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Global Sources Limited (GSOL)

Q4 2005 Earnings Conference Call

March 7th 2006, 8:00 AM EST

Executives

Kirsten Chapman - Investor Relations

Merle Hinrichs - Chairman and CEO

Eddie Heng - Chief Financial Officer

Analysts

Andy Van Vleck - WR Hambrecht

Dick Wei - JP Morgan

Jason Brueschke - Citigroup

William Bean - Deutsche Bank

[Reese Tullop] - Asia Bank

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Global Sources Limited fourth quarter and year end 2005 earnings results conference call. (Operator instructions) As a reminder, this conference is being recorded today, Thursday, March 7, 2006. I will now turn the conference over to Kirsten Chapman of Lippert/Heilshorn. Please go ahead.

Kirsten Chapman

Thank you, Eric. I would like to thank everyone again for joining us today for Global Sources fourth quarter and year end 2005 earnings conference call. With us on the call are Merle Hinrichs, Chairman and Chief Executive Officer; and Eddie Heng, Chief Financial Officer. If anyone has not yet received a press release, it is now available on the Company's web site at www.globalsources.com. If you would like to be added to our distribution list, or would like additional information about Global Sources, you may call Lippert/Heilshorn & Associates at 415-433-3777. There will be a replay of this call available until March 9th and the dial-in instructions are included in the press release. The replay will also be available on the Investor Relations page of the Company's web site for approximately 30 days.

Before we begin, are let me remind you this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are based on assumptions, 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.

On today's call, Mr. Hinrichs will review some highlights of 2005, and Mr. Heng will provide the financial review. Mr. Hinrichs will then close with an overview of the growth initiatives. I will now turn the call over to Mr. Hinrichs. Please go ahead, sir.

Merle Hinrichs

Thank you, Kirsten. Welcome to the call. In reviewing 2005, in large part, through the rapid expansion of our trade show business, we have enhanced our value proposition of being uniquely capable of helping suppliers create and deliver integrated marketing programs. Moreover, Global Sources helps suppliers succeed at all stages of the buying process. From awareness right through to negotiation and the purchase decision. We do this by providing what is by far the most extensive end-to-end sourcing and marketing offerings in the industry we serve.

2005 was a year of investment and transition to a larger business, and to a business with a substantial trade show component. We expect 2006 to be a year of continuing investment, while we focus on the successful execution of our new China sourcing fairs in Hong Kong.

2006 will also be a year where we expect to experience substantial revenue growth. During 2005, our investments began to fuel revenue growth. The fourth quarter revenue increased 10%, compared to the prior year's quarter. Trade show revenue for the fourth quarter grew 18%, compared to the fourth quarter last year. Deferred income and customer pre-payments were up 75% compared to the same period last year.

I'm pleased that we were once again able to share our success with our shareholders through the bonus share distribution announced yesterday. The board of directors declared a one for 10 bonus share issue on Global Sources outstanding common shares.

Looking head, we expect to experience approximately 28% revenue growth for the first half of 2006, compared to the first half of 2005, driven by accelerating revenue growth from our trade shows. We believe the substantial growth in our deferred income and customer pre-payments in the fourth quarter is an indicator of our underlying revenue momentum.

However, we also anticipate earnings growth will lag behind the revenue growth, given our plans to continue investing heavily in our new shows in Hong Kong. Before I provide more detail on our progress with the trade shows and our overall growth strategy, let's have Eddie Heng, our Chief Financial Officer review our financials and guidance. Eddie?

Eddie Heng

Thank you, Mr. Hinrichs. First, our fourth quarter review. Fourth quarter revenue was $32.3 million, compared to $29.5 million in the prior year's quarter. The main growth driver was our exhibition, which as Merle mentioned, grew 18% compared to the prior year's quarter. Exhibition revenue in the fourth quarter of 2005 was $6.3 million, compared to $5.4 million in the fourth quarter of 2004. Revenue from online services was $13.4 million, compared to $13 million in the prior year's quarter. Print services revenue was $12.1 million, compared to $10.9 million in the prior year's quarter.

Total revenue contribution from China grew 19% year-on-year, China sales accounted for $17.8 million, or 55% of total revenue. For the fourth quarter of 2005, compared to $15 million or 51% of total revenue during the prior year's quarter.

Operating expenses were $28.5 million, compared to $25 million in prior year's quarter. The unexpected increase was due mainly to our investment in trade show infrastructure, sales team members and marketing.

