committee (CSRC) and the Company will distribute HK$3.2 per share to shareholders whose names appear in the register as special cash dividend. 16

17 The disposed business, namely, Digital China Group, was presented as Discontinued operation in the 2015 third quarter results, while the remaining businesses, namely, the IT Service Business (Digital China Information Technology Service Company Ltd.), Supply Chain Management Business and New Business (including financial services and City) was presented as Continuing operations. In view of the impact of the disposal of Digital China Group on the fund allocation and business classification of the Company, the corresponding scopes or bases of the business groups was retrospectively adjusted as follows with effect from the second quarter of 2015: 1. Financial product investments utilising surplus funds of the distribution business was transferred out of the Financial Strategy units of the New Business segments and reallocated to Digital China Group, and 2. Service fee-based businesses under Digital China Group was transferred out of Digital China Group and reallocated to the Supply Chain Service segment. Results of comparative financial periods (namely, the first three quarters of 2015 and the first three quarters of 2014) were restated as appropriate. 1.2 Foreign Exchange losses bring in short-term volatility, while new strategic businesses report strong growth momentum For the third quarter of 2015, revenue from Company s continuing operations amounted to approximately HK$3.583 billion, representing an increase of 25.76% as compared to the corresponding period of last year; while gross profit margin grew 0.24 percentage points, year-on-year, to 15.88%. For the period, profit from continuing operations attributable to shareholders of the parent company amounted to approximately HK$57.34 million, an increase of 56.58% as compared to the corresponding period of last year; exchange loss for the period represented mainly non-cash loss arising from revaluation of debt denominated in foreign currencies as a result of change in the USD to RMB exchange rate, excluding the effect of foreign exchange losses, profit from continuing operations attributable to shareholders of the parent company amounted to approximately HK$137 million, an increase of % as compared to the corresponding period of last year. For the first three quarters of the year, profit from continuing operations attributable to shareholders of the parent company amounted to approximately HK$185 million, representing year-on-year growth of 13.78%; excluding the effect of foreign exchange losses, profit attributable to shareholders amounted to approximately HK$272 million, representing year-on-year growth of 63.27%. Profit from discontinued operation for the first three quarters attributable to shareholders of the parent company amounted to approximately HK$367 million, representing an decrease of 19.61% as compared to the corresponding period of last year; excluding the effect of foreign exchange losses, profit attributable to shareholders amounted to approximately HK$640 million, representing year-on-year growth of 22.56%. Combined (continuing and discontinued operations) profit attributable to shareholders for the first three quarters amounted to approximately HK$552 million, decreasing by 10.86% as compared to the corresponding period of last financial year. Excluding the effect of foreign exchange losses, combined profit attributable to shareholders amounted to approximately HK$913 million, increasing by 32.42% as compared to the corresponding period of last year. Considering the limited foreign exchange trade exposure of the continuing operations and the fact that the recent substantial volatility in RMB exchange rates does not reflect normal conditions, the management is actively adjusting its loan policy to give full consideration to interest rates, foreign exchange rates and the nature of businesses concerned when leveraging on new loans. We are expecting future exchange rate risks to be controllable. 17

18 Continuing operations 2.1 Digital China Information Service Company Ltd. (DCITS): leading IT service provider in China s IT industry specialised in proprietary software, services, Cloud Computing and Big Data analysis and persisting with the strategy of integrating Sm@rt City and Sm@rt Agriculture together. During the third quarter, the Company persisted in advancing the product-focused and platform-based strategy for development, focusing further on the development of high-margin businesses such as proprietary software, technical services, Cloud Computing and Big Data as its revenue mix and profitability continued to improve. For the third quarter, the Company reported revenue of approximately HK$2.009 billion, representing a 9.26% growth comparing to the corresponding period of last financial year. Aggregate revenue for the first three quarters of the financial year amounted to HK$5.548 billion, representing a 1.45% growth comparing to the corresponding period of last year. The revenue contribution percentage of proprietary software, technical services and specialised financial equipment was 37.52%. As the revenue mix of the Company continued to optimise, overall gross profit margin for the first three quarters reached to 19.14%, an improvement of 2.19 percentage points comparing to the corresponding period of last year. Net profit (net profit attributable to shareholders of the parent company) amounted to RMB180 million, representing year-on-year growth of 40.75%; net profit attributable to shareholders of the parent company after extraordinary items amounted to RMB170 million, representing year-on-year growth of 42.77%. Application Software Development Business: it represents one of the core competitive advantages of Digital China for tapping the industrial internet service sector. During the reporting period, the Company continued to strengthen its capabilities in product