TIDMCFC
RNS Number : 1623F
China Food Company PLC
21 May 2013
Press Release 21 May 2013
China Food Company Plc
("China Food", "Group" or the "Company")
Unaudited Preliminary Results
China Food Company Plc (AIM:CFC), a leading Chinese manufacturer
of cooking and dipping sauces, announces its unaudited preliminary
results for the year ended 31 December 2012.
Highlights:
-- Group revenue increased by 19.0% to GBP20.1 million (2011:
GBP16.9 million*), with a 34% increase in soya sauce in
H2 2012
-- Loss before tax of GBP4.6 million (2011: GBP1.9 million
loss*) after increased marketing spend of GBP6.8 million
(2011: GBP5.2 million)
-- Marketing expenditure is now set to decrease
-- H2 2012 trading losses reduced to GBP0.6 million. EBITDA
positive in second half
-- Strong asset backing with net assets of GBP31.7 million
and net asset per share of 44p (2011: 54p)
-- New banking facilities of GBP2.0 million negotiated for
working capital purposes in 2013
-- Completion of new state-of-the-art animal feed factory
should facilitate eventual sale of this non-core business
*The 2011 numbers are restated as the Animal Feed business has
been reclassified as an asset held for sale in view of the Boards
continuing process to dispose of this business and the financial
analysis and commentary relate to the continuing activities of the
Condiments business only.
Commenting on the Results, John McLean, Chairman of China Food
Company plc, said: "This has been another period of significant
progress for China Food; since the launch of Xaka, the Group's
premium soya sauce product, we are pleased to have achieved
considerable success with Xaka sales increasing by 276% in H2 2012
compared to H2 2011. The ongoing investment into building the
brands of Hao Tai Tai and Xaka is being carefully managed by the
Board, and is putting in place a robust foundation for future
growth.
"As Chinese consumers become increasingly concerned with food
safety and production standards, China Food is ideally placed to
capitalise on the growing affluence in its target provinces."
- Ends -
For further information:
China Food Company Plc
John McLean, Chairman Tel: +44 (0) 7768 031 454
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 / Joanne Shears Tel: +44 (0) 20 7398
7702
henry.ht@abchurch-group.com www.abchurch-group.com
Chairman's Statement
Overview
2012 was a transitional year for China, particularly with the
changes that were made in terms of leadership at a governmental
level. The economy grew by 7.7% in Q1 2013, and is targeted to grow
by 7.5% for the full year. Retail sales, a particularly pertinent
measure for consumption, grew by 12.6% in March 2013, which is an
increase over January and February's average. Chinese FMCG products
grew by 14% in 2012 (source: Economic Observer), demonstrating the
consistently increasing levels of consumerism.
The rate of change that the Board is seeing in China is
significant and China Food is well placed to capitalise on this, as
the economy develops and consumer spending continues to increase
apace. Specifically in Shandong, the growth has been strong and
with a population of 96 million, the province has the third highest
GDP in China with a GDP growth rate at over 12% for 2012.
Against this backdrop of ongoing economic growth in China, the
Group's continuing revenue grew to GBP20.1 million (2011: GBP16.9
million), an increase of 19.0%, as the Group successfully expanded
its soya sauce business into more shops, distributors and
provinces. Taking into account the increased depreciation of GBP1.3
million for the new facility and the impact of the loss of margin
due to reduced revenues arising from enhanced food safety processes
for vinegar and bean paste (totalling GBP450,000), gross profit
decreased slightly by 5.3% to GBP6.2 million (2011: GBP6.5 million)
with a loss before tax of GBP4.6 million (2011: GBP1.9 million).
However, as explained below the year has been one of two halves
with the operating loss for the second half falling to GBP533,000
(H1 2012: (GBP2,911,000)). However demand for China Food's products
remained strong and the Board perceives the marketing spend of
GBP6.8 million (2011: GBP5.2 million) to be an investment for the
future growth of the Group.
Consumer
With regard to the average Chinese consumer, the Group has
identified a shift in shopping and eating habits and, with the
ongoing urbanisation (52% for China and 42% for Shandong) which is
occurring, there is a considerable opportunity for China Food to
continue to grow and build its customer base. This potential for
growth is compounded by the increasing average salary and the well
documented rise of the Chinese middle classes. This increasing
spending power has resulted in consumers becoming ever more
concerned over food safety, and China Food's western branding,
modern manufacturing facility and high standards (ISO 22,000, BRC
and GM free) of food safety are engendering considerable trust
amongst consumers.
Food safety has been further heightened as an issue in China, as
it has been announced that the State Food and Drug Administration
will be promoted to ministerial level and plans have been made at a
governmental level to establish a food safety standards centre to
impose compulsory industry standards across China. China Food's
high standards of food safety, operating to western standards,
means that the Group is well positioned to benefit from the
increasing focus on this by consumers and the government.
