Last checked at 21 Dec 2009 07:00
21 December 2009
India Hospitality Corp.
("IHC" or "the Company")
Interim Results
India Hospitality Corp. is pleased to announce its interim results for the period ended 30 September 2009.
Key operational highlights
Company obtains extension for its Delhi Air Catering Unit
Settles warranty claims
Acquires the rights to "You" brand of hotels
Incentivises and aligns interests of new management team through share grants
Management assumes full control of operating subsidiaries
Entered into a hospitality development partnership with leading Indian real estate firm, Entertainment World Developers Pvt. Ltd. post the reporting period
Financial Highlights
Total Revenue of US$21.8 million
Net loss after tax of US$8.7 million
Basic and Diluted earnings per share US$ (0.29)
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
Condensed Consolidated Statement of Financial Position
(All amounts in USD, unless otherwise stated)
| As at September 30, 2009 (Unaudited) | As at September 30, 2008 (Unaudited) | As at March 31, 2009 (Audited) | |
| Assets | |||
| Non current | |||
| Goodwill | 25,895,374 | 26,272,730 | 23,843,420 |
| Property, plant and equipment | 73,995,026 | 76,231,790 | 70,233,618 |
| Intangible assets | 40,063,882 | 45,045,786 | 39,308,905 |
| Capital work in progress | - | 4,054,668 | - |
| Deferred tax assets | 594,268 | 844,558 | 594,268 |
| Other long term financial assets | 6,058,574 | 5,708,124 | 5,947,368 |
| Prepayments and accrued income | 3,720,919 | 4,944,022 | 3,716,086 |
| Restricted cash | 304,277 | 879,330 | 224,583 |
| Investment | - | 2,181 | - |
| Total non current assets | 150,632,320 | 163,983,189 | 143,868,248 |
| Current | |||
| Inventories | 415,382 | 395,782 | 415,083 |
| Trade and other receivables, net | 11,855,187 | 8,619,749 | 8,819,013 |
| Other short term financial assets | 4,043,848 | 2,492,000 | 3,281,722 |
| Prepayments and accrued income | 317,047 | 328,140 | 303,295 |
| Cash and cash equivalents | 3,070,349 | 7,929,270 | 3,103,891 |
| Restricted cash | - | 7,392 | - |
| Total current assets | 19,701,813 | 19,772,333 | 15,923,004 |
| Total assets | 170,334,133 | 183,755,522 | 159,791,252 |
| Liabilities and Equity | |||
| Current liabilities | |||
| Interest bearing loans and borrowings | 9,897,106 | 21,198,309 | 8,879,335 |
| Trade and other payables | 13,384,914 | 12,020,314 | 11,305,032 |
| Total current liabilities | 23,282,020 | 33,218,623 | 20,184,367 |
| Non current | |||
| Interest bearing loans and borrowings, net of current portion | 26,558,185 | 11,657,928 | 22,251,185 |
| Employee benefit obligations | 593,553 | 629,953 | 574,198 |
| Deferred tax liability | 16,815,097 | 18,181,684 | 15,300,754 |
| Total non current liabilities | 43,966,835 | 30,469,565 | 38,126,137 |
| Total liabilities | 67,248,855 | 63,688,188 | 58,310,504 |
| As at September 30, 2009 (Unaudited) | As at September 30, 2008 (Unaudited) | As at March 31, 2009 (Audited) | |
| Equity | |||
| Issued capital | 30,908 | 27,599 | 28,099 |
| Additional paid in capital | 148,517,102 | 147,469,659 | 147,469,159 |
| Stock options | 525,377 | - | - |
| Translation reserve | (21,807,382) | (20,685,977) | (30,513,587) |
| Accumulated earnings | (24,180,727) | (6,743,947) | (15,502,923) |
| Total equity | 103,085,278 | 120,067,334 | 101,480,748 |
| Total liabilities and equity | 170,334,133 | 183,755,522 | 159,791,252 |
(The accompanying notes are an integral part of these condensed consolidated interim financial statements)
Condensed Consolidated Statement of Comprehensive Income
(All amounts in USD, unless otherwise stated)
| For period April 1, 2009 to September 30, 2009 (Unaudited) | For period April 1, 2008 to September 30, 2008 (Unaudited) | ||
