RNS Number:2001T
Sinosoft Technology plc
28 April 2008
SINOSOFT TECHNOLOGY PLC
PRELIMINARY RESULTS FOR THE YEAR ENDING 31 DECEMBER 2007
Sinosoft Technology plc, the China based developer and provider of e-Government
software and services, announces preliminary results for the year ended 31
December 2007.
Financial Highlights
* Turnover up 15% to US$10.6M (2006: US$9.2M)
* Gross profit up 8.3% to US$7.2M (2006: US$6.7M)
* Research & Development expenditure up 96% to US$1.6M (2006: US$0.8M)
* Operating profit up 35% to US$4.8M (2006: US$3.5M)
* Profit for the year up 29.4% to US$4.8M of which US$1.35M relates to
profit on investment (2006: US$3.7M)
Operating Highlights
* SAT progressing in line with amended timetable
* Roll-out will commence in Anhui and Zhejiang Province in the near
future
* Beijing office in operation
* Significant growth in outsourcing business
* Six new products developed of which four generated revenues in 2007
Commenting on the results, Mao Ning, Chairman of Sinosoft said: "It has been
another successful year for Sinosoft as we continue to expand our product
offering and diversify revenue streams in order to derive maximum benefit from
the skills of our team and the technology at our disposal.
The SAT programme has experienced some delays but we are confident that having
liaised closely with the provincial governments, the long term roll out plans
will be significantly enhanced. The continued success of our other divisions
gives the Board confidence for the future and we look forward to a successful
2008.
-ends-
A conference call will be held this morning at 10.00am where the management will
give a presentation and then invite Q&A. In order to participate, please call
+44 (0) 203 003 2666.
For further information please contact:
Hanson Westhouse Limited Tim Metcalfe/Richard Baty 020 7601 6100
Tavistock Communications Simon Compton 020 7920 3150
Chairman's Statement
Results
I am delighted to report on another successful year for the Group, which has
seen growth of 15% in turnover (US$10.6M) and 29% in net profit (US$4.8M).
The strongest growth seen in 2007 has been in the Group's e-government division,
which has seen its revenues increase by 52%, meaning it now contributes about
29% of the Group's total turnover. The revenue increases within e-government are
due both to the successful launch of four new products developed in 2007, and to
the emergence of a number of new contracts with district government agencies in
Nanjing.
The Group has also witnessed significant growth within its information
integration division, with turnover increasing by 14%, enabling it to contribute
about 20% of the Group's total turnover. Three new products within this area are
expected to generate increased sales in 2008.
Tax software, which accounts for around 18% of Group turnover, has also
continued to grow, although the rate of growth slowed to 0.4% due to the
previously announced delays in the SAT rollout. These delays were caused by a
shift in provincial government regulations and procedures for export tax
exemption. Whilst the main platform of the software (around 90%) remains the
same for each province, slight differences in provincial regulations means the
remainder of the software (around 10%) currently has to be tailored to meet the
requirements of individual regions. Despite this inconvenience we believe that
once the regulation changes have been resolved, the enhancements made to the
software will significantly increase its value and will allow an acceleration in
the roll out.
Gross profit margin has fallen slightly during 2007 to 68% (2006:72%). The
principal reason for the slight reduction in gross profitability is the lower
margin derived from sales of system integration services. Whilst system
integration services result in slightly lower margin revenues they are
nevertheless important for the Group as they increase our customer base and have
resulted in subsequent sales of software and other services.
Throughout the course of the year, the Group has expanded its outsourcing
business and won an outsourcing contract with United Wise Development Limited, a
Hong Kong company. The Group's Beijing office has opened and operated
successfully and we have started to identify and evaluate potential acquisition
targets. In addition, we have expanded our research and development department
with a total staff of 170 in December 2007 (2006: 121 staff).
Dividend
The Group has continued to be cash generative and a resolution proposing
Sinosoft's maiden dividend of a total of US$1M will be proposed at the
forthcoming AGM.
Board
In October 2007, we welcomed Alfred Ho as the Finance Director. Alfred's
appointment is a significant milestone for the Group as he has expertise in
accounting, taxation and financial management which will be of significant value
to the Group. He is also likely to prove a useful bridge between the Group and
investors as he is fluent in English (educated in Canada and a Canadian
chartered accountant), Cantonese and a competent Mandarin speaker.
Outlook
The long-term objective for the business remains the same, that is, the
continued expansion of the four core business areas. The Group also continues to
identify new sources of revenue as well as merger and acquisition opportunities.
