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For immediate release    

China Eastsea Business Software Limited 

(AIM: CESG)

PRELIMINARY RESULTS

China Eastsea Business Software Limited ('China Eastsea' or 'the group'), which provides information technology and business process outsourcing services, announces Preliminary Results for the year ended 29 February 2008, the first set of results announced since listing on AIM on 24 January 2008.

Financial Highlights:

• Revenue up 23% to £10.8m (2007: £8.8m) - reflecting organic growth only.

• EBITDA (excluding share based payment charge and AIM listing costs) up 64% to £3.8m (2007: £2.3m).

• Profit after tax and minority interests (excluding share based payment charge and AIM listing costs) up 68% to £3.4m (2007: £2.0m).

• Net assets (excluding minority interests) increased to £11.5m (2007: £8.2m).

• Cash at bank of £4.1m (2007: £4.3m).

• EPS (after listing costs and share based payment charge ) 4.08p (2007: 3.35p).

• Adjusted EPS (excluding share based payment charge and AIM listing costs) 4.93p (2007: 3.35p).

Other Highlights:

• Reduction of dependence on largest customer, Sinopec/ZRCC, from 42% of turnover in 2007 to 20%.

• Acquisition of 60% of Ningbo Education Information Technology Ltd in March 2008.

• Acquisition of 100% of Infa Hong Kong Group Ltd in June 2008.

• Appointment of David Tsui as Finance Director and Richard Sermon as UK based Non-Executive Director.

Eric Zhu, Chief Executive of China Eastsea, said:

'In the years ahead, we expect to see a continued increase in demand for petrochemical and petroleum products in China resulting in further investment in the industry's IT infrastructure and maintenance services. Having established our credentials and reputation in the industry, we look forward reaping the benefits of our leading market position.'

ENDS

Contacts:

China Eastsea	Seymour Pierce Limited	Parkgreen Communications Ltd
David Tsui, Finance Director	Stuart Lane	Paul McManus
Tel: +86 574 2880 2289	Christopher Wren	Tel: 020 7479 7933
Mob: +86 138 1668 5470	Tel: 020 7107 8000	Mob: 07980 541 893
david.tsui@eastseagroup.com		paul.mcmanus@parkgreenmedia.com
Angie Chen, Company Secretary
Tel: +86 10 6298 8850
angie@eastseagroup.com
www.sinobpo.com

  About China Eastsea

China Eastsea provides information technology and business process outsourcing services (ITO/BPO), IT consulting and a broad range of project work to clients in the petrochemical, petroleum, power and telecommunications industries, as well as to ministries, state authorities, municipalities, agencies and other organisations throughout the government sector in China. China Eastsea has a leading position in petrochemical/petroleum IT outsourcing market with Sinopec Zhenhai Refining & Chemical Company, one of the largest oil refining companies in China, as its biggest client. 

The services provided by the Group include strategic planning, gap analysis, alignment, business and technology transformation, performance management and technology selection and optimisation according to best practices. The Group offers design, development, implementation, control and maintenance relating to the use, creation, installation or integration of software, hardware, networks, systems and technologies. It also provides total ERP solutions from design to development, implementation, training and maintenance.

The Group has proprietary technology on a management platform provided over internet, intranet and corporate portals, as well as on information integration. The Group has successfully leveraged its expertise in search engines and information management to build customised products to grow its government and telecommunications IT outsourcing market share. 

  CHAIRMAN'S STATEMENT 

FOR THE YEAR ENDED 29 FEBRUARY 2008

Our Goals

• Provide excellent IT outsourcing and business processing outsourcing services to our customers.

• Achieving a sound investment returns to our shareholders.

• Continue to take the benefits of the accumulated experiences in ITO and BPO and expand into industries other than Government and Petrochemical Sectors. i.e Power, Telecommunications and Education.

• Create inspiring services to customers of China Eastsea.

• Generate profit growth both organically and through acquisition.

Summary 

While consolidating on the success of the acquisition of the BHH in 2006, last financial year has been a challenging year for China Eastsea Group. Despite facing various difficult tasks and the delay of AIM listing caused by the changes of listing rules which have taken a lot of the management focus on the business, the team of China Eastsea had put in exceptional efforts in securing contracts and cemented solid business relationships with customers. I am pleased to announce another excellent set of results based on organic growth only for the year ended 29 February 2008, the following were achieved:

Highlights include:

• Revenue up 23% to GBP 10.8 million (2007: GBP 8.8 million).

