Interim results for six months ended 30 June 2015

8 September, 2015

Galasys PLC

("Galasys" or the "Group")

Interim Results for the six months ended 30 June 2015

Galasys PLC (AIM:GLS), a leading provider of solutions and services to the fast growing theme park industry in Asia, is pleased to announce its interim results for the six months ended 30 June 2015 (the "Period").

Financial Highlights

• Revenue for H1 2015 up 43% at RM23.48m (H1 2014: RM16.44m)

• Gross Profit up 54% at RM11.19m (H1 2014: RM7.26m)

• Profit Before Tax up 22% at RM6.13m (H1 2014: RM5.02m)

• Profit After Tax up 22% at RM5.27m (H1 2014: RM4.31m)

• EPS RM0.075 or 7.45sen (H1 2014: RM0.0825 or 8.25sen)

• Cash RM31.22m (H1 2014: RM13.05m)

• Repeat and recurring revenue 66% of sales

Operational Highlights

• Secured 48 new installed-sites in the first half of the year

• Awarded first contract by Silver Base Group for Yinji Water Park with a total value of c. RMB5m (c. £500K)

• Awarded additional contracts for Dalian Wanda's XiShuangbanna Theme Park and Kids Park

• Ventured into Intelligent Tourism with Xinjiang Province Tourism in China

• Secured Enchanted Kingdom as the first customer for its newly developed and launched Mobile Ticketing and Park Map & Navigation Apps

• Raised c. £3m through a placing with Beijing Shiji Information Technology Co., Ltd ("Shiji")

• Signed Collaboration Agreement with Shiji for cooperation in hospitality and leisure sector

Post Period End Highlights

• Awarded first multi-year contract by Shanghai International Theme Park Company Limited and Shanghai International Theme Park Associated Facilities Company Limited a total value for software and services of c. RMB6.6m (c. £660K)

Commenting on the announcement, Mr. Teh, Chairman of the Group, said:

"The Board is delighted with the Group's performance in the first six months of 2015. We have continued to win significant contracts from existing clients and also major new clients in China and South East Asia, including Yinji Water Park, Shiji and Xinjiang Province Tourism. Our business transformational plan is progressing well as we continue to build on CLOTATM and launched Galotas.com where our growth in the future will be more correlated to the number of visitors to the parks. We also brought Shiji on board as a significant strategic investor. We look forward to continued success in the second half of 2015."

Mr. Seah, Chief Executive, added:

"Galasys continues to show strong progress in the first half of the 2015 financial year. We have signed up an additional 48 new installed-sites in this period. Since the launch of CLOTATM in December 2014, we have managed to convert approximately 15% of all our installed sites as at 30 June 2015 and integrate them onto our CLOTATM platform, linking them to China's leading Online Travel Agencies (OTAs). Our sales pipeline is increasing and we expect further momentum as the Group continues to expand its market coverage in China and other Asian countries."

For further information, please contact: 

About Galasys

www.galasystec.com

Galasys is a leading integrated and modular amusement park solutions and services provider to premier amusement parks in China and South East Asia. Through its proprietary systems, the Group provides amusement park operators with the ability to sell, manage and analyse tickets, visitors, merchandise sales and other amusement park operations. It has been operating since 2005 and supplies solutions and services to more than 150 amusement parks in China and South East Asia. The Group has invested more than 50 man-years in R&D and owns the intellectual properties to its software and systems. The Group currently employs and retains more than 140 people across Asia. 

Chairman's Statement

Strategic Investment by Beijing Shiji Information Technology

The key event of the period for the Group was undoubtedly Shiji's investment into Galasys. We are excited about this investment and have explored various synergistic and strategic collaborations with Shiji in its core business verticals in hotel, F&B and retail. Similarly, we are able to provide synergistic values to Shiji from the amusement & leisure business segment.

Strategy and Outlook

Our strategy of introducing different engagement and revenue share models has yielded positive results as we have successfully secured more clients at much higher margins in addition to continuing to serve existing clients via upgrades and new product modules. Several key new products and services are in the pipeline and the second half will see us completing R&D and testing and then launching them.

