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INTERIM FINANCIAL INFORMATION FOR THE SECOND HALF AND FINANCIAL YEAR ENDED 31 DECEMBER 2023

Financials Archive

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE SECOND HALF AND FINANCIAL YEAR ENDED 31 DECEMBER 2023


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SECOND HALF AND FINANCIAL YEAR ENDED 31 DECEMBER 2023


STATEMENTS OF FINANCIAL POSITION

REVIEW OF GROUP PERFORMANCE

Consolidated Statement of Profit or Loss

Revenue by business segment

Financial Year 2023 vs Financial Year 2022

For the year ended 31 December 2023 (“FY 2023”), our fish and accessories activities continued to be the core business segments, which together accounted for 88.6% of the total revenue. The overall revenue registered of $70.3 million in FY 2023 was approximately $5.0 million or 6.6% lower than that reported in FY 2022. The reduction in revenue contribution from both the fish and accessories segments have resulted in a decrease in the Group’s overall revenue.

On a geographical basis, revenue from Singapore and overseas dipped by approximately 0.4% and 10.0% respectively in FY 2023 as compared to FY 2022.

6 months ended 31 December 2022 vs 6 months ended 31 December 2022

Fish

On the ornamental fish front, the on-going trade tensions and geopolitical landscape continued to affect our fish exports and dampen the purchasing sentiments of our customers to a certain extent. These have resulted in a relatively lower revenue reported during 2nd half of 2023 as compared to its corresponding period in 2022.

Nonetheless, our aquaculture business, revolving around our farms in the Hainan Province in China, saw a recuperation of revenue with a stable flow of customers’ orders. This has alleviated the impact of the reduction in revenue contribution from the export of ornamental fish as mentioned above.

Although the above has given rise to a decline in revenue contribution from our fish segment by $1.2 million or 8.2% in the current financial period as compared to its corresponding period in 2022, we will continue our efforts to increase our export of ornamental fish by diversifying to more customers and more countries around the world from our export hubs in Singapore, Malaysia, Thailand and Indonesia.

Accessories

The revenue contribution from our accessories business has since stabilised in the current financial period as compared to its corresponding period in 2022. We will persist to leverage on the Group’s existing distribution bases, network and infrastructure available to explore more untapped markets and focus on selling more of our proprietary brand of innovative products.

Plastics

Our plastics activities registered a flat growth in the current financial period as compared its corresponding period in 2022. We managed to stabilise our customer base, focusing on generating revenue through selling products with sustainable margins, such as essential items used to enhance hygiene protocols for the healthcare and waste management sectors, as well as the hospitality segment.

Other income mainly consists of handling income derived from the handling of transhipments in relation to our aquaculture business. The decrease in handling income was in tandem with the decrease in aquaculture business activities during the current financial year.

Other expenses relate to loss on biological assets (brooder stocks) amounting to approximately $7.4 million, which arose from the disposal of a substantial portion of brooder stocks following the Group’s strategic decision to reduce its efforts in the breeding of dragon fish during the financial year.

Despite the dip in revenue contribution, the selling and distribution expenses stood at approximately $1.3 million and $2.5 million in the 2nd half of 2023 and for the financial year ended 31 December 2023 respectively, comparable to the corresponding periods in 2022. This was due to more marketing and promotion activities undertaken by the Group, coupled with the rising business costs during the current financial year.

Included in the general and administrative expenses was an allowance for obsolete and slowmoving inventory of approximately $1.5 million which arose from an inventory profiling and assessment exercise undertaken by the Group to streamline and optimise its inventory holding. The analysis assists in ensuring an appropriate balance between having sufficient inventory to meet demand and minimising the costs associated with carrying excess inventory.

Notwithstanding the broad-spectrum increase in operating costs as a result of elevated inflationary pressure, the overall general and administrative expenses (exclude allowance made for obsolete and slow-moving inventory) remained relatively stable at approximately $12 million and $24 million in the 2nd half of 2023 and for the financial year ended 31 December 2023 respectively as compared to its corresponding periods in 2022, as the increases were offset by lower depreciation charge and lower staff bonus provision made during the current financial year.

