4 May 2017
WALCOM GROUP LIMITED
(“Walcom” or “the Company”)
Final results for
the year ended 31 December 2016
CHAIRMAN’S STATEMENT
On behalf of the board of directors (the “Board”), I am pleased
to present the Company’s final results for the year ended
31 December 2016.
Results
The Company’s sales in China
recorded a small increase despite the country’s slowing economy and
the continuous poor performance of the domestic pig farming
industry during 2016. However, with the aggregated effect of
stronger performance in the overseas markets, Walcom managed to
achieve profits attributable to the Company’s shareholders of
HK$1.26 million (2015: HK$0.34 million) for the year under review.
Turnover (2016: HK$46.5 million;
2015: HK$44.2 million) and gross
profit (2016: HK$27.3 million; 2015:
HK$26.8 million) for the year
increased by five per cent. and two per cent. respectively. The
Company reported a net profit of HK$1.42
million for the year under review as compared with
HK$0.48 million in 2015, which
represents a 197 per cent. increase. EBITDA also increased by
39 per cent. from HK$2.42 million in
2015 to HK$3.38 million in 2016.
A summary of the results for the period under review is set out
below:
|
Year
ended |
Year
ended |
Change |
|
31
December |
31
December |
|
|
2016 |
2015 |
|
|
HK$’000 |
HK$’000 |
per
cent. |
Turnover |
46,469 |
44,237 |
5.05 |
Gross profit |
27,322 |
26,745 |
2.16 |
Profit from
operations |
2,811 |
1,808 |
55.48 |
EBITDA |
3,376 |
2,424 |
39.27 |
Net finance
expense |
(70) |
(21) |
233.33 |
Profit for the
year |
1,424 |
479 |
197.29 |
|
Year ended |
Year ended |
Change |
|
31
December |
31
December |
|
|
2016 |
2015 |
|
|
HK$’000 |
HK$’000 |
per
cent. |
Profit
attributable to owners of the Company
- total
- basic per share (HK cents)
- diluted per share (HK cents) |
1,263
1.84
1.84 |
335
0.49
0.49 |
277.01
275.51
275.51 |
Net asset
value attributable to owners of the Company
-total
-per share (HK cents)
|
15,872
23.06 |
17,228
25.03 |
(7.87)
(7.87) |
Operation and market review
As a result of a prolonged period of slumping farmgate pig
prices, which caused numerous mid-sized pig farms to close down
during 2014 and 2015, China’s pig population remained low in
2016. Although the farmgate pig prices reached a relatively
high level in 2016, the pig population did not recover to its
previous level. Accordingly, this had an adverse effect on
demand for feedstuff.
Notwithstanding these unfavourable market conditions, the
Company’s sales in the PRC improved by three per cent. to
HK$26.4 million during 2016 when
compared with the HK$25.7 million in
2015.
Sales in Thailand increased by
three per cent. to HK$16.6 million in
2016 (2015: HK$16.1 million),
representing approximately 36 per cent. (2015: 37 per cent.) of the
Company’s total sales. The economy in Thailand has still not recovered fully from
the change of government regime in 2014. The improvement in sales
in Thailand was attributable to
both increased consumption of the Company’s products by existing
customers and from new customers from other member-countries of the
Association of Southeast Asian Nations Economic Community
(“AEC”).
Sales in Korea increased by 79 per cent. to HK$3.4 million in 2016 (2015: HK$1.9 million), representing approximately seven
per cent. (2015: four per cent.) of the Company’s total sales.
Following substantial sales and marketing efforts over the past two
years, the Company’s products have gained recognition in Korea and
the Board anticipates potential for further growth in this
market.
The Group’s financial statements are reported in Hong Kong
Dollars (“HKD”). During the period under review, the HKD currency
appreciated approximately seven per cent. against China’s Renminbi
(“RMB”). As approximately 57 per cent. of the Group’s sales was
transacted in RMB, the appreciation of the HKD had an adverse
exchange impact on the Group’s 2016 revenue. A similar adverse
effect from exchange rate occurs in translating the Group’s net
assets, including cash and cash equivalents, in Walcom’s PRC
subsidiary into the HKD. This resulted in a decrease in the Group’s
net asset value as reported in HKD as at the 2016 year end.
During the year, the Company’s Thai subsidiary acquired a piece
of land in Thailand using internal
resources, which caused a decrease in the Group’s cash level and an
increase in its non-current assets.
Recent Developments
Professor Hong Xun Yang, the
Company’s executive director responsible for sales and marketing in
China, retired in February
2017. In succession to Prof. Yang’s retirement, the Company
appointed Mr. Paitoon
Buddhinunta-opas, who is also the general manager of the
Group’s subsidiary in Thailand, as
the Company’s group sales director. Mr. Paitoon has
substantial experience in sales and marketing and is also
knowledgeable about the Company’s products. In view of his
successful record in Thailand. the
Board believes that Mr. Paitoon will lead the Company’s sales to a
new level.
