RNS Number:7596Q
Asia Distribution Solutions Limited
26 March 2008
26 March 2008
ADSL DELIVERS SOLID MAIDEN PRELIMINARY RESULTS
Asia Distribution Solutions Limited, ("ADSL" or "the Group") the AIM-quoted
distributor of beverages in China has today announced its maiden preliminary
results for the period ended 31 December 2007.
Key Highlights:
* Successful admission to AIM in November 2007
* Turnover for the period 10 April 2007 to 31 December 2007 �520,000* (Pro
forma turnover for the full year 2007 �1.45 million);
* Profit before tax of �127,000 (Pro forma profit before tax for the full
year 2007 of �234,000);
* Acquisition of Chengdu Gao Li Yuan Beverage Co Ltd signed on 2 January
2008**
* Acquisition of Shanghai Run Ke Trading Co signed on 11 January 2008**
* Number of HORECA (hotel, restaurant and cafe) outlets increased to over
2,000 upon the completion of the two acquisitions
* Reporting currency is GBP for ADSL for the period 10 April 2007 to
31 December 2007
** pending completion
Michael Kingshott, Non-executive Chairman of ADSL, commented:
" We are delighted to have made such an encouraging start to trading on AIM. The
Group has made significant progress in expanding its operations and we now
operate over 2,000 accounts throughout China. China represents a huge
opportunity for ADSL. Consumption of wine, beer and soft drinks is at record
levels and current methods of delivery are outdated and fragmented. ADSL offers
its client base modern delivery methods with competitive prices and a wide range
of products. Our expertise in this industry is first rate and we have an
enormous amount of confidence in our management team."
" I am pleased to report an excellent set of maiden results. For the period
ended 31 December 2007, the company achieved a turnover of �520,000 and a
pre-tax profit of �127,000. Our Wine Mall in Shanghai, the first in China, is
now fully operational and stocks are selling well. Our strategy remains one of
growth through acquisition. To date, the Group has made two acquisitions, being
one in Shanghai and one in Chengdu. Both acquisitions are immediately earnings
enhancing and greatly increase our reach into a wider distribution network in
China."
" Looking ahead, we are very confident of the Group's prospects. We have now
established an excellent platform to grow this business further and our plan
remains to become the national distributor of choice in China. The future of the
Group remains very promising."
Date: 26 March 2008
For further information please contact:
Asia Distribution Solutions Limited
Michael Kingshott, Non Executive Chairman 020 7583 8833
Steve Wong, Chief Executive Officer +852 2528 3323
Alan Leung, Chief Financial Officer +852 2528 3323
Evolution Securities China Limited (Financial Adviser and Broker)
Barry Saint/ Armen Ho 020 7220 4850
Evolution Securities Limited (Nominated Adviser)
Jeremy Ellis 020 7071 4300
City Profile (Financial Public Relations)
Jonathan Gillen / William Attwell 020 7448 3244
CHAIRMAN'S STATEMENT AND BUSINESS REVIEW
ADSL was incorporated on 10 April 2007 and was admitted to AIM on 7 November
2007. The principal activity of the Group is the distribution of beverages in
China. The Group's accounts have been presented, in accordance with IFRS, on an
actual basis together with the income statement shown on a full-year pro forma
basis.
Our strategy, as described in the Company's AIM admission document, is to
leverage the beverage distribution industry skills of our highly experienced
management team. Steve Wong, the Group's CEO has over 10 years experience with
PepsiCo, where he was responsible for the establishment of joint ventures,
marketing, sales and distribution operations in China. We are also pleased to
announce that Steve has recently been joined by Alan Leung, the Chief Financial
Officer and Simon Wong, Financial Controller. Together with Andrew Tan, the
General Manager of our Shanghai Operations, the objective of the team is to
provide a first class major logistics management service across China for
international and domestic beverage suppliers. Andrew is one of the pioneering
entrepreneurs who commenced the business of importation and distribution of
foreign wines to China four years ago. Alan Leung FCCA is a UK trained and
qualified accountant with over eight years of experience with China-based listed
companies. Simon Wong is trained and qualified with a major international
accounting firm and has extensive working and auditing knowledge on China-based
businesses.
