23 Jun 2009 07:00
23 June 2009 GEONG International Limited ("GEONG" or "the Company") Preliminary Unaudited Results
GEONG International Limited (AIM: GNG), the AIM listed China based provider of enterprise content management (ECM) software and solutions, today announces its unaudited preliminary results for the year ended 31 March 2009.
Financial Highlights:
- Turnover up 93% to £14.7 million (2008: £7.6 million) - Profit before tax up 48% to £1.7 million (2008: £1.1 million) - Underlying profit before tax* up 55% to £2.0 million (2008: £1.3 million) - Basic earnings per share 4.3 pence (2008: 3.5 pence) - Adjusted basic earnings per share* 5.3 pence (2008: 4.0 pence) - Net cash up 78% to £3.6 million (2008: £2 million) - Order book of £10.6 million (of which £5 million recurring revenue)
(*excluding amortisation and share based expenses)
Operational Highlights:
- Implementing new SaaS and IaaS (Information as a Service) delivery models - Improved cash collection resulting in positive cash inflow from operating activities of £1.0m (2008: cash outflow of £1.5m) - Implemented new sales strategy for SmartBox in reaction to changes in Chinese SME market - 21 new client wins during the year including Rural Bank of Shangdong, Rural Bank of Dongguan and Hauwei - Amit Thakar appointed as Chief Financial Officer and Company Secretary - Stuart Lane appointed as Non-Executive Director
Wang Weidong, Chief Executive Officer, commented: "GEONG has enjoyed yet another year of strong growth in both revenues and profits. To build upon this we have recently implemented a number of operational and strategic changes, including a significant strengthening of the Board and management team, and this now leaves us better placed to grow the business. With a strong order book, improved cash collection, and our core market of China continuing to outperform, we are confident of maintaining our momentum through 2010 and expect to record another year of solid growth."
For further information, please contact:
GEONG International Limited www.geong.com Tel: +86 10 5222 0999Henry Tse, Chairman Weidong Wang, CEO Seymour Pierce Tel: +44 (0)20 7107 8000John Depasquale ICIS Tel: +44 (0)20 7651 8688Bob Huxford Caroline Evans-Jones
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 Group'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 STATEMENT
Overview
I am pleased to report that 2009 was another year of substantial growth for GEONG, despite the challenges that resulted from the global recession. During the year we succeeded in increasing revenues by 93% to £14.7 million (2008: £ 7.6 million) and pre-tax profit by 48% to £1.7 million (2008: £1.1million). As a result of this, we were recognised for the fourth year running in the Deloitte Fast 500 Asia Pacific list of growth companies.
Additionally, we have been successful in significantly improving our cash collection leading to a positive cash inflow from operating activities of £1.0 million during the year (2008: cash outflow of £1.5 million). Our net cash balance at 31 March 2009 was £3.6 million, 78% higher than at the same time last year (2008: £2 million).
As reported in our trading statement on 3 April 2009 the global recession did have a negative effect upon our results for the year, primarily as a consequence of a downturn in China's SME market during the second half of our financial year. This is the prime target market for our SmartBox product, and we initially incurred an additional £0.4m marketing expense in an attempt to combat the downturn.
Since this time however, we have significantly reduced our sales and marketing costs relating to SmartBox by moving from a direct sales model to a partner-led sales model and we are also in the process of implementing a SaaS (Software as a Service) delivery platform for the product, which we are confident will further improve cash collection for the Company going forward. We are also pleased to report that, of the markets in which we operate, Banking and Telecom have remained strong in the first quarter of 2009 while the Automotive industry is showing positive signs of recovery.
We were very pleased to welcome Amit Thakar to our management team in the role of CFO during the period and were further pleased to announce his appointment to our Board today. Amit has spent many years working variously as an accountant, equity analyst and economist and has over 14 years experience within the City of London. We were also delighted to announce the appointment of Stuart Lane to our Board today as a non-executive director. Stuart has 23 years experience working in the City of London during which time he has been lead adviser to the board on some 150 IPOs and several hundred other transactions. The appointments of both Amit and Stuart are expected to be invaluable to us going forward.
