ETC.L Regulatory News (ETC)

5 Jun 2009 13:00



ET-CHINA.COM INTERNATIONAL HOLDINGS LIMITED

("Et-china", "the Group" or "the Company")

Unaudited preliminary results for the year ended 31 December 2008

Et-china, a leading travel services group in the fast growing region of South China, announces its preliminary results for the year ended 31 December 2008. 

Highlights:

* Figures in GBP are for illustrative purposes only, the figures are translated using RMB: GBP 12.2303 to 1 (2008) and 14.9309 to 1 (2007) respectively. For the reason that the exchange rate of RMB to GBP fluctuated sharply during 2008 and 2007, investors are recommended to refer to the reported RMB figures for comparisons, or it may distort the company's performance when only relying on the reported GBP numbers.

** Pro-forma figures are for illustrative purposes only. They include the full year results of GZL rather than from the date of its acquisition on 26 April 2007. No adjustments have been made to any acquisition accounting entries. The pro-forma figures are un-audited.

*** Due to the fair value adjustment during the year on the Grandbuy shares held by GZL of some negative RMB 38.7 million, the net finance costs were RMB 41.3 million in 2008. 

**** Net loss for 2008 was RMB 81.8 million, of which ETCI accounted for RMB 72.0 million and the minority interest of GZL approximately RMB 9.8 million.

Operating Summary

GZL, ETC's package holiday division, achieved net revenues of RMB 1,683.5 million for the year ended 31 December, an increase of approximately 3% over 2007

Et-china, serving the Frequent Independent Travel market, achieved net revenue of RMB 57.1 million (2007: RMB 65.2 million), including the 49% revenue share of its e-ticketing JV of RMB 15.3 million

e-ticketing JV net revenue increased to RMB 31.2 million (2007: RMB 26.7 million)

Financial Summary

Net finance costs impacted by a loss of RMB 38.7 million on the decrease of the fair value of GrandBuy shares held by GZL during 2008. The related deferred tax liabilities amounted to RMB 9.7 million had been reversed and credited to the income statement

Additional depreciation and amortization arose on acquisition of GZL amounting to RMB 3.4 million

The changes in fair value conversion of convertible loan notes contributed RMB 16.5 million profit to the net results

The interest expenses on convertible loan notes was RMB 7.2 million

Balance sheet strengthened; cash and cash equivalents at the end of 2008 was RMB 185.4 million (£18.9 million)

On 31 December 2008, GZL signed a standby credit facility of RMB 2 billion with China Construction Bank. The business expansion and future integration of GZL Group was strongly supported by the local government 

Successful GBP 5.5 million fundraising from Och-Ziff, Ellerston and LFG in May 2008.

The Group will publish and send to shareholders its 2008 Annual Report, including audited financial statements for the year ended 31 December 2008, by 30 June 2009.

Contact details for enquiries:

  Interim Chairman and CEO Statement

I am pleased to announce the Group's second full year results as a public company. It has been a challenging year for the Company in terms of the operating environment but the Group has adapted well to adverse external conditions and has made significant progress at both of its operating divisions. We have emerged from the year as the travel services market leader in South China in terms of revenue.

Results

The Group delivered a strong trading performance in 2008 despite a number of extremely challenging external events such as the snow storm in South China in February, Tibet unrest in March, the May 12 earthquake in Sichuan, the visa restriction of Beijing Olympics and the deteriorating global economic environment in the last quarter of 2008.

Overall, Group revenue for 2008 reached RMB 1,740.6 million with a gross profit of RMB 184.6 million.  As the Group only accounted for 8 months of its tour operator subsidiary, GZL, in its reported 2007 figures, the management believes a more meaningful comparison is to adjust the 2007 figures on a pro-forma basis. The adjusted figures demonstrate that although the Group achieved only a 3% revenue improvement due to the reasons noted above, gross profits increased by 18% reflecting a higher gross profit margin of 10.61% compared to 9.25% in 2007.  The overall operating loss has been reduced from RMB 76.3 million in 2007 to RMB 49.7 million, a reduction of 35%. While the reported loss after income tax for the period was RMB 81.8 million, this was significantly adversely affected by financing costs which are mainly due to an accounting 'market value' provision against GZL's shareholding in a local department store, Grandbuy, which is listed on the Shenzhen Stock Exchange. It is worth highlighting that given we have not disposed of any Grandbuy shares since the year end, there has been an appreciation in those shares by some RMB 13 million as at the end of May 2009.

GZL, which is the one of the largest travel package providers in South China through over 160 shops and a 24x7 call centre, served approximately 1.67 million travellers in 2008. It generated net revenue of RMB 1,683.5 million and a gross profit of RMB 165.4 million, representing an increase of 3% and 16% respectively over last year. Its operating profit has increased by 67 times to RMB 9.8 million over 2007. Net profit for the year (before the fair value adjustment for the Grandbuy shares as noted above) has increased to RMB 13.7 million from RMB 0.1 million in 2007. It is a remarkable performance by GZL, given its business was seriously affected by adverse weather and changes to the political and economic environment during the year under review. The split of travel destinations remained broadly similar to that of 2007, being approximately 50% outbound with the balance represented by domestic and inbound although there was a reduction in the inbound segment which is now below 5% of overall revenue. The reduction of inbound is a direct consequence of the visa restrictions and the subsequent global financial turmoil in 2008.

