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India Hospitality Corp. is pleased to announce its interim results for the period ended 30 September 2009.
Key operational highlights
Financial Highlights
Total Revenue of US$21.8 million
The Condensed Consolidated Interim Financial statements of the Company for the period ended 30 September 2009 are presented below and a full version of these will be available on the Company's website www.indiahospitalitycorp.com.
The financial information set out in these interim results is unaudited and does not constitute the Company and its subsidiaries (together "the Group") statutory financial statements.
For further information contact:
Raghavendra Agarwal
ragarwal@ihcor.com
www.indiahospitalitycorp.com
Nominated Adviser: Grant Thornton Corporate Finance
Fiona Kindness / Robert Beenstock
+44 20 7383 5100
Broker: Noble & Company Limited
James Bromhead / Sunil Sanikop
+44 20 7763 2200
India Hospitality Corp.
Media Contact: Mutual Public Relations Ltd.
Harsh Wardhan
+91 11 4362 0700
Investor Relations Contact: Sand Hill RP
Michael A. Tew
mtew@sandhillrp.com
+1 (212) 445-7838
About India Hospitality Corp.
India Hospitality Corp (IHC), through its operating subsidiaries has pan-Indian interests in the air catering, hospitality and leisure industries. Its mission is to create a portfolio of opportunities through the acquisition and successful integration of India oriented businesses and assets in the hospitality, food services and related industries. In July 2007, IHC closed on the acquisition of India-based Mars Restaurants Private Limited, an emerging hotel and restaurant company, and SkyGourmet Catering Private Limited, an airline catering company with 2,800 employees across its facilities in India. IHC is based in the Cayman Islands and listed on the AIM market of the London Stock Exchange. The Company is substantially owned by Ravi Deol, Sandeep Vyas and Hayground Cove Asset Management.
Chairman's Statement
On behalf of the India Hospitality Corp. the Board of Directors are pleased to report the Company's unaudited interim financial results for the period ending 30 September 2009.
The results for the first half of FY 2010 reflect the tough economic environment, especially as it relates to the Hospitality Industry in India.
On a consolidated basis, revenues for the Group for the six month period ended 30 September 2009 were US$21.8 million when compared with US$20.4 million during the same period last year. The revenue for the period under review includes US$4.57 million from the settlement agreement arrived at with Navis Capital Partners and certain private shareholders as announced on 6 May 2009.
The Group reported a total loss of US$8.6 million during the first half of the fiscal year, compared with a loss of US$5.6 million during the same period last year. The expenses include a number of non-recurring items relating to the issuance of shares to the new management and IHC assuming full control of its operating subsidiaries.
Airline Catering
SkyGourmet Private Limited ("Sky Gourmet"), the Company's airline catering division, generated revenues of US$13.5 million for the six month period ended 30 September 2009, compared with US$14.4 million during the same period last year. Adjusted for the impact of currency fluctuations, revenues increased 7.1%. Sky Gourmet generated an EBITDA of US$1.9 million during the period compared with an EBITDA of US$1.6 million in the same period last year, representing a 39% growth rate on a constant currency basis. The Directors believe that the prospects for the catering division are expected to remain positive as the aviation industry continues to recover in India. Sky Gourmet has experienced sequential margin expansion as capacity utilisation levels stabilise. In spite of the tough operating environment during the first half of the year, the Directors believe that Sky Gourmet's performance is a testament to the long term profitability and longevity of the business.
Hotels
The Company's hotel asset in South Mumbai was severely impacted by the Mumbai terrorist attacks in November 2008, which impacted on the majority of the period under review. Revenues for this business segment during the first half of FY 2010 were US$0.9 million compared with US$1.3 million during the same period last year. Occupancy levels during the period under review were 66%, a solid recovery from historic lows experienced following the last calendar quarter of 2008, and average room rates, while lower than the prior year, are still showing good signs of recovery. We are very excited about the Company's near term hotel expansion plan through its partnership with Entertainment World Developers Private Limited ("EWDPL"), announced 3 December 2009. IHC will continue to execute its plan to expand its hotel management business and the agreement with EWDPL is anticipated to increase its room base by approximately 1,000 rooms (in two tranches) over the next few years.
