Aquatic Foods Group PLC Q1 Trading Update (0185Z)

TIDMAFG

RNS Number : 0185Z

Aquatic Foods Group PLC

23 May 2016

 
 Press Release   23 May 2016 
 

Aquatic Foods Group Plc

("Aquatic Foods", the "Company" or the "Group")

Q1 Trading Update

Aquatic Foods Group Plc (AIM: AFG), a leading Chinese marine foods and seafood processor and producer, supplying to export and local markets, today announces the following trading update for the three months ended 31 March 2016.

The problems facing the Chinese economy continue to put pressure upon pricing and in particular the gross margin achieved by the Group on its products, but there is evidence that this has now stabilized with Q1 2016 gross margins being comparable with those achieved in Q4 2015. Revenues were also lower during Q1 2016 compared with Q1 2015 although the volumes processed have increased reflecting a reduction in higher price per kilo products which has contributed to the fall in margins.

Despite these pressures the Group continues to trade profitably and is actively pursuing new sales opportunities.

Highlights:

-- Unaudited aggregate revenues for the Group for Q1 2016 were RMB 214.8 million, (cGBP22.5m), 7% lower compared to the comparable period in 2015.

-- Despite the reduction in revenues, volumes were up by 17% reflecting the continued demand for our products, although at lower average prices.

-- Gross margins remained steady compared with Q4 2015 at 24% overall, although this is lower than the 31% achieved in the comparable period in 2015. Export revenues remained relatively steady at 6% of total sales compared with 7% in the corresponding period in 2015.

-- Unaudited gross profit for Q1 2016 were RMB 52.3 million (cGBP5.5m), 28% lower than the RMB 72.6 million achieved in Q1 2015.

-- US $850,000 purchase contract signed with Peterhead based Northbay Pelagic for 615 metric tonnes of Atlantic Mackerel to satisfy increasing demand within the local Chinese market for UK fish products

Revenue breakdown by product category

 
                          Three months      Three months   Growth (%) 
                         31 March 2016          31 March 
                        Unaudited (RMB              2015 
                                 000s)    Unaudited (RMB 
                                                   000s) 
 Fish                          135,591           145,827          (7) 
 Sea Cucumbers                  31,623            30,456            4 
 Cephalopods                    16,171            16,569          (2) 
 Shrimp & Shellfish             14,977            17,887         (16) 
 Others                         16,438            19,815         (17) 
 Total                         214,800           230,555          (7) 
 

*The illustrative exchange rate as at 20 May 2016 is 1GBP: 9.53 RMB

Gross Profit margin by Product Category

 
                          Three months   Three months      Three months 
                              31 March       31 March       31 December 
                        2016 Unaudited           2015    2015 Unaudited 
                                            Unaudited 
 
 Fish                              23%            29%               23% 
 Sea Cucumbers                     30%            44%               30% 
 Cephalopods                       25%            28%               26% 
 Shrimp & Shellfish                26%            32%               26% 
 Others                            25%            31%               24% 
 Total                             24%            31%               25% 
 

Quarterly volumes processed by Product Category

 
                          Three months   Three months 
                              31 March       31 March 
                        2016 Unaudited           2015 
                                            Unaudited 
                             (KG 000s)      (KG 000s) 
 Fish                            4,134          3,786 
 Sea Cucumbers                      12              9 
 Cephalopods                       494            491 
 Shrimp & Shellfish                382            420 
 Others                            168            187 
 Total                           5,190          4,893 
 

Fish

The revenue generated from fish products decreased 7% on the previous year but still remains the Group's largest product category, representing 63% of sales for the three months ended 31 March 2016.

This fall in revenue was despite volumes increasing by 9% on Q1 2015 reflecting the falling average price per kilo which has contributed to the reduced gross margin of 23%.

The decrease in revenue generated from fish is predominantly due to the Company's strategy of reducing its selling prices to remain competitive in order to protect its current market share.

As a result of increasing popularity of British and Scottish fish products, sales of mackerel in the period in China increased by 10% on the previous year. To help satisfy this demand, the Company signed a US $850,000 purchase contract with Peterhead based supplier Northbay Pelagic in February 2016 for the supply of 615 metric tonnes of Atlantic Mackerel per annum. In anticipation of the continual popularity of such products in China, Aquatic Foods Group is currently negotiating with other UK based fish suppliers in order to secure future additional supply.

Sea Cucumbers

The revenues from Sea Cucumber products have increased by 4%, however average prices of the product are lower than the comparable period in 2015 leading to a reduction in gross profit margin to 30%.

Cephalopods

The sales of Cephalopods (principally squid and cuttlefish) for the three months ended 31 March 2016 were down slightly by 2% compared to the same period in 2015. Gross profit margins were down from 28% to 25%.

Shrimp and Shellfish

Sales have decreased from 8% to 7% of the Group's revenue for the three months ended 31 March 2016. Whilst the gross profit margins for the three months ended 31 March 2016 were down to 26%, reflecting highly competitive market pricing globally and in the PRC.

