Half-yearly Report
24 September 2014
WALCOM GROUP LIMITED
("Walcom" or "the Company")
Interim results for the six months ended 30 June 2014
The Company's today announces its interim results for the six months ended 30
June 2014. These results are also available from the Company's website at
http://www.walcomgroup.com/
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
CHAIRMAN'S STATEMENT
Introduction
Continuing the downturn in the Chinese pig farming industry from late 2013, the
Company experienced an unusually long weak animal feed market during the first
six months of 2014. The Company's revenue dropped by 22 per cent. compared with
the same period last year. With the aggregate effect of escalating production
costs and operating expenses, the Company incurred a loss per share for the
period. This loss was increased by 57 per cent. for the period to HK$4.98 cents
(June 2013: loss HK$3.18 cents).
Results for the Period
The Company generated revenues of HK$16.8 million during the period (June 2013:
HK$21.5 million) and gross profits of HK$10.0 million (June 2013: HK$13.5
million), representing decreases of 22 per cent. and 26 per cent. respectively
compared with the same period last year. In addition, the gross profit margin
for the period reduced from 63 per cent. in the same period last year to 60 per
cent. during this financial period. This decrease is mainly due to a higher
unit production cost as a result of a decrease in the production volume, and a
drop in sales in Thailand, where profit margins are higher than in other
regions. The Company increased its net loss by 105 per cent. to HK$3.5 million
(June 2013: loss of HK$1.7 million) and incurred a loss of HK$3.1 million at an
EBITDA level, an increase of 418 per cent. over the same period last year (June
2013: HK$0.6 million).
Review of Activities and Market
In the six months to 30 June 2014, sales in the PRC and overseas dropped by 28
per cent. and 9 per cent. to HK$10.7 million (June 2013: HK$14.9 million) and
HK$6.1 million (June 2013: HK$6.6 million) respectively.
During the financial period, the pig farming industry in the PRC market has
declined owing to an unusually long slump in the pig farm gate price since late
2013. This situation has improved slightly in August this year. As a result,
the animal feed market has weakened whilst pig farms cut down the feed
consumption. This in turn affected the sales of the Company's products.
The overseas market was weakened mainly due to a decrease in sales in the Thai
market, although the Korean market had picked up during the period under
review.
Sales in Thailand have been affected by the political instability in the
country. They decreased by 22 per cent. to HK$5.0 million (June 2013: 6.4
million) during the period. As the portfolio of customers is increasing, the
market opportunity will be improved when the political situation becomes
stable. Sales in Korea performed extremely well during the period and increased
by 500 per cent. to HK$1.0 million (June 2013: 0.17 million).
Outlook
The unfavourable market conditions faced by the Company in the past few years
remained in the first six months of 2014; in particular, slower growth in the
Chinese economy, the slow recovery in the United States and the major European
economies, and higher production costs and operating expense has all had an
effect. In addition to the weak animal feed markets, all these factors make the
trading conditions difficult for the Company. However, the Company's portfolio
of customers, both in the PRC and overseas, is improving despite these
unfavourable conditions. The Directors believe that the full year results for
the year 2014 will be more optimistic as the animal feed markets in the PRC and
Thailand are expected to pick up in the remaining months of the year.
