Interim Results

8th Sep 2008 07:00



Sinosoft Technology plc ("Sinosoft" or the "Company"),

Interim Results for the Six Months Ended 30 June 2008

Sinosoft the AIM quoted (AIM:SFT), China based developer and provider of software and related services, announces interim results for the six months ended 30 June 2008.

First Half 2008 Financial Highlights

Turnover up 46% to US$5.31M (2007: US$3.63M)

Gross profit up 60% to US$4.11M (2007: US$2.57M)

Research & Development expenditure up 51% to US$0.83M (2007: US$0.55M)

Profit for the period up 7.6% to US$1.43M (2007: US$1.33M)

 

First Half 2008 Operational Highlights

Significant growth in e-government and outsourcing business

Installation and testing of export tax refund software has expanded to Chongqing and the initial results are positive

Incorporation of Fujitsu's PalmSecure™ palm vein biometric authentication system into certain Sinosoft products for increased security

 

Commenting on the results, Mao Ning, Chairman of Sinosoft said: The further expansion of our e-government and outsourcing divisions has exceeded management expectations and is expected to be a significant driver for growth over the coming years."

The long term roll-out plans for SAT continue to have significant potential and will be further enhanced once further installations and testings have been completed."

For further information, please visit www.sinosoft-technology.com or contact:

Sinosoft Technology plc	Alfred Ho	+(86) 25 8481 6867
Hanson Westhouse Limited	Tim Metcalfe/Richard Baty	020 7601 6100
Tavistock Communications	Simon Compton	020 7920 3150

 

Chief Executive's Statement

I am pleased to present our interim results for the six months to 30 June 2008. Revenue increased by 46.4% to US$5.31M (2007: US$3.63M) following strong growth in the e-government and outsourcing divisions. Operating profit excluding investment gains was up 42.5% to US$1.14M (2007: US$0.80M). If investment gains are included there would be no significant change: (US$1.27M and US$1.29M for 2008 and 2007 respectively). Net profit for the period, excluding investment gains was up 53.6% to US$1.29M (2007: US$0.84M). If investment gains were included the figure would be up 7.6% to US$1.43M (2007: US$1.33M)

During the period Sinosoft invested heavily in research and development ("R&D"). The Company's total R&D costs in the period were US$0.83M, an increase of 51.5% from the same period in 2007. This reflects the recognition that Sinosoft must continue to develop cutting edge technology in order to further expand its range of products and generate increasing value for shareholders.

In July this year we announced an agreement with Fujitsu to use their PalmSecure™ palm vein biometric authentication system to increase secure access to Sinosoft's IT systems. I am pleased to report that this has been successfully incorporated into a number of our products and has proven to be a key value-add feature for current and new customers. We are also cooperating with Fujitsu in the development of document scanning technology and hope to see significant progress for the second half of 2008.

 

E-Government

This division has become Sinosoft's major growth driver over the past half year. During this time its contribution to revenue increased by 80% to US$0.9M (2007: US$0.5M). This success has been largely due to the four new products developed in 2007 by our R&D team. These products, which were detailed in our last set of preliminary results, have all been successfully launched and the resulting sales came to US$0.16M for the period under review.

In the first half of 2008, we developed a further new product which improves the online application process for various applications in different levels of government. It also enables applicants to go online and check the progress of their application. The majority of sales to date have been to Shenzhen, Guangdong and Henan, which amounted to US$52,000, US$44,000 and US$73,000, respectively. We are currently in negotiations to provide the same service to the Shangdong provincial government.

The R&D department has also developed a network platform that can be offered by provincial governments to citizens who are seeking legal aid. In past years, lack of suitable access to legal information has prevented Chinese citizens from exercising their legal rights. We have already sold this platform to Jiangsu, Guangxi, Hunan, Jiangxi and Guizhou provincial government offices and expect to distribute to other provinces. The Canadian Department of Justice has subsidized this program in the form of grants.

Information Integration

Information integration has experienced an increase in sales by 40% to US$1.4M (2007: US$1.0M). Three newly developed products have been successfully launched which focus mainly on the supervision of information for airline companies' flights. They also analyze and manage travellers' ticket booking information. Sichuan Airlines, the regional operator based in Chengdu, became a client during the period. Sales generated from new products amounted to US$80,000.

Tax Software

The rollout of the Company's tax software to provinces outside Jiangsu has been a significant undertaking for Sinosoft in the last six months and this continues to be a principal focus of the business going forward. The delays in the roll out have been frustrating leading Sinosoft to focus on increasing its revenues through its other offerings of Information Integration, e-government and outsourcing. 

As previously announced the rollout has been delayed through technical issues with the State Administration of Taxation, changes to the structuring of the taxation system within the PRC and issues with the individual technical specifications at a provincial level. However, against this backdrop relations with the SAT remain strong, we are continuing to roll out the product to the provincial tax bureaus and we anticipate that this remains a significant driver for growth outside Jiangsu.

