9 May 2012 11:55
9 May 2012 WALCOM GROUP LIMITED ("Walcom" or "the Company") CHAIRMAN'S STATEMENT
On behalf of the board of directors (the "Board"), I am pleased to present the final results for the year ended 31 December 2011.
Results
Despite the continued volatility in the world-wide economy during 2011, theCompany's sales momentum grew during the period, resulting in a profitattributable to the equity shareholders for the first time in the Company'shistory (2011: Profit HK$1.3 million; 2010: Loss HK$0.2 million). Turnover andgross profit levels for the year under review increased by 35 per cent. (2011:HK$44.2 million; 2010: 32.9 million) and 40 per cent. (2011: HK$28.0 million;2010: 20.0 million) respectively compared to the previous year. Net profit forthe year increased by 401 per cent. to HK$2.0 million (2010: HK$0.4 million)and EBITDA increased by 172 per cent. to HK$7.3 million from HK$2.7 million forthe same period last year.
A summary of the results for the period is set out below:
Year ended Year ended Change 31 December 31 December 2011 2010 HK$'000 HK$'000 per cent. Turnover 44,208 32,861 35 Gross profit 28,091 20,067 40 Operating profit 3,946 1,294 205 EBITDA 7,258 2,673 172 Net finance expense (116) (86) 35 Profit for the year 1,997 399 401 Earnings / (loss) per share* 0.02 (0.003) n/a - basic (HK$) 0.02 (0.003) n/a - diluted (HK$)
Net asset value per share (HK$) 0.26 0.22
18
* after taking away the minority interests in overseas subsidiaries, there is a loss attributable to the shareholders of the Company in 2010.
Operation and market review
Although 2011 was a difficult year for the world economy， the Company isdelighted to be able to report its maiden profit. Escalating production costsand operating expenses were still difficulties faced by the Company during theyear. However, since the Company's shift to marketing directly to potentialcustomers in 2010, the sales force has a greater understanding of the needs ofthe customers which has resulted in more appropriate solutions being offered tothem. This has consequently resulted in stronger customer relationships andincreased sales. The `Alpha' project, which was designed to promote the energysaving efficacy in feedstuffs of the Company's products, continues to play amajor role in new business development and sales. The Company's market share inthe feed industry is slowly expanding but at a steady pace, as traction fromsales has built up over the last two years.Sales in Thailand recovered following the notable decrease during the politicalinstability in 2010 and increased by 25 per cent. during the period underreview. A soft launch of the Company's product for improving milk production incows was made during the last quarter of 2011. The Directors are expectingfurther improvement in the Thai market as some of the sales efforts implementedin the past few years becomes fruitful and they are hopeful that it will be themain driving force of the Company's products in the overseas market.
Recent Developments
As the Company had made good progress in the Chinese market over the last twoyears, the Directors have decided to concentrate a greater portion of theCompany's resources on it. In order to aid further growth in the feed market,the Company has adopted a new sales strategy aimed at building up a direct andpersonal relationship with potential customers. This involves utilizing thedata and technology of the Company to develop new techniques to solve commonproblems encountered in the feed industry, particularly in areas of feedformulation, production management and management of sales team, which can
thenbe deployed by the customer.Patents
At the end of 2011 the Group had been granted 51 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, Australia and Philippines;
* 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, Malaysia and Taiwan.
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 had a short term bank loan of HK$2.5 million, which was used to finance the Group's general working capital.
Dividend
The Directors do not recommend any dividend payment for the year ended 31 December 2011.
Annual General Meeting
The Annual General Meeting will be held at the offices of the Company's solicitors, Reeds Smith Richards Butler in Hong Kong at 2:30pm on Monday 11 June 2012.
