Prince Catering and Management (Overseas) Limited
(“Prince Catering” or the “Company)
Preliminary Statement of Final Results
for the year ended 31 December 2006
Chairman’s Statement
Following our admission to AIM, a market operated by the London Stock Exchange, in August 2006, Prince Catering & Management (Overseas) Limited (“Prince Catering”) has continued to pursue its strategy of expansion throughout mainland China and in Hong Kong. At the year end we were operating a total of 14 restaurants in 11 Chinese cities, two of them owned by the Group and 12 operated under management contracts. The Group also managed one hotel during the year, the Xi’an Prince International Hotel, as well as the Xi’an Prince Health Club, and we continue, during 2007, to work towards further restaurant openings.
It is disappointing to report that revenue for the year fell 12% to £6.4million despite the opening of a new restaurant during the year in Xi’an. We believe the decline in sales was due in part to the fact that we did not open as many restaurants in 2006 as we had in 2005. Our management contracts carry initial signing fees of up to RMB 1.5 million (£99,000 approx.) which during 2005, significantly enhanced our revenues. The same level of new openings was not matched in 2006. As anticipated in the restaurant business, we also faced pressure from competitors and additionally felt the expiration of tax concessions at our Xi’an restaurant with taxes imposed at a rate of 5% on turnover in addition to a 33% charge on operating profit. We also saw a decline in business spending as a result of a cutback in government expenditure. Alongside the fall in revenue, pre-tax profits also slipped to £185,000 (2005:£1,685,000), partly due to the exceptional costs of the AIM flotation (£546,000), but we remain confident that we are addressing the issues and look forward to further new openings during the course of this year.
As shareholders will be aware, we believe our key strengths continue to be underpinned by our strong team of experienced management and chefs, backed by a commitment to quality control across our brand as a whole, and our strong programme of recruitment and training. As part of our continued efforts to attract an increasing customer base we are continuing to work on the creation of new dishes, paying attention among other things to an increasing awareness of environmental concerns surrounding existing luxury favourites such as shark fin soup and abalone.
During the first half of 2007 we have opened one further restaurant under management contract, the Yulin Prince Hotpot Restaurant in Shaanxi Province. We are, of course, continuing to work on further openings. Longer term, as we advised to shareholders during our admission to AIM, we are also planning new Group-owned restaurants in Shanghai and Beijing, where we hope to position ourselves to take advantage of the positive economic impact expected from the Beijing 2008 Olympic Games and the Shanghai 2010 World Expo.
In summary, while 2006 has provided some challenges, particularly during our initial period as a quoted company, we believe we remain well positioned to put ourselves back on course during 2007.
Mr. Guangfan Mai
Chief Executive
29 June 2007
For further information please contact:
David Youngman, WH Ireland Limited +44 (0) 161 832 2174
Allan Piper, First City Financial +44 (0) 20 7242 2666
CONSOLIDATED Income Statement
For the year ended 31 December 2006
|
|
Note |
|
2006 £’000 |
2005 £’000 |
|
Revenue |
|
|
6,410 |
7,296 |
|
Cost of sales |
|
|
(2,398) |
(2,502) |
|
Gross profit |
|
|
4,012 |
4,794 |
|
Other operating income |
|
|
- |
1 |
|
Selling and distribution expenses |
|
|
(2,588) |
(2,793) |
|
Administrative expenses |
|
|
(712) |
(319) |
|
Operating Profit |
3 |
|
712 |
1,683 |
|
Exceptional costs of AIM listing |
3 |
|
(546) |
- |
|
Investment income |
|
|
19 |
2 |
|
Profit before income taxes |
|
|
185 |
1,685 |
|
Income Taxes |
9 |
|
(176) |
(182) |
|
Profit for the financial year |
|
|
9 |
1,503 |
|
Attributable to Equity holders of the parent company Minority Interest |
|
|
(112) 121 |
1,353 150 |
|
Earnings (loss) per share |
23 |
|
|
|
|
-Basic (pence) |
|
|
(0.1p) |
1.7p |
|
-Fully diluted (pence) |
|
|
(0.1p) |
1.7p |
All income and expenses relate to continuing and existing operations
|