Another key aspect of our strategy is to build a national beverage logistics and
distribution business across China. ADSL has a stringent policy in assessing
acquisition targets in order that the Group increases its reach within the
Chinese market. We are looking to acquire companies with exceptional management,
with good product and high quality customer bases. These companies will benefit
from ADSL's existing product range. The Group is in the process of reviewing a
number of prospects which are the subject of our stringent acquisition policy.
We continue to review additional prospects that we consider suitable
acquisitions.
Operational Review
During the period under review, the management team reviewed a number of
potential acquisitions with a view to increasing the profitability of the Group
in China. Since the Company's admission to AIM, we have announced two
acquisitions, the Chengdu Gao Li Yuan and Shanghai Run Ke beverage business.
Both businesses are now fully integrated into the Group and enable the Group to
increase the total direct HORECA accounts to over 2,000. The Chengdu business
gives ADSL a foothold in the emerging and all-important Western China market.
The addition of Run Ke also strengthens ADSL's presence in Shanghai and Run Ke's
focus on on-trade accounts complements Sing Xia's restaurant channels. The cross
selling and distribution of products will drive organic volume growth, while the
raised combined volume of common products is expected to lead to more favourable
trading terms.
The Wine Mall opened in Q4 2007. Daily retail intake is growing steadily which
has been helped by the Group's investment in publicity from organised events and
media exposure. Feedback from wholesalers nationwide has been excellent and they
have expressed great levels of enthusiasm for the Mall. It has also proved to be
a preferred venue for whisky and liquor importers to showcase and market their
own product ranges.
Financial Review
The Group is pleased to present its results for the period ended 31 December
2007 which are in line with management's expectations.
During the period under review, the Group achieved a turnover of �520,000 and
pre-tax profit of �127,000.
As at 31 December 2007, the Group had current assets, mainly comprised of
inventories, receivables and bank and cash balances, of �2,162,000. The Group's
current liabilities amounted to �979,000 and the Group had no short term or long
term bank borrowings or loans. The current liabilities to current assets ratio
was 45% (calculated by dividing the current liabilities by total assets),
whereas the total liabilities to total assets ratio of the Group was 18%
(calculated by dividing the total liabilities to total assets) as at 31 December
2007. As such, the Group's liabilities are well covered by its assets.
The Group has also adopted tight credit control measures in evaluating the
credit worthiness of individual potential customers. As at 31 December 2007, all
the trade receivables were due within one year and only 12% of the total trade
receivables were over 90 days. As such, no provision for bad debt is considered
necessary.
The Group's operations take place within the territory of mainland China and
therefore Renminbi is the operational currency of the Group. Given the current
strength of the Renminbi, we believe the currency risk on its overseas purchase
is relatively low. However, the reporting currency of the Group is in Pounds
Sterling. Therefore the Group is subject to translation risk if Pounds Sterling
become stronger against the Renminbi.
The Company does not intend to declare a dividend for the year ended 31 December
2007.
Management and Board
The Board of Directors is comprised of a set of exceptionally experienced
individuals. Each Director brings a wealth of knowledge and a specific skill set
within the beverage distribution business. ADSL intends to leverage this
experience in order to grow and develop the Group and achieve its aim of becoming
the national distributor of choice. To meet the growing demands of the company
and in light of the planned acquisitions, ADSL announced the appointment of Alan
Leung as Chief Financial Officer with effect from 1 February 2008.
Prospects
Trading since 1 January 2008 has been in line with management's expectations. We
continue to seek ways of improving our coverage throughout the major cities in
China. The Group will also concentrate its efforts on improving margins on sales
and introduce more foreign imported brands to our product offering. We are well
positioned to take advantage of the significant growth in the China market and
expect to continue to benefit from the rise in demand of our various product
offerings, in particular our range of imported wines. We look forward to the
remainder of the year with confidence.
I would like to thank all of our professional advisers and in particular our
banks, who have assisted us throughout the year as we continue to expand the
business. In addition, I would like to express my thanks to all the staff of the
Group for their hard work during what has been a very exciting but demanding
year.
