Information  X 
Enter a valid email address

Walcom Group Ltd (WALG)

  Print      Mail a friend

Thursday 04 May, 2017

Walcom Group Ltd

Final Results

4 May 2017

WALCOM GROUP LIMITED
(“Walcom” or “the Company”)

Final results for the year ended 31 December 2016

CHAIRMAN’S STATEMENT

On behalf of the board of directors (the “Board”), I am pleased to present the Company’s final results for the year ended 31 December 2016.

Results

The Company’s sales in China recorded a small increase despite the country’s slowing economy and the continuous poor performance of the domestic pig farming industry during 2016. However, with the aggregated effect of stronger performance in the overseas markets, Walcom managed to achieve profits attributable to the Company’s shareholders of HK$1.26 million (2015: HK$0.34 million) for the year under review. Turnover (2016: HK$46.5 million; 2015: HK$44.2 million) and gross profit (2016: HK$27.3 million; 2015: HK$26.8 million) for the year increased by five per cent. and two per cent. respectively. The Company reported a net profit of HK$1.42 million for the year under review as compared with HK$0.48 million in 2015, which represents a 197 per cent. increase.  EBITDA also increased by 39 per cent. from HK$2.42 million in 2015 to HK$3.38 million in 2016.

A summary of the results for the period under review is set out below:

Year ended Year ended Change
31 December 31 December
2016 2015
HK$’000 HK$’000 per cent.
Turnover 46,469 44,237 5.05
Gross profit 27,322 26,745 2.16
Profit from operations 2,811 1,808 55.48
EBITDA 3,376 2,424 39.27
Net finance expense (70) (21) 233.33
Profit for the year 1,424 479 197.29




 





Year ended





Year ended





Change
31 December 31 December
2016 2015
HK$’000 HK$’000 per cent.
Profit attributable to owners of the Company
 - total
 - basic per share (HK cents)
 - diluted per share (HK cents)

1,263
1.84
1.84

335
0.49
0.49

277.01
275.51
275.51
Net asset value attributable to owners of the Company
  -total
  -per share (HK cents)
 

15,872
23.06

17,228
25.03

(7.87)
(7.87)

Operation and market review

As a result of a prolonged period of slumping farmgate pig prices, which caused numerous mid-sized pig farms to close down during 2014 and 2015, China’s pig population remained low in 2016.  Although the farmgate pig prices reached a relatively high level in 2016, the pig population did not recover to its previous level.  Accordingly, this had an adverse effect on demand for feedstuff.

Notwithstanding these unfavourable market conditions, the Company’s sales in the PRC improved by three per cent. to HK$26.4 million during 2016 when compared with the HK$25.7 million in 2015.

Sales in Thailand increased by three per cent. to HK$16.6 million in 2016 (2015: HK$16.1 million), representing approximately 36 per cent. (2015: 37 per cent.) of the Company’s total sales. The economy in Thailand has still not recovered fully from the change of government regime in 2014. The improvement in sales in Thailand was attributable to both increased consumption of the Company’s products by existing customers and from new customers from other member-countries of the Association of Southeast Asian Nations Economic Community (“AEC”).

Sales in Korea increased by 79 per cent. to HK$3.4 million in 2016 (2015: HK$1.9 million), representing approximately seven per cent. (2015: four per cent.) of the Company’s total sales. Following substantial sales and marketing efforts over the past two years, the Company’s products have gained recognition in Korea and the Board anticipates potential for further growth in this market.

The Group’s financial statements are reported in Hong Kong Dollars (“HKD”). During the period under review, the HKD currency appreciated approximately seven per cent. against China’s Renminbi (“RMB”). As approximately 57 per cent. of the Group’s sales was transacted in RMB, the appreciation of the HKD had an adverse exchange impact on the Group’s 2016 revenue. A similar adverse effect from exchange rate occurs in translating the Group’s net assets, including cash and cash equivalents, in Walcom’s PRC subsidiary into the HKD. This resulted in a decrease in the Group’s net asset value as reported in HKD as at the 2016 year end.

