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Extracted from Annual Report 2018

Dear Bosses

It gives me great pleasure to report on key successful developments during the year. It has been another exhilarating year for Qian Hu (“or the Group”). In recent years, we had set out the long-term growth strategy for the Group – leveraging on innovation, enhancing automation and launching new products and accessories to remain competitive and ensure sustainability well into the future. While our current ornamental fish business is stable, profitable and still holding growth potential, as an impetus to take us to a new level of growth, we entered into the aquaculture business. In early 2017, we commenced operations of our aquaculture project in Hainan Province, rearing Grouper fingerlings followed by a second aquaculture farm, engaging in the import and export of edible fish and other seafood products in the same region. I am delighted to report that early indications point to the success of both, which is one of the highlights of the year!

Beauty for your eyes, Food for your pleasure – All from Our Heart

We have long been associated with the highest quality of ornamental fish in markets around the world. After painstakingly laying the groundwork and replicating our cutting-edge hydra filtration technology and high quality proprietary fish feed, which had made us leaders in the ornamental fish business, we boldly stepped into the aquaculture sector in 2017 using this knowledge to grow antibiotic-free edible fish. While capture fishery production has remained relatively stable, aquaculture has registered impressive growth in the supply of fish for human consumption. The aquaculture business is estimated to be worth US$176.45 billion and accounted for 47% of the world’s fish as food. This bodes well for our entry into the business, as it signifies the immense growth potential for us, given the ongoing and increasing demand for sustainable, nutrition-dense, environmentally-friendly and safe food. The challenge now is for us to replicate the success we have achieved with our ornamental food and other businesses in this segment. We are confident of our ability to do this, given our promising start.

A Truly “Fishy” Company Making our Successful Leap into Edible Fish

Both our farms have already begun to contribute positively to the Group’s financial performance. In July, we started farming lobster fingerlings. Our second farm, whose actual operations started in June 2018, has begun its export activity, with live products being exported to Singapore, Malaysia, Vietnam and Thailand. Table-sized Marbled Goby are already being exported to Singapore and Malaysia from there. We are in the process of expanding the variety of exported fish such as Golden Pompano and Sand Goby as well as the number of export markets in the region.

Presently, we are focusing on delivering consistent fingerlings at our first farm and engaging in the import and export of edible fish and other seafood items in our second. While our aquaculture business is still in its fledgling stage, we have ambitions to extend our activities to meet the growing demand in the near future. In particular, we will be looking for synergistic tie-ups to extend our involvement in the supply value chain such as in the area of Grouper hatchery. Our plans extend to backward integration of our value chain to the larval, nursery and grow-out culture.

Swimming Further and Beyond

Our eventual goal is to expand our business of sustainable farming of edible fish for the China consumer market and beyond so that over the longer term, the aquaculture business may grow to be the largest revenue contributor to the Group. While this may seem like a tall order, the markers are in place for the realisation of this ambition. The world seas are in danger of being depleted due to overfishing, pollution and other environmental challenges. Simultaneously, world population growth is putting immense pressure on the need for sources of sustainable food. Aquaculture has assumed significant importance in meeting this demand for food. This demand is set to increase given rising incomes and urbanisation. It is estimated that the world will need around 40 million more tons of seafood as early as 2030, with aquaculture projected to be the prime source. It is also anticipated that by that time, the Asia Pacific region will account for approximately 70% of global demand for fish and seafood products.

Furthermore, China, our base for aquaculture, is the world’s largest producer, consumer, importer and exporter of seafood products, accounting for approximately 35% of all global production. We are thus well-placed geographically and operationally to take advantage of this projected demand, operating in key markets in Asia and maintaining a robust distribution network across the globe.

Progressing on All Fronts

While the past year has seen us put much focus on our new aquaculture business, we remained committed to improving and expanding our existing businesses in terms of product range, market reach and value-add to our customers. Innovation and creativity have remained the key differentiating factors in pushing the boundaries of the quality of our products, efficiency and productivity in our operations and environmentally sustainable practices.

The current mainstay of our business, our Ornamental Fish segment, remains robust with our export of ornamental fish from Indonesia growing at a healthy rate. Together with our Singapore, Thailand and Malaysia exports, we are poised to become the world’s foremost exporter in the very near future.

We introduced new products to our accessories business, such as our LED lights for plants under the AquaZonic® range, continuing to meet customers’ needs and remaining relevant in this dynamic marketplace. We are looking into consolidating our operations in China so as to fully integrate the value chain, from R&D all the way to manufacturing and distribution.

Technology as a Game Changer

As always, technology has played a major part in our ability to improve and expand our operations and maintain the high standards of our products. A key technological application this year has been our RAS (Recirculation Aquaculture System) for the recirculation of water for our Hainan farms and our Aquaculture business. We have further reduced our sea water input by using our Hydro-Pure purification technology to treat waste water, which is recirculated and reused. We estimate that we will be able to recirculate 30% of the total water usage, thus saving on water, a major factor in environmental sustainability. We have also started testing our Hydra Prime recirculation system, which will reduce the need to change water within an enclosed tank and we are working towards running a closed system where all the water used will be recycled.

Keeping Watch, Looking Ahead

The world economy is anticipated to weaken in the coming year, as global trade slows, trade and investment moderate and financing conditions tighten. Other downside risks include the ongoing China-US trade dispute, rising trade protectionism and geopolitical tensions. Our domestic economy, driven by macroeconomic factors, will be impacted and it is projected that Singapore’s economy will moderate in 2019 as compared to 2018. Dampened business sentiment may affect the profitability of our Group.

Despite the uncertain outlook, we believe that we have the right combination of quality products, an innovative and creative mindset, a strategic roadmap and strong business networks which will drive our performance. We are optimistic of opportunities ahead that will enable us to keep on an aggressive growth path.

In closing, I would like to thank our Board of Directors, our business partners, our customers and most of all, our shareholders, for your continued support and belief. I look forward to meeting you at our Annual General Meeting.

Kenny The Fish
Executive Chairman & Managing Director