Final Results
8 May 2014
WALCOM GROUP LIMITED
("Walcom" or "the Company")
Final results for the year ended 31 December 2013
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 2013.
Results
Although the global economy began to show signs of improvement during 2013, the
slow growth in the PRC market continued to affect the Company's results. The
Company's sales momentum was maintained during the period but, unfortunately,
the continuing impact of increasing production costs and operating expenses
resulted in the Company finishing the year under review with a small loss
attributable to the equity shareholders of HK$0.1 million (2012: Profit HK$0.9
million). Turnover and gross profit levels for the year increased by 3 per
cent. (2013: HK$48.6 million; 2012: HK$47.2 million) and 4 per cent. (2013:
HK$30.8 million; 2012: HK$29.6 million) respectively compared to the previous
year. Net profit for the year decreased by 49 per cent. to HK$0.9 million
(2012: HK$1.7 million) and EBITDA decreased by 39 per cent. to HK$3.9 million
from HK$6.4 million in 2012.
A summary of the results for the period is set out below:
Year ended Year ended Change
31 December 31 December
2013 2012
HK$'000 HK$'000 per cent.
Turnover 48,622 47,239 3
Gross profit 30,752 29,556 4
Operating profit 2,532 3,725 (32)
EBITDA 3,948 6,444 (39)
Net finance expense (31) (109) (72)
Profit for the year 863 1,701 (49)
Earnings / (loss) per share attributable (0.17) 1.24 n/a
to the shareholders of the Company*
(0.17) 1.24 n/a
- basic (HK cents)
- diluted (HK cents)
Net asset value per share attributable to 28.90 27.82 4
the shareholders of the Company (HK
cents)
* after taking away the minority interests in overseas subsidiaries, there is a
loss attributable to the shareholders of the Company for the year ended 31
December 2013.
Operation and market review
During the period the Company continued and compounded the strategy it adopted
in 2010 of marketing directly to potential customers. In the Company's
experience, pig farms and animal feed mills tend to be very cost conscious and
cut down on the usage of feed additives when costs need to be reduced.
Accordingly, as the pig-farming industry and the animal feed market weakened in
the PRC during the period under review, year-on-year sales in China continued
to disappoint. PRC sales dropped by 6 per cent. in terms of sales value during
the year when compared to 2012.
Sales in Thailand increased by 32 per cent. however and, since they have a
higher gross profit margin, resulted in an overall increase in gross profit
margin (2013: 63.2 per cent.; 2012: 62.6 per cent.). This was achieved despite
the worsening political situation in Thailand towards the end of 2013.
Unfortunately, the increasing operating expenses resulted in a significant
reduction in net profit for the Company during the year.
The increase in demand in Thailand can be attributed to successful results
being obtained in repeated farm trials of the Company's products and an
increasing proportion of existing customers increasing the frequency of use of
our products. The Company's products have become a trusted brand in the Thai
market, and as the brand gains further recognition and greater customer
confidence the Directors are expecting further improvements in sales in the
country.
Although the significance of the Thai market has increased during the last two
years, China is currently the major market for the Company's products and this
is expected to continue for the foreseeable future.
Sales in the Philippines were disappointing owing to the continuing poor
economy in the country. The Company closed its associate company in the
Philippines during 2013.
Recent Developments
During the past few years the Company has built up better channels of
communication with potential customers and has established itself as the
provider of trusted products. This has been achieved by adopting the new sales
strategy referred to above. The sales strategy is aimed at building up a direct
and personal relationship with potential customers. The development of these
relationships and the direct communication which it allows provides the Company
with clear feedback and guidance as to what customers require. The Company
utilizes this information, along with its own in-house technology, to develop
new techniques to solve common problems encountered in the feed industry. This
has helped our customers to improve their knowledge particularly in areas of
feed formulation, production management and management of sales teams.
In order to enhance our efficiency and effectiveness in this aspect of the
customer relationship, the Company is undertaking research on mathematical
models to assist analysis of problems and deficiencies in the product feed
formulation of our potential customers. If this is successful, the marketing
team will be equipped with better tools to develop new business.
