TIDMCFC
RNS Number : 9189M
China Food Company PLC
24 September 2012
Press Release 24 September 2012
China Food Company Plc
("China Food" or the "Group")
Interim Results
China Food Company Plc (AIM:CFC), a leading Chinese manufacturer
of cooking and dipping sauces, announces its interim results for
the six months ended 30 June 2012.
Highlights
-- Revenue of the condiments business increased by 15.9% to
GBP9.7 million (2011: GBP8.4 million) of which soya sauce
increased by 30%
-- Xaka revenues have increased to GBP2.2 million over the
last six months from a standing start
-- Gross profit of GBP2.7 million in respect of the condiments
business
-- Cash position of the Group stands at GBP7.2 million as
at 30 June 2012
-- Secured over 173 tier-one distributors (defined as those
distributors with an annual turnover in excess of RMB30
million (GBP3 million))
-- Strong momentum gained in terms of sales of Xaka, the Group's
premium brand soya sauce. Since the launch, GBP4.2 million
(H1 2011: GBP0.75 million) has been invested in sales and
marketing, resulting in a loss after tax for the continuing
operations of GBP2.8 million (H1 2011: profit of GBP0.4
million)
-- Significant brand-building investment in Xaka has now created
a platform and the focus for the future is on sales and
local promotion
-- Feed business revenues increased by 12.5% to GBP11.8 million
- now shown as discontinued operations
Post period end
-- Entered into an agreement to dispose of Fuss Feed to Wisehand
Planning Co. Ltd for a total consideration of US$16 million
payable in stages. Regulatory approval on behalf of the
buyer from the Korean Financial Supervisory Service remains
outstanding
-- Appointment of Clifford Halvorsen as Non-Executive Director
-- The sales growth rate in the second half is expected to
exceed 20% with the latest monthly soya sales figures already
in excess of this amount
-- Modest profitability expected in H2 on increased sales
and reduced marketing spend
John McLean, Chairman of China Food Company, commented: "The
period under review has seen sustained and committed investment
from the Group in developing Xaka, the Group's premium soya sauce
brand and, as such, we are pleased to report strong gains in terms
of sales of the product. Whilst the marketing expenditure in
establishing the Xaka brand has impinged upon profitability, the
Board believes that it has established a robust platform which will
provide the Group with a much greater foundation for growth over
the coming years.
"The sale of the Group's feed business is ongoing and in line
with the Group's core focus on the vast condiments market within
Northern China. In turn, we are pleased to report the appointment
of Clifford Halvorsen as Non-Executive Director, whose experience
will prove invaluable as the Group embarks on this next period of
growth."
For further information:
China Food Company Plc Tel: +44 (0) 20 7930 8888
John McLean, Chairman Tel: +44 (0) 7768 031 454
www.chinafoodcompany.com
finnCap
Geoff Nash / Ben Thompson (Corporate Tel: +44 (0) 20 7220
Finance) 0500
Simon Starr (Broking)
Numis Securities
David Poutney (Joint Broker) Tel: +44 (0) 20 7260
1000
Media enquiries:
Abchurch Communications
Henry Harrison-Topham / Joanne Shears Tel: +44 (0) 20 7398
7702
henry.ht@abchurch-group.com www.abchurch-group.com
Chairman's Statement
The Board is pleased to report a successful period with momentum
gained in terms of sales of Xaka, the Group's premium brand soya
sauce, in particular. The period under review has been a period of
brand-building, with advertising and marketing being a particular
focus, as the Group looks to sign up new distributors. This has
successfully been achieved and the Board now looks forward to
capitalising on the platform that has been established through
these marketing activities and utilising further capacity at the
Company's new facility.
The Group achieved a revenue increase (for the condiments
business) of 15.9% to reach GBP9.7 million compared to GBP8.4
million in the same period last year.(1) This is largely due to the
growth of Xaka which accounted for GBP2.2 million of revenues in
the period after being officially launched in October 2011.
In the last few months of 2011 and the first half of 2012, the
Group has invested significantly to build brand awareness through
advertisements. GBP4.2 million has been invested in sales and
marketing over the last six months, an increase of over GBP3.5
million on the corresponding prior period, as the Board has
invested in sustainably building a premium brand. This expenditure
on sales and marketing is expected to decline going forward, as the
Group enters the next phase of its marketing having now built
strong brand awareness. To date, the Group has secured over net 173
tier-one distributors (defined as those distributors with an annual
turnover of at least RMB30 million (GBP3 million)) across 5
provinces and has a presence across major supermarket chains in
those cities. To this effect, the Board is satisfied that the Group
has made significant progress as a premium grade condiments brand
in Northern China. The Group has refined its marketing strategy for
Xaka during the period, which is now concentrated on more targeted
markets with increasingly focused advertising campaigns. Xaka has
been developed to offer the market a high quality taste,
appropriate price point, and beneficial product attributes such as
being low in salt and complying with international food production
standards. The Board is pleased with the traction that Xaka is
successfully achieving, particularly as this success has been
achieved in less than a year since the launch of the product.
Moving ahead, the Group will work with the distributors to drive
sales within the existing retail network through continued
promotions and to roll out more retail points progressively. It
will also focus more targeted advertisements in the key provinces
and cities in which it has appointed distributors to reinforce the
brand presence but more importantly to increase sales. As a result,
overall marketing expenditure will be focused on supporting the
provincial distributors and sales efforts rather than brand
building. The Board is pleased that distributors are already
re-ordering stock and starting to roll-out China Food's products to
their network, typically 100 - 1,000 outlets per distributor.
The Group's existing Hao Tai Tai soya sauce business is also
changing. With the launch of Xaka and the commissioning of our new
factory, the Group is slowly phasing out its low-end, lower margin
soya sauce which contributed the bulk of the Group's soya sauce
sales in the past, as the low-end products are facing increased
competition in the shrinking market due to consumers migrating
towards higher end products. The development of Xaka has also
increased the growth of the higher end Hao Tai Tai products being
taken up and represented by the newly appointed distributors as
well. The Group is capitalising on opportunities such as selling
Xaka and high end Hao Tai Tai products as a package and is
benefiting from this marketing strategy. This strategy enables the
Group to sell its full range of products whilst providing consumers
with a variety of price-points to suit their respective needs.
