23 Jul 2012 13:00
23 July 2012 GEONG International Limited ("GEONG" or "the Company") Audited Results
GEONG International Limited (AIM: GNG), the AIM listed China based provider of online business solutions utilising Enterprise Content Management (ECM) technology, today announces its audited results for the year ended 31 March 2012.
Financial Highlights:
Turnover down to £9.7 million (2011: £11.3 million)
Gross profit of £4.6 million (2011: £6.0 million)
Gross margin down to 47% (2011: 53%) due to disappointing SaaS revenues and margins
Profit before tax £0.4 million (2011: £2.6 million)
Profit before tax and aborted acquisition costs £0.7 million (2011: £2.6 million)
Fully diluted earnings per share 0.4 pence (2011: 5.5 pence)
Cash balance at 31 March 2012 £5.3 million (2011: £5.3 million)
Trade receivables, including accrued income of £18.9 million (2011: £16.1 million)
Order book £11 million (2011: £15 million)
Business Development:
Continued investment in R&D as strategy remains to build revenues from SaaS business.
Allocated more resources to developSmart Internet Solution and GEONG Social Business offerings to meetevolving market needs.
Established a dedicated GEONG Social Business support team to satisfy increasing client demand on social media solutions andservices.
Restructured IaaS and SaaS sales into one team to increase efficiency and cost control.
Post Year-End Events:
Appointment of David Tsui as CFO as replacement for Amit Thakar who becomes non-executive director with effect from 21 September 2012.
Weidong Wang, Chief Executive Officer of GEONG, commented:
"This has been an extremely disappointing year for GEONG in which our profitswere substantially below our previous expectations.This has arisen principallyas a result of a revenue shortfall from our SaaS business and as a consequenceof the failure by one of ourbusiness partners to deliver a number of previouslyanticipated contracts. Our SaaS contracts are generally structured in a manner that links our revenuesto the performance of our clients. At thecommencement of the contract,we agreecertain performance targets with our clients and receive steady and regularpayments underthe contract through the first 3 quarters with payments inrespect of the fourth quarter including the performance-related element ofthefees. However, largely as a consequence of the difficult economic environment,performances were below expectations resultingin a lower revenue than expected.This disappointment was compounded by one of our global business partners,which was alsoadversely affected by global economic turmoil, delivering farfewer contracts than had been anticipated and budgeted. In addition tothesetrading disappointments, we also incurred some £0.35 million of costs inattempting the acquisition of AdBeyond, which, aspreviously reported, waseventually aborted late last year. It is important to recognize that our technological strength and capabilityremains, that there has been no loss of clients during thisperiod and that thebusiness is trading profitably. However, we have to recognize that our fortunesare not immune from what isgoing on around us and a recovery in revenues andprofits will depend upon an improvement in trading conditions for our clientsandbusiness partners."
For further information, please contact:
GEONG International Limited www.geong.com Tel: +86 10 5222 0999Henry Tse, Chairman Weidong Wang, CEOAmit Thakar, CFO Financial Adviser and Joint BrokerEvolution Securities China Ltd Tel: +44 (0)20 3362 8888Tim Worlledge Nomad and Joint BrokerfinnCap Ltd Tel: +44 (0) 20 7220 0500
Stuart AndrewsBen Thompson
Note: Investors who wish to have meetings with management should contact Evolution Securities China Ltd, who will be arranging meetings from Tuesday, 24 July 2012.
About GEONG International Limited
GEONG is recognised as a leading independent Internet software solutions provider and operator for large enterprises in China.
Registered in Jersey, the Company's operations are headquartered in Beijing,China. GEONG International Ltd. (GEONG or the Company) has been quoted on theLondon Stock Exchange since June 2006. The Company has sincetransformed from an ECM (Enterprise Content Management) software and servicecentric business to an internet business centric company and both revenues andprofits have almost trebled over the last six years.
GEONG is an internet solutions and service software company managed by a world class management and professional team who collectively own 26% of the business. The Company's mission is to help its clients to improve their business efficiency and customer satisfaction through smarter internet applications.
