RNS Number:3328B
Sinosoft Technology plc
11 April 2006
11 April 2006
SINOSOFT TECHNOLOGY PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005
Sinosoft Technology plc ("Sinosoft" or the "Company"), the China based developer
and provider of e-Government software and services, which recently listed on
AIM, announces maiden preliminary results for the year ended 31 December 2005.
The Company (EPIC: SFT), has established itself as a market leader in the
provision of specialised export tax management software and e-Government
services in Jiangsu through its wholly owned subsidiaries Nanjing Skytech Co.
Ltd and Nanjing Skytech Software Co. Ltd (together referred to as "Skytech").
Skytech has contracts with a number of government bodies and has over 29,000
customers including subsidiaries of multinational companies like Hitachi and
Mitsubishi.
Highlights from the results include:
* Turnover up 24% to US$6.16 million (2004: US$4.98 million)
* Net profit up 34% to US$3.52 million (2004: US$2.63 million)
* Net profit margin increased to 57% (2004: 53%)
* Skytech awarded "Golden Tax Tender" by the Chinese State Administration of
Taxation. Roll out of automated export tax process to thirty six provincial
tax offices in China being finalized
* Successfully raised US$17 million and admitted to AIM
Commenting on the results Miss Xin, CEO of Sinosoft said: "The Sinosoft group
continues to benefit from China's technological advancement and the upsurge in
Chinese export activity. The successful fundraising has enabled the Group to
develop its strategy to grow beyond Jiangsu and to further develop our expanding
product suite. The board is confident that 2006 will be a year of exciting
growth and we look forward to continuing our development and delivering value
for shareholders."
For further information please contact:
Sinosoft Ms. Helen Xin, +86 025 84815959
Chief Executive Officer
Westhouse Securities Tim Metcalfe 020 7601 6100
Tavistock Communications Paul Dulieu 020 7920 3150
Matt Ridsdale
SINOSOFT TECHNOLOGY PLC
OPERATING COMPANIES' FINAL RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2005
CHAIRMAN'S STATEMENT
I am pleased to announce the audited results of Sinosoft's trading subsidiaries,
namely, Nanjing Skytech Co. Ltd and Nanjing Skytech Software Co. Ltd (together
referred to as "Skytech") for the year ended 31 December 2005. These are the
first trading results announced since the Company was admitted to AIM on 6 March
2006.
The financial results for Skytech set out below relate entirely to the
pre-flotation period and have been prepared on a combined basis for Nanjing Sk
ytech Co. Ltd and Nanjing Skytech Software Co. Ltd. The results for Skytech's
holding companies, namely Infotech Holdings Pte. Ltd and Sinosoft have seen no
material change from the information disclosed in the AIM Admission Document
published on 28 February 2006.
Financial highlights
I am pleased that Skytech's results for the year ended 31 December 2005 are
better than market expectations. Skytech achieved a year-on-year growth in
turnover of 24%. In addition to strong revenue growth Skytech achieved im
provements in its margins with the net profit margin increasing from 53% to 57%.
The Company continues to work on expanding Skytech's product range and improving
the quality of its software products and services. This includes investing in
additional research and development facilities and new software products which
were specifically developed for Skytech and this investment will allow it to
enhance its current software range.
The increasing move by the Chinese government towards digitisation at all levels
is driving demand for all the Company's products, in particular its e-government
and export tax software.
We are delighted with the progress Sinosoft is making. We have had a successful
debut on AIM which has raised the profile of the enlarged group (being Sinosoft
and its subsidiaries (the "Group")) and has provided the funds to expand our
activities and further develop the business.
May I take this opportunity to thank all the board members, and particularly our
employees who have worked extremely hard to bring the Group to its current
position.
Mao Ning
Chairman
CHIEF EXECUTIVE OFFICER'S STATEMENT
Operational update
It gives me great pleasure to release my first Chief Executive's statement. 2005
was a successful year for the Group at an operating level. During the year
Skytech focused on growing market share and this was achieved in all three of
the Group's principal revenue streams of e-government software, export tax
software and information integration. The awarding of the Golden Tax Tender by
the Chinese State Administration of Taxation ("SAT") will, in the opinion of the
board, enable Skytech to target exporting enterprises across China.
Since the publication of the AIM Admission Document on 28 February 2006 Sinosoft
and its subsidiaries have seen further developments in the business including:-
* Securing a contract for the provision of existing e-government products to
Yangzhou City for an initial value of $110,000. In addition to this one off
revenue this new contract will provide Skytech with ongoing support income
and enable Skytech to develop additional sales to agencies in Yangzhou.
* Following the awarding to Skytech of the Golden Tax Tender by the SAT,
Skytech has been working with the SAT to finalise the rollout across thirty
six provincial bureaus. The receipt of the Golden Tax Tender is an important
step in developing the Group's activities outside of Jiangsu province.
