Noah Education Announces First Quarter Fiscal 2009 Financial Results

2008-11-20 05:04 607

SHENZHEN, China, Nov. 20 /PRNewswire/ -- Noah Education Holdings Ltd. (NYSE: NED) ("Noah" or "the Company"), a leading provider of interactive education content in China, today announced its unaudited financial results for the first quarter of fiscal 2009 ended September 30, 2008.

Fiscal First Quarter Financial Summary

-- Net revenue decreased by 18.3% to RMB202.2 million (US$29.8 million),

compared with RMB247.5 million in the first fiscal quarter of 2008, in

line with the Company’s previously stated guidance

-- Operating income decreased 67.6% to RMB16.4 million (US$2.4 million)

compared with the first fiscal quarter of 2008

-- Net income decreased 19.5% to RMB35.8 million (US$5.3 million) compared

with the first fiscal quarter of 2008, but exceeded the Company’s

previous guidance of RMB21 million to RMB24 million

-- Basic and diluted earnings per share were RMB0.94 (US$0.14) and RMB0.93

(US$0.14), respectively, compared with RMB1.58 and RMB1.50 for the

first fiscal quarter of 2008. Basic and diluted earnings per share,

excluding share-based compensation expenses and the change in the fair

value of warrants (non-GAAP), were RMB0.87 (US$0.13) and RMB0.85

(US$0.13), respectively, compared with RMB1.85 and RMB1.83 for the

first fiscal quarter of 2008

Operational Highlights

Noah continued to advance its business strategy and growth initiatives during the first quarter of fiscal 2009.

Update on Digital Learning Device (DLD) products. According to recent market research by CCID Consulting, Noah currently owns a 34% share of the DLD market. The Company remains China’s industry leader in terms of both sales and volume and continues to address the large and expanding target market of 5 to 19 year-olds.

Launch of Kid Learning Device (KLD) product. The KLD was developed to address and deepen penetration into the five to nine year old target market. Noah has received very positive feedback from its distributors since the KLD product launch in August 2008, and has seen higher than anticipated sales volume. Based on the initial response from its distributors, the Company estimates that the current market size for KLDs in China for the 2009 calendar year is approximately 1.5 million to 2 million units. Although the KLD product is currently offered at a lower retail price point than Noah’s other DLDs, the Company plans to replicate its DLD business model in order to generate sales volume and expand KLD margins gradually. The KLD is expected to be a significant contributor to sales and profit going forward.

Access Noah Program. Noah has expanded the number of schools in the Access Noah program to 820, an increase of 17% from the 700 schools reported in the fiscal fourth quarter, further increasing the base of students and teachers with direct access to Noah’s products. The Access Noah Online program is an innovative online, teacher/student interactive knowledge-sharing community, and is expected to launch in the first half of fiscal 2009.

Tutoring Centers. Noah’s after-school tutoring business has maintained steady organic growth in the past quarter, recording net revenue of RMB2.1 million. The Company is actively seeking opportunities to expand this segment of the business via strategic acquisitions and has been in discussions with a number of providers across the country.

Mr. Dong Xu, Noah’s Chairman and CEO, said, "During our fiscal first quarter of 2009, the demand for our ELP products was higher than anticipated and our addressable market size continue to expand. I am pleased to report that we have made substantial progress on several fronts. We decided to strengthen the core of our business by focusing on several key strategic initiatives to streamline our operations in lieu of pushing multiple new products to market in the first quarter. At the same time, we were able to diversify our revenue mix with the introduction of the new KLD product, which is geared toward the underserved market of 90 million children between five and nine years of age. Reception of this product has been excellent to date, and we believe this will become a significant contributor to our top-line and bottom-line in the coming quarters. We also worked with our distributors to successfully offload approximately 40% of our older and outdated DLD and e-dictionary inventory through promotional offers. This initiative will continue throughout the second quarter and is expected to be completed by December 31, 2008. While this one-time clean-up has a short term impact on our quarterly performance, we expect both sales and margin growth to improve in second half of fiscal 2009. I am confident that this inventory realignment will better position us to achieve long-term sustainable growth and profitability. Moving forward, we are committed to maintaining inventory levels that are more commensurate with market demand. Lastly, we have begun restructuring our R&D team, dividing it into three teams, each covering a different product category: DLD, KLD and e-dictionaries. This restructuring will allow the Company to become more efficient in developing its product and service offerings, and properly allocate resources given the tapering demand for e-dictionary products.

