2 Dec 2010 07:00
Geong International Limited ("GEONG" or "the company") Interim Results
GEONG International Limited (AIM: GNG.L), a leading Internet solution provider and operator in China for large enterprises announces its unaudited interim results for the six months ended 30 September 2010.
Financial Highlights
* Turnover down 28% to £4.7 million (H1 2009/10: £6.5 million) * Gross margin up to 50% (H1 2009/10: 36%) * Profit before tax up 17% to £0.7 million (H1 2009/10: £0.6 million) * Basic earnings per share up 2% to 1.3 pence (H1 2009/10: 1.3 pence) * Fully diluted earnings per share up 4% to 1.3 pence (H1 2009/10: 1.3 pence) * Trade receivables of £14.7 million (H1 2009/10: £11.9 million) including accrued income of £10.0 million (H1 2009/10: £8.4 million) * Net cash of £4.1million (H1 2009/10: £2.4 million) * Order book of £14.8 million (H1 2009/10: £14 million) including £6.9 million of recurring revenue
Operational Highlights
* Established ground breaking partnership with IBM and Oracle in Asia Pacific market * + Signed a 2-year framework agreement (ending August 2012) with IBM Global Delivery for Japan and USA + Expanded into Vietnam and Indonesia with IBM Software Group + Became a key strategic partner with Oracle in Asia Pacific * Launched new innovative products and solutions * + Designed and developed the Smart Platform with IBM and Oracle + GEONG owned IP industry components in 4 core markets + Developed 3 solutions for SaaS 2.0 model in partnership with Oracle * Implemented a new SaaS 2.0 solution for China Construction Bank and Haier * Voted as one of Deloitte Technology Top 500 Fast Growing Asia Pacific Companies
Commenting on the results, Wang Weidong, Chief Executive said:
"We are very pleased to maintain our position as the leading internet solution provider in China and successfully implemented SaaS 2.0 solutions in this period. Thanks to this excellent development, I am delighted to report that we have again delivered a satisfactory set of interim results despite the lower revenue. We have delivered a pre-tax profit growth of 17% in the half year and having regard to our order book, we expect our full year results to be in line with current market expectations. Furthermore I am very encouraged that we have seen increased sales in higher margin SaaS business which also has significantly less working capital requirement, which should result in higher cash collection in the second half and beyond.
As one of Deloitte Technology Top 500 Fast Growing Asia Pacific Companies, we are delighted that GEONG's continued success in developing its technologies and growing its markets over a sustained period has again been recognised."
For further information, please contact:
GEONG International Limited Tel: +44 86 10 5222 0999 Henry Tse, Chairman Weidong Wang, CEO Amit Thakar, CFO Evolution Securities Limited Tel: +44 20 7071 4300 (Nominated Adviser and Joint Broker) Tim Worlledge Esther Lee
About GEONG International Limited
Operational since 2000, GEONG specialises in collaboration and content management software and services. Its products are specifically tailored for the Chinese market, where the Company is recognised by Government agencies and numerous blue chip clients as a leader in its field. GEONG was named The Most Successful Enterprise in ECM Software in China 2007 to 2008 by China's Centre for Information Industry Development and CCID Consulting; and one of the fastest growing companies in Asia at the Deloitte Technology Fast 50 China and Deloitte Technology Fast 500 Asia Pacific awards. The Company has recently expanded into North America setting up operations in Canada.
Registered in Jersey, the Company's operations are headquartered in Beijing. The Company's shares were admitted to AIM in June 2006 and trade under the ticker GNG.L
For more information, please visit www.geong.com
Chairman's StatementOverview
We launched our "Go-Deep-and-Broad" strategy in late 2009, whereby we seek to leverage our existing partners and client base to sell to resellers or affiliate companies with a view to winning new contracts and reducing our direct sales staff costs. The results that we are now reporting and, in particular, the new contracts, improving gross margin and increased opportunities reflect the success of this strategy.
Since the implementation of this strategy, we have won a number of new contracts for both our IaaS and Saas offerings with both existing and new clients. As a result, we have been able to reduce our administrative and direct sales staff, leading to a reduction in costs of approximately £168,000. In addition, we have benefitted from the change in sales mix where the higher margin SaaS sales now contribute over 20%, on an annualised basis, of total revenue (1H 2009/10: 8%). This is clearly evidenced in our increased gross margin and therefore profitability despite lower sales in the period. We are confident that the strategy will translate into improved profitability and cashflow in the coming years.
