TIDMCFC
RNS Number : 2213E
China Food Company PLC
28 May 2012
Preliminary Results - Correction
The following amendment has been made to the 'Preliminary
Results' announcement released on 28 May 2012 at 07:00 hrs under
RNS No 1792E.
In the announcement released this morning the 'consolidated
statement of cash flows' table was ommited. This has now been
amended.
All other details remain unchanged.
The full amended text is shown below.
Press Release 28 May 2012
China Food Company Plc
("China Food" or the "Group")
Preliminary Results
China Food Company Plc (AIM:CFC), a leading Chinese manufacturer
of cooking and dipping sauces, announces its preliminary results
for the year ended 31 December 2011.
Highlights
-- Revenue increased by 12.1% to GBP40.2 million (2010: GBP35.9
million)
-- Gross margin increased by 9.4% to GBP8.6 million (2010:
GBP7.8 million)
-- Adjusted EBITDA of GBP3.9 million (2010: GBP4.5 million)
before one off non-recurring branding and marketing launch
costs of GBP2.6 million and gain on sale of land use rights
of GBP0.5 million
-- Profit before tax and interest of GBP1 million (2010: GBP4.5
million) and a net loss after tax of GBP0.7 million (2010:
profit of GBP2.3 million)
-- Net assets of GBP38.9 million (2010: GBP34.5 million),
including cash of GBP6.6 million
-- Condiments revenue in RMB increased by 14.1% and revenue
from the Group's soya sauce business grew by 28.7% during
the year
-- National Sports Training Institute of China has selected
"Xaka" as the preferred soya sauce supplier for the Chinese
Olympic team
Post period end
-- Strong start to 2012 with trading of condiments in Q1 2012
up 10.0% compared to Q1 2011
-- Positive reception of "Xaka" product at key Spring Food
Fair in Chengdu City, China in Q1 2012 with 21 distributors
signed up and cash commitments of RMB28 million received
up to 30 April 2012
-- As at 30 April 2012, signed up 118 distributors
-- Proposed disposal of Fuss Feed, the Group's animal feed
business ongoing
-- Partnership with international food brand currently being
explored to expedite the Company's market penetration for
condiments
John McLean, Chairman of China Food Company, commented: "2011
was a period of further sales growth for China Food, as the Group
increased its penetration into the condiments market in Northern
China. Since the period end we have announced the proposed disposal
of the animal feed business, which will enable the Group to focus
on growing the condiments business further, particularly focusing
on "Xaka", our premium soya sauce product.
"We have identified an opportunity to become a major player in
the Northern China condiments market and are committed to investing
in the growth of the Group. Whilst the marketing expenditure will
suppress profitability temporarily, the Board is confident that the
investment for the future will pay off. As at March 2012, the Group
has a cash balance of GBP6.7 million which we believe, along with
the anticipated disposal proceeds, is sufficient to execute our
growth strategy.
"The market for our products in Northern China is vast and the
Board looks forward to updating shareholders on our progress during
the coming months, as we look to increase our market share and
broaden our distribution channels through new partnerships."
For further information:
China Food Company Plc Tel: +44 (0) 20 7930 8888
John McLean, Non-Executive Chairman Tel: +44 (0) 7768 031 454
Raphael Tham Wai Mun, Chief Executive
www.chinafoodcompany.com
finnCap
Geoff Nash / Ben Thompson (Corporate Tel: +44 (0) 20 7220
Finance) 0500
Simon Starr (Broking)
Numis Securities
David Poutney (Joint Broker) Tel: +44 (0) 20 7260
1000
Media enquiries:
Abchurch Communications
Henry Harrison-Topham / Oliver Baxendale Tel: +44 (0) 20 7398
7702
henry.ht@abchurch-group.com www.abchurch-group.com
Chairman's Statement
Overview
China's economy grew by 9.2% in 2011, which was down from 10.4%
growth in 2010 but still well above the Chinese government's 8%
target for the year. In recent months, a number of analysts have
cut their 2012 growth forecast for China, including the
International Monetary Fund, which now forecasts 8.2% GDP growth
this year. The World Bank predicts 8.4%. Whilst these forecasts are
lower than previously anticipated, they still constitute strong
growth, particularly compared to other global economies.
Strategy
The Board remains committed to the Group's strategy to become a
leader in condiments in Northern China and to capitalise on the
rapid growth in the increasingly discerning consumer market. The
Chinese consumer market continues to grow at a rapid pace, with
branding and food safety being key concerns and drivers in
consumers' decision making. Having spent the last four years
investing in the development of a world-class condiments production
facility in Weifang, Shandong Province, the Group is now in a
strong position to capitalise on this domestic economic growth.
China Food's facility will enable the annual production of 50,000
tonnes of soya sauce using processes which comply with domestic and
international manufacturing and food safety standards.
Since the completion of the new facility, much has been
achieved; the Group's distribution network has been expanded
considerably; its premium brand of soya sauce "Xaka" has been
launched, and the Group has developed its sales team and marketing
strategy. Whilst this has financial implications due to the
misalignment of investment and increased revenues, the early signs
with regard to "Xaka" sales are positive. The feedback from the
recent trade fairs has been favourable, and the brand has been
selected as the preferred soya sauce for the Chinese Olympic
team.
