Half Yearly Report

RNS Number : 7403O

Walcom Group Limited

24 September 2013

 



24 September 2013

Walcom Group Limited

("Walcom" or the "Company")

Half-yearly unaudited results for the six months ended 30 June 2013

The Board of Walcom Group Limited presents the Company's unaudited results for the six months ended 30 June 2013.

Highlights

² Loss per share increased by 112 per cent. to 3.18 HK cents

² Revenue and gross profit rose by 8 per cent. to HK$21.5 million and 6 per cent. to HK$13.5 million respectively

² PRC and overseas sales increased by 2 per cent. to HK$14.9 million and 23 per cent. to HK$6.6 million respectively

Further enquiries:

Walcom Group Limited	[phone]
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
Sanlam Securities Limited (Nominated adviser & broker)	[phone]
Lindsay Mair/Virginia Bull

CHAIRMAN'S STATEMENT

Introduction

Despite the slowing down in the Chinese economy, the Company is pleased to report that due to the improvement of sales in Thailand, the Company's revenue grew by 8 per cent. compared with the same period last year. However, due to the increased production costs and operating expenses the Company incurred a loss per share of HK$3.18 cents, an increase of 112 per cent. over the loss of HK$1.50 cents per share in June 2012.

Results for the Period

The Company generated revenues during the period of HK$21.5 million (June 2012: HK$20.0 million) and gross profits of HK$13.5 million (June 2012: HK$12.7 million), representing increases of 8 per cent. and 6 per cent. respectively compared with the same period last year. In addition, there was a minor decrease of the gross profit margin for the period from 64 per cent. in the same period last year to 63 per cent. during this financial period, owing to escalating production costs. With the impact of increasing operating expenses and in particular a compensation expense of HK$1 million for terminating the sales distributorship in Hunan Province, China, the Company increased its net loss by 225 per cent. to HK$1.7 million (June 2012: loss of HK$0.5 million) and recorded a loss of HK$0.6 million at the EBITDA level compared to a profit of HK$1.1 million over the same period last year.

Review of Activities and Market

In the six months to 30 June 2013, sales in the PRC and overseas improved by 2 per cent. and 23 per cent. to HK$14.9 million (June 2012: HK$14.6 million) and HK$6.6 million (June 2012: HK$5.4 million) respectively. The sales in the PRC during the period were maintained at approximately the same level as last year despite the slower Chinese economy and the weak demand for porkcaused by the outbreak of the lethal H7N9 avian flu during the second quarter of the year. Strong sales in Thailand remained the driving force behind the improvement in overseas sales.

In addition to the slower economy under the new Chinese leadership, the Company's sales in China also faced the following hardships during the first half year of 2013:

1.   The price of pork dropped significantly between the beginning of the year and June after which it recovered to the breakeven point in the pig farming industry. There was a material reduction in the pig population while the pig farms cut down their farming scale to minimise their loss. This in turn affected the feed consumption and thus the sales of the Walcom products;

2.   The outbreak of the lethal H7N9 avian flu during the second quarter had a further hit on the pig farming industry as there was a wide spread rumour that the H7N9 virus was closely connected with pigs. During the second quarter, the Chinese avoided eating birds and some more cautious consumers even skipped pork in their meals.

With the recent rise in the farm gate price and in the number of pigs in farms, the management expects an improvement in the sales of feeds which will in turn increase the sales of Walcom products. The management also projects a greater demand for the Company¡¦s products due to the higher seasonal demand in the last quarter of the year.

As in the same period last year, sales in Thailand remained the major contributor to the Company's overseas market results. They increased by 24 per cent. to HK$6.4million (June 2012: HK$5.2million) during the period under review. The sales effort implemented in the past few years has started to produce rewards as proved by a larger portfolio of customers achieved.

