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AFG - Aquatic Foods News Story

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Last Trade - 28/06/17

Sector
Consumer Defensives
Size
Micro Cap
Market Cap £n/a
Enterprise Value £n/a
Revenue £105.8m
Position in Universe th / 1819

Aquatic Foods Group - Correction to Final Results Announcement - Part 1

Thu 30th June, 2016 7:45am
RNS Number : 7536C
Aquatic Foods Group PLC
30 June 2016

30 June 2016

Aquatic Foods Group Plc

("Aquatic Foods" or "AFG" or the "Group")

Correction to Final Results Announcement

Further to the announcement on 29 June 2016 at 7.00 a.m. under RNS no. 5505C in respect of the Company's Final Results for the year ended 31 December 2015, the Company advises that an incorrect version of the final results had originally been uploaded.

The following amendments have been made;

Correction of the 2015 EPS figure to 1.25 RMB from 1.27 RMB;

The reclassification of certain balances in the cash flow statement;

Note 2 to the accounts updated to reflect the cash balance as at 31 December 2015; and

Note 18 to the accounts update for correct Directors' remuneration figure.

There are no other material amendments.

The fully amended announcement is shown below.

Final Results

Aquatic Foods Group Plc (AIM: AFG), a leading Chinese marine foods and seafood processor and producer, supplying to export and local markets, today announces its Final Results for the year ended 31 December 2015.

Financial Highlights

Revenue increased by 14% to RMB 979 million (c102.4m) (2014: RMB 856 million)

Gross profit margins across all product categories averaged 28% (2014: 32%)

Profit before tax kept at RMB 182 million (c19.0m) (2014: RMB 182 million, this includes one-off IPO expenses of RMB 8 million)

Net profit after tax increased by 2% to RMB 140 million (c14.6m) (2014: RMB 137 million)

EPS at 12.9 pence (2014 notional EPS, based on the total number of shares at IPO of 113,226,081, was 12.6 pence)

Cash as at 31 December 2015 of RMB 380 million (c39.8m) (2014: RMB 194 million, excludes the gross proceeds from the Placing and Admission to AIM, which occurred post period end on 3 February 2015 and totalled 9.3 million, equivalent to approximately RMB 89.3 million)

51 regional distributors as at 31 December 2015 (2014: 50)

Trading in 2016 has been challenging with declines in gross margins across all product categories

Final dividend of 0.7p proposed, giving a total dividend for the year of 1.4p

*The illustrative exchange rate as at 31 December 2015 was 1 GBP: 9.6 RMB (2014: 1 GBP: 9.6 RMB)

Li Xianzhi, Chief Executive of Aquatic Foods, commented: "The Board is satisfied with this set of results, which show an uplift in revenue and stable gross and net profit during a period of difficult market conditions. Against the challenging business environment buffeted by international financial volatility and slowing growth in emerging markets including China, Aquatic Foods has performed credibly. The Company has demonstrated its ability in keeping overheads under control and restructuring its operations and resources that will stand Aquatic Foods in good stead for the long term.

"The Directors expect the current challenging market conditions to continue in the near term, and AFG will seek to overcome this by focusing on operational efficiency, developing new sales channels including supermarkets, increasing sales to our existing distribution network, expanding our distribution network and increasing our focus on export markets.

"Aquatic Foods' successful listing on AIM has improved our corporate profile, which provides enhanced confidence to both suppliers and end customers within the Chinese market, particularly as these customers are becoming increasingly concerned about food hygiene, safety and quality. This further strengthens our ability to capitalise on the increasing demand for high quality marine foods and seafood products in China."

For further information:

Aquatic FoodsGroup Plc

Tel: +44 (0) 20 7398 7714

Dr Wang Shaodong, Non-Executive Chairman

www.aquatic-foods.com

SP Angel Corporate Finance LLP

Nominated Adviser and Broker

Stuart Gledhill / David Facey

Tel: +44 (0) 20 3470 0470

www.spangel.co.uk

Media enquiries:

Abchurch Communications Limited

Julian Bosdet / Canace Wong

Tel: +44 (0) 20 7398 7714

AquaticFoods@abchurch-group.com

www.abchurch-group.com

Chairman's Statement

2015 was a challenging year for businesses including international financial volatility and slowing growth in emerging markets including China. Against this volatile market backdrop, Aquatic Foods performed credibly, demonstrating the Company's ability to keep close control over its overheads, operations and resources, which should stand Aquatic Foods in good stead for the future. We are pleased to announce today our results, which show an uplift in revenue and stable gross and net profit.