During the year, the Company’s Thai subsidiary acquired a piece of land in Thailand using internal resources, which caused a decrease in the Group’s cash level and an increase in its non-current assets.

Recent Developments

Professor Hong Xun Yang, the Company’s executive director responsible for sales and marketing in China, retired in February 2017.  In succession to Prof. Yang’s retirement, the Company appointed Mr. Paitoon Buddhinunta-opas, who is also the general manager of the Group’s subsidiary in Thailand, as the Company’s group sales director.  Mr. Paitoon has substantial experience in sales and marketing and is also knowledgeable about the Company’s products. In view of his successful record in Thailand. the Board believes that Mr. Paitoon will lead the Company’s sales to a new level.

In November 2016, the Company completed the acquisition of a plot of land in Thailand, which the Board intends to use to develop a feed manufacturing plant in the future. In view of the anticipated growth in sales of the Company’s products in the AEC in the coming years, the Directors are optimistic that the building of a manufacturing plant in Thailand, an AEC member-country, should benefit the Group’s trading terms due to the region’s trade treaties.

Patents

At the end of 2016 the Group held 47 granted patents in respect of:

  • its core Cysteamine technology in China, North Korea, New Zealand, Ukraine, Russia, South Africa, Australia, India, South Korea and Vietnam;
  • poultry feed in the UK, North Korea, Taiwan, Russia, China, Australia, Philippines and Thailand;
  • dairy cow feed in New Zealand, the UK, Europe, Mexico, India, China, Russia, Australia and Malaysia;
  • fish feed in the UK, Indonesia, Russia, China, Thailand, Philippines, Vietnam and Taiwan; and
  • shellfish feed in Europe, Vietnam, Indonesia, Malaysia, Taiwan, Philippines and China.

Most of the patents for which the Company has applied in recent years have been granted. The Directors believe that there is wide patent coverage in jurisdictions where there is significant demands for the Company’s products.

Debt

As at the year end, the Group had a short-term bank loan of HK$2.2 million, which was used to finance the Group’s general working capital. Depending on the future sales development, the Company may need further bank financing for working capital purpose.

Dividend

The Directors do not recommend any dividend payment for the year ended 31 December 2016.

Annual General Meeting

Walcom’s 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 2:30 pm on Wednesday 14 June 2017.  A notice of AGM will be sent to Walcom’s shareholders, along with the 2016 annual report and financial statements, during the second week of May 2017.

Outlook

During the past two years, the PRC government has adopted a policy of slower economic growth. This policy is expected to continue over the country’s period of structural transformation in the coming years.  The Board believes 2017 will be another challenging year for the Company. With the possibility of further tightening of monetary policy in the United States and the adverse impact of Brexit, the Board anticipates a volatile global economic outlook for 2017. The implementation of stricter environmental controls and regulations in China has caused a significant increase in the raw material costs, and hence the production costs, of the Company’s products. The increased production costs and operating expenses combined has an adverse impact on the Company’s gross profit margin. However, with the improving results in the Thai, Southeast Asian and Korean markets, together with the new leadership from the Company’s new group sales director, the Directors believe that the Company has the potential to achieve better results in 2017.

On behalf of the Board, I would like to express our gratitude to Prof. Hong Xun Yang, who served the Company as an executive director, Chief Technical Officer and Chief Operating Officer (PRC) before his retirement in February 2017. We would like to thank him for his contributions during his term of service and wish him well in his retirement.

I would also like to express our sincere thanks to the management team and staff, professional advisers and shareholders for their continued support and contributions during the year.

