Noah Education Announces Unaudited Fourth Quarter and Full Fiscal Year 2009 Financial Results

SHENZHEN, China, Aug. 24 /PRNewswire-Asia-FirstCall/ -- Noah EducationHoldings Ltd. (NYSE: NED) ("Noah" or "the Company"), a leading provider ofsupplemental education products and services in China, today announced itsunaudited financial results for the fourth quarter and full fiscal year endedJune 30, 2009.

Mr.
Dong Xu, Noah's chairman and chief executive officer, said, "We arepleased to report solid year-over-year increases in revenue for both thefourth quarter and full fiscal year 2009, as we exceeded previously statedguidance for the fourth quarter. Our margin performance is evidence of ourability to execute our growth strategy while also keeping a vigilant eye oncosts. We continue to improve the efficiency of our distribution channels, andwe will consistently monitor our operations to uncover new ways to streamlineour operations while maintaining strong revenue performance. Our ELP businessdemonstrated steady growth, as we sustained our market leadership in the DLDspace. Noah's KLD products continued to be the key growth driver in thissegment. Introduced just a year ago, these products have gained significanttraction as customers clearly recognize that our industry-leading contenthelps children succeed in a highly competitive educational environment.

"The recent acquisition of Little New Star represents an important firststep for Noah in entering the fast-growing kids' English training market. Weare progressing well with the integration, with most of the administrativefunctions fully operational under the Noah umbrella. We can now begin toleverage cross-selling and marketing opportunities to drive organic growth.

"This is an important entry point which will enable us to expand ourpresence in the kids' education service market. Our solid financial positionwill allow us to take advantage of additional acquisition opportunities tofurther expand our presence in this space, while simultaneously strengtheningour content and the diversity of our delivery platforms. Our goal is toimprove and expand our service lineup, leveraging our extensive sales anddistribution network to drive us toward becoming a more comprehensiveeducation service provider.

"We recently made a very important addition to our management team withthe appointment of
Jerry He as Executive Vice President. Jerry will workclosely with me to advance our strategic expansion and create efficiencies inthe business. He brings a wealth of consulting and financial managementexperience to the table, and I have great confidence that he will play anintegral role in driving these initiatives. Ultimately, by executing ourstrategy and more efficiently deploying our resources, we aim to yield greaterreturns on our investments and further enhance shareholder value," Xuconcluded.

Fourth Quarter and Fiscal Year 2009 Unaudited Financial Results

Net Revenue. Net revenue for the fourth quarter of fiscal 2009 wasRMB119.1 million (US$17.4 million), exceeding the Company's guidance of RMB114million to RMB116 million. This represented an increase of 21.6% compared withnet revenue of RMB97.9 million for the fourth quarter of fiscal 2008. For thefiscal year 2009, net revenue was RMB671.1 million (US$98.3 million),increased 2.9% from RMB651.9 million in fiscal year 2008.

Cost of revenue. Cost of revenue for the fourth quarter of fiscal 2009 wasRMB57.6 million (US$8.4 million), representing an increase of 20.3% fromRMB47.9 million in the fourth quarter 2008. For fiscal year 2009, cost ofrevenue was RMB326.4 million (US$47.8 million), up 2.4% from RMB318.8 millionin fiscal 2008. The increase in costs was proportionate to the increase inrevenue, maintaining cost as a percentage of revenue at approximately 48.4% inthe fourth quarter of fiscal 2009 and 48.6% in fiscal 2009.

Gross Profit and Gross Margin. Gross profit in the fourth quarter offiscal 2009 was RMB61.5million (US$9.0 million), representing a year-over-yearincrease of 22.9%. Gross margin for the fourth quarter was 51.6%, slightly upfrom 51.1% in the fourth quarter 2008.

Gross profit for fiscal year 2009 increased slightly to RMB344.7 million(US$50.5 million), from RMB333.1 million in fiscal 2008. The gross margin forfiscal year 2009 was 51.4% as compared with 51.1% in 2008, consistent withCompany's guidance of maintaining a gross margin above 50%.

