SYNEAR FOOD HOLDINGS LIMITED

Transcription

1 SYNEAR FOOD HOLDINGS LIMITED First Quarter Financial Statements for the Three Months ended 31 March 2008 Synear Food Holdings Limited (the Company ) was listed on the Main Board of the Singapore Exchange Securities Trading Limited (the SGX-ST ) on August 18, The initial public offering of the Company was sponsored by Boulton Capital Asia Pte. Limited and SAC Capital Private Limited (the Joint Lead Managers ). The Joint Lead Managers assume no responsibility for the contents of this announcement. PART I - INFORMATION REQUIRED FOR ANNOUNCEMENTS OF QUARTERLY (Q1, Q2 & Q3), HALF-YEAR AND FULL YEAR RESULTS 1(a) An income statement (for the group) together with a comparative statement for the corresponding period of the immediately preceding financial year Three months ended 31/03/ /03/2007 Change <Unaudited> <Unaudited> RMB 000 RMB 000 % Revenue 678, ,923 (5.8) Cost of sales (496,282) (472,823) 5.0 Gross profit 182, ,100 (26.3) Other income 13,526 5, Selling and distribution expenses (72,924) (48,778) 49.5 Administrative expenses (15,776) (8,758) 80.1 Profit from operations 106, ,825 (45.1) Finance costs (960) (1,154) (16.8) Profit before taxation 105, ,671 (45.3) Income tax 1, Profit attributable to equity holders 106, ,671 (44.8) Earnings per share -Basic (RMB cents) Fully diluted (RMB cents) N/A N/A Notes: 1. The Company was incorporated in Bermuda under The Companies Act 1981 of Bermuda on 23 February 2006 as an exempted company with limited liability and listed on the Main Board of the SGX-ST on 18 August The principal activity of the Company is investment holding. 2. On 10 July 2006, the Company completed its restructuring exercise (the Reorganisation ) as set out in the Company's prospectus dated 10 August 2006 (the Prospectus ) to rationalise the 's structure in preparation for the public listing of the Company's shares on the Main Board of the SGX-ST. The operations of the Company and its subsidiaries (collectively the ) were originally carried out by Henan Synear Food Joint Stock Co., Ltd. ("Henan Synear") which was established with limited liability in the PRC on 31 December

2 Art Advanced Limited ( Art Advanced ) was incorporated on 11 October 2004 in the British Virgin Islands as an investment holding company. On 30 August 2005, Art Advanced was granted a certificate of approval by the Henan Provincial Government for the establishment of Zhengzhou Synear Food Co., Ltd. ( Zhengzhou Synear ), a wholly foreign-owned enterprise established in the PRC. In accordance with the terms of an asset and business transfer agreement, a supplemental agreement and a confirmation letter entered into between Art Advanced, Henan Synear and Zhengzhou Synear, which became effective on 1 January 2006, Art Advanced paid approximately RMB128 million to Henan Synear in exchange for the assets and liabilities of Henan Synear except for (i) the ownership in land use rights; (ii) the ownership in leasehold buildings; (iii) investments in securities; (iv) tax payable balances due to the relevant tax authorities; and (v) statutory reserves (collectively referred to as the "Transferred Operations"). The is regarded as a continuing entity resulting from the Reorganisation since the Transferred Operations were under common control before and immediately after the Reorganisation. Consequently, immediately after the Reorganisation, there was a continuation of the risks and benefits to the ultimate shareholders that existed prior to the Reorganisation. The Reorganisation has been accounted for as a reorganisation under common control in a manner similar to pooling of interests. Accordingly, the financial statements have been prepared on a basis of merger accounting as if the Reorganisation was effective at the beginning of the earliest period presented. 3. The basic earnings per share amounts have been computed based on the weighted average number of ordinary shares in issue of 1,375,000,000 and 1,250,000,000 for the period in 2008 and 2007 respectively. 4. The fully diluted earnings per share amounts have not been computed as no diluting events existed during the periods. The profit before taxation is arrived at after charging/ (crediting) the following: Three months ended 3 /03/ /03/2007 Change <Unaudited> <Unaudited> RMB 000 RMB 000 % Interest income (11,010) (4,185) Amortisation of land use rights Depreciation 6,680 3, Interest on borrowings 960 1,154 (16.8) Minimum lease payment under operating leases for leasehold land and buildings 8,120 5,

