AI assistant
Glory Sun Land Group Limited — Interim / Quarterly Report 2011
Aug 26, 2011
49106_rns_2011-08-26_6ffd219f-e357-4c6f-9977-c7f035b585be.pdf
Interim / Quarterly Report
Open in viewerOpens in your device viewer
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
SINOCOM SOFTWARE GROUP LIMITED 中訊軟件集團股份有限公司
(Incorporated in the Cayman Islands with limited liability)
(Stock code: 299)
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2011
The directors (the ‘‘Directors’’) of SinoCom Software Group Limited (the ‘‘Company’’) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the ‘‘Group’’) for the six months ended 30 June 2011 (the ‘‘Period’’), which has been reviewed by auditors of the Group, Deloitte Touche Tohmatsu, and the audit committee of the Company.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2011
| Notes Revenue 3 Cost of services Gross profit Administrative expenses Other income and gains Impairment loss on goodwill Profit before taxation Taxation 4 Profit for the period 5 |
Six months ended 30 June 2011 2010 HK$’000 HK$’000 (unaudited) (unaudited) 334,799 294,194 (251,199) (227,574) 83,600 66,620 (51,065) (40,066) 6,924 8,979 – (2,555) 39,459 32,978 (10,760) (12,109) 28,699 20,869 |
|---|---|
1
| Notes Other comprehensive income Exchange differences arising on translation from functional currency to presentation currency Reclassification adjustment on translation difference upon liquidation of a subsidiary Other comprehensive income for the period Total comprehensive income for the period Profit for the period attributable to: Owners of the Company Non-controlling interests Total comprehensive income for the period attributable to: Owners of the Company Non-controlling interests Earnings per share 7 – Basic – Diluted |
Six months ended 30 June 2011 2010 HK$’000 HK$’000 (unaudited) (unaudited) 9,741 4,807 – (2,587) 9,741 2,220 38,440 23,089 28,389 20,677 310 192 28,699 20,869 38,041 22,864 399 225 38,440 23,089 HK2.55 cents HK1.85 cents HK2.54 cents HK1.85 cents |
|---|---|
2
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 June 2011
| Notes Non-current assets Plant and equipment 8 Goodwill Other deposits Deferred tax assets Current assets Trade and other receivables 9 Held-for-trading investments Bank balances and cash Current liabilities Trade and other payables 10 Other deposit 12 Tax liabilities Net current assets Total assets less current liabilities Capital and reserves Share capital 11 Reserves Equity attributable to owners of the Company Non-controlling interests Total equity Non-current liabilities Deferred tax liabilities |
30 June 2011 HK$’000 (unaudited) 12,947 6,932 6,207 4,517 30,603 126,107 231 639,190 765,528 85,102 95,861 19,393 200,356 565,172 595,775 27,850 554,121 581,971 3,602 585,573 10,202 595,775 |
31 December 2010 HK$’000 (audited) 12,564 6,775 4,605 3,438 |
|---|---|---|
| 27,382 | ||
| 111,231 100 613,978 |
||
| 725,309 | ||
| 102,537 – 6,887 |
||
| 109,424 | ||
| 615,885 | ||
| 643,267 | ||
| 27,847 593,683 |
||
| 621,530 4,338 |
||
| 625,868 17,399 |
||
| 643,267 |
3
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2011
| For the six months ended 30 June 2010 (unaudited) Balance at 1 January 2010 Other comprehensive income for the period Profit for the period Total comprehensive income for the period Exercise of share options Recognition of equity-settled share based payments expenses Contribution from non-controlling interest Transfer Dividends recognised as distribution Balance at 30 June 2010 For the six months ended 30 June 2011 (unaudited) Balance at 1 January 2011 Other comprehensive income for the period Profit for the period Total comprehensive income for the period Exercise of share options Recognition of equity-settled share based payments expenses Acquisition of additional equity interest of a subsidiary Transfer Dividends recognised as distribution Balance at 30 June 2011 |
Attributable to owners of the Company | Attributable to owners of the Company | Total HK$’000 597,213 2,187 20,677 22,864 1,713 750 – – (55,871) 566,669 621,530 9,652 28,389 38,041 75 196 85 – (77,956) 581,971 |
Non- controlling interests HK$’000 3,852 33 192 225 – – 31 – – 4,108 4,338 89 310 399 – – (1,135) – – 3,602 |
Total equity HK$’000 601,065 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Share capital HK$’000 27,868 – – – 68 – – – – 27,936 27,847 – – – 3 – – – – 27,850 |
Share premium HK$’000 162,989 – – – 2,117 – – – – 165,106 164,663 – – – 93 – – – – 164,756 |
Share redemption reserve HK$’000 (Note e) 1,623 – – – – – – – – 1,623 2,269 – – – – – – – – 2,269 |
Capital reserve HK$’000 (Note a) 10,657 – – – – – – – – 10,657 10,657 – – – – – – – – 10,657 |