"We also are glad to see that despite the global financial crisis, domestic demand for educational products and services remains solid. Our core business, consisting of DLD and KLD products, continues to be profitable and fundamentally sound. We believe that our strong cash and cash equivalents and investments of US$154 million as well as the fact that we have no debt not only make us resilient to macroeconomic conditions, but also position us to capitalize on acquisition opportunities that were previously not available," Mr. Xu concluded.

First Quarter of Fiscal 2009 Unaudited Financial Results

Net Revenue. Net revenue was RMB202.2 million (US$29.8 million) in the first quarter of fiscal 2009, in line with the Company’s revised guidance of RMB202 million to RMB203 million. This represented a decline of 18.3% compared with net revenue of RMB247.5 million for the first quarter of fiscal 2008.

Net revenue from DLD products for the first quarter of fiscal 2009 was RMB135.4 million (US$19.9 million), a decrease of 32.8% year-over-year compared with RMB201.3 million in the first quarter of fiscal 2008. This was mainly attributable to decreased average selling price for our products as a result of the clean-out of our inventory as well as the decrease in DLD unit sales, which was impacted by the efforts to move older products and by the Summer Olympic Games. DLD products remained the largest revenue contributor accounting for 67% of total net revenue for the first quarter of fiscal 2009.

Net revenue from the KLD product, launched in mid-August 2008, was RMB27.5 million (US$4.1 million) and represented 13.6% of total net revenue.

The total number of courseware titles at the end of the first quarter of fiscal 2009 was approximately 38,000, compared with 35,000 in the first quarter of fiscal 2008. High-end DLD products with Noah’s new proprietary graphic calculator technology accounted for approximately 74% of all DLDs sold in the first quarter, compared with 88% in the fourth quarter following its market launch.

Net revenue from e-dictionary products, representing 17.9% of total net revenue, decreased by 19.7% to RMB36.2 million (US$5.3 million) in the first quarter of fiscal 2009, compared with RMB45.1 million in the first quarter of fiscal 2008. The lower average selling price of e-dictionary products continues to put downward pressure on net revenue. The Company continues to migrate its sales mix toward higher-margin DLD and KLD products, as the market demand for e-dictionaries matures.

Cost of revenue. Cost of sales was RMB101 million (US$14.9 million) in the first quarter of fiscal 2009, compared with RMB123.3 million in the first quarter of fiscal 2008. As a percentage of total revenue, cost of sales was flat at 50%. Material cost as a percentage of revenue decreased to 41.4% in the first quarter of fiscal 2009, compared with 44.3% in first quarter of fiscal 2008. This was offset by an increase in sub-contracting fees related to outsourcing part of the production of our DLDs and e-dictionaries, and certain fixed overhead costs proportionate to increased sales volumes.

Gross Profit. Gross profit was RMB101.2 million (US$14.9 million) for the first quarter of fiscal 2009, representing a stable gross margin of 50.1%. This compares with gross profit of RMB124.2 million and a gross margin of 50.2% in the first quarter of fiscal 2008.

Operating Expenses. Total operating expenses increased by 9.0% to RMB95.8 million (US$14.1 million), representing 47.4% of net revenue for the first quarter of fiscal 2009, compared with RMB87.9million, or 35.5% of net revenue, in the first quarter of fiscal 2008. This increase was primarily attributable to higher general and administrative expenses associated with being a public company.

Research and development expense increased by 40.5% to RMB17.2 million (US$2.5 million), representing 8.5% of net revenue, in the first quarter of fiscal 2009, compared with RMB12.3 million, or 5% of net revenue, in the first quarter of fiscal 2008. This increase was mainly due to an increase in remuneration resulting from the expansion in R&D capabilities, a proportionate increase in third-party software, and content development costs.

Sales and marketing expenses, representing 32% of net revenue, decreased by 8.4% to RMB64.7 million (US$9.5 million) in the first quarter of fiscal 2009, compared with RMB70.1 million, or 28.3% of net revenue in the first quarter of fiscal 2008 as a result of a decrease in advertising spending.

General and administrative expenses, representing 6.8% of net revenue, were RMB13.8 million (US$2.0 million) in the first quarter of fiscal 2009, compared with RMB5.5 million or 2.3% of net revenue, in the first quarter of fiscal 2008. The increase in general and administrative expenses was primarily attributable to higher staff costs, accrued auditing and legal fees and a charge for aging accounts receivable.

Income from Operations. Operating income for the first quarter of fiscal 2009 was RMB16.4 million (US$2.4 million), representing an operating margin of 8.1%, compared with operating income of RMB50.7 million and operating margin of 20.4% in the first quarter of fiscal 2008.

