INTRODUCTION

The Group registered another encouraging performance for the year under review. Both turnover and profit attributable to shareholders reached a record high of HK$3.89 billion and HK$370 million respectively, achieving an increase of 12.9% and 15.7% over those of last year.

Notwithstanding another successful year, we remain attentive to our business development in different geographical regions. Various strategic imperatives have been employed to deal with local challenges in order to enhance our performance in respective areas.
　

FAST FOOD BUSINESS

During the year, we witnessed an improved spending sentiment in the local arena brought on by the fall in unemployment rate and the buoyant stock market. Taking advantage of this positive business environment, Café de Coral accelerated its pace of development with thirteen new shops opened during the year, breaking the Company’s own record for its branch development program by bringing the total number of Café de Coral fast food restaurants in Hong Kong to 133 as at 31st March, 2007. Among these new openings, we successfully identified some locations with growth opportunities such as Western District, Hong Kong, where we never had any presence before. Riding on the brand power of Café de Coral, we saw an encouraging and immediate return on investment for the two new stores opened there.

As part of our on-going facelift program to refresh our store image, we invested over HK$32.7 million in the year to renovate 15 Café de Coral shops. Our latest 4th Generation post-modern design concept, which offers a stylish restaurant image and a comfortable dining environment, has been well accepted by our customers as the preferred choice for causal dining.

In addition to our efforts in upgrading the dining environment, offering quality products and services have always been our key emphases. Innovative products introduced during the year, such as Steamed Rice with Oat and Banana Split Sizzling Plate, received good market response. To complement the on-going customer-centered trainings provided to our frontline staff, a series of training courses were also held with the aim of equipping our middle management with updated skills for day-to-day operations of our stores. Internal logistics in our branches were also re-visited to satisfy the ever-rising demand of our customers. Take-away service counter was set up to respond to customers’ needs more efficiently. The above initiatives exemplify our commitment to provide “100% Complete” services to our valued customers.

Promotion and marketing initiatives are key strategic tools we deployed in our business. The launch of a series of new TV commercials with popular celebrities not only presents the energetic, happy, positive and youthful image of our brand, but also keeps our brand as another ‘hot and hip’ item among teenage customers. In the meantime, “Club 100” VIP Program continued its success as an important marketing channel for us since its debut last year. The Program rewards members who make frequent visits to our branches, thereby accumulating bonus points that can be redeemed into fabulous gifts. Due to the overwhelming response received from our loyal customers after the Program’s first implementation, a second round of registration was held in the year to allow more devoted customers to join the “Club 100” VIP Program.

To cope with business growth, we relocated some of the production facilities in Fo Tan to our 50,000 sq. feet production plant in Tai Po during the year. This new production plant not only enhances our production capacity to satisfy increasing demand of our business expansion here but it also strengthens our quality control on food. In addition to our production facilities in Hong Kong, our factory plant in Dongguan, PRC continues to supplement our Hong Kong operations with high quality processed materials. Meanwhile, we are also actively pursuing any opportunity that will allow us to expand our food manufacturing facilities in the PRC in order to respond to fast business growth in this region.

Super Super Congee & Noodles, as another Concept amongst our fast food businesses in Hong Kong, delivered satisfactory performance for the year. As of 31st March, 2007, there were 5 outlets in Hong Kong. Consistent with our expansion strategy to develop this Concept into another successful, reputable chain, we opened another new store at Metro City, Tseung Kwan O subsequent to the year’s end.

Oliver’s Super Sandwiches, a chain of wellknown sandwich restaurants, recorded a stable performance for the year. Another 3 new shops were opened during the year, bringing the total number of stores to 15 as at 31st March, 2007.

To meet the ever-changing demand of our customers, we have introduced a variety of products that are deemed to be high “valuefor-money” products to our customers. As part of our overall strategy to create an attractive and leisurely ambience in our stores, we brought in “illy”, the World famous Italian coffee to be served in our entire sandwich chain. Together with ‘illy’ coffee, Oliver’s Super Sandwiches is well positioned to be the preferred gathering place for our valued customers with discerning tastes.
　

INSTITUTIONAL CATERING

Institutional catering is another market of interest to the Group. Asia Pacific Catering performed beyond management expectations in this market by achieving increments in both turnover and number of clientele. The year under review was one of particular challenge in that the number of expiring catering contracts in Hong Kong that needed to be renewed accounted for more than 80% of the turnover of this business unit. Riding on our expertise in the institutional catering market and the value-added services recognized by our clients, we are happy to report that we successfully renewed most of our major contracts. We also added The Hong Kong Institute of Vocational Education (Tsing Yi) and Hong Kong Air Cargo Terminals Limited into our clientele list, thus taking our number of operating units in Hong Kong to 61 as at 31st March, 2007.

While business in Hong Kong currently accounts for the lion’s share of this business unit, we are committed to continuous expansion in the PRC market where, we believe, will be a crucial growth driver for Asia Pacific Catering in the coming years. During the year, the number of operating units in this region increased from 20 to 25, demonstrating the dedicated efforts made by management in exploring the potential of this vast market.

