Final Results

5 May 2016

WALCOM GROUP LIMITED

(“Walcom” or “the Company”)

Final results for the year ended 31 December 2015 and notice of Annual General Meeting

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 2015.

Results

Although the global economy remained subdued in 2015, with a modest recovery seen across advanced economies, the ongoing slowing of the PRC economy and the poor performance of the domestic pig farming industry continue to affect the Company’s results. Despite the adverse impact of the poor animal feed market during the year, and the aggregate impact of increasing production costs and operating expenses, the Company managed to achieve a profit attributable to the Company’s shareholders of HK$0.34 million (2014: loss of HK$0.30 million) for the year under review. Turnover (2015: HK$44.2 million; 2014: HK$43.7 million) and gross profit (2015: HK$26.8 million; 2014: HK$27.2 million) for the year was maintained at approximately the same levels as 2014. The Company reported a net profit of HK$0.5 million for the year under review as compared to a net loss of HK$0.03 million in 2014. EBITDA also increased by 65 per cent. from HK$1.47 million in 2014 to HK$2.42 million in 2015.

A summary of the results for the period is set out below:

	Year ended	Year ended	Change
	31 December	31 December
	2015	2014
	HK$’000	HK$’000	per cent.
Turnover	44,237	43,648	1.35
Gross profit	26,745	27,164	(1.54)
Operating profit	1,808	860	110.23
EBITDA	2,424	1,471	64.79
Net finance (expense) / income	(21)	18	n/a
Profit / (loss) for the year	479	(32)	n/a
Profit / (loss) per share attributable to the shareholders of the Company  - basic (HK cents)  - diluted (HK cents)	0.49 0.49	(0.44) (0.44)	n/a n/a
Net asset value per share attributable to the shareholders of the Company (HK cents)	25.03	28.32	(11.62)

Operation and market review

Following a prolonged period of slumping farmgate pig prices being received by producers during the period between November 2013 and March 2015, China’s pig population decreased significantly as numerous mid-sized pig farms ceased operations. Farmgate pig prices began to increase in April 2015 as the resulting reduction in market supply exposed shortages, however, since the pig population remained low, the demand for the feedstuff remained weak. This had affected the Company’s sales in the PRC, which dropped by 4.5 per cent. to HK$25.7 million during the year ended December 2015 when compared with the HK$26.9 million in 2014.

Sales in Thailand increased by 18 per cent. to HK$16.2 million in 2015, representing 37 per cent. (2014: 31 per cent.) of the Company’s total sales. The economy in Thailand improved following the change of government in May 2014, although it has still not recovered fully. The improvement in sales in Thailand has resulted from both increased consumption of the Company’s products by existing customers and from new customers who placed orders after achieving satisfactory trial results on our products.

Sales in Korea decreased by 24 per cent. to HK$1.9 million in 2015 (2014: HK$2.5 million), representing approximately 4 per cent. (2014: 6 per cent.) of the Company’s total sales. The drop in sales was due to the poor performance of the Korean market during the first six months of the year, however, sales started to pick up during the second half of 2015 which was encouraging. The Directors are pleased that the Company’s product is gaining recognition in Korean, shown by the latter period improvement, and believe that there is high potential for further growth in the market.

The Group’s financial statements were reported in Hong Kong Dollar. During the period under review, the Hong Kong currency appreciated approximately 6 per cent. and 10 per cent. against the Renminbi and Thai Baht, respectively. As most of the Group’s sales were made in these two currencies, this had an adverse exchange impact on the Group’s revenue. Similar adverse exchange effects happened in translating the Group’s net assets, including cash and cash equivalents, in its overseas subsidiaries into the Hong Kong currency. This resulted in a decrease in the Group’s cash balance and net asset value reported in Hong Kong Dollar as at the year end of 2015.

Recent Developments

For the past couple of years China has been undergoing a process of transforming its economic structure. A major part of this shift involves the PRC government’s efforts to commercialise domestic high technology inventions. The Chinese government acknowledges that protection of intellectual properties will play a significant role in this regard. During the past few years, the Company has developed and obtained patents in the most advanced technology for the application of cysteamine, the core substance in our products, in animal feed products. Notwithstanding this, due to the historical inadequacies that China has exhibited in properly upholding patent rights, sales of the Company’s products have been weakened by generic third-party products copying Walcom’s technology appearing in the local market and seizing market share without the relevant licence or intellectual property. As Walcom has established itself as a provider of trusted products within its specialised segment of the industry and has built up its brand in the market, the Company’s management believes that there will be high potential for growth in the Company’s sales if our intellectual property and patent rights can be treated more seriously and better protected by the Chinese government.