Net income for the fourth quarter of 2005 was $4.5 million, compared to $5 million in prior year's quarter. Earnings per diluted share were $0.12 compared to $0.14 in the fourth quarter of 2004. The share count in 2005 includes the higher number of shares due to the bonus share distribution, and the new shares issued in March, 2005.

Now, for our full year 2005 review, as compared to last year. 2005 revenue was $112.2 million, compared to $105.8 million. Exhibition revenue was $14.3 million, compared to $13 million. Revenue from online services was $53.8 million, compared to $52.1 million. Print services revenue was $43.2 million, compared to $40.2 million.

China sales for the year were $55.9 million, compared to $50 million. Net income was $13.4 million, compared to $15.8 million. Earnings per diluted share were $0.35 compared to $0.45 for the prior year. Again, the share count in 2005 includes a higher number of shares due to the bonus shares distribution and the new shares issued in March, 2005.

On to our balance sheet review. Cash and securities on December 31, 2005, totaled $118.3 million. Short and long-term deferred income and customer pre-payments -- which include online, print, and trade shows and which all are collected in cash -- were $53 million at December 31, 2005, a 75% increase, compared to $30.2 million at December 31, 2004. Virtually all of the 2005 figure is current deferred income and customer pre-payment.

The majority of the 35% increase reflects growth in our trade show business. Total assets were $171.7 million, compared to $92.5 million a year ago. The increase is due mainly to cash raised in the offering in March 2005. Also, we do not have any long-term debt or bank debt. DSO were 20 days, compared to 21 days at year end 2004. Shareholder's equity was $99.2 million, which again includes the net proceeds from the financing in March 2005.

As Mr. Hinrichs noted, yesterday the board of directors declared a one for 10 bonus share issue on Global Sources outstanding common shares. Shareholders of record on March 15th will receive one additional common share for every 10 common shares held at a face value of $0.01 each. The bonus shares issue will be distributed on or about April 17th.

Now, I will review our financial guidance for the first quarter and first half of 2006. Before I give the guidance, I would like to remind you of how trade shows impact our revenue and profitability. Revenue from trade shows is recognized in the month in which the event occurs, while some trade show expenses are recorded when they occur. Therefore, this revenue recognition policy creates significant seasonal revenue and earnings fluctuations. Comparability will be skewed when comparing first and second quarter 2006 over first and second quarter 2005. This is because our 11th IIC China Fair will be held in the first quarter this year, whereas it was held in the second quarter in 2005.

Regarding the profitability of the shows, our major trade shows such as the IIC China and Franchising China, are quite profitable. We are, however, during the launch and development phase of our China Sourcing Fairs, which are scheduled to be held for the first time in Hong Kong starting in 2006. As such, we continue to invest heavily, particularly in marketing, to make sure we attract the quality and the quantity of both exhibitors and buyers that will enable us to make this an attractive, long-term business for Global Sources. Accordingly, we anticipate 2006 China Sourcing Fairs revenue will be roughly equivalent to our 2006 investment in them.

For the first quarter of 2006, we anticipate the following: first quarter 2006 revenue is expected to be in the range of $27.5 million to $28.5 million. Once again, this includes the revenue from the 11th annual IIC China show scheduled for March. In 2005, this mature and profitable show was held in April and generated $3.1 million in revenue. This shift in timing in 2006 from the second quarter to the first quarter of 2006 will positively impact the Company's revenue for the quarter. Also, as a result of IIC being in the first quarter, profitability in the first quarter may be higher than the remaining quarters in the year. First quarter 2006 earnings per diluted share are expected to be between $0.08 and $0.10.

For the six months ended June 30, 2006, we anticipate the following: revenue for the six-month period ended June 30, 2006 is expected to be in the range of $69 million to $71 million. As noted, throughout 2006 Global Sources expects to make a substantial ongoing investment in the China sourcing fairs in Hong Kong, which will significantly impact profitability. However, IIC China first quarter profitability will offset some of the impact of this investment in the first quarter which will flow through to the first half results as well. Accordingly, earnings per diluted share guidance for the six-month period ended June 30, 2006 is expected to be in the range of $0.13 to $0.16. Now, I would like to turn the call back to Mr. Hinrichs.

Merle Hinrichs

Thank you, Eddie. I will now review some significant events from 2005 and the beginning of 2006 and then review our growth strategy. As of December 31, 2005 active buyers in the Global Sources community have reached 479,000. That's a 13% year-over-year increase. For the year ended December 31, 2005, requests for information, or lead generation, from buyers to suppliers through Global Sources Online alone totaled over 5.84 million. This was a very strong 38% increase over 2004.