Frankie Y. L. Wong

Chairman

4 May 2017

Further enquiries:

Walcom Group Limited
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer)
+852 2494 0133
Allenby Capital Limited
Virginia Bull/Charlie Donaldson
+44 20 3328 5656

Consolidated statement of profit or loss

For the year ended 31 December 2016

(Expressed in Hong Kong dollars)

Note 2016 2015
HK$ HK$
Revenue 46,469,041 44,236,805
Cost of sales (19,147,412 ) (17,491,561 )
Gross profit 27,321,629 26,745,244
Other income 3 275,269 189,853
Research and development expenses (1,565,262 ) (1,224,261 )
Selling and distribution expenses (11,346,594 ) (11,847,110 )
General and administrative expenses (11,874,526 ) (12,055,434 )
Profit from operations 2,810,516 1,808,292
Net finance expense 4     (70,342)     (21,123)
Profit before income tax 5 2,740,174 1,787,169
Income tax expense 6 (1,316,475 ) (1,308,485 )
Profit for the year   1,423,699
   
   478,684
Profit attributable to:
Owners of the Company  1,263,286  335,472
Non-controlling interests    160,413    143,212
Profit for the year  1,423,699  478,684
Earnings per share - basic, HK cents 9      1.84      0.49
                     - diluted, HK cents    1.84    0.49

Consolidated statement of profit or loss and other comprehensive income

For the year ended 31 December 2016

(Expressed in Hong Kong dollars)

2016 2015
HK$ HK$
Profit for the year  1,423,699
   
 478,684
   
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries ( 2,603,259 ) ( 2,793,995 )
Total comprehensive loss for the year  ( 1,179,560 )  ( 2,315,311 )
Total comprehensive loss attributable to:
Owners of the Company ( 1,356,994 ) ( 2,262,139 )
Non-controlling interests __  177,434 __  ( 53,172 )
Total comprehensive loss for the year  ( 1,179,560 )  ( 2,315,311 )

Consolidated balance sheet as at 31 December 2016

(Expressed in Hong Kong dollars)

Note 2016 2015
HK$ HK$
ASSETS
NON-CURRENT ASSETS
   Property, plant and equipment 11 4,832,774 1,520,698
   Patents 1,814,096 2,079,634
Goodwill         -         -
 6,646,870  3,600,332
CURRENT ASSETS
   Inventories                                              12 1,380,728 2,247,884
   Trade and other receivables 13 8,985,988 7,695,707
   Tax recoverable 42,168 108,584
   Cash and cash equivalents 14 9,012,203 13,670,351
   Restricted cash 14    105,210    103,813
 19,526,297  23,826,339
TOTAL ASSETS  26,173,167  27,426,671
EQUITY
   Share capital 688,344     688,344    
   Reserves  15,183,159  16,540,153
Total equity attributable to OWNERs of the Company
 15,871,503

 17,228,497
Non-controlling interests  2,264,029  2,086,595
TOTAL EQUITY  18,135,532  19,315,092
CURRENT LIABILITIES
   Trade and other payables   4,744,113   4,954,919
   Tax payables 1,057,636 769,455
   Bank borrowings 15   2,235,886   2,387,205
  8,037,635    8,111,579 
TOTAL LIABILITIES   8,037,635   8,111,579
TOTAL EQUITY AND LIABILITIES  26,173,167  27,426,671
NET CURRENT ASSETS  11,488,662  15,714,760
TOTAL ASSETS LESS CURRENT LIABILITIES  18,135,532  19,315,092

Consolidated statement of changes in equity

For the year ended 31 December 2016

(Expressed in Hong Kong dollars)

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 income
Profit for the year - - -        - - - 335,472 335,472 143,212 478,684
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries - - -        - (2,597,611) - - (2,597,611)  (196,384) (2,793,995)
Total comprehensive loss for the year - - - - (2,597,611) - 335,472 (2,262,139) (53,172) (2,315,311)
Lapse of share options - - - (22,826) - - 22,826 - - -
Appropriation to surplus reserve - - - - - 340,180 (340,180) - - -
At 31 December 2015 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
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 income
Profit for the year - - -        - - - 1,263,286 1,263,286 160,413 1,423,699
Other comprehensive income
Exchange difference on translation of
financial statements of overseas subsidiaries - - -        - (2,620,280) - - (2,620,280)  17,021 (2,603,259)
Total comprehensive loss for the year - - - - (2,620,280) - 1,263,286 (1,356,994) 177,434 (1,179,560)
Appropriation to surplus reserve - - - - - 338,633 (338,633) - - -
At 31 December 2016 688,344 95,298,644 23,852,469 1,568,769 (2,394,755) 3,602,327 (106,744,295) 15,871,503 2,264,029 18,135,532

