Last checked at 30 Sep 2009 14:05
India Hospitality Corp.
30 September 2009
India Hospitality Corp. Reports Results for Financial Year Ended March 31, 2009
India Hospitality Corp. (AIM: IHC, the "Company", "IHC") is pleased to announce its audited final results for the financial year ended March 31, 2009.
Ravi Deol, IHC Chief Executive Officer, commented, "We are pleased with the performance of our operating businesses in the context of the global macroeconomic environment. The Company's results for this past financial year were not only impacted by the global economic crisis, but also by the unfortunate terrorist attacks in Mumbai, which put tremendous pressure on both revenues and EBITDA margins in the broader hotel and airline catering business."
Mr. Deol added, "We are pleased with the resiliency of our customer base and in particular of the Indian economy overall. We will continue to execute on our business plan to develop and expand our core businesses and our outlook for the future remains positive."
The Annual Report and Accounts will be posted to shareholders today and will be available on the company's website www.indiahospitalitycorp.com. An extract of the Annual Report and Accounts is presented below.
For Further Information Contact:
India Hospitality Corp.
Raghavendra Agarwal
+91 22 4090 6148
ragarwal@ihcor.com
www.indiahospitalitycorp.com
Nominated Adviser: Grant Thornton Corporate Finance
Fiona Owen / Robert Beenstock
+44 20 7383 5100
Broker: Noble & Company Limited
James Bromhead / Sunil Sanikop
+44 20 7763 2200
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. is a diversified pan-Indian hospitality and leisure company. In July 2007, IHC closed on the acquisition of India-based Mars Restaurants Private Limited ("Mars"), an emerging hotel and restaurant company, and SkyGourmet Catering Private Limited ("SkyGourmet"), an airline catering company with 2,800 employees across its facilities in India, from Navis Capital Partners and its affiliates.
Chairman's Statement
Amidst a high degree of uncertainty in most economies around the world, India's economy is estimated to have grown 6.7% in Financial Year ("FY") 2008-09 (Economic Survey of India Report 2008-09, Government of India). India's economy has a domestic focus with domestic savings being a key growth driver. Among the major economies in the Asia-Pacific region, India's private domestic consumption as a share of GDP, at 57% ("Domestic Consumption holds the key to India's turnaround." Hindu Business Line, September 4, 2009) in 2008, was the highest. While the global downturn affected Indian equity and foreign exchange markets, the economy was relatively insulated by the overall strength of domestic demand.
Though the Indian economy has felt the impact of the global economic crisis, the Indian Hospitality ("IH") industry continues to stand out as one of the country's key service sector industries. The IH industry increased its GDP contribution 2.5 times between 2002 and 2008 (Indian Hospitality: A Strategic Shift…, August 2009. Q S Consultants Pvt. Ltd.), with a corresponding increase of more than 2 times in both investment and consumption. The Directors believe that the IH industry, through its direct multiplier effects, contributes to employment generation and economic development and has the potential to significantly impact economic growth in India in the years to come. Furthermore, the Indian aviation industry is still in its nascent stages of development with extremely low penetration rates. For example, India's per capita number of trips is 0.02, compared to 0.1 for China and 2.2 trips for the US ("Praful for more capital to Air India." The Hindu, August 14, 2009). In spite of the recent turbulence, investments of more than US$9 billion are already underway to modernise existing airports. This low penetration rate coupled with recent investments in the sector, underscores the growth potential of the industry.
Sky Gourmet
This has been a very challenging year for the aviation industry globally. Oil prices, reaching an all time high of almost US$150 ("Oil hits record above US$ 147." Reuters, July 11, 2008) a barrel in July 2008, exposed the overcapacity in the industry. This was exacerbated by the economic slowdown, which impacted airline load factors globally. According to data available from the Airports Authority of India, total passenger movement in FY 2008-09 witnessed a decline of 6.7% from 117 million to 109 million when compared with the year before. While international traffic grew 5.9%, domestic passenger movement witnessed a decline of 11.2% (Airport Authority of India Traffic News. Available at http://www.aai.aero/traffic_news/TRMAR2009.pdf). Most of our airline customers responded to the situation by aggressively rationalising their route network. We also witnessed a deliberate move of existing capacity from the traditional full service model toward a low cost model that we have become more accustomed to in the western markets.
In the wake of these intense challenges, our management team responded by rebalancing production capacity and reconfiguring output to service the "buy-on-board" model increasingly being adopted by most low cost carriers. During the year we also diversified our client base by winning an all India catering contract with NACIL (the merged Air India and Indian Airline entity) and started catering to Lufthansa out of our Pune kitchen. This is consistent with our goal to add more international long-haul business amongst our client mix, which will have a positive impact on utilisation and realisations going forward.
Sky Gourmet, with its six-city network and a production capacity of a 108,000 meals per day, has in a relatively short time span established a dominant market position in the Industry. The Indian aviation industry has grown significantly in the last five years. The challenges it currently faces stem from a combination of the external market environment and the reality of it being a relatively young industry. The Directors believe that the aviation industry is instrumental in improving the overall connectivity across India and the opportunity exists to create a world-class industry that will play a critical role in driving India's infrastructure development.
Hotels
The total hotel room inventory of India, a country with the second-largest population in the world, is less than many of the world's individual cities. India currently has 120,000 rooms operating across various categories and the government estimates that the country has a shortage of approximately 150,000 to 200,000 rooms. Nearly 67% of the existing inventory falls under the category of three, two, one-star and unrated hotels (Federation of Restaurants and Hotels Association of India). Based on the fact that these hotels are mostly independently operated, unbranded with low service and product standards, we believe that there is a great opportunity to aggregate these hotels.
Following a recent correction in real estate valuations in India, we see an opportunity for quality hotels across the country. The Directors believe that the Gordon House Hotel, "a small hotel that's big on style" is a highly scalable hotel model and is uniquely positioned in a largely uncontested space. As announced on 11 June 2009, IHC also acquired the rights to a new hotel brand titled "You". The "You" brand is targeted towards business hubs within big cities. It has a focus on 'social space' with purposed retail that builds the idea of a community.
Given what we believe is an abundance of opportunity in the hotel sector in India, combined with IHC's strong management team and brands, the Company may look to raise strategic pools of capital to fund targeted, high growth initiatives in the hospitality sector in India.
Restaurants
We continue to see exciting opportunities in the restaurants space due to the rapidly rising disposable incomes of the Indian urban consumer. India is a young country, with the average age of its citizens being 26 years old (CIA World Factbook - India). Furthermore, eating out constitutes the fastest growing portion of consumer's discretionary spending. Our management team has the vital experience of managing scale operations, building successful brands and has proven execution capabilities. Furthermore, there are inherent synergies with our airline catering business and its existing back-end infrastructure, which leads to lower costs due to a competitive advantage in procurement, operations and innovation. The Company currently has a platform of existing profitable restaurants across cuisines and formats, and will look to opportunistically grow the most scalable brands in its portfolio.
