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 0999
Henry Tse, Chairman
Weidong Wang, CEO
Seymour Pierce Tel: +44 (0)20 7107 8000
John Depasquale
ICIS Tel: +44 (0)20 7651 8688
Bob 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 Review
Revenue 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.Tse
Chairman
23 June 2009
GEONG 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 1,077
shareholders 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 - 3,118
NET 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 2,704
2007
Net profit - - - - - 1,077 - 1,077
for the year
Issue of 52 3,357 - - - - - 3,409
share capital
Share issue - (108) - - - - - (108)
costs
Share option - - - - 41 - - 41
granted
Transfer to - - - 1 - (1) - -
statutory
reserve
Foreign - - - - - - 405 405
exchange
movement
Balance at 31 315 5,432 (698) 3 106 1,936 434 7,528
March 2008
Net profit - - - - - 1,359 - 1,359
for the year
Share option - - - - 100 - - 100
granted
Foreign - - - - - - 3,504 3,504
exchange
movement
Balance at 31 315 5,432 698 3 206 3,295 3,938 12,491
March 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 300 171
profits 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 62
4. Earnings per Share
Basic 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 3.43
Adjusted earnings per share
2009 2008
(£000) (£000)
Profit for the year attributable to equity 1,359 1.078
shareholders of the parent company
Amortisation charge 201 103
Share based payment charge 99 41
Adjusted profit on ordinary activities after 1,659 1,222
taxation
Adjusted earnings per share (pence)
- basic 5.26 4.00
- diluted 5.08 3.88