Half-yearly Report
20 September 2012
Walcom Group Limited
("Walcom" or "the Company")
Half-yearly unaudited results for the six months ended 30 June 2012
The Board of Walcom Group Limited presents the Company's unaudited results for
the six months ended 30 June 2012.
Highlights
* Loss per share reduced by 21 per cent. to 1.50 HK cents
* Revenue and gross profit rose by 12 per cent. to HK$20.0 million and 17 per
cent. to HK$12.7 million respectively
* PRC and overseas sales increased by 4 per cent. to HK$14.6 million and 42
per cent. to HK$5.4 million respectively
* Sales traction gained in the last two years has continued
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
CHAIRMAN'S STATEMENT
Introduction
Although the Chinese economy has slowed, the production costs and operating
expenses of the Company have continually increased. The Company is pleased to
report, however, that the sales traction built up over the last two years has
continued and the Company's revenue grew by 12 per cent. compared with the same
period last year. The sales of the Company are usually weaker in the first half
of the year, due to being affected by seasonal factors, which led to a loss per
share for the period. This loss was, however, reduced by 21 per cent. for the
period to HK$1.50 cents (June 2011: loss HK$1.89 cents).
Results for the Period
The Company generated revenues during the period of HK$20.0 million (June 2011:
HK$17.9 million) and gross profits of HK$12.7 million (June 2011: HK$10.9
million), representing increases of 12 per cent. and 17 per cent. respectively
compared with the same period last year. In addition, the gross profit margin
for the period improved, increasing from 61 per cent. in the same period last
year to 64 per cent. during this financial period. This increase is mainly due
to a higher percentage of direct sales to customers in the PRC and an
improvement in sales in Thailand during the period, both of which produce a
higher profit margin than has been the case historically. Owing to the stronger
sales and improved gross profit margin, the Company reduced its net loss by 55
per cent. to HK$0.5 million (June 2011: loss of HK$1.1 million) and achieved a
profit of HK$1.1 million at an EBITDA level, an increase of 267 per cent. over
the same period last year (June 2011: HK$0.3 million).
Review of Activities and Market
In the six months to 30 June 2012, sales in the PRC and overseas improved by 4
per cent. and 42 per cent. to HK$14.6 million (June 2011: HK$14.1 million) and
HK$5.4 million (June 2011: HK$3.8 million), respectively. The sales in the PRC
during the period were maintained at approximately the same level as last year
despite the slower Chinese economy and the weak demand for pork. The
improvement in overseas sales was mainly due to the contribution from the Thai
market.
With the uncertainty in the world economy and the slow growth in the PRC
market, the first half of the year was very challenging for the Company.
Increasing prices of crops such as corn, soy and wheat (owing to the extreme
climate conditions the world over), however, provide opportunities for the
Company to expand its market share as demand for complete feeds increase and
thus demand for the Company's products. As mentioned in my statement in the
2011 annual report, the Company's market share is slowly increasing at a steady
pace, owing to the direct marketing approach to potential customers adopted in
the last 2 years. 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.
Sales in Thailand were the major contributors to the Company's overseas market
results. They increased by 53 per cent. to HK$5.2 million (June 2011: 3.4
million) during the period under review. The market opportunity is still
improving as more of the sales effort implemented in the past years starts to
produce rewards.
Outlook
In the business outlook of the 2011 Chairman's Statement, I highlighted that
the Company's business in 2012 would be affected by unfavourable factors, in
particular, slower growth in the Chinese economy, uncertainties associated with
the lingering effects of the debt crisis in both the United States and European
economies, and higher production costs and operating expenses. All these
factors remain which make trading conditions difficult for the Company. The
Directors are optimistic, however, that the management of the Company will deal
with these unfavourable conditions and present a good result for the full year
2012.