Other reserve HK$’000 (Note b) 5,078 – – – – – – – – 5,078 5,078 – – – – – – – – 5,078 |
General reserve Shareholder’s fund contribution HK$’000 HK$’000 (Note c) (Note d) 26,506 2,726 – – – – – – – – – – – – – – – – 26,506 2,726 26,506 2,726 – – – – – – – – – – – – – – – – 26,506 2,726 |
Translation reserve HK$’000 66,574 2,187 – 2,187 – – – – – 68,761 78,195 9,652 – 9,652 – – – – – 87,847 |
Share option reserve HK$’000 20,609 – – – (472) 750 – (1,875) – 19,012 18,998 – – – (21) 196 – (317) – 18,856 |
Retained earnings HK$’000 272,583 – 20,677 20,677 – – – 1,875 (55,871) 239,264 284,591 – 28,389 28,389 – – 85 317 (77,956) 235,426 |
|||||
| 2,220 20,869 |
|||||||||||||
| 23,089 | |||||||||||||
| 1,713 750 31 – (55,871) |
|||||||||||||
| 570,777 | |||||||||||||
| 625,868 | |||||||||||||
| 9,741 28,699 |
|||||||||||||
| 38,440 | |||||||||||||
| 75 196 (1,050) – (77,956) |
|||||||||||||
| 585,573 |
4
-
Note a: The capital reserve of the Group represents the difference between the paid-in capital of the subsidiaries acquired pursuant to a group reorganisation and the nominal value of the Company’s shares issued in exchange therefor.
-
Note b: The other reserve of the Group represents the capitalisation of general reserve fund and enterprise expansion fund in SinoCom Computer System (Beijing) Co., Ltd. (“SinoCom Beijing”) as share capital of SinoCom Beijing in year 2003.
-
Note c: In accordance with the law and regulations in the People’s Republic of China (the “PRC”) on foreign enterprises, PRC subsidiaries of the Company are required to set aside 10% of their net profits, determined under the PRC accounting regulations, to the general reserve funds until the funds aggregate to 50% of their registered capital. In accordance with their articles of association, PRC subsidiaries of the Company may transfer such amount of profits (after taxation) as determined by their board of directors to the general reserve fund before distribution to their shareholders. The general reserve fund is non-distributable and can be used to increase the capital of the PRC subsidiaries. The general reserve fund can also be used to make good future losses.
-
Note d: The shareholder’s contribution of the Group represents waiver of amount due to a shareholder of the Company in 2001.
-
Note e: The Company repurchased an aggregate of 13,288,000 ordinary shares in prior years. The consideration was paid from the distributable profits of the Company pursuant to the approval of the Board of Directors. An aggregate credit of HK$2,269,000 arising from the repurchase of shares was transferred to the share redemption reserve.
5
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2011
| Note Net cash from operating activities Net cash from (used in) investing activities: Deposits received 12 Proceeds from disposal of plant and equipment Purchase of plant and equipment Net cash used in financing activities: Dividends paid Acquisition of additional equity interest in subsidiaries Proceeds from issue of shares upon exercise of share options Decrease in amount due to a shareholder Dividend paid to non-controlling interest shareholder Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period Effects of foreign exchange rate change Cash and cash equivalents at end of the period, represented by bank balances and cash |
Six months ended 30 June 2011 2010 HK$’000 HK$’000 (unaudited) (unaudited) 3,152 41,349 95,861 – 40 5 (2,657) (2,090) 93,244 (2,085) (77,956) (55,868) (1,246) – 75 1,713 – (37,000) – (2,011) (79,127) (93,166) 17,269 (53,902) 613,978 593,751 7,943 4,715 639,190 544,564 |
|---|---|
6
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2011
1. BASIS OF PREPARATION
The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).
2. PRINCIPAL ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments, which are measured at fair values, as appropriate.
The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2010 except as described below.
In the current interim period, the Group has applied, for the first time, the following new or revised standards, amendments and interpretations (“new or revised HKFRSs”) issued by the HKICPA.
| HKFRSs (Amendments) | Improvements to HKFRS issued in May 2010 |
|---|---|
| HKAS 24 (Revised 2009) | Related Party Disclosures |
| HKAS 32 (Amendment) | Classification of Rights Issues |
| HKFRIC 14 (Amendment) | Prepayments of a Minimum Funding Requirement |
| HKFRIC 19 | Extinguishing Financial Liabilities with Equity Instruments |
The application of the above new or revised HKFRSs in the current interim period has had no material effect on the amounts reported in these condensed consolidated financial statements and/or disclosures set out in these condensed consolidated financial statements.
