Half-yearly Report
23 September 2008
Walcom Group Limited
("the Company")
Half-yearly unaudited results for the six months ended 30 June 2008
The Board of Walcom Group Limited presents the Company's unaudited half-yearly
results for the six months ended 30 June 2008.
Highlights
* Loss per share increases by 16 per cent. due to escalating costs and
appreciation of the Reminbi
* Turnover and gross profit increase by 54 per cent. and 25 per cent.,
respectively
* Sales in the PRC increase by 134 per cent.
* Overseas sales decrease by 18 per cent.
* Promotion of new products with an innovative energy saving efficacy in
feedstuffs
Further enquiries:
Walcom Group Limited Tel: +852 2494 0133
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
John East & Partners Limited Tel: 020 7628 2200
Jeffrey Coburn/Bidhi Bhoma
Chairman's Statement
Introduction
The Company, like most other companies having manufacturing bases in China had
a difficult six month period in the first half of 2008 due to the unusual bad
weather and disastrous earthquake followed by the global economic slowdown. Due
to high cost inflation and appreciation of the Reminbi, the Company has
incurred a loss per share of 6.16 Hong Kong cents (June 2007: 5.29 Hong Kong
cents), which is 16 per cent. more than that of the equivalent period for the
previous year.
Results for the Period
The Company showed increases of 54 per cent. and 25 per cent. in turnover (June
2008: HK$11.7m; June 2007: HK$7.6m) and gross profits (June 2008: HK$6.4m; June
2007: HK$5.1m), respectively, compared to the same period last year. Despite
the escalating costs of raw materials and appreciation of the Reminbi, the
selling prices of our products could not be raised due to highly competitive
market conditions and this resulted in the gross profit margin falling by 12
per cent. (June 2008: 55 per cent.; June 2007: 67 per cent.) from the same
period last year.
Review of Activities
Partly due to the appreciation of the Reminbi, there was an increase of 134 per
cent. (June 2008: HK$8.4m; June 2007: HK$3.6m) in sales in the PRC during the
period. This was in part due to an increase in feed mill business and in part
due to the continuing threat of pig diseases. Overseas sales dropped by 18 per
cent. (June 2008: HK$3.3m; June 2007: HK$4.0m) due, mainly, to the effect of
the world economic recession.
As described in note 19 to the financial statements, the Company has agreed to
acquire the entire issued share capital of Beijing New World Bio-Technology
Company Limited ("BNW"), by the issue to the vendor of 3,923,497 new shares.
BNW is engaged in the sale of Chinese herb and natural plant extracts. The
acquisition is still awaiting the approval of the relevant Chinese authorities.
Following approval the new shares will be issued to the vendor to complete the
acquisition.
Outlook
Due to the continuing threat of animal diseases in China and some South East
Asian countries, we expect the sales of our products in this sector to continue
to grow. A new programme of promoting the energy saving efficacy in feedstuffs
of our products will be started in the fourth quarter of this year. We expect
that this will help to give us greater penetration of the feed mill market and
provide us with a more stable customer base which will help us to ride out the
world financial crisis and economic recession.
Eddie K M Chan
Chairman
23 September 2008
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE PERIOD ENDED 30 JUNE 2008
Note Unaudited Unaudited Audited
six months six months year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
Turnover 11,727 7,634 18,453
Cost of sales (5,304) (2,513) (6,487)
Gross profit 6,423 5,121 11,966
Other income 89 83 788
Research and development expenses (677) (546) (1,208)
Selling and distribution expenses (3,879) (3,028) (5,590)
General and administrative (5,843) (5,612) (11,595)
expenses
Operating loss (3,887) (3,982) (5,639)
Net finance income 2 24 226 367
Share of profit in associates - 321 508
Loss before taxation (3,863) (3,435) (4,764)
Income tax 3 (59) - -
Loss for the period / year (3,922) (3,435) (4,764)
Attributable to:
Equity shareholders of the (4,001) (3,435) (4,764)
company
Minority interest 79 - -
Loss for the period / year (3,922) (3,435) (4,764)
Loss per share - basic, HK cents 4 (6.16) (5.29) (7.34)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2008
Note Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 1,814 983 1,244
Patents 7,694 6,730 6,967
Goodwill 128 - -
Interests in associates 6 - 720 718
9,636 8,433 8,929
CURRENT ASSETS
Inventories 1,340 1,260 1,552
Trade and other receivables 7 4,769 2,324 2,424
Amounts due from associates 6 1,957 3,966 3,553
Cash and cash equivalents 8 6,119 9,144 9,144
14,185 16,694 16,673
TOTAL ASSETS 23,821 25,127 25,602
EQUITY AND LIABILITIES
EQUITY