In addition, increasingly sophisticated consumer tastes and food
safety requirements have resulted in higher standards and longer
fermentation periods for our vinegar and bean paste production.
This reduced the Group's production output by 15% in Q2 2012,
despite operating at full capacity. Nevertheless, China Food
remains the number one vinegar brand in Weifang city, which has a
population of approximately 9 million. As the Group focuses its
efforts on building its premium condiments brand, Xaka, and a
pan-provincial distribution channel, it will review its vinegar and
bean paste operations with regard to increasing capacity over the
next twelve months, and the Board will update shareholders as
appropriate.
Overall, the Group's condiments business' gross profit fell
significantly to GBP2.7 million, a gross profit margin of 27.4%.
This is largely due to the increased expenses incurred in building
a pan-provincial sales and marketing team; aggressive product
promotions in rolling out Xaka the Group's new premium grade soya
sauce and higher start-up depreciation. In the second half, the
depreciation will return to more normal levels.
Administrative expenses have been relatively consistent but
sales and marketing costs have increased by 400% compared to the
same period last year, totalling GBP4.2 million. These costs are
expected to decline with the Group's next phase of marketing
focusing on targeted advertising and promotions; these costs are
also beginning to reduce as a proportion of sales.
Overall, the Group has a satisfactory cash position of GBP7.2
million (as at 30 June 2012) which will be boosted significantly by
the anticipated proceeds from the sale of the feed business. The
cash position is more than adequate to fund the expected growth of
the business in China, but due to the current environment which
makes it more difficult to transfer funds out of China, the Group
in the near term is reliant on the proceeds from the feed business
to meet the ongoing costs of China Food Company Plc, including the
interest due on the GBP4.38 million of convertible loan notes
outstanding. Interest was due to be paid on 30 June 2012 and,
following the passing of a resolution by the majority of loan note
holders, this has now been deferred until the redemption of the
loan notes which is due in November / December 2012. To the extent
that the loan notes are not converted into ordinary shares, the
notes will be redeemed from the anticipated proceeds from the
disposal of the feed business. In the event that the disposal
proceeds are not received by the redemption date and the Company is
not able to transfer sufficient funds out of China, it will need to
seek alternative funding or restructure the loan notes. The Company
continues to explore suitable mechanisms to transfer funds out of
China to meet costs of the AIM quoted entity, to the extent that
the GBP7.2 million of cash held is not required for the operating
business. The Company has today agreed to issue GBP45,000 of C Loan
Notes as security in respect of professional fees due.
Revenue from the Group's discontinued operations, the animal
feed business, grew 12.5% to GBP11.8 million during the same
period. Gross operating profit for the business amounted to
GBP940,000 for the first six months of the year. The slight drop in
margins to 8% (1H2011: 9.6%) was due largely to commodity price
fluctuations which are expected to continue into the second half of
2012.
The sale of the Group's animal feed business is on-going. On 12
July 2012, the Group signed a contract with Wisehand Planning Co.
Ltd, a Korean based investment holding company owned 100% by Mr Kim
Woo Chang ("Wisehand") to sell the Animal Feed business (and
corresponding assets) for a combined consideration of US$16
million. On 4 September 2012 the Group announced that Wisehand was
satisfied with its due diligence and had agreed to proceed with the
transaction, which would be effected by the acquisition of the
animal feed business via an existing listed shell company listed on
the Korean Stock Exchange. The proposed shell company proved to be
unavailable. A newly listed shell company was acquired and is now
controlled by Mr Kim. Regulatory clearance from the Financial
Supervisory Service (FSS) of Korea with regard to the payment of
funds to the Group is still pending. Given that this more
protracted process was not initially anticipated when the deal was
first agreed, the Board has maintained regular communication with
Wisehand and Mr Kim. The Board remains confident that Wisehand is
committed to the deal and the transaction will be completed. The
proceeds of the sale will repay any convertible loan notes
outstanding in the event that they are not converted into common
shares of the Group. The Board currently anticipates receiving
US$4.5 million of the US$ 16 million agreed consideration before
November 2012 which can be used to repay the convertible loan
notes. Of the remaining consideration to be received, US$3.5
million is payable shortly thereafter with US$ 8 million due before
the end of 2012.
It is the Board's intention to consider a dividend, once the
feed sale is complete.
Board and Management Changes
Given the structural changes to China Food, the Group has agreed
with immediate effect a series of Board changes to ensure that the
Group has the right Board composition for the next phase of growth.
Raphael Tham will step down as Chief Executive Officer but remains
an Executive Director to lead the Group's corporate activities, in
particular, the sale of the animal feed business. Feng Bo, Chief
Operating Officer, will take over the position of Chief Executive
Officer. John McLean, current Non-executive Chairman will assume an
Executive Chairman position. Along with his Executive Chairman
position, he will also oversee the Group's financial position. Tang
Lin, the Group's Chief Financial Officer will step down as a
director and as Chief Financial Officer with immediate effect. The
Company intends to appoint a new Finance Director in due course and
will update the market accordingly.
The Group thanks Ms Tang for her contribution during her tenure
and Mr Tham for his contribution as Chief Executive Officer, a
position he held for five years, and looks forward to his continued
efforts in selling the Group's animal feed business and his input
into other corporate activities.
The Board is also pleased to announce the appointment of
Clifford Halvorsen as a Non-Executive Director. Mr Halvorsen has
over 25 years corporate finance experience within the Investment
Banking industry, during which time he has advised on a wide range
of transactions within the UK, continental Europe, the USA and
South Africa. Mr Halvorsen's primary focus has been within the
consumer industry for over 20 years and the Group looks forward to
Mr Halvorsen's contribution in creating value for the Group.
The Group expects the restructuring of the Group's Board to be
more aligned to the skill-sets of the individuals and to the
priorities of the Group. In addition to the above, the management
of the China operations has been streamlined to create focus on the
growth and development of the condiments business, which includes
the appointment of Mr Fu Guoping, founder of China Food, as China
CEO, as previously announced.