Mao Ning
Chairman
28 April 2008
Chief Executive Officer's Report
Over the year, turnover has increased by 15% with the major contribution coming
from our e-government division which has increased revenues by 52%. Turnover
growth was also supported by the information integration division, which saw
revenues increase by 14%. Gross profit was up 8.3% with operating profit up 35%
and the profit for the year rising by 29%. Basic earnings per share were
US$0.0291 (2006: US$0.0269) while the diluted earnings per share were US$0.0291
(2006: US$0.0263).
The Group's major product remains our e-government solutions which contribute
around 29% of the total turnover. The information integration contributes 20%
and tax software contributes 19% towards total turnover.
E-Government
2007 saw continued growth within this area of the business through the
development of four new products and the targeting of several new markets. I am
pleased to announce that the four new products developed in 2007 were:
(1) Sinosoft workflow platform software V1.0,
(2) TianDun online training system software V2.0,
(3) Sinosoft integrated public security information management system
platform software V1.0, and
(4) Digital governance Information System Platform Software V1.0.
Sinosoft workflow platform software is a middleware product specialised in
E-governance software development. TianDun online training system software is
aimed at training programmes for government officials. This system includes
training plan, training content and on-line exams.
Sinosoft integrated public security information management system platform
software is a product for the public security departments. The software covers
internal management, on-line approval process, case process control management
and public management platform set up for future concerns.
Digital governance Information System Platform Software has been developed to
meet the new e-governance development needs. It analyzes the data from various
sources and is provided as a reference for government officials to make
important decisions.
Currently our main customers are located in cities such as Nanjing, Taizhou,
Suqian, Lianyungang in Jiangsu Province and in provinces such as Henan and
Canton.
The Group has focussed on targeting new bureaus and district government agencies
both in Nanjing and in other cities in China and as a result of this a number of
new contracts materialised in 2007 resulting in revenues being ahead of
expectations for this sector of the business. We have also entered into
agreements with Henan Province and the City of Shenzhen to purchase our
e-government products which will generate 2008 sales of around US$0.07M and
US$0.05M, respectively.
Information Integration
Information integration has seen turnover up by 14% and now contributes 20% of
the Group's total turnover, whilst providing a steady stream of revenue. We
expect to launch three new products in 2008. These are:
(1) Sinosoft TianDun computer data security protection software system,
(2) Sinosoft Civil auto answer system for civil airline individual
travellers' seat booking system software,
(3) Sinosoft flight quality analysis system software.
The three newly developed products are focussed mainly on the supervision of
information of the existing airline companies' flights. They also analyze and
manage travellers' ticket booking information. These systems will enable airline
companies to reduce operating costs and dramatically improve staff working
efficiency.
The current client base for these systems includes China Eastern airlines and
Sichuan airlines. In addition, there are some 20 other airline companies in
China who represent realistic potential targets for this division, affording the
Group a great opportunity to explore business in a new industry.
Tax Software
Tax software is currently the most difficult area for the Group but we are
confident that it represents a significant potential growth area once the
current problems have been solved. Whilst the software was developed in line
with the Chinese Central Government's policy for VAT export refunds which
constitutes about 90% of the total software structure, there are different
regulations and procedures for different provinces which constitute about 10% of
the total software structure. This means that about 10% of the Group's tax
software has had to be tailor made for each province. We have around 50 staff
working on the technical specifications and testing. This has delayed the
roll-out of the technology, but we are currently testing the new system and have
successfully identified distribution partners to assist in the delivery of the
roll-out. Whilst the delays have been frustrating we are confident that the
developments currently being made to the technology will significantly enhance
the Group's rollout in other provinces in the long term.
Outsourcing
We intend to continue the expansion of our software outsourcing business. The
success of this part of the business has created a new income stream and we are
keen to exploit this opportunity. The Group views this as an important area as
it looks to expand both within the domestic PRC market and to overseas markets.
We have already entered into a US$2 million agreement with Schenker for three
years starting in 2008. We expect to generate revenue of US$0.5M in 2008.
Schenker has been one of the world's leading providers of integrated logistics
services for 135 years and we will be providing outsourcing services in the area
of logistic systems. Furthermore, Sinosoft opened its new office in Beijing and
this has already been of significant value to the Company with the winning of a
substantial outsourcing contract with United Wise Development Limited, a textile
machinery business based in Hong Kong. This work began in November 2007 and was
completed within Q1 2008 with revenues recognised in both years. We are hopeful
that this is a stepping stone to increasing our business within Hong Kong.
