Half-yearly Report
19 September 2011
Walcom Group Limited
("Walcom" or "the Company")
Half-yearly unaudited results for the six months ended 30 June 2011
The Board of Walcom Group Limited presents the Company's unaudited half-yearly
results for the six months ended 30 June 2011.
Highlights
* Loss per share reduced by 29 per cent. to HK$1.89 cents
* Revenue and gross profit rose by 37 per cent. to HK$17.9 million and 46 per
cent. to HK$10.9 million respectively
* PRC and overseas sales increased by 37 per cent. to HK$14.1 million and 36
per cent. to HK$3.8 million respectively
* Sales traction gained in recent months has continued
Further enquiries:
Walcom Group Limited +852 2494 0133
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
Merchant Securities Limited +44 20 7628 2200
Lindsay Mair/Virginia Bull
CHAIRMAN'S STATEMENT
Introduction
As mentioned in my statement in the 2010 annual report, the Company has
experienced increased production costs and operating expenses which, when added
to the slower growth in the Chinese economy, has resulted in difficult trading
conditions. The Company is pleased to report, however, that the sales traction
gained by the Company last year has continued and the Company's revenue grew by
37 per cent. compared with the same period last year. The Company's loss per
share for the period reduced by 29 per cent. to HK$1.89 cents (June 2010: loss
HK$2.67 cents).
This continued improvement relates to the Company's `Alpha' project which was
launched in August 2009 and has built up momentum over the last two years. The
`Alpha' project was designed to promote the energy saving efficacy in
feedstuffs of the Company's products and aimed to reduce the unit cost of
feedstuffs through an improvement in the utilisation efficiency of feedstuffs,
thereby increasing margins for feed mills.
Results for the Period
The Company generated revenues during the period of HK$17.9 million (June 2010:
HK$13.0 million) and gross profits of HK$10.9 million (June 2010: HK$7.5
million), representing increases of 37 per cent. and 46 per cent. respectively
compared with the same period last year. In addition, the gross profit margin
for the period improved, increasing from 57 per cent. in the same period last
year to 61 per cent. during this financial period. This increase is mainly due
to a higher percentage of sales of `Alpha' project products achieved during the
period which produce a higher profit margin than the Company's historic product
range. Owing to the stronger sales and improved gross profit margin, the
Company reduced its net loss by 33 per cent. to HK$1.1 million (June 2010: loss
of HK$1.6 million) and became profitable at an EBITDA level (HK$0.3 million)
rather than a loss of HK$1.0 million in the same period last year.
Review of Activities
In the six months to 30 June 2011, sales in the PRC and overseas improved by 37
per cent. and 36 per cent. to HK$14.1 million, (June 2010: HK$10.3 million) and
HK$3.8 million (June 2010: HK$2.8 million), respectively. The sales of `Alpha'
branded products were the main contributor to the increased sales in the PRC.
During the last 18 months, the Company's sales strategy has been proven. The
increased focus on promotion of the sales of energy saving products has been
effective and the Company's adoption of a direct selling approach to sizable
customers rather than through sales distributors, which resulted in a higher
average unit selling price being achieved, has strengthened the Company for the
benefit of shareholders.
The political situation in Thailand has stabilized and the sales in Thailand
increased by 44 per cent. during the period under review. Sales in the
Philippines, owing to the continuing poor economy in the country, remained a
dragging factor on overseas sales.
Outlook
The Board expects that during the remaining six months of the financial year,
the operating environment for the Company will be more challenging as it has to
face the continuously escalating production costs and operating expenses. This,
in addition to the slower growth of the Chinese economy, and a highly uncertain
and volatile global economy, will continue to make trading difficult. The
Directors are confident, however, that the traction of the Company's sales
gained during the past 18 months will continue to gather momentum at a steady
pace.