* Sales of the Group's export tax software continue to grow in Jiangsu
province. In the first three months of 2006 approximately 1,000 new
exporting enterprises have begun to use Skytech's export tax products. These
include subsidiaries of multinational companies including Hitachi, Atlas
Copco and Mitsubishi.
Following Sinosoft's admission to AIM the Group has repaid its borrowings of
US$2.3 million, invested in increasing its research and development capabilities
and begun the process of setting up a new office in Shanghai. I am pleased to
announce that we have recruited a number of new technical staff with the Group's
employees now totalling 160.
The Sinosoft group continues to benefit from China's technological advancement
and the upsurge in Chinese export activity. The successful fundraising has
enabled the Group to develop its strategy to grow beyond Jiangsu and to further
develop our expanding product suite. The board is confident that 2006 will be a
year of exciting growth and we look forward to continuing our development and
delivering value for shareholders.
Helen Xin
Chief Executive Officer
COMBINED INCOME STATEMENT
Year ended 31 Year ended 31
December 2005 December 2004
Notes Audited Audited
US$ US$
Revenue 6 6,155,852 4,979,029
Cost of sales (1,673,880) (1,458,877)
-----------------------------------
Gross profit 4,481,972 3,520,152
Other operating income 7 622,185 458,692
Research and development cost (519,462) (483,460)
Selling and distribution expenses (421,417) (315,378)
Administrative expenses (605,549) (434,866)
Other operating expenses (1,173) (3,226)
-----------------------------------
Profit from operations 8 3,556,556 2,741,914
Finance cost 9 (22,144) (18,981)
Finance income 10 26,348 10,687
Share of associates losses - (80,929)
Gain on disposal of subsidiary - 104,384
Trading investment loss - (88,116)
-----------------------------------
Profit before income tax 3,560,760 2,668,959
-----------------------------------
Taxation 11
-----------------------------------
Current tax 11(a) | - (4,477)|
Deferred tax 11(b) | (44,913) - |
-----------------------------------
(44,913) (4,477)
-----------------------------------
Net profit for the year 3,515,847 2,664,482
Minority interest - (32,049)
-----------------------------------
Profit for the year 3,515,847 2,632,433
===================================
COMBINED BALANCE SHEET
31 December 31 December
Notes 2005 2004
Audited Audited
US$ US$
ASSETS
Current assets
Cash and cash equivalents 3,956,182 1,596,822
Trade receivables 12 2,010,203 1,557,442
Other receivables 13 1,238,253 1,059,600
Inventories 14 557,415 236,195
-----------------------------------
Total current assets 7,762,053 4,450,059
-----------------------------------
Non-current assets
Property, plant and equipment 15 381,238 365,620
Intangible assets 16 1,238,636 469,304
Investments 17 185,795 181,598
-----------------------------------
Total non-current assets 1,805,669 1,016,522
-----------------------------------
Total assets 9,567,722 5,466,581
-----------------------------------
LIABILITIES & EQUITY
Current liabilities
Trade payables 369,598 258,340
Other payables 18 477,496 317,788
Bank loans 19 371,591 363,196
-----------------------------------
Total current liabilities 1,218,685 939,324
-----------------------------------
Non-current liabilities
Deferred income 148,636 48,426
Deferred tax 11(b) 45,636 -
-----------------------------------
Total non-current liabilities 194,272 48,426
-----------------------------------
Total liabilities 1,412,957 987,750
-----------------------------------
Capital and reserves
Share capital 20 1,452,785 1,452,785
General reserves 758,522 334,653
Retained earnings 5,783,371 2,691,393
Exchange reserve 160,087 -
-----------------------------------
Total shareholders' equity 8,154,765 4,478,831
-----------------------------------
Total liabilities & equity 9,567,722 5,466,581
-----------------------------------
COMBINED STATEMENT OF CASH FLOWS
Year ended 31 Year ended 31
December 2005 December 2004
Audited Audited
US$ US$
Income before taxation 3,560,760 2,668,959
Adjustments for:
Depreciation of property, plant and equipment 36,065 18,133
Amortisation of intangible assets 108,560 57,207
Provision for impairment on investment in associate - 80,929
Provision for balance due from associate - (35,522)
Loss on disposal of investment held for trading - 88,116
Provision for impairment for receivables 20,381 66,886
Interest income (26,348) (10,687)
Interest expense 22,144 18,981
-----------------------------------
Operating cash flows before working capital changes 3,721,562 2,953,002
Increase in trade and other receivables (582,268) (1,939,519)
Increase in inventories (310,761) (141,358)
Increase/(decrease) in trade and other payables 351,092 (146,185)
-----------------------------------
Cash used in operations (541,937) (2,227,062)
-----------------------------------
Income taxes paid - (4,477)
Interest paid (22,144) (18,981)
-----------------------------------
Net cash generated by operating activities 3,157,481 702,482
Cash flows from investing activities
Interest received 26,348 10,687
Cash held on deposit - 152,692
Proceeds on disposal of trading investments - 554,517
Purchase of property, plant and equipment (43,234) (175,952)
Purchase of intangible assets (867,045) (435,835)
Purchase of investments for trading - (193,705)
