Last checked at 8 Dec 2008 10:00
SINOSOFT TECHNOLOGY PLC
"SINOSOFT" OR THE "COMPANY"
TRADING UPDATE
Sinosoft (AIM: SFT), the China-based developer and provider of software and IT solutions to Chinese regional and national government agencies and export enterprises, provides an update to shareholders on the Company's current trading ahead of its year end on 31 December 2008.
Overview
Despite the current economic climate impacting on profit margins, Sinosoft is pleased to announce that the Company's revenue for the full year is expected to be broadly in line with market forecasts. The pressure on margins and consequent impact on net profit, which is expected to be significantly below expectations, is mainly due to the Company's investment in marketing and research and development ("R&D") in order to support the future success of the business.
Sinosoft's R&D department continues to provide the Company with a variety of cutting edge products for the e-government and information integration divisions. In order to build on its success, Sinosoft has increased the number of personnel in this area to approximately 230. The increase in marketing and operational costs is due to the promotion of SAT products outside Jiangsu province, an increase in rental expenses as a result of extra floor space being rented in Sinosoft's current office building and the rental of additional offices in Shandong and Henan.
Revenue growth has been suppressed by delays to a number of small contracts, emanating from Sinosoft's e-government and information integration divisions. These contracts have been put on hold as a result of a culmination of the present economic situation and government agencies in China being forced to trim their budgets following the Sichuan earthquake. However, there continues to be strong demand from customers for our products and once the worst of the financial crisis is over, the board expects the flow of business to return to normal.
Export tax software
On 1 December 2008 the Central State Administration of Taxation ("SAT") picked two districts in the city of Chongqing for final installation and live testing of the Company's export tax software. It is anticipated that following the completion of testing in Chongqing all testing will be completed for small to medium size provinces. The SAT will arrange for Sinosoft to begin to carry out software installation to taxation offices in 2009. The Company will update the market once the work in Chongqing has been completed and there is a definitive timetable. For larger provinces further testing is required.
Despite the slow progress with the SAT contract, income for the year from the Company's export tax products will be ahead of our expectations due to sales of an add-on service Information Collection. For Information Collection, Sinosoft has developed new software to collect information from a client's computer system for the purpose of generating a tax refund application. This will help to speed up the application process. Sinosoft is now selling this software at RMB4,000 and to its existing customer base of over 30,000 in Jiangsu.
E-government solutions
The new products launched in the first half of 2008 have proven to be popular and this division remains central to Sinosoft's growth over the coming years. Despite their popularity, there has been a decrease in the sale of E-government software in the fourth quarter, caused by the current financial crisis and a number of local and provincial governments in the PRC suspending discretionary activity until 2009.
Information integration software
This division has also taken a temporary hit to income as a result of the current financial climate. Information integration software is mostly sold to large international corporate clients. The global financial crisis this year has had a significant impact on many manufacturing businesses in China. As a result, these companies have reduced their IT expenditure over the short term, leading to a delay in a number of projects Sinosoft is working on.
Further information
Sinosoft is expecting to relocate its offices in the near future as its current premises are due to be re-developed by the local government in 2010. In anticipation of this relocation, the Company entered into an arrangement in August 2008 with the developer of a software park in the Pukuo area of Nanjing which is due for completion in 2010. Under the arrangement, Sinosoft deposited RMB30 million (approximately US$4.4 million) into a bank account with Shanghai Pudong Development Bank (the "Bank"). The Bank has advanced these monies to the developer and will supervise use of the funds. In return, Sinosoft receives annual interest of 10% payable on a quarterly basis, together with naming rights to the new development and the right to rent the developed properties at 60% of the market rate. The developer has provided its land use rights as security for the loan, which is fully repayable after two years.
-ends-
For further information, please contact:
Sinosoft Technology plc
Alfred Ho, Finance Director
Tel:- +(86) 25 8481 6867
Hanson Westhouse Limited Tavistock Communications
Tim Metcalfe/Richard Baty Simon Compton/John West
020 7601 6100 020 7920 3150