China Food's strategy is for Hao Tai Tai, the Group's mid-range
brand, to benefit from the image and branding associated with Xaka,
its premium soya sauce product. The marketing spend associated with
Xaka has therefore also had a positive impact on the profile of Hao
Tai Tai, as the overall China Food brand becomes associated with
quality and premium products. We expect to see a potential uplift
in sales of Hao Tai Tai, as consumers perceive this to be higher
grade given the association with Xaka.
Strategy
China Food operates in a fragmented market, with few large
players and multiple smaller manufacturers which cannot compete
with the Group's scale and standards of production. The condiments
market in China, and particularly in Shandong, is therefore
particularly suitable for consolidation and the Board intends to
consider potential partnership opportunities with a view to
generating shareholder value.
The Board believes that the Group is now well positioned within
the Chinese market to continue to increase its market share
organically, as well as capitalising on opportunities for
consolidation in the sector as appropriate.
Products
The Board is pleased that the Group's product range has been
developed, with the market response to Xaka, the Group's premium
grade soya sauce, being positive since its launch in H2 2011. Xaka
achieved 276% growth in sales in H2 2012 when compared to H2 2011.
The brand was selected as the preferred soya sauce for the Chinese
Olympic team in 2012 and the Board believes that a robust
foundation has been laid for Xaka as an aspirational and well
respected brand in the market.
Xaka achieved sales of GBP6.4 million during 2012 which compares
to GBP1.0 million in 2011. The marketing which has successfully
positioned Xaka as a premium brand has had a positive impact on Hao
Tai Tai sales and China Food is now also working to drive sales of
Hao Tai Tai in 2013. During the year, the Company exited from the
low end / high volume sachet market for Hao Tai Tai, which in the
second half has resulted in an improvement in the Company's gross
margins (before depreciation) from 37% to 39%.
The Group has experienced some loss of production capacity in
the vinegar and bean paste areas, due to the new increased food
safety standards, however, vinegar demand continues to outstrip
capacity and the Board will be considering a further investment
when funds allow.
Sales
The Board is pleased that the Group has expanded its
distribution network and is now successfully selling Xaka and Hao
Tai Tai in the neighbouring provinces of Henan, Hebei, Anhui,
Jiangsu and Beijing. Sales outside of Shandong now account for 15%
of total sales, which is expected to rise to 25% in 2013.
2012 was a changeable year for the condiments business with
regard to revenue. The Group invested GBP6.8 million in advertising
and marketing (particularly focused on raising the profile of
Xaka), which generated significant sales, resulting in soya sauce
revenue reaching GBP5.3 million in the first half of the year (H1
2011: GBP3.8 million), an increase of 40% on the comparative
period. The overall condiments business grew by 16% in H1 2012,
held back by increased demands in food safety standards for vinegar
and bean paste, as well as a decline in sales of Hao Tai Tai
following the abandonment of the bottom-end sachet range. This,
coupled with the increased investment in marketing, resulted in an
operating loss of GBP2.9 million for H1 2012 and a negative EBITDA
of GBP1.7 million.
In the second half of 2012, the Group successfully worked to
drive sales of Hao Tai Tai whilst maintaining the Xaka business. As
a result, revenue for the soya sauce business increased by 34% to
GBP6.4 million (H2 2011: GBP4.8.million), and coupled with growth
in the vinegar and bean paste products, resulted in growth of 21%
for the overall condiments business in the second half of the year.
Importantly, the business achieved an EBITDA positive result in H2
2012 of GBP263,000.
2011 2012
H1 H2 TOTAL H1 H2 TOTAL
GBP'000
Xaka - 1,048 1,022 2,468 3,941 6,412
Hao Tai Tai 3,779 3,767 7,549 2,815 2,505 5,319
Soya sauce 3,779 4,815 8,571 5,283 6,446 11,731
Vinegar/Bean
Paste 4,586 3,800 8,409 4,416 3,956 8,370
--------- --------- -------- -------- ---------- --------------
Total revenue 8,365 8,615 16,980 9,699 10,402 20,101
--------- --------- -------- -------- ---------- --------------
Margin
Soya sauce 1,463 1,574 3,037 1,029 2,112 3,140
Vinegar/Bean
Paste 2,010 1,473 3,483 1,628 1,404 3,033
--------- --------- -------- -------- ---------- --------------
3,473 3,047 6,520 2,657 3,516 6,173
Add Back Depreciation 102 106 208 947 540 1,486
--------- --------- -------- -------- ---------- --------------
Gross Margin 3,575 3,153 6,728 3,604 4,056 7,659
========= ========= ======== ======== ========== ==============
Gross Margin
% 43% 37% 40% 37% 39% 38%
Soya sauce 39% 33% 35% 19% 33% 27%
Vinegar/Bean
Paste 44% 39% 41% 37% 35% 36%
--------- --------- -------- -------- ---------- --------------
Margin 42% 35% 38% 27% 34% 31%
--------------
EBITDA 1,826 (1,957) (131) (1,670) 263 (1,407)
----------------------- --------- --------- -------- ----- -------- ---------- --------------
Margins
The margins overall for the year have declined from 38% to 31%,
however if the additional depreciation charge is added back of
GBP1.3 million, the margins have only decreased by 2% to 38%, which
is more a reflection of the loss of contribution from vinegar and
bean paste. 2012 saw a significant step change in the level of
depreciation as production capacity increased to 77% and for 2013,
there will be a further increase, but the amount will be
significantly less. Moving forward, it is anticipated that the
margins will improve as the "depreciation fixed cost" will decrease
as a proportion of turnover.
