Half-year Report

18 September 2019

WALCOM GROUP LIMITED
(“Walcom” or “the Company”)

Interim Results for the six months ended 30 June 2019

Walcom is pleased to announce its interim results for the six months ended 30 June 2019. Copies of the interim report will shortly be available on the Company’s website at www.walcomgroup.com.

Further enquiries:

Walcom Group Limited Francis Chi (Chief Executive Officer/Chief Financial Officer) Jessie Chan (Deputy Chief Financial Officer)	[phone]
Allenby Capital Limited David Hart / Asha Chotai	[phone]

CHAIRMAN’S STATEMENT

On behalf of the board of directors (the “Board”), I am pleased to present the Company’s half-yearly results for the six months ended 30 June 2019.

Introduction

During the first half of 2019, the growth in the Chinese economy remained slow amid ongoing trade tensions with the United States and weakening global demand. The pig farming industry also suffered a significant setback due to the African Swine Fever (“ASF”) outbreak which was first reported in China in August 2018. The ASF outbreak is yet to be contained and new cases are still being reported despite various measures by the Chinese government to contain its spread within the country including but not limited to the mass culling of pigs in affected areas and banning of long-distance, trans-region transportation of live pigs and pork products. As there is currently no treatment or vaccine, and the only way to stop the disease is to cull all affected or exposed swine herds, the swine herd population in China has decreased considerably since the outbreak.

As a result, demand for the Group’s products in China has reduced significantly resulting in a 55 per cent decrease in revenues compared with the same period last year. The Group incurred a loss per share for the period of HK Cents 4.73 compared with a loss per share of HK Cents 15.21 in the same period last year (the higher loss per share in 2018 is mainly due to a provision for doubtful debt of HK$7.9 million). Without the effects of the doubtful debt provision the loss per share for the same period in 2018 was HK Cents 3.23.

Results for the Period

The Group generated revenues of HK$8.7 million during the period (June 2018: HK$19.2 million) and gross profits of HK$4.1 million (June 2018: HK$10.5 million), representing a decrease of 55 per cent and 61 per cent respectively compared with the same period last year. 

Gross profit margins decreased by approximately 7.8 per cent to 47 per cent (June 2018: 55 per cent) mainly due to the higher per unit fixed costs as a result of lower production volumes and is partially offset by the effects of a stronger Hong Kong Dollar exchange rate against Renminbi. The average exchange rate of Hong Kong Dollar against Renminbi appreciated by approximately 6 per cent during the period under review compared with the same period last year. 

The Group incurred a net loss of HK$3.3 million compared to HK$10.1 million for the same period last year which included the effects of a doubtful debt provision of HK$7.9 million.

At the EBITDA level, the Group recorded a higher loss of HK$3.29 million, an increase of 91 percent compared to the same period last year (June 2018: HK$1.72 million).

Review of Activities and Market

Turnover in China was HK$3.5 million, 66 per cent lower compared with the same period last year (June 2018: HK$10.2 million), mainly attributable to a 58 per cent decline in domestic sales volume and the impact of a stronger Hong Kong Dollar, which strengthened against the Renminbi by an average of 6 per cent during the period under review.

The impact of ASF on the Group’s performance has been severe as the demand for feedstuff from the Group’s customers in China has declined significantly following the closure of farms and businesses impacted by ASF. Although the rate of infections has slowed down compared to the initial outbreak in August 2018 and despite various measures implemented by the Chinese government to contain the spread of ASF, new cases are still emerging around the country. The Group expects the ASF to continue to affect the pig farming industry for at least the next six months following which the Board is hopeful that pig producers will gradually start to restock and the increase in swine population will have positive impact on the Group’s business. The Group is also actively working on increasing its customer base and penetration within the poultry feed sector and beef cattle sector with the hope that the Group will see the benefit of these efforts in the latter part of the year.