The Board views the future with optimism, however we remain highly mindful of the potential challenges that lie ahead in the short term. The Group is aware of the current uncertain condition of the global economy which includes the slowdown of economic growth in China, currency fluctuations, as well as concerns surrounding operating in a highly competitive market place. In order to maintain AFG's solid revenues and profitability the Group will look to capitalise on the continued increasing levels of disposable income amongst both the urban and rural population in China. The burgeoning Chinese middle class seek natural seafood products in addition to being increasingly aware of the importance of having high food safety standards. These factors present encouraging future growth opportunities for the Company.

The Group is committed to adopting the highest standards of quality, safety and sustainability and we are focused on producing high-end, pre-processed seafood products. The Group has an excellent record of food safety and has established stringent globally recognised quality control procedures. The Group has obtained and will continue to improve adherence to the following key standards: ISO 9001 Quality Management System Certification, HACCP Food Safety System Certification, BRC Certification and Marine Stewardship Council Certification.

Aquatic Foods' strong cash position is expected to be deployed to continue the Group's strategy stated at the time of IPO which aims to increase its presence within China. This will be seen through expanding production capacity both by increasing process automation and expanding to an additional site or acquiring an existing factory from a third party. Moreover AFG will add new regional distributors, provide assistance to distributors to establish more "Zhenhaitang" branded retail stores, focus on advertising, promotion and will carry out further cross-promotion in the Group's different product types and continue product development to expand and enhance our product offerings. The total output of Aquatic Foods Group in 2015 equates to approximately 21.8 million KG of fish products in total, a 21.8% increase compared to 2014 output of 17.9 million KG and the Group is currently awaiting final regulatory approval for its expansion plans from the relevant regional authority which, once implemented, will further increase the Group's production capabilities.

We believe that although the road ahead holds challenges, it also presents considerable future growth opportunities. With a sound strategy, we are confident that we will be able to navigate the current volatile climate, while capturing opportunities for future growth.

On behalf of the Board, we would like to thank our staff for their dedication and commitment. We would also like to thank our shareholders, customers and other stakeholders for their continued support and trust in Aquatic Foods Group.

The Board has adopted a dividend policy that fundamentally takes into account the Group's profitability, growth and availability of cash and distributable reserves after the requirement to finance the development and expansion of the business. We are pleased to announce that despite the challenging market conditions, the Board is proposing a final dividend of 0.7 pence per share for 2015 giving a total dividend for the year of 1.4 pence per share as anticipated in the Group's AIM Admission Document.

The full year dividend to be approved at the Company's AGM will be payable around 12 August 2016 to shareholders on the register at the close of business on 29 July 2016. The shares will go ex-dividend on 28 July 2016. This is in line with the yield indicated at IPO of a 2 per cent. annual yield based on the IPO price.

Dr. Wang Shaodong

Non-Executive Chairman

28 June 2016

Chief Executive's Review

Results

Revenue increased by 14% to RMB 979 million (c.102.4 million) (2014: RMB 856 million) but the Group's gross profit margins declined across all product categories to approximately 28% in the year (2014 32%). Pre-tax profits and EBITDA remained at RMB 182 million (c.190 million) and RMB 187 million (c.19.6 million) respectively before taking into account that RMB 8 million IPO expenses were incurred in 2014. Net profit after tax was marginally higher at RMB 140 million (2014: RMB 137 million) due to lower income tax expense.

Aquatic Foods remains highly cash generative and the Group maintains its strong balance sheet with cash as at 31 December 2015 amounting to RMB 380 million (c.39.8 million) (2013: RMB 194 million excludes the gross proceeds from the Placing and Admission to AIM, which occurred post period end on 3 February 2015 and totalled 9.3 million [c.RMB 89 million] before expenses).