Peter Williamson and Bo Yuan will retire from the Board on 23 June 2009 and we would like to thank them for their significant contribution to the Company during their time with us.
I would also like to take this opportunity to thank all of our staff, whose hard work and commitment, despite the global recession, enabled us to report significant growth during 2009. At the year end our order book stood at £10.6 million, of which £5 million was recurring revenue, and this leaves us well positioned to continue to deliver significant growth into 2010.
Financial ReviewRevenue Breakdown by Division 2009 (£000) 2008 (£000) Services 10,163 3,795 Software 186 1,671 Third party products 4,317 2,146 Total 14,666 7,612
Group revenues increased by 93% to £14.7 million (2008: £7.6 million). Revenue from the Services division, relating chiefly to sales of Portal Age solutions, showed strongest growth, recording a 168% increase to £10.2 million (2008: £3.8 million). This substantial improvement resulted primarily from a significant upturn in demand for PortalAge based solutions and services from within the Telecommunications sector. This sector continues to show strong growth and GEONG has had the benefit of securing large contracts with China Mobile, China Telecom and Huawei during the period.
Third-party product sales also more than doubled to £4.3 million (2008: £2.1 million) as GEONG is increasingly working as the prime contractor in providing total end-to-end solutions to clients.
In contrast, Software revenue, which relates to SmartBox as a stand alone business unit, saw a significant decline during the period with revenues falling to £0.2 million (2008: £1.7 million). SmartBox is now primarily being sold as a component of major PortalAge service contracts, and it is therefore expected that Software revenues will not be reported separately going forward.
Gross profit increased by 66% to £5.9 million (2008: £3.6 million) despite a decline in gross margins from 47% to 40%. This margin compression was entirely attributable to the decline in revenues from SmartBox products.
Operating profit increased by 48% to £1.7 million (2008: £1.1 million) despite a £0.4 million increase in sales and marketing costs and an associated £0.3 million increase in administrative expenses. These additional costs were incurred in an effort to counter the negative effects on sales of the SmartBox product caused by a deterioration in China's SME market. The sales strategy for SmartBox has subsequently been altered and these additional costs have been removed from the business.
A positive cash flow of £1.0 million was generated from operations during the year (2008 saw an outflow of £1.5 million cash). This was achieved through a concerted and efficient debtors collection policy. There was a net cash improvement of £1.6 million during the year, from an opening position of £2.0 million, to a closing net cash position of £3.6 million. Strong trading, particularly in the Services business unit, also saw a substantial increase in trade receivables to £10.8m (2008: £5.4m).
The Group's successful strategy of targeting and winning large long-term contracts has led to extended payment terms with clients resulting in an unusually high level of debtor days. The Group remains convinced that debtor days will continue to decline as the Group rolls out its new SaaS and IaaS delivery models. This is expected to result in payment terms that are almost instantaneous, as the offering will be sold on a per-usage basis.
Operations
PortalAge
Sales of PortalAge, our ECM product suite, aimed at large enterprise customers, performed well throughout the year enjoying particular success in the core markets of Banking and Telecommunications. We have continued to invest in developing the PortalAge product set, launching new versions of the PortalAge Content Management Solution (CMS) and PortalAge Infrastucture products during the period.
These new products include solutions that, among other things, enable clients to build eBrands and to perform eMarketing, eTrading and eService functions. Through these products GEONG's clients can successfully transfer their traditional business models online, thereby expanding their presence, improving revenues and reducing costs.
SmartBox
GEONG's SmartBox product is a scaled down version of PortalAge sold as an off-the-shelf package primarily to the SME market. During the year, we integrated our SmartBox product with the PortalAge platform to launch a new solution for internal information management, targeted at both SME's and large corporates. This solution, which includes EIP, eCollaboration, eLearning, eControl and Risk Management, will work towards improving employee productivity and business management.
Market
With GEONG's products specifically tailored for our core market of China, the Company is pleased to report that the Chinese economy continues to outperform most other world markets, with GDP up 6-7% in Q1 2009 and showing signs of this continued trend in Q2 (Source: National Bureau of Statistics of China, April 2009). Additionally, the focused industries in which GEONG operates continue to perform well, specifically as the beneficiaries of a targeted Government incentive plan.