In November 2016, the Company
completed the acquisition of a plot of land in Thailand, which the Board intends to use to
develop a feed manufacturing plant in the future. In view of the
anticipated growth in sales of the Company’s products in the AEC in
the coming years, the Directors are optimistic that the building of
a manufacturing plant in Thailand,
an AEC member-country, should benefit the Group’s trading terms due
to the region’s trade treaties.
Patents
At the end of 2016 the Group held 47 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, Philippines and Thailand;
- 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 for which the Company has applied in recent
years have been granted. The Directors believe that there is wide
patent coverage in jurisdictions where there is significant demands
for the Company’s products.
Debt
As at the year end, the Group had a short-term bank loan of
HK$2.2 million, which was used to
finance the Group’s general working capital. Depending on the
future sales development, the Company may need further bank
financing for working capital purpose.
Dividend
The Directors do not recommend any dividend payment for the year
ended 31 December 2016.
Annual General Meeting
Walcom’s 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 2:30 pm on Wednesday
14 June 2017. A notice of AGM will be sent to Walcom’s
shareholders, along with the 2016 annual report and financial
statements, during the second week of May
2017.
Outlook
During the past two years, the PRC government has adopted a
policy of slower economic growth. This policy is expected to
continue over the country’s period of structural transformation in
the coming years. The Board believes 2017 will be another
challenging year for the Company. With the possibility of further
tightening of monetary policy in the
United States and the adverse impact of Brexit, the Board
anticipates a volatile global economic outlook for 2017. The
implementation of stricter environmental controls and regulations
in China has caused a significant
increase in the raw material costs, and hence the production costs,
of the Company’s products. The increased production costs and
operating expenses combined has an adverse impact on the Company’s
gross profit margin. However, with the improving results in the
Thai, Southeast Asian and Korean markets, together with the new
leadership from the Company’s new group sales director, the
Directors believe that the Company has the potential to achieve
better results in 2017.
On behalf of the Board, I would like to express our gratitude to
Prof. Hong Xun Yang, who served the
Company as an executive director, Chief Technical Officer and Chief
Operating Officer (PRC) before his retirement in February 2017. We would like to thank him for his
contributions during his term of service and wish him well in his
retirement.
I would also like to express our sincere thanks to the
management team and staff, professional advisers and shareholders
for their continued support and contributions during the year.
Frankie Y. L. Wong
Chairman
4 May
2017
Further enquiries:
Walcom Group
Limited
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer) |
+852 2494 0133 |
Allenby Capital
Limited
Virginia Bull/Charlie Donaldson |
+44 20 3328 5656 |
Consolidated statement of profit or
loss
For the year ended 31 December 2016
(Expressed in Hong Kong
dollars)
|
Note |
2016 |
|
2015 |
|
|
|
HK$ |
|
HK$ |
|
|
|
|
|
|
|
Revenue |
|
46,469,041 |
|
44,236,805 |
|
|
|
|
|
|
|
Cost of sales |
|
(19,147,412 |
) |
(17,491,561 |
) |
Gross profit |
|
27,321,629 |
|
26,745,244 |
|
|
|
|
|
|
|
Other income |
3 |
275,269 |
|
189,853 |
|
|
|
|
|
|
|
Research and development
expenses |
|
(1,565,262 |
) |
(1,224,261 |
) |
|
|
|
|
|
|
Selling and distribution
expenses |
|
(11,346,594 |
) |
(11,847,110 |
) |
|
|
|
|
|
|
General and administrative
expenses |
|
(11,874,526 |
) |
(12,055,434 |
) |
Profit from operations |
|
2,810,516 |
|
1,808,292 |
|
|
|
|
|
|
|
Net finance expense |
4 |
(70,342) |
|
(21,123) |
|
|
|
|
|
|
|
Profit before income tax |
5 |
2,740,174 |
|
1,787,169 |
|
|
|
|
|
|
|
Income tax expense |
6 |
(1,316,475 |
) |
(1,308,485 |
) |
Profit for the
year |
|
1,423,699
|
|
478,684 |
|
|
|
|
|
|
|
Profit attributable to: |
|
|
|
|
|
Owners of the Company |
|
1,263,286 |
|
335,472 |
|
Non-controlling
interests |
|
160,413 |
|
143,212 |
|
Profit for the year |
|
1,423,699 |
|
478,684 |
|
|
|
|
|
|
|
Earnings per share - basic, HK
cents |
9 |
1.84 |
|
0.49 |
|
- diluted, HK
cents |
|
1.84 |
|
0.49 |
|
|
|
|
|
|
|