Eddie K M Chan
Chairman
24 September 2014
WALCOM GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE SIX MONTHS ENDED 30 JUNE 2014
Note Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 2014 30 June 2013 31 December
2013
HK$ HK$ HK$
Revenue 3 16,753,820 21,499,898 48,621,608
Cost of sales (6,735,341) (8,027,980) (17,869,133)
Gross profit 10,018,479 13,471,918 30,752,475
Other income 4 20,557 19,590 327,506
Research and development (771,360) (819,412) (1,298,237)
expenses
Selling and distribution (5,748,635) (5,143,730) (12,114,993)
expenses
General and administrative (6,958,016) (8,667,359) (15,134,308)
expenses
(Loss) / profit from 5 (3,438,975) (1,138,993) 2,532,443
operations
Net finance expenses 6 (29,686) (34,889) (30,612)
(Loss) / profit before income (3,468,661) (1,173,882) 2,501,831
tax
Income tax expense 7 (20,864) (526,482) (1,638,901)
(Loss) / profit for the period (3,489,525) (1,700,364) 862,930
/ year
(Loss) / profit attributable
to:
Owners of the Company (3,429,897) (2,187,134) (114,899)
Non-controlling interests (59,628) 486,770 977,829
(Loss) / profit for the period (3,489,525) (1,700,364) 862,930
/ year
Loss per share - basic, HK 8 (4.98) (3.18) (0.17)
cents
- diluted, HK cents (4.98) (3.18) (0.17)
UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2014
Note Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 2014 30 June 2013 31 December
2013
HK$ HK$ HK$
(Loss) / profit for the period (3,489,525) (1,700,364) 862,930
/ year
Other comprehensive income
Exchange difference on
translation of
financial statements of (277,288) 434,206 577,371
overseas subsidiaries
Total comprehensive (loss) /
income
for the period / year (3,766,813) (1,266,158) 1,440,301
Total comprehensive (loss) /
income attributable to:
Owners of the Company (3,728,093) (1,717,700) 622,646
Non-controlling interests (38,720) 451,542 817,655
Total comprehensive (loss) /
income
for the period/year (3,766,813) (1,266,158) 1,440,301
UNAUDITED CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2014
Note Unaudited Unaudited Audited
30 June 201 30 June 201
4 3 31 December
2013
HK$ HK$ HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 2,006,869 2,316,211 2,171,788
Patents 2,520,948 2,842,405 2,655,975
Goodwill - - -
4,527,817 5,158,616 4,827,763
CURRENT ASSETS
Inventories 2,038,576 2,703,695 1,652,877
Trade and other receivables 10 6,316,821 7,529,722 5,776,820
Cash and cash equivalents 11 12,540,165 10,566,479 18,535,663
20,895,562 20,799,896 25,965,360
TOTAL ASSETS 25,423,379 25,958,512 30,793,123
EQUITY AND LIABILITIES
EQUITY
Share capital 12 688,344 688,344 688,344
Reserves 15,476,589 16,864,336 19,204,682
TOTAL EQUITY ATTRIBUTABLE TO 16,164,933 17,552,680 19,893,026
OWNERS OF THE COMPANY
Non-controlling interests 1,839,229 2,147,848 1,877,949
TOTAL EQUITY 18,004,162 19,700,528 21,770,975
CURRENT LIABILITIES
Trade and other payables 13 4,879,593 5,743,447 5,641,215
Tax payables 20,098 514,537 837,051
Bank borrowings 14 2,519,526 - 2,543,882
7,419,217 6,257,984 9,022,148
TOTAL LIABILITIES 7,419,217 6,257,984 9,022,148
TOTAL EQUITY AND LIABILITIES 25,423,379 25,958,512 30,793,123
NET CURRENT ASSETS 13,476,345 14,541,912 16,943,212
TOTAL ASSETS 18,004,162 19,700,528 21,770,975
LESS CURRENT LIABILITIES
WALCOM GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2014
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
Jan-
uary 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
loss
Loss
for
the - - - - - - (2,187,134) (2,187,134) 486,770 (1,700,364)
period
Other
comprehensive
income
Exchange
differ-
ence on
trans-
lation of
finan-
cial - - - - 469,434 - - 469,434 (35,228) 434,206
statements
of
overseas
subsidiaries
Total - - - - 469,434 - (2,187,134) (1,717,700) 451,542 1,266,158
compre-
hensive
loss for the
period
Recog-
nition
of
equity
settled
share-
based - - - 118,227 - - - 118,227 - 118,227
payments
At 30
June 688,344 95,298,644 23,852,469 2,573,635 2,656,813 1,931,761 (109,448,986) 17,552,680 2,147,848 19,700,528
2013
At 1
Jan-
uary 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
2014
Comprehensive
loss
Loss
for
the - - - - - - (3,429,897) (3,429,897) (59,628) (3,489,525)
period
Other
comprehensive
income
Exchange
differ-
ence on
trans-
lation of
finan-
cial - - - - (298,196) - - (298,196) 20,908 (277,288)
statements of
overseas
subsidiaries
Total - - - - (298,196) - (3,429,897) (3,728,093) (38,720) (3,766,813)
compre-
hensive
loss
for
the
period
Recog-
nition
of
equity-
settled
share-
based - - - - - - - - - -
payments
At 30
June 688,344 95,298,644 23,852,469 1,591,595 2,626,728 2,525,302 (110,418,149) 16,164,933 1,839,229 18,004,162
2014
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2014
