GNG.L Regulatory News (GNG)

30 September 2011

GEONG International Limited

("GEONG" or "the Company")

Preliminary 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 preliminary results for the year ended 31 March 2011.

Financial Highlights:

·; Turnover £11.3 million (2010: £12.5million)

·; Gross margin up to 53% (2010: 46%)

·; SaaS revenue £2.9m (2010: £1.7m), representing 25% of the total revenues (2010: 14%)

·; Profit before tax £2.6 million (2010: £2.3 million)

·; Fully diluted earnings per share 5.5 pence (2010: 5.2 pence)

·; Net cash £5.3 million (2010: £ 6.4 million)

·; Trade receivables £4.8 million (2010: £4.7 million)

·; Accrued income £11.4 million (2010: £8.4million)

·; Order book £15 million (2010: £14 million)

Key Events:

·; In partnership with IBM/Oracle, we won 20 new clients during the year.

·; Our Social Networking 2.0 solution, which we partnered with Oracle, won 9 new projects from existing clients.

·; Signed a 2-year contract with IBM Global Delivery Group for Asian market projects.

Post year-end events:

·; Acquisition of Adbeyond (Group) Limited ("AdBeyond"), for a consideration of up to HK$120 million (£9.6 million), is in the process of completion.

Wang Weidong, Chief Executive Officer of GEONG, commented:

"This was a most satisfactory year. During the year in review we continued to focus on growing our SaaS revenue, resulting in margins of 53% compared to 46% a year ago. Our task ahead is two-fold: firstly, sustain the margins that we have achieved in the last year by continuing to grow our SaaS revenue, secondly, continue to consolidate our position with our partners to expand our business beyond China. We are focused on capitalising upon the many opportunities that we have in our markets, whilst managing our cost base carefully".

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About GEONG International Limited

Operational since 2000, GEONG designs, develops, delivers and operates Internet software solutions and related services for large enterprises in China, particularly in the financial services, telecommunication, automotive, manufacturing and consumer sectors. GEONG generates revenue from consultancy services, software licences, the provision of customised internet software and maintenance. In strategic partnerships with IBM and Oracle, GEONG has also successfully penetrated the South East Asia market.

GEONG employs around 400 employees and is based in Beijing with offices in Shanghai, Guangdong and Vancouver. Its Ordinary Shares are admitted to trading on AIM and trade under the ticker GNG.L

Further background on the Company can be found on the Company's website (www.geong.com).

For more information, please visit www.geong.com 

CHAIRMAN'S STATEMENT

Overview

GEONG has successfully completed the transformation of its business from the provision of content management software and services to a full range of solutions and services for corporate Internet users. The Group now hasa solid business model built on high quality people with a strong sense of commitment and professionalism. This has enabled us to develop very strong strategic relationships with top global IT vendors and long term relationships with our clients.

We have built what we believe to be one of the highest quality, most able national Internet solution providers in China and believe that our strategy will enable us to establish a leading position in China and other Far East markets within the fast growing social networking and cloud computing services, in which we expect to see enormous opportunities in the next decade.

We are in the process of the completion of the acquisition of AdBeyond. It is a move that will further strengthen our position in the China market, and allow us to increase the range of services that we offer to our clients, as well as enable us to win more multi-national clients.

Trading result for the year

I am pleased to report a profit before tax of £2.6 million, an increase of 13% from the £2.3 million achieved last year. The fall in revenue to £11.3 million (2010: £12.5 million) was largely due to the decision not to pursue lower margin business and, in particular, only to take IaaS business if it could generate more high margin SaaS business. In consequence our gross margin has increased to 53%, compared with 46% last year and 40% in 2009, leading to a gross profit of £6.0 million (2010: £5.7 million) and an operating profit of £2.6 million (2010: £2.3 million).

This strategy has seen our SaaS revenues increase by 68% to £2.9 million, now representing 25% of total revenues compared to 14% in 2010. Whilst IaaS remains important to our business because this is where we have built our strong customer relationships, the SaaS activities are more profitable, with a gross margin of, typically, 50% to 60% compared with 40% to 50%, and benefit from a faster cash collection profile.

Revenue and Gross Profit by Business Type

We have continued to exercise strict control over our cost base, with administration expenses slightly below the level of last year.

Our tax charge of £0.51million represents an effective tax rate of 20% (2010: 21%) and it is expected that it will remain at approximately this level in the current year.

We incurred a charge of £563,000 arising from the translation of year-end assets held in RMB and USD into sterling. Sterling appreciated 6% against the dollar and 2% against the RMB.

