7 May 2010 09:28
7 May 2010 WALCOM GROUP LIMITED ("Walcom" or "the Company") Final results for the year ended 31 December 2009
CHAIRMAN'S STATEMENT
I have pleasure in presenting the final results for the year ended 31 December 2009.
Overview of ResultsDespite the world-wide economic recession in 2009, turnover and gross profitlevels for the year under review were maintained at similar levels compared tothe previous year. By focusing effort on reducing costs and improvingefficiencies, the Company reduced its net loss for the year by 50 per cent. toHK$4.5 million (2008: Loss of HK$9.0 million) and improved its EBITDA by 71 percent. with a loss of HK$1.5 million for the period versus a loss of HK$5.2million in 2008. Of particular significance is the fact that the Companyachieved breakeven at the EBITDA level for the second half of 2009, the firsttime in the Company's history.
A summary of the results for the period are set out below:
Year ended Year ended 31 December 31 December 2009 2008 HK$'000 HK$'000 Turnover 25,529 26,027 Gross profit 14,832 14,707 Operating loss (4,287) (8,902) Net finance (expense)/income (67) 2 Share of loss of associates - (12) Loss for the year (4,508) (9,044) EBITDA (1,495) (5,222) Loss per share, basic & diluted (HK$) (0.07)
(0.14)
Net asset value per share (HK$) 0.21
0.27
Operational review
In the last annual report, we considered that the escalating costs ofagricultural products would represent a new business opportunity for theCompany. In order to capitalise on this opportunity, in August 2009, theCompany launched a new sales initiative called the `Alpha' project which wasdesigned to promote the energy saving efficacy in feedstuffs of the Company'sproducts. The Alpha project's aim is to reduce the unit cost of feedstuffsthrough an improvement in the utilisation efficiency of feedstuffs, therebyincreasing margins for feed mills. The initial reactions to this new initiativehave been encouraging, although the percentage of sales of Alpha products, as aproportion of the Company's overall product mix, was still small in 2009.Unlike previous years, the Company now has the ability to penetrate the feedmill market more effectively with this new range of products and the Boardbelieves the initiative will help the Company to deliver stronger results inthe near future.Historically, the Company found it very difficult to sell into farms as itsproducts, although designed to improve the growth performance of the animals,also increase costs. Sales have been stronger while retail prices of theanimals (mainly pigs) are higher and farms make higher margins. However, whenretail prices drop, farmers tend to reduce their use of feed enhancers andother additives to try and preserve their sales margins. They may also turn toalternative weaker products which are of lower quality but are cheaper.Through the Alpha Project, the Company's technical team has been able to helpfarmers to re-formulate their feedstuff into compounds with which Alphaproducts can be incorporated. This helps the farmer to save costs and increasetheir feed utilisation at the same time. This has resulted in higher sales tofarms despite the lower level of technical analysis used by farmers incomparison with feedmills, where technical staff keep up regular producttrials. As such, the Directors are optimistic about its prospects in the largeChinese farming industry.Market overviewThe Company has been exploring new sales territories and it believes, on thebasis of market research conducted, that Vietnam could represent a large marketfor the Company's products. The local product registration process is stillunderway and potential customers and sales distribution channels are beingdeveloped in parallel.Although sales in Thailand remain stable, the economy has worsened due to thecountry's fragile political position. The Directors expect sales demand toimprove when the political situation has stabilised. Sales in the Philippineshave dropped during the period, again due to macro economic pressures. However,the Board believes that sales in the territory were at their lowest point in2009 and will recover in the coming year.
Patents
At the end of 2009 the Group had been granted 45 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 and Vietnam; and * shellfish feed in Europe and Vietnam.
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. Certain non-material patent applications were discontinued in 2009.
Debt
As at the period end, the Group's only indebtedness was a mortgage of approximately HK$0.8 million, which was entered into for the purpose of acquiring office premises in Bangkok, Thailand.
Dividend
The Directors do not recommend any dividend payment for the year ended 31 December 2009.
Annual General Meeting
The Annual General Meeting will be held at the offices of the Company's solicitors, Richards Butler in Hong Kong at 2:30pm on Monday 7 June 2010.
Outlook
Although China's economy, the Group's major addressable market, demonstrated strong growth in 2009, the directors of the Company remain cautiously optimistic about Walcom's prospects for the year ahead.