Consolidated statement of profit or
loss and other comprehensive income
For the year ended 31 December 2016
(Expressed in Hong Kong
dollars)
|
|
2016 |
|
2015 |
|
|
|
HK$ |
|
HK$ |
|
|
|
|
|
|
|
Profit for the
year |
|
1,423,699
|
|
478,684
|
|
Other comprehensive
income |
|
|
|
|
|
Exchange difference on
translation of |
|
|
|
|
|
financial statements of overseas
subsidiaries |
|
( 2,603,259 |
) |
( 2,793,995 |
) |
|
|
|
|
|
|
Total comprehensive loss for the
year |
|
( 1,179,560 |
) |
( 2,315,311 |
) |
|
|
|
|
|
|
Total comprehensive loss
attributable to: |
|
|
|
|
|
Owners of the Company |
|
( 1,356,994 |
) |
( 2,262,139 |
) |
Non-controlling
interests |
|
__ 177,434 |
|
__ ( 53,172 |
) |
Total comprehensive loss for the
year |
|
( 1,179,560 |
) |
( 2,315,311 |
) |
|
|
|
|
|
|
Consolidated balance
sheet as at 31 December 2016
(Expressed in Hong Kong
dollars)
|
Note |
|
2016 |
|
|
2015 |
|
|
|
|
HK$ |
|
|
HK$ |
|
ASSETS |
|
|
|
|
|
|
|
NON-CURRENT
ASSETS |
|
|
|
|
|
|
|
Property, plant and
equipment |
11 |
|
4,832,774 |
|
|
1,520,698 |
|
Patents |
|
|
1,814,096 |
|
|
2,079,634 |
|
Goodwill |
|
|
- |
|
|
- |
|
|
|
|
6,646,870 |
|
|
3,600,332 |
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Inventories |
12 |
|
1,380,728 |
|
|
2,247,884 |
|
Trade and other
receivables |
13 |
|
8,985,988 |
|
|
7,695,707 |
|
Tax
recoverable |
|
|
42,168 |
|
|
108,584 |
|
Cash and
cash equivalents |
14 |
|
9,012,203 |
|
|
13,670,351 |
|
Restricted cash |
14 |
|
105,210 |
|
|
103,813 |
|
|
|
|
19,526,297 |
|
|
23,826,339 |
|
TOTAL ASSETS |
|
|
26,173,167 |
|
|
27,426,671 |
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
Share
capital |
|
|
688,344 |
|
|
688,344 |
|
Reserves |
|
|
15,183,159 |
|
|
16,540,153 |
|
Total equity attributable to
OWNERs of the Company |
|
|
15,871,503 |
|
|
17,228,497 |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
2,264,029 |
|
|
2,086,595 |
|
TOTAL EQUITY |
|
|
18,135,532 |
|
|
19,315,092 |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Trade and other
payables |
|
|
4,744,113 |
|
|
4,954,919 |
|
Tax
payables |
|
|
1,057,636 |
|
|
769,455 |
|
Bank
borrowings |
15 |
|
2,235,886 |
|
|
2,387,205 |
|
|
|
|
8,037,635 |
|
|
8,111,579 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
8,037,635 |
|
|
8,111,579 |
|
TOTAL EQUITY AND
LIABILITIES |
|
|
26,173,167 |
|
|
27,426,671 |
|
NET CURRENT ASSETS |
|
|
11,488,662 |
|
|
15,714,760 |
|
TOTAL ASSETS LESS CURRENT
LIABILITIES |
|
|
18,135,532 |
|
|
19,315,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
statement of changes in equity
For the year ended
31 December 2016
(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 1 January
2015 |
688,344 |
|
95,298,644 |
|
23,852,469 |
|
1,591,595 |
|
2,823,136 |
|
2,923,514 |
|
(107,687,066) |
|
19,490,636 |
|
2,139,767 |
|
21,630,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
335,472 |
|
335,472 |
|
143,212 |
|
478,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange difference on translation
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial statements of overseas
subsidiaries |
- |
|
- |
|
- |
|
- |
|
(2,597,611) |
|
- |
|
- |
|
(2,597,611) |
|
(196,384) |
|
(2,793,995) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss for the year |
- |
|
- |
|
- |
|
- |
|
(2,597,611) |
|
- |
|
335,472 |
|
(2,262,139) |
|
(53,172) |
|
(2,315,311) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lapse of share options |
- |
|
- |
|
- |
|
(22,826) |
|
- |
|
- |
|
22,826 |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriation to surplus
reserve |
- |
|
- |
|
- |
|
- |
|
- |
|
340,180 |
|
(340,180) |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2015 |
688,344 |
|
95,298,644 |
|
23,852,469 |
|
1,568,769 |
|
225,525 |
|
3,263,694 |
|
(107,668,948) |
|
17,228,497 |
|
2,086,595 |
|
19,315,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January
2016 |
688,344 |
|
95,298,644 |
|
23,852,469 |
|
1,568,769 |
|
225,525 |
|
3,263,694 |
|
(107,668,948) |
|
17,228,497 |
|
2,086,595 |
|
19,315,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
1,263,286 |
|
1,263,286 |
|
160,413 |
|
1,423,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange difference on translation
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financial statements of overseas
subsidiaries |
- |
|
- |
|
- |
|
- |
|
(2,620,280) |
|
- |
|
- |
|
(2,620,280) |
|
17,021 |
|
(2,603,259) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss for the year |
- |
|
- |
|
- |
|
- |
|
(2,620,280) |
|
- |
|
1,263,286 |
|
(1,356,994) |
|
177,434 |
|
(1,179,560) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriation to surplus
