WALG.L Regulatory News (WALG)

8 May 2014 WALCOM GROUP LIMITED ("Walcom" or "the Company") Final results for the year ended 31 December 2013 CHAIRMAN'S STATEMENT On behalf of the board of directors (the "Board"), I am pleased to present thefinal results for the year ended 31 December 2013. Results Although the global economy began to show signs of improvement during 2013, theslow growth in the PRC market continued to affect the Company's results. TheCompany's sales momentum was maintained during the period but, unfortunately,the continuing impact of increasing production costs and operating expensesresulted in the Company finishing the year under review with a small lossattributable to the equity shareholders of HK$0.1 million (2012: Profit HK$0.9million). Turnover and gross profit levels for the year increased by 3 percent. (2013: HK$48.6 million; 2012: HK$47.2 million) and 4 per cent. (2013:HK$30.8 million; 2012: HK$29.6 million) respectively compared to the previousyear. Net profit for the year decreased by 49 per cent. to HK$0.9 million(2012: HK$1.7 million) and EBITDA decreased by 39 per cent. to HK$3.9 millionfrom HK$6.4 million in 2012. A summary of the results for the period is set out below: Year ended Year ended Change 31 December 31 December 2013 2012 HK$'000 HK$'000 per cent. Turnover 48,622 47,239 3 Gross profit 30,752 29,556 4 Operating profit 2,532 3,725 (32) EBITDA 3,948 6,444 (39) Net finance expense (31) (109) (72) Profit for the year 863 1,701 (49) Earnings / (loss) per share attributable (0.17) 1.24 n/ato the shareholders of the Company* (0.17) 1.24 n/a- basic (HK cents) - diluted (HK cents) Net asset value per share attributable to 28.90 27.82 4the shareholders of the Company (HKcents) * after taking away the minority interests in overseas subsidiaries, there is aloss attributable to the shareholders of the Company for the year ended 31December 2013. Operation and market review During the period the Company continued and compounded the strategy it adoptedin 2010 of marketing directly to potential customers. In the Company'sexperience, pig farms and animal feed mills tend to be very cost conscious andcut down on the usage of feed additives when costs need to be reduced.Accordingly, as the pig-farming industry and the animal feed market weakened inthe PRC during the period under review, year-on-year sales in China continuedto disappoint. PRC sales dropped by 6 per cent. in terms of sales value duringthe year when compared to 2012. Sales in Thailand increased by 32 per cent. however and, since they have ahigher gross profit margin, resulted in an overall increase in gross profitmargin (2013: 63.2 per cent.; 2012: 62.6 per cent.). This was achieved despitethe worsening political situation in Thailand towards the end of 2013.Unfortunately, the increasing operating expenses resulted in a significantreduction in net profit for the Company during the year. The increase in demand in Thailand can be attributed to successful resultsbeing obtained in repeated farm trials of the Company's products and anincreasing proportion of existing customers increasing the frequency of use ofour products. The Company's products have become a trusted brand in the Thaimarket, and as the brand gains further recognition and greater customerconfidence the Directors are expecting further improvements in sales in thecountry. Although the significance of the Thai market has increased during the last twoyears, China is currently the major market for the Company's products and thisis expected to continue for the foreseeable future. Sales in the Philippines were disappointing owing to the continuing pooreconomy in the country. The Company closed its associate company in thePhilippines during 2013. Recent Developments During the past few years the Company has built up better channels ofcommunication with potential customers and has established itself as theprovider of trusted products. This has been achieved by adopting the new salesstrategy referred to above. The sales strategy is aimed at building up a directand personal relationship with potential customers. The development of theserelationships and the direct communication which it allows provides the Companywith clear feedback and guidance as to what customers require. The Companyutilizes this information, along with its own in-house technology, to developnew techniques to solve common problems encountered in the feed industry. Thishas helped our customers to improve their knowledge