Final Results

24 Jun 2008 07:00



ET-CHINA.COM INTERNATIONAL HOLDINGS LIMITED

("Et-china", "the Group" or "the Company")

Preliminary results for the year ended 31 December 2007

Et-china, a leading travel services group in the fast growing region of South China, announces its preliminary results for the year ended 31 December 2007.

Highlights:

*figures in £ are for illustrative purposes only, all translated using the RMB:£ 2007 year end average exchange rate of 14.58

**Proforma figures are for illustrative purposes only. They include the results for GZL for the whole of 2007 rather than from the date of its acquisition on 26 April 2007. No adjustments have been made to any acquisition accounting entries. The proforma figures are unaudited.

***Net Loss included part of the IPO cost of £1.4 million.

Strong growth in each of the Group's divisions

GZL, package holiday division achieved net revenues of RMB 1,226.4 million since its acquisition by Et-china.

Et-china, serving Frequent Independent Travel market, net revenue of RMB 51.4 million

e-ticketing JV, net revenue increase to RMB 28.2 million

Extended exclusive e-ticketing JV with China Southern Airlines to 2018

Balance sheet strengthened，cash and cash equivalents at end of 2007 was RMB 187.6 million or £12.9 million

Successful £5.5 million fundraising from Och-Ziff, Ellerston and LFG in May 2008

Matthew Ng, President and Chief Executive Officer, commented: 

"The current year is progressing well and despite the extreme weather conditions experienced earlier in the year, the Chinese travel sector as a whole continues to demonstrate dynamic progress.  The Group's southern focus, where Guangzhou Airport is seeing the fastest growing passenger traffic of any of China's airports, ensures we are well placed to take advantage of this growth. Now, with the latest £5.5 million fund raising, we are well positioned to accelerate our growth and acquisition plans throughout 2008 and we can look forward with some considerable degree of confidence."

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ET-CHINA.COM INTERNATIONAL HOLDINGS LIMITED

("Et-china", "the Group" or "the Company")

Preliminary results for the year ended 31 December 2007

Chairman's Statement

I am pleased to announce the Group's first full year results since it joined the AIM market in August 2007. It has been a year in which the Company has made significant progress, on a number of fronts, as it builds upon its established position as the leading travel services provider in South China.

Results

The Group delivered a strong trading performance for the whole of 2007, benefiting from the buoyant Chinese travel market with a particularly good performance from its GZL tour operating business which became a subsidiary in April 2007. 

Overall Group revenue for 2007 amounted to RMB 1,291.6 million (£88.6 million) and gross profit was RMB 114.6 million (£7.9 million). However, these results only include an 8 month contribution from GZL. To provide a more representative picture of the enlarged Group's underlying performance proforma information has been provided as if the Group had existed in its current form throughout the period. The pro-forma figures show revenue of RMB 1,709 million (£117 million) and a gross profit of RMB 163 million (£11 million). 

The loss after income tax for the period was RMB 50.4 million (£3.5 million), including costs of RMB 20.8 million (£1.4 million) in relation to the IPO. The stated loss before income tax is RMB 43.3 million. While no direct comparable numbers are available for the Group the two main operating subsidiaries are significantly ahead of their 2006 results as independent businesses. 

GZL, which is one of the largest travel package holiday providers in South China providing tour packages through 160 high street stores and a 24x7 call centre, served approximately 1 million package tour travellers generating proforma net revenue of RMB 1,643million (£112.7 million), an increase of 39% over the corresponding period last year.  Proforma gross profit was RMB 148 million(£10 million), a 36% increase over last year. Since becoming a subsidiary in April 2007, the Group's share of the revenue and gross profit respectively were RMB 1,226.4million (£84 million) and RMB 100 million (£6.8million). Whilst the percentage split of travel destinations remained broadly similar to the prior year; being 50% outbound, 45% domestic and 5% inbound, the absolute number of inbound travellers has increased, reflecting the Group's continued effort to attract additional visitors, particularly from Japan and Korea.

In 2007, the Et-china Limited subsidiary ("Et-china"), which is primarily focused on the frequent independent traveller ("FIT") and corporate account markets, also achieved strong growth. Gross revenue increased to RMB 446 million (£30.6 million), net revenue was up 120% to RMB 65 million (£4.5 million) and gross profit grew to RMB 14 million (£1 million) in 2007.

The e-ticketing business, a joint venture with China's largest airlines, China Southern Airlines, achieved an 85% increase in total transaction value and 53% increase in net revenue over the whole year compared with 2006. Total transaction value was RMB 7,808 million(£536 million) and net revenue RMB 28.2 million (£2 million).

In addition to the strong performance of the package tour operations, GZL has seen a substantial strengthening of its balance sheet due to the developments at one of its long-term investments, the equity investment in the GrandBuy Department Store in Guangzhou.  It was a small investment made many years ago before Et-china.com International acquired the controlling stake in GZL.  GrandBuy went public in November 2007 on the Shenzhen Stock Exchange located in South China.  The Grandbuy investment has been independently valued at RMB 82.5 million (£5.6 million) at year end. The difference between the fair value and the original cost of RMB 3.6 million is RMB 78.9 million (£5.4 million).

