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Merle Hinrich – Executive Chairman

Connie Lai – Chief Financial Officer

Cathy Mattison – LHA (US Investor Contact)


Jared Schramm – Roth Capital Partners

Global Sources, Ltd. (GSOL) Q1 2013 Earnings Call May 14, 2013 8:00 AM ET


Ladies and gentlemen, thank you for standing by. Welcome to Global Sources’ Q1 2013 Results Conference Call. (Operator instructions.) I would like to remind everyone that this conference call is being recorded today, May 14, 2013. I will now turn the conference over to Cathy Mattison from LHA. Please go ahead.

Cathy Mattison

Thank you, Operator, and I’d like to thank everyone for joining us today for the Global Sources’ Q1 2013 earnings conference call. Speaking on the call today are Merle Hinrich, Executive Chairman; and Connie Lai, Chief Financial Officer.

If you have not yet received the earnings press release it is now available at the company’s website at If you would like to be added to our distribution list or if you would like additional information about Global Sources you may call LHA at 415-433-3777.

A telephone replay of this call is scheduled to be available until May 22, 2013, and the dialing instructions are included in the press release. The replay is also scheduled to be available on the Investor Relations page of the company’s website for at least 30 days.

Before I turn the call over to management let me remind you that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company’s filings with the Securities and Exchange Commission. Global Sources does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Management has provided certain measures that are not in accordance with international reporting standards, or IFRS. Management believes non-IFRS metrics are useful measures of operations and provides IFRS to non-IFRS reconciliation tables at the end of the earnings press release. Global Sources defines non-IFRS net income as net income excluding non-cash SBC expense or credit; amortization of intangibles as it relates to certain equity compensation plans, profits or losses on acquisitions and investments net of transaction costs and related tax expenses; and/or impairment charges for all historical and future references to non-IFRS metrics.

Non-IFRS EPS is defined as non-IFRS net income divided by the weighted average of diluted common shares outstanding. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, impairment of goodwill and intangible assets, and profits or losses on acquisitions and investments net of transaction costs and related tax expenses. Management would like to remind you that the non-cash stock-based compensation charge is a charge to the income statement and a corresponding credit to additional paid-in capital; hence there is no impact on shareholders’ equity.

I would also like to remind you about Regulation FD restrictions. The company’s official spokespeople to the investment community are Merle Hinrich and Connie Lai. I would now like to turn the call over to Mr. Hinrich. Please go ahead, sir.

Merle Hinrich

Thank you, Cathy, and thank you all for joining our call today. For the quarter our total revenue was $31.3 million as compared to $38.9 million last year. These results reflect ongoing challenges in our online business. Consumer demand remains uncertain in key export markets and suppliers are adapting to a more competitive environment.

While we are not satisfied with our revenue results we reported solid earnings buoyed by our ongoing focus on cost management. In Shenzhen we made an acquisition that broadens our mainland China domestic business. I’ll discuss this transaction in more detail later in the call.

I will now review our Q1 and April tradeshows. International ICE China, our electronic design show, was held February 28 through March 2nd in Shenzhen. Unveiled at a IIC-China, were the latest in design technologies that are critical to the electronics innovation. In April we completed our Spring Export Tradeshows in Hong Kong. The shows featured approximately 6700 booths with attendance exceeding 60,000 and including buyers from more than 140 countries and territories.

Electronics and Components was the first phase of our China Sourcing appearance. It was highly successful and with more than 3900 booths the show has become the number one consumer electronics sourcing event in Asia. Buyers in attendance included executives from BestBuy, Fujitsu, Hitachi Maxwell, Honeywell, Intel, LG Electronics, [Lee and Thung], Panasonic, Philips Electronics, Tesco and many others.

The second phase, Gifts and Home Products, featured more than 1500 booths with a focus on products in the areas of decorating, living and giving. Buyers in attendance included executives from ACE Hardware, American Greetings, Auchan, Darfour, GARFOR, [Carrlsberg], El Corte Ingles, (Inaudible), Staples, Target and many others.

The third phase encompassed Fashion, Apparel and Accessories. It featured more than 1200 booths and buyers in attendance included executives from Adidas, Collection 18, Forever 21, Fossil, Lacoste, Laura Ashley, MIXT, [Bull & Bear], Triumph, and Woolworths.

Private sourcing events were held from January 1st through the 21st of April. With more than 88 sourcing teams from very large organizations including Amazon, Dollar General, El Corte Ingles, Intelbras, Kmart, Metro, Monster Cable, Panasonic, Staples and a host of others. These events created over 500 high-quality one-on-one selling opportunities for Global Sources’ suppliers.