Our clients have branding and image objectives, as well as lead generation objectives. When they use our services, what they measure us on is the quality and the quantity of leads we generate, and on the orders they are able to secure. Just to elaborate a bit, in today's media, we see frequent reference to new terms such as pay for performance, and pay-for-click advertising. Frankly, it is pretty much the model under which we have always operated. We help suppliers at all stages of the buying process, from awareness to consideration and negotiation, and to the actual purchase; the latter two of which take place at our trade shows.

This is a dramatic difference from an online-only offering. The quality of our buyer community is vital to the suppliers who measure our performance and who, by the way, pay much more for our services than competitive services. When you consider to the quality of a buyer, it is one thing for a buyer to have browsed a web site. It is quite another level entirely when a buyer has invested the time and money to visit our shows, to follow-up with the suppliers they were exposed to through our online and print media. In total, 75,000 such buyers came to our China sourcing fairs last year alone; most from thousands of miles away. A clear demonstration of quality and commitment on their part.

Regarding our 2005 China sourcing fairs, the electronics and components and gifts and home products were each held twice in Shanghai. Once in the spring, and once in the fall. The fall shows attracted over 37,000 buyers from 136 countries, and featured nearly 1,900 booths. The spring shows featured nearly 1,600 booths, and were attended by over 38,000 buyers from 117 countries and territories.

Regarding our new Electronic Design China magazine, more than 30 of the world's foremost technology companies are scheduled to advertise in the inaugural March issue, including: Texas Instruments, Phillips, and National Semiconductor. The participation of these industry leaders in the first issue is a major achievement which again underscores the strength of our reputation and the potential of Electronic Design China within China's electronic publishing sector. The formal launch will coincide with the opening of our International IC China conference and exhibition, China's largest showcase of IC technologies and embedded solutions.

Our Electronic Engineering Times Asia print publications launched four new web sites in 2005 for various user groups in the Asian electronics industry. These include a web site to support design engineers in India, and three China-focused web sites targeted at designers of cell phones, media players, and automotive electronics.

Last week, we announced the launch of Baby and Children's Products. The web site is scheduled to launch in early June, while the first issue of the monthly magazine will be July. E-product lines include feeding products, bedding and furniture, toys, crafts, and learning aids, garments and footwear.

An initiative announced in June with a longer-term horizon is Global Sources Direct. This is a new channel for our company. Global Sources Direct enables suppliers to sell their products online both domestically in China and internationally. The service facilitates the sale of wholesale lots, what some call LCL -- or less than a container load -- and enables buyers to import without having to understand or deal with most of the intricacies involved.

We recently expanded our exclusive Asian sourcing alliance with Agentrics, which represents 50 Global retailers with over $1 trillion in annual sales. Agentrics was recently formed by the merger of Worldwide Retail Exchange and GlobalNetXchange. The broadened agreement includes promoting our China Sourcing Fairs to Agentrics retail membership, and offering their buyers priority registration, special access to VIP lounges, and private sourcing opportunities.

Now, I would like to review the progress of our growth strategy and conclude the discussion with a more in-depth review of our trade show business. First, we continue to grow in China by expanding our infrastructure and sales representation, and by investing in sales training.

Second, we continue to develop new and adjacent verticals. We launched two new verticals last year, garments and textiles and auto parts and accessories. Their addition brought the total number of verticals served through Global Sources Online to 10. Then, as mentioned, we just announced our 11th vertical, Baby and Children's Products which will soon be a new magazine and an online marketplace.

Third, we continue to develop Global Sources Direct. In 2006, the focus will include expanding and training the sales team, adding products to the site, expanding online marketing, and developing the systems required to sell to multiple countries.

Fourth, we are focused on adding new supplier customers for our existing services. Cross-selling is a primary strategy. For example, we have many trade show exhibitors who are new customers to Global Sources who now become primary prospects for our online marketplaces and magazines.

Fifth, we continue to seek and evaluate potential acquisitions, joint ventures, and alliances. As you know, the Company has a solid cash balance, which gives us flexibility to pursue these opportunities. One example of such progress was our recent partnership with Penton Media in the United States, for the launch of Electronic Design China.

Finally, we are extremely focused on expanding our trade show business and in particular our China Sourcing Fairs. Throughout 2005, substantial progress was made in establishing trade shows as a powerful addition to our online and print media, and in building the foundation to operate a much larger trade show business. Our success and momentum with our trade shows has strengthened our overall offering, enhanced our ability to offer integrated marketing campaigns to suppliers, and increased our cross-selling opportunities.

