7 May
2019
WALCOM GROUP LIMITED
(“Walcom”, “the Group” or “the Company”)
Final results for
the year ended 31 December 2018
CHAIRMAN’S STATEMENT
On behalf of the board of directors (the “Board”) of Walcom
Group Limited (the “Company”), I am pleased to present the final
results of the Company and its subsidiaries (together referred to
as the “Group”) for the year ended 31
December 2018.
Results
In addition to China’s slowing economy, the domestic pig farming
industry has been adversely affected by the outbreak of an epidemic
African swine fever since August
2018. The Group’s sales in China dropped significantly during 2018 which,
combined with the aggregated effect of greater competition in the
market and escalating manufacturing costs, resulted in a loss
attributable to the Company’s shareholders of HK$10.25 million (2017: HK$4.34 million loss) for the year under review.
The stronger exchange rate of Renminbi against Hong Kong Dollar
during 2018 produced an accounting exchange gain of HK$1.7 million (2017: HK$2.2 million loss) in foreign currency
translations.
Turnover (2018: HK$34.7 million;
2017: HK$44.5 million) and gross
profit (2018: HK$19.4 million; 2017:
HK$24.3 million) for the year
decreased by approximately 22 per cent. and 20 per cent.
respectively. The Group reported a net loss of HK$9.49 million for the year under review as
compared with a net loss of HK$3.94
million in 2017. EBITDA also recorded a loss of HK$1.96 million in 2018 (2017: HK$3.16 million loss).
A summary of the results for the period under review is set out
below:
|
Year
ended |
Year
ended |
Change |
|
31
December |
31
December |
|
|
2018 |
2017 |
|
|
HK$’000 |
HK$’000 |
per
cent. |
Turnover |
34,691 |
44,488 |
(22.02) |
Gross profit |
19,370 |
24,311 |
(20.32) |
Loss from
operations |
(8,297) |
(4,796) |
73.00 |
|
|
|
|
|
Year
ended |
Year
ended |
Change |
|
31
December |
31
December |
|
|
2018 |
2017 |
|
|
HK$’000 |
HK$’000 |
per
cent. |
EBITDA |
(1,959) |
(3,163) |
(38.07) |
Net finance
expense |
(269) |
(124) |
116.94 |
Loss for the year |
(9,485) |
(3,940) |
140.74 |
Loss
attributable to owners of the Company
- total
- basic per share (HK cents)
- diluted per share (HK cents) |
(10,253)
(14.90)
(14.90) |
(4,341)
(6.31)
(6.31) |
136.19
136.13
136.13 |
Total
equity attributable to owners of the Company
-total
-per share (HK cents) |
2,754
4.00 |
14,720
21.38 |
(81.29)
(81.29) |
Operation and market review
The demand for pig feedstuff remained weak in the first six
months of the year due to the low demand for pork and meat
products, which continued to drive down both the pig farmgate
prices and the pig numbers. The outbreak of African swine fever
since August 2018 has spread widely
all over China. This pig disease,
for which there is no readily available vaccine, is highly
contagious and lethal to pigs. As a result, pig farms have reduced
their operations and the number of pigs has been reduced further.
It is reported that a total of two million pigs have been culled
since the start of the epidemic. Accordingly, the demand for
feedstuff and feed additive products, including the Group’s
products, have reduced significantly as well. With these poor
market conditions, the Group’s sales in the PRC decreased by 38 per
cent. to HK$16.0 million during 2018
compared to PRC sales of HK$25.8
million in 2017.
Sales in Thailand increased by
one per cent. to HK$17.0 million in
2018 (2017: HK$16.9 million),
representing approximately 49 per cent. (2017: 38 per cent.) of the
Group’s total sales. The increase in sales seen in Thailand is attributable to the increase in
consumption of the Group’s products by an existing customer with a
higher unit selling price, despite the drop in sales volume by
eight per cent. in 2018 in the country compared with 2017.
Sales in Korea decreased by 14 per cent. to HK$1.5 million in 2018 (2017: HK$1.8 million), representing approximately four
per cent. of the Group’s total sales in both 2017 and 2018.. The
Group’s distributor in Korea considers the reduced sales in 2018
were caused by the weak market in the country.
The Group’s financial statements are reported in Hong Kong
Dollars (“HKD”). During the period under review, the average
monthly exchange rate of HKD currency devalued by approximately two
per cent. against China’s Renminbi (“RMB”). As approximately 46 per
cent. of the Group’s sales were transacted in RMB, the devaluation
of the HKD has had a positive exchange impact on the Group’s 2018
revenue. During the years 2017 and 2018, the RMB exchange rate has
been highly volatile against the HKD and this has resulted in an
accounting exchange gain of HK$1.7
million in 2018, compared to an accounting exchange loss of
HK$2.2 million in 2017, in
translating assets and liabilities within the Group.
Recent Developments
As mentioned in my statement in the 2018 half-yearly report, the
Group’s largest customer in China
(the “Customer”), which is a sizable listed company, defaulted on
paying large overdue trade receivables owed to the Group in the
year under review. The Group has commenced legal proceedings
against the Customer to recover the debt and the Group has made a
full provision of HK$7.9 million on
the trade receivable in line with its prudent accounting policies.
Following the commencement of legal proceedings, there has been
positive progress, with the Customer paying approximately
HK$2.5 million towards the
outstanding debt. As such the amount due from the customer at the
year end was approximately HK$5.4
million. Currently it is unclear as to when and how
much this overdue amount will be recovered, with no further amounts
being received subsequent to the year end.
The aggregate effect of poor performance of the Group in 2018
and the afore-mentioned unrecovered trade receivable have driven
the working capital of the Group into a severely constrained
position. The Company had made several announcements in the past
twelve months informing the market in this regard. The
Company disposed of its entire interest in its 55 per cent. owned
subsidiary Walcom Bio-Chem (Thailand) Company Limited for a cash
consideration of 16.5 million Thai
Baht (approximately HK$4.1
million) on 20 March 2019 to
raise working capital. After deducting certain amounts owed
to the purchaser, the net proceeds received by the Company was
approximately HK$3 million. The
net proceeds of the disposal are being used to ease the Group’s
working capital position in the short term and to enable the Group
to meet its liabilities as they fall due until the middle of
June 2019, when a bank loan of
RMB1.5 million (approximately
HK$1.8 million) will be due for
review and repayment. The Company intends to renew this loan if
possible and will continue to closely monitor its working
capital position. However, there is no guarantee that it will
be possible to replace this loan or source a replacement facility
if it should be required. The Company continues to consider
all options available to it in order to safeguard its working
capital and liquidity, and further updates will be provided in due
course. In the event that the Group fails to reach agreement
on renewing or replacing the bank loan referred to above and
without any alternate arrangement to repay the loan or injection of
additional funds, it is likely that the board will be required to
take actions to protect the interest of creditors, which could
result in part or all of the Group entering into an insolvency
process.
The Group believes that it will benefit from focusing on
increasing sales penetration with existing big customers which
currently have low usage of the Group’s products and on integrated
meat producing companies whose businesses include feed milling, pig
farming, pig slaughtering and pork product production. However, the
board notes that, in the current difficult trading conditions,
further time is required in order to produce the desired
results.
Patents
At the end of 2018, the Group held 13 granted patents in respect
of:
·
its core Cysteamine technology in China, South
Korea and Vietnam;
·
poultry feed in China,
Philippines and Thailand;
·
feed for dairy animals in China;
·
fish feed in the UK, China,
Thailand; and
·
shellfish feed in Philippines and
China.
The Directors believe that there is wide patent coverage in
certain jurisdictions where there is significant demand for the
Group’s products. Some patents, which the management believes have
a lower chance of commercialisation, were dropped during the
year.
Debt
As at the 2018 year end, the Group had a short-term bank loan of
HK$4.0 million and two short-term
loans amounting to an aggregate of HK$0.5
million from minority shareholders of its subsidiary in
Thailand, both of which were used
to finance the Group’s general working capital. In addition, as
announced on 21 November 2018, the
Group agreed to repay a bank loan of approximately HK$2.3 million, (which is part of the
afore-mentioned HK$4.0 million
short-term bank loan), on a quarterly basis starting from January
2019. Following the disposal of the subsidiary in
Thailand on 20 March 2019, the Group is no longer responsible
for the HK$0.5 million loan from the
minority shareholders to Walcom Thailand. The Group is watching its
cash flow position and loan repayments closely and is exploring
different options to improve liquidity.
Dividend
The Directors do not recommend any dividend payment for the year
ended 31 December 2018.
Annual General Meeting
The Company’s annual general meeting (the “AGM”) will be held at
the offices of the Company’s solicitors, Reeds Smith Richards
Butler, in Hong Kong at
2:30 pm on Wednesday 12 June
2019. A notice of the AGM will be sent to the Company’s
shareholders, along with the 2018 annual report and financial
statements, during the third week of May
2019.
Outlook
Continuing from the last few years, the policy of economic
structural transformation is still ongoing in China and is expected to cause slower growth
in the Chinese economy for the foreseeable future. The aggregate
effect of the economic structural transformation and the China-US
trade war has adversely affected the growth of China’s economy,
although it has shown some improvement in the first quarter of 2019
owing to the effort of the Chinese administration, inter alia, in
lowering the tax and financial burdens on businesses and civilians,
as well as encouraging investment in new technologies and personal
spending.
After the disposal of the subsidiary in Thailand in March
2019, the Group continues to explore the markets in
Thailand and Indo-China through
the former Thai subsidiary as it has now become the exclusive
distributor of the Group’s products in Thailand. With its proven track record of
success in marketing Walcom’s products in the region, the Company
is optimistic that better results will be achieved in the coming
years.
Although it is currently facing a very constrained working
capital position, the Company continues to consider all possible
options to improve the cash flow situation. Bearing all of these
factors in mind, the Board believes 2019 will be a difficult year
for the Group as the Board anticipates a slower Chinese economy and
a volatile global economic outlook for the year.
Sadly, we lost Mr Timothy R.
Nelson, one of our non-executive directors since the Company
was admitted to AIM in 2006, as he passed away in January 2019 due to illness. The Board
sincerely coveys its condolences to his family and loved ones.
As announced previously, Mr Albert S. F.
Wong, the chief financial officer and secretary of the
Company, is leaving the Company and retiring on 30 June 2019 having served the Company for over
13 years. On behalf of the Board, I would like to express our
gratitude to Mr Wong and thank him for his contributions during his
term of service and wish him well in his retirement. The Board is
actively finding a successor for Mr Wong during the past few months
and hopefully a suitable candidate could be in place before
30 June 2019.
In addition, the Board announces that it intends to appoint Mr
ChongZe Li as CEO-China of Walcom Group and General Manager of
Shanghai Walcom Bio-Chem Co. Ltd, on 9 May
2019. Most recently, Mr ChongZe Li’s was general manager at
Hunan Kexinhua, and will focus on sales and marketing at
Walcom.
On behalf of the Board, 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
what has been a very challenging year.
