5 Dec 2012 11:00
5 December 2012 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 2012.
Financial Highlights
- Turnover £4.3 million (H1 2011/12: £4.7 million) - Gross margin 53.5% (H1 2011/12: 50.6%) - Profit before tax £0.16 million (H1 2011/12: £0.71 million) - Basic earnings per share 0.19 pence (H1 2011/12: 1.16 pence) - Fully diluted earnings per share 0.19 pence (H1 2011/12: 1.16 pence) - Trade receivables £19.8 million (At 31 March 2012:£18.9 million) including accrued income of £15.5 million (At 31 March 2012: £14.7 million) - Gross cash £4.0 million (At 31 March 2012:£5.3 million) - Order book £11.5 million (At 31 March 2012: £11.0 million) including £4.5 million for delivery in H2
Key Highlights and new clients
- The Company is expanding its customer and geographical base byusing its partnerships with IBM and Oracle to extend its location coverageacross Greater China and Southeast Asia. It has now established representationin Dalian, Wuhan, Shenzhen, Macau and Hong Kong in Greater China as well as inVietnam, Indonesia and Malaysia.
Commenting on the results, Wang Weidong, Chief Executive Officer said:
The revenue and profits after tax for the period are in line withCompany projections and taking into account that the majority of the Company'srevenues arise in H2, the Board remains confident that the full year resultswill be in line with those of 2012.The reduction in revenue and profit during the period has resultedfrom the strategic changes initiated two years ago, which, whilst causing aslow-down in revenues this year, will improve the longer term prospects of thebusiness. The IaaS contract clients provide a strong base from which todevelop our business but the gross margins are lower and collection periodsare significantly longer than we can achieve on SaaS contracts. The Companyhas been monitoring, evaluating and assessing the gross margins and paymentterms of all new contracts critically before accepting the business. As aresult, the inflow of new IaaS business has slowed with a consequential impacton revenues. In addition, the Company is still in the transitional phase ofseeking to capture more SaaS revenue from its existing IaaS customers, and,although it has secured two new SaaS contracts since the beginning of theyear, taking the number of SaaS clients to 20, the full benefits of thesecontracts will not be seen until next year and thereafter in the form ofregular and contracted revenue.
For further information, please contact:
GEONG International Limited www.geong.com Tel: +86 10 85869655Henry Tse, ChairmanWeidong Wang, CEODavid Tsui, CFOFinancial Adviser and Joint BrokerEvolution Securities China Ltd Tel: +44 (0)20 3362 8882Tim WorlledgeNomad and Joint BrokerfinnCap Tel: +44 (0)20 7220 0500Stuart AndrewsBen Thompson
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.GEONG is an Internet solutions and service software company managed by a worldclass management and professional team who collectively own 26% of thebusiness. The Company's mission is to help its clients improve their businessefficiency and customer satisfaction through smart Internet applications.
For more information, please visit www.geong.com.
Chairman's StatementOverviewThe last two years have provided us with very challenging tradingconditions but, despite these circumstances, we have pursued what we believeto be the correct strategy to position our company for the longer term. Wehave already begun to see the benefit of the strategy with an increase in thegross profit margins and will continue to work closely with our existingcustomers to maximise the revenue opportunities, to drive more SaaS businessin order to achieve a higher average profit margin and improve cash flow andto explore new growth areas in social business and mobile Internet. In thelast few months, the Company has entered into discussions with a number ofmajor computer companies to strengthen the co-operation platform and weanticipate further such opportunities in the coming months.Recognizing the need to remain innovative in a highly competitivemarket, we have continued to invest in R&D on our Smart Internet Platform andhave been developing a new Enterprises' Social Business Platform, which waslaunched in the middle of November, leveraging the flexibility of cloudcomputing technologies. The Company's foundations, our commitment to R&D, ourcutting edge products and our partnerships with IBM and Oracle, have enabledus to maintain strong and lasting relationships with an enviable list of bluechip clients.
The Company has continued to gain new contracts, winning four new customers in the IaaS division and generating two new contracts in the SaaS division since the beginning of the year. This takes the number of SaaS clients to 20 and increases the level of regular revenue. The value of the business won from new clients during the period is in the order of £1.1 million with an additional £4.5 million from existing clients.
