9 May 2011 09:04
9 May 2011 WALCOM GROUP LIMITED ("Walcom" or "the Company") Final results for the year ended 31 December 2010
CHAIRMAN'S STATEMENT
I am pleased to announce the final results for the year ended 31 December 2010.
Results
The world-wide economy has continued to be challenging during 2010. The Companyhas worked hard to strengthen its sales channels with some success. Turnoverand gross profit levels for the year under review increased by 29 per cent.(2010: HK$32.9 million; 2009: 25.5 million) and 35 per cent. (2010: HK$20.0million; 2009: 14.8 million) respectively compared to the previous year. Forthe first time in the Company's history, a net profit of HK$0.4 million (2009:Loss of HK$4.5 million) was achieved for the year and EBITDA increased from aloss of HK$1.5 million in 2009 to a profit of HK$2.7 million for the period.
A summary of the results for the period are set out below:
Year ended Year ended Change 31 December 31 December per cent. 2010 2009 HK$'000 HK$'000 Turnover 32,861 25,529 29 Gross profit 20,067 14,832 35 Operating profit / (loss) 1,294 (4,287) n/a EBITDA 2,673 (1,495) n/a Net finance expense (86) (67) 28 Profit / (loss) for the year 399 (4,508) n/a
Loss per share, basic & diluted (HK$)* (0.003) (0.07) (96)
Net asset value per share (HK$) 0.22 0.21
5
* after taking away the minority interests in overseas subsidiaries, there is a loss attributable to the shareholders of the Company.
Operation and market review
As set out in last year's annual report, the board considered that theescalating costs of agricultural products represented an opportunity for theCompany. In order to capitalise on the opportunity, the Company launched a newsales initiative, the `Alpha' project, in August 2009 and sales havesignificantly improved since the launch and as sales have gained traction. The`Alpha' project was designed to promote the energy saving efficacy infeedstuffs of the Company's products and aimed to reduce the unit cost offeedstuffs through an improvement in the utilisation efficiency of feedstuffs,thereby increasing margins for feed mills. With this new sales pipeline, theCompany has gained more customers in the feed mill market as well as sizablepig farms. The recurring revenue from these customers has been encouraging asthe `Alpha' branded products help them reduce costs and increase their feedutilisation at the same time.With the implementation of the `Alpha' project, the Company has marketeddirectly to potential customers, unlike the historical sales approach, in whichexhibitions and seminars were arranged for introduction of the Company'sproducts to the market. With the shift in marketing strategy, the Company hasbeen able to analyse the needs of individual customers allowing for a tailoredresponse which has led to increased sales.
Sales in Thailand increased in 2010 as the country's political situation stabilised. Sales in the Philippines have not improved due to its continuing economic situation. The Directors expect sales in this market will remain constant for the coming year.
Trials in the Company's product for improving milk production in cows have been successful and the product will be launched in 2011.
Recent Developments
The Company's Vietnamese office was closed in November 2010 as the board felt that it was no longer necessary. The Company plans to appoint sales distributors in Vietnam after product registrations have been obtained.
In March 2011 in China it was found that ractopamine, a beta agonist, has beenused to feed pigs on an industrial scale. The drug was used in order to producelean pork but it is illegal in China and Europe. A campaign is being run by theChinese Government in an attempt to eliminate the use of ractopamine. As one ofthe Company's products has a similar effect in producing lean pork, theDirectors are hopeful that the actions taken by the Chinese Government willhave a positive impact in the sales of the product in the near future.There is a substantial market in the north-eastern part of China for theCompany's concentrated feed products, as this is where corn is produced on alarge scale, thus reducing the price to the local community. Pig farmers mixthe locally purchased corn with the concentrate feed, which contains all thenecessary nutrients except for carbohydrate. Trials for the `Alpha' productwhich can be used in the concentrate feeds are in progress and it represents asubstantial business opportunity for the Company if the trials are successful.
Patents
At the end of 2010 the Group had been granted 48 patents in respect of:
* its core Cysteamine technology in China, Hong Kong, North Korea, New
Zealand, Ukraine, Russia, South Africa, Australia, India and South Korea;
* poultry feed in the UK, North Korea, Taiwan, Hong Kong, Russia, China and
Australia;
* dairy cow feed in New Zealand, the UK, Hong Kong, Europe, Mexico, India,
China, Russia, Australia and Malaysia; * antibodies to adipose tissues in the UK and Europe; * fish feed in the UK, Hong Kong, Indonesia, Russia, China, Thailand, Philippines, Vietnam and Taiwan; and * shellfish feed in Europe, Vietnam, Indonesia and Malaysia.