• EBITDA (excluding share based payment charge and AIM listing costs) was GBP 3.8 million (2007: GBP 2.3 million), up 64%.

• Profit after tax and minority interests (excluding share based payment charge and AIM listing costs) up 68% to GBP3.4 million (2007: GBP2.0 million).

• Net assets (excluding Minority Interests) increased  to GBP11.5 million at year end (2007: GBP 8.2 million).

• Cash at bank of GBP 4.1 million (2007: GBP 4.3 million).

• EPS (after listing costs and share based payment charge) 4.08 pence (2007: 3.35 pence). 

• Adjusted EPS (excluding share based payment charge and AIM listing costs) 4.93 pence (2007: 3.35 pence). 

Financial and operating overview

The past year's growth was attributable to organic growth only as there were no acquisitions during the year. The growth has been reflected in the revenue, profit and net asset figures. This growth formed the base for ensuring that the Group continues as one of the leading IT outsourcing service provider for China's petrochemical and petroleum industries. 

The significant growth in revenue resulted mainly from the completion of a few major projects including a project in which the group completed a software implementation project for China Telecom with a contract value of GBP1.06 million. As part of this contract seven sets of Eastsea Full Text Search System and one set of Eastsea Intelligent Global Information Detection Software were sold to China Telecom.

The operating overheads increased by 38.5% to GBP1.8 million (2007: GBP1.3 million) in line with the expansion of the business. Our headcount continues to grow from 268 in 2007 to 311 in 2008. With the number of opportunities ahead, and in order to meet the future challenges, we are still aggressively developing our human resources pool, especially in the IT infrastructure expertise. 

Our 20 year outsourcing contract signed in 2003 with ZRCC continues to be one of the main contributors to the Group's revenue. Whilst our relationship with Sinopec and ZRCC (one of Sinopec's branch in Ningbo) remains an integral part of our expansion plans, we have significantly reduced our historic dependence on them, with them contributing 20% of revenue in 2008 against 42% in 2007.

During the year, an amount of GBP0.33 million was raised from a private investor through the issuing of equity. These funds were used for working capital requirements for our existing contracts. 

Board and management changes

We have strengthened the composition of the Board through the appointment of David Kar Ning Tsui as Executive Finance Director and a London based Non Executive Director, Thomas Richard Sermon.

David is a qualified Chartered Accountant from Australia and has over 20 years' financial experience and held a number of senior executive positions with Inchcape Plc in Hong Kong whom has already strengthened the financial operations of the group.

Thomas Richard Sermon is a very experienced director through his work with well known public companies in London and has many years in corporate governance best practice. Richard has been providing advice and monitoring the corporate governance development of the Board. 

Future development and event

The group successfully acquired 60% of Ningbo Education Information Technology Limited ('NEITL') from Ningbo Education Bureau in March 2008. NEITL is an IT outsourcing provider in the education sector in Ningbo. This investment has strengthened the co-operation with the Ningbo city government and has expanded the business into the educational sector.  

The group also successfully acquired 100% of Infa Hong Kong Group Limited ('INFA') and it's wholly owned subsidiary Beijing City Cash Business Service Limited ('BCC') in June 2008. INFA provides IT outsourcing services in Power and Telecom sectors at Shanghai, Beijing and Zhejiang. This acquisition will further enhance the group's market share in the power and telecommunication sector and establishes a solid foundation for the group in the petrochemical, government, power and telecommunication sectors.

Sinopec ZRCC started a large Ethylene project in November 2006. The total project investment is expected to be more than RMB 20 billion (c. GBP 1.5 billion). The systems are currently scheduled to be put into production in 2009. Under the terms of the contracts with Sinopec ZRCC, the company will undertake most of the IT related services for the project including software, service, consultancy and systems installation in the new facility. The project is expected to lead to further investments in Ningbo and these, in turn, may provide more opportunities for the company.

Outlook

Since the balance sheet date, the group announced that it has signed a contract to review and upgrade IT systems for the Yinzhou District Government of Ningbo City ('YDG'). The initial scope of the contract is to form a working committee to assess the current YDG IT platforms and to analyse the future IT requirements ahead of any further implementation of new systems, upgrades and training. In addition, the working committee will provide analysis of the maintenance procedures that would need to be established following the implementation of such systems. It is expected that this initial contract, plus the future implementation contracts, could be worth up to RMB 15 million (approximate GBP 1.06 million) annually for the next three years. This will further enhance the relationship with the Government of Ningbo for future co-operation within the Zhejiang areas.

