(BSST) BlueStar SecuTech

BlueStar SecuTech, Inc.

Interim results for the six months ended 30 September 2011

BlueStar SecuTech, Inc. (AIM: BSST), ("BlueStar","the Company" or "the Group") a leading provider of digital video surveillance solutions in China, announces its unaudited interim results for the six months ended 30 September 2011.

Financial Highlights

¡   Revenue for the period down by 23.5% to RMB 79.1 million (2010: RMB 103.4 million)

¡   Gross Profit for the period down by 22.1% to RMB 42.2 million (2010: RMB 54.2 million)

¡   Profit before tax for the period is RMB 0.4 million (2010: RMB 15.7 million)

¡   Cash at period end of RMB 37.5 million (2010: RMB 28.6 million)

Mr. Xiao Gang, CEO of BlueStar commented:

"Despite the performance of the Group in the first half of 2011 being below our expectation, looking at our current contracts and order book, we expect a strong second half year. Thus, at this stage we remain confident about our full year results. " 

Enquiries to:

Chairman's statement

Operational Review

Revenue in the six months ended 30 September 2011 declined to RMB 79 million from RMB 103 million, in the same period last year, due to lower orders of digital video recorder ("DVR") and surveillance solutions related to longer sales cycles.

Although the revenue and profit are behind comparatives for the same period last year, based on the contracts and order book, we expect to recognise an increase in revenue in the next few months and we are confident the Company can achieve growth on a year on year basis.

During the period, the Group won a number of major contracts totaling over RMB 15.4 million, of which RMB 11.9 million was recognised as revenue by the Company in the period. Of particular note were contracts signed with The Bank of China worth RMB 8.54 million and a contract with the Bank of China-Hebei Branch, worth RMB 6.86 million. 

In addition, since the period end, the Group has signed one more major contract with Bank of Beijing, Beijing Branch (RMB 7.43million) and also signed frame work contracts with several Chinese banks, including Industrial and Commercial Bank of China, Beijing Branch(RMB 8.3million), China Construction Bank, Hebei Branch (RMB 3 million), Industrial and Commercial Bank of China, Ningxia Branch (RMB 1.88million), and China Construction Bank, Hunan Branch (RMB 4 million),  worth approximately RMB 24.61 million (£2.46 million) to serve as the general contractor and systems integrator of the surveillance network in China. The contracts signed with these new clients represent a significant step in the Company's growth plans.

The surveillance command centre BlueStar established in Beijing in February 2009 with Kaiyuan Company is now fully operational.  To date, 753 financial outlets have been connected to the centre and 675 of them have begun using the centre's services, generating recurring service fees for BlueStar of RMB 0.49 million for the period. The Company estimates that a further 250 outlets will begin using the centre's services by the end of this financial year, and the total annual recurring revenue will be approximately RMB 1.5 million .

Financial review

Revenue in the first six months of 2011 amounted to RMB 79.1 million compared to RMB 103.4 million in the same period of last year. Operating profit was RMB 0.7 million in the first half of 2011, compared to RMB 15.5 million in the same period 2010.

Gross profit for the period was RMB 42.2 million (2010: RMB 54.2 million) with an average gross profit margin of 53.4% (2010: 52.4%).

BlueStar has always invested in research and development and, as planned, during the period, the Company's investment in R&D amounted to RMB 10.9 million (2010: RMB 10.4 million) of which RMB 5.8 million was capitalised. 

Finance cost

Finances cost for the financial period ended 30 September 2011 was RMB 0.64 million. This was largely attributable to the payment to the bank loans during the current period.

Profit before tax

In view of the above, the group recorded a profit before tax of RMB 0.4 million for the first half year 2011 as compared with profit before tax of RMB 15.7 million for the corresponding period in 2010.

Earnings / (loss) per share for the period was (0.17) fen (2010: 21.56 fen).

Cash and bank balance of the Group increased from RMB 28.6 million at 30 September 2010 to RMB 37.5 million at 30 September 2011.

Trade and other receivables increased to RMB 234 million at the period end (2010: RMB 218 million).  Debtor days increased during the period to 539 days (2010: 384 days).  With the fourth quarter of the calendar year traditionally a period of significant cash collection for companies in China, the Company is expecting that approximately 50% of the outstanding debtors will be received by the end of March 2012.

Inventory before impairment increased during the period to RMB 37 million (2010: RMB 36 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.

Intangible assets increased from RMB 35 million at 31 March 2011 to RMB 38 million at 30 September 2011. The increase was mainly due to the developed of the copyrights.