In July and August this year, Sinosoft undertook testing of its export tax refund software in Chongqing. This testing went well. Due to the good results in Chongqing, the State Administration of Taxation decided to change its plan. Instead of testing the software for the local tax authority in Beijing as originally scheduled, stress testing to test the volume of transactions that the software can handle will be performed in the Central State Administration of Taxation office.

Dividend

A dividend of $1,027,075 equating to 0.31 pence per ordinary share was paid to shareholders on 16 June 2008. The Company intends to continue to pay an appropriate annual dividend and this will be announced within the full year results statement.

Outlook

We are well positioned to achieve further growth in the second half of 2008 in e-government, information integration and outsourcing and are hopeful that Sinosoft's export tax software will be a principal growth driver in 2009 and beyond.

Xin Yingmei

Chief Executive Officer

8 September 2008

SINOSOFT TECHNOLOGY PLC

CONSOLIDATED INCOME STATEMENT

	6 months	6 months	12 months ended
	ended 30 June	ended 30 June	31 December
	2008	2007	2007
	US$	US$	US$
	(reviewed)	(reviewed)	(audited)
Revenue	5,311,008	3,627,232	10,615,673
Cost of sales	(1,201,921)	(1,061,827)	(3,385,934)
Gross profit	4,109,087	2,565,405	7,229,739
Other income	277,217	785,861	1,744,653
Research and development cost	(831,362)	(548,780)	(1,565,550)
Selling and distribution expenses	(901,202)	(592,950)	(889,937)
Administrative expenses	(1,336,766)	(913,959)	(1,712,729)
Other operating expenses	(43,024)	(6,743)	(23,331)
Profit from operations	1,273,950	1,288,834	4,782,845
Finance income	258,761	215,185	439,185
Exchange gain or loss	(529)	-	(27,845)
Profit before tax	1,532,182	1,504,019	5,194,185
Taxation	(100,523)	(174,094)	(377,195)
Profit for the period	1,431,659	1,329,925	4,816,990

CONSOLIDATED BALANCE SHEET

	30 June	30 June	31 December
	2008	2007	2007
	US$	US$	US$
	(reviewed)	(reviewed)	(audited)
ASSETS
Non-current assets
Property, plant and equipment	940,537	457,540	682,150
Intangible assets	4,250,739	3,296,377	3,680,683
Total non-current assets	5,191,276	3,753,917	4,362,833
Current assets
Inventories	1,401,043	726,701	1,548,498
Trade receivables	6,035,016	3,555,031	3,490,923
Other receivables	4,166,676	3,579,871	3,798,672
Investments	-	57,903	-
Cash deposits	-	-	283,094
Cash and cash equivalents	16,467,271	16,858,608	18,119,152
Total current assets	28,070,006	24,778,114	27,240,339
Total assets	33,261,282	28,532,031	31,603,172
LIABILITIES & EQUITY
Current liabilities
Trade payables	1,073,119	348,630	1,248,594
Other payables	343,760	2,546,468	337,073
Deferred income	142,423	90,933	126,369
Total current liabilities	1,559,302	2,986,031	1,712,036
Deferred tax	292,490	237,099	289,287
Total non-current liabilities	292,490	237,099	289,287
Total liabilities	1,851,792	3,223,130	2,001,323
Capital and reserves
Share capital	424,023	424,023	424,023
Share premium	11,283,551	11,283,551	11,283,551
Merger reserve	(1,118,051)	(1,118,051)	(1,118,051)
Other reserves	9,739,557	4,562,524	8,336,500
Retained earnings	11,080,410	10,156,854	10,675,826
Total shareholders' equity	31,409,490	25,308,901	29,601,849
Total liabilities & equity	33,261,282	28,532,031	31,603,172

CASH FLOW STATEMENT

	6 months	6 months	12 months ended
	ended 30 June	ended 30 June	31 December
	2008	2007	2007
	US$	US$	US$
	(reviewed)	(reviewed)	(audited)
Operating activities
Income before taxation from continuing operations	1,532,182	1,504,019	5,194,185
Adjustments for:
Interest income	(258,761)	(215,185)	(439,185)
Exchange difference	529	-	27,845
Gain on disposal of investments	-	(487,527)	(35,509)
Investment income	(137,656)	-	(1,353,211)
Impairment loss in receivables	217,594	113,367	69,157
Depreciation of property, plant and equipment	53,127	33,110	75,085
Amortisation for intangible assets	745,379	433,692	967,522
Operating cash generated before working capital changes	2,152,394	1,381,476	4,505,889
Decrease/(increase) in inventories	147,455	(497,817)	(1,319,614)
Increase in trade and other receivables	(2,912,097)	(815,930)	(892,711)
(Decrease)/ increase in trade and other payables	(168,788)	1,812,438	476,418
Cash generated by operations	(781,036)	1,880,167	2,769,982
Income taxes paid	(173,248)	(8,517)	(16,125)
NET CASH USED IN / GENERATED FROM OPERATING ACTIVITIES	(954,284)	1,871,650	2,753,857
Investing activities
Interest received	258,761	215,185	439,185
Proceeds on disposal of trading investment	323,929	1,229,223	3,169,208
Purchase of property, plant and equipment	(336,530)	(92,886)	(335,097)
Purchase of intangible assets	(1,037,852)	(1,575,836)	(2,440,609)
Purchase of investments for trading	(186,272)	(538,994)	(1,484,429)
Increase in pledged bank deposits	250,646	171,352	(111,742)
NET CASH USED IN INVESTING ACTIVITIES	(727,318)	(591,956)	(763,484)
Financing activities
Dividend paid	(1,027,075)	-	-
NET CASH USED IN FINANCING ACTIVITIES	(1,027,075)	-	-
NET (DECREASE) /INCREASE IN CASH AND CASH EQUIVALENTS	(2,708,677)	1,279,694	1,990,373
Effect of exchange rate changes	1,056,796	548,431	1,098,296
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	18,119,152	15,030,483	15,030,483
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD	16,467,271	16,858,608	18,119,152