As a result of the positive reception that has been received for
the Group's products, the Board is accelerating its plans for
market penetration and expects that capacity utilisation at the
facility will be 50% in 2012, rising to almost full production in
2013. This will require further investment in the sales and
marketing activity, which will suppress profitability whilst the
additional investment is made to secure future sales growth and
market share. In order to help to bridge the gap between the
progressive sales growth in new markets and the current production
capability, the Group has agreed to sell approximately 10% of its
fermented stock (i.e. unfinished goods) to a soya sauce
manufacturer in Southern China, which poses no direct competition
to the Group's target markets and at acceptable margins.
The loss for the period under review reflects the considerable
investment made in the Group's marketing, building its distribution
channels and investing in the launch of "Xaka". This is reflected
in the increase in the Group's selling and marketing costs from
GBP1.5 million in 2010 to GBP5.6 million in 2011.
Condiments business
The Group continues to build market penetration in its five
target provinces in Northern China, which include Shandong
(population: 95.8 million at the 2010 census), Henan, Hebei, Anhui
and Jiangsu (with a combined market population of 304 million). The
Group estimates that it has signed up distributors providing
coverage of 100% of Zhejiang, Hebei and Beijing, and 80% of Henan
and Anhui provinces. The Group will continue to work on its
remaining targeted China markets to improve its distribution
coverage. More importantly, re-orders from the first batch of
distributors have started, confirming the sell-through to the end
consumers. With the Group's new premium soya sauce product, "Xaka",
the Group is continuing to make progress across the region and the
Board believes that this product will be a significant driver of
growth for the business going forward.
Since the period end, and as announced in the Group's trading
update on 28 March 2012, the Board continues to explore the
possibility of partnering with an international food brand in order
to expedite the Group's market penetration for condiments. The
Group will provide a further update on this as appropriate.
The export market remains strategically important for the
business, with the Group having started to export small quantities
to Singapore and Poland during the period. Whilst the scope for the
Group to export white labelled products to other territories is not
currently material, it is significant in terms of its strategic
value. The Board believes that its ability to export overseas is a
testament to its international manufacturing process and quality
and this perception is shared by our distributors. In the short
term, it creates additional demand while we scale up our core
business. China will however remain the Group's primary market and
the priority for China Food.
Feed business
The Group is focused on its condiments strategy and following
the successful progress made during the period, in Q4 2011 the
Board accelerated its plans for the disposal of Fuss Feed, the
Group's animal feed business ("the Disposal"). In preparing this
business for sale, the Board reviewed the current production
facility and capacity, both of which had limitations. In order to
enhance the potential disposal value, alongside initiating a sale
process, the Board is investing RMB32 million (GBP3.2 million) to
relocate to a new factory on a vacant part of our Shouguang site
which more than doubles production capacity. The Disposal exercise
is on-going and the Group will keep the shareholders updated on its
progress in due course.
On completion, the Disposal is expected to produce an
exceptional profit and a positive inflow of funds. The proceeds
will also improve the Group's gearing and provide additional
working capital for the core condiments business, as well as
reducing operational risk in terms of exposure to volatility in
commodity prices or animal disease.
Dividend policy
During the period, the Group completed the capital restructuring
exercise and announced its maiden interim dividend of GBP0.0013 per
share. Whilst the Group does not have a fixed dividend policy, this
was done to demonstrate the ability for a Chinese company listed on
AIM to reward shareholders through dividend payments. Whilst China
Food continues to invest in its brands and further sales growth, it
is anticipated that the Disposal will allow the Board to declare a
dividend to shareholders later in 2012.
John McLean
Non-Executive Chairman
25 May 2012
Chief Executive Officer's Report
2011 was a transformational year for China Food in which the
Group, having completed its new 50,000 tonnes natural fermentation
soya sauce factory in 2010, moved to focus on the sales and
marketing phase of the Group's development. The focus of the
Group's efforts is on our top-premium grade brand of soya sauce,
"Xaka", our new brand in the condiments business. It received a
positive reception when it was launched at the China Food Fair in
Shenyang in October 2011, and this was reinforced in Chengdu in
March 2012.
Business performance
2011 2010
GBP '000 GBP '000 % Change
Revenue 40,227 35,891 12.1%
Net (Loss)/Profit After Tax (706) 2,319 -.4%
Add:
Taxes 368 1,434 -74.3%
Finance Costs 1,336 726 84.1%
Net Profit/(Loss) before Tax and
Interest 998 4,479 -77.7%
Less:
Finance Income (25) (515) -95.1%
Add:
Amortisation 188 187 0.6%
Depreciation 672 368 82.4%
Earnings before Interests, Tax,
Depreciation and amortisation 1,833 4,519 -59.4%
Add:
One-off non-recurring branding
and marketing costs for Xaka 2,556 - na
Less:
One-off gain in disposal of land
use rights (456) - na
Adjusted EBITDA (excluding non
recurring
items) 3,933 4,519 -13.05
Add:
Recurring costs of Xaka 1,855 627 196.0%
Adjusted EBITDA (i.e. EBITDA of
the
existing condiments and feed business) 5,788 5,146 12.5%
During the period, the Group achieved revenue of GBP40.2
million, an increase of 12.1% on 2010. The Group's gross profit for
FY2011 grew to GBP8.6 million (2010: GBP7.8 million), while gross
margins dipped slightly during the period to 21.3% (2010: 21.8%).
Earnings Before Interest, Taxes, Depreciation and Amortisation
("EBITDA") fell to GBP1.8 million (2010: GBP4.5 million), largely
due to the Group's GBP4.4 million investment in advertising, market
listing fees and new hires for the roll-out of "Xaka" in 2011 which
are not yet matched by increased revenues.
