Walcom Group Ltd - Final Results

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)	[phone]
Allenby Capital Limited Virginia Bull/Charlie Donaldson	[phone]

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.

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