Note Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 201 30 June 201 31 December
4 3 2013
HK$ HK$ HK$
Cash flow from operating
activities
(Loss) / profit before income tax (3,468,661) (1,173,882) 2,501,831
Amortisation of patents 135,027 141,940 277,524
Bad debts written off - - 508,758
Interest received (62,065) (52,547) (112,204)
Depreciation 173,037 174,147 355,301
Foreign exchange (gain) / loss, (206,935) 295,581 699,677
net
Interest paid 91,751 87,436 142,816
(Gain) / loss on disposal of - (12,603) (8,392)
property, plant and equipment
Patents written off - 113,351 164,197
Inventories written off - - 42,840
Share-based compensation - 118,227 118,227
Operating profit before
working capital changes (3,337,846) (308,350) 4,690,575
Increase in inventories (385,699) (1,285,031) (277,053)
(Increase) / decrease in trade (540,001) 2,056,672 3,193,866
and other receivables
Decrease in trade and other (761,622) (714,478) (816,710)
payables
Net cash (used in) / generated (5,025,168) (251,187) 6,790,678
from operations
Corporate income tax paid (837,817) (1,015,441) (1,698,396)
Interest paid (91,751) (87,437) (142,816)
Net cash (used in) / generated (5,954,736) (1,354,065) 4,949,466
from operating activities
Cash flow from investing
activities
Purchase of property, plant and (7,942) (676,923) (762,411)
equipment
Proceeds from sales of property, - 43,735 42,388
plant and equipment
Interest received 62,065 52,547 112,204
Net cash generated from / (used 54,123 (580,641) (607,819)
in) investing activities
Cash flow from financing
activities
Repayment of bank borrowings - (2,466,395) (2,466,395)
Dividend paid to minority - - (636,012)
interests
Proceeds from new bank borrowings - - 2,543,882
Net cash used in financing - (2,466,395) (558,525)
activities
Net (decrease) / increase in cash (5,900,613) (4,401,101) 3,783,122
and cash equivalents
Cash and cash equivalents at the 18,535,663 14,831,853 14,831,853
beginning of the period / year
Exchange (loss) / gain on cash (94,885) 135,727 (79,312)
and cash equivalents
Cash and cash equivalents at the 11 12,540,165 10,566,479 18,535,663
end of the period / year
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2014
(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 2013.
(2) SEGMENT REPORTING
(a) Primary reporting format - Geographical Segment
The group's operations are mainly located in Hong Kong, PRC, Thailand. The
group's sales revenue by geographical location of customers are analysed as
follows:
Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 201 30 June 201 31 December
4 3 2013
HK$ HK$ HK$
PRC 10,682,919 14,852,920 32,645,259
Thailand 4,981,397 6,415,474 15,607,565
Others 1,089,504 231,504 368,784
16,753,820 21,499,898 48,621,608
(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 Unaudited Audited
six months six months year ended
ended ended
30 June 30 June 31 December
2014 2013 2013
HK$ HK$ HK$
PRC 15,951,260 14,920,728 19,227,186
Thailand 5,339,232 7,062,212 7,987,858
Hong Kong 1,611,939 1,133,167 1,414,752
Others 2,520,948 2,842,405 2,163,327
25,423,379 25,958,512 30,793,123
(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 Unaudited Audited
six months six months year ended
ended ended
30 June 30 June 2013 31 December
2014 2013
HK$ HK$ HK$
Government subsidy - - 284,915
Sundry income 20,557 19,590 42,591
20,557 19,590 327,506
(5) OPERATING (LOSS) / PROFIT
Operating (loss) / profit is stated after charging the following items:-
Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 30 June 2013 31 December
2014 2013
HK$ HK$ HK$
Amortisation of patents 135,027 141,940 277,524
Auditor's remuneration 160,000 155,000 288,407
Cost of inventories 6,392,200 7,745,254 17,157,736
Depreciation 173,037 114,216 236,910
(Gain) / loss on disposal of - (12,603) -
property, plant and equipment
Rental charges under operating 386,657 397,902 857,894
leases
in respect of land and
buildings
Staff costs
(including directors'
emoluments)
- wages and salaries 5,993,319 6,391,246 11,504,604
- contributions to retirement 415,222 424,084 849,510
benefits
- share-based compensation - 118,227 118,227
- other staff benefits 1,419,026 1,347,684 2,976,576
(6) NET FINANCE COST
Unaudited Unaudited Audited
six months six months year ended
ended ended
30 June 201 31 December
30 June 201 3 2013
4
HK$ HK$ HK$
Bank interest income 62,065 52,547 112,204
Interest expense on bank loans (91,751) (87,436) (142,816)
(29,686) (34,889) (30,612)
(7) INCOME TAX EXPENSE
No provision for Hong Kong Profits Tax has been made (June 2013: HK$nil; 2013:
HK$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 2014 is HK$20,864 (June 2013: HK$526,482; 2013:
HK$1,638,901).
