As the stock price development of the last couple of days already indicated, these results were very good. None of the fears one might have developed with regard to the very bad economic environment materialized. Even just a meeting of the expectations would have already put to rest any worries, but they did quite a bit more. The share price, after hours, is reflecting that..

You can read the whole press release here, but we’ll give you some highlights:

• Total revenues increased 64.7% year-over-year to RMB138.5 million (US$20.3 million).For the quarter (Q4, traditionally their strongest quarter by far, revenue from software license sales increased 70.2% year-over-year to RMB31.8 million (US$4.7 million).
• Revenue from software license sales increased 56.5% year-over-year to RMB64.7 million (US$9.5 million).
• Gross profit increased 73.9% year-over-year to RMB66.2 million (US$9.7 million).
• Gross margin was 47.8%, compared to 45.3% in 2007.
• Operating profit was RMB2.7 million (US$0.4 million), as compared to an operating profit of RMB6.9 million (US$1.0 million) in 2007.
• Operating cash flow as of December 31 2008 increased 71.2% year-over- year to RMB31.7 million (US$4.6 million).
• Cash and cash equivalents as of December 31, 2008 was RMB60.7 million (US$8.9 million).
• Adjusted net income (non-GAAP) was RMB15.3 million (US$2.2 million), a decrease of 13.2% from 2007.
• Non-GAAP adjusted diluted earnings per share were RMB4.9 (US$0.72).

Profit and loss figures are blighted by the cost of retiring the convertible ($4M, with just $0.9M remaining), accommodating acquisitions, and restructuring.

We have said in previous write-ups that the single most important metric to consider is the sales of software licenses. The rationale for that is that service income follows license sales by a year, as new clients get a year free service. The sale of new licenses shows no sign of diminishing growth, it increased by 56.5% for the year and 70.2% for the quarter! That (together with previous license sales growth) will provide a backdrop for even faster revenue growth (because it’s cumulative, every year a new year is added) from service income. This also provides a nice visibility!

License sales from existing customers grew even at a substantially faster pace:

• As part of our organic growth strategy, the initiative to organize our operations into seven strategic business units has already yielded positive results, helping to streamline our operations and allowing us to leverage our capabilities to better serve clients and accelerate growth. The result has been revenue increases across all business segments, a commendable achievement, and as a testament to our ability to deepen relationships with existing customers, software licensing revenues from current clients increased by 117%.

This clearly shows that existing customers like what they get. We have in previous articles stressed that the churn rate of customers is likely to be low, as the use of the software platform involves learning effects and externalities. It also involves plain and simple customer satisfaction.

So we have growth in the 70%+ range, visibility, an extremely healthy balance sheet, operational cash-flow generation, and on top of that, new strategic initiatives that are already providing additional sources of growth.

• Our SaaS strategy remains a key near- to long-term growth driver, and this service began to make a positive contribution in 2008, representing 8.5% of our total full year revenues.
• “On the M&A front, our acquisition of Proadvancer has provided us with market leadership and significant share gains in China’s logistics market, allowing us to form a total front-end supply chain management solution. Additionally, we increased our stake in Wangku from 20% to 51%. Together, these deals comprised 18.4% of our revenue in 2008.
• In March 2008, eFuture and IBM entered into a strategic partnership to launch a Software-as-a-Service platform ( http://www.bfuture.com.cn ) for the retail distribution industry in China. Thus far, this initiative has brought 2,000 of Wangfujing Group’s suppliers onto the platform, allowing them to exchange business information, arrange payments online and access purchase orders, returns, payment status, inventory levels and analysis of sales data.

Two other sources of growth, R&D and acquisitions are also still firing:

• In 2008, the Company expanded its product portfolio by launching eFuture ONE Congou SOA and eFuture ONE CRM. These solutions further enhanced eFuture’s open technology platform, characterized by leading technological innovation, first to market next generation SOA architecture, industry-leading functionality and seamless integration with eFuture’s existing products. eFuture and IBM China Research Lab also jointly developed eFuture ONE SCM SaaS Platform based on IBM’s Blue Cloud computing architecture.
• eFuture’s acquisition of Proadvancer resulted in significant share gains in China’s logistics market, enabling the Company to form a total front-end supply chain management solution and further solidifying eFuture’s market leadership. Additionally, eFuture increased its stake in Wangku from 20% to 51%, in order to further expand its eService business initiatives. Together, these deals contributed 18.4% of eFuture’s revenue in 2008.

Conclusion

All in all, we say at 1 times sales, considering it’s extremely healthy balance sheet, 70%+ growth rates, visibility, customer satisfaction, new strategic initiatives, cash generating operations, etc. this company is rather ridiculously valued, still barely above IPO levels of more than two years ago, while this is now a very different, much better company altogether. Sooner or later all these positive developments will be reflected in the stock price, we have no doubt about that.

Here is some of our previous reporting:

• Software as a service model and B2B software
• Software as a service model (SaaS)
• A primer on supply-chain management
• Q308 results
• Q208 results
• Q108 results