We are making good progress with both sales for the 2006 shows. In 2005, we sold a total of 3,460 booths at our spring and fall China Sourcing Fairs in Shanghai. In contrast to that, we have already sold 3,600 booths for just our spring 2006 gifts and home products fair. As a side note, it is not our practice to provide our booth sale figures prior to shows, and we do not plan to do so in the future, yet we have done so this time for the new gift show as part of its marketing campaign.

As discussed, one of our main focuses in 2006 will be the execution of the China Sourcing Fairs in Hong Kong. We are investing heavily in the shows to maximize the success and we anticipate the investments required will essentially equal revenue generated. Beyond 2006, we are expecting these shows to become profitable.

As a bit more background on our China Sourcing Fair initiative, Global Sources has over 14 years experience in the trade show business. We are particularly excited about our China Sourcing Fairs, as they provide a valuable service to our buyer and supplier communities and have the potential to contribute significantly to our overall growth.

We are currently examining other opportunities to further increase our overall China Sourcing Fair business, including considering new product categories, and taking the shows to new locations. While these shows are in most ways the equivalent of new product launches with all the uncertainties, we do however have many things in our favor. Global Sources is the most trusted brand in our business. We have a track record of successful China Sourcing Fairs in Shanghai since 2003. We have long, established relationships with buyers and suppliers; over 35 years. We have secured an outstanding state-of-the-art venue at the Asian World Expo in Hong Kong. We have chosen ideal timing, in the prime spring and fall periods when buyers travel to Asia. And we have an extensive network of sales representative offices and experienced sales representatives.

In summary, we provide what is by far the most extensive end-to-end integrated marketing communications offerings in our business, providing four primary channels -- online marketplaces, trade magazines, trade shows, and direct online sales -- which are all backed by extensive, creative production and online catalog services.

We are very confident about the near and long-term prospects for Global Sources, and feel we are particularly well-positioned to capitalize on the underlying strengths and assets of the business and the opportunity presented by China. As such, we believe Global Sources is an attractive proxy for investing in the B2B market in China. As always, we are interested in meeting and speaking with investors -- I am in New York today and will be conducting meetings, and I will be presenting at the JP Morgan Global Internet Conference on March 13th at 3:25 p.m. EST. A webcast of our presentation will be on our web site. Also, you may request our Investor Relations firm, Lippert/Heilshorn & Associates, to arrange a call with our Corporate Development Executive Vice President, Jim Strachan and our CFO Eddie Heng.

Operator, with that, I am prepared to take any questions. Thank you, everyone for joining the call today. In late 2005, by the way, we celebrated our 35th anniversary of promoting export trade from Asia to buyers worldwide. We anticipate many more years as we continue our efforts to build on our market-leading end-to-end integrated marketing communications offering. Through these efforts, we are building a foundation for a strong, top and bottom line growth in the years to come. Thank you very much.

Question-and-Answer Session

Operator

(Operator Instructions) Andy Van Vleck with WR Hambrecht. Please state your question.

Andy Van Vleck - WR Hambrecht

Good morning, Merle and Eddie. Thanks for taking my call. Great fourth quarter and I'm encouraged by the revenue expectations for 2006. I wanted to ask a little bit more about your strategy of cross-selling clients with different advertising services. I'm curious about the medium-term growth potential -- if it is medium-term; it could be more short-term of cross-selling new clients at AsiaWorld Expo.

I think in prior estimates, you mentioned that half of current advertising clients are also exhibiting at trade shows. I was wondering if that was a realistic estimate of which new clients exhibiting would also convert over to prints and online subscriptions. Is that a realistic expectation? What is the lead time on cross- selling these clients? Are they subscribing now or will it take a year to get them over?

Merle Hinrichs

Well, it is realistic, and there are even opportunities beyond the 50%. It depends upon the show, of course of exactly what percentage of the clients are advertising clients and are actually at an exhibit. Certainly, with some of the new shows that would be greater, and of course, in the more mature shows it would be less. It takes about two months to bring, or less than a month, say, to bring a new client online; maybe a bit longer than that, six weeks to two months in bringing a client into a publication and having that publication distributed.

So the revenue opportunity is both short-term and long-term. Short-term in the sense that the investment that they make in the publications and online helps support their participation at one of the trade shows, or the trade show here for the spring months. And will also support their participation in the fall.

So we're very pleased with being able to offer this additional promotional service to our supplier when they have made a commitment to a trade show -- you can appreciate that that is not a small commitment. They, needless to say, have to pay for the booth, have to pay for the preparation, they have to pay for going to the show and staffing the show, and making the show a positive experience for an attendee. By promoting those shows, or promoting that participation through our other media, is an insurance policy that they indeed will find the right buyers at these shows.

