GNG.L Regulatory News (GNG)

20 December 2013 GEONG International Limited ("GEONG" or the "Company") Interim Results GEONG International Limited (AIM: GNG.L), a leading Internetsolution provider and operator in China for large enterprises, announces itsunaudited interim results for the six months ended 30 September 2013. Financial Highlights - Turnover £4.3 million (H1 2012/13: £4.3 million) - Gross margin 43.0% (H1 2012/13: 53.5%) - Loss before tax £0.44million (H1 2012/13: profit £0.16 million) - Basic and diluted loss per share 1.18 pence (H1 2012/13: basic and diluted earnings per share 0.19 pence) - Trade receivables £21.0 million (At 31 March 2013: £22.1 million) including accrued income of £18.4 million (At 31 March 2013: £19.1 million) - Gross cash £3.7 million (At 31 March 2013: £4.6million) - Order book £10.0 million (At 31 March 2013: £11.5 million) including , £3.0 million for delivery in H2 Key Highlights and New Clients Since the release of the 2013 annual report, as already outlined inthe recent trading update, the Company has continued to pursue its strategyfor achieving greater gross margins and generally shorter payment terms byfocusing on its SaaS business. The Board expects that, as the revenue base isrebuilt, with the heavier emphasis on SaaS business, the benefits shouldbecome more evident, in particular through a reduction in the level of tradereceivables. On the sales side the Company has had a good first half, winning anumber of new SaaS clients, including Bank of Hubei, Bank of Huaxia, MingshenBank, New Life Insurance, China Bond and Bank of China Insurance as well astwo new IaaS clients, Bank of Hubei and Mingshen Bank. It is estimated thatthe annualised value of the new SaaS business is £0.5 million and the IaaSbusiness is £0.3 million in revenue. These client wins take the SaaS clientbase to 26 Commenting on the results, Wang Weidong, Chief Executive Officersaid: Although we have had a good first half in terms of business wins,the effect of those wins will not be fully realised until for the second halfof this year at least. We will continue to experience the second half bias toour business that we have experienced in the past. Despite maintaining the same level of revenue in the first half,the gross margin was down from 53.5% to 43% when compared with the first halfof 2012/2013. This was attributable to the mix of IaaS and SaaS clients. Thebenefits of more SaaS clients will be felt in the second half. We are confident that with the new wins and better balance ofbusiness, the outturn for H2 will allow us to show a full year result similarto last year and, more importantly, leave us well placed for profits growthand cash generation in the following years. Chairman's Statement Overview In my statement accompanying the full year financial statements forthe year ended 31 March 2013, I outlined to shareholders our strategy forfocusing on SaaS business, which, although it would lead to a short term fallin revenues would, in the longer term, generate higher margins and tie up lesscapital as accrued income and receivables balances would reduce. Our team hasdevoted much hard work in driving this strategy and we are now seeing someresults starting to surface, such as a number of SaaS contract wins and asmall reduction in accrued income. This strategy is critical to the Company'sperformance and value in the long term but we are at the beginning of the roadto improvement with much still to do. Nonetheless, the small improvements makeus confident that as the new strategy takes hold we will see the full benefitscoming through in H2 and thereafter. New products and solutions Our previously developed new Enterprises' Social Business Platform,which is designed to provide a one-stop SaaS service to help more than 200existing clients, has been performing as expected. The platform's mainfunction is to provide a series of functions including social marketing,enterprise web analytics and optimization, SNS and social commerce andcustomer experience management, which encompasses the customers' Internetbuying cycle and drives demand. The Company remains committed to research and development of newproducts and solutions. During