Eddie K M Chan
Chairman
19 September 2011
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2011
Note Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 2011 30 June 2010 31 December
2010
HK$ HK$ HK$
Revenue 17,875,168 13,027,342 32,860,894
Cost of sales (6,967,894) (5,559,813) (12,793,665)
Gross profit 10,907,274 7,467,529 20,067,229
Other income 2 72,753 113,234 203,642
Research and development (812,563) (911,964) (1,463,030)
expenses
Selling and distribution (5,183,390) (4,091,748) (8,186,502)
expenses
General and administrative (5,560,654) (4,067,075) (9,327,110)
expenses
(Loss) / profit from operation (576,580) (1,490,024) 1,294,229
s
Net finance cost 3 (41,197) (27,219) (85,552)
(Loss) / profit before income (617,777) (1,517,243) 1,208,677
tax
Income tax expense 4 (469,536) (113,734) (809,988)
(Loss) / profit for the period (1,087,313) (1,630,977) 398,689
/ year
Other comprehensive income
Exchange difference on
translation of
financial statements of 343,840 153,949 678,442
overseas subsidiaries
Total comprehensive (loss) /
income
for the period / year (743,473) (1,477,028) 1,077,131
Loss attributable to:
Owners of the Company (1,299,477) (1,835,865) (191,884)
Non-controlling interests 212,164 204,888 590,573
(Loss) / profit for the period (1,087,313) (1,630,977) 398,689
/ year
Total comprehensive (loss) /
income
attributable to:
Owners of the Company (929,210) (1,704,674) 390,249
Non-controlling interests 185,737 227,646 686,882
Total comprehensive (loss) /
income
for the period/year (743,473) (1,477,028) 1,077,131
Loss per share - basic, HK 5 (1.89) (2.67) (0.28)
cents
- diluted, HK cents (1.89) (2.67) (0.28)
UNAUDITED CONSOLIDATED BALANCE SHEET AT 30 JUNE 2011
Note Unaudited Unaudited Audited
30 June 20 30 June 20
11 10 31 December
2010
HK$ HK$ HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 2,439,400 2,735,361 2,698,958
Patents 4,720,610 4,708,840 4,726,361
Goodwill 127,857 127,857 127,857
Interests in an associate - - -
7,287,867 7,572,058 7,553,176
CURRENT ASSETS
Inventories 1,266,101 1,603,773 872,349
Trade and other receivables 7 6,376,446 4,548,243 6,637,273
Amounts due from an associate 1,388,163 1,670,374 1,632,934
Cash and cash equivalents 8 7,266,927 3,244,990 6,285,006
16,297,637 11,067,380 15,427,562
TOTAL ASSETS 23,585,504 18,639,438 22,980,738
EQUITY AND LIABILITIES
EQUITY
Share capital 688,344 688,344 688,344
Reserves 13,838,448 11,965,121 14,436,087
TOTAL EQUITY ATTRIBUTABLE TO 14,526,792 12,653,465 15,124,431
OWNERS OF THE COMPANY
Non-controlling interests 1,228,278 869,747 1,042,541
TOTAL EQUITY 15,755,070 13,523,212 16,166,972
NON-CURRENT LIABILITIES
Bank borrowings 10 - 194,955 -
CURRENT LIABILITIES
Trade and other payables 9 4,909,012 2,922,260 4,109,048
Tax payables 443,428 113,263 771,860
Bank borrowings 10 2,477,994 1,885,748 1,932,858
7,830,434 4,921,271 6,813,766
TOTAL LIABILITIES 7,830,434 5,116,226 6,813,766
TOTAL EQUITY AND LIABILITIES 23,585,504 18,639,438 22,980,738
NET CURRENT ASSETS 8,467,203 6,146,109 8,613,796
TOTAL ASSETS 15,755,070 13,718,167 16,166,972
LESS CURRENT LIABILITIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2011
Share Share Merger compensation Exchange Accumulated controlling Total
capital premium reserve reserve reserve losses Total interests equity
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
At 1 January 2010 688,344 95,298,644 23,852,469 1,080,903 836,036 (107,399,582) 14,356,814 642,101 14,998,915
Comprehensive
loss
Loss for the - - - - - (1,835,865) (1,835,865) 204,888 (1,630,977)
period
Other
comprehensive
income
Exchange
difference on
translation of
financial
statements of - - - - 131,191 - 131,191 22,758 153,949
overseas
subsidiaries
Total
comprehensive - - - - 131,191 (1,835,865) (1,704,674) 227,646 (1,477,028)
loss for the
period
Recognition of
equity-settled
share-based - - - 1,325 - - 1,325 - 1,325
payments
At 30 June 2010 688,344 95,298,644 23,852,469 1,082,228 967,227 (109,235,447) 12,653,465 869,747 13,523,212
