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Walcom Group LTD (WALG)

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Monday 27 September, 2010

Walcom Group LTD

Half-yearly Report


                                                              27 September 2010

                             Walcom Group Limited                              

                          ("Walcom" or "the Company")                          

      Half-yearly unaudited results for the six months ended 30 June 2010      

The Board of Walcom Group Limited presents the Company's unaudited half-yearly
results for the six months ended 30 June 2010.

Highlights

  * Loss per share reduced by 43 per cent. due to improvement in performance
   
  * Revenue and gross profit rose by 10 per cent. and 15 per cent. respectively
   
  * PRC sales increased by 24 per cent.
   
  * Sales of new feed-energy saving products commenced.
   
Enquiries:

Walcom Group Limited                                             +852 2494 0133
                                                                               
Francis Chi (Chief Executive Officer)                                          
                                                                               
Albert Wong (Chief Financial Officer)                                          
                                                                               
Merchant Securities Limited                                    +44 20 7628 2200
                                                                               
Bidhi Bhoma / Virginia Bull                                                    

Chairman's statement

Introduction

Despite the unstable global financial market and slowing of the growth in
Chinese economy during the first half of 2010, the Company's revenue grew by 10
per cent. in comparison with the same period last year. During the period under
review, the Company has been actively promoting its new energy saving products
(branded as `alpha' products), which has contributed to the Company's
performance. The Company's loss per share for the period was reduced by 43 per
cent. to HK$2.67 cents (June 2009: HK$4.72 cents).

Results for the Period

The Company generated revenues during the period of HK$13.0m (June 2009:
HK$11.8m) and gross profits of HK$7.5m (June 2009: HK$6.5m), representing
increases of 10 per cent. and 15 per cent. respectively, compared to the same
period last year. In addition, the gross profit margin for the period improved
slightly to 57 per cent. from 55 per cent. in the same period last year. This
is mainly due to the initial sales of alpha products which were made during the
period which produce a higher profit margin than the Company's historic product
range. Owing to the stronger sales and improved gross profit margin, the
Company reduced its net loss by 48 per cent. to HK$1.6m (June 2009: Loss of
HK$3.1m) and improved EBITDA by 33 per cent. to a loss of HK$1.0m (June 2009:
Loss of HK$1.5m).

Review of Activities

In the six months to 30 June 2010, sales in the PRC improved by 24 per cent. to
HK$10.3m, (June 2009: HK$8.3m). However, overseas sales decreased by 22 per
cent. to HK$2.8m (June 2009: HK$3.5m). The sales of alpha products contributed
to the increased sales in the PRC, although at a slower pace than the Directors
first expected. Besides selling into the feed mills, animal farms have become
important consumers of the alpha products, as direct and immediate savings can
be achieved. More importantly, animal farmers are more willing to share this
cost saving, which makes the Company's sales effort easier and more effective.
The unstable political situation in Thailand and a continuously poor economy in
the Philippines were previously the main factors causing decreased overseas
sales. However, sales in Thailand improved during the period as the country's
political environment stabilised.

Outlook

The Company's new products, which promote the energy saving efficacy in
feedstuffs, have proved successful over the last few months. The energy saving
concept has been well received not only by the feed mills, as it helps them to
ease the pressure on their production costs, but also by animal farms as it
provides them with immediate savings on feedstuff by using less
energy-intensive products like corns and soy beans. Although early in their
stage of commercialisation, sales of the alpha products to integrated animal
farms have had some success. The Directors are confident that sales will grow
and the Board believe that, once traction in the market has been gained, they
will grow at an increasing pace.

Eddie K M Chan

Chairman

27 September 2010



UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED
30 JUNE 2010

                                   Note     Unaudited    Unaudited      Audited
                                           six months   six months   year ended
                                                ended        ended  31 December
                                              30 June      30 June         2009
                                                 2010         2009             
                                                  HK$          HK$          HK$
                                                                               
Revenue                                    13,027,342   11,789,680   25,529,170
                                                                               
Cost of sales                             (5,559,813)  (5,297,408) (10,697,432)
                                                                               
Gross profit                                7,467,529    6,492,272   14,831,738
                                                                               
Other income                        2         113,234      177,868      248,932
                                                                               
Research and development expenses           (911,964)    (890,323)  (1,527,831)
                                                                               
Selling and distribution expenses         (4,091,748)  (2,971,370)  (7,292,260)
                                                                               
General and administrative                (4,067,075)  (5,876,363) (10,547,393)
expenses                                                                       
                                                                               
Loss from operation                       (1,490,024)  (3,067,916)  (4,286,814)
                                                                               
Net finance cost                    3        (27,219)     (14,506)     (66,888)
                                                                               
Loss before income tax                    (1,517,243)  (3,082,422)  (4,353,702)
                                                                               