MICHAEL KINGSHOTT
Chairman
26 March 2008
Consolidated Income Statement
For the period from 10 April 2007 (date of incorporation) to 31 December 2007
10 April 2007
to
Notes 31 December 2007
�'000
Turnover 2 520
Cost of sales (425)
Gross profit 95
Other revenue 2 174
Distribution expenses (13)
Administrative expenses (129)
--------
Profit before taxation 3 127
Taxation 4 (14)
--------
Profit for the period 113
========
ATTRIBUTABLE TO:
Equity holders of the Company 128
Minority interests (15)
--------
113
========
Earnings per share for profit attributable to equity
holders of the Company
Basic (pence per share) 5 (a) 1.08
========
Diluted (pence per share) 5 (b) 1.07
========
Consolidated Balance Sheet
31 December 2007
Notes 31 December 2007
�'000
Assets
Non-current assets
Property, plant and equipment 1,456
Goodwill 6 1,570
Interests in brand names 7 127
--------
3,153
--------
Current assets
Inventories 335
Trade receivables 608
Other receivables and prepayments 698
Bank and cash balances 521
--------
2,162
--------
Total assets 5,315
========
Equity and liabilities
Capital and reserves
Share capital 307
Reserves 2,750
--------
3,057
Minority interests 1,279
--------
Total equity 4,336
--------
Current liabilities
Due to shareholders 198
Receipts in advance 115
Trade payables 360
Other payables and accruals 293
Current tax payable 13
--------
Total liabilities 979
--------
Total equity and liabilities 5,315
========
Consolidated Statement of Changes in Equity
For the period from 10 April 2007(date of incorporation) to 31 December 2007
Foreign
currency
Share Share translation Share option Retained Minority Total
capital premium reserve reserve profits interests equity
�'000 �'000 �'000 �'000 �'000 �'000 �'000
On incorporation 3 - - - - - 3
Issuance of ordinary shares 304 3,552 - - - - 3,856
Acquisition of subsidiary - - - - - 1,257 1,257
Profit/(loss) for the period - - - - 128 (15) 113
Exchange difference arising on translation - - 54 - - 37 91
Share option expenses - (114) - 114 - - -
Share issue expenses - (984) - - - - (984)
---------------------------------------------------------------------
31 December 2007 307 2,454 54 114 128 1,279 4,336
=====================================================================
Consolidated Cash Flow Statement
For the period from 10 April 2007(date of incorporation) to 31 December 2007
10 April 2007
to
31 December 2007
�'000
Cash flows from operating activities
Profit before taxation 127
Adjustments for:-
Depreciation 26
Interest income (4)
Waiver of amount due to a shareholder (160)
--------
Operating cash flows before working capital changes (11)
Increase in inventories (179)
Increase in trade receivables (314)
Increase in other receivables and prepayments (300)
Increase in amounts due to shareholders 96
Increase in receipts in advance 88
Increase in trade payables 131
Decrease in other payables and accruals (441)
--------
Cash used in operating activities (930)
Interest income received 4
Tax paid (2)
Net cash used in operating activities (928)
Cash flows from investing activities
Purchase of property, plant and equipment (103)
Acquisition of subsidiaries, net of cash acquired 53
Net cash used in investing activities (50)
--------
Cash flows from financing activities
Proceeds from issuance of ordinary shares 2,334
Share issue expenses (857)
--------
Net cash generated from financing activities 1,477
--------
Net increase in cash and cash equivalents 499
Effect on foreign exchange rate changes 22
--------
Cash and cash equivalents at the end of period 521
========
Analysis of the balances of cash and cash equivalents
Bank and cash balances 521
========
Notes to the Financial Statements
31 December 2007
1. Basis of preparation of financial statements and principal accounting
policies
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRSs"), such term collectively includes all
applicable individual International Financial Reporting Standards, International
Accounting Standards ("IASs") and Interpretations issued by the International
Accounting Standards Board ("IASB") and its predecessor body, the International
Accounting Standards Committee ("IASC"). The consolidated financial statements
have been prepared on the historical cost basis.
The principal accounting policies are as follows:-
a) Judgments and estimates
The preparation of financial statements in conformity with IFRSs requires the
directors to make judgments, estimates and assumptions that affect the
application of policies and reported amounts of assets, liabilities, income and
expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgments
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the
estimate is revised if the revision affects only that period or in the period of
the revision and future periods if the revision affects both current and future
periods.