On behalf of the Board, I would like to express my sincere thanks to the management team and staff, professional advisers and shareholders for their continued support during the year.
Eddie K.M. ChanChairman7 May 2010Enquiries:Walcom Group Ltd +852 2494 0133
Francis Chi (Chief Executive Officer) Albert Wong (Chief Financial Officer) Merchant John East Securities Limited +44 20 7628
2200 Bidhi Bhoma / Virginia Bull
Consolidated statement of comprehensive income
For the year ended 31 December 2009
(Expressed in Hong Kong dollars)
Note 2009 2008 HK$ HK$ Revenue 25,529,170 26,027,300 Cost of sales (10,697,432) (11,320,031) Gross profit 14,831,738 14,707,269 Other income 248,932 204,964 Research and development expenses (1,527,831)
(1,418,445)
Selling and distribution expenses (7,292,260)
(7,705,042)
General and administrative expenses (10,547,393) (14,690,786) Loss from operations (4,286,814) (8,902,040) Net finance (expense) / income (66,888) 2,475 Share of loss of associates - (11,523) Loss before income tax 2 (4,353,702) (8,911,088) Income tax expense 3 (154,389) (133,440) Loss for the year (4,508,091) 9,044,528 Other comprehensive income Exchange difference on translation of 158,112
238,909
financial statements of overseas subsidiaries Total comprehensive loss for the year (4,349,979) (8,805,619) Loss attributable to: Owners of the Company (4,745,297) (9,297,050) Non-controlling interests 237,206 252,522 Loss for the year (4,508,091) (9,044,528)
Total comprehensive loss attributable to:
Owners of the Company (4,616,212) (9,048,687) Non-controlling interests 266,233 243,068 Total comprehensive loss for the year (4,349,979)
(8,805,619)
Loss per share - basic, HK cents 4 (6.89) (14.16) - diluted, HK cents (6.89) (14.16)Consolidated balance sheetas at 31 December 2009
(Expressed in Hong Kong dollars)
2009 2008 HK$ HK$ ASSETS NON-CURRENT ASSETS Property, plant and equipment 2,898,144 2,646,404 Patents 4,844,916 5,558,118 Goodwill 127,857 127,857 Investments in associate - - 7,870,917 8,332,379 CURRENT ASSETS Inventories 1,247,319 1,420,547 Trade and other receivables 4,309,726 3,968,044 Amounts due from associate 1,861,701 2,229,334 Tax recoverable 143,524 212,071 Cash and cash equivalents 3,872,520 8,328,032 11,434,790 16,158,028 TOTAL ASSETS 19,305,707 24,490,407 EQUITY Share capital 688,344 688,344 Reserves 13,668,470 17,704,252 Total equity attributable to OWNERs of the 14,356,814 18,392,596Company Non-controlling interests 642,101 375,868 TOTAL EQUITY 14,998,915 18,768,464 NON-CURRENT LIABILITIES Bank borrowings 634,711 - CURRENT LIABILITIES Trade and other payables 3,444,441 3,042,923 Tax payables 97,115 17,928 Bank overdrafts - 1,501,092 Bank borrowings 130,525 1,160,000 3,672,081 5,721,943 TOTAL LIABILITIES 4,306,792 5,721,943 TOTAL EQUITY AND LIABILITIES 19,305,707 24,490,407 NET CURRENT ASSETS 7,762,709 10,436,085 TOTAL ASSETS LESS CURRENT LIABILITIES 15,633,626
18,768,464
Consolidated statement of changes in equity
For the year ended 31 December 2009
(Expressed in Hong Kong dollars)
Share Share Merger Share- Exchange Accumulated Total Non- Total capital premium Reserve based reserve Losses controlling equity compensation interests reserve HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ At 1 January2008 649,109 89,842,770 23,852,469 - 458,588 (93,357,235) 21,445,701 - 21,445,701 Comprehensive loss Loss for the year - - - - - (9,297,050) (9,297,050) 252,522 (9,044,528) Other comprehensive income Exchange difference - - - - 248,363 - 248,363 (9,454) 238,909on translation of financial statements of overseas subsidiaries Total comprehensive - - - - 248,363 (9,297,050) (9,048,687) 243,068 (8,805,619)loss for the year Acquisition of - - - - - - - 791,305 791,305subsidiaries Issue of shares 39,235 5,455,874 - - - - 5,495,109 - 5,495,109Recognition of - - - 500,473 - - 500,473 - 500,473equity-settled share-based payments Dividends to minority interests - - - - - - - (658,505) (658,505)At 31 December 2008 688,344 95,298,644 23,852,469 500,473 706,951
(102,654,285) 18,392,596 375,868 18,768,464