Income tax expense                  4       (113,734)     (51,585)    (154,389)
                                                                               
Loss for the period / year                (1,630,977)  (3,134,007)  (4,508,091)
                                                                               
Other comprehensive income                                                     
                                                                               
Exchange difference on                        153,949      115,954      158,112
translation of financial                                                       
statements of overseas                                                         
subsidiaries                                                                   
                                                                               
Total comprehensive loss for the          (1,477,028)  (3,018,053)  (4,349,979)
period/year                                                                    
                                                                               
Loss attributable to:                                                          
                                                                               
Owners of the Company                     (1,835,865)  (3,252,125)  (4,745,297)
                                                                               
Non-controlling interests                     204,888      118,118      237,206
                                                                               
Loss for the period / year                (1,630,977)  (3,134,007)  (4,508,091)
                                                                               
Total comprehensive loss                                                       
attributable to:                                                               
                                                                               
Owners of the Company                     (1,704,674)  (3,151,770)  (4,616,212)
                                                                               
Non-controlling interests                     227,646      133,717      266,233
                                                                               
Total comprehensive loss for the          (1,477,028)  (3,018,053)  (4,349,979)
period/year                                                                    
                                                                               
Loss per share - basic, HK cents    5          (2.67)       (4.72)       (6.89)
                                                                               
- diluted, HK cents                            (2.67)       (4.72)       (6.89)


UNAUDITED CONSOLIDATED BALANCE SHEET AT 30 JUNE 2010

                                  Note     Unaudited    Unaudited       Audited
                                             30 June      30 June   31 December
                                                2010         2009          2009
                                                 HK$          HK$           HK$
                                                                               
ASSETS                                                                         
                                                                               
NON-CURRENT ASSETS                                                             
                                                                               
Property, plant and equipment              2,735,361    3,014,022     2,898,144
                                                                               
Patents                                    4,708,840    5,515,095     4,844,916
                                                                               
Goodwill                                     127,857      127,857       127,857
                                                                               
Interests in an associate                          -            -             -
                                                                               
                                           7,572,058    8,656,974     7,870,917
                                                                               
CURRENT ASSETS                                                                 
                                                                               
Inventories                                1,603,773    1,396,008     1,247,319
                                                                               
Trade and other receivables                4,548,243    3,261,134     4,309,726
                                                                               
Amount due from an associate               1,670,374    2,153,421     1,861,701
                                                                               
Tax recoverable                                    -      212,071       143,524
                                                                               
Cash and cash equivalents           7      3,244,990    4,422,693     3,872,520
                                                                               
                                          11,067,380   11,445,327    11,434,790
                                                                               
TOTAL ASSETS                              18,639,438   20,102,301    19,305,707
                                                                               
EQUITY AND LIABILITIES                                                         
                                                                               
EQUITY                                                                         
                                                                               
Share capital                                688,344      688,344       688,344
                                                                               
Reserves                                  11,965,121   15,088,495    13,668,470
                                                                               
TOTAL EQUITY ATTRIBUTABLE TO              12,653,465   15,776,839    14,356,814
OWNERS OF THE COMPANY                                                          
                                                                               
Non-controlling interests                    869,747      509,585       642,101
                                                                               
TOTAL EQUITY                              13,523,212   16,286,424    14,998,915
                                                                               
NON-CURRENT LIABILITIES                                                        
                                                                               
Bank borrowings                     8        194,955      687,688       634,711
                                                                               
CURRENT LIABILITIES                                                            
                                                                               
Trade and other payables                   2,922,260    2,749,465     3,444,441
                                                                               
Tax payable                                  113,263       52,719        97,115
                                                                               
Dividend payable                                   -      204,109             -
                                                                               
Bank borrowings                     8      1,885,748      121,896       130,525
                                                                               
                                           4,921,271    3,128,189     3,672,081
                                                                               
TOTAL LIABILITIES                          5,116,226    3,815,877     4,306,792
                                                                               
TOTAL EQUITY AND LIABILITIES              18,639,438   20,102,301    19,305,707
                                                                               
NET CURRENT ASSETS                         6,146,109    8,317,138     7,762,709
                                                                               
TOTAL ASSETS LESS CURRENT                 13,718,167   16,974,112    15,633,626
LIABILITIES                                                                    


UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 30
JUNE 2010

                                                  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 2009  688,344 95,298,644 23,852,469      500,473  706,951 (102,654,285)  18,392,596     375,868  18,768,464
 
Comprehensive loss
Loss for the             -          -          -            -        -   (3,252,125) (3,252,125)     118,118 (3,134,007)
period
 
Other
comprehensive
income
Exchange
difference on
translation of
financial
statements of
overseas
subsidiaries             -          -          -            -  100,355             -     100,355      15,599     115,954
 
Total
comprehensive loss
for the period           -          -          -            -  100,355   (3,252,125) (3,151,770)     133,717 (3,018,053)
 