The opposite of that is that some of the companies that are participating, that are advertising, that then attend the shows, start recognizing the benefit of that face-to-face media, and specifically at our exhibits which are very focused for the verticals that they are trying to promote.

So we feel that this is indeed one of the underlying strengths of the organization, where we utilize and we maximize the use of all the media: print, the online, and the trade shows, to support one another. Thank you.

Andy Van Vleck - WR Hambrecht

I think you estimated in an advertisement or a press release for the spring fairs that a little over 1,000 Chinese suppliers were attending. Are these all new clients or predominantly new clients?

Merle Hinrichs

You mean 1,000 -- there are more and we have released figures on the number of booths. The number of booths, for example, the China Sourcing Fair Gifts and Home Products is now in excess of 3,500. The majority of those are from China. So the number of attendees, of course, are principally foreign buyers.

Andy Van Vleck - WR Hambrecht

Over the past few years, you've been losing clients in more developed markets like Hong Kong and Taiwan. This has been more than offset by mainland China growth. I was just curious if you felt that about 20% annual growth in top line revenue out of China was sustainable?

Merle Hinrichs

We do and we believe that we can increase that. That is indeed our focus and our effort in terms of training and development and of course, marketing.

Andy Van Vleck - WR Hambrecht

Thank you for your answers.

Merle Hinrichs

Thank you.

Operator

Our next question comes from Jason Brueschke with Citigroup. Please go ahead.

Jason Brueschke - Citigroup

Thank you. Good evening, Merle and Eddie, and let me add first my congratulations on the quarter and second, congratulations, Merle, on 35 years in business.

Merle Hinrichs

Thank you, Jason. Good to have you.

Jason Brueschke - Citigroup

I have a couple of questions, also. My first question is, you had indicated that earnings will lag your revenue growth in 2006, which I think most of us now know is kind of an inherent part of a rapid build out of your trade show business. Could you maybe comment and go into a little more detail on what aspects of your investment we may likely see in 2007 to decrease? Is it that having established these new China Sourcing Fairs as the quintessential event to go to, that your sales and marketing expenses will come down? And/or is it that given the size of the AsiaWorld Expo that by 2007, you will reach a certain capacity in terms of the number of booths that you switch over and become profitable in that way?

Merle Hinrichs

Well, Jason, as you can appreciate, this will be the first show that we will have held at AWE in Hong Kong. These shows will be transferred from Shanghai to Hong Kong. That in itself requires marketing, which of course, is a cost. We believe that once that is fully established, of course that cost will decrease.

We certainly want to support the promotional work to draw attendance to these shows, given that the site is new to Hong Kong. It will be new to a number of buyers. The airport is a focal point in Hong Kong. Every single buyer that comes to Southeast Asia will come through the Hong Kong airport, and the venue is right next door to the airport.

But given that it is new, we need to promote the fact of convenience and appropriateness of the product to the buyer's particularly interests. So we are advertising heavily at the airport, we're advertising through publications and through both television and in taxis, et cetera, to make sure that this all happens.

Now in 2007, we may not have to make quite that size of an investment. Likewise, we will not have to make quite the size of investment in our sales training, our sales representation training in China, given that we have already made that investment. We indeed hope to be able to save on our costs in these two primary areas. The venue basically will be the same costs in 2007 that it has been at 2006.

Jason Brueschke - Citigroup

Thank you. That's very helpful. I'm going to ask another question about your growth strategy. One of the things you mentioned is the possibility of growing into new and adjacent verticals. One of the things that I think is unique or actually maybe one of the strong points about your business is that you really are the Mercedes of this industry, in my opinion. I think it's reflected in your pricing. One of the things that it seems like to me when I look at your business in the past that you focused on verticals that really lend themselves to your particular strengths; which are the need to connect buyers with a select group of pre-qualified suppliers in China and throughout the Asia. But when you look at the entire China market there obviously are a number of verticals that probably don't need the same -- we'll just call it premium level of service -- that you provide to your existing verticals.

When you look at that expanding into adjacent verticals, will you continue to try to maintain your previous strategy of only going to those where this combined end-to-end solution really sits? Or is there any opportunity for you to maybe branch out a little bit and go after verticals that maybe don't need quite as many of the services that you provide, but you nonetheless can service on a profitable basis?

Merle Hinrichs

A good question, Jason. We do both. We will look at adjacent verticals. We will look at new verticals that may not, as you have put it, require the entire breadth of our services. We will also be looking at fee for services which are going to provide additional value to our suppliers, like the new application web sites that we are doing for the Electronic Engineering publications, which helps filter the type of buying interests for our advertisers.