The Group has not early applied new or revised standards that have been issued but are not yet effective. The following new or revised standards have been issued after the date the consolidated financial statements for the year ended 31 December 2010 were authorized for issuance and are not yet effective:
| HKFRS 10 | Consolidated Financial Statements1 |
|---|---|
| HKFRS 11 | Joint Arrangements1 |
| HKFRS 12 | Disclosures of Interests in Other Entities1 |
| HKFRS 13 | Fair Value Measurement1 |
| HKAS 1 (Amendments) | Presentation of Items of Other Comprehensive Income2 |
| HKAS 19 (Revised 2011) | Employee Benefits1 |
| HKAS 27 (Revised 2011) | Separate Financial Statements1 |
| HKAS 28 (Revised 2011) | Investments in Associate and Joint Venture1 |
1 Effective for annual periods beginning on or after 1 January 2013
2 Effective for annual periods beginning on or after 1 July 2012
7
The directors of the Company anticipate that these new or revised standards will be adopted in the Group’s financial statements for the year beginning on 1 January 2013. The directors of the Company are in the process of assessing the potential impact of the adoption of the relevant standards.
3. SEGMENT INFORMATION
The Group’s operating segments, based on information reported to the chief operating decision maker (i.e. the Group’s Chief Executive Officer) for the purposes of resources allocation and assessment of performance, was analysed on the basis of the location of the customers’ headquarters.
The following is an analysis of the Group’s revenue and results by operating segment for the periods under review:
Six months ended 30 June 2011
| Segment revenue Cost of services Gross profit Administrative expenses Segment (loss) profit Other income and gains Unallocated corporate expenses Profit before taxation |
PRC HK$’000 11,150 (11,089) 61 (1,546) (1,485) |
Japan HK$’000 323,649 (238,249) 85,400 (45,251) 40,149 |
Consolidated HK$’000 334,799 (249,338) 85,461 (46,797) 38,664 6,924 (6,129) 39,459 |
|---|---|---|---|
8
Six months ended 30 June 2010
| Segment revenue Cost of services Gross profit Administrative expenses Segment (loss) profit Other income and gains Impairment loss on goodwill Unallocated corporate expenses Profit before taxation |
PRC HK$’000 17,930 (16,998) 932 (944) (12) |
Japan HK$’000 276,264 (209,886) 66,378 (34,900) 31,478 |
Consolidated HK$’000 294,194 (226,884) 67,310 (35,844) 31,466 8,979 (2,555) (4,912) 32,978 |
|---|---|---|---|
Revenue reported above represents revenue generated from external customers. There were no intersegment sales in either period.
Segment profit/loss represents the profit/loss earned by each segment without allocation of central administration costs, directors’ salaries, share-based payment expenses, other income and gains and impairment on goodwill. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and performance assessment.
4. TAXATION
| Current tax PRC Enterprise Income Tax PRC withholding tax Japan income tax Withholding tax on capital gain on liquidation of a subsidiary Deferred tax Current period |
Six months ended 30 June 2011 2010 HK$’000 HK$’000 5,802 885 8,163 – 5,002 3,616 – 7,804 18,967 12,305 (8,207) (196) 10,760 12,109 |
|---|---|
9
Under the law of PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25% from 1 January 2008 onward except as describe below.
In accordance with the “Notice of the State Tax Bureau of the Ministry of Finance Regarding Certain Preferential Treatment Policies on Enterprise Income Tax”, New and High Technical Enterprise was subject to income tax at a tax rate of 15%. SinoCom Beijing was recognised as New and High Technical Enterprise on 23 July 2009 for three years in accordance with the applicable enterprise income tax law of the PRC and was subject to income tax at a tax rate of 15% from 2009 to 2011 approved by the State Tax Bureau on 6 January 2010.
SinoCom Shensoft Computer Technology (Shanghai) Company Limited (“Shensoft Shanghai”) was recognised as Service Enterprise with Advanced Technology in January 2011 and was subject to income tax at a tax rate of 15% from 2011 to 2013 in accordance with a joint circular of Ministry of Finance, the State Administration of Taxation, the Ministry of Commerce, the Ministry of Science and Technology and the National Development and Reform Commission, Cai Shui No. 63 of 2009.
SinoCom Information Technology (Shandong) Limited (SinoCom Shandong”), a subsidiary of the Company, are eligible for tax holidays and concession as follows:
-
(a) Exemption for PRC Enterprise Income Tax for two years starting from the respective first profit-making year, and
-
(b) Followed by a 50% reduction in the next three years.
SinoCom Shandong is entitled to the tax holidays and concessions from 2009.
No provision for Hong Kong Profits Tax has been made in the condensed consolidated financial statements as the Group had no significant assessable profits in Hong Kong for either period.
SinoCom Holdings Japan Co., Ltd., a subsidiary incorporated in Japan, was liquidated during the six months ended 30 June 2010 and had provided a withholding tax of HK$7,804,000 on capital gain arising from liquidation pursuant to the tax laws in Japan.
