Capital Structure of CNG Travel Group PLC - Case Study Example

CORPORATE FINANCE a) Describes the capital structure of your chosen company and the financial instruments used by it; CNG Travel Group PLC meaningPublic Listed Company) offer Personal services and traveling. It also guarantees processing services. Presently housed in Kilmurry. Its Ireland Stock Exchange ticker symbol is CTV. Tel no. (1) 644-0300. It " is a distributor of hotel rooms to both corporate and individual end users, either online or offline at wholesale rates. The Company has access to a large inventory of hotel rooms; has developed its own technology, which searches for hotel inventory to be used by travel agents and Internet portals, and owns or has agreements with travel agents for the distribution of its inventory. The Company's principal trading activities are carried out through its wholly owned subsidiaries CNG Hotels Limited, CNG USA, Inc. and Tzell Travel, LLC. CNG Hotels distributes hotel room inventories whilst Tzell is a large United States-based, full-service, corporate travel agency. (Source: ARS)" COMMENTS: It is audited by KPMG LLP. The auditor's opinion states that the financial statements including the balance sheet and income statement as shown in here is unqualified. This is best opinion that an auditor can give. The officers of the company are: Chief Executive Officer and Director Finbarr Power (50 yrs old) and Chief Executive Officer of CNG USA, Inc., Director Zara Stassin (33 yrs old), Chief Executive Officer Director P.J.King (36 yrs old) and Secretary Brendan Delaney. Number of employees are around 130 more or less due to hiring and firing turnovers as of December 31, 2004. It has 63,089,690 outstanding shares as of December 31, 2004. Its stocks are traded in the SEA. Website (http://www.crmz.com/Report/ReportPreview.aspBusinessId=7116219) REFERENCE for financial statements: www.hotelmarketing.com/index.php/content/ article/cng_reports_interim_financial_results/ b) Suggests suitable alternative financial instruments that could be used by it; Other suitable alternative instruments, aside from offering its shares of stocks to the general public in a stock exchange, We can also invest our excess and idle money from the income generated from our successful travel and personal or EDP services is to transfer them to invest in foreign exchange. We can invest cash in a volatile currency like US dollar, Japanese Yen or Euro Dollar among other currencies. When it is volatile that means there is constant increase or decrease in the dollar or other currency value. The general rule is we buy at "low" market price and sell it at a "higher" market price. We gain in foreign exchange transactions by this method. This is what is termed currency futures. When we want the currency delivered to us, in the FUTURE, then it will be delivered. We call this currency FUTURES trading. Other financial instruments that we can invest the excess or idle cash generated from daily gains in its travel and EDP services are: a) investment in bonds. In here, loan money to another individual or company where you will be paid in the future. You earn interest income usually higher than the legal rate. You will be paid back both the principal or original amount that you loaned plus the additional interest income that earned for allowing the other party to use your idle cash in their pursuit of income generating options. You are a creditor in this type of financing service. In the present financial setup, the company capital or stocks are offered to the public at volatile stock market prices. The stockholder is a part owner of the business. Other financial instruments, but on a short or less than one year, transaction is putting your money in Treasury bills. These are usually issued by the government to help generated much needed funds for its daily operations of running the business of nation building. Another financial investment opportunity is to deposit them in banks to earn interest compounded daily. REFERENCE: http://en.wikipedia.org/wiki/Financial_instruments" Category: Financial markets c) Describes in relation to your company, the nature of up to FIVE of the risks in the table above which your company IS exposed to; 1) Liquidity - According to riskglossary, "The term liquidity is used in various ways, all relating to availability of, access to, or convertibility into cash. An institution is said to have liquidity if it can easily meet its needs for cash either because it has cash on hand or can otherwise raise or borrow cash. A market is said to be liquid if the instruments it trades can easily be bought or sold in quantity with little impact on market prices. An asset is said to be liquid if the market for that asset is liquid" (http://www.riskglossary.com/link/liquidity_risk.htm) The general accounting cycle is we buy products to be sold to clients and pay CASH in return. Then the products we bought are sold to customers on account. Meaning, they will pay for the items purchased from your business in the future yet. Then