Among GEONG's targeted industries, the automotive industry, which experienced a slowdown in Q4 2008, has shown increased sales of 3% in Q1 2009 (Source: 21stCentury Business Highlight, April 2009) as well as signs of renewed IT investment.
The Chinese banking sector showed a net profit increase of 30.6% in 2008 to RMB583.4 billion (Source: China Banking Regulatory Committee), and has been furthered bolstered by an increase in Government investment in Q1 2009 as part of the national incentive plan.
In telecommunications, the Government has pledged RMB400 billion for 3G development over the coming three years, of which RMB170 billion is expected to be spent in 2009. (Source: China Centre Television, Dec 2008).
However, the manufacturing industry continues to demonstrate recessionary characteristics in the form of delayed decision-making, with exports expected to be down this year despite signs of a boost in domestic demand.
The targeted market for GEONG's SmartBox product, the SME market in China, experienced a slowdown in the second half of 2008. This resulted primarily from the negative impact of the global financial crisis upon China's export market, in which the majority of GEONG's SmartBox customers operate.
However GEONG has taken measures to counter the impact by significantly reducing direct marketing expenses for SmartBox and has instead adopted a partner-based sales strategy going forward. This strategy has proven to be effective with agreements signed already with partner companies, including EMC. GEONG expects to reduce costs by £0.6 million per annum as a result of this new strategy and further expects outstanding orders to complete in Q1 2009.
Strategy
Our core strategy for existing large PortalAge customers is to shift from being simply a supplier of ECM software solutions to becoming the provider of total end-to-end ECM solutions encompassing all of GEONG's consulting, software solutions and service offerings.
To accelerate this process we are focussing on the roll-out of our SaaS (Software as a Service) and IaaS (Information as a Service) offerings, which are web-based methods-of-delivery of our software and consultancy services respectively. These offerings bring capital expenditure savings to our customers by enabling them to pay for our software and services on a per-usage basis as opposed to a traditional up-front license fee. Additionally, this business model is expected to strengthen GEONG's balance sheet by increasing recurring revenue and improving cash collection.
As referred to previously, the SME market, into which we sell our SmartBox product, saw a slowdown in the second half of 2008. In response to this we rapidly altered our strategy for SmartBox, reducing the number of direct sales staff from 43 to 8, which is expected to reduce costs by £0.6 million per annum.
Going forward we are implementing the same `Go-Deep-and-Broad' sales strategy for SmartBox that we successfully use to sell our PortalAge products. This involves the leveraging of our existing client base to sell into their resellers or affiliate companies, thereby reduce our direct marketing expenses. This strategy is already gaining traction and we have signed an agreement with a leading worldwide provider of storage solutions to install SmartBox into its 800 plus resellers in China.
Finally, we continue to seek opportunities for geographical expansion and are working closely with business providers in the UK and Canada to explore overseas opportunities.
Current Trading
Sales of PortalAge, SmartBox and consultancy services continued to perform well across our core markets of Financial Services and Telecommunications throughout the months April to June 2009. In Financial Services we continued to sign contracts with the top 5 banks and with major second tier banks, such as China Construction Bank (`CCB"), Agricultural Bank of China (`ABC'), Guangdong Development Bank (`GDB'), Gaungfa Securities and Bank of Dongguan using both PortalAge and SmartBox related solutions. Contract signings in Telecommunications included deals with China Mobile, the biggest telecommunications operator in China, and Huawei, the biggest telecommunications equipment provider in China.
We are pleased to have renewed a number of our long term agreements with existing clients, as well as having signed an additional long term agreement. As a result we have witnessed an improvement to our order book post the year end and have good revenue visibility into 2010. We have renewed our Core Service Supplier (`CSP') Agreement with IBM Global Business Service (`GBS') as well as our yearly Freelancer Management Agreement with Huawei, and with our SaaS offering, we renewed our yearly Supplier Agreement with Lenovo Holdings for our SaaS model. Additionally, we are pleased to have signed a new yearly CSP Agreement with IBM Global Technology Service (`GTS') for the period of May 2009 to April 2010.