Across the public sector, and due to the modernisation program procured by the Chinese government, there is constant pressure on government departments to increase efficiency while simultaneously enhancing service quality across the various departments. This, in turn, will engage private enterprises to assist in making changes and improve efficiencies which will involve BPO services. With our strong track record of success in delivering solutions in complex issues, China Eastsea is seen as an attractive partner in providing ITO / BPO service of support to government initiatives. 

It is the intention of the group to use its expertise to expand into other sectors which will have strong growth, i.e. Power and Telecommunications. Through the technical background of some directors and the acceptance of IT outsourcing concept, the group is in a unique position to actively participate in providing the ITO and BPO work to the industries.

In the years ahead, we expect to see a continued increase in demand for petrochemical and petroleum products in China resulting in further investment in the industry's IT infrastructure and maintenance services. Having established our credentials and reputation in the industry, we look forward reaping the benefits of our leading market position.

The continuation of the Sinopec oil refinery production facility at Qingdao and our close relationship with Sinopec will create further exciting opportunities for the Group. 

With a team of committed and high qualified staff and a number of exciting opportunities on the horizon, we look forward to another successful year ahead.

Financial Year 2009 Priorities

• Continue to work closely with existing top ten customers and accelerate the organic growth

• Focus in servicing top level relationship with top 30 customers

• Promote offshore capabilities

• Continue to seek synergies across the business units to maximise resources and skills allocation

• Focus on investors relationships through PR and Nomad involvement

• Conduct two more road show towards the end of the year to raise the profile for the group

  

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 29 FEBRUARY

	Notes	2008		2007
		£'000		£'000
Revenue	3	10,813		8,788
Cost of sales		(5,807)		(5,343)
Gross profit		5,006		3,445
Other operating income	6	194		3
Distribution costs		(364)		(313)
Administrative expenses		(1,171)		(672)
Foreign exchange gains/(losses)		203		(123)
Amortisation of intangibles		(132)		(9)
Depreciation of property, plant and equipment		(165)		(133)
Share based payment charge		(139)		-
Operating profit	5	3,432		2,198
Interest income	7	55		48
Finance costs		(17)		(12)
Operating profit before listing costs		3,470		2,234
Listing costs		(449)		-
Profit before tax		3,021		2,234
Income tax	10	26		(112)
Profit for the year		3,047		2,122
Attributable to:
Equity holders of the parent		2,811		2,019
Minority interest		236		103
		3,047		2,122
Equity holders of the parent		2,811		2,019
AIM listing costs		449		-
Net Profits for the Year before listing costs		3,260		2,019
Earnings per share	11	Pence		Pence
Basic		4.08		3.35
Diluted		3.68		3.10
Adjusted earnings per share
Basic		4.93		3.35
Diluted		4.45		3.10

  CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 29 FEBRUARY

	Notes	2008		2007		2008		2007
		£'000		£'000		£'000		£'000
		Group		Group		Company		Company
Non-current assets
Goodwill	12	1,184		1,116		-		-
Deferred tax assets	21	61		-		-		-
Intangible assets	13	659		375		-		-
Property, plant and equipment	14	1,525		1,311		-		-
Investments in subsidiaries	15	-		-		2,453		2,453
		3,429		2,802		2,453		2,453
Current assets
Inventories	16	178		517		-		-
Trade and other receivables	17	7,286		4,103		3,427		3,275
Cash and cash equivalents	19	4,076		4,282		74		535
		11,540		8,902		3,501		3,810
Total assets	14,969			11,704		5,954		6,263
Current liabilities
Trade and other payables	20	(1,874)		(1,711)		(69)		(31)
Current tax liabilities	20	(82)		(72)		(1)		(1)
Short term borrowings	20			(533)		-		-
	(1,956)			(2,316)		(70)		(32)
Net current assets		9,584		6,586		3,431		3,778
Non-current liabilities
Deferred tax liabilities	21	(53)		(55)		-		-
Total liabilities		(2,009)		(2,371)		(70)		(32)
Net assets		12,960		9,333		5,884		6,231
Equity
Share capital	22	3,523		3,395		3,523		3,395
Shares to be issued	23	338		675		338		675
Share premium		2,567		2,299		2,574		2,306
Share option reserve	24	608		469		608		469
Other reserves	24	(1,739)	(1,739)			-		-
Translation reserves	24	319	(23)			(9)		6
Retained earnings		5,920		3,109		(1,150)		(620)
Equity attributable to equity holders of the parent		11,536		8,185		5,884		6,231
Minority interest		1,424		1,148		-		-
Total equity		12,960		9,333		5,884		6,231

The financial statements were approved by the Board of Directors and authorized for issue on 16 June 2008.