Management
This year saw IHC's new management team, headed by Ravi Deol, start a transition process with Sanjay Narang, the Company's founder. During the year IHC also hired Sandeep Vyas as Chief Operating Officer. Sandeep brings with him over 16 years of experience in operations and marketing having held various key positions at YUM Brands, Barista Coffee and the Oberoi Group. Ravi and Sandeep have a significant equity stake in IHC, which ensures ample alignment between management and shareholders.
Investor Relations
The IHC shares witnessed a tough trading year as evidenced by the underperformance of our stock price. While some of this is attributable to a deteriorating global business environment, the lack of liquidity in our shares was another important factor. We are committed to improve liquidity going forward and to this end have taken a number of steps to address the current situation. On 6 May 2009, IHC engaged Grant Thornton UK LLP ("Grant Thornton") to become the Company's nominated adviser ("Nomad"). Grant Thornton is a leading Nomad on the AIM market and provides its services to a majority of India focused firms on AIM. On 22 June 2009, the Company appointed the Noble & Company Limited ("Noble") as its broker.
Board of Directors
Mr Scott LaPorta and Mr Bruno Seghin resigned from the Board in July 2008 and May 2009 respectively. I would like to take this opportunity to thank Scott and Bruno for their contribution. On the same note I would like to welcome Mr Sandeep Vyas, IHC's Chief Operating Officer, who was our new addition to the board during the year. This change is in line with the current ownership structure of the Company and our conscious effort to bring more representation and board participation from the executive team.
Concluding Remarks
The size of India's domestic consumer goods and services market is now nearly half that of China in terms of sheer size, even though India's GDP is well below a third of China's ("Domestic Consumption holds the key to India's turnaround." Hindu Business Line, September 4, 2009). This consumption story is at the heart of IHC's investment case. The Directors believe that the average Indian has tremendous aspirations and the implications of which are enormous for the travel, tourism and hospitality industry in general. We look forward to being able to capitalise on these opportunities in the years to come. The Directors wish to place on record their deep appreciation to employees at all levels for their hard work, dedication and commitment. The enthusiasm and unstinting efforts of the employees have enabled the Company to remain at the forefront of the respective industry it operates in.
We know that none of our success would have been possible if it were not for the confidence our shareholders have placed in us. For your continued support I thank you most sincerely.
Jason Ader Chairman of the Board of Directors.
An extract of the Chief Executive Officer's Statement
Financial review of Operations:
Airline Catering (constant currency - Indian GAAP):
In constant currency terms, revenues for our airline catering division reached INR 1,279mn in FY 2008-09, a 16.7% increase from INR 1,096mn in the prior year period. Two new facilities, in Hyderabad and Chennai, became operational during the FY 2008-09, adding approximately 50,000 meals per day to the Company's capacity and bringing the total year-end capacity to 108,000 meals per day.
Despite the aggressive route rationalisation adopted by most of our clients in the wake of the global recession, utilisation levels at our existing facilities such as Mumbai, Delhi and Bangalore were on average down by just 5%.
EBITDA adjusted for certain one-time expenses increased 47.9% to INR 182.5mn, from INR 123.4mn in the prior year. Margins improved to 14.3% in FY 2008-09 as compared with 11.3% in FY 2007-08.
Hotels and Restaurants (constant currency terms - Indian GAAP)
Total revenues for the Hotel and Restaurant businesses for the year ended March 31, 2009 was INR 478.7mn, up 4.2% when compared with INR 459.2mn during the same period in 2007-08.
During the FY under review, the Gordon House Hotel in Colaba, South Mumbai had a total revenue contribution of INR 107.3mn, which was down 7.8% from INR 116.3mn when compared with the same period in 2007-08. This was primarily due to the unfortunate terrorist attacks in Mumbai in November 2008 which led to the underperformance of most hotels in the area. The hotel achieved an Average Room Rate ("ARR") of INR 6,641 during the FY 2008-09, a growth of 10.2% when compared with an ARR of INR 6,024 in FY 2007-08. Occupancy levels during the year in review were down to 65%, when compared with 86% during the same period in 2007-08.
The Company's three stand-alone restaurants (Not Just Jazz by the Bay, Pizzeria and Pasta Bar, and Just around the Corner) together recorded an increase in same store sales growth of 2.1% during the year in review. The Company started the year in review with 24 Birdy's outlets in Mumbai. During the year in review, four outlets in Mumbai were closed and two new outlets were opened in New Delhi. Same store sales growth at existing outlets increased 6.5% during the year in review. Lastly, the Company's food court in Mumbai saw a 3.9% decline in revenue during the year in review due to drop in mall footfalls
EBITDA adjusted for one-time expenses was INR 18.7mn, down 45% from INR 34.2mn in the prior year period. The decline is primarily on account of the payroll cost of the new overlapping management, which has been reflected in the books of Mars. We expect this to normalise post the complete transition of the erstwhile management team.
Consolidated Results (US$ - IFRS):
Consolidated Profit and Loss (US$ - IFRS)
FY ended March 31, 2009 is the first 12 month financial reporting period for IHC. FY ended March 31, 2008 was a 15-month period due to the completion of the acquisition of the operating companies in July 2007.
At a consolidated level, total revenue for the Group for the FY ended March 31, 2009 was US$36.2mn. Operating revenue was US$34.7mn and other income including finance income was US$1.4mn.
Net expenses at the IHC level, excluding depreciation and amortisation was US$2.1mn for the FY ended March 31, 2009. These expenses were on account of ongoing compliance cost and legal fees. Consolidated EBITDA for FY 2008-09 was US$ 0.77mn.
Cash Loss for the business at a consolidated level was (US$2.9mn). Total Finance cost at the consolidated level was US$3.7mn during the FY 2008-09. Depreciation and amortisation costs during the FY under review were US$12.6mn. This includes a US$1.9mn write down in the value of a real estate asset owned by the Company adjacent to the International Airport in New Delhi.
Tax benefit was on account of deferred tax of US$1.3mn, resulting in a total loss after tax for the year of US$14.2mn.
Group Level Balance Sheet (US$ - IFRS)
As of March 31, 2009 total long-term debt at a consolidated level was US$22.3mn. Cash and cash equivalents at a consolidated level as of March 31, 2009 was US$3.1mn.
Total equity as of March 31, 2009 is US$101.5mn down from US$ 146.2mn as of March 31, 2008. The reduction is on account of a negative foreign currency translation reserve of (US$30.5mn) and accumulated losses of (US$14.2mn).