The Board believes that the established platforms and cloudtechnologies will give the Company a bigger competitive edge in the market inthe future. It is also confident that its current strategy, to focus on thecapture of more SaaS business, will continue to improve overall margins andprovide more stable revenue flows in the future. The Board also recognizes theimportance of speeding up the collection of the receivables and believes thatthe benefits of the actions that have been taken should become evident in thelater part of 2013.New products and solutionsIn this highly growing Internet market, GEONG continues to developnew products and solutions. In the first half of this financial year, withinthe IaaS division, we developed several industry-specific solutions in thebanking and insurance sectors based on Smart Internet Platform. In the bankingsector, we developed two new solutions, the Financial Life Center Solution andthe Customer Portal Risk Management, in response to the requirements of bothexisting and new clients. In the insurance industry, a new Smart InsuranceCustomer Portal Solution was delivered in September. This will help us developthe potential opportunities in the industry in China by providing acompetitive edge through innovative products and solutions which meet clients'new requirements on social business and mobile Internet.We have also developed a new Enterprises' Social Business Platformto provide a one-stop SaaS service to help our more than 200 existing clientsmove their individual SaaS services to this platform. The platform willinclude a series of functions from social marketing, enterprise web analyticsand optimization, SNS and social commerce, to customer experience managementto totally cover the customers' Internet buying cycle and then to drive theirdemand in the social business. The platform now does not just includeGEONG-owned IP solutions, but also integrates our worldwide and localpartners' solutions so we can enrich our SaaS solutions more quickly.
Financial review
Revenue was £4.3 million (SaaS £1.4 million) compared to £4.7million (SaaS £1.1 million) in the same period last year, the reductionarising as we have sought to reduce the low-margin product sales. The increasein gross profit margin to 53.5% from 50.6% reflects this change and a largerproportion of SaaS income in our overall revenues. Selling expenses were £0.2million higher than the same period last year due to the provision of morecommissions to sales executives on SaaS contracts and, as previously stated wehave made a heavy investment in R&D, up by 120% on the same period last year.We anticipate that R&D spend will be at around 5% of the revenue in thefuture. The foreign exchange deficit was £0.3 million (H1 2011/12: surplus of£0.9 million), which arose on the translation of the net assets of the Chinesesubsidiaries from renminbi into pounds sterling.Gross cash balances were £4.0 million (net £1.1 million) at theperiod end compared to £5.3 million (net £2.5 million) at 31 March 2012. Therise in receivables to £19.8 million is due to the increase in accrued income,being income that has been recognised under the accounting standards IFRSbecause the appropriate milestones have been achieved but will only beinvoiced upon completion of the contract. This pattern is consistent withprevious years and the accrued come is expected to reduce in the second halfof the year as contracts are completed, invoices rendered and cash collected.The third quarter is the cash collection peak period in China and weanticipate that the cash balance will have increased and accrued income willhave decreased by the end of December 2012. We have already collected £1.1million of the receivables balance during the months of October and November.
The carrying value of intangible assets has increased by £0.8 million from last year ended, being the value of copyrights filed by the Company in relation to new products for which amortisation has been allowed in accordance with the policies established.
The order book at 30 September 2012 stood at £11.5 million and included £1.5 million in SaaS business. Approximately £5.5 million of the current order book is recurring, and £4.5 million is due for delivery in the second half of the year.
OutlookThe Board continues to view that co-operation with our partners inutilising cloud computing technologies, being one of the fastest growing areasof applications, will be the key expansion area in the future and will ensurethe competitiveness of the Company.Despite the high level of receivables from customers, the Company'soverall client base is solid and the relationships with clients are verypositive. With the expectation that the economy will improve over the nexttwelve months, more projects are envisaged. The balance sheet is strong withgross cash balances of £4.0 million at 30 September 2012 and this will improvethrough cash collections in the last quarter of the year.
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 confident of an upturn in revenue in H2 and of achieving full year results in line with those of last year.