the period, the development has focused onsolutions for SaaS clients in the areas of mobile marketing, businessoperation (B2C and B2B) and CxM (Customer eXperience Management). In addition,a new IaaS product, CMS V7.0, was launched to support the existing IaaSclients. The total spend on R&D was £0.38 million of which £0.38 million wascharged to profit and loss account. Financial review Revenue was £4.3 million (SaaS £0.9 million, IaaS £3.4 million),approximately the same as in the same period last year (SaaS £1.4 million,IaaS £2.9 million), with the reduction in SaaS revenue being mainlyresponsible for the fall in the gross margin. The increase of SaaS clientsrevenue will be more evident in H2 as the contractual income will be generatedwhen work is performed. Selling and distribution expenses are up by 9% on H1last year and by 27% from last year due to developing and expanding more focusinto SaaS clients. The £0.1 million of other operating expenses related tocosts incurred in obtaining short term borrowings. At 30 September 2013, trade receivables were £21.0 million, down by£1.1 million since 31 March 2013, due to a reduction of £0.7 million inaccrued income and a £0.4 million reduction in trade debtors. Cash on hand at30 September 2013 was £3.7 million (net cash £0.9 million) compared to £4.6million (net cash £2.5 million) at 31 March 2013. During the period theCompany repaid £1.3 million of loan stock, which was financed from existingcash resources and an increase in bank borrowings by £0.8 million to £1.8million. This collection pattern is consistent with previous years and theaccrued come is expected to reduce in the second half of the year as contractsare completed, invoices rendered and cash collected. The third quarter is thecash collection peak period in China and we anticipate that the cash balancewill increase and accrued income will decrease during the period to 31December 2013. At the end of November, cash on hand was £3.9millionrepresenting an increase of £0.2million of cash from the end of September. The carrying value of intangible assets has decreased by £0.3million from last year end, primarily due to the exchange difference of £0.07million and the normal amortisation of £0.28 million. The order book at 30 September 2013 stood at £10.0 million andincluded £4.0 million in SaaS business. Approximately £4.0 million of thecurrent order book is recurring, and £3.0 million is due for delivery in thesecond half of the year. Within the £3.0 million, 40% is with SaaS clients and60% is with IaaS clients. The inventory level at 30 September 2013 was greater than at 31March 2013 due to work being performed in H1 which will be invoiced in H2. Outlook The Board believes that the number of new client wins in H1provides a strong indication that our strategy and our sales team's effortsare now paying off and that the combination of an increased client base andthe development of new products and solutions will help our revenues to grow..In addition, the shift towards SaaS business, which will be more evident inH2, will both provide us with a more stable and predictable business and willalso improve our cash collection, enabling us to invest more in the growth ofthe business. There are signs that the global economy is improving and we believethat this will lead to our clients making use of more of our products andsolutions to secure a competitive edge. Henry H.Y. Tse Chairman Interim Condensed Statement of Comprehensive Income For the six months ended 30 September 2013 Notes 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2013 2012 2013 Unaudited Unaudited Audited £'000 £'000 £'000Revenue 3 4,307 4,306 9,648Cost of sales (2,453) (2,001) (5,401)Gross profit 1,854 2,305 4,247 Selling and distributionexpenses (470) (429) (798)Administration expenses (1,237) (1,215) (2,465)Research and developmentcosts (381) (363) (681)Share option expenses - (5) (5)Other operating income - 6 162Other operating expenses (101) - (4)Profit from operations (335) 299 456Finance costs (105) (140) (387)Finance income 1 1 30Profit before tax (439) 160 99Income tax expense 6 (8) (89) (85)Profit for the period (447) 71 14 Other comprehensive incomeExchange