Other revenue

This includes gift boxes. Revenues have decreased by 17% for the three months ended 31 March 2016, whilst the gross profit margins for this period also decreased to 25%.

Export markets

The revenue from exports remained relatively steady for the three months ended 31 March 2016 were RMB 14 million (cGBP1.5m), representing 6% of revenue. The Group looks to continue its successful links into the international market, capitalising further on its partnership with Yihe, distributor to Walmart and other US supermarkets, under a sales contract announced in September 2015. The Company continues to actively pursue further potential opportunities into export markets.

Appointment of new Finance Director

The Company continues its search for a replacement Finance Director, following the departure of Sean Lim in February 2016. The Company has been making good progress in finding a suitable candidate to replace Mr. Lim, who has continued to provide assistance to the Company, and will make further announcements regarding this in due course.

Cash and working capital

The cash position of The Company remains solid (unaudited cash balance of RMB 334.5m (GBP35.1m) as at 31 March 2016, the majority of which is held in the PRC with the remaining funds located in the UK and Hong Kong in order to more easily meet international payments. The Group continues to actively manage its trade debtor balances and has not been required to provide for any bad debts at the present time. The reduction in cash from the year end position is largely as a result of the timing of working capital outflows.

Market environment and Outlook

The trading environment in the PRC remains challenging and the Board expects it to continue throughout H1 2016. To mitigate this, the Company has increased its marketing and advertising efforts in order to preserve its market position in China. The Group intends for this to combine with its strategy of specifically targeting increased sales to supermarkets in the PRC.

While market growth in China has slowed in the past year, the Group will take the opportunity to review internal processes and strategies in preparation for a time when the market returns to full strength. This includes monitoring the success of increased advertising as well as continuing to finalise expansion plans, including additional processing and cold storage capacity given the increase in processing volumes. With this in place, the Board believes that the Company will be in the strongest position possible to take advantage of a revived trading environment.

The Group expects to report its audited results for the full year ended 31 December 2015 in the next few weeks.

Li Xianzhi, Chief Executive Officer of Aquatic Foods Group Plc, commented: "The fall in revenue and gross margins reflects the pressure imposed by the macroeconomic conditions in China. However the Board is satisfied that the Company remains profitable which demonstrates the strength and resilience of our business model. The challenging market conditions may continue further into 2016, however we will continue with our commitment to grow the "Zhenhaitang" brand in the PRC and to expand our processing capabilities and distributor network. This will ensure that the Company is fully prepared to benefit from future opportunities once the macroeconomic environment improves. In the meantime, the Board believes that through increased promotional and brand awareness activities that our sales within the PRC will improve as well as internationally by attracting new distributors. The Board is pleased with the Group's resilience during the challenging economic environment, and we would like thank our employees and shareholders for their continued support."

- Ends -

For further information:

 
 Aquatic Foods Group Plc                     Tel: [phone] 
                                                             7714 
 Dr Wang Shaodong, Non-Executive Chairman   www.aquatic-foods.com 
 
 
 SP Angel Corporate Finance LLP 
  Nominated Adviser and Broker      Tel: [phone] 
                                                    0470 
 Stuart Gledhill / David Facey         www.spangel.co.uk 
 
 

Media enquiries:

 
 Abchurch Communications Limited 
 Jamie Hooper / Canace Wong          Tel: [phone] 
                                                     7700 
 [e-mail]   www.abchurch-group.com 
 

Notes to Editors:

Aquatic Foods Group is a leading marine foods and seafood processor and supplier based in China. The Group initially built its business through focusing on the export market (principally Japan under the "Kanwa Foods" brand), and subsequently established the "Zhenhaitang" brand in 2007 in mainland China to take advantage of the growing market driven by growing disposable income within the Chinese middle-classes and a more health conscious consumer base.

The Group benefits from excellent food safety procedures developed over many years which have helped the Group to build a strong track record of supplying its products into overseas markets. This track record has enhanced the perception of the quality and reliability of the Group's products in China and has allowed the Group to expand significantly into local markets as demand for seafood products has increased. In a market that has seen regular public health scares relating to food safety, the Group considers that its adherence to these standards to be a key strength. The Group has obtained the following key standards:

   -    ISO 9001 Quality Management System certification 
   -    HACCP Food Safety System certification 
   -    BRC certification; and 
   -    Marine Stewardship Council certification 

Aquatic Foods works with a network of distributors to effectively market its products in China. The Group has continued to grow its distributor relationships and now distributes its products in 16 provinces, municipalities and autonomous regions in China through 50 regional distributors. These distributors in turn sell the Group's products to sub-distributors and retailers, including supermarket chains and hypermarkets.

Further information can be viewed at www.aquatic-foods.com.

This information is provided by RNS

The company news service from the London Stock Exchange

END

TSTBGGDUCXDBGLX

(END) Dow Jones Newswires

May 23, 2016 06:45 ET (10:45 GMT)