Frankie Y. L. Wong
Chairman
7 May 2019
Further enquiries:
Walcom Group Limited
Francis Chi (Chief Executive Officer)
Albert Wong (Chief Financial Officer) |
+852 2494 0133 |
Allenby Capital Limited
David Hart / Asha Chotai |
+44 20 3328 5656 |
Consolidated statement of profit or loss
For the year ended 31 December 2018
(Expressed in Hong Kong
dollars)
|
Note |
2018 |
|
2017 |
|
|
|
HK$ |
|
HK$ |
|
|
|
|
|
|
|
Revenue |
4 |
34,691,030 |
|
44,488,372 |
|
|
|
|
|
|
|
Cost of sales |
|
(15,320,919) |
|
(20,177,334) |
|
Gross profit |
|
19,370,111 |
|
24,311,038 |
|
|
|
|
|
|
|
Other income |
5 |
207,762 |
|
215,041 |
|
|
|
|
|
|
|
Research and development
expenses |
|
(1,222,370) |
|
(1,482,466) |
|
|
|
|
|
|
|
Selling and distribution
expenses |
|
(16,589,116) |
|
(12,743,778) |
|
|
|
|
|
|
|
General and administrative
expenses |
|
(10,063,495) |
|
(15,096,244) |
|
Loss from
operations |
|
(8,297,108) |
|
(4,796,409) |
|
|
|
|
|
|
|
Net finance expense |
6 |
(268,616) |
|
(123,687) |
|
|
|
|
|
|
|
Loss before income
tax |
7 |
(8,565,724) |
|
(4,920,096) |
|
|
|
|
|
|
|
Income tax (expense) /
credit |
8 |
(919,124) |
|
979,861 |
|
Loss for the
year |
|
(9,484,848)
|
|
(3,940,235)
|
|
|
|
|
|
|
|
(Loss) / profit attributable
to: |
|
|
|
|
|
Owners of the Company |
|
(10,253,282) |
|
(4,341,039) |
|
Non-controlling interests |
|
768,434 |
|
400,804 |
|
Loss for the year |
|
(9,484,848) |
|
(3,940,235) |
|
|
|
|
|
|
|
Losses per share - basic, HK
cents |
11 |
(14.90) |
|
(6.31) |
|
- diluted, HK cents |
|
(14.90) |
|
(6.31) |
|
|
|
|
|
|
|
Consolidated statement of profit or loss and other comprehensive
income
For the year ended 31 December
2018
(Expressed in Hong Kong
dollars)
|
|
2018 |
|
2017 |
|
|
|
HK$ |
|
HK$ |
|
|
|
|
|
|
|
Loss for the
year |
|
(9,484,848)
|
|
(3,940,235)
|
|
Other comprehensive income |
|
|
|
|
|
Items that may be reclassified
subsequently to profit or loss |
|
|
|
|
|
Exchange difference on translation
of |
|
|
|
|
|
financial statements of overseas
subsidiaries |
|
(1,701,349) |
|
3,429,000 |
|
|
|
|
|
|
|
Total comprehensive loss for the
year |
|
(
11,186,197) |
|
(
511,235) |
|
|
|
|
|
|
|
Total comprehensive (loss) / income
attributable to: |
|
|
|
|
|
Owners of the Company |
|
(11,965,901) |
|
(1,151,641) |
|
Non-controlling interests |
|
779,704 |
|
640,406 |
|
Total comprehensive
loss for the year |
|
(11,186,197) |
|
(511,235) |
|
|
|
|
|
|
|
Consolidated balance sheet as at 31 December 2018
(Expressed in Hong Kong
dollars)
|
Note |
|
2018 |
|
|
2017 |
|
|
|
|
HK$ |
|
|
HK$ |
|
ASSETS |
|
|
|
|
|
|
|
NON-CURRENT ASSETS |
|
|
|
|
|
|
|
Property, plant and
equipment |
13 |
|
5,849,236 |
|
|
6,001,662 |
|
Patents |
14 |
|
97,094 |
|
|
468,463 |
|
Goodwill |
15 |
|
- |
|
|
- |
|
Deferred tax assets |
24 |
|
575,845 |
|
|
1,072,500 |
|
|
|
|
6,522,175 |
|
|
7,542,625 |
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Inventories |
17 |
|
2,169,866 |
|
|
2,907,267 |
|
Trade and other
receivables |
18 |
|
4,085,775 |
|
|
12,090,127 |
|
Tax
recoverable |
|
|
210,263 |
|
|
134,027 |
|
Cash and
cash equivalents |
19 |
|
4,825,759 |
|
|
3,594,050 |
|
Restricted bank
balances |
19 |
|
- |
|
|
116,377 |
|
|
|
|
11,291,663 |
|
|
18,841,848 |
|
TOTAL ASSETS |
|
|
17,813,838 |
|
|
26,384,473 |
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
Share capital |
23 |
|
688,344 |
|
|
688,344 |
|
Reserves |
|
|
2,065,617 |
|
|
14,031,518 |
|
Total equity attributable to
OWNERs of the Company |
|
|
2,753,961 |
|
|
14,719,862 |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
3,203,016 |
|
|
2,904,435 |
|
TOTAL EQUITY |
|
|
5,956,977 |
|
|
17,624,297 |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Trade and other
payables |
20 |
|
7,126,883 |
|
|
5,571,861 |
|
Tax payables |
|
|
253,830 |
|
|
317,638 |
|
Loans from
non-controlling interests |
21 |
|
481,626 |
|
|
478,046 |
|
Bank borrowings |
22 |
|
3,994,522 |
|
|
2,392,631 |
|
|
|
|
11,856,861 |
|
|
8,760,176 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
11,856,861 |
|
|
8,760,176 |
|
TOTAL EQUITY AND
LIABILITIES |
|
|
17,813,838 |
|
|
26,384,473 |
|
NET CURRENT (LIABILITIES)
/ ASSETS |
|
|
(565,198) |
|
|
10,081,672 |
|
TOTAL ASSETS LESS CURRENT
LIABILITIES |
|
|
5,956,977 |
|
|
17,624,297 |
|
|
|
|
|
|
|
|
|
Consolidated statement of changes in equity
For the year ended 31 December
2018
(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$ |
|
|
(Note 23(b)(i)) |
(Note 23(b)(ii)) |
|
(Note 23(b)(iii)) |
(Note 23(b)(iv)) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January
2017 |
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 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income |
|
|
|
|
|
|
|
|
|
|
(Loss) / profit for the year |
- |
- |
- |
- |
- |
- |
(4,341,039) |
(4,341,039) |
400,804 |
(3,940,235) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
Exchange difference on translation
of |
|
|
|
|
|
|
|
|
|
|
financial statements of overseas
subsidiaries |
- |
- |
- |
- |
3,189,398 |
- |
- |
3,189,398 |
239,602 |
3,429,000 |
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive (loss) / income for the
year |
- |
- |
- |
- |
3,189,398 |
- |
(4,341,039) |
(1,151,641) |
640,406 |
(511,235) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Lapse of share options |
- |
- |
- |
(684,771) |
- |
- |
684,771 |
- |
- |
- |
Appropriation to surplus
reserve |
- |
- |
- |
- |
- |
170,774 |
(170,774) |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2017 |
688,344 |
95,298,644 |
23,852,469 |
883,998 |
794,643 |
3,773,101 |
(110,571,337) |
14,719,862 |
2,904,435 |
17,624,297 |
|
|
|
|
|
|
|
|
|
|
|
At 1 January
2018 |
688,344 |
95,298,644 |
23,852,469 |
883,998 |
794,643 |
3,773,101 |
(110,571,337) |
14,719,862 |
2,904,435 |
17,624,297 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
(Loss) / profit for the year |
- |
- |
- |
- |
- |
- |
(10,253,282) |
(10,253,282) |
768,434 |
(9,484,848) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
Exchange difference on translation
of |
|
|
|
|
|
|
|
|
|
|
financial statements of overseas
subsidiaries |
- |
- |
- |
- |
(1,712,619) |
- |
- |
(1,712,619) |
11,270 |
(1,701,349) |
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive (loss) / income for the
year |
- |
- |
- |
- |
(1,712,619) |
- |
(10,253,282) |
(11,965,901) |
779,704 |
(11,186,197) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lapse of share options |
- |
- |
- |
(68,477) |
- |
- |
68,477 |
- |
- |
- |
Dividends to non-controlling
interests |
- |
- |
- |
- |
- |
- |
- |
- |
(481,123) |
(481,123) |
|
|
|
|
|
|
|
|
|
|
|
At 31 December
2018 |
688,344 |
95,298,644 |
23,852,469 |
815,521 |
(917,976) |
3,773,101 |
(120,756,142) |
2,753,961 |
3,203,016 |
5,956,977 |
|
|
|
|
|
|
|
|
|
|
|
Notes to the consolidated financial statements
For the year ended 31 December 2018
(Expressed in Hong Kong
dollars)
1. General
information
Walcom Group Limited is a company incorporated and domiciled in
the British Virgin Islands. The
shares of the Company are traded on AIM, a market operated by the
London Stock Exchange.
The address of the registered office of the Company is Vistra
Corporate Services Centre, Wickhams Cay II, Road Town, Tortola,
VG1110, British Virgin Islands and
its principal place of business is located at Part D, Mingtai
Bldg., No. 351 Guo Shou Jing Road, ZJ Hi-tech Park, Shanghai 201203, People’s Republic of
China.
The principal activity of the Company is investment
holding. The principal activities of the subsidiaries are set
out in note 16.
These consolidated financial statements were authorised for
issue by the board of directors on 7 May
2019.
2. Summary of
significant accounting policies
This note provides a list of the significant accounting policies
adopted in the preparation of these consolidated financial
statements. These policies have been consistently applied to all
the years presented, unless otherwise stated. The financial
statements are for the Group consisting of Walcom Group Limited and
its subsidiaries.
(a) Basis of
preparation
The consolidated financial statements have been prepared on a
going concern basis notwithstanding that the Group had incurred a
loss for the year of HK$9,484,848
during the year ended 31 December
2018 and, as of that date, the Group’s current liabilities
exceeded its current assets by HK$565,198. These conditions indicate the
existence of a material uncertainty which may cast significant
doubt about the Group’s ability to continue as a going concern. In
preparing the consolidated financial statements, the directors have
carefully reviewed the Group’s cash position as at the balance
sheet date and the cash flow forecast for the next twelve months.
In reviewing the Group’s cash flows, the directors have considered
the following factors:
-
A stable sales target for 2019 and stable gross profit ratio with
the escalating cost of production
-
Continuous close monitoring of outgoing expenses
-
Current cash level and committed lines of funding from financial
institutions
-
Net cash inflow from the disposal of an indirectly held
subsidiary
-
Failure to renew or replace the above mentioned lines of funding
from financial institutions
The directors believe that the Group is able to meet its
financial obligations in full as and when they fall due and
consider that the preparation of the consolidated financial
statements on going concern basis is appropriate.
The consolidated financial statements of the Group have been
prepared in accordance with 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. The financial
statements have been prepared on a historical cost basis.
(b) Change in accounting policy and
disclosures
New and amended
standards adopted by the Group
The Group has applied the following standards and amendments for
the first time for their annual reporting period commencing
1 January 2018:
Annual Improvements
Amendments to IFRS 1
Deletion of Short-term
2014-2016 Cycle
Exemptions for First-time Adopters
Annual Improvements
Amendments to IAS 28 Measuring an Associate or
2014-2016 Cycle
Joint
Venture at Fair Value
IFRS 2
(Amendments)
Classification and Measurement of Share-based Payment
Transactions
IFRS 4
(Amendments)
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts
IFRS
9
Financial Instruments
IFRS
15
Revenue from Contracts with Customers
IFRS 15
(Amendments)
Clarifications to IFRS 15
IFRIC 22
Foreign Currency Transactions and
Advance Consideration
The Group had to change its accounting policies following the
adoption of IFRS 9 and IFRS 15. Most of the other amendments listed
above did not have any impact on the amounts recognised in prior
periods and are not expected to significantly affect the current or
future periods.