Other Income, net. Interest income was RMB641,142 (US$94,426) in the first quarter of fiscal 2009, compared with RMB193,382 in first quarter of fiscal 2008. Investment income was RMB8.9 million (US$1.3 million) in the fiscal first quarter of 2009. Other non-operating income was RMB6.1 million (US$0.9 million) in the first quarter of fiscal 2009, consisting primarily of unrealized exchange gains due to the impact of US dollar depreciation on intercompany loans.

Income before Taxes. Income before tax expense decreased by 19.9% to RMB36.1 million (US$5.3 million) in the first quarter of fiscal 2009, compared with RMB45.1 million in the first quarter of fiscal 2008.

Income Tax Expense. Income tax expense decreased by 49% to RMB315,509 (US$46,467) for the first quarter of fiscal 2009, compared with RMB620,224 for the first quarter of fiscal 2008. The effective tax rate was 0.9% for the first quarter of fiscal 2009, compared with 1.4% for the first quarter of fiscal 2008. The decrease in tax expense and effective tax rate were attributable to the decrease in assessable income.

Net Income. The Company reported net income of RMB35.8 million (US$5.3 million), or RMB 0.94 (US$0.14) and RMB0.93 (US$0.14) per basic and diluted share, respectively, for the first quarter of fiscal 2009, compared with RMB44.5million, or RMB1.58 and RMB1.50 per basic and diluted share for the first quarter of fiscal 2008.

Liquidity. As of September 30, 2008, Noah had cash, cash equivalents and investments of RMB1.05 billion (US$154.3 million), compared with RMB1.02 billion as of June 30, 2008.

Share Repurchase Program

As of October 31, 2008, Noah repurchased approximately 1.6 million ADSs for US$6.9 million under the Company’s previously announced share repurchase program. A total of US$3.1 million remains under the share repurchase program as of October 31, 2008. The Company will continue to actively purchase shares in the open trading windows as defined by SEC regulations.

Special Cash Dividend

On November 11, 2008, Noah’s board of directors resolved to recommend a one-time cash dividend of US$0.56 per share for fiscal 2008, pending approval by the Company’s shareholders.

Financial Outlook for Second Quarter of Fiscal Year 2009

Based on current estimates and market conditions, Noah expects net revenue to be in the range of RMB132 million to RMB134 million, and net income to be in the range of RMB9 million and RMB10 million for the second quarter of fiscal 2009. This forecast reflects Noah’s current and preliminary view, which is subject to change.

Conference Call

Noah has scheduled an investor conference call at 5:00 a.m. (Pacific) / 8:00 a.m. (Eastern) / 9:00 p.m. (Beijing/Hong Kong) on Thursday, November 20, 2008 to discuss its 2009 first quarter financial results and recent business activity. Individuals interested in participating in the call may do so by dialing (US) +1 800-659-1966 or +1 617-614-2711 / (China) +10-800-130-0399 / (HK) +800-96-3844 / (UK) +00 800-2800-2002. A telephone replay will be available shortly after the call until December 19, 2008 by dialing (US) +1 888-286-8010 or (International) +1-617-801-6888, and entering the passcode: 66317447.

A live webcast of the conference call and replay will be available on the investor relations page of Noah’s website at .

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on our year-end financial statements, which could result in significant differences from this unaudited financial information.

Currency Convenience Translation

For the convenience of readers, certain RMB amounts have been translated into US dollars at the rate of RMB6.7899 to US$1.00, the noon buying rate for US dollars in effect on September 30, 2008 for cable transfers of RMB per US dollar as certified for customs purposes by the Federal Reserve Bank of New York.

Use of Non-GAAP Financial Measures

In addition to consolidated financial results under GAAP, the company also provides non-GAAP financial measures, including non-GAAP net income which excludes non-cash share-based compensation and change in fair value of warrants. The Company believes that the non-GAAP financial measures provide investors with another method for assessing the Company’s operating results in a manner that is focused on the performance of its ongoing operations. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of the Company’s liquidity and when planning and forecasting future periods.

About Noah

Noah Education Holdings Limited ("Noah") is a leading provider of supplementary education content to China’s elementary and middle school students. Noah develops and markets interactive educational content, software and delivery platforms that combine traditional education content with digital and multi-media technologies to cater to students’ interests and enhance academic efficiency and performance. Noah employs a nationwide sales network, powerful brand image, and accessible and diversified delivery platforms to attract students to its innovative content. Noah delivers its education content via Noah electronic educational products, Noah’s online website and after-school tutoring centers. The interactive and comprehensive structure of Noah’s offerings encourages students and teachers to form knowledge-sharing communities around the Noah brand. Noah was founded in 2004 and is listed on the New York Stock Exchange under the ticker symbol NED.