differences ontranslating foreignoperations (825) (304) 1,055Total comprehensive incomefor the period (1,272) (233) 1,069 Earnings per ordinary 7share(pence)Basic (1.18) 0.19 0.04Diluted (1.18) 0.19 0.04 Interim Condensed Statement of Financial Position As at 30 September 2013 Notes 30 September 30 September 31 March 2013 2012 2013 Unaudited Unaudited Audited £'000 £'000 £'000AssetsNon-current assetsProperty, plant andequipment 8 331 261 387Intangible assets 8 1,556 1,772 1,910Total non-currentassets 1,887 2,033 2,297 Current assetsInventories 1,112 481 439Trade receivables andaccruedincome 9 21,021 19,856 22,138Other receivables 1,184 1,121 1,270Cash and cashequivalents 3,657 3,989 4,592Total current assets 26,974 25,447 28,439 Total assets 28,861 27,480 30,736 Liabilities and equityCurrent liabilitiesShort-term borrowings 10 1,813 498 1,140Trade payables 860 781 1,255Other payables 2,961 1,703 3,686Bonds payable 961 - -Tax liabilities 1,889 1,855 1,989Total currentliabilities 8,484 4,837 8,070 Non-current liabilitiesLong-term borrowings - 2,374 961Deferred taxliabilities 1,738 1,683 1,799Deferred revenue 9 10 4Total non-currentliabilities 1,747 4,067 2,764 Total liabilities 10,231 8,904 10,834 Capital and reservesShare capital 11 378 378 378Reserves 18,252 18,198 19,524Total shareholders'equity 18,630 18,576 19,902 Total liabilities andequity 28,861 27,480 30,736 Interim Condensed Statement of Cash Flows As at 30 September 2013 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2013 2012 2013 Unaudited Unaudited Audited £'000 £'000 £'000Cash flows from operating activitiesProfit/(Loss) before tax (439) 160 99Allowance for doubtful debts - (1) 20Depreciation of property, plant andequipment 60 16 103Amortisation of intangible assets 281 304 652Loss on disposal of fixed assets,net - - 10Interest expenses 104 139 388Net foreign exchange loss - - -Expense for share-based payments - 5 5 6 623 1,277Movements in working capitalIncrease in receivables 256 (1,116) (2,134)(Increase)/decrease in inventories (690) (98) (30)Increase/(decrease) in payables 337 333 1,332Cash used in operations (91) (258) 445Interest paid 102 (109) (30)Income taxes paid - - -Net cash used in operatingactivities 11 (367) 415 Cash flows from investing activitiesInterest received - 1 30Purchase of property, plant andequipment (117) (17) (226)Purchase of intangible assets - (854) (1,232)Net cash used in investingactivities (117) (870) (1,428) Cash flows from financing activitiesNet proceeds from issue ofconvertible notes - - -Interest paid (119) - (241)Repayment of convertible bonds andshort term loans (1,586) (488) 618Proceeds from short term loans 1,007 498 (213) Net cash generated from financingactivities (698) 10 164 Net (decrease)/increase in cash andcash equivalents (804) (1,227) (849) Cash and cash equivalents at thebeginning ofthe period 4,592 5,290 5,290Effects of exchange rate changes (131) (74) 151Cash and cash equivalents at the endof theperiod 3,657 3,989 4,592 Interim Condensed Statement of Changes in Equity For the six months ended 30 September 2013 Equity 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 £'000Balance at 1 April 2012 378 7,616 104 28 (698) 374 7,336 3,666 18,804Comprehensive incomeProfit for the period - - - - - - 71 - 71Foreign exchange movement - - - - - - - (304) (304)Total comprehensive income - - - - - - 71 (304) (233)for the yearShares options expenses - - - - - 5 - - 5Balance at 30 September 2012 378 7,616 104 28 (698) 379 7,407 3,362 18,576 Balance at 1 April 2013 378 7,616 24 45 (698) 379 7,438 4,720 19,902Comprehensive incomeProfit for the period - - - - - - (447) - (447)Foreign exchange movement - - - - - - - (825) (825)Total comprehensive income - - - - - - (447) (825) (1,272)for the yearShares options expenses - - - - - - - - -Balance at 30 September 2013 378 7,616 24 45 (698) 379 6,991 3,895 18,630 Notes to the Condensed Financial Statements for the period ended 30 September2013 1. Corporate Information The Company's registered office is 28 - 30 The Parade, St Helier,Jersey, JE1 1EQ, Channel Islands. The Company is domiciled in Jersey. The Group has provided content management software and solutionssince its establishment in September 2000 and has earned a reputation as alocal 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 sixmonths ended 30 September 2013 has been prepared in accordance with theInternational Accounting Standard 34 Interim Financial Reporting. The same accounting policies, presentation and methods ofcomputation have been followed in these condensed financial statements as wereapplied in the preparation of the Group's financial statements for the yearended 31 March 2013. The results for the period ended 30 September 2013 set out in thisInterim Report do not constitute the Company's statutory accounts. 