Outlook
Growth in China is forecast to be between 7.5 and 8.0% for 2012,
and the Group is pleased to note that in China Food's specific
markets, during the first half of 2012, growth was between 9.5 and
12.0%, underpinning our strategy. Inflation is declining, however
global commodity prices are starting to increase and this may
impact our Xaka margins in the short term. The Board is pleased
that capacity utilisation continues to grow, owing to the Group's
regional sales strategy as well as to exports and bulk sales to an
industrial third party.
Sales in the continuing business are currently growing at over
15% quarter-on-quarter and this is expected to further increase,
excluding seasonal fluctuations. Accordingly the Directors expect
the second half of the year to be broadly breakeven as the overall
marketing expenditure continues to decline as a proportion of
revenues and as sales continue to grow.
As the Chinese consumer market continues to expand, the Board
believes that it is essential that Xaka is supported so that it can
capitalise on its first mover advantage The Group's focus will now
be on sales and marketing, having established the production
capacity and brand profile in its target markets, and the Board
views the future with confidence.
John McLean
Chairman
24 September 2012
(1) The revenue only refers to the condiments business with the
animal feed business segregated and presented as "discontinued
operations".
Condensed Consolidated Income Statement
For the period ended 30 June 2012
(Restated)
Unaudited Unaudited (Restated)
6 months 6 months Audited
to to Year ended
30 June 30 June 31 December
Notes 2012 2011 2011
GBP'000 GBP'000 GBP'000
Continuing operations
Revenue 9,699 8,365 16,890
Cost of sales (7,042) (4,892) (10,370)
Gross profit 2,657 3,473 6,520
Other operating
income 13 - 457
Selling and marketing
costs (4,244) (748) (5,222)
Administrative costs (1,337) (1,335) (2,370)
Operating result (2,911) 1,390 (615)
Finance costs (703) (558) (1,336)
Finance income 174 176 25
(Loss)/profit before
tax
for continuing
operations (3,440) 1,008 (1,926)
Taxation 661 (566) 29
----------------------------- --------------------------- --------------------------
(Loss)/profit after
tax for
continuing
operations (2,779) 442 (1,897)
Profit from
discontinued
operations 13 512 600 1,191
(Loss)/profit for the
period (2,267) 1,042 (706)
============================= =========================== ==========================
(Loss)/earnings per
share
- Basic (pence) 14 (3.17) 1.53 (1.01)
- Fully diluted
(pence) 14 (3.17) 1.52 (1.01)
- Basic (pence) -
continuing 14 (3.89) 0.65 (2.72)
- Fully diluted
(pence) -
continuing 14 (3.89) 0.65 (2.72)
- Basic (pence) -
discontinued 14 0.72 0.88 1.71
- Fully diluted
(pence) -
discontinued 14 0.72 0.87 1.71
Condensed Consolidated Statement of Comprehensive Income
For the period ended 30 June 2012
Unaudited Unaudited
6 months 6 months Audited
to to Year ended
30 June 30 June 31 December
2012 2011 2011
GBP'000 GBP'000 GBP'000
(Loss)/profit for the period (2,267) 1,042 (706)
Other comprehensive income
Exchange differences on
translating foreign operations (906) (356) 2,548
---------------- ---------------- ----------------------
Other comprehensive income,
net of tax (906) (365) 2,548
Total comprehensive income
for the period attributable
to equity holders of the
parent (3,173) (686) 1,842
================ ================ ======================
Condensed Consolidated Statement of Financial Position
As at 30 June 2012
(Restated) (Restated)
Unaudited Unaudited Audited
As at As at As at
30 June 31 December
Notes 2012 30 June 2011 2011
GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 9 39,454 38,751 40,792
Land use rights lease prepayments 7,578 7,584 7,746
Deferred tax assets 11 2,537 110 1,311
----------
Total non-current assets 49,569 46,445 49,849
---------- ------------- ------------
Current assets
Assets held for sale 12 3,911 1,726 2,988
Inventories 4,911 4,496 5,611
Land use rights lease prepayments 154 175 194
Trade and other receivables 2,714 1,439 2,626
Cash and cash equivalents 7,249 5,816 6,584
----------
Total current assets 18,939 13,652 18,003
---------- ------------- ------------
Total assets 68,508 60,097 67,852
LIABILITIES
Current liabilities
Trade and other payables 12,241 5,273 8,334
Bank loans 8,470 6,939 8,702
Current portion of convertible
loan notes 10 4,308 - 4,276
Current portion of shareholders'
loans 1,974 507 1,889
Amount due to director's 40 - -
Current tax payable 277 413 315
Liabilities held for sale 12 1,571 1,426 1,559
----------
Total current liabilities 28,881 14,558 25,075
---------- ------------- ------------
Net current liabilities (9,942) (906) (7,091)
---------- ------------- ------------
Total assets less current
liabilities 39,627 45,539 42,777
---------- ------------- ------------
Non-current liabilities
Deferred tax liabilities 11 111 - 113
Convertible loan notes 10 - 4,128 -
Shareholder's loan 3,742 3,638 3,769
----------
3,853 7,766 3,882
---------- ------------- ------------
Net assets 35,774 37,773 38,895
========== ============= ============
EQUITY
Share capital 6 2,858 2,858 2,858
Share premium 7 24,972 24,972 24,972
PRC statutory reserves 3,581 3,098 3,581
Reverse acquisition reserve (23,992) (23,992) (23,992)
Shares to be issued reserve 351 242 300
Convertible loan notes - equity 10 160 160 160
Foreign exchange translation
reserve 9,995 7,996 10,900
Merger reserve 2,216 2,216 2,216
Retained profits 15,633 20,223 17,900
----------
35,774 37,773 38,895
========== ============= ============
Condensed Consolidated Statement of Cash Flows
For the period ended 30 June 2012
Unaudited Unaudited
6 months 6 months Audited
to to Year ended
30 June 30 June 31 December
2012 2011 2011
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Profit before
tax (2,575) 1,808 (338)
Adjustments for:
Deprecation 810 688 1,264
Amortisation of land use rights
lease prepayments 95 93 189
(Gain)/loss on disposal of
property, plant and equipment (1) 7 (449)
Employee share options 51 94 152
Interest expenses 703 558 1,336
Other income (174) (176) (25)
---------------
Operating (loss)/profit before working
capital changes (1,273) 3,072 2,129
Changes in working capital:
Inventories 454 (2,588) (3,206)
