20 Dec 2011 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 2011.
Financial Highlights
- Turnover up to £4.8 million (H1 2010/11: £4.7 million) - Gross margin up to 51% (H1 2010/11: 50%) - Profit before tax up to £0.71 million (H1 2010/11: £0.67 million) - Basic earnings per share 1.2 pence (H1 2010/11: 1.3 pence) - Fully diluted earnings per share 1.2 pence (H1 2010/11: 1.3 pence) - Trade receivables of £18.7 million (H1 2010/11: £14.8 million) including accrued income of £13.2 million (H1 2010/11: £10.0 million) - Net cash of £7.3 million (H1 2010/11: £4.1 million) - Order book of £15 million (H1 2010/11: £14.8 million) including £6 million (H1 2010/11: 6.9 million) of recurring revenue
Key Highlights and new clients
- Smarter Internet Platform with IBM and Oracle in Asia Pacific market progressing well - Revenue with IBM Global Delivery is delivering steady growth - Continue to win new clients in core market and new sectors including Bank of Tianjin, Lianjia Real Estate, and Shanghai Construction Design Group. - Continued success in promoting SaaS solution, social business, to the existing clients - GEONG Social Business solution delivered to our existing clients, such as China Construction Bank, China Guangfa Bank, Everbright Bank, Haitong Securities and Haier Group.
Commenting on the results, Wang Weidong, Chief Executive said:
"As the leading internet solution provider in China, I am pleasedto report that we have again delivered a satisfactory set of interim results.We have maintained our revenues at the same level as last year but increasedour gross margin to 51% compared to 50% a year ago and 36% 18 months ago. Thisnot only vindicates our strategy of focusing on the higher margin SaaSbusiness but will also lead to stronger cash conversion as SaaS businesscontinues to replace IaaS business. Whilst uncertainty prevails in thisvolatile macro-economic climate, management cautiously believes that, with therevenue already delivered in the first half, the current order book fullysupports our trading forecasts for the remainder of the year.Whilst we are disappointed that we could not conclude theacquisition of AdBeyond Group, the Group remains adequately funded to pursueits organic growth objectives and the Board believes that the Group remains ina much stronger position to pursue other acquisition opportunities in thefuture by not being burdened with the US$8 million convertible secured loanstock previously being contemplated."
For further information, please contact:
GEONG International Limited Tel: +86 10 5222 0999Henry Tse, ChairmanWeidong Wang, CEOAmit Thakar, CFO Evolution Securities Limited Tel: +44 20 7071 4300(Nominated Adviser and Joint Broker)Tim WorlledgeEsther Lee
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 the London Stock Exchange since June 2006. The Company has since transformed from an ECM (Enterprise Content Management) software and service centric business to an internet business centric company and both revenues and profits 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 StatementOverview
We continue to execute our "Go-Deep-and-Broad" strategy in concert with our existing partners, IBM and Oracle, and are selling our Smarter Internet Platform (IaaS solution) and Social business solution (SaaS solution) to more than 200 blue chip clients and further second tier customers. In today's interim results, we are reporting new contracts, improving gross margin and confirming increased opportunities that lie ahead of us in the Greater China and Asia market as we continue to develop our product offering.
Our partnership strategy and the growth in the number of reputable clients who continue to repeat purchasing our products have resulted in us being able to reduce our selling expenses by £154,000 in the first half of this year. In addition, we continue to benefit from the change in sales mix where the higher margin SaaS sales now contribute over 25% of total revenue (H1 2010/11: 14%) and this is reflected in our increased gross margin and profitability. We are confident that the strategy will translate into further improved profitability and stronger cashflow in the coming years.