For more information, please visit www.geong.com
CHAIRMAN'S STATEMENT Overview GEONG encountered a very difficult and challenging year due to reductionsinclient spending and lengthened procurement cycles. In particular, the Companyfaced deteriorating trading conditions in the final quarter leading to a fallin turnover and in gross margins. We were able to remain profitable by tightcost control, and continue to do so. Our timetable for reducing accrued income has been extended, primarily due to asignificant reduction in SaaS revenue against our original plan. SaaS revenuecontributed only 20% of the total revenue, compared to 25% last year. However,the management remains confident that we have the right strategy, and that theSaaS business model will provide the platform for growth and profitability inthe future. Management is totally dedicated and committed to helping thebusiness build its revenues and recover margins, whilst maintaining strongfocus on profitability and cash generation. Trading Result for the Year
The fall in revenue to £9.7 million (2011: £11.3 million) was mainly due to asignificant decline in SaaS revenue from £2.9 million to £1.9 million. Theconsequent fall in gross margin on SaaS business from 62% in 2011 to 48% thisyear was the major contributing factor to the overall decline in margins from53% to 47% and to a decline in profit before tax to £0.38 million from £2.6million, although we also incurred costs of £0.35 million in relation to theaborted acquisition of AdBeyond (Group) Limited. 2012 2011 £'000 % £'000 % Turnover IaaS 7,745 80 8,451 75 SaaS 1,924 20 2,881 25 Total 9,669 100 11,332 100 Gross Profit IaaS 3,630 80 4,233 70 SaaS 925 20 1,790 30 Total 4,555 100 6,023 100 We have continued to exercise tight controls over costs, with selling,distribution and administrative expenses amounting to £3.14 million before thecosts associated with the aborted acquisition, a reduction of £0.11 millionfrom the previous year, a level that we intend to maintain in the current year. The Company remains committed to investing in research and development of itsproducts and solutions, which is essential in order to maintain its position asa market leader in China. Accordingly, and in spite of the decline in revenues,the Company increased its R&D investment from £0.24 million in the previousyear to £0.44 million in 2012.
The finance cost represents the interest on the 7.5% convertible bond issued in May of 2011 and which is redeemable in June 2014.
In contrast to 2011 when we incurred a sizeable exchange loss, we benefited from an exchange gain of £644,000 arising from the translation of year-end assets and liabilities held in RMB and USD into sterling. Sterling depreciated by 1% against the dollar and by 4% against the RMB.
Cash Flow and Financial Position
Cash flow from operating activities before changes in working capital was £1.3million compared with £2.9 million in the prior year. The working capitalfrom activities for the year was £3.4 million, same as last year, with theresult that the net amount used in operating activities was £2.1 million (2011:£0.4 million) and cash and cash equivalents were reduced to £2.4 million(excluding short-term loans and convertible bond) compared with £5.3 million in2011. Trade receivables and accrued income (amounts due from customers on theachievement of milestones but not yet invoiced until completion of the project)increased from £16.1 million to £18.9 million, contrary to management's earlierexpectations. The principal reason for the lengthening of the collection periodis that SaaS revenues, which are collected more quickly than IaaS revenues,represented a lower proportion of our total revenues than previously and thanwas expected in the year. 2012 2011 £000 £000 Trade receivables 4,191 4,763 Accrued income 14,746 11,398
Total due from customers 18,937 16,161
During the year we generated £7.2 million of accrued income and issued invoicesin relation to income previously accrued of £3.9 million, resulting in theincrease in accrued income during the year. Since the year end we have issuedinvoices for a further £0.9 million of the accrued income balance. We expectthat the accrued income will continue to rise through the course of the next 12months because of the increasing proportion of IaaS business but will thenreduce as the SaaS business begins to grow more strongly and we become able toinvoice for a number of IaaS contracts that will be completing during 2013. Typically, our trade debtors are collected within 60 days of the invoice beingrendered but our year end balance is skewed by a large amount, in excess of £3million, being owed by a single customer. We have received a confirmation fromthis customer, through the audit, that the amount of £2.1m due to one of oursubsidiaries is acknowledged as being due. In our opinion, the amount due fromthis customer is expected to be paid before the end of the calendar year. Sincethe year end, £1.2 million of our total year end debtor balances have been
collected. Operational Review
Our revenue is generated from our two business offerings, IaaS (Information asa Service) and SaaS (Software as a Service), and derives specifically from theprovision of licenses and customisation services.