CONSOLIDATED BALANCE SHEET For the year ended 31 December 2006 |
Note |
2006 £’000 |
2005 £’000 |
|
Non-current assets |
|
|
|
|
Intangible fixed assets |
11 |
16 |
44 |
|
Tangible assets |
10 |
1,428 |
1,908 |
|
Deferred tax asset |
|
65 |
14 |
|
Total non-current assets |
|
1,509 |
1,966 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Inventories |
13 |
214 |
289 |
|
Trade and other receivables |
14 |
1,967 |
1,922 |
|
Cash and cash equivalents |
15 |
841 |
592 |
|
Total current assets |
|
3,022 |
2,803 |
|
|
|
|
|
|
Total assets |
|
4,531 |
4,769 |
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
Trade and other payables |
16 |
(2,209) |
(1,799) |
|
|
|
|
|
|
|
|
|
|
|
Total assets less current liabilities |
|
2,322 |
2,970 |
|
|
|
|
|
|
Net assets |
|
2,322 |
2,970 |
|
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
18 |
1,756 |
1,846 |
|
Foreign currency translation reserve |
19 |
13 |
287 |
|
Statutory reserves |
19 |
343 |
276 |
|
Pooling Reserve |
19 |
176 |
48 |
|
Warrant reserve |
19 |
29 |
- |
|
Retained Earnings |
19 |
(713) |
(162) |
|
Equity attributable to the equity holders of the parent company |
|
1,604 |
2,295 |
|
Minority Interest |
|
718 |
675 |
|
Total Equity |
|
2,322 |
2,970 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2006
|
|
Share Capital |
Retained Earnings |
Share Premium |
Pooling Reserve |
Minority interest |
Statutory Reserves |
Warrants Reserve |
Foreign Currency Translation |
Total Equity |
|
|
|
|
|
|
|
|
Reserve |
| |
|
|
|
|
|
|
|
|
£’000 |
| |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
|
£’000 | |
|
At 1 January 2005 |
1,687 |
184 |
- |
265 |
459 |
93 |
- |
-106 |
2,582 |
|
Profit for year |
- |
1,353 |
- |
- |
150 |
- |
- |
- |
1,503 |
|
Dividends paid |
- |
-1,516 |
- |
- |
- |
- |
- |
- |
-1,516 |
|
Exchange rate adjustments |
159 |
- |
- |
-217 |
66 |
- |
- |
393 |
401 |
|
Statutory Transfer |
- |
-183 |
- |
- |
- |
183 |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2005 |
1,846 |
-162 |
- |
48 |
675 |
276 |
- |
287 |
2,970 |
|
|
Share Capital
£’000 |
Retained Earnings £’000 |
Share
Premium
|
Pooling Reserve
£’000 |
Minority interest
£’000 |
Statutory Surplus Reserve
|
Warrants Reserve £’000 |
Foreign Currency Translation Reserve £’000 |
Total Equity
£’000 |
|
At 1 January 2006 |
1,846 |
(162) |
- |
48 |
675 |
276 |
- |
287 |
2,970 |
|
Profit for year |
- |
(112) |
- |
- |
121 |
- |
- |
- |
9 |
|
Dividends paid pre IPO and to minorities |
- |
(469) |
- |
- |
- |
- |
- |
- |
(469) |
|
Exchange rate adjustments |
(184) |
115 |
- |
128 |
(78) |
(18) |
- |
(274) |
(311) |
|
Increase in share capital |
94 |
- |
- |
- |
- |
- |
- |
- |
94 |
|
Premium on shares issued |
- |
- |
331 |
- |
- |
- |
- |
- |
331 |
|
|
|
|
|
|
- |
|
|
|
|
|
Issue cost of shares issued |
- |
- |
(331) |
- |
- |
- |
- |
- |
(331) |
|
Statutory Transfer |
- |
(85) |
- |
- |
- |
85 |
- |
- |
- |
|
Warrants issued in the year |
- |
- |
- |
- |
- |
- |
29 |
- |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2006 |
1,756 |
(713) |
- |
176 |
718 |
343 |
29 |
13 |
2,322 |
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2006
|
|
|
2006 £’000 |
2005 £’000 |
|
Profit (loss) attributable to equity holders of the parent company |
|
(112) |
1,353 |
|
Adjustments for: |
|
|
|
|
Depreciation of property, plant and equipment |
|
336 |
323 |
|
Amortisation |
|
24 |
24 |
|
Loss on disposal of fixed assets |
|
- |
5 |
|
Interest Income |
|
|
(2) |
|
Income Tax |
|
85 |
182 |
|
Minority Interest |
|
121 |
150 |
|
Operating cash flow before movements in working capital
|
|
454 |
2,035 |
|
Change in inventories
|
|
75 |
(68) |
|
Change in receivables
|
|
(46) |
(1,840) |
|
Change in payables
|
|
454 |
273 |
|
Cash generated by operations
|
|
937 |
400 |
|
Income taxes paid
|
|
- |
(149) |
|
Change in deferred tax |
|
(56) |
- |
|
Share based payment |
|
29 |
- |
|
Net cash generated from operating activities |
|
910 |
251 |
|
Investing activities |
|
|
|
|
Purchase of fixed assets |
|
(20) |
(187) |
|
Net cash used in investing activities |
|
(20) |
(187) |
|
Financing activities |
|
|
|
|
Proceeds of issue of new shares |
|
94 |
- |
|
Dividends paid to minority shareholders |
|
(593) |
- |
|
Interest received |
|
- |
2 |
|
Foreign exchange differences |
|
(144) |
122 |
|
Net cash (used in)/ from financing activities |
|
(643) |
124 |
|