Indeed, it is a more expensive service, but a very attractive service for our advertisers who are trying to be very specific with their promotional activities. This is a very unique value add, and we will be looking to do that for not only the engineering publications but for other publications and for other verticals.

Jason Brueschke - Citigroup

Great. I'll let somebody else ask the questions and maybe come back at the end. Thanks.

Merle Hinrichs

Thank you for participating, Jason.

Operator

Our next question comes from Dick Wei from JP Morgan. Please go ahead.

Dick Wei - JP Morgan

Thanks for taking my call. I have two questions. My first question is on your dividend policy. Actually going forward, in terms of the amount and the format, what is the dividend is going to be?

My second question is, probably a follow-up on Jason's questions, in that if I look at your online advertising growth, I guess ERPS, only about a 3% growth while your verticals probably increased from eight verticals to 10 verticals at like 25% growth in vertical. On the advertising, it seems to not be able to see this kind of growth. My understanding is that you probably are focused on the high end customer and charge more and also offer more integrated solutions. Is there any plan to down sell to some of your customers so that you can further expand your customer base to some of the entrepreneurs who just want to advertise on the Internet alone for the time being, and further down the road they may be interested in attending trade shows or print advertising?

Merle Hinrichs

Dick, let me just make sure that I've got the questions correct. Three questions, one regarding dividend policy. The second regarding growth, online advertising growth or sales growth; and the third being whether or not that we would reduce prices on products to attract possibly a smaller client? Is that correct?

Dick Wei - JP Morgan

Yes, those smaller clients who would likely have a high potential to spend on your services down the road.

Merle Hinrichs

Right. Okay. Thank you. Regarding the first question, regarding the cash dividends, for various reasons, it has been our practice to have bonus share dividends. In addition to the bonus share distribution announced this year, the Company distributed a one for 10 bonus share issue on its outstanding common shares in April of 2005 and 2004. We have done that because one of the reasons is, of course, to increase our liquidity in the market. Also, Dick, the other reason is under Bermuda company law, we are restricted from paying a cash dividend until we have positive retained earnings on our statement of income.

Regarding our online, or let's say our overall growth online or print, I assure you, we are not satisfied either with this growth. I think there are some underlying or some factors behind these numbers. We believe we have been quite successful with our online initiatives and have been a leader in developing an effective format for advertisers to promote themselves in the online environment. In fact, in 2005, approximately 48% of our revenue was from our online media.

If you excluded our trade show revenue, and looked at just the online/print total only, our online revenue represents about 55% of this total. Percentage-wise, this significantly exceeds most comparable B2B media companies, where typically the online revenue is in the 13%, 15% to say 25%, maximum 30% in B2B. We have also been achieving a significant growth in China. We were up 19% in a quarter, and this is increasing.

Lastly, in addition to the growth we expect from existing services, we have, of course, the various other initiatives underway, which I mentioned in Jason's question. These include, of course, the recent launches of the web sites and the electronics sector, et cetera. So we think that the increase in our revenue will accelerate. Certainly, that is the plan.

With regard to reducing our service fees, if I may say, I think it is extremely dangerous and it would appeal to clients which typically do not have the capacity to participate in international trade. If a company in China or a company in Asia is looking to participate in international trade, they need a much larger infrastructure in terms of people, in terms of skills, and in terms of meeting manufacturing standards, than if they are only participating in the domestic market. What we do not want to do is to provide suppliers to a group of qualified buyers that they themselves are not qualified. So in fact, our price point of the higher price point helps us limit and helps us qualify the type of suppliers that we have on our web site.

This is actually one of our key strengths. We are providing a qualified group of suppliers to a highly qualified group of buyers. Buyers can feel assured that these suppliers have made quite a substantial commitment to their promotional activities internationally and that they are prepared to respond and that they are anxious to respond. Because if we, as an example, if we were to reduce our price points by, let's say, 60%, 70%, we would be attracting firms that really truly are not qualified to participate. Many of our competitors [vet] specifically and that's exactly what they do. Unfortunately, they are misrepresenting their services, because these companies just are not able to participate. They're not able to compete in this international market. Dick, does this answer your question?

Dick Wei - JP Morgan

Yes, that does, great. I think it is very helpful. Just my last question, if I can, is just a quick question on the numbers. I believe there is some contractual commitment for the AsiaWorld Expo, like an amount a fees that you need to pay to the Hong Kong government. I hear some numbers of $30 million, $50 million, $60 million over the next three years. Can you give me the exact amount and how would it be booked going forward?