Eddie K M Chan
Chairman
20 September 2012
UNAUDITED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Note Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 2012 30 June 2011 31 December
2011
HK$ HK$ HK$
Revenue 19,976,736 17,875,168 44,207,817
Cost of sales (7,276,481) (6,967,894) (16,116,325)
Gross profit 12,700,255 10,907,274 28,091,492
Other income 2 20,218 72,753 124,556
Research and development (851,173) (812,563) (1,580,780)
expenses
Selling and distribution (4,988,588) (5,183,390) (10,712,894)
expenses
General and administrative (6,657,385) (5,560,654) (11,976,400)
expenses
Profit / (loss) from operation 223,327 (576,580) 3,945,974
s
Net finance cost 3 (49,473) (41,197) (116,477)
Profit / (loss) before income 173,854 (617,777) 3,829,497
tax
Income tax expense 4 (696,587) (469,536) (1,832,990)
(Loss) / profit for the period (522,733) (1,087,313) 1,996,507
/ year
Loss attributable to:
Owners of the Company (1,034,047) (1,299,477) 1,291,396
Non-controlling interests 511,314 212,164 705,111
(Loss) / profit for the period (522,733) (1,087,313) 1,996,507
/ year
(Loss) / earnings per share - 5 (1.50) (1.89) 1.88
basic, HK cents
- diluted, HK cents (1.50) (1.89) 1.88
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Note Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 2012 30 June 2011 31 December
2011
HK$ HK$ HK$
(Loss) / profit for the period (522,733) (1,087,313) 1,996,507
/ year
Other comprehensive income
Exchange difference on
translation of
financial statements of (179,164) 343,840 631,579
overseas subsidiaries
Total comprehensive (loss) /
income
for the period / year (701,897) (743,473) 2,628,086
Total comprehensive (loss) /
income
attributable to:
Owners of the Company (1,200,678) (929,210) 1,996,312
Non-controlling interests 498,781 185,737 631,774
Total comprehensive (loss) /
income
for the period/year (701,897) (743,473) 2,628,086
UNAUDITED CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2012
Note Unaudited Unaudited Audited
30 June 201 30 June 201
2 1 31 December
2011
HK$ HK$ HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 2,029,851 2,439,400 2,153,287
Patents 3,783,659 4,720,610 4,003,839
Goodwill - 127,857 -
Interests in an associate - - -
5,813,510 7,287,867 6,157,126
CURRENT ASSETS
Inventories 1,907,922 1,266,101 1,221,152
Trade and other receivables 7 6,737,884 6,376,446 8,395,692
Amounts due from an associate 928,663 1,388,163 753,163
Cash and cash equivalents 8 12,271,809 7,266,927 11,736,464
21,846,278 16,297,637 22,106,471
TOTAL ASSETS 27,659,788 23,585,504 28,263,597
EQUITY AND LIABILITIES
EQUITY
Share capital 688,344 688,344 688,344
Reserves 16,210,054 13,838,448 17,101,037
TOTAL EQUITY ATTRIBUTABLE TO 16,898,398 14,526,792 17,789,381
OWNERS OF THE COMPANY
Non-controlling interests 1,567,456 1,228,278 1,398,458
TOTAL EQUITY 18,465,854 15,755,070 19,187,839
CURRENT LIABILITIES
Trade and other payables 9 6,138,869 4,909,012 5,705,808
Tax payables 601,679 443,428 902,946
Bank borrowings 10 2,453,386 2,477,994 2,467,004
9,193,934 7,830,434 9,075,758
TOTAL LIABILITIES 9,193,934 7,830,434 9,075,758
TOTAL EQUITY AND LIABILITIES 27,659,788 23,585,504 28,263,597
NET CURRENT ASSETS 12,652,344 8,467,203 13,030,713
TOTAL ASSETS 18,465,854 15,755,070 19,187,839
LESS CURRENT LIABILITIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Share-based Non-
Share Share Merger compensation Exchange Accumulated controlling Total
capital premium reserve reserve reserve losses Total interests equity
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
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
loss
Loss for the - - - - - (1,299,477) (1,299,477) 212,164 (1,087,313)
period
Other
comprehensive
income
Exchange
difference on
translation of
financial - - - - 370,267 - 370,267 ( 26,427) 343,840
statements of
overseas
subsidiaries
Total - - - - 370,267 (1,299,477) (929,210) 185,737 (743,473)
comprehensive
loss
for the period
Recognition of
equity-settled
share-based - - - 331,571 - - 331,571 - 331,571
payments
At 30 June 2011 688,344 95,298,644 23,852,469 1,710,752 1,788,436 (108,811,853) 14,526,792 1,228,278 15,755,070
At 1 January 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
2012
Comprehensive
loss
Loss for the - - - - - (1,034,047) (1,034,047) 511,314 (522,733)
period
Other
comprehensive
income
Exchange
difference on
translation of
financial - - - - (166,631) - (166,631) (12,533) (179,164)
statements of
overseas
subsidiaries
Total - - - - (166,631) (1,034,047) (1,200,678) 498,781 (701,897)
comprehensive
loss
for the period
Dividends to - - - - - - - (329,783) (329,783)
non-controlling
interests
Recognition of
equity-settled
share-based - - - 309,695 - - 309,695 - 309,695
payments
At 30 June 2012 688,344 95,298,644 23,852,469 2,357,514 1,956,454 (107,255,027) 16,898,398 1,567,456 18,465,854