Change in Accounting Policy
Following a review of the accounting treatment of VAT refunds, we have decided
to reclassify the VAT refund from government grants to turnover. This would
better reflect our operation. Revenues for 2006 have accordingly also been
restated. Note 2 to the financial statements provides further analysis of the
Group's revenues.
Xin Yingmei
Chief Executive Officer
28 April 2008
GROUP INCOME STATEMENT
2007 2006
US$ US$
Revenue 10,615,673 9,203,040
Cost of sales (3,385,934) (2,528,187)
Gross profit 7,229,739 6,674,853
Other income 1,744,653 233,441
Research and development cost (1,565,550) (800,992)
Selling and distribution expenses (889,937) (852,856)
Administrative expenses (1,712,729) (1,671,387)
Other operating expenses (23,331) (40,625)
Profit from operations 4,782,845 3,542,434
Finance cost - (32,692)
Finance income 439,185 305,537
Exchange gain or loss (27,845) -
Profit before tax 5,194,185 3,815,279
Taxation (377,195) (91,822)
Profit for the year 4,816,990 3,723,457
Earnings per ordinary share
Basic 0.0291 0.0269
Diluted 0.0291 0.0263
GROUP BALANCE SHEET
2007 2006
US$ US$
ASSETS
Non-current assets
Property, plant and equipment 682,150 397,764
Intangible assets 3,680,683 2,100,933
Total non-current assets 4,362,833 2,498,697
Current assets
Inventories 1,548,498 228,884
Trade receivables 3,490,923 2,646,712
Other receivables 3,798,672 3,750,172
Investments - 296,059
Cash deposits 283,094 171,352
Cash and cash equivalents 18,119,152 15,030,483
Total current assets 27,240,339 22,123,662
Total assets 31,603,172 24,622,359
LIABILITIES & EQUITY
Current liabilities
Trade payables 1,248,594 629,473
Other payables 337,073 479,776
Deferred income 126,369 -
Total current liabilities 1,712,036 1,109,249
Non-current liabilities
Deferred tax 289,287 140,562
Total non-current liabilities 289,287 140,562
Total liabilities 2,001,323 1,249,811
Capital and reserves
Share capital 424,023 424,023
Share premium 11,283,551 11,283,551
Merger reserve (1,118,051) (1,118,051)
Other reserves 8,336,500 3,956,096
Retained earnings 10,675,826 8,826,929
Total shareholders' equity 29,601,849 23,372,548
Total liabilities & equity 31,603,172 24,622,359
COMPANY BALANCE SHEET
2007 2006
US$ US$
ASSETS
Non-current assets
Investments 357,302 350,464
Total non-current assets 357,302 350,464
Current assets
Other receivables 9,400,460 6,685,804
Cash and cash equivalents 4,030,382 6,817,357
Total current assets 13,430,842 13,503,161
Total assets 13,788,144 13,853,625
LIABILITIES & EQUITY
Current liabilities
Other payables 27,889 158,810
Total current liabilities 27,889 158,810
Total liabilities 27,889 158,810
Capital and reserves
Share capital 424,023 424,023
Share premium 11,283,551 11,283,551
Other reserves 2,868,889 2,601,211
Retained earnings (816,208) (613,970)
Total shareholders' equity 13,760,255 13,694,815
Total liabilities & equity 13,788,144 13,853,625
GROUP CASHFLOW STATEMENT
2007 2006
US$ US$
Operating activities
Income before taxation from continuing 5,194,185 3,815,279
operations
Adjustments for:
Interest income (439,185) (305,537)
Interest expense - 32,692
Exchange difference 27,845 -
Gain on disposal of investments (35,509) (228,161)
Investment income (1,353,211) -
Share based payment - 310,816
Impairment loss in receivables 69,157 20,687
Depreciation of property, plant and 75,085 47,695
equipment
Amortisation for intangible assets 967,522 434,700
Operating cash generated before working 4,505,889 4,128,171
capital changes
(Increase)/decrease in inventories (1,319,614) 328,531
Increase in trade and other receivables (892,711) (1,517,937)
Increase in trade and other payables 476,418 174,746
Cash generated by operations 2,769,982 3,113,511
Income taxes paid (16,125) -
Interest paid - (124,252)
NET CASH GENERATED FROM OPERATING 2,753,857 2,989,259
ACTIVITIES
Investing activities
Interest received 439,185 305,537
Proceeds on disposal of trading investment 3,169,208 717,485
Purchase of property, plant and equipment (335,097) (1,678,181)
Purchase of intangible assets (2,440,609) (1,255,010)
Purchase of investments for trading (1,484,429) (599,588)