IFRS 9, ‘Financial Instruments’
IFRS 9 replaces IAS 39, Financial instruments: recognition and
measurement. It sets out the requirements for recognising and
measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items.
The adoption of IFRS 9 from 1 January
2018 resulted in changes in accounting policies and
adjustments to the amounts recognised in the consolidated financial
statements. In accordance with the transitional provisions in IFRS
9, comparative figures have not been restated.
Further details of the nature and effect of the changes to
previous accounting policies and the transition approach are set
out below:
a. Classification and measurement
On 1 January 2018 (the date of
initial application of IFRS 9), the Group’s management has assessed
which business models apply to the financial assets held by the
Group and has classified its financial instruments into the
appropriate IFRS 9 categories. The adoption of IFRS 9 did not have
material impact on the classification and measurement of the
Group’s financial assets and liabilities.
b. Impairment of financial assets
The Group has two main types of financial assets that are
subject to IFRS 9’s new expected credit loss model:
·
Trade receivables; and
·
Other financial assets measured at amortised costs (including cash
and cash equivalents, deposits and other receivables)
The Group was required to revise its impairment methodology
under IFRS 9 for each of these classes of assets. The impact of the
change in impairment methodology is detailed in note 3(d).
IFRS 15, ‘Revenue from Contracts with
Customers’
IFRS 15 establishes a comprehensive framework for recognising
revenue and some costs from contracts with customers. IFRS 15
replaces IAS 18, Revenue, which covered revenue arising from sale
of goods and rendering of services, and IAS 11, Construction
contracts, which specified the accounting for construction
contracts. The Group has elected to use the modified retrospective
approach which means that the cumulative impact of the adoption
will be recognised in retained earnings at 1
January 2018. Therefore, comparative information has not
been restated and continues to be reported under IAS18. As allowed
by IFRS 15, the Group has applied the new requirements only to
contracts that were not completed before 1
January 2018.
IFRS 15 requires that revenue from contracts with customers be
recognised upon the transfer of control over goods or services to
the customer. Upon adoption, this requirement under IFRS 15
resulted in immaterial impact to the financial statements as the
timing of revenue recognition on sale of goods is nearly unchanged.
The adoption of IFRS 15 does not have a significant impact on the
Group’s financial position and results of operation for the period.
There is also no material impact to the Group’s retained earnings
as at 1 January 2018.
a. Presentation of contract assets and
liabilities
Under IFRS 15, a receivable is recognised only if the Group has
an unconditional right to consideration. If the Group recognises
the related revenue before being unconditionally entitled to the
consideration for the promised goods and services in the contract,
then the entitlement to consideration is classified as a contract
asset.
Similarly, a contract liability, rather than a payable, is
recognised when a customer pays consideration, or is contractually
required to pay consideration and the amount is already due, before
the Group recognises the related revenue. For a single contract
with the customer, either a net contract asset or a net contract
liability is presented. For multiple contracts, contract assets and
contract liabilities of unrelated contracts are not presented on a
net basis. The impact on the Group’s financial position by the
application of IFRS 15 as compared to IAS 18 that was previously in
effect before the adoption of IFRS 15 is as follows:
|
As
previously stated
HK$ |
As at
1 January 2018 Reclassification under IFRS 15
HK$ |
Restated
HK$ |
Consolidated balance
sheet (extract)
Current liabilities: |
|
|
|
Other payables and accrued
expenses |
4,333,171 |
(29,942) |
4,303,229 |
Contract liabilities |
- |
29,942 |
29,942 |
New standards and
interpretations not yet adopted
Annual Improvements
Amendments to IFRSs (effective from 1
January 2019)
2015-2017 Cycle
IAS 1 and IAS 8
(Amendments)
Definition of Material (effective from 1
January 2020)
IAS 28
(Amendments)
Long-term Interests in Associates and Joint Ventures (effective
from 1 January 2019)
IAS 40
(Amendments)
Transfers of Investment Property (effective from 1 July 2018)
IFRS 3
(Amendments)
Definition of a Business (effective for business combinations and
asset acquisitions for which the acquisition date is on or after
the beginning of the first annual period beginning on or after
1 January 2020)
IFRS 9
(Amendments)
Prepayment Features with Negative Compensation (effective from
1 January 2019)
IFRS 10 and IAS 28 (Amendments) Sale or
Contribution of Assets between an Investor and its Associate or
Joint Venture (effective from a date to be determined by IASB)
IFRS
16
Leases (effective from 1 January
2019)
IFRS
17
Insurance Contracts (effective from 1
January 2021)
IFRIC
23
Uncertainty over Income Tax Treatments (effective from 1 January 2019)
Conceptual Framework for
Revised Conceptual Framework for Financial
Financial Reporting
2018
Reporting (effective from 1 January
2020)
Certain new accounting standards and interpretations have been
published that are not mandatory for 31
December 2018 reporting periods and have not been early
adopted by the Group. The Group’s assessment of the impact of these
new standards and interpretations is set out below.
IFRS 16, ‘Leases’
IFRS 16 will result in almost all leases being recognised on the
balance sheet, as the distinction between operating and finance
leases is removed. Under the new standard, an asset (the right to
use the leased item) and a financial liability to pay rentals are
recognised. The only exceptions are short-term and low-value
leases.
The accounting for lessors will not significantly change.
The standard will affect primarily the accounting for Group’s
operating leases. As at the reporting date, the Group has
non-cancellable operating lease commitments of HK$1,497,844, see note 28. However, the Group has
not yet determined to what extent these commitments will result in
the recognition of an asset and a liability for future payments and
how this will affect the Group’s loss and classification of cash
flows.
Some of the commitments may be covered by the exception for
short-term and low value leases and some commitments may relate to
arrangements that will not qualify as leases under IFRS 16.
The new standard is mandatory for financial years commencing on
or after 1 January 2019. At this
stage, the Group does not intend to adopt the standard before its
effective date.
The Group is in the process of making an assessment of the
impact of these new standards, new interpretations and amendments
to existing standards upon initial application.
There are no other standards that are not yet effective and that
would be expected to have a material impact on the entity in the
current or future reporting periods and no foreseeable future
transactions.
(c) Principles of
consolidation
(i)
Subsidiaries
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the date
that control ceases.
The acquisition method of accounting is used to account for
business combinations by the Group.
Intercompany transactions, balances and unrealised gains on
transactions between group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the transferred asset. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of
subsidiaries are shown separately in the consolidated statement of
profit or loss, statement of comprehensive income, statement of
changes in equity and balance sheet respectively.
(ii) Joint arrangements
Under IFRS 11 Joint Arrangements investments in joint
arrangements are classified as either joint operations or joint
ventures. The classification depends on the contractual rights and
obligations of each investor, rather than the legal structure of
the joint arrangement. The Group has joint operations.
Joint operations
The Group recognises its direct right to the assets,
liabilities, revenues and expenses of joint operations and its
share of any jointly held or incurred assets, liabilities, revenues
and expenses. These have been incorporated in the financial
statements under the appropriate headings. Details of the joint
operation are set out in note 13.
(d) Business
combinations
The acquisition method of accounting is used to account for all
business combinations, regardless of whether entity instruments or
other assets are acquired. The consideration transferred for the
acquisition of a subsidiary comprises the:
· fair values of the assets transferred
· liabilities incurred to the former owners of the acquired
business
· equity interests issued by the Group
· fair value of any asset or liability resulting from a
contingent consideration arrangement, and
· fair value of any pre-existing equity interest in the
subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date. The Group recognises any non-controlling interest
in the acquired entity on an acquisition-by-acquisition basis
either at fair value or at the non-controlling interest’s
proportionate share of the acquired entity’s net identifiable
assets.
Acquisition-related costs are expensed as incurred.
The excess of the
· consideration transferred,
· amount of any non-controlling interest in the acquired entity,
and
· acquisition-date fair value of any previous equity interest in
the acquired entity
over the fair value of the net identifiable assets acquired is
recorded as goodwill. If those amounts are less than the fair value
of the net identifiable assets of the business acquired, the
difference is recognised directly in profit or loss as a bargain
purchase.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the
entity’s incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an independent financier
under comparable terms and conditions. Contingent consideration is
classified either as equity or a financial liability. Amounts
classified as a financial liability are subsequently remeasured to
fair value with changes in fair value recognised in profit or
loss.
If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer’s previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
(e) Separate
financial statements
Investments in subsidiaries are accounted for at cost less
impairment. Cost includes direct attributable costs of investment.
The results of subsidiaries are accounted for by the Company on the
basis of dividend received and receivable.
Impairment testing of the investments in subsidiaries is
required upon receiving a dividend from these investments if the
dividend exceeds the total comprehensive income of the subsidiary
in the period the dividend is declared or if the carrying amount of
the investment in the separate financial statements exceeds the
carrying amount in the consolidated financial statements of the
investee’s net assets including goodwill.
(f) Property,
plant and equipment
Property, plant and equipment are stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of any component accounted for as a
separate asset is derecognised when replaced. All other repairs and
maintenance are charged to profit or loss during the reporting
period in which they are incurred.
Depreciation is calculated using the straight-line method to
allocate their costs, net of their residual values over their
estimated useful lives, as follows:
Building
5%
Leasehold
improvements
20% or term of lease, whichever is shorter
Furniture and
fixtures
20%
Office
equipment
20%
Plant and
machinery
10% - 30%
Motor
vehicles
20%
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in profit or
loss.
(g) Patents
Patents that are acquired by the Group and/or self-invented are
stated in the consolidated balance sheet at cost less accumulated
amortisation (where the estimated useful life is finite) and
impairment losses (see note 2(i)).
Amortisation of patents is charged to profit or loss on a
straight line basis over the assets’ estimated useful lives. The
patents are amortised from the date they are available for use and
their estimated useful lives are 20 years.
Both the period and method of amortisation are reviewed
annually.
(h) Goodwill
Goodwill is measured as described in note 2(i). Goodwill on
acquisitions of subsidiaries is included in intangible assets.
Goodwill is not amortised but it is tested for impairment annually,
or more frequently if events or changes in circumstances indicate
that it might be impaired, and is carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity
sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination in which the
goodwill arose. The units or groups of units are identified at the
lowest level at which goodwill is monitored for internal management
purposes, being the operating segments.
(i) Impairment
of investments in subsidiaries and non-financial assets
Goodwill and intangible assets that have an indefinite useful
life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in
circumstances indicate that they might be impaired. Other assets
are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less
costs of disposal and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or group of
assets (cash-generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at each balance sheet date.
(j) Inventories
Inventories are stated at the lower of cost and net realisable
value.
Cost is determined using the weighted average cost method and
comprises all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present
location and condition.
Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
(k) Trade
receivables
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement with 30 to 60 days and therefore are
all classified as current.
Trade receivables are recognised initially at the amount of
consideration that is unconditional unless they contain significant
financing components, when they are recognised at fair value. The
Group holds the trade receivables with the objective to collect the
contractual cash flows and therefore measures them subsequently at
amortised cost using the effective interest method. See note 18 for
further information about the Group's accounting for trade
receivables and note 3(d) for a description of the Group's
impairment policies.