Currency Impact
There has been a significant impact on the financials due to the adverse movement in the US$/ INR exchange rate in the financial year under review. The average exchange rate for the conversion of the profit and loss account for the FY ended March 31, 2008 was US$ 1= INR 39.95 whereas the average rate used for the period ended March 31, 2009 was US$ 1 = INR 46.47. The closing rate used for the Balance Sheet for the FY ended March 31, 2008 was US$ 1= INR 39.90 whereas the closing rate used for the FY ended March 31, 2009 was US$ 1 = INR 52.17
The Directors anticipate the medium to long term trend for the Indian Rupee against the US Dollar to be positive based on current trends of strong dollar inflows into Indian equities in the current calendar year, re-election of the Congress led UPA government which has helped improve political stability and the elected government's stated disinvestment of public sector enterprises which has reduced concerns on the fiscal deficit.
Outlook and Objectives
The Directors believe that though there are signs today of a muted recovery, it is early days yet to signal a full-fledged revival and expect that India's GDP will continue to grow robustly in the future, notwithstanding the current and short term blips.
Each of the categories in which we operate in - aviation, hospitality and food services have excellent potential to grow in the medium to long term. While input costs are subdued at present, significant upward trends due to global or local triggers could cause unit prices of products to rise and consequently slow down targeted margin growth. It is the belief of the Directors that anticipated aviation industry stability would be a major contributor to the Company's performance.
The Company will intensely focus on both development and expansion of markets and share gains as appropriate to secure dominant position in each of its businesses. Managing margins through judicious pricing, customer mix, superior efficiencies and cost savings will receive the highest priority. Building a rigorous performance culture, productivity and organisational capability will be a key priority to build sustainable performance.
We remain positive in our outlook and are excited about our future.
Ravi S. Deol
Managing Director and Chief Executive Officer
Consolidated Balance Sheet
(All amounts in USD, unless otherwise stated)
| ASSETS | Notes | March 31, 2009 | March 31, 2008 | |
| Non Current | ||||
| Goodwill | B | 23,843,420 | 30,922,539 | |
| Property, plant and equipment | C | 70,233,618 | 91,871,954 | |
| Intangible assets | D | 39,308,905 | 55,987,070 | |
| Deferred tax assets | S | 594,268 | 844,558 | |
| Other long term financial assets | E | 5,947,368 | 5,212,618 | |
| Prepayments and accrued income | F | 3,716,086 | 5,863,523 | |
| Restricted cash | G | 224,583 | 1,043,516 | |
| Investments | H | - | 2,617 | |
| Total non current assets | 143,868,248 | 191,748,395 | ||
| Current | ||||
| Inventories | I | 415,083 | 519,447 | |
| Trade and other receivables, net | J | 8,819,013 | 8,133,181 | |
| Other short term financial assets | K | 3,281,722 | 2,897,539 | |
| Prepayments and accrued income | L | 303,295 | 59,943 | |
| Restricted cash | M | - | 8,772 | |
| Cash and cash equivalents | N | 3,103,891 | 18,102,932 | |
| Total current assets | 15,923,003 | 29,721,814 | ||
| Total assets | 159,791,252 | 221,470,208 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Stockholders' equity | ||||
| Issued capital | 28,099 | 27,583 | ||
| Additional paid in capital | 147,469,159 | 147,369,662 | ||
| Translation reserve | (30,513,587) | 79,646 | ||
| Accumulated earnings | (15,502,923) | (1,299,706) | ||
| Total stockholders' equity | 101,480,748 | 146,177,185 |
| Notes | March 31, 2009 | March 31, 2008 | ||
| Non current liabilities | ||||
| Interest bearing loans and borrowings, net of current portion | O | 22,251,185 | 30,318,607 | |
| Employee benefit obligations | Q | 574,198 | 558,007 | |
| Deferred tax liability | S | 15,300,754 | 21,589,638 | |
| Other liabilities | - | 109,873 | ||
| Total non current liabilities | 38,126,137 | 52,576,125 | ||
| Current liabilities | ||||
| Interest bearing loans and borrowings | O | 8,879,335 | 7,622,718 | |
| Trade and other payables | P | 11,305,032 | 14,780,768 | |
| Income tax payable | R | - | 313,411 | |
| Total current liabilities | 20,184,367 | 22,716,897 | ||
| Total liabilities | 58,310,504 | 75,293,023 | ||
| Total liabilities and stockholders' equity | 159,791,252 | 221,470,208 |
Consolidated Statement of Income
| Notes | Year ended March 31, 2009 | Fifteen month ended March 31, 2008 | ||
| Revenues | ||||
| Operating revenues | V | 34,748,944 | 24,893,304 | |
| Finance income | 628,402 | 3,401,448 | ||
| Other income | 785,040 | 349,581 | ||
| Total | 36,162,386 | 28,644,333 | ||
| Expenses | ||||
| Direct operating expenses | W | 31,252,317 | 19,561,542 | |
| Administrative expenses | X | 16,553,857 | 10,030,670 | |
| Selling expenses | Y | 184,154 | 126,396 | |
| Finance charges | 3,677,004 | 1,859,799 | ||
| Total | 51,667,332 | 31,578,427 | ||
| Result from continuing operations before tax | (15,504,946) | (2,934,092) | ||
| Taxes | S | |||
| Current tax benefit | - | 7,952 | ||
| Deferred tax benefit | 1,301,729 | 360,044 | ||
| Net result attributable to shareholders of India Hospitality Corp. | (14,203,217) | (2,566,096) | ||
| Earnings/(loss) per share - Total and continuing operations | ||||
| Basic | (0.51) | (0.10) | ||
| Diluted | (0.51) | (0.10) |
Consolidated Statement of Cash Flows
| Particulars | Year ended March 31, 2009 | Fifteen months ended March 31, 2008 |
| (A) Cash inflow/ (outflow) from operating activities | ||
| Net result before tax | (15,504,946) | (2,934,092) |
| Adjustments to reconcile net income before tax to net cash provided by operating activities: | ||
| Depreciation and amortisation | 12,605,787 | 4,739,110 |
| Interest expense | 3,603,023 | 1,669,175 |
| Interest income | (37,714) | (2,852,004) |
| Dividend received | (144,482) | (219,377) |
| Profit/Loss on sale of asset | 115,808 | (1,450) |
| Provision for diminutions in value of investments | - | 1,223 |
| Profit on sale of investments | (8,775) | (181,161) |
| Impairment of financial assets | 482,803 | - |
| Provision for expenses written back | 2,936 | - |
| Adjustments for changes in operating assets and liabilities | ||
| Current liability | 287,608 | 5,838,607 |
| Current assets | (4,184,591) | (3,308,242) |
| Net changes in operating assets and liabilities | (2,782,543) | 2,751,789 |
| Tax paid | (230,476) | 16,065 |
| Net cash provided by operating activities | (3,013,020) | 2,767,854 |
| (B) Cash inflow/ (outflow) from investing activities | ||
| Interest income | 37,714 | 2,852,004 |
| Income from sale of investments | - | 181,161 |
| Acquisition of subsidiaries | - | (75,809,275) |
| Acquisition expenses | - | (3,173,443) |
| Purchase of intangibles | - | (4,900,000) |
