Final Results
7 May 2010
WALCOM GROUP LIMITED
("Walcom" or "the Company")
Final results for the year ended 31 December 2009
CHAIRMAN'S STATEMENT
I have pleasure in presenting the final results for the year ended 31 December
2009.
Overview of Results
Despite the world-wide economic recession in 2009, turnover and gross profit
levels for the year under review were maintained at similar levels compared to
the previous year. By focusing effort on reducing costs and improving
efficiencies, the Company reduced its net loss for the year by 50 per cent. to
HK$4.5 million (2008: Loss of HK$9.0 million) and improved its EBITDA by 71 per
cent. with a loss of HK$1.5 million for the period versus a loss of HK$5.2
million in 2008. Of particular significance is the fact that the Company
achieved breakeven at the EBITDA level for the second half of 2009, the first
time in the Company's history.
A summary of the results for the period are set out below:
Year ended Year ended
31 December 31 December
2009 2008
HK$'000 HK$'000
Turnover 25,529 26,027
Gross profit 14,832 14,707
Operating loss (4,287) (8,902)
Net finance (expense)/income (67) 2
Share of loss of associates - (12)
Loss for the year (4,508) (9,044)
EBITDA (1,495) (5,222)
Loss per share, basic & diluted (HK$) (0.07) (0.14)
Net asset value per share (HK$) 0.21 0.27
Operational review
In the last annual report, we considered that the escalating costs of
agricultural products would represent a new business opportunity for the
Company. In order to capitalise on this opportunity, in August 2009, the
Company launched a new sales initiative called the `Alpha' project which was
designed to promote the energy saving efficacy in feedstuffs of the Company's
products. The Alpha project's aim is to reduce the unit cost of feedstuffs
through an improvement in the utilisation efficiency of feedstuffs, thereby
increasing margins for feed mills. The initial reactions to this new initiative
have been encouraging, although the percentage of sales of Alpha products, as a
proportion of the Company's overall product mix, was still small in 2009.
Unlike previous years, the Company now has the ability to penetrate the feed
mill market more effectively with this new range of products and the Board
believes the initiative will help the Company to deliver stronger results in
the near future.
Historically, the Company found it very difficult to sell into farms as its
products, although designed to improve the growth performance of the animals,
also increase costs. Sales have been stronger while retail prices of the
animals (mainly pigs) are higher and farms make higher margins. However, when
retail prices drop, farmers tend to reduce their use of feed enhancers and
other additives to try and preserve their sales margins. They may also turn to
alternative weaker products which are of lower quality but are cheaper.
Through the Alpha Project, the Company's technical team has been able to help
farmers to re-formulate their feedstuff into compounds with which Alpha
products can be incorporated. This helps the farmer to save costs and increase
their feed utilisation at the same time. This has resulted in higher sales to
farms despite the lower level of technical analysis used by farmers in
comparison with feedmills, where technical staff keep up regular product
trials. As such, the Directors are optimistic about its prospects in the large
Chinese farming industry.
Market overview
The Company has been exploring new sales territories and it believes, on the
basis of market research conducted, that Vietnam could represent a large market
for the Company's products. The local product registration process is still
underway and potential customers and sales distribution channels are being
developed in parallel.
Although sales in Thailand remain stable, the economy has worsened due to the
country's fragile political position. The Directors expect sales demand to
improve when the political situation has stabilised. Sales in the Philippines
have dropped during the period, again due to macro economic pressures. However,
the Board believes that sales in the territory were at their lowest point in
2009 and will recover in the coming year.
Patents
At the end of 2009 the Group had been granted 45 patents in respect of:
* its core Cysteamine technology in China, Hong Kong, North Korea, New
Zealand, Ukraine, Russia, South Africa, Australia, India and South Korea;
* poultry feed in the UK, North Korea, Taiwan, Hong Kong, Russia, China and
Australia;
* dairy cow feed in New Zealand, the UK, Hong Kong, Europe, Mexico, India,
China, Russia, Australia and Malaysia;
* antibodies to adipose tissues in the UK and Europe;
* fish feed in the UK, Hong Kong, Indonesia, Russia, China, Thailand,
Philippines and Vietnam; and
* shellfish feed in Europe and Vietnam.