Depreciation and financing costs also increased significantly,
causing the Group to experience a net loss after tax of GBP706,000
(2010: profit GBP2.3 million). Depreciation is expected to increase
as the Group is currently apportioning the depreciation based on
the level of utilisation of our plant.
H1 2011 H2 2011 FY 2011 % of H1 2010 H2 2010 FY 2010 % of % year
Group Group on year
Total Total Change
RMB RMB RMB RMB RMB RMB
'000 '000 '000 '000 '000 '000
Condiments 88,473 86,648 175,122 42.0% 74,707 78,816 153,522 40.9% 14.1%
Soya Sauce 39,972 48,425 88,398 32,501 36,169 68,670 28.7%
Xaka - 10,539 10,539 - - - na
Hao Tai
Tai 39,972 37,887 77,859 32,501 36,169 68,670 13.4%
-------------- --------- --------- --------- ------- --------- --------- --------- ------- ---------
Vinegar 25,821 24,741 50,563 22,978 24,668 47,646 6.1%
Bean paste 22,680 13,482 36,161 19,228 17,978 37,206 -2.8%
Animal Feed 110,599 131,362 241,961 58.0% 103,229 118,680 221,909 59.1% 9.0%
-------------- --------- --------- --------- ------- --------- --------- --------- ------- ---------
Total Group
Sales 199,073 218,010 417,083 177,935 197,496 375,431 11.1%
-------------- --------- --------- --------- ------- --------- --------- --------- ------- ---------
Despite this, the revenue and profits of the Group's existing
business remain strong. The existing 'Hao Tai Tai' business,
consisting of soya sauce, vinegar and bean paste delivered an
EBITDA of RMB48.2 million (GBP4.82 million) (2010: RMB48.2 million
(GBP4.82 million)) and the animal feed business achieved an
increased EBITDA of RMB22.0 million (GBP2.2 million) (2010: RMB16.5
million (GBP1.65 million)), reflecting the underlying earnings of
the existing condiments business and the strong performance of the
animal feed business. The EBITDA of the animal feed business
includes a RMB4.8 million (GBP0.5 million) one-off gain on the
disposal of land use rights of its old factory.
Excluding the contribution from "Xaka", condiments revenue grew
by 7.2% to RMB164.6 million (GBP16.46 million) (2010: RMB153.5
million (GBP15.35 million)). Revenue from the Group's condiments
business grew by 14.1% while animal feed revenue grew by 9.0% to
RMB242.0 million (GBP24.2 million) (2010: RMB221.9 million
(GBP22.19 million)). Due to the fact that "Xaka" was only launched
in Q4 2011, we did not create significant sales during the period
as the intent was to canvass for distributors, and sales were
further delayed by the Christmas holidays and early Chinese New
Year holidays this year. Contribution from "Xaka" in FY2011 was
therefore only RMB10.5 million, and the returns from these
investments in sales and marketing will be reflected in the
forthcoming months. The Board has monitored the steady growth of
"Xaka" in H1 2012 and expects better growth in H2 2012 when we
achieve critical mass in the Group's distribution network.
Production
The Board is pleased that the new factory is operating to
expectations. We have further improved our production by using only
GMO-free soybeans. While there is no legislature in China on the
use of GMO products, we believe that using GMO-free soybeans in our
fermentation process is consistent with our product branding and
culture. While not a requirement in China, it is fundamental in
export markets such as Europe, which are strategically important to
China Food. The Group has worked to standardise its manufacturing
to international requirements with certifications such as ISO22000
and HACCP, BRC Global Standard, in order to reach the requirements
of both the domestic and export markets.
To further assist our capacity utilisation the Group has reached
an agreement with another soya sauce manufacturer in South China to
buy our raw fermented stock which will take approximately 10% of
China Food's production capacity. This endorses the quality of our
naturally brewed soya stock and also highlights the shortage of
such product currently in China. This provides opportunity of
"industrial" usage for our products, whilst the Group continues to
work to build up our own distribution channels and create further
demand for its finished products.
Condiments
In October 2011, the Group officially launched "Xaka" in the
China Food Fair in Shenyang, Liaoning province. The China Food Fair
is the largest trade food event in China organised by the China
Food Association, held twice a year. "Xaka" was received positively
by distributors and retailers, and the product won "Best new
product of the China Food Association". As a result of the event,
the Group signed over 92 distributors, complementing China Food's
existing network of distributors that is already carrying the
Group's products.
This positive momentum continued into 2012 when the Group
exhibited at the spring food fair held in Chengdu, Sichuan province
in March. Again, the level of interest was significant, with 21 new
distributors already secured and a further 80 are in various stages
of discussion. Deposits totalling GBP2.8 million have already been
received from committed and interested distributors which should
translate to actual sales orders in the near term. Given this
significant interest in the "Xaka" product, the Board has taken the
strategic decision to invest in marketing at a greater rate than
previously planned, in order to capitalise on the positive response
from the market.
The Group is also pleased to announce that the National Sports
Training Institute, which selects Chinese athletes for the Olympic
Games, has chosen "Xaka" as its preferred soya sauce that will be
used for the Chinese Olympic team. This is an excellent endorsement
of the product, both in the domestic market and overseas.
During the period the Group completed a brand makeover of "Hao
Tai Tai" in order to target the middle income market. The Group has
been progressively expanding "Hao Tai Tai's" product range over a
number of years, however the brand is perceived as mid-range where
the market is more competitive and limiting. The growing affluence
of Chinese population will also see them trading up towards better
and higher grade products. For this reason, the Board believes that
investing in building up a high grade brand will provide more
opportunities and sustainability in the future. The Board believes
that in building "Xaka" as a high end brand, "Hao Tai Tai" can also
leverage on the branding and distribution network of "Xaka" in the
medium term.
