Print   



China Eastsea Business Software Limited 

(AIM: CESG)

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2008

China Eastsea Business Software Ltd, the AIM listed (CESG) China IT outsourcing provider announces interim results for the six months ended 31 August 2008.

Financial highlights include:

• Revenue down 5.95% to GBP3.7 million (2007: GBP3.93 million)

• EBITDA (excluding share based payment charge) was GBP0.1 million (2007: GBP1.0 million), down 90%

• Net assets (including Minority Interests) increased  to GBP14.9 million at period end (2007: GBP10.34million)

• Cash at bank of GBP3.3 million (2007: GBP3.6 million)

• EPS  0.15  pence (2007: 1.52 pence ) 

Eric Zhu, Chief Executive of China Eastsea, said:

'Despite the tough trading environment, the company will continue to make a tremendous effort to develop and cement relationships with our existing and potential customers and this should generate more business opportunities in the second half when the Chinese government's focus returns to the economy. Management remain focused on growing the company's order book and 'continuing contracts' and 'contracts currently under negotiation' allow us to look forward with some confidence.'

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 7933 8787
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

CHAIRMAN'S STATEMENT

Financial and operating overview

As foreshadowed in the announcement made on 2nd October 2008, the results for the first six months have been impacted by a number of factors.  Revenue was slightly down by 5.95% on year-on-year basis, gross margins were down by 14.7 percentage points versus the same period last year to 35.8%. The main reason being that the level of competition was less in 2007 and the company was able to command a higher margin overall. 

The operating overheads in both sales and administration expenses showed significant increase from the same period last year as the business has expanded significantly since the interim report of FY2007, therefore, although comparisons are difficult, overheads have been kept well within management budgets.

The group has successfully made two acquisitions during the six months from 29 February 2008 which were :

 

(1)  the investment  of 60% shares in Ningbo Education Information Technology Limited ('NEITL') from Ningbo Education Bureau in 
      March 2008. NEITL is an IT outsourcing provider in Education sector in Ningbo. 

 

(2)   the 100% shares of Infa Hong Kong Group Limited ('INFA') and it's wholly owned subsidiary Beijing City Cash Business 
      Service Limited ('BCC') in June 2008, INFA owns the business of IT outsourcing services in Power and Telecom sectors. 

Overall, the first half performance has been seriously affected by several factors including the earthquake disaster in Sichuan which has lead to a slow down in government spending. The Beijing Olympics involved massive security operations in the country which in turn, slowed down the whole country's economic activities for the first half. These events have offset the favourable progress made in the government sectors by the company at the beginning of the year when the group was admitted to AIM.

Chinese refining industries have suffered heavy losses in the first half due to the high crude oil prices carried forward from last year and the impact of China's refined oil price control policy. These events lead to a reduction of IT spending in refineries and has significant impact on our business opportunities within the petrochemical sector. 

Outlook

The company's performance during the first half of 2008 was below management expectations. In particular, contract negotiations with local government bodies and other companies have taken longer to complete during the period up to and including the Olympic Games.  Global financial turmoil in September and October has affected the micro-economy quicker than we anticipated and the situation is likely to remain difficult. All sectors are braced for tough times ahead as spending will be cut across all investment levels. 

Sinopec ZRCC started a large Ethylene project in November 2006. The total project investment is expected to be more than RMB 20 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 the majority of the IT related services for the project including software provision, maintenance, consultancy and systems installation in the new facility. The project is expected to lead to further investments in Ningbo in the near term and these, in turn, may provide more opportunities for the company.

Despite the tough trading environment, the company will continue to make a tremendous effort to develop and cement relationships with our existing and potential customers and this should generate more business opportunities in the second half when the Chinese government's focus returns to the economy. Management remain focused on growing the company's order book and 'continuing contracts' and 'contracts currently under negotiation' allow us to look forward with some confidence.

In the month of October, China Eastsea was one of the recipients of a Forbes Asia's 'Best Under A Billion' award, this has demonstrated the fact that China Eastsea is viewed as a progressive and well managed company. The company is well equipped to ride out the economic downturn and the management remains committed to maintaining profitability and creating shareholder value.

