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2014.02.20 Dah Chong Hong Announces 2013 Annual Results
Dah Chong Hong Holdings Limited


Dah Chong Hong Announces 2013 Annual Results

* * * *

Aims to Reinvigorate Growth Momentum

for Sustainable Earnings Growth in the Next 5 Years to 2018

(Hong Kong, 20 February 2014) Dah Chong Hong Holdings Limited ("DCH" or the "Group"; stock code: 01828) announced today its annual results for the year ended 31 December 2013.

For the year ended 31 December 2013, the Group recorded a turnover of HK$42,261 million, a decrease of 12.0% against last year (2012: HK$48,014 million) upon the discontinuation of the Bentley PRC distributorship by the end of 2012.Profit attributable to shareholders decreased by 13.8% to HK$901 million (2012: HK$1,045 million). The adjusted net profit for the year, after excluding the non-operating items, amounted to HK$889 million, a drop of 5.8% when compared with HK$944 million last year.

The Board of Directors of DCH has proposed the payment of a final dividend of 10.72 HK cents per share (2012: 8.88 HK cents per share), along with an interim dividend of 8.68 HK cents per share already paid, bringing the full year's dividend to 19.40 HK cents per share (2012: 20.66 HK cents per share).

The Group is delighted to have Mr Zhang Jijing on board as the Chairman of DCH. Mr Zhang shared his vision on DCH in his first Chairman's letter to shareholders, "with decades of experience in the Motor Business, I believe that DCH will become one of the niche players in the Greater China market with business covering mainland China, Hong Kong, Macao and Taiwan. For Food and Consumer Products Business, the Group has laid solid ground for the Total Food Supply Chain and aims to become one of the foremost, diversified and fully integrated distributors of import and renowned food and consumer products in the Greater China market."

Mr Donald Yip, Chief Executive Officer said, "The year 2013 was challenging for DCH. The performance of our Motor Business in Hong Kong and other markets was good but our results were affected by the discontinuation of the Bentley PRC distributorship. Nevertheless, the Group has formulated a five-year plan which aims to reinvigorate our growth momentum for the next 5 years to 2018. DCH is continuing its focus on the core businesses of motor and food and consumer products segments in the Greater China region while exploring new businesses which will create synergy with existing operations."

DCH maintained a sound financial position in 2013. The Group's net gearing ratio was 36.9%. The strong cashflow generated from operations has covered capital expenditures, new investments and working capital requirements and to maintain a stable dividend policy. With DCH's solid financial strength, the Group is well positioned to seize good and strategically-aligned business opportunities in the market.

Business Review & Prospects

Motor and Motor Related Business

Segment turnover of the Motor Business in 2013 decreased by 15.5% to HK$32,627 million (2012: HK$38,613 million) whereas segment result from operations dropped by 11.6% to HK$1,184 million (2012: HK$1,339 million). The strong performance from Hong Kong and other regional markets partially offset the drop in contribution from the PRC market.

Distributorship & Dealership in Mainland China

Regarding the distributorship in Mainland China, in addition to the discontinuation of the Bentley PRC distributorship, there was also a drop in demand for imported commercial vehicles amid a slowdown in China-based infrastructure projects. It is expected that infrastructure construction will pick up and therefore the market for imported heavy duty trucks will recover in 2014.

The Group saw an improvement in its PRC dealership business during the year with increased new car sales margins and after-sales per vehicle spending. However, with the resumption of opening new 4S shops in the second half of 2013 after the hold back in 2012, the improvement of the dealership business was partly offset by start-up expenses incurred in the new shops, especially the luxury brands. This short term investment cost is necessary to ensure the healthy development of our dealership network and future profitability.

Despite the vehicle restriction policies in some first-tier cities, China's motor market is forecasted to grow by 10% in 2014 with sales in second- and third-tier cities underpinning much of this growth. DCH is taking a balanced approach in expanding new dealership network. The Group targets to add 10 to 15 dealerships in 2014 via merger and acquisitions and greenfield development.

DCH will continue to enhance the dealership profitability through improving after-sales service capabilities, increasing the income from auto insurance by establishing a national insurance agency company and expanding the used car business to more cities in 2014.

The Group also sees potential in the car rental, finance leasing, and spare parts trading businesses as well as independent service outlets as more cars are being repaired outside the franchise dealerships. DCH has established solid base in these areas and firmly believe the investment made in the past few years to develop these motor related businesses will bear fruit soon.

Outstanding Performance in Hong Kong

Thanks to the improved sales of commercial vehicles and the encouraging sales of new passenger car models, together with higher margins due to the weakening of the Japanese Yen, DCH achieved an outstanding performance in the Hong Kong and Macao Motor Business with segment result from operations surged 59.4% to HK$483 million. The new vehicle market share of DCH has gone up to 20.8%.

The introduction of an HK$11.4 billion ex-gratia payment scheme by the HKSAR Government to replace aged diesel commercial vehicles should boost the demand for new commercial vehicles. DCH, as the leader in the truck and bus market in Hong Kong with around 50% market sharein 2013, and carrying a wide range of commercial vehicles with established service facilities, is well-positioned to benefit from the rising demand. Together with the weakening of the Japanese Yen, it is believed that DCH shall deliver strong segment results in 2014.

Food and Consumer Products Business

Food and Consumer Products Business recorded a satisfactory result during the year, especially in Hong Kong region. Segment turnover grew by 3.0% to HK$9,598 million (2012: HK$9,318 million). Segment result from operations increased by 7.6% to HK$324 million with a segment margin of 3.4%, an improvement of 0.2-percentage-point compared to last year.

Restructuring of Food Business in Mainland China

Due to the slowdown of the gift market in the PRC, the restriction of using public funds on dining and entertainment and the delay in launching new brands, segment turnover recorded a modest growth of 2.6% to HK$3,921 million (2012: HK$3,822 million). Segment result from operations grew by 1.7% to HK$117 million (2012: HK$115 million) with the segment margin maintained at 3.0%.

To fast track Food Business in mainland China in accordance with the five-year plan, DCH has established distinct management structures with sales management focusing on geographic expansion and channel development; whilst brand management concentrating on liaison with principals and bringing new products to the market. The new organisational setup is expected to provide a platform to bring Food Business to a higher level in 2014.

Growth Opportunity in Hong Kong

The performance of Hong Kong Food Business continued to grow with a stronger contribution from fast moving consumer goods' ("FMCG") food distribution and food processing areas. In Hong Kong and Macao, segment turnover grew by 5.3% to HK$4,930 million (2012: HK$4,681 million); segment result from operations increased by 15.7% to HK$273 million (2012: HK$236 million) with the improvement in margin for the distribution of FMCG food products; segment margin edged up by 0.5-percecntage-point to 5.5%.

The outlook in 2014 remains promising. DCH will continue to expand the product portfolio and to enhance the profitability through its solid business platform spanning upstream processing, midstream distribution and downstream retail. Dairy products form a key category in the development of Food Business. The Group has secured the agencies of a number of renowned brands for infant milk formula, maternal milk powder and cheese products for distribution in Hong Kong and mainland China in 2014. DCH is also aggressively developing house brands, Del Leche and Cheer in mainland China and Hong Kong and the dairy business is expected to enjoy strong growth in the coming years along with a robust demand in quality imported dairy products in the PRC.

e-Business Development

According to industry reports, e-commerce in mainland China is projected to grow by more than 40% in 2013. Through DCH's in-house and external e-commerce portals, the Group has achieved an impressive 80% sales growth in 2013. DCH's strategy in e-business is to optimise the utilisation of e-commerce channels and to leverage its own expertise in distribution and logistics services.

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