The Directors expect further patents to be granted in the future in line with
the policy of the Group to pursue wide patent coverage in places where the
Board believes there will be significant demand for the Group's products.
Certain non-material patent applications were discontinued in 2009.
Debt
As at the period end, the Group's only indebtedness was a mortgage of
approximately HK$0.8 million, which was entered into for the purpose of
acquiring office premises in Bangkok, Thailand.
Dividend
The Directors do not recommend any dividend payment for the year ended 31
December 2009.
Annual General Meeting
The Annual General Meeting will be held at the offices of the Company's
solicitors, Richards Butler in Hong Kong at 2:30pm on Monday 7 June 2010.
Outlook
Although China's economy, the Group's major addressable market, demonstrated
strong growth in 2009, the directors of the Company remain cautiously
optimistic about Walcom's prospects for the year ahead.
On behalf of the Board, I would like to express my sincere thanks to the
management team and staff, professional advisers and shareholders for their
continued support during the year.
Eddie K.M. Chan
Chairman
7 May 2010
Enquiries:
Walcom Group Ltd +852 2494 0133
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
Merchant John East Securities Limited +44 20 7628 2200
Bidhi Bhoma / Virginia Bull
Consolidated statement of comprehensive income
For the year ended 31 December 2009
(Expressed in Hong Kong dollars)
Note 2009 2008
HK$ HK$
Revenue 25,529,170 26,027,300
Cost of sales (10,697,432) (11,320,031)
Gross profit 14,831,738 14,707,269
Other income 248,932 204,964
Research and development expenses (1,527,831) (1,418,445)
Selling and distribution expenses (7,292,260) (7,705,042)
General and administrative expenses (10,547,393) (14,690,786)
Loss from operations (4,286,814) (8,902,040)
Net finance (expense) / income (66,888) 2,475
Share of loss of associates - (11,523)
Loss before income tax 2 (4,353,702) (8,911,088)
Income tax expense 3 (154,389) (133,440)
Loss for the year (4,508,091) 9,044,528
Other comprehensive income
Exchange difference on translation of 158,112 238,909
financial statements of overseas subsidiaries
Total comprehensive loss for the year (4,349,979) (8,805,619)
Loss attributable to:
Owners of the Company (4,745,297) (9,297,050)
Non-controlling interests 237,206 252,522
Loss for the year (4,508,091) (9,044,528)
Total comprehensive loss attributable to:
Owners of the Company (4,616,212) (9,048,687)
Non-controlling interests 266,233 243,068
Total comprehensive loss for the year (4,349,979) (8,805,619)
Loss per share - basic, HK cents 4 (6.89) (14.16)
- diluted, HK cents (6.89) (14.16)
Consolidated balance sheet
as at 31 December 2009
(Expressed in Hong Kong dollars)
2009 2008
HK$ HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 2,898,144 2,646,404
Patents 4,844,916 5,558,118
Goodwill 127,857 127,857
Investments in associate - -
7,870,917 8,332,379
CURRENT ASSETS
Inventories 1,247,319 1,420,547
Trade and other receivables 4,309,726 3,968,044
Amounts due from associate 1,861,701 2,229,334
Tax recoverable 143,524 212,071
Cash and cash equivalents 3,872,520 8,328,032
11,434,790 16,158,028
TOTAL ASSETS 19,305,707 24,490,407
EQUITY
Share capital 688,344 688,344
Reserves 13,668,470 17,704,252
Total equity attributable to OWNERs of the 14,356,814 18,392,596
Company
Non-controlling interests 642,101 375,868
TOTAL EQUITY 14,998,915 18,768,464
NON-CURRENT LIABILITIES
Bank borrowings 634,711 -
CURRENT LIABILITIES
Trade and other payables 3,444,441 3,042,923
Tax payables 97,115 17,928
Bank overdrafts - 1,501,092
Bank borrowings 130,525 1,160,000