New products and solutions
In the first half of this financial year, we continued improving our products and signed two framework agreements with IBM and Oracle. We developed Geong online 2.0, a new solution to help our customers improve their businesses by maximizing the benefits of using the internet. The solution will help us to take advantage of the three fastest growing market opportunities in China - digital economy, social networking applications and mobile internet. Social networking and mobile internet usage in China are at a very nascent stage but are forecasted to grow strongly. Our new business model and solutions will allow us to meet the inevitable move from retail to business customer driven internet applications.
We have implemented Geong online 2.0 for two of our long established clients - China Construction Bank and Haier. We have also been mandated to implement this application for other major clients, including Bank of China, Bank of Communications, Everbright Bank, Bank of Shanghai, Guangdong Development Bank, ECM and Shanghai General Motor.
GEONG is dedicated to maintaining its position as the leading internet solution provider and operatorin China for large enterprises by offering:
* asmarter platform that integrates GEONG products with IBM and Oracle middleware * industry specific solutions combined with best practices and technology innovation * anew business model that combines traditional IaaS model and innovative 2.0 SaaS model for blue chip clients * an enhanced sales force through the strategic partnership with IBM and Oracle in Asia Pacific
In addition, we are creating business opportunities on cloud computing network. We are currently building the private cloud and co-operating with our clients on four major SaaS 2.0 solutions, namely social CRM, mobile internet application, customer experience management and eBusiesss (B2C & B2B). With the establishment of more private clouds over time, a network of cloud computing will be built, which can significantly reduces our set up and on-going operation costs.
Financial review
Revenue declined by 28% to £4.7 million as we have sought to reduce the low-margin third party product sales in favour of other higher margin revenue streams. The increase in gross margin to 50% from 36% was a direct result of the continuing shift towards SaaS in our sales mix, which we also expect to improve our cash collection performance in the future.
The effective tax rate during the first half decreased to 25% (H1 2009/10: 29%) as no contracts were subject to withholding tax.
The foreign exchange deficit of £521,000 arose on the translation of the net assets of the Chinese subsidiaries which is reflected in the condensed consolidated statement of comprehensive income.
Cash balances were £4.1 million at the period end, a decrease of £2.3 million since 31 March 2010, largely reflecting an increase in trade receivables of £1.6 million. The rise in receivables is related to an increase in accrued income, being income that has been recognised because the appropriate milestones have been achieved but will only be invoiced later upon completion of the contract. Accordingly, we expect our cash collection to improve in the second half of the year, which has traditionally been the case.
We remain confident that debtor days will decline as the Group continues to roll out its new SaaS delivery models because this should result in payment terms that are relatively shorter compared to IaaS, as the offering will be sold on a per-usage basis.
The other payables relate to accrued salaries, housing and national insurance costs which have been agreed by the relevant authorities. The increase of such accruals was in relation to accrued housing benefits that will be paid once the eligible employees have identified their properties to purchase.
Outlook
We have achieved considerable success with our strategy so far - the partnership with IBM allows us to enter new markets in Asia as demonstrated by our entry into Vietnam; the partnership with Oracle has grown rapidly in the last year, to now include industries such as energy, transportation and digital economy, and we are promoting a smarter platform with IBM and Oracle to win new clients while offering our new solution for China Construction Bank and Haier model to our core market customers in financial services, automotive, manufacturing and consumer sectors.
Financially, we have a strong balance sheet, including cash balances of £4.1 million at 30 September 2010, which leaves us well placed to take advantage of the many contracts and new business opportunities that we are seeing. We expect our performance for the second half to continue the progress we have made in the year to date as we pursue our strategy of margin improvement and operating cash generation as well as identifying acquisition opportunities that meet our strict operational and financial criteria. Based on the Group's order book, a resilient business model and broad range of sector capabilities, the Board remains confident of achieving the full year market expectations and in seeing further growth into the following years.