Marketing
The Group's marketing strategy during the period has been
largely focused on Xaka, with considerable investment of GBP6.8
million (2011: GBP5.2 million) made in the launch of this premium
product. This investment has laid a strong foundation for future
growth not only of Xaka, but also of other products in the Group's
range which have benefited from the association with such a premium
product.
Furthermore, the Xaka investment has opened up a much larger
geographic footprint and distributor network which will allow the
Group to drive Hao Tai Tai sales through these new channels.
In 2013, the Board has taken the decision to direct more of its
marketing focus towards Hao Tai Tai, which has been core to the
Group's offering for over 10 years and has remained profitable
during this period. The Group intends to work to strike a balance
between its marketing spend on the two products, in order to
maximise the impact of the investment and ensure that the marketing
strategies for Xaka and Hao Tai Tai remain aligned and mutually
beneficial. The marketing spend is now focused on supporting the
products to the consumer and distributors, rather than
brand-building. We foresee that the level of marketing spend will
now reduce both as a proportion of turnover and absolutely.
Production
The Group has seen wheat and soya prices increase during the
period particularly in autumn 2012, however as the product pricing
was in its launch phase, the Group was unable to pass on any price
increases. Prices have now stabilised and are starting to
decline.
The Group's factory, which was completed in H2 2011, sets the
Group apart from its competitors in terms of the quality of its
products. The production facility adheres to the highest standards
of quality and food safety, and the Board now believes it is one of
the top 20 production facilities in China. The state-of-the-art
facility gives the Group total capacity of 50,000 tonnes per year
(based on 180 day fermentation cycle) of raw soya sauce and, during
2012, we achieved a utilisation rate of 77% with 38,500 tonnes of
final soya sauce product being sold.
The duration of the fermentation cycle (180 to 120 days)
determines the level of the amino acid within the raw soya sauce
and as a consequence it defines the product as either premium (180
day) or medium (120 day) grade.
The facility has been established with the ability to adapt the
production process to reflect the varying product fermentation
processes of between 180 and 120 days. This will increase the stock
rotation and reduce production costs. The Company will consider
reviewing the fermentation process in the current financial year to
reduce the fermentation period of production batches for Hao Tai
Tai to 120 days, rather than engineering, 180 day products to meet
120 day standards. This will reduce the overall fermentation time,
decrease costs and increase the number of fermentation cycles and
yield from the Group's existing capacity.
In addition to manufacturing China Food's own branded products,
the Group has a robust industrial reuser business which supplied
2.9 tonnes of raw soya sauce to top tier condiments manufacturers
in 2012. This business provides the Group with steady cashflow and
although margins are lower, the Board is pleased that it maximises
the utilisation of the facility and increases the economies of
scale available to the Group during this period of new market
penetration and revenue growth.
The Board is considering further opportunities to expand its
vinegar production facility, which is sold at a margin of 43%.
Management
Building a strong and experienced management team continues to
be a key objective of the Group, to drive growth and input into the
strategic direction of China Food.
At the Board level, China Food was please to appoint Mr.
Clifford Halvorsen onto the Board. As a seasoned banker with
experience in the food sector, Clifford's experience will give the
Group support and insight into capital markets in particular.
Additionally, Mr Tham, who served as Chief Executive Officer for
five years, assumed the role of Executive Director as the Group
looks to dispose of the feed business and explore strategic
alliances. Ms. Feng Bo, Chief Operating Officer, takes over the
Chief Executive Officer role while John McLean assumed the position
of Executive Chairman and will oversee the Group's financial
matters with the resignation of Ms. Tang Lin, our Chief Financial
Officer. The Group is currently seeking a Chief Financial Officer
with the relevant skill and expertise to support the Group's future
growth, and an announcement will be made in due course.
