Half-yearly Report

23 September 2015

Walcom Group Limited

(“Walcom” or “the Company”)

Half-yearly results for the six months ended 30 June 2015

The Company's today announces its interim results for the six months ended 30 June 2015. These results are also available from the Company's website at http://www.walcomgroup.com/

Further enquiries:

Walcom Group Limited Francis Chi (Chief Executive Officer) Albert Wong (Chief Financial Officer)	[phone]
Sanlam Securities UK Limited Virginia Bull	[phone]

CHAIRMAN’S STATEMENT

Introduction

Despite the slow growth in the PRC economy during the first six months of the year and the continued poor performance of the pig farming industry during the same period, the Company was able to increase its revenue by 15 per cent. compared with the same period last year.  The Company encountered difficulties, however, in passing on the adverse impact of escalating production costs and operating expenses to its customers owing to the weak economies in China and worldwide.  The Company incurred a loss per share for the period of HK$2.81 cents compared with a loss per share of HK$4.98 cents in the same period last year, an improvement of 44 per cent.

Results for the Period

The Company generated revenues of HK$19.3 million during the period (June 2014: HK$16.8 million) and gross profits of HK$12.1 million (June 2014: HK$10.0 million), representing increases of 15 per cent. and 21 per cent. respectively compared with the same period last year.  In addition, the gross profit margin for the period improved from 60 per cent. in the same period last year to 63 per cent. during this financial period.  This increase is mainly due to the aggregate effect of a lower unit production cost as a result of an increase in the production volume, and a rise in sales in Thailand, where profit margins were higher than in other regions.  The Company reduced its net loss by 47 per cent. to HK$1.8 million (June 2014: loss of HK$3.5 million) and incurred a loss of HK$1.4 million at the EBITDA level, a decrease of 55 per cent. over the same period last year (June 2014: HK$3.1 million).

Review of Activities and Market

In the six months to 30 June 2015, sales in the PRC were maintained at HK$10.5 million, about the same level as last year (June 2014: HK$10.7 million) while the overseas sales increased by 46 per cent. to HK$8.8 million (June 2014: HK$6.1 million).

During the financial period, the animal feed market in the PRC has continued to decline. This now represents, what the Board considers to be, an unusually long period over which the pig farming industry has weakened, dating back to late 2013. Although the pig farm gate price has started to rise since March this year, the number of farmed pigs has not increased owing to the large number of discontinued pig farms during 2014. The Board believes it will take some time for the pig numbers to go back to their previous level.  As a result, the animal feed market has not yet recovered and this in turn has affected the volume of sales of the Company’s products.

The Company’s overseas sales have improved mainly due to an increase in sales in the Thai market. Unfortunately, the Korean market has weakened during the period under review.

Sales in Thailand have recovered since the period of political instability in the country.  Turnover in this market has increased by 61 per cent. to HK$8.0 million (June 2014: 5.0 million) during the period. The improving sales trend in Korea during 2014 did not continue during the period under review and sales decreased by 47 per cent. to HK$0.5 million (June 2014: 1.0 million).

Outlook

As I mentioned in the Chairman’s Statement in the 2014 Annual Report, the Chinese economy continues to grow, albeit at a slower rate than has been seen historically.  The rebalancing and de-leveraging of the economy are still ongoing and although the Chinese central government is implementing stimulus measures, the effect has not yet been reflected in the market. Efforts have been made to explore new markets in Asia and to increase the Company’s portfolio of customers, which will result in improved sales in the overseas market. Despite the unstable situation of the global economies, the Directors are cautiously optimistic in the performance of the Company in the second half of the year.

Frankie Y. L. Wong
Chairman
23 September 2015

 

UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE SIX MONTHS ENDED 30 JUNE 2015

	Note		Unaudited six months ended 30 June 2015		Unaudited six months ended 30 June 2014		Audited year ended 31 December 2014
			HK$		HK$		HK$
Revenue	3		19,300,594		16,753,820		43,647,716
Cost of sales			(7,225,298)		(6,735,341)		(16,483,709)
Gross profit			12,075,296		10,018,479		27,164,007
Other income	4		23,636		20,557		506,442
Research and development expenses			(765,946)		(771,360)		(1,227,825)
Selling and distribution expenses			(5,879,720)		(5,748,635)		(11,643,034)
General and administrative expenses			(7,196,273)		(6,958,016)		(13,940,044)
(Loss) / profit from operations	5		(1,743,007)		(3,438,975)		859,546
Net finance (expenses)/ income	6		(16,713)		(29,686)		17,546
(Loss) / profit before income tax			(1,759,720)		(3,468,661)		877,092
Income tax expense	7		(74,906)		(20,864)		(908,987)
Loss for the period / year			(1,834,626)		(3,489,525)		(31,895)
Loss attributable to:
Owners of the Company			(1,935,378)		(3,429,897)		(300,602)
Non-controlling interests			100,752		(59,628)		268,707
Loss for the period / year			(1,834,626)		(3,489,525)		(31,895)
Loss per share – basic, HK cents			(2.81)		(4.98)		(0.44)
– diluted, HK cents			(2.81)		(4.98)		(0.44)

UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2015

	Note		Unaudited six months ended 30 June 2015		Unaudited six months ended 30 June 2014		Audited year ended 31 December 2014
			HK$		HK$		HK$
Loss for the period / year			(1,834,626)		(3,489,525)		(31,895)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries			(39,315)		(277,288)		(108,677)
Total comprehensive loss
for the period / year			(1,873,941)		(3,766,813)		(140,572)
Total comprehensive loss
attributable to:
Owners of the Company			(1,951,302)		(3,728,093)		(402,390)
Non-controlling interests			77,361		38,720		261,818
Total comprehensive loss
for the period/year			(1,873,941)		(3,766,813)		(140,572)

 UNAUDITED CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2015

	Note		Unaudited 30 June 2015		Unaudited 30 June 2014		Audited 31 December 2014
			HK$		HK$		HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment			1,755,065		2,006,869		1,869,520
Patents			2,212,403		2,520,948		2,385,921
Goodwill			-		-		-
			3,967,468		4,527,817		4,255,441
CURRENT ASSETS
Inventories			2,947,561		2,038,576		2,343,521
Trade and other receivables	10		6,475,343		6,316,821		7,954,730
Cash and cash equivalents Restricted cash	11 11		13,606,316 112,228		12,540,165		15,229,576 113,350
			23,141,448		20,895,562		25,641,177
TOTAL ASSETS			27,108,916		25,423,379		29,896,618
EQUITY AND LIABILITIES
EQUITY
Share capital	12		688,344		688,344		688,344
Reserves			16,850,990		15,476,589		18,802,292
TOTAL EQUITY ATTRIBUTABLE TO   OWNERS OF THE COMPANY			17,539,334		16,164,933		19,490,636
Non-controlling interests			2,217,128		1,839,229		2,139,767
TOTAL EQUITY			19,756,462		18,004,162		21,630,403
CURRENT LIABILITIES
Trade and other payables	13		4,743,853		4,879,593		5,208,398
Tax payables			72,461		20,098		522,641
Bank borrowings	14		2,536,140		2,519,526		2,535,176
			7,352,454		7,419,217		8,266,215
TOTAL LIABILITIES			7,352,454		7,419,217		8,266,215
TOTAL EQUITY AND LIABILITIES			27,108,916		25,423,379		29,896,618
NET CURRENT ASSETS			15,788,994		13,476,345		17,374,962
TOTAL ASSETS   LESS CURRENT LIABILITIES			19,756,462		18,004,162		21,630,403

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2015

							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 loss
Loss for the period	-		-		-		-		-		-		(3,429,897)		(3,429,897)		(59,628)		(3,489,525)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-		-		-		-		(298,196)		-		-		(298,196)		20,908		(277,288)
Total comprehensive loss for the period	-		-		-		-		(298,196)		-		(3,429,897)		(3,728,093)		(38,720)		(3,766,813)
Recognition of equity-settled
share-based payments	-		-		-		-		-		-		-		-		-		-
At 30 June 2014	688,344		95,298,644		23,852,469		1,591,595		2,626,728		2,525,302		(110,418,149)		16,164,933		1,839,229		18,004,162
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 loss
Loss for the period	-		-		-		-		-		-		(1,935,378)		(1,935,378)		100,752		(1,834,626)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-		-		-		-		(15,924)		-		-		(15,924)		(23,391)		(39,315)
Total comprehensive loss for the period	-		-		-		-		(15,924)		-		(1,935,378)		(1,951,302)		77,361		(1,873,941)
Lapse of share options	-		-		-		(22,826)		-		-		22,826		-		-		-
At 30 June 2015	688,344		95,298,644		23,852,469		1,568,769		2,807,212		2,923,514		(109,599,618)		17,539,334		2,217,128		19,756,462