-----------------------------------
Net cash used in investing activities (883,931) (87,596)
-----------------------------------
Cash flows from financing activities
Capital injections from investors - 217,918
Repayment of borrowings (371,591) (363,196)
New borrowings 371,591 363,196
-----------------------------------
Net cash generated from financing activities - 217,918
-----------------------------------
Net increase in cash and cash equivalents 2,273,550 832,804
Cash and cash equivalent at the beginning of the financial year 1,596,822 764,018
Effects of exchange rate changes 85,810 -
-----------------------------------
Cash and cash equivalent at the end of the financial year 3,956,182 1,596,822
===================================
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Retained Statutory Exchange
Capital Earnings Reserves Reserve Total
US$ US$ US$ US$ US$
Balance at 1 January 2004 1,210,654 358,274 35,339 - 1,604,267
Issue of share capital 242,131 - - - 242,131
Net profit for the year - 2,632,433 - - 2,632,433
Transfer to statutory reserve - (299,314) 299,314 - -
--------------------------------------------------------------------------
Balance at 31 December 2004 1,452,785 2,691,393 334,653 - 4,478,831
==========================================================================
Balance at 1 January 2005 1,452,785 2,691,393 334,653 - 4,478,831
Net profit for the year - 3,515,847 - - 3,515,847
Transfer to statutory reserve - (423,869) 423,869 - -
Translation difference - - - 160,087 160,087
--------------------------------------------------------------------------
Balance at 31 December 2005 1,452,785 5,783,371 758,522 160,087 8,154,765
==========================================================================
Notes to the financial information
1. The companies and their operation/general
Nanjing Skytech Co. Ltd was incorporated on 14 December 1998 in the People's
Republic of China ("PRC"). Its principal activity is that of the development and
sale of computer software, computer and external equipment and related
accessories for communication products, digital products and other electrical
appliances.
Nanjing Skytech Co. Ltd became a 100% subsidiary of Infotech Holdings Pte Ltd on
31 July 2004. On 20 January 2006 Infotech Holdings Pte Ltd became a wholly owned
subsidiary of Sinosoft Technology plc.
Nanjing Skytech Software Co. Ltd was incorporated on 2 July 2003 in the People's
Republic of China. Its principal activity is that of the development, sales and
service of computer software and technology.
Nanjing Skytech Software Co. Ltd was a 90% subsidiary of Nanjing Skytech Co. Ltd
from incorporation until 31 July 2004, when Nanjing Skytech Co. Ltd's investment
was acquired by Nanjing Sky Investment Information Co. Ltd. In January 2005,
Infotech Holdings Pte Ltd acquired 100% of the issued share capital of Nanjing
Skytech Software Co. Ltd.
The registered offices of Nanjing Skytech Co. Ltd and Nanjing Skytech Software
Co. Ltd are 3rd Floor, No. 50 Building, Jiangsu Software Park, No. 168 Long Pan
Zhong Road, Nanjing, People's Republic of China.
2. Basis of preparation of the financial information
This financial information has been prepared in accordance with International
Financial Reporting Standards ("IFRS"). The directors of Sinosoft Technology plc
are responsible for preparing the financial information.
The financial information represents the combination of the financial
information of Nanjing Skytech Co. Ltd and Nanjing Skytech Software Co. Ltd
("the combined entity"), which at 31 December 2005 are both 100% subsidiaries of
Infotech Holdings Pte Ltd. For the period during which Nanjing Skytech Software
Co. Ltd was a 90% subsidiary of Nanjing Skytech Co. Ltd the accounts have been
consolidated for the group.
For the subsequent period, the accounts of the two fellow subsidiary
undertakings have been combined but not consolidated. All transactions and
balances between the two companies have been eliminated in the preparation of
the financial information for the combined entities. The financial information
does not constitute a consolidation of the results of the two companies and does
not reflect the changes in the legal ownership and structure of the Infotech
'group' of companies during the year covered by the financial information.
The combined entity maintains its accounting records in Chinese Renminbi ("RMB")
and prepares its statutory financial statements in accordance with People's
Republic of China ("PRC") generally accepted accounting practices. The financial
information is based on the statutory records, with adjustments and
reclassifications recorded for the purpose of the fair presentation in
accordance with IFRS.
The financial information has been prepared under the historical cost convention
except as disclosed in the accounting policies below.
The financial information presented does not constitute statutory accounts for
the years under review.
Adoption of IFRS
The financial information has been prepared under IFRS standards currently in
issue as if they had been in issue for years covered by the financial
information.
The adoption of these standards did not result in substantial changes to the
combined entities accounting policies.
The principal accounting policies adopted by the combined entity are consistent
with those disclosed for the years in this financial information.