At 1 January 2011 688,344 95,298,644 23,852,469 1,379,181 1,418,169 (107,512,376) 15,124,431 1,042,541 16,166,972
Comprehensive
loss
Loss for the - - - - - (1,299,477) (1,299,477) 212,164 (1,087,313)
period
Other
comprehensive
income
Exchange
difference on
translation of
financial
statements of - - - - 370,267 - 370,267 ( 26,427) 343,840
overseas
subsidiaries
Total
comprehensive - - - - 370,267 (1,299,477) (929,210) 185,737 (743,473)
loss for the
period
Recognition of
equity-settled
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2011
Note Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 20 30 June 20 31 December
11 10 2010
HK$ HK$ HK$
Cash flow from operating
activities
(Loss) / profit before income tax (617,777) (1,517,243) 1,208,677
Amortisation of patents 190,634 176,836 358,632
Interest received (21,198) (5,235) (8,712)
Depreciation 332,442 291,051 628,091
Foreign exchange loss, net 230,862 81,934 174,278
Interest paid 62,395 32,454 94,264
Loss on disposal of property, - - 14,599
plant and equipment
Inventories written off - - 17,804
Share-based compensation 331,571 1,325 377,368
Operating profit / (loss) before
working capital changes 508,929 (938,878) 2,865,001
(Increase) / decrease in (393,752) (356,454) 357,166
inventories
Decrease / (increase) in trade 260,827 (94,993) (2,184,023)
and other receivables
Decrease in amount due from 244,771 152,490 200,850
associate - trade related
Increase / (decrease) in trade 799,964 (522,181) 664,607
and other payables
Net cash generated from / (used 1,420,739 (1,760,016) 1,903,601
in) operations
Corporate income tax paid (797,968) (97,586) (135,243)
Interest paid (62,395) (32,454) (94,264)
Net cash generated from / (used
in)
operating activities 560,376 (1,890,056) (1,674,094)
Cash flow from investing
activities
Purchase of property, plant and (68,657) (77,447) (259,026)
equipment
Payment for patents (184,883) (40,760) (240,077)
Amounts due from - 38,837 27,917
associates-non-trade related
Interest received 21,198 5,235 8,712
Net cash used in investing (232,342) (74,135) (462,474)
activities
Cash flow from financing
activities
Repayment of bank borrowings (1,896,919) (403,928) (595,217)
Dividend paid to minority - - (286,442)
interests
Proceeds from new bank borrowings 2,405,002 1,719,395 1,762,839
Net cash generated from financing 508,083 1,315,467 881,180
activities
Net increase / (decrease) 836,117 (648,724) 2,092,800
in cash and cash equivalents
Cash and cash equivalents at the 6,285,006 3,872,520 3,872,520
beginning of the period/year
Exchange gains on cash and cash 145,804 21,194 319,686
equivalents
Cash and cash equivalents at the 8 7,266,927 3,244,990 6,285,006
end of the period/year
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2011
(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 2010.
(2) OTHER INCOME
Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 20 30 June 2010 31 December
11 2010
HK$ HK$ HK$
Government subsidy 59,780 84,920 134,871
Sundry income 12,973 28,314 68,771
72,753 113,234 203,642
(3) NET FINANCE COST
Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 20 31 December
30 June 20 10 2010
11
HK$ HK$ HK$
Bank interest income 21,198 5,235 8,712
Interest expense on bank loans (62,395) (32,454) (94,264)
(41,197) (27,219) (85,552)
(4) INCOME TAX EXPENSE
No provision for Hong Kong Profits Tax has been made (June 2010: HK$nil; 2010:
HK$nil) as the group companies did not have assessable profit subject to Hong
Kong profits tax purposes for 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
six months ended 30 June 2011 is HK$469,536 (June 2010: HK$113,734; 2010:
HK$809,988).
(5) LOSS PER SHARE
The calculation of the basic loss per share for the six months ended 30 June
2011, is based on the loss attributable to ordinary equity shareholders of the
company of HK$1,299,477 (June 2010: HK$1,835,865; 2010: HK$191,884) during the
period and the weighted average number of 68,834,388 ordinary shares (June
2010: 68,834,388; 2010: 68,834,388) in issue during the period/year. No diluted
loss per share is to be reported for the period/year.