The Et-china Limited subsidiary, which is the Group's primary FIT (frequent independent traveler) and corporate traveler business, saw its revenue decrease by 19% to RMB 43 million but its gross profit increased by 30% to RMB 9.4 million. After taking into account overheads from the holding company and listing costs, the loss after tax for the period was RMB 59.5 million, which is a 17% improvement on the loss 2007 of RMB 71.6 million.

The e-JV with China Southern Airlines, achieved a 11% increase in net revenues to RMB 31.2 million and 37% increase in gross profit to RMB 20 million. It has made a net profit of RMB 1.7 million, an increase of 22% over 2007. The result of the e-JV has been proportionately consolidated into the Group's consolidated financial statements by 49%.

At the end of 2008, the combined cash and cash equivalent in the Group was RMB 185.4 million (2007: RMB 187.6 million). 

Key Events

The Group raised £5.5 million by way of issuance of convertible bonds in May 2008 to two new investors; Och-Ziff and Ellerston, as well as LFG, an existing shareholder. The fund raising provided capital for the Company's FIT business which needed to invest in working and marketing capital in order to expand. Subsequent to the capital raising, the Group forged marketing partnerships with ICBC bank, one of the biggest commercial banks in the world, and Netease.com, a leading Internet portal in China to expand further its online FIT business.

Subsequent to the year end, on 17 March 2009 the Group acquired the shares and assets of Beijing Yoee.com Travel Limited ("Yoee.com"). The Group acquired all trademarks, URL, all tangible and intangible assets, all business operations and staff of Yoee.com for a consideration of RMB 5 million in cash and £2.1 million equivalent through the issue of new ordinary shares at 80p per share. About 30% of the shares to be issued are subject to the management team from Yoee.com meeting a clearly defined financial performance benchmark in 2009. Although the acquisition was not agreed until March 2009, the Group had effectively exercised control of the Yoee.com business since 1 January 2009 while negotiations were being concluded. The management teams from both companies have worked hard during the first quarter of 2009 to integrate and streamline the combined operation.

It is fair to say that integrating the two businesses had been successfully completed by 31 March 2009 in terms of suppliers, a common technology platform, product design, customer service and finance. Moreover, the combined FIT operation has achieved a reduction in its headcount of almost 50% since the merger without any negative impact on net revenue and gross profit in the first few months of the current financial year.

The FIT online business is now operated under the unified brand name and, with a more efficient operating platform, the business is expected to continue growing in 2009. 

On 3 June 2009 we announced that Kuoni Travel Holding Limited ("Kuoni"), one of the largest global leisure travel companies, had acquired a 31.8% stake in the Company from an existing shareholder, Gandhara Master Fund Limited. We believe that with Kuoni as a significant shareholder, it will give us an opportunity to create a strategic alliance with an established global tour operator with growth opportunities in our respective inbound and outbound businesses.

Outlook

The Chinese economy has been experiencing a structural change over the last 12 months or so, shifting from an export-driven and investment oriented focused economy to a domestic consumption and investment oriented economy coupled with less reliance on exports. The government has tried hard to stimulate domestic consumption in the face of the global economic crisis by releasing a RMB 4 trillion stimulus package late last year. Moreover, the financial institutions have collectively increased lending and have injected considerable amounts of the much needed liquidity in the Chinese economy in a bid to lessen the impact of the financial crisis.

We believe the global financial crisis will inevitably have some negative impact on the overall economy and the tourism industry in China in 2009; however there will also be tremendous opportunities available to the Group due to the following factors:

The Chinese government at all levels have made stimulating travel activity a key priority, with a number of large-scale infrastructure projects started and recent wide distribution of discount coupons to the travelling public;

The government is pushing for 2009 to be the year of national leisure holiday, which aims to encourage employers to give holidays and employees to take vacations and travel. The scheme offers financial incentives to companies which comply and penalties for those who fail;

There will be knock-on effects from the 2008 Olympics for both domestic and inbound travel, as well as a number of key events in the next 12 to 18 months including the 60th anniversary of the founding of the People's Republic of China in October this year, the Shanghai WorldExpo in 2010 as well as the Asian Games in Guangzhou in 2010;

The government is offering financial support and incentives to leading local travel companies. The Group's tour operator subsidiary, GZL, is a direct beneficiary of the programme - we have signed a standby credit facility of RMB 2 billion with China Construction Bank Guangdong Branch.

Management is totally focused on the continued expansion of the business and consolidation of the Group's leading position in South China while looking at opportunities across the whole of China to expand its service and distribution capabilities. We believe in seizing opportunities in a challenging environment. In the first quarter 2009, we have seen our revenue increasing by about 15% and our gross profit up by 24%.

With the global financial crisis stabilising in Q2 2009, the Board can look forward to a better business environment with an increasing degree of confidence.

Matthew Ng

CEO, President and Interim Chairman

5 June 2009

Consolidated income statement

for the year ended 31 December 2008

(un-audited)

Consolidated balance sheet at 31 December 2008

(un-audited)

Consolidated balance sheet at 31 December 2008 (continued)

(un-audited)

Consolidated cash flow statement 

for the year ended 31 December 2008

(un-audited)

Consolidated cash flow statement 

for the year ended 31 December 2008 (continued)

(un-audited)

Basis of preparation

The Group's results incorporated in the preliminary announcement have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs').

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2008 but is derived from those accounts. The auditors have reported on those accounts; their report was unqualified.

This preliminary announcement has been prepared in accordance with relevant legislation, which may differ from legislation in other jurisdictions.

The Annual Report and Accounts for the year ended 31 December 2008 will be sent to shareholders in June 2009