Increase in pledged bank deposits (111,742) (171,352)
NET CASH USED IN INVESTING ACTIVITIES (763,484) (2,681,109)
Financing activities
Net proceeds from issue of shares - 12,020,824
Repayment of borrowing - (2,671,591)
Dividend paid - (61,346)
NET CASH GENERATED FROM FINANCING - 9,287,887
ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,990,373 9,596,037
Effect of exchange rate changes 1,098,296 1,468,732
CASH AND CASH EQUIVALENTS AT BEGINNING OF 15,030,483 3,965,714
YEAR
CASH AND CASH EQUIVALENTS AT THE END OF 18,119,152 15,030,483
YEAR
GROUP STATEMENT OF SHAREHOLDERS'FUNDS AND STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
Share Share Merger Other Retained Total
premium reserve reserves earnings
capital
US$ US$ US$ US$ US$ US$
(note 26)
Balance at 31 107,656 - (917,326) 916,972 5,687,405 5,794,707
December 2005
Profit for the - - - - 3,723,457 3,723,457
year
Transfer to - - - 583,933 (583,933) -
statutory reserve
Effect of - - - 1,522,744 - 1,522,744
exchange rates
Issue of share 316,367 14,666,233 (200,725) - - 14,781,875
capital
Issue expenses - (2,761,050) - - - (2,761,050)
Issue of options - (621,632) - 932,447 - 310,815
Balance at 31 424,023 11,283,551 (1,118,051) 3,956,096 8,826,929 23,372,548
December 2006
Profit for the - - - - 4,816,990 4,816,990
year
Transfer to - - - 404,109 (404,109) -
statutory reserve
Effect of - - - 1,412,311 - 1,412,311
exchange rates
Transfer to - - - 2,563,984 (2,563,984) -
capital reserve
Balance at 31 424,023 11,283,551 (1,118,051) 8,336,500 10,675,826 29,601,849
December 2007
NOTES TO THE FINANCIAL STATEMENTS
1 Financial information
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2007 or 2006. The
statutory accounts for the year ended 31 December 2007 will be finalised on the
basis of the financial information presented by the directors in this preli
minary announcement and will be delivered to the Registrar of Companies.
2. REVENUE AND SEGMENTAL ANALYSIS
The Group's operations are organised into one operating division namely software
development which includes sales of software products and system integration.
Group
2007 2006
US$ US$
Software 6,540,438 5,729,937
System integration 3,540,268 2,716,225
VAT rebate 534,967 756,878
10,615,673 9,203,040
The Group's revenue and profit before taxation were all derived from its prin
cipal activity. All revenue originates in the People's Republic of China.
VAT rebate is a preferential policy for software companies granted by the
Chinese government. Any VAT over 3% generated from sales of software and paid by
the software companies will be rebated by the government. Since this tax rebate
is generated from the sales of software and directly related to the sales, the
Company recognizes it as revenue and list the tax rebate in the sales accounts
accordingly. The amount of VAT rebate for 2007 and 2006 are US$534,967 and
US$756,878 respectively.
3. OTHER INCOME
Group
2007 2006
US$ US$
Gain on disposal of quoted securities 1,353,211 228,161
Investment income 35,509 -
Government grants and rebates 353,960 -
Other income 1,973 5,280
1,744,653 233,441
4. EARNINGS PER SHARE
2007 2006
Profit for the year US$ 4,816,990 US$ 3,723,457
Number of shares - weighted average - 165,582,189 138,556,608
basic
Basic earnings per share US$ 0.0291 US$ 0.0269
Number of shares - weighted average - 165,582,189 141,679,987
diluted
Diluted earnings per share US$ 0.0291 US$ 0.0263
5. Timetable and distribution of accounts
The report and financial statements together with the Notice of AGM and Proxy
form will be despatched to shareholders in May. The annual general meeting will
be held at 10.00am on 9 June 2008 at the offices of the Tavistock Communications,
131 Finsbury Pavement, London, EC2A 1NT.
Additional copies of the Annual Report and Accounts, Notice of AGM and Proxy
Form may be requested directly from the Company and will be available following
distribution to shareholders on the Company's website www.
sinosoft-technology.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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