particularly in areas offeed formulation, production management and management of sales teams. In order to enhance our efficiency and effectiveness in this aspect of thecustomer relationship, the Company is undertaking research on mathematicalmodels to assist analysis of problems and deficiencies in the product feedformulation of our potential customers. If this is successful, the marketingteam will be equipped with better tools to develop new business. Patents At the end of 2013 the Group held 51 granted patents in respect of: * its core Cysteamine technology in China, North Korea, New Zealand, Ukraine, Russia, South Africa, Australia, India, South Korea and Vietnam; * 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; * fish feed in the UK, Hong Kong, Indonesia, Russia, China, Thailand, Philippines, Vietnam and Taiwan; and * shellfish feed in Europe, Vietnam, Indonesia, Malaysia, Taiwan, Philippines and China. Most of the patents the Company applied for in the past years have beengranted. The Directors believe that there is wide patent coverage in placeswhere they expect that there will be significant demand for the Company'sproducts. Some patents which the Directors believe have a reduced chance ofcommercialisation were dropped during the year. 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 31December 2013. Annual General Meeting The Annual General Meeting will be held at the offices of the Company'ssolicitors, Reeds Smith Richards Butler in Hong Kong at 2:30pm on Thursday 12June 2014. Outlook The Company achieved a net profit of HK$0.9 million and EBITDA of HK$3.9million in 2013. Looking to 2014, it will be another difficult year for theCompany. A further slowing of growth in the Chinese economy is expected. Theslow recovery of the United States and the major European economies, althoughimproving, continues to contribute towards a level of uncertainty in the globaleconomy. Escalating production costs and operating expenses will continue to bean adverse factor affecting the Company. However, the Directors are optimisticthat the improving performance in the Thai market, coupled with the Company'snew research effort, will result in an increase in its portfolio of customerswhich will result in an improved performance in 2014. On behalf of the Board, I would like to express our sincere thanks to themanagement team and staff, professional advisers and shareholders for theircontinued support during the year. Eddie K.M. Chan Chairman 8 May 2014 Further enquiries: Walcom Group Limited +852 2494 0133 Francis Chi (Chief Executive Officer) Albert Wong (Chief Financial Officer) Sanlam Securities UK Limited +44 20 7628 2200 Virginia Bull Consolidated statement of profit or loss For the year ended 31 December 2013 (Expressed in Hong Kong dollars) Note 2013 2012 HK$ HK$ Revenue 48,621,608 47,239,167 Cost of sales (17,869,133 ) (17,683,088 ) Gross profit 30,752,475 29,556,079 Other income 327,506 379,894 Research and development expenses (1,298,237 ) ( 1,434,131 ) Selling and distribution expenses (12,114,993 ) (10,905,767 ) General and administrative expenses (15,134,308 ) (13,870,697 ) Profit from operations 2,532,443 3,725,378 Net finance expense ( 30,612 ) ( 108,922 ) Profit before income tax 3 2,501,831 3,616,456 Income tax expense 4 ( 1,638,901 ) ( 1,915,658 ) Profit for the year 862,930 1,700,798 (Loss) / profit attributable to: Owners of the Company ( 114,899) 850,980 Non-controlling interests 977,829 849,818 Profit for the year 862,930 1,700,798 (Loss) / earnings per share - basic, HK cents 6 (0.17) 1.24 - diluted, HK cents (0.17) 1.24 Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2013 (Expressed in Hong Kong dollars) 2013 2012 HK$ HK$ Profit for the year 862,930 1,700,798 Other comprehensive income Exchange difference on translation of financial statements of overseas subsidiaries 577,371 111,796 Total comprehensive income for the year 1,440,301 1,812,594 Total comprehensive income attributable to: Owners of the Company 622,646 915,274 Non-controlling interests 817,655 897,320 Total comprehensive income for the year 1,440,301 1,812,594 Consolidated balance sheet as at 31 December 2013 (Expressed in Hong Kong dollars) Note 2013 2012 HK$ HK$ ASSETS NON-CURRENT ASSETS Property, plant and equipment 2,171,788 1,841,668 Patents 2,655,975 3,097,696 Goodwill - - 4,827,763 4,939,364 CURRENT ASSETS Inventories 1,652,877 1,418,664 Trade and other receivables 7 5,720,154 9,422,778 Tax recoverable 56,666 163,616 Cash and cash