Consolidated statement of cash flows

For the year ended 31 December 2016

(Expressed in Hong Kong dollars)

Note 2016 2015
HK$ HK$
Cash flow from operating activities
Profit before income tax 2,740,174 1,787,169
 Amortisation of patents 5(b) 265,538 265,538
 Interest received ( 63,460 ) ( 150,719 )
 Depreciation 11 288,704 308,255
 Foreign exchange gain, net 5(b) (2,083,712 ) (1,547,782 )
 Interest paid 133,802 171,842
 Loss on disposal of property, plant and equipment 5(b)  11,317  1,517
 Patents written off 5(b)        -    40,749
Operating profit before working capital changes 1,292,363 876,569
Decrease in inventories 867,156 95,637
(Increase) / decrease in trade and other receivables (1,290,281 ) 101,432
Decrease in trade and other payables  (210,806 )  ( 253,479 )
Net cash generated from operations 658,432 820,159
Corporate income tax paid (961,878 ) (1,012,664 )
Interest paid (133,802 ) 171,842 )
Net cash used in operating activities (437,248 ) (364,347 )
Cash flow from investing activities
Purchases of property, plant and equipment (3,649,857 ) ( 91,237 )
Interest received   63,460   150,719
Net cash (used in) / generated from investing activities (3,586,397 )    59,482
Cash flow from financing activities
(Increase) / decrease in restricted bank balances (1,397 ) 9,537
Repayment of bank borrowings (2,387,205 ) (2,535,176 )
Proceeds from new bank borrowings  2,235,886  2,387,205
Net cash used in financing activities   (152,716 )   (138,434 )
Net decrease in cash and cash equivalents (4,176,361 ) (443,299 )
Cash and cash equivalents at the beginning of the year 13,670,351 15,229,576
Exchange loss on cash and cash equivalents (481,787 ) (1,115,926 )
Cash and cash equivalents at the end of the year 14 9,012,203 13,670,351

Notes to the consolidated financial statements

For the year ended 31 December 2016

(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 year ended 31 December 2016 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 of the Group have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”). 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 IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies.

       Interest rate risk

The Group’s interest rate risk arises from bank borrowings, bank overdrafts and deposits. Borrowings and deposits issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings and deposits issued at fixed rates expose the Group to fair value interest-rate risk.

At the balance sheet date, if interest rates had been increased or decreased by 25 basis-point and all other variables were held constant, the Group’s profit before income tax for the year ended 31 December 2016 would increase or decrease by HK$17,184 (2015: HK$28,409).

Increase/ Increase/
Increase of (decrease) Decrease of (decrease)
25 basis points in profit before 25 basis points in profit before
 income tax  income tax
HK$ HK$
2016
On bank deposits 0.25% 22,774 0.25% (22,774)
On bank borrowings 0.25% (5,590) 0.25% 5,590
2015
On bank deposits 0.25% 34,377 0.25% (34,377)
On bank borrowings 0.25% (5,968) 0.25% 5,968

The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the balance sheet date and had been applied to the exposure to interest rate risk for financial instruments in existence at that date.  The 25 basis-point increase or decrease represents management’s assessment of a reasonably possible change in interest rates over the period until the next annual balance sheet date.  The analysis performed on the same basis for 2015.

3      Other income

2016 2015
HK$ HK$
Government subsidy 248,841 162,172
Sundry income  26,428  27,681
275,269 189,853

Note: During the years ended 31 December 2016 and 2015, the Group received subsidies from local government bodies in the PRC, which aimed at the technology development of the Group.