Management estimates
The presentation of financial information under IFRS requires management to make
prudent estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial information preparation and the
reported amounts of revenue and expenses during the reporting year. Estimates
have been made principally in respect of the amounts capitalised as, and the
useful economic life of, intangible assets, useful economic life of property,
plant and equipment, provisions for impairment of accounts receivable and
investments.
3. Significant accounting policies
3.1. Functional and presentation currency
The Chinese Renminbi (RMB) is the functional currency of the combined entity as
it is the currency of the primary economic environment in which it operates. The
United States Dollar ("US$") is the currency used to present the financial
information in order to improve the understanding of the results and the
financial position of the combined entity outside of the PRC.
The functional currency transactions are translated into the presentation
currency using the average exchange rate of US$1:RMB8.2033 during the financial
year (FY2004: fixed rate at US$1:RMB8.26). Functional currency assets and
liabilities are translated into the presentation currency at the rates of
exchange prevailing at the balance sheet date of US$1:RMB8.0734 (FY2004: fixed
rate at US$1:RMB8.26). All resulting exchange differences are taken to the
foreign currency translation reserve.
Fixed exchange rate of US$:RMB was used for FY2004 as the RMB held a fixed
exchange rate with the US$ during the previous financial year until July 2005
when the currency began to float against a 'basket of currencies'.
3.2. Investments in associates
An associate is an entity over which the combined entity exercises significant
influence and is neither a subsidiary nor an interest in a joint venture.
Significant influence is the power to participate in the financial and operating
policy decisions of the investee but is not control or joint control over those
policies.
The results and assets and liabilities of associates are incorporated in this
financial information using the equity method of accounting, except when the
investment is classified as held for sale, in which case it is accounted for
under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under
the equity method, investments in associates are carried in the consolidated
balance sheet at cost as adjusted for post-acquisition changes in the combined
entity's share of the net assets of the associate, less any impairment in the
value of the individual investments. Losses of an associate in excess of the
combined entity's interest in that associate (which includes any long-term
interests that, in substance, form part of the combined entity's net investment
in the associate) are not recognised.
Any excess of the cost of acquisition over the net entity's share of the net
fair value of the identifiable assets, liabilities and contingent liabilities of
the associate recognised at the date of acquisition is recognised as goodwill.
The goodwill is included within the carrying amount of the investment and is
assessed for impairment as part of the investment. Any excess of the combined
entity's share of net fair value of the identifiable assets, liabilities and
contingent liabilities over the cost of acquisition, after reassessment, is
recognised immediately in profit or loss.
Where the combined entity transacts with an associate of the combined entity,
profits and losses are eliminated to the extent of the combined entity's
interest in the relevant associate.
3.3. Revenue recognition
Revenue is measured at the fair value of consideration received or receivable
and represents amounts receivable for goods and services provided in the normal
course of business, net of discounts and sales related taxes.
Revenue from the sale of goods is recognised when the significant risks and
rewards of ownership are transferred to the buyer and the amount of revenue and
the costs of the transaction can be measured reliably.
Revenue from installation contracts is recognised in accordance with the
combined entities' accounting policy on installation contracts (see below).
Revenue from rendering of services that are of a short duration is recognised
when the services are completed.
Other income includes Value Added Tax (VAT) rebates, which are recognised on an
accruals basis.
Interest income is accrued on a time proportionate basis, by reference to the
principal outstanding and at the interest rate applicable, on an effective yield
basis.
3.4. Installation contracts
When the outcome of a contract for the installation of network systems can be
estimated reliably, revenue and costs are recognised on the percentage of
completion method, measured by reference to the proportion that costs incurred
to date bear to estimated total costs for each contract, except where this would
not be representative of the stage of completion. Variations in contract work,
claims and incentive payments are included to the extent that they have been
agreed with the customer.
When the outcome of a contract cannot be estimated reliably, revenue is
recognised to the extent of contract costs incurred that it is probable that
they are recoverable. Contract costs are recognised as expenses in the period in
which they are incurred.
When it is probable that the total contract costs will exceed total contract
revenue, the expected loss is recognised as an expense immediately.
3.5. Government grants
Government grants relating to expenditure that is not capitalised is credited to
the income statement to match the related expenditure when it is incurred.
Government grants relating to the purchase of property, plant and equipment are
included in the balance sheet by deducting the grant in arriving at the carrying
amount of the assets.
3.6. Employee benefits
Post-employment benefit plans cost
Defined contribution plans are post-employment benefit plans under which Skytech
pays fixed contributions into separate entities such as the Mandatory Provident
Fund ("MPF") scheme, and will have no legal or constructive obligation to pay
further contributions if any of the funds do not hold sufficient assets to pay
all employee benefits relating to employee service in the current and preceding
financial years. Skytech's contribution to defined contribution plans are
recognised in the financial year to which they relate.
3.7. Taxation
Income tax expense represents the sum of tax currently payable and deferred tax.
Current taxation
The tax currently payable is based on the taxable profit for the year. Taxable
profit differs from profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
combined entity's liability for current tax is calculated using tax rates that
have been enacted or substantially enacted by the relevant balance sheet date.