Net increase in cash and cash equivalents |
|
247 |
188 |
|
Cash and cash equivalents at 1 January |
|
591 |
403 |
|
Cash and cash equivalents at 31 December |
|
838 |
591 |
|
Cash and bank balances |
|
838 |
591 |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
1. General Information
Prince Catering and Management (Overseas) Limited was incorporated on 6 June 2005 in the British Virgin Islands. The address of the registered office is at OMC Chambers, PO Box 3152 Road Town, Tortola, British Virgin Islands.
The company is domiciled in the British Virgin Islands.
The Company is an investment holding company. The principal activity of its subsidiaries is the operation of luxury Cantonese restaurants in the People’s Republic of China.
These consolidated financial statements are the Group’s first financial statements. The consolidated financial statements are presented in sterling.
2. Accounting Policies
1. Basis of Preparation
The consolidated financial statements of Prince Catering and Management (Overseas) Limited and its subsidiary undertakings (the‘‘Group’’) have been prepared in accordance with those International Financial Reporting Standards and Interpretations in force (‘‘IFRS’’), as adopted by the European Union.
2. Basis of Consolidation
The Group financial statements consolidate the financial statements of Prince Catering and Management (Overseas) Limited and all its subsidiary undertakings drawn up to 31 December 2006. Subsidiary undertakings comprise Xi’an Prince Restaurant Co Ltd, Hong Kong Prince Restaurant Co Ltd and Shenzhen Prince Catering Management Co Ltd.
Subsidiary undertakings have been consolidated using the pooling of interests method. The assets and liabilities of the combining entities are reflected at their carrying amounts. No adjustments have been made to reflect fair values. This enables presentation of the results and comparatives to reflect the ongoing business.
The income statement reflects the results of the combining entities for the full year irrespective of when the combination took place.
All intra-group transactions, balances income and expenses are eliminated on consolidation.
Comparative figures are presented as if the entities had always been combined.
3. Foreign Exchange
The functional currency of the Group is the Renminbi (RMB). The presentational currency is pounds sterling (£) for the benefit of investors.
Transactions denominated in foreign currencies are translated into sterling and recorded at the rate of exchange ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the Balance Sheet date are retranslated at the rates ruling at that date. These translation differences are dealt with in the Group Income Statement.
The financial statements of foreign subsidiaries are translated into sterling at the closing rate of exchange and the differences arising from the translation of the opening net investment in the subsidiary are taken to reserves .
For the year ended 31 December 2006 the foreign operations financial statements have been translated from RMB or HKD to Sterling at the following exchange rates:
|
|
Year end rate |
Average rate |
|
RMB: GB £ |
15.316 |
14.706 |
|
RMB: HK$ |
1.00467 |
1.00591 |
4. Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods or services provided in the normal course of business, net of discounts and other sales related charges. Revenue from the restaurant business is recognised when goods or services are delivered.
Revenue from the restaurant management business is recognised when the service is fully provided.
5. Operating Leases
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the companies within the Group are lessees, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.
6. Income Tax
Income tax for the financial year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case such tax is recognised in equity.
Current tax is the expected tax payable on the taxable income for the financial year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous financial years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences as at the balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases used in the computation of taxable profit. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
7. Dividends
Equity dividends are recognised when paid or when they become legal obligations of the company.
8. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
Depreciation is calculated on the straight-line method so as to write off the cost of property, plant and equipment reduced by the estimated residual value of the assets over their estimated useful lives. The annual depreciation rates used for this purpose are as follows:
|
Item |
Annual Depreciation Rates |
|
Leasehold premises refurbishment |
10-20% |
|
Motor vehicles |
20% |
|
Office equipment |
20% |
9. Intangible assets
Intangible assets are stated at cost less any impairment losses. Intangible assets are amortised on the straight-line basis.
|
Software |
20% |
|
Franchise |
20% |
The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Amortisation charges are included within administrative expenses.
10. Impairment of Assets
The carrying amounts of non-current assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of the asset or cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statements. The recoverable amount is the higher of an asset’s net selling price and its value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash generating unit.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined net of depreciation, if no impairment loss had been recognised. Reversals of impairment losses are recognised in the income statement.
11. Share Based Payments
The cost of granting share options and other share-based remuneration to employees and Directors is recognized through the income statement on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. These share-based payments are measured at fair value at the date of grant by use of the option pricing model known as the Black – Scholes formula using assumptions deemed to be consistent with the price which the incentive might have been worth if it were traded in the open market. For equity-settled transactions with non-employees, the costs are recognised through the income statement (or where they relate to issue costs, taken against the share premium account if appropriate) with measurement normally based on the fair value of goods or services received.
12. Inventories
Inventories are stated at the lower of cost and net realisable value.
13. Financial Instruments
(a) Trade and other Receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Other receivables are initially recognised at fair value and thereafter stated at amortised cost less provision for impairment. When the effect of discounting would be immaterial, the receivables are stated at cost less provision for impairment.
(b) Cash and cash Equivalents
Cash equivalents are short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
(c) Trade and other Payables
Trade payables are not interest bearing and are stated at their nominal value.
Other payables which are normally settled on credit terms are stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group.
(d) Borrowings
All loans and borrowings which are interest-bearing are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with borrowing, and are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
Gain and losses are recognised in net profit or loss when liabilities are derecognised or impaired, as well as through the amortisation process.
(e) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
14. Critical Accounting Estimates and Judgements
In the process of applying the Group’s accounting policies, management makes various estimates and judgements based on past experience, expectations of the future and other information. The key sources of estimation uncertainty and the critical judgements that can significantly affect the amounts recognised in the financial information are:
(a) Depreciation of property, plant and equipment
Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, after taking account of their estimated residual values. The determination of the useful lives and residual values involve management’s estimation.
(b) Provision for bad and doubtful debts
The Group continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that it has been identified.
(c) Income tax
There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred income tax provisions in the year in which such determination is made.
3. Operating Profit
|
|
|
2006 £’000 |
2005 £’000 |
|
This is stated after charging: |
|
|
|
|
Cost of inventories recognised as expenses |
|
2,398 |
2,502 |
|
Share based payments recognised as expenses |
|
29 |
- |
|
Remuneration of auditors (see note 4) |
|
52 |
34 |
|
Amortisation of intangible assets |
|
24 |
24 |
|
Depreciation of property, plant and equipment |
|
336 |
323 |
|
Staff costs (see note 5) |
|
1,165 |
1,228 |
|
Operating lease expense |
|
582 |
596 |
During the year, the Company was admitted to trading on AIM, a market operated by the London Stock Exchange plc. Costs were incurred relating to this listing. To the extent that these costs could not be written off against the share premium account, they have been taken to the income statement as an expense.