Trade and other receivables (782) (689) (2,758)
Trade and other payables 3,726 (1,061) 2,093
---------------
Cash (used in)/generated from operations 2,125 (1,266) (1,742)
Interest received 15 8 25
Income taxes paid (776) (873) (1,613)
---------------
Net cash generated from/(used in)
operating activities 1,364 (2,131) (3,330)
--------------- ----------------- ----------------
Cash flows from investing activities
Payment for acquisition of
property, plant and equipment (100) (345) (744)
Proceeds from disposal of property,
plant and equipment 6 5 45
Net cash used in investing activities (94) (340) (699)
--------------- ----------------- ----------------
Cash flows from financing activities
Proceeds from bank loan 3,397 2,837 4,147
Repayment of bank loan (3,496) - -
Net proceeds from issued of
ordinary shares - 2,496 2,497
Proceeds from shareholders'
loan 83 - 1,396
Net proceeds from convertible
loan notes - 240 240
Proceed from director's loan 40 - -
Interest paid (477) (343) (797)
Dividend paid - - (93)
---------------
Net cash (used in)/generated from
financing activities (453) 5,230 7,390
--------------- ----------------- ----------------
Net increase in cash and cash equivalents 817 2,759 3,361
Effect of foreign exchange rate
changes (152) 139 305
Cash and cash equivalents at beginning
of period 6,584 2,918 2,918
---------------
Cash and cash equivalents at end
of period 7,249 5,816 6,584
=============== ================= ================
Condensed Consolidated Statement of Changes in Equity
For the period ended 30 June 2012
Total
Convertible equity
Shares loan notes Foreign attributable
to be Reverse PRC - equity exchange to owners
Share Share issued acquisition Merger statutory translation Retained of the
capital premium reserve reserve reserve reserves reserve profits parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1
January 2012 2,858 24,972 300 (23,992) 2,216 3,581 160 10,900 17,900 38,895
Employee share
options granted - - 51 - - - - - - 51
Transactions
with owners - - 51 - - - - - - 51
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
Loss for the
period - - - - - - - - (2,267) (2,267)
Other
comprehensive
income:
Exchange
differences on
translation
of foreign
operations - - - - - - - (905) - (905)
Total
comprehensive
loss for
the period - - - - - - - (905) (2,267) (3,172)
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
As at 30 June
2012 2,858 24,972 351 (23,992) 2,216 3,581 160 9,995 15,633 35,774
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
As at 1 January
2011 2,656 25,678 148 (23,992) 2,216 3,098 152 8,352 16,181 34,489
Employee share
options granted - - 94 - - - - - - 94
Issue of
ordinary shares 202 2,294 - - - - - - - 2,496
Capital
reduction - (3,000) - - - - - - 3,000 -
Convertible loan
notes - equity - - - - - - 8 - - 8
Transactions
with owners 202 (706) 94 - - - 8 - 3,000 2,598
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
Profit for the
period - - - - - - - - 1,042 1,042
Other
comprehensive
income:
Exchange
differences on
translation
of foreign
operations - - - - - - - (356) - (356)
Total
comprehensive
income/(loss)
for the period - - - - - - - (356) 1,042 686
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
As at 30 June
2011 2,858 24,972 242 (23,992) 2,216 3,098 160 7,996 20,223 37,773
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
As at 1 January
2011 2,656 25,678 148 (23,992) 2,216 3,098 152 8,352 16,181 34,489
Employee share
options granted - - 152 - - - - - - 152
Transfer to PRC
statutory
reserves - - - - - 483 - - (483) -
Issue of
ordinary shares 202 2,294 - - - - - - - 2,496
Capital
reduction - (3,000) - - - - - - 3,000 -
Convertible loan
notes - equity - - - - - - 8 - - 8
Dividend paid - - - - - - - - (93) (93)
Transactions
with owners 202 (706) 152 - - 483 8 - 2,424 2,563
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
Loss for the
period - - - - - - - - (706) (706)
Other
comprehensive
income:
Exchange
differences on
translation
of foreign
operations - - - - - - - 2,548 - 2,548
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
Total
comprehensive
income
for the period - - - - - - - 2,548 (706) 1,842
Rounding
adjustment - - - - - - - - 1 1
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
As at 31
December 2011 2,858 24,972 300 (23,992) 2,216 3,581 160 10,900 17,900 38,895
----------------- --------------- ----------------- ------------------- --------------- ------------- ------------- ---------------------------- --------- -------------
1. General Information
Principal activities of China Food Company Plc ("China Food" or
the "Company") and its subsidiaries (the "Group") include the
development, manufacture and distribution of cooking and dipping
sauces and animal feed products. The Group's main operations are in
the People's Republic of China (the "PRC").
China Food, a public limited company, is the Group's ultimate
parent company. It is incorporated and domiciled in the United
Kingdom. The address of China Food's registered office is 49
Whitehall, London SW1A 2BX. China Food's shares are listed on the
AIM market of the London Stock Exchange.
China Food's condensed consolidated interim financial statements
are presented in Pounds Sterling (GBP), which is also the
functional currency of the parent company. These condensed
consolidated interim financial statements have been approved for
issue by the Board of Directors on 21 September 2012.
The financial information set out in this interim report does
not constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The Group's statutory financial statements for
the year ended 31 December 2011 have been delivered to the
Registrar of Companies. The auditor's report on those financial
statements was unqualified and did not contain statements under
Section 498(2) or Section 498(3) of the Companies Act 2006.
2. Basis of preparation
These condensed consolidated interim financial statements (the
interim financial statements) are for the six months ended 30 June
2012 and have been prepared in accordance with IAS 34 "Interim
Financial Reporting". They do not include all of the information
required for full annual financial statements, and should be read
in conjunction with the consolidated financial statements of the
Group for the year ended 31 December 2011.
