WALG.L Regulatory News (WALG)

8 May 2015 WALCOM GROUP LIMITED ("Walcom" or "the Company") Final results for the year ended 31 December 2014 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 2014. Results Although the global economy began to show signs of improvement during 2014,under the present Chinese leadership, the slow growth in the PRC marketcontinues to impact the Company's results. The Company's sales were affected bythe poor performance of the pig farming industry during the period, and theadverse impact of increasing production costs and operating expenses resultedin a loss attributable to the equity shareholders of the Company of HK$0.3million (2013: Loss HK$0.1 million) for the year under review. Turnover andgross profit levels for the year decreased by 10 per cent. (2014: HK$43.6million; 2013: HK$48.6 million) and 12 per cent. (2014: HK$27.2 million; 2013:HK$30.8 million) respectively compared to the previous year. The Companyreported a minimal net loss of HK$0.03 million for the year under review ascompared to a net profit of HK$0.9 million in 2013. However EBITDA decreased by63 per cent. to HK$1.5 million in 2014 from HK$3.9 million in 2013. A summary of the results for the period is set out below: Year ended Year ended Change 31 December 31 December 2014 2013 HK$'000 HK$'000 per cent. Turnover 43,648 48,622 (10) Gross profit 27,164 30,752 (12) Operating profit 860 2,532 (66) EBITDA 1,471 3,948 (63) Net finance income / (expense) 18 (31) n/a (Loss) / profit for the year (32) 863 n/a Loss per share attributable to the (0.44) (0.17) 159shareholders of the Company* (0.44) (0.17) 159- basic (HK cents) - diluted (HK cents) Year ended Year ended Change 31 December 31 December 2014 2013 per cent. Net asset value per share attributable to 28.32 28.90 (2)the shareholders of the Company (HKcents) * after taking away the non-controlling interests in overseas subsidiaries,there is a loss attributable to the shareholders of the Company for the yearended 31 December 2013. Operation and market review Under the new normal economic environment in China, the pig farming industryand the animal feed market weakened during the period under review. Most of theCompany's customers had weaker performance in 2014 than 2013. This led todisappointing year-on-year sales in China. The PRC sales dropped by 18 percent. in terms of sales value during the year when compared to 2013. Sales in Thailand decreased by 12 per cent. to HK$13.7 million in 2014,representing 31 per cent. (2013: 32 per cent.) of the Company's total sales.Despite the change in government in May 2014, the economy in Thailand had notrecovered by the end of the year. This resulted in an overall drop in demandwhich led to our poorer performance in the Thai market. Although there was a decrease in demand in Thailand during 2014, the Companyhas been trying to expand the sales to individual customers which showedreasonable potential of growth. Owing to the credible brand recognition of theCompany's products in Thailand, the Directors expect better performance insales in the country in 2015. Sales in Korea increased more than 7 times to HK$2.5 million in 2014,representing approximately 6 per cent. (2013: 0.6 per cent.) of the Company'stotal sales. The Directors remain confident that Korea is an emerging marketwhich has a high potential for growth for the Company in the future. Although the significance of the Thai and Korean markets has increased, Chinacontinues to act as the major market for the Company's products and this isexpected to continue for the foreseeable future. Recent Developments During the past few years, the Company has established itself as a provider oftrusted products within its specialized category in the industry. The Companyhas built up its brand among its customers and potential customers. Betterchannels of communication with existing customers; and direct and personalrelationship with potential customers have been developed and it is expectedthat the sales of the Company's products will improve in line with the recoveryof the industry and economy in China in the future. The Company is researching to develop a new line of composite feed products byutilizing its in house core technology. If this becomes successful, theCompany's sales will no longer depend on a single line of products. Patents At the end of 2014 the Group held 46 