Animal Feed
On 14 February 2012 the Group signed a memorandum of
understanding (the "MOU") with an international animal feed
provider to sell 100% of the feed business. Considerations of the
Disposal include the limitations that the current feed factory is
at the rear of the Group's site with no alternative access, limited
expansion capacity and relatively old equipment. To this effect, we
have initiated construction of a new feed factory adjacent to the
existing condiments plant. The new factory will increase pre-mix
feed production from 18,000 tonnes per annum (tpa) to 50,000 tpa
and compound feed from 60,000 tpa to 240,000 tpa at an estimated
capital expenditure of RMB32 million (circa GBP3.2 million). The
current discussions will include the Group selling the new factory
as part of the consideration. The capital commitments of the new
plant will be aligned with the progress of the Disposal.
We are in discussion with potential buyers and hope to update
the shareholders according of the progress by the time of the
Group's Annual General Meeting.
As previously stated, the animal feed business is not core to
the Group's strategy going forward. Whilst it was traditionally a
significant contributor to Group earnings, the feed business is a
high volume, low margin business subject to fluctuations in
commodity meat prices and outbreaks of infectious diseases. Larger
companies with access to greater financial resources and technical
facilities have competitive advantage in this market and divestment
will enable the Group to strengthen its own competitive advantage
in the condiments market. The business nevertheless performed well
in 2011. EBITDA for Fuss Feed increased by 34.6% to GBP2.1 million
for 2011 including a one-off gain of GBP0.5 million (2010: GBP1.6
million) relating to the sale of land use rights.
Sales and Marketing
The Group's investment into sales and marketing has increased
significantly during the period, and the Board anticipates that,
given the positive response from the recent food fairs in Chengdu
and Shenyang, this level of marketing expenditure will remain
significant in order to ensure that the Group capitalises on the
opportunity in the market.
The Group invested GBP5.6 million in sales and marketing in 2011
of which "Xaka" incurred GBP3.8 million (67.0%), "Hao Tai Tai"
incurred GBP1.5 million (26.9%) and animal feed business incurred
GBP0.3 million (6.1%). This is substantially higher than 2010 when
we spent GBP1.5 million across the entire group.
A large proportion of the sales and marketing expenditure for
"Xaka" can be divided into three main components which include mass
media advertising, hiring and setting up a North China sales team
and the participation in the food fair where the product was
officially launched. A number of these costs are one-off
non-recurring costs relating to brand and marketing expenses prior
to the product launch in October 2011 totalling GBP2.6 million.
This is crucial to create brand awareness amongst the general
public and potential distributors prior to the official launch.
Moving ahead, the level of sales and marketing expenditure will
correspond to the number of distributors, the size of our
distribution network and the level of sales. This will include
maintaining our mass media advertising, reinforcing it with
television sponsorships and local television advertising slots as
well as continuing to broaden and deepen the Group's sales
team.
Management team
The Board was pleased to announce in March 2012 that Mr Fu
Guoping, our major shareholder and founder of the business, has
been appointed Chief Executive Officer of Fortune Food (China) Co.,
Ltd, the main trading subsidiary responsible for launching "Xaka".
This appointment coincides with the shift in emphasis in the
Group's strategy to divest of the animal feed business and focus on
the consumer market for condiments, where Mr Fu's experience and
in-depth understanding of the China market will supplement the
existing management team.
Mr Frank Chau, stepped down as Chief Financial Officer in August
2011 to pursue other interests. Mr Chau had been with the Group
since 2007 and has contributed immensely to the China Food's
progress, and the Board thanks him for his contributions during
that period. We welcomed Ms Tang Lin who replaced Mr Chau as Chief
Financial Officer. Ms Tang joins China Food from Shandong Haoxin
CPAs, China, where she was a Founding Partner.
With the appointment of Mr Tom Coley, who joined the Group as a
non-executive director in April 2011 (following the retirement of
Mr Derek Marsh), we have further strengthened our management team.
The Group intends to continue to strengthen its Board with further
appointments as appropriate, in order to ensure that China Food is
in a strong position to capitalise on the significant opportunity
in the market in Northern China.
Funding
The Group's development has been funded in recent years through
a combination of equity, shareholder loans and bank loan
facilities. During the period, new funds were raised though the
placing of new equity of GBP2.5 million (net of expenses) and
additional shareholder loans of GBP1.4 million and new bank
facilities GBP4.1 million were secured.
At the same time, the Group has GBP4.38 million in convertible
loan notes due for repayment by end 2012. Whilst the Board expects
the majority of the convertible loan to be converted, GBP1.38
million in loan notes due for repayment in June 2012 may not be
converted. The Group has initiated discussions with the note
holders to extend the loan notes as a contingency. GBP1.4 million
in shareholder loans will also be due in June 2012 together with
GBP3.1 million in bank loans. While the Group has adequate
resources to service these repayments internally, servicing these
repayments may hinder our expansion phase for "Xaka". As at the 31
March 2012, the Group has cash balances of GBP6.7 million,
operations continue to be cash generative before discretionary
investments in selling and marketing spend and increased working
capital to support increased revenues. The Group is in discussion
with local financial institutions to increase its trading
facilities if needed. The potential sale of the feed business when
completed will also provide an opportunity for the Group to review
its funding structure.
