Half-year Report

RNS Number : 4313K

Walcom Group Limited

21 September 2016

 

21 September 2016

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR")

 

WALCOM GROUP LIMITED

("Walcom" or the "Company")

Half-yearly results for the six months ended 30 June 2016

Walcom is pleased today to announce its interim results for the six months ended 30 June 2016. These results are also available from the Company's website at www.walcomgroup.com. 

Further enquiries:

Walcom Group Limited Francis Chi (Chief Executive Officer) Albert Wong (Chief Financial Officer)	[phone]
Allenby Capital Limited David Hart	[phone]

CHAIRMAN'S STATEMENT

Introduction

The growth in the PRC economy remained slow during the first six months of the year and the performance of the pig farming industry did not improve during the same period. However, the Company was able to increase its revenue by 7 per cent. compared with the same period last year.  Despite the adverse exchange impact of the Renminbi and Thai Baht during this financial period and the continuing increase in production costs and operating expenses, the Company incurred a smaller loss per share for the period of HK$2.46 cents compared with a loss per share of HK$2.81 cents in the same period last year, showing an improvement of 13 per cent.

Results for the Period

The Company generated revenues of HK$20.7 million during the period (June 2015: HK$19.3 million) and gross profits of HK$11.7 million (June 2015: HK$12.1 million), representing an increase of 7 per cent. and a decrease of 3 per cent., respectively, compared with the same period last year.  The gross profit margin reduced to 56.5 per cent. (June 2015: 62.6 per cent.) owing to the aggregate impact of the devaluation of Renminbi and Thai Baht, which had significant adverse effect on the sales made in these two currencies, and the escalated production costs, in particular raw materials, labour and rental expenses.  Notwithstanding the above unfavourable factors, the Company reduced its net loss by 8 per cent. to HK$1.69 million (June 2015: loss of HK$1.83 million) and incurred a loss of HK$1.12 million at the EBITDA level, a decrease of 20 per cent. over the same period last year (June 2015: HK$1.40 million).

Review of Activities and Market

Despite the weakened Renminbi, but as a result of increase in sales quantity, during the six months to 30 June 2016, the sales turnover in the PRC increased by 13 per cent. to HK$11.8 million as compared to the same period last year (June 2015: HK$10.5 million) while overseas sales were maintained at HK$8.9 million, approximately the same level as last year (June 2015: HK$8.8 million).

Although the pig farm gate price in China began to rise in April 2015 and remained at a comparatively high level during the first 6 months of 2016, the demand for feedstuff remained weak as the number of farmed pigs remained low as a result of the large number of discontinued pig farms during 2014. The Board estimated last year that it would take some time for pig numbers to return to their previous level and this is still the situation at the moment.  The animal feed market has not yet fully recovered and this in turn has affected the operating results of the Company.

The Company's overseas sales were maintained at about the same level as last year.  Sales in Thailand in terms of quantity remained the same as last year. However, owing to the weakened Thai Baht and lower average unit selling price in Thailand, the Thai sales reported in Hong Kong Dollars were 9% less than last year (June 2016: 7.3 million; June 2015: 8.0 million).

Sales in Korea recovered during the period under review and sales increased by 188 per cent. to HK$1.6 million (June 2015: HK$0.5 million).

Acquisition of Land in Thailand

Further to the Company's announcement made on 21 July 2016, the acquisition of the land in Thailand for the purpose of developing a feed manufacturing plant is expected to be completed in November this year.  In view of the growth of sales of the Company's products in the Association of Southeast Asian Nations Economic Communities ("AEC") in the coming years, the Directors are optimistic that the building of a manufacturing plant in Thailand, which is an AEC country, should offer beneficial trading terms for the Company due to the region's trade treaties.

Outlook

The ongoing structural transformation of the Chinese economy has resulted in a slower growth in the economy in the past two years.  The consumer market has been inevitably affected, which has had a negative impact on the Company's sales in the PRC market.  However, efforts are being made in exploring new markets in the AEC region and to increase the Company's portfolio of customers with some encouraging results and the Directors are confident that this will result in improved sales in the overseas market.  In view of the coming high sales season of the Company's products in the PRC market and the expected growth in the Asian markets in the second half of the year, the Directors are cautiously optimistic in the overall performance of the Company in the year 2016.

