Final Results
9 May 2012
WALCOM GROUP LIMITED
("Walcom" or "the Company")
CHAIRMAN'S STATEMENT
On behalf of the board of directors (the "Board"), I am pleased to present the
final results for the year ended 31 December 2011.
Results
Despite the continued volatility in the world-wide economy during 2011, the
Company's sales momentum grew during the period, resulting in a profit
attributable to the equity shareholders for the first time in the Company's
history (2011: Profit HK$1.3 million; 2010: Loss HK$0.2 million). Turnover and
gross profit levels for the year under review increased by 35 per cent. (2011:
HK$44.2 million; 2010: 32.9 million) and 40 per cent. (2011: HK$28.0 million;
2010: 20.0 million) respectively compared to the previous year. Net profit for
the year increased by 401 per cent. to HK$2.0 million (2010: HK$0.4 million)
and EBITDA increased by 172 per cent. to HK$7.3 million from HK$2.7 million for
the same period last year.
A summary of the results for the period is set out below:
Year ended Year ended Change
31 December 31 December
2011 2010
HK$'000 HK$'000 per cent.
Turnover 44,208 32,861 35
Gross profit 28,091 20,067 40
Operating profit 3,946 1,294 205
EBITDA 7,258 2,673 172
Net finance expense (116) (86) 35
Profit for the year 1,997 399 401
Earnings / (loss) per share* 0.02 (0.003) n/a
- basic (HK$) 0.02 (0.003) n/a
- diluted (HK$)
Net asset value per share (HK$) 0.26 0.22 18
* after taking away the minority interests in overseas subsidiaries, there is a
loss attributable to the shareholders of the Company in 2010.
Operation and market review
Although 2011 was a difficult year for the world economy， the Company is
delighted to be able to report its maiden profit. Escalating production costs
and operating expenses were still difficulties faced by the Company during the
year. However, since the Company's shift to marketing directly to potential
customers in 2010, the sales force has a greater understanding of the needs of
the customers which has resulted in more appropriate solutions being offered to
them. This has consequently resulted in stronger customer relationships and
increased sales. The `Alpha' project, which was designed to promote the energy
saving efficacy in feedstuffs of the Company's products, continues to play a
major role in new business development and sales. The Company's market share in
the feed industry is slowly expanding but at a steady pace, as traction from
sales has built up over the last two years.
Sales in Thailand recovered following the notable decrease during the political
instability in 2010 and increased by 25 per cent. during the period under
review. A soft launch of the Company's product for improving milk production in
cows was made during the last quarter of 2011. The Directors are expecting
further improvement in the Thai market as some of the sales efforts implemented
in the past few years becomes fruitful and they are hopeful that it will be the
main driving force of the Company's products in the overseas market.
Recent Developments
As the Company had made good progress in the Chinese market over the last two
years, the Directors have decided to concentrate a greater portion of the
Company's resources on it. In order to aid further growth in the feed market,
the Company has adopted a new sales strategy aimed at building up a direct and
personal relationship with potential customers. This involves utilizing the
data and technology of the Company to develop new techniques to solve common
problems encountered in the feed industry, particularly in areas of feed
formulation, production management and management of sales team, which can then
be deployed by the customer.
Patents
At the end of 2011 the Group had been granted 51 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,
Australia and Philippines;
* 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, Vietnam and Taiwan; and
* shellfish feed in Europe, Vietnam, Indonesia, Malaysia and Taiwan.
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.
Debt
As at the year end, the Group had a short term bank loan of HK$2.5 million,
which was used to finance the Group's general working capital.
Dividend
The Directors do not recommend any dividend payment for the year ended 31
December 2011.
Annual General Meeting
The Annual General Meeting will be held at the offices of the Company's
solicitors, Reeds Smith Richards Butler in Hong Kong at 2:30pm on Monday 11
June 2012.
Outlook
In 2011, the Company achieved a net profit of HK$2.0 million and EBITDA of
HK$7.3 million. Looking into 2012, it will be another challenging year for the
world economy, with slower growth expected in the Chinese economy and
uncertainties, together with the lingering effects of the debt crisis, in both
the United States and European economies. Inflated production costs and
operating expenses will continue to make trading difficult. However, the
Directors are hopeful that by increasing the Company's market share and
developing more repeat customer relationships, the Group will have an even
better result in 2012.
