Walcom Group LTD Final Results

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Walcom Group Limited	LSE:WALG	London	Ordinary Share	VGG574851074	ORD HKD0.01 (DI)

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

 
TIDMWALG 
 
5 May 2016 
 
                             WALCOM GROUP LIMITED 
 
                          ("Walcom" or "the Company") 
 
Final results for the year ended 31 December 2015 and notice of Annual General 
                                    Meeting 
 
CHAIRMAN'S STATEMENT 
 
On behalf of the board of directors (the "Board"), I am pleased to present the 
final results for the year ended 31 December 2015. 
 
Results 
 
Although the global economy remained subdued in 2015, with a modest recovery 
seen across advanced economies, the ongoing slowing of the PRC economy and the 
poor performance of the domestic pig farming industry continue to affect the 
Company's results. Despite the adverse impact of the poor animal feed market 
during the year, and the aggregate impact of increasing production costs and 
operating expenses, the Company managed to achieve a profit attributable to the 
Company's shareholders of HK$0.34 million (2014: loss of HK$0.30 million) for 
the year under review. Turnover (2015: HK$44.2 million; 2014: HK$43.7 million) 
and gross profit (2015: HK$26.8 million; 2014: HK$27.2 million) for the year 
was maintained at approximately the same levels as 2014. The Company reported a 
net profit of HK$0.5 million for the year under review as compared to a net 
loss of HK$0.03 million in 2014. EBITDA also increased by 65 per cent. from 
HK$1.47 million in 2014 to HK$2.42 million in 2015. 
 
A summary of the results for the period is set out below: 
 
                                            Year ended   Year ended       Change 
 
                                           31 December  31 December 
 
                                                  2015         2014 
 
                                               HK$'000      HK$'000    per cent. 
 
Turnover                                        44,237       43,648         1.35 
 
Gross profit                                    26,745       27,164       (1.54) 
 
Operating profit                                 1,808          860       110.23 
 
EBITDA                                           2,424        1,471        64.79 
 
Net finance (expense) / income                    (21)           18          n/a 
 
Profit / (loss) for the year                       479         (32)          n/a 
 
Profit / (loss) per share attributable to 
the shareholders of the Company 
 - basic (HK cents)                               0.49       (0.44)          n/a 
 - diluted (HK cents)                             0.49       (0.44)          n/a 
 
Net asset value per share attributable to 
the shareholders of the Company (HK              25.03        28.32      (11.62) 
cents) 
 
Operation and market review 
 
Following a prolonged period of slumping farmgate pig prices being received by 
producers during the period between November 2013 and March 2015, China's pig 
population decreased significantly as numerous mid-sized pig farms ceased 
operations. Farmgate pig prices began to increase in April 2015 as the 
resulting reduction in market supply exposed shortages, however, since the pig 
population remained low, the demand for the feedstuff remained weak. This had 
affected the Company's sales in the PRC, which dropped by 4.5 per cent. to 
HK$25.7 million during the year ended December 2015 when compared with the 
HK$26.9 million in 2014. 
 
Sales in Thailand increased by 18 per cent. to HK$16.2 million in 2015, 
representing 37 per cent. (2014: 31 per cent.) of the Company's total sales. 
The economy in Thailand improved following the change of government in May 
2014, although it has still not recovered fully. The improvement in sales in 
Thailand has resulted from both increased consumption of the Company's products 
by existing customers and from new customers who placed orders after achieving 
satisfactory trial results on our products. 
 
Sales in Korea decreased by 24 per cent. to HK$1.9 million in 2015 (2014: 
HK$2.5 million), representing approximately 4 per cent. (2014: 6 per cent.) of 
the Company's total sales. The drop in sales was due to the poor performance of 
the Korean market during the first six months of the year, however, sales 
started to pick up during the second half of 2015 which was encouraging. The 
Directors are pleased that the Company's product is gaining recognition in 
Korean, shown by the latter period improvement, and believe that there is high 
potential for further growth in the market. 
 