Outlook
Whilst China's growth is expected to slow during 2012, with
international as well as Chinese estimates forecasting GDP growth
rate of 8.2%, it remains one of the fastest growing economies in
the world. Controlling inflation appears to be a priority of the
Chinese government and the tight controls over bank lending appears
likely to continue, despite the government encouraging banks to
increase lending to SMEs earlier in the year. Salaries are expected
to continue to rise in line with the CPI. However, the Board does
not expect the Group to be affected significantly as direct labour
costs do not exceed 5% of our cost of goods.
Food safety standards continue to be a significant consumer
concern in China and the Group is well positioned in this respect,
having achieved international food safety standards. There is a
clear trend for concerned consumers to move towards higher priced
international products with better food manufacturing standards and
brand integrity, and China Food is ready to capitalise on this.
For 2012, the focus of the Group will be to continue our
investment into the "Xaka" brand and to create additional
distribution channels. The Group continues to work to improve the
"Hao Tai Tai" business in terms of vinegar and bean paste sales, as
well as further developing this brand. The Board expects to see the
positive impact of the investment into marketing in the second half
of 2012 and FY2013 as "Xaka" gains momentum and the distribution
channels mature. We will continue to update the shareholders on the
status of the negotiations of the proposed disposal of the feed
business as well as on the further progress in driving sales and
market penetration.
Given the investment made over recent years and the feedback to
date on our new premium brand "Xaka", we look forward with
confidence as we continue with our strategy of becoming a
condiments leader in Northern China.
Finally, we would like to thank all the shareholders of China
Food Company plc for their support, patience and belief in the
Group and the management, as well as the staff for their commitment
and hard work in building and growing China Food.
Raphael Tham
Chief Executive Officer
25 May 2012
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2011
Year ended Year ended
Notes 31 December 2011 31 December 2010
GBP'000 GBP'000
Revenue 40,227 35,891
Cost of sales (31,655) (28,060)
------------------ ------------------
Gross profit 8,572 7,831
Other operating income 9 463 9
Selling and marketing costs (5,560) (1,517)
Administrative costs (2,502) (2,359)
------------------ ------------------
Operating result 973 3,964
Finance costs (1,336) (726)
Finance income 25 515
------------------ ------------------
(Loss)/profit before tax (338) 3,753
Taxation (368) (1,434)
------------------ ------------------
(Loss)/profit after tax (706) 2,319
------------------ ------------------
Earnings per share
- Basic (pence) 6 (1.01) 3.49
- Fully diluted (pence) 6 (1.01) 3.48
There are no discontinued operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2011
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
(Loss)/profit for the year (706) 2,319
Other comprehensive income
Exchange differences on translating
foreign
operations 2,548 2,053
------------- -------------
Other comprehensive income,
net of tax 2,548 2,053
Total comprehensive income for
the year
attributable to equity holders
of the parent 1,842 4,372
------------- -------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2011
Note As at As at As at
31 December 31 December 31 December
2011 2010 2009
GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 40,792 39,448 30,702
Land use rights lease prepayments 8,411 8,368 7,976
Deferred tax assets 1,311 - -
------------- ------------- -------------
Total non-current assets 50,514 47,816 38,678
------------- ------------- -------------
Current assets
Inventories 6,208 3,002 1,331
Land use rights lease prepayments 194 190 177
Trade and other receivables 10 4,352 750 420
Cash and cash equivalents 6,584 2,918 3,248
------------- ------------- -------------
Total current assets 17,338 6,860 5,176
------------- ------------- -------------
Total assets 67,852 54,676 43,854
------------- ------------- -------------
LIABILITIES
Current liabilities
Trade and other payables 9,893 7,583 4,418
Bank loans 8,702 1,166 2,246
Current portion of convertible - -
loan notes 4,276
Current portion of shareholders'
loans 1,889 501 440
Current tax payable 315 415 341
------------- ------------- -------------
Total current liabilities 25,075 9,665 7,445
------------- ------------- -------------
Net current (liabilities)/assets (7,737) (2,805) (2,269)
------------- ------------- -------------
Total assets less current
liabilities 42,777 45,011 36,409
------------- ------------- -------------
Non-current liabilities
Bank loan - 2,916 -
Deferred tax liabilities 113 - -
Convertible loan notes - 3,858 2,744
Shareholder's loan 3,769 3,748 3,611
------------- ------------- -------------
3,882 10,522 6,355
Net assets 38,895 34,489 30,054
-------------
EQUITY
Share capital 2,858 2,656 2,656
Share premium 24,972 25,678 25,678
PRC statutory reserve 3,581 3,098 2,671
Reverse acquisition reserve (23,992) (23,992) (23,992)
Shares to be issued reserve 300 148 116
Convertible loan notes -
equity 160 152 121
Foreign exchange translation
reserve 10,900 8,352 6,299
Merger reserve 2,216 2,216 2,216
Retained profits 17,900 16,181 14,289
------------- ------------- -------------
38,895 34,489 30,054
------------- ------------- -------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2011
Year ended Year ended
31 December 31 December
2011 2010
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit
before tax (338) 3,753
Adjustments
for:
Depreciation 1,264 368
Amortisation of land use rights
lease
prepayments 189 187
(Gain)/loss on disposal of property,
plant,
equipment and land use right (449) 6
Employee share options 152 32
Finance costs 1,336 726
Finance income (25) (515)
------------- -------------
Operating profit before working capital
changes 2,129 4,557