On behalf of the Board, I would like to express our sincere thanks to the
management team and staff, professional advisers and shareholders for their
continued support during the year.
Eddie K.M. Chan
Chairman
9 May 2012
Further enquiries:
Walcom Group Limited +852 2494 0133
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
Merchant Securities Limited +44 20 7628 2200
Lindsay Mair/Virginia Bull
Consolidated income statement
For the year ended 31 December 2011
(Expressed in Hong Kong dollars)
Note 2011 2010
HK$ HK$
Revenue 44,207,817 32,860,894
Cost of sales (16,116,325 ) (12,793,665 )
Gross profit 28,091,492 20,067,229
Other income 124,556 203,642
Research and development expenses (1,580,780 ) (1,463,030 )
Selling and distribution expenses (10,712,894 ) (8,186,502 )
General and administrative expenses (11,976,400 ) (9,327,110 )
Profit from operations 3,945,974 1,294,229
Net finance expense (116,477 ) (85,552 )
Profit before income tax 3 3,829,497 1,208,677
Income tax expense 4 (1,832,990 ) (809,988 )
Profit for the year 1,996,507 398,689
Profit / (loss) attributable to:
Owners of the Company 1,291,396 (191,884 )
Non-controlling interests 705,111 590,573
Profit for the year 1,996,507 398,689
Earnings / (loss) per share - basic, HK cents 6 1.88 (0.28 )
- diluted, HK cents 1.88 (0.28 )
Consolidated statement of comprehensive income
For the year ended 31 December 2011
(Expressed in Hong Kong dollars)
2011 2010
HK$ HK$
Profit for the year 1,996,507 398,689
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries 631,579 678,442
Total comprehensive income for the year 2,628,086 1,077,131
Total comprehensive income attributable to:
Owners of the Company 1,996,312 390,249
Non-controlling interests 631,774 686,882
Total comprehensive income for the year 2,628,086 1,077,131
Consolidated balance sheet as at 31 December 2011
(Expressed in Hong Kong dollars)
Note 2011 2010
HK$ HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 2,153,287 2,698,958
Patents 4,003,839 4,726,361
Goodwill - 127,857
Investment in associate - -
6,157,126 7,553,176
CURRENT ASSETS
Inventories 1,221,152 872,349
Trade and other receivables 7 7,985,454 6,221,733
Amounts due from associate 753,163 1,632,934
Tax recoverable 410,238 415,540
Cash and cash equivalents 8 11,736,464 6,285,006
22,106,471 15,427,562
TOTAL ASSETS 28,263,597 22,980,738
EQUITY
Share capital 688,344 688,344
Reserves 17,101,037 14,436,087
Total equity attributable to OWNERs of the 17,789,381 15,124,431
Company
Non-controlling interests 1,398,458 1,042,541
TOTAL EQUITY 19,187,839 16,166,972
CURRENT LIABILITIES
Trade and other payables 5,705,808 4,109,048
Tax payables 902,946 771,860
Bank borrowings 9 2,467,004 1,932,858
9,075,758 6,813,766
TOTAL LIABILITIES 9,075,758 6,813,766
TOTAL EQUITY AND LIABILITIES 28,263,597 22,980,738
NET CURRENT ASSETS 13,030,713 8,613,796
TOTAL ASSETS LESS CURRENT LIABILITIES 19,187,839 16,166,972
Consolidated statement of changes in equity
For the year ended 31 December 2011
(Expressed in Hong Kong dollars)
Share-based Exchange Accumulated Total Non- Total
Share Share Merger compen- reserve losses controlling equity
capital premium reserve sation intrests
on
reserve
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
At 1 January 688,344 95,298,644 23,852,469 1,080,903 836,036 (107,399,582) 14,356,814 642,101 14,998,915
2010
Comprehensive
loss
Loss for the - - - - - (191,884) (191,884) 590,573 398,689
year
Other
comprehensive
income
Exchange
difference on
translation of
financial - - - - 582,133 - 582,133 96,309 678,442
statements of
overseas
subsidiaries
Total - - - - 582,133 (191,884) 390,249 686,882 1,077,131
comprehensive
income for the
year
Recognition of
equity-settled
share-based - - - 377,368 - - 377,368 - 377,368
payments