Restaurants
The restaurants division reported revenues of US$ 2.5 million during the first half of FY 2010 compared to US$ 3.8 million in the same period last year. The decline in revenue is primarily on account of the loss of 3 restaurant locations in Mumbai that coincided with IHC assuming full control of its operating subsidiaries. Management believe that there remains a significant opportunity in the branded restaurant sector and there is a continued effort to rationalise our brands and leverage our air catering infrastructure to provide high quality, high margin food services to Indian consumers.
Board of Directors
As announced on 29 October 2009, Mr Richard Foyston and Mr Nicholas Bloy resigned from the board of the Company. The Board would like to thank Mr Foyston and Mr Bloy for their contributions throughout their time with the Company.
Outlook
While the hospitality industry in general and the aviation sector in specific have experienced a turbulent last 18 months, the Directors remain optimistic given the muted signs of a rebound that are being seen in India. Based on data released by the Ministry of Civil Aviation, air passenger numbers in India have shown an increase of approximately 33% and 30% in the months of October 2009 and November 2009 when compared with the same periods in 2008. According to HVS, a global hospitality consultancy firm, hotel occupancy levels across key markets in the country have firmed up considerably in the months of October and November this year when compared with the same period last year. With this improvement in the hospitality and aviation sector coupled with the strength of the Company's management team and strong business development efforts, the Directors remain positive about the long term outlook of the Company.
The Directors would like to thank the Shareholders for their continued support and we look forward to achieving continued success together.
Jason Ader
Chairman of the Board of Directors
Notes to Condensed Consolidated Interim Financial statements
(All amounts in USD, unless otherwise stated)
NOTE A - BACKGROUND INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. NATURE OF OPERATIONS
India Hospitality Corp. ("IHC" or "the Company") and its subsidiaries operate a diversified pan-Indian hospitality and leisure business. The Company was formed on May 12, 2006 as a blank-check company to acquire Indian businesses or assets in the hospitality, leisure, tourism, travel and related industries, including but not limited to hotels, resorts, timeshares, serviced apartments and restaurants.
In July 2007, the Group completed the acquisition of India-based Mars Restaurants Private Limited ("MRPL" or Mars), an emerging hotel and restaurant company and SkyGourmet Catering Private Limited ("SGCPL" or SkyGourmet), an airline catering company from affiliates of Navis Asia Funds and certain private shareholders (the "Sellers") pursuant to a share purchase agreement ("SPA").
Mars was incorporated in the year 2000 with the objective of operating and managing restaurants. Since its incorporation, Mars has diversified into bakery outlets and operating and managing food courts and hotels.
SkyGourmet was incorporated in the year 2002 and currently provides in-flight catering services to a number of domestic and international airlines with operations in Mumbai, New Delhi, Bangalore, Hyderabad, Chennai and Pune.
2. GENERAL INFORMATION
The Company was incorporated in the Cayman Islands on May 12, 2006 and its shares are publicly traded on the AIM market operated by the London Stock Exchange. As of September 30, 2009, the Company has subsidiaries incorporated in Mauritius, Netherlands and India. The Company expects to conduct business, including making of acquisitions, through its Mauritius subsidiary.
These condensed consolidated interim financial statements have been approved by the Board of Directors on December 18, 2009.
3. BASIS OF PREPARATION
The condensed consolidated interim financial statements of the Company with its subsidiaries for the six months period ended September 30, 2009 and the relevant comparatives have been prepared in accordance with IAS 34 Interim Financial Reporting as developed and published by the International Accounting Standards Board ('IASB'). They do not include all of the information required in annual financial statements in accordance with IFRS, and should be read in conjunction with the consolidated financial statements of the Group for the year ended March 31, 2009. These condensed consolidated interim financial statements have been prepared on a going concern basis.