Operating Expenses. Total operating expenses for the fourth quarter offiscal 2009 were RMB61.4 million (US$9.0 million), representing a decrease of2.5% from RMB63.0 million in the fourth quarter 2008.

Total operating expenses for fiscal 2009 were RMB325.7 million (US$47.7million), representing an increase of 9.5% from RMB297.5million in fiscal year2008 as the Company expanded its R&D efforts in content development andsoftware applications, increased its national sales and distributionrealignment efforts in conjunction with new product launches and incurredadditional professional expenses related to the Company's status as aUS-listed public company.

Research and development expenses for the fourth quarter of fiscal 2009were RMB12.4 million (US$1.8 million), representing 15.8% decrease fromRMB14.7 million in the fourth quarter of fiscal 2008. The year-over-yeardecrease was primarily due to lower costs associated with 3rd party softwareand content development. For fiscal 2009, the research and developmentexpenses were RMB55.3 million (US$8.1 million), representing a slight increaseof 5.0% from RMB52.7 million in fiscal 2008.

Sales and marketing expenses for the fourth quarter of fiscal 2009 wereRMB34.5 million (US$5.1 million), up 10.9% year over year from RMB31.1million.This was primarily due to advertising and promotion efforts in connection withthe rollout of one new KLD model. However, as a percentage of total netrevenue, sales and marketing expenses decreased by 2.8 percentage points to29% from 31.8%. For fiscal year 2009, sales and marketing expenses wereRMB210.7 million (US$30.8 million), up 6.7% from RMB197.4 million in theprevious fiscal year.

General and administrative expenses for the fourth quarter of fiscal 2009were RMB14.6 million (US$2.1 million), up 10.9% from RMB13.1 million in thefourth quarter of fiscal 2008. The increase in general and administrativeexpenses was mainly due to higher costs related to share based compensation,as well as depreciation expenses in connection with the newly purchased officebuilding in Chengdu to accommodate the continued expansion of Noah's business.

For fiscal year 2009, general and administrative expenses were RMB59.5million (US$8.7 million), up 34.5% from RMB44.3 million in fiscal 2008. Theadditional expenses included an increase of RMB4.7 million (US$0.7 million) instaff compensation costs, RMB1.3 million (US$0.2 million) in share basedexpenses, and RMB11.8 million (US$1.73 million) in legal, consulting, andother professional service fees related to the Company's status as a US-listedpublic company.

Income from Operations. Operating income for the fourth quarter of fiscal2009 increased to RMB9.8 million (US$1.4 million), representing an operatingmargin of 8.2%, compared to an operating loss of RMB2.3 million and operatingmargin of -2.4% in the fourth quarter of fiscal 2008. For the fiscal yearended June 30, 2009, operating income was RMB64.7 million (US$9.5 million),representing an operating margin of 9.6%, as compared to RMB79.8 million, oran operating margin of 12.2% in the previous fiscal year.

Other Income, net. Interest income was RMB2.5 million (US$0.4 million) inthe fourth quarter of fiscal 2009, compared to a loss of RMB1.1 million infourth quarter of fiscal 2008. Investment income was RMB3.5 million (US$0.5million) in the fourth quarter of fiscal 2009, compared with RMB11.1 millionin year-ago quarter. Other non-operating income was RMB1.9 million (US$0.3million) in the fourth quarter of fiscal 2009, compared with RMB18.8 millionin the fourth quarter of fiscal 2008. The 2008 figure included an RMB18.4million foreign exchange gain. Because a warrant issued to a pre-IPOshareholder expired in April 2009, the Company did not record any derivativegain or loss in the fourth quarter of fiscal 2009, whereas in the year agoquarter, Noah recorded a derivative gain of RMB3.4 million.