Outlook

Although the Chinese economy has slowed, the rising production costs and operating expenses will be the most unfavourable factors faced by the Company in the remaining months of the year. However, the management expects the Company's business portfolio will improve by breaking through the sales to new customers and expanding the sales coverage geographically. The Directors are optimistic that the Company will present a satisfactory result for the full year 2013.

Eddie K M Chan

Chairman

24 September 2013

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2013

	Note		Unaudited six months ended 30 June 2013		Unaudited six months ended 30 June 2012		Audited year ended 31 December 2012
			HK$		HK$		HK$
Revenue	3		21,499,898		19,976,736		47,239,167
Cost of sales			(8,027,980)		(7,276,481)		(17,683,088)
Gross profit			13,471,918		12,700,255		29,556,079
Other income	4		19,590		20,218		379,894
Research and development expenses			(819,412)		(851,173)		( 1,434,131)
Selling and distribution expenses			(5,143,730)		(4,988,588)		(10,905,767)
General and administrative expenses			(8,667,359)		(6,657,385)		(13,870,697)
(Loss) / profit from operations	5		(1,138,993)		223,327		3,725,378
Net finance expenses	6		(34,889)		(49,473)		(108,922)
(Loss) / profit before income tax			(1,173,882)		173,854		3,616,456
Income tax expense	7		(526,482)		(696,587)		(1,915,658)
(Loss) / profit for the period / year			(1,700,364)		(522,733)		1,700,798
(Loss) / profit attributable to:
Owners of the Company			(2,187,134)		(1,034,047)		850,980
Non-controlling interests			486,770		511,314		849,818
(Loss) / profit for the period / year			(1,700,364)		(522,733)		1,700,798
(Loss) / earnings per share - basic, HK cents	8		(3.18)		(1.50)		1.24
- diluted, HK cents			(3.18)		(1.50)		1.24

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2013

	Note		Unaudited six months ended 30 June 2013		Unaudited six months ended 30 June 2012		Audited year ended 31 December 2012
			HK$		HK$		HK$
(Loss) / profit for the period / year			(1,700,364)		(522,733)		1,700,798
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries			434,206		(179,164)		111,796
Total comprehensive (loss) / income
for the period / year			(1,266,158)		(701,897)		1,812,594
Total comprehensive (loss) / income
attributable to:
Owners of the Company			(1,717,700)		(1,200,678)		915,274
Non-controlling interests			451,542		498,781		897,320
Total comprehensive (loss) / income
for the period / year			(1,266,158)		(701,897)		1,812,594

UNAUDITED CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2013

	Note		Unaudited 30 June 2013		Unaudited 30 June 2012		Audited 31 December 2012
			HK$		HK$		HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment			2,316,211		2,029,851		1,841,668
Patents			2,842,405		3,783,659		3,097,696
			5,158,616		5,813,510		4,939,364
CURRENT ASSETS
Inventories			2,703,695		1,907,922		1,418,664
Trade and other receivables	11		7,529,722		6,737,884		9,586,394
Amounts due from an associate	10		-		928,663		-
Cash and cash equivalents	12		10,566,479		12,271,809		14,831,853
			20,799,896		21,846,278		25,836,911
TOTAL ASSETS			25,958,512		27,659,788		30,776,275
EQUITY AND LIABILITIES
EQUITY
Share capital	13		688,344		688,344		688,344
Reserves			16,864,336		16,210,054		18,463,809
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY			17,552,680		16,898,398		19,152,153
Non-controlling interests			2,147,848		1,567,456		1,696,306
TOTAL EQUITY			19,700,528		18,465,854		20,848,459
CURRENT LIABILITIES
Trade and other payables	14		5,743,447		6,138,869		6,457,925
Tax payables			514,537		601,679		1,003,496
Bank borrowings	15		-		2,453,386		2,466,395
			6,257,984		9,193,934		9,927,816
TOTAL LIABILITIES			6,257,984		9,193,934		9,927,816
TOTAL EQUITY AND LIABILITIES			25,958,512		27,659,788		30,776,275
NET CURRENT ASSETS			14,541,912		12,652,344		15,909,095
TOTAL ASSETS LESS CURRENT LIABILITIES			19,700,528		18,465,854		20,848,459