Taxation arising in Japan comprises corporate tax, corporate enterprise tax, special local corporate tax and corporate inhabitant tax. Corporate tax is calculated at a progressive statutory rate of 18% on the portion of taxable income not exceeding Japanese Yen (“JPY”) 8,000,000 (equivalent to approximately HK$763,000, six months ended 30 June 2010: HK$682,000) and 30% on the portion of taxable income in excess of JPY8,000,000. Corporate enterprise tax is calculated at a progressive statutory rate of 2.95% on the portion of taxable income not exceeding JPY4,000,000 (equivalent to approximately HK$381,000, six months ended 30 June 2010: HK$341,000), 4.365% on the portion of taxable income in excess of JPY4,000,000 but not exceeding JPY8,000,000 and 5.78% on the portion of taxable income in excess of JPY8,000,000. Special local corporate tax is calculated at a fixed tax rate of 81% or 148% of corporate enterprise tax, depending on the amount of paid-in capital. Corporate inhabitant tax is calculated at a fixed tax rate of 17.3% or 20.7% of the corporate tax, depending on the amount of the corporate tax per annum, also with a fixed yearly amount from JPY70,000 (equivalent to approximately HK$7,000, six months ended 30 June 2010: HK$6,000) to JPY200,000 (equivalent to approximately HK$19,000, six months ended 30 June 2010: HK$17,000), depending on the headcount and capital of the entities.
10
Withholding tax is imposed on dividends declared in respect of profits earned by PRC subsidiaries from 1 January 2008 onwards. Deferred tax liabilities have been accrued at the tax rate of 10% on the expected dividend of about 50% of profit for the period which is determined by the directors of the Company.
5. PROFIT FOR THE PERIOD
Profit for the period has been arrived at after charging (crediting) the following items:
| Six months ended 30 June | Six months ended 30 June | |
|---|---|---|
| 2011 | 2010 | |
| HK$’000 | HK$’000 | |
| Depreciation of plant and equipment | 2,580 | 2,560 |
| Impairment losses on trade receivables | 540 | – |
| Loss on disposal of plant and equipment | 94 | 44 |
| Operating lease rentals in respect of premises | 21,115 | 19,556 |
| Share-based payments expense | 196 | 750 |
| Net foreign exchange gain | (157) | (1,937) |
| Interest income | (4,467) | (2,819) |
| Government subsidies | (1,962) | (1,027) |
6. DIVIDEND
In respect of the financial year ended 31 December 2009, a final dividend of HK5.00 cents per share (total dividend HK$55,871,000) was declared on 18 May 2010. All such dividends were paid to the shareholders during the year ended 31 December 2010.
In respect of the financial year ended 31 December 2010, a final dividend of HK3.10 cents per share and a special dividend of HK3.90 cents per share (total dividend HK$77,956,000) were declared on 23 May 2011. All such dividends were paid to the shareholders during the six months period ended 30 June 2011.
The directors of the Company do not recommend the payment of an interim dividend for the current period.
11
7. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:
| Earnings Profit for the period attributable to owners of the Company Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: Share options issued by the Company Weighted average number of ordinary shares for the purposes of diluted earnings per share |
Six months ended 30 June 2011 2010 HK$’000 HK$’000 28,389 20,677 Six months ended 30 June 2011 2010 ’000 ’000 1,113,883 1,116,209 1,914 2,794 1,115,797 1,119,003 |
Six months ended 30 June 2011 2010 HK$’000 HK$’000 28,389 20,677 Six months ended 30 June 2011 2010 ’000 ’000 1,113,883 1,116,209 1,914 2,794 1,115,797 1,119,003 |
|---|---|---|
| 1,119,003 |
8. MOVEMENTS IN PLANT AND EQUIPMENT
During the period, the Group disposed of certain plant and equipment with an aggregate carrying amount of HK$134,000 (six months ended 30 June 2010: HK$49,000) for proceeds of HK$40,000 (six months ended 30 June 2010: HK$5,000), resulting in a loss on disposal of HK$94,000 (six months ended 30 June 2010: HK$44,000). In addition, the Group spent HK$2,657,000 (six months ended 30 June 2010: HK$2,090,000) on additions to plant and equipment.
12
9. TRADE AND OTHER RECEIVABLES
| Trade receivables Other receivables Other deposits Prepayments Total trade and other receivables |
30 June 2011 HK$’000 108,339 8,119 5,705 3,944 126,107 |
31 December 2010 HK$’000 92,942 7,737 6,054 4,498 |
|---|---|---|
| 111,231 |
The Group allows an average credit period of 30-45 days, extending up to three months for certain selected trade customers. The following is an aged analysis of trade receivables at the end of respective reporting periods based on invoice date net of allowance for doubtful debts:
| 0-30 days 31-60 days 61-90 days 91-180 days Over 180 days Ageing of trade receivables which are past due but not impaired: 61-90 days 91-180 days Over 180 days |
30 June 2011 HK$’000 105,988 2,057 3 172 119 108,339 30 June 2011 HK$’000 3 172 119 294 |
31 December 2010 HK$’000 82,868 7,563 191 581 1,739 |
|---|---|---|
| 92,942 | ||
| 31 December 2010 HK$’000 191 581 1,739 |
||
| 2,511 |
The Group anticipates a full recovery of these amounts, and therefore no impairment has been recorded against these receivables.
