INTRODUCTION

The global financial storm triggered by the U.S. subprime crisis in 2008 posed great challenge to every economic sector. Inevitably it also dampened consumers’ confidence and spending sentiment in the catering industry.

Despite economic uncertainties, the Group again delivered encouraging results for the year under review, with turnover and profit attributable to shareholders reaching new heights of HK$4.67 billion and HK$442 million, respectively. This encouraging performance was by no means a stroke of luck. It was mainly attributed to the management expertise our Group accumulated over the past 40 years, complemented by the successful implementation of strategic moves in different areas of our businesses.
　

QUICK SERVICE RESTAURANT BUSINESS

As market leader in the Chinese Quick Service Restaurants sector in Hong Kong, Café de Coral continued its branch development by adding six new stores during the year, bringing the total number of this branded restaurant to 139 as of 31st March, 2009. These new outlets, including four located at public housing estates, are well received by the neighbourhood and registered better-than-expected business performance immediately after their openings.

To stay ahead of the competition, we continued to refresh stores and invested over HK$35 million in the year to renovate 12 Café de Coral stores. Our objective was to offer a stylish and yet comfortable dining environment to our customers. The move was well received by our customers and set new industry standards for dining experiences.

Offering quality products to our customers has always been our key emphasis. Through upgrading and repackaging our menu items such as “Baked Thick-Cut Pork Chop with Rice” and “Premium Sweet Corn Sauce”, our product offerings exceeded the expectation of our valued customers. In anticipation of the celebrative sentiment during the 2008 Beijing Olympic Game, we repackaged our signature product “Roast Whole Spring Chicken” with a series of our “100 Fullmarks” A La carte products, and successfully marketed them as takeaway dinner sets for customers’ enjoyment while watching the memorable events at home.

“Value Selection Set” was also introduced in the lunch segment in late 2008 to cater to the change in market sentiment after the outbreak of the economic downturn. This product was particularly popular with our customers in commercial and industrial districts.

To stay top-of-mind with our customers, we launched another series of TV commercials focusing on the “Premium Quality” of our new products. Attracted by the uniqueness and high quality of our ingredients, our customers were eager to try these new products. Meanwhile, since its introduction in December 2005, our “Club 100” VIP Loyalty Program reached its milestone of over 160,000 members.

During the year, various training programs were also conducted for our frontline and back office staff, updating them with skills necessary to deliver our commitment of “100% Total Services”.

As reported to you previously, we are now constructing a new central food processing plant at Tai Po Industrial Estate, Hong Kong. The construction work is progressing well with its foundation work just completed. This plant, expected to commence production at the beginning of 2011, will be able to further enhance our competitive edge in terms of food quality, food safety, operational excellence as well as production cost. Our production capacity will be greatly increased to support our effort to develop local businesses.

To solidify our position in the Quick Service Restaurants sector, we continued to cultivate and build our other brands including Super Super Congee & Noodles, Oliver’s Super Sandwiches and Espressamente illy.

During the year, Super Super Congee & Noodles strengthened its presence in this local fast food category with 5 newly opened outlets under this brand, bringing the total number of stores to 11 as of 31st March, 2009. As previously planned, we continued to commit resources to this concept, reflecting our assessment of its market potential.

Oliver’s Super Sandwiches, our wellknown brand in the freshly-made sandwich market, recorded a satisfactory performance. During the year, two new outlets were opened, making the total number of outlets 16 as of 31st March, 2009.

With its “leisure” interior design concept, Oliver’s Super Sandwiches has long been recognized as a preferred place for casual gathering. With the introduction of the famous Italian coffee “illy” to the entire chain, and the addition of a spectrum of quality products at reasonable prices, Oliver’s Super Sandwiches gained further customer appeal.

The successful launch of the premium “illy” coffee brand resulted in the formation of a joint-venture to franchise “Espressamente illy”. As at 31st March, 2009, we had two operating units located at the Hong Kong International Airport. The growth of this quality coffee brand has been steady and we are confident that it will penetrate the specialty coffee market in Hong Kong.
　

INSTITUTIONAL CATERING

Asia Pacific Catering performed as management expected in 2009. Despite the negative impact of the economic downturn, stringent cost control together with judicious price adjustments allowed this business segment to maintain its profitability. Furthermore, Asia Pacific Catering succeeded in securing additional catering contracts despite adverse market conditions. Efforts dedicated to contract renewals resulted in retention of all major clients’ catering contracts.

Asia Pacific Catering has been actively exploring business opportunities in the PRC Market. Due to increased awareness of food safety resulting from recent incidents of food contamination, we believed the demand for quality catering services in China would grow. In this regard, a task force was set up to carry out extensive studies on this market’s potential. As of today, we have a total of 14 operating units in the PRC.