Outlook
In 2011, the Company achieved a net profit of HK$2.0 million and EBITDA ofHK$7.3 million. Looking into 2012, it will be another challenging year for theworld economy, with slower growth expected in the Chinese economy anduncertainties, together with the lingering effects of the debt crisis, in boththe United States and European economies. Inflated production costs andoperating expenses will continue to make trading difficult. However, theDirectors are hopeful that by increasing the Company's market share anddeveloping more repeat customer relationships, the Group will have an evenbetter result in 2012.
On behalf of the Board, I would like to express our sincere thanks to the management team and staff, professional advisers and shareholders for their continued support during the year.
Eddie K.M. ChanChairman9 May 2012Further enquiries:Walcom Group Limited +852 2494 0133
Francis Chi (Chief Executive Officer) Albert Wong (Chief Financial Officer) Merchant Securities Limited +44 20 7628
2200
Lindsay Mair/Virginia Bull
Consolidated income statement
For the year ended 31 December 2011
(Expressed in Hong Kong dollars)
Note 2011 2010 HK$ HK$ Revenue 44,207,817 32,860,894 Cost of sales (16,116,325 ) (12,793,665 ) Gross profit 28,091,492 20,067,229 Other income 124,556 203,642 Research and development expenses (1,580,780 )
(1,463,030 )
Selling and distribution expenses (10,712,894 )
(8,186,502 )
General and administrative expenses (11,976,400 ) (9,327,110 ) Profit from operations 3,945,974 1,294,229 Net finance expense (116,477 ) (85,552 ) Profit before income tax 3 3,829,497 1,208,677 Income tax expense 4 (1,832,990 ) (809,988 ) Profit for the year 1,996,507 398,689
Profit / (loss) attributable to:
Owners of the Company 1,291,396 (191,884 ) Non-controlling interests 705,111 590,573 Profit for the year 1,996,507 398,689 Earnings / (loss) per share - basic, HK cents 6 1.88 (0.28 ) - diluted, HK cents 1.88 (0.28 )
Consolidated statement of comprehensive income
For the year ended 31 December 2011
(Expressed in Hong Kong dollars)
2011 2010 HK$ HK$ Profit for the year 1,996,507 398,689 Other comprehensive income
Exchange difference on translation of financial statements of overseas subsidiaries 631,579
678,442
Total comprehensive income for the year 2,628,086
1,077,131
Total comprehensive income attributable to:
Owners of the Company 1,996,312 390,249 Non-controlling interests 631,774 686,882 Total comprehensive income for the year 2,628,086
1,077,131
Consolidated balance sheet as at 31 December 2011
(Expressed in Hong Kong dollars)
Note 2011 2010 HK$ HK$ ASSETS NON-CURRENT ASSETS Property, plant and equipment 2,153,287 2,698,958 Patents 4,003,839 4,726,361 Goodwill - 127,857 Investment in associate - - 6,157,126 7,553,176 CURRENT ASSETS Inventories 1,221,152 872,349 Trade and other receivables 7 7,985,454 6,221,733 Amounts due from associate 753,163 1,632,934 Tax recoverable 410,238 415,540 Cash and cash equivalents 8 11,736,464 6,285,006 22,106,471 15,427,562 TOTAL ASSETS 28,263,597 22,980,738 EQUITY Share capital 688,344 688,344 Reserves 17,101,037 14,436,087 Total equity attributable to OWNERs of the 17,789,381 15,124,431 Company Non-controlling interests 1,398,458 1,042,541 TOTAL EQUITY 19,187,839 16,166,972 CURRENT LIABILITIES Trade and other payables 5,705,808 4,109,048 Tax payables 902,946 771,860 Bank borrowings 9 2,467,004 1,932,858 9,075,758 6,813,766 TOTAL LIABILITIES 9,075,758 6,813,766 TOTAL EQUITY AND LIABILITIES 28,263,597 22,980,738 NET CURRENT ASSETS 13,030,713 8,613,796 TOTAL ASSETS LESS CURRENT LIABILITIES 19,187,839
16,166,972
Consolidated statement of changes in equity
For the year ended 31 December 2011
(Expressed in Hong Kong dollars)