equivalents 8 18,535,663 14,831,853 25,965,360 25,836,911 TOTAL ASSETS 30,793,123 30,776,275 EQUITY Share capital 688,344 688,344 Reserves 19,204,682 18,463,809 Total equity attributable to OWNERs of the 19,893,026 19,152,153Company Non-controlling interests 1,877,949 1,696,306 TOTAL EQUITY 21,770,975 20,848,459 CURRENT LIABILITIES Trade and other payables 9 5,641,215 6,457,925 Tax payables 837,051 1,003,496 Bank borrowings 10 2,543,882 2,466,395 9,022,148 9,927,816 TOTAL LIABILITIES 9,022,148 9,927,816 TOTAL EQUITY AND LIABILITIES 30,793,123 30,776,275 NET CURRENT ASSETS 16,943,212 15,909,095 TOTAL ASSETS LESS CURRENT LIABILITIES 21,770,975 20,848,459 Consolidated statement of changes in equity For the year ended 31 December 2013 (Expressed in Hong Kong dollars) Share-based Non- Share Share Merger compensation Exchange Surplus Accumulated controlling Total capital premium reserve reserve reserve reserve losses Total interests equity HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ At 1January 688,344 95,298,644 23,852,469 2,047,819 2,123,085 1,080,558 (107,301,538) 17,789,381 1,398,458 19,187,8392012 ComprehensiveincomeProfitfor the - - - - - - 850,980 850,980 849,818 1,700,798year OthercomprehensiveincomeExchangedifference ontranslation offinancial - - - - 64,294 - - 64,294 47,502 111,796statements ofoverseassubsidiaries Total - - - - 64,294 - 850,980 915,274 897,320 1,812,594comprehensiveincome for theyear Recognition ofequity-settledshare-based - - - 447,498 - - - 447,498 - 447,498payments Lapse of share - - - (39,909) - - 39,909 - - -options Appropriation - - - - - 851,203 (851,203) - - -tosurplusreserve Dividends to - - - - - - - - (599,472) (599,472)non-controllinginterests At 31 December 688,344 95,298,644 23,852,469 2,455,408 2,187,379 1,931,761 (107,261,852)19,152,153 1,696,306 20,848,4592012 At 1 January 688,344 95,298,644 23,852,469 2,455,408 2,187,379 1,931,761 (107,261,852)19,152,153 1,696,306 20,848,4592013 Comprehensiveincome(Loss) / profit - - - - - - (114,899) (114,899) 977,829 862,930forthe year OthercomprehensiveincomeExchangedifference ontranslation offinancial - - - - 737,545 - - 737,545 (160,174) 577,371statements ofoverseassubsidiaries Total - - - - 737,545 - (114,899) 622,646 817,655 1,440,301comprehensiveincome for theyear Recognition ofequity-settledshare-based - - - 118,227 - - - 118,227 - 118,227payments Lapse of share - - - (982,040) - - 982,040 - - -options Appropriation - - - - - 593,541 (593,541) - - -tosurplusreserve Dividends to - - - - - - - - (636,012) (636,012)non-controllinginterests At 31 December 688,344 95,298,644 23,852,469 1,591,595 2,924,924 2,525,302 (106,988,252) 19,893,026 1,877,949 21,770,9752013 Consolidated statement of cash flows For the year ended 31 December 2013 (Expressed in Hong Kong dollars) Note 2013 2012 HK$ HK$ Cash flow from operating activities Profit before income tax 2,501,831 3,616,456 Amortisation of patents 3(b) 277,524 335,728 Bad debts written off 3(b) 508,758 2,011 Interest received ( 112,204 ) ( 66,971 ) Depreciation 355,301 620,951 Foreign exchange loss, net 3(b) 699,677 3,021 Interest paid 142,816 175,893 (Gain) / loss on disposal of property, plant and 3(b) ( 8,392 ) 77,451equipment Written off of amounts due from associate 3(b) - 580,273 Patents written off 3(b) 164,197 655,021 Inventories written off 42,840 18,740 Share-based compensation 3(a) 118,227 447,498 Operating profit before working capital changes 4,690,575 6,466,072 Increase in inventories ( 277,053 ) ( 216,252 ) Decrease / (increase) in trade and other 3,193,866 (1,439,335 )receivables (Decrease) / increase in trade and other payables ( 816,710 ) 796,967 Net cash generated from operations 6,790,678 5,607,452 Corporate income tax paid (1,698,396 ) (1,568,486 ) Interest paid ( 142,816 ) ( 175,893 ) Net cash generated from operating activities 4,949,466 3,863,073 Cash flow from investing activities Payment for patents - ( 129,456 ) Purchases of property, plant and equipment ( 762,411 ) ( 363,229 ) Proceeds from sales of property, plant and 42,388 3,060equipment Decrease in amounts due from associate - - 172,890non-trade related Interest received 112,204 66,971 Net cash used in investing activities ( 607,819 ) ( 249,764 ) Cash flow from financing activities Dividends paid to minority interests ( 636,012 ) ( 599,472 ) Repayment of bank borrowings (2,466,395 ) (2,467,004 ) Proceeds from new bank borrowings 2,543,882 2,466,395 Net cash used in financing activities (558,525 ) (600,081 ) Net increase in cash and cash equivalents 3,783,122 3,013,228 Cash and cash equivalents at the beginning of the 14,831,853 11,736,464year Exchange (loss) / gain on cash and cash ( 79,312 ) 82,161equivalents Cash and cash equivalents at the end of the year 8 18,535,663 14,831,853 Notes to the consolidated financial statements For the year ended 31 December 2013 (Expressed in Hong Kong dollars) 1 Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts. The financial information for the period ended 31 December 2013 has beenextracted from the Company's financial statements to that date which havereceived an unqualified auditors' report. 