ORCODA LIMITED — Annual Report 2016

Aug 29, 2016

SmartTrans Holdings Limited ASX: SMA An Australian based Technology Solutions Company

Corporate Structure:

Shares on issue: 2215 M Unlisted Options: 166 M Market Cap: $AUD 64M 52 week high: 7.1 cents 52 week low: 2.6 cents

Directors:

Mr Mark Vaile AO Non-Executive Chairman

Mr Bryan Carr CEO & Managing Director

Mr Andrew Forsyth Non-Executive Director

Mr Yui (Ian) Tang Non-Executive Director

Directors’ Report & Appendix 4E for the period ended 30[th] June 2016

Mr Greg Simpson Non-Executive Director

Mr Ian Hawkins Executive Director

Melbourne Office: Level 1, 10 Queens Road Melbourne VIC 3004 Australia

Beijing Office: Room 101 Building 22 Courtyard 4 Gong Ti Bei Lu Chaoyang District Beijing 100027 PR China

Phone (Aus): +61 (03) 9866 7333 Phone (China): +86 (10) 6500 0910 Website: www.smarttransholdings.com.au Twitter: www.twitter.com/SmartTrans_SMA Youtube: https://youtu.be/-1t_yJe1DBA

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Appendix 4E

SmartTrans’ revenue up 172% to $11.65 million for FY 2016

Highlights

• Booked revenue for FY 2016 of $11.65 million – an increase of 172% on the previous year ($4.28 million)

• Achieved significant growth in revenue and customer base to which SmartTrans can market a growing range of products

• Established highly sought after and privileged cross-border payment facility from China

• Established presence in the high growth e-Commerce market in China

• Partnered with significant brands for e-Commerce in this rapidly growing online market in China

• Secured a position in newly emerging lotteries market

• Won Outstanding Technology Award from China’s Ministry of Commerce and China World Trade Organisation

• Won Business Excellence Award for Business Innovation at the AustCham Westpac Australia-China Business Awards

• Strongly positioned as the “Gateway to China” for foreign businesses seeking to sell into China

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SmartTrans Revenue
FY2014 - FY2016
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
FY2014 FY2015 FY2016
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SmartTrans Revenue Growth FY2014-FY2016

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FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 June 2016

Total Revenue	for the year ending 30 June	for the year ending 30 June	2016	Up	172% to	172% to	$11,648,458
Total Profit/Loss	for the year ending 30 June		2016	Up	70%	to	($2,811,131)*
		Corporate	Australia			China	Total
				$		$	$
Total Segment Revenue		50,827		1,204,052	10,393,579		11,648,458
Segment (Loss)/Profit		(1,746,689)		(454,928)		(609,514)	(2,811,131)

*Whilst SmartTrans recorded a statutory loss for the financial year it should be noted that the company has fully recognised all costs associated with customer acquisition during the period and based on the past performance of its subscription products, revenue from these customers is expected to continue into subsequent financial years.

By way of example, the expected future return of one of the company’s subscription products based on the historical performance of its subscription products, is illustrated in the graph below.

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Anticipated Cumulative Gross Profit of Subscription Product
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
$(20,000)
$(40,000)
$(60,000)
$(80,000)
$(100,000)
Mth 1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6 Mth 7 Mth 8 Mth 9 Mth 10 Mth 11 Mth 12 Mth 13 Mth 14 Mth 15 Mth 16 Mth 17 Mth 18 Mth 19 Mth 20 Mth 21 Mth 22 Mth 23 Mth 24 Mth 25 Mth 26 Mth 27 Mth 28 Mth 29 Mth 30 Mth 31 Mth 32 Mth 33 Mth 34 Mth 35 Mth 36
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For subscription-based billing SmartTrans invests in acquiring customers in Month 1 and fully recognises the expense in that month. This investment to secure customers generates revenue in that month and subsequent months with gross profitability progressively increasing over time. Cash collection is expected from Month 3 onwards.