The directors have considered the development, selection and disclosure of the
Group's critical accounting policies and estimates. The estimates and
assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets or liabilities are as follows:-
i) Useful lives and depreciation of property, plant and equipment
The Group determines the estimated useful lives and related depreciation charges
of its property, plant and equipment. These estimates are based on the
historical experience of the actual useful lives of property, plant and
equipment of similar nature and functions. The Group will increase the
depreciation charge where useful lives are less than previously estimated lives,
and will write off or write down technically obsolete or non-strategic assets
that have been abandoned or sold. Actual economic lives may differ from
estimated useful lives. Periodic review could result in a change in depreciable
lives and therefore depreciation charge in the future periods.
ii) Net realisable value of inventories
Net realisable value of inventories is the estimated selling price in the
ordinary course of business, less estimated costs of completion and variable
selling expenses. These estimates are based on the current market condition and
the historical experience of manufacturing and selling products of similar
nature. It could change significantly as a result of changes in customer taste
and competitor actions in response to severe industry cycle. The directors
reassess the estimations at each balance sheet date.
iii) Provision for impairment of trade and other receivables
The Group determines the provision for impairment of trade and other receivables
based on an assessment of the recoverability of the receivables. This assessment
is based on the credit history of the customers and other debtors and the
current market condition. The directors reassess the provision at each balance
sheet date.
b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries made up to 31 December each year. Subsidiaries
are entities controlled by the Group. Control exists when the Group has the
power to govern the financial and operating policies of an entity so as to
obtain benefits from its activities. In assessing control potential voting
rights that presently are exercisable are taken into account.
On acquisition, the assets and liabilities of a subsidiary are measured at their
fair values at the date of acquisition. Any excess (deficiency) of the cost of
acquisition over (below) the fair values of the identifiable net assets acquired
is recognised as goodwill (negative goodwill). The interest of minority
shareholders is stated at the minority's proportion of the fair values of the
assets and liabilities recognised.
The results of subsidiaries acquired or disposed of during the year are included
in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
other members of the Group.
All significant intercompany transactions and balances between Group enterprises
are eliminated on consolidation.
c) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost, less provisions for
depreciation and any impairment losses (see also note 1 d) below). The cost of
an asset comprises its purchase price and any directly attributable cost of
bringing the asset to its working condition and location for its intended use.
Expenditure incurred after the asset has been put into operation, such as
repairs and maintenance and overhaul costs, is normally charged to the income
statement in the year in which it is incurred. In situations where it can be
clearly demonstrated that the expenditure has resulted in an increase in the
future economic benefits expected to be obtained from the use of the asset, the
expenditure is capitalised as an additional cost of the asset. When an asset is
sold, its cost and accumulated depreciation are removed from the financial
statements and any gain or loss resulting from the disposal, being the
difference between the net disposal proceeds and the carrying amount of the
asset, is included in the income statement.
Depreciation is provided to write off the cost less residual value of 10% of
each property plant and equipment over its expected useful life of the
individual assets.
The principal annual rates used for this purpose are as follows:-
Production machinery 7%
Office equipment 10%
Leasehold improvements Over the lease terms
Motor vehicles 10%
d) Impairment of assets
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the greater of net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. Impairment losses
are recognised as an expense immediately, unless the relevant asset is land or
buildings other than investment property carried at a revalued amount, in which
case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(cash-generating unit) is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of an impairment
loss is recognised as income immediately, unless the relevant asset is carried
at a revalued amount, in which case the reversal of the impairment loss is
treated as a revaluation increase.
e) Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly controlled
entity represents the excess of the cost of acquisition over the Group's
interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of the subsidiary or jointly controlled entity recognised
at the date of acquisition. Goodwill is initially recognised as an asset at cost
and is subsequently measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the cash-generating
unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the
unit and then to the other assets of the unit pro-rate on the basis of the
carrying amount of each asset in the unit. Any impairment loss recognised or
goodwill is not reversed in a subsequent period.