Food safety is another looming issue that is capturing the awareness of the general public in Hong Kong. Luncheon Star, our flagship in the school catering market, won the hearts of parents and teachers in their selection of meal caterers by being accredited with “HACCP” and “ISO9001” on food safety and monitoring systems. Since its inception in September, 1999, Luncheon Star has been leading the school catering market sector with meaningful profit contribution to the Group.

In responding to business growth, the relocation of some of our existing central food processing facilities freed up much needed space by Luncheon Star for expansion. The recent accreditation with “ISO 22000” once again demonstrates Luncheon Star’s commitment to the strictest safety standards requisite in our food preparation business. Other than its local business, Luncheon Star is also actively pursuing any opportunities to expand its business outside Hong Kong.
　

SPECIALITY RESTAURANT

With the emergence of numerous new brands given improved spending sentiment in the local market, we witnessed acute competition in the mid-priced specialty restaurant sector. Notwithstanding this competitive environment, The Spaghetti House continued to deliver satisfactory performance. Two restaurants were opened in the year, one at Citygate, Tung Chung, the largest outlet mall in Hong Kong which houses international brands, and the other at Tee Mall, Guangzhou, PRC, which is a prestigious shopping mall close to Guangzhou East Station. With the opening of these two new stores, the total number of The Spaghetti House reached 26 as at 31st March, 2007.

As part of our program to upgrade our image, renovation was made to 4 of our existing stores. Our trendy and stylish image was freshened up to provide a more comfortable dining experience to our customers. The main menu of The Spaghetti House was also redesigned to be more user-friendly and to entice first time visitors to try our longrecognized signature dishes.

Contemporary as well as original products of high-perceived value were introduced during the year and they successfully won the hearts of our customers. We continued to launch joint promotions with various institutions, initiated media coverage and advertised on bus panels. All these initiatives, together with our zealous efforts in expanding our VIP memberships, not only resulted in sales growth, but also demonstrated our commitment in overcoming market challenges to outperform our peers.

Since opening the first company-owned store at “Mix City”, Shenzhen, PRC in December, 2004, we have been impressed by the overwhelming response from local customers. As part of our strategic initiatives to expand in the Southern China region, we opened a second store at the Tee Mall during the year. After the year end, we successfully opened another store at “Central Walk”, Shenzhen, PRC to meet the growing demand in this market. Leveraging on our successful experience, we plan to open the fourth store in the second half of this year.

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

As recognition of our outstanding services, we were awarded the “2007 Airport Customer Services Excellence Award” and the “Mystery Shoppers Programme – Category Leader – Fast Food/Restaurant Category” by the Airport Authority Hong Kong and the Hong Kong Retail Management Association respectively.
　

SCANFOODS

Scanfoods, our food processing and distribution business, continued to prosper in the year. After years of development, the high quality of “Viking Boat”, as our ham and sausage products are known, established its solid presence in the institutional market. With its extensive and strong distribution channels, Scanfoods has laid a very solid foundation in the Hong Kong market.

In the PRC, our products successfully penetrated the retail market, covering major supermarkets and other retail points through our dedicated distribution network in the Pearl River Delta region. In support of our continuous effort to broaden our presence in this market, our fully automated manufacturing facilities in Dongguan, PRC has enhanced its production capacity to make room for further expansion.

During the year, a pilot-test joint-venture business was set up in Xian, PRC with an aim to bolster our ability to source beef as a raw material. Since start-up, its performance has met management’s expectations. Looking forward, we envisage the scope of business to include packaged food, thereby extending the range of products available to our customers in the longer term
.

CAFÉ DE CORAL IN THE PRC AND MACAU

Since committing to our program of opening new stores in Southern China and opening our store in Xiaolan, Zhongshan in 2002, a most exciting and encouraging performance has ensued in this market. Since then, we have seen a total of 25 stores opened from the then 6 stores, bringing the total number of stores to 31 as of today. Now, we are proud to report that our presence covers the key first-tier and second-tier delta cities, including Shenzhen, Zhuhai, Guangzhou, Dongguan, Jiangmen, Zhongshan and Foshan.

The significant achievements in our business development across different cities in the Southern China region is not a coincidence. Experience accumulated in the past for over a decade provides us with an insight, allowing us to understand the needs of our customers there. Utilizing this tremendous wealth of invaluable experience, we adopted flexible business strategies such as fine-tuning our products, reviewing our pricing strategies, upgrading the dining environments and enhancing our information technology infrastructure to satisfy the specific needs of different groups of customers in different geographical regions.

Our established business reputation, combined with our efforts in forming strategic alliances with major retail business partners enabled us to secure prime locations with vast business potential. All the above strategies contributed significantly to our remarkable business performance in this market.

The population in the Guangdong province has reached 82 million. As evidenced by the strong economic growth in recent years, the Pearl River Delta region has already become one metropolis. We have seen the quality and standard of living of its people improve substantially as compared to that of a decade ago. This opens up ample room for the Group to further expand and develop its business network in this exhilarating area. Although the Central Government imposed and is still imposing certain austerity measures to prevent the economy from being over-heated, it is envisaged that such measures will not have any major adverse impact on the retail market. We will closely monitor the situation and execute our expansion strategy as planned unless we witness any adverse changes in this market.
　