Cash flow and financial position

Cash flow from operating activities before changes in working capital totalled £2.9 million compared with £2.8 million in the prior year. The net investment in working capital during the current year was £3.3 million compared with £2.1 million in 2010, reducing cash and cash equivalents to £5.3 million compared with £6.4 million in 2010. Trade receivables remained steady at approximately £4.8 million but accrued income (amounts due from customers on the achievement of milestones but not yet invoiced until completion of the project) increased from £8.4 million to £11.4 million.

SaaS projects are typically of shorter duration and can therefore be invoiced more quickly than IaaS projects. Additionally, SaaS projects lead to maintenance contracts and regular invoicing following their completion. Thus, whilst it is unlikely that the absolute total of amounts due from customers will reduce to any material extent, debtor days are expected to reduce as SaaS business increases beyond the current 25% of total revenue.

The Company commenced a number of new projects during the year, and there is therefore a greater proportion of amounts due from customers relating to work that has been done but not yet invoiced, and, in turn, a greater amount of accrued income, than previously.

Since the year end approximately £2.7 million of the trade receivables has been received and £1.5 million of the accrued income has been invoiced to customers.

The Company issued £2.5 million of convertible unsecured loan stock in May 2011, which, together with the aforementioned cash collection, has increased our cash balances to £7.3 million at today's date.

Operational Review

I reported in my interim statement in December 2010 that we had signed two framework agreements with IBM and Oracle and that we had developed GEONG Online 2.0 to assist our customers in developing their Internet capabilities.

We have been delighted with the progress that has been made, having implemented GEONG Online 2.0 for two of our major existing customers during the first half of the year and a further 18 clients since then.

Our revenue is mainly generated from our two business offerings, Information as a Service (IaaS) and Software as a Service (SaaS), and derives specifically from the provision of licences and customisation services.

Information as a Service (IaaS)

IaaS is our traditional business, currently generating around 75% of revenue at a margin of approximately 50%.

IaaS business contracts are, typically, long-term and the work involves integrating local best practices with global smart Internet platform technologies, improving Internet user experience and facilitating client access social networking and mobile Internet applications.

GEONG offers end-to-end services around Internet business applications including consulting services; software and solutions; implementation and deployment; and application management services.

l Consulting: GEONG's focus is on online business, digital marketing and IT strategy.

l Software and Solutions: Our focus is building and delivering smarter Internet platforms for online business and industry specific solutions.

l Implementation and Deployment: GEONG's offering extends to business analysis, customization and system integration.

l Application Management Services: This is operational maintenance along with product support, migration and monitoring of various systems.

Our partnerships with IBM and Oracle are fundamental to this business which resulted in us winning 20 new clients during the year.

We have also signed a 2-year contract, late in 2010, with IBM Global Delivery Group to co-operate on projects in the Asian markets, thereby extending our close association with IBM beyond just China.

Software/Solution as a Service 2.0 (SaaS 2.0)

SaaS 2.0 has become the fastest growing revenue element of our business and is currently contributing around 25% of revenues; we expect it to grow further this year. It generates higher margins (50%-60%) and has a faster cash conversion rate than IaaS business owing to the shorter forms of the contracts.

GEONG SaaS 2.0 solution has three broad applications, all of which are intended to enable our clients' online businesses to increase usage of their web sites, whenever required, which have been developed and implemented by GEONG.

l Social Marketing solution helps the client to maintain constant watch over the competitive landscape and to facilitate our clients to attract large audiences to become social community users.

l Social CRM (Customer Relationship Management). The aim is to convert random and roaming users to become loyal and long-term customers.

l Social CXM (Customer Experienced Management) aims to encourage the users to use it continuously and consequently enable it to manage their needs.

Our Social Networking 2.0 solution, which we partnered with Oracle, won 9 new projects from existing IaaS clients during the year with a likely potential for generating additional revenues in the future.

In the last quarter of FY2011 GEONG launched its Social Networking 2.0 Cloud Computing Network. The objective is to enhance our ability and to expand our capacity in providing mobile Internet applications and operation services in the Greater China region.

We believe that social networking applications which utilise Cloud Computing have great business potential and plan to develop three social networking applications using Cloud Computing. This will enable us to provide a solution which is technologically more advanced than those provided by our Chinese competitors.

We have had a continuing strong flow of orders and at 31 March 2011 our forward order book had increased to £15 million (of which £10.5 million will be delivered in the current financial year) compared to £14 million a year ago.

