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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
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