after a month or after six months or as per your agreement with the customer, you will paid in cash. The length of time from paying CASH to buy items for sale to your clients and receiving payments from yours clients in CASH is call the accounting cycle. The shorter the accounting cycle, the shorter will be the liquidity. Therefore, if it is hard to sell your products which you have parted with and or if they have been sold but your customers pay you only after a "long" period of time, then you have a liquidity ( turning assets to cash) problem. In the travel services and personal services of CNG Travel Group PLC, It is best to choose clients who are good payers based on their credit rating and background checks as their capacity to pay for your services rendered. Based on our balance sheet, the creditors with accounts unpaid for the year 2003 is 23,833,649 and for the year 2004, the creditors' unpaid amount is 17,318,568. Therefore there is only a "small" liquidity problem since the creditor amounts unpaid has decrease considerable. 2) Financial Distress, - According to cbdd.wsu.edu, " Financial distress is defined as a condition where obligations are not met or are met with difficulty. A major disadvantage for a firm taking on higher levels of debt is that it increases the risk of financial distress, and ultimately liquidation. This may have detrimental effect on both the equity and debt holders. Effects of Financial Distress The risk of incurring the costs of financial distress has a negative effect on a firm's value which offsets the value of tax relief of increasing debt levels. These costs become considerable with very high gearing. Suppliers providing goods and services on credit are likely to reduce the generosity of their terms, or even stop supplying altogether, if they believe that there is an increased chance of the firm not being in existence in a few months' time. Customers may develop close relationships with their suppliers, and plan their own production on the assumption of a continuance of that relationship. If there is any doubt about the longevity of a firm it will not be able to secure high-quality contracts. In a financial distress situation, employees may become demotivated as they sense increased job insecurity and few prospects for advancement. The best staff will start to move to posts in safer companies. (http://cbdd.wsu.edu/kewlcontent/cdoutput/TR505r/page40.htm). It means that if there is a feeling that due to liquidity and other operational risks, the company may become bankrupt in the near future. This is possible if the there a loss. In the case of CNG Travel Group PLC,(ref:CNG.fs.pdf) The income statement shows that the loss from ordinary activities before tax deductions for 2004 is loss of -5,592,399 and the loss for the prior year 2003 is -1,543,580. This shows that CNG Travel Group PLC is in deep financial distress since the 2004 loss has increased significantly from the previous year 2003 loss. Drastic measures must be done to "bring back" the company to earn money. 3) Foreign Exchange risk - According to investopedia.com "1.The risk of an investment's value changing due to changes in currency exchange rates. 2. The risk that an investor will have to close out a long or short position inaforeign currency at a lossdue to an adverse movements in exchange rates. Also known as "currency risk" or "exchange-rate risk". This risk usually affects businesses that export and/or import, but it can also affect investors making international investments. For example, if money must be converted to another currency to make a certain investment, then any changes in the currency exchange rate will cause that investment's value to either decrease or increase when the investment is sold and converted back into the original currency." (http://www.investopedia.com/terms/f/foreignexchangerisk.asp) COMMENTS: If you import from Japan an item for 20,000 pounds ten years ago. The same item bought this year cost and imported from Japan will cost 25,000 pounds because the exchange rate of yen has dramatically increased as compared to the pound. There is a foreign exchange loss. Therefore CNG Travel Group PLC should buy the items now when the Eurodollar is still not diminishing its foreign exchange value as compared to the Japanese Yen. 4) Operational risk - According to operationrisk.pdf " REFERENCE: Operationrisk.pdf This simply means that, according to Prof. Amit,CPA when people do their jobs poorly, then the products will have low quality and the customer will return them or buy from the competitors because of the internal "bad" quality of operations. In our case, CNG Travel is loosing because of the "bad" operational management of its responsible officers plus other uncontrollable market forces. 