reserve |
- |
|
- |
|
- |
|
- |
|
- |
|
338,633 |
|
(338,633) |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2016 |
688,344 |
|
95,298,644 |
|
23,852,469 |
|
1,568,769 |
|
(2,394,755) |
|
3,602,327 |
|
(106,744,295) |
|
15,871,503 |
|
2,264,029 |
|
18,135,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of cash
flows
For the year ended 31 December 2016
(Expressed in Hong Kong
dollars)
|
Note |
2016 |
|
2015 |
|
|
|
HK$ |
|
HK$ |
|
Cash flow from
operating activities |
|
|
|
|
|
Profit before income
tax |
|
2,740,174 |
|
1,787,169 |
|
Amortisation
of patents |
5(b) |
265,538 |
|
265,538 |
|
Interest
received |
|
( 63,460 |
) |
( 150,719 |
) |
Depreciation |
11 |
288,704 |
|
308,255 |
|
Foreign
exchange gain, net |
5(b) |
(2,083,712 |
) |
(1,547,782 |
) |
Interest
paid |
|
133,802 |
|
171,842 |
|
Loss on
disposal of property, plant and equipment |
5(b) |
11,317 |
|
1,517 |
|
Patents
written off |
5(b) |
- |
|
40,749 |
|
Operating profit
before working capital changes |
|
1,292,363 |
|
876,569 |
|
Decrease in
inventories |
|
867,156 |
|
95,637 |
|
(Increase) /
decrease in trade and other receivables |
|
(1,290,281 |
) |
101,432 |
|
Decrease in trade
and other payables |
|
(210,806 |
) |
( 253,479 |
) |
Net cash generated
from operations |
|
658,432 |
|
820,159 |
|
Corporate income tax
paid |
|
(961,878 |
) |
(1,012,664 |
) |
Interest
paid |
|
(133,802 |
) |
( 171,842 |
) |
Net cash used in
operating activities |
|
(437,248 |
) |
(364,347 |
) |
|
|
|
|
|
|
Cash flow from
investing activities |
|
|
|
|
|
Purchases of
property, plant and equipment |
|
(3,649,857 |
) |
( 91,237 |
) |
Interest
received |
|
63,460 |
|
150,719 |
|
Net cash (used in) /
generated from investing activities |
|
(3,586,397 |
) |
59,482 |
|
|
|
|
|
|
|
Cash flow from
financing activities |
|
|
|
|
|
(Increase) /
decrease in restricted bank balances |
|
(1,397 |
) |
9,537 |
|
Repayment of bank
borrowings |
|
(2,387,205 |
) |
(2,535,176 |
) |
Proceeds from new
bank borrowings |
|
2,235,886 |
|
2,387,205 |
|
Net cash used in
financing activities |
|
(152,716 |
) |
(138,434 |
) |
Net decrease in cash
and cash equivalents |
|
(4,176,361 |
) |
(443,299 |
) |
|
|
|
|
|
|
Cash and cash
equivalents at the beginning of the year |
|
13,670,351 |
|
15,229,576 |
|
|
|
|
|
|
|
Exchange loss on
cash and cash equivalents |
|
(481,787 |
) |
(1,115,926 |
) |
|
|
|
|
|
|
Cash
and cash equivalents at the end of the year |
14 |
9,012,203 |
|
13,670,351 |
|
Notes to the consolidated financial
statements
For the year ended 31 December 2016
(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 year ended 31 December 2016 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 of the Group have been
prepared in accordance with all applicable International Financial
Reporting Standards (“IFRSs”). 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 IFRSs
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group’s accounting policies.
Interest rate
risk
The Group’s interest rate risk arises from bank borrowings, bank
overdrafts and deposits. Borrowings and deposits issued at variable
rates expose the Group to cash flow interest-rate risk. Borrowings
and deposits issued at fixed rates expose the Group to fair value
interest-rate risk.
At the balance sheet date, if interest rates had been increased
or decreased by 25 basis-point and all other variables were held
constant, the Group’s profit before income tax for the year ended
31 December 2016 would increase or
decrease by HK$17,184 (2015:
HK$28,409).
|
|
Increase/ |
|
|
Increase/ |
|
|
Increase of |
(decrease) |
|
Decrease of |
(decrease) |
|
|
25 basis points |
in profit before |
|
25 basis points |
in profit before |
|
|
|
income tax |
|
|
income tax |
|
|
|
HK$ |
|
|
HK$ |
|
2016 |
|
|
|
|
|
|
On bank deposits |
0.25% |
22,774 |
|
0.25% |
(22,774) |
|
On bank borrowings |
0.25% |
(5,590) |
|
0.25% |
5,590 |
|
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
|
On bank deposits |
0.25% |
34,377 |
|
0.25% |
(34,377) |
|
On bank
borrowings |
0.25% |
(5,968) |
|
0.25% |
5,968 |
|
The sensitivity analysis above has been determined assuming that
the change in interest rates had occurred at the balance sheet date
and had been applied to the exposure to interest rate risk for
financial instruments in existence at that date. The 25
basis-point increase or decrease represents management’s assessment
of a reasonably possible change in interest rates over the period
until the next annual balance sheet date. The analysis
performed on the same basis for 2015.
