Final Results
9 May 2013
WALCOM GROUP LIMITED
("Walcom" or "the Company")
CHAIRMAN'S STATEMENT
On behalf of the board of directors (the "Board"), I am pleased to present the
final results for the year ended 31 December 2012.
Results
Despite the weak world economy and slow growth in the PRC market during 2012,
the Company's sales momentum was maintained during the period. With the impact
of increasing production costs and operating expenses, the Company finished the
year under review with a slightly reduced profit attributable to the equity
shareholders of HK$0.9 million (2011: Profit HK$1.3 million). Turnover and
gross profit levels for the year under review increased by 7 per cent. (2012:
HK$47.2 million; 2011: HK$44.2 million) and 5 per cent. (2012: HK$29.6 million;
2011: HK$28.0 million) respectively compared to the previous year. Net profit
for the year decreased by 15 per cent. to HK$1.7 million (2011: HK$2.0 million)
and EBITDA decreased by 11 per cent. to HK$6.4 million from HK$7.3 million for
the same period last year.
A summary of the results for the period is set out below:
Year ended Year ended Change
31 December 31 December
2012 2011
HK$'000 HK$'000 per cent.
Turnover 47,239 44,208 7
Gross profit 29,556 28,091 5
Operating profit 3,725 3,946 (6)
EBITDA 6,444 7,258 (11)
Net finance expense (109) (116) (6)
Profit for the year 1,701 1,997 (15)
Earnings per share 1.24 1.88 (34)
- basic (HK cents) 1.24 1.88 (34)
- diluted (HK cents)
Net asset value per share (HK cents) 27.82 25.84 8
Operation and market review
Although the Chinese economy slowed down in 2012，the Company maintained its
sales momentum in the region. However, the escalating production costs lowered
the gross profit margin to 62.6% in 2012 from 63.5% in 2011, and the increasing
operating expenses lowered the net profit of the Company during the year. The
Company continued and compounded its strategy of marketing directly to
potential customers which was originally adopted in 2010. The PRC sales
produced approximately the same level as last year, although 2012 was a
difficult year for the animal feed industry in China. As mentioned in my
statement in last year's annual report, the `Alpha' project, which was designed
to promote the energy saving efficacy in feedstuffs of the Company's products,
continues to play a major role in new business development and sales.
As the political situation in Thailand became more stable during 2012, sales in
the country increased by 40 per cent. Some customers are increasing the
frequency of use of our products in their production which contributes to the
higher demand in the country. The Company's product for improving milk
production in cows, launched in late 2011, is still undergoing testing but this
is necessary to enhance the Company's products' brand reputation. As a result
of the focused effort made over the past few years, the Company's products have
become a trusted brand in the Thai market and, accordingly, the Directors are
expecting further improvement in the country due to higher recognition and
confidence in our products.
Sales in the Philippines were disappointing owing to the continuing poor
economy in the country. The Company ceased the operations of its associate
company in the Philippines at the end of 2012. However, the Company has
appointed a sales distributor in the Philippines to keep the presence of
Company's products in the country.
Recent Developments
As it has been in previous years, China continues to be the major market for
the Company's products and it is expected to continue as such in the future.
Since 2011, the Company has built up better channels of communication with and
gained more trust from potential customers after adopting a new sales strategy
aimed at building up a direct and personal relationship with them. The Company
utilized its data and technology to develop new techniques to solve common
problems encountered in the feed industry, and has helped our customers to
improve their knowledge particularly in areas of feed formulation, production
management and management of sales team.
Patents
At the end of 2012 the Group held 52 granted patents in respect of:
* its core Cysteamine technology in China, Hong Kong, North Korea, New
Zealand, Ukraine, Russia, South Africa, Australia, India, South Korea and
Vietnam;
* poultry feed in the UK, North Korea, Taiwan, Hong Kong, Russia, China,
Australia and Philippines;
* dairy cow feed in New Zealand, the UK, Hong Kong, Europe, Mexico, India,
China, Russia, Australia and Malaysia;
* fish feed in the UK, Hong Kong, Indonesia, Russia, China, Thailand,
Philippines, Vietnam and Taiwan; and
* shellfish feed in Europe, Vietnam, Indonesia, Malaysia, Taiwan, Philippines
and China.
Most of the patents the Company applied for in the past years have been
granted. The Directors believe that there is wide patent coverage in places
where they expect that there will be significant demand for the Company's
products. Some patents which the Directors believe have a reduced chance of
commercialisation were dropped during the year.
Debt
As at the year end, the Group had a short term bank loan of HK$2.5 million,
which was used to finance the Group's general working capital.