The Directors expect further patents to be granted in the future in line with the policy of the Group to pursue wide patent coverage in places where the Board believes there will be significant demand for the Group's products.
Debt
As at the year end, the Group's had a short term bank loan of HK$1.7 millionand a mortgage of approximately HK$0.2 million. The bank loan was used tofinance the Group's general working capital and the mortgage is the remainingportion of a loan entered into in 2009 for the purpose of acquiring officepremises in Bangkok, Thailand.
Dividend
The Directors do not recommend any dividend payment for the year ended 31 December 2010.
Annual General Meeting
The Annual General Meeting will be held at the offices of the Company's solicitors, Richards Butler in Hong Kong at 2:30pm on Friday 10 June 2011.
Outlook
In 2010, the Company achieved a net profit of HK$0.4 million and a positiveEBITDA level for the first time in its history. The Company is facing inflatedproduction costs and operating expenses which, in addition to the expectedslower growth in China in the year ahead will continue to make tradingdifficult, however, the Directors are hopeful that the traction the Company'ssales have gained during 2010 will continue in the current year and that theGroup will make a net profit in 2011.
Sadly, our fellow director Dr Royston Frederick Drucker, passed away in October 2010. On behalf of the Board, I would like to express our thanks for his contribution to the Company over the last few years. I would also like to express my sincere thanks to the management team and staff, professional advisers and shareholders for their continued support during the year.
Eddie K.M. ChanChairman9 May 2011Further enquiries:Walcom Group Limited +852 2494 0133
Francis Chi (Chief Executive Officer) Albert Wong (Chief Financial Officer)
Merchant Securities Limited +44 20 7628 2200Lindsay Mair/Virginia Bull Consolidated statement of comprehensive incomeFor the year ended 31 December 2010(Expressed in Hong Kong dollars) Note 2010 2009 HK$ HK$ Revenue 32,860,894 25,529,170 Cost of sales (12,793,665) (10,697,432) Gross profit 20,067,229 14,831,738 Other income 203,642 248,932 Research and development expenses (1,463,030)
(1,527,831)
Selling and distribution expenses (8,186,502)
(7,292,260)
General and administrative expenses (9,327,110)
(10,547,393)
Profit / (loss) from operations 1,294,229 (4,286,814) Net finance expense (85,552) (66,888) Profit / (loss) before income tax 2 1,208,677 (4,353,702) Income tax expense 3 (809,988) (154,389) Profit / (loss) for the year 398,689 (4,508,091) Other comprehensive income Exchange difference on translation of 678,442
158,112
financial statements of overseas subsidiaries Total comprehensive income / (loss) for the 1,077,131 (4,349,979)year
Profit / (loss) attributable to:
Owners of the Company (191,884) (4,745,297) Non-controlling interests 590,573 237,206 Profit / (loss) for the year 398,689 (4,508,091)
Total comprehensive income / (loss)
attributable to: Owners of the Company 390,249 (4,616,212) Non-controlling interests 686,882 266,233 Total comprehensive income / (loss) for the 1,077,131 (4,349,979)year Loss per share - basic, HK cents 5 (0.28) (6.89) - diluted, HK cents (0.28) (6.89)
Consolidated balance sheet as at 31 December 2010
(Expressed in Hong Kong dollars)
Note 2010 2009 HK$ HK$ ASSETS NON-CURRENT ASSETS Property, plant and equipment 2,698,958 2,898,144 Patents 4,726,361 4,844,916 Goodwill 127,857 127,857 Investment in associate - - 7,553,176 7,870,917 CURRENT ASSETS Inventories 872,349 1,247,319 Trade and other receivables 6,221,733 4,309,726 Amounts due from associates 1,632,934 1,861,701 Tax recoverable 415,540 143,524 Cash and cash equivalents 6 6,285,006 3,872,520 15,427,562 11,434,790 TOTAL ASSETS 22,980,738 19,305,707 EQUITY Share capital 688,344 688,344 Reserves 14,436,087 13,668,470 Total equity attributable to OWNERs of the 15,124,431 14,356,814Company Non-controlling interests 1,042,541 642,101 TOTAL EQUITY 16,166,972 14,998,915 NON-CURRENT LIABILITIES Bank borrowings 7 - 634,711 CURRENT LIABILITIES Trade and other payables 4,109,048 3,444,441 Tax payables 771,860 97,115 Bank borrowings 7 1,932,858 130,525 6,813,766 3,672,081 TOTAL LIABILITIES 6,813,766 4,306,792 TOTAL EQUITY AND LIABILITIES 22,980,738 19,305,707 NET CURRENT ASSETS 8,613,796 7,762,709 TOTAL ASSETS LESS CURRENT LIABILITIES 16,166,972