3 1(b)(i) A balance sheet (for the issuer and group), together with a comparative statement as at the end of the immediately preceding financial year ASSETS Company 31/03/ /12/ /03/ /12/2007 <Unaudited> <Audited> <Unaudited> <Audited> RMB 000 RMB 000 RMB 000 RMB 000 Non-current assets Property, plant and equipment 363, , Deposits paid for property, plant and equipment and land use rights 135, , Land use rights 113, ,669 Investments in subsidiaries , , , , , ,345 Current assets Inventories 151, , Trade receivables 334, , Prepayments, other receivables and deposits 57,160 92,435 2,523 3,953 Due from subsidiaries - - 1,742,770 1,686,919 Pledged deposits 61,159 62, Cash and bank balances 2,029,335 1,975, , ,449 2,633,442 2,600,277 1,894,337 1,905,321 TOTAL ASSETS 3,245,020 3,179,913 2,304,682 2,315,666 EQUITY AND LIABILITIES Equity attributable to the Company s equity holders Issued capital 140, , , ,758 Proposed final dividend 100, , , ,000 Reserves 2,602,242 2,495,283 2,061,540 2,063,980 Total equity 2,843,000 2,736,041 2,302,298 2,304,738 Current liabilities Trade and bills payables 229, , Accrued liabilities, other payables and deposits received 88,445 68,138 2,384 1,744 Due to a subsidiary ,550 Due to a related company Due to directors - 5,634-5,634 Interest-bearing bank borrowings 70,000 70, Tax payable 13,293 14, , ,872 2,384 10,928 TOTAL EQUITY AND LIABILITIES 3,245,020 3,179,913 2,304,682 2,315,666 3

4 1(b)(ii) Aggregate amount of group s borrowings and debt securities Amount repayable in one year or less, or on demand As at 31/03/2008 As at 31/12/2007 Secured Unsecured Secured Unsecured RMB 000 RMB 000 RMB 000 RMB ,000-70,000 Amount repayable after one year As at 31/03/2008 As at 31/12/2007 Secured Unsecured Secured Unsecured RMB 000 RMB 000 RMB 000 RMB Details of any collateral: As at 31 March 2008 and 31 December 2007, our short-term bank borrowings amounted to RMB70 million were guaranteed by our suppliers. 4

5 1(c) A cash flow statement (for the group), together with a comparative statement for the corresponding period of the immediately preceding financial year COMBINED CASH FLOW STATEMENTS Three months ended 31/03/ /03/2007 <Unaudited> <Unaudited> RMB 000 RMB 000 Cash flows from operating activities Profit before taxation Adjustments for: Interest income Interest expenses Amortisation of land use rights Depreciation Operating profit before working capital changes (Increase) / decrease in inventories Increase in trade receivable Decrease in prepayments, other receivables and deposits (Decrease) / increase in trade and bills payable Increase in accrued liabilities, other payables and deposits received Decrease in due to directors Cash generated from operating activities Interest paid Net cash generated from operating activities Cash flows from investing activities Purchases of property, plant and equipment Decrease / (increase) in time deposits with original maturity of more than three months when acquired Interest received Net cash used in investing activities Cash flows from financing activities New bank loans Repayment of bank loans Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of financial period Cash and cash equivalents at end of financial period Analysis of balances of cash and cash equivalents Cash and bank balances 5

