Year 2012

Operating Results

In 2012, the core business operations of the Group was the production, distribution and sale of Kingway beer.  

The consolidated revenue of the Group for the year amounted to HK$1,549 million (2011: HK$1,758 million), representing a decrease of 11.9% over that of 2011. The Group’s average selling price per tonne of beer increased by 2.4% over that of 2011. The Group’s sales in Mainland China accounted for 94.9% of its consolidated revenue, representing a decrease of 12.2% over that of 2011 in terms of revenue, whereas the Group’s sales in overseas and Hong Kong markets accounted for 5.1% of its consolidated revenue, representing a decrease of 6.0% over that of 2011 in terms of revenue. The Group’s consolidated loss after tax for the year was HK$168 million (2011: profit HK$34.77 million), of which HK$31.63 million were expenses incurred in relation to the strategic review conducted during the year.  

The Group’s average costs per tonne of beer for the year increased by 11.7% over that of 2011, which was primarily attributable to the increase in procurement costs of various raw materials and packaging materials and the decrease in sales volume which led to an increase in the fixed costs per tonne of beer. Since the increase in the average selling price per tonne of beer could not offset the increase in the average costs per tonne of beer, the Group’s gross profit margin decreased from 17.9% in 2011 to 10.5% in 2012.

Operating Expenses and Finance Costs

The Group’s selling and distribution expenses for the year amounted to HK$187 million (2011: HK$230 million), representing a decrease of 18.7% over that of 2011. The Group’s average selling and distribution expenses per tonne of beer for the year was HK$232 (2011: HK$246), representing a decrease of 5.7% over that of 2011, which was primarily attributable to the Group’s efforts in controlling its selling and distribution expenses.

The Group’s administrative expenses for the year was HK$169 million (2011: HK$151 million), representing an increase of 11.9% over that of 2011, which was primarily attributable to the increase in salaries and various administration expenses.

The Group’s finance costs for the year was HK$0.40 million (2011: HK$1.01 million), representing a decrease of 60.4% over 2011. The decrease in finance costs was primarily attributable to a decrease in the amount of bank loans in 2012.

Taxation

During the year, some of the Group’s subsidiaries in Mainland China were still entitled to preferential tax treatment with full corporate income tax exemption for the first two profit-making years and a 50% relief in the following three years, but 2012 was the last year in which these subsidiaries were entitled to such preferential tax treatment.

Capital Expenditure

The Group’s capital expenditure, on a cash basis, for the year was approximately HK$58 million (2011:HK$67 million), representing a decrease of 13.4% over 2011. The capital expenditure during the year was mainly used to build staff quarters, payment of prepaid land lease and generally improve the Group’s production facilities.

Financial Resources and Liquidity

As at 31 December 2012, the Group’s net asset value was HK$2.95 billion (2011: HK$3.14 billion), representing a decrease of 6.1% over that of 2011. Based on the number of ordinary shares in issue as at 31 December 2012, the net asset value per share of the Group was HK$1.72 (2011: HK$1.83), a decrease of 6.0% from that of 2011.

As at 31 December 2012, the Group had cash and bank balances of HK$194 million (2011: HK$299 million), representing a decrease of 35.1% over that of last year. The Group’s cash and bank balances comprise HK$0.49 million (2011: HK$7.40 million) of pledged bank balances with restricted purposes and HK$6.91 million (2011: nil) of restricted bank balances. Of the Group’s cash and bank balances as at 31 December 2012, 88.2% was in RMB, 6.3% in HKD and 5.5% in USD. Net cash flows used in operating activities for the year were HK$23 million (2011: Net cash flows from operating activities HK$181 million). Most of the transactions from the Group’s daily operations were denominated in Renminbi and the Group did not perform currency hedge of the transactions actively.

As at the end of 2012, the Group did not have any outstanding bank loans. Given the Group’s existing cash balances and available standby credit facilities, the Group will have sufficient financial resources to finance its brewery operations.

Apart from the aforementioned pledged bank balances of HK$0.49 million, none of the assets of the Group was pledged to any creditors and there was no material contingent liability recorded as at the end of 2012.

Financial Impact from the Result of Strategic Review

In respect of the result of the strategic review as mentioned in the Chairman’s Statement, on 5 February 2013, the Company and China Resources Snow Breweries Limited(華潤雪花啤酒有限公司)entered into the Master Agreement, pursuant to which the Company has, subject to the satisfaction of the relevant conditions precedent, agreed to sell the equity interests in 9 wholly-owned subsidiaries and certain of their loans and debts owing to the remaining Group at a total consideration of RMB5,384.2 million (equivalent to approximately HK$6,643.0 million), subject to adjustments, if any. Subject to the completion of the Master Agreement and the related transactions, the Group’s core business will be changed from the production, distribution and sale of beer to property development and investment. Please refer to note 38 to the financial statements and the very substantial disposal announcement of the Company published on 5 February 2013 for details.

In 2012, total expenses incurred in relation to the strategic review of the Company amounted to approximately HK$31.63 million. These expenses were recognised in other expenses under the Consolidated Income Statement. As the Master Agreement was signed in 2013, the Master Agreement did not have any financial impact on the Company’s financial position in 2012, apart from the aforementioned expenses.

Human Resources

The Group had 2,835 (2011: 2,864) employees as at the end of 2012, with total remuneration and provident fund contributions for the year of HK$248 million (2011: HK$226 million). Various basic benefits were provided to the Group’s staff with an incentive policy which was designed to remunerate staff by reference to the Group’s sales volume and results as well as their individual performance.