The interim financial statements comprise the financial
statements of all the entities within the Group. The financial
statements of the subsidiaries are prepared for the same reporting
date as the parent company. Consistent accounting policies are
applied for like transactions and events in similar
circumstances.
The interim financial statements have been prepared under the
historical cost convention, except for revaluation of certain
financial instruments.
All intra-group balances, transactions, income and expenses and
profits and losses resulting from intra-group transactions that are
recognised in assets, are eliminated in full.
3. Going Concern
As described in the Chairman's Statement, as a result of the
initial investment period spent building the new brand, the company
has reported an operating loss for the period. The directors
consider that the outlook remains positive in terms of sales volume
and pricing as the new product Xaka gains traction. With the
current cash position and cash flow, coupled with the improved
progress of the Xaka operations, the directors feel there is
adequate cash flow for the trading operations.
As explained in the Chairman's Statement the directors are in
the advance stages of selling the animal feed business. The buyer
is in the final stages of obtaining regulatory approval. The risk
remains that a sale may not proceed or complete in line with the
original timetable. Based on negotiations conducted to date the
directors have a reasonable expectation that it will proceed
successfully, but if not the group will need to secure additional
finance facilities.
As explained in the Chairman's Statement, the company has
certain obligations, including but not limited to the loan notes
expiring in November and December 2012 and the company has
considered alternate financing options that may prove to be
necessary should the sale of the animal feed business not proceed
or should material adverse changes in sales volumes or margins
occur. Management will continue to monitor the situation, and if
necessary, seek alternative financing or changing the business
strategy to repay the obligations.
The directors have concluded that the combination of these
circumstances may affect the strategy of the Company moving ahead
and it may be unable to develop its Xaka business at the pace it
hopes. Nevertheless after making enquiries, and despite the
uncertainties described above, the directors have a reasonable
expectation that the company have adequate resources to continue in
operational existence for the foreseeable future.
4. Subsequent events
Sale of animal feed business
On 4 Sep 2012, the Company announced that due diligence by
Wisehand Planning Co., Ltd, the potential Buyer of the Group's
animal feed business had been completed to the Buyer's
satisfaction. Regulatory approval for the Buyer is still awaiting,
the first stage payment of USD4.5 million to be received following
approval.
Convertible loan notes
On 19 September 2012, following approval by the majority of Loan
Note holders, it was agreed that any rights to receive any interest
due on 30 June 2012was waived and deferred until on or around 2
November 2012.
5. Accounting policies
The accounting policies applied are consistent with those of the
annual financial statements for the year ended 31 December 2011, as
described in those financial statements.
The following is a list of newly issued standards but not yet
effective:
- IFRS 9 Financial Instruments (effective 1 January 2015)
- IFRS 10 Consolidated Financial Statements (effective 1 January 2013)
- IFRS 11 Joint Arrangements (effective 1 January 2013)
- IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013)
- IFRS 13 Fair Value Measurement (effective 1 January 2013)
- IAS 19 Employee Benefits (Revised June 2011) (effective 1 January 2013)
- IAS 27 (Revised), Separate Financial Statements (effective 1 January 2013)
- IAS 28 (Revised), Investments in Associates and Joint Ventures (effective 1 January 2013)
- Disclosures - Transfers of Financial Assets - Amendments to
IFRS 7 (effective 1 July 2011)
- Deferred Tax: Recovery of Underlying Assets - Amendments to
IAS 12 Income Taxes (effective 1 January 2012)
- Presentation of Items of Other Comprehensive Income -
Amendments to IAS 1 (effective 1 July 2012)
- Disclosures - Offsetting Financial Assets and Financial
Liabilities - Amendments to IFRS 7 (effective 1 January 2013)
- Offsetting Financial Assets and Financial Liabilities -
Amendments to IAS 32 (effective 1 January 2014)
- Mandatory Effective Date and Transition Disclosures -
Amendments to IFRS 9 and IFRS 7 (effective 1 January 2015)
- Government Loans - Amendments to IFRS 1 (effective 1 January 2013)
- IFRIC 20 Stripping Costs in the Production Phase of a Surface
Mine (effective 1 January 2013)
6. Share capital
On 28 April 2011, the Company issued 5,046,981 new shares at
GBP0.53 each. The movement on the share capital account was as
follows:-
No. of shares GBP'000
Authorised
As at 31 December 2011, 30 June
2011and 30 June 2012
* Ordinary shares of 4p each 100,000,000 4,000
---------------------- --------------
Issued, called up and fully paid
As at 1 January 2011
- Ordinary shares of 4p each 66,399,991 2,656
Shares issued on 28 April 2011 5,046,981 202
As at 31 December 2011, 30 June
2011 and 30 June 2012 71,446,972 2,858
---------------------- --------------
7. Share premium
As at As at As at
31 December
30 Jun 2012 30 Jun 2011 2011
GBP'000 GBP'000 GBP'000
As at 1 January 24,972 25,678 25,678
Premium on shares issued
on 28 April 2011 - 2,473 2,473
Share issue expenses - (179) (179)
Capital reduction - (3,000) (3,000)
24,972 24,972 24,972
------------ -------------- --------------
The Capital reduction was approved by the court on 22 June 2011
and resulted in GBP3 million of share premium being converted into
distributable reserves.
8. Employee share option
The Group established a share option scheme in 2007 (the "Share
Option Scheme"). On 10 June 2009, the Group granted 4,648,000
options to its Directors and employees with an exercise price of
GBP0.355 per ordinary share (2009 Options). On 25 May 2011, the
Group granted additional 1,950,000 options to its Directors and
employees with an exercise price of GBP0.53 per ordinary share
(2011 Options). The purpose of granting options under the Share
Option Scheme was to incentivise and reward the Group's
employees.
Details of the grant of share options to the Directors and
employees are as follows:
Number of options granted Date at which
Exercise Expiry
Directors Employees Total exercisable price date
2009 Options
9 June
Lot 1 464,800 1,084,533 1,549,333 10 June 2009 GBP0.355 2019
9 June
Lot 2 464,800 1,084,533 1,549,333 10 June 2010 GBP0.355 2019
9 June
Lot 3 464,800 1,084,534 1,549,334 10 June 2011 GBP0.355 2019
1,394,400 3,253,600 4,648,000
------------- -------------- -------------
2011 Options
24 May
Lot 1 583,334 66,666 650,000 25 May 2011 GBP0.53 2014
24 May
Lot 2 583,333 66,667 650,000 25 May 2012 GBP0.53 2014
24 May
Lot 3 583,333 66,667 650,000 25 May 2013 GBP0.53 2014
1,750,000 200,000 1,950,000
------------- -------------- -------------
As at 30 June 2012, all options remained unexercised.