and technologies development and expanded its customer coverage, reporting revenue of HK$420 million which represented an increase of 21.11% comparing to the corresponding period of last year. Steady growth in clientele and market shares was observed in the financial and taxation sectors. During the period, the Sm@rt City solution business (project construction business instead of service revenue business) continued to gain momentum. The Company has signed with Chongli County in Zhangjiakou, one of the host cities of the 2022 Winter Olympics, for the provision of IT-based solutions for local preparations and management of the Winter Olympics and subsequent city development. This contract has provided a solid foundation for the undertaking of the local Sm@rt City Internet platform operation services by Digital China in future. Agricultural Informatisation Business: rapid development was reported under Zhongnong Xinda, DCITS s wholly-owned subsidiary, as business presence along the industry chain of agricultural sectors was further enhanced with advancements in its farmland right registration business. On that basis, the construction and operation of the farmland transaction and exchange platform was swiftly developed to build an end-to-end business chain in agricultural informatisation. Revenue 1 for the reporting period amounted to approximately HK$141 million, representing growth of 72.20% comparing to the corresponding period of last year, while a relatively high gross profit margin was sustained. Moreover, through the acquisition of Clesun Tech during the period, the Company has extended its business scope to agricultural Internet of Things and Big Data service to enhance its market presence in value-added agricultural services based on data application. 1 Revenue from the agricultural informatisation business for the corresponding period of last year represents the actual amount incurred by the agricultural informatisation business for the interim period of last year, in order to give a true view of comparisons between corresponding periods. As Zhongnong Xinda, the unit against which the agricultural informatisation business is compared, did not become a wholly-owned subsidiary of DCITS until 2 December 2014, the revenue amount for 2014 included only the data of Zhongnong Xinda in December. System Integration Business: Confronted with intense competition in the industry, the Company concentrated its resources on core sectors, such as finance, telecom operators, government and state owned enterprises, utilities and the Internet companies, to increase effective coverage of target customers and sustain stable business development. Revenue for the reporting period amounted to HK$3.325 billion, a slight decline by 2.59% comparing to the corresponding period of last financial year. 18

19 2.2. Supply Chain Management Strategy Unit: creation of the intermediary platform integrated e-commerce service model, development of logistics services for corporate customers and actively expansion of O2O self-branded maintenance services. Benefitting from the enormous demand for IT-based logistics management and operation from corporate customers, all segments under the supply chain business sustained rapid growth. Aggregate revenue for the first three quarters grew 72.18%, year-on-year, to approximately HK$4.298 billion including gross merchandising value. The sector reported a stable overall gross profit margin of approximately 24% for the first three quarters excluding the impact of gross merchandising value from e-commerce customers to reflect the software nature of our supply chain management business. Allowing for this effect of the accounting treatment regarding the invoiced revenue (gross merchandising value) from the e-commerce customers, the overall gross profit margin stated in the financial statements, for accounting purposes, was 6.6% in the first three quarters. Analysed by the three principal business segments, e-commerce supply chain service, logistics and maintenance reported turnover growth of 45.29%, 51.98% and 22.48%, respectively, for the third quarter, accounting for 79.00%, 15.74% and 5.26%, respectively, of total revenue. E-Commerce Supply Chain Service: This business supports brand companies in the matching with numerous online sales platforms, including their own official websites, T-mall, JD.COM, AMAZON.COM, Gome and so on, and provides comprehensive e-commerce supply chain solutions. Logistics Business: This business provides omni-channel IT-system based logistics and storage services to meet the needs of brand companies in their O2O business development, leveraging on our nationwide network of warehouses and solid experience in relevant operations. Based on our first-class customer service and industry reputation, in-depth expansion of customers networks in the IT electronics, telecommunication, precision equipment and auto accessory sectors was procured, signing up customers such as ZTE and Schneider. In connection with software development, we optimised Gold Storage ( 神 州 金 庫 ), our proprietary logistics and distribution management system, in tandem with customers demands to facilitate seamless matching and connection with courier service providers, while setting up a platform on Wechat for package tracking and enquiries. Maintenance Business: This is conducted under our brand name K-boy, adopting an O2O model combining online marketing channels such as Wechat and offline service and delivery outlets to foster effective expansion of post-warranty services. By following K-Boy on Wechat, customers are able to receive remote consultation and problem diagnosis, place maintenance orders and enquire progress of maintenance services. The number of users has been effectively increased and customers experience and satisfaction has been enhanced. 2.3 New Business based on Internet+ : to accelerate development of internet-based Sm@rt City and Internet finance, develop new directions for strategic businesses and foster new growth drivers in proactive response to the national strategy of Internet+. The New Business segment reported overall revenue of approximately HK$123 million for the third quarter. The Internet-based Sm@rt City operation business has entered the payment settlement period for the year. For the first three quarters, the New Business segment reported aggregate turnover of HK$163 million. Gross profit margins for the third quarter and the first three quarters were 60.19% and 67.53%, respectively, reflecting the increasing percentage of revenue contribution by Sm@rt City, which commands a lower gross profit margin than the Financial Service Business. 19