I’ll now turn the call over to Connie after which I will conclude with an update on our business initiatives and closing remarks. Connie?

Connie Lai

Thanks, Mr. Hinrich. I will now review our financial results for Q1 2013 as compared to Q1 2012. Total revenue was $31.3 million as compared to $38.9 million. Online revenue was $25.0 million as compared to $30.9 million. Exhibitions revenue was $1.5 million as compared to $2.2 million. Print service revenue was $3.0 million as compared to $4.3 million.

Total operating expenses were $30.7 million as compared to $35.9 million. The decrease reflects our expense deduction assets. We remain committed to the striking of a balance between prudently managing our costs while investing for the future. Interest income was $274,000 as compared to $186,000.

IFRS net income was $5.6 million or $0.16 per diluted share which includes a $4.5 million profit on sales of property. This compared to $3.1 million or $0.09 per diluted share in Q1 2012. In Hong Kong, the profit gained from the sales of properties is not subject to property income tax.

Non-IFRS income was $1.8 million or $0.05 per diluted share as compared to $3.7 million or $0.10 per diluted share. Adjusted EBITDA for the quarter was $3.2 million as compared to $5.4 million. Total deferred income and customer prepayments were $110.0 million as compared to $129.4 million.

Now, on to our balance sheet as of March 31, 2013 as compared to March 31, 2012. With respect to our cash [sufficiency] we completed the acquisition of the properties in Hong Kong in Q1 2013, thus we saw a reduction in cash of $24.7 million. We’re also scheduled to complete the sales of the properties in Shenzhen in Q2 2013. That is expected to increase our cash by $116.3 million.

Cash and securities as of March 31, 2013, totaled $96.4 million as compared to $93.3 million. Our [soft] and deferred income and customer prepayments were $99.4 million as compared to $118.1 million. Total assets as of March 31, 2013 were $328.6 million as compared to $307.3 million. Also we continued to have no short-term or long-term bank debt.

Days [sales] outstanding was 7 days as compared to 8 days. Retained earnings as of March 31, 2013, were $164.5 million as compared to $149.8 million. Total shareholder equity was $172.2 million as compared to $133.5 million.

Now, on to our guidance for the first half of 2013. We are increasing first half 2013 guidance due primarily to the stronger-than-expected revenue performance and the cost savings. Under IFRS for the first half of 2013 ending June 20, 2013, our revenue is expected to be between $89.0 million and $91.0 million as compared to $105.7 million for the first half of 2012.

IFRS EPS is expected to be between $0.59 and $0.63 as compared to $0.36 per diluted share in the first half of 2012. Non-IFRS EPS is expected to be between $0.27 and $0.31 per diluted share as compared to $0.41 per diluted share in the first half of 2012. The shares used in the balance of net income per shares calculation for the first half of 2013 are approximately 36.1 million as compared to approximately 35.7 million for the first half of 2012. Adjusted EBITDA is expected to be between $13.6 million and $14.8 million as compared to $18.2 million in the first half of 2012.

Looking ahead, we are committed to maintaining profitability even while we expect margins to decline in the short term as the market conditions are expected to impact our business well into 2013. And now I’ll turn the call back to Mr. Hinrich.

Merle Hinrich

Thank you, Connie. I’ll address our export business and elaborate on our acquisition then discuss our mainland China domestic business. Our large export shows in Hong Kong enabled us to experience the industry firsthand and meet with many buyers and suppliers from around the world.

The activity at the shows reflect the broad overseas demand situation which remains soft and uncertain in the US and Europe – the primary destinations for the customers’ exports. We had a mix situation with some very strong categories, such as eye accessories, but also in a number of slower-moving categories.

On the supply side, many are continuing to adapt to higher production costs and competition which causes them to be conservative with their marketing budgets. In this situation our focus is on constantly refining and enhancing the value we provide to help our customers buy or sell more effectively. We have many initiatives underway that address our buyer community’s needs.

Today, buyers are overwhelmed with the quantity of suppliers online, and our objective is to help them filter through the clutter and help them find the right suppliers. Accordingly, over the coming year we’re planning to introduce new types of content, modifications to our search functionality and user interface changes. We also continue to view our products and services in an increasingly integrated way.