Lapse of share - - - (79,090) - 79,090 - - -
options
Dividends to - - - - - - - (286,442) (286,442)
non-controlling
interests
At 31 December 688,344 95,298,644 23,852,469 1,379,181 1,418,169 (107,512,376) 15,124,431 1,042,541 16,166,972
2010
At 1 January 688,344 95,298,644 23,852,469 1,379,181 1,418,169 (107,512,376) 15,124,431 1,042,541 16,166,972
2011
Comprehensive
income
Profit for the - - - - - 1,291,396 1,291,396 705,111 1,996,507
year
Other
comprehensive
income
Exchange
difference on
translation of
financial - - - - 704,916 - 704,916 (73,337) 631,579
statements of
overseas
subsidiaries
Total - - - - 704,916 1,291,396 1,996,312 631,774 2,628,086
comprehensive
income for the
year
Recognition of
equity-settled
share-based - - - 668,638 - - 668,638 - 668,638
payments
Dividends to - - - - - - - (275,857) (275,857)
non-controlling
interests
At 31 December 688,344 95,298,644 23,852,469 2,047,819 2,123,085 (106,220,980) 17,789,381 1,398,458 19,187,839
Consolidated statement of cash flows
For the year ended 31 December 2011
(Expressed in Hong Kong dollars)
Note 2011 2010
HK$ HK$
Cash flow from operating activities
Profit before income tax 3,829,497 1,208,677
Amortisation of patents 3(b) 376,251 358,632
Interest received (47,796 ) (8,712 )
Depreciation 3(b) 690,874 628,091
Foreign exchange loss, net 3(b) 419,720 174,278
Interest paid 164,273 94,264
Loss on disposal of property, plant and equipment 3(b) 9,336 14,599
Loss on cessation of a subsidiary's assets 11,540 -
Provision for impairment losses on amounts due 3(b) 752,000 -
from associate
Impairment loss on goodwill 3(b) 127,857 -
Patents written off 3(b) 653,581 -
Inventories written off 3(b) 103,029 17,804
Share-based compensation 3(a) 668,638 377,368
Operating profit before working capital changes 7,758,800 2,865,001
(Increase) / decrease in inventories (451,832 ) 357,166
Increase in trade and other receivables (1,763,721 ) (2,184,023 )
Decrease in amounts due from associate - trade 320,684 200,850
related
Increase in trade and other payables 1,596,760 664,607
Net cash generated from operations 7,460,691 1,903,601
Corporate income tax paid (1,696,602 ) (135,243 )
Interest paid (164,273 ) (94,264 )
Net cash generated from operating activities 5,599,816 1,674,094
Cash flow from investing activities
Payment for patents (307,310 ) (240,077 )
Purchases of property, plant and equipment (152,099 ) (259,026 )
(Increase) / decrease in amounts due from (192,913 ) 27,917
associate - non-trade related
Interest received 47,796 8,712
Net cash used in investing activities (604,526 ) (462,474 )
Cash flow from financing activities
Dividends paid to minority interests (275,857 ) (286,442 )
Repayment of bank borrowings (2,056,208 ) (595,217 )
Proceeds from new bank borrowings 2,590,354 1,762,839
Net cash generated from financing activities 258,289 881,180
Net increase in cash and cash equivalents 5,253,579 2,092,800
Cash and cash equivalents at the beginning of the 6,285,006 3,872,520
year
Exchange gain on cash and cash equivalents 197,879 319,686
Cash and cash equivalents at the end of the year 8 11,736,464 6,285,006
Notes to the consolidated financial statements
For the year ended 31 December 2011
(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 2011 has been
extracted from the Company's financial statements to that date which have
received an unqualified auditors' report.
2 Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These consolidated
financial statements also comply with the applicable disclosure provisions of
the AIM Rules for Companies of the London Stock Exchange. They have been
prepared under the historical cost convention.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements, are disclosed in note 29 of the Report and Accounts.