Zhaofa Zhu	David Tsui Kar Ning
Chief Executive Director	Executive Finance Director

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 29 FEBRUARY 2008

Group	Share capital		Share Premium		Other reserves		Retained earnings		Total		Minority interest		Total
	£'000		£'000		£'000		£'000		£'000		£'000		£'000
Balance at 1 March 2006	2,499		104		(1,197)		1,090		2,496		1,033		3,529
Currency translation adjustments	-		-		(96)		-		(96)		12		(84)
Income and expense recognised in equity	-		-		(96)		-		(96)		12		(84)
Profit for the year	-		-		-		2,019		2,019		103		2,122
Total recognised income and expense for the year	-		-		(96)		2,019		1,923		115		2,038
Issue of shares	896		2,195		-		-		3,091		-		3,091
Shares to be issued	-		-		675		-		675		-		675
Balance at 28 February 2007	3,395		2,299		(618)		3,109		8,185		1,148		9,333
Currency translation adjustments	-		-		342		-		342		40		382
Income and expense recognised in equity	-		-		342		-		342		40		382
Profit of the year	-		-		-		2,811		2,811		236		3,047
Total recognised income and expense for the year	-		-		342		2,811		3,153		276		3,429
Issue of shares	128		548		-		-		676		-		676
Transaction costs	-		(280)		-		-		(280)		-		(280)
Shares to be issued	-		-		(337)		-		(337)		-		(337)
Share based payments	-		-		139		-		139		-		139
Balance at 29 February 2008	3,523		2,567		(474)		5,920		11,536		1,424		12,960

  COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 29 FEBRUARY 2008

Company	Share capital		Share  Premium		Other reserves		Retained earnings		Total
	£'000		£'000		£'000		£'000		£'000
Balance at 1 March 2006	2,499		104		475		(488)		2,590
Loss for the year	-		-		-		(132)		(132)
Total recognised income and expense for the year	-		-		-		(132)		(132)
Issue of shares	896		2,202		-		-		3,098
Shares to be issued	-		-		675		-		675
Balance at 28 February 2007	3,395		2,306		1,150		(620)		6,231
Currency translation adjustments	-		-		(15)		6		(9)
Income and expense recognised in equity	-		-		(15)		6		(9)
Loss for the year	-		-		-		(536)		(536)
Total recognised income and expense for the year	-		-		(15)		(530)		(545)
Issue of shares	128		268		-		-		396
Shares to be issued	-		-		(337)		-		(337)
Share based payments	-		-		139		-		139
Balance at 29 February 2008	3,523		2,574		937		(1,150)		5,884

  CONSOLIDATED CASH FLOW STATEMENT 

FOR THE YEAR ENDED 29 FEBRUARY 2008

	Notes	2008		2007		2008		2007
		£'000		£'000		£'000		£'000
		Group		Group		Company		Company
Net cash from/(used in) operating activities	25	482		513		(802)		(2,586)
Investing activities
Interest received		55		48		11		16
Purchase of property, plant and equipment		(339)		(168)		-		-
Acquisition of subsidiary net of cash		-		(129)		-		-
Expenditure on intangibles		(395)		(233)		-		-
Net cash (used in)/from investing activities		(679)		(482)		11		16
Financing activities
Proceeds on issue of shares		330		2,291		330		3,098
Proceeds from borrowings		-		533		-		-
Repayment of borrowings		(533)		(533)		-		-
Proceeds on disposal of investments		-		3		-		-
Net cash (used in)/ from financing activities		(203)		2,294		330		3,098
Net (decrease)/increase in cash and cash equivalents		(400)		2,325		(461)		528
Cash and cash equivalents at beginning of year		4,282		2,142		535		7
Exchange difference		194		(185)		-		-
Cash and cash equivalents at end of year	19	4,076		4,282		74		535

The full Directors' Report and Financial Statements for the year ended 29 February 2008 are available for download from the company website (www.sinobpo.com) and can be viewed as a pdf via the link at the beginning of this announcement.

ENDS

ENDFR FJMFTMMITBPP