13
10. TRADE AND OTHER PAYABLES
| TRADE AND OTHER PAYABLES | ||
|---|---|---|
| Trade payables Wages and salaries payable Accruals Other tax payables Payable for outstanding consideration for acquisition of additional equity interest in a subsidiary Other payables |
30 June 2011 HK$’000 6,989 66,749 2,160 7,127 – 2,077 85,102 |
31 December 2010 HK$’000 4,378 78,654 1,273 14,209 196 3,827 |
| 102,537 |
Trade payables and accruals principally comprise amounts outgoing for sub-contracting and ongoing costs.
The following is an aged analysis of trade payables at the end of respective reporting periods based on invoice date:
| 0-30 days 31-60 days 11. SHARE CAPITAL Authorised: Ordinary shares of HK$0.025 each, at 1 January 2010, 31 December 2010 and 30 June 2011 Issued and fully paid: At 1 January 2010 Repurchase and cancellation of shares_(Note i) Exercise of share options(Note ii) At 31 December 2010 Exercise of share options(Note iii)_ At 30 June 2011 |
30 June 2011 HK$’000 4,853 2,136 6,989 Number of ’000 4,000,000 1,114,711 (3,736) 2,884 1,113,859 120 1,113,979 |
31 December 2010 HK$’000 3,015 1,363 |
|---|---|---|
| 4,378 | ||
| shares HK$’000 100,000 |
||
| 27,868 (93) 72 |
||
| 27,847 3 |
||
| 27,850 |
14
Notes:
-
(i) During the year ended 31 December 2010, the Company repurchased 3,736,000 ordinary shares through The Stock Exchange of Hong Kong Limited at an aggregated consideration of HK$3,396,000. The shares were subsequently cancelled.
-
(ii) During the year ended 31 December 2010, share options to subscribe for 2,884,000 ordinary shares of HK$0.025 each were exercised at HK$0.625 per share.
-
(iii) During the six months ended 30 June 2011, share options to subscribe for 120,000 ordinary shares of HK$0.025 each were exercised at HK$0.625 per share.
12. OTHER DEPOSIT
On 28 February 2011, SinoCom DIR Business Innovation Co., Limited (“SinoCom DIR”) and Daiwa Institute of Research Business Innovation Ltd. (“DIR-BI”), a corporation incorporated under the laws of Japan, entered into a subscription agreement pursuant to which DIR-BI has conditionally agreed to subscribe for, and SinoCom DIR has conditionally agreed to allot and issue to DIR-BI, the subscription shares at a total consideration of JPY1,000,000,000 (equivalent to approximately HK$95,861,000), which was fully paid by DIR-BI in April 2011. SinoCom DIR is a wholly-owned subsidiary established by SinoCom Holdings (BVI) Limited (“SinoCom BVI”), a wholly-owned subsidiary of the Company, in Hong Kong in January 2011. Upon completion of the subscription, SinoCom DIR will be owned as to 60% by SinoCom BVI and 40% by DIR-BI, and SinoCom DIR will be classified as a jointly controlled entity as DIR-BI will have significant veto right in certain of the key financial and operating matters of SinoCom DIR.
On the same day, the Company, SinoCom BVI and DIR-BI entered into a shareholders’ agreement in respect of SinoCom DIR to provide for, among other matters, the basis on which the SinoCom DIR shall be operated and managed, the reorganisation to be completed by the Company to put in place the corporate structure of SinoCom DIR and its subsidiaries, and grant of the options by the Company and SinoCom BVI to DIR-BI.
As part of the reorganisation mentioned above, SinoCom Shandong shall be transferred to become wholly owned by SinoCom DIR Business Innovation Technology (Beijing) Co., Limited (“SinoCom DIR Beijing”), a wholly owned subsidiary of SinoCom DIR.
Details of the above transaction are set out in the Company’s circular dated 8 April 2011.
On 27 April 2011, the above transaction was approved by the Company’s shareholders at the Extraordinary General Meeting.
At 30 June 2011, the Company was in the process of completing the legal documents regarding the transfer of all the equity interest of SinoCom Shandong to SinoCom DIR Beijing. As a result, the above transaction was not legally effective and the Group still had a 100% equity interest in SinoCom Shandong at 30 June 2011. Therefore, the consideration of JPY1,000,000,000 (equivalent to HK$95,861,000) received by the Group was presented as a current deposit in the condensed consolidated statement of financial position.
15
13. SHARE-BASED PAYMENTS
The Company’s share option scheme (the “Scheme”) was adopted pursuant to a resolution passed on 2 April 2004 for the primary purposes of providing incentives to eligible employees, and will expire on 1 April 2014. Under the Scheme, the Board of Directors of the Company may grant options to eligible employees to subscribe for shares in the Company.