Henry H.Y. TseChairman
Interim Condensed Statement of Comprehensive Income
For the six months ended 30 September 2010
Notes 6 months ended 6 months ended Year ended 30 30 September 30 September March 2010 2010 2009 (restated) £'000 £'000 £'000 Revenue 4,709 6,504 12,512 Cost of sales (2,365) (4,148) (6,812) Gross profit 2,344 2,356 5,700 Other (expenses)/income (88) 90 193 Selling and distribution (378) (391) (736)expenses Administration expenses (1,053) (1,262) (2.514) Research and development (156) (182) (222)costs Share option expenses - (65) (134) Other operating expenses (3) - (17) Profit from operations 666 546 2,270 Finance costs - - (6) Finance income 1 25 1 Profit before tax 667 571 2,265 Income tax expense 5 (170) (164) (468) Profit for the period 497 407 1,797 Other comprehensive (loss)/income Exchange differences on (521) (1,002) (353)translating foreign operations Total comprehensive (24) (595) 1,444(loss)/income for the period Earnings per ordinary share (pence) Basic 6 1.31 1.29 5.22 Diluted 1.31 1.26 5.13
Interim Condensed Statement of Financial Position
For the six months ended 30 September 2010
Notes 30 September 30 September 30 March 2010 2009 (restated) 2010 £'000 £'000 £'000 Assets Non-current assets Property, plant and 333 434 399equipment Other intangible 386 422 460assets Total non-current 719 856 859assets Current assets Inventories 366 128 272 Trade receivables 7 14,704 11,862 13,054 Other receivables 1,803 1,198 1,513 Cash and bank balances 4,095 2,375 6,358 Total current assets 20,968 15,563 21,197 Total assets 21,687 16,419 22,056 Liabilities & Equity Current liabilities Trade payables 768 1,251 1,473 Other payables 2,360 1,611 2,190 Tax liabilities 1,258 1,009 1,220 4,386 3,871 4,883 Non-current liabilities Deferred tax 1,000 537 857liabilities Deferred revenue 9 - - Total non-current 1,009 537 857liabilities Total liabilities 5,395 4,408 5,740 Capital and reserves Share capital 378 317 378 Reserves 10,311 7,978 10,832 Retained earnings 5,603 3,716 5,106 Total shareholders' 16,292 12,011 16,316equity Total liabilities and 21,687 16,419 22,056equity
Interim Statement of Cash Flows
For the six months ended 30 September 2010
6 months ended 6 months ended Year ended 30 September 30 September 30 March 2010 2009 (restated) 2010 £'000 £'000 £'000 Cash flows from operating activities Profit before tax 667 571 2,265 Interest income (1) (3) (1) Interest expense - - 6 Exchange differences - - - Loss on disposal of fixed assets - 3 4 Allowance for doubtful debts - 33 21 Depreciation of property, plant 68 108 146and equipment Amortisation of intangible assets 91 39 206 Net foreign exchange loss 70 - - Expense for share-based payments - 65 134 895 816 2,781 Movements in working capital Increase in receivables (2,567) (1,846) (3,156) (Increase)/decrease in inventories (105) 147 (7) (Decrease)/increase in payables (228) 228 1,068 Increase in deferred revenue 9 - - Cash (used in)/generated from (1,996) (655) 686operations Income taxes paid (3) (86) (117) Net cash (used in)/generated by (1,999) (741) 569operating activities Cash flows from investing activities Interest received 1 3 1 Interest paid - - (6) Purchase of property, plant and (8) (5) (15)equipment Proceeds from disposal of fixed - - 6assets Purchase of intangible assets (29) (71) (175) Net cash used in investing (36) (73) (189)activities Cash flows from financing activities Proceeds from issue of equity - 50 2,261shares Equity financing facility (25) - - Net cash (used in)/generated by (25) 50 2,261financing activities Net (decrease)/increase in cash (2,060) (764) 2,641and cash equivalents Cash and cash equivalents at the 6,358 3,567 3,567beginning of the period Effects of exchange rate changes (203) (428) 150 Cash and cash equivalents at the 4,095 2,375 6,358end of the period
Interim Statement of changes in Equity
For the six months ended 30 September 2010
Share Share Other Merger Equity Exchange Retained Total Capital Premium Reserve Reserve Compensation Reserve Earnings Reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 April 2009 Profit for the 315 5,432 3 (698) 206 3,938 3,295 12,491period as previously reported Restatement for - - - - - - 842 842the period Profit as restated - - - - - - (435) (435) Other - - - - - - 407 407comprehensive loss for the period Total - - - - - (1,002) 407 (595)comprehensive income for the period as restated Share-based - - - - 65 - - 65payments Share options 2 48 - - (14) - 14 50granted Balance at 30 317 5,480 3 (698) 257 2,936 3,716 12,011September 2009 Balance at 1 April 378 7,616 3 (698) 326 3,585 5,106 16,3162010 Profit for the - - - - - - 497 497period Other - - - - - (521) - (521)comprehensive loss for the period Total - - - - - (521) 497 (24)comprehensive income for the period Balance at 30 378 7,616 3 (698) 326 3,064 5,603 16,292September 2010
Notes to the Group Interim Financial Statements
1. Corporate Information
The Company's registered office is Walker House, PO Box 498,28-34 Hill Street, St Helier, Jersey, JE4 5TF, Channel Islands. The Company is domicile in Jersey.