(6) DIVIDENDS
No payment of dividend was recommended for the first six months of 2011 (June
2010: HK$ nil; 2010: HK$nil).
(7) TRADE AND OTHER RECEIVABLES
Unaudited Unaudited Audited
30 June 20 30 June 2010 31 December
11 2010
HK$ HK$ HK$
Trade receivables 5,743,784 3,978,323 6,189,317
Less: provision for (668,663) (635,701) (699,577)
impairment loss
5,075,121 3,342,622 5,489,740
Amounts due from a related 30,802 - -
company
Other receivables 614,163 636,008 640,324
Prepayments and deposits 656,360 569,613 507,209
6,376,446 4,548,243 6,637,273
(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 Unaudited Audited
six months six months year ended
ended ended
31 December 20
30 June 20 30 June 20 10
11 10
HK$ HK$ HK$
At 1 January 699,577 635,701 635,701
Written off (46,079) - -
Exchange difference 15,165 - 63,876
At 30 June/31 December 668,663 635,701 699,577
At 30 June 2011, the Group's trade receivables of HK$668,663 (June 2010:
HKD635,701, 2010: HK$699,577) have been outstanding for a certain period of
time. The management assessed that only a portion of the receivables is
expected to be recoverable. Consequently, specific allowance for doubtful debts
was recognised for the individually impaired receivables.
The Group does not hold any collateral over these balances.
c. The amount due from a related company is interest-free, unsecured and
repayable on demand.
(8) CASH AND CASH EQUIVALENTS
Unaudited Unaudited Audited
30 June 2011 30 June 2010
31 December 20
10
HK$ HK$ HK$
Cash at bank and on 7,266,927 2,671,858 6,285,006
hand
Short-term bank - 573,132 -
deposits
Cash and cash 7,266,927 3,244,990 6,285,006
equivalents
in the cash flow
statement
(9) TRADE AND OTHER PAYABLES
Unaudited Unaudited Audited
30 June 2011 30 June 2010 31 December 20
10
HK$ HK$ HK$
Trade payables 2,186,507 1,185,696 1,595,625
Trade payables and accrued 2,722,505 1,736,564 2,513,423
expenses
4,909,012 2,922,260 4,109,048
All of the trade and other payables are expected to be settled within one year.
(10) BANK BORROWINGS
Unaudited Unaudited Audited
30 June 20 30 June 20 31 December 20
11 10 10
HK$ HK$ HK$
Non-current
Mortgage loan (a) - 194,955 -
Current
Mortgage loan (a) 72,992 166,353 170,018
Bank borrowings, secured (b) 2,405,002 1,719,395 1,762,840
2,477,994 2,080,703 1,932,858
(a) The mortgage loan was secured by the property situated in Thailand. At 30
June 2011, the net book value of the property included in the property, plant
and equipment was HK$996,252.
b. On 31 May 2011, an indirectly held subsidiary of the Group situated in PRC
("the subsidiary") has obtained a bank borrowing of HK$2,405,002
denominated in RMB with maturity of 1 year. The bank borrowing was secured
by the corporate guarantee issued by an independent third party. For the
grant of corporate guarantee, the holding company of the subsidiary, which
is also an indirectly held subsidiary of the Group, has pledged its
shareholding of the subsidiary to the independent third party.
(11) RECONCILIATION OF (LOSS) / PROFIT BEFORE INCOME TAX TO EBITDA
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December 20
30 June 20 30 June 20 10
11 10
HK$ HK$ HK$
(Loss) / profit before income (617,777) (1,517,243) 1,208,677
tax
Depreciation 332,442 291,051 628,091
Amortisation of patents 190,634 176,836 358,632
Interest income (21,198) (5,235) (8,712)
Interest expenses 62,395 32,454 94,264
Patents written off - - -
Loss on disposal of property, - - 14,599
plant and equipment
Issuance of share-based 331,571 1,325 377,368
compensation
EBITDA 278,067 (1,020,812) 2,672,919
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.
(12) COPIES OF HALF YEARLY REPORT
Copies of the half-yearly report will be available shortly from the Company's
website www.walcomgroup.com.
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