(l) Cash and
cash equivalents
For the purpose of presentation in the consolidated statement of
cash flows, cash and cash equivalents include cash on hand,
deposits held at call with banks, other short-term, highly liquid
investments with original maturities of three months or less that
are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value, and bank
overdrafts. Bank overdrafts are shown within borrowings in current
liabilities in the balance sheet.
(m) Trade and other
payables
These amounts represent liabilities for goods and services
provided to the Group prior to the end of financial year which are
unpaid. Trade and other payables are presented as current
liabilities unless payment is not due within 12 months after the
reporting period. They are recognised initially at their fair value
and subsequently measured at amortised cost using the effective
interest method.
(n) Borrowings
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the proceeds
(net of transaction costs) and the redemption amount is recognised
in profit or loss over the period of the borrowings using the
effective interest method.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
(o) Borrowing
costs
Borrowing costs are expensed in the period in which they are
incurred.
(p) Provisions
Provisions for legal claims, service warranties and make good
obligations are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation and the amount can be reliably estimated. Provisions are
not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be
small.
Provisions are measured at the present value of management’s
best estimate of the expenditure required to settle the present
obligation at the balance sheet date. The discount rate used to
determine the present value is a pre-tax rate that reflects current
market assessments of the time value of money and the risks
specific to the liability. The increase in the provision due to
passage of time is recognised as interest expense.
(q) Revenue recognition
Accounting policies applied from 1
January 2018:
Revenue is measured at the fair value of the consideration
received and receivable, and represents amounts receivable for
goods supplied or service performed, stated net of rebates and
returns. The Group recognises revenue when the amount of revenue
can be reliably measured; when it is probable that future economic
benefits will flow to the entity; and when specific criteria have
been met for each of the Group’s activities, as described below.
The Group bases its estimates of returns on historical results,
taking into consideration the type of customers, the type of
transactions and the specifics of each arrangement.
(i) Sales of goods
Revenue from the sale of good directly to the customers is
recognised at the point that the control of the inventory have
passed to the customers, which is primarily upon the acceptance of
the products by the customers. The customers have full discretion
over the products, and there is no unfulfilled obligation that
could affect the customers’ acceptance of the products.
(ii) Interest income
Interest income is recognised as other income using the effect
interest method.
Accounting policies applied until 31 December 2017:
The Group has applied IFRS 15, but has elected not to restate
comparative information. As a result, the comparative information
provided continues to be accounted for in accordance with the
Group’s previous accounting policy.
(i) Sale of goods
Revenue from the sales of goods is recognised on the transfer of
significant risks and rewards of ownership, which generally
coincides with the time when the goods are delivered and the title
has passed to the customers. Revenue excludes value added tax or
other sales taxes and is after deduction of any trade discounts and
eliminating sales within the Group.
(ii) Interest income
Interest income is recognised using the effective interest
method.
(r) Research
and development expenditure
Research expenditure and development expenditure that do not
meet the criteria as intangible assets are recognised as an expense
as incurred. Development costs previously recognised as an expense
are not recognised as an asset in a subsequent period.
(s) Segment
reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision
maker.
The board of the Group has appointed a strategic steering
committee which assesses the financial performance and position of
the Group, and makes strategic decisions. The steering committee
which has been identified as being the chief operating decision
maker, consists of the chief executive officer, the chief financial
officer and the manager for corporate planning.
(t) Operating
leases
Leases in which a significant portion of the risks and rewards
of ownership are not transferred to the Group as lessee are
classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) are charged
to profit or loss on a straight line basis over the period of the
lease.
(u) Foreign currency
translation
Functional and presentation
currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the “functional
currency”). The consolidated financial statements are presented in
Hong Kong dollars (HK$), which is
the Company’s functional and the Group’s presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange
rates are generally recognised in profit or loss.
Group companies
The results and financial position of foreign operations (none
of which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are
translated into the presentation currency as follows:
· assets and liabilities for each
balance sheet presented are translated at the closing rate at the
date of that balance sheet
· income and expenses for each
statement of profit or loss and statement of comprehensive income
are translated at average exchange rates (unless this is not a
reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions), and
· all resulting exchange
differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities, and of
borrowings and other financial instruments designated as hedges of
such investments, are recognised in other comprehensive income.
When a foreign operation is sold or any borrowings forming part of
the net investment are repaid, the associated exchange differences
are reclassified to profit or loss, as part of the gain or loss on
sale.
Goodwill and fair value adjustments arising on the acquisition
of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
(v) Employee
benefits
Pension obligations
The Group contributes to defined contribution plans including
the Hong Kong Mandatory Provident Fund Scheme, the People’s
Republic of China Central Pension Scheme and the pension fund of
Thailand. The Group has no legal or constructive obligations
to pay further contributions if the fund does not hold sufficient
assets to pay all employees the benefits relating to employee
service in the current and prior periods.
For defined contribution plans, the Group pays contributions to
publicly or privately administered pension insurance plans on a
mandatory, contractual or voluntary basis. The Group has no further
payment obligations once the contributions have been paid. The
contributions are recognised as employee benefit expense when they
are due. Prepaid contributions are recognised as an asset to the
extent that a cash refund or a reduction in the future payments is
available.
Share-based payments
Share-based compensation benefits are provided to employees via
a share option scheme. Information relating to this scheme is set
out in note 25.
The fair value of options granted under the share option scheme
is recognised as an employee benefits expense with a corresponding
increase in equity. The total amount to be expensed is determined
by reference to the fair value of the options granted:
· including any market performance
conditions (e.g. the entity’s share price)
· excluding the impact of any
service and non-market performance vesting conditions (e.g.
profitability, sales growth targets and remaining an employee of
the entity over a specified time period), and
· including the impact of any
non-vesting conditions (e.g. the requirement for employees to save
or holdings shares for a specific period of time).
The total expense is recognised over the vesting period, which
is the period over which all of the specified vesting conditions
are to be satisfied. At the end of each period, the entity revises
its estimates of the number of options that are expected to vest
based on the non-market vesting and service conditions. It
recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to
equity.
The proceeds received net of any directly attributable
transaction costs are credited directly to equity.
(w) Current and deferred
income tax
The income tax expense or credit for the period is the tax
payable on the current period’s taxable income based on the
applicable income tax rate for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Company and its subsidiaries operate and
generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. However, deferred tax
liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not accounted
for if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that at the time
of the transaction affects neither accounting nor taxable profit or
loss. Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantially enacted by the balance
sheet date and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability
is settled.
Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax bases of
investments in foreign operations where the Company is able to
control the timing of the reversal of the temporary differences and
it is probable that the differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
(x) Dividend
distribution
Provision is made for the amount of any dividend declared, being
appropriately authorised and no longer at the discretion of the
entity, on or before the balance sheet date but not distributed at
the balance sheet date.
(y) Government
grants
Grants from the government are recognised at their fair value
where there is a reasonable assurance that the grant will be
received and the Group will comply with all attached
conditions.
Government grants relating to costs are deferred and recognised
in the profit or loss over the period necessary to match them with
the costs that they are intended to compensate.
Government grants relating to the purchase of property, plant
and equipment are included in non-current liabilities as deferred
income and are credited to profit or loss on a straight-line basis
over the expected lives of the related assets.
(z) Impairment of
other financial assets
The Group recognises loss allowances for expected credit loss on
the financial instruments that are not measured at fair value
through profit or loss. The Group considers the probability of
default upon initial recognition of financial assets and assesses
whether there has been a significant increase in credit risk on an
ongoing basis.
The Group considers the credit risk on a financial instrument is
low if the financial instrument has a low risk of default, the
debtor has a strong capacity to meet its contractual cash flow
obligations in the near term and adverse changes in economic and
business conditions in the longer term may, but will not
necessarily, reduce the ability of the debtor to fulfil its
contractual cash flow obligations.
The carrying amount of the receivables is reduced through the
use of the receivable impairment charges account. Changes in the
carrying amount of the receivable impairment charges account are
recognised in profit or loss. The receivable is written off against
the receivable impairment charges account when the company has no
reasonable expectations of recovering the receivable.
If, in a subsequent period, the amount of expected credit losses
decreases, the reversal would be adjusted to the receivable
impairment charges account at the reporting date. The amount of any
reversal is recognised in profit or loss.
(za) Contract liabilities (applicable
from 1 January 2018)
A contract liability is the obligation to transfer goods or
services to a customer for which the Group has received a
consideration (or an amount of consideration that is due) from the
customer. If a customer pays the consideration before the Group
transfers goods or services to the customer, a contract liability
is recognised when the payment is made or the payment is due
(whichever is earlier). Contract liabilities are recognised as and
when the Group performs under the contract.
3. Financial risk management
The Group’s activities expose it to a variety of financial
risks, including foreign currency risk, price risk, credit risk,
liquidity risk and interest rate risk. The Group does not
hold or issue derivative financial instruments either for hedging
or for trading purposes. These risks are managed by the
Group’s financial management policies and practices as described
below to minimise potential effects on the Group’s financial
performance.
(a) Foreign currency risk
The Group has certain exposure to foreign currency risk as most
of its business transactions, assets and liabilities are
principally denominated in Hong
Kong dollars, United States
dollars (“US dollars”), Thai Baht and Renminbi (“RMB”).
The Group manages its foreign currency risk by closely
monitoring the movements of the foreign currency exchange rates.
The Group currently does not have a foreign currency hedging
policy. However, the management monitors foreign exchange exposure
and will consider hedging significant foreign currency exposure
should the need arises.
At 31 December 2018, if the
currency had weakened / strengthened by 10% against the RMB and
Thai Baht with all other variables held constant, post-tax loss for
the year would have been HK$173,000
lower / higher (2017: HK$863,000),
mainly as a result of foreign exchange gains / losses on
translation of RMB and Thai Baht-denominated trade receivables and
cash and bank balances and foreign exchange losses / gains on
translation of RMB-denominated trade payables and RMB and Thai
Baht-denominated borrowings.
(b) Equity securities price risk
The Group is not exposed to any equity securities price risk
because the unquoted investments are held for long term strategic
purposes. Their performance is assessed and monitored by the
management on and on going basis.
(c) Raw material price risk
The Group is exposed to risk from increases in the price of raw
materials, cysteamine hydrochloride and cyclodexin, labour cost and
rental expense which are used in the production of
inventories. To minimise this risk, the Group closely
monitors its inventories level and enters into contracts with
suppliers in advance and make prepayments to suppliers to secure
future supplies.
(d) Credit risk
The credit risk of the Group mainly arises from bank balances,
trade receivables, deposits and other receivables. The carrying
amounts of these balances represent the Group’s maximum exposure to
credit risk in relation to financial assets.
In respect of cash deposited at banks, the credit risk is
considered to be low as the counterparties are reputable banks. The
existing counterparties do not have defaults in the past.
Therefore, expected credit loss rate of cash at bank is assessed to
be close to zero and no provision was made as of 31 December 2018.
The Group trades only with recognised, creditworthy customers
and hence there is no requirement for collateral. The Group has a
policy in place that all customers who are offered credit terms are
subject to credit verification procedures. The credit period
granted to customers ranges from 30 days to 60 days.