The company also saw increases in non-operating expenses associated with:

• Corporate Advisory

• Share Based Payments

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Operating expenses which increased in line with expansion of business activities included:

• Consulting Fees

• Travel and Accommodation costs

• Rental and Occupancy costs

SmartTrans’ revenue for the four quarters of FY 2015 and FY 2016 has been as follows:

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CHINA REVENUE BY QUARTER
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16
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The revenue for the quarter ended 30 June 2016 has levelled off because, having built up a substantial database of recurring customers by concentrating upon volume rather than margin and having gained credibility in the market place, the company now intends to leverage this position by marketing products with higher gross margin to these and other new customers. Whilst this is anticipated to reduce gross revenues it is also expected to increase the overall return to the company in the short to medium term.

This is an example of SmartTrans' ability to make subtle and important changes of direction with agility and speed in the very fluid market place in which it operates.

During the year the company’s employee and consultancy costs increased as the company rapidly expanded its reach and revenue in China. The company bolstered its sales teams in both Australia and China with commensurate costs, but expects to receive returns on this investment in the coming year.

The company will in the current financial year examine closely each item of cost with a view to reducing its cost of doing business.

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BUSINESS OVERVIEW FOR ONLINE & MOBILE PAYMENTS PLATFORM AND LOGISTICS SOFTWARE SOLUTIONS

The company operates the following mobile and online business activities in China:

• Direct Carrier Billing in which users make in-app purchases;

• Direct Carrier Subscription Billing for which it derives ongoing monthly revenue;

• Provision of e-Commerce services incorporating

• Payment Processing;

• Digital marketing and customer acquisition services;

• Commission-based sales;

• Cross-border payment settlement;

• Technical and support services for lotteries billing.

Within Australia, the company provides mobile and online software and services in the transport and logistics area and works closely with a diversified blue-chip client base.

SmartTrans is exploring opportunities to expand its services in other geographic regions integrating its transport software whilst servicing the Internet of Things market providing vehicles and other machines connectivity to the internet.

Whilst achieving overall strong revenue growth for the year, the company has strategically positioned itself to achieve future growth in lucrative and expanding markets in China. Having established solid positions in Direct Carrier Billing with major telcos, e-Commerce sales and distribution, participation in new lotteries programmes and having commenced operations in the privileged cross-border payment settlement, SmartTrans has established a solid platform on which to further grow its business.

The company has focused on achieving longer term returns for the business by investing strongly towards securing subscription-based recurring revenue streams.

Based on historic performance of its subscription-based billing programmes the company expects these customers to continue to generate revenue into the next financial year and beyond for no additional expense to itself.

SmartTrans has consolidated its mobile and internet payment services and is expanding its application to a number of additional product ranges, once again focused on achieving higher margins and delivering stable revenue streams.

The SmartTrans SmartPay service remains integral to the company’s service offering but now leverages strategic agreements and services expected to generate additional revenue from each customer via fees from marketing and customer acquisition, commissions, payment processing fees and payment settlement fees.

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SmartTrans’ extension of mobile and online services.

SmartTrans is targeting growth in the large and still rapidly growing e-Commerce market in China by targeting mobile users in a region where 76% of people have used their smartphone to make purchases within the last three months.[ i]

China’s online shoppers are expected to increase to 587 million in 2018, up from 413 million in 2015[ii] and SmartTrans, with a focus on high-growth markets, is launching the sale of third-party products in the following sectors:

• Vitamins and supplements market in China being, reportedly a $20 billion market growing at 20% per annum[iii]

• Personal hygiene market which is reportedly growing at 41% per annum[iv]

• Personal skin care market which is reportedly growing at 29% per annum[v]

• Australian wine exports to China which reportedly grew by 64% last year to A$397 million[vi]

The company is launching its online sales platform with selected brands positioned in key product segments of expected growth.

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Some of the quality brands being made available on SmartTrans’ e-Commerce platforms in China

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The Company has also entered into its first business-to-business (B2B) partnership for the e-commerce offering through a landmark Master Merchant Agreement with BPS Technology (ASX: BPS). BPS Technology, best known for its Bartercard offering, has partnered with SmartTrans to enable its merchants to market and sell their products online in China via SmartTrans’ specialised product outlet and Alibaba’s website www.1688.com.