Deferred taxation
Deferred tax is determined on the basis of tax effect accounting, using the
liability method, and it is applied to all significant temporary differences
arising between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, except that the potential tax savings relating to a tax loss carry
forward is not recorded as an asset unless there is a reasonable expectation of
realisation in the foreseeable future.
Deferred tax assets and liabilities are measured using the tax rates that are
expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantially enacted by the balance sheet date. Deferred tax is charged or
credited to the profit or loss statement, except when it relates to items
charged or credited to equity, in which case the deferred tax is also dealt with
in equity. Deferred tax assets and liabilities are offset when they relate to
income taxes levied by the same tax authority.
3.8. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and cash held on demand with
banks, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk
of changes in value.
3.9. Inventories
Inventories are measured at the lower of cost and net realisable value. Cost
includes all costs of purchase, cost of conversion and other costs incurred in
bringing the inventories to their present location and condition. Cost is
calculated using the first in first out method. Net realisable value is the
estimated selling price less all estimated costs to completion and costs to be
incurred in marketing, selling and distribution.
3.10. Investments
Investments are recognised and derecognised on a trade-date basis and are
initially measured at cost, including transaction costs.
At subsequent reporting dates, debt securities that the combined entity has the
expressed intention and ability to hold to maturity (held-to-maturity debt
securities) are measured at amortised cost, less any impairment loss recognised
to reflect irrecoverable amounts. The annual amortisation of any discount or
premium on the acquisition of a held-to-maturity security is aggregated with
other investment income receivable over the term of the instrument so that the
revenue recognised in each period represents a constant yield on the investment.
An impairment loss is recognised in profit or loss when there is objective
evidence that the asset is impaired, and is measured as the difference between
the investment's carrying amount and the present value of estimated future cash
flows discounted at the effective interest rate computed at initial recognition.
Impairment losses are reversed in subsequent periods when an increase in the
investment's recoverable amount can be related objectively to an event occurring
after the impairment was recognised, subject to the restriction that the
carrying amount of the investment at the date of the impairment is reversed
shall not exceed what the amortised cost would have been had the impairment not
been recognised.
Investments other than held-to-maturity debt securities are classified as either
held-for-trading or available-for-sale, and are measured at subsequent reporting
dates at fair value. Where securities are held for trading purposes, gains and
losses arising from changes in fair value are included in profit and loss for
the period. For available-for-sale investments, gains and losses arising from
changes in fair value are recognised directly in equity, until the security is
disposed of or is determined to be impaired, at which time the cumulative gain
or loss previously recognised in equity is included in the net profit or loss
for the period. Impairment losses recognised in profit or loss for
debt-instruments classified as available-for sale are subsequently reversed if
an increase in the fair value of the instrument can objectively be related to an
event occurring after recognition of the impairment loss.
3.11. Property, plant and equipment
Property, plant and equipment are recorded at historic cost, less accumulated
depreciation and any impairment loss where the recoverable amount of the asset
is estimated to be lower than its carrying amount.
Property in the course of construction for production or administrative purposes
is carried at cost, less any recognised impairment loss. Cost includes
professional fees and, for qualifying assets, borrowing costs capitalised in
accordance with the combined entity's accounting policy. Depreciation of these
assets commences when the assets are ready for their intended use.
Depreciation is charged so as to write off the cost of the assets over their
estimated useful lives, using the straight-line method, as follows:
Property - 20 years
Electronic equipment, furniture and fixtures - 5 years
Motor vehicles - 8 years
The assets' residual values and useful lives are reviewed, and adjusted, if
appropriate, at each balance sheet date.
The gain or loss arising on the disposal or retirement of an item of property,
plant and equipment is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in profit or loss.
3.12. Internally generated intangible assets - research and development
expenditure
Research expenditure is recognised as an expense as incurred.
Costs incurred on development projects are recognised as internally generated
intangible assets only if all of the following conditions are met:
* an asset is created that can be identified (such as software and new
processes);
* it is probable that the asset created will generate future economic
benefits; and
* the development cost of the asset can be measured reliably.
Internally generated intangible assets are amortised on a straight-line basis
over their estimated useful lives, from the commencement of commercial
production.
Development costs that have been capitalised as intangible assets are amortised
on a straight-line basis over the period of its expected benefits, which
normally does not exceed 3 years.
3.13. Patents and trademarks
Patents and trademarks are measured initially at purchase cost and are amortised
on a straight-line basis over their estimated useful economic lives.
Patents - 3 years
Trademarks - 2 years
3.14. Impairment of tangible and intangible assets
At each balance sheet date, the combined entity reviews the carrying amounts of
its assets to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated to determine the extent of the impairment loss
(if any).
When it is not possible to estimate the recoverable amount of an individual
asset, the combined entity estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use.
If the recoverable amount of an asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount.
Impairment losses are recognised as an expense immediately.