The Group has been impacted by the current economic environment and in particular the difficult circumstances being experienced by the Indian aviation industry which has resulted in uneven operating cash flows in recent months. The Group has incurred a loss after tax of USD 8,677,805 during the period ended September 30, 2009. While the Group has the ability to meet its obligations in the ordinary course of business, the funding of its future operations is dependent upon its ability to obtain additional debt or equity financing. The Group's ability to fund its future operations is dependent upon its ability to establish profitable operations and to obtain additional debt or equity financing. Management believes that the Group needs to raise additional finance or reschedule its existing indebtedness over the next few months without which there could be delays in planned capital expenditure and the Group being unable to take advantage of growth opportunities especially as it relates to the hotel and restaurants business. Management has been focused on cash preservation and cost control and is in the process of exploring potential sources of further funding (both from existing shareholders and third parties). The Group is currently not in breach of its banking covenants. Having considered these matters management is satisfied that preparation of the financial statements on a going concern basis is appropriate. Accordingly, these financial statements do not include any adjustments that might result from the outcome of this uncertainty.
These condensed consolidated interim financial statements of the Group is prepared and presented in United States Dollars ("USD"), the Company's reporting currency. The Group has chosen to present the condensed consolidated statement of financial position, condensed consolidated statement of comprehensive income, condensed consolidated statement of cash flows and condensed consolidated statement of changes in equity along with selected explanatory notes (referred to as 'condensed consolidated interim financial statements').
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year ended March 31, 2009 except for the adoption of:
5. CHANGE IN ACCOUNTING POLICIES
5.1. Adoption of IAS 1 Presentation of Financial Statements (Revised 2007)
The Group has adopted IAS 1 Presentation of Financial Statements (Revised 2007) in its consolidated financial statements. The adoption of this standard makes certain changes to the format and titles of the primary financial statements and to the presentation of some items within these statements. It also gives rise to additional disclosures.
The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged. However some items that were recognised directly in equity are now recognised in other comprehensive income, for example exchange differences arising on translation of foreign operations. IAS 1 affects the presentation of owner changes in equity and introduces a 'Statement of comprehensive income'. In particular, an amount of USD 8,706,205 (2008: USD 20,765,978) that would previously have been recognised directly in equity, has now been recognised in Consolidated Statement of Comprehensive Income. Further, a 'Statement of changes in equity' is presented as a primary statement.
These accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.
5.2 Adoption of IFRS 8 Operating Segments
The Group has adopted IFRS 8 Operating Segments, which replaces IAS 14 Segment Reporting. The adoption of this standard has not affected the identified operating segments for the Group however the accounting policy for identifying these segments is now based on internal management reporting information that is regularly reviewed by the chief operating decision maker.
In the previous annual and interim financial statements, segments were identified by reference to the dominant source and nature of the Group's risks and returns, which required the Group to identify two sets of segments (business and geographical) based on risks and rewards of the operating segments. Refer to note 4.7 for further information about the entity's segment reporting accounting policies under IFRS 8.
These accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.
6. BASIS OF CONSOLIDATION
The subsidiaries which consolidate under India Hospitality Corp. comprise the entities listed below:
Till July 31, 2009 MRPL held a 49% stake in Gourmet Restaurants Private Limited ("GRPL"), a joint venture company and the remaining 51% was held by the Tendulkar family. Pursuant to the assumption of operating controls of the Indian entities as discussed in Note B.4, MRPL has transferred its entire interest in GRPL to the Mars Catering Services Private Limited and accordingly GRPL operations for 4 months period between April 1, 2009 and July 31, 2009 have been included in these condensed consolidated interim financial statements.
All of the above entities apply uniform accounting policies.