| Purchase of property, plant and equipment | (9,407,287) | (27,957,874) |
| Proceeds from sale of assets | 39,862 | 280,814 |
| Dividend received | 144,482 | 219,377 |
| Net cash used in investing activities | (9,185,229) | (108,307,237) |
| (C ) Cash inflow / (outflow) from financing activities | ||
| Proceeds from long term borrowings | 3,542,808 | 9,084,910 |
| Repayment of long term borrowings | (1,236,816) | (562,536) |
| Proceeds from issue of share capital | - | 28,125,000 |
| Redemption of capital | - | (8,999,900) |
| Interest paid | (3,603,023) | (1,715,721) |
| Share issue expenses | - | (1,500,000) |
| Net cash provided by financing activities | (1,297,031) | 24,431,753 |
| Net increase in cash and cash equivalents | (13,495,280) | (82,497,288) |
| Effect of exchange rate changes on cash | (1,503,760) | (381,650) |
| Cash and cash equivalents at the beginning of the period | 18,102,932 | 100,981,870 |
| Cash and cash equivalents at the end of the period | 3,103,891 | 18,102,932 |
| Cash and cash equivalents comprise | ||
| Cash in hand | 37,062 | 134,876 |
| Balances with banks | 2,065,119 | 1,635,347 |
| Investment in highly liquid funds | 1,001,710 | 16,332,709 |
| 3,103,891 | 18,102,932 |
Consolidated Statement of Changes in Shareholders' Equity
| Total stockholders' equity | ||||||||||||
|
| Number of shares | Common stock - Amount | Additional paid in capital | Translation reserve | Accumulated earnings | Total stockholders' equity | ||||||
| Balance as at January 1, 2007 | 21,333,333 | 21,334 | 98,523,828 | - | 1,266,390 | 99,811,552 | ||||||
| Translation adjustment | - | - | 79,646 | - | 79,646 | |||||||
| Net income for the period | - | (2,566,096) | (2,566,096) | |||||||||
| Total income and expense recognised for the period | - | - | 79,646 | (2,566,096) | (2,486,450) | |||||||
| Shares issued | 4,688,000 | 4,688 | 28,120,312 | - | - | 28,125,000 | ||||||
| Shares issue expenses | - | (3,075,000) | - | - | (3,075,000) | |||||||
| Issue of shares in connection with business combination | 3,066,167 | 3,067 | 20,604,936 | - | - | 20,608,003 | ||||||
| Stock compensation reserve | 3,150,000 | - | - | 3,150,000 | ||||||||
| Shares redeemed | (1,505,000) | (1,505) | (8,998,395) | - | - | (8,999,900) | ||||||
| Reversal of sellers' option | - | 9,043,981 | - | - | 9,043,981 | |||||||
| Balance as at March 31, 2008 | 27,582,500 | 27,583 | 147,369,662 | 79,646 | (1,299,706) | 146,177,185 | ||||||
| Translation adjustment | - | - | (30,593,233) | - | (30,593,124) | |||||||
| Net income for the year | - | - | - | (14,203,217) | (14,203,217) | |||||||
| Total income and expense recognised for the year | - | - | (30,593,233) | (14,203,217) | (44,796,341) | |||||||
| Share based payment to a Director | 15,750 | 16 | 99,997 | - | - | 100,513 | ||||||
| Shares issued | 500,000 | 500 | (500) | - | - | - | ||||||
| Balance as at March 31, 2009 | 28,098,250 | 28,099 | 147,469,159 | (30,513,587) | (15,502,923) | 101,480,748 | ||||||
Notes to Accounts (extracts)
NOTE A. BACKGROUND INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. NATURE OF OPERATIONS
India Hospitality Corp. ('the Company') and its subsidiaries (together referred to as 'the Group'), the Company was formed on May 12, 2006 as 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 Sky Gourmet Catering Private Limited ("SCPL" or SkyGourmet), an airline catering company from affiliates of Navis Asia Funds and certain private shareholders (the "Sellers") pursuant to a share purchase agreement.
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 inflight catering services to a number of domestic and international airlines. It has operations in Mumbai, Bangalore, New Delhi, Pune, Hyderabad and Chennai.
2. GENERAL INFORMATION
The Company was incorporated in the Cayman Islands on May 12, 2006 and its shares are publicly traded on the Alternate Investment Market of the London Stock Exchange. As of March 31, 2009, the Company had wholly owned subsidiaries incorporated in Mauritius, Netherlands and India. The Company expects to conduct business, including the making of acquisitions, through its Mauritius subsidiary.
These financial statements have been presented for the year ended March 31, 2009. During the period ended March 31, 2008, the Company had changed its financial year end from December 31 to March 31 to align Company's year end with those of acquired operating entities and therefore presented financial statements for a period of 15 months (including 8 months for which the operations of the Indian entities were consolidated from the date of their acquisitions by the Group) in that period. Accordingly, the financial statements of the current period of one year may not be comparable with the comparative information provided for a period of 15 months.
The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board effective for accounting periods commencing on April 1 2008. These financial statements include comparative financial information as at and for the period ended March 31, 2008, as required by IAS 1 - Presentation of Financial Statements ('IAS 1'). The consolidated 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 and the Group has incurred a loss after tax of USD 14,203,217 during the year ended March 31, 2009 and experienced uneven operating cash flows in recent months. 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. Accordingly, management has shifted its focus towards cash preservation and cost control and is also in the process of exploring all potential sources of further funding (both from existing shareholders and third parties) and monitoring its position under its banking covenants. The Group is not currently in breach of its banking covenants that permit the lender to demand accelerated repayment. Accordingly, these financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The consolidated financial statements of the Group are prepared and presented in United States Dollar ('USD'), the Company's presentation currency.
The financial statements for the year ended March 31, 2009 were approved by the board of directors on September 29, 2009. Financial statements once approved by the Board of Directors are generally not amended.
An overview of Standards and Interpretations that will become mandatory for the Group in future periods is given in note 6.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 OVERALL CONSIDERATIONS
The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarised below.
The consolidated financial statements have been prepared using the measurement basis specified by IFRS for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below.
3.2 BASIS OF CONSOLIDATION
The group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to the dates specified in Note 7. Subsidiaries are all entities over which The Company has the power to control the financial and operating policies. The Company obtains and exercises control through voting rights.