4. Analysis of Auditor’s Remuneration
|
|
|
2006 £’000 |
2005 £’000 |
|
Audit of these financial statements |
|
18 |
- |
|
Amounts receivable by associates of the principal auditors in respect of: |
|
| |
|
Audit of financial statements of subsidiaries pursuant to legislation |
17 |
- | |
|
All other services – receivable by principal auditors |
17 |
- | |
|
|
52 |
- | |
5. Staff Costs (including directors)
|
|
|
2006 £’000 |
2005 £’000 |
|
Wages and salaries |
1,102 |
1,033 | |
|
Social security costs |
33 |
12 | |
|
Defined contribution pension cost |
13 |
27 | |
|
Other staff benefits |
17 |
156 | |
|
Total |
1,165 |
1,228 | |
6. Directors’ and Key Management Remuneration
The remuneration of directors and key management personnel is analysed as follows:
|
|
Salary £’000 |
Benefits £’000 |
Total £’000 |
2005 Total £’000 |
|
Guangfan Mai |
64 |
- |
64 |
61 |
|
Honkeung Shum |
21 |
- |
21 |
21 |
|
Xingeng Dong |
- |
- |
- |
- |
|
Jinbi He |
- |
- |
- |
- |
|
Yuktong Yip |
- |
- |
- |
- |
|
Richard Tanner |
5 |
- |
5 |
- |
|
Lauren Lau |
5 |
- |
5 |
- |
|
Hon Yin Cheung |
26 |
- |
26 |
20 |
|
Can Hui He |
20 |
- |
20 |
20 |
|
Wade Huang |
7 |
- |
7 |
6 |
|
Wenlu Xu |
10 |
- |
10 |
10 |
|
Wang Chan |
- |
- |
- |
- |
7. Average Number of Employees During the Year
|
|
|
2006 Number |
2005 Number |
|
Restaurant |
272 |
306 | |
|
Restaurant Management |
56 |
57 | |
|
Total |
328 |
363 | |
8. Segment Information
The Group can be divided into two business segments: the restaurants segment and the restaurant management segment.
|
|
2006 £’000 |
2005 £’000 | |
|
Revenue |
Restaurant Segment |
5,820 |
6,247 |
|
|
Restaurant Management Segment |
590 |
1,049 |
|
|
Total |
6,410 |
7,296 |
|
|
|
|
|
|
Net profit |
Restaurant Segment |
365 |
818 |
|
|
Restaurant Management Segment |
(356) |
685 |
|
|
Total |
9 |
1,503 |
|
|
|
|
|
|
Assets |
Restaurant Segment |
4,126 |
4,437 |
|
|
Restaurant Management Segment |
405 |
332 |
|
|
Total |
4,531 |
4,769 |
|
|
|
|
|
|
Liabilities |
Restaurant Segment |
1,738 |
1,612 |
|
|
Restaurant Management Segment |
471 |
187 |
|
|
Total |
2,209 |
1,799 |
|
|
|
|
|
|
Capital expenditure |
Restaurant Segment |
18 |
147 |
|
|
Restaurant Management Segment |
2 |
- |
|
|
Total |
20 |
147 |
|
|
|
|
|
|
Depreciation and |
Restaurant Segment |
169 |
346 |
|
amortisation |
Restaurant Management Segment |
191 |
1 |
|
|
Total |
360 |
347 |
|
|
|
|
|
Financial ratio - Segmental analysis for the year ended 31 December: |
2006 % |
2005 % | |
|
|
|
|
|
|
Gross profit margin |
Restaurant Segment |
60% |
58% |
|
|
Restaurant Management Segment |
94% |
95% |
The Group’s operations are entirely within the People’s Republic of China.
9. Income Tax
|
Income tax expense is as follows: |
|
2006 £’000 |
2005 £’000 |
|
Current income tax |
|
235 |
166 |
|
Deferred income tax |
|
(59) |
16 |
|
Total |
|
176 |
182 |
|
|
|
|
|
|
Deferred tax assets |
|
|
|
|
At beginning of the financial period |
|
14 |
28 |
|
Transfer to/from income statement |
|
52 |
(16) |
|
Exchange adjustments |
|
(1) |
2 |
|
At end of the financial period |
|
65 |
14 |
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
At beginning of the financial period |
|
5 |
5 |
|
Transfer to/from income statement |
|
(5) |
- |
|
Exchange adjustment |
|
- |
- |
|
At end of the financial period |
|
- |
5 |
|
|
|
|
|
The Group’s deferred tax assets arise from the deferral of income and the deferred tax liabilities arise from temporary differences.
|
|
|
2006 £’000 |
2005 £’000 |
|
Profit before tax |
|
185 |
1,685 |
|
Tax charges at the average rate for the Group (2005 – 12%, 2006- 20%) |
|
37 |
202 |
|
Expenses not deductible for tax purposes |
|
4 |
9 |
|
Assets that can be fully deducted for tax purposes |
|
4 |
(23) |
|
Expenditure not allowable for tax |
|
112 |
(6) |
|
Tax on previous years’ profits |
|
19 |
- |
|
Taxation charge |
|