During the year, Mr. Tom Coley also left the Board for personal
reasons. As a former senior manager of Nestle, a multinational food
company, Mr. Coley provided valuable insight and input to the
Group's marketing strategy in particular of launching branded
products in China. The Board would particularly like to thank Mr.
Coley for his contribution to the Group.
Cash
The Group has historically been highly cash generative and has
invested significantly in the last few years in the development of
the new production facility funded from cash generation,
shareholder loans and convertible loan notes. Commencing H2 2011,
significant investment has been made in Xaka product launch and new
market penetration as well as in the redevelopment of the Feeds
operation to facilitate a sale at optimum valuation. Whilst the
Group has been able to secure bank facilities within China to fund
working capital requirements, regulatory controls on the remittance
of cash outside China has, on occasions, restricted the Groups
ability to settle liabilities arising in Singapore and the UK to
payment terms and the decision to focus on investment in market
penetration and Xaka brand development in the growing consumer
market resulted in the need to restructure the Group's convertible
loan notes.
Since the period end, the Group has successfully put a structure
in place to enable it to remit funds out of China. The first small
tranche of funds has already been received by the Singapore holding
company in April 2013.
During the course of the year, the Group continued to have the
support of the financial institutions in China for its trading
operations. The Group secured new facilities of RMB15 million from
Weihai City Commercial Bank for working capital requirements in the
financial year. As at 31 December 2012, the total bank borrowings
amounted to GBP10.2 million with a cash balance of GBP8.0 million.
In early 2013, the Group repaid a bank loan of GBP2.5 million and
negotiated a new facility of GBP2.0 million which was drawdown in
May 2013. With the trading operations returning to EBITDA-positive
in the second half and the new China bank facilities, the cash
requirements for China are adequate.
The convertible loan notes of the Company of GBP4.38 million and
the accruing interests were successfully extended to 3 November
2014 during the period. A redemption premium of 1% of the Loan Note
holder's original holding will be payable on redemption. The
Company and the Loan Note holders have agreed that interest will be
charged at a rate of 12.5% p.a. from 3 November 2012 to 31 January
2013; from 1 February 2013 to 30 June 2013, the rate of interest
will rise to 15% p.a.; from 1 July to 30 September 2013 to 17.5%
p.a.; from 1 October to 31 December 2013 to 20% p.a. and 25% p.a.
thereafter until redemption. The Loan Note holders retain the right
not to redeem their holding until maturity of the Loan Notes on 3
November 2014, in which case the interest rate will be fixed at the
rate prevailing on the date of the Company's proposed redemption.
In the event the Company is unable to transfer funds from the PRC
to pay interest when due, the A, B, & C Loan Note holders have
agreed that interest charged will be rolled up and compounded
semi-annually to maturity. This will relieve the Group's immediate
cashflow requirements outside China, where Singapore and London
operate as cost-centres and allow the Group to focus on
strengthening the business.
As detailed further below, China Food has initiated a sales
process of the feed business and when the sale is completed, the
funds will be utilised to repay the convertible loan notes.
Net Assets
The net assets for the group at 31 December 2012 were GBP31.7
million (2011: GBP38.9 million) which was a decrease over 2011 of
18.7%. The reduction in net assets was increased by the
depreciation in the RMB exchange rate which during the year has
fallen by 3.73% (2011: GBP1 = RMB9.768 versus 2012: GBP1 =
RMB10.132). The RMB has since strengthened significantly with the
rate as at 30 April 2013 at GBP1 = RMB9.575.
Depreciation
As the manufacturing facility utilisation has increased during
the year, the associated depreciation has also increased, so that
for the year the charge, which is included in costs of sales, is
GBP1.5 million (2011: GBP0.2 million) which is a substantial
increase of GBP1.3 million over 2011. It is expected that the
charge for 2013 will only marginally increase as capacity
utilisation rises to 100%.
Animal Feed Business
As previously announced, the Group signed a sales and purchase
agreement with Wisehand Planning Co. Ltd ("Wisehand"), a Korean
based company, to divest of its animal feed business for a
consideration of US$16 million in July 2012. However, the
transaction did not complete and the Group is currently considering
action against Wisehand given that Wisehand defaulted on its
terms.
The animal feed business turnover reduced to RMB219 million
during the period (2011: RMB242 million) primarily due to the poor
livestock market in H2 2012 and the disruptive impact of the sale
process and the building of the new feed factory. The Group could
have mitigated the price pressures by increasing purchases and
stockpiling but while this would have reduced the average cost of
sales, it would have increased the Group's inventory and
constrained cash. As the feed sale did not complete and the Group
funded the construction of the new factory, the Board took the
decision not to increase its inventory. This resulted in the feed
business breaking even with an operating profit of RMB11,000 (2011:
RMB21.1million).