When an impairment loss subsequently reverses, the carrying amount of the asset
is increased to the revised estimate of its recoverable amount, to the extent
that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised for the asset
in prior years. A reversal of an impairment loss is recognised as income
immediately.
3.15. Financial assets
The principal financial assets are cash, trade receivables, other receivables
and other investments. Trade and other receivables are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
The accounting policy of other investments is outlined above.
3.16. Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. Significant financial
liabilities include interest-bearing short-term bank loans, trade and other
payables.
Interest-bearing short-term bank loans are recorded at the proceeds received,
net of direct issue costs. Finance charges, including premiums payable on
settlement or redemption, are accounted for on an accrual basis and are added to
the carrying amount of the instrument to the extent that they are not settled in
the period in which they arise. Finance costs are accounted for on an accrual
basis (effective yield method) and are added to the carrying amount of the
instrument to the extent that they are not settled in the period in which they
arise.
Trade and other payables are stated at their nominal value.
Equity instruments are recorded at the fair value of consideration received, net
of direct issue costs.
3.17. Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any difference
between the proceeds (net of transaction costs) and the redemption value is
taken to the profit and loss statement over the period of the borrowings using
the effective interest method.
All borrowing costs are taken to the profit and loss statement over the period
of borrowing using the effective interest method.
3.18. Foreign currency transactions
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency (RMB) are recorded at
rates of exchange prevailing on the dates of the transactions. At each balance
sheet date, monetary balances denominated in foreign currencies are retranslated
at the rates ruling at the balance sheet date.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in the income statement for the
year.
3.19. Provisions
Provisions are recognised when the combined entity has a present legal or
constructive obligation as a result of a past event where it is probable that
the obligation will result in an outflow of economic benefits that can be
reasonably estimated.
3.20. Leases
Leases where the lessor retains substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Initial direct costs
incurred in negotiating an operating lease are added to the carrying amount of
the leased asset and recognised over the lease term on the same bases as the
lease income. Operating lease payments are recognised as an expense in the
income statement on a straight-line basis over the lease term.
3.21. Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are
subject to risks and returns that are different from those of segments operating
in other economic environments.
3.22. Statutory reserve
Statutory reserve is in respect of the PRC companies and has been set aside in
accordance with the legislation in the country.
4. Financial risks and management
4.1. Financial risk factors
The combined entity's activities expose it to a variety of financial risks. The
combined entity's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse
effects on the financial performance of the combined entity.
Risk management is carried out by Sinosoft's Board of Directors. The Board
identifies and evaluates financial risks in close co-ordination with the combin
ed entity's operating units. The Board provides principles for overall risk
management, as well as policies covering specific areas such as credit risk,
interest rate risk, foreign currency risk and liquidity risk.
(i) Credit risk
The combined entity has no significant concentration of credit risk. The
combined entity has policies in place to ensure that sales are made to
customers with an appropriate credit history.
(ii) Interest rate risk
The combined entity obtains additional financing through bank
borrowings. The combined entity's policy is to obtain the most
favourable interest rates available. The terms and interest rates
payable are disclosed in Note 19 to the financial information.
Surplus funds are placed with reputable banks.
(iii) Foreign currency risk
The combined entity's sales and purchases are mainly denominated in
Chinese Renminbi. The residual risk after the natural hedging effects of
any foreign currency denominated assets and liabilities are not expected
to have a significant impact on the combined entity's financial position
and future cash flows.
(iv) Liquidity risk
The combined entity has sufficient cash and cash equivalents to meet its
operational requirements.
(v) Fair values of financial assets and financial liabilities
The carrying amounts of financial assets and financial liabilities
reported in the balance sheet approximate their fair values.
5. Segment information
The combined entity is principally engaged in the development and sales of
computer software, computer and external equipment, and related accessories for
communication products, digital products and other electrical appliances in the
PRC and all of its customers are based in the PRC. In addition, all identifiable
assets of the combined entity are located principally in the PRC. Accordingly,
no segmental analysis is presented.
6. Revenue
Year ended 31 Year ended 31
December 2005 December 2004
Audited Audited
US$ US$
Software 4,338,422 3,345,002
System Integration 1,817,430 1,634,027
-----------------------------------
6,155,852 4,979,029
===================================
For management purpose, the combined entity's operations are organised into one
operating division namely software development which includes sales of software
products and system integration.