Merle Hinrichs

Dick, it is for a three-year period, and I don't have the exact figure with me.

Eddie Heng

It is a $30 million commitment over the next three years. Dick, how it is has booked is this is a venue charge expense, so we will book that expense when the event is being held. So like for example this April, when we hold the event with the revenue, we'll match that cost with the event revenue. Whatever we pay in advance will be paid as a pre-payment for the next event in Fall of '07.

Dick Wei - JP Morgan

So is it approximately $5 million per show?

Merle Hinrichs

$5 million -- well, it would be $10 million per year or approximately $5 million for the spring shows and $5 million for the fall shows.

Dick Wei - JP Morgan

Great. Thanks for taking my questions.

Merle Hinrichs

Dick, just a little bit of a follow-up on qualifying our suppliers. We feel quite strongly, this is probably one of the most important differentiating factors that we provide our buying community. Not only are our price points higher, but our services to these companies are also more extensive. We meet personally with every single supplier. We assist them in understanding what their unique selling points are, or what they should be for the buying community. So I think that when you invest in Global Sources, you really are investing in a quality service, and a quality service being extended to a very important marketplace. Thank you.

Dick Wei - JP Morgan

That makes sense.

Operator

Our next question comes from William Bean with Deutsche Bank. Please go ahead.

William Bean - Deutsche Bank

Hi, guys. Just wondering whether you could give us some metrics around your online presence? I know you don't really break it out, it's a package deal. But maybe you could give us some help understanding how things are going there.

Merle Hinrichs

On the online side or --?

William Bean - Deutsche Bank

On your site, yes.

Merle Hinrichs

We don't break it out in that way. As we have indicated for the year, there's been a 10% increase in our overall revenue. Our China sales have increased by 20% and, of course, the trade shows, as you can see by the deferred income, are doing quite well.

So beyond that, I mean we don't break it out by product grouping. We do give some indication as to the China portion of it, greater China portion represents over 90% of our sales, and mainland China represents something closer to 50%, 55% of our sales.

William Bean - Deutsche Bank

Do you have any sort of traffic number or any other metrics we can look at on the online side?

Merle Hinrichs

We don't release traffic other than the amount of lead generation, and as we've indicated, we're generating over 5.7 million leads for our suppliers over this last year, and that has a substantial increase over the previous year. So the amount of activity online has increased. The number of participants have increased.

I think we certainly don't have any difficulty from on the supply side with what we are providing to them from the online services. But we do not have metrics beyond that. We do not provide metrics beyond that.

William Bean - Deutsche Bank

Thanks. Can you give us a sense of any metrics or an update on how you're doing with your partnership with eBay?

Merle Hinrichs

This eBay, our eBay alliance is specific to our Global Sources Direct activity. As we have indicated before, we're looking to do about $5 million in revenue gross for the year. eBay is a distribution channel amongst other distribution channels that we are testing and evaluating. As you know, eBay has over 400,000 what's called PowerSellers. We wish to develop that market. We are developing that market over time. We are also finding that we have a very large market within our own established audiences for the Global Source Direct service. This is a new service as we have indicated. One that we hope and certainly are striving to see greater volume and greater revenue traction in the latter part of this year and in 2007. The eBay alliance is very helpful and the association could not be better.

William Bean - Deutsche Bank

Great. Can you give us a sense of, in terms of your customers' gross adds versus net, I think you mentioned that you reported the net number. Can you give a sense of how many of those are new versus existing? What I'm looking for here is more of the trend as opposed to the absolute number.

Merle Hinrichs

You mean within the Global Sources Direct community?

William Bean - Deutsche Bank

No, no, no, overall.

Merle Hinrichs

In terms of our buy side or the supply side?

William Bean - Deutsche Bank

Supply side.

Merle Hinrichs

Currently, we have about 100 and, Eddie, do have you that figure? 140,000 some suppliers.

Eddie Heng

About 130,000 suppliers.

Merle Hinrichs

Which we continue to qualify and quantify. That has not increased substantially, but the quality of that grouping certainly has.

William Bean - Deutsche Bank

Okay. Do have you any plans to go outside of the China or greater China region and try and set up some shows or attract exhibitors and sellers from outside the region?

Merle Hinrichs

We do that already. We are very active in promoting our shows to all buyers that have the specific interest in purchasing from the Asian area. We will be looking at opportunities to take these shows to other areas and we will certainly be looking at exhibitors that are interested in doing that, as well as attendants from these areas. This is an active part of what our China Sourcing Fair team is involved with.