Unrealised gains and losses on transactions between the Company and its subsidiaries are eliminated. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment losses from the Group's perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Entities whose economic activities are controlled jointly by the Company and by other ventures independent of the Group are accounted for using proportionate consolidation.
3.3 INVESTMENT IN JOINT VENTURES
Entities whose economic activities are controlled jointly by the Company and by other ventures independent of the Company ("joint ventures") are accounted for using proportionate consolidation.
Unrealised gains and losses on transactions between the group and its joint venture entities are eliminated to the extent of group's interest. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment losses from the Company's group perspective.
Amounts reported in the financial statements of jointly controlled entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
3.4 FOREIGN CURRENCY TRANSLATION
The consolidated financial statements are presented in United States Dollar ('USD'), which is the functional currency of the parent company, India Hospitality Corp., being the currency of the primary economic environment in which it operates.
In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of remaining monetary balances at year-end exchange rates are recognised in the income statement under "other income" or "other expenses", as applicable.
In the consolidated financial statements, all separate financial statements of subsidiaries, originally presented in a currency different from the Group's presentation currency, have been converted into USD. Assets and liabilities have been translated into USD at the closing rate at the balance sheet date. Income and expenses have been converted into the Group's presentation currency at the average of the daily exchange rates over the reporting period. The resulting translation adjustments are recorded under the currency translation reserve in equity.
3.5 REVENUE RECOGNITION
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty. The following specific recognition criteria are met before revenue is recognised:
Sale of goods
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on acceptance of the goods and other revenue recognition criteria is met.
Rendering of services
Revenue from rendering of services includes Handling Income, Transportation Income and Laundry Income. Revenue is recognised on these when the services are rendered to the customers.
Dividends
Revenue is recognised when the Group's right to receive the payment is established.
Finance revenue
Interest income and expenses are reported on an accrual basis using the effective interest method. Dividend income, other than those from investments in associates, are recognised at the time the right to receive payment is established.
3.6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, excluding the costs of the day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of such plant and equipment when it is probable that future economic benefits associated with such items will flow to the Group and that the cost can be measured reliably.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. The asset's residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year end.
Capital work in progress
Capital work in progress includes assets under construction and capital advances.
Depreciation
Freehold land is not depreciated as useful life for land cannot be determined. Depreciation on other property plant and equipment is calculated on a straight-line basis over the estimated useful life of the asset less estimated residual value of property plant and equipment.
The useful lives of the assets are taken as follows: -
| Buildings | 60 years |
| Plant and machinery | 8 years |
| Kitchen Equipments | 8 years |
| Computers | 4 years |
| Electrical Fitting | 7 years |
| Furniture and Fixtures | 7 years |
| Commercial Vehicles | 7 years |
| Motor Vehicles | 5 years |
| Office equipments | 3 years |
| Leasehold improvements | Lease period or the useful life whichever is lower |
3.7 BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.
All other borrowing costs are recognised in the income statement in the period in which they are incurred.
3.8 INTANGIBLE ASSETS
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Intangible assets include brand name, catering agreements; non compete agreement and concession agreements acquired through business combination.
Intangible assets are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. These assets are currently amortised and are included within 'administrative expenses' as 'depreciation, amortisation and impairment of non-financial assets'. Certain intangible assets have an indefinite life and are evaluated for impairment tests at each reporting period.
The estimated useful lives of the intangibles are given as follows: -
| Designs | 5 years |
| Customer contracts | 5-20 years |
| Trade names | Indefinite life |
| Non compete agreement | 7 years |
3.9 GOODWILL
Goodwill represents the excess of the acquisition cost in a business combination over the fair value of the group's share of the identifiable net assets acquired. Goodwill is carried at cost less accumulated impairment losses. Refer to Note 3.10 for a description of impairment testing procedures.
3.10 IMPAIRMENT TESTING OF GOODWILL, OTHER INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT
The Group's intangible assets, goodwill on acquisition and property, plant and equipment are subject to impairment testing.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill.
Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, the Group's management estimates expected future cash flows from each cash generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for the Group's impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profiles as assessed by the Group's management.
Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge that has been recognised is reversed if the cash-generating unit's recoverable amount exceeds its carrying amount.
3.11 FINANCIAL ASSETS
Financial assets are divided into categories such as loans and receivables, financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired.
De-recognition of financial instruments occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date, whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.
In the case of impairment, any loss previously recognised in equity is transferred to the income statement. Losses recognised in the income statement on equity instruments are not reversed through the income statement. Losses recognised in prior period consolidated income statements resulting from the impairment of debt securities are reversed through the income statement.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are initially recognised at fair values. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss.
Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows.
3.12 INVENTORIES
Inventory comprises food and provision, packing and other materials and is valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and conditions are included on a weighted average basis.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
3.13 ACCOUNTING FOR INCOME TAXES
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. Deferred tax is, however, neither provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future.
In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. The Group's management bases its assessment of the probability of future taxable income on the Group's latest approved budget forecast, which is adjusted for significant nontaxable income and expenses and specific limits to the use of any unused tax loss or credit. The specific tax rules in the numerous legislations the Group operates in are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by the Group's management based on the specific facts and circumstances.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
3.14 CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
3.15 LEASING ACTIVITIES
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Rental expense from operating leases is recognised on a straight-line basis over the term of the relevant lease.
Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.
3.16 EQUITY
Share capital is determined using the nominal value of shares that have been issued.
Additional paid-in capital includes any premium received on the initial issue of share capital. Any transaction costs associated with the issue of shares is deducted from additional paid-in capital and stock based compensation costs, net of any related income tax benefits.
Foreign currency translation differences are included in the translation reserve.
Accumulated earnings include all current and prior period results, as disclosed in the income statement.
Due to non exercise of Seller's option by the seller, such lapse of seller options has been reversed in APIC and disclosed in Statement Showing Changes in Equity.
3.17 EMPLOYEE BENEFITS
Employee benefits are provided through a defined benefit plan as well as certain defined contribution plans.
The Group provides for gratuity, a defined benefit plan, which defines an amount of pension benefit that an employee will receive on termination or retirement, usually dependent on one or more factors such as age, years of service and remuneration. The legal obligation for any benefits from this kind of plan remains with the Group.
The Group also provides for provident fund benefit, a defined contribution plan, under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after payment of the fixed contribution.
The liability recognised in the balance sheet for defined benefit plans is the present value of the defined benefit obligation (DBO) at the balance sheet date less the fair value of plan assets, together with adjustments for actuarial gains or losses and past service costs. The DBO is calculated annually by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability.