3 Other
income
|
2016 |
2015 |
|
HK$ |
HK$ |
Government subsidy |
248,841 |
162,172 |
Sundry income |
26,428 |
27,681 |
|
275,269 |
189,853 |
Note: During the years ended 31 December
2016 and 2015, the Group received subsidies from local
government bodies in the PRC, which aimed at the technology
development of the Group.
4 Net
finance expense
|
2016 |
2015 |
|
HK$ |
HK$ |
|
|
|
Bank interest income |
63,460 |
150,719 |
Interest expense on bank loan |
(133,802) |
(171,842) |
|
(70,342) |
(21,123) |
5 Profit
before income tax
Profit before income
tax is stated after charging the following items:-
(a) Staff costs (including directors’
emoluments)
|
2016 |
2015 |
|
HK$ |
HK$ |
|
|
|
Salaries, wages and commission |
10,275,948 |
10,718,322 |
Contributions to defined
contribution retirement plans |
839,484 |
899,111 |
Other staff benefits |
3,545,683 |
3,549,183 |
|
14,661,115 |
15,166,616 |
(b) Other items
|
2016 |
2015 |
|
HK$ |
HK$ |
|
|
|
Amortisation of patents |
265,538 |
265,538 |
Auditor’s remuneration |
312,226 |
307,474 |
Cost of inventories sold (note
12) |
17,675,779 |
16,623,712 |
Depreciation not charged to cost of
sales |
210,131 |
225,969 |
Exchange gains, net |
(2,083,712) |
(1,547,782) |
Loss on disposal of property, plant
and equipment |
11,317 |
1,517 |
Patents written off |
- |
40,749 |
Rental charges under operating
leases in respect of |
|
|
land and buildings |
878,599 |
920,080 |
6 Income
tax expense
|
2016 |
2015 |
|
HK$ |
HK$ |
Current income tax |
|
|
- Thailand corporate income tax |
122,526 |
128,638 |
- Shanghai foreign enterprise income
tax |
1,193,949 |
1,179,847 |
|
1,316,475 |
1,308,485 |
|
|
|
(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
crystallised in the foreseeable future (2015: 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 profit or loss and other 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% (2015: 16.5%) of the estimated assessable
profit for the year. However, no provision for Hong Kong profits tax has been made (2015:
Nil) as the Group’s assessable profit subject to Hong Kong profits tax for the year is fully
set-off by tax loss brought forward from last year.
Provision for foreign enterprise income tax (“FEIT”) in the
People’s Republic of China (“PRC”)
has been made at 25% (2015: 25%) as Shanghai Walcom Bio-Chem Co.,
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, Shanghai Walcom is not granted tax relief whereby the
applicable income tax rate was 25% for the years 2015 and 2016.
Thailand Corporate Income Tax is calculated at 20% (2015: 20%)
of the net profit for the year.
(ii) A reconciliation between the Group’s
income tax expense and the accounting profit, at the applicable tax
rate, is set out below :-
|
2016 |
2015 |
|
HK$ |
HK$ |
|
|
|
Profit before income tax |
2,740,174 |
1,787,169 |
|
|
|
Notional tax calculated on profit
before income tax, calculated |
|
|
at the rates applicable
to profits in the countries concerned |
931,990 |
760,053 |
Tax effect of: |
|
|
Expenses not deductible for tax
purpose |
692,099 |
907,379 |
Non-taxable revenue |
(13) |
(22) |
Temporary differences not
recognised |
(911) |
664 |
Utilisation of previously
unrecognised tax losses |
(306,690) |
(359,589) |
Income tax charges |
1,316,475 |
1,308,485 |
(iii) A deferred tax asset amounting to HK$7,904,395 (2015: HK$8,211,086) in respect of tax losses of a
subsidiary incorporated in Hong
Kong of approximately HK$47,905,000 (2015: HK$49,764,000) 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.
7 Profit
attributable to shareholders
Profit attributable to owners of the Company for the year ended
31 December 2016 dealt with in the
financial statements of the Company was approximately HK$55,000 (2015: Loss of HK$129,000).
8
Dividends
The Company does not recommend the payment of any dividend for
the year ended 31 December 2016
(2015: Nil).