Patents
At the end of 2013 the Group held 51 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, 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;
* fish feed in the UK, Hong Kong, Indonesia, Russia, China, Thailand,
Philippines, Vietnam and Taiwan; and
* shellfish feed in Europe, Vietnam, Indonesia, Malaysia, Taiwan, Philippines
and China.
Most of the patents the Company applied for in the past years have been
granted. The Directors believe that there is wide patent coverage in places
where they expect that there will be significant demand 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$2.5 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 2013.
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 Thursday 12
June 2014.
Outlook
The Company achieved a net profit of HK$0.9 million and EBITDA of HK$3.9
million in 2013. Looking to 2014, it will be another difficult year for the
Company. A further slowing of growth in the Chinese economy is expected. The
slow recovery of the United States and the major European economies, although
improving, continues to contribute towards a level of uncertainty in the global
economy. Escalating production costs and operating expenses will continue to be
an adverse factor affecting the Company. However, the Directors are optimistic
that the improving performance in the Thai market, coupled with the Company's
new research effort, will result in an increase in its portfolio of customers
which will result in an improved performance in 2014.
On behalf of the Board, I would like to express our sincere thanks to the
management team and staff, professional advisers and shareholders for their
continued support during the year.
Eddie K.M. Chan
Chairman
8 May 2014
Further enquiries:
Walcom Group Limited +852 2494 0133
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
Sanlam Securities UK Limited +44 20 7628 2200
Virginia Bull
Consolidated statement of profit or loss
For the year ended 31 December 2013
(Expressed in Hong Kong dollars)
Note 2013 2012
HK$ HK$
Revenue 48,621,608 47,239,167
Cost of sales (17,869,133 ) (17,683,088 )
Gross profit 30,752,475 29,556,079
Other income 327,506 379,894
Research and development expenses (1,298,237 ) ( 1,434,131 )
Selling and distribution expenses (12,114,993 ) (10,905,767 )
General and administrative expenses (15,134,308 ) (13,870,697 )
Profit from operations 2,532,443 3,725,378
Net finance expense ( 30,612 ) ( 108,922 )
Profit before income tax 3 2,501,831 3,616,456
Income tax expense 4 ( 1,638,901 ) ( 1,915,658 )
Profit for the year 862,930 1,700,798
(Loss) / profit attributable to:
Owners of the Company ( 114,899) 850,980
Non-controlling interests 977,829 849,818
Profit for the year 862,930 1,700,798
(Loss) / earnings per share - basic, HK cents 6 (0.17) 1.24
- diluted, HK cents (0.17) 1.24
Consolidated statement of profit or loss and other comprehensive income
For the year ended 31 December 2013
(Expressed in Hong Kong dollars)
2013 2012
HK$ HK$
Profit for the year 862,930 1,700,798
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries 577,371 111,796
Total comprehensive income for the year 1,440,301 1,812,594
Total comprehensive income attributable to:
Owners of the Company 622,646 915,274
Non-controlling interests 817,655 897,320
Total comprehensive income for the year 1,440,301 1,812,594
Consolidated balance sheet as at 31 December 2013
(Expressed in Hong Kong dollars)
Note 2013 2012
HK$ HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 2,171,788 1,841,668
Patents 2,655,975 3,097,696
Goodwill - -
4,827,763 4,939,364
CURRENT ASSETS
Inventories 1,652,877 1,418,664
Trade and other receivables 7 5,720,154 9,422,778
Tax recoverable 56,666 163,616
Cash and cash equivalents 8 18,535,663 14,831,853
25,965,360 25,836,911
TOTAL ASSETS 30,793,123 30,776,275
EQUITY
Share capital 688,344 688,344
Reserves 19,204,682 18,463,809
Total equity attributable to OWNERs of the 19,893,026 19,152,153
Company
Non-controlling interests 1,877,949 1,696,306
TOTAL EQUITY 21,770,975 20,848,459
CURRENT LIABILITIES
Trade and other payables 9 5,641,215 6,457,925