15,633,626
Balance sheet as at 31 December 2010
(Expressed in Hong Kong dollars)
Note 2010 2009 HK$ HK$ ASSETS NON-CURRENT ASSETS Investments in subsidiaries 384 384 CURRENT ASSETS Amounts due from subsidiaries - 991,951 Other receivables 22,530 1,011 Cash and cash equivalents 6 24,131 23,933 46,661 1,016,895 TOTAL ASSETS 47,045 1,017,279 EQUITY CAPITAL AND RESERVES Share capital 688,344 688,344 Reserves (1,215,179) 13,975 (Capital deficiency) / total equity (526,835) 702,319 CURRENT LIABILITIES Other payables 573,880 314,960 TOTAL EQUITY AND LIABILITIES 47,045 1,017,279 NET CURRENT (LIABILITIES) / ASSETS (527,219)
701,935
TOTAL ASSETS LESS CURRENT LIABILITIES (526,835)
702,319
Consolidated statement of changes in equityFor the year ended 31 December 2010(Expressed in Hong Kong dollars) Share Share Merger Share-based Exchange Accumulated Total Non- Total capital Premium reserve compensation reserve losses HK$ controlling equity HK$ HK$ HK$ reserve HK$ HK$ interests HK$ HK$ HK$ (Note 23 (Note 23 (Note 23 (b)(i)) (b)(ii)) (b)(iii)) At 1 January 688,344 95,298,644 23,852,469 500,473 706,951 (102,654,285) 18,392,596 375,868 18,768,4642009 Comprehensive loss Loss for the - - - - - (4,745,297) (4,745,297) 237,206 (4,508,091)year Other comprehensive income Exchange - - - - 129,085 - 129,085 29,027 158,112difference on translation of financial statements of overseas subsidiaries Total - - - - 129,085 (4,745,297) (4,616,212) 266,233 (4,349,979)comprehensive loss for the year Recognition of - - - 580,430 - - 580,430 - 580,430equity-settled share-based payments At 31 December 688,344 95,298,644 23,852,469 1,080,903 836,036 (107,399,582) 14,356,814 642,101 14,998,9152009 At 1 January 688,344 95,298,644 23,852,469 1,080,903 836,036 (107,399,582) 14,356,814 642,101 14,998,9152010 Comprehensive loss Loss for the - - - - - (191,884) (191,884) 590,573 398,689year Other comprehensive income Exchange - - - - 582,133 - 582,133 96,309 678,442difference on translation of financial statements of overseas subsidiaries Total - - - - 582,133 (191,884) 390,249 686,882 1,077,131comprehensive income for the year Recognition of - - - 377,368 - - 377,368 - 377,368equity-settled share-based payments Lapse of share - - - (79,090) - 79,090 - - -options Dividends to - - - - - - - (286,442) (286,442)non-controlling interests
At 31 December 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 2010
Consolidated statement of cash flowsFor the year ended 31 December 2010(Expressed in Hong Kong dollars) Note 2010 2009 HK$ HK$
Cash flow from operating activities Profit / (loss) before income tax 1,208,677 (4,353,702) Amortisation of patents 2(b) 358,632 398,277 Interest received (8,712) (26,238) Depreciation 2(b) 628,091 602,691 Foreign exchange loss, net 174,278 104,497 Interest paid 94,264 93,126 Loss on disposal of property, plant and 2(b) 14,599 494,016equipment Patent written off 2(b) - 716,417 Inventories written off 2(b) 17,804 137,187 Share-based compensation 2(a) 377,368 580,430 Operating profit / (loss) before working 2,865,001 (1,253,299)capital changes Decrease in inventories 357,166 36,041 Increase in trade and other receivables (2,184,023)
(341,682)
Decrease in amount due from associate - trade 200,850 358,800related Increase in trade and other payables 664,607
401,518
Net cash generated from / (used) in operations 1,903,601 (798,622) Corporate income tax paid (135,243 (6,655) Interest paid (94,264) (93,126) Net cash generated from / (used) in operating 1,674,094 (898,403)activities
Cash flow from investing activities
Payment for patents (240,077) (401,492) Purchases of property, plant and equipment (259,026)
(1,367,556)
Proceeds from sales of property, plant and - 24,806equipment Amounts due from associate - non-trade related 27,917 8,833 Interest received 8,712 26,238 Net cash used in investing activities (462,474)
(1,709,171)
Cash flow from financing activities Decrease in restricted balance of cash and cash - 3,000,000equivalents