Dividend
The Directors do not recommend any dividend payment for the year ended 31
December 2012.
Annual General Meeting
The Annual General Meeting will be held at the offices of the Company's
solicitors, Reeds Smith Richards Butler in Hong Kong at 2:30pm on Tuesday 18
June 2013.
Outlook
The Company achieved a net profit of HK$1.7 million and EBITDA of HK$6.4
million in 2012. Looking to 2013, it will be another challenging year for the
Company. Slower growth in the Chinese economy has been confirmed by the new
leadership of the Chinese government. The prolonged effects of the debt crisis
in the United States and Europe's currency threat on the European Union
introduce further volatility in the global economy. Escalating production costs
and operating expenses will continue to be the major difficulties affecting the
Company's operation. However, the Directors are optimistic that with the
increasing portfolio of the Company's business partners and customers, the
Company will produce another set of fruitful results in 2013.
On behalf of the Board, I would like to express our sincere thanks to the
management team and staff, professional advisers and shareholders for their
continued support during the year.
Eddie K.M. Chan
Chairman
9 May 2013
Further enquiries:
Walcom Group Limited +852 2494 0133
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
Sanlam Securities UK Limited +44 20 7628 2200
Lindsay Mair/Virginia Bull
Consolidated income statement
For the year ended 31 December 2012
(Expressed in Hong Kong dollars)
2012 2011
HK$ HK$
Revenue 47,239,167 44,207,817
Cost of sales (17,683,088 ) (16,116,325 )
Gross profit 29,556,079 28,091,492
Other income 379,894 124,556
Research and development expenses (1,434,131 ) ( 1,580,780 )
Selling and distribution expenses (10,905,767 ) (10,712,894 )
General and administrative expenses (13,870,697 ) (11,976,400 )
Profit from operations 3,725,378 3,945,974
Net finance expense (108,922 ) (116,477 )
Profit before income tax 3,616,456 3,829,497
Income tax expense (1,915,658 ) (1,832,990 )
Profit for the year 1,700,798 1,996,507
Profit / (loss) attributable to:
Owners of the Company 850,980 1,291,396
Non-controlling interests 849,818 705,111
Profit for the year 1,700,798 1,996,507
Earnings / (loss) per share - basic, HK cents 1.24 1.88
- diluted, HK cents 1.24 1.88
Consolidated statement of comprehensive income
For the year ended 31 December 2012
(Expressed in Hong Kong dollars)
2012 2011
HK$ HK$
Profit for the year 1,700,798 1,996,507
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries 111,796 631,579
Total comprehensive income for the year 1,812,594 2,628,086
Total comprehensive income attributable to:
Owners of the Company 915,274 1,996,312
Non-controlling interests 897,320 631,774
Total comprehensive income for the year 1,812,594 2,628,086
Consolidated balance sheet as at 31 December 2012
(Expressed in Hong Kong dollars)
2012 2011
HK$ HK$
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 1,841,668 2,153,287
Patents 3,097,696 4,003,839
Goodwill - -
Investment in associate - -
4,939,364 6,157,126
CURRENT ASSETS
Inventories 1,418,664 1,221,152
Trade and other receivables 9,422,778 7,985,454
Amounts due from associate - 753,163
Tax recoverable 163,616 410,238
Cash and cash equivalents 14,831,853 11,736,464
25,836,911 22,106,471
TOTAL ASSETS 30,776,275 28,263,597
EQUITY
Share capital 688,344 688,344
Reserves 18,463,809 17,101,037
Total equity attributable to OWNERs of the 19,152,153 17,789,381
Company
Non-controlling interests 1,696,306 1,398,458
TOTAL EQUITY 20,848,459 19,187,839
CURRENT LIABILITIES
Trade and other payables 6,457,925 5,705,808
Tax payables 1,003,496 902,946
Bank borrowings 2,466,395 2,467,004
9,927,816 9,075,758
TOTAL LIABILITIES 9,927,816 9,075,758
TOTAL EQUITY AND LIABILITIES 30,776,275 28,263,597
NET CURRENT ASSETS 15,909,095 13,030,713
TOTAL ASSETS LESS CURRENT LIABILITIES 20,848,459 19,187,839
Consolidated statement of changes in equity
For the year ended 31 December 2012
(Expressed in Hong Kong dollars)
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$
(Note 23 (Note 23 (Note 23
(b)(i)) (b)(ii)) (b)(iii))
At 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
1 January
2011
Comprehensive
loss
Loss for the - - - - - 1,291,396 1,291,396 705,111 1,996,507
year