Share-based Exchange Accumulated Total Non- Total Share Share Merger compen- reserve losses controlling equity capital premium reserve sation intrests on reserve HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ 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 ComprehensivelossLoss for the - - - - - (191,884) (191,884) 590,573 398,689year OthercomprehensiveincomeExchangedifference ontranslation offinancial - - - - 582,133 - 582,133 96,309 678,442statements ofoverseassubsidiaries Total - - - - 582,133 (191,884) 390,249 686,882 1,077,131comprehensiveincome for theyear Recognition ofequity-settledshare-based - - - 377,368 - - 377,368 - 377,368payments Lapse of share - - - (79,090) - 79,090 - - -options Dividends to - - - - - - - (286,442) (286,442)non-controllinginterests
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
At 1 January 688,344 95,298,644 23,852,469 1,379,181 1,418,169 (107,512,376) 15,124,431 1,042,541 16,166,9722011 ComprehensiveincomeProfit for the - - - - - 1,291,396 1,291,396 705,111 1,996,507year OthercomprehensiveincomeExchangedifference ontranslation offinancial - - - - 704,916 - 704,916 (73,337) 631,579statements ofoverseassubsidiaries Total - - - - 704,916 1,291,396 1,996,312 631,774 2,628,086comprehensiveincome for theyear Recognition ofequity-settledshare-based - - - 668,638 - - 668,638 - 668,638payments Dividends to - - - - - - - (275,857) (275,857)non-controllinginterests
At 31 December 688,344 95,298,644 23,852,469 2,047,819 2,123,085 (106,220,980) 17,789,381 1,398,458 19,187,839
Consolidated statement of cash flows
For the year ended 31 December 2011
(Expressed in Hong Kong dollars)
Note 2011 2010 HK$ HK$
Cash flow from operating activities
Profit before income tax 3,829,497 1,208,677 Amortisation of patents 3(b) 376,251 358,632 Interest received (47,796 ) (8,712 ) Depreciation 3(b) 690,874 628,091 Foreign exchange loss, net 3(b) 419,720 174,278 Interest paid 164,273 94,264
Loss on disposal of property, plant and equipment 3(b) 9,336 14,599
Loss on cessation of a subsidiary's assets 11,540
-
Provision for impairment losses on amounts due 3(b) 752,000
- from associate Impairment loss on goodwill 3(b) 127,857 - Patents written off 3(b) 653,581 - Inventories written off 3(b) 103,029 17,804 Share-based compensation 3(a) 668,638 377,368
Operating profit before working capital changes 7,758,800 2,865,001
(Increase) / decrease in inventories (451,832 )
357,166
Increase in trade and other receivables (1,763,721 )
(2,184,023 )
Decrease in amounts due from associate - trade 320,684 200,850 related Increase in trade and other payables 1,596,760
664,607
Net cash generated from operations 7,460,691 1,903,601 Corporate income tax paid (1,696,602 ) (135,243 ) Interest paid (164,273 ) (94,264 ) Net cash generated from operating activities 5,599,816
1,674,094
Cash flow from investing activities
Payment for patents (307,310 ) (240,077 ) Purchases of property, plant and equipment (152,099 )
(259,026 )
(Increase) / decrease in amounts due from (192,913 ) 27,917 associate - non-trade related Interest received 47,796 8,712 Net cash used in investing activities (604,526 )
(462,474 )
Cash flow from financing activities Dividends paid to minority interests (275,857 ) (286,442 ) Repayment of bank borrowings (2,056,208 ) (595,217 ) Proceeds from new bank borrowings 2,590,354
1,762,839
Net cash generated from financing activities 258,289
881,180
Net increase in cash and cash equivalents 5,253,579
2,092,800
Cash and cash equivalents at the beginning of the 6,285,006 3,872,520 year Exchange gain on cash and cash equivalents 197,879
319,686
Cash and cash equivalents at the end of the year 8 11,736,464 6,285,006
Notes to the consolidated financial statements
For the year ended 31 December 2011
(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 2011 has been extracted from the Company's financial statements to that date which have received an unqualified auditors' report.