The Group applies the simplified approach to provide for
expected credit losses prescribed by IFRS 9, which permits the use
of the lifetime expected credit loss provision for all trade
receivables. To measure the expected credit losses, trade
receivables have been grouped based on shared credit risk
characteristics. The Group has performed historical analysis and
identified the expected credit loss. It considers available
reasonable and forwarding-looking information.
As at 31 December 2018, trade
receivables that are individually significant have been separately
assessed for impairment. The Group makes periodic assessments on
the recoverability of the receivables based on the background and
reputation of the customers, historical settlement records and past
experience.
Majority of the Group’s revenue is received from individual
customers in relation to animal feed additive products sold and are
transacted in cash or credit. The Group’s trade receivables arise
from sales of animal feed additive products to the customers. As at
the end of the year, the top three debtors and the largest debtor
accounted for approximately 89.5% and 65.2% (2017: 74.1% and
51.6%), of the Group’s trade receivables balance. In view of the
history of business dealings with the debtors and the sound
collection history of the receivables due from them, management
believes that there is no material credit risk inherent in the
Group’s outstanding receivable balance due from these debtors saved
for the debtor related to the impaired trade receivable disclosed
in the below. Management makes periodic assessment on the
recoverability of the trade and other receivables based on
historical payment records, the length of overdue period, the
financial strength of the debtors and whether there are any
disputes with the debtors. The directors consider the Group’s
credit risk of these receivables to be low except for the impaired
trade receivable disclosed in the below.
The Group classifies its trade receivables by nature of customer
accounts. These include overseas customers and PRC customers.
|
|
Lifetime |
Gross |
Lifetime |
Net |
|
|
expected credit |
carrying |
expected |
carrying |
|
|
loss rate |
amount |
credit loss |
amount |
|
|
|
HK$ |
HK$ |
HK$ |
As at 31 December 2018 |
|
|
|
|
|
Overseas customers |
|
|
|
|
|
Provision on collective basis |
|
0% |
2,341,545 |
- |
2,341,545 |
|
|
|
|
|
|
PRC customers |
|
|
|
|
|
Provision on individual basis |
|
100% |
5,432,550 |
5,432,550 |
- |
Provision on collective basis |
|
0% |
559,461 |
- |
559,461 |
|
|
|
8,333,556 |
5,432,550 |
2,901,006 |
|
|
|
|
|
The credit quality of other receivables excluding prepayments
has been assessed with reference to historical information about
the counterparties default rates and financial position of the
counterparties. The directors are of the opinion that the credit
risk of other receivables is low due to the sound collection
history of the receivables due from them. Therefore, expected
credit loss rate of the other receivables excluding prepayments is
assessed to be close to zero and no provision was made as of
31 December 2018.
Previous accounting policy for impairment
All trade receivables are monitored on an ongoing basis and
overdue balances are reviewed regularly by Credit Committee. The
continued supply of goods to customers with trade debts past due
are reviewed and approved by the management on an individual
basis.
With respect to credit risk arising from the other financial
assets of the Group which comprise cash and bank balances, the
Group’s exposure to credit risk arising from default of the
counterparties is limited as the counterparties have good credit
standing and the Group does not expect to incur significant loss
for uncollected deposits from these entities.
The maximum exposure to credit risk in the event of the
counterparties’ failure to perform their obligations is represented
by the carrying amount of each financial asset in the consolidated
balance sheet. The Group does not provide any other
guarantees which expose the Group to credit risk.
(e) Liquidity risk
The Group’s objective is to maintain a balance between
continuity of funding and flexibility through the use of bank loans
and overdrafts. The Group’s policy is to regularly monitor
current and expected liquidity requirements and its compliance with
lending covenants, to ensure that it maintains sufficient reserves
of cash and adequate committed lines of funding from major
financial institutions to meet its liquidity requirements in the
short and longer term.
The table analyses the Group’s financial liabilities into
relevant maturity groupings based on the remaining period at the
balance sheet date to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash
flow.
2018 |
|
|
|
Between |
Between |
|
|
|
Within 1 year |
1 to 2 |
2 to 5 |
Over |
|
|
or on demand |
years |
years |
5 years |
Total |
|
HK$ |
HK$ |
HK$ |
HK$ |
HK$ |
|
|
|
|
|
Trade and other payables |
7,126,883 |
- |
- |
- |
7,126,883 |
Tax payables |
253,830 |
- |
- |
- |
253,830 |
Loans from non-controlling
interests |
481,626 |
- |
- |
- |
481,626 |
Bank borrowings |
3,994,522 |
- |
- |
- |
3,994,522 |
|
11,856,861 |
- |
- |
- |
11,856,861 |
|
|
|
|
|
2017 |
|
|
|
Between |
Between |
|
|
|
Within 1 year |
1 to 2 |
2 to 5 |
Over |
|
|
or on demand |
years |
years |
5 years |
Total |
|
HK$ |
HK$ |
HK$ |
HK$ |
HK$ |
|
|
|
|
|
Trade and other payables |
5,571,861 |
- |
- |
- |
5,571,861 |
Tax payables |
317,638 |
- |
- |
- |
317,638 |
Loans from |
|
|
|
|
|
non-controlling
interests |
478,046 |
|
|
|
478,046 |
Bank borrowings |
2,392,631 |
- |
- |
- |
2,392,631 |
|
8,760,176 |
- |
- |
- |
8,760,176 |
|
|
In order to manage the above liquidity demands, at 31 December 2018, HK$4,825,759 (2017: HK$3,594,050) of the Group’s assets respectively
were held as cash that are considered readily
realisable.
(f) Interest rate risk
The Group’s interest rate risk arises from loans 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 loss before income tax for the year ended
31 December 2018 would decrease or
increase by HK$2,074 (2017:
HK$2,873).
|
|
Decrease/ |
|
|
Decrease/ |
|
|
Increase of |
(increase) |
|
Decrease of |
(increase) |
|
|
25 basis points |
in loss before |
|
25 basis points |
in loss before |
|
|
|
income tax |
|
|
income tax |
|
|
|
HK$ |
|
|
HK$ |
|
2018 |
|
|
|
|
|
|
On bank deposits |
0.25% |
12,060 |
|
0.25% |
(12,060) |
|
On bank borrowings |
0.25% |
(9,986) |
|
0.25% |
9,986 |
|
|
|
|
|
|
|
|
|
|
Decrease/ |
|
|
Decrease/ |
|
|
Increase of |
(increase) |
|
Decrease of |
(increase) |
|
|
25 basis points |
in loss before |
|
25 basis points |
in loss before |
|
|
|
income tax |
|
|
income tax |
|
|
|
HK$ |
|
|
HK$ |
|
2017 |
|
|
|
|
|
|
On bank deposits |
0.25% |
8,855 |
|
0.25% |
(8,855) |
|
On bank
borrowings |
0.25% |
(5,982) |
|
0.25% |
5,982 |
|
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 2017.
(g) Fair values
All financial assets and liabilities are carried at amounts not
materially different from their fair values as at 31 December 2018 and 2017.
4. Revenue
The principal activities of the Group are manufacturing and sale
of chemical feed additive products.
Revenue represents the sales value of goods supplied to
customers less returns, discounts, value added tax and sales
taxes.
|
2018 |
2017 |
Sale of chemical feed additive products |
HK$ |
HK$ |
|
34,691,030 |
44,488,372 |
|
|
|
5. Other income
|
2018 |
2017 |
|
HK$ |
HK$ |
Government grants |
105,096 |
177,946 |
Sundry income |
102,666 |
37,095 |
|
207,762 |
215,041 |
Note: During the years ended 31 December
2018 and 2017, the Group received grants from local
government bodies in the PRC, which aimed at the technology
development of the Group.
6. Net finance expense
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
Bank interest income |
23,059 |
14,220 |
Interest expense on loans from
non-controlling interests |
(64,690) |
(4,780) |
Interest expense on bank loans |
(226,985) |
(133,127) |
|
(268,616) |
(123,687) |
7. Loss before income tax
Loss before income tax is stated after charging the following
items :-
(a) Staff costs (including directors’
emoluments)
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
Salaries, wages and commission |
9,321,216 |
10,186,056 |
Contributions to defined
contribution retirement plans |
893,779 |
877,054 |
Other staff benefits |
2,496,701 |
3,042,257 |
|
12,711,696 |
14,105,367 |
(b) Other items
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
Amortisation of patents |
92,447 |
265,538 |
Auditor’s remuneration |
298,683 |
335,977 |
Provision of impairment of trade
receivables |
5,750,768 |
- |
Cost of inventories sold (note
17) |
14,648,394 |
19,190,422 |
Depreciation not charged to cost of
sales |
139,287 |
189,086 |
Exchange (gains) / losses, net |
(1,665,315) |
2,260,760 |
Property, plant and equipment
written off |
6,752 |
- |
Loss on disposal of property, plant
and equipment |
- |
2,286 |
Patents written off |
278,922 |
314,022 |
Impairment loss of patents |
- |
766,073 |
Rental charges under operating
leases in respect of |
|
|
land and buildings |
1,022,660 |
841,008 |
8. Income tax expense /
(credit)
|
2018 |
2017 |
|
HK$ |
HK$ |
Current income tax |
|
|
- Thailand corporate income tax |
422,469 |
237,963 |
- Shanghai foreign enterprise income
tax |
- |
141,999 |
|
422,469 |
379,962 |
Adjustments in respect of prior
years |
|
|
- Shanghai foreign enterprise income
tax |
- |
(287,323) |
|
422,469 |
92,639 |
Deferred income tax (Note 24) |
496,655 |
(1,072,500) |
|
919,124 |
(979,861) |
|
|
|
(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 (2017:
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.
Under the two-tiered profits tax rates regime, the first
HK$2 million of profits of the
qualifying group entity will be taxed at 8.25% (2017: 16.5%), and
profits above HK$2 million will be
taxed at 16.5% (2017: 16.5%). The profits of group entities not
qualifying for the two-tiered profits tax rates regime will
continue to be taxed at a flat rate of 16.5% (2017: 16.5%).
However, no provision for Hong
Kong profits tax has been made (2017: Nil) as the Group’s
assessable profit subject to Hong
Kong profits tax for the year is fully set-off by tax loss
brought forward from last year.
Provision for foreign enterprise income tax (“FEIT”) in the
People’s Republic of China (“PRC”)
has been made at 15% (2017: 25%) as Shanghai Walcom Bio-Chem Co.,
Ltd. (“Shanghai Walcom”), a wholly owned subsidiary operating in
Shanghai, has assessable profits
for the year.
Pursuant to the relevant income tax rules and regulations in the
PRC, Shanghai Walcom is granted tax relief whereby the applicable
income tax rate was 15% for the year 2018 (2017: 25%).
Thailand Corporate Income Tax is calculated at 20% (2017: 20%)
of the net profit for the year.
(ii) A reconciliation between the
Group’s income tax expense / (credit) and the accounting loss, at
the applicable tax rate, is set out below:-
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
Loss before income tax |
(8,565,724) |
(4,920,096) |
|
|
|
Notional tax calculated on loss
before income tax, calculated |
|
|
at the rates applicable
to profits in the countries concerned |
(1,215,506) |
(858,046) |
Tax effect of: |
|
|
Expenses not deductible for tax
purpose |
517,308 |
1,614,889 |
Non-taxable revenue |
- |
(8) |
Temporary differences not
recognised |
265 |
572 |
Overprovision in prior years |
- |
(287,323) |
Tax losses not recognised |
1,273,805 |
5,474 |
Previously unrecognised tax losses
used to reduce deferred tax expenses |
- |
(1,072,500) |
Deferred tax expense arising from
the write-down of a deferred tax asset |
496,655 |
- |
Utilisation of previously
unrecognised tax losses |
(153,403) |
(382,919) |
Income tax expense /
(credit) |
919,124 |
(979,861) |
9. Loss attributable to
shareholders
Loss attributable to owners of the Company for the year ended
31 December 2018 dealt with in the
financial statements of the Company was approximately HK$540,000 (2017: HK$239,000).