Frankie Y. L. Wong

Chairman

21 September 2016

WALCOM GROUP LIMITED

UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

	Note		Unaudited six months ended 30 June 2016		Unaudited six months ended 30 June 2015		Audited year ended 31 December 2015
			HK$		HK$		HK$
Revenue	3		20,693,043		19,300,594		44,236,805
Cost of sales			(8,994,822)		(7,225,298)		(17,491,561)
Gross profit			11,698,221		12,075,296		26,745,244
Other income	4		13,173		23,636		189,853
Research and development expenses			(804,635)		(765,946)		(1,224,261)
Selling and distribution expenses			(5,496,572)		(5,879,720)		(11,847,110)
General and administrative expenses			(6,825,912)		(7,196,273)		(12,055,434)
(Loss) / profit from operations	5		(1,415,725)		(1,743,007)		1,808,292
Net finance expenses	6		(31,507)		(16,713)		(21,123)
(Loss) / profit before income tax			(1,447,232)		(1,759,720)		1,787,169
Income tax expense	7		(240,916)		(74,906)		(1,308,485)
(Loss) / profit for the period / year			(1,688,148)		(1,834,626)		478,684
(Loss) / profit attributable to:
Owners of the Company			(1,690,571)		(1,935,378)		335,472
Non-controlling interests			2,423		100,752		143,212
(Loss) / profit for the period / year			(1,688,148)		(1,834,626)		478,684
(Loss) / profit per share - basic, HK cents	8		(2.46)		(2.81)		0.49
- diluted, HK cents			(2.46)		(2.81)		0.49

WALCOM GROUP LIMITED

UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2016

	Note		Unaudited six months ended 30 June 2016		Unaudited six months ended 30 June 2015		Audited year ended 31 December 2015
			HK$		HK$		HK$
(Loss) / profit for the period / year			(1,688,148)		(1,834,626)		478,684
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries			(669,340)		(39,315)		(2,793,995)
Total comprehensive loss
for the period / year			(2,357,488)		(1,873,941)		(2,315,311)
Total comprehensive loss
attributable to:
Owners of the Company			(2,419,944)		(1,951,302)		(2,262,139)
Non-controlling interests			62,456		77,361		(53,172)
Total comprehensive loss
for the period / year			(2,357,488)		(1,873,941)		(2,315,311)

WALCOM GROUP LIMITED

UNAUDITED CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2016

	Note		Unaudited 30 June 2016		Unaudited 30 June 2015		Audited 31 December 2015
			HK$		HK$		HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment			1,383,334		1,755,065		1,520,698
Patents			1,946,865		2,212,403		2,079,634
Goodwill			-		-		-
			3,330,199		3,967,468		3,600,332
CURRENT ASSETS
Inventories			1,759,975		2,947,561		2,247,884
Trade and other receivables	10		7,475,382		6,475,343		7,804,291
Cash and cash equivalents Restricted cash	11 11		11,428,764 106,794		13,606,316 112,228		13,670,351 103,813
			20,770,915		23,141,448		23,826,339
TOTAL ASSETS			24,101,114		27,108,916		27,426,671
EQUITY AND LIABILITIES
EQUITY
Share capital	12		688,344		688,344		688,344
Reserves			14,120,209		16,850,990		16,540,153
TOTAL EQUITY ATTRIBUTABLE TO   OWNERS OF THE COMPANY			14,808,553		17,539,334		17,228,497
Non-controlling interests			2,149,051		2,217,128		2,086,595
TOTAL EQUITY			16,957,604		19,756,462		19,315,092
CURRENT LIABILITIES
Trade and other payables	13		4,561,715		4,743,853		4,954,919
Tax payables			241,793		72,461		769,455
Bank borrowings	14		2,340,002		2,536,140		2,387,205
			7,143,510		7,352,454		8,111,579
TOTAL LIABILITIES			7,143,510		7,352,454		8,111,579
TOTAL EQUITY AND LIABILITIES			24,101,114		27,108,916		27,426,671
NET CURRENT ASSETS			13,627,405		15,788,994		15,714,760
TOTAL ASSETS   LESS CURRENT LIABILITIES			16,957,604		19,756,462		19,315,092

WALCOM GROUP LIMITED

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2016

							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 2015	688,344		95,298,644		23,852,469		1,591,595		2,823,136		2,923,514		(107,687,066)		19,490,636		2,139,767		21,630,403
Comprehensive loss
Loss for the period	-		-		-		-		-		-		(1,935,378)		(1,935,378)		100,752		(1,834,626)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-		-		-		-		(15,924)		-		-		(15,924)		(23,391)		(39,315)
Total comprehensive loss for the period	-		-		-		-		(15,924)		-		(1,935,378)		(1,951,302)		77,361		(1,873,941)
Lapse of share option	-		-		-		(22,826)		-		-		22,826		-		-		-
At 30 June 2015	688,344		95,298,644		23,852,469		1,568,769		2,807,212		2,923,514		(109,599,618)		17,539,334		2,217,128		19,756,462
At 1 January 2016	688,344		95,298,644		23,852,469		1,568,769		225,525		3,263,694		(107,668,948)		17,228,497		2,086,595		19,315,092
Comprehensive loss
Loss for the period	-		-		-		-		-		-		(1,690,571)		(1,690,571)		2,423		(1,688,148)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-		-		-		-		(729,373)		-		-		(729,373)		60,033		(669,340)
Total comprehensive loss for the period	-		-		-		-		(729,373)		-		(1,690,571)		(2,419,944)		62,456		(2,357,488)
Lapse of share options	-		-		-		-		-		-		-		-		-		-
At 30 June 2016	688,344		95,298,644		23,852,469		1,568,769		(503,848)		3,263,694		(109,359,519)		14,808,553		2,149,051		16,957,604