9
Earnings per share
There is no difference
between basic and diluted earnings per share. The basic and diluted
earnings per share for the year ended 31
December 2016 are calculated by dividing the Group’s profit
attributable to owners of the Group of HK$1,263,286 (2015: HK$335,472) by the weighted average number of
68,834,388 ordinary shares (2015: 68,834,388 ordinary shares). The
computation of diluted earnings per share does not assume the
exercise of the Company’s outstanding share options because the
exercise price of the options is higher than the average market
price for the years ended 31 December
2016 and 2015.
10 Segment
reporting
(a) Segment reporting
Information reported to the
Executive Directors of the Company, being the chief operating
decision makers (“CODM”), for the purpose of resource allocation
and assessment of segment performance focuses on type of goods
delivered.
The executive directors
have identified that, the Group has only one reportable operating
segment, which is the manufacture, distribution and sales of
chemical feed additive products. Since this is the only reportable
operating segment of the Group, no further operating segment
analysis thereof is presented.
(b) Geographical information
The following table sets
out information about the geographical location of (i) the group’s
revenue from external customers and (ii) the group’s fixed assets,
intangible assets, goodwill and other current and non-current
assets. The geographical location of customers is based on the
location at which the services were provided or the goods
delivered. The geographical location of the assets is allocated
based on the operations of the segment and the physical location of
the asset.
(i) Sales revenue by
geographical location of customers
2016
2015
HK$
HK$
PRC
26,447,044 25,690,774
Taiwan
- 136,094
Thailand
16,643,536 16,181,009
Korea
3,378,461 1,921,920
Others
-
307,008
46,469,041 44,236,805
(ii) Segment assets by geographical
location of the assets
|
|
2016 |
|
2015 |
|
|
HK$ |
|
HK$ |
Hong Kong |
|
1,499,263 |
|
1,708,878 |
PRC |
|
14,882,387 |
|
17,061,384 |
The Philippines |
|
93,115 |
|
106,092 |
Thailand |
|
8,287,443 |
|
6,932,584 |
Taiwan |
|
252,221 |
|
281,531 |
Other Asia-Pacific countries |
|
577,499 |
|
662,332 |
Europe and United Kingdom |
|
538,778 |
|
625,330 |
America and Canada |
|
34,046 |
|
38,797 |
Others |
|
8,415 |
|
9,743 |
|
|
26,173,167 |
|
27,426,671 |
(c) Information about major customers
The Group’s customer base is diversified and includes only three
customers with whom transactions have exceeded 10% of the Group’s
revenue.
|
|
2016 |
|
2015 |
Revenue from major customers: |
|
HK$ |
|
HK$ |
|
|
|
|
|
Sales of chemical feed additive
products |
|
|
|
|
Customer A |
|
7,447,862 |
|
6,922,313 |
Customer B |
|
6,718,528 |
|
6,988,940 |
Customer C |
|
5,709,373 |
|
6,858,181 |
11. Property, plant and equipment
|
|
|
Furniture |
|
|
|
|
|
Land and |
Leasehold |
and |
Office |
Plant and |
Motor |
|
Group |
building |
improvements |
fixtures |
equipment |
machinery |
vehicles |
Total |
|
HK$ |
HK$ |
HK$ |
HK$ |
HK$ |
HK$ |
HK$ |
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1.1.2015 |
1,035,197 |
1,465,635 |
95,946 |
1,002,232 |
2,691,176 |
567,145 |
6,857,331 |
Additions |
- |
- |
- |
62,006 |
29,231 |
- |
91,237 |
Disposal |
- |
- |
- |
(5,688) |
- |
- |
(5,688) |
Exchange |
|
|
|
|
|
|
|
realignment |
(90,362) |
(90,788) |
(6,230) |
(59,429) |
(157,076) |
(33,102) |
(436,987) |
At 31.12.2015 |
944,835 |
1,374,847 |
89,716 |
999,121 |
2,563,331 |
534,043 |
6,505,893 |
|
|
|
|
|
|
|
|
At 1.1.2016 |
944,835 |
1,374,847 |
89,716 |
999,121 |
2,563,331 |
534,043 |
6,505,893 |
Additions |
3,496,822 |
- |
- |
56,892 |
96,143 |
- |
3,649,857 |
Disposals |
- |
- |
- |
(103,227) |
(9,943) |
- |
(113,170) |
Exchange |
|
|
|
|
|
|
|
Realignment |
9,425 |
(75,011) |
(4,230) |
(43,881) |
(162,276) |
(33,852) |
(309,825) |
At 31.12.2016 |
4,451,082 |
1,299,836 |
85,486 |
908,905 |
2,487,255 |
500,191 |
9,732,755 |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1.1.2015 |
267,485 |