2 Basis of preparation The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards ("IFRS"). These consolidatedfinancial statements also comply with the applicable disclosure provisions ofthe AIM Rules for Companies of the London Stock Exchange. They have beenprepared 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 27 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) 2013 2012 HK$ HK$ Salaries, wages and commission 11,504,604 10,620,164 Contributions to defined contribution retirement 849,510 814,571plans Share-based compensation 118,227 447,498 Other staff benefits 2,976,576 2,788,715 15,448,917 14,670,948 (b) Other items 2013 2012 HK$ HK$ Amortisation of patents 277,524 335,728 Auditor's remuneration 288,407 261,311 Bad debts written off 508,758 2,011 Cost of inventories sold 17,157,736 16,616,693 Depreciation 236,910 290,334 Exchange losses, net 699,677 3,021 Loss on disposal of property, plant and equipment - 77,451 Patents written off 164,197 655,021 Written off of amounts due from associate - 580,273 Rental charges under operating leases in respect of land and buildings 857,894 739,762 4 Income tax expense 2013 2012 HK$ HK$ Current income tax - Thailand corporate income tax 591,038 693,193 - Shanghai foreign enterprise income tax 1,047,863 1,222,465 1,638,901 1,915,658 (a) Taxation for the Company No provision for profits tax has been made for the Company as it is exemptedfrom taxation in the British Virgin Islands. No deferred taxation has been provided as the Company has no materialunprovided deferred tax assets or liabilities which are expected to becrystallised in the foreseeable future (2012: HK$Nil). (b) Taxation for the Group (i) Taxation on overseas profits has been calculated on the estimatedassessable profit for the year at the rate of taxation prevailing in thecountries in which the Group companies operate. The income tax expense statedin consolidated statement of profit or loss and other comprehensive incomerepresented the corporate income tax and foreign enterprise income tax arisenfrom the business of subsidiaries operating in Thailand and Shanghairespectively. Hong Kong Profits Tax is calculated at 16.5% (2012: 16.5%) of the estimatedassessable profit for the year. However, no provision for Hong Kong profits taxhas been made (2012: HK$Nil) as the Group did not have assessable profitsubject 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 15% (2012: 12.5%) 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. Accordingly, Shanghai Walcom was exemptedfrom 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 from1 January 2010 to 31 December 2012. The applicable income tax rate was 11%, 12%and 12.5% for the year 2010, 2011 and 2012 respectively. Pursuant to the relevant income tax rules and regulations in the PRC, ShanghaiWalcom is further granted tax relief whereby the applicable income tax rate was15% for the years 2013 and 2014. Thailand Corporate Income Tax is calculated at 20% (2012: 23%) of the netprofit for the year. (ii) A reconciliation between the Group's income tax expense and the accountingprofit, at the applicable tax rate, is set out below :- 2013 2012 HK$ HK$ Profit before income tax 2,501,831 3,616,456 Notional tax calculated on profit before income tax,calculated at the rates applicable to profits in the countries 423,420 469,183concerned Tax effect of: Expenses not deductible for tax purpose 968,998 905,218 Non-taxable revenue (5) (5) Temporary differences not recognised (675) (958) Unused tax losses not recognised 247,163 542,220 Income tax charges 1,638,901 1,915,658 (iii) A deferred tax asset amounting to HK$9,694,010 (2012: HK$9,470,481) inrespect of tax losses of a subsidiary incorporated in Hong Kong ofapproximately HK$58,752,000 (2012: HK$57,397,000) has not been recognised inthe financial statements as it is not certain that future taxable profit willbe available against which these losses can be utilised. 