Under this Master Services Agreement, via SmartTrans, BPS is initially planning to deliver key suppliers access to four major market sectors: Health & Wellness, Travel & Tourism, Property, and Education, which are Australia’s four largest export sectors to China after resources.[vii]

During the year SmartTrans commenced working with an online and offline lottery provider in China, providing access to a lucrative and growing sector. Lotteries and online betting was first launched in China in 1987 and has since grown to become the world’s largest lottery market by sales volume.[viii]

The General Administration of Sport released the 13th Five-year Plan for China’s sports development on 5 May 2016, restating the objective of policymakers to accelerate innovation in the sports lottery segment. Through its strategic partnerships SmartTrans is positioning itself to become a leading service provider to this sector.

The sports lottery business is seeing strong growth[ix] and this is expected to extend into the online market where SmartTrans is well-established and trusted service provider.

The service has initially been launched in Hainan Province, which is widely regarded as a major hub for lotteries and associated businesses, and provides consumers with easy mobile access to lottery and associated products. The pilot project has been progressing well with good uptake experienced during the recent European Cup fixtures.

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LOGISTICS SOFTWARE & SERVICE BUSINESS

SmartTrans’ Australian business division, which provides mobile and online software and services in the transport and logistics area, continues to perform in line with expectations servicing a diverse range of bluechip customers spread across a range of industry sectors in this region.

The division continues to work closely with partner CEVA Australia (a subsidiary of the large global CEVA Logistics operation) assessing ways in which SmartTrans’ proprietary technology may be applied to enhance CEVA’s operations in terms of safety, efficiency and sustainability.

The China division of the Company’s logistics business, launched here in 2015 through an agreement executed with Yanfeng Automotive Trim Systems Co. Ltd (Yanfeng Visteon Automotive), continues to assess further potential opportunities in this market while also further progressing this project.

SmartTrans is exploring opportunities to expand its services in the provision of data products in China servicing the Internet of Things market by providing vehicles and other machines connectivity to the internet.

During the year SmartTrans was recognised for its achievements with two prestigious awards, the first being the ‘ Business Excellence Award for Business Innovation ’ at the AustCham Westpac Australia-China Business Awards held in Shanghai in April 2016 and the Company received a further accolade in May 2016 by winning the ‘ Outstanding Technology Award’ at the prestigious China International Fair for Trade in Services held in Beijing. The award from the Ministry of Commerce of the People’s Republic of China and the China World Trade Organisation was in recognition of the Company’s best-of-breed technology that underpins its proprietary SmartPay platform.

OUTLOOK

SmartTrans enters FY2017 with a clearly defined strategy designed to further leverage its well-entrenched position as a leading provider of mobile and online billing and payments services in China.

The Company’s new e-commerce offering, made possible by its privileged cross-border settlement capabilities, is a unique point of difference that SMA intends to leverage over the coming months. This platform provides a turn-key solution for any business outside of China wishing to market and sell directly to consumers or businesses in this country.

The Board and management of SmartTrans believe that the Company is well placed as it enters into an exciting new phase of growth and development.

i. Source: www.masterintelligence.com/content/intelligence/en/research/press-release/2016/digital-wallets-surge-popularity.html ii. Source: www.scmp.com/business/companies/article/1994999/chinas-online-retail-sales-double-three-years-analysts-say iii. Source: Euromonitor International Country Reports 2015

iv-v. Source: Nielsen 2015 online shopper study

vi. Source: www.wineaustralia.com/en/Market%20Development/Market%20Programs/China.aspx

vii. Source: www.dfat.gov.au/about-us/publications/trade-investment/australias-trade-in-goods-andservices/Pages/australias-trade-in-goods-andservices-2014-15.aspx

viii. Source: www.agtech.com/html/industry_lottery_overview_char.php

ix. Source: www.scmp.com/business/markets/article/1977977/chinas-sports-lottery-business-see-continued-high-growth-2016

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RESULTS ANNOUNCEMENT TO THE MARKET 2016 Full Year Financial Results

(Based on accounts currently being audited)