MANCHU WOK

Following the complete control we took on Manchu Wok in October, 2005, we concentrated our efforts in extricating this business from untenable situations that have lingered in the last few years. I am glad to report that we are moving in a positive direction and first-rate track in controlling runaway overheads, identifying opportunities for future expansions, and establishing processes to make Manchu Wok ready for the successful pursuit of business potential in the Asian cuisine market in a Western setting.

Our operations in Canada remained relatively healthy while units in the US market generally suffered. However, opportunities with non-traditional venues such as casinos, airports, university campuses and military bases, and street location business have been identified and are progressing well. On the other hand, our efforts to reduce overhead proved highly successful. To raise the bar on store image, we are also introducing a program to upgrade design in order to project a more trendy image to our customers.

All the above initiatives contribute positively to business performance. Though Manchu Wok still records a loss for the year under review, we are confident that it is moving ahead in the right direction to a complete business turnaround next year.

As of 31st March, 2007, Manchu Wok has a total of 203 restaurants operating in North America, including 1 Dai Bai Dang in the United States.
　

NEW ASIA DABAO

Since acquiring a 50% stake in New Asia Dabao and taking up management control over its operation in 2003, we had initiated a wide range of strategic imperatives such as enhancing product quality, upgrading dining environments and services standards, adjusting price levels and product mixes. We also closed down some non-performing stores and opened new stores in locations where there is great potential. With the successful implementation of these initiatives, we witnessed progressive business turnaround. Other than the expansion in Shanghai, we also tested this concept in neighboring cities by opening two pilot stores in Jiaxing and Hangzhou.

As part of our strategy to tap into the midpriced fast casual dining segment, we have embarked on establishing Café de Coral’s presence in the region. Since the opening of the first Café de Coral fast food restaurant in Shanghai three years ago, the number of Café de Coral restaurants in this region has reached 6 as at 31st March, 2007. Despite certain one-off expenses in building up the brand presence in the region, we are confident that the current two-pronged market penetration strategy would enable us to capture the sizeable potential for business growth in the Eastern China market in the years to come.

As of 31st March, 2007, New Asia Dabao, together with Café de Coral restaurants, have a total of 72 stores in the Eastern China region.
　

NEW BUSINESS PROCESSES

Information technology has become another strategic tool for us to differentiate ourselves from our rivals. Following full implementation of the Business Management System to all operating units in Hong Kong last year, we plan to implement the system to our PRC operating units in the coming year. This will increase our business efficiency and shorten our response time to market changes. Our “Club 100” VIP program is another example of applying information technology in the way we do business. By making use of IT infrastructure already put in place, we can have our marketing strategy tailor-made to specific classes of customers in a more efficient and cost effective manner.

Other than the Business Management System we put in place two years ago, we introduced Oracle’s Financial System into our accounting and treasury functions in the year so as to enhance our own internal logistics to support our ever-growing business. IT solutions are also tailor-made to serve the specific needs of our business units, such as the implementation of the Lunch Box System for Luncheon Star to facilitate payment, and the launch of “Club 100” VIP program for Café de Coral.

Strengthening the application of information technology to our business is crucial for our successful operations. Management will, as has been in the past, continue to provide sufficient resources to support its utilization within the Group.
　

FINANCIAL REVIEW

The Group’s financial position as of 31st March, 2007 continues to be very strong, with a net cash of close to about HK$547 million and available banking facilities of HK$836 million.

As of 31st March, 2007, the Group did not have any external borrowings (2006: Nil) and maintained a healthy gearing (being total borrowings over shareholders’ funds) of Nil (2006: Nil). There has been no material change in contingent liabilities or charges on assets since 31st March, 2006.

As of 31st March, 2007, the Company has given guarantees of approximately HK$836,000,000 (2006: HK$836,000,000) to financial institutions in connection with the banking facilities granted to its subsidiaries.

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

HUMAN RESOURCE

As of 31st March, 2007, the Group (other than associated companies and jointlycontrolled entities) employed approximately 13,000 employees. Remuneration packages are generally structured by references to market terms as well as individual qualifications and experience. With a unique Share Option Scheme, together with profit sharing bonus and performance incentive system, employees are entitled to participate in the growth of the Group.

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

CONCLUSION

We are wholly committed and dedicated to growing businesses in Hong Kong. It is also the Group’s target to propel our businesses in both the PRC and North American regions to become longer-term growth drivers for the Group. Though our business in PRC has been achieving initial success, we will not take it for granted nor will we become complacent. We understand that our success is only a reflection of our past efforts and the proper execution of intelligent and proactive strategies. All in all, we remain optimistic about our business developments in different geographical settings. It has always been the unique strength of our management to overcome challenges of different types and eventually lead us to yet another milestone in the Group’s history.

Lo Hoi Kwong, Sunny
Managing Director

Hong Kong, 10th July, 2007