Eric Zhu

Chairman

24 Nov 2008

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31 AUGUST 2008

	Notes
		Six months		Six months		Full Year
		to 31 August		to 31 August		29 February
		2008		2007		2008
		unaudited		unaudited		audited
		£'000		£'000		£'000
Revenue	3	3,698		3,932		10,813
Cost of sales		(2,374)		(1,945)		(5,807)
Gross profit		1,324		1,987		5,006
Other operating income		56		69		194
Distribution costs		(505)		(355)		(364)
Administrative expenses		(1,065)		(681)		(1,468)
Foreign exchange gains/(losses)		252		-		203
Share option payment charges		-		(138)		(139)
Operating profit	8	62		882		3,432
Interest income		46		14		55
Finance costs		-		(17)		(17)
Operating profit before listing costs		108		879		3,470
Share payment charges		-		-		(449)
Profit before tax		108		879		3,021
Income tax		(1)		(19)		26
Profit for the six months		107		860		3,047
Attributable to:
Equity holders of the parent		126		609		2,811
Minority interest		(19)		251		236
		107		860		3,047
Equity holders of the parent		126		609		2,811
Listing Costs		-		-		449
Net Profits for the Period		126		609		3,260
Earnings per share	4	Pence		Pence		Pence
Basic		0.15		1.52		4.08
Diluted		0.14		1.41		3.68
Adjusted earnings per share
Basic		0.15		1.52		4.93
Diluted		0.14		1.41		4.45

The notes on pages 7 to 12 form part of these condensed interim financial statements.

All amounts are derived from continuing operations.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

AT 31 AUGUST 2008

	Notes	As at		As at		Full Year
		31 August		31 August		29 February
		2008		2007		2008
		unaudited		unaudited		audited
		£'000		£'000		£'000
Non-current assets
Goodwill	5	3,125		1,183		1,184
Deferred tax assets		32		-		61
Intangible assets		1,036		338		659
Property, plant and equipment		1,633		1,448		1,525
		5,826		2,969		3,429
Current assets
Inventories		1,342		540		178
Trade and other receivables		7,905		5,826		7,286
Cash and cash equivalents		3,316		3,595		4,076
		12,563		9,961		11,540
Total assets	18,389			12,930		14,969
Current liabilities
Trade and other payables		(3,233)		(2,082)		(1,874)
Current tax liabilities		(192)		(184)		(82)
Short term borrowings				(200)		-
	(3,425)			(2,466)		(1,956)
Net current assets		9,138		7,495		9,584
Non-current liabilities
Deferred tax liabilities		(57)		(118)		(53)
Total liabilities		(3,482)		(2,584)		(2,009)
Net assets		14,907		10,346		12,960
Equity
Share capital	6	3,601		3,473		3,523
Shares to be issued	7	749		338		338
Share premium		2,827		2,558		2,567
Share option reserve		607		607		608
Other reserves		(1,739)	(1,739)			(1,739)
Translation reserves		1,411	(32)			319
Retained earnings		6,046		3,718		5,920
Equity attributable to equity holders of the parent		13,502		8,923		11,536
Minority interest		1,405		1,423		1,424
Total equity		14,907		10,346		12,960

The notes on pages 7 to 12 form part of these condensed interim financial statements.    

All amounts are derived from continuing operations.

    

UNAUDITED CONDENSED INTERIM GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 31 AUGUST 2008

Group	Share capital		Share Premium		Other reserves		Retained earnings		Total		Minority interest		Total
	£'000		£'000		£'000		£'000		£'000		£'000		£'000
Balance at 29 February 2008	3,523		2,567		(474)		5,920		11,536		1,424		12,960
Currency translation adjustments	-		-		1,091		-		1,091				1,091
Income and expense recognised in equity	-		-				-
Profit of the year	-		-		-		126		126		(19)		107
Total recognised income and expense for the year	-		-		-		126		126		(19)		107
Issue of shares	78		260		(338)		-		-		-		-
Transaction costs	-				-		-		-		-		-
Shares to be issued	-		-		749		-		749		-		749
Share based payments	-		-				-				-		-
Balance at 31 AUGUST 2008	3,601		2,827		1,028		6,046		13,502		1,405		14,907

UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT 

FOR THE PERIOD ENDED 31 AUGUST 2008

	Notes	Six months		Six months		Full Year
		to 31 August		to 31 August		to 29 Feb
		2008		2007		2008
		unaudited		unaudited		audited
		£'000		£'000		£'000
Net cash from/(used in) operating activities	8	(97)		(150)		482
Investing activities
Interest received		46		14		55
Purchase of property, plant and equipment		(227)		(218)		(339)
Acquisition of subsidiary net of cash		(1,193)		-		-
Expenditure on intangibles		(384)		-		(395)
Exchange difference		489		-		-
Net cash (used in)/from investing activities		(1,269)		(204)		(679)
Financing activities
Proceeds on issue of shares		-		-		330
Repayment of borrowings		-		(333)		(533)
Net cash (used in)/ from financing activities		-		(333)		(203)
Net (decrease)/increase in cash and cash equivalents		(1,366)		(687)		(400)
Cash and cash equivalents at beginning of year		4,076		4,282		4,282
Exchange difference		606		-		194
Cash and cash equivalents at end of period		3,316		3,595		4,076

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE PERIOD ENDED 31 AUGUST 2008

1.       General information

China Eastsea Business Software Limited is a company incorporated in Jersey under the Companies (Jersey) Law 1991. The nature of the Group's operations and its principal activities are the provision of IT outsourcing services for the energy and public sectors. These condensed interim financial statements are presented in pound sterling unless otherwise stated, and were approved for issue by the Board.

 

2.       SIGNIFICANT ACCOUNTING POLICIES

2.1  Basis of accounting

The condensed interim financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the European Union (''IFRS'') and therefore the Group Interim financial statements comply with Article 4 of the EU IAS Regulation. 

The Interim group financial statements were drawn up in Chinese Yuan (RMB), the main functional currency for the Group. Therefore the financial information in the financial statements has been translated from RMB to pound sterling at the relevant exchange rates for reporting in the United Kingdom.

2.2  Basis of consolidation

The condensed interim consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Minority interests consist of the amount of those interests at the date of the original business combination (see below) and the minority's share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. 

The results of subsidiaries acquired or disposed of during the period to the six months  are included in the condensed interim consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the condensed interim financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

2.2  Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.

        Sales of goods are recognised when goods are delivered and title has passed.

Sales of services are recognised in the accounting periods in which the services are rendered, by reference to stage of completion of the specific project assessed on the basis of the actual service provided as a proportion of the total services to be provided as at the balance sheet date.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE PERIOD ENDED 31 AUGUST 2008 - continued

3  REVENUE

The total revenue of the Group for the six months has been derived from its principal activity which is the provision of IT outsourcing services for the petrochemical, petroleum industries and government sector which are mainly undertaken in China. 

Continuing operations	Six months	Six months	Full Year
	to 31 August	to 31 August	29 February
	2008	2007	2008
	unaudited	unaudited	audited
	£'000	£'000	£'000
System integration	2,170	1,329	4,229
Software	579	1,344	2,648
Consultancy	949	1,259	3,936
	3,698	3,932	10,813

            There is no discontinued operation during the six months to 31 August 2008.

3.1   BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into three operating divisions - system integration, sale of software and consultancy services. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows

System integration            - supply and installation of systems based on customer's requirement. 

Software                          - sale of software developed by the company.

Consultancy                     - provision of consultancy services.

Segment information about the Group's continuing operations is presented below.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE PERIOD ENDED 31 AUGUST 2008 - continued

Six months to 31 August 2008

	System  integration		Software		Consultancy		Elimination		Total
	£'000		£'000		£'000		£'000		£'000
Revenue
External sales	2,227		579		892				3,698
	2,227		579		892				3,698

Result
Segment result	132		55		32		-		219
Unallocated expenses									(157)
Operating profit									62
Interest income									46
Profit before taxation									108
Taxation									(1)
Profit for the six months to 31 August 2008									107

