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Extracted from Annual Report 2016

Dear bosses,

In the last few years, we have taken some important steps in our strategy. We spoke to you about building our innovative edge and moving into automation to bring us forward into the future, and also outlined our strategy to continuously launch new exciting accessories to add to our product arsenal. And we have been working very hard on both fronts to show you sustainable results!

First of all, our lease at the Singapore fish farm has been successfully granted a further 10-year lease until 11 November, 2026. This will allow us to continue our momentum towards innovation at the farm. Already, the successful implementation of our Multi-Tier Automated Water Recirculation Tank Holding System – in our export hubs located in Singapore, Malaysia, Thailand, and China – has worked wonders to improve productivity at our fish farms in the region. We have enjoyed a 50% increase in fish capacity while utilising the same number of workers, which raised our productivity.

At the same time, this system enabled us to reduce our footprint on the environment with less water required. We are also on track for the development of our fish counting device, designed to further improve our inventory monitoring efficiency.

Meanwhile, the positive feedback behind our proprietary Hydro-Pure Technology has been very encouraging across our markets, and we have lined up new Hydra products across both freshwater and marine accessories segments as well.

We also took critical steps towards the online market in the last year - in late 2015, we started our Qian Hu online flagship store on the popular T-Mall platform in China, which has been seeing healthy orders. In the coming year, we will also be looking to launch our proprietary online e-commerce platform built to support our Chinese retailers.

As the proliferation of mobile devices continues to drive online shopping and buying behavior in China, we believe such online platforms will offer a consistent approach to the branding, marketing and pricing of our products. With a Qian Hubranded e-shop, our customers will have the assurance they are getting authentic, quality Qian Hu products at competitive prices.

BUILDING OUR BRANDS

Our brands form the heartbeat of Qian Hu, and our brand strength will be critical in paving the way even in tough times. So, this year, we added a new dimension to our strategy through a brand building exercise.

Over a period of 10 months, we embarked on a journey of discovery to find out how our brands and our products are perceived. We believe that change starts from within ourselves, so we wanted to make sure that our research would cover not just market sentiment, but also our internal employee feedback. This would give us an important key inside-out perspective that allows us to identify and address any underlying issues in the house.

MAKING OUR MARK

After concluding the research, we were heartened to realise that the Qian Hu brand has indeed grown from strength to strength across our key Asian markets. As a heritage brand, we are known for being a pioneer and leader in the aquatic business.

Our retailers and consumers hold our brands and products in high regard, and we enjoy good brand standing in the market due to a few key factors: our ongoing quest for innovation and creativity, how we constantly reinvent ourselves to meet consumers’ needs, and the proven track record of the quality of our products.

In particular, our brands – such as OF and Ocean Free, renowned for premium quality products such as fish food, tanks, and medication; as well as Hydra, our range of depurating products – have constantly raised the bar for aquarium accessories.

Of course, there will be areas that we need to work on. For instance, we are looking at the feasibility of localised packaging for different markets, refreshing some our older packaging or logos, and exploring new sales channels. These are the aspects that we will be tackling as a Group in the coming year and beyond in order to bolster our brand offerings.

Ultimately, we recognise that we are living in a world today where consumers want to have their say in a brand, and we want to work to deliver the most meaningful and personal experience possible.

DRIVING INNOVATION

We have been busy creating more innovative products this year, lining up a host of new accessories such as the latest Hydra Filtron canister filters powered by our revolutionary Hydro-Pure Technology, and working on the first-ever OF water pumps.

At the same time, we expanded our electrical accessories range with new pump and lighting accessories under our Aqua Zonic brand. Our InstaFresh canned fish feed series is also enjoying immense popularity, as we continue to grow the range. Meanwhile, RevoReef, our marine products brand, is gaining momentum with new tank additions and accessories.

In our 2017 strategy outlined on page 32, we have identified aquaculture or the business of rearing edible fish as one of our upcoming business focuses, and I am happy to report that we are on track to develop and grow this business segment. In December 2016, we have incorporated a 51%-owned subsidiary, Qian Hu Aquaculture (Hainan) Co., Ltd, with a registered capital of RMB 6 million (approximately $1.2 million).

Dealing mainly in the farming of antibiotic-free edible fish, such as groupers, in Hainan Province, China, the newly set up company will operate an edible fish farm occupying a land area of approximately 0.4 hectares with a lease tenure of approximately 16.5 years. The farm is expected to yield a variety of edible fish, primarily for the China market.

We are very excited about the prospects of the aquaculture business. If we are able to execute it correctly, this business will be many times bigger than our ornamental fish, and we expect this new aquaculture business to contribute positively to the Group’s results as early as FY 2018. Part of our R&D efforts moving forward will therefore also be focused on aquaculture-related areas.

WHAT LIES AHEAD

As global growth continues to slow, coupled with a weaker Chinese economy and the prolonged debt crisis in Europe, we are braced for yet another challenging year ahead. We expect the operating environment for Qian Hu to remain bearish amid these difficult conditions, but we will continue to evolve purposefully as a company in this volatile economy.

We will take stock of our brands, and leverage our brand strength to extend our competitive advantage as we continue to strive to be the Asian aquarium accessories provider of choice in the region. Guided by our spirit of innovation and resilience, we will remain focused on our business fundamentals and technology development. Meanwhile, we want to continue to build a strong pipeline of compelling products for our customers that are designed to meet their needs.

We will also spend our efforts on cuttingedge developments in our Hydro-Pure technology and our Hydra series of depurating products, fish nutrition, as well as genetic breeding of unique Dragon Fish. As we look to introduce our branded online platform for selling in China moving forward, we will be able to better control our pricing, inventory, and branding efforts. We may also look to replicate this model in other markets when the timing is right.

As we close the financial year, I would like to thank you for your unwavering support and belief in our journey, and I look forward to seeing you at our Annual General Meeting.


Kenny The Fish
Executive Chairman & Managing Director