For fiscal year 2009, interest income was RMB5.3 million (US$0.8 million),compared with RMB13.6 million in fiscal 2008. Investment income was RMB15.3million (US$2.2 million) in fiscal 2009 compared with RMB11.1 million infiscal 2008. Other non-operating income was RMB6.2 million (US$0.9 million) infiscal 2009, compared with RMB42.7 million in fiscal 2008. The 2008 figureincludes an RMB41.6 million foreign exchange gain.

Net Income. The Company reported net income of RMB17.9 million (US$2.6million), or RMB0.50 (US$0.07) per basic and diluted share, respectively, forthe fourth quarter of fiscal 2009. This compares with net income of RMB30.5million, or RMB0.82 per basic and RMB0.71 per diluted share for the fourthquarter of fiscal 2008.

Net income excluding share-based compensation expenses and the change inthe fair value of warrants (non-GAAP) for the fourth quarter ended June 30,2009 was RMB20.4 million (US$3.0 million), or RMB0.57 (US$0.08) per basic anddiluted share, respectively.

Net income for the fiscal year ended June 30, 2009 was RMB97.0 million(US$14.2 million), a 32.7% decrease from RMB144.2 million in the fiscal yearended June 30, 2008.

For fiscal year 2009, basic and diluted earnings per share amounted toRMB2.66 (US$0.39) and RMB2.64 (US$0.39), respectively, compared to RMB4.03 andRMB3.93 per basic and diluted share, respectively for fiscal year 2008.

Basic and diluted earnings per share, excluding share-based compensationexpenses and the change in the fair value of warrants, (non-GAAP) were RMB2.73(US$0.40) and RMB2.71 (US$0.40), respectively, compared to RMB4.77 and RMB4.57per basic and diluted share, respectively, for fiscal 2008.

Liquidity. As of June 30, 2009, Noah had cash, cash equivalents,short-term bank deposits and short-term investments of RMB776.1 million(US$113.6 million). This compares with cash, cash equivalents and short-terminvestments of RMB841.7 million as of March 31, 2009.

Business and Operational Highlights

Since its inception, Noah has aimed to consistently optimize its productmix to drive continually improving financial performance. The Company alsoplaces importance on investing its product pipeline, and focusing on contentdevelopment to enhance the Company's competitive niche in the ELP business.

Kid Learning Device (KLD) products. KLD product sales remained strongdespite the sequential impact of seasonality in Q4 versus Q3. KLDs are theCompany's key growth driver in the ELP segment. Noah maintains a clearcompetitive advantage in the KLD space due to its superior, industry-leadingcontent.

Digital Learning Device (DLD) products. Noah remains China's industryleader in terms of both DLD sales and volume. DLD products remain the largestcontributor to total revenue, at 45% in Q4.

E-dictionaries. In general, demand for Noah's e-dictionaries remainsstable. Noah received a one-time, large order of approximately RMB11.6 million(US$1.7 million) for its high-end e-dictionary products from an overseascustomer in Q4. The Company is currently focused on renegotiating and renewingexisting contracts.

Kids' Education Service: Integration of Little New Star. The integrationof Little New Star (LNS) is on track, with most of the administrativefunctions fully integrated with Noah's, such as finance, accounting, humanresources and sales and marketing. The Company also completed the design andmanufacture of the first batch of LNS brand Electronic Teaching Devices (ETDs),which can be used in and out of classrooms for enhanced interactive learning.LNS will begin to introduce these devices in their 10 self-owned schools and600 franchised schools in September 2009.

An integration team has been set up to focus on the following primaryareas:

After-School Educational Services. Noah is focused on improvingprofitability in this segment of the business, and began the process ofdiscontinuing the operation of some unprofitable Tutoring Centers in July 2009.As of July 31, 2009, there are two Tutoring Centers remaining, one in Chengduand one in Chongqing. After school education services will eventually beconsolidated under a broader kids' education segment as this business linecontinues to develop.

Content Development. The total number of courseware titles at the endfiscal 2009 increased 10.5% to approximately 47,500, compared with 43,000 asof December 31, 2008. Noah continues to make progress in expanding thequantity and the variety of courseware titles available for different agegroups.