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2015

	Note		Unaudited six months ended 30 June 2015		Unaudited six months ended 30 June 2014		Audited year ended  31 December 2014
			HK$		HK$		HK$
Cash flow from operating activities
(Loss) / profit before income tax			(1,759,720)		(3,468,661)		877,092
Amortisation of patents			132,769		135,027		270,054
Depreciation			164,288		173,037		341,826
Foreign exchange loss / (gain), net			121,469		(206,935)		175
Interest received			(83,077)		(62,065)		(183,538)
Interest paid			99,790		91,751		165,992
Loss on disposal of property, plant and equipment			1,517		-		-
Patents written off			40,749		-		-
Operating (loss)/ profit before
working capital changes			(1,282,215)		(3,337,846)		1,471,601
Increase in inventories			(604,040)		(385,699)		(690,644)
Decrease / (increase) in trade and other receivables			1,479,387		(540,001)		(2,076,985)
Decrease in trade and other payables			(464,545)		(761,622)		(432,817)
Net cash used in operations			(871,413)		(5,025,168)		(1,728,845)
Corporate income tax paid			(525,086)		(837,817)		(1,324,322)
Interest paid			(99,790)		(91,751)		(165,992)
Net cash used in operating activities			(1,496,289)		(5,954,736)		(3,219,159)
Cash flow from investing activities
Purchase of property, plant and equipment			(59,458)		(7,942)		(43,737)
Interest received			83,077		62,065		183,538
Net cash generated from investing activities			23,619		54,123		139,801
Cash flow from financing activities
Repayment of bank borrowings			-		-		(2,543,882)
Dividend paid to minority interests			-		-		-
Proceeds from new bank borrowings			-		-		2,535,176
Increase in restricted bank balance			-		-		(113,350)
Net cash used in financing activities			-		-		(122,056)
Net decrease in cash and cash equivalents			(1,472,670)		(5,900,613)		(3,201,414)
Cash and cash equivalents at the beginning of the period / year			15,229,576		18,535,663		18,535,663
Exchange loss on cash and cash equivalents			(150,590)		(94,885)		(104,673)
Cash and cash equivalents at the end of the period / year	11		13,606,316		12,540,165		15,229,576

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2015

(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 2014.

(2)     SEGMENT REPORTING

(a)          Primary reporting format - Geographical Segment

The group’s operations are mainly located in Hong Kong, PRC, Thailand. The group’s sales revenue by geographical location of customers are analysed as follows:

	Unaudited six months ended 30 June 2015		Unaudited six months ended 30 June 2014		Audited year ended 31 December 2014
	HK$		HK$		HK$
PRC	10,461,572		10,682,919		26,860,326
Thailand	8,033,999		4,981,397		13,740,772
Others	805,023		1,089,504		3,046,618
	19,300,594		16,753,820		43,647,716

(b)          Secondary reporting format - Business Segment

The Group is principally engaged in the manufacture, distribution and sale of chemical feed and additive products. All of the group’s products are of a similar nature and subject to similar risk and returns. Accordingly, the group’s activities are attributable to a single business segment and no business segment analysis is presented.

          (c)  Segment assets by geographical location of assets

	Unaudited six months ended 30 June 2015		Unaudited six months ended 30 June 2014		Audited year ended 31 December 2014
	HK$		HK$		HK$
PRC	17,048,481		15,951,260		18,382,009
Thailand	6,766,308		5,339,232		5,853,805
Hong Kong	1,081,724		1,611,939		3,717,227
Others	2,212,403		2,520,948		1,943,577
	27,108,916		25,423,379		29,896,618

(3)     REVENUE

Revenue represents the sales value of goods supplied to the customers less returns, discounts, value added tax and sales taxes.

(4)     OTHER INCOME

	Unaudited six months ended 30 June 2015		Unaudited six months ended 30 June 2014		Audited year ended 31 December 2014
	HK$		HK$		HK$
Government subsidy	-		-		469,233
Sundry income	23,636		20,557		37,209
	23,636		20,557		506,442

(5)     OPERATING (LOSS) / PROFIT

Operating (loss) / profit is stated after charging the following items:-

	Unaudited six months ended 30 June 2015			Unaudited six months ended 30 June 2014			Audited year ended 31 December 2014
	HK$			HK$			HK$
Amortisation of patents	132,769			135,027			270,054
Auditor’s remuneration	160,000			160,000			315,574
Cost of inventories	6,851,910			6,392,200			15,502,718
Depreciation	164,288			173,037			241,009
Patents written off		40,749			-			-
Loss on disposal of property, plant and equipment	1,517
Rental charges under operating leases  in respect of land and buildings	419,231			386,657			856,824
Staff costs  (including directors’ emoluments)
- wages and salaries	5,870,287			5,993,319			11,501,612
- contributions to retirement benefits	449,760			415,222			858,474
- share-based compensation	-			-			-
- other staff benefits	1,915,608			1,419,026			3,339,342

(6)     NET FINANCE (EXPENSES)/ INCOME

	Unaudited six months ended  30 June 2015		Unaudited six months ended 30 June 2014		Audited year ended 31 December 2014
	HK$		HK$		HK$
Bank interest income	83,077		62,065		183,538
Interest expense on bank loans	(99,790)		(91,751)		(165,992)
	(16,713)		(29,686)		17,546

(7)     INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax has been made (June 2014: HK$nil; 2014: HK$nil) as the group’s assessable profit subject to Hong Kong profits tax for the period is fully set-off by tax loss brought forward from last 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 2015 is HK$74,906 (June 2014: HK$20,864; 2014: HK$908,987).