Strategy

We have commenced the financial year in a sound financial position and the acquisition of AdBeyond will, we believe, greatly benefit our business and shareholders by allowing us to promote a broader range of products and services to our customers, thereby increasing the revenues and profit from those customers.

GEONG's overarching strategy is to build a strong mid-sized business to deliver high quality Internet solutions in the Chinese market. We differentiate through the quality and innovation of the work we do and the people with whom we work (internally and externally). We will continue to manage the business prudently to ensure we balance quality with affordability and enhance value for our stakeholders.

We continue to seek further acquisition opportunities which can add to our breadth of offering and improve margins. The acquisition of AdBeyond will strengthen our presence in social networking and we will continue to seek other acquisitions in Greater China which can enhance that presence. This would significantly improve our ability and capacity in terms of geographic coverage, solution synergy, customer base and operational skills.

In the meantime our IaaS business continues to win new blue chip clients and the SaaS business is making good progress and we believe that our objective of this representing 50% of our overall business is a realistic target over the next two years.

The Internet business landscape in China is developing rapidly and we are intending to participate in that changing landscape by ensuring that our products are at the forefront of the new technology and are what the clients need.

GEONG Smarter Platform's integration with IBM/Oracle's continuous development on middleware technologies ensures that we can offer the most modern and innovative industrial solutions for our clients. GEONG's organic growth is tied to our long-term partnership with our clients' online business growth which in turn is driven by the rapid expansion of social networking and mobile internet applications in China.

We are now based in the three largest Chinese cities - Beijing, Shanghai and Guangzhou. The Guangzhou branch office was established in 2007, and we have doubled our Southern China business in 2009 and 2010. This year, we plan to extend our business to selected second tier cities as demand for our services develops; however we will only begin to incur costs and overheads when we have secured business that will cover those costs.

Current trading and outlook

The Chinese economy continues to see significant growth and demand for our services increases, as is evidenced by the large number of new clients that we have gained in the last 12 months. Moreover, we are building a platform for sustainable long-term growth in the Chinese market, which is forecast to see its number of social networking users double from 200 million and mobile Internet users increase from 288 million to 600 million over the next 12 months.

The first quarter of the year is always our slowest trading period and it is therefore difficult to extrapolate our experience in the early part of the year into the remainder of the year. As we grow our organic business and navigate GEONG through the current year, prudence and caution will remain our operational and strategic watchwords. However, trading in the year to date is in line with management's expectations and we therefore remain confident of achieving further progress this year with continued focus on sustaining the current profit margins.

I am well aware that the Board relies on the goodwill of our customers, employees and shareholders and I would like to thank them all for their support in the past and in the coming year.

Henry H.Y.Tse

Chairman

29 September 2011

Financial Statement for the Year Ended 31 March 2011

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flow

Consolidated Statement of Changes in Equity

NOTES TO THE FINANCIAL INFORMATION

Notes to the Financial Statement

1. Basis of Preparation of the Financial Statements

1.1. General information

The Company's registered office is Walker House, PO Box 498, 28-34 Hill Street, St Helier, Jersey JE45TF, Channel Islands.

The Group financial statements consolidate the financial statements of GEONG International Limited and its subsidiaries for the year ended 31 March 2011.

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. The Group has developed two proprietary product ranges: the PortalAgeTM suite designed for large enterprise customers and SmartBoxTM designed to capture the SME market's requirement for collaboration software.

1.2. Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC interpretations endorsed by the European Union and those parts of Companies (Jersey) Law 1991 applicable to companies reporting under IFRS.

The Company has adopted IFRS since the date of its registration. 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 of the Company and the subsidiaries controlled by the Company up to 31 March each year.

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.

2. Revenue Analysis

The Group's revenue for continuing operations, is as follows:

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:

4. Taxation

The tax expense recognised in the consolidated income statement is analysed as follows:

5. Earnings Per Share

Basic earnings per share

The calculation of basic earnings per share at 31 March 2011 was based on the profit attributable to equity shareholders of the Group of £2,092,073 (2010: £1,797,085) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2011 of 37,834,622 (2010: 34,410,220), calculated as follows:

6. Trade Receivables and Accrued Income

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 preliminary statement of results does not constitute full accounts within the meaning of the Companies Act. The Company's full financial statements, containing an unqualified audit opinion, for the year ended 31 March 2011 and notice of AGM will be sent to shareholders shortly and are available to be viewed on the Company's website now. The financial statements will be laid before shareholders for approval at the AGM convened to be held on 23 November 2011at 9:00am UK time.