The fair values of the options granted were determined using the
Black Scholes model. The following principal assumptions were used
in the valuation of 2011 Options:
2011 Options 2009 Options
Exercise price (GBP) 0.53 0.355
Share price at date
of grant (GBP) 0.485 0.313
Option life 3 years 730 days
Volatility 40% 20%
Risk free interest
rate 0.50% 1.115%
Dividend yield - -
Fair value at date
of grant (GBP) 0.119 0.0225
In accordance with the requirements of IFRS2, a total charge of
GBP52,000 (1H2011: GBP94,000) has been recognised in the income
statement for the share options granted to the directors and
certain employees. Charges for 2009 options and 2011 options
amounted to GBPnil (1H2011: GBP7,000) and GBP52,000 (1H2011:
GBP87,000) respectively.
9. Additions and disposals of property, plant and equipment
Construction Plant Motor
Buildings in progress and machineries Equipment vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Carrying amount at 1
January 2012 22,395 - 18,043 126 228 40,792
Additions - - 49 51 - 100
Disposals - - - - (5) (5)
Depreciation (454) - (306) (17) (33) (810)
Net exchange differences (343) - (279) 3 (4) (623)
Carrying amount at 30
June 2012 21,598 - 17,507 163 186 39,454
---------- ------------- ----------------- ---------- ---------- --------
Construction Plant Motor
Buildings in progress and machineries Equipment vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Carrying amount at 1
January 2011 22,220 5 16,944 82 197 39,448
Additions - - 267 25 53 345
Disposals - (5) (7) - - (12)
Depreciation (361) - (289) (10) (28) (688)
Net exchange differences (197) - (143) (1) (1) (342)
Carrying amount at 30
June 2011 21,662 - 16,772 96 221 38,751
---------- ------------- ----------------- ---------- ---------- --------
Construction Plant Motor
Buildings in progress and machineries Equipment vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Carrying amount at 1
January 2011 22,220 5 16,944 82 197 39,448
Additions - - 565 67 113 745
Disposals (140) (5) (12) (2) (35) (194)
Depreciation (810) - (368) (27) (59) (1,264)
Net exchange differences 1,125 - 914 6 12 2,057
Carrying amount at 31
December 2011 22,395 - 18,043 126 228 40,792
---------- ------------- ----------------- ---------- ---------- --------
10. Convertible loan notes
The convertible loan notes A&B (Notes A&B) were issued
between 3 November 2009 and 15 December 2009. The Notes A&B are
convertible into ordinary shares of the Company at any time between
the date of issue of the notes and their maturity date, i.e. three
years after the date of issue. The loan notes are convertible at
GBP0.32 per share. The effective interest rate used to calculate
the interest charged to the income statement was 12%. If the Notes
A&B have not been converted, they will be redeemed on their
maturity date at par. Interest of 10% per annum will be paid
biannually up until that date.
The convertible loan notes C (Notes C) were first issued on 23
June 2010. Additional Notes C with a nominal amount of GBP250,000
were issued on 11 March 2011. The Notes C are convertible into
ordinary shares of the Company at any time between the date of
issue of the notes and their maturity date, i.e. two years after
the date of issue. The loan notes are convertible at GBP0.50 per
share. The effective interest rate used to calculate the interest
charged to the income statement was 10%. If the Notes C have not
been converted, they will be redeemed on their maturity date at
par. Interest of 8% per annum will be paid biannually up until that
date.
On 14 June 2012, the Company announced that following approval
by the majority of Note C holders, it has been agreed that the Note
C has been rolled into the Note A. These terms have been amended to
reflect those of the Notes A that carry a coupon of 10% per annum
and are convertible at 32 pence per ordinary share. The
modification is not deemed to be significant. The Company currently
has GBP1.380 million of Notes C outstanding, which will now be
repayable on 3 November 2012.
The net proceeds received from the issue of the convertible loan
notes have been split between the liability element and an equity
component, representing the fair value of the embedded option to
convert the liability into equity of the Group, as follows:
Notes A&B Notes C Total
------------------------------ ----------------------------- -------
Gross Transaction Net Gross Transaction Net Net
amount costs amount amount costs amount amount
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Convertible loan notes
issued 3,004 188 2,816 1,380 96 1,284 4,100
Equity component (127) (8) (119) (44) (3) (41) (160)
-------- ----------- ------- ------- ----------- ------- -------
Liability component
at date of issue 2,877 180 2,697 1,336 93 1,243 3,940
Interest charged 912 253 1,165
Interest paid (643) (154) (797)
Liability component
at 30 June 2012 2,966 1,342 4,308
------- ------- -------
Notes A&B Notes C Total
------------------------------ ------------------------------ -------
Gross Transaction Net Gross Transaction Net Net
amount costs amount amount costs amount amount
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Convertible loan notes
issued 3,004 188 2,816 1,380 96 1,284 4,100
Equity component (127) (8) (119) (44) (3) (41) (160)
-------- ----------- ------- -------- ----------- ------- -------
Liability component
at date of issue 2,877 180 2,697 1,336 93 1,243 3,940
Interest charged 566 119 685
Interest paid (405) (92) (497)
Liability component
at 30 June 2011 2,858 1,270 4,128
------- ------- -------
Notes A&B Notes C Total
------------------------------ ------------------------------ -------
Gross Transaction Net Gross Transaction Net Net
amount costs amount amount costs amount amount
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Convertible loan notes
issued 3,004 188 2,816 1,380 96 1,284 4,100
Equity component (127) (8) (119) (44) (3) (41) (160)
-------- ----------- ------- -------- ----------- ------- -------
Liability component
at date of issue 2,877 180 2,697 1,336 93 1,243 3,940
Interest charged 740 186 926
Interest paid (492) (98) (590)
Liability component
at 31 December 2011 2,945 1,331 4,276
------- ------- -------
The directors estimate the fair value of the liability component
of the convertible loan notes at 30 June 2012 to be approximately
GBP4,308,000 (31 December 2011: GBP4,276,000).