7. Other operating income
Year ended 31 Year ended 31
December 2005 December 2004
Audited Audited
US$ US$
VAT refund 565,998 456,261
Government grants and rebates 56,187 2,431
-----------------------------------
622,185 458,692
===================================
8. Profit from operations
The profit from operations is stated after charging/(crediting) the following:
Year ended 31 Year ended 31
December 2005 December 2004
Audited Audited
US$ US$
Staff costs (excluding directors' remuneration) 579,742 378,183
Less:
Staff costs included in research and development costs (359,632) (200,418)
-----------------------------------
220,110 177,765
===================================
Directors' remuneration 149,696 107,506
Cost of defined contribution plans included in staff costs 114,478 41,214
Provision against trade receivables 20,381 66,886
Provision against receivables from associate - (35,522)
Depreciation charge 36,065 18,133
Amortisation charge 108,560 57,207
Provision for impairment in investment - 80,929
===================================
Number of employees - year end 142 117
===================================
9. Finance cost
Year ended 31 Year ended 31
December 2005 December 2004
Audited Audited
US$ US$
Interest on bank loans 22,144 18,981
===================================
10. Finance income
Year ended 31 Year ended 31
December 2005 December 2004
Audited Audited
US$ US$
Interest income 26,348 10,687
===================================
Interest income is calculated at 2.07% per annum (2004: 2.07 %).
11. Taxation
(a) Current tax
Year ended 31 Year ended 31
December 2005 December 2004
Audited Audited
US$ US$
Current tax - 4,477
===================================
The charge for the year can be reconciled to the results of the combined entity
as follows:
US$ US$
Profit before tax 3,560,760 2,668,959
-----------------------------------
Tax at applicable income tax rate of 33% 1,175,051 880,756
Tax effect of non-deductible expenses 34,857 414,269
Tax effect of exempt income (980,459) (656,367)
Tax effect of income not taxable (229,449) (634,181)
-----------------------------------
Tax expense for the year - 4,477
===================================
(b) Deferred tax
The following are the major deferred tax liabilities recognised by the combined
entity and the movements thereon during the current and prior reporting periods:
Accelerated depreciation &
amortisation for tax purposes
US$
As at 1 January 2004 and 31 December 2004 -
===================================
At 1 January 2005 -
Current year charge 44,913
Translation difference 723
-----------------------------------
At 31 December 2005 45,636
===================================
12. Trade receivables
31 December 2005 31 December 2004
Audited Audited
US$ US$
Trade receivables 2,118,782 1,640,546
Less: provision for doubtful debts (108,579) (83,104)
-----------------------------------
2,010,203 1,557,442
===================================
13. Other receivables
31 December 2005 31 December 2004
Audited Audited
US$ US$
Other receivables 162,009 196,370
Amount due from parent company 435,231 142,254
VAT receivable 82,391 24,753
Prepayments 375,676 609,298
Deposits 182,946 86,925
-----------------------------------
1,238,253 1,059,600
===================================
Amount due from parent company is unsecured, interest free, and have no fixed
terms of repayment.
14. Inventories
31 December 2005 31 December 2004
Audited Audited
US$ US$
Goods for resale 536,031 230,322
Work in progress 21,384 5,873
-----------------------------------
557,415 236,195
===================================
15. Property, plant and equipment
Land and Properties Plant and Motor Total
buildings under equipment vehicles
construction
US$ US$ US$ US$ US$
Cost
Balance at 1 January 2005 48,382 206,402 42,660 93,298 390,742
Additions 36,812 - 6,422 - 43,234
Reclassification 211,173 (211,173) - - -
Translation difference 1,118 4,771 986 2,155 9,030
--------------------------------------------------------------------------
Balance at 31 December 2005 297,485 - 50,068 95,453 443,006
--------------------------------------------------------------------------
Accumulated depreciation
Balance at 1 January 2005 3,132 - 11,008 10,982 25,122
Depreciation charge 12,176 - 12,554 11,335 36,065
Translation difference 72 - 255 254 581
--------------------------------------------------------------------------
Balance at 31 December 2005 15,380 - 23,817 22,571 61,768
--------------------------------------------------------------------------
Net book value
Balance at 31 December 2005 282,105 - 26,251 72,882 381,238
==========================================================================
Balance at 1 January 2005 45,250 206,402 31,652 82,316 365,620
==========================================================================
16. Intangible assets
Development Patents and Total
costs trademarks
US$ US$ US$
Cost
At 1 January 2005 631,962 12,205 644,167
Additions 867,045 - 867,045
Translation difference 14,606 283 14,889
----------------------------------------------------
At 31 December 2005 1,513,613 12,488 1,526,101
----------------------------------------------------
Accumulated amortisation
At 1 January 2005 162,698 12,165 174,863
Charge for the year 108,518 42 108,560
Translation difference 3,761 281 4,042
----------------------------------------------------
At 31 December 2005 274,977 12,488 287,465
----------------------------------------------------
Net book value
Balance at 31 December 2005 1,238,636 - 1,238,636
====================================================
Balance at 1 January 2005 469,264 40 469,304
====================================================
17. Investments
31 December 2005 31 December 2004
Audited Audited
US$ US$
Associate:
Investment, at cost - 242,131
Share of post acquisition results - (161,202)
Provision for impairment - (80,929)
-----------------------------------
- -
Other equity investments, at cost 185,795 181,598
-----------------------------------
185,795 181,598
===================================
The details of the associate are described below:
Name of associate Country of Principal activity Effective equity
incorporation/ held by the
business combined entity
Nanjing Nanhua People's Development and
Consulting Co. Republic of sales of hardware 33%
Ltd * China and software and
systems integration
services
* The associate had been placed under liquidation in 2005, which a provision for
impairment has been made in respect of the combined entity's investment in
FY2004.