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 year - - - - - (4,745,297) (4,745,297) 237,206 (4,508,091) Other comprehensiveincome Exchange difference - - - - 129,085 - 129,085 29,027 158,112on translation of financial statements of overseas subsidiaries Total comprehensive - - - - 129,085 (4,745,297) (4,616,212) 266,233 (4,349,979)loss for the year Recognition of - - - 580,430 - - 580,430 - 580,430equity-settled share-based payments At 31 December 2009 688,344 95,298,644 23,852,469 1,080,903 836,036
(107,399,582) 14,356,814 642,101 14,998,915
Consolidated statement of cash flows
For the year ended 31 December 2009
(Expressed in Hong Kong dollars)
Note 2009 2008 HK$ HK$
Cash flow from operating activities
Loss before income tax (4,353,702) (8,911,088) Amortisation of patents 2(b) 398,277 471,749 Interest received (26,238) (119,571) Depreciation 2(b) 602,691 456,822 Foreign exchange loss, net 104,497 85,767 Interest paid 93,126 117,096 Loss / (gain) on disposal of property, plant and 2(b) 494,016 (47,850)equipment Patent written off 2(b) 716,417 2,307,615 Inventories written off 2(b) 137,187
288,335
Impairment on goodwills 2(b) -
2,658
Share-based compensation 2(a) 580,430
500,473
Share of loss of associates -
11,523
Operating loss before working capital changes (1,253,299) (4,836,471) Decrease in inventories 36,041 38,140 (Increase) / decrease in trade and other (341,682) 1,125,234receivables Decrease in amount due from associate - trade 358,800 1,231,947related Increase / (decrease) in trade and other 401,518 (421,329)payables Net cash used in operations (798,622) (2,862,479) Corporate income tax paid (6,655) (327,583) Interest paid (93,126) (117,096) Net cash used in operating activities (898,403)
(3,307,158)
Cash flow from investing activities
Payment for patents (401,492) (1,370,310) Purchases of property, plant and equipment (1,367,556)
(1,184,614)
Proceeds from sales of property, plant and 24,806 50,000equipment Acquisition of subsidiaries, net of cash - 4,698,585acquired Amounts due from associate - non-trade related 8,833 91,433 Interest received 26,238 119,571 Net cash (used in) / generated from investing (1,709,171) 2,404,665activities
Cash flow from financing activities Release of restricted balance of cash and cash 3,000,000
-equivalents Dividends paid to minority interests - (439,004) Repayment of bank borrowings (1,252,516) -
Proceeds from new bank borrowings 857,752
-
Net cash generated from / (used in) financing 2,605,236 (439,004)activities Net decrease in cash and cash equivalents (2,338)
(1,341,497)
Cash and cash equivalents at the beginning of 3,826,940 5,046,274the year Exchange gains on cash and cash equivalents 47,918
122,163
Cash and cash equivalents at the end of the year 3,872,520 3,826,940
Notes to the consolidated financial statements
For the year ended 31 December 2009
(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 2009 has been extracted from the Company's financial statements to that date which have received an unqualified auditors' report.
2. Loss before income tax
Loss before income tax is stated after charging the following items:-
(a) Staff costs (including directors' emoluments)
2009 2008 HK$ HK$ Salaries, wages and commission 6,958,053
9,213,351
Contributions to defined contribution retirement plans 531,730 478,866 Share-based compensation 580,430 500,473 Other staff benefits 2,942,107 2,860,809 11,012,320 13,053,499(b) Other items 2009 2008 HK$ HK$ Amortisation of patents 398,277 471,749 Auditor's remuneration 239,747 303,134 Cost of inventories sold # 10,697,432 11,320,031 Depreciation 602,691 456,822 Exchange losses, net 104,497 420,119 Impairment loss on goodwill - 2,658
Loss on disposal of property, plant and equipment 494,016
- Inventories written off 137,187 288,335 Patents written off 716,417 2,307,615
Rental charges under operating leases in respect of 964,465 1,847,525 land and buildings
# Cost of inventories sold includes HK$2,220,869 (2008: HK$2,335,018) relating to staff costs, depreciation and amortisation expenses and operating lease charges, of which amount is also included in the respective total amounts disclosed separately above or in note 7(a) to the report and accounts.
