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Noah Education Announces Third Quarter Fiscal 2009 Financial Results

2009-05-27 04:37 535

Revenue Exceeds Guidance at RMB214.5 Million

Entering Kids' English Training Market by Acquiring Little New Star Education Group

SHENZHEN, China, May 27 /PRNewswire-Asia/ -- 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 three and nine months ended March 31, 2009.

Third Quarter Fiscal 2009 Financial Highlights

-- Net revenue increased by 16.5% to RMB214.5 million (US$31.4 million),

compared with RMB184.1 million in the third quarter of fiscal 2008,

exceeding the Company's previously stated guidance of RMB205 million to

RMB210 million

-- Gross profit increased by 11.6% to RMB113.5 million (US$16.6 million),

representing a gross margin of 52.9%, compared with gross profit of

RMB101.7 million, or a gross margin of 55.3%, in the third quarter of

fiscal 2008

-- Operating income increased by 11.0% to RMB29.2 million (US$4.3 million),

compared with RMB26.3 million in the third quarter of fiscal 2008

-- Net income decreased by 38.0% to RMB34.4 million (US$5.0 million),

compared with RMB55.4 million in the third quarter of fiscal 2008,

primarily due to a decrease in other non-operating income and interest

income

-- Basic and diluted earnings per share were RMB0.96 (US$0.14) and RMB0.95

(US$0.14), compared with RMB1.45 and RMB1.40, respectively, for the

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

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

value of warrants (non-GAAP), were RMB0.91 (US$0.13), compared with

RMB1.49 and RMB1.46, respectively, for the third quarter of fiscal 2008

Key Strategic Development -- Acquisition of Little New Star English

The Transaction

Noah signed a definitive agreement on May 22, 2009, to acquire 100% interest in Little New Star Education Group ("Little New Star"), a Changsha based private education service provider that specializes in providing English language training for kids. The total consideration is subject to earn out adjustments and is comprised of part cash and part stock, which represents approximately 6% of Noah's outstanding shares. The transaction is scheduled to close by July 2, 2009 and will be subject to customary closing conditions including regulatory approvals.

About Little New Star

Little New Star, founded in 1992, is a leading provider of kids' English language training in China, based in Changsha, Hunan province. The company provides English learning services through its direct-owned schools, as well as develops and markets English teaching materials through its franchised learning centers. It has 10 direct-owned learning centers in Changsha, Datong and Xiangtan, and over 600 franchises across China, except in Tibet. The company was recently named as one of the Top Ten Foreign Language Training Organizations by sina.com.

Mr. Dong Xu, Noah's chairman and chief executive officer, said, "We are very pleased to announce the acquisition of Little New Star, as it is a big step forward in Noah's quest to become a full-service education provider. We truly believe we have found a leader in a market segment with a tremendous amount of upside potential. In line with our strategy, acquiring Little New Star will bring Noah an additional revenue stream and contribute to more rapid business growth in the near term, while Little New Star's high quality services and strong brand reputation will drive performance in the longer term. We expect this acquisition to meaningfully contribute to our sustainable growth and drive Noah's leadership in the Chinese education market as we become a more comprehensive education service provider.

"The kids' English language training market is a fragmented segment which offers tremendous growth potential and favorable market dynamics. According to a recent Deloitte report, the English training market in China is valued at RMB20 billion, and the population of children in the target age range of three to twelve years is approximately 130 million. With its recognized capabilities in content development and teaching methodology, as well as its strong presence in the second and third tier cities in China, Little New Star has been able to achieve substantial growth over the last decade and is regarded as one of the top kids' English training providers in China. As this fragmented market inevitably begins to consolidate, we are confident that Little New Star will emerge as the leader.

"Little New Star fits perfectly into Noah's business expansion plans, as there are significant synergies in a number of areas. For example, Noah will leverage its own extensive sales and marketing capabilities to more rapidly expand the strong market position already established by Little New Star in the kids' English training market. Noah and Little New Star can both benefit from cross-selling opportunities within the existing customer base and intend to uncover additional revenue sources by leveraging existing technology and service platforms.

"We are confident that this combination will be fruitful for shareholders, employees, customers and especially China's children," Xu concluded.