Our “Find Them and Meet Them” initiative encapsulates many aspects of our strategy. Its objectives are to integrate the best of online media with the best of tradeshows; to overcome the limitations of the online-only environment; and to develop content, communication, user interface and other innovations to simplify and enhance sourcing and marketing.

Here are a few examples of how we have been executing on this initiative. At our spring shows we took thousands of photographs of popular new products and immediately began distributing this to buyers through our various media. We believe this is unique in the market and highly valuable to buyers.

We also launched a personal short-listing service. Buyers basically tell us their need and we then work on their behalf to identify potential suppliers. The introduction of the service was very successful and connected several thousand buyers with exhibitors and advertisers through an electronic inquiry format.

Another find in the “Meet Them” initiative was our launch of several formats of product showcases including eye accessories or at our electronics show which featured more than 100 suppliers. In essence, this is a new medium whereby suppliers carefully select products to be featured in a showcase area. This gives buyers access to many more suppliers and products than could be accommodated at a typical show, and suppliers get an increased range of marketing choices with regards to which shows they want to attend and how they want to present themselves.

All of these services are connected to our shows and only possible within the context of our “Find Them and Meet Them” initiative. This is being developed to integrate the best of online with the best of tradeshows.

I’ll shift to our operations in the mainland China domestic market. In April we broadened our domestic tradeshow footprint by entering into an agreement to acquire an interest in the Shenzhen International Machinery Manufacturing Industry Exhibition and its related shows, also called the SIMM. The 2013 SIMM event took place from March 28th through the 31st and featured approximately 600 booths and more than 75,000 visitors.

This expands our portfolio of tradeshows in mainland China and gives us a strong presence to the machinery industry space, which is a large and growing market sector and one of the strategic pillars of mainland China’s economy. There’s also the foundations of the manufacturing sector – supplying to a wide scope of industrial production such as automobiles, computers, and electronics.

This latest acquisition together with our previous acquisitions of the [Fashion Zed Show, NCIOE] cements our strong tradeshow footprint in strategic sectors within the mainland China domestic market. Consistent with our growth strategy we plan to continue evaluating strategic M&A opportunities such as these that contribute to the strength of the business and ultimately return value to our shareholders.

Lastly, while we continue to face a soft and uncertain economic environment we remain focused on the continuous improvement of our products and services and our overall positioning in the market. We are also committed to maintaining long-term growth and profitability. And with that I would now like to open the call to questions. Operator?

Question-and-Answer Session


(Operator instructions.) Your first question comes from the line of Jared Schramm of Roth Capital Partners. Please go ahead.

Jared Schramm – Roth Capital Partners

Good afternoon. In terms of cost reduction how much more do you look to take out of the business in the remainder of 2013?

Merle Hinrich

We don’t really have any specific figure. We determine that by the needs of the various business units and what the expectation in our sales in their particular unit are. As we are, you know, we have both fixed costs and variable costs. The variable costs will fluctuate with the sales so that’s relatively an equal amount of money that comes out of that. The fixed costs we constantly evaluate. So I really would not be able to give you an exact number or a percentage.

Jared Schramm – Roth Capital Partners

Okay. At a high level is visibility any better today than it was at the end of 2012 or has it remained relatively stable?

Merle Hinrich

Well, we thought we had some visibility early in the year but that proved untrue. So I would guess the right response to that is that the visibility has not improved. We continue to monitor this carefully and we communicate that of course through these telephone calls and webcasts to our community of stockholders.

Jared Schramm – Roth Capital Partners

It hasn’t worsened would you say either?

Merle Hinrich

I wouldn’t say that it’s worse but I certainly wouldn’t say that it’s better, either.

Jared Schramm – Roth Capital Partners

Okay. And in terms of acquisition, is mainland China still the dominant acquisition market for you or do you see any other comparable potential acquisitions in other geographies at this point?

Merle Hinrich

Very good question. Yes, we do believe that there are opportunities outside of mainland China, though the mainland China market is large, it’s growing. There are a number of opportunities in the market with shows in region which we are not currently in; and we will continue to look at the domestic exhibition market quite actively.

Jared Schramm – Roth Capital Partners

Okay, thank you very much.

Merle Hinrich

Thank you, Jared.


(Operator instructions.) And there are no further questions at this time. I will now hand the call back to Mr. Hinrich for closing remarks.

Merle Hinrich

Thank you, Operator, and I would like to thank all of you for joining us this evening. And we will look forward to joining you again in another three months’ time. Thank you.


Ladies and gentlemen, this concludes the conference call for today.

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