1,311,842 |
60,010 |
793,203 |
2,305,249 |
250,022 |
4,987,811 |
Charge for |
|
|
|
|
|
|
|
the year |
44,964 |
17,519 |
8,721 |
64,179 |
87,164 |
85,708 |
308,255 |
Eliminated |
|
|
|
|
|
|
|
on disposals |
- |
- |
- |
(4,171) |
- |
- |
(4,171) |
Exchange |
|
|
|
|
|
|
|
realignment |
(25,855) |
(79,857) |
(3,983) |
(47,863) |
(134,550) |
(14,592) |
(306,700) |
At 31.12.2015 |
286,594 |
1,249,504 |
64,748 |
805,348 |
2,257,863 |
321,138 |
4,985,195 |
|
|
|
|
|
|
|
|
At 1.1.2016 |
286,594 |
1,249,504 |
64,748 |
805,348 |
2,257,863 |
321,138 |
4,985,195 |
Charge for |
|
|
|
|
|
|
|
the year |
43,545 |
16,968 |
8,236 |
59,120 |
80,560 |
80,275 |
288,704 |
Eliminated |
|
|
|
|
|
|
|
on disposals |
- |
- |
- |
(92,905) |
(8,948) |
- |
(101,853) |
Exchange |
|
|
|
|
|
|
|
Realignment |
2,196 |
(72,892) |
(3,151) |
(34,926) |
(142,935) |
(20,357) |
(272,065) |
At 31.12.2016 |
332,335 |
1,193,580 |
69,833 |
736,637 |
2,186,540 |
381,056 |
4,899,981 |
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31.12.2016 |
4,118,747 |
106,256 |
15,653 |
172,268 |
300,715 |
119,135 |
4,832,774 |
|
|
|
|
|
|
|
|
At 31.12.2015 |
658,241 |
125,343 |
24,968 |
193,773 |
305,468 |
212,905 |
1,520,698 |
|
|
|
|
|
|
|
|
On 18 July 2016, a subsidiary of
the Group and the non-controlling interests (the “Joint Operators”)
entered into an agreement pursuant of which the Joint Operators
jointly purchased one piece of land in Samut Sakorn Province, which
is located in the outskirt area of Bangkok, Thailand. The Group and the
non-controlling interests hold 66.67% and 33.33% interests in the
land respectively after completion of the purchase. The transaction
constituted to a joint arrangement.
As at 31 December 2016, the
carrying amount of HK$3,496,822
represented the Group’s interest of 66.67% in the land (2015:
Nil).
12 Inventories
|
|
Group |
|
|
2016 |
|
2015 |
|
|
HK$ |
|
HK$ |
|
|
|
|
|
Raw materials |
|
546,031 |
|
871,654 |
Finished goods |
|
834,697 |
|
1,168,543 |
Goods-in-transit |
|
|
|
207,687 |
|
|
1,380,728 |
|
2,247,884 |
The cost of inventories sold recognised as expenses and included
in cost of sales amounted to HK$17,675,779 (2015: HK$16,623,712).
13 Trade and other
receivables
|
|
Group |
|
|
2016 |
|
2015 |
|
|
HK$ |
|
HK$ |
|
|
|
|
|
Trade receivables |
|
8,019,256 |
|
6,859,583 |
Less: provision for impairment
loss |
|
(508,758) |
|
(508,758) |
Trade receivables – net |
|
7,510,498 |
|
6,350,825 |
|
|
|
|
|
Deposits and prepayments |
|
1,237,171 |
|
976,591 |
Other receivables |
|
238,319 |
|
368,291 |
|
|
8,985,988 |
|
7,695,707 |
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:
|
2016 |
2015 |
|
HK$ |
HK$ |
|
|
|
At 1 January |
508,758 |
508,758 |
Written off |
- |
- |
|
|
|
At 31 December |
508,758 |
508,758 |
|
|
|
At 31 December 2016, the Group’s
trade receivables of HK$508,758
(2015: HK$508,758) have been
outstanding for a certain period of time. The management assessed
that only a portion of the receivables is expected to be
recoverable. No further individual provision of impairment for
doubtful debts was provided in the year ended 31 December 2016 (2015: Nil).
The Group does not hold any collateral over these balances.
(b) Trade receivables that are not impaired
Majority of the Group’s turnover are with credit terms ranging
from 30 to 60 days. Ageing analysis of trade receivables that are
neither individually nor collectively considered to be impaired are
as follows:
|
2016 |
2015 |
|
HK$ |
HK$ |
|
|
|
Neither past due nor impaired |
5,519,269 |
5,526,045 |
|
|
|
Less than one month past due |
985,081 |
586,059 |
1 to 4 months past due |
1,006,148 |
238,721 |
|
1,991,229 |
824,780 |
|
7,510,498 |
6,350,825 |
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 of independent customers that have a good track record with
the Group. Based on past experience, management believes that
no impairment allowance is necessary in respect of these balances
as there has not been a significant change in credit quality and
the balances are considered fully recoverable. The Group does
not hold any collateral over these balances.