Details of specific category of options are as follows:
| Date of grant | Vesting period | Exercisable period | Exercise price |
|---|---|---|---|
| 10/11/2004 | 10/11/2004-09/05/2008 | 10/11/2005-09/11/2014 | HK$0.625 |
| 24/01/2006 | 24/01/2006-23/01/2010 | 24/01/2007-23/01/2016 | HK$1.3875 |
| 28/01/2008 | 28/01/2008-27/01/2011 | 28/01/2008-27/01/2018 | HK$1.36 |
| 28/01/2008 | 28/01/2008-27/01/2013 | 28/01/2009-27/01/2018 | HK$1.36 |
Details of movements of the share options, all of which were granted to the employees of the Group, during the six months ended 30 June 2011 are as follows:
| Date of grant 10/11/2004 24/01/2006 28/01/2008 28/01/2008 |
Outstanding at 1/1/2011 4,876,000 15,800,000 13,730,000 1,200,000 35,606,000 |
Exercised during the period (120,000) – – – (120,000) |
Forfeited during the period – – (460,000) – (460,000) |
Outstanding at 30/6/2011 4,756,000 15,800,000 13,270,000 1,200,000 |
|---|---|---|---|---|
| 35,026,000 |
The closing price of the Company’s shares immediately before the date on which the options were exercised was HK$0.76.
Details of movements of the share options, all of which were granted to the employees of the Group, during the six months ended 30 June 2010 are as follows:
| Date of grant 10/11/2004 24/01/2006 28/01/2008 28/01/2008 |
Outstanding at 1/1/2010 7,760,000 17,080,000 15,030,000 1,200,000 41,070,000 |
Exercised during the period (2,740,000) – – – (2,740,000) |
Forfeited during the period – (1,280,000) (600,000) – (1,880,000) |
Outstanding at 30/6/2010 5,020,000 15,800,000 14,430,000 1,200,000 |
|---|---|---|---|---|
| 36,450,000 |
16
14. OPERATING LEASE COMMITMENTS
At the end of respective reporting periods, the Group had commitments for future minimum lease payments in respect of rented premises which fall due as follows:
| Within one year In the second to fifth year inclusive |
30 June 2011 HK$’000 38,778 31,113 69,891 |
31 December 2010 HK$’000 26,718 22,350 |
|---|---|---|
| 49,068 |
Operating lease payments represent rentals payable by the Group for its office premises. Leases are negotiated and rentals are fixed for lease term from one to three years.
15. RELATED PARTY TRANSACTIONS AND BALANCES
Compensation of key management personnel
The remuneration of directors and other members of key management is as follows:
| Salaries and other benefits Retirement benefits scheme contributions |
Six months ended 30 June 2011 2010 HK$’000 HK$’000 10,756 9,437 632 508 11,388 9,945 |
Six months ended 30 June 2011 2010 HK$’000 HK$’000 10,756 9,437 632 508 11,388 9,945 |
|---|---|---|
| 9,945 |
The remuneration of directors is determined by the salary review committee. The remuneration of the key executives is determined by the internal salary review committee of five members comprising the chairman, president, and three vice presidents of the Company having regard to the performance of individuals and market trends.
17
CHAIRMAN’S STATEMENT
On behalf of the Board of Directors (the “Board”) of the SinoCom Software Group Limited (the “Company”), I hereby present the unaudited interim report of the Company and its subsidiaries (collectively the “Group”) for the six months ended 30 June 2011 (the “Period”).
BUSINESS REVIEW
In reviewing the first half of this fiscal year, despite that the global economy is still in the recovery path, the debt crisis in Europe and the raising of debt ceiling in US have brought in further uncertainty. As for Mainland China, Renminbi (“RMB”) appreciation and rising inflation prompted the government to adopt a more restrictive monetary policy, which in turn will impact the business environment to a certain extent.
Nevertheless, although the Group is in the challenging operating environment currently, the growth of turnover during the Period can be still maintained steady. In March this year, the most powerful earthquake in the history happened in our major business market, Japan, which hit the country’s economy severely. By relying on the strong partnering relationship between the Company and customers, the Group can withstand the rapid changes in the local environment and was immune from any negative impact to our local business.
The rising wage costs, being driven by the acute inflation in Mainland China, together with the shortage of high-tech software development talents have posed serious challenges to the development of the industry. Through continuous integration of organizational structure to maintain an optimal utilization rate, coupled with strict control on cost expenditures, the gross margin for the period could be improved from 22.6% last year to 25.0%. Japanese Yen appreciation also contributed to the gross margin improvement.
FUTURE DEVELOPMENT
Stepping into the second half year, the global financial market became volatile again. It was the first time in the U.S history that an international rating agency lowered the U.S. sovereign credit rating, and the consequential impacts to the financial markets as well as the global economy remained to be seen. The latest economic figures in US indicated the weakening of its economic pace again, which raised the concern to trigger “double dip” type of recession. All these uncertain factors might stifle investment confidence and even affect the global economy.