10. Dividends
The Company does not recommend the payment of any dividend for
the year ended 31 December 2018
(2017: Nil).
11. Losses per share
There is no difference between basic and diluted losses per
share. The basic and diluted losses per share for the year ended
31 December 2018 are calculated by
dividing the Group’s loss attributable to owners of the Group of
HK$10,253,282 (2017: HK$4,341,039) by the weighted average number of
68,834,388 ordinary shares (2017: 68,834,388 ordinary shares). The
computation of diluted losses per share does not assume the
exercise of the Company’s outstanding share options because the
exercise price of the options is higher than the average market
price for the years ended 31 December
2018 and 2017.
12. Segment reporting
(a) Segment reporting
Information reported to the Executive Directors of the Company,
being the chief operating decision makers (“CODM”), for the purpose
of resource allocation and assessment of segment performance
focuses on type of goods delivered.
The executive directors have identified that, the Group has only
one reportable operating segment, which is the manufacture,
distribution and sales of chemical feed additive products. Since
this is the only reportable operating segment of the Group, no
further operating segment analysis thereof is presented.
(b) Geographical information
The following table sets out information about the geographical
location of (i) the group’s revenue from external customers and
(ii) the group’s fixed assets, intangible assets, goodwill and
other current and non-current assets. The geographical location of
customers is based on the location at which the services were
provided or the goods delivered. The geographical location of the
assets is allocated based on the operations of the segment and the
physical location of the asset.
(i)
Sales revenue by geographical location of customers
2018
2017
HK$
HK$
PRC
15,994,416 25,759,215
Thailand
17,012,750 16,854,536
Korea
1,541,592 1,799,741
Others
142,272
74,880
34,691,030 44,488,372
(b) Geographical information
(continued)
(ii) Segment assets by
geographical location of the assets
2018
2017
HK$
HK$
Hong
Kong
868,917 2,499,543
PRC
7,181,498 13,943,939
Thailand
9,738,811 9,613,986
Other Asia-Pacific
countries
24,612
164,232
Europe and United
Kingdom
- 183,478
America and
Canada
-
29,295
17,813,838 26,384,473
(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.
2018
2017
Revenue from major
customers:
HK$
HK$
Sale of chemical feed
additive products
Customer
A
11,505,935 7,458,638
Customer B
5,651,749
6,050,715
Customer C
3,827,167 7,612,493
13. 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 1.1.2017 |
4,451,082 |
1,299,836 |
85,486 |
908,905 |
2,487,255 |
500,191 |
9,732,755 |
Additions |
759,587 |
- |
- |
151,448 |
9,690 |
- |
920,725 |
Disposal |
- |
- |
(7,094) |
(7,804) |
(8,193) |
- |
(23,091) |
Exchange |
|
|
|
|
|
|
|
realignment |
507,950 |
96,473 |
6,552 |
84,372 |
174,269 |
35,066 |
904,682 |
At 31.12.2017 |
5,718,619 |
1,396,309 |
84,944 |
1,136,921 |
2,663,021 |
535,257 |
11,535,071 |
|
|
|
|
|
|
|
|
At 1.1.2018 |
5,718,619 |
1,396,309 |
84,944 |
1,136,921 |
2,663,021 |
535,257 |
11,535,071 |
Additions |
- |
- |
- |
26,366 |
18,672 |
- |
45,038 |
Written off |
- |
- |
- |
(62,468) |
(5,935) |
- |
(68,403) |
Exchange |
|
|
|
|
|
|
|
Realignment |
42,828 |
(54,373) |
(2,724) |
(37,062) |
(122,484) |
(24,619) |
(198,434) |
At 31.12.2018 |
5,761,447 |
1,341,936 |
82,220 |
1,063,757 |
2,553,274 |
510,638 |
11,313,272 |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1.1.2017 |
332,335 |
1,193,580 |
69,833 |
736,637 |
2,186,540 |
381,056 |
4,899,981 |
Charge for |
|
|
|
|
|
|
|
the year |
45,662 |
17,792 |
3,966 |
64,504 |
91,373 |
62,630 |
285,927 |
Eliminated |
|
|
|
|
|
|
|
on disposals |
- |
- |
(6,385) |
(7,023) |
(7,374) |
- |
(20,782) |
Exchange |
|
|
|
|
|
|
|
realignment |
35,535 |
87,728 |
5,459 |
54,078 |
156,505 |
28,978 |
368,283 |
At 31.12.2017 |
413,532 |
1,299,100 |
72,873 |
848,196 |
2,427,044 |
472,664 |
5,533,409 |
|
|
|
|
|
|
|
|
At 1.1.2018 |
413,532 |
1,299,100 |
72,873 |
848,196 |
2,427,044 |
472,664 |
5,533,409 |
Charge for |
|
|
|
|
|
|
|
the year |
47,933 |
18,677 |
3,502 |
63,265 |
66,668 |
9,038 |
209,083 |
Written off |
- |
- |
- |
(56,302) |
(5,349) |
- |
(61,651) |
Exchange |
|
|
|
|
|
|
|
Realignment |
2,778 |
(52,575) |
(2,387) |
(28,003) |
(114,491) |
(22,127) |
(216,805) |
At 31.12.2018 |
464,243 |
1,265,202 |
73,988 |
827,156 |
2,373,872 |
459,575 |
5,464,036 |
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31.12.2018 |
5,297,204 |
76,734 |
8,232 |
236,601 |
179,402 |
51,063 |
5,849,236 |
|
|
|
|
|
|
|
|
At 31.12.2017 |
5,305,087 |
97,209 |
12,071 |
288,725 |
235,977 |
62,593 |
6,001,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2018, the
carrying amount of approximately HK$4,701,870 represented the Group’s interest of
66.67% in the land (2017: HK$4,666,918).
As at 31 December 2018, the land
and building of carrying amount of approximately HK$595,334 was pledged as securities for bank
overdraft (2017: Nil).
14. Patents
|
Group
HK$ |
Cost |
|
|
At 1.1.2017 |
4,610,405 |
|
Patent written off |
(989,146) |
|
At 31.12.2017 |
3,621,259 |
|
Patent written off |
(2,398,359) |
|
|
|
|
At 31.12.2018 |
1,222,900 |
|
|
|
Accumulated amortisation
and impairment |
|
|
|
|
|
|
At 1.1.2017 |
2,796,309 |
|
Charge for the year |
265,538 |
|
Patent written off |
(675,124) |
|
Impairment loss |
766,073 |
|
|
|
|
At 31.12.2017 |
3,152,796 |
|
Charge for the year |
92,447 |
|
Patent written off |
(2,119,437) |
|
At 31.12.2018 |
1,125,806 |
|
|
|
Net book value |
|
|
|
|
|
At 31.12.2018 |
97,094 |
|
|
|
|
At 31.12.2017 |
468,463 |
The remaining amortisation period of the patents ranged from 2
years to 6 years. The amortisation charge is included in selling
and distribution expenses in the consolidated statement of profit
or loss and other comprehensive income.
15.
Goodwill
|
Group
HK$ |
Cost |
|
|
At 31.12.2017 and 31.12.2018 |
127,857 |
|
|
|
Impairment losses |
|
|
At 31.12.2017 and 31.12.2018 |
127,857 |
|
|
|
Net book value |
|
|
|
|
|
At 31.12.2018 |
- |
|
|
|
|
At 31.12.2017 |
- |
16. Investments in subsidiaries
|
Company |
|
2018 |
2017 |
|
HK$ |
HK$ |
Unlisted investment, at cost |
384 |
384 |
Amounts due from
subsidiaries |
|
|
Non-trade related
balances |
33,197,126 |
36,487,626 |
Impairment losses on non-trade
related balances |
(33,197,126) |
(36,487,626) |
(a) The amounts due from subsidiaries are unsecured,
interest-free and have no fixed terms of repayment.
(b) Listed below are the Group’s principal subsidiaries:
|
|
|
Proportion of ownership interest |
|
Name |
Place of incorporation/ business |
Particulars of issued / registered
and fully paid share capital |
Group’s
effective interest |
Held by the
company |
Held by non-
controlling
interests |
Principal activities |
|
|
|
|
|
|
|
Walcom International Limited |
The British Virgin Islands |
4,000,000 ordinary shares of US$1
each |
100% |
100% |
- |
Investment holding
|
Shanghai Walcom
Bio-Chem Co., Ltd. |
The People’s
Republic of China |
US$1,500,000
Registered
Capital |
100% |
- |
- |
Manufacturing
of chemical
feed
additive
products |
Walcom
Bio-Chemicals
Industrial Limited |
Hong Kong |
100 ordinary
shares 10,000 non-voting
deferred shares* |
100% |
- |
- |
Investment
holding and
trading of
chemical feed
additive
products |
Walcom Nutritions
International Limited |
Hong Kong |
2 ordinary shares |
100% |
- |
- |
Investment
holding |
Walcom Bio-Chem
(Thailand)
Company Limited |
Thailand |
100,000 ordinary
shares of
THB 10 each |
55% |
- |
45% |
Trading of
chemical feed
additive
products |
Walcom
Bio-Chemicals
(USA) LLC |
Delaware,
United
States of
America |
US$100
Registered
capital |
100% |
- |
- |
Investment
holding |
Walcom Animal
Science
(I.P) Limited |
Republic of
Mauritius |
1 ordinary share
of US$1 each |
100% |
- |
- |
Holding of
Patents |
Walcom Animal
Science
(I.P.2) Limited |
Republic of
Mauritius |
1 ordinary share
of US$1 each |
100% |
- |
- |
Holding of
Patents |
Walcom Animal
Science
(I.P.3) Limited |
Republic of
Mauritius |
1 ordinary share
of US$1 each |
100% |
- |
- |
Holding of
Patents |
Walcom Animal
Science
(I.P.5) Limited |
Republic of
Mauritius |
1 ordinary share
of US$1 each |
100% |
- |
- |
Holding of
Patents |
The deferred shares, which are not held by the Group, carry
practically no rights to dividends nor to receive notice of nor
attend or vote at any general meeting of the subsidiaries nor to
participate in any distribution or winding up.
17. Inventories
Group
2018
2017
HK$
HK$
Raw
materials
804,065
1,068,157
Finished goods
1,365,801
1,839,110
2,169,866
2,907,267
The cost of inventories sold recognised as expenses and included
in cost of sales amounted to HK$14,648,394 (2017: HK$19,190,422).
18. Trade and other receivables
Group
2018
2017
HK$
HK$
Trade
receivables
8,333,556
11,501,231
Less: provision for
impairment loss
(5,432,550)
(508,758)
Trade receivables –
net
2,901,006
10,992,473
Deposits and
prepayments
939,968
1,019,758
Other
receivables
244,801
77,896
4,085,775
12,090,127
All trade and other receivables are expected to be recovered
within one year. Due to the short-term nature of the current
receivables, their carrying amount is considered to be the same as
their fair value.