The decline in sales revenue in China compared to the same period last year is also due loss of sales contribution from the Group’s largest customer in China (June 2019: HK$nil; June 2018: HK$3.9 million) wherein the Group ceased business with this customer after unsuccessful attempts to recover  outstanding debts. During the corresponding period in 2018, the Group made a provision for doubtful debts of HK$7.9 million in relation to this customer’s outstanding trade receivables. The Group commenced legal proceedings against the customer in an effort to recover the debt and whilst the court ruled in favour of the Group in June 2019, the customer has since filed an appeal against the court’s judgement. It remains unclear whether the overdue receivables will be recovered.

The Group’s overall overseas sales decreased by 42 per cent to HK$5.2 million compared with the same period last year (June 2018: HK$8.9 million). The decline is mainly due to the disposal of Walcom Bio-Chem (Thailand) Company Limited (“Walcom Thai”) in March 2019 resulting in the non-consolidation of its results from the second quarter of 2019 onwards. Walcom Thai was disposed of to ease the Group’s short-term working capital position, raising net proceeds of approximately HK$3.0 million which was received at the end of March 2019. Thailand remains an important market to the Group and subsequent to the disposal, Walcom Thai was appointed as the exclusive distributor of the Group’s products.

Sales to Thailand remained the main contributor, representing 81 per cent of the Group’s overseas sales (June 2019: HK$4.2 million; June 2018: HK$8.1 million) while demand from the Korean market remained the same during the period under review with sales of HK$0.7 million (June 2018: HK$0.7 million).

Outlook

The Chinese economy continues to grow at a slower rate in the first half of 2019 amidst slower global economic growth, escalating trade tensions with the US and domestic downward pressure. Faced with a complex external environment and emerging downward pressure in the second half, China will continue to take coordinated steps to stabilize growth and undertake structural reforms to promote development in order to facilitate sustained and healthy development of the economy. It is expected that the macro-economic environment coupled with the impact of ASF on the pig industry will continue to affect the Group’s operations in China in the second half of the year.

Over the past 12 months the Company has made regular announcements in relation to the weak performance of the Group, which as a result of the aforementioned factors, has continued to place added pressure on the Group’s working capital position. These announcements have also highlighted the impact on the Company and its shareholders if the working capital position cannot be resolved in the short term. The Board will continue to closely monitor the Group’s working capital position and is in discussions regarding seeking additional funding arrangements to safeguard its liquidity.

Frankie Y. L. Wong

Chairman

18 September 2019

UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE SIX MONTHS ENDED 30 JUNE 2019

	Note		Unaudited six months ended 30 June 2019		Unaudited six months ended 30 June 2018		Audited year ended 31 December 2018
			HK$		HK$		HK$
Revenue	3		8,713,318		19,163,440		34,691,030
Cost of sales			(4,634,319)		(8,697,989)		(15,320,919)
Gross profit			4,078,999		10,465,451		19,370,111
Other income	4		400,849		100,719		207,762
Research and development expenses			(285,603)		(881,279)		(1,222,370)
Selling and distribution expenses			(2,734,959)		(5,849,284)		(16,589,116)
General and administrative expenses			(4,637,295)		(13,630,612)		(10,063,495)
Loss from operations	5		(3,178,009)		(9,795,005)		(8,297,108)
Net finance expenses	6		(107,336)		(122,389)		(268,616)
Loss before income tax			(3,285,345)		(9,917,394)		(8,565,724)
Income tax refund / (expense)	7		8,378		(205,131)		(919,124)
Loss for the period / year			(3,276,967)		(10,122,525)		(9,484,848)
(Loss) / profit attributable to:
Owners of the Company			(3,252,648)		(10,469,044)		(10,253,282)
Non-controlling interests			(24,319)		346,519		768,434
Loss for the period / year			(3,276,967)		(10,122,525)		(9,484,848)
Loss per share – basic, HK cents			(4.73)		(15.21)		(14.90)
– diluted, HK cents			(4.73)		(15.21)		(14.90)

UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2019

	Note		Unaudited six months ended 30 June 2019		Unaudited six months ended 30 June 2018		Audited year ended 31 December 2018
			HK$		HK$		HK$
Loss for the period / year			(3,276,967)		(10,122,525)		(9,484,848)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries			175,170		(443,061)		(1,701,349)
Total comprehensive loss
for the period / year			(3,101,797)		(10,565,586)		(11,186,197)
Total comprehensive loss
attributable to:
Owners of the Company			(3,195,158)		(10,874,678)		(11,965,901)
Non-controlling interests			93,361		309,092		779,704
Total comprehensive loss
for the period / year			(3,101,797)		(10,565,586)		(11,186,197)

UNAUDITED CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2019

	Note		Unaudited 30 June 2019		Unaudited 30 June 2018		Audited 31 December 2018
			HK$		HK$		HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment			452,310		5,876,007		5,849,236
Patents			82,249		405,836		97,094
Goodwill			-		-		-
Deferred tax assets			575,845		1,072,500		575,845
			1,110,404		7,354,343		6,522,175
CURRENT ASSETS
Inventories			1,527,574		3,083,831		2,169,866
Trade and other receivables	10		1,433,758		3,968,541		4,085,775
Tax recoverable			316,151		464,357		210,263
Cash and cash equivalents	11		1,169,733		3,395,045		4,825,759
			4,447,216		10,911,774		11,291,663
TOTAL ASSETS			5,557,620		18,266,117		17,813,838
EQUITY AND LIABILITIES
EQUITY
Share capital	12		688,344		688,344		688,344
Reserves			(1,219,562)		3,156,840		2,065,617
TOTAL EQUITY ATTRIBUTABLE TO   OWNERS OF THE COMPANY			(531,218)		3,845,184		2,753,961
Non-controlling interests			-		3,213,527		3,203,016
CAPITAL DEFICIENCY   / TOTAL EQUITY			(531,218)		7,058,711		5,956,977
CURRENT LIABILITIES
Trade and other payables	13		3,474,310		5,781,740		7,126,883
Tax payables			-		207,303		253,830
Loans from non-controlling interests			-		473,967		481,626
Bank borrowings	14		2,614,528		4,744,396		3,994,522
			6,088,838		11,207,406		11,856,861
TOTAL LIABILITIES			6,088,838		11,207,406		11,856,861
TOTAL EQUITY AND LIABILITIES			5,557,620		18,266,117		17,813,838
NET CURRENT LIABILITIES			(1,641,622)		(295,632)		(565,198)
TOTAL ASSETS   LESS CURRENT LIABILITIES			(531,218)		7,058,711		5,956,977

WALCOM GROUP LIMITED

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2019

				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 2018	688,344	95,298,644	23,852,469	883,998	794,643	3,773,101	(110,571,337)	14,719,862	2,904,435	17,624,297
Comprehensive loss
Loss for the period	-	-	-	-	-	-	(10,469,044)	(10,469,044)	346,519	(10,122,525)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-	-	-	-	(405,634)	-	-	(405,634)	(37,427)	(443,061)
Total comprehensive loss for the period	-	-	-	-	(405,634)	-	(10,469,044)	(10,874,678)	309,092	(10,565,586)
Lapse of share option	-	-	-	(68,477)	-	-	68,477	-	-	-
At 30 June 2018	688,344	95,298,644	23,852,469	815,521	389,009	3,773,101	(120,971,904)	3,845,184	3,213,527	7,058,711
At 1 January 2019	688,344	95,298,644	23,852,469	815,521	(917,976)	3,773,101	(120,756,142)	2,753,961	3,203,016	5,956,977
Comprehensive loss
Loss for the period	-	-	-	-	-	-	(3,252,648)	(3,252,648)	(24,319)	(3,276,967)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-	-	-	-	57,490	-	-	57,490	117,680	175,170
Total comprehensive loss for the period	-	-	-	-	57,490	-	(3,252,648)	(3,195,158)	93,361	(3,101,797)
Disposal of a subsidiary	-	-	-	-	(90,021)	-	-	(90,021)	(3,296,377)	(3,386,398)
At 30 June 2019	688,344	95,298,644	23,852,469	815,521	(950,507)	3,773,101	(124,008,790)	(531,218)	-	(531,218)