6 1(d)(i) A statement (for the issuer and group) showing either (i) all changes in equity or (ii) changes in equity other than those arising from capitalisation issues and distributions to shareholders, together with a comparative statement for the corresponding period of the immediately preceding financial year Proposed Share Share Merger Statutory final Retained Total capital premium reserve reserves dividend profits equity <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Balance as at 1 January , ,290 25,599 51, , ,124 1,230,567 Profit for the period , ,671 Balance as at 3 March , ,290 25,599 51, , ,795 1,424,238 Proposed Share Share Merger Statutory final Retained Total capital premium reserve reserves dividend profits equity <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Balance as at 1 January ,758 1,741,690 25, , , ,667 2,736,041 Profit for the period , ,959 Balance as at 3 March ,758 1,741,690 25, , , ,626 2,843,000 Company Proposed Share Share Contributed final Retained Total capital Premium surplus dividend profits Equity <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Balance as at 1 January , , , ,000 11,390 1,161,683 Loss for the period (2,502) (2,502) Balance as at 3 March , , , ,000 8,888 1,159,181 Company Proposed Share Share Contributed final Retained Total capital Premium surplus dividend profits Equity <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> <Unaudited> RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Balance as at 1 January ,758 1,741, , ,000 14,725 2,304,738 Loss for the period (2,440) (2,440) Balance as at 3 March ,758 1,741, , ,000 12,285 2,302,298 6

7 1(d)(ii)Details of any changes in the company's share capital arising from rights issue, bonus issue, share buy-backs, exercise of share options or warrants, conversion of other issues of equity securities, issue of shares for cash or as consideration for acquisition or for any other purpose since the end of the previous period reported on. State also the number of shares that may be issued on conversion of all the outstanding convertibles as at the end of the current financial period reported on and as at the end of the corresponding period of the immediately preceding financial year There were no changes in the Company s share capital for the three months ended 31 March (d)(iii) To show the total number of issued shares excluding treasury shares as at the end of the current financial period and as at the end of the immediately preceding year. As at 31 March 2008 As at 31 Dec 2007 Total number of issued shares 1,375,000,000 1,375,000,000 Less : Treasury shares - - Total number of issued shares excluding treasury shares 1,375,000,000 1,375,000,000 1(d)(iv) A statement showing all sales, transfers, disposal, cancellation and/or use of treasury shares as at the end of the current financial period reported on. Not applicable. During the current financial period and the immediately preceding financial year, the Company does not have any outstanding treasury shares. 2. Whether the figures have been audited, or reviewed and in accordance with which standard (e.g. the Singapore Standard on Auditing 910 (Engagements to Review Financial Statements), or an equivalent standard) The figures have neither been audited nor reviewed by the auditors. 3. Where the figures have been audited or reviewed, the auditors report (including any qualifications or emphasis of matter) Not applicable. 4. Whether the same accounting policies and methods of computation as in the issuer s most recently audited annual financial statements have been applied The has adopted the same accounting policies and methods of computations as stated in the audited financial statements of the for the year ended 31 December If there are any changes in the accounting policies and methods of computation, including any required by an accounting standard, what has changed, as well as the reasons for, and the effect of, the change The has adopted all the new / revised International Financial Reporting Standards ( IFRSs ) that became effective for accounting periods beginning on 1 January The adoption of these IFRSs does not have any material impact to the s financial statements. 7