 

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2013

							Share-based								Non-
	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 2012	688,344		95,298,644		23,852,469		2,047,819		2,123,085		(106,220,980)		17,789,381		1,398,458		19,187,839
Comprehensive loss
Loss for the period	-		-		-		-		-		(1,034,047)		(1,034,047)		511,314		(522,733)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-		-		-		-		(166,631)		-		(166,631)		( 12,533)		179,164
Total comprehensive loss for the period	-		-		-		-		(166,361)		(1,034,047)		(1,200,678)		498,781		(701,897)
Dividends to non-controlling interests	-		-		-		-		-		-		-		(329,783)		(329,783)
Recognition of equity-settled
share-based payments	-		-		-		309,695		-		-		309,695		-		309,695
At 30 June 2012	688,344		95,298,644		23,852,469		2,357,514		1,956,454		(107,255,027)		16,898,398		1,567,456		18,465,854
At 1 January 2013	688,344		95,298,644		23,852,469		2,455,408		2,187,379		(105,330,091)		19,152,153		1,696,306		20,848,459
Comprehensive loss
Loss for the period	-		-		-		-		-		(2,187,134)		(2,187,134)		486,770		(1,700,364)
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries	-		-		-		-		469,434		-		469,434		(35,228)		434,206
Total comprehensive loss for the period	-		-		-		-		469,434		(2,187,134)		(1,717,700)		451,542		(1,266,158)
Recognition of equity-settled
share-based payments	-		-		-		118,227		-		-		118,227		-		118,227
At 30 June 2013	688,344		95,298,644		23,852,469		2,573,635		2,656,813		(107,517,225)		17,552,680		2,147,848		19,700,528

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2013

	Note		Unaudited six months ended 30 June 2013		Unaudited six months ended 30 June 2012		Audited year ended  31 December 2012
			HK$		HK$		HK$
Cash flow from operating activities
(Loss) / profit before income tax			(1,173,882)		173,854		3,616,456
Amortisation of patents			141,940		167,610		335,728
Bad debts written off			-		-		2,011
Interest received			(52,547)		(35,827)		(66,971)
Depreciation			174,147		333,057		620,951
Foreign exchange loss / (gain), net			295,581		(84,960)		3,021
Interest paid			87,436		85,300		175,893
(Gain) / loss on disposal of property, plant and equipment			(12,603)		11,740		77,451
Written off of amounts due from associate			-		-		580,273
Patents written off			113,351		83,140		655,021
Inventories written off			-		-		18,740
Share-based compensation			118,227		309,695		447,498
Operating profit before
working capital changes			(308,350)		1,043,609		6,466,072
Increase in inventories			(1,285,031)		(686,770)		(216,252)
Increase / (decrease) in trade and other receivables			2,056,672		1,657,808		(1,439,335)
Decrease in amount due from associate ¡V trade related			-		19,500		-
(Decrease) / increase in trade and other payables			(714,478)		433,061		796,967
Net cash (used in) / generated from operations			(251,187)		2,467,208		5,607,452
Corporate income tax paid			(1,015,441)		(997,854)		(1,568,486)
Interest paid			(87,437)		(85,300)		(175,893)
Net cash (used in) / generated from operating activities			(1,354,065)		1,384,054		3,863,073
Cash flow from investing activities
Purchase of property, plant and equipment			(676,923)		(234,164)		(363,229)
Payment for patents			-		(75,421)		(129,456)
Proceeds from sales of property, plant and equipment			43,735		-		3,060
Amounts due from associates-non-trade related			-		(195,000)		172,890
Interest received			52,547		35,827		66,971
Net cash used in investing activities			(580,641)		(468,758)		(249,764)
Cash flow from financing activities
Repayment of bank borrowings			(2,466,395)		(2,467,004)		(2,467,004)
Dividend paid to minority interests			-		(329,783)		(599,472)
Proceeds from new bank borrowings			-		2,453,386		2,466,395
Net cash used in financing activities			(2,466,395)		(343,401)		(600,081)
Net (decrease) / increase in cash and cash equivalents			(4,401,101)		571,895		3,013,228
Cash and cash equivalents at the beginning of the period / year			14,831,853		11,736,464		11,736,464
Exchange gain / (loss) on cash and cash equivalents			135,727		(36,550)		82,161
Cash and cash equivalents at the end of the period / year	12		10,566,479		12,271,809		14,831,853