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2012
Note Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 201 30 June 201 31 December
2 1 2011
HK$ HK$ HK$
Cash flow from operating
activities
Profit / (Loss) before income tax 173,854 (617,777) 3,829,497
Amortisation of patents 167,610 190,634 376,251
Interest received (35,827) (21,198) (47,796)
Depreciation 333,057 332,442 690,874
Foreign exchange (gain) / loss, (84,960) 230,862 419,720
net
Interest paid 85,300 62,395 164,273
Loss on disposal of property, 11,740 - 9,336
plant and equipment
Loss on cessation of a - - 11,540
subsidiary's assets
Provision for impairment losses - - 752,000
on amounts due from associate
Impairment loss on goodwill - - 127,857
Patents written off 83,140 - 653,581
Inventories written off - - 103,029
Share-based compensation 309,695 331,571 668,638
Operating profit before working
capital changes 1,043,609 508,929 7,758,800
Increase in inventories (686,770) (393,752) (451,832)
Decrease / (increase) in trade 1,657,808 260,827 (1,763,721)
and other receivables
Decrease in amount due from 19,500 244,771 320,684
associate - trade related
Increase in trade and other 433,061 799,964 1,596,760
payables
Net cash generated from operati 2,467,208 1,420,739 7,460,691
ons
Corporate income tax paid (997,854) (797,968) (1,696,602)
Interest paid (85,300) (62,395) (164,273)
Net cash generated from operating 1,384,054 560,376 5,599,816
activities
Cash flow from investing
activities
Purchase of property, plant and (234,164) (68,657) (152,099)
equipment
Payment for patents (75,421) (184,883) (307,310)
Amounts due from (195,000) - (192,913)
associates-non-trade related
Interest received 35,827 21,198 47,796
Net cash used in investing (468,758) (232,342) (604,526)
activities
Cash flow from financing
activities
Repayment of bank borrowings (2,467,004) (1,896,919) (2,056,208)
Dividend paid to minority (329,783) - (275,857)
interests
Proceeds from new bank borrowings 2,453,386 2,405,002 2,590,354
Net cash (used in) / generated (343,401) 508,083 258,289
from financing activities
Net increase in cash and cash 571,895 836,117 5,253,579
equivalents
Cash and cash equivalents at the 11,736,464 6,285,006 6,285,006
beginning of the period/year
Exchange (loss) / gain on cash (36,550) 145,804 197,879
and cash equivalents
Cash and cash equivalents at the 8 12,271,809 7,266,927 11,736,464
end of the period/year
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2012
(1) BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements have been prepared using
accounting policies consistent with International Financial Reporting Standards
and in accordance with International Accounting Standard (IAS) 34 Interim
Financial Reporting.
The unaudited consolidated financial statements have been prepared under the
historical cost convention. The same accounting policies, presentation and
methods of computation are followed in these unaudited consolidated financial
statements as were applied in the preparation of the group's financial
statements for the year ended 31 December 2011.
(2) OTHER INCOME
Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 20 30 June 2011 31 December
12 2011
HK$ HK$ HK$
Government subsidy - 59,780 33,801
Sundry income 20,218 12,973 50,255
Written back of accrued - - 40,500
expenses
20,218 72,753 124,556
(3) NET FINANCE COST
Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 201 31 December
30 June 201 1 2011
2
HK$ HK$ HK$
Bank interest income 35,827 21,198 47,796
Interest expense on bank loans (85,300) (62,395) (164,273)
(49,473) (41,197) (116,477)
(4) INCOME TAX EXPENSE
No provision for Hong Kong Profits Tax has been made (June 2011: HK$nil; 2011:
HK$nil) as the group companies did not have assessable profit subject to Hong
Kong profits tax purposes for the period/year.
Taxation on overseas profits has been calculated on the estimated assessable
profit for the period/year at the rate of taxation prevailing in the countries
in which the group companies operate. The overseas income tax provided for the
six months ended 30 June 2012 is HK$696,587 (June 2011: HK$469,536; 2011:
HK$1,832,990).
(5) (LOSS) / EARNINGS PER SHARE
The calculation of the basic loss per share for the six months ended 30 June
2012, is based on the loss attributable to ordinary equity shareholders of the
company of HK$1,034,047 (June 2011: HK$1,299,477; 2011: profit of HK$1,291,396)
during the period and the weighted average number of 68,834,388 ordinary shares
(June 2011: 68,834,388; 2011: 68,834,388) in issue during the period/year. No
diluted loss per share is to be reported for the period/year.
(6) DIVIDENDS
No payment of dividend was recommended for the first six months of 2012 (June
2011: HK$ nil; 2011: HK$nil).