Recognition of
equity-settled
share-based              -          -          -      536,010        -             -     536,010           -     536,010
payments
 
At 30 June 2009    688,344 95,298,644 23,852,469    1,036,483  807,306 (105,906,410)  15,776,836     509,585  16,286,421
 
At 1 January 2010  688,344 95,298,644 23,852,469    1,080,903  836,036 (107,399,582)  14,356,814     642,101  14,998,915
 
Comprehensive loss
Loss for the year        -          -          -            -        -   (1,835,865) (1,835,865)     204,888 (1,630,977)
 
Other
comprehensive
income
Exchange
difference on
translation of
financial
statements of
overseas
subsidiaries             -          -          -            -  131,191             -     131,191      22,758     153,949
 
Total
comprehensive loss
for the period           -          -          -            -  131,191   (1,835,865) (1,704,674)     227,646 (1,477,028)
 
Recognition of
equity-settled
share-based              -          -          -        1,325        -             -       1,325           -       1,325
payments
 
At 30 June 2010    688,344 95,298,644 23,852,469    1,082,228  967,227 (109,235,447)  12,653,465     869,747  13,523,212



UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 30 JUNE 
2010

                                      Note    Unaudited   Unaudited     Audited
                                             six months  six months  year ended
                                                  ended       ended 31 December
                                                30 June     30 June        2009
                                                   2010        2009            
                                                    HK$         HK$         HK$
                                                                               
Cash flow from operating activities                                            
                                                                               
Loss before income tax                      (1,517,243) (3,082,422) (4,353,702)
                                                                               
Amortisation of patents                         176,836     193,989     398,277
                                                                               
Interest received                               (5,235)     (7,900)    (26,238)
                                                                               
Depreciation                                    291,051     352,867     602,691
                                                                               
Foreign exchange loss, net                       81,934      82,525     104,497
                                                                               
Interest paid                                    32,454      22,406      93,126
                                                                               
Loss on disposal of property, plant                   -     486,247     494,016
and equipment                                                                  
                                                                               
Patent written off                                    -           -     716,417
                                                                               
Inventories written off                               -           -     137,187
                                                                               
Share-based compensation                          1,325     536,010     580,430
                                                                               
Operating loss before working                 (938,878) (1,416,278) (1,253,299)
capital changes                                                                
                                                                               
(Increase) / decrease in inventories          (356,454)      24,539      36,041
                                                                               
(Increase) / decrease in trade and             (94,993)     706,910   (341,682)
other receivables                                                              
                                                                               
Decrease in amount due from                     152,490      75,913     358,800
associate - trade related                                                      
                                                                               
(Decrease) / increase in trade and            (522,181)    (95,938)     401,518
other payables                                                                 
                                                                               
Net cash used in operations                 (1,760,016)   (704,854)   (798,622)
                                                                               
Corporate income tax paid                      (97,586)    (16,794)     (6,655)
                                                                               
Interest paid                                  (32,454)    (22,406)    (93,126)
                                                                               
Net cash used in operating                  (1,890,056)   (744,054)   (898,403)
activities                                                                     
                                                                               
Cash flow from investing activities                                            
                                                                               
Purchase of property, plant and                (77,447) (1,192,721) (1,367,556)
equipment                                                                      
                                                                               
Payment for patents                            (40,760)   (150,966)   (401,492)
                                                                               
Proceeds from sales of property,                      -      25,012      24,806
plant and equipment                                                            
                                                                               
Amounts due from                                 38,837           -       8,833
associates-non-trade related                                                   
                                                                               
Interest received                                 5,235       7,900      26,238
                                                                               
Net cash used in investing                     (74,135) (1,310,775) (1,709,171)
activities                                                                     
                                                                               
Cash flow from financing activities                                            
                                                                               
Release of restricted balance of                      -   3,000,000   3,000,000
cash and cash equivalents                                                      
                                                                               
Repayment of bank borrowings                  (403,928) (1,208,168) (1,252,516)
                                                                               
Proceeds from new bank borrowings             1,719,395     857,752     857,752
                                                                               
Net cash generated from financing             1,315,467   2,649,584   2,605,236
activities                                                                     
                                                                               
Net (decrease) / increase in cash             (648,724)     594,755     (2,338)
and cash equivalents                                                           
                                                                               
Cash and cash equivalents at the              3,872,520   3,826,940   3,826,940
beginning of the period/year                                                   
                                                                               
Exchange gains on cash and cash                  21,194         998      47,918
equivalents                                                                    
                                                                               
Cash and cash equivalents at the end   7      3,244,990   4,422,693   3,872,520
of the period/year                                                             

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
30 JUNE 2010

(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 2009.

