Final Results
Walcom Group Limited
(the "Group" or the "Company")
Preliminary Results for the year ended 31 December 2006
Chairman's Statement
I am pleased to present my first report since the shares of the Company were
admitted to trading on the AIM market of the London Stock Exchange, under the
symbol WALG, on 21 December 2006.
Overview of Results
Turnover and gross profit increased dramatically in 2006. However, the loss
before tax was higher than that of last year after taking into account
Admission costs and discounts on convertible loan notes which were recognised
as non-recurring finance costs pursuant to the International Financial
Reporting Standards (IFRS) adopted.
The results are summarised as follows:
Change 2006 2005
% HK$'000 HK$'000
Turnover +181 14,168 5,046
Gross profit +282 9,374 2,451
Operating loss before Admission and finance -76 (3,049) (12,784)
costs
Non-recurring admission costs n/a (8,695) 0
Non-recurring non-cash finance costs* +1,689 (16,639) (930)
Other finance costs +71 (1,794) (1,047)
Loss before tax +101 (29,643) (14,783)
Net asset value per share (HK$) n/a 0.40 (0.17)
restated
*These are discounts on convertible loan notes written off as non-recurring and
non-cash finance costs in accordance with IFRS 2 "Share-based Payment".
Outlook
As our business is the manufacture of "natural" animal feedstuffs, the Group
should benefit from the global trend of promoting a more liveable environment:
* Food safety measures are being tightened around the world including China
and South East Asia, which gives more room for our "non hormonal", "non
antibiotic" and "non gene-altering" products;
* Avian Influenza continues to be a major threat to the world. Our immunity
enhancing products will play a much more important role in animal
husbandry; and
* The world is facing increasing demand for energy, particularly in the area
of fossil fuel, and one of the alternatives is the adoption of ethanol
fuel. However, the newly established ethanol fuel plants have created an
additional demand for corn which has driven the price of corn to a high
level. Since corn is a major energy source in feedstuffs, the elevated
price of corn has had a strong impact on the cost structure of the feed
industry. We are developing a product to increase the efficiency of energy
utilization from feedstuff thereby enabling feed companies to deliver more
energy in a given mass of feedstuff and conserve energy. This will result
in a reduction of the total cost of production. We believe this will be a
revolutionary solution to the very competitive global feed / animal
nutrition industry.
Recent Development
The Group had recently completed a large scale farm trial of our newly
developed shrimp product "Aquanin plus" in Thailand, which have shown
impressive improvements in feed conversion ratios, weight gains and decreased
mortality rates. We believe that this product will make a significant
contribution to the Group's sales in the near future.
Patents
At the end of 2006 the Group had been granted 14 patents in respect of:
* its core Cysteamine technology in China, Hong Kong, North Korea, New
Zealand, Ukraine and Russia;
* poultry feed in the UK, North Korea, Taiwan and Hong Kong;
* dairy cow feed in New Zealand and the UK;
* antibodies to adipose tissues in the UK; and
* fish feed in the UK.
More patents are expected to be granted in the future as it is the policy of
the Group to pursue wide patent coverage in places where we believe there are
significant demand for the Group's products.
Since the year end, the Company was assigned a further 19 patent filings, held
by Omega Bio-Pharma (I.P.1) Limited for a total cash consideration of
HK$804,112, covering materials and methods for improving shellfish health,
immunity and growth.
Borrowings
The Group had no outstanding loans at the year end except for a temporary bank
overdraft of HK$0.5 million, compared with HK$11.46 million convertible loan
notes last year. On Admission, the convertible loan notes were converted into
shares of the Company.
Colleagues and Advisers
I would like to take this opportunity to thank our professional advisers who
have guided and assisted the Company through the Admission process and also my
colleagues who have contributed to the Group over the past year.
Eddie K.M. Chan
Chairman
27 April 2007
Consolidated Income Statement
For the year ended 31 December 2006
2006 2005
HK$ HK$
Turnover 14,168,404 5,046,293
Cost of sales (4,794,781) (2,595,091)
Gross profit 9,373,623 2,451,202
Other income 1,658,591 107,484
Research and development expenses (1,277,809) (1,120,621)
Selling and distribution expenses (5,492,121) (5,484,228)
General and administrative expenses (16,005,909) (8,737,924)
Operating loss (11,743,625) (12,784,087)
Net finance costs (18,432,698) (1,976,927)
Share of profits/(losses) of associated 533,592 (22,175)
companies
Loss before income tax (29,642,731) (14,783,189)
Income tax - -
Loss attributable to shareholders (29,642,731) (14,783,189)
Loss per share - basic (0.56) (0.28)
Turnover and losses are derived from continuing operations.