As at 31 December 2015, Aquatic Foods had 51 regional distributors (2014: 50), covering 16 provinces, municipalities and autonomous regions in China, and hopes to capitalise on the increasing levels of disposable income currently seen across China which is occurring for both urban and rural residents.

Currently, approximately 60% of Aquatic Foods' fish is sourced from various overseas countries, including Norway, UK, and Ireland. The Group will continue to look for strategic alliances and partnerships to diversify the Company's supply chain.

Aquatic Foods has received increased sales enquiries from overseas customers, driven by the Group's enhanced commercial profile achieved through its admission to trading on AIM. The Group is thus currently exploring the possibility to grow its export sales, leveraging the Group's already established position in the international market. The Group is also reviewing selected opportunities to build its international footprint.

Product categories

Revenue breakdown by product category

2015

2015

2014

2014

GROWTH %

Currency:

RMB'000

GBP'000

RMB'000

GBP'000

Fish

704,942

73,737

586,180

61,314

20.3

Sea Cucumbers

137,531

14,386

132,315

13,840

3.9

Cephalopods

41,753

4,367

44,003

4,603

(5.1)

Shrimp & Shellfish

38,688

4,047

33,935

3,550

14.0

Others

55,833

5,840

59,647

6,239

(6.4)

Total

978,747

102,377

858,080

89,755

14.1

Gross Margin by Product Category

Gross margin

2015

2014

Fish

27%

29%

Sea cucumbers

36%

44%

Cephalopods

29%

30%

Shrimp & Shellfish

30%

31%

Others

27%

26%

Total

28%

32%

Fish

The revenue generated from fish products increased by over 20% on the previous year and has continued to represent AFG's largest product category, representing 72% of sales for the full year ended 31 December 2015 (2014: 68%).

The revenue generated from fish increased by approximately 20%, this increase was principally generated from higher sales of mackerel, cod and saury which tend to be lower priced and margin products.

The weight of processed fish during FY 2015 increased by 24% compared with that processed during FY 2014.

Sea Cucumbers

The sale value of Sea Cucumber products have increased slightly, but average prices in FY 2015 have fallen leading to a reduction in gross profit margin to 36% from 44%.Sales of Sea Cucumbers have been impacted on the Chinese Governments continued focus on tackling high value gift giving practices in business and this has led to a fall in average price per kilo and the margins achieved by the Group.

Cephalopods

The sales of Cephalopods (principally squid and cuttlefish) for the full year ended 31 December 2015 were down approximately 5% compared to the prior year. Gross profit margins were down slightly from 30% to 29%.

Shrimp and Shellfish

Sales have increased by 14% for the full year ended 31 December 2015, whilst the Gross profit margins for the full year ended 31 December 2015 were down to approximately 30%, reflecting the general price pressure in the current market.

Other revenue

This includes gift boxes. Sales have decreased by 6.4% for the full year ended 31 December 2015, whilst the Gross profit margins for the full year ended 31 December 2015 were up slightly to approximately 27%.

Q1 trading to 31 March 2016

As previously announced on 23 May 2016, trading in the first quarter of 2016 has been subdued, reflecting the continuation of challenging market conditions in the second half of 2015. Unaudited aggregate revenues for the Group for the three months to 31 March 2016 were approximately RMB 215 million (.22.5m), which is approximately 7% lower when compared to Q1 2015.

Unaudited revenue for Q1 2016 for each of the Group's principal product categories were as follows:

Currency:

RMB million

GBP million

Fish

136

14.2

Sea Cucumbers

32

3.3

Cephalopods

16

1.7

Others

31

3.2

Total

213

22.4

Gross Profit margin by Product Category

Three months 31 March 2016 Unaudited

Three months

31 March 2015

Unaudited

Three months 31 December 2015 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%

Strategy

The Board continues to evaluate options for expanding production capacity both through increasing process automation and expanding to an additional site or acquiring an existing factory from a third party. The Group is currently awaiting final regulatory approval for its expansion plans from the relevant regional authorities. Owing to the current market environment the Group has not been actively chasing this consent although it is expected that the Group will still seek to acquire additional processing and cold storage capacity.