5) Credit risk - According to investorwords.com " The possibility that a bond issuer will default, by failing to repay principal and interest in a timely manner. Bonds issued by the federal government, for the most part, are immune from default (if the government needs money it can just print more). Bonds issued by corporations are more likely to be defaulted on, since companies often go bankrupt. Municipalities occasionally default as well, although it is much less common. also called default risk" (http://www.investorwords.com/1210/credit_risk.html) COMMENT: The possibility that the creditor will not be paid do to the customers' bankruptcy, refusal to pay among other possible reasons. In the case of CNG Travel, the accounts payable to creditors for 2003 is 23,833,649 and the accounts to payable to creditor for 2004 has been reduced to only 17,318,568. This is a good sign for CNG Travel. d) Calculates the company's post-tax weighted average cost of capital: The weighted average cost of capital is defined by: where and the following table defines each symbol: Symbol Meaning Units weighted average cost of capital % required or expected rate of return on equity, or cost of equity % required or expected rate of return on borrowings, or cost of debt % corporate tax rate % total debt and leases $ or total equity and equity equivalents $ or total capital invested in the going concern (Wikipedia.org) [and For the CNG Travel , the WCAC is:] c 0.155681643 e 36,186,455 k 65,638,529.00 y 0.25 d 7,814,002 b 0.25 xc 0.4 948,794 64,689,735 65,638,529 e) Calculates the company's gearing ratio; According to bized.ac.uk "Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance, with the shareholders' funds being significantly larger than the long term liabilities." Gearing ratio CNG Travel = -7,814,002 / (948,794 + 64,689,735) = -0.11905 percent for the year 2004 (http://www.bized.ac.uk/compfact/ratios/gearing2.htm) f) Calculates the company's current ratio. Current ratio is the result when you divide current ratio by Current liabilities. According to investopedia.com, "Indicates if a firm has enough short-term assets to cover its immediate liabilities. If the ratio is less than one then they have negative working capital. A high working capital ratio isn't always a good thing, it could indicate that they have too much inventory or they are not investing their excess cash. (http://www.investopedia.com/university/ratios/workingcapital.asp COMMENTS: The preferable ratio is that the current assets must be more than current liabilities. CNG Travel current ratio is current assets of 11,266,990 divided by current liabilities of 6,051,578 for the year 2004 resulting a current ratio of 1.86 percent. g) Recommends action the company could take in relation to TWO of the risks described in c) above that would - in your opinion - result in an increase in company value. You must explain why each of your recommendations would increase value, and support your recommendations with extracts from the company's financial statements, other information, or the company's activities and operations. Liquidity - We must generate income producing activities thru massive advertising promotions in all the countries that CNG Travel is operating in. We must also make a survey or feasibility study to determine how we can "bounce back" from a 2 year loss. When there is income then we will have more cash to pay our obligations both within the company ( employee salary, operating expenses) or externally ( pay suppliers, government taxing agencies, etc.) Operations risk - By giving quality serve to our travel clients ( now and in the future) and computer services operations, and hiring qualified and expert personnel to man the vital bottlenecks of the business, then our operations will run smoothly because our services and products will be able to compete with other "more expensive" brands. REFERENCES: NOTE: You can click the websites to see the contents of these references per "attachement" requirement. And copy paste the articles. http://www.crmz.com/Report/ReportPreview.aspBusinessId=7116219 www.hotelmarketing.com/index.php/content/ article/cng_reports_interim_financial_results/ http://en.wikipedia.org/wiki/Financial_instruments" Category: Financial markets http://cbdd.wsu.edu/kewlcontent/cdoutput/TR505r/page40.htm). http://www.investopedia.com/terms/f/foreignexchangerisk.asp operationrisk.pdf (http://www.crmz.com/Report/ReportPreview.aspBusinessId=7116219 http://www.bized.ac.uk/compfact/ratios/gearing2.htm ATTACHMENTS: cng.pdf CNG TRAVEL GROUP - PRELIMINARY RESULTS Dublin, 01 March 2005 -CNG Travel Group plc, Preliminary Results for the year ended 31 December 2004 FINANCIAL HIGHLIGHTS: . Successful flotation on AIM in May 2004; raised $40 million . Turnover up 15% to $55.5 million (2003: $48.3 for full year of enlarged group) . Statutory Operating profit of $0.3 million . Pro-forma Operating Profit up 17% to $7.6 million (2003: $6.5 million) adjusting for exceptional items, depreciation and amortization . Statutory Loss per share of 15.4 cents . Proforma earnings per share of 11.4 cents (see below) OPERATIONAL HIGHLIGHTS . Strong acceptance of Travel Lodging Connector booking system . Major hotel groups sign up to CNG's private rate hotel programme . Tzell Travel achieves strong growth in the US . Acquisition of the Places to Stay for $12.5m plus costs . Company failed to achieve levels of profitability as hoped, despite elimination of many obstacles to the success of TLC . Positive start to the current financial year Finbarr Power, CEO CNG Travel Group plc commented: "This has been another year of significant progress as CNG continues to establish itself as a major innovator and service provider to the global travel industry. The Group has now laid the foundations to capitalise on the first mover advantage we have secured for our TLC booking products and reservation systems. We are confident that the business will continue its swift development in 2005, delivering profits for the Group both from the corporate channel and our other businesses." For further information please contact: CNG Travel Group plc Tel: 020 7466 5000 (on Mar 1st) Finbarr Power, CEO Tel: (+353) 1296 3399 (thereafter) Ronnie Culliton, Finance Director Buchanan Communications Bobby Morse Jeremy Garcia Tom Carroll Tel: 020 7466 5000 Hennegan PR Nigel Heneghan Rachel Watchorn Tel: (+353) 1660 7395 CNG TRAVEL GROUP PLC Preliminary Results for the year ended 31 December 2004 Introduction: This has been another year of significant progress as the Group continues to establish itself as a major innovator and service provider to the global travel industry. This is reflected in the increasing revenues and the accelerating rate of take up across the industry. CNG is confident that as the financial advantages of our proprietary technology are further recognised and our network of hotels continues to expand, our rate of growth will be further enhanced. While we did not reach the milestones we had hoped for in terms of profitability, volumes of reservations on our technology have been rising sharply and we are confident that we can capitalise on this in the coming year to deliver profits from all divisions of the business. Company Background: CNG Travel Group plc was formed on 4 May 2004, following a capital reorganisation whereby it acquired the entire issued share capital of CNG Hotels Limited. The consideration was funded through the issue of eight new ordinary shares in CNG Travel Group plc for each ordinary share in CNG Hotels Limited. In addition eight new deferred convertible shares in CNG Travel Group plc were issued for each deferred convertible share in CNG Hotels Limited. On 7 May 2004, CNG Travel Group plc's ordinary shares were listed on AIM, a market regulated by The London Stock Exchange. The Initial Public Offering raised 22.12 million ($40 million) through the issue of 21,475,026 new ordinary shares at 103 pence each. The shares were placed with institutional and private investors. The rationale for the flotation was that the funds would be used to strengthen the company's financial base, finance product development, eliminate debt and make acquisitions. Financial Results: Proforma Operating - US$ Effect of pro-forma adjustments on EPS (in US cents) Operating Profit per accounts 312,576 0.6 cent Add back: Goodwill Amortisation - 3,082,831 6.3 Depreciation - 711,092 1.5 Exceptional Items - 3,130,431 6.5 Non Cash share compensation - 338,981 0.7 Proforma Operating Profit and amount per share 7,575,911 - 15.6 Deduct: Depreciation - (711,092) (1.5) Taxation - (1,323,057) (2.7) Proforma Profit after interest and tax - 5,541,762 - 11.4 cent Weighted Average shares in issue - 48,623,859 Pro-forma EPS - 11.4 cent Turnover for the year increased 15 per cent to $55.5 million year on year. Total Gross Travel Value Bookings for 2004 was $640 million, an increase of 23 per cent over the previous year. 2003 comparatives are calculated on a like for like basis adjusted for the timing of the acquisition of Tzell Travel LLC. Statutory Operating Profit of $312,576 was achieved. Pro-forma Operating Profit of $7.6 million in 2004, resulted after adjusting for depreciation, amortisation and exceptional items (aborted acquisition and non cash share compensation expenses). The tax charge in the accounts of $1.3 million reflects the tax payable in the US on the profits generated by Tzell LLC during the year. The 2004 financial results include the first full year contribution from Tzell Travel LLC, the leading US corporate travel agency. We purchased 80 per cent of Tzell on 21 July 2003 and the balance at the time of the IPO in May 2004. As previously stated, while usage of Travel Lodging Connector (TLC) was strong, conversion rates of TLC bookings to our own private hotel stock was lower than expected during the product roll-out phase. Hotel chains have been pushing back against the online aggregators as their hand strengthens due to a strong rises in occupancy rates. The CNG board in conjunction with management have taken strong corrective action to address this issue and made a number of technical improvements to the TLC product including the "Prompt Pay" feature and improvements in CNG hotel supply. The Company has experienced very strong growth in the adoption and usage of the technology. The success of TLC has been achieved