1 Details of the reporting period and the previous corresponding period Reporting Period Financial Year Ending Previous Corresponding Period Financial Year Ending 2. Results for announcement to the market 2.1 The amount and percentage change up or down from the previous corresponding period of revenue from ordinary activities Total revenue in the reporting period Previous corresponding period –Total Revenue (including $600,000 from an earlier year) Percentage change up or down from the previous corresponding period of Revenue from ordinary activities 2.2 The amount and percentage change up or down from the previous corresponding period of profit (loss) from ordinary activities after tax attributable to members Total Profit (Loss) in Reporting Period Previous corresponding period Percentage change up or down from the previous corresponding period of profit (loss) from ordinary activities after tax attributable to members 2.3 The amount and percentage change up or down from the previous corresponding period of net profit (loss) for the period attributable to members Total Net Profit (Loss) in Reporting Period Previous corresponding period Percentage change up or down from the previous corresponding period of net profit (loss) for the period attributable to members 2.4 The amount per security and franked amount per security of final and interim dividend or a statement that it is not proposed to pay dividends No dividends proposed relating to the reporting period 2.5 The record date for determining entitlements to the dividends (if any) Not applicable
	30 June 2016
	30 June 2015
	11,648,458
	4,277,301
	+172%
	(2,811,131)
	(1,653,165)
	-70%
	(2,811,131)
	(1,653,165)
	-70%

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3. A statement of Comprehensive Income together with notes to the statements, prepared in compliance with AASB 10s

Statement of Profit & Loss and other Comprehensive Income For the year ended 30 June 2016

Revenue - Operations Online mobile promotion & third party cost Employee salaries and benefits expense Material and installation costs Depreciation expense Consultancy cost Share registration regulatory and compliance costs Corporate Advisory Share based payment Rental & occupancy costs Travelling and accommodation costs Amortisation of Intangible Assets Legal & associated costs Other expenses Loss before income tax Income tax benefit Loss for the year Other comprehensive income for the year Foreign currency translation reserve Total comprehensive income(loss) for the year Notes	11,648,458 4,277,301 (9,470,545) (2,176,918) (1,800,055) (1,615,785) (432,786) (335,382) (31,544) (8,677) (995,271) (400,555) (330,152) (296,435) (207,089) - (246,800) (67,176) (248,791) (147,060) (287,430) (183,020) (10,061) (122,742) (65,530) (152,731) (333,533) (423,985) Consolidated 2016 2015 $ $
	(2,811,131) (1,653,165) - -
	(2,811,131) (1,653,165) (108,256) - (2,919,387) (1,653,165)

The above Statement of Profit & Loss and other Comprehensive Income should be read in conjunction with the accompanying notes

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4 . Statement of Financial Position As at 30 June 2016 Notes Current Assets Cash and Cash Equivalents 3 Trade and Other Receivables 4 Intangible Assets 5 Other Total Current Assets Non Current Assets Property Plant & Equipment 5 Trade and Other Receivables Total Non Current Assets TOTAL ASSETS Current Liabilities Trade and Other Payables 6 Provisions 7 Total Current Liabilities Non Current Liabilities Provisions Other Total Non Current Liabilities TOTAL LIABILITIES NET ASSETS Equity Contributed Equity Reserves Accumulated Losses TOTAL EQUITY	Consolidated 2016 2015 $ $ 2,130,093 6,058,169 4,955,729 1,545,558 221,462 - - 25,534
	7,307,284 7,629,261
	27,037 34,647 - 26,981
	27,037 61,628
	7,334,321 7,690,889
	3,639,504 1,578,076 159,579 158,715
	3,799,083 1,736,791
	- - - -
	- -
	3,799,083 1,736,791
	3,535,238 5,954,098
	73,035,195 72,684,668 695,149 653,405 (70,195,106) (67,383,975)
	3,535,238 5,954,098

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes

A Statement of Financial Position together with notes to the statement. The Statement of Financial Position may be condensed but must report as line items each significant class of asset, liability, and equity element with appropriate sub-totals.