The impairment losses on trade receivables were derived at by ascertaining the amount of expected credit losses that would result from all possible default events over the expected life of these receivables during both periods, which was in compliance with SFRS(I) 9 Financial Instruments.

The increase in finance costs by approximately $0.1 million or 28.2% for the financial year ended 31 December 2023 was mainly due to the increase in interest expenses on bank borrowings, following the rising interest rates charged by the financial institutions, despite lower outstanding amounts during the current financial period. The increase was mitigated by an increase in finance income by a comparable amount, resulting in an overall marginal reduction in net finance costs of 2.1% as compared to the corresponding period in 2022.

The Group incurred losses for the financial year ended 31 December 2023. The current tax expense was mainly in relation to the operating profits registered by the profitable entities.

The effective tax rate registered for the year ended 31 December 2022 was lower than the amount obtained by applying the statutory tax rate of 17% on profit before tax mainly due to the utilisation of tax credits during that financial year.

Profit before tax by business segment

Financial Year 2023 vs Financial Year 2022

The significant plunge in profit contribution from the fish business due to the slide in revenue contribution has resulted in a marginal operating loss in FY 2023.

6 months ended 31 December 2023 vs 6 months ended 31 December 2022

Fish

The decline in profitability from our fish business by approximately $1.0 million in the 2nd half of 2023, as compared to its corresponding period in 2022, was in line with the reduction in revenue contribution during the current financial period.

Accessories

Notwithstanding a marginal increase in revenue contribution, the operating profit from our accessories business declined by approximately $0.1 million in the 2nd half of 2023 as compared to the corresponding period in 2022. This was mainly due to our continuous efforts made to capture more sales, which eroded the profit margins of our accessories business in the current financial period.

Plastics

Despite the marginal dip in revenue registered in the 2nd half of 2023, the profit generated from the plastic activities improved noticeably by approximately $0.2 million or 46.0% as compared to its corresponding period in 2022, mainly due to better margins yielded and the difference in sales mix recorded in both periods.

Unallocated corporate expenses

These were staff costs and corporate/administrative expenses incurred in relation to the overseeing of both the Group’s local and overseas operations. The lower unallocated corporate expenses incurred in the 2nd half of 2023 as compared to its corresponding period in 2022 was mainly attributed to the recognition of a fair value gain on financial assets amounting to approximately $0.3 million based on its valuation as at 31 December 2023.

Loss on biological assets

Loss on biological assets amounting to approximately $7.4 million resulted from disposing a substantial portion of brooder stocks following the Group’s strategic decision to reduce its efforts in the breeding of dragon fish. This is so as to free up resources and repurpose the existing earthen ponds to explore new business activities that would generate better value for the Group.

Allowance for inventory obsolescence

During the current financial year, there was an allowance for obsolete and slow-moving inventory of approximately $1.5 million which arose from an inventory profiling and assessment exercise undertaken by the Group to streamline and optimise its inventory holding. The analysis assists in ensuring an appropriate balance between having sufficient inventory to meet demand and minimising the costs associated with carrying excess inventory.

Consolidated Statement of Financial Position

Total assets (Group) as at 31 December 2023 were $58.9 million, decreased by approximately $13.5 million from $72.4 million as at 31 December 2022.

The reduction was due to –

  • decrease in biological assets, namely brooder stocks and breeder stocks, by $7.5 million and $0.2 million respectively. This is a result of the Group’s strategic decision to reduce its efforts in the breeding of dragon fish.
  • decrease in inventory by $3.0 million arising from the continuous review carried out to streamline our inventory management process so as to better and effectively manage our inventory holding.
  • decrease in cash and cash equivalents of approximately $4.6 million of which $4.0 million was utilised for the repayment of bank borrowings during the current financial year.
  • The above decreases were partially offset by –

  • increase in property, plant and equipment by approximately $0.3 million as a result of capital expenditure incurred in relation to the purchase of equipment and ongoing enhancements made to the farm and other facilities in Singapore and overseas, as well as the recognition of additional right-ofuse (ROU) assets in accordance with the Singapore Financial Reporting Standards (International) (“SFRS(I)”) 16 Leases, despite having depreciation charge during the financial period.
  • increase in financial assets at fair value through profit and loss amounting to approximately $0.3 million, based on its valuation as at 31 December 2023.
  • increase in trade and other receivables amounting to $1.3 million which consisted of $0.9 million of deposit made for the purchase of property, plant and equipment.