5 Dividends The Company does not recommend the payment of any dividend for the year ended31 December 2013 (2012: HK$Nil). 6 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 2013 are calculated bydividing the Group's loss attributable to owners of the Group of HK$114,899(2012: Profit of HK$850,980) by the weighted average number of 68,834,388ordinary shares (2012: 68,834,388 ordinary shares). The computation of dilutedloss per share does not assume the exercise of the Company's outstanding shareoptions because the exercise price of the options is higher than the averagemarket price for the years ended 31 December 2013 and 2012. 7 Trade and other receivables Group 2013 2012 HK$ HK$ Trade Receivables 5,502,500 8,402,438 Less: provision for impairment loss (743,813) (440,942) Trade receivables - net 4,758,687 7,961,496 Deposits and prepayments 840,934 828,065 Other receivables 120,533 633,217 5,720,154 9,422,778 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: 2013 2012 HK$ HK$ At 1 January 440,942 545,899 Impairment loss recognised 508,758 - Written off (213,047) (104,848) Exchange difference 7,160 (109) At 31 December 743,813 440,942 At 31 December 2013, the Group's trade receivables of HK$743,813 (2012:HK$440,942) have been outstanding for a certain period of time. The managementassessed that only a portion of the receivables is expected to be recoverable.Further individual provision of impairment for doubtful debts of HK$508,758 wasprovided in the year ended 31 December 2013 (2012: HK$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: 2013 2012 HK$ HK$ Neither past due nor impaired 4,655,477 6,929,408 Less than one month past due - 538,809 1 to 4 months past due 103,210 493,279 Over 4 months past due - - 103,210 1,032,088 4,758,687 7,961,496 Receivables that were neither past due nor impaired relate to a wide range ofcustomers 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 2013 2012 United States Dollars - USD 43,620 Philippine Peso - PHP 2,689,244 Thai Baht THB 7,877,900 THB 5,974,900 Renminbi RMB 2,282,313 RMB 4,549,720 8 Cash and cash equivalents Group 2013 2012 HK$ HK$ Cash and cash equivalents in the statement 18,535,663 14,831,853of cash flows The Company 2013 2012 HK$ HK$ Cash and cash equivalents in the balance 25,475 22,299sheet Included in the cash and cash equivalents of the Group, HK$12,650,102 (2012:HK$10,135,603) were denominated in RMB and kept in PRC. The remittance of thesefunds out of the PRC is subject to the foreign exchange control restrictionsimposed by the PRC government. Included in cash and cash equivalents in the consolidated balance sheet are thefollowing amounts denominated in a currency other than the functional currencyof the entity to which they relate: 2013 2012 United States dollars US$ 88,151 US$ 120,283 British Pound GB£ 484 GB£ 1,223 Thai Baht THB 19,554,135 THB 14,083,398 9 Trade and other payables Group 2013 2012 HK$ HK$ Trade payables 2,206,357 2,914,956 Other payables and accrued expenses 3,434,858 3,542,969 5,641,215) 6,457,925 All of the trade and other payables are expected to be settled within one year. The carrying amounts of trade payables are denominated in the followingcurrencies: 2013 2012 Renminbi RMB 1,734,637 RMB 2,363,155 10 Bank borrowings At 31 December 2013, the bank borrowings were unsecured and repayable asfollows: Group 2013 2012 HK$ HK$ Current liabilities Bank borrowings - short term portion, - 2,466,395secured 2,543,882Bank borrowings - short term portion,unsecured Total borrowings 2,543,882 2,466,395 a. The maturity of borrowings is as follows: b. Group 2013 2012 HK$ HK$ Within 2,543,882 2,466,3951 yearor ondemand b. The effective interest rate per annum for bank borrowings at balance sheet date is at 7.2% (2012: 15% over one-year benchmark deposits and loan interest rate promulgated by The People's Bank of China plus certain basis points) per annum. During the 2013 reporting period, the Group fully repaid a bank borrowing ofHK$2,466,395 denominated in RMB, which was secured by the corporate guaranteeissued by an independent third party. On 2 September 2013, an indirectly held subsidiary of the Group situated in thePRC ("the subsidiary") has obtained a bank borrowing of HK$2,543,882denominated in RMB with maturity of 1 year. The bank borrowing was unsecured. 11 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.

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