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E Future Information Technology Inc. (NASDAQ: EFUT)
1st Half 2007 Earnings Call
August 21, 2007 8:30 pm ET

Mr. Adam Yan - Chairman, Chief Executive Officer

Mrs. Ping Yu - Chief Financial Officer

David Kopp, Host, Westminster Securities Corp.

Presentation

David Kopp

Good day everyone and welcome to the E-Future first half 2007 financial results conference call. Today’s call is being recorded. Please note that the discussion today will contain forward-looking statements relating to future performance of the company and are intended to qualify under the Safe Harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors.

Some of these risks are beyond the company’s control and could cause actual results to differ materially from those mentioned in today’s press release and this discussion. A general discussion of the risk factors that could affect E-Futures business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including its annual report on Form 20-F. The company does not undertake any obligation to update this forward-looking information except as required by law.

As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on the e-Future website at e-Future.com.cn

I will now turn the conference call over to Mr. Adam Yan, Chairman and CEO.

Adam Yan

Thank you, David. Thanks everyone for joining us.

First of all, we would like to share with you the business highlights in the first half of year in 2007.

  1. We expanded our sales force in key geographic markets and continue to attract marquee global accounts in China including Johnson & Johnson, Jusco and Aeon as well as leading domestic software providers such as Beijing Jade Bird Sihua and others. We are now supplying superior solutions to over 800 clients, which represents a 60% increase over our 500 clients in 2006.
  2. As China’s retail market is currently experiencing dramatic growth and industrial integration, we are leveraging this opportunity and implementing our acquisition strategy. Accordingly, in January 2007, we acquired Nanjing TangCheng Network Technology Development Corporation., a leading regional independent software vendor focusing on East China’s retail market.
  3. Also, in May 2007, through our installment acquisition of Beijing Wangku Hutong Information Technology Co., Ltd. we now offer a leading B2B platform to our clients, connecting retailers and numerous small and medium-sized suppliers, which not only enables e-Future to deploy a Software as Service “SaaS” service based on the retail Yellow pages but also further enhances our innovative business development in the B2B portal sector. We expect to continue our selective acquisition strategy to enhance our market share and business performance.
  4. We further developed our partnerships with international industry leaders in order to supply superior solutions to our clients. In January, IBM recognized e-Future with the best retail solution partner in the Asia Pacific award. We also became the partner with JDA with a new cooperation model of “Global Solution, Local Service”. At the same time, we are VAR partners of SAP, Oracle, Microsoft, Samsung, Motorola and Symbol and continue to develop leading software systems through our joint efforts.

Now I would like to turn the call to Ms. Ping Yu, CFO to talk about our Financial

Highlights for the first half of this year.

TRANSCRIPT SPONSOR

e_Future is a leading provider of integrated software and professional services for manufacturers, distributors, wholesalers, logistics companies and retailers in China's supply chain market. e-Future serves over 660 international and domestic clients, including such Fortune 500 companies as Procter & Gamble, Johnson & Johnson, Kimberly-Clark, and Ford Motors. e-Future is also one of IBM’s premier business partners in Asia-Pacific as well as the VAR partner of SAP, Oracle, Microsoft and Symbol Technologies. The company has 19 branch offices throughout China.

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Ping Yu

Thank you, Adam. I will now provide an overview of our financial highlights focusing on explaining margins and expense fluctuations along with profits and using numbers and percentages based on U.S. dollars.

We reported total revenues of $2.5 million for the first half year of 2007, up 21% over 2006. Orders increased 20% versus the prior year period.

Software sales for the first half year were $1.7 million, a 52% jump over the prior period in 2006. The growth was driven by the increases in small and medium-sized businesses and the increased sales on providing products to global customers operating in China.

Service fee income for the first half year was $0.4 million, a 22% increase over 2006 reflecting our efforts on Software as a Service business

Cost of software increased 88% over 2006, this increase resulted directly from our effort to provide our software and services to new customers who require more new features and functions and requires more labor on the implementation of the products.