Henry H.Y. TseChairman
Interim Condensed Statement of Comprehensive Income
For the six months ended 30 September 2012
Notes 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2012 2011 2012 Unaudited Unaudited Audited £'000 £'000 £'000Revenue 3 4,306 4,749 9,669Cost of sales (2,001) (2,344) (5,115)Gross profit 2,305 2,405 4,554 Selling and distribution (429) (224)
(478)
expenses
Administration expenses (1,215) (1,144)
(3,016)
Research and development (363) (166) (441)costsShare option expenses (5) (22) (41)Other operating income 6 (58) (11)Profit from operations 299 791 567Finance costs (140) (83) (224)Finance income 1 4 39Profit before tax 160 712 382Income tax expense 6 (89) (274) (220)Profit for the period 71 438 162 Other comprehensive incomeExchange differences ontranslating foreignoperations (304) 941
644
Total comprehensive incomefor the period (233) 1,379 806 Earnings per ordinary 7share (pence)Basic 0.19 1.16 0.43Diluted 0.19 1.16 0.43
Interim Condensed Statement of Financial Position
As at 30 September 2012
Notes 30 September 30 September 31 March 2012 2011 2012 Unaudited Unaudited Audited £'000 £'000 £'000AssetsNon-current assetsProperty, plant and 8 261 303 259equipmentIntangible assets 9 1,772 934 1,257
Total non-current assets 2,033 1,237 1,516 Current assetsInventories 481 184 387Trade receivables and 10accrued income 19,856 18,544 18,937Other receivables 1,121 1,556 1,200Cash and cash equivalents 3,989 7,300 5,290Total current assets 25,447 27,584 25,814 Total assets 27,480 28,821 27,330 Liabilities and equityCurrent liabilitiesShort-term borrowings 11 498 501 495Trade payables 781 1,203 757Other payables 1,703 2,107 1,664Tax liabilities 1,855 1,627 1,643Total current liabilities 4,837 5,438 4,559 Non-current liabilitiesLong-term borrowings 11 2,374 2,315 2,345Deferred tax liabilities 1,683 1,699 1,619Deferred revenue 10 11 3Total non-current 4,067 4,025 3,967liabilities Total liabilities 8,904 9,463 8,526 Capital and reservesShare capital 12 378 378 378Reserves 18,198 18,980 18,426Total shareholders' equity 18,576 19,358 18,804 Total liabilities and 27,480 28,821 27,330equity
Interim Condensed Statement of Cash Flows
As at 30 September 2012 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2012 2011 2012 Unaudited Unaudited Audited £'000 £'000 £'000Cash flows from operating activitiesProfit before interest and tax 299 791
567
Allowance for doubtful debts (1) 65
169
Depreciation of property, plant and 16 114
118
equipment
Amortisation of intangible assets 304 134
359
Loss on disposal of fixed assets,net - - (2)Net foreign exchange loss - 4 -
Expense for share-based payments 5 22
41 623 1,130 1,252Movements in working capitalIncrease in receivables (1,116) (1,624) (2,072)(Increase)/decrease in inventories (98) 153
(55)
Increase/(decrease) in payables 333 (417) (1,223)Cash used in operations (258) (758) (2,098)Interest paid (109) (3) (148)Income taxes paid - - -Net cash used in operating (367) (761) (2,246)activities Cash flows from investing activitiesInterest received 1 4
39
Purchase of property, plant and (17) (24) (47)equipmentPurchase of intangible assets (854) (350) (919)Net cash used in investing (870) (370) (927)activities Cash flows from financing activitiesNet proceeds from issue of - 2,400
2400
convertible notesRepayment of short term loans (488) -
-
Proceeds from short term loans 498 501
495
Net cash generated from financing 10 2,901
2,895
activities
Net (decrease)/increase in cash and (1,227) 1,770 (278) cash equivalents
Cash and cash equivalents at the 5,290 5,340
5,340
beginning of the periodEffects of exchange rate changes (74) 190
228
Cash and cash equivalents at the end 3,989 7,300 5,290 of the period
Interim Condensed Statement of Changes in Equity
For the six months ended 30 September 2012
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)Transactions with ownersShares 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 2011 378 7,616 - 13 (698) 334 7,187 3,023 17,853Comprehensive incomeProfit for the period - - - - - - 438 - 438Foreign exchange movement - - - - - - - 941 941Transactions with ownersShare options expenses - - - - - 22 - - 22Issue of convertible loans - - 104 - - - - - 104Balance at 30 September 2011 378 7,616 104 13 (698) 356 7,625 3,964 19,358 Balance at 1 April 2011 378 7,616 - 13 (698) 334 7,187 3,023 17,853Comprehensive incomeProfit for the period - - - - - - 162 - 162Foreign exchange movement - - - - - (1) 2 643 644Transactions with ownersTransfer to statutory reserves - - - 15
- - (15) - -Shares options expenses - - - - - 41 - - 41Issue of convertible loans - - 104 - - - - - 104Balance at 31 March 2012 378 7,616 104 28 (698) 374 7,336 3,666 18,804
Notes to the Condensed Financial Statements for the period ended 30 September 2012
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 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 2012 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 2012.