| Revenues | |||
| Operating revenue | 17,001,162 | 19,541,543 | |
| Finance and other income | 4,759,330 | 873,532 | |
| Total | 21,760,492 | 20,415,075 | |
| Expenses | |||
| Direct operating expenses | 17,483,717 | 20,414,534 | |
| Administrative expenses | 10,808,096 | 3,833,027 | |
| Selling expenses | 40,434 | 59,869 | |
| Finance charges | 2,034,640 | 1,766,297 | |
| Total | 30,366,887 | 26,073,727 | |
| Loss before tax | (8,606,395) | (5,658,652) | |
| Taxes | |||
| Current tax expense | - | - | |
| Deferred tax charge/credit for the period | 71,410 | (214,411) | |
| Loss for the period | (8,677,805) | (5,444,241) | |
| Other Comprehensive Income: Exchange difference on translating foreign operations | 8,706,205 | (20,765,515) | |
| Total comprehensive income for the period attributable to the owners of India Hospitality Corp. | 28,400 | (26,209,756) | |
| Earnings per share | |||
| Basic | (0.29) | (0.20) | |
| Diluted | (0.29) | (0.20) |
(The accompanying notes are an integral part of these condensed consolidated interim financial statements)
Condensed Consolidated Statement of Changes in Equity
(All amounts in USD, unless otherwise stated)
| | Equity attributable to share holders of India Hospitality Corp. | ||||
| | Common stock – Amount | Additional paid in capital | Translation reserve | Accumulated earnings | Total |
| Balance as at April 1, 2009 (Audited) | 28,099 | 147,469,159 | (30,513,587) | (15,502,923) | 101,480,748 |
| Share based payment to directors | 2,809 | 1,047,943 | - | - | 1,050,752 |
| Stock compensation reserve | | 525,378 | - | - | 525,378 |
| Transactions with owners | 2,809 | 1,573,321 | - | - | 1,576,130 |
| | | | | | |
| Loss for the period | - | - | - | (8,677,805) | (8,677,805) |
| Other Comprehensive Income Exchange difference on translating foreign operations | - | - | 8,706,205 | - | 8,706,205 |
| Total comprehensive income for the period | | | 8,706,205 | (8,677,805) | 28,400 |
| Balance as at September 30, 2009 (Unaudited) | 30,908 | 149,042,480 | (21,807,382) | (24,180,728) | 103,085,278 |
| Balance as at April 1, 2008 (Audited) | 27,584 | 147,369,661 | 79,537 | (1,299,706) | 146,177,077 |
| | | | | | |
| Share based payment to directors | 16 | 99,998 | - | - | 100,014 |
| Transactions with owners | 16 | 99,998 | - | - | 100,014 |
| | | | | | |
| Loss for the period | - | - | - | (5,444,241) | (5,444,241) |
| Other Comprehensive Income Exchange difference on translating foreign operations | - | - | (20,765,515) | - | (20,765,515) |
| Total comprehensive income for the period | | | (20,765,515) | (5,444,241) | (26,209,756) |
| Balance as at September 30, 2008 (Unaudited) | 27,600 | 147,469,659 | (20,685,978) | (6,743,947) | 120,067,334 |
(The accompanying notes are an integral part of these condensed consolidated interim financial statements)
Condensed Consolidated Statement of Cash Flows
(All amounts in USD, unless otherwise stated)
| For six months ended September 30, 2009 (Unaudited) | For six months ended September 30, 2008 (Unaudited) | |
| Operating activities | ||
| Loss before tax | (8,606,395) | (5,658,652) |
| Adjustments for non cash items: | ||
| Depreciation and amortisation | 5,855,231 | 5,398,328 |
| Interest expenses, net | 2,034,640 | 1,762,844 |
| Income on settlement of warranty claim relating to business combinations | (4,565,756) | - |
| Loss on sale of asset, net | 156,502 | 109,576 |
| Interest income, net | (2,173) | (50,123) |
| Dividend income | - | (367,128) |
| Expense for share based payments to directors | 1,047,944 | 99,997 |
| Others | 18,150 | 171 |
| Net Changes in working capital | ||