In consolidating the financial information of SGCPL and MRPL, whose functional currency is the Indian Rupee, the assets and liabilities for each statement of financial position presented has been translated to USD, the presentation currency at the closing rate at the date of that statement of financial position, and income and expenses for each income statement have been translated at exchange rates at the dates of the transactions and all resulting exchange differences are recognised in the statement of comprehensive income. Between the dates of the two statements of financial positions, there has been a significant movement in the exchange rates of Indian Rupee to the USD from Rs 52.17/USD as of March 31, 2009 to Rs 48.04/USD as of September 30, 2009. This has resulted in a significant exchange difference of $ 8.71 million, which has been shown under currency translation reserve.
NOTE B - SIGNIFICANT EVENTS DURING THE PERIOD
1. Settlement of warranty claims
In December 2008, the Group had initiated a claim for indemnification against the Sellers pursuant to the SPA. In May 2009, the Group resolved all outstanding disputes with the seller and a settlement agreement was executed by the Group, the Group's subsidiary IHC Mauritius Corp. ("IHC Mauritius") and the Sellers. In terms of this settlement, the Group received an amount of USD 4.57 million of the amounts held in the Escrow Account, which has been included in other income for the period ended September 30, 2009. During the period, the Group took an additional loan of USD 2.01 million (total loan of USD 4 million) at 10% interest per annum for a period of one year. The interest payable of these loans of USD 149,643 is included in finance charges. This entire outstanding loan amount of USD 4 million is secured by creating a charge on the land owned by the Group in Delhi and included in property, plant and equipment.
2. Acquisition of 'You' brand
In June 2009, the Group entered into an agreement with Firstcorp Invesco Pvt Ltd ("Firstcorp") to acquire the "You" brand from Firstcorp for a cash consideration of $400,000. Firstcorp is a company owned and controlled by Mr. Ravi Deol (Director and CEO of IHC) and Mr. Sandeep Vyas (Chief Operating Officer and also a Director of IHC). This brand has been recognised as an intangible asset in these condensed consolidated interim financial statements.
3. Issue of shares to Directors
In June 2009, the Group issued 1,873,000 ordinary shares of USD 0.001 each ("Ordinary Shares") to Mr. Ravi Deol (Director and CEO of IHC) and 936,500 Ordinary Shares to Mr. Sandeep Vyas (Chief Operating Officer and also a Director of IHC) at par value pursuant to share grant agreements entered into with Mr Deol and Mr Vyas.
Additionally, per the Share Grant scheme the Group has agreed to issue further 1,873,000 Ordinary Shares to Mr Deol and 936,500 Ordinary shares to Mr Vyas at par value, based on meeting certain share price targets and other vesting conditions; however the agreement does not specify a finite vesting period within which these vesting conditions should be fulfilled.
Accordingly the Group has recorded a cost of USD 1,047,944 as share issue expenses for share grant of 1,873,000 Ordinary Shares to Mr Deol and 936,500 Ordinary shares to Mr Vyas at par value and for the remaining 2,809,500 Ordinary Shares which will be issued based on fulfillment of vesting conditions the Group has recorded a cost and created a stock compensation reserve of USD 525,377 based on binomial valuation model in accordance of IFRS 2 - Share Based Payments. The total share based payments recognised in the Statement of Comprehensive income for the period is USD 1,573,321.
4. Operating control of Indian subsidiaries
In August 2009, IHC assumed direct operating control of its Indian subsidiaries, after the disengagement of the operating agreements between IHC's operating companies, MRPL and Sky Gourmet (together the "Operating Companies") and Mars Catering Services Private Limited ("Mars Catering"), a company controlled by Mr. Sanjay Narang, as of July 31, 2009.
IHC entered into the operating agreements with Mars Catering at the time of the reverse acquisition and re-admission to AIM on July 24, 2007 and the operating agreements were scheduled to run for a minimum period of two years.