On disposal of a subsidiary or a jointly controlled entity, the attributable
amount of goodwill is included in the determination of the profit or loss on
disposal.
f) Intangible assets acquired separately - brand names
Intangible assets acquired separately are reported at cost less accumulated
amortisation and accumulated impairment losses. Amortisation is charged on a
straight-line basis over their estimated useful lives. The estimated useful life
and amortisation method are reviewed at the end of each annual reporting period,
with the effect of any changes in estimate being accounted for on a prospective
basis.
g) Subsidiaries
Interest in a subsidiary is stated in the Company's balance sheet at cost less
any impairment losses. The results of a subsidiary are accounted for by the
Company on the basis of dividends received and receivable. Details of the
Company's subsidiaries are set out in note 8.
h) Inventories
Inventories, which consist of parts for resale and consumable stores, are stated
at the lower of cost and net realisable value. Cost is determined on a first-in,
first-out basis and includes all costs of purchase, costs of conversion, and
other costs incurred in bringing the inventories to their present location and
condition.
Net realisable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale.
When inventories are sold, the carrying amount of those inventories is
recognised as an expense in the period in which the related revenue is
recognised. The amount of any write-down of inventories to net realisable value
and all losses of inventories are recognised as an expense in the period the
write-down or loss occurs. The amount of any reversal of any write-down of
inventories is recognised as a reduction in the amount of inventories recognised
as an expense in the period in which the reversal occurs.
i) Trade and other receivables
Trade and other receivables are initially recognised at fair value and
thereafter stated at cost less provision for impairment. A provision for
impairment of trade and other receivables is established when there is objective
evidence that the Company will not be able to collect all amounts due according
to the original terms of receivables. Significant financial difficulties of the
debtors, probability that the debtors will enter bankruptcy or financial
reorganisation, and default or delinquency in payments are considered indicators
that the receivables are impaired. The amount of the provision is the difference
between the receivables' carrying amounts and the present value of estimated
future cash flows, discounted at the effective interest rate. The amount of the
provision is recognised in the income statement.
j) Trade and other payables
Trade and other payables are initially recognised at fair value and thereafter
stated at amortised cost unless the effect of discounting would be immaterial,
in which case they are stated at cost.
k) Taxation
Taxation represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the Income statement because it
excludes items of income or expense that are taxable or deductible in other
years, and it further excludes items that are never taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences,
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Deferred assets and liabilities are not recognised if the
temporary difference arises from of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited in the Income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
l) Revenue recognition
Sales of goods are recognised when the significant risks and rewards of
ownership of the goods are transferred to the buyer, and the Group retains no
more effective control over the goods.
m) Foreign currency translation
Items included in the financial statements are measured using the currency that
determines the pricing of the transactions that the Company undertakes ("the
functional currency"). These financial statements are presented in Great Britain
Pounds, which is different from the Company's subsidiaries functional currency
which is Chinese Renminbi since, in the opinion of the directors, the users of
the financial statements prefer the financial statements to be presented in
Great Britain Pounds.
The results and financial position of the Company's subsidiaries as recorded in
Renminbi are translated into Great Britain Pounds for presentation purposes on
the following bases:-
i) assets and liabilities are translated at the closing rate at the date
of the balance sheet;
ii) income and expenses translated at an average rate for the year
provided that such a rate approximates the exchange rates at the dates of the
transactions; and
iii) all resulting exchange differences are recognised as a separate
component of equity.
Transactions in currencies other than the functional currency are initially
recorded at the rates of exchange prevailing on the dates of the transactions.
Monetary assets and liabilities denominated in such currencies are retranslated
at the rates prevailing on the balance sheet date. Gains and losses arising on
exchange are included in the income statement.
n) Employee contribution benefits
The employees of the Group in the People's Republic of China ("PRC") are
required to participate in the central pension scheme operated by the local
municipal government of the PRC. The Group is required to contribute a
percentage of its payroll costs to the central pension scheme as specified by
the local municipal government of the PRC. Payments to the central pension
scheme are charged as an expense as they fall due.
o) Operating leases
Leases where substantially all the rewards and risks of ownership of assets
remain with the lessors are accounted for as operating leases. Rentals
applicable to operating leases are charged to the Income statement on the
straight-line basis over the lease terms.
p) Provisions
A provision is recognised when a present obligation (legal or constructive) has
arisen as a result of a past event and it is probable that a future outflow of
resources will be required to settle the obligation, provided that a reliable
estimate can be made of the amount of the obligation.