Third Quarter of Fiscal 2009 Unaudited Financial Results

"Our continued focus on executing our business strategy has enabled us to deliver another quarter of solid results, as we once again exceeded our top line guidance," said Rick Chen, Noah's executive vice president. "The 16.5% net revenue growth was primarily attributable to the strong momentum in our KLD products. We anticipate KLD margins will continue to improve and expect KLD to remain one of our primary near-term growth drivers."

Net Revenue. Net revenue was RMB214.5 million (US$31.4 million) in the third quarter of fiscal 2009, exceeding the Company's guidance of RMB205 million to RMB210 million. This represented an increase of 16.5% compared with net revenue of RMB184.1 million for the third quarter of fiscal 2008.

Net revenue from DLD products, representing 55.8% of total net revenue, decreased by 22.6% year-over-year to RMB119.6 million (US$17.5 million) in the third quarter of fiscal 2009, compared with RMB154.5 million in the third quarter of fiscal 2008. This decline was primarily attributable to decrease in the average selling price of DLDs and lower sales volume, which was offset by increased KLD sales.

Net revenue from KLD products, representing 27.5% of total net revenue, was RMB59.0 million (US$8.6 million). This compares with net revenue of RMB36.9 million in the second quarter of fiscal 2009 following its market launch in August 2008.

Net revenue from e-dictionary products, representing 16.4% of total net revenue, increased by 22.9% to RMB35.1 million (US$5.1 million) in the third quarter of fiscal 2009, compared with RMB28.6 million in the third quarter of fiscal 2008. This is primarily a result of a temporary rebound in demand for these products.

Cost of revenue. Cost of revenue was RMB101.0 million (US$14.8 million), or 47.1% of net revenue, in the third quarter of fiscal 2009, compared with RMB82.4 million, or 44.7% of net revenue, in the third quarter of fiscal 2008.

Gross Profit. Gross profit increased by 11.6% to RMB113.5 million (US$16.6 million) in the third quarter of fiscal 2009, representing a gross margin of 52.9%. This compares with gross profit of RMB101.7 million and a gross margin of 55.3% in the third quarter of fiscal 2008. The decrease in gross margin is mainly due to the change in product mix, with KLD accounting for a greater percentage of total revenue, and the decrease in DLD average selling price.

Operating Expenses. Total operating expenses were RMB95.9 million (US$14.0 million), representing 44.7% of net revenue for the third quarter of fiscal 2009, compared with RMB86.5 million, or 47.0% of net revenue, in the third quarter of fiscal 2008. This is primarily due to improved operating efficiency.

Research and development expenses were RMB11.3 million (US$1.6 million), representing 5.3% of net revenue in the third quarter of fiscal 2009, compared with RMB14.7 million, or 8.0% of net revenue in the third quarter of fiscal 2008. This was primarily due to lower third party software licensing fees and a cost reduction from restructuring.

Sales and marketing expenses were RMB65.2 million (US$9.5 million), representing 30.4% of net revenue in the third quarter of fiscal 2009, compared with RMB56.2 million, or 30.5% of net revenue in the third quarter of fiscal 2008, as a result of increased sales and promotion efforts in connection with the rollout of new KLD products.

General and administrative expenses were RMB19.3 million (US$2.8 million), representing 9.0% of net revenue in the third quarter of fiscal 2009, compared with RMB15.2 million, or 8.3% of net revenue, in the third quarter of fiscal 2008. This reflects an increase in consulting fees related to the implementation of the Company's Enterprise Resource Planning (ERP) system, the launch of a Sarbanes-Oxley compliance project, and other legal and professional fees associated with being a U.S.-listed company.

Income from Operations. Operating income for the third quarter of fiscal 2009 increased by 11.0% to RMB29.2 million (US$4.3 million), representing an operating margin of 13.6%, compared with operating income of RMB26.3 million and operating margin of 14.3% in the third quarter of fiscal 2008.

