1 May 2008 12:14
1 May 2008 Walcom Group Limited ("Walcom" or the "Group" or the "Company") Preliminary Results for the year ended 31 December 2007
I am delighted to present the annual results for the year ended 31 December 2007.
Overview of Results
Turnover and gross profit in the year under review showed a considerable improvement compared with the previous year. Consequently, the loss before tax was significantly reduced despite exceptionally bad weather conditions in China towards the end of the financial year.
The results are summarised as follows:
Change 2007 2006 % HK$'000 HK$'000 Turnover 30 18,454 14,168 Gross profit 28 11,966 9,374 Operating loss (52) (5,639) (11,744) Net finance income/(expense) (102) 367 (18,433) Share of profits of associates (5) 507 533 Loss before tax (84) (4,764) (29,643) Net asset value per share (HK$) (18) 0.33 0.40
Outlook
The Directors believe that the world is facing a food shortage crisis as well as the threat of avian influenza, which creates considerable opportunities for our business:
* As we mentioned in our last annual results, the world is facing an increasing demand for energy and one of the solutions adopted is the production of ethanol fuel from corn, which creates an additional demand for corn. This in turn has lead to a shortage of corn, as well as other grain products, due to, amongst other things, droughts in several producing countries, which has created a food shortage crisis for humans in certain countries, which has subsequently driven the prices of grain to record levels. Since corn is a major energy source in feedstuffs, the high price of corn has had a strong impact on the cost structure of the animal feed industry. After the analysis of data derived from various sophisticated computer simulation models, some feed companies have started to use the Company's products to reformulate their own production mixes in order to boost the efficiency of energy utilization. This has resulted in a reduction in the level of corn consumption while maintaining the same energy utilization and hence has lead to a reduction in manufacturing costs. The Directors believe this will become the global trend in the feed industry. * Avian influenza continues to be a major threat to the world's population. The Company's immunity enhancing products are expected to play a much more important role in animal husbandry. In the period under review, other unknown viruses have hit the swine population severely in Asia. Results of field trials on our products in certain highly infected areas were very satisfactory and this should create demand for our products.
Recent Developments
* In 2007 our sales in the Philippines increased 170% as we have been selling into big feed mills through our distributor in that country. The Directors are confident that this market segment will grow rapidly in 2008. * On 25 January 2008, the Group acquired a further equity interest in our Thailand associate, since when the latter has became a member of the Group. The development of our prawn product, "Aquanin plus", in Thailand is progressing well. This product improves feed conversion ratios and weight gains and decreases mortality rates in prawns. The Directors believe that this product will make a significant contribution to the Group's sales in 2008. * The Group has recently set up a representative office in Vietnam and started to explore this market in view of the huge demand for swine and prawn feedstuffs.
Patents
At the end of 2007 the Group had been granted 19 patents in respect of:
* its core Cysteamine technology in China, Hong Kong, North Korea, New Zealand, Ukraine, Russia and South Africa; * poultry feed in the UK, North Korea, Taiwan, Hong Kong and Russia; * dairy cow feed in New Zealand, the UK and Hong Kong; * antibodies to adipose tissues in the UK; and * fish feed in the UK and Hong Kong.
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 demands for the Group's products.
Borrowings
A bank loan of HK$1,160,000 was arranged to finance the relocation of our Shanghai factory due to the expiry of the lease of the old factory. The new factory is now in operation and has a production capacity of 100 tons per month which is an increase of 60 tons over the previous capacity.
Dividend
The directors do not recommend any dividend payment for the year ended 31 December 2007.
Annual General Meeting
The Annual General Meeting will be held at the offices of the Company's solicitors, Richards Butler in Hong Kong at 2:30pm on Thursday 29 May 2008.
On behalf of the Board, I would like to express our sincere gratitude to the management team and staff, business partners, customers, professional advisers and shareholders for their great support over the years. There are big challenges ahead but the Directors are confident that the Group can achieve success in its business and we look forward to the future with confidence.