WALCOM GROUP LIMITED

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

	Note		Unaudited six months ended 30 June 2016		Unaudited six months ended 30 June 2015		Audited year ended  31 December 2015
			HK$		HK$		HK$
Cash flow from operating activities
(Loss) / profit before income tax			(1,447,232)		(1,759,720)		1,787,169
Amortisation of patents			132,769		132,769		265,538
Depreciation			151,229		164,288		308,255
Foreign exchange loss / (gain), net			(685,765)		121,469		(1,547,782)
Interest received			(36,618)		(83,077)		(150,719)
Interest paid			68,125		99,790		171,842
Loss on disposal of property, plant and equipment			3,419		1,517		1,517
Patents written off			-		40,749		40,749
Operating (loss)/ profit before
working capital changes			(1,814,073)		(1,282,215)		876,569
Decrease / (increase) in inventories			487,909		(604,040)		95,637
Decrease in trade and other receivables			328,909		1,479,387		101,432
Decrease in trade and other payables			(393,204)		(464,545)		(253,479)
Net cash (used in) / generated from operations			(1,390,459)		(871,413)		820,159
Corporate income tax paid			(768,579)		(525,086)		(1,012,664)
Interest paid			(68,125)		(99,790)		(171,842)
Net cash used in operating activities			(2,227,163)		(1,496,289)		(364,347)
Cash flow from investing activities
Purchase of property, plant and equipment			(9,768)		(59,458)		(91,237)
Interest received			36,618		83,077		150,719
Net cash generated from investing activities			26,850		23,619		59,482
Cash flow from financing activities
Repayment of bank borrowings			-		-		(2,535,176)
Proceeds from new bank borrowings			-		-		2,387,205
(Increase) / decrease in restricted bank balance			(2,981)		-		9,537
Net cash used in financing activities			(2,981)		-		(138,434)
Net decrease in cash and cash equivalents			(2,203,294)		(1,472,670)		(443,299)
Cash and cash equivalents at the beginning of the period / year			13,670,351		15,229,576		15,229,576
Exchange loss on cash and cash equivalents			(38,293)		(150,590)		(1,115,926)
Cash and cash equivalents at the end of the period / year	11		11,428,764		13,606,316		13,670,351

WALCOM GROUP LIMITED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(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 2015.

(2)     SEGMENT REPORTING

(a)          Primary reporting format - Geographical Segment

The Group's operations are mainly located in Hong Kong, PRC and Thailand. The Group's sales revenue by geographical location of customers are analysed as follows:

	Unaudited six months ended 30 June 2016		Unaudited six months ended 30 June 2015		Audited year ended 31 December 2015
	HK$		HK$		HK$
PRC	11,824,924		10,461,572		25,690,774
Thailand	7,289,399		8,033,999		16,181,009
Others	1,578,720		805,023		2,365,022
	20,693,043		19,300,594		44,236,805

(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 2016		Unaudited six months ended 30 June 2015		Audited year ended 31 December 2015
	HK$		HK$		HK$
PRC	14,446,142		17,048,481		17,061,384
Thailand	3,454,609		6,766,308		6,932,584
Hong Kong	4,253,498		1,081,724		1,708,878
Others	1,946,865		2,212,403		1,723,825
	24,101,114		27,108,916		27,426,671

(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 2016		Unaudited six months ended 30 June 2015		Audited year ended 31 December 2015
	HK$		HK$		HK$
Government subsidy	-		-		162,172
Sundry income	13,173		23,636		27,681
	13,173		23,636		189,853

(5)     OPERATING (LOSS) / PROFIT

Operating (loss) / profit is stated after charging the following items:-

	Unaudited six months ended 30 June 2016			Unaudited six months ended 30 June 2015			Audited year ended 31 December 2015
	HK$			HK$			HK$
Amortisation of patents	132,769			132,769			265,538
Auditor's remuneration	180,879			160,000			307,474
Cost of inventories	8,426,009			6,851,910			16,623,712
Depreciation	107,795			164,288			225,969
Patents written off		-			40,749			-
Loss on disposal of property, plant and equipment	3,419			1,517			1,517
Rental charges under operating leases  in respect of land and buildings	442,955			450,768			920,080
Staff costs  (including directors' emoluments)
- wages and salaries	5,664,518			5,870,287			10,718,322
- contributions to retirement benefits	425,378			449,760			899,111
- share-based compensation	-			-			-
- other staff benefits	1,684,273			1,884,071			3,549,183

(6)     NET FINANCE (EXPENSES)/ INCOME

	Unaudited six months ended  30 June 2016		Unaudited six months ended 30 June 2015		Audited year ended 31 December 2015
	HK$		HK$		HK$
Bank interest income	36,618		83,077		150,719
Interest expense on bank loans	(68,125)		(99,790)		(171,842)
	(31,507)		(16,713)		(21,123)

(7)     INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax has been made (June 2015: HK$nil; 2015: HK$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 provided for the six months ended 30 June 2016 is HK$240,916 (June 2015: HK$74,906; 2015: HK$1,308,485).