Total liabilities (Group) as at 31 December 2023 were $17.2 million, decreased by approximately $3.6 million from $20.8 million as at 31 December 2022.

The reduction was due to –

  • decrease in loans and borrowings by approximately $2.9 million resulting from the repayment of bank borrowings of $4.0 million during the current financial year, partially offset by the increase in lease liabilities upon the recognition of additional ROU assets during the current financial year, despite repayments made on lease liabilities on a monthly basis.
  • decrease in trade and other payables by approximately $0.7 million upon the settlement of nontrade suppliers during the current financial year.

Consolidated Statement of Cash Flows

The decrease in net cash from operating activities for the financial year ended 31 December 2023 as compared to its corresponding period in 2022 was mainly due to losses incurred, coupled with lower amount of trade receivables realised into cash, as well as the prompt settlement of non-trade suppliers, notwithstanding there was reduction in inventory held during the current financial year.

Net cash used in investing activities was mainly related to capital expenditure incurred for the purchase of equipment, as well as ongoing enhancements made to the farm and other facilities in Singapore and overseas.

Net cash used in financing activities was for the settlement of bank loans and lease liabilities, payment of dividend to the non-controlling shareholder of a subsidiary, as well as servicing of the monthly interest payments. In addition, there was payment of dividend made to the shareholders of the Company in April 2023.

VARIANCE FROM PROSPECT STATEMENT

A profit guidance on the financial results of the Group for the financial year ended 31 December 2023 was released via the SGXNET on 28 December 2023. Please refer to the updated and revised prospect statement below.

PROSPECTS

With the peaking of interest rates, the US Federal Reserve is widely expected to taper its rate hikes in Year 2024, thanks to early signs of easing inflation. However, geopolitical tensions such as the RussiaUkraine and Israel-Hamas conflicts, coupled with the recent rebel movement in Yemen, continue to be worrisome as these crises could cause disruptions to our supply chain and keep business costs elevated, which would have an impact on the Group’s short-term profitability.

Against an evolving macroeconomic backdrop fuelled by uncertainties and geopolitical events, the consumer sentiment is expected to remain weak. China’s economy is plagued by decreased exports, a slowing manufacturing sector and a property slump that is weighing down on consumer spending. Our North American and European customers too have taken a conservative stance and held back their procurement as inflation continued to bite while the specter of a global recession loomed in the horizon.

Nonetheless, we envisage that our business segments will continue to perform in Year 2024, amidst a challenging business environment.

Ornamental Fish business

The Group’s ornamental fish business has been affected by the commoditisation of certain mass-market varieties of Asian Arowana (dragon fish). Over the years, these Asian Arowana species have experienced oversaturation and dropping prices, which is unlikely to improve going forward. As such, we have made a pivotal decision to reduce our efforts in dragon fish breeding and accordingly, to dispose of a substantial portion of our brooder stocks in order to free up valuable resources and land space to be redeployed to explore new business activities that would generate better value for the Group. Moving forward, we are still optimistic about the premium Arowana segment and will focus on the production of the higher-value albino varieties of Asian Arowana, as well as to implement new strategies to grow our Arowana trading business.

Meanwhile, we anticipate that the shrinking supply of ornamental fish may also become imminent in coming years, given the consolidation of local fish farms in Singapore and various breeders retiring permanently from the trade. In order to shore up resilience in our ornamental fish supply chains, we are pilot testing an Aqua-Ring Technology (ART) system which is ideal for intensive breeding and farming in Singapore. A standalone land-based system with a minimal footprint, the ART tank is an environmentally friendly integrated energy-efficient system with zero discharge. Its innovative design accommodates both freshwater and marine species and enhances biosecurity by minimising the risk of spreading diseases. We intend to convert the earthen ponds vacated by the Arowana brooder stocks to house this new technology at our Singapore farm to carry out the breeding and farming of certain species of ornamental fish. We expect this innovative technology to yield more fish in a much shorter time and in a more sustainable manner as well.