IaaS (Information as a Service)
Our consulting services for online business have seen increased business in theyear, especially in the offering of GEONG User Experience Design (GEONG UxD)and GEONG Smart Internet Portal consultancy (GEONG SIP), and this has continuedinto the current year. The Company is establishing its brand name andreputation in this area, which, we expect, will drive further growth. It is ahigh margin business and will improve the overall gross margin of our IaaSbusiness. The Company has continued to develop its Smart Internet Platform partnershipwith IBM and Oracle. We have, together, developed several new smart Internetsolutions for the Banking industry and MFG industry, including Mobile Portaland Social Business. The new solutions will help us win new clients in both ourcore industry segments and in new markets in China. Partnering with IBM andOracle has been a key part of our successful "go broad" strategy to increaseour customer base year on year. And this, together with our "go deep" strategy,is helping sell more new solutions to create new sales opportunities inexisting clients and to maintain a leading position in providing smart Internetsolution in China.
Whilst our primary focus remains on opportunities in China, we continue toexplore overseas market opportunities with IBM and Oracle and our partnershipwith IBM Global Delivery has been and will continue to be a stable business
forus.
SaaS (Software/Solution as a Service)
SaaS business normally generates higher margins (50% - 60%) and has a fastercash conversion rate than IaaS business owing to its shorter delivery cycle. Itwas expected to be a fast growth area for 2011/2012 and, although we secured anacceptable number of contracts, the performance-related fees from several ofthe key contracts during the final quarter was substantially lower than we hadanticipated, due to the downturns in the Chinese economic environment. The Company has made major R&D investment in SaaS solutions, including theenhancement of three applications, Social Marketing, Social Commerce and SocialCXM, and the development of a new solution, Enterprise Web Analytics, to extendour total offering in Social Business. The Cloud computing platform for SocialBusiness has also passed the concept and pilot phase and is entering theoperating phase. Our plan is to invite software partners to become part of ourtotal solution offerings to clients. We have worked with 16 SaaS clients during the year and SaaS revenue growthwill come from selling new applications toexisting clients and by developingnew clients. Our forward order book currently is £11 million of which it isanticipated 40% will be delivered in the new financial year. Business Strategy We will continue to invest in R&D to capture new SaaS business opportunities byensuring that we can deliver high quality and innovative Internet solutions.GEONG Smarter Platform development will closely follow IBM and Oracle's marketleadership and development of middleware technologies, and to ensure that wecan offer the most advanced industrial solutions for our clients. The Internet business landscape in China is developing rapidly and we willactively participate by ensuring that our solutions are at the forefront of thenew technology and are what our clients need. GEONG's growth is largely tied toour clients' online business growth which we believe is driven by the rapidexpansion of Social Networking and Mobile Internet applications in China. We will continue to manage the business prudently, balancing growth withaffordability and ensuring that the business continues to trade profitably. Weare well aware of the importance of cash generation and we continue to strivefor improvements in cash generation and collection. Current Trading and Outlook
The first quarter of our trading year is always our lowest revenue quarter andit is, therefore, difficult to extrapolate any trading trends from ourexperiences since the start of the year. However, in the light of the extremelytesting trading conditions that we experienced in the last quarter of lastyear, management is adopting a cautious stance to the prospects for the currentyear and our plans are based upon the assumption that revenues will notincrease in the current year with our overheads being held at a level toreflect this. Nonetheless, we believe that we have the right business model andare continuing to develop our SaaS business but will endeavour to ensure thatthe performance related element of our fees and, in