(8)     LOSS PER SHARE

The calculation of the basic loss per share for the six months ended 30 June 2015, is based on the loss attributable to ordinary equity shareholders of the company of HK$1,935,378 (June 2014: HK$3,429,897; 2014: HK$300,602) during the period and the weighted average number of 68,834,388 ordinary shares (June 2014: 68,834,388; 2014: 68,834,388) in issue during the period/year. No diluted loss per share is to be reported for the period/year.

(9)     DIVIDENDS

No payment of dividend was recommended for the first six months of 2015 (June 2014: HK$ nil; 2014: HK$nil).

(10)   TRADE AND OTHER RECEIVABLES

	Unaudited  30 June 2015		Unaudited  30 June 2014		Audited 31 December 2014
	HK$		HK$		HK$
Trade receivables	5,723,317		5,961,942		7,079,319
Less: provision for impairment loss	(508,758)		(741,562)		(508,758)
	5,214,559		5,220,380		6,570,561
Other receivables	126,431		-		346,768
Prepayments and deposits	1,134,353		1,096,441		1,037,401
	6,475,343		6,316,821		7,954,730

(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  six months ended 30 June 2015		Unaudited  six months ended 30 June 2014		Audited  year ended 31 December 2014
	HK$		HK$		HK$
At 1 January	508,758		743,813		743,813
Written off	-		-		(235,055)
Exchange difference	-		(2,251)		-
At 30 June/31 December	508,758		741,562		508,758

At 30 June 2015, the Group’s trade receivables of HK$508,758 (June 2014: HK$741,562, 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.  Consequently, specific allowance for doubtful debts was recognised for the individually impaired receivables. 

The Group does not hold any collateral over these balances.

(11)   CASH AND CASH EQUIVALENTS

	Unaudited  30 June 2015		Unaudited  30 June 2014		Audited 31 December 2014
	HK$		HK$		HK$
Cash at bank and on hand	13,718,544		12,540,165		15,342,926
Less: Cash at bank - restricted	(112,228)		-		(113,350)
Cash and cash equivalents in the cash flow statement	13,606,316		12,540,165		15,229,576

(12)   SHARE CAPITAL

	Unaudited  30 June 2015		Unaudited  30 June 2014		Audited  31 December 2014
	HK$		HK$		HK$
Authorised
150,000,000 (June 2014: 150,000,000 and Dec 2014: 150,000,000) ordinary shares of HK$0.01 each	1,500,000		1,500,000		1,500,000
Issued and fully paid
68,834,388 (June 2014: 68,834,388 and       Dec 2014: 68,834,388) ordinary       shares of HK$0.01 each	688,344		688,344		688,344

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.  All ordinary shares rank equally with regard to the Company’s residual assets.

(13)   TRADE AND OTHER PAYABLES

	Unaudited  30 June 2015		Unaudited  30 June 2014		Audited 31 December 2014
	HK$		HK$		HK$
Trade payables	1,043,738		1,572,518		1,923,891
Other payables and accrued expenses	3,700,115		3,307,075		3,284,507
	4,743,853		4,879,593		5,208,398

All of the trade and other payables are expected to be settled within one year.

(14)  BANK BORROWINGS

		Unaudited  30 June 2015		Unaudited  30 June 2014		Audited  31 December 2014
		HK$		HK$		HK$
Current
Bank borrowings, unsecured	(a)	2,536,140		2,519,526		2,535,176

1. The effective interest rate per annum for bank borrowings at balance sheet date is at 7.8% (June 2014: 7.2%, 2014: 7.8%) per annum.

(15)   RELATED PARTY TRANSACTIONS

	Unaudited  six months ended 30 June 2015		Unaudited  six months ended 30 June 2014		Audited  year ended 31 December 2014
	HK$		HK$		HK$
Related companies
Legal and professional fees paid	-		67,620		109,185
Spouse of a director Staff quarter expenses	60,721		60,469		121,688

(16)     RECONCILIATION OF (LOSS) / PROFIT BEFORE INCOME TAX TO EBITDA

	Unaudited six months ended 30 June 2015		Unaudited six months ended 30 June 2014		Audited year ended 31 December 2014
	HK$		HK$		HK$
(Loss) / profit before income tax	(1,759,720)		(3,468,661)		877,092
Depreciation	164,288		173,037		341,826
Amortisation of patents	132,769		135,027		270,054
Interest income	(83,077)		(62,065)		(183,538)
Interest expenses	99,790		91,751		165,992
Patents written off	40,749		-		-
Loss on disposal of property, plant and equipment	1,517
EBITDA	(1,403,684)		(3,130,911)		1,471,426

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.