| Increase/(decrease) in current liability | 2,281,762 | (2,080,586) |
| (Increase)/decrease in current assets | (2,522,181) | (217,244) |
| Taxes paid | (60,235) | (77,191) |
| Cash used in operating activities | (4,362,511) | (1,080,008) |
| Investing activities | ||
| Interest received | 2,636 | 28,827 |
| Proceeds from sale of property, plant and equipment | 61,200 | 18,727 |
| Payments for purchase of property, plant and equipment | (849,711) | (7,531,479) |
| Proceeds from sale of investments | 95 | - |
| Dividend received | - | 144,128 |
| Income on settlement of warranty claim relating to business combinations | 4,565,756 | - |
| Cash generated from / (used in) investing activities | 3,779,976 | (7,339,797) |
| Financing activities | ||
| Proceeds from issue of shares | 2,810 | 16 |
| Interest paid | (2,034,640) | (1,762,844) |
| Proceeds from bank loans | 3,248,735 | 1,924,655 |
| Repayment of bank loans | (623,622) | (1,031,275) |
| Cash generated from / (used in) financing activities | 593,283 | (869,448) |
| For six months ended September 30, 2009 (Unaudited) | For six months ended September 30, 2008 (Unaudited) | |
| Net increase/(decrease) in cash and cash equivalents | 10,748 | (9,289,253) |
| Effect of exchange rate changes on cash | (44,290) | (884,407) |
| Net (decrease) in cash and cash equivalents during the period | (33,542) | (10,173,660) |
| Cash and cash equivalents at the beginning of the period | 3,103,891 | 18,102,930 |
| Cash and cash equivalents at the end of the period | 3,070,349 | 7,929,270 |
| Cash and cash equivalents comprise | ||
| Cash in hand | 65,929 | 107,703 |
| Balances with banks | 3,004,420 | 1,217,180 |
| Investment in highly liquid funds | - | 6,596,600 |
| Share in joint venture | - | 7,787 |
| 3,070,349 | 7,929,270 |
(The accompanying notes are an integral part of these condensed consolidated interim financial statements)
Notes to Condensed Consolidated Interim Financial statements
(All amounts in USD, unless otherwise stated)
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:
IAS 1 Presentation of Financial Statements (Revised 2007)
IFRS 8 Operating Segments
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:
| Name of the Entity | Period end date | Holding Co. | Country of Incorporation | Effective Group Share-holding (%) |
| India Hospitality Corp. (IHC) | September 30, 2009 | Cayman Island | 100 | |
| IHC Mauritius (IHC M) | September 30, 2009 | IHC | Mauritius | 100 |
| Mars Restaurants Private Limited (MRPL) | September 30, 2009 | IHC M | India | 100 |
| SkyGourmet Catering Private Limited (SCPL) | September 30, 2009 | IHC M | India | 100 |
| IHC Advisory Services Private Limited | September 30, 2009 | IHC | India | 100 |
| New India Glass Private Limited | September 30, 2009 | SCPL | India | 100 |
| Gordon House Estates Private Limited | September 30, 2009 | MRPL | India | 100 |
| Navigate India Investments B.V | September 30, 2009 | IHC M | Netherlands | 100 |
| IBEA Mars and GHH Holdings B.V | September 30, 2009 | IHC M | Netherlands | 100 |
| S.C. Ventures Ltd | September 30, 2009 | IBEA | Mauritius | 100 |
| Karia Investments B.V | September 30, 2009 | Navigate | Netherlands | 100 |
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:
Management: Mr Sanjay 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. Sanjay Narang whereby it has allowed the continued use of the Gordon House brand for the Hotel Sahar, Mumbai, owned by Mr. Sanjay Narang, for a further period of 2 years at no cost. Additionally, the Group has extended the existing agreement with Mr. Sanjay Narang for IHC to continue to directly manage the operations of the Gordon House hotel in Colaba on the existing commercial terms.