particular, the keyperformance criteria, better reflect the tougher economic environment. We are aware that our trade receivables are unusually high in relation to ourturnover and are taking active steps to address this, both by pursuing a moreproactive cash collection regime, and by continuing to change the balance ofour business towards SaaS. We have been delayed by the unexpected fall in SaaSrevenues in the last year but are confident that the level of debtor days willpeak by September 2013, as per our plans, where after our cash flow will becomestronger. Despite the difficulties of the last year and the current economic pressures inChina, management believes that the longer term economic outlook is moreencouraging, and is therefore confident that the quality of our products andservices and the strength, of our customer relationships will enable theCompany to both achieve turnover growth in due course and to recover margins toclose to their previous levels. I am well aware that the Board relies on thegoodwill of our customers, employees and shareholders and I thank them all fortheir support in the difficult past year. Henry H.Y.TseChairman23 July 2012
Financial Statements for the Year Ended 31 March 2012
Statement of Comprehensive Income
　 Note Group Company 　 2012 2011 2012 2011 　 £'000 £'000 £'000 £'000 Revenue 4 9,669 11,332 971 - Cost of sales (5,115) (5,309) (455) - Gross profit 4,554 6,023 516 - Other income 5 6 107 (16) 124 Research and development cost (441) (245) - -
Selling and distribution expenses (478) (780) -
- Administrative expenses (3,016) (2,475) (794) (369) Share option expenses (41) (8) (41) (8) Other operating expenses (17) (45) (16) (2) Profit/(loss) from operations 7 567 2,577 (351) (255) Finance cost 8 (224) - (202) - Finance income 39 24 - - Profit/(loss) before taxation 382 2,601 (553) (255) Taxation 9 (220) (510) - - Profit for the year to equity shareholders of the parent company 162 2,091 (553) (255) Other comprehensive income
Exchange differences on translating 644 (563) 20
(429) foreign operations
Total comprehensive income for the year, 806 1,528 (553)
(684)
net of tax, attributable to equity shareholders of the parent company Earnings per share Basic (cents per share) 10 0.43 5.53 Diluted (cents per share) 10 0.43 5.53
Statement of Financial Position
Note Group Company 2012 2011 2012 2011 £'000 £'000 £'000 £'000 ASSETS Non-current assets Property, plant and equipment 11 259 296 - - Intangible assets 12 1,257 673 - - Investment in subsidiaries 13 - - 2,261 2,261 Total non-current assets 1,516 969 2,261 2,261 Current assets Inventories 14 387 323 - 100 Trade receivables 15 18,937 16,161 3,034 2,462 Other receivables 16 1,200 1,410 5,671 4,962 Cash and cash equivalents 17 5,290 5,340 650 1 Total current assets 25,814 23,234 9,355 7,525 Total assets 27,330 24,203 11,616 9,786 LIABILITIES & EQUITY Current liabilities Short-term borrowing 20 495 - - - Trade payables 757 1,189 301 359 Other payables 18 1,664 2,309 231 302 Tax payable 1,643 1,506 271 269 Total current liabilities 4,559 5,004 803 930 Non-current liabilities Bonds payables 20 2,345 - 2,345 - Deferred taxation 19 1,619 1,342 - - Deferred revenue 3 4 - - Total non-current liabilities 3,967 1,346 2,345 - Total liabilities 8,526 6,350 3,148 930 Capital and reserves Share capital 21 378 378 378 378 Reserves 23 18,426 17,475 8,090 8,478 Total shareholders' equity 18,804 17,853 8,468 8,856 Total liabilities & equity 27,330 24,203 11,616 9,786 Statement of Cash Flow Group Company 2012 2011 2012 2011 £'000 £'000 £'000 £'000 Operating activities Profit/(loss) from operations 567 2,577 (351) (255) Adjustments for: Allowance for doubtful debts 169 65 4 -
Depreciation of property, plant and equipment 118 128 - - Amortization of intangible assets 359 137 - - Loss on disposal of fixed assets, net (2) -
- - Share based payment 41 8 41 8 Operating cash flows before movement in working capital 1,251 2,915 (306) (247) Increase in inventories (55) (57) 100 (100)
(Increase)/decrease in trade and other receivables (2,072) (3,567) (1,281) 649
(Decrease)/increase in trade and other payables (1,223) 274 (173) (369)
Cash (used in)/from operating activities (2,098) (435) (1,660) (67) Income tax paid - (3) - (10) NET CASH (USED IN)/FROM OPERATING ACTIVITIES (2,098) (438) (1,660) (77) Investing activities Interest received 39 24 - - Interest paid (17) - - -
Purchase of property, plant and equipment (47) (31) - - Proceeds from disposal of fixed assets - -
- - Purchase of intangible assets (919) (367) - -