Actuarial gains and losses are recognised as an income or expense in the period in which they arise. Past-service costs are recognised immediately in the income statement, unless the changes to the plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period.
The contributions recognised in respect of defined contribution plans are expensed as they fall due. Liabilities and assets may be recognised if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short-term nature.
Interest expenses related to pension obligations are included in "finance costs" in the income statement. All other pension related benefit expenses are included in "Employee benefit expense".
Short-term employee benefits are recognised for the number of paid leave days (usually holiday entitlement) remaining at the balance sheet date. They are included in employee obligations at the undiscounted amount that the Group expects to pay as a result of the unused entitlement. Paid leave days which are likely to be encashed at the time of retirement are valued at the rates at which they are estimated to be paid out, and the present value of the same is included under 'Long term Employee obligations'.
3.18 FINANCIAL LIABILITIES
The Group's financial liabilities include trade and other payables and borrowings, which are measured at amortised cost using effective interest rate method. They are included in balance sheet line items 'Interest bearing loans and borrowings, net of current portion' and 'trade and other payables'.
Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges is recognised as an expense in "finance cost" in the income statement.
Trade payables are recognised initially at their fair value and subsequently measured at amortised cost less settlement payments.
3.19 PROVISIONS AND CONTINGENT LIABILITIES
Provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Group and they can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events.
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation.
In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognised in the consolidated balance sheet.
3.20 EQUITY BASED COMPENSATION
All goods and services received in exchange for the grant of any share-based remuneration are measured at their fair values. These are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets).
All share-based remuneration is ultimately recognised as an expense in statement of income or as allocable to issue of shares and costs of business combination with a corresponding credit to additional paid-in capital, net of deferred tax where applicable.
If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised, if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in current period.
Upon exercise of share options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as additional paid-in capital.
4. SIGNIFICANT MANAGEMENT JUDGEMENT IN APPLYING ACCOUNTING POLICIES
In the process of applying the Group's accounting policies, the following judgments have been made apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial information. Judgments are based on the information available at each balance sheet date.
Deferred Taxes
Management estimates are required in determining provisions for income taxes, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognised. In particular, management judgment and estimates are involved in the preparation of future projections of taxable income which determines whether or not a deferred tax asset is recognised. If the final outcome of these matters differs from the amounts initially recorded, differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Impairment of financial assets
Management judgment is required in determining the extent of impairment, if any, on financial assets. These judgments are made based on information available with the management about the counter-party's financial position and their ability to make payments when they fall due. If the final outcome differs from the amounts initially recorded, differences will impact the period in which such determination is made.
5. ESTIMATION UNCERTAINTY
The preparation of these consolidated financial statements are in conformity with IFRS and requires the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management estimates are based on historical experience and various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources.
All accounting estimates and assumptions that are used in preparing the financial statements are consistent with the Group's latest approved budged forecast, where applicable. Although these estimates are based on the best information available to management, the actual results may differ from the judgments, estimates and assumptions made by management, and will seldom equal the estimated results.
Information about significant judgments, estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses are discussed below.
Estimates of life of various tangible and intangible assets, allowance for uncollectable amounts, and assumptions used in the determination of employee-related obligations represent certain of the significant judgments and estimates made by management.
Impairment
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows management makes assumptions about future gross profits. These assumptions relate to future events and circumstances. The actual results may vary, and may cause significant adjustments to the Group's assets within the next financial year. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors.
The Group has incurred an impairment loss of USD 1,916,810 (previous period: Nil) on land (included in property, plant and equipment) in order to reduce the carrying amount of land to its recoverable amount - Refer note C.
Useful lives of depreciable assets
Management reviews the useful lives of depreciable assets at each reporting date, including those which are stated to have an indefinite life. At March 31, 2009 management assesses that the useful lives represent the expected utility of the assets to the Group. The carrying amounts are analysed in Note C and Note D. Actual results, however, may vary due to changes in market trends, etc, specifically in the restaurant business.
Post employment benefits
The cost of post employment benefits is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rate of return on assets, future salary increases, and mortality rates. Due to the long term nature of these plans such estimates are subject to significant uncertainty. For net employee liability at the end of the respective dates - Refer note Z.
6. STANDARDS AND INTERPRETATIONS NOT YET APPLIED
The following new Standards and Interpretations, which are yet to become mandatory, have not been applied in the Group's 2009 Financial Statements.
| Standard or Interpretation | Effective dates |
| IAS 1: Presentation of Financial Statements (Revised) | Periods beginning on or after January 1, 2009 |
| IAS 23: Borrowing costs (Revised) | Periods beginning on or after January 1, 2009 |
| IAS 27: Consolidated and Separate Financial Statements (Revised 2008) | Periods beginning on or after July 1, 2009 |
| IAS 32: Financial Instruments: Presentation- Puttable Financial Instruments and Obligations Arising on Liquidation Amendment | Periods beginning on or after January 1, 2009 |
| IAS 39: Financial Instruments: Recognition and Measurement (Amendment) | Periods beginning on or after January 1, 2009 |
| IFRS 2: Share-Based Payment (Amendment) | Periods beginning on or after January 1, 2009 |
| IFRS 3: Business Combinations (Revised 2008) | For acquisition dated on or after the beginning of the first annual reporting period beginning on or after July 1, 2009 |
| IFRS 7: Financial Instruments Disclosures (Amendment) | Periods beginning on or after January 1, 2009 |
| IFRS 8: Operating Segments | Periods beginning on or after January 1, 2009 |
| IFRIC 15: Agreements for the Construction of Real Estate | Periods beginning on or after January 1, 2009 |
| IFRIC 17: Distribution of Non-cash Assets to Owners | Periods beginning on or after July 1, 2009 |
| IFRIC 18: Transfers of Assets to Customers | Transfer of assets on or after July 1, 2009 |
| Annual Improvements to IFRSs 2008 | Periods beginning on or after January 1, 2009 (unless otherwise stated) |
The Group is in the process of evaluating the impact on its financial statements when the interpretations become effective.
The Group does not intend to apply any of these pronouncements early.
7. BASIS OF CONSOLIDATION
The group companies which consolidate under India Hospitality Corp. comprise of the entities listed below:
| Name of the Entity | Year End Date | Holding Co. | Country of Incorporation | Effective Group Share-holding (%) |
| India Hospitality Corp. (IHC) | March 31, 2009 | Cayman Island | 100 | |
| IHC Mauritius (IHC M) | March 31, 2009 | IHC | Mauritius | 100 |
| Mars Restaurants Private Limited (MRPL) | March 31, 2009 | IHC M | India | 100 |
| SkyGourmet Catering Private Limited (SCPL) | March 31, 2009 | IHC M | India | 100 |
| New India Glass Private Limited | March 31, 2009 | SCPL | India | 98 |
| Gordon House Estates Private Limited | March 31, 2009 | MRPL | India | 100 |
| Navigate India Investments B.V | March 31, 2009 | IHC M | Netherlands | 100 |
| IBEA Mars and GHH Holdings B.V | March 31, 2009 | IHC M | Netherlands | 100 |
| S.C. Ventures Ltd | March 31, 2009 | IBEA | Mauritius | 100 |
| Karia Investments B.V | March 31, 2009 | Navigate | Netherlands | 100 |
MRPL holds a 49 % stake in Gourmet Restaurants Private Limited, a joint venture company. The remaining 51% shares are held by Sachin Tendulkar and his family.