Summarised financial information in respect of the combined entity's associates
is set out below:
31 December 2005 31 December 2004
Audited Audited
US$ US$
Total assets - 404,244
Total liabilities - 248,974
-----------------------------------
Net assets - 155,270
-----------------------------------
Combined entity's share of associate's net assets - 51,757
===================================
Revenue - 461,733
-----------------------------------
Loss of the year - (87,516)
-----------------------------------
Combined entity's share of associate's loss for the period - -
-----------------------------------
18. Other payables
31 December 2005 31 December 2004
Audited Audited
US$ US$
Deposits received 52,435 60,166
Other tax payable 72,066 33,265
Dividend payable 61,346 59,961
Other payables 291,649 164,396
-----------------------------------
Total 477,496 317,788
===================================
19. Bank loans
31 December 2005 31 December 2004
Audited Audited
US$ US$
Bank loans 371,591 363,196
===================================
The bank loan is a revolving bank loan secured by corporate guarantee. The
guarantee for the loan was provided by Nanjing Nanhua Consulting Co. Ltd until
31 December 2004. From 1 January 2005 the guarantee was provided by Nanjing
Skytech Software Co. Ltd. The loan facility expired on 6 January 2006 and was
repaid accordingly.
The average interest rates paid were 6.26% (2004:5.54%) per annum as at 31
December 2005.
20. Share capital
31 December 2005 31 December 2004
Audited Audited
US$ US$
Registered capital:
Nanjing Skytech Co. Ltd 1,210,654 1,210,654
Nanjing Skytech Software Co. Ltd 242,131 242,131
-----------------------------------
1,452,785 1,452,785
===================================
The registered capital of Nanjing Skytech Co. Ltd increased as follows:
- investment of US$ 242,131 on 8 November 2002;
- investment of US$ 605,327 on 2 August 2003.
Nanjing Skytech Software Co. Ltd had registered capital of US$ 242,131 on
incorporation.
21. Operating lease arrangements
31 December 2005 31 December 2004
US$ US$
Minimum lease payments under operating leases included in the income statement 111,650 78,639
===================================
At the balance sheet date, the commitments in respect of non-cancellable
operating leases for office building, workshop and warehouses with a term of
more than one year were as follows:
31 December 2005 31 December 2004
US$ US$
Future minimum lease payments payable:
Within one year 118,511 83,274
In two to five years 12,551 191,012
-----------------------------------
131,062 274,286
===================================
22. Related party transactions
From 31 July 2004, the immediate parent company of Nanjing Skytech Co. Ltd was
Infotech Holdings Pte Ltd.
From incorporation until 31 July 2004, the immediate parent company of Nanjing
Skytech Software Co. Ltd was Nanjing Skytech Co. Ltd. From 31 July 2004 until
January 2005 the immediate parent undertaking was Nanjing Sky Investment
Information Co. Ltd. From January 2005, the immediate parent undertaking was
Infotech Holdings Pte Ltd, a company incorporated in Singapore.
At the date of this report the immediate parent company of each of the companies
making up the combined entity was Infotech Holdings Pte Ltd, a company
incorporated in Singapore. The ultimate parent undertaking was Sinosoft
Technology plc, a company incorporated in England.
The ultimate controlling party throughout the year of this report was Ms Xin
Yingmei by virtue of her majority shareholding in the companies or their
immediate and ultimate parent undertakings.
Transactions between the companies that form the combined entity, which are
related parties, have been eliminated in the preparation of the financial
information set out in this report and are not disclosed in this note.
During the financial year ended 31 December 2004, Nanjing Skytech Co. Ltd made
working capital loans to Infotech Holdings Pte Ltd of US$142,254. This balance
was outstanding at that year end. During the financial year ended 31 December
2005, further working capital loans of US$292,976 were made to Infotech Holdings
Pte Ltd. The balance outstanding at the year end was US$435,231. This loan is
unsecured, interest free and has no fixed repayment terms.
Included within other payables at 31 December 2005 was a balance of US$61,346
(2004:US$59,961) in relation to dividends payable to a former minority
shareholder, Ning Yingmei, in Nanjing Skytech Software Co. Ltd.
Included within other receivables at 31 December 2005 was a balance of US$
40,875 (2004:nil) in relation to working capital loan to Nanjing Sky Investment
Information Co., Ltd, which was the immediate parent company of Nanjing Skytech
Software Co., Ltd from July 2004 until January 2005, and the majority sharehol
der of the company is Ms Xin Yingmei. This balance is unsecured, interest free
and has been repaid after year ended.
23. Comparative figures
Certain comparative figures have been reclassified to conform with the current
year's presentation.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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