3. Segment Reporting 6 months ended 6 months ended 30 September 30 September 2013 2012　 IaaS SaaS Consolidated IaaS SaaS Consolidated　 £'000 £'000 £'000 £'000 £'000 £'000Revenue and ExpensesRevenue 3,365 942 4,307 2,911 1,395 4,306Inter-segment - - - - - -revenueTotal Revenue 3,365 942 4,307 2,911 1,395 4,306ResultsSegment results 1,250 604 1,854 1,444 861 2,305Unallocated expenses (2,088) (2,006)Results from (234) 299operating activitiesFinance expenses (104) (140)(net)Other income (101) 6(expenses)Share option expense - (5)Income tax expenses (8) (89)Profit for the (447) 71periodAssets andliabilitiesSegment assets 18,476 5,172 23,648 14,683 7,036 21,719Unallocated assets 5,213 5,761Total assets 28,861 27,480Segment liabilities 5,159 1,444 6,603 3,627 1,738 5,365Unallocated 3,628 3,539liabilitiesTotal liabilities 10,231 8,904 4. Seasonality The operating result is slightly affected by the seasonality inparticular relation to the IaaS customers which the spilt is approximately 40%in the first half of the year and 60% in the second half. For SaaS customers,the income stream is not affected by the seasonality. 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 ended ended Year ended 30.9.2013 30.9.2012 31.3.2013 30.9.2013 30.9.2012 31.3.2013 £ £ £ £ £ £ USD1 0.64820 0.63240 0.63280 0.61950 0.61850 0.65750 CNY1 0.10470 0.09990 0.10030 0.10070 0.09760 0.09800 6. Taxation The Company's operating subsidiaries in PRC are subject topreferential tax rate of 15% due to their high technology enterprise status.Therefore, the tax charge for the six months ended 30 September 2013 iscalculated based on the tax rate of 15%. 7. Earnings per share 7.1 Basic earnings per share The earnings and weighted average number of ordinary shares usedin the calculation of basic earnings per share are as follows: 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2013 2012 2013Earnings used in thecalculation of totalbasic earnings per share (£) (447,041) 71,489 14,038Weighted average number ofordinaryshares for the purposes ofbasic earningsper share 37,834,622 37,834,622 37,834,622Basic earnings per share (pencepershare) (1.18) 0.19 0.04 7.2 Diluted earnings per share The earnings used in the calculation of diluted earnings per shareare as follows: 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2013 2012 2013Earnings used in thecalculation of totaldiluted earnings per share (£) (447,041) 71,489 14,038 The weighted average number of ordinary shares for the purposes ofdiluted earnings per share reconciles to the weighted average number ofordinary shares used in the calculation of basic earnings per share asfollows. 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2013 2012 2013Weighted average number ofordinaryshares used in the calculationof basicloss per share 37,834,622 37,834,622 37,834,622Shares deemed to be issued fornoconsideration in respect ofemployeeoptions - - -Weighted average number ofordinaryshares used inthe calculation of diluted lossper share 37,834,622 37,834,622 37,834,622Diluted loss per share (pence) (1.18) 0.19 0.04 The 7.5% £1.0 million convertible unsecured loan issued in Marchthis year potentially increases the number of ordinary shares but is notdilutive for the period because the Company made a loss and are thereforeexcluded from the weighted average number of ordinary shares for the purposesof diluted earnings per share. 8. Property, plant and equipment During the period, the Company purchased computer server andrelated items of £0.02 million and office renovation costs of £0.1 millionwere incurred in the period. Intangibles assets. There was no increase in intangibles. 