through our ability to evolve our technology rapidly based on feedback received from TLC users. In terms of the Balance Sheet, the successful IPO allowed us to pay down significant debt and to complete the acquisition of the remaining 20 per cent of Tzell LLC, which is now wholly owned by CNG USA Inc. The Group acquired the "PlacestoStay.com" business, the 4th largest hotel directory in the US, from WorldRes in July 2004 for $12.5 million plus costs, to provide a strong sales channel and brand from which to grow our Leisure division. The integration of this business continues apace, though it has taken somewhat longer than we originally anticipated, we are confident that it will greatly enhance our Leisure business in the future. $8 million of the total consideration for this acquisition was financed through debt. The Group anticipated signing a contract in 2004 that would have generated substantial revenues for the reporting period. The Board elected to re-negotiate a longer term contract which will significantly impact on the profitability over a longer period, rather than take a reduced short-term advantage. CNG - Corporate CNG serves the corporate travel market with two separate but complementary products, one focused on hotels while the other is a leader in premium air bookings: Travel Lodging Connector (TLC) TLC is a software system that enables corporate travel agencies, principally in North America and Europe, to compete against the low cost online providers. Most agents use the well established global distribution systems (GDS) including: Worldspan, Sabre, Amadeus and Galileo. When TLC is installed on agents' computer desktops it complements the GDS systems and gives the user access to a much wider range of hotels, prices and commissions. This allows agents to provide clients with their requested standard of hotel accommodation and amenities at the right price but at higher rates of commission. TLC was launched in mid 2004 and during the balance of the year gross hotel booking value totalled $44.5 million. In November we introduced multi-GDS versions of TLC and integrated 16,000 "Prompt Pay" hotel properties from our 25,000 contracted properties. Total hotel booking values increased from $9.5 million in November to $13.5 million in February 2005 and the number of CNG "Prompt Pay" properties continues to increase. The completed version of Prompt Pay allows CNG to make a margin both on CNG's own hotel product as well as on GDS hotel inventory. Prompt Pay has significantly increased monetization among beta test agencies using the new product with overall conversion rates to CNG's own hotel stock increasing from 0.57% in December to 3.1% in early February. In the first agency to pilot the new model, our own Tzell Travel, conversions have increased to over 9.5%, which is very encouraging. Full rollout of Prompt Pay to all customer agencies commences on March 1st and we expect the numbers of regularly booking agents to increase from the current average of 1,350 as the financial incentive of Prompt Pay is fully realised. In November Sabre Travel Network signed up to market and distribute TLC to 25,000 of its agents in Europe and on March 18th Sabre will official launch the project with its travel agents in the UK. This is a major endorsement from a leading industry player and reflects the significance of the TLC model. At the end of 2004, travel agent sign-up and consistent usage of TLC exceeded our expectations set out at the time of the IPO and we remain confident that this rate of acceptance will accelerate in the current year. The key benefits to travel agents in using TLC for booking hotel rooms include: . Higher commissions than online booking systems . Faster payment of commissions through its Prompt Pay module . No sign on fee, agents pay by usage . Integrates easily with agents' existing booking systems Tzell Travel Tzell is one of the largest and longest established independent travel agencies in America. With headquarters in New York it houses over 300 of its own agents with a further 500 affiliate offices around the country. Tzell's sales in the year under review were $41.3 million up 10 per cent from the previous year. Tzell's size and buying power enable its affiliates to have access to a full range of booking services at competitive prices. Tzell is the market leader in premium air bookings and provides its affiliates preferred access to hotels and car rentals through the airlines own reservation systems. Tzell is the largest supplier of premium seats on British Airways' transatlantic services originating in North America. The Tzell business model is robust and can easily be scaled up in size to handle more affiliates. CNG Leisure In August 2004 CNG acquired PlacesToStay for $12.5 million. It is a leading consumer travel web site for searching and booking distinctive hotels, inns and resorts worldwide, and features the largest portfolio of independent properties anywhere online. PlacesToStay represents over 5,000 destinations and 8,000 independent hotels in 140 