2 Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These consolidated financial statements also comply with the applicable disclosure provisions of the AIM Rules for Companies of the London Stock Exchange. They have been prepared under the historical cost convention.
The preparation of financial statements in conformity with IFRS requires theuse of certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the Group's accountingpolicies. The areas involving a higher degree of judgement or complexity, orareas where assumptions and estimates are significant to the consolidatedfinancial statements, are disclosed in note 29 of the Report and Accounts.
3 Profit before income tax
Profit before income tax is stated after charging the following items :-
(a) Staff costs (including directors' emoluments)
2011 2010 HK$ HK$ Salaries, wages and commission 6,976,848
7,577,100
Contributions to defined contribution retirement plans 688,611 656,771 Share-based compensation 668,638 377,368 Other staff benefits 5,108,285 3,750,837 13,442,382 12,362,076(b) Other items 2011 2010 HK$ HK$ Amortisation of patents 376,251 358,632 Auditor's remuneration 240,000 254,913 Cost of inventories sold 16,116,325 12,793,665 Depreciation 266,471 262,368 Exchange losses, net 419,720 174,278 Loss on disposal of property, plant and equipment 9,336
14,599
Loss on cessation of a subsidiary 33,906
- Impairment loss on goodwill 127,857 - Inventories written off 103,029 17,804 Patents written off 653,580 -
Provision for impairment losses on amounts due from 752,000
-associate
Rental charges under operating leases in respect of
land and buildings 577,007 463,7184 Income tax expense 2011 2010 HK$ HK$ Current income tax - Thailand corporate income tax 617,380
506,757
- Shanghai foreign enterprise income tax 1,215,610 303,231 1,832,990 809,988
(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 (2010: HK$nil).
(b) Taxation for the Group
(i) Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the rate of taxation prevailing in the countries in which the Group companies operate. The income tax expense stated in consolidated statement of comprehensive income represented the corporate income tax and foreign enterprise income tax arisen from the business of subsidiaries operating in Thailand and Shanghai respectively.
Hong Kong Profits Tax is calculated at 16.5% (2010: 16.5%) of the estimated assessable profit for the year. However, no provision for Hong Kong profits tax has been made (2010: HK$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 12% (2010: 11%) as Shanghai Walcom Bio-ChemCo., 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, 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, at the applicable tax rate, is set out below :-
2011 2010 HK$ HK$ Profit before income tax 3,829,497 1,208,677
Notional tax credit on profit before income tax,
calculated at the rates applicable to profits in the countries 631,867 199,430concerned Tax effect of: Different income tax rates in other countries (287,449)
(334,876)
Expenses not deductible for tax purpose 919,091 570,650 Non-taxable revenue (2) (2) Temporary differences not recognized 188
1,291
Unused tax losses not recognized 569,295 373,495 Income tax charges 1,832,990 809,988(iii) A deferred tax asset amounting to HK$8,928,261 (2010: HK$8,313,840) inrespect of tax losses of a subsidiary incorporated in Hong Kong ofapproximately HK$54,111,000 (2010: HK$50,387,000) has not been recognised inthe financial statements as it is not certain that future taxable profit willbe available against which these losses can be utilised.
5 Dividends
The Company does not recommend the payment of any dividend for the year ended 31 December 2011 (2010: HK$Nil).
6 Earnings / (loss) per share
There is no difference between basic and diluted earnings / (loss) per share.The basic and diluted earnings per share for the year ended 31 December 2011are calculated by dividing the Group's profit attributable to owners of theGroup of HK$1,291,396 (2010: loss of HK$191,884) by the weighted average numberof 68,834,388 ordinary shares (2010: 68,834,388 ordinary shares). Thecomputation of diluted earnings / (loss) per share does not assume the exerciseof the Company's outstanding share options because the exercise price of theoptions is higher than the average market price for the years ended 31 December2011 and 2010.