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.
2. Basis of preparation
The Company's unaudited consolidated interim financial information for the six months ended 30 September 2010 has been prepared in accordance with the accounting principles of International Financial Reporting Standards.
The same accounting policies, presentation and methods of computation have been followed in this condensed financial information as were applied in the preparation of the Group's financial statements for the year ended 31 March 2010.
While the financial figures included in this half-year report have been computed in accordance with IFRSs applicable to interim periods and include the information required to be disclosed by the AIM Rules for Companies, they do not contain sufficient information to constitute an interim report as that term is defined in IAS34 "Interim Financial Reporting".
The results for the year ended 31 March 2010 set out in this Interim Report are not statutory accounts. The auditors reported on those accounts; their report was unqualified and did not draw attention to any matters by way of emphasis.
3. Seasonality
The operating result is not subject to significant seasonal variations during the financial period.
4. Exchange rates of principal currencies
The following significant exchange rates applied during the period:
Average rate Reporting date spot rate 6 months 6 months Year ended 30.9.2010 30.9.2009 30.3.2010 ended ended 30.3.2010 30.9.2010 30.9.2009 £ £ £ £ £ £ USD1 0.65821 0.66274 0.62763 0.63270 0.66370 0.69930 CNY1 0.09696 0.08740 0.09203 0.09475 0.09737 0.10232
Notes to the Group Interim Financial Statements (Continued)
5. Taxation
The tax charge for the six months ended 30 September 2010 and for the six months ended 30 September 2009 is based upon the estimated effective tax rate for the full period.
6. Earnings per share6.1 Basic earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
6 months 6 months ended Year ended ended 30 30 September 30 March September 2009 (restated) 2010 2010 Earnings used in the 496,785 407,000 1,797,085calculation of total basic earnings per share (£)
Weighted average number of 37,834,622 31,598,963 34,410,220 ordinary shares for the
purposes of basic earnings per share Basic earnings per share 1.31 1.29 5.22(pence per share)
6.2 Diluted earnings per share
The earnings used in the calculation of diluted earnings per share are asfollows: 6 months 6 months ended Year ended ended 30 30 September 30 March September 2009 (restated) 2010 2010 Earnings used in the 496,785 407,000 1,797,085calculation of total diluted earnings per share (£)
The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows.
6 months 6 months ended Year ended ended 30 30 September 30 March September 2009 (restated) 2010 2010 Weighted average number of 37,834,622 31,598,963 34,410,220ordinary shares used in the calculation of basic earnings per share
Shares deemed to be issued for 29,168 637,679 639,570 no consideration in respect of
employee options Weighted average number of 37,863,790 32,236,642 35,049,790ordinary shares used in the calculation of diluted earnings per share Diluted earnings per share 1.31 1.26 5.13(pence per share)
Notes to the Group Interim Financial Statements (Continued)
7. Trade ReceivablesYear ended 30 September 30 September 30 March 2010 2009 2010 (restated) £'000 £'000 £'000 Trade receivables 4,806 4,520 4,778 Accrued income 9,978 7,401 8,359 14,784 11,921 13,137 Less: allowance for doubtful (80) (59) (83)debts Total 14,704 11,862 13,054
8. Related party transactions
Transactions within the Group have been eliminated in the preparation of the financial information set out in this report and are not disclosed in this note.
9. Functional and presentation currency
The functional currency of the Group is the Chinese Renminbi, as it is the currency of the primary economic environment in which it operates. The Directors have considered that the Pound Sterling is the most appropriate currency in which to present the Group's financial statements. The following method of translation has been applied to the current and prior period consolidated results, balances and cash flows:
* Assets and liabilities have been translated at the closing rate on the date of the respective statement of financial position; * Income, expenses and cash flows have been translated at the average monthly rates for the respective periods; * Equity balances have been translated at historical rates; and * All resulting currency exchange differences have been included in equity
The functional currencies of the subsidiaries are the US Dollar and the Chinese Renminbi.
10. Prior period adjustment
The results for the six months ended 30 September 2009 have been restated to correctly account for additional cost of sales of £571,000 and related reduction in the tax charge of £136,000 in that interim period. This adjustment had no impact on the results reported for the year ended 31 March 2010.
11. Copies of the interim report
Copies of the interim report will be available from the Company's website: www.geong.com.
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