9. Trade Receivables As at As at As at 30 September 30 September 31 March 2013 2012 2013 £'000 £'000 £'000Trade receivables 2,953 4,669 3,380Accrued income 18,395 15,504 19,098 21,348 20,173 22,478Less: allowance fordoubtful debts (327) (317) (340)Total 21,021 19,856 22,138 Out of the total trade receivables of £21.0 million, £18.4 million was relatedto accrued income and £0.12 million (last year the same period was £1.73million related to one single customer which is IBM Huawei. Accrued incomelevel from Huawei has gradually come down. The accrued income represents amounts not yet invoiced, but forwhich specific milestones have been met, which is in accordance with commonpractice in PRC. 10. Borrowings Bank borrowings The short term loan was the renewal of the loan from:- (1) Bank of Beijing for amount of £0.806 million (RMB 8.0 million). This loanbears interest at 7.8% pa and is repayable within one year. (2) China Construction Bank for amount of £0.806 million (RMB 8.0million). This loan bears interest at 7.2 % pa and is repayable within oneyear and (3) Nanyuen Commercial Bank for amount of £0.21 million (RMB 2.0million).This loan also bears interest at 7.2 % pa and is repayable within oneyear. These borrowings are collateralised and secured by the tradereceivables (note 9) and certain copyrights and by personal guaranteesprovided by Mr.Weidong Wang and another employee. Convertible Loan Note As reported in the annual report and accounts, the £2.5 million convertible ANotes ("A Notes"), which had previously been due for repayment on 30 June2014, became due for repayment as a result of the Company failing to make aninterest payment on the due date and therefore falling into default. TheCompany reached an agreement with the holders of the A Notes whereby £1.5million of the outstanding amount was repaid during H1 and £1 million of newconvertible A Notes, carrying a coupon of 7.5% and with a conversion price of5 pence per share, were issued. The new A Notes may be converted at any timebetween 26 March 2013 and 30 June 2014, on which date they shall be redeemedif not previously converted Since 31 March 2013, the Company has repaid £1,287,400 in principal to thenote holder. The remaining balance has been included within other payables. The net proceeds received from the issue of the A Notes have beensplit between the liability component and an equity component, representingthe residual attributable to the option to convert the liability into equityof the Group, as follows: Group 2013 2012 £'000 £'000Face value of convertible 985 2,478Equity conversion component (24) (104) Fair value of debts 961 2,374Represented by:Current liabilities 961 -Non-current liabilities - 2,374Fair value of debt 961 2,374 11. Share capital The total authorised number of ordinary shares is 100,000,000 with£0.01 par value per share. The issued share capital of the Company as at 30September 2013 is 37,834,622 fully paid shares. There were no movements in theissued share capital of the Company in the current interim reporting period. The holders of ordinary shares are entitled to receive dividends asdeclared from time to time and are entitled to one vote per share at meetingsof the Company. All shares rank equally with regard to the Company's residualassets. 12. Related party transactions Transactions within the Group have been eliminated in thepreparation of the financial information set out in this report and are notdisclosed in this note. There are no other related party transactions apart from theremuneration of key management. 13. Share options: At 30 September 2013, the Company had the following outstanding share options: Number Exercise Date of Exercise period price (£) grant326,241 0.30 23.06.2006 23.06.2009-22.06.2016346,814 0.65 11.06.2007 11.06.2010-10.06.2017248,424 0.56 19.06.2008 19.06.2011-18.06.2018571,201 0.33 23.06.2009 23.06.2012-22.06.2019 14. Events after the end of the reporting period There are no material events to report after the reporting period. 15. Approval of interim financial statements The interim financial statements were approved by the Board ofDirectors on 17 December 2013.