In the meantime, the Group's new feed factory was completed at
the end of 2012 and started full production in March 2013. This new
factory will increase existing capacity from 18,000 tonnes per
annum ("tpa") in pre-mix feed to 50,000 tpa and 60,000 tpa in
compound feed to 240,000 tpa. With the new facilities and more
advanced equipment, the Board is confident of reducing the cost of
production and being more competitive and profitable for 2013.
Revenue from the old factory operating at full capacity was GBP24
million which compares to an estimated revenue of the new factory
operating at full capacity of approximately GBP100 million. The
total capital investment for the new factory was approximately
GBP3.5 million, which has been funded from the Company's internal
resources. The new factory is equipped with the most advanced and
up-to-date feed manufacturing equipment sourced from Buhler Group,
a Swiss-based manufacturer of agriculture equipment.
The Board remains committed to selling the animal feed business
to enable the company to increase its focus on its condiments
business and to inject new capital into the Group to repay its
debts and provide additional working capital to the condiments
business. Now the factory is operational, the Board will be working
to improve its efficiency. Following the start-up in March 2013,
the first half is expected to make a loss, but once the plant is
fully operational, it is expected to return to profit. Until any
sale is concluded, the feed business is expected to make a positive
contribution to the Group. The Board confirms that the Group
continues to seek a buyer for its animal feed business, and will
update the market on this as appropriate and anticipates that the
operational cash flow from the feed business will exceed the
interest payable on the Group's loan stock. Once the feed business
has been sold, the anticipated proceeds will be used to repay the
outstanding loan stock.
Outlook
The Board continues to have confidence in the opportunity that
exists in the condiments market in China. The growing affluence of
Chinese consumers, increasing spending power and ongoing
urbanisation will, we believe, continue to drive the growth of the
industry and increase the demand for high quality products.
It is the Board's belief that up to 90% of the soya sauce market
in Japan is dominated by the high-end naturally fermented soya
sauce, such as "Kikkoman". Currently in China, the converse is true
where only about 10% of the market is consuming the high-end soya
sauce. China Food now has a production facility that can produce
such high-end soya sauce and is one of the largest of such
facilities in China, therefore positioning itself well for the
future growth of this high end market.
Meanwhile, the Group will focus on returning a profit by
continuing to drive sales of both Xaka and also Hao Tai Tai, which
continues to be one of the top brands in Shandong province. Our
brands of Xaka and Hao Tai Tai, coupled with a proven production
facility, give the Group strong fundamentals to grow the
business.
During the year, the combination of high sales and marketing
costs and additional depreciation had a significant impact on the
Group's results, however, as China Food's revenues increase, the
benefit of these "fixed costs" will impact the Group's bottom line.
It is also anticipated that our overall marketing spend will
diminish both as a proportion of revenues and absolutely, which as
a consequence, is expected to increase our net margin.
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.
John Mclean
Executive Chairman
21 May 2013
UNAUDITED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2012
Year ended Year ended
31 December 2012 31 December 2011
Continuing operations GBP'000 GBP'000
Revenue 20,101 16,890
Cost of sales (13,928) (10,370)
------------------- ------------------
Gross profit 6,173 6,520
Other operating income 68 457
Selling and marketing costs (6,785) (5,222)
Administrative costs (2,900) (2,370)
------------------- ------------------
Operating result (3,444) (615)
Finance costs (1,562) (1,336)
Finance income 440 25
------------------- ------------------
Loss before taxation for
continuing operations (4,566) (1,926)
Taxation (849) 29
------------------- ------------------
Loss after taxation for continuing
operations (5,415) (1,897)
(Loss)/profit from discontinued
operations (8) 1,191
------------------- ------------------
Loss for the period (5,423) (706)
------------------- ------------------
(Loss)/earnings per share
- Basic (pence) (7.59) (1.01)
- Diluted (pence) (7.59) (1.01)
- Basic (pence) - continuing (7.58) (2.72)
- Diluted (pence) - continuing (7.58) (2.72)
- Basic (pence) - discontinued (0.01) 1.71
- Diluted (pence) - discontinued (0.01) 1.71
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2012
Year ended Year ended
31 December 2012 31 December 2011
GBP'000 GBP'000
Loss for the year (5,423) (706)
Other comprehensive income
Exchange differences on translating
foreign operations (1,872) 2,548
------------------ ------------------
Other comprehensive result,
net of tax (1,872) 2,548
Total comprehensive result
for the year attributable
to equity holders of the
parent (7,295) 1,842
------------------ ------------------
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2012
As at As at
31 December 2012 31 December 2011
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 38,922 40,792
Land use rights lease
prepayments 7,331 7,789
Deferred tax assets 1,264 1,311
---------------------- -------------------
Total non-current assets 47,517 49,892
---------------------- -------------------
Current assets
Assets held for sale 4,271 2,988
Inventories 5,831 5,611
Land use rights lease
prepayments 151 151
Trade and other receivables 3,578 2,626