3 Profit before income tax
Profit before income tax is stated after charging the following items :-
(a) Staff costs (including directors' emoluments)
2011 2010
HK$ HK$
Salaries, wages and commission 6,976,848 7,577,100
Contributions to defined contribution retirement plans 688,611 656,771
Share-based compensation 668,638 377,368
Other staff benefits 5,108,285 3,750,837
13,442,382 12,362,076
(b) Other items
2011 2010
HK$ HK$
Amortisation of patents 376,251 358,632
Auditor's remuneration 240,000 254,913
Cost of inventories sold 16,116,325 12,793,665
Depreciation 266,471 262,368
Exchange losses, net 419,720 174,278
Loss on disposal of property, plant and equipment 9,336 14,599
Loss on cessation of a subsidiary 33,906 -
Impairment loss on goodwill 127,857 -
Inventories written off 103,029 17,804
Patents written off 653,580 -
Provision for impairment losses on amounts due from 752,000 -
associate
Rental charges under operating leases in respect of
land and buildings 577,007 463,718
4 Income tax expense
2011 2010
HK$ HK$
Current income tax
- Thailand corporate income tax 617,380 506,757
- Shanghai foreign enterprise income tax 1,215,610 303,231
1,832,990 809,988
(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 (2010: HK$nil).
(b) Taxation for the Group
(i) Taxation on overseas profits has been calculated on the estimated
assessable profit for the year at the rate of taxation prevailing in the
countries in which the Group companies operate. The income tax expense stated
in consolidated statement of comprehensive income represented the corporate
income tax and foreign enterprise income tax arisen from the business of
subsidiaries operating in Thailand and Shanghai respectively.
Hong Kong Profits Tax is calculated at 16.5% (2010: 16.5%) of the estimated
assessable profit for the year. However, no provision for Hong Kong profits tax
has been made (2010: HK$nil) as the Group did not have assessable profit
subject to Hong Kong profits tax for the year.
Provision for foreign enterprise income tax ("FEIT") in the People's Republic
of China ("PRC") has been made at 12% (2010: 11%) as Shanghai Walcom Bio-Chem
Co., Ltd. ("Shanghai Walcom"), a wholly owned subsidiary operating in Shanghai,
has assessable profits 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.
(ii) A reconciliation between the Group's income tax expense and the accounting
profit, at the applicable tax rate, is set out below :-
2011 2010
HK$ HK$
Profit before income tax 3,829,497 1,208,677
Notional tax credit on profit before income tax,
calculated
at the rates applicable to profits in the countries 631,867 199,430
concerned
Tax effect of:
Different income tax rates in other countries (287,449) (334,876)
Expenses not deductible for tax purpose 919,091 570,650
Non-taxable revenue (2) (2)
Temporary differences not recognized 188 1,291
Unused tax losses not recognized 569,295 373,495
Income tax charges 1,832,990 809,988
(iii) A deferred tax asset amounting to HK$8,928,261 (2010: HK$8,313,840) in
respect of tax losses of a subsidiary incorporated in Hong Kong of
approximately HK$54,111,000 (2010: HK$50,387,000) has not been recognised in
the financial statements as it is not certain that future taxable profit will
be available against which these losses can be utilised.
5 Dividends
The Company does not recommend the payment of any dividend for the year ended
31 December 2011 (2010: HK$Nil).
6 Earnings / (loss) per share
There is no difference between basic and diluted earnings / (loss) per share.
The basic and diluted earnings per share for the year ended 31 December 2011
are calculated by dividing the Group's profit attributable to owners of the
Group of HK$1,291,396 (2010: loss of HK$191,884) by the weighted average number
of 68,834,388 ordinary shares (2010: 68,834,388 ordinary shares). The
computation of diluted earnings / (loss) per share does not assume the exercise
of the Company's outstanding share options because the exercise price of the
options is higher than the average market price for the years ended 31 December
2011 and 2010.
7 Trade and other receivables
Group
2011 2010
HK$ HK$
Trade Receivables 7,695,607 6,198,317
Less: provision for impairment loss (545,899) (699,577)
Trade receivables - net 7,149,708 5,489,740
Deposits and prepayments 529,543 507,209
Other receivables 306,203 224,784
7,985,454 6,221,733
All trade and other receivables are expected to be recovered within one year.
a. Impairment of trade receivables
The movement in the provision of impairment for doubtful debts during the year,
including both specific and collective loss components, is as follows:
2011 2010
HK$ HK$
At 1 January 699,577 635,701
Written off (179,469) -
Exchange difference 25,791 63,876
At 31 December 545,899 699,577
At 31 December 2011, the Group's trade receivables of HK$545,899 (2010:
HK$699,577) have been outstanding for a certain period of time. The management
assessed that only a portion of the receivables is expected to be recoverable.