Term loan increased from 3.0 million at 31 March 2011 to RMB 28.0 million at 30 September 2011 mainly due to the new loan RMB 15 million acquired from Huaxia bank (HXB) and RMB 10 million from China Minsheng Banking Corporation (CMBC) during the period.

Outlook

Looking ahead to the second half of 2011, the business environment in the surveillance industry is still full of opportunities and challenges. With the Group's organic growth, and the number of framework contract wins from our new customers, we can see an increased level of demand for networking projects and DVR devices both in the financial sector and in other areas. The Company is confident of achieving its revenue and profit targets for the year to 31 March 2012.

Liu Xiaochuan, Chairman

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

Consolidated statement of comprehensive income for the period ended 30 September 2011

All operations are continuing.

Consolidated statement of financial position as at 30 September 2011

Consolidated statement of cash flow for the period to 30 September 2011

Consolidated statement of changes in equity as at 30 September 2011

Notes to the unaudited interim financial information for the period to 30 September 2011

1 General information

BlueStar SecuTech, Inc. is a company incorporated in British Virgin Islands. The address of its registered office is Offshore Incorporations Centre, P.O. Box 957, Road Town, Tortola, British Virgin Islands. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange.

2 Basis of preparation of the financial information

Compliance with accounting standards

These condensed financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting.

The Interim Report was approved by the Board of Directors on 30 November 2011. The report is unaudited and does not constitute the Company's statutory accounts for the six months ended 30 September 2011.

3 Significant accounting policies

The condensed financial statements have been prepared under the historical cost convention, except for the revaluation of certain properties and financial instruments. The same accounting policies, presentation and methods of computation have been followed in these condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 March 2011.

4 Seasonality of interim operations

The revenue of the Group has decreased significantly compared to the first six months of last year. This is mainly due to customers have not taken up the all the orders made and the goods are expected to be delivered in the next two quarters of the financial year.

The Group is sensitive to the seasonality of sales.  Generally many customers will make purchase in the fourth quarter of each calendar year in order to use up their budgets.

5 Revenue and segmental analysis

The Group's revenue for continuing operations is as follows:

Analysis of the Group's assets by operating segment:

The Group's revenue and profit before taxation were all derived from its principal activity. All revenue originates in the PRC and assets are mainly held in the PRC.

All of the segment revenue reported above is from external customers.

Segment profit represents the profit earned by each segment without allocation of central administration costs and director's salaries, share of profits of associates, investment revenue and finance costs. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

6 Taxation

No provision for income tax has been made in this interim period due to losses made in the PRC operating subsidiaries.

7 Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The dilutive potential ordinary shares in the Company are share options. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary rights attached to outstanding share options. The number of shares calculated above is compared with the number of shares that would have issued assuming the exercise of the share options. The exercise prices for the options granted are above the average share price of the company. As a result of this there is no diluted effect. The weighted average number of shares in issue is the number of shares issued.

8 Property, plant and equipment

During the period, the Group made additions of RMB 482,000 to property, plant and equipment.

9 Intangible assets

During the period, the Group spent approximate RMB 5.8 million on development of seven new software which will be embedded in the equipment to be sold.

10 Share capital

The total authorised number of ordinary shares is 72,808,000 with a nil par value per share. The issued share capital of the Company as at 30 September 2011 is RMB 134,861,215 fully paid. There were no movements in the issued share capital of the company in the current interim reporting period.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.  All shares rank equally with regard to the Company's residual assets.

At 30 September 2011, the Company had the following outstanding share options:

11 Borrowings

During the period, the Group obtained two new short term bank loans in the amount of RMB 15 million and RMB 10 million from Huaxia Bank and China Minsheng Banking Corporation respectively. These loans bear interest at 6.31% and 7.89% respectively. They  are repayable within one year.

12 Dividends

On 19 July 2011, the Directors proposed a dividend of 0.78 pence per share (after tax), equivalent to 0.87 pence before tax in respect of the financial period ended 31 March 2011, and the dividend was paid on 29 September 2011 to shareholders.

13 Related party transactions

Mr. Xiao Gang, Mr. He Caiguang, and Ms. Liu Jinqing, directors of the Company have provided personal guarantee up to RMB 15 million issuance of notes facility. In addition to this, two personal vehicles of Mr. Xiao Gang have been used as security for this credit facility.

During the period, the Group made sales to Beijing BlueStar Software Technology Development Co., Ltd (''BBST'') for the amount of RMB 8.06 million which acts as an agent to the Company,merely signing contracts on behalf of BlueStar due to the legal restrictions of BlueStar establishment in PRC. Mr. Xiao, a director and majority shareholder of BBST is also a director and majority shareholder of BlueStar.

There are no other related party transactions apart from the remuneration of key management.