When the effect of discounting is material, the amount recognised for a
provision is the present value at the balance sheet date of the future
expenditures expected to be required to settle the obligation. The increase in
the discounted present value amount arising from the passage of time is included
in finance costs in the income statement.
q) Share-based payment transactions
The fair value of services received determined by reference to the fair value of
share options granted at the grant date is expensed on a straight-line basis
over the vesting period with a corresponding increase in equity (share option
reserve).
At each balance sheet date, the Group revises its estimates of the number of
options that are expected to ultimately vest. The impact of the revision of the
estimates, if any, is recognised in the income statement, with a corresponding
adjustment to share options reserve.
At the time when the share options are exercised, the amount previously
recognised in share option reserve will be transferred to share premium. When
the share options are forfeited after the vesting date or are still not
exercised at the expiry date, the amount previously recognised in share option
reserve will be transferred to accumulated profits.
Fair value is measured using the Black-Scholes pricing model.
r) Related parties
A party is considered to be related to the Group if:-
i) the party has the ability, directly or indirectly through one or
more intermediaries, to control the Group or exercise significant influence over
the Group in making financial and operating decisions, or vice versa, or where
the Group and the party are subject to common control or common significant
influence;
ii) the party is a member of the key management personnel of the
Group;
iii) the party is a close member of the family of any individual
referred to in i) or ii);
iv) the party is an entity that is controlled, jointly controlled or
significantly influenced by or for which significant voting power in such entity
resides with, directly or indirectly, any individual referred to in ii) or iii);
or
v) the party is a post-employment benefit plan for the benefit of
employees of the Group, or of any entity that is a related party of the Group.
s) Cash and cash equivalents
For the purpose of the consolidated cash flow statement, cash and cash
equivalents represent short term highly liquid investments which are readily
convertible into known amounts of cash and which were within three months of
maturity when acquired, less advances from banks repayable within three months
from the date of the advance.
2. Turnover and other revenue
Group
10 April 2007
to
31 December 2007
�'000
Sales of beverages 520
Other revenue
Bank interest 4
Rebates 11
Waiver of amount due from a shareholder 159
--------
174
694
========
3. Profit before taxation
Profit before taxation is arrived at after charging/(crediting):-
Group
10 April 2007
to
31 December 2007
�'000
Auditors' remuneration 13
Depreciation 26
Directors' remuneration (included in staff costs below) 18
Operating lease - land and buildings 14
Staff costs 59
========
4. Taxation
The Government of the Cayman Islands, will not, under existing legislation,
impose any income, corporate of capital gains tax, estate duty, inheritance tax,
gift tax or withholding tax upon the Company. The Cayman Islands are not party
to any double taxation treaties.
Pursuant to the PRC Income Tax Laws, the PRC subsidiaries are subject to
enterprise income tax ("EIT") at a preferential rate of 2.31% to the standard
25% for the period ended 31 December 2007 on an annual approval basis. As such,
the provision for EIT is calculated by the Group at the respective rates on the
estimated assessable profit for the period.
The tax expense recognised in the consolidated income statement:-
Group
10 April 2007
to
31 December 2007
�'000
Current tax 14
========
The reconciliation between profit before taxation and taxation in the income
statement is as follows:-
Group
10 April 2007
to
31 December 2007
�'000
Profit before taxation 127
========
National tax on profit before tax, calculated at the rates
applicable to profits in the countries concerned 21
Tax effect of non-deductible expenses 33
Tax effect of non-taxable income (40)
--------
Taxation 14
========
No provision for deferred tax has been made as there are no temporary
differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of
taxable profit.
5. Earning per share
(a) The calculation of basic earnings per share is based on the profit
attributable to equity holders of the Company in the amount of �113,000 and on
the weighted average of 10,456,977 ordinary shares in issue during the period.