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A statement of changes in equity together with notes to the statement. The statement of changes in equity may be condensed but must comply with the disclosure requirements of AASB 101

Statement of Changes in Equity
For the year ended 30 June 2016
	Contributed	Reserves	Accumulated	Total
	Equity		Losses
	$	$	$	$
2015
Balance at 1 July 2014	64,927,987	586,229	(65,730,810)	(216,594)
Shares issued during the year	8,559,095	-	-	8,559,095
Cost of shares issued	(802,416)	-	-	(802,416)
Share based payments	-	67,176	-	67,176
Profit/(Loss) for the financial year	-	-	(1,653,165)	(1,653,165)
Balance at 30 June 2015	72,684,668	653,405	(67,383,975)	5,954,098
2016
Balance at 1 July 2015	72,684,668	653,405	(67,383,975)	5,954,098
Shares issued during the year	258,691	-	-	258,691
Cost of shares issued	(4,964)		-	(4,964)
Share based payments	96,800	150,000	-	246,800
Foreign currency translation	-	(108,256)	-	(108,256)
Profit/(Loss) for the financial year	-	-	(2,811,131)	(2,811,131)
Balance at 30 June 2016	73,035,195	695,149	(70,195,106)	3,535,238

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5. Statement of Cash Flow For the year ended 30 June 2016

Notes Cash from operating activities: Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Receipt from R&D Grant Net cash inflow/(outflow) from operating activities 8 Cash flows from investing activities: Payments for property plant and equipment Payment for intangible asset Payments for termination of joint venture Net cash (outflow) from investing activities Cash flows from financing activities: Proceeds from capital raisings Payments for capital raising costs Proceeds from issue of shares Net cash provided by (used in) financing activities Net increase (decreases) in cash held Cash at beginning of financial year Effects of foreign exchange Cash at end of financial year 3	Consolidated 2016 2015 $ $ 8,696,208 2,767,877 (12,816,196) (5,386,968) 50,841 8,845 371,458 296,224
	(3,697,688) (2,314,022)
	- (21,861) (245,929) - (77,060) -
	(322,989) (21,861)
	- 7,309,097 (199,044) (278,959) 254,718 550,000
	55,674 7,580,138
	(3,965,003) 5,244,256 6,058,169 813,913
	36,927
	2,130,093 6,058,169

The above Consolidated Statement of Cash Flow should be read in conjunction with the accompanying notes

5b. A Statement of Cash Flow together with notes to the statement. The Statement of Cash Flow may be condensed but must report as line items each significant form of cash flow and comply with the disclosure requirements of AASB 107 Cash Flow Statements, or for foreign entities, the equivalent foreign accounting standard.

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Notes to Sections 3, 4 & 5

1. Revenue Revenue Services	Consolidated 2016 2015 $ $ 11,648,458 4,277,301

2. Operating profit (loss)

2. Operating profit (loss)
Net profit (loss) and expenses Profit (loss) before income tax includes the following specific expenses: Depreciation Plant and equipment Amortisation Software Total amortisation 3. Current assets - Cash and cash equivalents Cash at bank and on hand 4. Current assets - Trade and other receivables Trade debtors Less Provision for impairment of trade debtors 5. Non-current assets - Property, plant and equipment Intangible Assets At cost Less: Accumulated amortisation Total Intangible Assets Plant and equipment At cost Less: Accumulated depreciation Total plant & equipment	Consolidated 2016 2015 $ $ (31,544) (8,677)
	(10,061) -
	(10,061) -
	Consolidated 2016 2015 $ $ 2,130,093 6,058,169
	4,955,729 1,545,558 - -
	4,955,729 1,545,558
	Consolidated 2016 2015 $ $ 231,523 - (10,061) -
	221,462 -
	56,141 619,285 (29,104) (584,638)
	27,037 34,647