Patents

At the end of 2015 the Group held 46 granted patents in respect of:

• its core Cysteamine technology in China, North Korea, New Zealand, Ukraine, Russia, South Africa, Australia, India, South Korea and Vietnam;
• poultry feed in the UK, North Korea, Taiwan, Russia, China, Australia and Philippines;
• dairy cow feed in New Zealand, the UK, Europe, Mexico, India, China, Russia, Australia and Malaysia;
• fish feed in the UK, Indonesia, Russia, China, Thailand, Philippines, Vietnam and Taiwan; and
• shellfish feed in Europe, Vietnam, Indonesia, Malaysia, Taiwan, Philippines and China.

Most of the patents for which the Company has applied in recent years have been granted. The Directors believe that there is wide patent coverage in places where there are significant demands for the Company’s products. Some patents, which the Directors believe have a reduced chance of commercialisation, were dropped during the year.

Debt

As at the year end, the Group had a short-term bank loan of HK$2.4 million, which was used to finance the Group’s general working capital. The Directors do not foresee any need for further bank loans as the Group has adequate working capital for its daily operations.

Dividend

The Directors do not recommend any dividend payment for the year ended 31 December 2015.

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 2:30 pm on Tuesday 14 June 2016.

Outlook

As the PRC government has confirmed that the next few years will see slower economic growth across much of the market while the Chinese economy undergoes a structural transformation, the Directors believe that it will be another difficult year for the Company in 2016. The uncertain monetary policies of the United States and the major European economies collectively contribute towards a pessimistic prevailing global economic outlook. Escalating production costs and operating expenses remain an adverse factor affecting the Company. However, the Directors are optimistic that the improving results in the Thai market and the Korean market in the later part of 2015, together with the Company’s continuing marketing efforts, should produce another year of broader strengthening of the Company’s general financial performance in 2016.

I would like to express our sincere thanks to the management team and staff, professional advisers and shareholders for their continued support and contributions during the year.

Notice of Annual General Meeting

A notice of annual general meeting convening a meeting at 2.30pm on 14 June 2016 will be posted to shareholders with the Company’s report and accounts. The notice will include a resolution to extend the Company’s existing share award plan, which was adopted on 20 September 2006. The share award plan is currently effective until 20 September 2016 and would terminate on that date. The proposal is to extend the plan for a term of 20 years commencing on the date of the annual general meeting or until such time as the Board considers it appropriate to terminate the plan (subject to certain conditions). No further share awards are proposed at this time. 

Further enquiries:

Walcom Group Limited Francis Chi (Chief Executive Officer) Albert Wong (Chief Financial Officer)	[phone]
Allenby Capital Limited Virginia Bull/David Hart	[phone]

Consolidated statement of profit or loss

For the year ended 31 December 2015

(Expressed in Hong Kong dollars)

	Note	2015	2014
		HK$	HK$
Revenue		44,236,805	43,647,716
Cost of sales		(17,491,561)	(16,483,709)
Gross profit		26,745,244	27,164,007
Other income	3	189,853	506,442
Research and development expenses		(1,224,261)	(1,227,825)
Selling and distribution expenses		(11,847,110)	(11,643,034)
General and administrative expenses		(12,055,434)	(13,940,044)
Profit from operations		1,808,292	859,546
Net finance (expense) / income	4	(21,123)	17,546
Profit before income tax	5	1,787,169	877,092
Income tax expense	6	(1,308,485)	(908,987)
Profit / (loss) for the year		478,684	(31,895)
Profit / (loss) attributable to:
Owners of the Company		335,472	(300,602)
Non-controlling interests		143,212	268,707
Profit / (loss) for the year		478,684	(31,895)
Profit / (loss) per share - basic, HK cents	8	0.49	(0.44)
- diluted, HK cents		0.49	(0.44)