4      Net finance expense

2016 2015
HK$ HK$
Bank interest income 63,460 150,719
Interest expense on bank loan  (133,802)  (171,842)
  (70,342)   (21,123)

5      Profit before income tax

        Profit before income tax is stated after charging the following items:-

(a)  Staff costs (including directors’ emoluments)                                                                               

2016 2015
HK$ HK$
Salaries, wages and commission 10,275,948 10,718,322
Contributions to defined contribution retirement plans 839,484 899,111
Other staff benefits  3,545,683  3,549,183
14,661,115 15,166,616

(b)    Other items

2016 2015
HK$ HK$
Amortisation of patents 265,538 265,538
Auditor’s remuneration 312,226 307,474
Cost of inventories sold (note 12) 17,675,779 16,623,712
Depreciation not charged to cost of sales 210,131 225,969
Exchange gains, net (2,083,712) (1,547,782)
Loss on disposal of property, plant and equipment 11,317 1,517
Patents written off - 40,749
Rental charges under operating leases in respect of
land and buildings   878,599   920,080

6      Income tax expense

2016 2015
HK$ HK$
Current income tax
- Thailand corporate income tax 122,526 128,638
- Shanghai foreign enterprise income tax 1,193,949 1,179,847
1,316,475 1,308,485

(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 crystallised in the foreseeable future (2015: 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 profit or loss and other 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% (2015: 16.5%) of the estimated assessable profit for the year. However, no provision for Hong Kong profits tax has been made (2015: Nil) as the Group’s assessable profit subject to Hong Kong profits tax for the year is fully set-off by tax loss brought forward from last year.

Provision for foreign enterprise income tax (“FEIT”) in the People’s Republic of China (“PRC”) has been made at 25% (2015: 25%) 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 not granted tax relief whereby the applicable income tax rate was 25% for the years 2015 and 2016.

Thailand Corporate Income Tax is calculated at 20% (2015: 20%) of the net profit for the year.

(ii)    A reconciliation between the Group’s income tax expense and the accounting profit, at the applicable tax rate, is set out below :-

2016 2015
HK$ HK$
Profit before income tax  2,740,174  1,787,169
Notional tax calculated on profit before income tax, calculated
   at the rates applicable to profits in the countries concerned   931,990   760,053
Tax effect of:
Expenses not deductible for tax purpose 692,099 907,379
Non-taxable revenue (13) (22)
Temporary differences not recognised (911) 664
Utilisation of previously unrecognised tax losses  (306,690)  (359,589)
Income tax charges   1,316,475   1,308,485

(iii)   A deferred tax asset amounting to HK$7,904,395 (2015: HK$8,211,086) in respect of tax losses of a subsidiary incorporated in Hong Kong of approximately HK$47,905,000 (2015: HK$49,764,000) 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.

7      Profit attributable to shareholders

Profit attributable to owners of the Company for the year ended 31 December 2016 dealt with in the financial statements of the Company was approximately HK$55,000 (2015: Loss of HK$129,000).

8      Dividends

The Company does not recommend the payment of any dividend for the year ended 31 December 2016 (2015: Nil).

9      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 2016 are calculated by dividing the Group’s profit attributable to owners of the Group of HK$1,263,286 (2015: HK$335,472) by the weighted average number of 68,834,388 ordinary shares (2015: 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 2016 and 2015.

10    Segment reporting

(a)    Segment reporting

       Information reported to the Executive Directors of the Company, being the chief operating decision makers (“CODM”), for the purpose of resource allocation and assessment of segment performance focuses on type of goods delivered.

       The executive directors have identified that, the Group has only one reportable operating segment, which is the manufacture, distribution and sales of chemical feed additive products. Since this is the only reportable operating segment of the Group, no further operating segment analysis thereof is presented.

(b)    Geographical information

       The following table sets out information about the geographical location of (i) the group’s revenue from external customers and (ii) the group’s fixed assets, intangible assets, goodwill and other current and non-current assets. The geographical location of customers is based on the location at which the services were provided or the goods delivered. The geographical location of the assets is allocated based on the operations of the segment and the physical location of the asset.