No further individually provision of impairment for doubtful debts was provided
in the year ended 31 December 2011 (2010: HK$nil).
The Group does not hold any collateral over these balances.
b. Trade receivables that are not impaired
Majority of the Group's turnover are with credit terms ranging from 30 to 60
days. Ageing analysis of trade receivables that are neither individually nor
collectively considered to be impaired are as follows:
2011 2010
HK$ HK$
Neither past due nor impaired 4,661,195 4,478,458
Less than one month past due 772,218 652,382
1 to 4 months past due 1,716,295 321,880
Over 4 months past due - 37,020
2,488,513 1,011,282
7,149,708 5,489,740
Receivables that were neither past due nor impaired relate to a wide range of
customers for whom there was no recent history of default.
Receivables that were past due but not impaired relate to a number of
independent customers that have a good track record with the Group. Based on
past experience, management believes that no impairment allowance is necessary
in respect of these balances as there has not been a significant change in
credit quality and the balances are considered fully recoverable. The Group
does not hold any collateral over these balances.
(c) The carrying amounts of trade receivables are denominated in the following
currencies:
Group
2011 2010
Hong Kong Dollar - HK$ 136,094
Thai Baht THB 4,207,825 THB 5,365,000
Renminbi RMB 4,959,800 RMB 3,378,820
8 Cash and cash equivalents
Group
2011 2010
HK$ HK$
Cash and cash equivalents in the statement 11,736,464 6,285,006
of cash flows
The Company
2011 2010
HK$ HK$
Cash and cash equivalents in the balance 22,899) 24,131
sheet
Included in the cash and cash equivalents of the Group, HK$8,639,078 (2010:
HK$4,896,502) were denominated in RMB and kept in PRC. The remittance of these
funds out of the PRC is subject to the foreign exchange control restrictions
imposed by the PRC government.
Included in cash and cash equivalents in the consolidated balance sheet are the
following amounts denominated in a currency other than the functional currency
of the entity to which they relate:
2011 2010
United States dollars US$ 96,688 US$ 68,815
British Pound GB£ 1,223 GB£ 1,254
Thai Baht THB 8,757,326 THB 2,605,229
Vietnam Dong VND - VND 107,973
9 Bank borrowings
At 31 December 2011, the bank borrowings were secured and repayable as follows:
Group
2011 2010
HK$ HK$
Current liabilities
Bank borrowings - short term portion, 2,467,004 1,932,858
secured
Total borrowings 2,467,004 1,932,858
a. The maturity of borrowings is as follows:
Group
2011 2010
HK$ HK$
Within 1 year or on demand 2,467,004 1,932,858
b. The effective interest rate per annum for bank borrowings at balance sheet
date is at 20% over one-year benchmark deposits and loan interest rate
promulgated by The People's Bank of China plus certain basis points per
annum (2010: 0.5% over Thailand mortgage reference rate and at one-year
benchmark deposits and loan interest rate promulgated by The People's Bank
of China plus certain basis points per annum respectively).
During the 2011 reporting period, the Group fully repaid a mortgage loan of
HK$170,018, which was secured by the property situated in Thailand and a bank
borrowing of HK$1,762,840 denominated in RMB, which was secured by the
corporate guarantee issued by an independent third party.
On 31 May 2011, an indirectly held subsidiary of the Group situated in PRC
("the subsidiary") has obtained a bank borrowing of HK$2,467,004 denominated in
RMB with maturity of 1 year. The bank borrowing was secured by the corporate
guarantee issued by an independent third party. For the grant of corporate
guarantee, the holding company of the subsidiary, which is also an indirectly
held subsidiary of the Group, has pledged its shareholding of the subsidiary to
the independent third party.
10 Copies of 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 Shai Jing Road, ZJ Hi-tech Park, Shanghai 201203, PRC,
and on the Company's website www.walcomgroup.com.
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