3,672,081 5,721,943
TOTAL LIABILITIES 4,306,792 5,721,943
TOTAL EQUITY AND LIABILITIES 19,305,707 24,490,407
NET CURRENT ASSETS 7,762,709 10,436,085
TOTAL ASSETS LESS CURRENT LIABILITIES 15,633,626 18,768,464
Consolidated statement of changes in equity
For the year ended 31 December 2009
(Expressed in Hong Kong dollars)
Share Share Merger Share- Exchange Accumulated Total Non- Total
capital premium Reserve based reserve Losses controlling equity
compensation interests
reserve
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
At 1 January
2008 649,109 89,842,770 23,852,469 - 458,588 (93,357,235) 21,445,701 - 21,445,701
Comprehensive
loss
Loss for the
year - - - - - (9,297,050) (9,297,050) 252,522 (9,044,528)
Other comprehensive income
Exchange difference - - - - 248,363 - 248,363 (9,454) 238,909
on translation of
financial statements
of overseas subsidiaries
Total comprehensive - - - - 248,363 (9,297,050) (9,048,687) 243,068 (8,805,619)
loss for the year
Acquisition of - - - - - - - 791,305 791,305
subsidiaries
Issue of shares 39,235 5,455,874 - - - - 5,495,109 - 5,495,109
Recognition of - - - 500,473 - - 500,473 - 500,473
equity-settled
share-based payments
Dividends to
minority
interests - - - - - - - (658,505) (658,505)
At 31 December
2008 688,344 95,298,644 23,852,469 500,473 706,951 (102,654,285) 18,392,596 375,868 18,768,464
At 1 January
2009 688,344 95,298,644 23,852,469 500,473 706,951 (102,654,285) 18,392,596 375,868 18,768,464
Comprehensive loss
Loss for the year - - - - - (4,745,297) (4,745,297) 237,206 (4,508,091)
Other comprehensive
income
Exchange difference - - - - 129,085 - 129,085 29,027 158,112
on translation of
financial statements
of overseas
subsidiaries
Total comprehensive - - - - 129,085 (4,745,297) (4,616,212) 266,233 (4,349,979)
loss for the year
Recognition of - - - 580,430 - - 580,430 - 580,430
equity-settled
share-based payments
At 31 December
2009 688,344 95,298,644 23,852,469 1,080,903 836,036 (107,399,582) 14,356,814 642,101 14,998,915
Consolidated statement of cash flows
For the year ended 31 December 2009
(Expressed in Hong Kong dollars)
Note 2009 2008
HK$ HK$
Cash flow from operating activities
Loss before income tax (4,353,702) (8,911,088)
Amortisation of patents 2(b) 398,277 471,749
Interest received (26,238) (119,571)
Depreciation 2(b) 602,691 456,822
Foreign exchange loss, net 104,497 85,767
Interest paid 93,126 117,096
Loss / (gain) on disposal of property, plant and 2(b) 494,016 (47,850)
equipment
Patent written off 2(b) 716,417 2,307,615
Inventories written off 2(b) 137,187 288,335
Impairment on goodwills 2(b) - 2,658
Share-based compensation 2(a) 580,430 500,473
Share of loss of associates - 11,523
Operating loss before working capital changes (1,253,299) (4,836,471)
Decrease in inventories 36,041 38,140
(Increase) / decrease in trade and other (341,682) 1,125,234
receivables
Decrease in amount due from associate - trade 358,800 1,231,947
related
Increase / (decrease) in trade and other 401,518 (421,329)
payables
Net cash used in operations (798,622) (2,862,479)
Corporate income tax paid (6,655) (327,583)
Interest paid (93,126) (117,096)
Net cash used in operating activities (898,403) (3,307,158)
Cash flow from investing activities
Payment for patents (401,492) (1,370,310)
Purchases of property, plant and equipment (1,367,556) (1,184,614)
Proceeds from sales of property, plant and 24,806 50,000
equipment
Acquisition of subsidiaries, net of cash - 4,698,585
acquired
Amounts due from associate - non-trade related 8,833 91,433
Interest received 26,238 119,571
Net cash (used in) / generated from investing (1,709,171) 2,404,665
activities
Cash flow from financing activities