Business segments - continued

Six months to 31 August 2007

	System  integration				Software		Consultancy				Elimination			Total
	£'000				£'000		£'000				£'000			£'000
Revenue
External sales	1,329				1,344		1,259							3,932
	1,329				1,344		1,259							3,932
Result
Segment result	310			313			295			-					918
Unallocated expenses															102
Operating profit															1,020
Interest income															14
Finance costs															(17)
Profit before taxation															1,017
Taxation															(19)
Profit for the six months to 31 August 2007															998

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE PERIOD ENDED 31 AUGUST 2008 - continued

 

 

4.     EARNINGS PER SHARE

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

	Six months		Six months		Full Year
	to 31 August 2008		to 31 August 2007		29 February 2008
	unaudited		unaudited		audited
	£'000		£'000		£'000
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent	107		860		2,811
Listing Costs					449
Share based payment charge	-		138		139
Earnings for the purposes of adjusted basic and diluted earnings per share	107		998		3,399
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share	70,460		65,794		68,957
Effect of dilutive potential ordinary shares:
Share options	7,419		4,838		7,332
Weighted average number of ordinary shares for the purposes of diluted earnings per share	77,879		70,632		76,289
Earnings per share
Basic (pence)	0.15		1.52		4.08
Diluted (pence)	0.14		1.41		3.68
Adjusted earnings per share
Basic (pence)	0.15		1.52		4.93
Diluted (pence)	0.14		1.41		4.45

Adjusted earnings per share above represents earning per share before listing costs and share based payment charge.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE PERIOD ENDED 31 AUGUST 2008 - continued

5      GOODWILL

	Six months		Six months		Full Year
	to 31 August 2008		to 31 August 2007		29 February 2008
	unaudited		unaudited		audited
Cost	£'000		£'000		£'000
Opening Balance	1,184		1,184		1,184
Recognised on acquisition of Infa group business	1,941		-		-
At 31 August 2008	3,125		1,184		1,184

The goodwill arising on the acquisition of Infa group is attributable to the anticipated profitability of the operations.The Group tests goodwill annually for impairment or more frequently if there are indicators that goodwill might be impaired.

6  SHARE CAPITAL

	Six months	Six months	Full Year
	to 31 August 2008	to 31 August 2007	29 February 2008
	unaudited	unaudited	audited
	£'000	£'000	£'000
Authorised:
200,000,000 Ordinary shares of £0.05 each	10,000	10,000	10,000
Issued and fully paid:
72,029,000 (2007: 69,462,000) Ordinary shares of £0.05 each	3,601	3,473	3,523

Since the 29 February 2008, the following shares were issued:

Date	Number of shares	Description	Price
13 May 2008	1,567,000	Acquisition of BHH	22.11p

As at 31 August 2008, the Company had granted options over ordinary shares as follows:-

Date of grant	Exercise price	Vesting period	Expiry date	No. of options
17 October 2005	9.50p	Immediately	31 December 2008	5,625,000
1 April 2006	11.96p	Immediately	31 December 2008	4,500,000
18 August 2007	21.00p	Immediately	18 August 2012	6,030,000
17 January 2008	24.10p	Immediately	24 January 2013	1,389,000

7  SHARES TO BE ISSUED

Ordinary shares in the Company:			Number of shares		£'000
- subject to minimum business contribution from Infa group business acquired.			2,270,197		749
			2,270,197		749

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 31 AUGUST 2008 - continued

    

8  NOTES TO THE CASH FLOW STATEMENT

		Six Months		Six Months			Full Year
		to August		to August			29 February
		2008		2007			2008
		unaudited		unaudited			audited
		£'000		£'000			£'000
Profit/(loss) from operations		62		885			2,892
Adjustments for:
Depreciation of property, plant and equipment		119		81			179
Amortisation of intangible assets		37		37			134
Currency adjustments				10			25
Share option charges		-		138			-
Operating cash flows before movements in working capital		218		1,151			3,230
Decrease/(increase) in inventories		(1,164)		-			370
Increase trade and other receivables		(619)		(1,746)			(2,886)
(Decrease)/increase in trade payables		1,359		372			(189)
Net cash generated from operations		(206)		(223)			525
Income taxes refunded		109		90			(26)
Interest paid		-		(17)			(17)
Net cash from operating activities		(97)		(150)			482

ENDIR FKQKDOBDKNDB