(2) OTHER INCOME

                                       Unaudited      Unaudited      Audited
                                      six months     six months   year ended
                                           ended          ended  31 December
                                                                        2009
                                         30 June        30 June             
                                            2010           2009             
                                             HK$            HK$          HK$
                                                                            
Tax refund                                     -              -       31,958
                                                                            
Government subsidy                        84,920         56,685       56,685
                                                                            
Service income                                 -         36,000       36,000
                                                                            
Sundry income                             28,314         85,183      124,289
                                                                            
                                         113,234        177,868      248,932

(3) NET FINANCE COST

                                       Unaudited       Unaudited      Audited
                                      six months      six months   year ended
                                           ended           ended  31 December
                                         30 June         30 June         2009
                                            2010            2009             
                                             HK$             HK$          HK$
                                                                             
Bank interest income                       5,235           7,900       26,238
                                                                             
Interest on bank loans                  (32,454)        (21,282)     (91,998)
                                                                             
Interest on bank overdrafts                    -         (1,124)      (1,128)
                                                                             
                                        (27,219)        (14,506)     (66,888)

(4) INCOME TAX EXPENSE

No provision for Hong Kong income tax has been made (June 2009: HK$nil; 2009:
HK$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
period ended 30 June 2010 is HK$113,734 (June 2009: HK$51,585; 2009:
HK$154,389).

(5) LOSS PER SHARE

The calculation of the basic loss per share for the period ended 30 June 2010,
is based on the loss attributable to ordinary equity shareholders of the
company of HK$1,838,639 (June 2009: HK$3,252,124; 2009: HK$4,745,297) during
the period and the weighted average number of 68,834,388 ordinary shares (June
2009: 68,834,388; 2009: 68,834,388) in issue during the period/year. No diluted
loss per share is to be reported for the period/year.

(6) DIVIDENDS

No payment of dividend was recommended for the first six months of 2010 (June
2009: HK$ nil; 2009: HK$ nil).

(7) CASH AND CASH EQUIVALENTS

                                      Unaudited      Unaudited        Audited
                                        30 June        30 June    31 December
                                           2010           2009           2009
                                            HK$            HK$            HK$
                                                                             
Cash at bank and on hand              2,671,858      4,422,693      3,872,520
                                                                             
Short-term bank deposits                573,132              -              -
                                                                             
Cash and cash equivalents in the      3,244,990      4,422,693      3,872,520
cash flow statement                                                          

(8) BANK BORROWINGS

                                       Unaudited     Unaudited        Audited
                                         30 June       30 June    31 December
                                            2010          2009           2009
                                             HK$           HK$            HK$
                                                                             
Non-current                                                                  
                                                                             
Mortgage loan                (a)         194,955       687,688        634,711
                                                                             
Current                                                                      
                                                                             
Mortgage loan                (a)         166,353       121,896        130,525
                                                                             
Bank borrowings, secured     (b)       1,719,395             -              -
                                                                             
                                       2,080,703       809,584        765,236

(a) The mortgage loan was secured by the property situated in Thailand. At 30
June 2010, the net book value of the property included in the property, plant
and equipment was HK$992,839.

 b. On 13 May 2010, an indirectly held subsidiary of the Group situated in PRC
    ("the subsidiary") has obtained a bank borrowing of HK$1,719,395
    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.
   
(9) RELATED PARTY TRANSACTIONS

                                       Unaudited     Unaudited        Audited
                                      six months    six months     year ended
                                           ended         ended    31 December
                                         30 June       30 June           2009
                                            2010          2009               
                                             HK$           HK$            HK$
                                                                             
Associates                                                                   
                                                                             
Sales of goods                           460,590       936,000      1,502,280
                                                                             
Related companies                                                            
                                                                             
Legal and professional fees paid          74,754        61,310        109,995
                                                                             
Service income                                 -        36,000         36,000

(10) RECONCILIATION OF LOSS BEFORE INCOME TAX TO EBITDA

                                       Unaudited      Unaudited        Audited
                                      six months     six months     year ended
                                           ended          ended    31 December
                                         30 June        30 June           2009
                                            2010           2009               
                                             HK$            HK$            HK$
                                                                              
Loss before income tax               (1,520,017)    (3,082,422)    (4,353,702)
                                                                              
Depreciation                             291,051        352,867        602,691
                                                                              
Amortisation of patents                  176,836        193,989        398,277
                                                                              
Interest income                          (5,235)        (7,900)       (26,238)
                                                                              
Interest expenses                         32,454         22,406         93,126
                                                                              
Patents written off                            -              -        716,417
                                                                              
Loss on disposal of property,                  -        486,247        494,016
plant and equipment                                                           
                                                                              
Issuance of share-based                    1,325        536,010        580,430
compensation                                                                  
                                                                              
EBITDA                               (1,023,586)    (1,498,803)    (1,494,983)

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.

(11) COPIES OF HALF YEARLY REPORT

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


                                                                                                              

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