countries; this reach will be further enhanced by the addition of CNG's portfolio of hotels. The integration of this brand and software into our own system has been slower than anticipated although it is expected that this business will make a contribution in 2005. CNG is pleased to announce that national carrier CSA Czech Airlines has become the latest airline to sign up as a CNG affiliate partner, joining others such as C-Trip, KLM, America West, and Jet Airways India. Corporate Strategy CNG is a fast growing company with a small, highly skilled management team. Its products are focused on the global travel industry, a market valued at around $500 billion with double digit annual growth. The Company's vision is to capitalise on the first mover advantage it has secured for its booking products and reservation systems, which offer corporate travel agents the ability to remain competitive while maintaining a personal service in a market increasingly dominated by web based systems. The Company has expanded rapidly since its original formation in 1999 and the management team under founder Finbarr Power, has made substantial progress. The Internet has dramatically altered the dynamics of the highly fragmented travel industry and made it accessible to millions of new travellers through the arrival of online booking providers. CNG, with its focus on corporate travel, has developed innovative screen-based systems, which allow the travel agent to retain control yet compete with the powerful online players on an equal footing. Over the past year management has focused on introducing the company's proprietary software product, Travel Lodging Connector (TLC), into the corporate travel market while simultaneously building a supply base encompassing thousands of hotels around the world. One of TLC's key features is that it enables traditional travel agents to give corporate clients the personal service they crave while offering them hotel rooms at rates which compare favourably with those found through impersonal internet online systems. The Company's strategy is to sustain this rate of organic growth but also extend our North American operation through the opportunistic acquisition of key travel agencies specializing in premium air travel and which can efficiently adopt the Tzell model. Tzell operates a highly profitable, low fixed cost, and therefore low risk, business model based on independently commissioned agents and few salaried employees. Tzell, like TLC, has a screen-based system providing principally corporate travel agents with access to quality air and hotel product at competitive rates. The move to AIM has already raised CNG's profile with both investors and customers while also helping to create a broad shareholder base. In November 2004 the Group opened a corporate office in Dublin while maintaining its development and sales teams in our Kenmare headquarters. The US operation is based in New York with sales offices across North America. Board The Board was strengthened during the year by the appointment of Dr. Michael Smurfit on 4 May, Ralph Manaker on 10 September and Brian Rafferty on 27 October as non executive directors. Dr Smurfit is one of Ireland's leading and most experienced entrepreneurs, having served for many years as Chairman and Chief Executive of the Jefferson Smurfit Group, one of the world's leading paper and packaging companies. Ralph Manaker has over 20 years experience in the travel industry and is co-President of WorldTravel BTI, one of the world's largest corporate travel management companies. Brian Rafferty is managing director and co-founder of Taylor Rafferty Associates, the world's largest independent financial communications firm specializing in assisting non-US companies with their cross-border investor relations and capital markets communications. Outlook CNG achieved many significant milestones in 2004 and although did not get to where it had hoped to be in terms of profit generation in the year, many of the obstacles have been removed in order for the Group to achieve an earnings enhancing performance from our successfully adopted TLC technology. Our database of hotels grows every week while our technology platform has been greatly enhanced. The Company expects the online business to develop in 2005 and commence delivering profits for the Group both from the corporate channel (TLC) and our other businesses. This and the continued strong performance of the Tzell business are encouraging. CNG is confident that as the financial advantages of our proprietary technology are further recognised and our network of hotels expands, our rate of growth will be enhanced. The Company is confident that the business will continue its swift development in 2005, and as a result of many initiatives in 2004, deliver profits for the Group from both the corporate division and our other business. CNG Travel Group plc Consolidated profit and loss account Year ended 31 December 2004 2004 2003 (Unaudited) (Audited) Note US$ US$ Turnover Continuing operations 54,577,636 28,206,852 