(7) TRADE AND OTHER RECEIVABLES
Unaudited Unaudited Audited
30 June 20 30 June 2011 31 December
12 2011
HK$ HK$ HK$
Trade receivables 6,164,097 5,743,784 7,695,607
Less: provision for (542,885) (668,663) (545,899)
impairment loss
5,621,212 5,075,121 7,149,708
Amounts due from a related - 30,802 -
company
Other receivables 449,950 614,163 716,441
Prepayments and deposits 666,722 656,360 529,543
6,737,884 6,376,446 8,395,692
(a) All trade and other receivables, are expected to be recovered within one
year.
(b) Impairment of trade receivables
The movement in the provision of impairment for doubtful debts during the
period/year, including both specific and collective loss components, is as
follows:
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December 20
30 June 201 30 June 201 11
2 1
HK$ HK$ HK$
At 1 January 545,899 699,577 699,577
Written off - (46,079) (179,469)
Exchange difference (3,014) 15,165 25,791
At 30 June/31 December 542,885 668,663 545,899
(b) Impairment of trade receivables (continued)
At 30 June 2012, the Group's trade receivables of HK$542,885 (June 2011:
HK$668,663, 2011: HK$545,899) have been outstanding for a certain period of
time. The management assessed that only a portion of the receivables is
expected to be recoverable. Consequently, specific allowance for doubtful debts
was recognised for the individually impaired receivables.
The Group does not hold any collateral over these balances.
c. The amount due from a related company is interest-free, unsecured and
repayable on demand.
(8) CASH AND CASH EQUIVALENTS
Unaudited Unaudited Audited
30 June 2012 30 June 2011
31 December 201
1
HK$ HK$ HK$
Cash at bank and on 12,271,809 7,266,927 11,736,464
hand
Cash and cash 12,271,809 7,266,927 11,736,464
equivalents
in the cash flow
statement
(9) TRADE AND OTHER PAYABLES
Unaudited Unaudited Audited
30 June 2012 30 June 2011 31 December 20
11
HK$ HK$ HK$
Trade payables 3,016,406 2,186,507 3,623,273
Other payables and 3,122,463 2,722,505 2,082,535
accrued expenses
6,138,869 4,909,012 5,705,808
All of the trade and other payables are expected to be settled within one year.
(10) BANK BORROWINGS
Unaudited Unaudited Audited
30 June 201 30 June 201 31 December 20
2 1 11
HK$ HK$ HK$
Current
Mortgage loan (a) - 72,992 -
Bank borrowings, secured (b) 2,453,386 2,405,002 2,467,004
2,453,386 2,477,994 2,467,004
a. The mortgage loan was secured by a property situated in Thailand. During
the 2011 reporting period, the Group fully repaid the mortgage loan.
b. On 25 May 2012, an indirectly held subsidiary of the Group situated in PRC
("the subsidiary") obtained a bank borrowing of HK$2,453,386 denominated in
RMB with maturity of 1 year. The bank borrowing was secured by the
corporate guarantee issued by an independent third party. For the grant of
corporate guarantee, the holding company of the subsidiary, which is also
an indirectly held subsidiary of the Group, has pledged its shareholding of
the subsidiary to the independent third party.
(11) RECONCILIATION OF PROFIT / (LOSS) BEFORE INCOME TAX TO EBITDA
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December 20
30 June 201 30 June 201 11
2 1
HK$ HK$ HK$
Profit / (loss) before income 173,854 (617,777) 3,829,497
tax
Depreciation 333,057 332,442 690,874
Amortisation of patents 167,610 190,634 376,251
Interest income (35,827) (21,198) (47,796)
Interest expenses 85,300 62,395 164,273
Patents written off 83,140 - 653,581
Loss on disposal of property, 11,740 - 9,336
plant and equipment
Provision for impairment losses - - 33,906
on amounts due from associate
Impairment loss on goodwill - - 752,000
Share-based compensation - - 127,857
Issuance of share-based 309,696 331,571 668,638
compensation
EBITDA 1,128,570 278,067 7,258,417
EBITDA is defined herein as earnings before depreciation, amortization,
interest and tax, plus specific charges which are considered non-recurring in
nature. Specific charges include impairment loss in value and gain/loss in
disposal of non-current assets, and amortization of fair value of share-based
compensation. EBITDA is not a recognised term under generally accepted
accounting principles and does not purport to be an alternative to net income
as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity. Because not all companies use identical
calculations, this presentation may not be comparable to other similarly titled
measures of other companies.
(12) COPIES OF HALF YEARLY REPORT
Copies of the half-yearly report will be available shortly from the Company's
website www.walcomgroup.com.
Friday, 17th May 2024
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