William Bean - Deutsche Bank

Okay. Finally, I think somebody else asked about pricing pressure, or taking your prices down. Do you think it might make sense to take your prices up?

Merle Hinrichs

For services which are customized and specific to a buyer's needs, we do so. We have these private sourcing events which are very specific to a particular group of suppliers or specific to a particular product and specific areas, and for those kind of services, of course, we charge a premium.

We do not, as I mentioned earlier, we do not wish to reduce or discount our prices. We feel that this not only helps differentiate our service but it also helps qualify our supplier. We feel that this is an increasingly and very important diversification or a differentiator from our competitors. But we take every opportunity, we look at every opportunity of being able to improve our services and to improve our price points.

William Bean - Deutsche Bank

Thanks a lot, guys.

Merle Hinrichs

Okay. Thank you. Any further questions?

Operator

We have time for one final question. Our final question comes from [Reese Tullop] with Asia Bank. Please go ahead.

Reese Tullop - Asia Bank

Yes, hi, guys. Just two questions. First, your China Global Sources fair in Hong Kong, what's the competing fair to that? Secondly, from your buyers, what sort of trends are you seeing? Are you seeing them going increasingly direct to suppliers or are they going through third parties such as [Lee and Fong] who then in turn have their select groups of suppliers or are they going through importers? What's the trend you're seeing there?

Merle Hinrichs

Right. As far as competitors are concerned, there are -- there's the Canton Trade Fair that is held in Guangzhou, there is the Hong Kong Trade Development Council fairs, there is a number of fairs which participate in these product lines that we do. We believe that the EWE venue is significantly better, better located, and indeed a much better facility than the other facilities in the region. Closer to the airport. It's far more convenient. It's all on one floor and it is served by a mass transit railroad at the door.

So I think that we are in an incredibly unique position, and offer unique value to both the suppliers and the buyers. And for that reason, our shows will be very competitive and very successful vis-a-vis the other competitors. The second question again?

Reese Tullop - Asia Bank

Well, the second question was, what the trend in buying was from your buyers? Were they going, are they going to importers or are they going through middlemen such as [Lee and Fong] or are they direct to suppliers for your trade shows?

Merle Hinrichs

On the buy side, we have three types of buyers, we have a retail import buyer, we have an import wholesale kind of buyer, and we have a manufacturing importer. To the extent that retail buyers have offices in Asia, they indeed seek to gain direct access to the manufacturers in order to reduce their costs. Import wholesalers, of course, make a similar effort. I mean they're constantly looking to take out whatever middlemen costs that they possibly can. The same thing is true of manufacturers.

On the supply side, it depends upon whether or not a manufacturer has the in-house export facility, whether he has the staff, whether he has the interest, because there are manufacturers that prefer to go through various middlemen for whatever reason. The exporters in Hong Kong and in Shanghai provide a very unique service to importers that need to have that service in these areas.

These export services provide things in terms of communication, in terms of translation, they coordinate shipments, they do consolidation work. So to the extent that the [Lee and Fong's] are valuable to either a retail importer or to an importer, they will have a role to play, and of course, their business would prosper. Whenever that can be substituted by either the buy side or the supply side to reduce the costs, that's typically what happens.

The international trade is very dynamic and it's constantly changing. That again is the value of our services, because we provide both the buyer and the supplier with a continuum of new suppliers, of new products, of new opportunities and new price points, of course, as well. That is why the type of service that we provide is so significant to the profits of both the exporter, the manufacturers, and to the importers and to the retailers.

Reese Tullop - Asia Bank

Okay. Thank you.

Operator

This does conclude our question-and-answer session. Mr. Hinrichs, please go ahead with any closing remarks you may have.

Merle Hinrichs

Well, I thank you all for participating, being us with today. I would like to repeat this year we'll be celebrating our 35th anniversary, and we will be hosting several events throughout the year. We'll be having a major celebration at our trade shows in the spring of the year, and we would certainly welcome your attendance, and if you would like to attend, do let us know so that we can be of whatever assistance that we can.

I want to thank you and look forward to having you participate at our next teleconference. Thank you again. Goodbye.

Operator

Ladies and gentlemen, this does conclude the Global Sources fourth quarter and year end 2005 earnings conference call. If you'd like to listen to a replay of this call, you may do in so in North America by dialing 800-405-2236 and using pass code 11052987. Or in Hong Kong at 852-228-743-04 and use the pass code 253110. You may now disconnect and thank you for using AT&T Teleconferencing.

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Source: Global Sources Q4 2005 Earnings Conference Call Transcript (GSOL)
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