Eddie K.M. ChanChairman1 May 2008
Consolidated Income Statement
For the year ended 31 December 2007
Note 2007 2006 HK$ HK$ Turnover 18,453,608 14,168,404 Cost of sales (6,487,430) (4,794,781) Gross profit 11,966,178 9,373,623 Other income 788,166 1,658,591
Research and development expenses (1,207,926) (1,277,809) Selling and distribution expenses (5,590,529) (5,492,121) General and administrative expenses (11,594,555) (16,005,909)
Loss from operations (5,638,666) (11,743,625) Net finance income/(expense) 367,286 (18,432,698)
Share of profits of associates 507,362 533,592
Loss before income tax (4,764,018) (29,642,731) Income tax 2 - -
Loss attributable to equity shareholders of (4,764,018) (29,642,731)the Company Loss per share - basic, HK cents 3 (7.34) (55.65)
- diluted, HK cents (7.34) (20.99)Consolidated Balance SheetAs at 31 December 2007 Notes 2007 2006 HK$ HK$ Assets Non-current assets Property, plant and equipment 1,243,656 1,005,773 Patents 6,967,172 5,563,252 Interests in associates 718,078 582,571 8,928,906 7,151,596 Current assets Inventories 1,551,916 606,528 Trade and other receivables 2,424,421 2,777,336 Amounts due from associates 3,552,714 3,556,606 Cash and cash equivalents 4 9,144,259 19,205,028 16,673,310 26,145,498 Total assets 25,602,216 33,297,094 Equity and liabilities Equity Share capital 649,109 649,109 Reserves 20,796,592 25,227,790 21,445,701 25,876,899 Current liabilities Trade and other payables 1,898,530 6,919,405 Bank overdrafts 1,097,985 500,790 2,996,515 7,420,195 Non current liabilities Bank borrowings 1,160,000 - Total equity and liabilities 25,602,216 33,297,094
Consolidated statement of changes in equity
For the year ended 31 December 2007
2007 2006 HK$ HK$ Total equity at 1 January 25,876,899 (8,892,559) Net income recognised directly in equity: Exchange differences on translation of the 332,820 89,430financial statements of foreign subsidiaries Net loss for the year (4,764,018) (29,642,731)
Total recognised income and expense for the (4,431,198) (29,553,301) year and attributable to equity
shareholders of the Company Movements in equity arising from capital transactions: Issue of share capital - 648,661 Share premium - 63,674,098 - 64,322,759 Total equity at 31 December 21,445,701 25,876,899
Consolidated cash flow statement
For the year ended 31 December 2007
Notes 2007 2006 HK$ HK$ Operating activities Loss before income tax (4,764,018) (29,642,731) Adjustments for: - Amortisation of patents 398,519 308,916 - Interest received (372,490) (49,385) - Depreciation 354,968 409,614 - Foreign exchange gain, net 261,730 56,114 - Interest paid 5,204 18,482,083
- Loss on disposal of property, plant and 5,995 256equipment - Impairment loss on trade receivables 143,042 - - Share of profits of associates (507,362) (533,592) Operating loss before changes in working (4,474,412) (10,968,725)capital (Increase) in inventories (945,388) (47,082) Decrease/(increase) in trade and other 209,873 (1,486,709)receivables Increase in amounts due from associates - (181,536) (2,111,585)trade related (Decrease)/increase in trade and other (5,020,875) 2,590,520
payables Cash used in operations (10,412,338) (12,023,581) Interest paid (5,204) (555,058)
Net cash used in operating activities (10,417,542) (12,578,639)
Investing activities Payment of patents (1,802,439) (944,782)
Payment for the purchases of property, plant (534,855) (157,365)and equipment Proceeds from sales of property, plant and 1,300 -equipment Dividends received from an associate 371,855 - Accounts due from associates - non-trade 185,428 (443,536)related Interest received 372,490 49,385 Net cash used in investing activities (1,406,221) (1,496,298)
Financing activities Proceeds from issue of shares - 22,065,444
Proceeds from issue of convertible loan notes - 12,870,000 Proceeds from new bank borrowings 1,160,000 - Repayments of accounts due to related - (1,632,142)companies Repayments of amounts due to directors - (954,363) Net cash generated from financing activities 1,160,000 32,348,939 Net (decrease)/increase in cash and cash (10,663,763) 18,274,002equivalents Cash and cash equivalents at the beginning of 18,704,238 430,236the year Effect of foreign exchange rate changes, net 5,799 -
Cash and cash equivalents at the end of the 4 8,046,274 18,704,238 year
Notes to the Financial Statements
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 2007 has been extracted from the Company's financial statements to that date which have received an unqualified auditors' report.
2 Income tax
(a) Taxation for the company
No provision for taxation has been made for the company as it is exempt from taxation in the British Virgin Islands.
At 31 December 2007, no deferred tax assets/liabilities have been recognised by the company as it does not have any temporary difference between the accounting and the tax bases of assets and liabilities.
(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 provision for Hong Kong profits tax is calculated at 17.5% (2006: 17.5%) of the estimated assessable profits for the year. However, no provision for Hong Kong profits tax has been made (2006: HK$nil) as the group did not have assessable profit subject to Hong Kong profits tax for the year.