(c) The carrying amounts of trade receivables are
denominated in the following currencies:
|
Group |
|
2016 |
2015 |
|
|
|
Thai Baht |
THB 13,636,000 |
THB 9,052,000 |
Renminbi |
RMB
4,072,800 |
RMB
3,692,220 |
14 Cash and bank
balances
|
|
Group |
|
|
2016 |
|
2015 |
|
|
HK$ |
|
HK$ |
|
|
|
|
|
Cash at bank and on hand |
|
9,117,413 |
|
13,774,164 |
Less: Cash at bank – restricted |
|
(105,210) |
|
(103,813) |
|
|
|
|
|
Cash and cash equivalents in the
statement of cash flows |
|
9,012,203 |
|
13,670,351 |
|
|
|
|
|
|
|
The
Company |
|
|
2016 |
|
2015 |
|
|
HK$ |
|
HK$ |
|
|
|
|
|
Cash and cash equivalents in the
balance sheet |
|
25,309 |
|
25,512 |
Included in the cash and cash equivalents of the Group,
HK$4,562,565 (2015: HK$7,254,910) were denominated in RMB and kept in
PRC. The remittance of these funds out of the PRC is subject to the
foreign exchange control restrictions imposed by the PRC
government.
As at 31 December 2016,
HK$105,210 (2015: HK$103,813) denominated in THB in a saving bank
account in Thailand has been
pledged to a bank as security to obtain a facility under a forward
exchange contract.
Included in cash and cash equivalents in the consolidated
balance sheet are the following amounts denominated in a currency
other than the functional currency of the entity to which they
relate:
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
Renminbi
United States dollars |
RMB
US$ |
4,081,738
433,896 |
|
RMB
US$ |
6,078,683
294,508 |
British Pound |
GB£ |
2,267 |
|
GB£ |
528 |
Thai Baht |
THB |
2,924,537 |
|
THB |
15,641,790 |
15 Bank
borrowings
At 31 December 2016, the bank
borrowings were unsecured and repayable as follows:
Group
|
2016 |
2015 |
|
HK$ |
HK$ |
Current liabilities |
|
|
Bank borrowings – unsecured |
2,235,886 |
2,387,205 |
Total
borrowings |
2,235,886 |
2,387,205 |
(a) The maturity of borrowings is as follows:
Group
|
2016 |
2015 |
|
HK$ |
HK$ |
|
|
|
Within 1 year or on
demand |
2,235,886 |
2,387,205 |
(b) The effective interest rate per annum for bank borrowings at
balance sheet date is at 5.7% (2015: 5.7%) per annum.
During the 2016 reporting period, the Group fully repaid a bank
borrowing of HK$2,387,205 denominated
in RMB, which was unsecured.
On 16 November 2016, an indirectly
held subsidiary of the Group situated in the PRC (“the subsidiary”)
has obtained a bank borrowing of HK$2,235,886 denominated in RMB with maturity of
1 year. The bank borrowing was unsecured.
16 Related party
transactions
The management considered the ultimate controlling party since
date of incorporation to 31 December
2016 was Mr. Francis Chi.
|
|
2016 |
|
2015 |
|
|
HK$ |
|
HK$ |
(a) Transactions
with key management personnel |
|
|
|
|
|
|
|
|
|
Salaries and other short term
employee benefits |
|
7,530,816 |
|
7,707,684 |
17 Commitments
(a) Capital commitments
Capital expenditure
contracted for at the balance sheet date but not yet incurred is as
follows:
|
|
2016 |
|
2015 |
|
|
HK$ |
|
HK$ |
|
|
|
|
|
Property, plant and equipment |
|
726,720 |
|
|
(b) Operating lease commitments
The future aggregate
minimum lease rental expenses in respect of the manufacturing
plants and office premises under non-cancellable operating
lease are payable in the following periods:
|
|
2016 |
|
2015 |
|
|
HK$ |
|
HK$ |
|
|
|
|
|
Within one year |
|
1,335,881 |
|
2,792,642 |
In the second to fifth years
inclusive |
|
24,952 |
|
1,080,086 |
|
|
1,360,833 |
|
3,872,728 |
18 Reconciliation of
profit before income tax to EBITDA
|
2016 |
2015 |
|
HK$ |
HK$ |
|
|
|
Profit before income tax |
2,740,174 |
1,787,169 |
Depreciation |
288,704 |
308,255 |
Amortisation of patents |
265,538 |
265,538 |
Interest income |
(63,460) |
(150,719) |
Interest expenses |
133,802 |
171,842 |
Patents written off |
- |
40,749 |
Loss on disposal of property, plant
and equipment |
11,317 |
1,517 |
EBITDA |
3,376,075 |
2,424,351 |
EBITDA is defined herein as earnings before depreciation,
amortisation, interest and tax, plus specific charges which are
considered non-recurring in nature. Specific charges include
impairment loss in value and gain/loss in disposal of non-current
assets, and amortization of fair value of share-based compensation.
EBITDA is not a recognised term under generally accepted accounting
principles and does not purport to be an alternative to net income
as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity. Because not all
companies use identical calculations, this presentation may not be
comparable to other similarly titled measures of other
companies.