in 2011 and will focus its cash resources on generating
sustainable revenue streams, particularly from Digital
Entertainment in China, to achieve this. This will allow easier
modelling of the financials of the business going forward.
Entertainment - Digital
A key strategic focus for the Company during 2010 was to
transition our China operation away from traditional low margin
mobile activities towards higher value branded activities and
content. This has involved widening our reach beyond mobile to
include online, and also developing our product offering to
encompass more sophisticated content that can be used to create our
own digital entertainment platforms and "portals".
In the second half of the year we have been establishing our own
online operation. This operation generates revenue from:
1/ Operating Online games portals. Revenues will come from
advertising revenue, micro transaction sales of virtual items
within the games and subscriptions.
2/ Acting as an online advertising and media agent
These are both fast growing areas in China. There are nearly 450
million people online in China. The online games market in China in
2009 was worth nearly US$4 billion alone.
Mobile and online convergence
Being an online operator and retailer of digital content will
also facilitate our growth in the new Smartphone market where
revenue is generated from both one-time "App" purchases as well as
on-going "in-App" micro-transactions. We have all seen how this has
revolutionised the mobile business in the West where smartphone
technology has created a market for applications worth US$6.8bn in
2010 (Source: Gartner). In China this is in its infancy but we
believe that this phenomenon will be repeated in the next 18
months. There are approximately 600 million mobile phone
subscribers in China. Smartphone penetration in China is expected
to increase to 45% of mobile users by 2013 (Source: In-Stat) and
data revenues generated from 3G non-messaging services are expected
to grow to USD 20 billion by 2013 (Source: iSuppli).
During this last year we have been putting in place the
infrastructure needed to publish digital content across these
channels. This has involved recruiting and retraining staff,
acquiring the necessary licenses and putting in place the
marketing, billing and data capture procedures needed.
We believe that our knowledge of both the Western and Chinese
entertainment markets gives us an advantage as licensed online and
mobile publishers in China. As well as publishing Chinese content
we are in the process of enhancing growth by securing the rights to
localising and publishing Western content in China. In the initial
stages of the Smartphone "Apps" growth in China this could give us
a significant advantage due to the lack of Chinese specific content
developed and ready for the marketplace.
Whilst we are excited by the ability to market mobile and online
games and content direct to the consumer through our own portals,
we have also been establishing publishing opportunities working
with key operators in the marketplace, particularly with China
Mobile and Tencent who reach 550 and 400 million consumers
respectively. We announced earlier this year we are one of the few
Chinese mobile Service providers licensed to offer foreign content
to China Mobile's mobile games division.
Launch of online games operation
The strategy for the online games business is to grow our
traffic by providing players of games with a wide range of quality
non-exclusive games on our Portal Wowan365.com and to then enhance
revenues and increase customer loyalty through operating our own
exclusive games. These games follow a "Fremium" business model.
This means that it is free for the customer to play initially but
any deep involvement needs to be supported by micro-transactional
purchases or subscriptions. Galleon's online games portal
wowan365.com was launched in September 2010 and we have been
testing our infrastructure and marketing techniques since then. At
the end of January 2011 we were actively operating 8 non-exclusive
games and our first exclusive game "Saga of Heroes". The portal
wowan365.com currently has more than 2.5 million registered players
and is generating revenues in excess of GBP200,000 per month. By
the end of the year we plan to have 15 non exclusive and 2 third
party exclusive games and 2 wholly owned customized games in the
market. We are targeting 5 million registered players and 150,000
registered paying players.
Besides local Chinese games, Galleon is also now in a position
to localise, publish and operate Chinese versions of Western online
games, providing a valuable service for international
publishers.
The strategy of creating portals where we know our customers
consumption habits will allow us to maximise cross promotion and
marketing efficiency. We will be able to cross promote both mobile
and online games to our online games and mobile games customers
through the respective portals that they visit and through the
games that they play. The continued growth of the online games
market and the arrival of Smartphones and the associated content is
set to create a critical stage of growth in China's digital media
marketplace in the coming 18 months.
Entertainment - Other
The Sokator-442 animated movie is now complete and is being sold
around the world. The movie is supported by the online game and
also the TV game show. The movie has already been sold to
Nickelodeon for Australia and New Zealand and is being distributed
internationally by Bejuba, a specialist in the exploitation of
kid-targeted entertainment content. We are confident that the
unique multiplatform mix and the quality of the property will allow
present opportunities to grow this as a brand in certain markets
going forward. Our family MEP's of Super Soccer Star, Super Fashion
Stars and Super Golf Star continue to attract interest. However
during the last year access to sponsorship funds for any
entertainment properties has been very limited and these funds are
critical to launching these properties in market. As a result of
this, many of the partners who have bought rights from us, have had
the TV launch of their properties delayed. We believe that this
situation will improve during 2011 based on conversations that are
currently taking place in key markets. Apollo's Pad has sales
discussions for the first series under way in a number of
territories.
In China we have been looking for a way to act in partnership
with a broadcaster whose interests are aligned with what our
digital publishing business is doing and also who can leverage our
international reach. To this end we have entered into a strategic
relationship with Digital broadcaster Qinghai Satellite TV (QSTV)
who in May of 2010 re-launched under a JV with leading broadcaster
Hunan Satellite TV. Galleon will partner with QSTV to manage and
develop the Talent that the channel produces from its activities as
a broadcaster, extending this talent beyond TV into online and
mobile channels
Product
As a part of the rationalisation process Croco has streamlined
further by moving operations from the UK to Hong Kong. Securing
Ferrero as a new client during 2010 is a major step for the Company
this year. Recovery has been slow but steady. The order book for
2011 is already approx. GBP1.6m with significant new customers
being targeted to grow revenues going forward.
Outlook
During a very difficult year Galleon has had to change its
operational emphasis. We continue to see value in the media sector
and in Croco but we anticipate that the best quality of earnings
for Galleon in 2011 will come from the Chinese digital
entertainment market. For 2011 our main focus will be games for the
online sector with a view to growing with the Smartphone content
market as it grows.
Stephen Green Chief Executive
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2010
Year Year
ended 30 ended 30
September September
2010 2009
Note GBP'000 GBP'000
Revenue 2 14,661 27,068
Cost of sales (12,102) (21,247)
Gross profit 2,559 5,821
Administrative expenses (22,869) (4,847)
Administrative expenses
Depreciation, amortisation (996) (959)
Provision against loans and receivables (2,167) -
Impairment of assets 5,6,7 (15,807) (109)
Other (3,899) (3,779)
---------------------------------------- ----- ---------- ---------
(Loss) / profit from operations (20,310) 974
Finance income 148 165
Finance costs (2) (5)
(Loss) / profit before taxation (20,164) 1,134
Taxation 3 241 (132)
(Loss) / profit for the financial
year
attributable to the equity holders
of the Company (19,923) 1,002
========== =========
Other comprehensive income
Foreign Exchange 152 1,590
Total comprehensive (expenditure)
/ income
for the period (19,771) 2,592
========== =========
(Loss) / earnings per share 4
- Basic (12.1p) 0.8p
========== =========
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