Changes in working capital:
Inventories (3,206) (1,671)
Trade and other receivables (2,758) (330)
Trade and other payables 2,093 645
------------- -------------
Cash (outflow)/generated from operations (1,742) 3,201
Interest
received 25 22
Income taxes
paid (1,613) (1,385)
------------- -------------
Net cash (outflow)/generated from operating
activities (3,330) 1,838
------------- -------------
Cash flows from investing activities
Payment for acquisition of property,
plant and equipment (744) (4,400)
Proceeds from sale of fixed assets 45 11
Net cash generated/(outflow) from investing
activities (699) (4,389)
------------- -------------
Cash flows from financing activities
Proceeds from bank
loan 4,147 3,442
Repayment of bank loan - (1,797)
Net cash proceeds from issue of ordinary
shares of CFC 2,497 -
Proceeds from / (repayment of) shareholders'
loan 1,396 -
Net cash flow arising from convertible
loan notes 240 995
Interest
paid (797) (436)
Dividend
paid (93) -
Net cash generated from financing activities 7,390 2,204
------------- -------------
Net increase/(decrease) in cash and
cash equivalents 3,361 (347)
Effect of foreign exchange rate changes 305 17
Cash and cash equivalents at beginning
of period 2,918 3,248
------------- -------------
Cash and cash equivalents at end of
period 6,584 2,918
------------- -------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
Total equity
Shares Foreign attributable
to be Reverse PRC Convertible exchange to owners
Share Share issued acquisition Merger statutory loan notes translation Retained of the
capital premium reserve reserve reserve reserves - equity reserve profits parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1
January
2011 2,656 25,678 148 (23,992) 2,216 3,098 152 8,352 16,181 34,489
Employee share
options
Granted - - 152 - - - - - - 152
Transfer to
PRC
statutory
Reserves - - - - - 483 - - (483) -
Issue of
ordinary
shares 202 2,294 - - - - - - - 2,496
Capital
reduction - (3,000) - - - - - - 3,000 -
Convertible
loan
notes -
Equity - - - - - - 8 - - 8
Dividend paid - - - - - - - - (93) (93)
-------- -------- -------- ------------ ---------------- ---------- ------------ ------------ --------- -------------
Transactions
with
owners 202 (706) 152 - - 483 8 - 2,424 2,563
-------- -------- -------- ------------ ---------------- ---------- ------------ ------------ --------- -------------
Profit for the
period - - - - - - - - (706) (706)
Other
comprehensive
income:
Exchange
differences
on
translation
of
foreign
operations - - - - - - - 2,548 - 2,548
Total
comprehensive
income for
the
period - - - - - - - 2,548 (706) 1,842
Rounding
adjustment - - - - - - - - 1 1
As at 31
December
2011 2,858 24,972 300 (23,992) 2,216 3,581 160 10,900 17,900 38,895
-------- -------- -------- ------------ ---------------- ---------- ------------ ------------ --------- -------------
As at 1
January
2010 2,656 25,678 116 (23,992) 2,216 2,671 121 6,299 14,289 30,054
Employee
share options
Granted - - 32 - - - - - - 32
Transfer to
PRC
statutory
Reserves - - - - - 427 - - (427) -
Convertible
loan
notes -
Equity - - - - - - 31 - - 31
-------- -------- -------- ------------ ---------------- ---------- ------------ ------------ --------- -------------
Transactions
with
owners - - 32 - - 427 31 - (427) 63
-------- -------- -------- ------------ ---------------- ---------- ------------ ------------ --------- -------------
Profit for the
period - - - - - - - - 2,319 2,319
Other
comprehensive
income:
Exchange
differences
on
translation
of
foreign
operations - - - - - - - 2,053 - 2,053
Total
comprehensive
income for
the
period - - - - - - - 2,053 2,319 4,372
As at 31
December
2010 2,656 25,678 148 (23,992) 2,216 3,098 152 8,352 16,181 34,489
-------- -------- -------- ------------ ---------------- ---------- ------------ ------------ --------- -------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
1. Publication of non-statutory accounts
In accordance with section 435 of the Companies Act 2006, the
Directors advise that the financial information set out in this
preliminary announcement does not constitute the Group's statutory
financial statements for the year ended 31 December 2011 or 2010,
but is derived from these financial statements. The financial
statements for the year ended 31 December 2010 have been delivered
to the Registrar of Companies. The financial statements for the
year ended 31 December 2011 have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union. The financial statements for the year ended 31
December 2011 will be forwarded to the Registrar of Companies
following the Company's Annual General Meeting. The Auditors have
reported on these financial statements; their reports were
unqualified and did not contain statements under Section 498(2) or
(3) of the Companies Act 2006.
The consolidated balance sheet at 31 December 2011 and the
consolidated income statement, consolidated statement of cash flows
, and consolidated statement of changes in equity for the year then
ended have been extracted from the Group's financial statements.
Those financial statements have not yet been delivered to the
Registrar.
2. General Information
Principal activities of China Food Company Plc ("China Food" or
the "Company") and its subsidiaries (the "Group") include the
development, manufacture and distribution of cooking and dipping
sauces and animal feed products. The Group's main operations are in
the People's Republic of China (the "PRC").
China Food, a public limited company, is the Group's ultimate
parent company. It is incorporated and domiciled in the United
Kingdom. The address of China Food's registered office is 49
Whitehall, London SW1A2BX. China Food's shares are listed on the
AIM market of the London Stock Exchange.
3. Basis of preparation
The preliminary financial statements comprise the consolidated
financial statements of all the entities within the Group. The
financial statements of the subsidiaries are prepared for the same
reporting date as the parent company. Consistent accounting
policies are applied for like transactions and events in similar
circumstances.