No provision for foreign enterprise income tax ("FEIT") in the People's Republic of China ("PRC") has been made (2006: HK$nil) as Shanghai Walcom Bio-Chem Co., Ltd. ("Shanghai Walcom"), a wholly owned subsidiary company operating in Shanghai, the PRC, has agreed tax losses brought forward in excess of the assessable profits for the FEIT purposes for the year.
Pursuant to the income tax rules and regulations in the PRC, Shanghai Walcom is granted certain tax relief whereby it is exempted from FEIT for two years starting from the first profit-making year, followed by a 50% reduction for the next three years.
On 16 March 2007, the National People's Congress approved the Corporate Income Tax Law of the People's Republic of China ("the new tax law"), which will take effect on 1 January 2008. Under the new tax law, the PRC income tax rate will be gradually increased to a standard rate of 25% for all domestic and foreign enterprises over the next five years with effective from 1 January 2008. According to the Circular 39 passed by the State Council on 26 December 2007, the tax exemption and reduction will be terminated latest by 2012. Accordingly, Shanghai Walcom is exempt from PRC income tax for the years from 1 January 2008 to 31 December 2009, followed by a 50% reduction in the tax rate for the remaining three years from 1 January 2010 to 31 December 2012. The applicable income tax rate would be 11%, 12% and 12.5% for the year 2010, 2011 and 2012 respectively.
(ii) A reconciliation between the group's tax expense and the accounting loss, at the current tax rate, is set out below:-
2007 2006 HK$ HK$ Loss before income tax (4,764,018) (29,642,731) Share of profits of associated companies 507,362 533,592 (5,271,380) (30,176,323) Notional tax credit on loss before income tax calculated
at the rates applicable to profits in the (995,942) (5,318,662) countries concerned
Tax effect of non-deductible expenses 759,514 4,865,256 Tax effect of non-taxable revenue (83,997) (36,900) Tax effect of temporary differences 1,603 (12,492)
Tax effect of prior years' tax losses utilised (460,680) (198,228) this year
Tax effect of unused tax losses not recognised 779,502 701,026
Actual tax expense - -
(iii) A deferred tax asset amounting to HK$8,465,000 (2006: HK$8,096,000) in respect of tax losses of approximately HK$48,192,000 (2006: HK$46,021,000) 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. Tax losses of approximately HK$1,130,000, HK$2,886,000 and HK$2,248,000 will expire at the end of years 2008, 2009 and 2010 respectively. Other tax losses do not expire under the current tax legislation. Other temporary differences are not material.
3. Loss per share
(a) The calculation of the basic loss per share is based on the loss attributable to ordinary equity shareholders of the company of HK$4,764,018 (2006: HK$29,642,731) and the weighted average number of 64,910,891 ordinary shares (2006: 53,265,469) in issue during the year.
Weighted average number of ordinary shares
2007 2006 Issued ordinary shares at 1 January 64,910,891 44,851 Effect of capitalisation of share premium on 30 - 52,384,799November 2006 Effect of conversion of convertible loan notes on - 700,45230 November 2006 Effect of shares placed on the AIM on 21 December - 135,3672006
Weighted average number of ordinary share at 31 64,910,891 53,265,469 December
(b) Diluted loss per share
The calculation of the diluted loss per share is based on the loss attributableto ordinary equity shareholders of the company of HK$4,764,018 (2006:HK$11,179,781) and the weighted average number of 64,910,891 ordinary shares(2006: 53,265,469). 2007 2006 HK$ HK$
Loss for the year attributable to the shareholders 4,764,018 29,642,731
Interest expense on convertible loan notes - (18,462,950)
Loss attributable to ordinary shareholders 4,764,018 11,179,781 (diluted)
4. Cash and cash equivalents
2007 2006 HK$ HK$
Cash and cash equivalents in the balance sheet 9,144,259 19,205,028
Bank overdrafts (1,097,985) (500,790) Cash and cash equivalents in the cash flow 8,046,274 18,704,238statement
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:
2007 2006 United States Dollars US $21,960 US$ 97,446 Pound Sterling GB ‚£66,275 GB ‚£ 1,190,309 Euro EUR 297,548 EUR -
5. Copies of the Report and Accounts will be sent to shareholders shortly and will be available from the principal place of business of the Company, Unit 613, 6/F West Wing Office Building, New World Centre, 20 Salisbury Road, Tsimshatsui, Kowloon, Hong Kong and on the company's website www.walcomgroup.com.
Enquiries:Walcom Group Ltd +852 2494 0133 Francis Chi (Chief Executive Officer) Albert Wong (Chief Financial Officer) John East & Partners Limited +44 20 7628 2200
Jeffrey Coburn/Simon Clements
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