New products and solutions
In the first half of this financial year, we continued innovatingand improving our products and services. In IaaS division, we developed serialsolution components for Enterprise Intranet, including Enterprise ReportCenter, Enterprise Social Collaboration System, Enterprise Information Portal2.0 and Enterprise Social Knowledge Management System. These new solutionshelp our customers to improve their internal business productivity byimproving the employees' collaboration, knowledge sharing and mobility.We have developed a new Social Business solution by integrating oursolution components with our partners' software platform, such as Oracle andResponsTek. Our SaaS cloud solution can be powered by Oracle cloud computingtechnologies and comprises five components, Socialytics, Social Marketing, andSocial CRM, Social Commerce and Social CXM (customer experiencemanagement).The solution will help us to take advantage of the three fastestgrowing market opportunities in the China and Asia market - digital economy,social networking applications and mobile internet. Social networking andmobile internet usage in China are at a very nascent stage but are forecast togrow strongly.In addition, we are creating a huge enterprise social businessoperation by utilising cloud computing technologies. We are currently buildingthe public clouds in Socialtyics, Social Marketing and Social CXM, and privateclouds in Social CRM and Social Commerce, for our clients. With theestablishment of more public and private clouds over time, GEONG will be wellplaced to build and operate one of the largest enterprise social businessnetworks of cloud computing. In the last quarter and the coming year, this cansignificantly reduce our set up and on-going operational costs and can build amuch higher entry barrier for the followers. At this stage, we anticipate thatwe will commence generating revenue from these new products in the nextfinancial year.
Financial review
Revenue remained constant at £4.8 million as we have sought toreduce the low-margin product sales in favour of other higher margin revenuestreams. The increase in gross margin to 51% from 50% reflects the continuingshift towards SaaS in our sales mix, which we also expect to improve our cashcollection performance in the future. The improvement in gross margin resultedin a 7% increase in pre-tax profits in spite of the £83,000 (H1 2010/11: nil)finance cost incurred in the periodThe effective tax rate during the first half was 38% (H12010/11:25%) The Group has four subsidiaries and in this half year, a number ofcontracts were signed by subsidiaries in the higher tax jurisdictions hencethey reported higher profit leading to the Group's higher tax rate. However,with improved tax planning, it is expected that the Group's tax rate willrevert back to its historical norm in the future.
The foreign exchange surplus of £941,000 (H1 2010/11: deficit of £521,000) shown in the condensed consolidated statement of net income arose on the translation of the net assets of the Chinese subsidiaries.
Cash balances were £7.3 million at the period end compared to £5.3million 31 March 2011, the increase being due to the proceeds of the issue ofconvertible loan stock earlier this year. On 18 August 2011, we also enteredinto an annually renewable short-term facility of £1 million secured on our new debtorbalances against which we had drawn £500,000 at the period end. Currently, theGroup is in a strong cash position and there is no present expectation orintention to further draw down on the facility but the Board believes that theadditional funding facility will enable the Company to more readily takeadvantage of any new significant business opportunities that arise.The rise in receivables is largely as a result of an increase inaccrued income, being income that has been recognised because the appropriatemilestones have been achieved but will only be invoiced upon completion of thecontract. This pattern is consistent with previous years and the accruedincome is expected to reduce in the second half of the year as contracts arecompleted and invoices rendered. We remain confident that debtor days willbegin to decline in the next nine to twelve months when we anticipate theproportion of SaaS sales to increase significantly as a result of the rollout of new SaaS delivery models where the payment terms are relatively shortercompared to IaaS, as the offering will be sold on a per-usage basis.
The carrying value of intangible assets has increased by £350,000, being the value of copyrights filed by the Company in relation to new products.
Outlook
We are building enterprise social business networks for our clientsand co-operating with our partners in utilising cloud computing technologies,which the Board believes will provide a significant competitive advantage tothe business in the future years.
We have a strong balance sheet, including cash balances of £7.3 million at 30 September 2011, leaving us well placed to take advantage of the many contracts and new business opportunities that we are seeing. Notwithstanding that we decided not to proceed with the acquisition of Adbeyond, the Board continues to believe in its strategy of seeking acquisitions in Greater China that will both enhance our presence there and increase the range of services that we can offer to our clients. We will therefore continue to seek suitable targets which will support this growth strategy.