11. Deferred tax
The deferred tax assets recognised as at 30 June 2012 was GBP2.5
million calculated on the basis of accumulated losses of Fortune
Food at the tax rates that are expected to apply in the years when
the deferred income tax assets will be realised.
The deferred tax liabilities recognised as at 30 June 2012 was
GBP111,000 calculated on the basis of net profit of disposal of
Fuss Feed's land use rights lease prepayments and the plant on top
of the land which is not a taxable income for the period ended 30
June 2012.
12. Assets and liabilities held for sale
As at As at As at
30 June 30 June 31 December
2012 2011 2011
GBP'000 GBP'000 GBP'000
Non-current assets
Land use rights lease
prepayments 647 632 665
Current assets
Inventories 843 1,094 597
Trade receivables* - - -
Prepayment** 2,421 - 1,726
-------- -------- -----------
Total assets held for
sale 3,911 1,726 2,988
-------- -------- -----------
Current liabilities
Trade payables 1,571 1,426 1,559
-------- -------- -----------
Total liabilities held
for sale 1,571 1,426 1,559
-------- -------- -----------
As at 31 December 2011, 30 June 2011 and 30 June 2012, the
assets and associated relating to the animal feed were held for
sale in light of the decision to sell this business.
* No trade receivables as all sales are made on cash basis.
** As at 30 June 2012, RMB24,007,000 had been paid for the
construction of the new animal feed plant. This balance has been
treated as a current asset in prepayments as the Company had
entered into an agreement to dispose of the animal business, which
includes the new animal feed plant. It would not be appropriate to
treat this as a non-current asset as the Company does not intend to
use the factory in the business.
13. Discontinued operations
On 12 July 2012, the Group had entered into an agreement with
Wisehand Planning Co., Ltd ("Wisehand" or the "Buyer"), a
Korean-owned investment holding company, to dispose of the Group's
animal feed business for a total consideration of US$16
million.
The results of the feed business for the year ended 31 December
2011, period ended 30 June 2011 and period ended 30 June 2012 are
included in discontinued operations in the Group's consolidated
income statement. The results of discontinued operations are as
follows:
6 months 6 months
to to Year ended
30 Jun 31 December
2012 30 Jun 2011 2011
GBP'000 GBP'000 GBP'000
Revenue 11,761 10.458 23,337
Operating expenses (11,078) (9,658) (21,749)
--------- ------------ ------------
Profit before taxation 683 800 1,588
Taxation (171) (200) (397)
--------- ------------ ------------
Total profit arising from
discontinued operations 512 600 1,191
--------- ------------ ------------
14. Earnings per share
6 months
6 months to to Year ended
31 December
30 June 2012 30 June 2011 2011
Profit after tax and
earnings attributable
to ordinary shareholders
- GBP'000 (2,267) 1,042 (706)
--------------------------------- ------------------------------- ----------------------
Profit after tax and
earnings attributable
to ordinary shareholders
for calculation of
diluted
earnings - GBP'000 (2,267) 1,042 (706)
--------------------------------- ------------------------------- ----------------------
Weighted average number
of shares
(used for basic earnings
per share) 71,446,972 68,184,559 69,764,645
Dilutive effect - 523,772 -
--------------------------------- ------------------------------- ----------------------
Dilutive weighted average
number of shares (used
for diluted earnings
per share) 71,446,972 68,708,331 69,764,645
--------------------------------- ------------------------------- ----------------------
Basic earnings per share
(pence) (3.17) 1.53 (1.01)
--------------------------------- ------------------------------- ----------------------
Diluted earnings per
share (pence) (3.17) 1.52 (1.01)
--------------------------------- ------------------------------- ----------------------
Basic earnings per share has been calculated on 71,446,972
shares (1H2011: 68,184,559 shares) and on attributable earnings of
-GBP2,267,000 (1H2010: GBP1,042,000).
Diluted earnings per share has been calculated on 71,446,972
shares (1H2010: 68,708,331 shares) and on attributable earnings of
-GBP2,267,000 (1H2010: GBP1,042,000).
In 1H2012, the warrant granted to Strand Partners to subscribe
1,328,000 shares (1H2011: 1,328,000 shares) at GBP0.50 per share,
the convertible loan notes A&B (see note 10) issued, the
convertible loan notes C (see note 10) issued, the 2009 Options
granted to the Directors and employees (see note 8) to subscribe
4,648,000 shares (1H2011: 4,648,000)and the 2011 Options granted to
the Directors and employees (see note 8) to subscribe 1,950,000
shares (1H2011: 1,950,000) had no dilution effect on the
calculation of the earnings per share.
In 1H2011, the 2009 Options granted to the Directors and
employees have dilution effect on the calculation of the diluted
earnings per share as the market price of the Company's shares was
higher than the exercise price at 30 June 2011.