Dividends paid to minority interests (286,442)
- Repayment of bank borrowings (595,217) (1,252,516) Proceeds from new bank borrowings 1,762,839
857,752
Net cash generated from financing activities 881,180
2,605,236
Net increase / (decrease) in cash and cash 2,092,800 (2,338)equivalents Cash and cash equivalents at the beginning of 3,872,520 3,826,940the year Exchange gains on cash and cash equivalents 319,686
47,918
Cash and cash equivalents at the end of the 6 6,285,006 3,872,520 year
Notes to the consolidated financial statementsFor the year ended 31 December 2010(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 2010 has been extracted from the Company's financial statements to that date which have received an unqualified auditors' report.
2. Profit / (loss) before income tax
Profit / (loss) before income tax is stated after charging the following items :-
a. Staff costs (including directors' emoluments)
b. 2010 2009 HK$ HK$ Salaries, wages and commission 7,577,100
6,958,053
Contributions to defined contribution retirement plans 656,771 531,730 Share-based compensation 377,368 580,430 Other staff benefits 3,750,837 2,942,107 12,362,076 11,012,320(b) Other items 2010 2009 HK$ HK$ Amortisation of patents 358,632 398,277 Auditor's remuneration 254,913 239,747 Cost of inventories sold# (note 18) 12,793,665 10,697,432 Depreciation 628,091 602,691 Exchange losses, net 174,278 104,497 Loss on disposal of property, plant and equipment 14,599 494,016 Inventories written off 17,804 31,511 Patents written off - 716,417
Rental charges under operating leases in respect of
land and buildings 463,718 964,465
#Cost of inventories sold includes HK$2,339,917 (2009: HK$2,220,869) relating to staff costs, depreciation and amortisation expenses and operating lease charges, of which amount is also included in the respective total amounts disclosed separately above or in note 2(a).
3. Income tax expense 2010 2009 HK$ HK$ Current income tax * Thailand corporate income tax 506,757
154,389
* Shanghai foreign enterprise income tax 303,231 - 809,988 154,389(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 (2009: HK$nil).
(b) Taxation for the Group
(i) Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the rate of taxation prevailing in the countries in which the Group companies operate. The income tax expense stated in consolidated statement of comprehensive income represented the corporate income tax and foreign enterprise income tax arisen from the business of subsidiaries operating in Thailand and Shanghai respectively.
Hong Kong Profits Tax is calculated at 16.5% (2009: 16.5%) of the estimated assessable profit for the year. However, no provision for Hong Kong profits tax has been made (2009: HK$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 Republicof China ("PRC") has been made at 11% (2009: HK$nil) as Shanghai WalcomBio-Chem Co., Ltd. ("Shanghai Walcom"), a wholly owned subsidiary operating inShanghai, has assessable profits for the year in excess of the agreed taxlosses brought forward.Pursuant to the relevant income tax rules and regulations in the PRC, ShanghaiWalcom is granted certain tax relief whereby it is exempted from FEIT for thefirst two years and 50% reduction for the following three years commencing fromthe first profitable year of operation after fully set off against theaccumulated losses brought forward.On 16 March 2007, the National People's Congress approved the Corporate IncomeTax Law of the People's Republic of China ("the new tax law"), which will takeeffect on 1 January 2008. Under the new tax law, the PRC income tax rate willbe gradually increased to a standard rate of 25% for all domestic and foreignenterprises over the next five years with effective from 1 January 2008.According to the Circular 39 passed by the State Council on 26 December 2007,the tax exemption and reduction will be terminated latest by 2012. Accordingly,Shanghai Walcom is exempted from PRC income tax for the years from 1 January2008 to 31 December 2009, followed by a 50% reduction in the tax rate for theremaining three years from 1 January 2010 to 31 December 2012. The applicableincome tax rate would be 11%, 12% and 12.5% for the year 2010, 2011 and 2012respectively.