       (i)       Sales revenue by geographical location of customers

                                                                                                                            2016              2015

                                                                                                                             HK$              HK$

                    PRC                                                                                       26,447,044    25,690,774

                    Taiwan                                                                                                   -         136,094

                    Thailand                                                                                16,643,536    16,181,009

                    Korea                                                                                      3,378,461      1,921,920

                    Others                                                                                                    -        307,008

                                                                                                                 46,469,041    44,236,805  

       (ii)      Segment assets by geographical location of the assets

2016 2015
HK$ HK$
Hong Kong 1,499,263 1,708,878
PRC 14,882,387 17,061,384
The Philippines 93,115 106,092
Thailand 8,287,443 6,932,584
Taiwan 252,221 281,531
Other Asia-Pacific countries 577,499 662,332
Europe and United Kingdom 538,778 625,330
America and Canada 34,046 38,797
Others 8,415 9,743
26,173,167 27,426,671

(c)    Information about major customers

The Group’s customer base is diversified and includes only three customers with whom transactions have exceeded 10% of the Group’s revenue.

2016 2015
Revenue from major customers: HK$ HK$
Sales of chemical feed additive products
Customer A 7,447,862 6,922,313
Customer B 6,718,528 6,988,940
Customer C 5,709,373 6,858,181

11. Property, plant and equipment

Furniture
Land and Leasehold and Office Plant and Motor
Group building improvements fixtures equipment machinery vehicles Total
HK$ HK$ HK$ HK$ HK$ HK$ HK$
Cost
At 1.1.2015 1,035,197 1,465,635 95,946 1,002,232 2,691,176 567,145 6,857,331
Additions - - - 62,006 29,231 - 91,237
Disposal - - - (5,688) - - (5,688)
Exchange
realignment (90,362) (90,788) (6,230) (59,429) (157,076) (33,102) (436,987)
At 31.12.2015 944,835 1,374,847 89,716 999,121 2,563,331 534,043 6,505,893
At 1.1.2016 944,835 1,374,847 89,716 999,121 2,563,331 534,043 6,505,893
Additions 3,496,822 - - 56,892 96,143 - 3,649,857
Disposals - - - (103,227) (9,943) - (113,170)
Exchange
Realignment 9,425 (75,011) (4,230) (43,881) (162,276) (33,852) (309,825)
At 31.12.2016 4,451,082 1,299,836 85,486 908,905 2,487,255 500,191 9,732,755
Accumulated
 depreciation
At 1.1.2015 267,485 1,311,842 60,010 793,203 2,305,249 250,022 4,987,811
Charge for
 the year 44,964 17,519 8,721 64,179 87,164 85,708 308,255
Eliminated
 on disposals - - - (4,171) - - (4,171)
Exchange
 realignment (25,855) (79,857) (3,983) (47,863) (134,550) (14,592) (306,700)
At 31.12.2015 286,594 1,249,504 64,748 805,348 2,257,863 321,138 4,985,195
At 1.1.2016 286,594 1,249,504 64,748 805,348 2,257,863 321,138 4,985,195
Charge for
 the year 43,545 16,968 8,236 59,120 80,560 80,275 288,704
Eliminated
 on disposals - - - (92,905) (8,948) - (101,853)
Exchange
 Realignment 2,196 (72,892) (3,151) (34,926) (142,935) (20,357) (272,065)
At 31.12.2016 332,335 1,193,580 69,833 736,637 2,186,540 381,056 4,899,981
Net book value
At 31.12.2016 4,118,747 106,256 15,653 172,268 300,715 119,135 4,832,774
At 31.12.2015 658,241 125,343 24,968 193,773 305,468 212,905 1,520,698

On 18 July 2016, a subsidiary of the Group and the non-controlling interests (the “Joint Operators”) entered into an agreement pursuant of which the Joint Operators jointly purchased one piece of land in Samut Sakorn Province, which is located in the outskirt area of Bangkok, Thailand. The Group and the non-controlling interests hold 66.67% and 33.33% interests in the land respectively after completion of the purchase. The transaction constituted to a joint arrangement.

As at 31 December 2016, the carrying amount of HK$3,496,822 represented the Group’s interest of 66.67% in the land (2015: Nil).

12    Inventories

Group
2016 2015
HK$ HK$
Raw materials 546,031 871,654
Finished goods 834,697 1,168,543
Goods-in-transit 207,687
1,380,728 2,247,884

The cost of inventories sold recognised as expenses and included in cost of sales amounted to HK$17,675,779 (2015: HK$16,623,712).