Consolidated statement of profit or loss and other comprehensive income

For the year ended 31 December 2015

(Expressed in Hong Kong dollars)

		2015	2014
		HK$	HK$
Profit / (loss) for the year		478,684	(31,895)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries		(2,793,995)	(108,677)
Total comprehensive loss for the year		(2,315,311)	(140,572)
Total comprehensive loss attributable to:
Owners of the Company		(2,262,139)	(402,390)
Non-controlling interests		(53,172)	261,818
Total comprehensive loss for the year		(2,315,311)	(140,572)

Consolidated balance sheet as at 31 December 2015

(Expressed in Hong Kong dollars)

	Note	2015	2014
		HK$	HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment		1,520,698	1,869,520
Patents		2,079,634	2,385,921
Goodwill		-	-
		3,600,332	4,255,441
CURRENT ASSETS
Inventories		2,247,884	2,343,521
Trade and other receivables	9	7,695,707	7,797,139
Tax recoverable		108,584	157,591
Cash and cash equivalents	10	13,670,351	15,229,576
Restricted cash	10	103,813	113,350
		23,826,339	25,641,177
TOTAL ASSETS		27,426,671	29,896,618
EQUITY
Share capital		688,344	688,344
Reserves		16,540,153	18,802,292
Total equity attributable to OWNERs of the Company		17,228,497	19,490,636
Non-controlling interests		2,086,595	2,139,767
TOTAL EQUITY		19,315,092	21,630,403
CURRENT LIABILITIES
Trade and other payables		4,954,919	5,208,398
Tax payables		769,455	522,641
Bank borrowings	11	2,387,205	2,535,176
		8,111,579	8,266,215
TOTAL LIABILITIES		8,111,579	8,266,215
TOTAL EQUITY AND LIABILITIES		27,426,671	29,896,618
NET CURRENT ASSETS		15,714,760	17,374,962
TOTAL ASSETS LESS CURRENT LIABILITIES		19,315,092	21,630,403

Consolidated statement of changes in equity

For the year ended 31 December 2015

(Expressed in Hong Kong dollars)

				Share-based					Non-
	Share	Share	Merger	compensation	Exchange	Surplus	Accumulated		controlling	Total
	capital	premium	reserve	reserve	reserve	reserve	losses	Total	interests	equity
	HK$	HK$	HK$	HK$	HK$	HK$	HK$	HK$	HK$	HK$
At 1 January 2014	688,344	95,298,644	23,852,469	1,591,595	2,924,924	2,525,302	(106,988,252)	19,893,026	1,877,949	21,770,975
Comprehensive income
(Loss) / profit for the year	-	-	-	-	-	-	(300,602)	(300,602)	268,707	(31,895)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-	-	-	-	(101,788)	-	-	(101,788)	(6,889)	(108,677)
Total comprehensive income for the year	-	-	-	-	(101,788)	-	(300,602)	(402,390)	261,818	(140,572)
Appropriation to surplus reserve	-	-	-	-	-	398,212	(398,212)	-	-	-
At 31 December 2014	688,344	95,298,644	23,852,469	1,591,595	2,823,136	2,923,514	(107,687,066)	19,490,636	2,139,767	21,630,403
At 1 January 2015	688,344	95,298,644	23,852,469	1,591,595	2,823,136	2,923,514	(107,687,066)	19,490,636	2,139,767	21,630,403
Comprehensive income
Profit for the year	-	-	-	-	-	-	335,472	335,472	143,212	478,684
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-	-	-	-	(2,597,611)	-	-	(2,597,611)	(196,384)	(2,793,995)
Total comprehensive income for the year	-	-	-	-	(2,597,611)	-	335,472	(2,262,139)	(53,172)	(2,315,311)
Lapse of share options	-	-	-	(22,826)	-	-	22,826	-	-	-
Appropriation to surplus reserve	-	-	-	-	-	340,180	(340,180)	-	-	-
At 31 December 2015	688,344	95,298,644	23,852,469	1,568,769	225,525	3,263,694	(107,668,948)	17,228,497	2,086,595	19,315,092

Consolidated statement of cash flows

For the year ended 31 December 2015

(Expressed in Hong Kong dollars)