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2019

	Note		Unaudited six months ended 30 June 2019		Unaudited six months ended 30 June 2018		Audited year ended  31 December 2018
			HK$		HK$		HK$
Cash flow from operating activities
Loss before income tax			(3,285,345)		(9,917,394)		(8,565,724)
Amortisation of patents			14,845		47,030		92,447
Depreciation			57,238		109,684		209,083
Foreign exchange loss / (gain), net			5,823		(325,103)		(1,665,315)
Gain on disposal of a subsidiary			(180,760)		-		-
Interest received			(4,266)		(5,157)		(23,059)
Interest paid			111,602		127,547		291,675
Provision of impairment of trade receivables			-		7,899,419		5,750,768
Patents written off Property, plant and equipment written off			-		- 15,597		278,922 6,752
Operating loss before
working capital changes			(3,280,863)		(2,048,377)		(3,624,451)
(Increase) / decrease in inventories			(768,432)		(176,564)		737,401
Decrease / (increase) in trade and other receivables			1,284,322		(108,163)		2,571,802
(Decrease) / increase in trade and other payables			(2,479,547)		209,879		1,338,290
Net cash (used in) / generated from operations			(5,244,520)		(2,123,225)		1,023,042
Corporate income tax paid			(971)		(315,466)		(562,513)
Interest paid			(111,602)		(127,547)		(291,675)
Net cash (used in) / generated from operating activities			(5,357,093)		(2,566,238)		168,854
Cash flow from investing activities
Purchase of property, plant and equipment			(23,877)		(39,701)		(45,038)
Proceeds from disposal of a subsidiary			3,109,462		-		-
Interest received			4,266		5,157		23,059
Net cash generated from / (used in) investing activities			3,089,851		(34,544)		(21,979)
Cash flow from financing activities
Repayment of bank borrowings			(2,500,853)		-		(2,282,584)
Proceeds from new bank borrowings			1,136,751		2,375,015		3,994,522
Dividend paid to non-controlling interests			-		-		(264,391)
Decrease in restricted bank balance			-		116,377		117,249
Net cash (used in) / generated from financing activities			(1,364,102)		2,491,392		1,564,796
Net (decrease) / increase in cash and cash equivalents			(3,631,344)		(109,390)		1,711,671
Cash and cash equivalents at the beginning of the period / year			4,825,759		3,594,050		3,594,050
Exchange gain on cash and cash equivalents			(24,682)		(89,615)		(479,962)
Cash and cash equivalents at the end of the period / year	11		1,169,733		3,395,045		4,825,759

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2019

(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 2018 except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2019, and will be adopted in the 2019 annual financial statements.

The following new standards and interpretations became effective on 1 January 2019 and have been adopted by the group:

-

IFRS 16

Leases

On 1 January 2019, the Group has performed an assessment on the impact of the adoption of IFRS 16 and concluded that no material financial impact exists, and therefore no adjustment to the opening balance sheet on 1 January 2019 was recognised.

The consolidated financial statements have been prepared on a going concern basis notwithstanding that the Group had incurred a loss for the period of HK$3,276,967 during the period ended 30 June 2019 and, as of that date, the Group’s current liabilities exceeded its current assets by HK$1,641,622. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. In preparing the consolidated financial statements, the directors have carefully reviewed the Group’s cash position as at the balance sheet date and the cash flow forecast for the next six months. In reviewing the Group’s cash flows, the directors have considered the following factors:

• A stable sales target for 2019 and stable gross profit ratio with the escalating cost of production
• Continuous close monitoring of outgoing expenses
• Current cash level and committed lines of funding from financial institutions
• Failure to renew or replace the above mentioned lines of funding from financial institutions

The directors believe that the Group is able to meet its financial obligations in full as and when they fall due and consider that the preparation of the consolidated financial statements on going concern basis is appropriate.