Other Income, net. Interest income was RMB1.0 million (US$0.1 million) in the third quarter of fiscal 2009, compared with RMB6.2 million in third quarter of fiscal 2008, primarily due to a decrease in interest rates during the fiscal 2009 quarter. Investment income was RMB1.2 million (US$0.2 million) in the third quarter of fiscal 2009. Other non-operating income was RMB0.4 million (US$0.05 million) in the third quarter of fiscal 2009, compared to RMB22.6 million in the third quarter of fiscal 2008. The 2008 figure includes a RMB21.8 million foreign exchange gain. Derivative gain in the third quarter of fiscal 2009 was RMB2.8 million (US$0.4 million), as a result of the expiration of warrants in the third quarter of fiscal 2009.

Income before Taxes. Income before tax expenses decreased by 38.2% to RMB34.5 million (US$5.1 million) in the third quarter of fiscal 2009, compared with RMB55.9 million in the third quarter of fiscal 2008, primarily due to a decrease in other non-operating income of RMB22.2 million and interest income of RMB5.2 million.

Income Tax Expense. Provision for income taxes was RMB165,889 (US$24,278) for the third quarter of fiscal 2009, compared with RMB417,200 for the third quarter of fiscal 2008. The effective tax rate was 0.5% for the third quarter of fiscal 2009, compared with 0.7% for the third quarter of fiscal 2008. The decrease in tax expense and effective tax rate were attributable to an increase in deferred tax credits.

Net Income. The Company reported net income of RMB34.4 million (US$5.0 million), or RMB0.96 (US$0.14) and RMB0.95 (US$0.14) per basic and diluted share, respectively, for the third quarter of fiscal 2009. This compares with net income of RMB55.4 million, or RMB1.45 and RMB1.40 per basic and diluted share, respectively, for the third quarter of fiscal 2008.

Liquidity. As of March 31, 2009, Noah had cash, cash equivalents and short-term investments of RMB841.7 million (US$123.2 million). This compares with cash, cash equivalents and short-term investments of RMB1.03 billion (US$151.0 million) as of December 31, 2008. Noah made a one-time dividend payment in the amount of RMB137.5 million (US$20.1 million) in the third quarter of fiscal 2009. In addition, the Company has purchased a property in Chengdu for RMB98.3 million (USD14.4 million), which will be used as the Company's new headquarters.

Share Repurchase Program

As of April 30, 2009, Noah repurchased approximately 2.6 million American Depositary Shares (ADSs) for US$9.4 million, and a total of US$0.6 million remains under the Company's share repurchase program. The Company will continue to actively purchase shares during open trading windows in accordance with SEC regulations.

Financial Outlook for Third Quarter of Fiscal Year 2009

Based on current estimates and market conditions, Noah expects to generate net revenue in the range of RMB114 million to RMB116 million for the fourth quarter of fiscal 2009, representing an increase of 16% to 18% compared to the prior-year quarter. 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) / 8:00 p.m. (Beijing/Hong Kong) on Wednesday, May 27, 2009 to discuss its third quarter fiscal 2009 financial results and recent business activities. Individuals interested in participating in the call may do so by dialing:

Toll Free Toll

United States: +1-800-299-0433 +1-617-801-9712

China: 10-800-130-0399

Hong Kong: 800-96-3844

United Kingdom: 00-800-2800-2002

Passcode: Noah Education

Please dial in 10 minutes before the call is scheduled to begin.

A telephone replay will be available shortly after the call until June 3, 2009 by dialing the following numbers:

Toll Free Toll

United States: +1-888-286-8010

International Dial In: +1-617-801-6888

Passcode: 74889886

A live webcast of the conference call and replay will be available on the investor relations page of Noah's website at http://ir.noahedu.com.cn .

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 RMB6.8329 to US$1.00, the noon buying rate for US dollars in effect on March 31, 2009 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 services to China's elementary and middle school students. Noah's core offering includes the development and marketing of electronic learning products (ELPs), interactive educational courseware content, software, on- and offline delivery platforms and after-school education services. Noah combines standardized education content with innovative digital and multimedia technologies to create a dynamic learning experience and improve academic performance for students throughout China. Noah has developed a nationwide sales network, powerful brand image, and accessible and diverse delivery platforms to bring its innovative content to the growing student population. The interactive and comprehensive services Noah offers will enable students and teachers to engage in knowledge-sharing communities, all centered around the Noah brand. Noah was founded in 2004 and is listed on the New York Stock Exchange under the ticker symbol NED.