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, Russia, China, Australia and Philippines; * dairy cow feed in New Zealand, the UK, Europe, Mexico, India, China, Russia, Australia and Malaysia; * fish feed in the UK, Indonesia, Russia, China, Thailand, Philippines, Vietnam and Taiwan; and * shellfish feed in Europe, Vietnam, Indonesia, Malaysia, Taiwan, Philippines and China. Most of the patents which the Company applied for in the past years have beengranted. The Directors believe that there is wide patent coverage in placeswhere there are significant demands for the Company's products. Some patentswhich the Directors believe have a reduced chance of commercialisation weredropped 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. The Companyintends to renew this loan in the ordinary course of business, in line with theGroup's prudent cash management policy. As at the financial year end, the Grouphad cash and cash equivalents of HK$15.2 million. Accordingly, no further bankloans will be needed as the Group has adequate working capital for its dailyoperations. Dividend The Directors do not recommend any dividend payment for the year ended 31December 2014. 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 Friday 12June 2015. Outlook As the Chinese economy is entering into a new normal phase and is trying torebalance itself, it will be another difficult year for the Company in 2015. Afurther slowing of growth in the Chinese economy may happen if the stimulusmeasures implemented by the Central government prove to be insufficient. Theunstable recovery of the United States and the stagnant major Europeaneconomies collectively contribute towards an uncertain global economy.Escalating production costs and operating expenses will continue to be anadverse factor affecting the Company. However, the Directors are optimisticthat the improving performance in the Thai and Korean markets, coupled with theCompany's new research effort, will result in an increase in its portfolio ofcustomers which will result in an improved performance in 2015. On behalf of the Board, I would like to express our gratitude to Mr Eddie K. M.Chan, our ex non-executive chairman who served the Company as chairman sincethe admission of the Company to trading on AIM in December 2006 until 31 March2015. We would like to thank him for the major contributions and leadershipthat he had provided during his term of chairmanship and wish him every successin his other business interests. Following Mr Eddie K. M. Chan's resignation, I have been appointed as chairmanof the audit committee and Mr Timothy Nelson has been appointed as chairman ofthe remuneration committee. I would also like to express our sincere thanks to the management team andstaff, professional advisers and shareholders for their continued support andcontributions during the year. Frankie Y. L. Wong Chairman 8 May 2015 Further enquiries: Walcom Group Limited +852 2494 0133Francis Chi (Chief Executive Officer)Albert Wong (Chief Financial Officer) Sanlam Securities UK Limited +44 20 7628 2200Virginia Bull Consolidated statement of profit or lossFor the year ended 31 December 2014(Expressed in Hong Kong dollars) Note 2014 2013 HK$ HK$ Revenue 43,647,716 48,621,608 Cost of sales (16,483,709 ) (17,869,133 ) Gross profit 27,164,007 30,752,475 Other income 3 506,442 327,506 Research and development expenses (1,227,825 ) (1,298,237 ) Selling and distribution expenses (11,643,034 ) (12,114,993 ) General and administrative expenses (13,940,044 ) (15,134,308 ) Profit from operations 859,546 2,532,443 Net finance income / (expense) 4 17,546 ( 30,612 ) Profit before income tax 5 877,092 2,501,831 Income tax expense 6 ( 908,987 ) ( 1,638,901 ) (Loss) / profit for the year ( 31,895 ) 862,930 (Loss) / profit attributable to: Owners of the Company ( 300,602) ( 114,899) Non-controlling interests 268,707 977,829 (Loss) / profit for the year ( 31,895 ) 862,930 Loss per share - basic, HK cents 8 (0.44) (0.17) - diluted, HK cents (0.44) (0.17) Consolidated statement of profit or loss and other comprehensive incomeFor the year ended 31 December 2014(Expressed in Hong Kong dollars) 2014 2013 HK$ HK$ (Loss) / profit for the year (31,895 ) 862,930 Other comprehensive income Exchange difference on translation of financial statements of overseas subsidiaries ( 108,677 ) 577,371 Total comprehensive (loss) / income for the ( 140,572 ) 1,440,301year Total comprehensive (loss) / incomeattributable to: Owners of the Company ( 402,390 ) 622,646 Non-controlling interests 261,818 817,655 Total comprehensive (loss) / income for the ( 140,572 ) 1,440,301year Consolidated balance sheet as at 31 December 2014(Expressed in Hong Kong dollars) Note 2014 2013 HK$ HK$ ASSETS NON-CURRENT ASSETS Property, plant and equipment 1,869,520 2,171,788 Patents 2,385,921 2,655,975 Goodwill - - 4,255,441 4,827,763 CURRENT ASSETS Inventories 2,343,521 1,652,877 Trade and other receivables 9 7,797,139 5,720,154 Tax recoverable 157,591 56,666 Cash and cash equivalents 10 15,229,576 18,535,663 Restricted cash 10 113,350 - 25,641,177 25,965,360 TOTAL ASSETS 29,896,618 30,793,123 EQUITY Share capital 688,344 688,344 Reserves 18,802,292 19,204,682 Total equity attributable to OWNERs of the 19,490,636 19,893,026Company Non-controlling interests 2,139,767, 1,877,949 TOTAL EQUITY 21,630,403 21,770,975 CURRENT LIABILITIES Trade and other payables 5,208,398 5,641,215 Tax payables 522,641 837,051 Bank borrowings 11 2,535,176 2,543,882 8,266,215 9,022,148 TOTAL LIABILITIES 8,266,215 9,022,148 TOTAL EQUITY AND LIABILITIES 29,896,618 30,793,123 NET CURRENT ASSETS 17,374,962 16,943,212 TOTAL ASSETS LESS CURRENT LIABILITIES 21,630,403 21,770,975 Consolidated statement of changes in equityFor the year ended 31 December 2014(Expressed in Hong Kong dollars) Share-based Share Share Merger compensation Exchange capital premium reserve reserve reserve HK$ HK$ HK$ HK$ HK$ At 1 January 688,344 95,298,644 23,852,469 2,455,408 2,187,3792013 Comprehensiveincome(Loss) / profit - - - - -for the year OthercomprehensiveincomeExchangedifference ontranslation offinancial - - - - 737,545statements ofoverseassubsidiaries Total - - - - 737,545comprehensiveincome for theyear Recognition ofequity-settledshare-based - - - 118,227 -payments Lapse of share - - - (982,040) -options Appropriation - - - - -to surplusreserve Dividends to - - - - -non-controllinginterests At 31 December 688,344 95,298,644 23,852,469 1,591,595 2,924,9242013 At 1 January 688,344 95,298,644 23,852,469 1,591,595 2,924,9242014 Comprehensiveincome(Loss) / profit - - - - -for the year OthercomprehensiveincomeExchangedifference ontranslation offinancial - - - - (101,788)statements ofoverseassubsidiaries Total - - - - (101,788)comprehensiveincome for theyear Appropriation - - - - -to surplusreserve At 31 December 688,344 95,298,644 23,852,469 1,591,595 2,823,1362014 Non- Surplus Accumulated controlling Total reserve losses Total interests equity HK$ HK$ HK$ HK$ HK$ At 1 January 1,931,761 (107,261,852) 19,152,153 1,696,306 20,848,4592013 Comprehensiveincome(Loss) / profit - (114,899) (114,899) 977,829 862,930for the year OthercomprehensiveincomeExchangedifference ontranslation offinancial - - 737,545 (160,174) 577,371statements ofoverseassubsidiaries Total - (114,899) 622,646 817,655 1,440,301comprehensiveincome for theyear Recognition ofequity-settledshare-based - - 118,227 - 118,227payments Lapse of share - 982,040 - - -options Appropriation 593,541 (593,541) - - -to surplusreserve Dividends to - - - (636,012) (636,012)non-controllinginterests At 31 December 2,525,302 (106,988,252) 19,893,026 1,877,949 21,770,9752013 At 1 January 2,525,302 (106,988,252) 19,893,026 1,877,949 21,770,9752014 Comprehensiveincome(Loss) / profit - (300,602) (300,602) 268,707 (31,895)for the year OthercomprehensiveincomeExchangedifference ontranslation offinancial - - (101,788) (6,889) (108,677)statements ofoverseassubsidiaries Total - (300,602) (402,390) 261,818 (140,572)comprehensiveincome for theyear Appropriation 398,212 (398,212) - - -to surplusreserve At 31 December 2,923,514 (107,687,066) 19,490,636 2,139,767 21,630,4032014 Consolidated statement of cash flowsFor the year ended 31 December 2014(Expressed in Hong Kong dollars) Note 2014 2013 HK$ HK$ Cash flow from operating activities Profit before income tax 877,092 2,501,831 Amortisation of patents 5(b) 270,054 277,524 Bad debts written off 5(b) - 508,758 Interest received 5 ( 183,538 ) ( 112,204 ) Depreciation 341,826 355,301 Foreign exchange loss, net 5(b) 175 699,677 Interest paid 4 165,992 142,816 Gain on disposal of property, plant and equipment 3 - ( 8,392 ) Patents written off 5(b) - 164,197 Inventories written off - 42,840 Share-based compensation 5(a) - 118,227 Operating profit before working capital changes 1,471,601 4,690,575 Increase in inventories ( 690,644 ) ( 