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FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2018

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STATEMENT OF PROFIT OR LOSS FOR THE FOURTH QUARTER AND FINANCIAL YEAR ENDED 31 DECEMBER 2018


STATEMENT OF COMPREHENSIVE INCOME FOR THE FOURTH QUARTER AND FINANCIAL YEAR ENDED 31 DECEMBER 2018


STATEMENTS OF FINANCIAL POSITION

REVIEW OF GROUP PERFORMANCE

Revenue

Financial year 2018 vs financial year 2017

For the year ended 31 December 2018, the fish and accessories activities continued to be our core business segments, which together accounted for approximately 86.0% of the total revenue. Our overall revenue registered of $85.7 million in FY 2018 was approximately $2.1 million or 2.5% lower than that reported in FY 2017.

On a geographical basis, revenue from Singapore grew by approximately 3.3% while revenue from overseas dipped by approximately 4.7% in FY 2018 as compared to FY 2017.

4Q 2018 vs 4Q 2017

Although the revenue from our plastics activities recorded growth in the 4th quarter of 2018, the reduction in revenue contribution from the fish and accessories segments has resulted in a decrease in our overall revenue registered in the current quarter as compared to its corresponding period in 2017.

Fish

With the sales generated from our newly incorporated subsidiaries in the Hainan Province (China), which deal in the farming of antibiotic-free edible fish, as well as our continuous 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, it has given rise to a positive growth in our fish revenue contribution. The improvement, however, was offset by the intense price competition from the sales of Dragon Fish since the beginning of the year, which has resulted in a continuous decline in its selling price, albeit our concerted marketing efforts to sell more quantity of these fish. This has, to some extent, affected the overall fish revenue contribution in current quarter as compared to its corresponding period in 2017.

Accessories

With our accessories business being more export-oriented, we managed to leverage on our Group’s existing overseas distribution bases & network and the infrastructure available to explore more untapped markets with growth potential. Nonetheless, we saw a dip in revenue contribution from our accessories business by approximately $0.6 million or 6.3% in the current quarter as compared to its corresponding period in 2017. This was mainly a result of the disposal of our subsidiary in Shanghai during the 4th quarter of 2018, with the intention to consolidate and to streamline the Group’s accessories operations in China, so as to trim down operating costs and work towards a more efficient and effective inventory management and logistic system.

Plastics

With the enlarged customer base and the sales of more varieties of plastic products, the revenue contribution from our plastic activities managed to register a steady increase of approximately $0.4 million or 15.3% in the 4th quarter of 2018 as compared to its corresponding period in 2017.

4Q 2018 vs 3Q 2018

Although our accessories and plastics activities registered stable revenue in the 4th quarter of 2018 as compared to its previous quarter, the slide in our fish revenue has resulted in the decrease in overall revenue by approximately $0.7 million or 3.6% from approximately $21.4 million in the 3rd quarter of 2018 to $20.7 million in the 4th quarter of 2018.

Fish

Our fish revenue included sales generated from our newly-incorporated subsidiary in Hainan Province, China, which farms antibiotic-free edible fish. As the operation cycle (involving the purchase of edible fish fries and growing them to marketable fingerlings) typically takes place from March to September, the sales derived from this business activity is usually marginal in the 4th quarter of the year, resulting in a dip in revenue contribution in the current quarter as compared to the previous quarter.

In addition, the continuous decline in the selling price of the Dragon Fish as mentioned above had, to some extent, affected the overall fish revenue contribution in the current quarter.

Accessories

Revenue from accessories business remained relatively consistent in the current quarter, comparable to that of the previous quarter.

Plastics

Revenue from plastics activities continued its growth momentum into the 4th quarter of 2018. Our plastic business segment registered an improvement in revenue of approximately $0.2 million or 6.8% over the previous quarter, mainly due to an enlarged customer base and the sales of more varieties of plastic products as mentioned above.

Profitability

Financial year 2018 vs financial year 2017

Notwithstanding the lower revenue contribution, our operating profit held steady at approximately $0.8 million in FY 2018 as compared to FY 2017, mainly due to the improvement in profit generated from our core business segments.

4Q 2018 vs 4Q 2017

Fish

The reduction in profitability from the fish business in the current quarter of approximately $0.2 million or 71.2% as compared to its corresponding period in 2017 was mainly due to the considerable lower revenue registered, coupled with the swift and continuous decline in the selling price from the Dragon Fish business. The gradual increase in overall operational costs and our unwavering efforts made to retain our market share had also sliced off some profitability, which had since been reduced by the eroded margins from these fish.

Accessories

Despite the lower revenue contribution in the 4th quarter of 2018, the better profit yielded from our accessories activities in the current quarter was primarily due to our conscientious efforts made to capture more markets through the selling of more proprietary brand of innovative products with better margins.

Plastics

While we took in higher revenue from the plastic business in the current quarter, its profitability was affected by the gradual increase in overall operational costs as compared to its corresponding period in 2017.

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.

4Q 2018 vs 3Q 2018

Fish

The decline in profitability from our fish business in 4th quarter of 2018 as compared to the previous quarter was in line with the lower revenue contribution mainly from our edible fish business due to reasons as mentioned earlier. In addition, the fixed operating costs incurred in relation to the Dragon Fish business during the current quarter, despite its low profit margins resulting from the continuous decline in the selling price, has constituted to the dip in profitability.

Accessories

The relatively consistent revenue registered by the accessories business in both quarters gave rise to the comparable profit registered quarter-on-quarter.

Plastics

The higher revenue registered by the plastic business in the current quarter, coupled with the difference in sales mix recorded in both periods, had given rise to the improvement in profit contribution from the 3rd quarter to the 4th quarter of 2018.