Therefore, the Group would adopt a prudent business development strategy in the second half year. To further enhance cost-effectiveness, the Group planned to set up branches in the second tier cities to ease the pressure from rising wages and rental costs. On the business expansion side, it is expected that the synergy effect resulted from the set up of a new joint venture company during the Period with Daiwa Institute of Research Business Innovation Ltd. (“DIR-BI”) would be reflected gradually in the second half year business results.
18
In addition, foreign software development industry is entering into an integration stage that only the fittest can survive. A number of software development companies of smaller scale have been eliminated in the fierce competition, but this in turn is conducive to the expansion of our business. I am cautious optimistic on the business outlook in the second half year.
OPERATING RESULTS FOR THE PERIOD
Turnover
Turnover of the Group for the six months ended 30 June 2011 amounted to approximately HK$334.8 million, representing an increase of approximately 13.8% and 6.2%, over the first and second half year in 2010 respectively. Revenue was derived from outsourcing software development services and from technical support services, which accounted for approximately 99.2% and 0.8% of the total revenue respectively. Revenue from these two service segments grew and dropped by 17.3% and 76.6% respectively from the same period last year. Geographical market was divided into Japan and the People’s Republic of China (the “PRC”) and each accounted for approximately 96.7% and 3.3% respectively. Increased revenue from outsourcing software development services was mainly due to growth of business volume with both of the Group’s two largest customers. The major technical support customer abandoned their outsourcing strategy before end of 2010 was the major reason accounted for the drastic decline in technical support revenue. Top five customers accounted for approximately 82.4% of the total revenue. There was no change in the top two customers ranking from same period 2010 that they accounted for approximately 67.4% of the total revenue in aggregate.
Gross profit and cost of services
Gross profit of the Group for the Period amounted to approximately HK$83.6 million, representing approximately an increase of 25.5% over the same period last year. Gross profit margin improvement attributable to a better employee utilization rate and human resources restructuring program implemented was the contributing factor to the increase. Gross profit margin was approximately 25.0% which was higher than the 22.6% achieved same period last year.
Cost of services amounted to approximately HK$251.2 million, representing an increase of approximately HK$23.6 million or 10.4%. Major costs comprised labour costs, rent, travelling, and sub-contracting out. Among which, labour costs increased by approximately HK$17.8 million or 9.7%, i.e. at a rate lower than that of turnover growth at 13.8%. Average manufacturing headcounts during the Period was 2,368, an decrease of 2.5% over that of 2,428 in same period last year. Most of the decreased headcounts were general technicians and interns. Labour cost per average manufacturing head increase by approximately 12.5% for employees during the Period. Labour cost consisted salary, bonus, insurance, and welfare, increased by approximately 9.7% above that of same period last year irrespective the decrease in headcounts. More high level engineers proportionally on the payroll cancelled out the pay cut from reduced headcounts. Due to the reduced headcounts, the Group also sub-contracted to other
19
contractors. Sub-contracting fee amounted for approximately HK$20.1 million, an increase of HK$9.3 million or 87.3% over last year same period.
Other income
Other income included exchange gain, interest income and government subsidies of approximately HK$6.9 million for the Period. Government subsidies were mainly training subsidies under new policies launched to encourage outsourcing software development services industry in PRC which increased from approximately HK$1 million last year same period to HK$2.0 million. The Group earned an exchange gain of approximately HK$0.2 million during the Period, where there was a gain of approximately HK$2.0 million in the same period last year.
Operating expenses
Operating expenses during the Period amounted to approximately HK$51.1 million, an increase of approximately 27.5% over that of HK$40.1 million same period last year. Administrative expenses included rental increments, salary increments and bonus to managerial grade employees and salaries to expatriates of the newly setup joint venture with DIR-BI were the major accounting factors for the increase.
Income tax expenses
During the Period, income tax expenses for all subsidiaries in PRC including the newly set up Joint Venture (“JV”) with DIR-BI in Beijing, other than the principal subsidiary, SinoCom Computer System (Beijing) Co., Ltd (“SinoCom Beijing”), and those enjoying tax holidays were provided at 25%. SinoCom Beijing, being qualified as New and High Technical Enterprise, entitled to a more favorable income tax rate at 15% and tax has been therefore provided at 15%. When SinoCom Beijing is recognized as a key software enterprise under the State plan this year, it would further enjoy a lower tax rate at 10%. Over provision will be written back when key software enterprise status is granted. SinoCom Beijing was recognized as such consecutively in the past few years.
Liquidity, financial resources and gearing ratio
Net assets
As at 30 June 2011, the Group recorded total assets of approximately HK$796.1 million which were financed by liabilities of HK$210.6 million, non-controlling interest of HK$3.6 million and equity of HK$581.9 million. The Group’s net assets value as at 30 June 2011 decreased by 6.4% to approximately HK$585.6 million as compared to approximately HK$625.9 million as at 31 December 2010.