(2)     SEGMENT REPORTING

(a)           Primary reporting format - Geographical Segment

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

	Unaudited six months ended 30 June 2019		Unaudited six months ended 30 June 2018		Audited year ended 31 December 2018
	HK$		HK$		HK$
PRC	3,500,668		10,216,380		15,994,416
Thailand	4,229,382		8,102,788		17,012,750
Korea	702,000		702,000		1,541,592
Others	281,268		142,272		142,272
	8,713,318		19,163,440		34,691,030

(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 2019		Unaudited six months ended 30 June 2018		Audited year ended 31 December 2018
	HK$		HK$		HK$
PRC	4,574,668		6,687,472		7,181,498
Thailand (see Note 16)	-		8,962,265		9,738,811
Hong Kong	900,703		2,210,544		868,917
Others	82,249		405,836		24,612
	5,557,620		18,266,117		17,813,838

(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 2019		Unaudited six months ended 30 June 2018		Audited year ended 31 December 2018
	HK$		HK$		HK$
Government subsidy	-		-		105,096
Gain on disposal of a subsidiary	180,760		-		-
Sundry income	220,089		100,719		102,666
	400,849		100,719		207,762

(5)     OPERATING LOSS

Operating loss is stated after charging the following items:-

	Unaudited six months ended 30 June 2019		Unaudited six months ended 30 June 2018		Audited year ended 31 December 2018
	HK$		HK$		HK$
Amortisation of patents	14,845		47,030		92,447
Auditor’s remuneration	183,240		183,808		298,683
Cost of inventories	5,285,773		8,349,076		14,648,394
Depreciation	57,238		75,736		139,287
Exchange losses / (gains), net	5,823		(325,103)		(1,665,315)
Provision of impairment of trade receivables			7,899,419		5,750,768
Property, plant and equipment written off	-		-		6,752
Patents written off	-		15,597		278,922
Rental charges under operating leases  in respect of land and buildings	476,930		486,701		1,022,660
Staff costs  (including directors’ emoluments)
- wages and salaries	3,441,848		4,853,038		9,321,216
- contributions to retirement benefits	427,552		452,386		893,779
- other staff benefits	754,861		1,380,641		2,496,701

(6)     NET FINANCE EXPENSES

	Unaudited six months ended  30 June 2019		Unaudited six months ended 30 June 2018		Audited year ended 31 December 2018
	HK$		HK$		HK$
Bank interest income	4,266		5,157		23,059
Interest expense on loans
from non-controlling interest	(10,011)		(35,592)		(64,690)
Interest expense on bank loans	(101,591)		(91,954)		(226,985)
	(107,336)		(122,389)		(268,616)

(7)     INCOME TAX REFUND / (EXPENSE)

No provision for Hong Kong Profits Tax has been made (June 2018: HK$nil; 2018: HK$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 refund provided for the six months ended 30 June 2019 is HK$8,378 (June 2018: Tax expense HK$205,131; 2018: Tax expense HK$422,469).

(8)     LOSS PER SHARE

The calculation of the basic loss per share for the six months ended 30 June 2019, is based on the loss attributable to ordinary equity shareholders of the company of HK$3,252,648 (June 2018: HK$10,469,044; 2018: HK$10,253,282) during the period and the weighted average number of 68,834,388 ordinary shares (June 2018: 68,834,388; 2018: 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 2019 (June 2018: HK$nil; 2018: HK$nil).

 (10)  TRADE AND OTHER RECEIVABLES

	Unaudited  30 June 2019		Unaudited  30 June 2018		Audited 31 December 2018
	HK$		HK$		HK$
Trade receivables	5,786,882		10,628,698		8,333,556
Less: provision for impairment loss	(5,410,936)		(7,899,419)		(5,432,550)
	375,946		2,729,279		2,901,006
Other receivables	184,599		221,943		244,801
Prepayments and deposits	873,213		1,017,319		939,968
	1,433,758		3,968,541		4,085,775

(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 2019		Unaudited  six months ended 30 June 2018		Audited  year ended 31 December 2018
	HK$		HK$		HK$
At 1 January	5,432,550		508,758		508,758
Impairment loss recognised	-		7,899,419		5,750,768
Written off Exchange difference	- (21,614)		(508,758)		(508,758) (318,218)
At 30 June/31 December	5,410,936		7,899,419		5,432,550

The Group applies the IFRS 9 simplified approach to provide for expected credit losses which uses a lifetime expected loss provision for trade receivables.