In terms of marketing and business development, the Group has increased the size and capability of the marketing team and the additional resources available are being successfully deployed in reaching out to new business prospects as the team gains in strength and size. By signing up Shanghai International Theme Park Company Limited recently, the Group has achieved a new milestone in its product being accepted and recognized by an internationally renowned industry player. This also demonstrated our technical merits and product quality.

We completed our first post-IPO M&A when iLogic was acquired at the start of the year. M&A remains a key part of our strategy for growth and we will continue to progress down this route should suitable targets be available.

We expect to maintain the positive trends in the business during the second half of the year as our strategic long term objective of transforming from a project based business to a more recurring business model begins to bear fruit. Our goal of having the revenue and profits correlating with the number of visitors to our theme-park customers is starting to materialise albeit still a minor portion of our revenue at this stage.

We look forward to engaging the market and our clients more deeply in the coming months, and securing more sites and revenue.

Kim Seng Teh

Non-Executive Chairman

8 September 2015

Chief Executive Officer's Statement

I am very pleased to provide this interim review following the Group's first audited financial year as a publicly listed entity.

Results

The Board is delighted with the Group's performance in the first six months of 2015. In terms of financial performance, the result for the half-year saw revenues up 43% at RM23.48m (H1 2014: RM16.44m). We have seen continued growth in demand for our products and services from existing customers as well as successfully adding new large customers such as Silver Base Group and Burqin County of Xinjiang Province. Our operating profit also saw significant improvement, up 22% at RM6.16m (H1 2014: RM5.05m) and this was reflected in both pre-tax profit up 22% at RM6.13m (H1 2014: RM5.02m) and cash up to RM31.22m (H1 2014: RM13.05m). The net proceeds from Shiji's investment were c. £3m (c. RM16.48m) with the balance of the increase coming from our improved operating cash flows.

Market Overview

According to Global Attractions Attendance Report published by Themed Attraction Association and AECOM, the outlook for the theme park industry in Asia remained strong with annual growth in attendance numbers of 4.9% compared to 2.2% growth in North America and 3.0% in Europe. The report also stated that the top 20 Asian water-park attendance totals have extended its lead over its North America counterparts since the year before, reporting 19.4 million visitors in 2014 (19.1 million in 2013) as compared to North America's 15.3 million visitors (15.0 million in 2013). Against this backdrop of fast growth, we expect to continue building on our market leading position of 146 installed sites across Asia (98 sites as at 31 December 2014). We are making good progress penetrating into new emerging South East Asia markets which include the Philippines, Thailand, Vietnam and Indonesia.

New Wins and Intelligent Tourism

The largest contract win in H1 2015 was Yinji Water Park in China which brought in revenue of c. £500k to Galasys. More significantly, Galasys has signed up an additional 48 new installed-sites in H1 2015. With this, Galasys has doubled the number of installed-sites since the IPO in May 2014.

More strategically, the Group has launched a new solution offering for Intelligent Tourism. Galasys Intelligent Tourism Cloud Marketing Platform was first developed and successfully deployed for ShouXiHu, Yangzhou, China. Riding on this first success, the Group has signed up collaboration with the Burqin County of Xinjiang to develop Intelligent Tourism. Galasys and Xinjiang Tourism Association have formed a partnership where the government will endorse Galasys for other scenic sites in the future. With the success in China, Galasys is bringing this Intelligent Tourism Cloud Marketing Platform and business model to Japan and Taiwan. We are confident that this new concept of Intelligent Tourism will spur more opportunities for Galasys in the near future.

Product developments

Research and development remains a key investment for the Group in order to maintain its competitive advantage in delivering innovative software solutions to the market.

The R&D projects for the Galasys Mobile-Commerce, Park-Map Navigation and Smart-Q Mobile apps were completed in April 2015 and we have successfully secured new customers to deploy these apps. The Group has continued to invest in its proprietary CLOTATM platform, launched in Q4 2014. We have signed up more online travel agents (OTAs) and additional theme parks connected to the Galasys CLOTATM platform. The Group has successfully developed an innovative Galasys Intelligent Tourism Cloud Marketing Platform and it was first deployed for ShouXiHu, Yangzhou. Moreover, the Galasys Galotas.com C2B portal was launched in Q2 2015.