For more information about Noah, please visit http://www.noahedu.com.cn .

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 most recent Annual Report on Form 20-F and other filings with the SEC.

Noah Education Holdings Ltd.

Consolidated Statements of Operations

Three months ended

March 31,

2008 2009 2009

(Unaudited) (Unaudited) (Unaudited)

RMB RMB USD

Net revenue 184,094,696 214,477,955 31,389,008

Cost of revenue (82,381,971) (100,961,711) (14,775,822)

Gross profit 101,712,725 113,516,244 16,613,187

Research & development expenses (14,721,987) (11,263,478) (1,648,418)

Sales & marketing expenses (56,151,779) (65,244,595) (9,548,595)

General and administrative

expenses (15,220,375) (19,341,783) (2,830,684)

Other expenses (451,907) (4,500) (659)

Total operating expenses (86,546,048) (95,854,356) (14,028,356)

Other operating income 11,110,671 11,515,005 1,685,230

Operating income 26,277,348 29,176,892 4,270,060

Derivative gain (loss) 823,661 2,755,004 403,197

Interest income 6,172,075 1,006,210 147,260

Investment income 0 1,245,040 182,213

Other Non-Operating income 22,578,606 359,137 52,560

Income before income taxes 55,851,690 34,542,284 5,055,289

Provision for income taxes (417,200) (165,889) (24,278)

Net income 55,434,490 34,376,395 5,031,011

Deemed dividend 0 0 0

Net income attributable to

ordinary shareholders 55,434,490 34,376,395 5,031,011

Net income per share

Basic 1.45 0.96 0.14

Diluted 1.40 0.95 0.14

Weighted average ordinary shares

outstanding

Basic 38,198,045 35,802,726

Diluted 39,136,046 35,999,768

Nine months ended

March 31,

2008 2009 2009

(Unaudited) (Unaudited) (Unaudited)

RMB RMB USD

Net revenue 553,991,798 552,014,937 80,787,797

Cost of revenue (270,886,343) (268,776,119) (39,335,585)

Gross profit 283,105,455 283,238,818 41,452,212

Research & development expenses (37,979,123) (42,926,095) (6,282,266)

Sales & marketing expenses (166,323,867) (176,188,542) (25,785,324)

General and administrative

expenses (29,774,505) (44,949,133) (6,578,339)

Other expenses (2,592,388) (142,558) (20,864)

Total operating expenses (236,669,883) (264,206,329) (38,666,793)

Other operating income 37,008,519 35,840,774 5,245,324

Operating income 83,444,090 54,873,263 8,030,743

Derivative gain (loss) (5,238,686) 5,807,511 849,933

Interest income 14,719,199 2,805,250 410,550

Investment income 0 11,710,962 1,713,908

Other Non-Operating income 22,578,606 4,278,436 626,152

Income before income taxes 115,503,208 79,475,422 11,631,287

Provision for income taxes (1,756,048) (432,978) (63,367)

Net income 113,747,160 79,042,444 11,567,921

Deemed dividend (379,092) 0 0

Net income attributable to

ordinary shareholders 113,368,068 79,042,444 11,567,921

Net income per share

Basic 3.61 2.15 0.32

Diluted 3.49 2.13 0.31

Weighted average ordinary shares

outstanding

Basic 31,483,788 36,697,112

Diluted 32,571,634 37,114,312

Noah Education Holdings Ltd.

Consolidated Balance Sheet

December 31, March 31,

2008 2009 2009

Unaudited Unaudited Unaudited

RMB RMB USD

Assets:

Current assets

Cash and cash equivalents 757,198,094 835,814,763 122,322,113

Short-term investment 273,049,099 5,873,142 859,539

Accounts receivables, net of

allowance 162,695,505 193,640,600 28,339,446

Related party receivables 629,226 627,838 91,885

Inventories 116,676,757 106,604,184 15,601,602

Prepaid expenses, deferred tax

assets and other current

assets 70,623,359 48,377,213 7,080,041

Deferred tax asset 1,954,800 1,796,797 262,963

Total current assets 1,382,826,840 1,192,734,538 174,557,587

Property, plant and equipment,

net 19,117,816 117,001,074 17,123,194

Intangible assets, net 5,031,888 4,913,557 719,103

Deposit for long-term

investment 0 3,000,000 439,052

Total assets 1,406,976,544 1,317,649,170 192,838,937

Liabilities and Shareholders’