Acquisitions 950,486 - 55,528,122 28,206,852 Cost of sales -34,807,251 -19,358,537 Gross profit 20,720,871 8,848,315 Operational expenses: Amortisation of intangible assets -3,082,831 -850,271 AIM listing expenses and aborted acquisitions -3,130,431 - Non cash share compensation expenses -338,981 - Other operating expenses -13,856,052 -6,381,884 Operating profit Continuing operations 230,665 1,616,160 Acquisitions 81,911 - 312,576 1,616,160 Share of associated company loss -195,128 -114,810 117,448 1,501,350 Amounts written off investments - -219,895 Interest receivable and similar income - group 193,869 1,770,725 Interest payable and similar charges - group -698,421 -179,608 Other interest payable - non cash finance charges -5,201,601 -4,416,152 Loss on ordinary activities before taxation -5,592,399 -1,543,580 Tax on loss on ordinary activities -1,323,027 -451,712 Loss on ordinary activities after taxation -6,915,456 -1,995,292 Minority interest - equity -577,016 -573,709 Loss for the financial year -7,492,472 -2,569,001 Foreign currency reserve movement -3,126,466 -1,674,158 Profit and loss account at beginning of year -18,833,136 -14,589,977 Profit and loss account at end of year -29,452,074 -18,833,136 Basic loss per ordinary share of 0.0125 each (in US cents) -15.4 n/a 2004 2003 (Unaudited) (Audited) Note US$ US$ Fixed assets Intangible assets - goodwill 49,183,382 31,151,906 Financial assets 250 250 Tangible assets 2,646,699 779,947 51,830,331 31,932,103 Current assets Debtors 8,778,948 7,016,316 Cash at bank and in hand 2,488,042 3,399,719 11,266,990 10,416,035 Creditors: amounts falling due within one year -17,318,568 -23,833,649 Net current liabilities -6,051,578 -13,417,614 Total assets less current liabilities 45,778,753 18,514,489 Creditors: amounts falling due after more than one year Convertible debt - -10,000,000 Term Loan -7,814,002 - Other creditors -1,778,296 -12,529,767 -9,592,299 -22,529,767 Net assets/(liabilities) 36,186,455 -4,015,278 Capital and reserves Called up share capital 948,794 27,525 Share premium account 64,689,735 8,658,310 Share capital to be issued - 6,152,020 Merger adjustment - - Other reserves - 280 Profit and loss account -29,452,074 -18,833,136 Shareholders' funds/(deficit) - equity 36,186,455 -3,995,001 Minority interest - equity - -20,277 36,186,455 -4,015,278 31-Dec-04 31-Dec-03 (Unaudited) (Audited) Note US$ US$ Net cash (outflow)/inflow from operating activities -12,563,169 187,761 Returns on investments and servicing of finance Interest paid -242,957 -15,694 Interest received 193,869 6,175 Interest element of finance lease rental payments -3,091 -5,707 -52,179 -15,226 Taxation Tax Paid -1,875,813 0 Capital expenditure and financial investment Payments to acquire tangible assets -2,541,315 -194,353 Receipts from sales of tangible assets - 357 Loans advanced to related parties - -119,869 -2,541,315 -313,865 Acquisitions and disposals Payments on acquisition of investments -20,480,307 -10,000,000 Loan to associate - -215,430 Payments to acquire investment in associates -100,000 - Net cash balances transferred with subsidiaries - -400,000 -20,580,307 -9,815,430 Net cash outflow before financing -37,612,783 -9,956,760 Financing Proceeds from issue of ordinary share capital net of share issue costs 43,586,402 138,925 Issue costs of ordinary share capital -4,744,084 - Issue of unsecured short term loans - 1,018,764 Shareholders' loans -1,606,394 868,127 Repayment of short term bank loan & new term loan issued -185,999 - Issue of convertible debenture - 10,000,000 Capital element of finance lease contracts -33,552 -21,420 37,016,373 12,004,396 (Decrease)/increase in cash in the year -596,411 2,047,636 Note 1: Accounting policies, basis of consolidation and group reorganisation Accounting policies On 4 May 2004, CNG Travel Group plc became the new holding company of the group formerly headed up by CNG Hotels Limited. The introduction of a new holding company was effected by CNG Travel Group plc entering into an agreement with the shareholders of CNG Hotels Limited to transfer the entire issued share capital of CNG Hotels Limited to CNG Travel Group plc. 35,672,256 ordinary shares were issued by CNG Travel Group plc in consideration for the entire share capital of CNG Hotels Limited. In accounting for this transaction CNG Travel Group plc has applied the provisions of Financial Reporting Standard 6 Acquisitions and Mergers (FRS No. 6) with regard to group reorganisations. FRS No. 6 provides that in specific circumstances merger accounting should be applied to group reorganisations. The financial statements have therefore been prepared under merger accounting principles in relation to the transaction set out above because the transaction involved share for share exchanges and there was no cash consideration. Under merger accounting, the results and cashflows of the merged entities are combined from the beginning of the financial period in which the merger occurred. Profit and loss account and balance sheet comparatives are restated on the combined