New partnerships signed include an agreement with Microsoft to provide consulting and development to ABC eBusiness Portal. In addition we have signed an agreement with Momentum, a worldwide leader of User Experience Design consultancy services in Silicon Valley, to provide User Experience Design consultancy services to a large number of companies within the financial and telecommunications sector. This has already resulted in numerous contract wins with clients including CCB, China Unionpay, Bank of Dongguan, GDB and China Unicom.
Outlook
GEONG has enjoyed yet another year of strong growth in both revenues and profits. To build upon this we have recently implemented a number of operational and strategic changes, including a significant strengthening of the Board and management team, and this now leaves us better placed to grow the business. With a strong order book, improved cash collection, and our core market of China continuing to outperform, we are confident of maintaining our momentum through 2010 and expect to record another year of solid growth.
Henry H.Y.TseChairman23 June 2009GEONG international Limited
Consolidated Income Statement for the year ended 31 March 2009
Note 2009 2008 £'000 £'000 Revenue 14,666 7,612 Cost of sales (8,728) (4,033) Gross profit 5,938 3,579 Other income 30 66 Research and development cost (307) (188) Selling and distribution expenses (1,129) (551) Administrative expenses (2,432) (1,730) Other operating expenses (113) (2) Underlying operating profit* 1,987 1,277 Amortisation charge (201) (103) Share based payment charge (99) (41) Operating profit 1,687 1,133 Finance cost - (10) Finance income 2 16 Profit before tax 1,689 1,139 Taxation 3 (330) (62) Profitfor the year attributable to equity 1,359 1,077shareholders of the parent company Earnings per ordinary share (pence) Basic 4 4.31 3.53 Adjusted basic* 4 5.26 4.00 Diluted 4 4.16 3.43
*Operating profit before amortisation and share based payment charges
Consolidated Balance Sheet as at 31 March 2009
2009 2008 £'000 £'000 ASSETS Non-current assets Property, plant and equipment 559 435 Intangible assets 514 346 Total non-current assets 1,073 781 Current assets Inventories 281 191 Trade receivables 10,815 5,353 Other receivables 1,333 761 Cash and cash equivalents 3,567 1,996 Total current assets 15,996 8,301 Total assets 17,069 9,082 LIABILITIES & EQUITY Current liabilities Trade payables 1,781 429 Other payables 1,224 924 Tax payable 1,052 96 Total current liabilities 4,057 1,449 Non-current liabilities Deferred taxation 521 105 Total non-current liabilities 521 105 Total liabilities 4,578 1,554 Capital and reserves Share capital 315 315 Reserves 12,176 7,213 Total shareholders' equity 12,491 7,528 Total liabilities & equity 17,069 9,082
Consolidated Cash Flow Statement for the year ended 31 March 2009
2009 2008 £'000 £'000 Operating activities Profit from operations 1,689 1,139 Adjustments for: Interest income (6) (16) Interest expense - 10 Allowance for doubtful debts 3 35 Depreciation of property, plant and equipment 144 68 Amortisation of intangible assets 201 103 Share based payment charge 99 41
Operating cash flows before movement in working capital 2,130 1,380
Increase in inventories (8) (118) Increase in trade and other receivables (2,288) (3,276) Increase in trade and other payables 1,210 546 Cash generated from/(used in) operations 1,044 (1,468) Interest paid - (10)
NET CASH GENERATED FROM/(USED IN) OPERATING ACTIVITIES 1,044 (1,478)
Investing activities Interest received 6 16 Purchase of property, plant and equipment (85) (388) Purchase of intangible assets (221) (128) NET CASH USED IN INVESTING ACTIVITIES (300) (500) Financing activities Net proceeds from issue of shares - 3,301 Repayment of borrowing - (36) Short term loans - (147) NET CASH GENERATED FROM FINANCING ACTIVITIES - 3,118NET INCREASE IN CASH AND CASH EQUIVALENTS 744 1,140 Effect of exchange rate changes 827 341 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,996 515 CASH AND CASH EQUIVALENTS AT THE END OF YEAR 3,567 1,996
Consolidated Statement of Changes in Equity for the year ended 31 March 2009