(b) The diluted earnings per shares is based on 10,579,177 ordinary shares which
is the weighted average number of ordinary shares in issue during the period
plus the weighted average of 122,200 ordinary shares deemed to be issued if all
the outstanding options had been exercised at the date they were granted.
6. Goodwill
Group
2007
�'000
On acquisition of subsidiaries 1,570
========
For the purposes of testing impairment for goodwill, the directors allocated
goodwill to the Group's cash-generating units (CGUs) identified according to
country and business segment. As at 31 December 2007, the Group's goodwill was
allocated mainly to the food and beverage business in the People's Republic of
China.
The recoverable amount of a CGU is determined based on value-in-use
calculations. These calculations use cash flow projections based on financial
budgets approved by management covering a one-year period. Key assumptions used
for value-in-use calculations are as follows:-
Growth rate 12%
Discount rate 10%
The directors determined growth rate based on past performance and its
expectations for the market development. The growth rate does not exceed the
long-term average growth rate for the business in which the CGU operates.
7. Interests in brand names
Group
2007
�'000
At cost -
Kelso Loch (a) 125
Ullmanoff (b) 2
--------
127
========
(a) A brand name established by the Group and registered at the PRC Trade-mark
Office on 17 September 2007, for a period of 10 years. It offers tonic and soda
water, ginger ale and mixed soft drinks with different flavours.
(b) A distribution license of vodka manufactured and bottled in Latvia for a
period of 25 years with an option to renew for a further 25 years.
8. Interests in subsidiaries
Company
2007
�'000
Unlisted shares/capital contributions, at cost 1,400
Due from subsidiaries 594
Due to subsidiaries (18)
--------
1,976
========
Details of the subsidiaries are as follows:-
Country of Particulars
incorporation/ of issued and Principal
Name of Company registration paid up capital Equity interest held activities
Direct Indirect
Panda Express The British Virgin US$20,000 100% - Investment holding
China Limited Islands
Panda Xpress Republic of Singapore SGD2 - 100% Investment holding
International Co.,
Pte Ltd
Vitality Development The British Virgin US$200 100% - Investment holding
Holdings Limited Islands
("Vitality Development")
Vitality Tianjin The People's Republic RMB24,404,919 - 51% Manufacturing and sale
Beverage Company of China of beverage
Limited #*
("Vitality Tianjin")
Shanghai Xin Xia The People's Republic RMB500,000 - 100% Wholesale and retail of
Trading Company of China food and food
Limited #** management and
("Shanghai Xin Xia") alcohol
Shanghai Shen Xuan The People's Republic RMB1,240,020 - 100% Food processing
Food Manufacturing of China
Co. Limited #**
("Shanghai Shen Xuan")
# Unofficial translation
* Registered under the laws of the PRC as sino-foreign joint venture
** Registered under the laws of the PRC as foreign enterprise
9. Commitments under operating leases
At 31 December 2007, the Group had outstanding minimum commitments under
non-cancellable operating leases in respect of land and buildings which fall due
as follows:-
Group
2007
�'000
Within one year 112
In the second to fifth years inclusive 159
--------
271
========
10. Related party transactions
a) During the period, the Group had the following transactions with its related
companies:-
Group
10 April 2007
to
31 December 2007
�'000
Distribution license purchased from a shareholder 125
========
b) Remuneration for key management personnel, including amounts paid to the
Company's directors as disclosed in note 3, is as follows:-
Group
10 April 2007
to
31 December 2007
�'000
Short-term employee benefits 18
Post-employments benefits -
--------
18
========
11. Capital commitments
Pursuant to an agreement dated 28 May 2006 made with Vitality Health Beverage
Co. Ltd ("Tianjin Health"), the minority shareholder of Vitality Tianjin,
Vitality Development must contribute a total of approximately US$2.16 million by
26 April 2008 in order to maintain a 51 per cent shareholding of Vitality
Tianjin. Pursuant to a letter dated 4 October 2007, an extension was granted to
Vitality Development till 25 October 2008, being the maximum period permitted
under the PRC laws and regulations. Such an extension is subject to the approval
of the Tianjin Foreign Economy & Trade Commission. In the event that Vitality
Development is unable to make the cash contribution by the permitted due date,
an application may have to be filed in order to reduce the registered capital of
Vitality Tianjin.