Current tax receivables 69 -
Cash and cash equivalents 7,968 6,584
---------------------- -------------------
Total current assets 21,868 17,960
---------------------- -------------------
Total assets 69,385 67,852
---------------------- -------------------
LIABILITIES
Current liabilities
Trade and other payables 15,743 8,334
Bank loans 10,067 8,702
Current portion of convertible
loan notes 622 4,276
Current portion of shareholders'
loans 1,949 1,889
Amount due to directors' 87 -
Current tax payable - 315
Liabilities held for
sale 1,562 1,559
---------------------- -------------------
Total current liabilities 30,030 25,075
---------------------- -------------------
Net current liabilities (8,162) (7,115)
---------------------- -------------------
Total assets less current
liabilities 39,355 42,777
---------------------- -------------------
Non-current liabilities
Convertible loan notes 3,985 -
Shareholders loan 3,591 3,769
Deferred tax liabilities 108 113
---------------------- -------------------
7,684 3,882
Net assets 31,671 38,895
----------------------
EQUITY
Share capital 2,858 2,858
Share premium 24,972 24,972
PRC statutory reserve 3,833 3,581
Reverse acquisition reserve (23,992) (23,992)
Shares to be issued reserve 371 300
Convertible loan notes
- equity 160 160
Foreign exchange translation
reserve 9,028 10,900
Merger reserve 2,216 2,216
Retained profits 12,225 17,900
---------------------- -------------------
31,671 38,895
---------------------- -------------------
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2012
Year ended Year ended
31 December 31 December
2012 2011
GBP'000 GBP '000
Cash flows from operating activities
Loss before tax (4,566) (1,926)
Adjustments
for:
Depreciation 1,865 1,264
Amortisation of land use
rights lease prepayments 189 189
Gain on disposal of property,
plant, equipment and land
use right (7) (449)
Employee share options 71 152
Finance costs 1,562 1,336
Finance income (440) (25)
------------- -------------
Operating (loss)/profit before
working capital changes (1,326) 541
Changes in working capital:
Inventories (221) (3,595)
Trade and other receivables (951) (1,032)
Trade and other payables 7,018 1,995
------------- -------------
Cash generated/(outflow) from
continuing operations 4,520 (2,091)
Discontinued operations 26 2,075
------------- -------------
Cash generated/(outflow) from
operations 4,546 (16)
Interest
received 56 25
Income taxes
paid (1,222) (1,613)
------------- -------------
Net cash generated/(outflow)
from operating activities 3,380 (1,604)
------------- -------------
Cash flows from investing activities
Payment for acquisition of
property, plant and equipment (1,468) (744)
Proceeds from sale of fixed
assets 16 45
Discontinued operations (1,354) (1,726)
Net cash outflow from investing
activities (2,086) (2,425)
------------- -------------
Cash flows from financing activities
Proceeds from bank
loan 2,192 4,147
Repayment of bank loan (498) -
Net cash proceeds from issue
of ordinary shares of CFC - 2,497
Proceeds from shareholders'
loan 117 1,396
Net cash flow arising from
convertible loan notes 45 240
Proceeds from directors' loan 87 -
Interest
paid (885) (797)
Dividend
paid - (93)
Net cash generated from financing
activities 1,058 7,390
------------- -------------
Net increase in cash and cash
equivalents 1,632 3,361
Effect of foreign exchange rate
changes (248) 305
Cash and cash equivalents at
beginning of period 6,584 2,918
------------- -------------
Cash and cash equivalents at
end of period 7,968 6,584
------------- -------------
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2012
Shares Foreign Total
to be Reverse Convertible exchange equity
Share Share issued acquisition Merger loan translation Retained attributable
capital premium reserve reserve reserve PRC notes reserve profits to owners
statutory - equity of the
reserves 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
2012 2,858 24,972 300 (23,992) 2,216 3,581 160 10,900 17,900 38,895
Employee share
options
Granted - - 71 - - - - - - 71
Transfer to
PRC statutory
Reserves - - - - - 252 - - (252) -
Convertible
loan notes
-
Equity - - - - - - - - -
Transactions
with owners - - 71 - - 252 - - (252) 71
-------------------- ------------------ -------------------- ------------------- ---------------- ---------------------- ---------------------- ------------------ ---------------------- ------------------
Profit for
the period - - - - - - - - (5,423) (5,423)
Other
comprehensive
income:
Exchange
differences
on
translation
of foreign
operations - - - - - - - (1,872) - (1,872)
Total
comprehensive
income for
the period - - - - - - - (1,872) (5,423) (7,295)
As at 31
December
2012 2,858 24,972 371 (23,992) 2,216 3,833 160 9,028 12,225 31,671
-------------------- ------------------ -------------------- ------------------- ---------------- ---------------------- ---------------------- ------------------ ---------------------- ------------------
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
-------------------- ------------------ -------------------- ------------------- ---------------- ---------------------- ---------------------- ------------------ ---------------------- ------------------
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 2012 or 2011,
but is derived from these financial statements. The financial
statements for the year ended 31 December 2011 have been delivered
to the Registrar of Companies. The financial statements for the
year ended 31 December 2012 is based on accounts which are in the
process of being audited and will be approved by the Board and
subsequently filed with the Registrar of Companies. Accordingly,
the financial information for 2012 is unaudited and does not have
the status of statutory accounts within the meaning of Section 435
of the Companies Act 2006.