The preliminary financial statements have been prepared under
the historical cost convention, except for revaluation of certain
financial instruments.
All intra-group balances, transactions, income and expenses and
profits and losses resulting from intra-group transactions that are
recognised in assets, are eliminated in full.
4. Accounting policies and changes thereto
These preliminary financial statements have been prepared in
accordance with the accounting policies adopted in the last annual
financial statements for the year to 31 December 2010 except for
the adoption of the following accounting policies and judgments,
which are relevant to and effective for the Group's financial
statements for the financial year beginning 1 January 2011:
- Depreciation policies on property, plant and equipment
- Accounting treatment for animal feed
4.1 Depreciation policies on property, plant and equipment
Depreciation of the production facilities of the new soya sauce
factory is computed based on its production capacity. This includes
the plant and machinery and certain storage buildings where usage
fluctuates according to capacity of output. A number of these
storage units currently remain unused. This will match the economic
consumption of the asset with the depreciation charge during the
start up phase of the new factory where the plant is only 27%
productive. A unit of production method is therefore applied.
Management has determined the number of units the relevant assets
will handle during its economic life and depreciation has been
applied accordingly.
4.2 Accounting treatment for animal feed
Management has considered as to whether a disposal group existed
as per IFRS5 'Non-Current Assets Held for Sale and Discontinued
Operations". As at the year end, the intention was to sell the feed
business, however it was unclear as to whether the business could
be sold in its current form as a new plant was being constructed.
The new plant was approximately 50% complete at year end and is due
to be completed in July 2012. The expectation is that the business
could then be sold after the plant is completed. In management's
judgement, the conditions of IFRS 5 had not been met as the assets
could not be sold in their present form. As such, the feed business
has been treated as a continuing operation as at 31 December 2011.
The prepaid construction cost for the new animal feed plant were
treated as current assets in the balance sheet, as the Company
expects to sell the completed asset in 2012. It would not be
appropriate to treat this as a non-current asset as the Company
does not intend to use theplant in the business.
5. Earnings Before Interest, Taxes, Depreciation and
Amortisation ("EBITDA")
The reconciliation of EBITDA to income statement is as
follows:
Year ended Year ended
31 December 2011 31 December 2010
GBP'000 GBP'000
(Loss)/profit before
tax (338) 3,753
Less:
Finance income (25) (515)
Add:
Finance costs 1,336 726
Depreciation 672 368
Amortisation 188 187
EBITDA 1,833 4,519
----------------- -----------------
6. Earnings per share and dividends
Year ended Year ended
31 December 31 December
2011 2010
(Loss)/profit after tax and
earnings attributable
to ordinary shareholders (GBP'000) (706) 2,319
------------- -------------
(Loss)/profit after tax and
earnings attributable
to ordinary shareholders for
calculation of
diluted earnings (GBP'000) (706) 2,665
------------- -------------
Weighted average number of shares
(used for
basic earnings per share) 69,764,645 66,399,991
Dilutive effect - 10,148,880
------------- -------------
Dilutive weighted average number
of shares
(used for dilutive earnings
per share) 69,764,645 76,548,871
------------- -------------
Basic (loss)/earnings per share
(pence) (1.01) 3.49
------------- -------------
Diluted (loss)/earnings per
share (pence) (1.01) 3.48
------------- -------------
Dividend per share (pence) 0.13 -
------------- -------------
Earnings per share has been calculated on 69,764,645 shares
(2010: 66,399,991 shares), and on attributable earnings of
-GBP706,000 (2010: GBP2,319,000).
Diluted earnings per share has been calculated on 69,764,645
shares (2010: 76,548,871 shares), and on fully diluted earnings of
-GBP706,000 (2010: GBP2,665,000).
The warrant granted to Strand Partners to subscribe 1,328,000
shares (2009: 1,328,000 shares) at GBP0.50 per share, the share
options granted to employees to subscribe 4,648,000 shares (2009:
4,648,000) at GBP0.355 per share, and the convertible loan notes
A&B issued at GBP0.32 per share have dilution effect on the
calculation of the diluted earnings per share as the market price
of the Company's shares was higher than the exercise prices and
conversion price at 31 December 2010.
In May 2011, the Company granted 1,950,000 share options to the
directors and employees at GBP0.53 per share. There was no dilutive
effect on the calculation of the diluted earnings per share from
the fore-mentioned warrant, share options and convertible loans as
the market price of the Company's shares was lower than the
exercise prices and conversion price at 31 December 2011.
GBP93,000 dividend was proposed for the year ended 31 December
2011 (2010: Nil) and distributed in November 2011.
7. Segmental reporting
Management currently identifies the Group's two service lines as
operating segments. These operating segments are monitored and
strategic decisions are made on the basis of adjusted segment
operating results.
Segment information is presented in respect of the Group's
business segments. No geographical segment information is presented
as the Group mainly operates in the PRC.
There were no inter-segment sales and transfers during the year
ended 31 December 2011 (2010: Nil).