As a part of the disengagement, the Group has agreed to the following:
NOTE C - EARNINGS PER SHARE
The basic earnings per share for the six months ended September 30, 2009 and for the Comparative period has been calculated using the net results attributable to shareholders of India Hospitality Corp. as the numerator. None of the dilutive shares relate to interest or similar expense recognisable in the income statement for the six months ended September 30, 2009 and the comparative period.
The incremental shares from assumed conversions of share warrants and share grants are not included in calculating the diluted per share amount because these dilutive shares operate as anti dilutive in nature.
NOTE D - RELATED PARTY TRANSACTIONS
Related parties with whom the Group has transacted during the period
Key Management Personnel
Particulars
Ravi Deol
Sandeep Vyas
Ajit Mathur
Sanjay Narang
Arvind Ghei (till July 31, 2009)
Patrick Rodrigues (till July 6, 2009)
Jaswinder Singh (till July 6, 2009)
Ramesh Joshee (till July 6, 2009)
Enterprises over which significant influence exercised by key management personnel till July 31, 2009
Bullworker Pvt. Ltd
Mars Food Services
Mars Enterprises
Mars Corporation
Mars Hotel & Resorts Private Limited
Mars Catering Services Private Limited
Gordon House Airport Hotels Pvt. Ltd
Gordon House City Hotels Pvt. Ltd
Gordon House Estate Pvt. Ltd
Gordon House Hotel & Resorts Pvt. Ltd
Gordon House Properties Private Limited
Summary of transactions with related parties during the period
Description of business segments
Air Catering Unit: SGCPL acquired by the Group is identified as an independent business segment offering air catering services. SGCPL also provides handling, stores management, transportation of meals, loading/unloading of goods and other consumable and ancillary services. However these services are directly related and covered under the original meals supply contract and related air catering services.
Hotels: Currently this segment represents independent operations of Gordon House Hotel located at Mumbai. The Hotel is a modern boutique providing state of the art facilities.
Restaurants and others: This segment comprises operating speciality restaurants, and a chain of patisserie, cake shops and food courts.
Geographical segments
The Group has not presented geographical segments as all its operations are carried out in India.
NOTE F - SUBSEQUENT EVENTS
Change in board of directors:
There has been change in the Directors. Mr. Richard Foyston and Mr. Nicholos Bloy have resigned from October 29, 2009. Mr. Foyston and Mr. Bloy were Board members nominated by Navis Management Sdn Bhd, a substantial shareholder of IHC.
New business venture:
IHC, through its subsidiary Gordon House Estate Private Limited, has entered into a partnership agreement with Entertainment World Developers Pvt. Ltd. ("EWDPL"), a leading real estate and hospitality developer in India's tier-II cities. As part of the agreement, IHC will manage EWDPL's hotels and Food and Beverage ("F&B") outlets in various malls that are currently under development across India. The hotels and F&B outlets are part of EWDPL's 24 million square foot development pipeline across India, eleven new shopping malls, ten additional hotels and eleven townships. The total capital commitment by IHC for both the Hotel and F&B build out in the First Phase of the development pipeline will be approximately INR 1,000 million. (USD 21.2 million) The Group plans to fund this initial commitment through equity, internal accruals and bank borrowings.
Acquisition of Treasure F&B business from EWDPL
IHC, through GHEPL, has also agreed to acquire Treasure Food & Beverage Pvt. Ltd. ("Treasure"), the franchisee for "Pizza Hut" in central India, from EWDPL. Treasure operates two Pizza Hut locations in Indore and Bhopal and also manages fine dining outlets and the food court at EWDPL's Treasure Island Mall in Indore. The completion of this transaction is subject to consent from YUM brands for the transfer of franchisee rights from EWDPL to IHC.
Investment from EWDPL
Additionally, EWDPL has agreed to acquire a 15% stake in IHC's subsidiary, GHEPL, in conjunction with the overall transaction. The investment in GHEPL will be completed through phased transactions over the next three years at a value equivalent to IHC's equity investment in GHEPL, increased by 12% per annum.