Prince Catering and Management (Overseas) Limited

(the “Company” or “Prince”)

 

INTERIM RESULTS FOR PERIOD ENDED 30 JUNE 2006

 

Chief Executive’s Statement

 

Highlights

 

• Successful admission to trading on AIM subsequent to the end of the period under review;
• Continuing sound performance of Group owned restaurants;
• Overall sales and profits impacted by tax regulation change and lower numbers of new management contracts executed in the period under review  compared with the same period in 2005; and
• Positive start to second half.

 

It is my pleasure to present the inaugural set of interim results on behalf of Prince, the first China-based catering service company trading on AIM. The directors believe that the Company’s admission to AIM has raised its profile and positioned it to build on its existing reputation and expand its market share of the luxury Cantonese restaurant market in the People’s Republic of China. Although the results for the period have been impacted by a one-off change in our tax position and slippage in the signing of expected contracts, we are encouraged by a sound performance in sales from our Group owned restaurants.

 

 

Overview

At present Prince and its subsidiaries (the “Group”) operate one restaurant through a wholly owned subsidiary, one restaurant through a 51% owned subsidiary and 11 others as managed restaurants. A further managed restaurant opened in Xi’an in September 2006 following the end of the period under review. In addition, the Group operates a hotel and a separate health club under management contracts, with a further hotel expected to open in Beijing later this year.

 

 

Background

Since the first Prince restaurant was established in Xi’an in 2002 the Group has grown rapidly and, as set out above, now manages 14 restaurants, all branded with the Prince name. Discussions are currently under way with potential investors for a further 3 restaurants, although at this stage the Directors do not know how many of the potential opportunities will be realised or exactly how many new restaurants will be opened.

 

Of the Group’s two main operating streams, the Directors believe that the management contract concept will become the main source of new income for the Group and is the area where the management will focus much of their efforts. The management contract concept has a higher profit margin and lower capital requirements than the Group owned restaurant concept as third party investors usually own the restaurant and are responsible for all associated costs, paying only a set fee to the Group to operate that restaurant on its behalf. Usually, but not always, the fee paid by the third party investor to the Group takes the form of an initial contract fee (in the region of £100,000) and monthly management fees, usually calculated as a percentage of restaurant turnover.

 

The income and fees received by the Group depend significantly on new restaurant openings. During the period under review the Group executed fewer management contracts for new restaurants than in the same 6 months’ period of 2005. This has affected the Group’s trading performance for that 6 months’ period.

 

Results

 

	6 months ended	6 months ended
	30/06/06	30/06/05
	£'000	£'000
Turnover	3,373	3,591
Profit before tax	593	893

 

Turnover in the period under review decreased to £3,373,000, compared with the same period in 2005 (2005: £3,591,000). More specifically, the turnover generated from the two Group owned restaurants increased to £2,987,000 (2005: £2,937,000) whilst the turnover generated from managed restaurants, for the reasons set out above, decreased to £386,000 (2005: £654,000) . Overall, the profit before tax for the period under review decreased to £593,000 against the same period in 2005 (2005: £893,000 ).

 

In addition, profit after tax (not shown above) decreased to £481,000 (2005: £807,000) impacted by the expiry of a tax free period for one of the owned restaurants at the end of 2005.

 

 

 

 

 

Outlook

The second half of the year has started positively with the signing of a further management contract and the opening of the Xi’an Kingfar restaurant for which the management contract was executed earlier this year. Following various conversations with potential investors in the management contract concept, the Directors are confident for the future.