Luncheon Star, our flagship unit in the school catering business, is another success of the Group. Accredited with ISO 22000 and ISO 14001, being the strictest food safety standard and environmental management standard respectively, Luncheon Star enjoys the well-earned reputation of being a reliable caterer. In the face of a declining birthrate and therefore a shrinking student body, Luncheon Star was still able to gain market share both in terms of number of accounts and meals served per day.

In the meantime, we noted an increased demand for on-site school catering. This new mode of operation is seen as an opportunity for growth that warrants additional investment. To this end, Luncheon Star is planning to expand production capacity and develop new technology.
　

SPECIALITY RESTAURANT

Against the backdrop of deteriorating economic outlooks and intense competition in the mid-priced specialty restaurant sector, The Spaghetti House’s profitability suffered for the year. In terms of new store openings, three outlets were added during the year, taking the total number of The Spaghetti House to 30, including 26 in Hong Kong and 4 in the PRC.

To raise brand awareness and sharpen our competitive edge, various advertising campaigns focusing on different themed products were put in place during the year. In particular, we celebrated the 30th Anniversary of The Spaghetti House with commemorative promotion. These campaigns not only successfully reinforced our image as the “Pasta Expert”, but they also enticed our customers to try the featured products.

Spaghetti 360^o, a new restaurant brand, was rolled out in the year with the intent to fill the market niche in the mid-priced specialty restaurant sector. With a stylish and trendy image, Spaghetti 360^o achieved remarkable results shortly after its first opening in late 2008. As of 31st March, 2009, there were two outlets under this brand, situated at Shatin and The Peak respectively.

After several years of dedicated effort by the business development team in the PRC, The Spaghetti House began to perform in Southern China. Leveraging on our experience, we targeted the first-tier cities for the opening of more stores. In April this year, we opened another unit in Guangzhou, bringing the total number of The Spaghetti House to 5 as of today, with 3 in Shenzhen and 2 in Guangzhou.

Regarding strategic franchise business units, The Spaghetti House maintains 2 franchised restaurants in operation overseas, both located in Indonesia.

Our outstanding services were again recognized with the “2008 Service Retailer – Fast Food/Restaurant Category” and “The Best Chained F&B Brand Enterprise” awards by the Hong Kong Retail Management Association and Capital Magazine, respectively.
　

SCANFOODS

As a result of increases in raw material costs early on in the year, followed by a financial downturn, Scanfoods, our food processing and distribution business saw its profit margin being squeezed. We were able to mitigate these negative impacts by purchasing in bulk and by leveraging off Viking Boat’s ability to command premium pricing as a strong brand. At the time of writing, meat prices had dropped to a more reasonable level from its record high.

Our production facilities were upgraded during the year to ensure continuous high product quality and operational efficiency. We are confident that with new production facilities in place, the throughput of our production plant in Dongguan will help further penetrate the distribution business in the Pearl River Delta region.
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CAFÉ DE CORAL IN THE PRC AND MACAU

As part of our strategy to tap the vast business potential in Southern China, Café de Coral continued its proactive branch development program. We had another record-breaking year of development by adding 15 new stores to our portfolio, bringing the total number of this branded restaurant to 52 as of 31st March, 2009, including two in Macau.

The pace of our expansion was testimonial to our commitment to a strong presence in Southern China. With a proven ability to adjust our business model to different locales, and a solid performance over the years, our management team is ready to accelerate our growth in this region.

To support such growth, the new central food processing plant under construction in the Guangzhou Development District, China, is scheduled to commence production by the end of 2009. Upon completion, the project will also be housing our all-round training centre catered to the ever-increasing training needs of the frontline and back-end staff.

The massive closure of factories in Dongguan caused by the financial tsunami negatively impacted the business performance of our stores in that city. Nevertheless, by adopting strategies such as adjusting our product mix, reviewing our pricing strategies, focusing our development initiatives on first-tier delta cities and negotiating with our suppliers for price reduction, we were able to overcome such challenges and prevent our profit margin from being eroded.

Notwithstanding slowing economic growth in China, we remain confident and positive in the PRC market in view of the Central Government’s determination to maintain GDP growth rate at 8%. In fact, as demonstrated by our investment commitment in Guangzhou, we consider this to be an excellent opportunity to expand our business in the Pearl River Delta and build this business platform into another growth driver for the Group.
　

MANCHU WOK

The business performance of Manchu WOK significantly improved with the operating level becoming profitable in the year.

Our business development initiative focused on the non-traditional areas with a total of 7 outlets added to our store portfolio during the year. Since our implementation of a Prototype Program last year, we opened 11 stores with notable successes. In this regard, three more prototype designs/concepts are expected to go on a trial basis in this financial year.