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2013

(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 2012.

(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 2013		Unaudited six months ended 30 June 2012		Audited year ended 31 December 2012
	HK$		HK$		HK$
PRC	14,852,920		14,589,412		34,707,282
Thailand	6,415,474		5,186,396		11,819,121
The Philippines	-		78,000		-
Others	231,504		122,928		712,764
	21,499,898		19,976,736		47,239,167

(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.

(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 2013		Unaudited six months ended 30 June 2012		Audited year ended 31 December 2012
	HK$		HK$		HK$
Government subsidy	-		-		340,217
Sundry income	19,590		20,218		39,677
	19,590		20,218		379,894

(5)     OPERATING (LOSS) / PROFIT

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

	Unaudited six months ended 30 June 2013		Unaudited six months ended 30 June 2012		Audited year ended 31 December 2012
	HK$		HK$		HK$
Amortisation of patents	141,940		167,610		335,728
Auditor's remuneration	155,000		145,000		261,311
Cost of inventories	8,027,980		7,276,481		17,683,088
Depreciation	114,216		139,304		290,334
(Gain) / loss on disposal of property, plant and equipment	(12,603)		-		77,451
Rental charges under operating leases  in respect of land and buildings	424,140		309,467		739,762
Staff costs  (including directors' emoluments)
- wages and salaries	6,391,246		5,631,059		10,620,164
- contributions to defined contribution    retirement plans	424,084		410,690		814,571
- share-based compensation	118,227		309,696		447,498
- other staff benefits	1,321,446		1,212,035		2,788,715

(6)     NET FINANCE EXPENSE

	Unaudited six months ended  30 June 2013		Unaudited six months ended 30 June 2012		Audited year ended 31 December 2012
	HK$		HK$		HK$
Bank interest income	52,547		35,827		66,971
Interest expense on bank loans	(87,436)		(85,300)		(175,893)
	(34,889)		(49,473)		(108,922)

(7)     INCOME TAX EXPENSE

No provision for Hong Kong Profits Tax has been made (June 2012: HK$nil; 2012: HK$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 2013 is HK$526,482 (June 2012: HK$696,587; 2012: HK$1,915,658).

(8)     (LOSS) / EARNINGS PER SHARE

The calculation of the basic loss per share for the six months ended 30 June 2013, is based on the loss attributable to ordinary equity shareholders of the company of HK$2,187,134 (June 2012: HK$1,034,047; 2012: profit of HK$850,980) during the period and the weighted average number of 68,834,388 ordinary shares (June 2012: 68,834,388; 2012: 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 2013 (June 2012: HK$ nil; 2012: HK$nil).

(10)   INVESTMENT IN ASSOCIATE

	Unaudited  30 June 2013		Unaudited  30 June 2012		Audited 31 December 2012
	HK$		HK$		HK$
Share of net assets	-		-		-
Amounts due from an associate
-  Trade related balance	-		1,089,244		-
-  Non-trade related balance	-		2,303,438		-
Provision for impairment losses on trade related balances	-		(752,000)		-
Provision for impairment losses on non-trade related balances	-		(1,712,019)		-
	-		928,663		-

The amounts due from an associate is denominated in United States dollars. The credit period granted for the trade related balance ranges from 90 days to 180 days. The non-trade related balance is unsecured, interest free and has no fixed terms of repayment.