(a) Impairment of trade receivables
The movement in the provision for impairment during the year is
as follows:
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
At 1 January
Impairment loss recognised |
508,758
5,750,768 |
508,758
- |
Written off
Exchange difference |
(508,758)
(318,218) |
-
- |
|
|
|
At 31 December |
5,432,550 |
508,758 |
|
|
|
The Group applies the IFRS 9 simplified approach to provide for
expected credit losses which uses a lifetime expected loss
provision for trade receivables.
Information about the impairment of trade receivables and the
Group's exposure to credit risk can be found in note 3(d). The
Group does not hold any collateral over these balances.
As at 31 December 2018, the trade
receivables of HK$5,992,011 (2017:
Nil) were pledged as securities for secured bank borrowings (note
22).
(b) Trade receivables that are not
impaired
Majority of the Group’s revenue are with credit terms ranging
from 30 to 60 days. Ageing analysis of trade receivables that are
neither individually nor collectively considered to be impaired are
as follows:
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
Neither past due nor impaired |
2,879,322 |
5,816,790 |
|
|
|
Less than one month past due |
21,684 |
725,390 |
1 to 4 months past due |
- |
1,579,136 |
Over 4 months past due |
- |
2,871,157 |
|
21,684 |
5,175,683 |
|
2,901,006 |
10,992,473 |
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 provision for impairment 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.
(c) The carrying amounts of trade receivables
are denominated in the following currencies:
|
Group |
|
2018 |
2017 |
|
|
|
Thai Baht |
THB 9,723,500 |
THB 14,229,327 |
Renminbi |
RMB 490,200 |
RMB 6,345,600 |
19. Cash and cash
equivalents
|
Group |
|
2018
HK$ |
2017
HK$ |
|
|
|
Cash at bank and on hand |
4,825,758 |
3,710,427 |
Less: Cash at bank -
restricted |
- |
(116,377) |
Cash and cash
equivalents in the statement of cash flows |
4,825,759 |
3,594,050 |
|
Company |
|
2018
HK$ |
2017
HK$ |
|
|
|
Cash and cash
equivalents in the balance sheet |
25,353 |
25,327 |
Included in the cash and cash equivalents of the Group,
HK$3,250,421 (2017: HK$1,420,165) 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 2018, nil amount
(2017: HK$116,377) denominated in THB
in a saving bank account in Thailand has been pledged to a bank as
security to obtain a facility under a forward exchange
contract.
Included in cash and cash equivalents in the consolidated
balance sheet are the following amounts denominated in a currency
other than the functional currency of the entity to which they
relate:
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
Renminbi
United States dollars |
RMB
US$ |
2,848,550
26,046 |
|
RMB
US$ |
1,187,643
168,649 |
British Pound |
GB£ |
689 |
|
GB£ |
856 |
Thai Baht |
THB |
5,621,425 |
|
THB |
1,362,910 |
20. Trade and other
payables
|
Group |
|
2018
HK$ |
2017
HK$ |
|
|
|
Trade payables |
1,295,639 |
1,238,690 |
Contract
liabilities |
329,062 |
- |
Other payables and
accrued expenses |
5,502,182 |
4,333,171 |
|
7,126,883 |
5,571,861 |
All of the trade and other payables are expected to be settled
within one year.
The carrying amounts of trade payables are denominated in the
following currencies:
|
|
|
|
2018 |
2017 |
|
|
|
Renminbi |
RMB 1,135,239 |
RMB 1,035,421 |
21. Loans from
non-controlling interests
At 31 December 2018, the loans
from non-controlling interests were unsecured and repayable as
follows:
Group
|
2018 |
2017 |
|
HK$ |
HK$ |
Current liabilities |
|
|
Loans from non-controlling interests – unsecured |
481,626 |
478,046 |
Total borrowings |
481,626 |
478,046 |
The maturity of borrowings is as follows:
Group
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
Within 1 year or on
demand |
481,626 |
478,046 |
The effective interest rate per annum for loans from
non-controlling interests at balance sheet date is at 12% (2017:
12%) per annum.
On 28 November 2018, an indirectly
held subsidiary of the Group situated in Thailand has extended borrowings of
HK$481,626 denominated in THB with
maturity of 1 year. The borrowing was unsecured.
22. Bank borrowings
At 31 December 2018, the bank
borrowings were unsecured and repayable as follows:
Group
|
2018 |
2017 |
|
HK$ |
HK$ |
Current liabilities |
|
|
Bank borrowings – unsecured
Bank borrowings – secured |
1,711,938
2,282,584 |
2,392,631
- |
Total borrowings |
3,994,522 |
2,392,631 |
The maturity of borrowings is as follows:
Group
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
Within 1 year or on
demand |
3,994,522 |
2,392,631 |
The effective interest rate per annum for bank borrowings at
balance sheet date is at 6.4% (2017: 5.7%) per annum.
During the 2018 reporting period, the Group fully repaid a bank
borrowing of HK$2,392,631 denominated
in RMB, which was unsecured.
On 12 December 2018, an indirectly
held subsidiary of the Group situated in the PRC has obtained a
bank borrowing of HK$1,711,938
denominated in RMB with maturity of 0.5 year. The bank borrowing
was unsecured.
On 4 May 2018, an indirectly held
subsidiary of the Group situated in the PRC has obtained a bank
borrowing of HK$2,282,584 denominated
in RMB with maturity of 1 year. The bank borrowing was secured by
trade receivables (note 18).
23. Capital and
reserves
(a) Share capital
|
2018 |
2017 |
|
No. of |
|
No. of |
|
|
Shares |
HK$ |
shares |
HK$ |
Authorised: |
|
|
|
|
|
|
|
|
|
Ordinary shares of
HK$0.01 each |
150,000,000 |
1,500,000 |
150,000,000 |
1,500,000 |
|
|
|
|
|
Ordinary shares, issued |
|
|
|
|
and fully paid: |
|
|
|
|
At 1 January and 31
December |
68,834,388 |
688,344 |
68,834,388 |
688,344 |
|
|
|
|
|
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company. All ordinary shares rank
equally with regard to the Company’s residual assets.
(b) Nature and purpose of
reserves
Company
|
|
|
Share |
|
Capital |
|
Accumulated |
|
|
|
|
|
|
premium |
|
reserve |
|
losses |
|
Total |
|
|
|
|
HK$ |
|
HK$ |
|
HK$ |
|
HK$ |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
1.1.2017 |
|
|
95,298,644 |
|
6,410,193 |
|
(102,772,911) |
|
(1,064,074) |
|
Comprehensive
income |
|
|
|
|
|
|
|
|
|
|
Lapse of share options |
|
|
- |
|
(684,771) |
|
684,771 |
|
- |
|
Loss for the year |
|
|
- |
|
- |
|
(238,889) |
|
(238,889) |
|
Balance at
31.12.2017 |
|
|
95,298,644 |
|
5,725,422 |
|
(102,327,029) |
|
(1,302,963) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
1.1.2018 |
|
|
95,298,644 |
|
5,725,422 |
|
(102,327,029) |
|
(1,302,963) |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income |
|
|
|
|
|
|
|
|
|
|
Lapse of share options |
|
|
- |
|
(68,477) |
|
68,477 |
|
- |
|
Loss for the year |
|
|
- |
|
- |
|
(539,565) |
|
(539,565) |
|
Balance at
31.12.2018 |
|
|
95,298,644 |
|
5,656,945 |
|
(102,798,117) |
|
(1,842,528) |
|
|
|
|
|
|
|
|
|
|
|
|
(i) Share premium
The application of the share premium account is governed by the
Memorandum and Articles of the Association of the Company. In
accordance with the Companies Law of the British Virgin Islands, the share premium
account is distributable to the shareholders of the Company
provided that immediately following the date on which the dividend
is proposed to be distributed, the Company will be in a position to
pay off its debts as they fall due in the ordinary course of
business. The share premium may also be distributed in the
form of fully paid bonus shares.
(ii) Merger reserve
The merger reserve arose in the Group reorganisation before
Admission to AIM. There was no movement during the year.
(iii) Exchange reserve
The exchange reserve comprises all foreign exchange differences
arising from the translation of the financial statements of foreign
operations. The reserve is dealt with in accordance with the
accounting policies set out in note 2(u).
(iv) Surplus reserve
Surplus reserve of the Group currently comprises statutory
surplus reserve. In accordance with the laws and regulations in the
PRC, the PRC entities are required to appropriate 10% of their
profit after tax, after offsetting any prior years’ losses, to the
statutory surplus reserve. When the balance of the statutory
surplus reserve reaches 50% of the PRC entities’ registered share
capital, any further appropriation is optional. The statutory
surplus reserve can be used to offset prior years’ losses, if any,
and may be converted into share capital by issuing new shares to
shareholders in proportion to their existing shareholding or by
increasing the par value of the shares currently held by them,
provided that the remaining balance of the statutory surplus
reserve after such issue is not less than 25% of share capital.
(v) Capital reserve of the
Company
The capital reserve comprises the followings:
·
The fair value of the actual or estimated number of unexercised
share options granted to employees of the Group recognised in
accordance with the accounting policy adopted for share-based
payment in note 2(v); and
·
There was HK$4,841,424 balance
brought forward as a result of the Group reorganization in
2004.
(c) Distributability of
reserves
Save as mentioned in note 23(b)(i), no reserves were available
at 31 December 2017 and 2018 for cash
distribution as the Company recorded accumulated losses for the
year.
(d) Capital management
The Group’s primary objectives when managing capital are to
safeguard the Group’s ability to continue as a going concern, so
that it can continue to provide returns for shareholders, by
pricing products and services commensurately with the level of risk
and by securing access to finance at a reasonable cost.
The Group actively and regularly reviews and manages its capital
structure to ensure optimal capital structure and shareholder
returns that might be possible with higher levels of borrowings and
the advantages and security afforded by a sound capital position,
and makes judgements to the capital structure in light of changes
in economic conditions.
Consistent with industry practice, the Group monitors its
capital structure using a gearing ratio, which is total debts
divided by adjusted capital. Total debts represent total bank
overdrafts and borrowings. Adjusted capital includes all
components of shareholders’ equity less unrealised reserves.
In order to maintain or adjust the gearing ratio, the Group may
issue new shares, return capital to shareholders, raise new debt
financing or sell assets to reduce debt.