Other
comprehensive
income
Exchange
difference on
translation of
financial - - - - 704,916 - 704,916 (73,337) 631,579
statements of
overseas
subsidiaries
Total - - - - 704,916 1,291,396 1,996,312 631,774 2,628,086
comprehensive
income for the
year
Recognition of
equity-settled
share-based - - - 668,638 - - 668,638 - 668,638
payments
Dividends to - - - - - - - (275,857) (275,857)
non-controlling
interests
At
31 December 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
2011
At
1 January 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
2012
Comprehensive
income
Profit for the - - - - - 850,980 850,980 849,818 1,700,798
year
Other
comprehensive
income
Exchange
difference on
translation of
financial - - - - 64,294 - 64,294 47,502 111,796
statements of
overseas
subsidiaries
Total - - - - 64,294 850,980 915,274 897,320 1,812,594
comprehensive
income for the
year
Recognition of
equity-settled
share-based - - - 447,498 - - 447,498 - 447,498
payments
Lapse of share (39,909) - 39,909 - - -
options
Dividends to - - - - - - - (599,472) (599,472)
non-controlling
interests
At
31 December 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
2012
Consolidated statement of cash flows
For the year ended 31 December 2012
(Expressed in Hong Kong dollars)
2012 2011
HK$ HK$
Cash flow from operating activities
Profit before income tax 3,616,456 3,829,497
Amortisation of patents 335,728 376,251
Bad debts written off 2,011
Interest received (66,971 ) (47,796 )
Depreciation 620,951 690,874
Foreign exchange loss, net 3,021 419,720
Interest paid 175,893 164,273
Loss on disposal of property, plant and 77,451 9,336
equipment
Loss on cessation of a subsidiary's assets - 11,540
Provision for impairment losses on amounts due - 752,000
from associate
Written off of amounts due from associate 580,273
Impairment loss on goodwill - 127,857
Patents written off 655,021 653,581
Inventories written off 18,740 103,029
Share-based compensation 447,498 668,638
Operating profit before working capital changes 6,466,072 7,758,800
(Increase) / decrease in inventories (216,252 ) (451,832 )
Increase in trade and other receivables (1,439,335 ) (1,763,721 )
Decrease in amounts due from associate - trade - 320,684
related
Increase in trade and other payables 796,967 1,596,760
Net cash generated from operations 5,607,452 7,460,691
Corporate income tax paid (1,568,486 ) (1,696,602 )
Interest paid (175,893 ) (164,273 )
Net cash generated from operating activities 3,863,073 5,599,816
Cash flow from investing activities
Payment for patents (129,456 ) (307,310 )
Purchases of property, plant and equipment (363,229 ) (152,099 )
Proceeds from sales of property, plant and 3,060
equipment
Decrease / (increase) in amounts due from 172,890 (192,913 )
associate - non-trade related
Interest received 66,971 47,796
Net cash used in investing activities (249,764 ) (604,526 )
Cash flow from financing activities
Dividends paid to minority interests ( 599,472 ) (275,857 )
Repayment of bank borrowings (2,467,004 ) (2,056,208 )
Proceeds from new bank borrowings 2,466,395 2,590,354
Net cash generated from financing activities (600,081 ) 258,289
Net increase in cash and cash equivalents 3,013,228 5,253,579
Cash and cash equivalents at the beginning of 11,736,464 6,285,006
the year
Exchange gain on cash and cash equivalents 82,161 197,879
Cash and cash equivalents at the end of the year 14,831,853 11,736,464
Notes to the consolidated financial statements
For the year ended 31 December 2012
(Expressed in Hong Kong dollars)
1 Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not
constitute statutory accounts.
The financial information for the period ended 31 December 2012 has been
extracted from the Company's financial statements to that date which have
received an unqualified auditors' report.
2 Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These consolidated
financial statements also comply with the applicable disclosure provisions of
the AIM Rules for Companies of the London Stock Exchange. They have been
prepared under the historical cost convention.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgment in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgment or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements, are disclosed in note 29, of the Report and Accounts.