After signing the Collaboration Agreement with Beijing Shiji, both parties have been working closely to develop, integrate, promote and sell our respective systems. From the R&D perspective, Galasys has integrated its Platform with Shiji's hotel management (PMS) systems, point-of-sale systems and the Alipay payment gateway. With these product integrations successfully completed, the Group is positioned to sell and implement complete solutions for the amusement and hospitality industry.

Outlook

The Group has continued to build on the progress we have made since its listing on AIM. Galasys has ventured into Intelligent Tourism and we are confident this new concept will drive more opportunities for Galasys in the future.

The Group operates in Asia which is the strongest growth market for amusement parks. The Group's organic growth strategy is built on the development of new products, the continued growth of our CLOTATM platform and geographic expansion into new territories such as the Philippines, Vietnam, Thailand, Indonesia, Hong Kong, Japan and Australia. We look forward to delivering another good performance for the full year.

Sean Seah

Chief Executive Officer

8 September 2015

Condensed Consolidated Statements of Comprehensive Income

for the period ended 30 June 2015

Condensed Consolidated Statements of Financial Position

as at 30 June 2015

Condensed Consolidated Statements of Changes in Equity

for the period ended 30 June 2015

for the period ended 30 June 2014

Condensed Consolidated Statements of Changes in Equity (Continued)

for the financial year ended 31 December 2014

Condensed Consolidated Statements of Cash Flows

for the period ended 30 June 2015

Notes to the Interim Accounts

as at 30 June 2015

1. General information

Galasys PLC was incorporated in Jersey on 23 January 2014 as a public limited company with registration number 114827. It is listed on the AIM Market of the London Stock Exchange. The registered office of the Company is Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES.

The principal activity of the Company is to act as the holding company of a group involved in the provision of IT solutions and management services to customers operating in the amusement park industry in Asia.

The interim financial statements are presented in the nearest thousands of Ringgit Malaysia (RM'000), which is the presentation currency of the group. The foreign exchange rate of GBP to RM at the closing rate and average rates were RM 5.953 and RM 5.598 respectively.

2. Basis of preparation

The interim consolidated financial information has been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2014.

On 7 March 2014, the Company acquired the entire share capital of Galasys Holding Limited ("Galasys Holdings") via a Share Swap Agreement. As a result of this transaction, the ultimate shareholders in Galasys Holdings received shares in the Company in direct proportion to their original shareholdings in Galasys Holdings.

Therefore, although the group reconstruction did not become unconditional until 7 March 2014, the consolidated financial information is presented as if the Group structure has always been in place, including the activity from incorporation of the group's principal subsidiary. Both entities had the same management as well as majority shareholders. Accordingly, comparative amounts for the six months ended 30 June 2014 and the year ended 31 December 2014 are presented on a proforma basis.

The principal accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2014.

The unaudited interim financial information set out in this announcement was approved and authorised for the issue by the board of directors on 7 September 2015.

3. Going-concern basis

The interim financial statements are prepared on a going concern basis under the historical cost convention, which assumes that the Group will be able to meet its financial obligations as and when they fall due.

As at 30 June 2015, the Group had net assets of RM62.2 million as set out in the Interim Financial Statements above. Following the admission of the ordinary shares to the trading on AIM, Galasys Plc has considerable financial resources. As a consequence, the Directors believe that Galasys Plc and the Group are well placed to manage its business risks successfully and the Directors have reasonable expectations that the Group have sufficient working capital available for its present requirements that is for the next 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the historical financial information.

4. Use of judgements and estimates

In preparing these interim financial statements, management has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

The key estimates and assumptions that have a significant risk or cause a material adjustment to the carrying amounts of assets and liabilities within the period are as follows:

Amortisation of intangible assets

Development costs are amortised on a straight line method over a period of 5 years. Useful lives are based on management's estimates of the period that the assets will generate revenue, with such periods being periodically reviewed for continued appropriateness.

Allowance for trade and other receivables

Management reviews its loans and receivables for objective evidence of impairment at least quarterly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgment as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in.

The allowance policy for doubtful debts of the Group is based on the ageing analysis and management's on-going evaluation of the recoverability of the outstanding receivables. Once debtors have been identified as having evidence of impairment, it is regularly reviewed and appropriate impairment position applied.