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Notes to Sections 3, 4 & 5 6. Current liabilities - Trade and other payables Trade payables Other payables 7. Current liabilities - Provisions Employee benefits – annual leave Employee benefits – long service leave 8. Reconciliation of operating profit (loss) after income tax to net cash inflow from operating activities Operating profit (loss) after income tax Depreciation and amortisation Effects of foreign exchange Fixed Asset write off Amortisation of intangibles Impairment of exploration, evaluation & development Equity based payment Change in operating assets and liabilities Trade and Other Receivables Other Assets Trade and Other Payables Other Liabilities Provisions Net cash inflow (outflow) from operating activities	Consolidated 2016 2015 $ $ 3,639,504 1,578,077 - -
	3,639,504 1,578,077
	Consolidated 2016 2015 $ $ 95,189 93,248 64,389 65,466
	159,579 158,715
	Consolidated 2016 2015 $ $ (2,811,131) (1,653,166) 41,605 8,677 36,927 - 7,601 - - 122,742 - - 246,800 67,176 (3,383,182) (1,314,757) (25,534) (18,816) 2,188,360 441,464 - 32,659 864 -
	(3,697,688) (2,314,022)

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6. The results of segments that are significant to an understanding of the business as a whole.

Segment information provided to the Board of Directors

The segment information provided to the Board of Directors for the reportable segments for the year ended 30 June 2016 are as follows:

		Geographical Segment Summary	Geographical Segment Summary
	Corporate	Australia	China	Total
		$	$		$
	Total Segment Revenue 50,827	1,204,052	10,393,579	11,648,458
	Segment (Loss)/Profit (1,746,689)	(454,928)	(609,514)	(2,811,131)
	Segment Assets as at 30 1,464,863	590,025	5,279,434	7,334,322
	June 2016
	Segment Liabilities as at 30 (359,364)	(314,568)	(3,125,152)	(3,799,084)
	June 2016
7.	Details of individual and total dividends or distributions	and dividend or
	distribution payments. The details must include the date on which each dividend
	or distribution is payable and (if known) the amount per	security of foreign
	sourced dividend or distribution.
	No payments made
8.	Details of any dividend or distribution reinvestment plans in operation and the
	last date for the receipt of an election notice for participation in any dividend or
	distribution reinvestment plan.
	No plans approved
9.	A statement of retained earnings showing movement
	See Consolidated Statement of Changes in Equity
10.	Net tangible assets per security with the comparative figure for the previous
	corresponding period.
	Reporting Period		Cents			0.15
	Previous Corresponding Period		Cents			0.27
11.	Details of entities over which control has been gained or	lost during the period.
	Not applicable
12.	Any other significant information needed by an investor	to make an informed
	assessment of the entity’s financial performance and financial position.
	Refer to explanatory notes above
13.	For foreign entities, which set of accounting standards is used in compiling the
	report (e.g. International Accounting Standards).
	Not applicable

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• 14 A commentary on the results for the period. The commentary must be sufficient for the user to be able to compare the information presented with equivalent information for previous periods. The commentary must include any significant information needed by an investor to make an informed assessment of the entity’s activities and results, which would include but not be limited to discussion of the following.

14.1 The earnings per security and the nature of any dilution aspects

The earnings per security and the nature of any dilution aspects
	Consolidated
	2016	2015
	cents	cents
Basic earnings per share	(0.13)	(0.09)
Diluted earnings per share	(i)	(i)
Weighted average number of shares used as the denominator
Weighted average number of shares used as the denominator in calculating the	2,211,641,015	1,851,319,020
basic earnings per share
Diluted Earnings per share
Weighted average number of shares used as the denominator in calculating the
diluted earnings per share	(i)	(i)
(i) Not materially different to basic earnings per share

14.2 Returns to shareholders including distributions and buy backs.

None made

• 15 Any other factors which have affected the results in the period or which are likely to affect results in the future, including those where the effect could not be quantified.

• Not applicable

16. A statement as to whether the report is based on accounts which have been audited or subject to review, are in the process of being audited or reviewed, or have not yet been audited or reviewed

• This report is based on accounts that are in the process of being audited and subject to review

17. If the accounts have not yet been audited and are likely to contain an independent audit report that is subject to a modified opinion, emphasis of matter or other matter paragraph, a description of the modified opinion, emphasis of matter or other matter paragraph.

• Not applicable

18. If the accounts have been audited and contain an independent audit report that is subject to a modified opinion, emphasis of matter or other matter paragraph, a description of the modified opinion, emphasis of matter or other matter paragraph.

Not applicable

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_______ Bryan Carr CEO

Date: 29 August 2016 Melbourne

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