All of the above entities follow uniform accounting policies.
NOTE C. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment comprise the following:
Movement in Costs for the year ended March 31, 2009
| Costs | April 1, 2008 | Additions | Disposals | Exchange Impact | March 31, 2009 |
| Freehold land | 32,043,612 | - | - | (7,388,765) | 24,654,847 |
| Building | 35,353,770 | 2,849,515 | (56,680) | (8,559,454) | 29,587,151 |
| Leasehold Improvements | 1,198,412 | 896,872 | (43,661) | (375,245) | 1,676,378 |
| Plant and Machinery | 7,829,485 | 2,880,665 | (6,092) | (2,156,309) | 8,547,749 |
| Electrical fitting | 1,205,216 | 299,534 | (20,355) | (314,066) | 1,170,329 |
| Kitchen equipments | 4,947,705 | 648,189 | (15,404) | (1,233,180) | 4,347,310 |
| Furniture and fixture | 1,445,667 | 303,065 | (63,152) | (366,340) | 1,319,241 |
| Computer | 444,537 | 225,046 | (5,224) | (128,621) | 535,738 |
| Motor vehicles | 514,897 | 245,412 | (23,684) | (145,382) | 591,243 |
| Commercial vehicles | 3,100,006 | 841,564 | (30,999) | (817,941) | 3,092,630 |
| Assets under construction | 6,343,325 | 3,053,038 | (6,343,325) | 3,053,038 | |
| 94,426,632 | 12,242,900 | (6,608,576) | (21,485,303) | 78,575,653 |
Movement in costs for the period ended March 31, 2008
| Costs | Acquired on acquisition | Additions | Disposals | Exchange Impact | March 31, 2008 |
| Freehold land | 2,935,182 | 29,045,714 | - | 62,717 | 32,043,613 |
| Building | 24,277,147 | 10,667,762 | - | 408,861 | 35,353,770 |
| Leasehold Improvements | 1,179,202 | - | - | 19,210 | 1,198,412 |
| Plant and Machinery | 3,882,467 | 3,880,335 | (1,427) | 68,109 | 7,829,484 |
| Electrical fitting | 455,193 | 741,678 | - | 8,345 | 1,205,216 |
| Kitchen equipments | 2,056,417 | 2,854,211 | - | 37,077 | 4,947,705 |
| Furniture and fixture | 1,344,800 | 78,861 | - | 22,007 | 1,445,668 |
| Computer | 328,329 | 119,242 | (8,523) | 5,487 | 444,535 |
| Motor vehicles | 526,616 | 24,015 | (47,489) | 11,755 | 514,897 |
| Commercial vehicles | 1,987,147 | 1,079,134 | - | 33,724 | 3,100,005 |
| Assets under construction | - | 6,343,325 | - | - | 6,343,325 |
| 38,972,500 | 54,834,277 | (57,439) | 677,292 | 94,426,630 |
Movement in accumulated depreciation and impairment for the year ended March 31, 2009
| Accumulated depreciation and impairment | April 1, 2008 | For the year | Disposals | Exchange Impact | March 31, 2009 |
| Freehold land | - | 1,916,810 | - | - | 1,916,810 |
| Building | 518,385 | 1,220,803 | (33,567) | (282,736) | 1,422,885 |
| Leasehold Improvements | 184,810 | 495,448 | (43,661) | (103,918) | 532,679 |
| Plant and Machinery | 539,904 | 1,257,585 | (864) | (296,682) | 1,499,943 |
| Electrical fitting | 113,285 | 353,275 | (2,334) | (71,793) | 392,433 |
| Kitchen equipments | 451,449 | 763,152 | (2,058) | (216,389) | 996,154 |
| Furniture and fixture | 189,856 | 245,749 | (10,427) | (81,733) | 343,445 |
| Computer | 98,848 | 114,262 | (5,224) | 1,838 | 209,724 |
| Motor vehicles | 60,928 | 148,195 | (10,985) | (30,525) | 167,612 |
| Commercial vehicles | 397,212 | 659,011 | (7,462) | (188,411) | 860,350 |
| 2,554,676 | 7,174,290 | (116,582) | (1,270,349) | 8,342,035 |
Movement in accumulated depreciation and impairment for the period ended March 31, 2008
| Accumulated depreciation and impairment | January 1, 2007 | For the period | Disposals | Exchange Impact | March 31, 2008 |
| Freehold land | - | - | - | - | - |
| Building | - | 477,328 | - | 41,057 | 518,385 |
| Leasehold Improvements | - | 170,173 | - | 14,637 | 184,810 |
| Plant and Machinery | - | 498,507 | (1,365) | 42,762 | 539,904 |
| Electrical fitting | - | 104,313 | - | 8,972 | 113,285 |
| Kitchen equipments | - | 415,694 | - | 35,756 | 451,450 |
| Furniture and fixture | - | 174,819 | - | 15,037 | 189,856 |
| Computer | - | 95,682 | (4,663) | 7,829 | 98,848 |
| Motor vehicles | - | 100,230 | (44,128) | 4,826 | 60,928 |
| Commercial vehicles | - | 365,752 | - | 31,460 | 397,212 |
| - | 2,402,498 | (50,156) | 202,336 | 2,554,678 |
Net book value as at March 31, 2008 and 2009
| Net book value | March 31, 2009 | March 31, 2008 |
| Freehold land | 22,738,037 | 32,043,612 |
| Building | 28,164,266 | 34,835,385 |
| Leasehold Improvements | 1,143,699 | 1,013,602 |
| Plant and Machinery | 7,047,807 | 7,289,581 |
| Electrical fitting | 777,896 | 1,091,931 |
| Kitchen equipments | 3,351,155 | 4,496,255 |
| Furniture and fixture | 975,796 | 1,255,811 |
| Computer | 326,014 | 345,689 |
| Motor vehicles | 423,630 | 453,969 |
| Commercial vehicles | 2,232,280 | 2,702,794 |
| Assets under construction | 3,053,038 | 6,343,325 |
| 70,233,618 | 91,871,954 |
Of the total depreciation expense, USD 4,702,839 (Previous year: 2,191,283) is classified in direct operating expenses and USD 551,382. (Previous year: 741,825) is classified in administrative expenses.