(Restated) (Restated)
6 months 6 months
Earnings per share - continuing to to Year ended
31 December
30 June 2012 30 June 2011 2011
Profit after tax and earnings
attributable to ordinary
shareholders - GBP'000 (2,779) 442 (1,897)
------------------------------------------ ------------------------------- ----------------------
Profit after tax and earnings
attributable to ordinary
shareholders for calculation
of diluted earnings -
GBP'000 (2,779) 442 (1,897)
------------------------------------------ ------------------------------- ----------------------
Weighted average number
of shares
(used for basic earnings
per share) 71,446,972 68,184,559 69,764,645
Dilutive effect - 523,772 -
------------------------------------------ ------------------------------- ----------------------
Dilutive weighted average
number of shares (used
for diluted earnings per
share) 71,446,972 68,708,331 69,764,645
------------------------------------------ ------------------------------- ----------------------
Basic earnings per share
(pence) - continuing (3.89) 0.65 (2.72)
------------------------------------------ ------------------------------- ----------------------
Diluted earnings per share
(pence) - continuing (3.89) 0.65 (2.72)
------------------------------------------ ------------------------------- ----------------------
(Restated) (Restated)
6 months 6 months
Earnings per share - discontinued to to Year ended
31 December
30 June 2012 30 June 2011 2011
Profit after tax and earnings
attributable to ordinary
shareholders - GBP'000 512 600 1,191
------------------------------------------ ------------------------------- ----------------------
Profit after tax and earnings
attributable to ordinary
shareholders for calculation
of diluted earnings -
GBP'000 512 600 1,191
------------------------------------------ ------------------------------- ----------------------
Weighted average number
of shares
(used for basic earnings
per share) 71,446,972 68,184,559 69,764,645
Dilutive effect - 523,772 -
------------------------------------------ ------------------------------- ----------------------
Dilutive weighted average
number of shares (used
for diluted earnings per
share) 71,446,972 68,708,331 69,764,645
------------------------------------------ ------------------------------- ----------------------
Basic earnings per share
(pence) - discontinued 0.72 0.88 1.71
------------------------------------------ ------------------------------- ----------------------
Diluted earnings per share
(pence) - discontinued 0.72 0.87 1.71
------------------------------------------ ------------------------------- ----------------------
15. Earnings Before Interest, Taxes, Depreciation and Amortisation ("EBITDA")
The reconciliation of EBITDA to income statement is as
follows:
6 months 6 months
to to Year ended
30 June 30 June 31 December
2012 2011 2011
GBP'000 GBP'000 GBP'000
(Loss)/profit before tax (2,757) 1,808 (338)
Less:
Finance income (174) (176) (25)
Add:
Finance costs 703 558 1,336
Depreciation * 523 281 672
Deprecation - FY2011** 592 - -
Effect on foreign exchange
rate change** 21 - -
Amortisation 95 93 188
EBITDA (997) 2,564 1,833
-------- -------- -----------
*This represents depreciation charges recognised in
the income statement. It is different from the total
depreciation charge as depreciation of the new production
facilities is based on actual production capacity levels;
accordingly GBP287,000 (1H2011: GBP407,000 and FY2011:
GBP592,000) of the charges were included as part of
work-in-progress under the inventory.
** This represents depreciation charges included as
part of work-in-progress in FY2011 recognised in the
cost of sales in 1H 2012
(Restated) (Restated)
6 months 6 months
to to Year ended
30 June 30 June 31 December
2012 2011 2011
Continuing operations GBP'000 GBP'000 GBP'000
(Loss)/profit before
tax (3,440) 1,008 (1,926)
Less:
Finance income (174) (176) (25)
Add:
Finance costs 703 558 1,336
Depreciation 490 249 607
Depreciation - FY2011 592
Effect on foreign exchange
rate change 21
Amortisation 88 86 175
EBITDA - continuing (1,720) 1,725 167
------------------- ------------------ -----------------------
(Restated) (Restated)
6 months 6 months
to to Year ended
30 June 30 June 31 December
2012 2011 2011
Discontinued GBP'000 GBP'000 GBP'000
Profit before tax 683 800 1,588
Less:
Finance income - - -
Add:
Finance costs - - -
Depreciation 33 32 64
Amortisation 7 7 14
EBITDA - discontinued 723 839 1,666
------------------- ------------------ -----------------------
16. Segmental reporting
In identifying its operating segments, management generally
follows the Group's service lines, which represent the main
products and services provided by the Group. Management currently
identifies the Group's two service lines as operating segments.
The activities undertaken by the condiments segment include the
sale of cooking and dipping sauces. The activities undertaken by
the animal feed segment include the sale of animal feed. Each of
these operating segments is managed separately as each of these
service lines requires different technologies and other resources
as well as marketing approaches. As a result of the Group's
announcement to sell the animal feed business, results for the
animal feed operating segment are presented as discontinued
operations in the current period ended 30 June 2012 and the
comparatives. After the disposal of the animal feed business, only
one reportable segment remains.
There were no inter-segment sales and transfers during the
period under review.
The measurement policies the Group used for segment reporting
under IFRS8 are the same as those used in its financial statements,
except that:
Expenses relating to share-based payments are not included in
arriving at the operating profit of the operating segments. In
addition, corporate assets which are not directly attributable to
the business activities of any operating segment are not allocated
to a segment. In the financial period under review, this primarily
applies to the Group's headquarters.
No geographical segment information is presented as the Group
mainly operates in the PRC.
17. Interim Financial Statements
A copy of China Food's interim financial statements is available
from the Company's registered office at 49 Whitehall, London SW1A
2BX, registered company no: 06077223 and is also available for
download from the Company's website at www.chinafoodcompany.com
18. Independent review report to China Food Company PLC
Introduction
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2012 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
financial position, the condensed consolidated statement of cash
flows, the condensed consolidated statement of changes in equity,
and notes 1 to 17. We have read the other information contained in
the half yearly financial report which comprises only the
Chairman's Statement and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the company in accordance with
guidance contained in ISRE (UK and Ireland) 2410, 'Review of
Interim Financial Information performed by the Independent Auditor
of the Entity'. Our review work has been undertaken so that we
might state to the company those matters we are required to state
to them in a review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusion we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors.
As disclosed in Note 3, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting,' as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2012 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union.
Emphasis of Matter
In forming our opinion on the condensed set of financial
statements, which is not modified, we have considered the adequacy
of the disclosure made in note 3 to the condensed financial
statements concerning the company's ability to continue as a going
concern. The company incurred a net loss of GBP2.267m during the
six month period ended 30 June 2012. As explained in note 3, the
directors are in advance stages of selling the animal feed business
and are considering alternate financing options that may prove to
be necessary to repay convertible loan notes due November and
December 2012 should the sale of the animal feed business not
proceed. These conditions, along with the other matters explained
in note 3 indicate the existence of a material uncertainty which
may cast significant doubt about the company's ability to continue
as a going concern. The condensed financial statements do not
include the adjustments that would result if the company was unable
to continue as a going concern.
GRANT THORNTON UK LLP
AUDITOR
LONDON
This information is provided by RNS
The company news service from the London Stock Exchange
END
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