Liquidity
The Group had a total cash and bank balances of approximately HK$639.2 million as at 30 June 2011 (As at 31 December 2010: approximately HK$614.0 million). The Group did not have any bank borrowings. Current ratio was 3.8 times as at 30 June 2011 (As at 31 December 2010: 6.6 times).
20
Foreign exchange exposure
The Group generates most of the revenue in Japanese Yen and incurs most of the costs in RMB. Any depreciation of Japanese Yen against RMB will result in decrease in the income of the Group, which will have an adverse impact to the Group’s profitability. Due to the recurring nature of revenue in Japanese Yen inflow, the Group naturally hedges its exposure by changing accounts receivable in Japanese Yen into RMB immediately upon receipt.
Pledge of Asset
As at 30 June 2011, the Group did not pledge any of its assets to obtain banking facilities nor have any charge on its assets (As at 31 December 2010: Nil).
Contingent Liabilities
As at 30 June 2011, the Group did not have any material contingent liabilities. (As at 31 December 2010: Nil).
OUTLOOK
Downturn of Japan economy after the recent earthquake and radiation leaking disasters did not cause negative impact to the Group. Revenue has been growing, in particular, with the two largest customers. The two customers are consolidating their orders from other suppliers to the Group since setting up their JV with the Group and implementing their “One Made” strategy respectively. Currently, the Group is still under cost pressure of salary inflation, compensation plan to retain and attract high level employees, higher productivity and efficiency requirements from customers. Nevertheless, this pressure has been released to a certain extent after the Group’s human resources reorganization. The Group has been recruiting senior engineers as part of its reorganization in human resources pool. In the short term, average cost per head will increase. In the longer term, the Group will equip itself ready for sophisticated projects from top to bottom further strengthening its competitive edge. The Group will adjust its scale organically in accordance with the coming business volume trend. New growth in PRC or in other markets by means of merger and acquisition will be subject to uncertainties as to availability of suitable targets and the timing of completion. Nevertheless, the Group continues to keep a close eye on any acquisition opportunities on sizeable companies.
Employee and Remuneration Policies
As at 30 June 2011, total headcount of the Group reached 2,406 breaking down into 2,225 in China and 181 in Japan. Employees are remunerated based on their performance, work experience and the prevailing market rates. Performance related bonuses are granted on a discretionary basis. Other employee benefits include pension fund, insurance and medical coverage, training programs and participation in the Group’s share option scheme.
21
Share Option Scheme
As at 30 June 2011, there were options for 35,026,000 ordinary shares of HK$0.025 each in the share capital of the Company (the ‘‘Share(s)’’) granted by the Company pursuant to the option scheme, as adopted by the shareholders of the Company on 2 April 2004 (the ‘‘Option Scheme’’), which were valid and outstanding. No options were lapsed during the six months ended 30 June 2011.
Audit Committee
The Audit Committee of the Company, which is chaired by an independent nonexecutive director, currently comprises three independent non-executive directors. It meets at least two times a year and meetings are attended by external auditors, the chief finance officer and the company secretary for the purpose of discussing the nature and scope of audit work, setting and monitoring the Company’s internal audit program and assessing the Company’s internal controls. It has reviewed this interim report, including the unaudited interim financial statements for the Period which were not required to be audited, and has recommended their adoption by the Board.
Compliance with the Code on Corporate Governance Practices
The Company is committed to maintaining a high standard of corporate governance. During the accounting period ended 30 June 2011, the Company had met the code provisions set out in the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (‘‘the Listing Rules’’) except A.2.1 that Mr Wang Zhiqiang had been both the Chairman and Chief Executive Officer of the Company. The roles of the Chairman of the Board and the Chief Executive Officer were not separated because, to our belief, the separation might not enhance the Group’s efficiency and business operation. The balance of power and authority is ensured by regular discussion and meetings of the Board and active participation of independent non- executive directors. The Board continues to review its practices from time to time with an aim to improve the Group’s corporate governance practices so as to meet international best practice.
Compliance with the Model Code set out in Appendix 10 to the Listing Rules
The Company has adopted a code of conduct regarding securities transactions by directors (‘‘Code of Conduct’’) on terms no less exacting than the required standard set out in the Model Code set out in Appendix 10 to the Listing Rules (‘‘the Code’’) and the Company has made specific enquiry of all directors that they have complied with the required standard set out in the Code and the Code of Conduct.
22
Purchase, Sale or Redemption of Listed Securities
During the Period, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.
By order of the board WANG Zhiqiang Chairman
Hong Kong, 26 August 2011
As at the date of this announcement, the executive Directors are Mr. Wang Zhiqiang, Mr. Wang Xubing, Dr. Shi Chongming, Mr. Siu Kwok Leung; the non-executive Director is Mr. Wang Nengguang; and the independent non-executive Directors are Mr. Pang Chor Fu, Professor Liang Neng and Mr. Lee Kit Wah.
23