(8)     LOSS PER SHARE

The calculation of the basic loss per share for the six months ended 30 June 2016, is based on the loss attributable to ordinary equity shareholders of the company of HK$1,690,571 (June 2015: HK$1,935,378; 2015: Profit HK$333,473) during the period and the weighted average number of 68,834,388 ordinary shares (June 2015: 68,834,388; 2015: 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 2016 (June 2015: HK$ nil; 2015: HK$nil).

(10)   TRADE AND OTHER RECEIVABLES

	Unaudited  30 June 2016		Unaudited  30 June 2015		Audited 31 December 2015
	HK$		HK$		HK$
Trade receivables	6,880,895		5,723,317		6,859,583
Less: provision for impairment loss	(508,758)		(508,758)		(508,758)
	6,372,137		5,214,559		6,350,825
Other receivables	229,745		126,431		476,875
Prepayments and deposits	873,500		1,134,353		976,591
	7,475,382		6,475,343		7,804,291

(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 2016		Unaudited  six months ended 30 June 2015		Audited  year ended 31 December 2015
	HK$		HK$		HK$
At 1 January	508,758		508,758		508,758
Written off	-		-		-
Exchange difference	-		-		-
At 30 June/31 December	508,758		508,758		508,758

At 30 June 2016, the Group's trade receivables of HK$508,758 (June 2015: HK$508,758, 2015: HK$508,758) 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  30 June 2016		Unaudited  30 June 2015		Audited 31 December 2015
	HK$		HK$		HK$
Cash at bank and on hand	11,535,558		13,718,544		13,774,164
Less: Cash at bank - restricted	(106,794)		(112,228)		(103,813)
Cash and cash equivalents in the cash flow statement	11,428,764		13,606,316		13,670,351

(12)   SHARE CAPITAL

	Unaudited  30 June 2016		Unaudited  30 June 2015		Audited  31 December 2015
	HK$		HK$		HK$
Authorised
150,000,000 (June 2015: 150,000,000 and Dec 2015: 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 2015: 68,834,388 and       Dec 2015: 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 2016		Unaudited  30 June 2015		Audited 31 December 2015
	HK$		HK$		HK$
Trade payables	1,416,707		1,043,738		1,792,619
Other payables and accrued expenses	3,145,008		3,700,115		3,162,300
	4,561,715		4,743,853		4,954,919

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

(14)  BANK BORROWINGS

		Unaudited  30 June 2016		Unaudited  30 June 2015		Audited  31 December 2015
		HK$		HK$		HK$
Current
Bank borrowings, unsecured	(a)	2,340,002		2,536,140		2,387,205

(a)  The effective interest rate per annum for bank borrowings at balance sheet date is at 5.7% (June 2015: 7.8%, 2015: 5.7%) per annum.

(15)   RELATED PARTY TRANSACTIONS

	Unaudited  six months ended 30 June 2016		Unaudited  six months ended 30 June 2015		Audited  year ended 31 December 2015
	HK$		HK$		HK$
Related companies
Legal and professional fees paid	-		-		111,369

(16)     RECONCILIATION OF (LOSS) / PROFIT BEFORE INCOME TAX TO EBITDA

	Unaudited six months ended 30 June 2016		Unaudited six months ended 30 June 2015		Audited year ended 31 December 2015
	HK$		HK$		HK$
(Loss) / profit before income tax	(1,447,232)		(1,759,720)		1,787,169
Depreciation	151,229		164,288		308,255
Amortisation of patents	132,769		132,769		265,538
Interest income	(36,618)		(83,077)		(150,719)
Interest expenses	68,125		99,790		171,842
Patents written off	-		40,749		40,749
Loss on disposal of property, plant and equipment	3,419		1,517		1,517
EBITDA	(1,128,308)		(1,403,684)		2,424,351

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.

WALCOM GROUP LIMITED

Part D, Mingtai Bldg.

No.351 Guo Shou Jing Road, ZJ Hi-tech Park

Shanghai 201203, China

Tel: [phone] ext 111

Fax: [phone]

Email: [e-mail]

Website: www.walcomgroup.com

 

END

 

 

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