	Note	2015	2014
		HK$	HK$
Cash flow from operating activities
Profit before income tax		1,787,169	877,092
Amortisation of patents	5(b)	265,538	270,054
Interest received	4	(150,719)	(183,538)
Depreciation		308,255	341,826
Foreign exchange (gain) / loss, net	5(b)	(1,547,782)	175
Interest paid	4	171,842	165,992
Loss on disposal of property, plant and equipment	5(b)	1,517	-
Patents written off	5(b)	40,749	-
Operating profit before working capital changes		876,569	1,471,601
Decrease / (increase) in inventories		95,637	(690,644)
Decrease / (increase) in trade and other receivables		101,432	(2,076,985)
Decrease in trade and other payables		(253,479)	(432,817)
Net cash generated from / (used in) operations		820,159	(1,728,845)
Corporate income tax paid		(1,012,664)	(1,324,322)
Interest paid		(171,842)	(165,992)
Net cash used in operating activities		(364,347)	(3,219,159)
Cash flow from investing activities
Purchases of property, plant and equipment		(91,237)	(43,737)
Interest received		150,719	183,538
Net cash generated from investing activities		59,482	139,801
Cash flow from financing activities
Decrease / (increase) in restricted bank balances		9,537	(113,350)
Repayment of bank borrowings		(2,535,176)	(2,543,882)
Proceeds from new bank borrowings		2,387,205	2,535,176
Net cash used in financing activities		(138,434)	(122,056)
Net decrease in cash and cash equivalents		(443,299)	(3,201,414)
Cash and cash equivalents at the beginning of the year		15,229,576	18,535,663
Exchange loss on cash and cash equivalents		(1,115,926)	(104,673)
Cash and cash equivalents at the end of the year	10	13,670,351	15,229,576

Notes to the consolidated financial statements

For the year ended 31 December 2015

(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 2015 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 ("IFRSs"). 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 27 of the full financial statements.

3          Other income

	2015	2014
	HK$	HK$
Government subsidy Tax refund	162,172	469,233 6,298
Sundry income	27,681	30,911
	189,853	506,442

Note: During the years ended 31 December 2015 and 2014, the Group received subsidies from local government bodies in the PRC, which aimed at the technology development of the Group.

4      Net finance (expense) / income

	2015	2014
	HK$	HK$
Bank interest income	150,719	183,538
Interest expense on bank loan	(171,842)	(165,992)
	(21,123)	17,546

5      Profit before income tax

        Profit before income tax is stated after charging the following items: -

(a)  Staff costs (including directors’ emoluments)

	2015	2014
	HK$	HK$
Salaries, wages and commission	10,718,322	11,051,612
Contributions to defined contribution retirement plans	899,111	858,474
Other staff benefits	3,549,183	3,339,342
	15,166,616	15,249,428

(b)    Other items

	2015	2014
	HK$	HK$
Amortisation of patents	265,538	270,054
Auditor’s remuneration	307,474	315,574
Cost of inventories sold	16,623,712	15,502,718
Depreciation	225,969	241,009
Exchange (gains) / losses, net	(1,547,782)	175
Loss on disposal of property, plant and equipment	1,517	-
Patents written off	40,749	-
Rental charges under operating leases in respect of
land and buildings	920,080	856,824

6      Income tax expense

	2015	2014
	HK$	HK$
Current income tax
- Thailand corporate income tax	128,638	195,757
- Shanghai foreign enterprise income tax	1,179,847	713,230
	1,308,485	908,987

(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 crystallised in the foreseeable future (2014: 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 profit or loss and other 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% (2014: 16.5%) of the estimated assessable profit for the year. However, no provision for Hong Kong profits tax has been made (2014: HK$Nil) as the Group’s assessable profit subject to Hong Kong profits tax for the year is fully set-off by tax loss brought forward from last year.

Provision for foreign enterprise income tax (“FEIT”) in the People’s Republic of China (“PRC”) has been made at 25% (2014: 15%) 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 not granted tax relief since year 2015 whereby the applicable income tax rates were 15% and 25% respectively for the years 2014 and 2015.

Thailand Corporate Income Tax is calculated at 20% (2014: 20%) of the net profit for the year.