 

Mr Guangfan Mai

 

For more information please contact:

David Youngman, WH Ireland Limited  +44 161 832 2174

 

 

 

CONSOLIDATED INCOME STATEMENT
Interim results for the six months to 30 June 2006	Notes	6 months to 30 Jun 2006			6 months to 30 Jun 2005		Year to 31 Dec 2005
		(Unaudited) £’000			(Unaudited) £’000		(Audited) £’000
Revenue		3,373			3,591		7,296
Cost of sales		(1,211)			(1,235)		(2,502)
		_______			_______		_______
Gross profit		2,162			2,356		4,794
Other operating income		0			0		1
Selling and distribution expenses		(1,518)			(1,418)		(2,793)
Administrative expenses		(51)			(45)		(319)
		_______			_______		_______
Profit from operations		593			893		1,683
Investment income		0			0		2
		_______			_______		_______
Profit before income tax		593			893		1,685
Income tax		(112)			(86)		(182)
		_______			_______		_______
Net profit for the period		481			807		1,503
		_______			_______		_______
Attributable to
Equity holders of the parent		408			742		1,353
Minority interest		73			65		150
		_______			_______		_______
All amounts relate to continuing activities. No meaningful Earnings per Share calculation is possible as the group structure and AIM flotation occurred since June 2006
CONSOLIDATED BALANCE SHEET
At 30 June 2006			Notes	As at 30 June 06		As at 30 Jun 05		As at 31 Dec 05
				(Unaudited) £’000		(Unaudited) £’000		(Audited) £’000
Non-current assets
Property, plant and equipment				1,617		1,797		1,908
Intangible assets				30		52		44
				_______		_______		_______
Total non-current assets				1,647		1,849		1,952
				_______		_______		_______
Current assets
Deferred tax assets				4		25		14
Inventories				219		257		289
Trade and other receivables				1,743		2,460		1,922
Cash and cash equivalents				803		730		592
				_______		_______		_______
Total current assets				2,769		3,472		2,817
				_______		_______		_______
Total assets				4,416		5,321		4,769
				_______		_______		_______
Equity and liabilities
Combined capital and reserves
Paid-up capital				1,912		1,877		1,894
Other reserves				305		215		276
Foreign currency translation reserve				90		(44)		287
Retained earnings				77		866		(162)
				_______		_______		_______
				2,384		2,914		2,295
Minority interest				580		543		675
				_______		_______		_______
Total Equity				2,964		3,457		2,970
				_______		_______		_______
Current liabilities
Trade and other payables				1,315		1,748		1,641
Dividends payable				48		0		124
Income tax payable				71		111		29
Deferred tax liability				18		5		5
				_______		_______		_______
Total liabilities				1,452		1,864		1,799
				_______		_______		_______
Total equity and liabilities				4,416		5,321		4,769
				_______		_______		_______

 

COMBINED STATEMENTS OF CHANGES IN EQUITY
							Foreign
							currency
			Paid up		Other		translation		Retained				Minority		Total
			capital		reserves		reserve		earnings		Total		interest		equity
			£000		£000		£000		£000		£000		£000		£000
Year to 31.12.05
	At 31.12.04		1,894		93		(106)		184		2,065		459		2,524
	Transfer to reserves				183				(183)		-				-
	Profit for the period								1,353		1,353		150		1,503
	Dividends								(1,516)		(1,516)				(1,516)
	Foreign currency
	translation						393				393				393
	Other movements										-		66		66
	At 31.12.05		1,894		276		287		(162)		2,295		675		2,970
Six months to 30.06.05
	At 31.12.04		1,894		93		(106)		184		2,065		459		2,524
	Transfer to reserves				119				(119)		-				-
	Profit for the period								742		742		65		807
	Dividends										-				-
	Foreign currency
	translation						62				62				62
	Other movements		(17)		3				59		45		19		64
	At 30.06.05		1,877		215		(44)		866		2,914		543		3,457
	COMBINED STATEMENTS OF CHANGES IN EQUITY (CONT’D)
Six months to 30.06.06			Paid up capital		Other reserves		Foreign currency translation reserve		Retained Earnings		Total		Minority Interest		Total Equity
	At 31.12.05		1,894		276		287		(162)		2,295		675		2,970
	Transfer to reserves				37				(37)		-				-
	Profit for the period								408		408		73		481
	Dividends								(132)		(132)		(132)		(264)
	Foreign currency
	translation						(197)				(197)				(197)
	Other movements		18		(8)						10		(36)		(26)
	At 30.06.06		1,912		305		90		77		2,384		580		2,964