Cost of service fee income was $0.1 million, a 43% increase over 2006, mainly due to the increase in our service fee income and the increased labor necessary to fulfill our service obligations.

The Gross Margin improved to 52%, compared to 47% in the first six months of 2006. Accordingly, the Gross Profit increased to $1.3 million, up 34% from the prior period.

G & A expenses were $0.7 million, a 76% increase over the first half of 2006, directly resulting from increased expenses on new branches and headcount, and additional legal, accounting and other fees related to our becoming a US public company.

Selling and distribution expenses Selling and distribution expenses were $0.6 million in this period and where essentially held flat from 2006 despite increased sales levels.

Operating profit was a negative $46,000 as the operating loss narrowed 11% from the prior first half reflecting revenue growth despite the seasonally weak period in the first half of the year for the retail industry in China.

Net Income in the first half year of 2007 was a negative $300,000 due to seasonality in the first half year in the retail industry in China and expenses related to our $10 million private placement.

As of June 30, 2007, the Company had cash and equivalents of $14.7 million. Net operating cash flow and capital expenditures for the first half year of 2007 were negative $900,000 and $380,000, respectively. The increase in capital expenditures was due to the January acquisition of Tangcheng.

Thanks for listening. I’m now going to turn the call back to Adam Yan who will provide a summary and business outlook.

Adam Yan

During the first half year, revenue continued to grow strongly in each of our core businesses including software sales and service fees including SaaS income. We continue to expand our client base in the Chinese market. Currently, when accounting for our recent acquisitions, we are now serving more than 800 clients, including over 500 retailers and over 200 distributors and Fortune 500 companies that do business in China. By successfully completing a $10 million private placement, we are confident that we will have a successful year by solidifying our core business, developing new business opportunities through our SaaS model and exploring potential additional strategic industrial acquisitions

Now, I’m going to discuss the current business outlook. Although the retailing sector is generally strongest in the second half of the year we continued to show strong revenue and market share growth in the seasonally weak first half. We plan to maintain our competitive position and expand market share through organic growth in the front chain market, particularly in the retail and FMCG markets. We will increase our earning power by continuing to streamline the infrastructure, increasing our efficiency in R&D investment, and improving employee productivity while reducing our operating expenses. At the same time, we intend to leverage existing products and services into new areas such as the consumer electronics, automotive, and pharmaceutical industries.

We will also put additional effort into our business model innovation, including outsourcing, international business expansion as well as our SaaS model.

Recently, on August 1st, we entered into the definitive agreement to acquire Crownhead Holdings and its subsidiary, Royalstone System Integrated Co., a leading retail software and service provider in China. This acquisition is expected to significantly increase our market share and enhance the services we offer to our clients. We believe this acquisition will further improve our financial performance in the second half of 2007.

In conclusion, based upon our robust organic growth, developing innovative business models and selective strategic acquisitions, we believe we will achieve at least 59% growth on $10 million of revenues for the full year 2007.

David Kopp,

Thank you for your attention. Now, the management team will be happy to take your questions. Please state your name and company before your questions, thank you.

Question-and-Answer Session

No question.

David

It appears there is no more question, thank you for participation in today’s call, if you need any additional information, please go to www.e-future.com.cn, thank you. This concludes our presentation. You may now disconnect and have a great day!

TRANSCRIPT SPONSOR

e_Future is a leading provider of integrated software and professional services for manufacturers, distributors, wholesalers, logistics companies and retailers in China's supply chain market. e-Future serves over 660 international and domestic clients, including such Fortune 500 companies as Procter & Gamble, Johnson & Johnson, Kimberly-Clark, and Ford Motors. e-Future is also one of IBM’s premier business partners in Asia-Pacific as well as the VAR partner of SAP, Oracle, Microsoft and Symbol Technologies. The company has 19 branch offices throughout China.

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Source: e-Future Information Technology 1st Half 2007 Earnings Call

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