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 Mr. Sanjay Narang, have been transferred back to Mr. Sanjay Narang as per the original contract on an as is where is basis and the group has accordingly recorded USD 0.2 million as an one time loss on transfer of the assets held and maintained at these locations. MRPL also paid operating fees of USD 0.5 million which was due to Mr. Sanjay Narang; following the disengagement, these operating fees will not be incurred in the future.
IHC subsequently entered into an arrangement with Mr. Sanjay Narang whereby IHC franchised the aforementioned restaurant brands to Mr. Sanjay Narang for a period of 1 year for a franchise fee @ 3% of the net sales of each of these restaurants only for the initial three month period.
Non Compete Agreement: As a result of the disengagement, Mr. Sanjay 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. Sanjay Narang and for this relationship IHC has incurred a one time settlement cost of USD 1.9 million which is included in administrative expenses.
Tendulkars (Gourmet Restaurants Private Limited): As a result of disengagement and the entity incurring losses, MRPL has transferred its 49% stake in GRPL to Mars Catering at a nominal value. The diminution in investment and cost were provided as at 31 March 2009 and accordingly at July 31, 2009 a net loss of USD 0.05 million on transfer of this interest has been included in administrative expenses.
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.
Calculation of basic and diluted EPS is as follows:
| Six months ended September 30, 2009 | Six months ended September 30, 2008 | |
| Net results attributable to shareholders of India Hospitality Corp., for basic and dilutive | (8,677,805) | (5,444,241) |
| Weighted average numbers Shares outstanding during the period for Basic | 29,612,925 | 27,587,137 |
| Basic and Diluted EPS, in USD | (0.29) | (0.20) |
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
| Nature of Transaction | September 30, 2009 | September 30, 2008 |
| Transactions with key management personnel | ||
| Remuneration | 616,450 | 264,697 |
| Acquisition of intangible assets | 400,100 | - |
| Share based payments | 1,047,944 | - |
| Transactions with enterprises over which significant influence exercised by key management personnel till July 31,2009 | ||
| Sale of Goods | 85,740 | 132,473 |
| Rendering of other services | 361,582 | 615,520 |
| Services received | 750,176 | 539,530 |
| Loans and advances | 1,156 | - |
| Deposit given | 8,957,122 | 9,189,923 |
| Amount payable at the period end | 271,084 | 127,434 |
| Amount receivable at the period end | 1,798,968 | 1,865,355 |
NOTE E - SEGMENT REPORTING
Primary segments
During the six months ended September 30, 2009 the Group has not made any changes in the basis of segmentation or basis of measurement of segment profit or loss from the basis adopted for presentation of segment information in the last annual financial statements for March 31, 2009.
Business segments
| 6 months to 30 Sept 2009 | Air Catering Unit | Gordon House Hotel | Restaurants and others | Total |
| Revenue from external customers | 13,539,696 | 943,386 | 2,518,080 | 17,001,162 |
| Inter-segment revenues | ||||
| Segment Revenue | 13,539,696 | 943,386 | 2,518,080 | 17,001,162 |
| Costs of material | 3,629,521 | 133,476 | 997,042 | 4,760,039 |
| Direct operating expenses | 4,211,062 | 351,657 | 1,118,341 | 5,681,060 |
| Employee remuneration | 2,265,822 | 196,631 | 1,224,341 | 3,686,794 |
| Depreciation and amortisation | 4,093,897 | 358,825 | 676,720 | 5,129,442 |
| Administration and selling expenses | 1,488,438 | 80,617 | 438,179 | 2,090,404 |
| Segment operating profit | (2,149,044) | (177,820) | (1,936,543) | (4,263,407) |