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(a). 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.
3(b). Going Concern
The Group statement of financial position shows net current
liabilities as at 31 December 2012, but notwithstanding this the
Directors consider it to be appropriate to prepare these financial
statements under the going concern basis.
The directors have reviewed forecasts and budgets for the coming
year, which have been drawn up with appropriate regard for the
current macroeconomic environment and the particular circumstances
in which the Group operates. These were prepared with reference to
historic and current industry knowledge, taking future strategy of
the Group into account. Importantly, while the Group suffered a
loss for the full year ending 31 December 2012, the Group
experienced a positive trading cashflow in the second half of 2012
with the reduction in marketing expenditure. Subsequent to the year
end the Group secured new bank facilities of GBP2.0 million to
assist working capital requirements. At 31 December 2012 the Group
cash balance was GBP8.0 million.
The new feed factory has been completed and since year end has
started production. As such, the Group does not expect any further
significant capital investment. The Group is still intent on
selling the feed business. This is an important step both in
significantly reducing our debt level and also in allowing
management to focus on the condiments business. The existing
convertible loan notes A&B and convertible loan note C and
their accruing interests have been rolled over till 3 November
2014.
As a result of these considerations, at the time of approving
the financial statements, the directors consider that the Company
and the Group have sufficient resources to continue in operational
existence for the foreseeable future, and accordingly, that it is
appropriate to adopt the going concern basis in the preparation of
the preliminary financial information.
3(c). Accounting treatment for animal feed business
Management continues the process to dispose the animal feed
business, the Group reclassified the assets and liabilities
pertaining to animal feed activities to "held for sale" in
accordance with IFRS 5 'Non-Current Assets Held for Sale and
Discontinued Operations". The results of discontinued operations
are presented separately in the income statement.
3(d). Accounting for extension of convertible loan notes
On 2 November 2012, the Group entered into an amendment of the
terms of its A, B and C convertible loan notes. The Group estimated
the present value of the future cash flows of the amended note
against the pre-amendment note. If the resulting present values
reflect a change of greater than 10%, the pre-amendment note is
accounted for as an extinguishment of debt and the issuance of a
new compound debt instrument. Alternatively, the amendment is
treated as a modification of the original debt instrument. The
amendment met the criteria for extinguishment treatment, but the
overall effect on the income statement of this exercise by using a
25% discounted rate would be immaterial.
4. Changes in accounting policies
Standards, amendments and interpretations to existing standards
that are not yet effective and have not been adopted early by the
Group.
At the date of authorisation of these financial statements,
certain new standards, amendments and interpretations to existing
standards have been published but are not yet effective, and have
not been adopted early by the Group.
Management anticipates that all of the pronouncements will be
adopted in the Group's accounting policies for the first period
beginning after the effective date of the pronouncement.
Information on new standards, amendments and interpretations that
are expected to be relevant to the Group's financial statements is
provided below. Certain other new standards and interpretations
have been issued but are not expected to have a material impact on
the Group's financial statements.