Release of restricted balance of cash and cash 3,000,000 -
equivalents
Dividends paid to minority interests - (439,004)
Repayment of bank borrowings (1,252,516) -
Proceeds from new bank borrowings 857,752 -
Net cash generated from / (used in) financing 2,605,236 (439,004)
activities
Net decrease in cash and cash equivalents (2,338) (1,341,497)
Cash and cash equivalents at the beginning of 3,826,940 5,046,274
the year
Exchange gains on cash and cash equivalents 47,918 122,163
Cash and cash equivalents at the end of the year 3,872,520 3,826,940
Notes to the consolidated financial statements
For the year ended 31 December 2009
(Expressed in Hong Kong dollars)
1. Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not
constitute statutory accounts.
The financial information for the period ended 31 December 2009 has been
extracted from the Company's financial statements to that date which have
received an unqualified auditors' report.
2. Loss before income tax
Loss before income tax is stated after charging the following items:-
(a) Staff costs (including directors' emoluments)
2009 2008
HK$ HK$
Salaries, wages and commission 6,958,053 9,213,351
Contributions to defined contribution retirement plans 531,730 478,866
Share-based compensation 580,430 500,473
Other staff benefits 2,942,107 2,860,809
11,012,320 13,053,499
(b) Other items
2009 2008
HK$ HK$
Amortisation of patents 398,277 471,749
Auditor's remuneration 239,747 303,134
Cost of inventories sold # 10,697,432 11,320,031
Depreciation 602,691 456,822
Exchange losses, net 104,497 420,119
Impairment loss on goodwill - 2,658
Loss on disposal of property, plant and equipment 494,016 -
Inventories written off 137,187 288,335
Patents written off 716,417 2,307,615
Rental charges under operating leases in respect of 964,465 1,847,525
land and buildings
# Cost of inventories sold includes HK$2,220,869 (2008: HK$2,335,018) relating
to staff costs, depreciation and amortisation expenses and operating lease
charges, of which amount is also included in the respective total amounts
disclosed separately above or in note 7(a) to the report and accounts.
3. Income tax expense
2009 2008
HK$ HK$
Current income tax
- Thailand corporate income tax 154,389 133,440
(a) Taxation for the Company
No provision for profits tax has been made for the Company as it is exempted
from taxation in the British Virgin Islands.
No deferred taxation has been provided as the Company has no material
unprovided deferred tax assets or liabilities which are expected to be
crystallized in the foreseeable future (2008: HK$nil).
(b) Taxation for the Group
(i) Taxation on overseas profits has been calculated on the estimated
assessable profit for the year at the rate of taxation prevailing in the
countries in which the Group companies operate. The income tax expense stated
in consolidated statement of comprehensive income represented the corporate
income tax arisen from the business of a subsidiary operating in Thailand.
Hong Kong Profits Tax is calculated at 16.5% (2008: 17.5%) of the estimated
assessable profit for the year. However, no provision for Hong Kong profits tax
has been made (2008: HK$nil) as the Group did not have assessable profit
subject to Hong Kong profits tax for the year.
No provision for foreign enterprise income tax ("FEIT") in the People's
Republic of China ("PRC") has been made (2008: HK$nil) as Shanghai Walcom
Bio-Chem Co., Ltd. ("Shanghai Walcom") and Beijing New World Bio-technology
Co., Ltd, wholly owned subsidiaries operating in Shanghai and Beijing,
respectively in the PRC, have agreed tax losses brought forward in excess of
the assessable profits for the FEIT purposes for the year.