Business segments
Year ended 31 December 2011
Animal feed Condiments Total
GBP'000 GBP'000 GBP'000
Segment revenue
Sales to external customers 23,337 16,890 40,227
------------ ----------- ---------
Cost of sales (21,285) (10,370) (31,655)
Finance income 7 18 25
Finance costs - (530) (530)
Other expenses (25) (6,551) (6,576)
------------ ----------- ---------
Segment operating profit 2,034 (543) 1,491
Taxation (503) 135 (368)
------------ ----------- ---------
Segment profit for the year 1,531 (408) 1,123
------------ ----------- ---------
Additions /(reduction) of
non-current assets (411) 3,108 2,697
Segment assets 2011 4,928 62,891 67,819
------------ ----------- ---------
Depreciation and amortisation 97 763 860
Unallocated depreciation
and amortisation 1
---------
Group depreciation and amortisation 861
---------
Year ended 31 December 2010
Animal feed Condiments Total
GBP'000 GBP'000 GBP'000
Segment revenue
Sales to external customers 21,214 14,677 35,891
------------ ----------- ---------
Cost of sales (19,281) (8,779) (28,060)
Finance income 2 6 8
Finance costs - (134) (134)
Other expenses (449) (1,553) (2,002)
------------ ----------- ---------
Segment operating profit 1,486 4,217 5,703
Taxation (376) (1,058) (1,434)
------------ ----------- ---------
Segment profit for the year 1,110 3,159 4,269
------------ ----------- ---------
Segment assets 2010 2,938 51,554 54,492
------------ ----------- ---------
Depreciation and amortisation 93 460 553
Unallocated depreciation
and amortisation 2
---------
Group depreciation and amortisation 555
---------
Segment assets 2009 2,772 40,554 43,326
------------ ----------- ---------
The totals presented for the Group's operating segments
reconcile to the entity's key financial figures as presented in its
financial statements as follows:
Year ended Year ended Year ended
31 December 31 December 31 December
2011 2010 2009
GBP'000 GBP'000 GBP'000
Segment revenue
Total segment revenues 40,227 35,891 30,136
------------- ------------- -------------
Group revenues 40,227 35,891 30,136
------------- ------------- -------------
Profit or loss
Segment operating
profit 1,491 5,703 4,425
Finance income not
allocated 6 507 117
Finance costs not
allocated (812) (592) (281)
Other expenses not
allocated (1,023) (1,865) (1,441)
------------- ------------- -------------
Group operating profit (338) 3,753 2,820
-------------
As at As at As at
31 December 31 December 31 December
2011 2010 2009
GBP'000 GBP'000 GBP'000
Assets
Total segment assets 67,819 54,492 43,326
Group headquarters 33 184 528
------------- ------------- -------------
Group assets 67,852 54,676 43,854
------------- ------------- -------------
8. Sale of Fuss Feed
On 14 February 2012, the Company signed a memorandum of
understanding ("MOU") with an international animal feed provider to
sell 100% of Fuss Feed's business and selected assets. EBITDA for
the Fuss Feed business was approximately GBP2.1 million for 2011.
Based on the current discussions with interested buyers, the
estimated total book value of the assets and liabilities of Fuss
Feed to be disposed as at December 31 2011 were RMB 22.7 million
and RMB 15.2 million, respectively, divided into:
As at 31 December
2011
RMB'000
Assets of Fuss Feed held for sale
Trade receivables* -
Inventories 5,834
Pre-payments 16,857
22,691
------------------
Liabilities of Fuss Feed held for sale
------------------
Trade payables 15,222
------------------
Net assets held for sale 7,469
------------------
* No trade receivable as all sales are made on cash basis.
At the date of approval of the annual report, the timing and
completion of the transaction is uncertain. The final structure may
also differ pending the entering of a definitive sales and purchase
agreement.
Management has considered as to whether a disposal group existed
as per IFRS5 'Non-Current Assets Held for Sale and Discontinued
Operations". As at the year end, the intention was to sell the feed
business, however it was unclear as to whether the business could
be sold in its current form as a new plant was being constructed.
The new plant was approximately 50% complete at year end and is due
to be completed in H2 2012. The expectation is that the business
could then be sold after the plant is completed. In management's
judgement, the conditions of IFRS 5 had not been met as the assets
could not be sold in their present form. As such, the feed business
has been treated as a continuing operation as at 31 December
2011.
9. Other operating income
Other operating income in 2011 included GBP 456,000 gain on
disposal of land use right and fixed assets of Fuss Feed.
10. Trade and other receivables
As at As at As at
31 December 31 December 31 December
2011 2010 2009
GBP'000 GBP'000 GBP'000
Trade receivables 543 554 346
Other receivables 1,948 162 51
Prepaid construction - -
cost 1,725
Prepayments 127 21 14
VAT recoverable 9 13 9
------------------ ------------------ --------------------
4,352 750 420
------------------ ------------------ --------------------
Trade receivables are unsecured and non-interest bearing. They
are recognised at their original invoice amounts which represent
their fair values on initial recognition less provision for
impairment where this is required. No provision for impairment has
been recorded in 2011 or 2010. Past due not impaired balances are
not material. All trade receivables are denominated in RMB.
The increase of other receivables is mainly due to the prepaid
deposit to the TV advertising agency for the promotion of the new
product, Xaka.
As at 31 December 2011, RMB 16,857,000 had been paid for the
construction of the new animal feed plant. This balance has been
treated as a current asset in prepayments as the Company expects to
sell the completed asset in 2012. It would not be appropriate to
treat this as a non-current asset as the Company does not intend to
use the plant in the business.
11. Annual report and accounts
Copies of the full statutory financial statements will be
available from the offices of 49 Whitehall, London SWIA 2BX from 6
June 2012 and will also be available from the Group's website at
www.chinafoodcompany.com.
12. Annual General Meeting
The Group's Annual General Meeting will be held on 29 June 2012
at 10.30am at the offices of Stephenson Harwood, 1 Finsbury Circus,
City of London, EC2M 7SH.
- ENDS -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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