Other than implementing the above development initiatives, we took the decisive move to dispose of 10 under-performing stores in August of 2008 before the market was hit by the recession. The subsequent market downturn undoubtedly affected mall traffic and hurt spending sentiment. Still, by diligently negotiating for rental reduction and implementing other cost control measures, Manchu WOK significantly improved its performance in the year.

While we have not yet turned this business unit into another meaningful profit contributor, the improvements achieved during the year amidst economic adversities has given us a strong indication that we are heading in the right direction. By positioning ourselves as a major player in the Asian Cuisine market in North America, we remain confident that Manchu WOK will become another growth platform to the Group.

As of 31st March, 2009, Manchu WOK had a total of 176 restaurants operating primarily in North America.
　

NEW ASIA DABAO

In Eastern China, we restructured our business portfolio by disposing 25% of our interest in the restaurant chain New Asia Dabao, leaving us as 25% shareholder of this joint-venture. At the same time, we acquired complete management control and ownership of the operating assets relating to the six Café de Coral restaurants in Shanghai. The restructuring allows our management team to focus on developing the Café de Coral brand in the midpriced fast casual dining segment in this region. We are confident that with the experience accumulated over the years, our management team will be able to successfully operate the Café de Coral brand with benefits now fully accruing to the Group.

As of 31st March, 2009, Café de Coral and New Asia Dabao had a total of 6 and 60 outlets, respectively, in Eastern China.
　

NEW BUSINESS PROCESSES

Information Technology (IT) continued to be an area of immense importance to the Group. Through various IT solutions, we were able to streamline our operation and automate manual work in different business units of the Group, thereby resulting in an overall enhancement of our productivity. For example, the rollout of Luncheon Star’s official website not only rendered Luncheon Star’s services more easily accessible to the public, it also facilitated those students who were registered as customers to view their order on the website.

Since implementation of the “Club 100” VIP program of Café de Coral in December 2005, we once again utilized an IT solution. By launching a web questionnaire for our Club 100 members, we were able to receive feedback on our products and services in an efficient and cost effective manner.

In the PRC, as a value-added service to our customers, all Café de Coral branches in Southern China now offer free Wi-fi services. This represents another opportunity to make Café de Coral a preferred place to meet amongst active professionals.

All the above demonstrates that information technology has become an indispensable element of our business, and our Group is committed to devote appropriate resources to it in support of our business.
　

FINANCIAL REVIEW

The Group’s financial position, as of 31st March, 2009, continued to be very strong, with a net cash of close to about HK$894 million and available banking facilities of HK$660 million.

As at 31st March, 2009, the Group did not have any external borrowing (31st March, 2008: Nil) and maintained a healthy gearing (being total borrowings over shareholders’ funds) of Nil (31st March, 2008: Nil). There has been no material change in contingent liabilities or charges on assets since 31st March, 2008.

As at 31st March, 2009, the Company has given guarantees of approximately HK$662,000,000 (31st March, 2008: HK$636,000,000) to financial institutions in connection with banking facilities granted to its subsidiaries.

Regarding foreign exchange fluctuations, the Group earned revenue and incurred costs and expenses mainly denominated in Hong Kong dollars, while those of our North American and PRC subsidiaries and jointly controlled entities are denominated in United States dollars, Canadian dollars and Renminbi respectively. While foreign currency exposure did not pose significant risk for the Group, we will continue to take proactive measures and monitor closely of our exposure to such currency movement.
　

HUMAN RESOURCE

As of 31st March, 2009, the Group (other than associated companies and jointlycontrolled entities) employed approximately 14,000 employees. Remuneration packages are generally structured by references to market terms as well as individual qualifications and experience. Employees are entitled to participate in the growth of the Group through a unique Share Option Scheme, a profit sharing bonus, and a performance incentive system.

During the year, various training activities have been conducted to improve frontend quality of services as well as to ensure smooth and effective execution of the Group’s business systems.
　

CONCLUSION

During the year, we celebrated the Group’s 40th Anniversary while facing persistent negative impact of this unprecedented global financial crisis.

We envisage another wave of economic setbacks ahead, in particular, weakening consumer spending resulting from the downward pressure on asset values. Our commitment to deliver another year of promising result will not be without challenges. Nonetheless, given the 40 years of experience and quality of our management team, and the financial strength of our Group, we will once again sail through the storm. By turning crisis into opportunities, we will continue to grow in the catering industry, both locally and overseas, and further solidify the strong leadership position of our Group in the years to come.

Lo Hoi Kwong, Sunny
Managing Director

Hong Kong, 8th July, 2009