NET CASH USED IN INVESTING ACTIVITIES (944) (374)
- - Financing activities Received other cash related to financing activities 2,400 - 2,400 - Short term loans 495 - - -
Proceeds from issue of equity shares - -
- - Interest paid (131) - (110) - NET CASH GENERATED FROM FINANCING ACTIVITIES 2,764 - 2,290 - NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (278) (812) 630 (77)
Effect of exchange rate changes 228 (206) 19 (431) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,340 6,358
1 509
CASH AND CASH EQUIVALENTS AT THE END OF YEAR 5,290 5,340
650 1
Consolidated Statement of Changes in Equity
Share Share Convertible Merger Other Compensation Retained Exchange Total Notes Reserve Capital Premium Reserve Reserve Earnings Reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 378 7,616 - (698) 3 326 5,106 3,585 16,316 March 2010 Profit for - - - - 10 - 2,081 2,091 the year Foreign - - - - - - - (562) (562) exchange movement Total - - - - 10 - 2,081 (562) 1,529 comprehensive income for the year Share options - - - - - 8 - - 8 granted Balance at 30 378 7,616 - (698) 13 334 7,187 3,023 17,853 March 2011 Profit or - - - - 15 - 147 - 162 loss for the year Foreign - - - - - (1) 2 643 644 exchange movement Total - - - - 15 (1) 149 643 806 comprehensive income for the year Share options - - - - - 41 - - 41 granted Issue of - - 104 - - - - - 104 convertible loans Balance at 30 378 7,616 104 (698) 28 374 7,336 3,666 18,804 March 2012
CompanyStatement of Changes in Equity Share Share Convertible Equity Retained Exchange Total Notes Compensation Earnings Reserve Capital Premium Reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 378 7,616 - 326 127 1,086 9,533 March 2010 Profit or - - - - (255) - (255) loss for the year Other - - - (1) - (429) (430) comprehensive income for the year Total - - - (1) (255) (429) (685) comprehensive income for the year Shares - - - 8 - - 8 options granted Balance at 31 378 7,616 - 333 (128) 657 8,856 March 2011 Profit or - - - - (553) - (553) loss for the year Other - - - - - 20 20 comprehensive income for the year Total - - - - (553) 20 (533) comprehensive income for the year Recognition - - - 41 - - 41 of share-based payments Issue of - - - - - - - ordinary shares Issue of - - 104 - - - 104 convertible loans Balance at 31 378 7,616 104 374 (681) 677 8,468 March 2012
Notes to the Financial Statements
1. Basis of Preparation of the Financial Statements
1.1 General information
The Company's registered office is 28-30 The Parade, St Helier, Jersey JE1 1EQ, Channel Islands. The Company is incorporated in Jersey under the Companies (Jersey) Law 1991.
The Group financial statements consolidate the financial statements of GEONG International Limited and its subsidiaries for the year ended 31 March 2012.
The Group has provided content management software and solutions since its establishment in September 2000 and has earned a reputation as a local technology leader in the Chinese Enterprise Content Management (ECM) market, especially in the financial services industry.
These financial statements are rounded to the nearest thousand ('000).
1.2 Statement of compliance These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") and IFRIC interpretations as adopted
byEuropean Union.
These financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below.
1.3 Basis of consolidation
The consolidated financial statements incorporate the financial statements ofthe Company and the subsidiaries controlled by the Company up to 31 March eachyear.
All intra group transactions, balances, income and expenses are eliminated on consolidation.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.
1.4 Merger accounting The Company was incorporated in Jersey on 21 December 2005 and entered into anagreement to acquire the entire share capital of Conceptual Approach Limited on10 May 2006. The acquisition was effected by way of issue of shares. Theacquisition has been accounted for using merger accounting principles under UKstandard FRS 6 (Acquisition and Mergers) as the directors believe that this isnot a business combination in the scope of IFRS 3 (Business Combinations) andthere is no international accounting standard dealing with businesscombinations outside the scope of IFRS 3. 2. Revenue Analysis
The Group's revenue for continuing operations, is as follows:
2012 2011 £'000 £'000 IaaS 7,745 8,451 SaaS 1,924 2,881 Total 9,669 11,332
The Group's revenue and profit before taxation were all derived from its principal activity.