Equity

Current liabilities

Accounts payable 82,272,150 86,552,682 12,667,049

Other payables, accruals 34,116,843 49,167,623 7,195,718

Advances from customers 2,219,755 2,241,107 327,988

Income taxes payable 870,316 436,409 63,869

Deferred revenues 8,476,326 8,798,503 1,287,667

Dividend payable 137,519,663 0 0

Total current liabilities 265,475,053 147,196,323 21,542,291

Warrants 2,754,480 0 0

Total liabilities 268,229,534 147,196,323 21,542,291

Shareholders’ Equity

Ordinary shares 14,591 14,546 2,129

Additional paid-in capital 1,119,539,792 1,116,722,662 163,433,193

Accumulated other comprehensive

loss (93,202,072) (93,055,456) (13,618,735)

Retained earnings 112,394,701 146,771,093 21,480,059

Total shareholders’ equity 1,138,747,012 1,170,452,846 171,296,645

Total liabilities and

shareholders’ equity 1,406,976,545 1,317,649,170 192,838,937

Noah Education Holdings Ltd.

Reconciliation of Non-GAAP to GAAP

Three months ended

March 31,

2008 2009

(Unaudited) (Unaudited)

RMB % of Rev RMB USD % of Rev

GAAP net revenue 184,094,696 100.0% 214,477,955 31,389,008 100.0%

GAAP gross profit 101,712,725 55.3% 113,516,244 16,613,187 52.9%

Share-based

compensation 63,643 0.0% 33,717 4,934 0.0%

Non-GAAP gross

profit 101,776,368 55.3% 113,549,960 16,618,121 52.9%

GAAP operating

income 26,277,348 14.3% 29,176,892 4,270,060 13.6%

Share-based

compensation 2,460,749 1.3% 1,097,105 160,562 0.5%

Non-GAAP operating

income 28,738,097 15.6% 30,273,997 4,430,622 14.1%

GAAP net income 55,434,490 30.1% 34,376,395 5,031,011 16.0%

Share-based

compensation 2,460,749 1.3% 1,097,105 160,562 0.5%

Change in the fair

value of warrants (823,661) -0.4% (2,755,004) (403,197) -1.3%

Non-GAAP net income 57,071,578 31.0% 32,718,496 4,788,376 15.3%

GAAP net income per

share

Basic 1.45 0.96 0.14

Diluted 1.40 0.95 0.14

Non-GAAP net income

per share

Basic 1.49 0.91 0.13

Diluted 1.46 0.91 0.13

Nine months ended

March 31,

2008 2009

(Unaudited) (Unaudited)

RMB % of Rev RMB USD % of Rev

GAAP net revenue 553,991,798 100.0% 552,014,937 80,787,797 100.0%

GAAP gross profit 283,105,455 51.1% 283,238,818 41,452,212 51.3%

Share-based

compensation 315,800 0.1% 156,526 22,908 0.0%

Non-GAAP gross

profit 283,421,255 51.2% 283,395,344 41,475,119 51.3%

GAAP operating

income 83,444,090 15.1% 54,873,263 8,030,743 9.9%

Share-based

compensation 17,878,026 3.2% 5,700,700 834,302 1.0%

Non-GAAP operating

income 101,322,116 18.3% 60,573,964 8,865,045 11.0%

GAAP net income 113,747,160 20.5% 79,042,444 11,567,921 14.3%

Share-based

compensation 17,878,026 3.2% 5,700,700 834,302 1.0%

Change in the fair

value of warrants 5,238,686 0.9% (5,807,511) (849,933) -1.1%

Non-GAAP net income 136,863,872 24.7% 78,935,634 11,552,289 14.3%

GAAP net income per

share

Basic 3.61 2.15 0.32

Diluted 3.49 2.13 0.31

Non-GAAP net income

per share

Basic 4.35 2.15 0.31

Diluted 4.13 2.13 0.31

Source: Noah Education Holdings Limited
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