Share capital 649 649 649
Reserves 17,167 21,890 20,797
17,816 22,539 21,446
Minority interest 209 - -
18,025 22,539 21,446
CURRENT LIABILITIES
Trade and other payables 3,222 2,588 1,898
Tax payable 54 - -
Dividend payable 208 - -
Bank borrowings 179 - -
Bank overdrafts 8 1,152 - 1,098
4,815 2,588 2,996
NON CURRENT LIABILITIES
Bank borrowings 981 - 1,160
TOTAL EQUITY AND LIABILITIES 23,821 25,127 25,602
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 JUNE 2008
Share Share Merger Exchange Accumulated Total Minority Total
before
capital premium reserve reserve losses interest HK$'000
Minority
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
interest
HK$'000
At 1 January 2007 649 89,843 23,852 126 (88,593) 25,877 - 25,877
Exchange - - - 97 - 97 - 97
differences on
translation of
financial
statements of
overseas
subsidiaries
Net loss for the - - - - (3,435) (3,435) - (3,435)
period
Total recognised - - - 97 (3,435) (3,338) - (3,338)
income and
expense for the
period
At 30 June 2007 649 89,843 23,852 223 (92,028) 22,539 - 22,539
At 1 January 2008 649 89,843 23,852 459 (93,357) 21,446 - 21,446
Exchange - - - 371 - 371 - 371
differences on
translation of
financial
statements of
overseas
subsidiaries
Net loss for the - - - - (4,001) (4,001) 79 (3,922)
period
Total recognised - - - 371 (4,001) (3,630) 79 (3,551)
income and
expense for the
period
Acquisition of - - - - - - 754 754
additional
interest upon
business
combination from
minority
shareholders
Dividend paid to - - - - - - (624) (624)
minority
shareholders
At 30 June 2008 649 89,843 23,852 830 (97,358) 17,816 209 18,025
UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 30 JUNE 2008
Note Unaudited Unaudited Audited
six months six months year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
Operating activities
Cash used in operations 9 (1,628) (8,466) (10,412)
Interest paid (51) - (5)
Tax paid (5) - -
Net cash used in operating activities (1,684) (8,466) (10,417)
Investing activities
Payment for the purchase of property, (625) (143) (534)
plant and equipment
Payment for patents (958) (1,341) (1,802)
Proceeds from sales of property, - - 1
plant and equipment
Amounts due from associates-non-trade - - 185
related
Interest received 78 206 372
Dividends received from an associate 328 184 372
Acquisition of additional interest 264 - -
upon business combination
Dividends paid to minority (439) - -
shareholders
Net cash used in investing activities (1,352) (1,094) (1,406)
Financing activities
Proceeds from new bank borrowings - - 1,160
Net cash from financing activities - - 1,160
Net decrease in cash and cash (3,036) (9,560) (10,663)
equivalents
Cash and cash equivalents at the 8,046 18,704 18,704
beginning of the period/year
Effect of foreign exchange rate (43) - 5
changes, net
Cash and cash equivalents at the end 8 4,967 9,144 8,046
of the period/year
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2008
1. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed 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 condensed 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
condensed consolidated financial statements as were applied in the preparation
of the group's financial statements for the year ended 31 December 2007.
In the current period, the group has adopted International Financial Reporting
Standard 3 "Business Combinations" for the acquisition of additional interest
in Walcom Bio-Chem (Thailand) Company Limited (Walcom Thailand), a former
associate (note 10). Goodwill amounting to HK$127,857 representing the excess
of cost of acquisition over the share of the net identifiable assets,
liabilities and contingent liabilities of Walcom Thailand is capitalised and
presented separately in the balance sheet.
2. NET FINANCE INCOME
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
Bank interest income 75 226 372
Interest on bank loans (39) - -
Interest on bank overdrafts (12) - (5)
24 226 367
3. INCOME TAX
No provision for Hong Kong income tax has been made (June 2007: HK$nil; 2007:
HK$nil) as the group companies have no assessable profit for Hong Kong profits
tax purposes in 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
period ended 30 June 2008 is HK$ 59,367 (June 2007: HK$ nil; 2007: HK$ nil).
4. LOSS PER SHARE
The calculation of the basic loss per share for the period ended 30 June 2008,
is based on the loss attributable to ordinary equity shareholders of the
company of HK$4,001,388 (June 2007: HK$3,435,101; 2007: HK$4,764,018) during
the period and the weighted average number of 64,910,891 ordinary shares (June
2007: 64,910,891; 2007: 64,910,891) in issue during the period/year. No diluted
loss per share is to be reported for the period/year.
5. DIVIDENDS
No payment of dividend was recommended for the first six months of 2008 (June
2007: HK$ nil; 2007: HK$ nil).