3. Profit from Operations
Profit from operations is stated after charging the following:
2012 2011 £'000 £'000 Allowance for doubtful debts, trade 176 61 Auditors' remuneration 37 27 Amortisation charge (included within administrative expenses) 363 134 Depreciation charge 120 125
Loss on disposal of property, plant and equipment 9
- AIM related costs 245 132 Research and development cost 441
245
Foreign exchange (gain)/loss (24)
(63)
Cost of sales (excluding labour cost included within cost of 2,981 3,314sales) Rent - operating lease 274 326 4. Taxation The tax expense recognised in the consolidated income statement is analysed asfollows: 2012 2011 £'000 £'000 Current year: Current tax - - Deferred tax expenses (note 19) 220 510 220 510
Reconciliation of tax charge:
Profit before tax 382 2,601
Tax calculated at domestic tax rates applicable to profits in the respective countries at 25% (2011: 25%) 96 484 Expense not deductible 83 - Tax exempt 138 38 Utilisation of tax losses (42) - Preferential rate (127) (60) Unrecognised deferred tax asset 72 28 Others - 20 Tax expense for the year 220 510 A company is deemed to be resident in PRC if it is established in PRC or itseffective management is in PRC. Residents are taxed on their worldwide income.Non residents are taxed on PRC source income and income effectively connectedwith their establishments in PRC.
The Company is regarded as resident for the tax purposes in Jersey. There are no applicable taxes in Jersey for the Company.
The Company's operating subsidiaries in PRC are subject to income tax rate at25% (2011: 25%) except certain operating subsidiaires are subject to theapproval of the tax authorities if the operating subsidiaries are qualified for15% preferential rate as high technology enterprise status. 5. Earnings Per Share Basic earnings per shareThe calculation of basic earnings per share at 31 March 2012 was based on theprofit attributable to equity shareholders of the Group of £162,116 (2011: £2,092,073) and a weighted average number of ordinary shares outstanding duringthe year ended 31 March 2012 of 37,834,622 (2011: 37,834,622), calculated asfollows:
Weighted average number of ordinary shares (Basic)
2012 2011 (Number) (Number)
Issued ordinary shares at beginning of the year
37,834,622 37,834,622 Effect of shares issued - -
Weighted average number of ordinary shares at end of the year
37,834,622 37,834,622
Basic earnings per share (pence)
0.43 5.53 Diluted earnings per share
The calculation of diluted earnings per share at 31 March 2012 was based on
profit attributable to equity shareholders of the Group of £162,116 (2011: £
2,092,073) and a weighted average number of ordinary shares outstanding during
the year ended 31 March 2011, calculated as follows:
Weighted average number of ordinary shares (diluted)
2012 2011 (Number) (Number)
Weighted average number of ordinary shares at end of the year
37,834,622 37,834,622
Effect of conversion share options
- 29,168
Weighted average number of ordinary shares for diluted earnings per share 37,834,622 37,863,790
Diluted earnings per share (pence)
0.43 5.53
6. Trade Receivables and Accrued Income
2012 2011 £'000 £'000 Trade receivables 4,511 4,907
Less: allowance for doubtful debts
Balance at 1 April 144 83 Allowance made during the period 176 61 Written off against allowance - - Balance at 31 March 320 144 Accrued income 14,746 11,398 Total 18,937 16.161
The accrued income above represents amounts not yet invoiced, but for which specific milestones have been met, which is in accordance with common practice in PRC.
This statement of results does not constitute full accounts within the meaningof the Companies Act. The Company's full financial statements, containing anunqualified audit opinion, for the year ended 31 March 2012and notice of AGMwill be sent to shareholders shortly and will be available to be viewed on theCompany's website. The financial statements will be laid before shareholdersfor approval at the AGM convened to be held on 20September 2012 at 9:00am UKtime.