Safe Harbor Statement

This press release contains forward-looking statements that reflect Noah’s current expectations and views of future events that involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Noah has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. You should understand that our actual future results may be materially different from and worse than what Noah expects. Information regarding these risks, uncertainties and other factors is included in Noah’s filings with the SEC.

Noah Education Holdings Ltd.

Condensed Consolidated Statements of Operations

Three Months Ended

September 30,

2008 2007

(Unaudited) (Unaudited)


Net revenue 202,179,495 247,485,607

Cost of revenue (100,979,037) (123,256,089)

Gross profit 101,200,458 124,229,518

Research and development expenses (17,234,011) (12,265,725)

Sales and marketing expenses (64,715,603) (70,117,305)

General and administrative expenses (13,834,460) (5,457,850)

Other operating expenses (12,681) (10,200)

Total operating expenses (95,796,755) (87,851,080)

Other operating income 11,041,160 14,322,588

Operating income 16,444,863 50,701,026

Derivative gain (loss) 5,161,005 (5,776,564)

Interest income 641,142 193,382

Investment income 7,790,226 0

Other non-operating income 6,106,229 0

Income before income taxes 36,143,464 45,117,844

Provision for income taxes (315,509) (620,224)

Net income 35,827,956 44,497,620

Deemed dividend 0 (379,092)

Net income attributable to

ordinary shareholders 35,827,956 44,118,528

Net income per share

Basic 0.94 1.58

Diluted 0.93 1.50

Weighted average ordinary

shares outstanding

Basic 37,932,586 21,473,442

Diluted 38,626,579 21,687,452

Noah Education Holdings Ltd.

Condensed Consolidated Balance Sheet

September 30, June 30,

2008 2008

(unaudited) (audited)*



Current assets

Cash and cash equivalents 232,982,355 260,222,860

Investments 814,896,506 759,875,217

Accounts receivables,

net of allowance 202,857,293 171,727,724

Related party receivables 840,340 706,088

Inventories 86,762,786 84,893,471

Prepaid expenses and other

current assets 47,854,617 58,005,597

Deferred tax asset 1,893,904 2,154,472

Total current assets 1,388,087,801 1,337,585,429

Deposit on long-term investment 0 910,000

Property, plant and equipment, net 18,838,872 17,871,691

Intangible assets, net 5,969,815 6,504,214

Total assets 1,412,896,488 1,362,871,334

Liabilities and Shareholders’ Equity

Current liabilities

Accounts payable 71,106,970 34,827,252

Other payables and accruals 38,153,415 22,444,789

Advances from customers 3,276,147 2,825,530

Income tax payable 857,840 815,911

Deferred revenue 10,166,345 11,194,641

Total current liabilities 123,560,717 72,108,123

Warrants 643,582 5,830,023

Total liabilities 124,204,299 77,938,146

Shareholders’ Equity

Ordinary shares 15,036 15,349

Additional paid-in capital 1,142,854,307 1,169,618,982

Accumulated other comprehensive loss (95,253,424) (89,949,455)

Retained earnings 241,076,271 205,248,312

Total shareholders’ equity 1,288,692,189 1,284,933,188

Total liabilities and

shareholders’ equity 1,412,896,488 1,362,871,334

* Information extracted from the audited financial statements included in

the 2008 Form 20-F of the Company filed on November 17, 2008.

Noah Education Holdings Ltd.

Reconciliation of Non-GAAP to GAAP

Three Months Ended

September 30,

2008 2007

(Unaudited) (Unaudited)

RMB % of Rev RMB % of Rev

GAAP net revenue 202,179,495 100.0% 247,485,607 100.0%

GAAP gross profit 101,200,458 50.1% 124,229,518 50.2%

Share-based compensation 61,404 0.0% 201,749 0.1%

Non-GAAP gross profit 101,261,862 50.1% 124,431,267 50.3%

GAAP operating income 16,444,863 8.1% 50,701,026 20.5%

Share-based compensation 2,301,798 1.1% 1,849,387 0.7%

Non-GAAP operating income 18,746,661 9.3% 52,550,413 21.2%

GAAP net income 35,827,956 17.7% 44,497,620 18.0%

Share-based compensation 2,301,798 1.1% 1,849,387 0.7%

Change in the fair value

of warrants (5,161,005) (2.6%) 5,776,564 2.3%

Non-GAAP net income 32,968,749 16.3% 52,123,571 21.1%

GAAP net income per share

Basic 0.94 1.58

Diluted 0.93 1.50

Non-GAAP net income per share

Basic 0.87 1.85

Diluted 0.85 1.83

Source: Noah Education Holdings Ltd.
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