Whilst mindful of the challenging financial environment, we expectour performance for the second half to continue the progress we have made inthe year to date as we pursue our strategy of margin improvement and operatingcash generation. The Group's current order book is £15.6 million, of which 30%is estimated to translate into revenue in this financial year and approximately £6.0 million is annually recurring revenue. Having regard to the existing orders, to our strong pipeline, and to our resilient business model and broad range of sector capabilities, the Board remains cautiously optimistic of achieving thefull year market expectations and further growth in the following years.Henry H.Y. TseChairman
Interim Condensed Statement of Comprehensive Income
For the six months ended 30 September 2011
Notes 6 months 6 months Year ended 31 ended 30 ended 30 March 2011 September September 2011 2010 £'000 £'000 £'000Revenue 3 4,749 4,709 11,332Cost of sales (2,344) (2,365) (5,309)Gross profit 2,405 2,344 6,023 Other (expenses)/income (37) (88) 107Selling and distribution (224) (378) (780)expensesAdministration expenses (1,144) (1,053) (2,475)Research and developmentcosts (166) (156) (245)Share option expenses (22) - (8)Other operating expenses (21) (3) (45)Profit from operations 791 666 2,577Finance costs (83) - -Finance income 4 1 24Profit before tax 712 667 2,601Income tax expense 6 (274) (170) (510)Profit for the period 438 497 2,091 Other comprehensive(loss)/incomeExchange differences ontranslating foreign 941 (521) (563)operationsTotal comprehensiveincome/(loss) for the 1,379 (24) 1,528period Earnings per ordinary 7share (pence)Basic 1.16 1.31 5.53Diluted 1.16 1.31 5.53
Interim Condensed Statement of Financial Position
As at 30 September 2011 Notes 30 September 30 September 31 March 2011 2011 2010 £'000 £'000 £'000 AssetsNon-current assetsProperty, plant and 8 303 333 296equipmentOther intangible assets 9 934 386 673Total non-current 1,237 719 969assets Current assetsInventories 184 366 323Trade receivables 10 18,544 14,704 16,161Other receivables 1,556 1,803 1,410Cash and bank balances 7,300 4,095 5,340Total current assets 27,584 20,968 23,234 Total assets 28,821 21,687 24,203 Liabilities & EquityCurrent liabilitiesShort-term borrowings 11 501 - -Trade payables 1,203 768 1,189Other payables 2,043 2,360 2,309Interests payables 64Tax liabilities 1,627 1,258 1,506Total current 5,438 4,386 5,004liabilities Non-current liabilitiesLong-term borrowings 11 2,315 - -Deferred tax 1,699 1,000 1,342liabilitiesDeferred revenue 11 9 4Total non-current 4,025 1,009 1,346liabilities Total liabilities 9,463 5,395 6,350 Capital and reservesShare capital 12 378 378 378Reserves 18,980 15,914 17,475Total shareholders' 19,358 16,292 17,853equity Total liabilities and 28,821 21,687 24,203equity
Interim Condensed Statement of Cash Flows
As at 30 September 2011 6 months ended 6 months Year ended 31 30 September ended 30 March 2011 2011 September 2010 £'000 £'000 £'000Cash flows from operating activitiesProfit before tax 791 667 2,577Interest income 4 (1) -Interest expense (3) - -Allowance for doubtful debts 65 - 65
Depreciation of property, plant and 114 68
128
equipment
Amortisation of intangible assets 134 91
137
Net foreign exchange loss 4 70
-
Expense for share-based payments 22 -
8 1,131 895 2,915Movements in working capitalIncrease in receivables (1,624) (2,567) (3,567)Decrease/(increase) in inventories 153 (105)
(57)
(Decrease)/increase in payables (417) (219)
274Cash used in operations (757) (1,996) (435)Income taxes paid - (3) (3)Net cash used in operating (757) (1,999) (438)activities Cash flows from investing activitiesInterest received - 1
24
Purchase of property, plant and (24) (8) (31)equipmentPurchase of intangible assets (350) (29) (367)Net cash used in investing (374) (36) (374)activities Cash flows from financing activitiesNet proceeds from issue of 2,400 -
-
convertible notesProceeds from short term loans 501 -
-
Equity financing facility - (25)
-
Net cash generated from/(used in) 2,901 (25)
-
financing activities
Net increase/(decrease) in cash and 1,770 (2,060)
(812)
cash equivalents
Cash and cash equivalents at the 5,340 6,358
6,358
beginning of the periodEffects of exchange rate changes 190 (203)
(206)
Cash and cash equivalents at the end 7,300 4,095 5,340 of the period
Interim Condensed Statement of changes in Equity
For the six months ended 30 September 2011