 

 

CONSOLIDATED CASH FLOW STATEMENTS

	Notes	6 months to 30 Jun 2006	6 months to 30 Jun 2005	Year to 31 Dec 2005
		(Unaudited) £’000	(Unaudited) £’000	(Audited) £’000
Cash flows from operating activities	See note	667	317	251
		_______	_______	_______
Cash flows from investing activities
Purchase of franchise		-	-	(39)
Purchase of property, plant and equipment		(22)	4	(147)
Interest received		-	-	2
		_______	_______	_______
Cash flows used in investing activities		(22)	4	(184)
		_______	_______	_______
Cash flows from financing activities
Dividend paid		(322)	-	-
		_______	_______	_______
Cash flows from financing activities		(322)	-	-
		_______	_______	_______
Net increase in cash and cash equivalents		323	321	67
Cash and cash equivalents at beginning of period		592	403	403
Foreign exchange differences		(112)	6	122
		_______	_______	_______
Cash and cash equivalents at end of period		803	730	592
		_______	_______	_______

 

 

NOTE TO THE CASH FLOW STATEMENT

For the six months ended 30 June 2006

Cash flows from operating activities   

 

		6 months to 30 Jun 06	6 months to 30 Jun 05	Year to 31 Dec 05
		£'000	£'000	£'000
Net profit after minority interest		408	742	1,353
Adjustments for:
Amortisation of intangible assets		14	17	24
Depreciation of property, plant and equipment		173	154	323
Losses on disposal of property, plant and  equipment		-	-	5
Interest income		11	11	(2)
Income tax expenses		112	86	182
Minority interests		73	65	150
		______	______	______
Operating profit before working capital changes:		791	1,075	2,035
(Increase)/decrease in:
Inventories		70	(23)	(68)
Trade and other receivables		179	(811)	(1,840)
Increase/(decrease) in:
Trade and other payables		(326)	162	273
		______	______	______
Cash generated from (used in) operations		714	403	400
Income tax paid		(47)	(86)	(149)
Cash flows from operating activities		667	317	251

 

 

NOTES TO THE INTERIM REPORT

1     Responsibility

       The directors of Prince Catering & Management (Overseas) Limited are responsible for the financial information set out in this interim report.

2     Basis of preparation and aggregation

       The financial information is based on the combined financial information of Xi’an Prince Restaurant Co. Ltd, Hong Kong Prince Restaurant Co. Ltd, and Shenzhen Prince Beverage and Catering Management Co. Ltd (the 'Combined Group') for the six month period ended 30 June 2006. The aforementioned undertakings of the Combined Group have been under common management and control throughout the period, irrespective of actual shareholdings, and therefore financial information in respect of these subsidiary undertakings has been prepared as if they had been part of the Combined Group throughout the period. Results and net assets of the relevant entities are aggregated (with eliminations for inter-company transactions and balances).

       The combined Group does not comprise a “group” as defined by International Financial Reporting Standards at 30 June 2006. Since that date, the ownership has been reorganised to form a group and the parent company was admitted to the AIM on 31 August 2006.

       The directors of Prince Catering & Management (Overseas) Limited have elected to prepare pro-forma consolidated financial statements for the Combined Group which comply, as far as reasonably practicable, with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union.

       The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for the period.  Although the estimates are based on management’s best knowledge of current events, actual results ultimately may differ from these estimates.<0}

3.    Accounting policies

The financial information has been prepared under the historical cost convention and in accordance with those International Financial Reporting Standards in force, insofar as is practicable in the light of the basis of preparation set out above.

       The following principal accounting policies have been applied consistently throughout the period in dealing with items which are considered material in relation to the financial information, and are consistent with those of the previous year.