Executive Appointment

Appointment of
Jerry He as Executive Vice President. Mr.
Jerry He wasappointed Executive Vice President of Noah Education, effective July 21, 2009.Mr. He will play a key role in driving the Company's strategic expansion intoa full service education services provider. Mr. He is responsible forstrategic planning, business development, accounting and finance and investorrelations. He brings over nine years of financial industry and businessdevelopment experience to his role at Noah. He was most recently a portfoliomanager at Morgan Stanley and Bear Stearns. Before his career in the financialindustry, Mr. He worked as a management consultant, and has substantial marketresearch experience. He is also a CFA charter holder.

Share Repurchase Program

Noah has completed its $10 million Share Repurchase Plan initiated in June2008. At this time, the Company does not intend to buy back any more shares.

Financial Outlook for First Quarter of Fiscal Year 2010

Based on current estimates and market conditions, Noah expects to generatenet revenue in the range of RMB231 million to RMB237 million for the firstquarter of fiscal 2010, which includes RMB220 million to RMB224 million in netrevenue from ELP business and approximately RMB11 million to RMB13 millionfrom LNS, representing an overall increase of 14% to 17% compared to theprior-year quarter. This forecast reflects Noah's current and preliminary view,which is subject to change.

Beginning in the first quarter of fiscal 2010, the Company intends to giveguidance on both revenue and operating profit for the next sequential quarterand current fiscal year.

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 Tuesday, August 25,2009 to discuss its fourth quarter and fiscal year 2009 financial results andrecent business activities. Individuals interested in participating in thecall may do so by dialing:

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

A telephone replay will be available shortly after the call untilSeptember 1, 2009 by dialing the following numbers:

A live webcast of the conference call and replay will be available on theinvestor 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 toadjustments that may be identified when audit work is performed on ouryear-end financial statements, which could result in significant differencesfrom this unaudited financial information.

Currency Convenience Translation

For the convenience of readers, certain RMB amounts have been translatedinto US dollars at the rate of RMB6.8302 to US$1.00, the noon buying rate forUS dollars in effect on June 30, 2009 for cable transfers of RMB per US dollaras 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 alsoprovides non-GAAP financial measures, including non-GAAP net income whichexcludes non-cash share-based compensation and change in fair value ofwarrants. The Company believes that the non-GAAP financial measures provideinvestors with another method for assessing the Company's operating results ina manner that is focused on the performance of its ongoing operations. Readersare cautioned not to view non-GAAP results on a stand-alone basis or as asubstitute for results under GAAP, or as being comparable to results reportedor forecasted by other companies. The Company believes that both managementand investors benefit from referring to these non-GAAP financial measures inassessing the performance of the Company's liquidity and when planning andforecasting future periods.

About Noah

Noah Education Holdings Limited is a leading provider of supplementaleducation products and services in China. Noah's core offering includes thedevelopment and marketing of electronic learning products (ELPs), interactiveeducational courseware content, software, kids' English training andafter-school education services. Noah combines standardized education contentwith innovative digital and multimedia technologies to create a dynamiclearning experience and improve academic performance for students throughoutChina. Noah has developed a nationwide sales network, powerful brand image,and accessible and diverse delivery platforms to bring its innovative contentto the growing student population. Noah also provides kids' English trainingservice under the brand Little New Star in its direct-owned schools and morethan 600 franchise schools throughout China. Noah was founded in 2004 and islisted on the New York Stock Exchange under the ticker symbol NED. For moreinformation about Noah, please visit http://www.noahedu.com.cn .

Safe Harbor Statement

This press release contains forward-looking statements that reflect Noah'scurrent expectations and views of future events that involve known and unknownrisks, 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-lookingstatements. Noah has based these forward-looking statements largely on itscurrent expectations and projections about future events and financial trendsthat it believes may affect its financial condition, results of operations,business strategy and financial needs. You should understand that our actualfuture results may be materially different from and worse than what Noahexpects. Information regarding these risks, uncertainties and other factors isincluded in Noah's most recent Annual Report on Form