(ii) A reconciliation between the Group's income tax expense and the accounting profit / (loss), at the applicable tax rate, is set out below :-
2010 2009 HK$ HK$ Profit / (loss) before income tax 1,208,677
(4,353,702)
Notional tax credit on profit / (loss) before income 199,430 (718,361) tax, calculated at the rates applicable to profits in
the countries concerned Tax effect of: Different income tax rates in other countries (334,876)
41,940
Expenses not deductible for tax purpose 570,650 728,512 Income tax exemption - (321,241) Non-taxable revenue (2) (13) Temporary differences not recognized 1,291
(7,254)
Unused tax losses not recognized 373,495 430,806 Income tax charges 809,988 154,389(iii) A deferred tax asset amounting to HK$8,313,840 (2009: HK$7,941,995) inrespect of tax losses of a subsidiary incorporated in Hong Kong ofapproximately HK$50,387,000 (2009: HK$48,133,000) has not been recognised inthe financial statements as it is not certain that future taxable profit willbe available against which these losses can be utilised.
4. Dividends
The Company does not recommend the payment of any dividend for the year ended 31 December 2010 (2009: HK$Nil).
5. Loss per share
There is no difference between basic and diluted loss per share. The basic anddiluted loss per share for the year ended 31 December 2010 are calculated bydividing the Group's loss attributable to owners of the Group of HK$191,884(2009: loss of HK$4,745,297) by the weighted average number of 68,834,388ordinary shares (2009: 68,834,388 ordinary shares).6. Cash and cash equivalents 2010 2009 HK$ HK$
Cash and cash equivalents in the statement of cash 6,285,006 3,872,520 flows
Included in the cash and cash equivalents of the Group, HK$4,896,502 (2009:HK$2,841,655) were denominated in RMB and kept in PRC. The remittance of thesefunds out of the PRC is subject to the foreign exchange control restrictionsimposed by the PRC government.Included in cash and cash equivalents in the consolidated balance sheet are thefollowing amounts denominated in a currency other than the functional currencyof the entity to which they relate: 2010 2009 United States dollars US$ 68,815 US$ 58,329 British Pound GB£ 1,254 GB£ 1,252 Thai Baht THB 2,605,229 THB 2,362,111 Vietnam Dong VND 107,973 VND 533,6767. Bank borrowingsAt 31 December 2010, the bank borrowings were secured and repayable as follows: 2010 2009 HK$ HK$ Non-current liabilities Bank borrowings - long term portion, secured - 634,711 Current liabilities Bank borrowings - short term portion, secured 1,932,858 130,525 Total borrowings 1,932,858 765,236
a. The maturity of borrowings is as follows:
2010 2009 HK$ HK$ Within 1 year or on demand 1,932,858 130,525 After 1 year but within 5 years - 634,711 1,932,858 765,236
b. The effective interest rate per annum for bank borrowings at balance sheet
date is 0.5% over Thailand mortgage reference rate and at one-year
benchmark deposits and loan interest rate promulgated by The People's Bank
of China plus certain basis points per annum respectively (2009: 0.5% over
Thailand mortgage reference rate).
The mortgage loan of HK$170,018 was secured by the property situated in Thailand. At 31 December 2010, the net book value of the property included in the property, plant and equipment was HK$1,044,868.
On 13 May 2010, an indirectly held subsidiary of the Group situated in PRC("the subsidiary") has obtained a bank borrowing of HK$1,762,840 denominated inRMB with maturity of 1 year. The bank borrowing was secured by the corporateguarantee issued by an independent third party. For the grant of corporateguarantee, the holding company of the subsidiary, which is also an indirectlyheld subsidiary of the Group, has pledged its shareholding of the subsidiary tothe independent third party.
8. Copies of the Report and Accounts
Copies of the Report and Accounts will be sent to shareholders shortly and willbe 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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