20 City Business: During the third quarter, the Company to increase investments in the construction of Internet-based City platforms and related services. In September, the Company entered into an agreement with Chongli County of Zhangjiakou City for the City construction. Together with Beijing, Chongli will host the 2022 Winter Olympics, promising enormous business potential. Regarding integrated citizen service platforms, the Company entered into City strategic cooperation agreements with 44 cities accumulatively during the period, including, Manchester, Yantian District in Shenzhen, Yichang, Chengdu and Yangling. These will be followed by the signing of service contracts and platform construction and operation afterwards. Internet-based citizen service platforms have been put into operation in 10 cities covering a total population of 70 million. Our integrated corporate service platforms in Beilin District of Xi an and Changshu also became operational in the past quarter. Regarding the information resource centers primarily focused on the Big Data application business, following earlier successful bids for Lanzhou and Changshu, the Company won further tenders in Dali and Xuzhou during the third quarter. This will facilitate the full operation of the government s Big Data platform and provide a reliable and effective pathway for the commercial application of government data. Moreover, the Company continued to enhance channel partnerships with existing large Internet platform companies. During the period, the integrated citizen platform of Chengdu has been connected with Alipay and the WeChat City Service. By logging in from these channels, citizens can process various enquiries and applications of social welfare, visa and so on with different government authorities. This has resulted in increased traffic volume to the city service platforms of Digital China and facilitated the accumulation of platform data, which can be utilised in our future development of commercial applications based on Big Data analysis on the platform. Financial Institutional Business: this business posed continued rapid development through the third quarter, as the financial leasing business identified agricultural Internet finance as the major focus in its future development. Our initial endeavours were devoted to the agricultural machinery sectors. Orders were signed up in Heilongjiang, and the business model is expected to be replicated in volumes in a relatively short period quickly. In the future, we will gradually integrate this model with Internet to form the basis for the full deployment of our agricultural Internet finance business. As at the end of September, the loan balance of our financial leasing has exceeded RMB200 million. During the third quarter, the factoring business successfully conducted an innovative model backed by rights to future fee collection and signed up two projects, including Hebei Media Company. At the end of September, the balance of factoring loans was close to RMB240 million. Chongqing Digital China HC Micro-credit Finance Co., Ltd. ( Chongqing Micro-credit ), our joint venture with HC International which holds a nation-wide license, made major efforts in new product development while exercising stringent risk control. During the third quarter, orders were secured for new products, such as Auto Finance ( 車 易 貸 ) and HC Finance ( 慧 信 貸 ). The loan balance of Chongqing Micro-credit has exceeded RMB1.2 billion by end of third quarter. Discontinued operation 2.4 Digital China Group: In the corporate IT sector, provision of products and solutions covering application structures, such as system, network, storage and security. In the consumer electronics sector, consolidation of online and offline resources to provide customers with end-to-end services centered on omni-channel marketing strategy. For the first three quarters of 2015, Digital China Group reported revenue of approximately HK$ billion, representing growth of 5.92% as compared to the corresponding period of last year; overall gross profit margin was 5.14%, which was largely at par with 5.12% reported for the corresponding period of last year. Foreign exchange losses of approximately HK$273 million in relation to the Group s USD denominated loans were reported for the period following substantial RMB depreciation. Profit attributable to shareholders of the parent company for the period amounted to approximately HK$367 million, a 19.61% decline compared with the corresponding period of last year. 20