8 6. Earnings per ordinary share of the group for the current period reported on and the corresponding period of the immediately preceding financial year, after deducting any provision for preference dividends Three months ended <Unaudited> <Unaudited> 31/03/ /03/2007 Earnings per share -Basic (RMB cents) Fully diluted (RMB cents) N/A N/A The calculation of basic and fully diluted earnings per ordinary share is computed on the s net profit attributable to equity holders divided by the weighted average number of ordinary shares in issue of 1,375,000,000 and 1,250,000,000 for the period ended 31 March 2008 and 2007 respectively. There were no potential dilutive ordinary shares in existence for the three months ended 3 March 2007 and 2008 and accordingly, no diluted earnings per share has been presented. 7. Net asset value (for the issuer and group) per ordinary share based on issued share capital of the issuer at the end of the (a) current period reported on and (b) immediately preceding financial year Company 31/03/ /12/ /03/ /12/2007 Net asset value per ordinary share (RMB cents) Net assets value per ordinary share of the /Company was calculated based on:- (1) the shareholders equity of the and the actual shareholder s equity of the Company as at 31 March 2008 and 31 December 2007; and (2) the ordinary shares in issue of 1,375,000,000 as at 31 March 2008 and 31 December A review of the performance of the group, to the extent necessary for a reasonable understanding of the group s business. The review must discuss any significant factors that affected the turnover, costs, and earnings of the group for the current financial period reported on, including (where applicable) seasonal or cyclical factors. It must also discuss any material factors that affected the cash flow, working capital, assets or liabilities of the group during the current financial period reported on Review of performance Revenue Our revenue decreased by approximately RMB41.5 million or 5.8% from RMB719.9 million for the three months ended 31 March 2007 to RMB678.4 million for the three months ended 31 March The decrease in the s revenue was contributed by (i) the decrease in the sales of our savoury dumpling products by approximately RMB23.9 million or 7.9% from RMB301.2 million for the three months ended 31 March 2007 to RMB277.3 million for the three months ended 31 March 2008 and (ii) the decrease in the sales of our glutinous sweet dumpling products by approximately RMB21.6 million or 6.8% from RMB316.0 million for three months ended 31 March 2007 to RMB294.4 million for the three months ended 31 March The decrease was mainly due to the snowstorm occurred mostly in the southern regions in the PRC at the beginning of the year which affected the transportation and the sales of our products in certain southern areas in the PRC. While the had stepped up its sales and marketing efforts in the northern regions in the PRC which saw encouraging results, this was not sufficient to fully offset the impact of the snowstorm. 8

9 Cost of sales and gross profit margin Our cost of sales increased by RMB23.5 million or 5.0% from RMB472.8 million for the three months ended 31 March 2007 to RMB496.3 million for the three months ended 31 March Prices of our key raw materials such as pork, flour and packaging materials have increased by an average of approximately 35% during the first quarter of 2008 compared to the corresponding period of last year. The overall gross profit margin decreased by 7.5 percentage points from 34.3% for the three months ended 31 March 2007 to 26.8% for three months ended 31 March The decrease was due mainly to the increase in the average price of our main raw materials and labor costs as well which partly offset by the increase in our average selling price. Selling and distribution expenses Selling and distribution expenses increased by approximately RMB24.1 million or 49.4% from RMB48.8 million for the three months ended 31 March 2007 to RMB72.9 million for the three months ended 31 March The increase was due mainly to the increase in our advertising expenses which was attributable to more spending on television and signage advertisements. Administrative expenses Administrative expenses increased by approximately RMB7.0 million or 79.5% from RMB8.8 million for the three months ended 31 March 2007 to RMB15.8 million for the three months ended 31 March The increase was due mainly to increase in salaries and related welfare expenses of our administrative and managerial personnel and increase in expenses as both the new factories at Chengdu and Huzhou have already commenced operations. Taxation 31/03/ /03/2007 <Unaudited> RMB 000 <Unaudited> RMB 000 The PRC: - Income tax 12, Withholding tax credit (14,000) - (1,001) - Our income tax credit increased from nil for the three months ended 31 March 2007 to RMB1.0 million for the three months ended 31 March The increase was due to the reversal of withholding tax of RMB14 million which partly offset by the income tax expenses of approximately RMB13.0 million. Withholding tax credit: According to a recent confirmation from the Tax Bureau of the PRC dated 6 May 2008, dividend previously declared by Zhengzhou Synear to Art Advanced was out of its accumulated profits prior to 1 January 2008, and accordingly, no withholding tax would be imposed on that dividend. In this respect, the withholding tax in respect of dividend previously declared by Zhengzhou Synear was reversed during the three months ended 31 March Income tax: In accordance with various approval documents issued by the State Tax Bureau and the Local Tax Bureau of the PRC, Zhengzhou Synear, the Company s wholly-owned subsidiary established as wholly foreignowned enterprise in the PRC, is exempted from the state and local corporate income tax for the first two profitable financial years of its operations starting from the financial year ended 31 December 2006 and thereafter is entitled to a 50% relief from the state corporate tax and exempted from the local corporate tax of the PRC for the following three financial years (the Tax Holiday ). Accordingly, Zhengzhou Synear would be subject to the reduced tax rate of 12.5% of the three financial years from 1 January 2008 to 31 December Upon expiry of the Tax Holiday on 31 December 2010, a unified income tax rate of 25% 9