7 Trade and other receivables
Group 2011 2010 HK$ HK$ Trade Receivables 7,695,607 6,198,317 Less: provision for impairment loss (545,899) (699,577) Trade receivables - net 7,149,708 5,489,740 Deposits and prepayments 529,543 507,209 Other receivables 306,203 224,784 7,985,454 6,221,733
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:
2011 2010 HK$ HK$ At 1 January 699,577 635,701 Written off (179,469) - Exchange difference 25,791 63,876 At 31 December 545,899 699,577 At 31 December 2011, the Group's trade receivables of HK$545,899 (2010:HK$699,577) have been outstanding for a certain period of time. The managementassessed that only a portion of the receivables is expected to be recoverable.No further individually provision of impairment for doubtful debts was providedin the year ended 31 December 2011 (2010: HK$nil).
The Group does not hold any collateral over these balances.
b. Trade receivables that are not impaired
Majority of the Group's turnover are with credit terms ranging from 30 to 60days. Ageing analysis of trade receivables that are neither individually norcollectively considered to be impaired are as follows: 2011 2010 HK$ HK$ Neither past due nor impaired 4,661,195
4,478,458
Less than one month past due 772,218 652,382 1 to 4 months past due 1,716,295 321,880 Over 4 months past due - 37,020 2,488,513 1,011,282 7,149,708 5,489,740
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 ofindependent customers that have a good track record with the Group. Based onpast experience, management believes that no impairment allowance is necessaryin respect of these balances as there has not been a significant change incredit quality and the balances are considered fully recoverable. The Groupdoes not hold any collateral over these balances.(c) The carrying amounts of trade receivables are denominated in the followingcurrencies: Group 2011 2010 Hong Kong Dollar - HK$ 136,094 Thai Baht THB 4,207,825 THB 5,365,000 Renminbi RMB 4,959,800 RMB 3,378,8208 Cash and cash equivalents Group 2011 2010 HK$ HK$ Cash and cash equivalents in the statement 11,736,464 6,285,006of cash flows The Company 2011 2010 HK$ HK$ Cash and cash equivalents in the balance 22,899)
24,131
sheet Included in the cash and cash equivalents of the Group, HK$8,639,078 (2010:HK$4,896,502) were denominated in RMB and kept in PRC. The remittance of thesefunds out of the PRC is subject to the foreign exchange control restrictionsimposed by the PRC government.Included in cash and cash equivalents in the consolidated balance sheet are thefollowing amounts denominated in a currency other than the functional currencyof the entity to which they relate: 2011 2010 United States dollars US$ 96,688 US$ 68,815 British Pound GB£ 1,223 GB£ 1,254 Thai Baht THB 8,757,326 THB 2,605,229 Vietnam Dong VND - VND 107,9739 Bank borrowingsAt 31 December 2011, the bank borrowings were secured and repayable as follows: Group 2011 2010 HK$ HK$ Current liabilities Bank borrowings - short term portion, 2,467,004 1,932,858secured Total borrowings 2,467,004 1,932,858
a. The maturity of borrowings is as follows:
Group 2011 2010 HK$ HK$ Within 1 year or on demand 2,467,004 1,932,858
b. The effective interest rate per annum for bank borrowings at balance sheet
date is at 20% over one-year benchmark deposits and loan interest rate
promulgated by The People's Bank of China plus certain basis points per
annum (2010: 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).
During the 2011 reporting period, the Group fully repaid a mortgage loan of HK$170,018, which was secured by the property situated in Thailand and a bank borrowing of HK$1,762,840 denominated in RMB, which was secured by the corporate guarantee issued by an independent third party.
On 31 May 2011, an indirectly held subsidiary of the Group situated in PRC("the subsidiary") has obtained a bank borrowing of HK$2,467,004 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.
10 Copies of 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.
XLON