       Foreign currency

The functional currency of the Combined Group is the Renminbi ("RMB"). As sales and purchases are denominated primarily in RMB and receipts from operations are usually retained in RMB, the directors are of the opinion that RMB reflects the economic substance of the underlying events and circumstances relevant to the Combined Group. Monetary assets and liabilities maintained in currencies other than Renminbi are translated into Renminbi at the approximate rates of exchange ruling at the balance sheet date. Transactions in currencies other than Renminbi are translated at rates ruling on the transaction dates.

The presentation currency of the Combined Group is pounds sterling and therefore the financial information has been translated from Renminbi (RMB) to pounds sterling at the following exchange rates, which originate from the State Administration of Foreign Exchange.

                                                    Year-end rate                             Average rate

 

       31 December 2004                 £1 = RMB 15.890                         £1 = RMB 15.165

       30 June 2005                         £1 = RMB 15.242                         £1 = RMB 15.595

       31 December 2005                 £1 = RMB 13.855                         £1 = RMB 14.914

       30 June 2006                         £1 = RMB 14.941                         £1 = RMB 14.558

On combination, assets and liabilities of overseas operations are translated into RMB at the closing rate, and all income and expenses are translated at the average rate during the financial period, being an approximation for the actual rates at the date of the transactions. Exchange differences arising on translating the opening net assets on combination of overseas operations at the opening rate and results of overseas operations at actual rate are recognized directly in equity (the foreign currency translation reserve).

       Revenue recognition

       Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, sales taxes and other sales related charges.

       Revenue from the restaurant business is recognised when goods are delivered.

       Revenue from the restaurant management business is recognised when the service is fully provided or when the Combined Group has the legal right to the service income.

      

4. Taxation

The corporation tax holiday expired at the end of 2005 for Xi’an Prince Restaurant Ltd. Though Management considered that this could be extended to 2008 as long as the Company still satisfies the criteria, this has not been confirmed by the local tax authority. Tax has been projected to be paid with the group’s financial projections. Corporation tax has therefore increased significantly compared to the same period in 2005.

The taxation charge for each group company has been calculated by reference to the expected effective corporation tax and deferred tax rates for the full financial year to end on 31 December 2006 applied against the profit before tax for the period ended 30 June 2006. The underlying effective full year tax charge for the year including deferred tax is estimated to be 17.5% for  Hong Kong Prince Restaurant Ltd, 15% for Shenzhen Prince Beverage and Catering Management Co Ltd, and 33% for Xi’an Prince Restaurant Co Ltd.

 

 

5. Segment information

 

The Combined Group can be divided into two business segments: the restaurant segment and the restaurant management segment.

		30-Jun-06	30-Jun-05	31-Dec-05
		£’000	£’000	£’000
Revenue	Restaurant Segment	2,987	2,937	6,247
	Restaurant Management Segment	386	654	1,049
	Total	3,373	3,591	7,296
Net profit	Restaurant Segment	221	367	818
	Restaurant Management Segment	259	440	685
	Total	481	807	1,503
Assets	Restaurant Segment	4,003	4,388	4,437
	Restaurant Management Segment	413	933	332
	Total	4,416	5,321	4,769
Liabilities	Restaurant Segment	1,410	1,338	1,612
	Restaurant Management Segment	42	526	187
	Total	1,452	1,864	1,799
Capital expenditure	Restaurant Segment	8	15	147
	Restaurant Management Segment	1	0	-
	Total	9	15	147
Depreciation and amortisation	Restaurant Segment	171	149	346
	Restaurant Management Segment	1	1	1
	Total	172	150	347

Financial ratio--Segmental analysis for the six months ended 30 June

Gross profit Margin		30-Jun-06	30-Jun-05
	Restaurant Segment	60%	58%
	Restaurant Management Segment	95%	95%

 

 

 

 

 

6. Events after the balance sheet date

 

Since the year end, a group structure has been established, the holding company being Prince Catering & Management (Overseas) Limited.

On 31 August 2006 this company was floated on AIM.

 

 

END