(ADH) Asia Digital Hldgs

Asia Digital Holdings Plc

("ADH" or the "Company")

Pre-Close Trading Update

Asia Digital Holdings plc (AIM: ADH.L), the independent, Asia focused, online marketing group, today gives a trading update ahead of its interim results which will be released on Monday 19 September 2011. 

Trading Update

We are pleased to report that our continuing operations show material improvement in H1 2011 against H1 2010, delivering a significant reduction in trading loss. 

As noted in our final results announcement for 2010, in April we saw deterioration in trading in the second half of that year.  Within the first half of 2011 we have discontinued the AKTIV business, successfully reversed the trend in the DGM Singapore operation and seen improvements in the DGM India operation. 

Progress in China has been slow but positive and we have seen the start of sales with campaigns executed for several high-profile brands such as Dell, Benefit Cosmetics, Marie-Claire, and Meritus Mandarin, with a number of additional brand campaigns under discussion.  

In addition, previously executed cost saving measures have gone a long way to mitigate the loss of contribution from the sale of the Australian business last year.  

Trading Prospects

Whilst moderate growth is expected to continue in India and South East Asia, the Company believes the largest growth opportunity will be in China. 

With 485 million Internet users (Source: CINIC 7/11) and an e-commerce space that is expected to grow from $79 billion in 2010 (Analysis International 4/11) to between $159 billion (Forrester 1/11) and $311 billion by 2015 (Credit Suisse 1/11), the potential of this market is one that global retail brands not currently present in China will find difficult to ignore. 

Our experience in delivering e-commerce for this type of client, on a performance pricing model, is well suited to the opportunity.  There is, however, a steep learning curve and from a purely trading perspective we have had a slow start in China, retaining only a skeleton team to date and servicing an evolving but small client base.  

Our understanding and awareness of the Chinese market is developing and strategically we have made good progress in China with the identification of significant opportunities that leverage our regional positioning, particular skill set, early stage market experience and the developing local supply chain. 

Accessing this market is very difficult for western brands due to the necessity for them to localise their offering, logistics and other supply chain challenges, legal and compliance obstacles, and digital marketing complexities. This is evident in the reality that most global retail brands are yet to enter the Chinese e-commerce space. 

Over recent months we have identified and built relationships with, a range of service providers, both global and local players, with whom we can work to provide a turnkey solution to Global retail brands wishing to enter the Chinese e-commerce space. 

We are in discussions with several international brands which are already operating in China or proposing to do so, but which are yet to prepare and launch e-commerce initiatives.  We look forward to keeping the market updated on our progress.  

Working Capital

We remain very focused on working capital management and are pleased to have seen improvement in our sales ledger collection cycle, particularly in India, where we have collected certain receivables that had previously been provided for as bad debts. 

As at 30 June 2011, we have a cash balance of GBP £390,000.  In addition, and having satisfied all contractual conditions, we are due to receive the final deferred consideration payment from the sale of the DGM Australia business in November 2011, amounting to AU$428,000 (circa GBP £278,000). 

Not withstanding this, working capital in the business is tight and definitely represents a limiting factor to our evolution.  As noted above, progress in China is slow and we are hampered in cash management by the restrictions on repatriation of funds from our Indian operation.  As at 30 June 2011 our India operation accounted for GBP £164,000 of the Group's cash resources. 

With a view to increasing our cash resources we have been pursuing the sale of our minority holding in DC Storm Limited, a company incorporated in England and Wales whose principal activity is web and software development.  We look forward to updating the market on this proposed disposal in the very short term. 

Adrian Moss, Chief Executive of ADH, commented: "ADH is currently benefitting from a much more streamlined business compared with 2010.  In addition to the sale of DGM Australia in September 2010, the Company ceased trading in two other business segments due to disappointing performance.  As a result, ADH is now focused on its DGM business in Asia, delivering incremental e-commerce and other commercial objectives for a predominantly blue-chip client base".  

"DGM has a strong and evolving brand presence in the region, operates a highly scalable business model and has experience and skills that match the market opportunity.  We are especially excited about the prospects for e-commerce in the  Chinese market and believe that this could be a large growth area for us over the coming months and years." 

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