The Group does not hold any collateral over these balances.

As at 30 June 2019, the trade receivables of HK$5,474,594 (June 2018: HK$nil; 2018: HK$5,992,011) were pledged as securities for secured bank borrowings (note 14).

 (11)  CASH AND CASH EQUIVALENTS

	Unaudited  30 June 2019			Unaudited  30 June 2018				Audited 31 December 2018
	HK$			HK$				HK$
Cash at bank and on hand	1,169,733		3,395,045				4,825,759

(12)   SHARE CAPITAL

	Unaudited  30 June 2019		Unaudited  30 June 2018		Audited  31 December 2018
	HK$		HK$		HK$
Authorised
150,000,000 (June 2018: 150,000,000 and Dec 2018: 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 2018: 68,834,388 and       Dec 2018: 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 2018		Unaudited  30 June 2018		Audited 31 December 2018
	HK$		HK$		HK$
Trade payables Contract liabilities	1,039,560 4,567		1,384,916		1,295,639 329,062
Other payables and accrued expenses	2,430,183		4,396,824		5,502,182
	3,474,310		5,781,740		7,126,883

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

(14)   BANK BORROWINGS

		Unaudited  30 June 2019		Unaudited  30 June 2018		Audited  31 December 2018
		HK$		HK$		HK$
Current
Bank borrowing, unsecured		1,136,751		4,744,396		1,711,938
Bank borrowings, secured		1,477,777		-		2,282,584
	(a)	2,614,528		4,744,396		3,994,522

1. The effective interest rate per annum for bank borrowings at balance sheet date is at 6.4% (June 2018: 5.7%, 2018: 6.4%) per annum.

(15)      RECONCILIATION OF LOSS BEFORE INCOME TAX TO EBITDA

	Unaudited six months ended 30 June 2019		Unaudited six months ended 30 June 2018		Audited year ended 31 December 2018
	HK$		HK$		HK$
Loss before income tax	(3,285,345)		(9,917,394)		(8,565,724)
Depreciation	57,238		109,684		209,083
Amortisation of patents	14,845		47,030		92,447
Interest income	(4,266)		(5,157)		(23,059)
Interest expenses	111,602		127,546		291,675
Patents written off	-		15,597		278,922
Gain on disposal of a subsidiary	(180,760)		-		-
Impairment loss of trade receivables	-		7,899,419		5,750,768
Property, plant and equipment written off	-		-		6,752
EBITDA	(3,286,686)		(1,723,275)		(1,959,136)

EBITDA is defined herein as earnings before depreciation, amortisation, 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 amortisation 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.

(16)       DISPOSAL OF A SUBSIDIARY

On 20 March 2019, the Group disposed of its entire interest in its 55 per cent. owned subsidiary, Walcom Bio-Chen (Thailand) Company Limited, to non-controlling interests for a consideration of THB16.5 million (approximately HK$4.1 million). After deduction of certain amounts due to the purchaser, the net proceeds received were approximately HK$3 million.

	HK$
Net assets of the subsidiary at the date of disposal were as follows:
Property, plant and equipment	5,559,426
Inventory	1,410,724
Trade and other receivables	1,261,807
Cash and cash equivalents	1,010,182
Trade and other payables	(1,417,507)
Loans from non-controlling interests	(499,350)
	7,325,282
Non-controlling interests	(3,296,377)
Exchange reserves	(90,021)
	3,938,884
Gain on disposal of a subsidiary	180,760
Total consideration	4,119,644
Net cash inflow arising on disposal of a subsidiary:
Cash consideration received	4,119,644
Cash and cash equivalents disposed of	(1,010,182)   3,109,462

(17)       COPIES OF THE HALF YEARLY REPORT

Copies of the half-yearly report will be available shortly from the Company’s website www.walcomgroup.com.