3 Profit before income tax
Profit before income tax is stated after charging the following items :-
(a) Staff costs (including directors' emoluments)
2012 2011
HK$ HK$
Salaries, wages and commission 10,620,164 8,646,228
Contributions to defined contribution retirement 814,571 688,611
plans
Share-based compensation 447,498 668,638
Other staff benefits 2,788,715 2,255,176
14,670,948 12,258,653
(b) Other items
2012 2011
HK$ HK$
Amortisation of patents 335,728 376,251
Auditor's remuneration 261,311 240,000
Bad debts written off 2,011 2,011
Cost of inventories sold 17,683,088 16,116,325
Depreciation 290,334 266,471
Exchange losses, net 3,021 419,720
Loss on disposal of property, plant and equipment 77,451 9,336
Loss on cessation of a subsidiary - 33,906
Impairment loss on goodwill - 127,857
Patents written off - 752,000
Provision for impairment losses on amounts due 580,273
from associate
Written off of amounts due from associate
Rental charges under operating leases in respect
of land and buildings 739,762 577,007
4 Income tax expense
2012 2011
HK$ HK$
Current income tax
- Thailand corporate income tax 693,193 617,380
- Shanghai foreign enterprise income tax 1,222,465 1,215,610
1,915,658 1,832,990
(a) Taxation for the Company
No provision for profits tax has been made for the Company as it is exempted
from taxation in the British Virgin Islands.
No deferred taxation has been provided as the Company has no material
unprovided deferred tax assets or liabilities which are expected to be
crystallized in the foreseeable future (2011: HK$nil).
(b) Taxation for the Group
(i) Taxation on overseas profits has been calculated on the estimated
assessable profit for the year at the rate of taxation prevailing in the
countries in which the Group companies operate. The income tax expense stated
in consolidated statement of comprehensive income represented the corporate
income tax and foreign enterprise income tax arisen from the business of
subsidiaries operating in Thailand and Shanghai respectively.
Hong Kong Profits Tax is calculated at 16.5% (2011: 16.5%) of the estimated
assessable profit for the year. However, no provision for Hong Kong profits tax
has been made (2011: HK$nil) as the Group did not have assessable profit
subject to Hong Kong profits tax for the year.
Provision for foreign enterprise income tax ("FEIT") in the People's Republic
of China ("PRC") has been made at 12.5% (2011: 12%) as Shanghai Walcom Bio-Chem
Co., Ltd. ("Shanghai Walcom"), a wholly owned subsidiary operating in Shanghai,
has assessable profits for the year.
Pursuant to the relevant income tax rules and regulations in the PRC, Shanghai
Walcom is granted certain tax relief whereby it is exempted from FEIT for the
first two years and 50% reduction for the following three years commencing from
the first profitable year of operation after fully set off against the
accumulated losses brought forward.
On 16 March 2007, the National People's Congress approved the Corporate Income
Tax Law of the People's Republic of China ("the new tax law"), which took
effect on 1 January 2008. Under the new tax law, the PRC income tax rate was
gradually increased to a standard rate of 25% for all domestic and foreign
enterprises over the next five years with effective from 1 January 2008.
According to the Circular 39 passed by the State Council on 26 December 2007,
the tax exemption and reduction was terminated latest by 2012. Accordingly,
Shanghai Walcom was exempted from PRC income tax for the years from 1 January
2008 to 31 December 2009, followed by a 50% reduction in the tax rate for the
remaining three years from 1 January 2010 to 31 December 2012. The applicable
income tax rate was 11%, 12% and 12.5% for the year 2010, 2011 and 2012
respectively.
(ii) A reconciliation between the Group's income tax expense and the accounting
profit, at the applicable tax rate, is set out below:-
2012 2011
HK$ HK$
Profit before income tax 3,616,456 3,829,497
Notional tax credit on profit before income 469,183 344,418
tax, calculated at the rates applicable to
profits in the countries concerned
Tax effect of:
Expenses not deductible for tax purpose 905,218 919,091
Non-taxable revenue (5) (2)
Temporary differences not recognized (958) 188
Unused tax losses not recognized 542,220 569,295
Income tax charges 1,915,658 1,832,990
(iii) A deferred tax asset amounting to HK$9,470,481 (2011: HK$8,928,261) in
respect of tax losses of a subsidiary incorporated in Hong Kong of
approximately HK$57,397,000 (2011: HK$54,111,000) has not been recognised in
the financial statements as it is not certain that future taxable profit will
be available against which these losses can be utilised.
5 Dividends
The Company does not recommend the payment of any dividend for the year ended
31 December 2012 (2011: HK$Nil).
6 Earnings per share
There is no difference between basic and diluted earnings per share. The basic
and diluted earnings per share for the year ended 31 December 2012 are
calculated by dividing the Group's profit attributable to owners of the Group
of HK$850,980 (2011: HK$1,291,396) by the weighted average number of 68,834,388
ordinary shares (2011: 68,834,388 ordinary shares). The computation of diluted
earnings per share does not assume the exercise of the Company's outstanding
share options because the exercise price of the options is higher than the
average market price for the years ended 31 December 2012 and 2011.