10 is applicable to Zhengzhou Synear under the new PRC enterprise tax law passed by the Tenth National People s Congress on 16 March Cash flow/balance sheet review The cash and cash equivalents as at 31 March 2008 amounted to RMB2,029.3 million, representing an increase of RMB54.0 million or 2.7% as compared to RMB1,975.3 million as at 31 December The increase was due mainly to net cash generated from the operating activities during the first three months of Land use rights and property, plant and equipment (including deposit paid for property, plant and equipment and land use rights) increased by approximately RMB32.0 million or 5.5% from RMB579.6 million as at 31 December 2007 to RMB611.6 million as at 31 March The increase in property, plant and equipment represents the s acquisition of machinery and production equipment, mainly for the two new factories located in Chengdu and Huzhou. Other than disclosed above, the variances of the s cash flow and balance sheet items for the comparative periods were the results of the s normal ongoing operations. 9. Where a forecast, or a prospect statement, has been previously disclosed to shareholders, any variance between it and the actual results Not applicable 10. A commentary at the date of the announcement of the competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months Synear Food Holdings Limited was listed on the Main Board of the SGX-ST on 18 August 2006 and raised net proceeds of approximately RMB640.0 million (the "Net IPO Proceeds"). The Company intends to pursue its business strategies and future plans as set out in the Prospectus. The has already acquired several pieces of land with areas of approximately 36,005 sq m, 67,417 sq m and 50,000 sq m in Sichuan, Zhejiang and Guangzhou Provinces, respectively, which will be used to set up manufacturing facilities to produce the s popular (Synear) brand of quick freeze food products. With an annual capacity of 80,000 metric tonnes, the first new plant in Chengdu, Sichuan Province has commenced operations in late July The second new plant in Huzhou, Zhejiang Province has just commenced operations in late March 2008 and will have an annual production capacity of 120,000 metric tonnes. The third new plant in Guangzhou, Guangdong Province is expected to be completed by the fourth quarter of 2008 and will have an annual production capacity of 100,000 metric tonnes. The above expansion plan of the will be funded by the Net IPO Proceeds, which was in line with the disclosures made in the Prospectus. In addition, as announced previously, the intends to undertake the following: (I) To expand and increase its production facilities and cold storage warehouses by acquiring land, buildings and machinery in order to increase the 's annual production capacity of quick freeze food products, and to relocate the 's existing production facilities to the new premises. The intends to acquire a piece of land of approximately 260,000 sq. m., located at the northern part of Zhengzhou City, Henan Province, PRC which is approximately 15 kilometres north of the existing production facilities of the for the construction of new production facilities with gross floor area of approximately 80,000 sq m., and to acquire new machinery and equipment for the production of quick freeze food products. Upon completion, the new production facilities will have an annual production capacity of 500,000 metric tonnes, which is approximately 38.9% more than the existing annual production capacity of the 's current 10