VARIANCE FROM PROSPECT STATEMENT

There is no variance from the previous prospect statement.

PROSPECTS

To be the world’s Number 1 ornamental fish exporter

Ornamental fish will continue to be an important core business activity of our Group. Currently, we export ornamental fish to more than 80 cities and countries around the world from our export hubs in Singapore, Malaysia, Thailand, Indonesia and China. As Singapore, Malaysia, Thailand and Indonesia supply in total close to 60% to 70% of the world’s ornamental fish, we believe that Qian Hu is the region’s biggest exporter of ornamental fish, capturing more than 5% of the global market share in terms of ornamental fish export.

Our long-term goal is to gradually increase our global market share to 10% and that we are able to export ornamental fish to more than 100 cities and countries – this will make us the top ornamental fish exporter in the world. While we increase our efforts on expanding our export distribution network to more countries around the world, we will focus on high-growth regions such as the Middle East, Eastern Europe, China and India.



To breed Ornamental Fish of the highest value

Staying abreast of market trends that favour albino variants of the Asian Arowana, we have leveraged on our expertise in genetic breeding of unique Dragon Fish to expand our product offerings to take advantage of market demands.

We have since started the breeding of Albino Silver Arowana which, incidentally, are more productive than the Golden and Red Arowana varieties. Our expertise and experience in the breeding of these albino varieties has put us in a competitive advantage. Moving ahead, we intend to develop a whole new range of ornamental fish that are albino. We are collaborating with a team of researchers to develop this new genomic technology. We envisage that these new initiatives, which will gain pace in FY 2019, will improve the profitability of our ornamental fish business in the years to come.



To establish our “Ocean Free” and “OF” brands as the most recognisable among aquarium accessories brands in Asia

We will focus on building our “Ocean Free” and “OF” brands - the growth drivers for our accessories business segment. Our target is to expand our accessories business to more than 60 cities and countries. The premium brands for aquarium accessories, “Ocean Free” and “OF” continue to develop an exciting pipeline of innovative, proprietary products such as cutting-edge filtration and sterilisation systems as well as a wide range of new-generation aquarium accessories using our HYDROPURE technology, such as our latest HYDRA Filtron canister depurators. In addition, we have an early mover advantage with regard to fish nutrition – developing high quality, proprietary formulas that bring out the best in fish.



To be an innovative technology company

R&D remains a critical capability to drive innovation and product development throughout the Group. Our latest efforts have culminated in cutting-edge accessories, such as our latest HYDRA Filtron canister depurators that are powered by our cutting-edge HYDROPURE filtration technology; the “Revoreef” series of marine aquarium accessories, as well as our innovative fish feeds. Meanwhile, our Multi-Tier Automated Water Recirculation Tank Holding System is being replicated in our other export hubs located in Malaysia, Thailand and China, following the successful implementation of the automated system in our Singapore operations. This system has enabled us to reduce water usage while increasing fish handling capacity by as much as 50%. By utilising the same number of workers, we are able to raise productivity significantly. We are also on track for the development of a fish counting device that will monitor our fish inventory more efficiently and expediently.

Jumping on the e-commerce bandwagon to open new marketing channels, we have launched our online flagship store on the T-Mall (天猫) platform in China, which has been seeing healthy orders. We believe that our e-commerce strategy will continue to enhance our brand positioning and accessibility, as well as reinforce our quality assurance to customers.

To produce antibiotic-free, sustainable edible fish for the benefit of our consumers and the environment

Leveraging on our proprietary HYDROPURE filtration technology, and our know-how in fish nutrition and antibiotic-free herbal medication, we have, in FY 2017, successfully commenced operations of our first edible fish farm in the Hainan Province, China – farming and constantly delivering antibiotic-free groupers fingerlings in the Hainan region.

We are also teaming up with researchers in developing yeast-based fish nutrition to boost the immune system of seafood products. With this latest development in fish nutrition, our Group has, in November 2017, incorporated another company in Hainan, Tian Tian Fisheries (Hainan) Co., Ltd, to farm lobsters. This newly set-up company, which is 60% owned by the Group, will also be exporting edible fish/seafood from Hainan to the Southeast Asia and importing edible fish/seafood from the rest of the world into China.

In the longer-term, it is our intention to become a fully-integrated aquaculture farm that is able to capture the entire value chain of edible fish/seafood from breeding to farming to the table. Currently, we are farming only the fingerlings of edible fish to various marketable sizes. Eventually, we expect to possess brooder stocks of edible fish/seafood for breeding purposes, so that we can build and expand our product offerings to capture additional selling points throughout the product cycle.

By focusing on technology, innovation and quality, Qian Hu aspires to be the industry’s most value-adding and productive provider of edible fish, ornamental fish and accessories. We also plan to green-label our seafood products, so as to effectively and efficiently reach out to regional and international markets that are increasingly environmentally conscious.

We are confident about the prospects of the edible fish business. By putting in ample effort to execute it correctly, we believe that this business would be many times bigger than our ornamental fish business. We envisage the new aquaculture business to contribute positively to our Group’s results in FY 2019.

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. Over the years, we have shown ourselves to be resilient, sparing no effort to transform ourselves so as to stay ahead of the competition and to strengthen our business fundamentals. We will continue to focus on innovation to expand our pipeline of compelling products particularly in the areas of filtration, fish nutrition and genetic breeding of unique Dragon Fish, as well as the sustainable farming of edible fish/seafood for the China consumer market. These initiatives will continue to position us favourably as we move ahead to achieve our vision of being the world’s largest ornamental fish company.

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