7 Trade and other receivables
Group
2012 2011
HK$ HK$
Trade Receivables 8,402,438 7,695,607
Less: provision for impairment loss (440,942) (545,899)
Trade receivables - net 7,961,496 7,149,708
Deposits and prepayments 828,065 529,543
Other receivables 633,217 306,203
9,422,778 7,985,454
All trade and other receivables are expected to be recovered within one year.
a. Impairment of trade receivables
The movement in the provision of impairment for doubtful debts during the year,
including both specific and collective loss components, is as follows:
2012 2011
HK$ HK$
At 1 January 545,899 699,577
Written off (104,848) (179,469)
Exchange difference (109) 25,791
At 31 December 440,942 545,899
At 31 December 2012, the Group's trade receivables of HK$440,942 (2011:
HK$545,899) have been outstanding for a certain period of time. The management
assessed that only a portion of the receivables is expected to be recoverable.
No further individually provision of impairment for doubtful debts was provided
in the year ended 31 December 2012 (2011: HK$nil).
The Group does not hold any collateral over these balances.
b. Trade receivables that are not impaired
Majority of the Group's turnover are with credit terms ranging from 30 to 60
days. Ageing analysis of trade receivables that are neither individually nor
collectively considered to be impaired are as follows:
2012 2011
HK$ HK$
Neither past due nor impaired 6,929,408 4,661,195
Less than one month past due 538,809 772,218
1 to 4 months past due 493,279 1,716,295
Over 4 months past due - -
1,032,088 2,488,513
7,961,496 7,149,708
Receivables that were neither past due nor impaired relate to a wide range of
customers for whom there was no recent history of default.
Receivables that were past due but not impaired relate to a number of
independent customers that have a good track record with the Group. Based on
past experience, management believes that no impairment allowance is necessary
in respect of these balances as there has not been a significant change in
credit quality and the balances are considered fully recoverable. The Group
does not hold any collateral over these balances.
c. The carrying amounts of trade receivables are denominated in the following
currencies:
Group
2012 2011
Unites States Dollars USD 43,620-
Philippine Peso PHP 2,689,244
Thai Baht THB 5,974,900 THB 4,207,825
Renminbi RMB 4,549,720 RMB 4,959,800
8 Cash and cash equivalents
Group
2012 2011
HK$ HK$
Cash and cash equivalents in the statement 14,831,853 11,736,464
of cash flows
The Company
2011 2010
HK$ HK$
Cash and cash equivalents in the balance 22,299 22,899
sheet
Included in the cash and cash equivalents of the Group, HK$10,135,603 (2011:
HK$8,639,078) were denominated in RMB and kept in PRC. The remittance of these
funds out of the PRC is subject to the foreign exchange control restrictions
imposed by the PRC government.
Included in cash and cash equivalents in the consolidated balance sheet are the
following amounts denominated in a currency other than the functional currency
of the entity to which they relate:
2012 2011
United States dollars US$ 120,283 US$ 96,688
British Pound GB£ 1,223 GB£ 1,223
Thai Baht THB 14,083,398 THB 8,757,326
9 Trade and other payables
Group
2012 2011
HK$ HK$
Trade payables 2,914,956 3,623,273
Other payables and accrued expenses 3,542,969 2,082,535
6,457,925 5,705,808
All of the trade and other payables are expected to be settled within one year.
The carrying amounts of trade payables are denominated in the following
currencies:
2012 2011
Renminbi RMB 2,363,155 RMB 2,937,387
10 Bank borrowings
At 31 December 2012, the bank borrowings were secured and repayable as follows:
Group
2012 2011
HK$ HK$
Current liabilities
Bank borrowings - short term portion, 2,466,395 2,467,004
secured
Total borrowings 2,466,395 2,467,004
a. The maturity of borrowings is as follows:
Group
2012 2011
HK$ HK$
Within 1 year or on demand 2,466,395 2,467,004
(b) The effective interest rate per annum for bank borrowings at balance sheet
date is at 15% (2011: 20%) over one-year benchmark deposits and loan interest
rate promulgated by The People's Bank of China plus certain basis points per
annum.
During the 2012 reporting period, the Group fully repaid a bank borrowing of
HK$2,467,004 denominated in RMB, which was secured by the corporate guarantee
issued by an independent third party.
On 13 June 2012, an indirectly held subsidiary of the Group situated in PRC
("the subsidiary") has obtained a bank borrowing of HK$2,466,395 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 Copies of Report and Accounts
Copies of the Report and Accounts will be sent to shareholders shortly and will
be available from the principal place of business of the Company, Part D,
Mingtai Bldg, No 351 Guo Shai Jing Road, ZJ Hi-tech Park, Shanghai 201203, PRC,
and on the Company's website www.walcomgroup.com.
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