Share Share Merger Other Equity Retained Exchange Total Capital Premium Reserve reserve Compensation Earnings Reserve Reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 April 263 2,183 (698) 2 65 860 29 2,7042007 Net profit - - - - - 1,077 - 1,077for the year Issue of 52 3,357 - - - - - 3,409share capital Share issue - (108) - - - - - (108)costs Share option - - - - 41 - - 41granted Transfer to - - - 1 - (1) - -statutory reserve Foreign - - - - - - 405 405exchange movement Balance at 31 315 5,432 (698) 3 106 1,936 434 7,528March 2008 Net profit - - - - - 1,359 - 1,359for the year Share option - - - - 100 - - 100granted Foreign - - - - - - 3,504 3,504exchange movement Balance at 31 315 5,432 698 3 206 3,295 3,938 12,491March 2009
NOTES TO THE FINANCIAL INFORMATION
1. Financial Information
The preliminary results were approved by the Board of Directors on 23 June 2009. The financial information set out above does not comprise the Company's statutory financial statements for the year ended 31 March 2009, but is derived from those financial statements. Whilst the auditors have yet to sign their report on the 2009 accounts, they anticipate issuing an unqualified report. The statutory financial statements for the year ended 31 March 2009 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement. The financial information for the year ended
31 March 2008 is derived from the financial statements for that year. The auditors have reported on the 2008 financial statements; their report was unqualified.
The directors do not propose a dividend in respect of the year ended 31 March 2009 (2008: nil).
2. Basis of Preparation
These preliminary results have been prepared in accordance with the accounting polices adopted by the Company which are consistent with those adopted in the annual report and accounts for the year ended 31 March 2008. These preliminary results have also been prepared in accordance with International Financial Reporting Standards.
3. Taxation
The tax expense recognised in the consolidated profit and loss account:
2009 2008 £'000 £'000 Current year: Current tax 327 - Deferred tax expenses 3 62 330 62
Reconciliation of tax charge:
2009 2008 £'000 £'000 Profit before tax 1,689 1,139 Tax calculated at domestic tax rates applicable to 300 171profits in the respective countries Tax effect of non-deductible expenses - 41 Tax effect of exempt income (96) (118) Tax effect of (income)/expenses not subject to tax 123 (94) Timing differences 3 62 Tax expense for the year 330 624. Earnings per ShareBasic earnings per share
The calculation of basic earnings per share at 31 March 2009 was based on the profit attributable to equity shareholders of the Company of £1,359,249 (2008: £1,077,986) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2009 of 31,537,032 (2007: 30,516,772), calculated as follows:
Weighted average number of ordinary shares
2009 2008 (Number) (Number)
Issued ordinary shares at beginning of the year 31,537,032 26,292,032
Effect of shares issued - 4,224,740
Weighted average number of ordinary shares at end 31,537,032 30,516,772 of the year
Basic earnings per share (pence) 4.31 3.53
Diluted earnings per share
The calculation of diluted earnings per share at 31 March 2009 was based on profit attributable to equity shareholders of the Company of £1,359,249 (2008: £1,077,986) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2009, calculated as follows:
Weighted average number of ordinary shares (diluted)
2009 2008 (Number) (Number)
Weighted average number of ordinary shares at end 31,537,032 30,516,772 of the year
Effect of conversion share options 1,104,986 942,569
Weighted average number of ordinary shares for 32,642,018 31,459,341 diluted earnings per share
Diluted earnings per share (pence) 4.16 3.43Adjusted earnings per share 2009 2008 (£000) (£000) Profit for the year attributable to equity 1,359 1.078shareholders of the parent company Amortisation charge 201 103 Share based payment charge 99 41 Adjusted profit on ordinary activities after 1,659 1,222taxation Adjusted earnings per share (pence) - basic 5.26 4.00 - diluted 5.08 3.88
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