The results for the period ended 30 September 2012 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 2012 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 2012 2011 IaaS SaaS Consolidated IaaS SaaS Consolidated £'000 £'000 £'000 £'000 £'000 £'000Revenue and ExpensesRevenue 2,911 1,395 4,306 3,630 1,119 4,749Inter-segment - - - - - -revenueTotal Revenue 2,911 1,395 4,306 3,630 1,119 4,749ResultsSegment results 1,444 861 2,305 1,776 629 2,405Unallocated expenses (2,006) (1,534)Results from 299 871operating activitiesFinance expenses (140) (104)(net)Other income 6 (33)(expenses)Share option expense (5) (22)Income tax expenses (89) (274)Profit for the 71 438periodAssets andliabilitiesSegment assets 14,683 7,036 21,719 15,736 4,851 20,587Unallocated assets 5,761 8,234Total assets 27,480 28,821Segment liabilities 3,627 1,738 5,365 4,691 1,446 6,137Unallocated 3,539liabilities 3,326Total liabilities 8,904 9,4634. Seasonality The operating result is slightly affected by the seasonality inparticular relation to the IaaS customers which the spilt is approximately 35%in the first half of the year and 65% 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 6 months 6 months Reporting date spot rate ended ended Year ended 30.9.2012 30.9.2011 31.3.2012 30.9.2012 30.9.2011 31.3.2012 £ £ £ £ £ £ USD1 0.63240 0.61690 0.62660 0.61850 0.64000 0.62380 CNY1 0.09990 0.09560 0.09800 0.09760 0.10010 0.095106. Taxation
The Company's operating subsidiaries in PRC are subject to preferential tax rate of 15% due to their high technology enterprise status. Therefore, the tax charge for the six months ended 30 September 2012 is calculated 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 used in the calculation of basic earnings per share are as follows:
6 months ended 6 months ended Year ended 30 September 30 September 31 March 2012 2011 2012Earnings used in thecalculation of totalbasic earnings per share (£) 71,489 438,410
162,116
Weighted average number ofordinary shares for thepurposes of basic earnings pershare 37,834,622 37,834,622
37,834,622
Basic earnings per share (penceper share) 0.19 1.16
0.43
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 March 2012 2011 2012Earnings used in thecalculation of totaldiluted earnings per share (£) 71,489 438,410 162,116 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 March 2012 2011 2012Weighted average number of ordinary shares used in thecalculation of basic earnings per share 37,834,622 37,834,622
37,834,622
Shares deemed to be issued for no consideration in respect ofemployee options - 81,090 -Weighted average number ofordinary shares used inthe calculation of dilutedearnings per share 37,834,622 37,915,712 37,834,622Diluted earnings per share(pence per share) 0.19 1.16 0.43
The 7.5% £2.5 million convertible unsecured loan issued in May last yearpotentially 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
During the period, the Company purchased computer server and related items of £53,000, spent on new office renovation of £19,000, also written off some fixed assets with losses of £63,000.
9. Intangible assets
In the first half of the year, intangible assets have increased by £854,000 as the Company is in progress of obtaining six software copyrights in banking and automotive sectors.
10. Trade Receivables As at As at As at 30 September 2012 30 September 2011 31 March 2012 £'000 £'000 £'000Trade receivables 4,669 5,469 4,511Accrued income 15,504 13,227 14,746 20,173 18,696 19,257
Less: allowance for doubtful debts (317) (152) (320)Total 19,856 18,544 18,937Out of the total receivables of £19.8 million, £15.5 million was related toaccrued income and £1.73 million related to one single customer which is IBMHuawei. The accrued income is expected to be reduced in the second half ofthe year as contracts are completed, invoices rendered and cash collected. Thethird quarter is the cash collection peak period in China and we anticipatethat the cash balance will be increased and accrued income will have decreasedat the end of December 2012.
The accrued income represents amounts not yet invoiced, but for which specific milestones have been met, which is in accordance with common practice in PRC.
11. BorrowingsBank borrowingsThe short term loan was the renewal of the loan from China MerchantBank for amount of £0.498million (RMB 5.1 million). This loan bears interestat 7.32% pa and is repayable within one year. The borrowing is collateralisedand secured 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:
£'000
Proceeds of issue (net of apportioned transaction costs) 2,400,000
Equity component 103,737 Liability component at date of issue 2,296,263 Interest expense 94,007 Interest paid 93,493 Liability component at 30 September 2012 2,374,873
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 £2,374,873 at 30 September 2012 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 par value per share. The issued share capital of the Company as at 30September 2012 is 37,834,622 fully paid. There were no movements in the issuedshare 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.
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 2012, the Company had the following outstanding share options:
Number Exercise price (£) Date of grant Exercise period 326,241 0.30 23.06.2006 23.06.2009-22.06.2016 346,814 0.65 11.06.2007 11.06.2010-10.06.2017 248,424 0.56 19.06.2008 19.06.2011-18.06.2018 571,201 0.33 23.06.2009 23.06.2012-22.06.2019
15. Events after the end of the reporting period
There are no material events to report after the reporting period.
16. Approval of interim financial statements
The interim financial statements were approved by the Board of Directors on the 3rd December 2012.
XLON