21 Consumer Business: Driven by the Group s omni-channel strategy, developments of the online retail and distribution business and offline retail (namely Chained Electronic Stores, CES) business accelerated and combined to contribute turnover of HK$27.84 billion to the Consumer Business for the first three quarters, representing a 4.79% growth as compared to the corresponding period of last year. Overall gross profit margin for the first three quarters was 3.26%, an increase by 0.22 percentage points as compared to the corresponding period of last year. Our offline retail (CES) business, conducted mainly through chain hypermarkets for home appliances such as Gome and Suning, also reported steady growth. Sales revenue of Apple products were particularly strong, reporting growth of 25.84% for the first three quarters. Our online business reported growth of approximately 13% in aggregate turnover for the first three quarters, as it continued to enhance cooperation with major e-commerce platforms. The market for traditional consumer electronic products showed little signs of recovery, and continued decline was reported for the main product segments of the Group s traditional offline distribution business. Corporate Business: Confronted with the continuous decline in the market demands, the Group persisted with risk management and continued to advance its operations in a prudent manner. We maintained stable market shares for international brands, while market shares for domestic brands increased substantially to contribute to an aggregate revenue of HK$ billion for the first three quarters from the systems business, a 7.94% growth as compared to the corresponding period of last year. Overall gross profit margin for the first three quarters dropped by 0.43 percentage points as compared to the corresponding period of last year to 8.37%, reflecting the rising proportion of domestic brands. Regarding the network products, we continued to report substantial growth in sales of Huawei and other domestic brands, which resulted in a 25.78% overall growth in revenue from network products. In the server business, strong growth in the sales of Lenovo servers after the building up of distribution network coupled with the resumption of the x86 server business by HP has driven a 9.14% overall revenue growth for server products. Overall revenue for the software products decreased by 10.79% amid ongoing decline in the sales of Microsoft products, while the Group expedited the deployment of domestic software products in the hope of partially offsetting the decline in revenue from the sales of international brands. Meanwhile, the Group has put great efforts in expediting the development of proprietary brands and the Cloud Computing business, in the software and security sectors, while procuring negotiations in Cloud Computing with key manufacturers to drive cooperation and introduce cloud service products. 3. Management Outlook In 2015, the first year after Digital China s comprehensive strategic transformation into an industrial internet service business, the Company was confronted with austere macro-economic and industrial conditions. While completing the substantial disposal transaction of Company s traditional distribution business, the management persisted in implementing the transformation of various business segments and strengthening the management structure to assure the full achievement of budgets and targets set out at the beginning of the year. On the back of its advanced technological strengths and solid clientele for information system services across various industries, Digital China is emerging as a new star in the industrial internet service sector. Capital Expenditure, Liquidity and Financial Resources The Group mainly finances its operations with internally generated cash flows, bank borrowings and banking facilities. The Group had total assets of HK$38,262 million at 30 September 2015 which were financed by total liabilities of HK$27,194 million, non-controlling interests of HK$2,294 million and equity attributable to equity holders of the parent of HK$8,774 million. The Group s current ratio at 30 September 2015 was 1.17 as compared to 1.21 at 30 June 2015, 1.18 at 31 March 2015 and 1.16 at 31 December During the nine months ended 30 September 2015, capital expenditure of HK$449 million was mainly incurred for the acquisition of properties, office equipment and IT infrastructure facilities. 21

22 The aggregate borrowings from continuing operations of the Group as a ratio of equity attributable to equity holders of the parent was 0.64 at 30 September The aggregate borrowings of the Group as a ratio of equity attributable to equity holders of the parent was 1.46 at 30 September 2015 as compared to 1.16 at 30 June 2015, 0.94 at 31 March 2015 and 0.94 at 31 December The computation of the said ratio was based on the total interest-bearing bank and other borrowings of HK$12,777 million (30 June 2015: HK$10,136 million, 31 March 2015: HK$8,193 million and 31 December 2014: HK$8,125 million) and equity attributable to equity holders of the parent of HK$8,774 million (30 June 2015: HK$8,762 million, 31 March 2015: HK$8,753 million and 31 December 2014: HK$8,600 million). At 30 September 2015, the denomination of the interest-bearing bank and other borrowings of the Group was shown as follows: Denominated in United States dollars Denominated in EURO dollars Denominated in Renminbi Denominated in Hong Kong dollars Total Continuing operations Current Interest-bearing bank and other borrowings, unsecured 1,787, ,811 1,847, ,000 4,440,995 Non-current Interest-bearing bank borrowings, unsecured 775, ,000 Interest-bearing bank borrowings, secured , , , ,087-1,188,087 Interest-bearing bank borrowings from continuing operations as stated in the condensed consolidated statement of financial position 2,562, ,811 2,260, ,000 5,629,082 Discontinued operation Current Interest-bearing bank borrowings, unsecured 4,551, , ,000 6,169,547 Non-current Interest-bearing bank borrowings, unsecured 977, ,971 Interest-bearing bank borrowings from a discontinuing operation 5,529, , ,000 7,147,518 Total 8,091, ,811 3,028,819 1,150,000 12,776,600 Certain of the Group s bank borrowings from continuing operations of approximately HK$413 million extended by financial institutions to certain subsidiaries of the Group were secured by land use right and properties with an aggregate carrying amount of approximately HK$701 at 30 September Included in the Group s current and non-current bank and other borrowings from continuing operations of approximately HK$300 million and HK$1,188 million respectively represented the term loans which are repayable from 2016 to