Impairment of non-financial assets

An impairment exists when the carrying value of non-financial assets or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from internal budgets and do not include significant future investments that will enhance the asset's performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

An assessment is made annually whether goodwill and franchise fees have suffered any impairment losses. The assessment process is complex and highly judgmental and is based on assumptions that are affected by expected future market or economic conditions. Judgement is required in identifying the cash generating units ("CGU") and the use of estimates as disclosed in note 8 and 9. Projections of future revenues were a critical estimate in determining fair value. Actual outcomes could vary from these estimates.

Provision for income taxes

The amount of income tax is being calculated on estimated assessable profits based on the completed contract method which is in accordance with the tax rules and regulations applicable in the People's Republic China. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of manufacturing and selling products of similar nature. It could change significantly as a result of changes in customer demand and competitor actions in response to severe industry cycle. Management reassesses these estimates at each balance sheet date.

Fair values of contingent consideration

The fair value of the contingent consideration on initial recognition is the present value of the expected payment discounted using a risk adjusted discount rate. The expected payment is determined by considering the possible scenarios of the acquiree's budgeted financial results, the amount to be paid under each scenario and the probability of each scenario. The assumptions used are detailed in note 11.

5. Earnings per share

The basic earnings per share is calculated by dividing the profit after tax attributable to owners by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential shares adjusted to reflect the conversion as mentioned above.

6. Stated capital account

On 13 April 2015, the Company issued and allotted an aggregate of 9,985,655 ordinary shares at 30 pence per ordinary share by way of a subscription Agreement. The ordinary shares are subscribed by Shiji (Hong Kong) Limited (formerly knowns as Focus Information Technology Co., Limited), a wholly owned subsidiary of Beijing Shiji Information Technology Co., Ltd, a company listed on the Shenzhen Stock Exchange (stock code: 002153).

7. Income tax expenses

Tax expense is recognised based on management's best estimate of the weighted average annual tax rate expected for the full financial year applied to the pre-tax income of the interim period. The Group's consolidated effective tax rate in respect of continuing operations for the six months ended 30 June 2015 was lower that the Malaysian statutory tax rate of 25% (six months ended 30 June 2014: 25%) caused mainly by the following factors:-

i. A subsidiary of Galasys Group, Galasys Global (Suzhou) Co. Limited ("GGSZ"), was established in the Suzhou Province State as a foreign investment enterprise. Pursuant to the tax legislations applicable to foreign investment enterprises, it is entitled to full exemption from the PRC income tax for the two years commencing from their first profit-making year of operations and thereafter, is entitled to a 50% relief from the PRC income tax for the next three years, whereby the current statutory tax rate is 25%. GGSZ is in the third profit-making year and thus, enjoys a 50% relief from the PRC income tax for the current financial year.

ii. A subsidiary, Galasys Solutions (MSC) Sdn. Bhd. was granted Multimedia Super Corridor ("MSC") status by Malaysia government, and was accorded the Pioneer Status under Section 4A of the Promotion of Investments ACT 1986, which provides for a 100% tax exemption on the statutory business income earned for a maximum period of five years. By virtue of this status, Galasys Solutions (MSC) Sdn. Bhd. will enjoy full exemption from income tax in its statutory income for pioneer activities.

8. Intangible assets

Intangible assets comprise software development costs. Development costs principally comprise internally generated expenditure on development costs on major software development projects where it is reasonably anticipated that the costs will be recovered through future commercial activity. It mainly consists of staff costs and outsourcing professional fees.

Of those assets that a ready for use, the development costs are amortised over the estimated useful life of 5 years. The amortisation charge is recognised in cost of sales.

Key sources of estimation uncertainty

Of those assets that are not ready for us, the recoverable amount of a cash-generating unit ("CGU") is determined using the value-in-use approach, and this is derived from the present value of the future cash flows from this segment computed based on the projections of financial budgets approved by management covering a period of five years with assumptions for revenues, margins and growth rates. These assumptions were used for the analysis of the CGU within the business on a consistent basis each year. Management determined budgeted gross margins based on its expectations of market developments. The weighted average growth rates used were consistent with forecasts included in industry reports. The discount rates used were pre-tax and reflected specific risks relating to the relevant segments.

9. Goodwill on consolidation

During the financial period, the Group assessed the recoverable amount of the goodwill and determined that no impairment is required.