Key Events

The move to have its shares listed on 3 August 2007 on the AIM market of the London Stock Exchange was made to facilitate the Company's strategy of rapidly becoming a consolidator of tour operations and travel distribution in South China. From our headquarters in Guangzhou, the capital city of Guangdong Province, we are well positioned to serve the nine provinces which make up South China with its population of 450 million people. With our listing we raised £4.4 million net cash through a placing of 9,410,795 new ordinary shares. 

The money raised at listing was supplemented during early May 2008 with a further fund raising of £5.5 million in the form of Zero Coupon Convertible Bonds with the latter funds being targeted both to pursue our identified strategic acquisitions in the tour operator and travel agency sectors and to uplift our FIT marketing to build upon the significant growth that we are already achieving in that area of our business.

During April 2007 we signed separate agreements to acquire an additional 22.07% of GZL from GZL's trade unions and non-management individual shareholders, which brought our holding in GZL to 50.6% prior to the AIM admission. This represents an important step in our strategy to become a leading player in the fast growing FIT leisure travel market as this enables ETC and GZL to combine their supplier relationships and distribution network to further increase market share in their respective customer segments. On the 10 March 2008 we further increased our shareholding in GZL to 53.9% with the purchase of 3.3% from the five senior executives of GZL who exchanged those GZL shares for shares in Et-china plus cash.

Our joint venture with China Southern Airlines to exclusively provide sales and services for all CSA's e-ticketing was extended in June 2007 and the contract will now run to 2018. This is a direct testament to our technological capability and our excellent working relationship with CSA. This contract extension will allow us to look beyond purely providing sales support and e-ticketing and focus on becoming a travel products consolidator based on China Southern Airline product.

Vision

We remain committed to our original vision: To become the leading and most profitable supplier of leisure travel products in South China. We will do this through our superior product offering and our excellent customer service and by leveraging our extensive distribution channels in the region.

Strategy

We will continue to seek to increase long term shareholder value by focusing on the attractive South China region and extending our leadership in this area. Considering the highly competitive nature of travel in China, we believe our focus on a defined geographic market will enable us to effectively channel our investments into our brands, our technology and, of course, our customer service delivery. The following are the strategies that we specifically intend to pursue in order to achieve our revenue and profit growth targets:

Strengthen awareness of ETC and GZL brands with high-profile marketing campaigns;

Pursue selective strategic acquisitions in South China that will allow us to expand our reach and our customer base;

Aggressively target the Frequent Independent Traveller segment with the aim to establish market leadership in South China for this traveller type;

Exploit the potential synergy benefits between all of our portfolio companies;

Rapidly integrate the operations of each acquired company to improve profitability and drive growth; and

Maintain low overhead costs.

People

The Group's strategy was conceived by Matthew Ng, the President and Chief Executive Officer, and he has worked tirelessly this year building the business and, of course, successfully listing Et-china on AIM. The entire Board has worked in harmony to shape the business, to take it to where it is today and I should like to record my thanks to each and every one of them.

Given that first class senior executives are key to the delivery of a successful business, the commitment, passion and focus on excellent customer service by everyone who works for us is equally important. I wish to thank everybody across the Group for their consistent hard work and dedication to the Company.

Outlook

The current year is progressing well and the continuing revaluation of the Renmimbi will have a beneficial effect on our results as it is likely to encourage outbound travel but there are factors that have temporarily slowed the growth in our travel and tour business in the first quarter. The Chinese New Year boom was somewhat moderated by some of the worst weather conditions in China for many years. Additionally the security levels being applied to air travel in connection with the forthcoming Olympic Games is increasing delays at airports in China which is detering some people from travelling, as well as the very tragic May 12 earthquake in Sichuan Province. However, we firmly believe that following the Olympics there will be a marked increase in the number of people travelling throughout China.

However, the Chinese travel industry is continuing to demonstrate strong underlying growth. Air passenger numbers have soared from around 7 million a year in the mid 'eighties to 185 million travellers in 2007 and this figure is expected to show further growth in 2008 and beyond. Moreover, we have the added benefit of our focus on the south. Guangzhou Airport is ranked as the second busiest airport in China after Beijing with 31 million passengers in 2007, and it is also one of the fastest growing airports in terms of passenger numbers with an annual growth rate of 18% in 2007. 

We are clear on our strategic direction going forward and now, with our latest fundraising, we are well positioned to accelerate our growth and acquisition plans throughout 2008. This, together with the quality of our executive team and the people they lead, enables us to look forward with some considerable degree of confidence. 

Ian Smith 

Chairman

23 June 2008

  Consolidated income statement

for the year ended 31 December 2007

  Consolidated balance sheet at 31 December 2007

  Consolidated cash flow statement 

for the year ended 31 December 2007

  Basis of preparation 

The Group's results incorporated in the preliminary announcement have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs').

The preliminary announcement for the year ended 31 December 2007 was approved by the Board of Directors on 24 June 2008. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2007 but is derived from those accounts. The auditors have reported on those accounts; their report was unqualified.  

This preliminary announcement has been prepared in accordance with relevant legislation, which may differ from legislation in other jurisdictions.

The Annual Report and Accounts for the year ended 31 December 2007 will be sent to shareholders in June 2008  

1. Loss per share

The calculation of the basic and diluted loss per share is based on the following data: