Financial Results

INTERIM FINANCIAL INFORMATION AS AT AND FOR THE HALF YEAR ENDED 30 JUNE 2023

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE HALF YEAR ENDED 30 JUNE 2023

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 30 JUNE 2023

STATEMENTS OF FINANCIAL POSITION

REVIEW OF GROUP PERFORMANCE

Consolidated Statement of Profit or Loss

Revenue by business segment

6 months ended 30 June 2023 vs 6 months ended 30 June 2022

In the 1^st half of 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 in the 1st half of 2023 of $34.3 million was approximately $3.8 million or 9.9% lower than its corresponding period in 2022. Although the revenue from our plastics activities recorded growth, the reduction in revenue contribution from both the fish and accessories segments have resulted in a decrease in the overall revenue.

On a geographical basis, revenue from Singapore grew by 8.2%, while revenue from overseas dipped by 18.8% in the 1^st half of 2023 as compared to its corresponding period in 2022.

On the ornamental fish front, the on-going Russia-Ukraine conflict and the 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 1st 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, which was previously impacted by the extensive reduction in air cargo capacity and flight frequencies amidst the pandemic, saw a recuperation of revenue from this business segment with a stable flow of customers’ orders since the 2^nd half of 2022. 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 an overall marginal decline in the revenue contribution from our fish segment by $0.3 million or 2.0% 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 plunged by approximately $3.5 million or 17.9% in the current financial period as compared to its corresponding period in 2022. Despite our conscientious efforts made to focus on selling more of our proprietary brand of innovative products, our revenue from the accessories export activities was affected by the weakening and conservative purchasing sentiments experienced globally. Our customers grew to be more vigilant in their procurement requirements due to trade disruptions, geopolitical tensions and economic uncertainties during the current period.

Plastics

Revenue from our plastics activities registered stable growth of $0.1 million or 1.8% 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 food and beverage and healthcare sectors.

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

The increase in selling and distribution expenses by $41K or 3.4% in the 1st half of 2023 as compared to its corresponding period in 2022 was in line with more marketing and promotion activities undertaken by the Group following the resumption of business activities around the globe, coupled with the rising business costs during the current financial period.

Notwithstanding the higher personnel expenses due to the increase in headcount and annual salary revision, coupled with a broad-spectrum increase in operating costs as a result of elevated inflationary pressure, the overall general and administrative expenses was approximately $0.4 million or 3.6% lower in the 1st half of 2023 as compared to its corresponding period in 2022, as the increases were offset by reversal of allowance for inventory obsolescence, lower depreciation charge and and lower staff bonus provision made during the current financial period.

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 net finance costs by $51K or 46.5% in the 1st half of 2022 as compared to the corresponding period in 2022 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.

Despite the utilisation of tax credits, the effective tax rate registered in the 1^st half of 2023 was substantially higher than the amount obtained by applying the statutory tax rate of 17% on profit before tax mainly due to losses incurred by some entities which cannot be offset against profits earned by other companies within the Group and the varying statutory tax rates of the different countries in which the Group operates.

The tax expense was mainly in relation to the operating profits registered by the profitable entities within the Group.

Profit before tax by business segment

6 months ended 30 June 2023 vs 6 months ended 30 June 2022

With lower revenue contribution registered, our operating profit in the 1^st half of 2023 decreased by $0.9 million as compared to its corresponding period in 2022. The reduction in profit contribution was mainly from our fish business.

Fish

Despite the marginally lower revenue registered by the fish business, the significant dip in operating profit from this segment in the 1^st half of 2023 as compared to its corresponding period in 2022 was mainly due to the reduction in handling income derived from the handling of transshipments in relation to the aquaculture business during the current financial period.

Accessories

The decrease in operating profit from our accessories business by approximately $0.2 million or 27.3% in the 1^st half of 2023 as compared to its corresponding period in 2022 was in line with the substantial reduction in revenue contribution during the current financial period.

Plastics

With higher revenue registered in the 1^st half of 2023, coupled with better margin yielded, the profitability of the plastics business improved noticeably as compared to its corresponding period in 2022.

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 higher unallocated corporate expenses incurred in the 1^st half of 2023 as compared to its corresponding period in 2022 was mainly due to the increase in corporate headcount, unfavourable foreign currency exchange rates, as well as the escalating finance costs.

Consolidated Statement of Financial Position

Total assets (Group) as at 30 June 2023 were $69.3 million, decreased by approximately $3.1 million from $72.4 million as at 31 December 2022.

The reduction was due to –

• decrease in inventory by $1.0 million as a result of 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 $4.2 million of which $2.5 million was utilised for the repayment of bank borrowings during the current financial period.

The above decreases were partially offset by –

• increase in property, plant and equipment by approximately $0.7 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-of-use (ROU) assets in accordance with the Singapore Financial Reporting Standards (International) (“SFRS(I)”) 16 Leases, despite there was depreciation charge during the financial period.
• increase in trade and other receivables amounting to $1.5 million mainly due to higher sales registered in the month of June as compared to December when sales were generally affected by the year end festive holidays, coupled with more advances made to suppliers for purchases to be delivered in the coming quarters. The trade receivables turnover days has increased from 59 days as at 31 December 2022 to 64 days as at 30 June 2023.

Total liabilities (Group) as at 30 June 2023 were $18.1 million, decreased by approximately $2.7 million from $20.8 million as at 31 December 2022.

The reduction was due to –

• decrease in loans and borrowings by approximately $1.3 million resulting from the repayment of bank borrowings of $2.5 million in the 1^st half 2023, partially offset by the increase in lease liabilities upon the recognition of additional ROU assets during the current financial period, despite repayments made on lease liabilities on a monthly basis.
• decrease in trade and other payables by approximately $1.3 million upon the settlement of non-trade suppliers and accrued operating expenses, as well as the reduction of accrued staff costs as a result of bonus payment made in January 2023.
• decrease in current tax payable by approximately $0.1 million upon the settlement of tax liabilities in the 1st half of 2023.

Consolidated Statement of Cash Flows

The reduction in net cash from operating activities for the six months ended 30 June 2023 as compared to its corresponding period in 2022 was mainly due to substantially lower operating profit registered, coupled with the increase in trade receivables balance which was in line with the higher credit sales generated, as well as the prompt settlement of non-trade suppliers and accrued operating expenses during the current financial period.

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, as well as the servicing of interest payments on a monthly basis. In addition, there was payment of dividend made to the shareholders of the Company in April 2023.

VARIANCE FROM PROSPECT STATEMENT

There is no variance from the previous prospect statement, included in the full year results announcement for the year ended 31 December 2022, released via the SGXNET on 12 January 2023.

PROSPECTS

Moving into the 2nd half of 2023, our Group expects the overall business landscape to remain challenging.

The on-going Russia-Ukraine conflict continued to cast uncertainties which resulted in the reduction in economic activities in Europe which affected our sales to that geographical region. In Asia, China’s reopening has resulted in more airfreight capacity which enabled us to fulfil orders in and out of China. However, China’s economic recovery remained lacklustre and we envisage that it would take some time for China’s economy to return to pre-pandemic levels.

With no end in sight to the US Federal Reserve’s interest rate hikes, inflationary pressures will result in significantly higher business costs, such as increasing inventory costs, rising finance expenses, as well as the surge in energy prices, etc, which could continue to affect the Group’s short-term profitability.

Despite these extremely challenging situations, Qian Hu is resolute in strengthening the Group’s balance sheet, by reducing bank loans, prioritising cash flow and decreasing inventory. We will also focus on building resilience in our core businesses while growing our relatively new aquaculture business, as well as explore opportunities in expanding our seafood trading and the distribution of pets products in Southeast Asia.

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