12. Segment reporting
The Group operates in one business segment being the sale and supply of food and
beverages, and operates in one geographical segment being the People's Republic
of China.
13. Post balance sheet events
(a) Subsequent to the balance sheet date, further to the non-binding letter of
intent on 28 June 2007 to acquire Chengdu Gao Li Yuan Beverage Co., Ltd ("Gao Li
Yuan"), on 2 January 2008, the Company conditionally agreed to acquire part of
the assets and intellectual property rights of Gao Li Yuan through investing in
Chengdu Gao Yuan Commercial Trading Co., Ltd (the "JV"). The consideration to be
paid by the Company to the vendors, one of whom is Mr. Robert Ning, comprises
RMB1 million upfront cash plus up to RMB1 million in cash which has to be used
to subscribe for the Company's new ordinary shares under an employment contract
based on the achievement of profit targets in the period ending 31 December 2010
by the JV.
(b) Subsequent to the balance sheet date, on 11 January 2008, the Company agreed
to acquire certain assets and intellectual property rights of Shanghai Run Ke
Trading Co Ltd ("Run Ke"). The consideration to be paid by the Company to the
vendor, Mr. Qi Zhi, is up to a maximum of RMB7 million, comprising upfront cash
consideration of RMB1.75 million, plus deferred consideration up to maximum
value of RMB5.25 in new ordinary shares in the Company, to be allotted pursuant
to an employment contract based on the achievement of profit targets by the Run
Ke business in the period ending 31 December 2010.
14. Notes to consolidated cash flow statement
Acquisition of subsidiaries
Details of assets and liabilities acquired by the Group from subsidiaries during
the period as compared to cost of investment are as follows:-
Group
2007
�'000
Property, plant and equipment 1,310
Interest in a brand name 2
Inventories 156
Trade receivables 294
Other receivables and payments 398
Cash and bank balances 53
Due to related parties (229)
Trade payables (262)
Other payables and accruals (607)
Tax payable (1)
Receipt in advance (27)
Minority interest (1,257)
--------
(170)
Goodwill on consolidation 1,570
--------
Consideration 1,400
========
Represented by:
Issuance of ordinary shares 1,400
========
Analysis of net inflow of cash and cash equivalents in respect of the
acquisition of subsidiaries:-
Group
2007
�'000
Cash and bank balances of acquired subsidiaries 53
========
15. Additional financial information for the Group
The following information on combined results of the Group, which has been
prepared for illustration purposes, shows what net profit of the Group might be
following the acquisition of Panda Express China Limited and Vitality
Development Holdings Limited by the Company. It has been prepared on the basis
that the Company has acquired the subsidiaries with effect from 1 January 2007.
Consolidated Combined
10 April 2007 1 January 2007
to to
31 December 2007 31 December 2007
�'000 �'000
Turnover 520 1,448
Cost of sales (425) (1,083)
Gross profit 95 365
Other revenue 174 175
Distribution expenses (13) (86)
Administrative expenses (129) (220)
-------------------------------------
Profit before taxation 127 234
Taxation (14) (28)
-------------------------------------
Profit for the period/year 113 206
=====================================
Attributable to:
Equity holders of the Company 128 230
Minority interests (15) (24)
-------------------------------------
113 206
=====================================
The above combined results have been prepared in accordance with International
Financial Reporting Standards, and reflect, after elimination of all interc
ompany transactions, the combined financial performance of the following
companies with ownerships all under common management and control:-
* Vitality Development Holdings Limited (incorporated in the British Virgin
Islands)
* Vitality Tianjin Beverage Co., Ltd. (registered in the People's Republic of
China)
* Shanghai Shen Xuan Food Co., Ltd. (registered in the People's Republic of
China)
* Shanghai Sing Xia Trading Co., Ltd. (registered in the People's Republic of
China)
* Shanghai Xin Xia Trading Co., Ltd. (registered in the People's Republic of
China)
* Panda Express China Limited (incorporated in the British Virgin Islands)
* Panda Xpress International Co. Pte. Ltd. (incorporated in the Republic of
Singapore)
16. Approval of the financial statements
The financial statements were approved and authorised for issue by the board of
directors on 26 March 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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