(8) (LOSS) / EARNINGS PER SHARE
The calculation of the basic loss per share for the six months ended 30 June
2014, is based on the loss attributable to ordinary equity shareholders of the
company of HK$3,429,897 (June 2013: HK$2,187,134; 2013: loss of HK$114,899)
during the period and the weighted average number of 68,834,388 ordinary shares
(June 2013: 68,834,388; 2013: 68,834,388) in issue during the period/year. No
diluted loss per share is to be reported for the period/year.
(9) DIVIDENDS
No payment of dividend was recommended for the first six months of 2014 (June
2013: HK$ nil; 2013: HK$nil).
(10) TRADE AND OTHER RECEIVABLES
Unaudited Unaudited Audited
30 June 30 June 2013 31 December
2014 2013
HK$ HK$ HK$
Trade receivables 5,961,942 6,507,779 5,502,500
Less: provision for (741,562) (387,346) (743,813)
impairment loss
5,220,380 6,120,433 4,758,687
Other receivables - 544,196 120,533
Prepayments and deposits 1,096,441 865,093 897,600
6,316,821 7,529,722 5,776,820
(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 2013
30 June 2014
30 June 2013
HK$ HK$ HK$
At 1 January 743,813 440,942 440,942
Impairment loss - - 508,758
recognised
Written off - (44,758) (213,047)
Exchange difference (2,251) (8,838) 7,160
At 30 June/31 741,562 387,346 743,813
December
At 30 June 2014, the Group's trade receivables of HK$741,562 (June 2013:
HK$387,346, 2013: HK$743,813) have been outstanding for a certain period of
time. The management assessed that only a portion of the receivables is
expected to be recoverable. Consequently, specific allowance for doubtful debts
was recognised for the individually impaired receivables.
The Group does not hold any collateral over these balances.
(11) CASH AND CASH EQUIVALENTS
Unaudited Unaudited Audited
30 June 2014 30 June 2013
31 December 2013
HK$ HK$ HK$
Cash at bank and on 12,540,165 10,566,479 18,535,663
hand
Cash and cash 12,540,165 10,566,479 18,535,663
equivalents
in the cash flow
statement
(12) SHARE CAPITAL
Unaudited Unaudited Audited
30 June 201 30 June 201 31 December
4 3 2013
HK$ HK$ HK$
Authorised
150,000,000 (June 2013: 1,500,000 1,500,000 1,500,000
150,000,000 and Dec 2013:
150,000,000) ordinary shares of
HK$0.01 each
Issued and fully paid
68,834,388 (June 2013: 688,344 688,344 688,344
68,834,388 and
Dec 2013: 68,834,388) ordinary
shares of HK$0.01 each
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company. All ordinary shares rank equally with regard to the Company's residual
assets.
(13) TRADE AND OTHER PAYABLES
Unaudited Unaudited Audited
30 June 2014 30 June 2013 31 December
2013
HK$ HK$ HK$
Trade payables 1,572,518 2,624,381 2,206,357
Other payables and accrued 3,307,075 3,119,066 3,434,858
expenses
4,879,593 5,743,447 5,641,215
All of the trade and other payables are expected to be settled within one year.
(14) BANK BORROWINGS
Unaudited Unaudited Audited
30 June 201 30 June 201 31 December
4 3 2013
HK$ HK$ HK$
Current
Bank borrowings, unsecured (a) 2,519,526 - 2,543,882
a. The effective interest rate per annum for bank borrowings at balance sheet
date is at 7.2% (June 2013: Nil, 2013: 7.2%) per annum.
(15) RELATED PARTY TRANSACTIONS
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December
30 June 201 30 June 2013 2013
4
HK$ HK$ HK$
Related companies
Legal and professional fees 67,620 67,620 109,125
paid
Spouse of a director 60,469 - 10,176
Staff quarter expenses
(16) RECONCILIATION OF (LOSS) / PROFIT BEFORE INCOME TAX TO EBITDA
Unaudited Unaudited Audited
six months six months year ended
ended ended
31 December
30 June 201 30 June 201 2013
4 3
HK$ HK$ HK$
(Loss) / profit before income (3,468,661) (1,173,882) 2,501,831
tax
Depreciation 173,037 174,147 355,301
Amortisation of patents 135,027 141,940 277,524
Interest income (62,065) (52,547) (112,204)
Interest expenses 91,751 87,436 142,816
Patents written off - 113,351 164,197
(Gain) / loss on disposal of - (12,603) (8,392)
property, plant and equipment
Bad debts written off - - 508,758
Share-based compensation - 118,227 118,227
EBITDA (3,130,911) (603,931) 3,948,058
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.
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