The Group's financial statements were reported in Hong Kong Dollar. During the 
period under review, the Hong Kong currency appreciated approximately 6 per 
cent. and 10 per cent. against the Renminbi and Thai Baht, respectively. As 
most of the Group's sales were made in these two currencies, this had an 
adverse exchange impact on the Group's revenue. Similar adverse exchange 
effects happened in translating the Group's net assets, including cash and cash 
equivalents, in its overseas subsidiaries into the Hong Kong currency. This 
resulted in a decrease in the Group's cash balance and net asset value reported 
in Hong Kong Dollar as at the year end of 2015. 
 
Recent Developments 
 
For the past couple of years China has been undergoing a process of 
transforming its economic structure. A major part of this shift involves the 
PRC government's efforts to commercialise domestic high technology inventions. 
The Chinese government acknowledges that protection of intellectual properties 
will play a significant role in this regard. During the past few years, the 
Company has developed and obtained patents in the most advanced technology for 
the application of cysteamine, the core substance in our products, in animal 
feed products. Notwithstanding this, due to the historical inadequacies that 
China has exhibited in properly upholding patent rights, sales of the Company's 
products have been weakened by generic third-party products copying Walcom's 
technology appearing in the local market and seizing market share without the 
relevant licence or intellectual property. As Walcom has established itself as 
a provider of trusted products within its specialised segment of the industry 
and has built up its brand in the market, the Company's management believes 
that there will be high potential for growth in the Company's sales if our 
intellectual property and patent rights can be treated more seriously and 
better protected by the Chinese government. 
 
Patents 
 
At the end of 2015 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 for which the Company has applied in recent years have been 
granted. The Directors believe that there is wide patent coverage in places 
where there are significant demands for the Company's products. Some patents, 
which the Directors believe have a reduced chance of commercialisation, were 
dropped during the year. 
 
Debt 
 
As at the year end, the Group had a short-term bank loan of HK$2.4 million, 
which was used to finance the Group's general working capital. The Directors do 
not foresee any need for further bank loans as the Group has adequate working 
capital for its daily operations. 
 
Dividend 
 
The Directors do not recommend any dividend payment for the year ended 31 
December 2015. 
 
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 Tuesday 14 
June 2016. 
 
Outlook 
 
As the PRC government has confirmed that the next few years will see slower 
economic growth across much of the market while the Chinese economy undergoes a 
structural transformation, the Directors believe that it will be another 
difficult year for the Company in 2016. The uncertain monetary policies of the 
United States and the major European economies collectively contribute towards 
a pessimistic prevailing global economic outlook. Escalating production costs 
and operating expenses remain an adverse factor affecting the Company. However, 
the Directors are optimistic that the improving results in the Thai market and 
the Korean market in the later part of 2015, together with the Company's 
continuing marketing efforts, should produce another year of broader 
strengthening of the Company's general financial performance in 2016. 
 
I would 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. 
 
Notice of Annual General Meeting 
 
A notice of annual general meeting convening a meeting at 2.30pm on 14 June 
2016 will be posted to shareholders with the Company's report and accounts. The 
notice will include a resolution to extend the Company's existing share award 
plan, which was adopted on 20 September 2006. The share award plan is currently 
effective until 20 September 2016 and would terminate on that date. The 
proposal is to extend the plan for a term of 20 years commencing on the date of 
the annual general meeting or until such time as the Board considers it 
appropriate to terminate the plan (subject to certain conditions). No further 
share awards are proposed at this time. 
 
Further enquiries: 
 
Walcom Group Limited                  +852 2494 0133 
Francis Chi (Chief Executive Officer) 
Albert Wong (Chief Financial Officer) 
 
Allenby Capital Limited               +44 20 3328 5656 
Virginia Bull/David Hart 
 
Consolidated statement of profit or loss 
 
For the year ended 31 December 2015 
 
(Expressed in Hong Kong dollars)

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