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News

Chinese surveillance company shows steady six months results

: 24 November, 2009  (Company News)
Stable financial results for BlueStar SecuTech for six months to September puts the digital surveillance specialist in a good position for reaching its remaining targets
BlueStar SecuTech announces its interim results for the six months ended 30 September 2009. All figures are in RMB unless stated otherwise and comparative figures are for the six months period ended 30 September 2008.

Highlights

* Revenue for the period of RMB 67.3million (2008: RMB 80.6 million)
* Revenue from software increased 2.8% to RMB 12.5 million (2008: RMB 12.2 million)
* Gross Profit for the period of RMB 38.0 million (2008: RMB 40.6 million)
* Average Gross Profit margin increased to 56.5% (2008: 50.5%)
* Net Profit for the period of RMB 7.3 million (2008: RMB 12.6 million)
* Cash at period end of RMB 49.3 million (2008: RMB 67.0 million)

Mr Xiao Gang, CEO of BlueStar commented: "Trading for the six months ended 30 September 2009 has been steady and the Board is satisfied with the Company's performance which has been in line with its expectations.

"Although these figures are behind comparatives for the same period last year, the realisation of new business revenue during the coming months, especially in December, and a number of expected contract wins, mean that the Company is confident of achieving its revenue and profit targets for the year to 31 March 2010 and of its growth opportunities going forward."




Operational Review

Trading for the six months ended 30 September 2009 has been steady and the Board is satisfied with the Company's performance which has been in line with its expectations.

Although these figures are behind comparatives for the same period last year, the realisation of new business revenue during the coming months, especially in December, and a number of expected contract wins, mean that the Company is confident of achieving its revenue and profit targets for the year to 31 March 2010 and of its growth opportunities going forward.

Historically, the Group's revenue has been weighted towards the second half of the calendar year, with a substantial proportion arising in the fourth calendar quarter. The Company believes this year to be no exception and expects approximately 65% of annual revenue to occur in the second half.

Despite the well documented global economic slowdown, the trend towards the adoption of digital networked surveillance systems in China has continued. As a result, the Group has experienced an increased level of demand for networking projects and DVR devices both in the financial sector and in other areas, such as defence, and expects this trend to continue going forward.

During the period, the Group won a number of key contracts totaling over RMB 95 million (£8.7 million), of which RMB 52 million was recognised as revenue by the Company within the period. Of particular note were contracts signed with The Bank of China worth RMB 42 million and a contract with the Langfang Rural Credit Cooperatives in the Heibei Province of China worth RMB 3.6 million. This contract provides the Group with exposure to China's largest rural financial organisation and offers considerable opportunity.

In addition, since the period end, the Group has signed five contracts with the Chinese Government worth approximately RMB 8.0 million (£0.72 million) to serve as the general contractor and systems integrator of a surveillance network for a number of Government properties located in Beijing, ShanXi, Henan, and the Jilin Province of China. These contracts represent an important move by the Company in to the defence area.

The Group also generated revenue of RMB 1.05 million (£100,000) during the period from its strategic partnership with WinHi Technology Electronic Co. Ltd, the exclusive distribution agent for Samsung Electronics' surveillance products in China.

The surveillance command centre BlueStar established in Beijing in February 2009 with Kaiyuan Company is now fully operational. To date, 248 financial outlets have begun using the centre's services, generating annual recurring service fees for BlueStar of RMB 444,600. The Company estimates that a further 266 outlets will begin using the centre's services by the end of December 2009, and the total annual recurring revenue will be RMB 0.92 million.

The Company estimates that the Beijing command centre will be fully utilised by the end of 2010 and will provide BlueStar with annualised recurring revenue in the region of RMB 15 million. BlueStar believes this model can be replicated in other areas of China and has started negotiations with relevant parties in Shanghai and Guangzhou.


Financial review

Revenue for the six months ended 30 September 2009 was RMB 67.3 million (Six months ended 30 September 2008: RMB 80.6 million) with Profit after tax for the period of RMB 7.3 million (2008: RMB 12.6million) and cash balances at 30 September 2009 of RMB 49.3 million (2008: RMB 67.0 million).

Gross profit for the period was RMB 38.0 million (2008: RMB 40.6 million) with average gross profit margins increasing to 56.5% (2008: 50.5%). This was a direct result of the implementation of cost management systems during the period which have resulted in a reduction in raw material costs.

Trade and other receivables increased to RMB 168 million at the period end (2008: RMB 138 million) and a one-off advanced payment of RMB 7 million was made to suppliers of serial-port hard disks to secure the continuous supply of these consumables in anticipation of the Company's future sales.

BlueStar has always invested in research and development and, as planned, during the period investment in R&D increased to RMB 9.4 million (2008: RMB 7.5 million). Current research is focused on developing new technologies and software solutions for advanced network management which will be incorporated into the Company's central video management and operating systems of its next generation DVRs. It is a direct result of this investment that BlueStar's market leading technology remains the first choice for its customers and assists the Company in winning new contracts and moving into new sectors, like defence.

In order to localise its sales and service offering and reduce customer response times, the Company established a new sales and service offices during the period in Shenzhen, South China. The Group now has offices in 30 locations across China covering over 90% of China's provincial capital cities. As part of its expansion plans, the Company spent RMB 1.9 million (2008: RMB 3.3 million) on the purchase of equipment and vehicles during the period. This includes motor vehicles for the system integration department in the Inner Mongolia region relating to a project with the China Construction Bank.

With the development of non-banking markets and a move into the lower specification end of the market, the Company continues to focus its attention on effective credit management. Debtor days increased during the period to 405 days (2008: 276 days) due to an increase in the number of longer duration networking projects the Group has undertaken. However, with the fourth quarter of the calendar year traditionally a period of significant cash collection for companies in China, the Company is confident that a truer reflection of its debtor position will be shown at the time of its full year results in June 2010.

Inventory before impairment increased during the period to RMB 29 million (2008: RMB 28 million) which is consistent with the Group undertaking more network projects. A higher inventory level is required to ensure each project runs smoothly and has the added benefit of shortening delivery lead times and improving overall client satisfaction.

Earnings per share for the period were RMB 9.99 cents (2008: RMB 17.37 cents).


Outlook

BlueStar's order book for DVRs and integrated video surveillance solutions remains strong, as does its pipeline of potential new business with existing and new customers. This is despite the well documented economic slowdown in China.

Although there is a possibility of there being some impact on BlueStar's clients' purchasing patterns in the shorter term, the Directors are confident of achieving its revenue and profit targets for the year to 31 March 2010.

In the longer term, the Company believes that the Chinese domestic Networked Video surveillance market will enjoy robust growth as the Chinese economy recovers, and believes it is well positioned to benefit when this happens.
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