The gearing at 31 December 2018
and 2017 were 122% and 21% respectively, calculated as follows
:
|
|
2018 |
|
2017 |
|
|
|
HK$ |
|
HK$ |
|
Current liabilities: |
|
|
|
|
|
- Loans from non-controlling
interests |
|
481,626 |
|
478,046 |
|
- Bank borrowings |
|
3,994,522 |
|
2,392,631 |
|
|
|
|
|
|
|
Total debts |
|
4,476,148 |
|
2,870,677 |
|
|
|
|
|
|
|
Owners’ equity |
|
2,753,961 |
|
14,719,862 |
|
Add / (less) : Exchange reserve |
|
917,976 |
|
(794,643) |
|
|
|
|
|
|
|
Adjusted capital |
|
3,671,937 |
|
13,925,219 |
|
|
|
|
|
|
|
Gearing ratio |
|
122% |
|
21% |
|
24. Deferred tax
assets
The analysis of deferred tax assets is as follows:
|
2018 |
2017 |
|
HK$ |
HK$ |
Deferred tax assets: |
|
|
-Deferred income tax
assets to be recovered after more than 12 months |
460,676 |
858,000 |
-Deferred income tax
assets to be recovered within 12 months |
115,169 |
214,500 |
|
575,845 |
1,072,500 |
|
|
|
The movement in deferred income tax assets is as follows:
|
Tax
losses |
|
2018 |
2017 |
|
HK$ |
HK$ |
At 1 January |
1,072,500 |
- |
(Debited) / credited
to the consolidated statement of profit or loss (note 8) |
(496,655) |
1,072,500 |
At 31 December |
575,845 |
1,072,500 |
|
|
|
At 31 December 2018, the Group has
unused tax losses of approximately HK$44,429,000 (2017: HK$45,585,000) available for offset against
future profits. At 31 December 2018,
deferred tax asset of approximately HK$576,000 (2017: HK$1,073,000) has been recognised in respect of
such tax losses. No deferred tax asset has been recognised in
respect of the remaining HK$37,449,000 due to the unpredictability of
future profit streams. The unrecognised tax losses may be carried
forward indefinitely.
25. Share option
scheme
A share option scheme (the “scheme”) was adopted pursuant to a
resolution of an extraordinary general meeting of the Company held
on 20 September 2006 for the purpose
of providing incentives and rewards to any director of any member
of the Group who is in service with any such Company or any
employee of any member of the Group (the “eligible directors and
employees”).
The maximum number of shares in respect of which options or
rights to subscribe for shares pursuant to the scheme when
aggregated with number of shares in respect of which options or
rights to subscribe for shares has been granted in previous years
under the scheme and other share option or share incentive plan
adopted by the Company shall not exceed 10% of the shares issued by
the Company from time to time. An option share shall only be
exercisable (a) after one year from date of grant, (b) before the
expiry of the option period, (c) at a time permitted by the Model
Code for Securities Transactions by Directors of Listed Issuers,
and (d) if any performance conditions imposed pursuant to the
scheme rules have been fulfilled or obtained.
As at 31 December 2018, 1,680,000
ordinary shares options have been granted to directors and
employees of the Company under the Share Option Scheme. During the
year, 150,000 options were lapsed and no other options were
exercised or cancelled.
(a) The terms and conditions of the grants that existed
during the year are as follows, hereby all options are settled by
physical delivery of shares:
Participant |
|
Date of grant |
|
No. of options
outstanding as at 31 December 2018 |
|
Vesting
period |
|
Exercise
period |
|
Exercise
price |
|
|
|
|
|
|
|
|
|
|
|
Options granted to
directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yong Chian Tan |
|
9 June 2010 |
|
500,000 |
|
2 years commencing
from 9 June 2010 |
|
From 9 June 2012 to 8
June 2020 (both days inclusive) |
|
GB£ 0.07 |
|
|
9 June 2010 |
|
500,000 |
|
3 years commencing
from 9 June 2010 |
|
From 9
June 2013 to 8 June 2020 (both days inclusive) |
|
GB£ 0.07 |
|
|
|
|
|
|
|
|
|
|
|
Options granted to
employees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees of the Group |
|
9 June 2010 |
|
340,000 |
|
2 years commencing
from 9 June 2010 |
|
From 9
June 2012 to 8 June 2020 (both days inclusive) |
|
GB£ 0.07 |
|
|
9 June 2010 |
|
340,000 |
|
3 years commencing
from 9 June 2010 |
|
From 9
June 2013 to 8 June 2020 (both days inclusive) |
|
GB£ 0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Fair value of share options
The fair value of the share options granted during the year
ended 31 December 2010 have been
valued by an independent qualified valuer using Binomial Option
Pricing Model.
26. Share award plan
The Company’s share award plan (the “plan”) was adopted pursuant
to a resolution of an extraordinary general meeting of the Company
held on 20 September 2006 for the
purpose of providing incentives or rewards to selected PRC
employees and officers of the Group but
excluding officers of the Company (the “eligible PRC
officers”).
Prior to the Admission to AIM, 433,163 ordinary shares were
transferred to Walcom China Staff Incentive Limited (the “trustee”)
by certain of the then existing shareholders of the Company, to
hold pursuant to the terms of the trust deed applicable to the
plan. These shares are held on trust for the eligible PRC
officers.
The plan shall be valid and effective for a term of ten years
from the date of adoption and it shall be subject to the
administration of a committee delegated from time to time by the
board and the trustee in accordance with the provisions of the
trust deed and plan rules. The term of the plan was extended
for another ten years and the board of directors was empowered to
terminate the plan before its expiry in accordance with the plan
rules. There were 70,163 (2017: 70,163) ordinary shares held by the
trustee at 31 December 2018.
27. Related party
transactions
The management considered the ultimate controlling party since
date of incorporation to 31 December
2018 was Mr. Francis Chi.
|
2018 |
2017 |
|
HK$ |
HK$ |
(a) Transactions with key management
personnel |
|
|
Salaries and other
short term employee benefits |
4,782,453 |
5,608,629 |
(b) Transactions with
non-controlling interests |
|
|
Interest expense |
64,690 |
4,780 |
Balances with related parties are disclosed in the balance sheet
and in note 16.
28. Commitments
(a) Capital
commitments
Capital expenditure contracted for at the balance sheet date but
not yet incurred is as follows:
|
2018 |
2017 |
|
HK$ |
HK$ |
Contracted for |
6,956 |
- |
(b) Operating
lease
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:
|
2018 |
2017 |
|
HK$ |
HK$ |
Within one year |
1,497,844 |
1,561,711 |
In the second to fifth years
inclusive |
- |
- |
|
1,497,844 |
1,561,711 |
29. Reconciliations of
liabilities arising from financing activities
|
Other assets |
Liabilities from
financing activities |
|
|
|
|
|
|
|
Restricted
bank balances
(Current) |
Loans from
non-controlling interests
(Current) |
Bank
Borrowings
(Current) |
Total |
|
HK$ |
HK$ |
HK$ |
HK$ |
|
|
|
|
|
As at 1 January 2017 |
105,210 |
- |
(2,235,886) |
(2,130,676) |
Inflow from financing
activities |
- |
(478,046) |
(2,392,631) |
(2,870,677) |
Outflow from financing
activities |
424 |
- |
2,392,631 |
2,393,055 |
Currency translations |
10,473 |
- |
(156,745) |
(146,002) |
As at 31 December 2017 |
116,377 |
(478,046) |
(2,392,631) |
(2,754,300) |
|
|
|
|
|
As at 1 January 2018 |
116,377 |
(478,046) |
(2,392,631) |
(2,754,300) |
Inflow from financing
activities |
(117,249) |
- |
(3,994,522) |
(4,111,771) |
Outflow from financing
activities |
- |
- |
2,282,584 |
2,282,584 |
Currency translations |
872 |
(3,580) |
110,047 |
107,339 |
As at 31 December 2018 |
- |
(481,626) |
(3,994,522) |
(4,476,148) |
30. Critical accounting
estimates and judgements
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities with the next
financial year are discussed below.
(a) Patents
The carrying amount of patents representing mainly legal costs
for application of patents in respect of the various uses of
formulation of cysteamine in various regions is HK$97,094 (2017: HK$468,463). The Group carried an
impairment test based on a variety of assumptions of the
possibilities that the pending patents could be circumvented and
concluded that no impairment was required. Should the pending
patents be circumvented, for example by an alternative formulation
of cysteamine, then an impairment might arise and could have
significant effect on the carrying amount of the patents stated at
the balance sheet date.
(b) Depreciation
The measurement determines the estimated useful lives and
residual values for its property, plant and equipment. Property,
plant and equipment are depreciated on a straight-line basis over
the estimated useful lives. The Group reviews annually the
useful life of an asset and its residual value, if any. The
depreciation expense for future periods is revised if there are
significant changes from previous estimation.
(c) Impairments
In considering the impairment loss that may be required for
certain property, plant and equipment, investments in subsidiaries
of the Group, recoverable amount of the asset needs to be
determined. The recoverable amount is the greater of the net
selling price and the value in use. It is difficult to
precisely estimate selling price because quoted market prices for
these assets may not be readily available. In determining the
value in use, expected cash flows generated by the asset are
discounted to their present value, which requires significant
judgement relating to items such as level of turnover and amount of
operating costs. The Group uses all readily available
information in determining an amount that is reasonable
approximation of recoverable amount, including estimates based on
reasonable and supportable assumptions and projections of items
such as turnover and operating costs.
For trade receivables (excluding non-financial assets), the
Group applies the simplified approach to provide for expected
credit losses as prescribed by IFRS 9, which requires the use of
the lifetime expected loss allowance for all trade receivables
(excluding non-financial assets). Management performed periodic
assessment on the recoverability of the trade receivables and the
sufficiency of provision for impairment based on information
including credit profile of different customers, ageing of the
trade receivables, historical settlement records, subsequent
settlement status, expected timing and amount of realisation of
outstanding balances, and on-going trading relationships with the
relevant customers. Management also considered forward-looking
information that may impact the customers’ ability to repay the
outstanding balances in order to estimate the expected credit
losses for the impairment assessment.
An increase or decrease in the above impairment loss would
affect the net loss in the year and in future years.
(d) Income taxes
Determining income tax provisions involves judgement on the
future tax treatment of certain transactions and interpretation of
tax rules. The Group carefully evaluates tax implications of
transactions and tax provisions are set up accordingly. The
tax treatment of such transactions is reconsidered periodically to
take into account all changes in tax legislation.
Deferred tax assets are recognised for tax losses not yet used
and temporary deduction differences. As those deferred tax
assets can only be recognised to the extent that it is probable
that future profit will be available against which the unused tax
credit can be utilised, management’s judgement is required to
assess the probability of future taxable profits.
Management’s assessment is constantly reviewed and additional
deferred tax assets are recognised if it becomes probable that
future taxable profits will allow the deferred tax asset to be
recovered.
(e) Inventory
provision
The Group performs regular reviews of the carrying amounts of
inventories with reference to aged inventories analyses,
projections of expected future saleability of goods and management
experience and judgement. Based on this review, write-down of
inventories will be made when the carrying amounts of inventories
decline below their estimated net realisable value. Due to
changes in customers’ performance, actual saleability of goods may
be different from estimation and profit or loss could be affected
by differences in this estimation.
31. Reconciliation of
loss before income tax to EBITDA
|
2018 |
2017 |
|
HK$ |
HK$ |
|
|
|
Loss before income tax |
(8,565,724) |
(4,920,096) |
Depreciation |
209,083 |
285,927 |
Amortisation of patents |
92,447 |
265,538 |
Interest income |
(23,059) |
(14,220) |
Interest expenses |
291,675 |
137,907 |
Patents written off |
278,922 |
314,022 |
Impairment loss of
patents
Provision of impairment of trade receivables |
-
5,750,768 |
766,073
- |
Property, plant and equipment
written off |
6,752 |
- |
Loss on disposal of property, plant
and equipment |
- |
2,286 |
EBITDA |
(1,959,136) |
(3,162,563) |
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.
32. Events after the
balance sheet date
On 20 March 2019, the Group
disposed of an indirectly held subsidiary, Walcom Bio-Chem
(Thailand) Company Limited, to
non-controlling interests at a consideration of THB16,500,000 (approximately HK$4,100,000).