(11)   TRADE AND OTHER RECEIVABLES

	Unaudited  30 June 2013		Unaudited  30 June 2012		Audited 31 December 2012
	HK$		HK$		HK$
Trade receivables	6,507,779		6,164,097		8,402,438
Less: provision for impairment loss	(387,346)		(542,885)		(440,942)
	6,120,433		5,621,212		7,961,496
Other receivables	544,196		449,950		796,833
Prepayments and deposits	865,093		666,722		828,065
	7,529,722		6,737,884		9,586,394

(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 2013		Unaudited  six months ended 30 June 2012		Audited  year ended 31 December 2012
	HK$		HK$		HK$
At 1 January	440,942		545,899		545,899
Written off	(44,758)		-		(104,848)
Exchange difference	(8,838)		(3,014)		(109)
At 30 June/31 December	387,346		542,885		440,942

(b)   Impairment of trade receivables (continued)

At 30 June 2013, the Group¡¦s trade receivables of HK$387,346 (June 2012: HK$542,885, 2012: HK$440,942) have been outstanding for a certain period of time. The management assessed that only a portion of the receivables are expected to be recoverable. Consequently, specific allowance for doubtful debts were recognised for the individually impaired receivables. 

The Group does not hold any collateral over these balances.

(12)  CASH AND CASH EQUIVALENTS

	Unaudited  30 June 2013		Unaudited  30 June 2012		Audited 31 December 2012
	HK$		HK$		HK$
Cash at bank and on hand	10,566,479		12,271,809		14,831,853
Cash and cash equivalents in the cash flow statement	10,566,479		12,271,809		14,831,853

(13)   SHARE CAPITAL

	Unaudited  30 June 2013		Unaudited  30 June 2012		Audited  31 December 2012
	HK$		HK$		HK$
Authorised
150,000,000 (June 2012: 150,000,000 and Dec 2012: 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 2012: 68,834,388 and  Dec 2012: 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.

(14)   TRADE AND OTHER PAYABLES

	Unaudited  30 June 2013		Unaudited  30 June 2012		Audited 31 December 2012
	HK$		HK$		HK$
Trade payables	2,624,381		3,016,406		2,914,956
Other payables and accrued expenses	3,119,066		3,122,463		3,542,969
	5,743,447		6,138,869		6,457,925

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

(15)  BANK BORROWINGS

		Unaudited  30 June 2013		Unaudited  30 June 2012		Audited  31 December 2012
		HK$		HK$		HK$
Current
Bank borrowings, secured	(a)	-		2,453,386		2,466,395

(a)  The bank loan was repaid during the period. 

(16)   RELATED PARTY TRANSACTIONS

	Unaudited  six months ended 30 June 2013		Unaudited  six months ended 30 June 2012		Audited  year ended 31 December 2012
	HK$		HK$		HK$
Related companies
Legal and professional fees paid	67,620		95,142		109,920

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

	Unaudited six months ended 30 June 2013		Unaudited six months ended 30 June 2012		Audited year ended 31 December 2012
	HK$		HK$		HK$
(Loss) / profit before income tax	(1,173,882)		173,854		3,616,456
Depreciation	174,147		333,057		620,951
Amortisation of patents	141,940		167,610		335,728
Interest income	(52,547)		(35,827)		(66,971)
Interest expenses	87,436		85,300		175,893
Patents written off	113,351		83,140		655,021
(Gain) / loss on disposal of property, plant and equipment	(12,603)		11,740		77,451
Written off of amounts due from associate	-		-		580,273
Bad debts written off	-		-		2,011
Share-based compensation	118,227		309,696		447,498
EBITDA	(603,931)		1,128,570		6,444,311

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.

(18)   COPIES OF HALF YEARLY REPORT

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

 

END

 

 

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