Tax payables 837,051 1,003,496
Bank borrowings 10 2,543,882 2,466,395
9,022,148 9,927,816
TOTAL LIABILITIES 9,022,148 9,927,816
TOTAL EQUITY AND LIABILITIES 30,793,123 30,776,275
NET CURRENT ASSETS 16,943,212 15,909,095
TOTAL ASSETS LESS CURRENT LIABILITIES 21,770,975 20,848,459
Consolidated statement of changes in equity
For the year ended 31 December 2013
(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 688,344 95,298,644 23,852,469 2,047,819 2,123,085 1,080,558 (107,301,538) 17,789,381 1,398,458 19,187,839
2012
Comprehensive
income
Profit
for the - - - - - - 850,980 850,980 849,818 1,700,798
year
Other
comprehensive
income
Exchange
difference on
translation of
financial - - - - 64,294 - - 64,294 47,502 111,796
statements of
overseas
subsidiaries
Total - - - - 64,294 - 850,980 915,274 897,320 1,812,594
comprehensive
income for the
year
Recognition of
equity-settled
share-based - - - 447,498 - - - 447,498 - 447,498
payments
Lapse of share - - - (39,909) - - 39,909 - - -
options
Appropriation - - - - - 851,203 (851,203) - - -
to
surplus
reserve
Dividends to - - - - - - - - (599,472) (599,472)
non-controlling
interests
At 31 December 688,344 95,298,644 23,852,469 2,455,408 2,187,379 1,931,761 (107,261,852)19,152,153 1,696,306 20,848,459
2012
At 1 January 688,344 95,298,644 23,852,469 2,455,408 2,187,379 1,931,761 (107,261,852)19,152,153 1,696,306 20,848,459
2013
Comprehensive
income
(Loss) / profit - - - - - - (114,899) (114,899) 977,829 862,930
for
the year
Other
comprehensive
income
Exchange
difference on
translation of
financial - - - - 737,545 - - 737,545 (160,174) 577,371
statements of
overseas
subsidiaries
Total - - - - 737,545 - (114,899) 622,646 817,655 1,440,301
comprehensive
income for the
year
Recognition of
equity-settled
share-based - - - 118,227 - - - 118,227 - 118,227
payments
Lapse of share - - - (982,040) - - 982,040 - - -
options
Appropriation - - - - - 593,541 (593,541) - - -
to
surplus
reserve
Dividends to - - - - - - - - (636,012) (636,012)
non-controlling
interests
At 31 December 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
2013
Consolidated statement of cash flows
For the year ended 31 December 2013
(Expressed in Hong Kong dollars)
Note 2013 2012
HK$ HK$
Cash flow from operating activities
Profit before income tax 2,501,831 3,616,456
Amortisation of patents 3(b) 277,524 335,728
Bad debts written off 3(b) 508,758 2,011
Interest received ( 112,204 ) ( 66,971 )
Depreciation 355,301 620,951
Foreign exchange loss, net 3(b) 699,677 3,021
Interest paid 142,816 175,893
(Gain) / loss on disposal of property, plant and 3(b) ( 8,392 ) 77,451
equipment
Written off of amounts due from associate 3(b) - 580,273
Patents written off 3(b) 164,197 655,021
Inventories written off 42,840 18,740
Share-based compensation 3(a) 118,227 447,498
Operating profit before working capital changes 4,690,575 6,466,072
Increase in inventories ( 277,053 ) ( 216,252 )
Decrease / (increase) in trade and other 3,193,866 (1,439,335 )
receivables
(Decrease) / increase in trade and other payables ( 816,710 ) 796,967
Net cash generated from operations 6,790,678 5,607,452
Corporate income tax paid (1,698,396 ) (1,568,486 )
Interest paid ( 142,816 ) ( 175,893 )
Net cash generated from operating activities 4,949,466 3,863,073
Cash flow from investing activities
Payment for patents - ( 129,456 )
Purchases of property, plant and equipment ( 762,411 ) ( 363,229 )
Proceeds from sales of property, plant and 42,388 3,060
equipment
Decrease in amounts due from associate - - 172,890
non-trade related
Interest received 112,204 66,971
Net cash used in investing activities ( 607,819 ) ( 249,764 )
Cash flow from financing activities
Dividends paid to minority interests ( 636,012 ) ( 599,472 )
Repayment of bank borrowings (2,466,395 ) (2,467,004 )
Proceeds from new bank borrowings 2,543,882 2,466,395
Net cash used in financing activities (558,525 ) (600,081 )
Net increase in cash and cash equivalents 3,783,122 3,013,228
Cash and cash equivalents at the beginning of the 14,831,853 11,736,464
year
Exchange (loss) / gain on cash and cash ( 79,312 ) 82,161
equivalents