The following is a list of newly issued standards but not yet
effective:
- IFRS 10 Consolidated Financial Statements (effective 1 January 2014)
- IFRS 11 Joint Arrangements (effective 1 January 2014)
- IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2014)
- IFRS 13 Fair Value Measurement (effective 1 January 2013)
- IAS 19 Employee Benefits (Revised June 2011) (effective 1 January 2013)
- IAS 27 (Revised), Separate Financial Statements (effective 1 January 2014)
- IAS 28 (Revised), Investments in Associates and Joint Ventures (effective 1 January 2014)
- Disclosures - Transfers of Financial Assets - Amendments to IFRS 7 (effective 1 July 2011)
- Deferred Tax: Recovery of Underlying Assets - Amendments to
IAS 12 Income Taxes (effective 1 January 2012)
- Presentation of Items of Other Comprehensive Income -
Amendments to IAS 1 (effective 1 July 2012)
- Disclosures - Offsetting Financial Assets and Financial
Liabilities - Amendments to IFRS 7 (effective 1 January 2013)
- Offsetting Financial Assets and Financial Liabilities -
Amendments to IAS 32 (effective 1 January 2014)
- Mandatory Effective Date and Transition Disclosures -
Amendments to IFRS 9 and IFRS 7 (effective 1 January 2015)
- Government Loans - Amendments to IFRS 1 (effective 1 January 2013)
5. Earnings per share and dividend
Year ended Year ended
31 December 31 December
2012 2011
Loss after tax and earnings
attributable to ordinary shareholders
(GBP'000) (5,423) (706)
------------- -------------
Loss after tax and earnings
attributable to ordinary shareholders
for calculation of diluted
earnings (GBP'000) (5,423) (706)
------------- -------------
Weighted average number of
shares (used for basic earnings
per share) 71,446,972 69,764,645
Dilutive effect - -
------------- -------------
Dilutive weighted average
number of shares (used for
dilutive earnings per share) 71,446,972 69,764,645
------------- -------------
Basic loss per share (pence) (7.59) (1.01)
------------- -------------
Diluted loss per share (pence) (7.59) (1.01)
------------- -------------
Dividend per share (pence) - 0.13
------------- -------------
Earnings and diluted per share has been calculated on 71,446,972
shares (2011: 69,764,645 shares), and on attributable loss of
-GBP5,423,000 (2011: -GBP706,000).
The warrant granted to Strand Partners to subscribe for
1,328,000 shares (2011: 1,328,000 shares) at GBP0.50 per share, the
2009 Options granted to the Directors and employees to subscribe
for 4,648,000 shares (2011: 4,648,000) at GBP0.355 per share and
the 2011 Options to the Directors and employee to subscribe for
1,950,000 shares (2011: 1,950,000) at GBP0.53 per share, the
convertible loan notes A&B issued at GBP0.155 per share and the
convertible loan notes C issued at GBP0.155 per share had no
dilution effect on the calculation of the earnings per share as the
market price of the Company's shares was lower than the exercise
prices and conversion price at 31 December 2021.
No dividend was proposed for the year ended 31 December 2012
(2011: GBP93,000 distributed in November 2011).
Earnings per share - continuing Year ended
Year ended 31 December
31 December 2011
2012
Loss after tax and earnings
attributable to ordinary shareholders
(GBP'000) (5,415) (1,897)
-------------- -------------
Loss after tax and earnings
attributable to ordinary shareholders
for calculation of diluted
earnings (GBP'000) (5,415) (1,897)
-------------- -------------
Weighted average number of
shares (used for basic earnings
per share) 71,446,972 69,764,645
Dilutive effect - -
-------------- -------------
Dilutive weighted average
number of shares (used for
dilutive earnings per share) 71,446,972 69,764,645
-------------- -------------
Basic loss per share (pence) (7.58) (2.72)
-------------- -------------
Diluted loss per share (pence) (7.58) (2.72)
-------------- -------------
Earnings per share - discontinued (Restated)
Year ended Year ended
31 December 31 December
2012 2011
(Loss)/profit after tax and
earnings attributable to ordinary
shareholders (GBP'000) (8) 1,191
-------------- -------------
(Loss)/profit after tax and
earnings attributable to ordinary
shareholders for calculation
of diluted earnings (GBP'000) (8) 1,191
-------------- -------------
Weighted average number of
shares (used for basic earnings
per share) 71,446,972 69,764,645
Dilutive effect - -
-------------- -------------
Dilutive weighted average
number of shares (used for
dilutive earnings per share) 71,446,972 69,764,645
-------------- -------------
Basic (loss)/earnings per
share (pence) (0.01) 1.71
-------------- -------------
Diluted (loss)/earnings per
share (pence) (0.01) 1.71
-------------- -------------
6. Other operating income
Year ended Year ended
31 December 31 December
2012 2011
GBP'000 GBP'000
Sundry income 68 463
------------- -------------
Other operating income in 2011 included GBP456,000 gain on
disposal of land use right and fixed assets of Fuss Feed.
7. Trade and other receivables
Group
As at As at
31 December 31 December 2011
2012
GBP'000 GBP'000
Trade receivables 1,278 543
Other receivables 2,255 1,948
Prepayments 197 126
VAT recoverable 7 9
-------------------- --------------------
3,737 2,626
-------------------- --------------------
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 2012 or 2011. Past due not impaired balances are
not material. All trade receivables are denominated in RMB.
- ENDS -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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