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Sustainable Business Growth

As we witnessed the gradual recovery of the global economy from the financial crisis, I am pleased to present to the Board that the Group has once again been able to deliver another set of rewarding full year results with turnover and profit attributable to shareholders reaching a record high of HK$4.88 billion and HK$513 million respectively.

This encouraging performance was not a stroke of chance but a matter of choice in business strategies. As outlined in my last year report to you, management has effectively pursued the “F.A.C.T.S.” strategies at times of uncertainty by first Focusing on executing the “Five-Year Corporate Plan” with good progress during the year. In Anticipating the worst, we have taken business consolidation measures for our Eastern China and North America operations. We also managed to Turn crisis into opportunities with promising results by creating new restaurant brands to cope with the trading down dining behavior at times of the economic downturn. Although we made little progress in Changing the mindset of our landlords for rental reduction, we were able to enhance our own operational efficiencies in terms of staff productivity. At the same time, we also Shape up our businesses infrastructure by constructing the two additional new central food processing plants according to plan.

To enhance the return to our shareholders, I would recommend to the Board to propose a final dividend of 45 HK cents per share. Together with the interim dividend paid earlier, a total dividend of 62 HK cents per share would be repatriated to our shareholders for the whole year, once again lifting the payout ratio to 68% and representing 2 consecutive years of uninterrupted dividend payment since public listing.

Hong Kong Business Platform

For the year under review, our Hong Kong Chinese fast food business under the brands of “Café de Coral” and “Super Super Congee & Noodles” have both adopted an aggressive branch development strategy for expanding their market share. A total of 16 new outlets have been added to this store portfolio. With our strong branding power, as evidenced by our Gold Award as “PRC Consumer’s Most Favourable Hong Kong Brand” for the 5th consecutive years, these new outlets have all delivered immediate and promising results.

In addition to our fast food business, our institutional catering business was another area of substantial improvements in business performance during the year. With dedicated effort in securing new contracts and renewal of major catering contracts both in the hospital and educational sectors, our Asia Pacific Catering has returned to a satisfactory performance level with a meaningful profit contribution to the Group.

Taking into consideration of the consumer trading-down behaviour under the economic setback during the year, we have developed newer brands of lower pricing points in the specialty restaurant sector. For that matter, we have stepped up our development initiative in the branch opening of Oliver’s Super Sandwiches, The Spaghetti 360o and ME.N.U in order to tap on this business potential, together with The Spaghetti House, our western restaurant has proudly reached a scalable platform of a total of 50 units as of today.

PRC Business Platform

In Southern China, our Café de Coral continued with its aggressive branch development program in order to take advantage of the industry consolidation in the region to reinforce our leadership position in the market. Since April, 2009, we have added 16 new outlets to our portfolio, successfully building up a sizable business platform of 68 units for this solidly established brand.

On the other front, our food processing and distribution business in China also recorded a substantial enhancement in profit contribution to the Group. Given the correction in meat price from its record high, Scanfoods has been able to enjoy substantial margin improvement during the year, sustaining a solid foundation for its continuous business success.

Exploring the institutional catering market in the PRC is another priority on our corporate agenda. Other than the traditional clients from manufacturing base, our Asia Pacific Catering in China also actively pursued other non-traditional business opportunities. Our recent tender to operate a staff and student canteen at United International College in Zhuhai, PRC exemplified our commitment to widen our business horizon in this market of great potential.

In Eastern China, after disposing the 25% interests in the restaurant chain of New Asia Dabao, our management can now concentrate on their efforts to build up the “Café de Coral” brand in the Yangtze River Delta Region. We remain committed to unlock the fullest business potential of Café de Coral in this strategically important region. Having said that, however, we are still in the process of fine-tuning our business model in search of a sustainable and scalable growth platform.

North America Business Platform

Across the Ocean, I am pleased to report that the business performance of our Manchu WOK has substantially improved in the year after our 3-year consolidation program. The critical turning point of this year’s result was mainly due to the timely disposal of our stores in California before the global financial slump in 2008, with which Manchu WOK were finally able to deal with the loss-making stores in one stroke. We believe the performance is sustainable given the encouraging performance of our new shop design prototype and the continual contribution from our rationalised store portfolio both within the commercial and the institutional venues.

Going forward, our management team at Manchu WOK would shift gear from one of consolidation to one of growth. We would be committing more resources to develop our shop portfolio at non-traditional locations such as airports, campuses and military bases, where we have already established a ready presence. We would also leverage on our new shop design to improve on our franchisee business and its associated royalty income. To further enhance our presence in this potential market, we would also step up our initiative to launch our other eatery concept as an additional tool to grow organically.

Looking Ahead

The year 2011 will mark the Group’s 25th Public Listing Anniversary. We are now undergoing a management restructuring to better equip ourselves with the management resources to support the growth initiatives in the next five years. We believe a sound management succession planning is critical for us to well prepare for the challenges and opportunities ahead, particularly in our growth platform of Southern China where we anticipate of no less than 200 operating units by 2014. Year 2011 is also the year where the Group’s capital expenditure is expected to be substantially higher as a result of the construction of the two new food processing plants in Guangzhou, PRC and Tai Po Industrial Estate, Hong Kong. These expenditures should enhance our business efficiency and productivity enhancements, particularly in view of the likely introduction of the minimum wage legislation in Hong Kong.

All of the above would be major challenges to face in the years to come. Nonetheless, I remain confident that, with the commitment and dedication of our 15,000 staff force, the Group is well prepared to embrace the challenge undaunted in order to deliver another year of sustainable growth to go hand in hand with the celebration of our upcoming 25th Public Listing Anniversary.

Chan Yue Kwong, Michael
Chairman

Hong Kong, 29th June, 2010