Freehold land includes land in New Delhi which was acquired for the purpose of setting up a new ACU in New Delhi and is held by the Company for future development as owner occupied property. As at March 31, 2009, management has not commenced any activities on this land as the group has received an extension on the lease of its existing ACU in New Delhi within the Delhi Airport premises. Considering the overall slump in real estate prices in that region and the extension of the lease on the existing ACU in New Delhi, management carried out an impairment evaluation on this asset, which resulted in a reduction in its carrying value in the current year to the recoverable amount of this asset.
The evaluation was done by an independent registered valuer and was based on the fair value of the land less costs to sell this land as the Company does not have any identified plans for use of this asset. The fair value was determined by reference to information on other market transactions and adjusted as required to make them comparable.
The related impairment loss of USD 1,916,810 in 2009 (previous period: Nil) is included within 'administrative expenses' as 'depreciation, amortisation and impairment of non-financial assets' and allocated to the Air Catering segment. Refer note FF.
Restrictions on titles and property, plant and equipment pledged as securities for respective loans is given in Note O.
NOTE CC. RELATED PARTY TRANSACTIONS
Related parties with whom the Group has transacted during the period
Key Management Personnel
| Particulars | |
| Ravi Deol | |
| Sandeep Vyas | |
| Raghavendra Agarwal | |
| Ajay Mehra | |
| Sanjay Narang | |
| Ajit Mathur | |
| Arvind Ghei | |
| Patrick Rodrigues | |
| Jaswinder Singh | |
| Ramesh Joshee |
Enterprises over which significant influence exercised by key management personnel/ directors
| Bullworker Pvt. Ltd | |
| Gourmet Restaurants Private Limited | |
| 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
| Nature of Transaction | March 31, 2009 | March 31, 2008 |
| Transactions with key management personnel | ||
| Remunerations | ||
| Short term Employee Benefit - salary cost | 1,207,586 | 224,629 |
| Long Term Employee Benefit | ||
| Defined Contribution | 53,095 | 10,392 |
| Loan to Arvind Ghei | 1,725 | 4,511 |
| Share based payments | ||
| Shares issued to Mr. Ajay Mehra | 99,997 | - |
| Transactions with enterprises over which significant influence exercised by key management personnel/ directors. | ||
| Sale of Goods | 233,594 | 168,114 |
| Purchase of Assets | - | 67 |
| Sale of Assets | - | 21,463 |
| Rendering of other services | 132,978 | 213,953 |
| Service received | 704,985 | 544,596 |
| Deposits given | 9,250,527 | 13,963,033 |
| Loans granted | 837 | 1,080 |
| Amount payable at the period end | 169,186 | 136,236 |
| Amount receivable at the period end | 1,533,163 | 433,026 |
The directors are covered under the Group's gratuity policy along with other employees of the Group. Proportionate amount of gratuity is not included in the aforementioned disclosures.
NOTE DD. EARNINGS PER SHARE
The basic earnings per share for the year ended March 31 2009 and period ended March 31, 2008 have been calculated using the net results attributable to shareholders of the Group as the numerator. None of the dilutive shares relate to interest or similar expense recognisable in profit or loss for the year ended March 31 2009 and fifteen month period ended March 31, 2008.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Calculation of basic and diluted EPS is as follows:
| Particulars | March 31, 2009 | March 31, 2008 |
| Loss attributable to shareholders of the Group, for basic and dilutive | (14,203,217) | (2,566,096) |
| Weighted average numbers Shares outstanding during the year for Basic | 27,775,812 | 23,542,368 |
| Effect of dilutive potential ordinary shares: Warrants | 22,104,167 | 29,716,408 |
| Weighted average numbers Shares outstanding during the year for Dilutive | 17,540,864 | 52,258,776 |
| Basic EPS, in USD | (0.51) | (0.10) |
| Diluted earnings per share, in USD | (0.51) | (0.10) |
Dilutive shares have not been considered for calculation of dilutive earnings per share as these are anti dilutive in nature.
NOTE LL. POST REPORTING EVENTS
Settlement of warranty claims
In December 2008, the Company had initiated a claim for indemnification against the Sellers pursuant to the SPA. In May 2009, the Company has resolved all outstanding disputes with the seller and a settlement agreement executed by the Company, the Company's subsidiary IHC Mauritius Corp. ("IHC Mauritius") and the Sellers. In terms of this settlement, the Company will receive an amount of USD 4.57 million of the amounts held in the Escrow Account and an additional loan of USD 2 million (total loan of USD 4 million) at 10% interest per annum for a period of one year. This amount is secured by creating a charge on the land in Delhi.
Acquisition of 'You' brand
In June 2009, the Company 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).
Issue of shares to Directors
In June 2009, the agreed to issue 1,873,000 ordinary shares of USD0.001 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, the Company has agreed to issue to Mr Deol and Mr Vyas up to a further 1,873,000 and 936,500 Ordinary Shares respectively at par value, based on meeting certain share price targets.
Buy back of shares
In July 2009, the shareholders of the Company passed a resolution authorising the Company to purchase its own shares.
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 Sanjay Narang, as of 31 July 2009.
IHC entered into the Agreements with Mars Catering at the time of the reverse acquisition and re-admission to AIM on 24 July 2007 and the Agreements were scheduled to run for a minimum period of two years.
Management: Mr Narang will be appointed the honorary non-executive chairman of Sky Gourmet, the airline catering business, for a period of 2 years for the purpose of providing a smooth transition and business continuity.
Gordon House Brand: IHC, via its subsidiary MRPL, has also entered into a licence agreement with Mr Narang whereby it has allowed the continued use of the Gordon House brand for the Hotel Sahar, Mumbai, owned by Mr Narang, for a further period of 2 years. Additionally, the Company has extended the existing agreement with Mr Narang for IHC to continue to directly manage the operations of the Gordon House hotel in Colaba.
Restaurants: Following the disengagement of the Agreements, the restaurant locations being used by Not Just Jazz by the Bay, Pizzeria Pasta Bar and Just around the Corner, owned by Sanjay Narang, will be transferred back to Mr Narang as per the original contract.
IHC has subsequently entered into an arrangement with Mr Narang whereby IHC will franchise the aforementioned restaurant brands to Mr Narang for a period of 1 year for a franchise fee in the initial three month period.
Non Compete Agreement: As a result of the disengagement of the Agreements, Mr Narang and his affiliated entities shall be bound by exclusivity, non-compete and non-solicit restrictions relating to Sky Gourmet for a period of 2 years. This arrangement will enable the IHC management to continue to develop the existing airline relationships alongside Mr Narang.