277,053 ) (Increase) / decrease in trade and other (2,076,985 ) 3,193,866receivables Decrease in trade and other payables ( 432,817 ) ( 816,710 ) Net cash (used in) / generated from operations (1,728,845 ) 6,790,678 Corporate income tax paid (1,324,322 ) (1,698,396 ) Interest paid ( 165,992 ) ( 142,816 ) Net cash (used in) / generated from operating (3,219,159 ) 4,949,466activities Cash flow from investing activities Purchases of property, plant and equipment ( 43,737 ) ( 762,411 ) Proceeds from sales of property, plant and - 42,388equipment Interest received 183,538 112,204 Net cash generated from / (used in) investing 139,801 ( 607,819 )activities Cash flow from financing activities Dividends paid to minority interests - ( 636,012 ) Increase in restricted bank balances ( 113,350 ) - Repayment of bank borrowings (2,543,882 ) (2,466,395 ) Proceeds from new bank borrowings 2,535,176 2,543,882 Net cash used in financing activities (122,056 ) (558,525 ) Net (decrease) / increase in cash and cash (3,201,414 ) 3,783,122equivalents Cash and cash equivalents at the beginning of the 18,535,663 14,831,853year Exchange loss on cash and cash equivalents (104,673 ) ( 79,312 ) Cash and cash equivalents at the end of the year 10 15,229,576 18,535,663 Notes to the consolidated financial statementsFor the year ended 31 December 2014(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 2014 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 ("IFRSs"). 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 full financialstatements. 3 Other income 2014 2013 HK$ HK$ Gain on disposal of property, plant and equipment - 8,392 Government subsidy 469,233 284,915 Tax refund 6,298 - Sundry income 30,911 34,199 506,442 327,506 Note: During the years ended 31 December 2014 and 2013, the Group receivedsubsidies from local government bodies in the PRC, which aimed at thetechnology development of the Group. 4 Net finance income / (expense) 2014 2013 HK$ HK$ Bank interest income 183,538 112,204 Interest expense on bank loan (165,992) (142,816) 17,546 (30,612) 5 Profit before income tax Profit before income tax is stated after charging the following items :- (a) Staff costs (including directors' emoluments) 2014 2013 HK$ HK$ Salaries, wages and commission 11,051,612 11,504,604 Contributions to defined contribution retirement 858,474 849,510plans Share-based compensation - 118,227 Other staff benefits 3,339,342 2,976,576 15,249,428 15,448,917 (b) Other items 2014 2013 HK$ HK$ Amortisation of patents 270,054 277,524 Auditor's remuneration 315,574 288,407 Bad debts written off - 508,758 Cost of inventories sold (note 17) 15,502,718 17,157,736 Depreciation 241,009 236,910 Exchange losses, net 175 699,677 Patents written off - 164,197 Rental charges under operating leases in respect of land and buildings 856,824 857,894 6 Income tax expense 2014 2013 HK$ HK$ Current income tax - Thailand corporate income tax 195,757 591,038 - Shanghai foreign enterprise income tax 713,230 1,047,863 908,987 1,638,901 (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 (2013: HK$Nil). (b) Taxation for the Group (i) Taxation on overseas profits has been calculated on the estimatedassessable profit for the year at the rate of taxation prevailing in thecountries in which the Group companies operate. The income tax expense statedin consolidated statement of profit or loss and other comprehensive incomerepresented the corporate income tax and foreign enterprise income tax arisenfrom the business of subsidiaries operating in Thailand and Shanghairespectively. Hong Kong Profits Tax is calculated at 16.5% (2013: 16.5%) of the estimatedassessable profit for the year. However, no provision for Hong Kong profits taxhas been made (2013: HK$Nil) as the Group's assessable profit subject to HongKong profits tax for the year is fully set-off by tax loss brought forward fromlast year. Provision for foreign enterprise income tax ("FEIT") in the People's Republicof China ("PRC") has been made at 15% (2013: 15%) 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 tax relief whereby the applicable income tax rate was 15% forthe years 2013 and 2014. Thailand Corporate Income Tax is calculated at 20% (2013: 20%) 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 :- 2014 2013 HK$ HK$ Profit before income tax 877,092 2,501,831 Notional tax calculated on profit before income tax,calculated at the rates applicable