| Segment assets | 12,5790,133 | 14,487,041 | 13,061,844 | 153,339,018 |
| Segment liabilities | 31,381,980 | 341,153 | 1,149,778 | 32,872,913 |
| 6 months to 30 Sept 2008 | Air Catering Unit | Gordon House Hotel | Restaurants and others | Total |
| Revenue from external customers | 14,364,993 | 1,325,774 | 3,850,775 | 19,541,543 |
| Inter-segment revenues | - | - | - | - |
| Segment Revenue | 14,364,993 | 1,325,774 | 3,850,775 | 19,541,543 |
| Costs of Material | 4,898,649 | 79,305 | 654,605 | 5,632,559 |
| Direct Operating Expenses | 5,093,276 | 330,588 | 733,935 | 6,157,799 |
| Employee Remuneration | 2,446,487 | 116,828 | 803,838 | 3,367,153 |
| Depreciation and Amortisation | 2,659,123 | 271,649 | 208,767 | 3,139,539 |
| Administration & Selling expenses | 336,142 | 394,406 | 254,569 | 985,117 |
| Segment operating profit | (1,068,684) | 132,998 | 1,195,061 | 259,375 |
| Segment assets | 126,791,293 | 15,628,538 | 14,091,045 | 156,510,876 |
| Segment liabilities | 21,017,102 | 8,916,346 | 11,463,874 | 41,397,322 |
The totals presented for the Group's operating segments reconcile to the entity's key financial figures as presented in its financial statements as follows:
| Particulars | 6 months to 30 Sept 2009 | 6 months to 30 Sept 2008 |
| Revenue | ||
| Total Segment revenue | 17,001,162 | 19,541,543 |
| Reconciling items: | ||
| Finance Income | 2,173 | 393,536 |
| Other corporate income: | ||
| Royalty Income | 13,064 | - |
| Income on settlement of warranty claim relating to business combinations | 4,565,756 | - |
| Income from sale of investments | - | 256,718 |
| Other miscellaneous income | 178,337 | 223,279 |
| Total Revenue | 21,760,492 | 20,415,076 |
| Profit and loss | 6 months to 30 Sept 2009 | 6 months to 30 Sept 2008 |
| Segment operating profit | (4,263,407) | 259,375 |
| Reconciling items: | ||
| Other corporate incomes: | ||
| Royalty Income | 13,064 | - |
| Income on settlement of warranty claim relating to business combinations | 4,565,756 | - |
| Income from sale of investments | - | 256,718 |
| Other miscellaneous income | 180,514 | 223,279 |
| Other corporate expenses: | ||
| Costs incurred on disengagement of operating agreements | (1,877,850) | - |
| Losses incurred on transfer of assets in line with disengagement of operating agreements | (156,166) | - |
| Share issue expenses | (1,573,320) | - |
| Senior management employee costs | (1,204,435) | (1,674,633) |
| Corporate office administration expenses | (1,603,347) | (2,359,308) |
| Depreciation/amortisation on corporate assets and intangibles | (654,737) | (991,322) |
| Group operating profit | (6,573,928) | (4,285,892) |
| Finance costs | (2,034,640) | (1,766,297) |
| Finance income | 2,173 | 393,536 |
| Group loss before tax | (8,606,395) | (5,658,652) |
| Assets | 6 months to 30 Sept 2009 | 6 months to 30 Sept 2008 |
| Total Segments assets | 153,339,018 | 156,510,876 |
| Other assets: | ||
| Cash and cash equivalents | 3,070,349 | 7,929,294 |
| Surplus Land | 10,920,325 | 13,093,981 |
| Deferred Tax assets | 2,410,164 | 844,558 |
| Other corporate assets | 594,268 | 5,376,813 |
| Total assets | 170,334,124 | 183,755,522 |
| Liabilities | 6 months to 30 Sept 2009 | 6 months to 30 Sept 2008 |
| Total Segments liabilities | 32,872,913 | 41,397,322 |
| Other liabilities: | ||
| Loans and other borrowings | 12,014,326 | - |
| Employee Retirement benefits | 593,553 | 629,953 |
| Deferred tax liability | 16,815097 | 18,181,683 |
| Other corporate liabilities | 4,952,966 | 3,479,230 |
| Total Liabilities | 67,248,855 | 63,688,188 |
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 EWDPLIHC, 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 EWDPLAdditionally, 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.