We recognise that success in breeding ornamental fish is not solely dependent on technology; rather, it hinges on internal expertise, knowledge and insights. We have since taken the opportunity to enhance our skillsets and refine our knowledge in fish breeding in the recent years. Our emphasis is on breeding around 15 types of essential fish varieties, such as guppies and goldfish, with plans for further expansion. We will continue to strengthen our supply capabilities and invest in research and development. This approach ensures that we accumulate sufficient data and expertise on breeding various fish independently.

Aquaculture business

Aquaculture business – Qian Hu’s relatively new growth engine – continues its steady growth as it moves beyond gestation and seeks new intensive farming technologies for food security and climatechange solutions.

We are in the process of setting up a new joint venture in Malaysia to focus on cultivating the highly sought-after Marble Goby fish. This effort aims to replicate the same proven farming practices within our aquaculture facilities in China closer to our customer base. Consumers in Singapore and the broader Southeast Asian region will be able to enjoy a more regular supply of healthy, antibiotic-free Marble Goby fish. In the near future, we are looking to produce other seafood favourites while we expand our pond capacity.

Our collaboration with AquaEasy is gaining traction in the region. We are establishing AquaEasy’s footprint in Malaysia and Thailand through our distribution rights for the AquaEasy’s sustainable aquaculture solutions based on artificial intelligence (AI) and Internet-of-Things (IoT) technology to help farmers increase productivity and predictivity. We are also working with AquaEasy to develop a local version for the China market.

Aquarium and Pet Accessories business

Expanding the Pets Accessories Segment Regionally
In recent years, the dogs, cats and small animals’ segment within the pets industry has been on the uptick. We intend to ride on this rising demand by expanding our pet foods, medications and accessories categories for exports and domestic sales. Over the years, Qian Hu has developed various pet accessories brands, but they have largely been complementary to our mainstay ornamental fish business. We have since expanded in the consumables category for cats such as high-volume cat litter, and we are poised to accelerate our product coverage in this segment.

In time to come, we expect the pet segment to expand further and emerge to be another growth pillar for Qian Hu. We are of the view that Indonesia holds huge potential for pet care given its growing middleclass and increasing disposable income. We are currently in the midst of starting a new pet distribution arm in Indonesia to capitalise on this projected growth.

Focus on own-brands
Our proprietary brands such as “Aristo Cats YIHU” and “Sumo Cat” for cat accessories and “Ocean Free” and “OF” for aquarium fish category have led the growth of our accessories segment, and we strive to increase our reach to more than 60 cities and countries.

Strong R&D capabilities
R&D remains a critical capability to drive innovation and product development throughout the Group. We continue to strive for breakthroughs in developing new varieties of nutritional and aquarium accessories products.

OUTLOOK

The business landscape continues to be challenging, requiring us to be continually innovative, nimble and agile. We believe that we have the right combination of quality products, an innovative and creative mindset, a strategic roadmap and a strong business network that will drive our performance.

Cautiously optimistic that we will be able to overcome the adverse external impacts to our business environment, we will persist on seizing opportunities to nurture new growth segments, developing new capabilities and becoming more competitive while remaining focused on our core strengths and the long-term sustainability of our business.

Over the years, we have shown ourselves to be resilient, sparing no effort to transform ourselves so as to stay ahead of the competition. We had worked on strengthening our balance sheet and business fundamentals, and we will continue to do so. Our priority is to generate healthy cash flows from everything we do while we fix our sight on managing risks. We envisage that Qian Hu is moving towards becoming a debt-free company with higher dividend payout.

Barring unforeseen circumstances, the Group expects to achieve profitability in FY 2024.