basis as if the merged entities had always constituted one group and therefore the results and cashflows are combined throughout the current and also in the comparative period. In accordance with section 149(5) of the Companies Act 1963, the directors of the company, being satisfied that it would be fair and reasonable and would not prejudice the rights or interests of any person, have determined that the preacquisition reserves of CNG Hotels Limited should be treated as distributable or non-distributable by the company to the extent that they were distributable or non-distributable in CNG Hotels Limited. In accordance with Section 62 of the Companies Act 1963, the premium arising on the issue of new shares in CNG Travel Group plc to achieve the merger has been recorded in the company balance sheet as share premium. In the consolidated balance sheet the merger adjustment is the difference between the shares issued and the nominal value of the issued share capital of CNG Hotels Limited at the date of the merger. Since shares issued as a result of the merger are recorded at fair value in accordance with Irish law, the merger adjustment above is the difference between the fair value of the shares issued and the nominal value of CNG Hotels Limited shares. Under FRS No. 6, any shares issued as part of a merger would be recorded at nominal value and the merger reserve would represent only the difference between the nominal value of shares issued and the nominal value of shares acquired. Consequently, to the extent of any merger adjustment recorded, the share premium arising on the shares issued in connection with the merger has been classified with the merger adjustment rather than with the other share premium in existence in the company. All significant inter-company transactions have been eliminated on consolidation. The results of businesses acquired or incorporated during the period are included in the consolidated profit and loss account from the date of acquisition or incorporation. The acquisition method of accounting is applied for acquisitions with fair values being attributed to the identifiable net assets acquired. Note 2: Loss per ordinary share - for the 12 months ending 31 December 2004 The calculation of loss per share (15.4 cent) for the twelve months ended 31 December 2004 is based on the weighted average number of ordinary shares in issue during the period of 48,623,859 and on the loss on ordinary activities after tax attributable to the shareholders of CNG Travel Group plc of US$7,492,472. There is no difference for the period between the basic net loss per share and the diluted net loss per share as all potentially dilutive ordinary shares outstanding have been excluded from the computation as their effects are anti-dilutive. The loss per share for the previous year has not been shown as the capital structure of that entity (CNG Hotels Limited) bore no relationship to the capital structure of CNG Travel Group Plc and any amount derived would not be comparable. Note 3: Reconciliation of operating profit to net cash (outflow)/inflow from operating activities 2002 2003 US$ US$ &nsbp; (Unaudited) (Audited) Operating profit 312,576 1,501,350 Depreciation of tangible fixed assets 711,092 183,937 Non-cash compensation 338,981 - Amortisation of goodwill 3,082,831 850,271 Increase in debtors -1,434,020 -3,795,729 (Increase)/decrease in creditors -15,574,629 1,447,932 Net cash (outflow)/inflow from operating activities -12,563,169 187,761 Note 4: Other information The operating profit is stated after charging/(crediting): 2002 2003 US$ US$ Depreciation and amortisation of : - tangible fixed assets 711,092 183,937 - goodwill 3,082,831 850,271 Foreign exchange gains (2,327,505) (2,471,983) Non cash finance charges Non cash finance charges arise on share based payments made to the providers of a guarantee on a loan advanced to the group in 2002. This guarantee was in place until July 2004. The shares were issued at market value at the date of the award. The value of these shares has been treated as a finance cost under Financial Reporting Standard No. 4 "Capital Instruments" (FRS 4) and has been amortised to the profit and loss account over the life of the loan. Convertible debenture The convertible debenture issued in 2003 was converted to ordinary shares on 4 May 2004. Acquisitions In May 2004 CNG Travel acquired the remaining 20% of Tzell LLC for cash consideration of $7.5m (before acquisition expenses). In July 2004 the group acquired PlacestoStay for a cash consideration of $12.5m dollars (before acquisition expenses). Note 5: Publication of non-statutory accounts The financial information set out in this preliminary results announcement is unaudited and does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information for the year ended 31st December 2003 is extracted from the statutory accounts for that year on which the auditors' report was unqualified. The accounts for the year ended 31st December 2004 will be delivered to the Registrar of Companies in due course. Read More