Cash and cash equivalents at the end of the year 8 18,535,663 14,831,853
Notes to the consolidated financial statements
For the year ended 31 December 2013
(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 2013 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 27 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)
2013 2012
HK$ HK$
Salaries, wages and commission 11,504,604 10,620,164
Contributions to defined contribution retirement 849,510 814,571
plans
Share-based compensation 118,227 447,498
Other staff benefits 2,976,576 2,788,715
15,448,917 14,670,948
(b) Other items
2013 2012
HK$ HK$
Amortisation of patents 277,524 335,728
Auditor's remuneration 288,407 261,311
Bad debts written off 508,758 2,011
Cost of inventories sold 17,157,736 16,616,693
Depreciation 236,910 290,334
Exchange losses, net 699,677 3,021
Loss on disposal of property, plant and equipment - 77,451
Patents written off 164,197 655,021
Written off of amounts due from associate - 580,273
Rental charges under operating leases in respect of
land and buildings 857,894 739,762
4 Income tax expense
2013 2012
HK$ HK$
Current income tax
- Thailand corporate income tax 591,038 693,193
- Shanghai foreign enterprise income tax 1,047,863 1,222,465
1,638,901 1,915,658
(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 (2012: HK$Nil).
(b) Taxation for the Group
(i) Taxation on overseas profits has been calculated on the estimated
assessable profit for the year at the rate of taxation prevailing in the
countries in which the Group companies operate. The income tax expense stated
in consolidated statement of profit or loss and other comprehensive income
represented the corporate income tax and foreign enterprise income tax arisen
from the business of subsidiaries operating in Thailand and Shanghai
respectively.
Hong Kong Profits Tax is calculated at 16.5% (2012: 16.5%) of the estimated
assessable profit for the year. However, no provision for Hong Kong profits tax
has been made (2012: HK$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 15% (2012: 12.5%) 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. Accordingly, Shanghai Walcom was 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 was 11%, 12%
and 12.5% for the year 2010, 2011 and 2012 respectively.
Pursuant to the relevant income tax rules and regulations in the PRC, Shanghai
Walcom is further granted tax relief whereby the applicable income tax rate was
15% for the years 2013 and 2014.
Thailand Corporate Income Tax is calculated at 20% (2012: 23%) 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 :-
2013 2012
HK$ HK$
Profit before income tax 2,501,831 3,616,456
Notional tax calculated on profit before income tax,
calculated
at the rates applicable to profits in the countries 423,420 469,183
concerned
Tax effect of:
Expenses not deductible for tax purpose 968,998 905,218
Non-taxable revenue (5) (5)
Temporary differences not recognised (675) (958)
Unused tax losses not recognised 247,163 542,220
Income tax charges 1,638,901 1,915,658
(iii) A deferred tax asset amounting to HK$9,694,010 (2012: HK$9,470,481) in
respect of tax losses of a subsidiary incorporated in Hong Kong of
approximately HK$58,752,000 (2012: HK$57,397,000) has not been recognised in
the financial statements as it is not certain that future taxable profit will
be available against which these losses can be utilised.
5 Dividends
The Company does not recommend the payment of any dividend for the year ended
31 December 2013 (2012: HK$Nil).
6 Loss per share
There is no difference between basic and diluted loss per share. The basic and
diluted loss per share for the year ended 31 December 2013 are calculated by
dividing the Group's loss attributable to owners of the Group of HK$114,899
(2012: Profit of HK$850,980) by the weighted average number of 68,834,388
ordinary shares (2012: 68,834,388 ordinary shares). The computation of diluted
loss per share does not assume the exercise of the Company's outstanding share
options because the exercise price of the options is higher than the average
market price for the years ended 31 December 2013 and 2012.