Pursuant to the relevant income tax rules and regulations in the PRC, Shanghai
Walcom is granted certain tax relief whereby it is exempted from FEIT for the
first two years and 50% reduction for the following three years commencing from
the first profitable year of operation after fully set off against the
accumulated losses brought forward.
On 16 March 2007, the National People's Congress approved the Corporate Income
Tax Law of the People's Republic of China ("the new tax law"), which will take
effect on 1 January 2008. Under the new tax law, the PRC income tax rate will
be gradually increased to a standard rate of 25% for all domestic and foreign
enterprises over the next five years with effective from 1 January 2008.
According to the Circular 39 passed by the State Council on 26 December 2007,
the tax exemption and reduction will be terminated latest by 2012. Accordingly,
Shanghai Walcom is exempted from PRC income tax for the years from 1 January
2008 to 31 December 2009, followed by a 50% reduction in the tax rate for the
remaining three years from 1 January 2010 to 31 December 2012. The applicable
income tax rate would be 11%, 12% and 12.5% for the year 2010, 2011 and 2012
respectively.
(b) Taxation for the Group (continued)
(ii) A reconciliation between the Group's income tax expense and the accounting
loss, at the applicable tax rate, is set out below:-
2009 2008
HK$ HK$
Loss before income tax (4,353,702) (8,911,088)
Less: Share of loss of associated company - (11,523)
(4,353,702) (8,899,565)
Notional tax credit on loss before income tax, (718,361) (1,470,328)
calculated at the rates applicable to profits in the
countries concerned
Tax effect of:
Different income tax rates in other countries 41,940 10,038
Expenses not deductible for tax purpose 728,512 1,259,367
Income tax exemption (321,241) (259,081)
Non-taxable revenue (13) -
Temporary differences not recognised (7,254) 385
Unused tax losses not recognised 430,806 593,059
Income tax charges 154,389 133,440
(iii) A deferred tax asset amounting to HK$7,941,995 (2008: HK$7,511,190) in
respect of tax losses of a subsidiary incorporated in Hong Kong of
approximately HK$48,133,000 (2008: HK$45,522,000) has not been recognised in
the financial statements as it is not certain that future taxable profit will
be available against which these losses can be utilised. Tax losses of a
subsidiary incorporated in the PRC of approximately HK$2,598,000 and
HK$2,337,000 will expire at the end of years 2010 and 2011 respectively. Other
temporary differences are not material.
4 Loss per share
(a) Basic loss per share is calculated by dividing the Group's loss
attributable to owners of the Group of HK$4,745,297 (2008: loss of
HK$9,297,050) by the weighted average number of 68,834,388 ordinary shares in
issue during the year (2008: 65,661,287 shares).
Weighted average number of ordinary shares
2009 2008
Issued ordinary shares at 1 January 68,834,388 64,910,891
New issue during the year - 750,396
Weighted average number of ordinary share for the 68,834,388 65,661,287
year
(b) Diluted loss per share
The diluted loss per share is calculated by dividing the Group's loss
attributable to ordinary equity shareholders of the Company of HK$4,745,297
(2008: HK$9,297,050) by the weighted average number of 68,834,388 ordinary
shares during the year adjusted for the number of dilutive potential shares
under the share option scheme (2008: 65,661,287 shares).
5. Copies of the Report and Accounts
Copies of the Report and Accounts will be sent to shareholders shortly and will
be available from the principal place of business of the Company, Part D,
Mingtai Bldg, No 351 Guo Shou Jing Road, ZJ Hi-Techn Park, Shanghai, 201203
China, and on the Company's website www.walcomgroup.com.
Latest directors dealings
- 1 hour ago Taylor Wimpey
- 1 hour ago Vertu Motors
- 1 hour ago Victoria
- 1 hour ago Yu Group
- 1 hour ago Taseko Mines Limited NPV (DI)