(ii)    A reconciliation between the Group’s income tax expense and the accounting profit, at the applicable tax rate, is set out below: -

	2015	2014
	HK$	HK$
Profit before income tax	1,787,169	877,092
Notional tax calculated on profit before income tax, calculated
at the rates applicable to profits in the countries concerned	760,053	68,999
Tax effect of:
Expenses not deductible for tax purpose	907,379	1,098,739
Non-taxable revenue	(22)	(1,214)
Temporary differences not recognised	664	507
Utilisation of previously unrecognised tax losses	(359,589)	(258,044)
Income tax charges	1,308,485	908,987

(iii)   A deferred tax asset amounting to HK$8,211,086 (2014: HK$8,570,768) in respect of tax losses of a subsidiary incorporated in Hong Kong of approximately HK$49,764,000 (2014: HK$51,944,000) 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.

7      Dividends

The Company does not recommend the payment of any dividend for the year ended 31 December 2015 (2014: HK$Nil).

8      Profit / (loss) per share

       There is no difference between basic and diluted loss per share. The basic and diluted profit per share for the year ended 31 December 2015 are calculated by dividing the Group’s profit attributable to owners of the Group of HK$335,472 (2014: Loss of HK$300,602) by the weighted average number of 68,834,388 ordinary shares (2014: 68,834,388 ordinary shares). The computation of diluted profit 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 2015 and 2014.

9      Trade and other receivables

	Group
	2015	2014
	HK$	HK$
Trade receivables	6,859,583	7,079,319
Less: provision for impairment loss	(508,758)	(508,758)
Trade receivables – net	6,350,825	6,570,561
Deposits and prepayments	976,591	1,037,401
Other receivables	368,291	189,177
	7,695,707	7,797,139

All trade and other receivables are expected to be recovered within one year.

1. 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:

	2015	2014
	HK$	HK$
At 1 January	508,758	743,813
Written off	-	(235,055)
At 31 December	508,758	508,758

At 31 December 2015, the Group’s trade receivables of HK$508,758 (2014: HK$508,758) 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 individual provision of impairment for doubtful debts was provided in the year ended 31 December 2015 (2014: Nil). 

The Group does not hold any collateral over these balances.

1. 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:

	2015	2014
	HK$	HK$
Neither past due nor impaired	5,526,045	5,581,041
Less than one month past due	586,059	986,427
1 to 4 months’ past due	238,721	3,093
	824,780	989,520
	6,350,825	6,570,561

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.

1. The carrying amounts of trade receivables are denominated in the following currencies:

	Group
	2015	2014
Thai Baht	THB 9,052,000	THB 10,529,375
Renminbi	RMB 3,692,220	RMB 3,229,200

10    Cash and bank balances

	Group
	2015	2014
	HK$	HK$
Cash at bank and on hand	13,774,164	15,342,926
Less: Cash at bank – restricted	(103,813)	(113,350)
Cash and cash equivalents in the statement of cash flows	13,670,351	15,229,576

	The Company
	2015	2014
	HK$	HK$
Cash and cash equivalents in the balance sheet	25,512	25,493

Included in the cash and cash equivalents of the Group, HK$7,254,910 (2014: HK$9,842,160) 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.

As at 31 December 2015, HK$103,813 (2014: HK$113,350) denominated in THB in a saving bank account in Thailand has been pledged to a bank as security under a forward exchange contract.

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:

		2015		2014
Renminbi United States dollars	RMB US$	6,078,683 294,508	RMB US$	7,764,997 458,733
British Pound	GB£	528	GB£	484
Thai Baht	THB	15,641,790	THB	8,115,079

11    Bank borrowings

At 31 December 2015, the bank borrowings were unsecured and repayable as follows:

	Group
	2015	2014
	HK$	HK$
Current liabilities
Bank borrowings – unsecured	2,387,205	2,535,176
Total borrowings	2,387,205	2,535,176

1. The maturity of borrowings is as follows:

	Group
	2015	2014
	HK$	HK$
Within 1 year or on demand	2,387,205	2,535,176

1. The effective interest rate per annum for bank borrowings at balance sheet date is at 5.7% (2014: 7.8%) per annum.

During the 2015 reporting period, the Group fully repaid a bank borrowing of HK$2,535,176 denominated in RMB, which was unsecured.

On 18 November 2015, an indirectly held subsidiary of the Group situated in the PRC (“the subsidiary”) has obtained a bank borrowing of HK$2,387,205 denominated in RMB with maturity of 1 year. The bank borrowing was unsecured.