Consolidated Balance Sheet
As at 31 December 2006
2006 2005
HK$ HK$
Assets
Non-current assets
Property, plant and equipment 1,005,773 1,224,962
Patents 5,563,252 4,927,386
Associated companies 582,571 48,979
7,151,596 6,201,327
Current assets
Inventories 606,528 559,446
Trade and other receivables 2,777,336 1,290,627
Amounts due from associated companies 3,556,606 1,001,485
Cash and bank balances 19,205,028 430,236
26,145,498 3,281,794
Total assets 33,297,094 9,483,121
Equity and liabilities
Equity
Share capital 649,109 448
Reserves 25,227,790 (8,893,007)
25,876,899 (8,892,559)
Current liabilities
Trade and other payables 6,919,405 4,328,885
Amount due to a related company - 1,632,142
Amounts due to directors - 954,363
Bank overdrafts - unsecured 500,790 -
Convertible loan notes - 11,460,290
7,420,195 18,375,680
Total equity and liabilities 33,297,094 9,483,121
Consolidated cash flow statement
For the year ended 31 December 2006
2006 2005
HK$ HK$
Cash flows from operating activities
Loss from ordinary activities before income (29,642,731) (14,783,189)
tax
Adjustments for:
Amortisation of patents 308,916 245,482
Interest received (49,385) (39,940)
Depreciation 409,614 689,466
Exchange realignment 56,114 9,873
Impairment loss on amount due from an - 1,712,019
associated company
Interest paid 18,482,083 2,016,867
Loss on disposal of property, plant and 256 10,663
equipment
Share of (profits)/losses of associated (533,592) 22,175
companies
Written off of amount due from a related - 552,626
company
Operating loss before working capital changes (10,968,725) (9,563,958)
Movements in working capital elements:-
Inventories (47,082) (8,391)
Trade and other receivables (1,486,709) 274,409
Trade receivables from associated companies (2,111,585) (927,904)
Trade and other payables 2,590,520 1,483,918
Cash used in operations (12,023,581) (8,741,926)
Interest paid (555,058) (804,575)
Net cash used in operating activities (12,578,639) (9,546,501)
Cash flows from investing activities
Purchases of patents (944,782) (944,143)
Purchases of property, plant and equipment (157,365) (173,219)
Proceeds from disposal of property, plant and - 1,550
equipment
Acquisition of interest in an associated - (71,154)
company
Accounts with associated companies (443,536) (1,038,325)
Interest received 49,385 39,940
Net cash used in investing activities (1,496,298) (2,185,351)
Cash flows from financing activities
Proceeds from issue of new shares 22,065,444 -
Proceeds from issue of convertible loan notes 12,870,000 3,900,000
Accounts with related companies (1,632,142) (1,677,246)
Repayment of interest bearing loan due to a - (2,340,000)
related company
Accounts with directors (954,363) 954,363
Net cash generated from financing activities 32,348,939 837,117
Net increase/(decrease) in cash and cash 18,274,002 (10,894,735)
equivalents
Cash and cash equivalents at the beginning of 430,236 11,324,971
the year
Cash and cash equivalents at the end of the 18,704,238 430,236
year
Notes to the Financial Statements
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 year ended 31 December 2006 has been
extracted from the Company's financial statements to that date which have
received an unqualified auditors' report.
2. Basis of presentation
The consolidated financial statements (from which the preliminary results have
been drawn) have been prepared under the historical cost convention in
accordance with International Financial Reporting Standards ("IFRSs"), which
comprise standards and interpretations issued by the International Accounting
Standards Board ("IASB"), and International Accounting Standards ("IASs") and
Interpretations issued by the International Financial Reporting Interpretations
Committee that remain in effect and comply with the AIM Rules issued by the
London Stock Exchange.
During the year, the group has applied, for the first time, a number of new
IFRSs, IASs and Interpretations (hereinafter collectively referred to as "new
IFRSs") issued by the IASB that are effective for accounting periods beginning
on or after 1 January 2006, which had not been early adopted by the Group for
the year ended 31 December 2005. The adoption of the new IFRSs has had no
material effect on how the results for the current or prior accounting years
are prepared and presented. Accordingly, no prior year adjustment has been
made.
3. Dividends
The Directors do not propose the payment of a dividend.
4. Loss per share
The calculation of the basic earnings per share for the year ended 31 December
2006, is based on the loss attributable to shareholders of HK$29,642,731 during
the year and the weighted average number of 53,265,469 ordinary shares in issue
during the year after adjusting for the effects of the following issuance of
shares:
* 52,384,799 ordinary shares on capitalisation of share premium of HK$523,848
on 30 November, 2006
* 7,989,506 ordinary shares on conversion of convertible loan notes with
nominal value of US$3,000,000 on 30 November, 2006
* 4,491,735 ordinary shares on placing of shares on the AIM on 21 December,
2006
The calculation of the basic earnings per share for the year ended 31 December
2005, is based on the loss attributable to shareholders of HK$14,783,189 during
the year and the weighted average number of approximately 52,429,650 ordinary
shares in issue during the year.
5. Annual General Meeting
The Annual General Meeting will be held at the office of Richards Butler, Hong
Kong at 2:30pm on Wednesday 13 June 2007. All Shareholders are welcome to this
important event which provides an opportunity for them to meet the Directors as
well as other shareholders.
6. 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, Unit
613, 6/F West Wing Office Building, New World Centre, 20 Salisbury Road,
Tsimshatsui, Kowloon, Hong Kong.
Enquiries:
Walcom Group Ltd +852 2494 0133
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
John East & Partners Limited +44 20 7628 2200
Jeffrey Coburn/Simon Fox