Share Share Convertible Other Merger Compensation Retained Exchange capital premium notes reserve reserve reserve earnings reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 378 7,616 - 3 (698) 326 5,106 3,585 16,3161 April 2010Profit for the - - - - - - 497 497periodOther - - - - - - (521) (521)comprehensiveloss for theperiodTotal - - - 3 - - 497 (521) (24)comprehensiveincome forthe periodBalance at 378 7,616 - 3 (698) 326 3,064 5,603 16,29230 September2010Balance at 1 April 2011 378 7,616 - 13 (698) 334 7,187 3,023 17,853Profit forthe period 438 438Foreignexchangemovement 941 941Totalcomprehensiveincome forthe period - - - - - 438 941 1,379Share optionsgranted 22 22Issue ofshares -Issue of 104 104convertibleloans Relatedincome taxBalance at 30 September2011 378 7,616 104 13 (698) 356 7,625 3,964 19,358
Notes to the Condensed 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 domiciled 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 condensed financial statements for the six months ended 30 September 2011 has been prepared in accordance with the International Accounting Standard 34 Interim Financial Reporting.
The same accounting policies, presentation and methods of computation have been followed in these condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 March 2011.
The results for the period ended 30 September 2011 set out in this Interim Report do not constitute the Company's statutory accounts. The auditors reported on those accounts for the year ended 31 March 2011 was unqualified and did not draw attention to any matters by way of emphasis.
3. Segment Reporting 6 months ended 6 months ended 30 September 30 September 2011 2010 IaaS SaaS Consolidated IaaS SaaS Consolidated £'000 £'000 £'000 £'000 £'000 £'000Revenue and ExpensesRevenue 3,630 1,119 4,749 3,065 1,644 4,709Inter-segment revenue - - -Total Revenue 3,630 1,119 4,749 3,065 1,644 4,709
Results
Segment results 1,776 629 2,405 985 1,359 2,344Unallocated expenses (1,534) (1,590)Results from operating 871 754activitiesFinance expenses (net) (104) 0Other income (expenses) (33) (87)Share option expense (22) 0Income tax expenses (274) (170)Profit for the period 438 497Assets and liabilities
Segment assets 15,736 4,851 20,587 12,044 5,162 17,206Unallocated assets 8,234 4,481Total assets 28,821 21,687
Segment liabilities 4,691 1,446 6,137 1,877 1,252 3,129 Unallocated liabilities
3,326 2,266Total liabilities 9,463 5,395
4. Seasonality
The operating result is not subject to significant seasonal variations during the financial period.
5. 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 ended ended 31.3.2011 30.9.2011 30.9.2010 31.3.2011 30.9.2011 30.9.2010 £ £ £ £ £ £USD1 0.61690 0.65821 0.64340 0.64000 0.63270 0.62380CNY1 0.09560 0.09696 0.09590 0.10010 0.09475 0.095106. Taxation
The tax charge for the six months ended 30 September 2011 and for the six months ended 30 September 2010 is calculated based upon the prevailing tax rate of 15%.
7. Earnings per share7.1 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 ended 6 months ended Year ended 31 30 September 30 September March 2011 2011 2010Earnings used in thecalculation of total basic earnings per share (£) 438,410 496,785
2,092,073
Weighted average number of ordinary shares for the purposes of basic earnings per share 37,834,622 37,834,622 37,834,622Basic earnings per share (pence per share) 1.16 1.31 5.33
7.2 Diluted earnings per share
The earnings used in the calculation of diluted earnings per share are asfollows: 6 months ended 6 months ended Year ended 31 30 September 30 September March 2011 2011 2010Earnings used in thecalculation of total 438,410 496,785 2,092,073
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 ended 6 months ended Year ended 31 30 September 30 September March 2011 2011 2010Weighted average number of ordinary shares used in the calculation of basic earnings per share 37,834,622 37,834,622 37,834,622Shares deemed to be issued for no consideration in respect of employee options 81,090 29,168 29,168Weighted average number of ordinary shares used in the calculation of diluted earnings per share 37,915,712 37,863,790 37,863,790Diluted earnings per share(pence per share) 1.16 1.31 5.53
The 7.5% £2.5 million convertible unsecured loan issued during the period potentially increase the number of ordinary shares but are not dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share.