This assessment of goodwill was done by comparing the gross profit to the value of goodwill for the entity whose acquisition gave rise to the goodwill.

Key sources of estimation uncertainty

The recoverable amount of a cash-generating unit is determined based on value-in-use calculations using cash flow projections based on financial budgets approved by management covering a period of three years. The key assumptions used for value-in-use calculations are:-

10. Cash and cash equivalents

11. Acquisition of a subsidiary

On 5 January 2015, the Company's wholly owned subsidiary, Galasys Holdings acquired 100% equity interest in I Logic Solutions Sdn. Bhd. ("iLogic"), for a total consideration that is based on the aggregate of a multiple of its audited profit after tax for each of the financial years 2014, 2015 and 2016 with a maximum amount payable of RM7,000,000 (the "consideration").

iLogic is a private limited company incorporated in Malaysia with principal activities of providing consultancy, system study and design, implementation and training of leisure and entertainment software solutions in Malaysia. Upon the acquisition, iLogic became a wholly owned subsidiary of the Group.

The acquisition of iLogic enable the Company to expand its business by developing an online travel agency platform that brings together theme parks and online travel agencies ("OTA") in Malaysia together with a business-to-business model whereby theme parks will sell tickets through the platform to the OTAs.

In the six months to 30 June 2015, iLogic contributed revenue of RM 553,000 and profit of RM 107,000 to the Group's results.

i. The provisional fair values of the identifiable assets and liabilities of iLogic as at the date of acquisition were:-

The Consideration is to be satisfied by way of:

(a) Earn-out payment based on financial year 2014 in cash payable upon closing of the acquisition. An initial payment of RM400,000 was paid as part of the fulfilment of purchase consideration; and

(b) 50% earn-out payment based on the financial year 2015 and 2016 payable in cash and remaining 50% in the form of new shares of the Company.

ii. The effect of the acquisition on cash flows is as follows:-

iii. The following is the measurement for the total contingent consideration.

\* The amount consists of initial payment of RM 400,000 paid as part of the fulfilment of purchase.

12. Seasonality of the group business

There are no seasonal factors that materially affect the operations of any company in the Group.

13. Segment information

Geographical segments

The professional services and sales segment of the Group operated in the PRC and Hong Kong which apart from its home country, Malaysia.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers.

Segments assets and capital expenditure are based on geographical location of the assets.

(a) Business segments

The segment information provided to management for the reportable segments for the period ended 30 June 2015 is as follows:

(b) Geographical segments

Revenues from the highest geographical segment represent approximately 65% of the Group's revenues.

The segment information provided to management for the reportable segments for the period ended 30 June 2015 is as follows:

14. Share options

The Company established a Share Option Plan upon its admission to AIM as part of the Group's incentivisation and retention policy. The options may be granted to employees of the Company and:

(a) any company which the Company owns 50% or more of the issued shares in; and

(b) any company which the Company has an indirect interest in, provided that the shareholding held in each intermediate company between the Company and that company is more than 50 per cent of the issued shares (each a "Participating Company").

New options over a total of 2,330,000 ordinary shares have been granted on its admission to employees with an exercise price of 22.5 pence each. The weighted fair value of the options granted was 12.6 pence per share.

Details of the options outstanding at the year-end are as follows:

A charge of RM169,000 (2014: RM173,000) has been made to the statement of comprehensive income for the year relating to these options. The charge was calculated using fair values determined using the Black Scholes option pricing model. The principal inputs into the model were as follows:

· Stock price: 24.5 pence

· Exercise price: 22.5 pence

· Risk free rate: 2.82%

· Volatility: 41.35%

· Time to maturity: 10 years

The expected volatility was determined by reference to similar entities trading on the AIM market. No expected dividends have been used in the option pricing model.

The charge represents the total fair value of the share options spread over the vesting period.

15. Related party transactions

Transactions between Galasys plc and its subsidiaries, which are related companies of Galasys plc have been eliminated on consolidation and are not disclosed in this note.

The Group's related party transactions are as follows:

Galasys PLC

Registered office:Queensway House,Hilgrove Street, St Helier,Jersey, JE1 1ES

Registered in Jersey with company registration number 114827