3. Income tax expense 2009 2008 HK$ HK$ Current income tax - Thailand corporate income tax 154,389
133,440
(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 (2008: HK$nil).
(b) Taxation for the Group
(i) Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the rate of taxation prevailing in the countries in which the Group companies operate. The income tax expense stated in consolidated statement of comprehensive income represented the corporate income tax arisen from the business of a subsidiary operating in Thailand.
Hong Kong Profits Tax is calculated at 16.5% (2008: 17.5%) of the estimated assessable profit for the year. However, no provision for Hong Kong profits tax has been made (2008: HK$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 (2008: HK$nil) as Shanghai Walcom Bio-Chem Co., Ltd. ("Shanghai Walcom") and Beijing New World Bio-technology Co., Ltd, wholly owned subsidiaries operating in Shanghai and Beijing, respectively in the PRC, have agreed tax losses brought forward in excess of the assessable profits for the FEIT purposes for the year.
Pursuant to the relevant income tax rules and regulations in the PRC, ShanghaiWalcom is granted certain tax relief whereby it is exempted from FEIT for thefirst two years and 50% reduction for the following three years commencing fromthe first profitable year of operation after fully set off against theaccumulated losses brought forward.On 16 March 2007, the National People's Congress approved the Corporate IncomeTax Law of the People's Republic of China ("the new tax law"), which will takeeffect on 1 January 2008. Under the new tax law, the PRC income tax rate willbe gradually increased to a standard rate of 25% for all domestic and foreignenterprises over the next five years with effective from 1 January 2008.According to the Circular 39 passed by the State Council on 26 December 2007,the tax exemption and reduction will be terminated latest by 2012. Accordingly,Shanghai Walcom is exempted from PRC income tax for the years from 1 January2008 to 31 December 2009, followed by a 50% reduction in the tax rate for theremaining three years from 1 January 2010 to 31 December 2012. The applicableincome tax rate would be 11%, 12% and 12.5% for the year 2010, 2011 and 2012respectively.
(b) Taxation for the Group (continued)
(ii) A reconciliation between the Group's income tax expense and the accounting loss, at the applicable tax rate, is set out below:-
2009 2008 HK$ HK$ Loss before income tax (4,353,702) (8,911,088) Less: Share of loss of associated company - (11,523) (4,353,702) (8,899,565) Notional tax credit on loss before income tax, (718,361)
(1,470,328)
calculated at the rates applicable to profits in the
countries concerned Tax effect of: Different income tax rates in other countries 41,940
10,038
Expenses not deductible for tax purpose 728,512 1,259,367 Income tax exemption (321,241) (259,081) Non-taxable revenue (13) -
Temporary differences not recognised (7,254)
385
Unused tax losses not recognised 430,806 593,059 Income tax charges 154,389 133,440(iii) A deferred tax asset amounting to HK$7,941,995 (2008: HK$7,511,190) inrespect of tax losses of a subsidiary incorporated in Hong Kong ofapproximately HK$48,133,000 (2008: HK$45,522,000) 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. Tax losses of asubsidiary incorporated in the PRC of approximately HK$2,598,000 andHK$2,337,000 will expire at the end of years 2010 and 2011 respectively. Othertemporary differences are not material.
4 Loss per share
(a) Basic loss per share is calculated by dividing the Group's loss attributable to owners of the Group of HK$4,745,297 (2008: loss of HK$9,297,050) by the weighted average number of 68,834,388 ordinary shares in issue during the year (2008: 65,661,287 shares).
Weighted average number of ordinary shares
2009
2008
Issued ordinary shares at 1 January 68,834,388 64,910,891 New issue during the year - 750,396 Weighted average number of ordinary share for the 68,834,388 65,661,287year (b) Diluted loss per share
The diluted loss per share is calculated by dividing the Group's loss attributable to ordinary equity shareholders of the Company of HK$4,745,297 (2008: HK$9,297,050) by the weighted average number of 68,834,388 ordinary shares during the year adjusted for the number of dilutive potential shares under the share option scheme (2008: 65,661,287 shares).
5. Copies of the Report and Accounts
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, Part D, Mingtai Bldg, No 351 Guo Shou Jing Road, ZJ Hi-Techn Park, Shanghai, 201203 China, and on the Company's website www.walcomgroup.com.
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