to profits in the countries 68,999 423,420concerned Tax effect of: Expenses not deductible for tax purpose 1,098,739 968,998 Non-taxable revenue (1,214) (5) Temporary differences not recognised 507 (675) Unused tax losses not recognised - 247,163 Utilisation of previously unrecognised tax losses (258,044) - Income tax charges 908,987 1,638,901 (iii) A deferred tax asset amounting to HK$8,570,768 (2013: HK$8,828,812) inrespect of tax losses of a subsidiary incorporated in Hong Kong ofapproximately HK$51,944,000 (2013: HK$53,508,000) has not been recognised inthe financial statements as it is not certain that future taxable profit willbe available against which these losses can be utilised. 7 Dividends The Company does not recommend the payment of any dividend for the year ended31 December 2014 (2013: HK$Nil). 8 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 2014 are calculated bydividing the Group's loss attributable to owners of the Group of HK$300,602(2013: HK$114,899) by the weighted average number of 68,834,388 ordinary shares(2013: 68,834,388 ordinary shares). The computation of diluted loss per sharedoes not assume the exercise of the Company's outstanding share options becausethe exercise price of the options is higher than the average market price forthe years ended 31 December 2014 and 2013. 9 Trade and other receivables Group 2014 2013 HK$ HK$ Trade receivables 7,079,319 5,502,500 Less: provision for impairment loss (508,758) (743,813) Trade receivables - net 6,570,561 4,758,687 Deposits and prepayments 1,037,401 840,934 Other receivables 189,177 120,533 7,797,139 5,720,154 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: 2014 2013 HK$ HK$ At 1 January 743,813 440,942 Impairment loss recognised - 508,758 Written off (235,055) (213,047) Exchange difference - 7,160 At 31 December 508,758 743,813 At 31 December 2014, the Group's trade receivables of HK$508,758 (2013:HK$743,813) 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 individual provision of impairment for doubtful debts was providedin the year ended 31 December 2014 (2013: HK$508,758). The Group does not hold any collateral over these balances. b. Trade receivables that are not impaired Majority of the Group's turnover are with credit terms ranging from 30 to 60days. Ageing analysis of trade receivables that are neither individually norcollectively considered to be impaired are as follows: 2014 2013 HK$ HK$ Neither past due nor impaired 5,581,041 4,655,477 Less than one month past due 986,427 - 1 to 4 months past due 3,093 103,210 989,520 103,210 6,570,561 4,758,687 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 2014 2013 Thai Baht THB 10,529,375 THB 7,877,900 Renminbi RMB 3,229,200 RMB 2,282,313 10 Cash and bank balances Group 2014 2013 HK$ HK$ Cash at bank and on hand 15,342,926 18,535,663 Less: Cash at bank - restricted (113,350) - Cash and cash equivalents in the statement 15,229,576 18,535,663of cash flows The Company 2014 2013 HK$) HK$) Cash and cash equivalents in the balance 25,493 25,475sheet Included in the cash and cash equivalents of the Group, HK$9,842,160 (2013:HK$12,650,102) 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. As at 31 December 2014, HK$113,350 (2013: HK$Nil) denominated in THB in asaving bank account in Thailand has been pledged to a bank as security under aforward exchange contract. 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: 2014 2013 United States dollars US$ 458,733 US$ 88,151 British Pound GB£ 484 GB£ 484 Thai Baht THB 8,115,079 THB 19,554,135 11 Bank borrowings At 31 December 2014, the bank borrowings were unsecured and repayable asfollows: Group 2014 2013 HK$ HK$ Current liabilities Bank borrowings - unsecured 2,535,176 2,543,882 Total borrowings 2,535,176 2,543,882 a. The maturity of borrowings is as follows: Group 2014 2013 HK$ HK$ Within 1 year or on demand 2,535,176 2,543,882 b. The effective interest rate per annum for bank borrowings at balance sheet date is at 7.8% (2013: 7.2%) per annum. During the 2014 reporting period, the Group fully repaid a bank borrowing ofHK$2,543,882 denominated in RMB, which was unsecured. On 13 October 2014, an indirectly held subsidiary of the Group situated in thePRC ("the subsidiary") has obtained a bank borrowing of HK$2,535,176denominated in RMB with maturity of 1 year. The bank borrowing was unsecured. 12 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.