8. Property, plant and equipment
The company purchased computer server and related items of £54,000 and had disposal of £9,000. Gross translation difference arose of £77,000 on existing assets of £1,358,000 due to the movement in exchange rates.
9. Intangible assets
In the first half of the year, intangibles have increased by £350,000 as the company obtained several copyrights for its new products.
10. Trade Receivables As at As at As at 30 September 2011 30 September 2010 31 March 2011 £'000 £'000 £'000Trade receivables 5,469 4,806 4,907Accrued income 13,227 9,978 11,398 18,696 14,784 16,305
Less: allowance for doubtful debts (152)
(80) (144)Total 18,544 14,704 16,16111. BorrowingsBank borrowingsDuring the period, the Group obtained a new short term bank borrowing in theamount of RMB5 million from China Merchants Bank. This loan bears interest at7.32% pa and is repayable within one year. The borrowing is collateralised andsecured by the trade receivables (note10).
Convertible unsecured loan stock (A Notes)
£2.5 million convertible A Notes were issued by the Company on 19May 2011 at an issue price of £1 per note. The conversion price is at a 23%premium to the share price of the ordinary shares at the date the A Notes wereissued.Conversion may occur at any time between 1 January 2012 and 30 June2014. If the notes have not been converted, they will be redeemed on 30 June2014 at par Interest of 7.5% will be paid half yearly in arrears up until thatsettlement date.
The net proceeds received from the issue of the A Notes have been split between the liability component and an equity component, representing the residual attributable to the option to convert the liability into equity of the Group, as follows:
£'000Proceeds of issue (net of apportioned transaction costs) 2,400,000Equity component 103,737 Liability component at date of issue 2,296,263 Interest expense 63,185 Interest paid - Liability component at 30 September 2011
2,315,179
The equity component of £103,737 has been credited to equity (option premium on convertible notes).
The interest charged for the period is calculated by applying aninterest rate of 7.5%. The difference between the carrying amount of theliability component at the date of issue £2,296,263 and the amount reported inthe balance sheet £2,315,179 at 30 September 2011 represents the effectiveinterest rate less interest expense to that date, plus amortised transactioncosts.12. Share capitalThe total authorised number of ordinary shares is 100,000,000 with £0.01 parvalue per share. The issued share capital of the Company as at 30 September2011 is £37,834,622 fully paid. There were no movements in the issued sharecapital of the company in the current interim reporting period.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.
13. 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.
There are no other related party transactions apart from the remuneration of key management.
14. Share options:
At 30 September 2011, the Company had the following outstanding share options:
Number Exercise price (£) Date of grant Exercise period 302,727 0.30 23.06.2006 23.06.2009-22.06.2016 327,221 0.65 11.06.2007 11.06.2010-10.06.2017 248,424 0.56 19.06.2008 19.06.2011-18.06.2018 591,893 0.33 23.06.2009 23.06.2012-22.06.2019
15. Events after the end of the reporting period
On 23 November 2011, the Company announced the termination ofagreement signed on 19 July 2011 for the acquisition of Adbeyong (Group)Limited. Both parties have agreed, in the light of the continuing instabilityin the financial markets, that it would not be in the best interests of eitherparty to conclude the acquisition. The Board is in discussion with the vendorsof Adbeyond concerning the terms of the termination. In consequence of thetermination of the Acquisition Agreement, there will be no need for the US$8million convertible secured loan stock previously being contemplated and therewill therefore be no such issue by the Company.
16. Approval of interim financial statements
The interim financial statements were approved by the board of directors on 19 December 2011.
XLON