13    Trade and other receivables

Group
2016 2015
HK$ HK$
Trade receivables 8,019,256 6,859,583
Less: provision for impairment loss (508,758) (508,758)
Trade receivables – net 7,510,498 6,350,825
Deposits and prepayments 1,237,171 976,591
Other receivables 238,319 368,291
8,985,988 7,695,707

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:

       2016 2015
HK$ HK$
At 1 January 508,758 508,758
Written off        -        -
At 31 December  508,758  508,758

At 31 December 2016, the Group’s trade receivables of 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. No further individual provision of impairment for doubtful debts was provided in the year ended 31 December 2016 (2015: 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:

               2016 2015
HK$ HK$
Neither past due nor impaired 5,519,269 5,526,045
Less than one month past due 985,081 586,059
1 to 4 months past due   1,006,148   238,721
  1,991,229   824,780
7,510,498 6,350,825

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
2016 2015
Thai Baht THB 13,636,000 THB 9,052,000
Renminbi  RMB 4,072,800  RMB 3,692,220

14    Cash and bank balances

Group
2016 2015
HK$ HK$
Cash at bank and on hand 9,117,413 13,774,164
Less: Cash at bank – restricted (105,210) (103,813)
Cash and cash equivalents in the statement of cash flows 9,012,203 13,670,351
The Company
2016 2015
HK$ HK$
Cash and cash equivalents in the balance sheet 25,309 25,512

Included in the cash and cash equivalents of the Group, HK$4,562,565 (2015: HK$7,254,910) 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.

As at 31 December 2016, HK$105,210 (2015: HK$103,813) denominated in THB in a saving bank account in Thailand has been pledged to a bank as security to obtain a facility under a forward exchange contract.

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:

2016 2015
Renminbi
United States dollars
RMB
US$
 4,081,738
433,896
RMB
US$
 6,078,683
294,508
British Pound GB£   2,267 GB£   528
Thai Baht THB 2,924,537 THB 15,641,790

15    Bank borrowings

At 31 December 2016, the bank borrowings were unsecured and repayable as follows:

                                                                                                                 Group

2016 2015
HK$ HK$
Current liabilities
    Bank borrowings – unsecured 2,235,886 2,387,205
Total borrowings 2,235,886 2,387,205

(a) The maturity of borrowings is as follows:

                                                                                                                 Group

2016 2015
HK$ HK$
Within 1 year or on demand 2,235,886 2,387,205

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

During the 2016 reporting period, the Group fully repaid a bank borrowing of HK$2,387,205 denominated in RMB, which was unsecured.

On 16 November 2016, an indirectly held subsidiary of the Group situated in the PRC (“the subsidiary”) has obtained a bank borrowing of HK$2,235,886 denominated in RMB with maturity of 1 year. The bank borrowing was unsecured.

16    Related party transactions

The management considered the ultimate controlling party since date of incorporation to 31 December 2016 was Mr. Francis Chi.

2016 2015
HK$ HK$
(a)    Transactions with key management personnel
Salaries and other short term employee benefits 7,530,816 7,707,684

17    Commitments

(a)    Capital commitments

        Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

2016 2015
HK$ HK$
Property, plant and equipment 726,720

(b)    Operating lease commitments

        The future aggregate minimum lease rental expenses in respect of the manufacturing plants and office  premises under non-cancellable operating lease are payable in the following periods:

2016 2015
HK$ HK$
Within one year 1,335,881 2,792,642
In the second to fifth years inclusive 24,952 1,080,086
1,360,833 3,872,728

18    Reconciliation of profit before income tax to EBITDA

       2016 2015
HK$ HK$
Profit before income tax 2,740,174 1,787,169
Depreciation 288,704 308,255
Amortisation of patents 265,538 265,538
Interest income (63,460) (150,719)
Interest expenses 133,802 171,842
Patents written off - 40,749
Loss on disposal of property, plant and equipment    11,317     1,517
EBITDA 3,376,075 2,424,351

EBITDA is defined herein as earnings before depreciation, amortisation, 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.


a d v e r t i s e m e n t