11 production facilities of 360,000 metric tonnes. In addition, the also intends to construct cold storage warehouses with gross floor area of approximately 24,000 sq. m. and with aggregate storage capacity of 30,000 metric tonnes, for the storage of raw materials and finished quick freeze food products. Currently, the leases production premises, including factory premises, warehouses and staff quarters in Zhengzhou City from (Henan Sinian Establishment Joint Stock Co., Ltd.), which is owned by the Company's substantial shareholder, Mr Li Wei. Rapid urbanisation and expanding city borders in the PRC in recent years, especially in Zhengzhou City, have resulted in arising trend of industrial plants and facilities being relocated away from the city area to more suburban locations. The area surrounding Jinshui District in Zhengzhou City, where the 's existing production facilities are located, has increasingly been developed into new commercial and residential developments, which have resulted in the appreciation of land prices. As such, the directors of the Company (the "Directors") foresee that the costs of operating its production facilities within the city area will rise in the near future. Accordingly, the Company intends to relocate the 's production facilities to new premises in the suburban areas of Zhengzhou City (the "Synear Industrial District"). The Directors expect that it will take approximately four years to complete the construction of the aforesaid facilities, with the first phase of construction comprising cold storage warehouses to be completed within one year. The cost of the acquisition of land and construction of new facilities at the Synear Industrial District is estimated to amount to approximately RMB1,200 million. (II) To acquire land and construct new cold storage warehouses for the storage of raw materials and finished quick freeze food products outside Zhengzhou City. The intends to acquire land outside Zhengzhou City, Henan Province, PRC, in Chengdu City, Sichuan Province; Huzhou City, Zhejiang Province; Guangzhou City, Guangdong Province; Shenyang City, Liaoning Province; and Wuzhong City, Ningxia Province for the construction of cold storage warehouses. These cold storage warehouses will be equipped with cold storage machinery and equipment for the storage of raw materials and finished quick freeze food products. Currently, the leases cold storage warehouses in Zhengzhou City, Henan Province, PRC from independent parties for the storage of its raw materials and finished quick freeze food products. However, the supply of cold storage warehouses is becoming more limited due to urbanisation which has, in turn, resulted in an increasing number of cold storage warehouses being relocated to suburban areas. In order to increase the storage capacity of the 's raw materials and finished quick freeze food products, the intends to construct its own cold storage warehouses in areas outside Zhengzhou City, Henan Province, PRC. The cost of acquiring land and constructing cold storage warehouses is estimated to amount to approximately RMB310 million. (III) To acquire land and construct new production facilities in Shenyang City, Liaoning Province. The intends to acquire a piece of land of more than 26,000 sq. m. in Shenyang City, Liaoning Province, PRC, which is in the Dongbei geographical region of PRC for the construction of new production facilities with gross floor area of approximately 15,000 sq. m., and to acquire new machinery and equipment for the production of quick freeze food products. This will in turn increase the 's annual production capacity of quick freeze food products by approximately 100,000 metric tonnes. The main purpose for the construction of the new facilities in Shenyang City, Liaoning Province, PRC is to facilitate sales of quick freeze food products in the three north-eastern provinces of Dongbei namely Heilongjiang, Jilin and Liaoning Provinces as well as Inner-Mongolia, which have a total population of approximately 100 million people. This will decrease transportation costs incurred by the during the distribution of its quick freeze food products, and will also 11

12 11. Dividend minimise the risks of its quick freeze food products being contaminated during the transportation process. The cost of the new production facilities including the acquisition of land, buildings and machinery, is estimated to amount to approximately RMB180 million. The intends to fund the above expansion plans from funds generated from the net proceeds of RMB1,139.7 million raised from the placement of new shares in April 2007 as well as earnings generated from the 's operations and/or external borrowings. Earthquake in Sichuan Province The Directors of the refers to reports on the earthquake that hit southwestern Sichuan Province, the PRC, on Monday, 12 May The quake, with a magnitude of 7.8, struck 93 kilometres from Chengdu. Based on information received to-date, the s production plant in Chengdu sustained no physical damage and no injury was reported by any employee. The Directors do not expect any material impact of the earthquake on the s financials for the current financial year. Nevertheless, the will continue to monitor the situation closely and will provide updates, when necessary. (a) Current Financial Period Reported On Any dividend declared for the current financial period reported on? None (b) Corresponding Period of the Immediately Preceding Financial Year Any dividend declared for the corresponding period of the immediately preceding financial year? None (c) Date Payable Not applicable (d) Books Closure Date Not applicable 12. If no dividend has been declared/recommended, a statement to that effect No dividend has been declared or recommended for the financial period ended 31 March Interested Person Transactions Name of Interested Person Aggregate value of all interested person transactions during the financial period under review (excluding transaction less than S$100,000) Three months ended 31/03/ /03/2007 RMB 000 RMB 000 *Rental expenses to Henan Synear 2,393 2,393 * Please refer to page 149 of the Prospectus for further details. 12

13 BY ORDER OF THE BOARD Li Wei Executive Chairman 14 May