7 Trade and other receivables
Group
2013 2012
HK$ HK$
Trade Receivables 5,502,500 8,402,438
Less: provision for impairment loss (743,813) (440,942)
Trade receivables - net 4,758,687 7,961,496
Deposits and prepayments 840,934 828,065
Other receivables 120,533 633,217
5,720,154 9,422,778
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:
2013 2012
HK$ HK$
At 1 January 440,942 545,899
Impairment loss recognised 508,758 -
Written off (213,047) (104,848)
Exchange difference 7,160 (109)
At 31 December 743,813 440,942
At 31 December 2013, the Group's trade receivables of HK$743,813 (2012:
HK$440,942) have been outstanding for a certain period of time. The management
assessed that only a portion of the receivables is expected to be recoverable.
Further individual provision of impairment for doubtful debts of HK$508,758 was
provided in the year ended 31 December 2013 (2012: HK$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:
2013 2012
HK$ HK$
Neither past due nor impaired 4,655,477 6,929,408
Less than one month past due - 538,809
1 to 4 months past due 103,210 493,279
Over 4 months past due - -
103,210 1,032,088
4,758,687 7,961,496
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
2013 2012
United States Dollars - USD 43,620
Philippine Peso - PHP 2,689,244
Thai Baht THB 7,877,900 THB 5,974,900
Renminbi RMB 2,282,313 RMB 4,549,720
8 Cash and cash equivalents
Group
2013 2012
HK$ HK$
Cash and cash equivalents in the statement 18,535,663 14,831,853
of cash flows
The Company
2013 2012
HK$ HK$
Cash and cash equivalents in the balance 25,475 22,299
sheet
Included in the cash and cash equivalents of the Group, HK$12,650,102 (2012:
HK$10,135,603) were denominated in RMB and kept in PRC. The remittance of these
funds out of the PRC is subject to the foreign exchange control restrictions
imposed by the PRC government.
Included in cash and cash equivalents in the consolidated balance sheet are the
following amounts denominated in a currency other than the functional currency
of the entity to which they relate:
2013 2012
United States dollars US$ 88,151 US$ 120,283
British Pound GB£ 484 GB£ 1,223
Thai Baht THB 19,554,135 THB 14,083,398
9 Trade and other payables
Group
2013 2012
HK$ HK$
Trade payables 2,206,357 2,914,956
Other payables and accrued expenses 3,434,858 3,542,969
5,641,215) 6,457,925
All of the trade and other payables are expected to be settled within one year.
The carrying amounts of trade payables are denominated in the following
currencies:
2013 2012
Renminbi RMB 1,734,637 RMB 2,363,155
10 Bank borrowings
At 31 December 2013, the bank borrowings were unsecured and repayable as
follows:
Group
2013 2012
HK$ HK$
Current liabilities
Bank borrowings - short term portion, - 2,466,395
secured
2,543,882
Bank borrowings - short term portion,
unsecured
Total borrowings 2,543,882 2,466,395
a. The maturity of borrowings is as follows:
b.
Group
2013 2012
HK$ HK$
Within 2,543,882 2,466,395
1 year
or on
demand
b. The effective interest rate per annum for bank borrowings at balance sheet
date is at 7.2% (2012: 15% over one-year benchmark deposits and loan
interest rate promulgated by The People's Bank of China plus certain basis
points) per annum.
During the 2013 reporting period, the Group fully repaid a bank borrowing of
HK$2,466,395 denominated in RMB, which was secured by the corporate guarantee
issued by an independent third party.
On 2 September 2013, an indirectly held subsidiary of the Group situated in the
PRC ("the subsidiary") has obtained a bank borrowing of HK$2,543,882
denominated in RMB with maturity of 1 year. The bank borrowing was unsecured.
11 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.
17
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