12    Share option scheme

  A share option scheme (the “scheme”) was adopted pursuant to a resolution of an extraordinary general meeting of the Company held on 20 September 2006 for the purpose of providing incentives and rewards to any director of any member of the Group who is in service with any such Company or any employee of any member of the Group (the “eligible directors and employees”).

The maximum number of shares in respect of which options or rights to subscribe for shares pursuant to the scheme when aggregated with number of shares in respect of which options or rights to subscribe for shares has been granted in previous years under the scheme and other share option or share incentive plan adopted by the Company shall not exceed 10% of the shares issued by the Company from time to time. An option share shall only be exercisable (a) after one year from date of grant, (b) before the expiry of the option period, (c) at a time permitted by the Model Code for Securities Transactions by Directors of Listed Issuers, and (d) if any performance conditions imposed pursuant to the scheme rules have been fulfilled or obtained.

As at 31 December 2015, 3,330,000 ordinary shares option has been granted to directors and employees of the Company under the Share Option Scheme. All share options granted under the Scheme were still outstanding. No options were exercised, cancelled or lapsed during the year.

(a)  The terms and conditions of the grants that existed during the year are as follows, hereby all options are settled by physical delivery of shares:

Participant	Date of grant	No. of options outstanding as at 31 December 2015	Vesting period	Exercise period	Exercise price
Options granted to directors:
Yong Chian Tan	9 June 2010	500,000	2 years commencing from 9 June 2010	From 9 June 2012 to 8 June 2020 (both days inclusive)	GB£ 0.07
	9 June 2010	500,000	3 years commencing from 9 June 2010	From 9 June 2013 to 8 June 2020 (both days inclusive)	GB£ 0.07
Albert Siu Fai Wong	9 June 2010	250,000	2 years commencing from 9 June 2010	From 9 June 2012 to 8 June 2020 (both days inclusive)	GB£ 0.07
	9 June 2010	250,000	3 years commencing from 9 June 2010	From 9 June 2013 to 8 June 2020 (both days inclusive)	GB£ 0.07
Prof. Hong Xun Yang	9 June 2010	750,000	2 years commencing from 9 June 2010	From 9 June 2012 to 8 June 2020 (both days inclusive)	GB£ 0.07
	9 June 2010	750,000	3 years commencing from 9 June 2010	From 9 June 2013 to 8 June 2020 (both days inclusive)	GB£ 0.07
Options granted to employees:
Employees of the Group	9 June 2010	165,000	2 years commencing from 9 June 2010	From 9 June 2012 to 8 June 2020 (both days inclusive)	GB£ 0.07
	9 June 2010	165,000	3 years commencing from 9 June 2010	From 9 June 2013 to 8 June 2020 (both days inclusive)	GB£ 0.07

(b)  Fair value of share options

The fair value of the share options granted during the year ended 31 December 2010 have been valued by an independent qualified valuer using Binomial Option Pricing Model.

13    Share award plan

The Company’s share award plan (the “plan”) was adopted pursuant to a resolution of an extraordinary general meeting of the Company held on 20 September 2006 for the purpose of providing incentives or rewards to selected PRC   employees and officers of the Group but excluding officers of the Company (the “eligible PRC officers”).

Prior to the Admission to AIM, 433,163 ordinary shares were transferred to Walcom China Staff Incentive Limited (the “trustee”) by certain of the then existing shareholders of the Company, to hold pursuant to the terms of the trust deed applicable to the plan.  These shares are held on trust for the eligible PRC officers.

The plan shall be valid and effective for a term of ten years from the date of adoption and it shall be subject to the administration of a committee delegated from time to time by the board and the trustee in accordance with the provisions of the trust deed and plan rules.  There were 70,163 (2014: 70,163) ordinary shares held by the trustee at 31 December 2015.

14    Commitments

Operating lease commitments

The future aggregate minimum lease rental expenses in respect of the manufacturing plants and office premises under non-cancellable operating lease are payable in the following periods:

	2015	2014
	HK$	HK$
Within one year	2,792,642	2,933,806
In the second to fifth years inclusive	1,080,086	3,899,919
	3,872,728	6,833,725

15      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.