STATEMENT OF CHANGES IN EQUITY

	Share capital	Share premium	Merger reserve	Other reserves	Retained earnings	Total
	US$	US$	US$	US$	US$	US$
	Reviewed	Reviewed	Reviewed	Reviewed	Reviewed	Reviewed
Balance as at 1 January 2007	424,023	11,283,551	(1,118,051)	3,956,096	8,826,929	23,372,548
Profit for the period	-	-	-	-	1,329,925	1,329,925
Effect of exchange rates	-	-	-	606,428	-	606,428
Balance as at 30 June 2007	424,023	11,283,551	(1,118,051)	4,562,524	10,156,854	25,308,901
Profit for the period	-	-	-	-	3,487,065	3,487,065
Transfer to statutory reserve	-	-	-	404,109	(404,109)	-
Effect of exchange rates	-	-	-	805,883	-	805,883
Transfer to capital reserve	-	-	-	2,563,984	(2,563,984)	-
Balance as at 31 December 2007	424,023	11,283,551	(1,118,051)	8,336,500	10,675,826	29,601,849
Profit for the period	-	-	-	-	1,431,659	1,431,659
Appropriation of reserve funds	-	-	-	2,092	-	2,092
Effect of exchange rates	-	-	-	1,400,965	-	1,400,965
Dividend paid	-	-	-	-	(1,027,075)	(1,027,075)
Balance as at 30 June 2008	424,023	11,283,551	(1,118,051)	9,739,557	11,080,410	31,409,490

NOTES TO THE INTERIM REPORT

1. The interim results for the period ended 30 June 2008 are unaudited and do not constitute financial statements within the meaning of s.240 of the Companies Act 1985. The figures for the year ended 31 December 2007 have been extracted from the financial statements which have been filed with the Registrar of Companies. The auditors' report on those financial statements was unqualified and did not contain a statement under section 237(2) of the Companies Act 1985.

2. The financial information set out in this report has been prepared in accordance with accounting policies as set out in the Group's annual report and financial statements for the year ended 31 December 2007.

3. Functional and presentation currency 

Sterling is the functional currency of the Company as it is the currency of the primary economic environment in which it operates. The US Dollar ("US$") is the currency used to present the financial information in order to improve understanding of the financial position of the Company by increasing comparability with the financial information of Nanjing Skytech Co. Limited and Nanjing Skytech Software Co. Limited, the operating subsidiaries whose functional currency is the Chinese Renminbi.

4. Earnings per share

The calculation of basic earnings per ordinary share and the fully diluted earnings per ordinary share is based on the profit attributable to the Group and the weighted average number of ordinary shares of each period.

	30 June	30 June	31 December
	2008	2007	2007
	US$	US$	US$
	(reviewed)	(reviewed)	(audited)
Profit for the period	US$1,431,659	US$1,329,925	US$4,816,990
Number of shares - weighted average - basic	165,582,189	165,582,189	165,582,189
Basic earnings per share	US$0.0086	US$ 0.0080	US$ 0.0291
Number of shares - weighted average - diluted	165,582,189	169,307,788	165,582,189
Diluted earnings per share	US$0.0086	US$0.0079	US$0.0291

INDEPENDENT REVIEW REPORT

TO SINOSOFT TECHNOLOGY PLC

Introduction

We have been instructed by the Company to review the financial information for the six months ended 30 June 2008, which comprises the consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes 1 to 4. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters that we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the Directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the AIM admission document except where changes, and the reason for them, are disclosed.

Review work performed

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquires of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied, unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with the International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information.

Review conclusion

On the basis of our review we are not aware of any material modification that should be made to the consolidated financial information as presented for the six months ended 30 June 2008.

SEDLEY RICHARD LAURENCE VOULTERS

Chartered Accountants & Registered Auditors

ENDIR ILFVRALIEIIT

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