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The period under review was mixed with strategic and operational challenges to the Group.

With the gradual recovery of the global economy, in particular, the substantial increase in assets price boosted up by influx of capital, we witnessed an improved market sentiment. However, we also noted that only a minority of the public benefited from the increase in assets price while most of them were faced with rising costs of living, constraining the local spending sentiment.

Under the onslaught of the inflationary environment, the Group has been confronting the rising raw materials costs and other operational overheads. Facing these challenges, we have adopted a variety of measures, be it strategic, operational or geographical, all aiming to enhance our business effectiveness and competitiveness over the longer term.

The half year under review has witnessed a record-high of 37 shop openings within 6 months, whose profit contribution might not be immediately reflected within the period. A modest result was therefore posted with only a low single digit interim profit growth performance, of half year profit remaining at HK$224 million, while the revenue achieving a 10% increase to HK$2.63 billion for the six months ended 30th September, 2010.

To continuously return value to our shareholders, the Board resolved to distribute an interim dividend of 17 HK cents per share to shareholders whose names appear on the register of members of the Company on 16th December, 2010, representing an uninterrupted and consistent dividend payment for the 24 consecutive years since our public listing.

Hong Kong Business Platform

In the period under review, the same store sales performance of our Café de Coral fast food was flat as compared with the same period of last year. Such performance was mainly due to our conservative pricing strategy in face of constrained local spending sentiment, on the one hand and escalating food cost on the other. Being fully aware of these predicaments, we have been positively confronting these by implementing various strategic initiatives on different fronts, such as on-going application of automation initiative in the front line, productivity enhancement in our central processing function to enhance business efficiency, and adoption of an extensive global sourcing policy to contain the raw material cost pressures.

We anticipate that the forthcoming operating environment would present a temporary challenge to the business performance of the Group in the coming year. However, the Group is confident to take advantage of these challenges and to turn crisis into business opportunity, when the whole catering industry may have to go through a consolidation phase.

Meanwhile, the Group continues to pursue its multi-branding development initiative. Our Super Super Congee & Noodles becomes another sizeable quick service restaurant platform with 19 outlets as of today, contributing meaningful profits to the Group. On another front, our casual restaurant chains, under our “360 Series” and “Oliver’s Super Sandwiches”, have also stepped up their pace of development with strong same store sales growth. Other than the organic growth initiative, our recent successful acquisition of the “MIX” chain of lifestyle restaurants also reinforced our confidence in further merger and acquisition. As the market of casual dining for healthy and nutritional lifestyle is developing rapidly, we will continue to meet the demand of this expanding market. As of today, we have developed a sizeable platform of 61 units in our mid-priced western casual restaurant sector, establishing a solid presence in this market segment.

Furthermore, apart from its traditional clientele from educational and hospital sectors, our institutional catering business, Asia Pacific Catering, has also been able to branch out its business into commercial sector with a new list of internationally renowned clients, such as Dragonair and Hong Kong Disneyland, being recently added to our client base.

PRC Business Platform

Our PRC development platform is another key sustainable business growth driver of the Group, with a total of 79 Café de Coral outlets as of today, spreading over the major cities in the Pearl River Delta Region and the Yangtze River Delta Region.

After years of development, our Café de Coral in PRC has not only established a sizeable business platform but has become a meaningful profit contributor to the Group. Together with the contribution from other business units in PRC, our China business achieved a solid profit increase of close to 20% against same period last year.

In Southern China, a total of 8 new outlets were added into our store portfolio during the period under review. The slower pace of development during the first half of the year is the result of meeting more stringent standards and practices in site-selection process, aiming to improve the success rate for new stores, thereby enhancing the profitability of the stores as a whole. For that matter, the profit contribution in our Southern China stores was most encouraging. We are confident that our pace of development in the region will soon pick up again through the accumulated experience in site-selection process. We are committed to our China business platform and heading firmly towards the vision of 200 outlets in Southern China by 2014.

Other than our quick service restaurants, we also introduced, The Spaghetti House, to capture the ever-growing consumer demand arising from middle class market in PRC. As of today, there is a total of 7 outlets in the first tier cities in the Southern China region, where we believe this concept is ready to expand and establish a stronger presence in the years to come.

Turning to the production logistics, I would like to update on the construction progress of our new food processing plant in Guangzhou, PRC. With a budgeted capital expenditure of RMB150 million and a gross floor area of 36,000 square meters, the new food processing plant would be equipped with state-of-the-art automated production facilities to enhance its production efficiency, satisfying the daily demand of 300 outlets. Trial run of the production facilities is expected by the end of this calendar year. The new food processing plant, as per my earlier report, will undoubtedly play a pivotal role in logistic support for our rapid expansion in the Southern China region, which certainly require substantial enhancement in business efficiency, production capacity and staff training.

North America Business Platform

Across the Ocean as reported earlier, Manchu WOK is now able to shift gear from its consolidation phase some 3 years ago to a growth mode with an aim to increase our scale of operation in this market. Our strategy of developing stores at non-traditional locations has proven to be a success, where we have been able to rebuild our brand image by establishing a solid presence in airports, campuses and military bases. In addition, our efforts in redefining shop design prototype bore fruit, which was evidenced by the recent award of the coveted Canadian Maple Leaf Silver Award from the International Council of Shopping Centers for excellence in retail design. Due to unfavourable sales and construction delay of a handful of corporate stores located in the United States, no substantial improvement can be reported for the period under review. Nevertheless, we are confident that our Manchu WOK has now evolved into a scalable business model of future growth.

Looking Ahead

Climbing food prices, excessive liquidity and rising wages are expected to push consumer inflation which certainly poses formidable challenges to the local catering industry. We understand that we have to proactively embrace these challenges by adopting various initiatives to balance the interests of our different stakeholders. We also reckon that all these operating pressures would ultimately translate into motivating factors on business productivity. It will ultimately upgrade the overall management’s quality of the catering industry as a whole, raise the bar on an optimum business model, and enhance operating efficiency of the individual operator. After all, we all need to compete for the survival of the fittest.

Despite our long term optimism, one word of caution though is our immediate concern over the multiple cost challenges and industry consolidation in the catering sector, which would call for our watchfulness on the market dynamics and the associated business model adjustments. We are fully aware that none of the above strategy would have been achieved without the dedication of our 16,000 staff force, to whom we are most indebted throughout the past 24 years since our public listing.

By order of the Board
Chan Yue Kwong, Michael
Chairman

Hong Kong, 29th November, 2010