6. INTERESTS IN ASSOCIATES
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
Share of net assets - 720 718
Amounts due from associates
* Trade related balances 1,677 3,633 3,221
* Non-trade related balances 1,992 2,045 2,044
Provision for impairment losses on (1,712) (1,712) (1,712)
non-trade related balances
1,957 3,966 3,553
The amounts due from associates are denominated in United States dollars. The
credit period granted for the trade related balances ranges from 90 days to 180
days. The non-trade related balances are unsecured, interest free and have no
fixed terms of repayment.
On 25 January 2008, the group acquired a further 18 per cent. interest in
Walcom Bio-Chem (Thailand) Company Limited (`Walcom Thailand'), thereby
increasing its total shareholding to 55 per cent., at which point Walcom
Thailand became a subsidiary of the group.
7. TRADE AND OTHER RECEIVABLES
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
Trade receivables 4,048 2,407 2,098
Less: provision for impairment loss (677) (505) (636)
3,371 1,902 1,462
Other receivables 605 - 199
Prepayments and deposits 793 422 763
4,769 2,324 2,424
a. All trade and other receivables, are expected to be recovered within one
year.
b. Impairment of trade receivables
The movement in the allowance 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
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
At 1 January 636 493 493
Impairment loss recognised 41 12 143
At 30 June/31 December 677 505 636
At 30 June 2008, the group's trade receivables of HK$677,059 (June 2007:
HK$607,418, 2007: HK$635,701) have been outstanding for a certain period of
time. The management assessed that only a portion of the receivables is
expected to be recoverable. Consequently, specific allowances for doubtful
debts was recognised for the individually impaired receivables.
The group does not hold any collateral over these balances.
8. CASH AND CASH EQUIVALENTS
Unaudited Unaudited Audited
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
Cash and cash equivalents in the 6,119 9,144 9,144
balance sheet
Bank overdrafts (1,152) - (1,098)
Cash and cash equivalents in the 4,967 9,144 8,046
cash flow statement
9. RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
Loss before taxation (3,863) (3,435) (4,764)
Adjustments for:
Depreciation 216 189 355
Amortisation of patents 232 174 399
Share of profit in associates - (321) (508)
Interest income (75) (226) (372)
Interest expenses 51 - 5
Loss on disposal of an associate 89 - -
Loss on disposal of property, plant and - - 6
equipment
Impairment losses on trade receivables - - 143
Foreign exchange (loss)/gain, net (125) 75 262
Operating loss before changes in (3,475) (3,544) (4,474)
working capital
Decrease/(increase) in inventories 405 (654) (945)
(Increase)/decrease in trade and other (445) 556 210
receivables
Decrease/(increase) in amounts due from 1,596 (492) (182)
associates-trade related
Increase/(decrease) in trade and other 291 (4,332) (5,021)
payables
Cash used in operations (1,628) (8,466) (10,412)
10. RELATED PARTY TRANSACTIONS
Unaudited Unaudited Audited
six months six months year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
HK$'000 HK$'000 HK$'000
Associates
Sales of goods 1,404 3,733 7,894
Technical support fee income - 33 73
Related companies
Acquisition of patent -- 804 804
Legal and professional fees paid 189 151 304
Beneficial shareholders
Consultancy fee paid - 200 200
11. ACQUISITION
On 27 June 2008, the group entered into an agreement, subject to the
satisfaction of certain conditions, to acquire the entire issued share capital
of Beijing New World Bio-Technology Company Limited (`BNW'). BNW is engaged in
the sale of Chinese herb and natural plant extracts. The consideration is to be
satisfied by the issue to the vendor of 3,923,497 new shares in the capital of
the company. At the date of the agreement, the shares were quoted at GBP 0.11
per share, which makes the cost of the acquisition GBP431,585. The acquisition
was classified as a related party transaction under the AIM Rules as the vendor
is connected to the group. The acquisition is still awaiting the approval of
the relevant Chinese authorities. After approval is obtained, the new shares
will be issued to the vendor to complete the acquisition.
12. POST BALANCE SHEET EVENT
On 16 July, 2008 share options over 1,760,000 ordinary shares were granted to
directors and employees of the group. Of the 1,760,000 options granted,
1,200,000 options were granted to directors of the company.
The options have been granted under the company's Share Option Scheme for any
director or employee of the group. The exercise price for all of the options
granted is GBP 0.11 per share, equivalent to the closing mid-market price on 15
July 2008. The options can be exercised at any time between 16 July 2009 and 16
July 2013.
13. COPIES OF INTERIM RESULTS
Copies of the half-yearly report will be available shortly from the Company's
website www.walcomgroup.com
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