Successful brand building remains key to Aquatic Foods' continued business success. The Group plans to continue its focus on advertising and promotion and will carry out further cross-promotion for our different product types over the next year. The Group will also continue to support its regional distributors to establish further "Zhenhaitang" branded retail stores where appropriate to do so.

As previously announced, the Group is seeking to grow new sales channels by specifically targeting sales to supermarkets in China. This will be achieved through expanding our distribution partners as well as increasing our focus on export markets due to the fall in value of the Renminbi, although the latter can potentially attract lower gross profit margins. Further expansion of the existing distribution network, especially to smaller cities in China, is also critical to expand the Group's market share.

As announced in the Q1 trading update, due to increasing popularity of British and Scottish fish products, the Company's 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. Since then, two further purchase contracts for mackerels, including a contract with Scottish based supplier Lunar Freezing & Cold Storage and a contract with Seychelles based supplier Flying Fish International has been signed. The former will supply 575 metric tonnes of Mackerel and the latter 162 metric tonnes of Mackerel to Aquatic Foods. As a result of these recent contracts, Aquatic Foods has become one of the leading importers of fish from the UK amongst other Chinese companies and this is expected to increase its credibility and profile in the industry in the UK.

Continuous product development and enhancement of product offerings is an important factor to hold and expand Aquatic Foods' market share. The Group plans to invest and strengthen market-oriented product development activities to continue to provide innovative and high quality products in order to stand out from competition and to meet changing consumer preferences.

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.

Cash and working capital

The cash position of The Company remains solid 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. The full RMB 306.7 million (c.32.1m) of trade receivables outstanding as at 31 December 2015 has been received since the year end.

Appointment of new Finance Director

The Company continues its search for a replacement Finance Director, following the departure of Sean Lim on 3 February 2016. AFG has been making good progress in finding a suitable candidate to replace Mr. Lim and will make a further announcement regarding this in due course.

Outlook

As noted in the Company's Q1 trading update, the Group's markets remain challenging, and the Company has faced continued challenging trading into Q2, however whilst our gross margin declined during 2015 we are now seeing a stabilization in margins though with gross margins in April stable at approximately 24%. The Board expects these challenging conditions to continue in the near term.

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.

China still experiences high levels of economic growth, and achieved growth of 6.9% last year, although its slowest rate in a quarter of a century. The Government is looking to steer the economy on a more qualitative growth path by, inter alia, overseeing the closure of outdated industries and sectors and by supporting new areas of growth such as the service sector. As an established and modern marine foods supplier and retailer, Aquatic Foods Group is in a good position to continue to benefit from Chinese economic growth and Government support in the long term.

Li Xianzhi

Chief Executive Officer

28 June 2016

CORPORATE GOVERNANCE

The Company is committed to observing good standards of corporate governance. In this report, we describe the Company's corporate governance processes and activities with reference to the principles of the Quoted Companies Alliance's Corporate Governance Guidelines. Although there is no requirement to adopt these principles as an AIM company, the directors intend to continue to comply with its main provisions as far as is practicable and appropriate having regard to the size and nature of the Company.

At the admission date, the directors have established an audit committee (the "Audit Committee") and a remuneration committee (the "Remuneration Committee") with formally delegated duties and responsibilities.

Audit Committee

The Audit Committee, which comprises Jonathan Quirk, Richard Sweet and Mircle Yap, is responsible for:

assessing the integrity of the Group's financial reporting and satisfying itself that any significant financial judgements made by management are sound

evaluating the effectiveness of the Group's internal controls, including internal financial controls and

scrutinising the activities and performance of the external auditors, Crowe Clark Whitehill LLP, including monitoring their independence and objectivity.

The Audit Committee receives and reviews reports from the management and Crowe Clark Whitehill LLP relating to the annual and interim financial statements and the accounting and internal control systems of the Group. Crowe Clark Whitehill is invited to a meeting of the Audit Committee to discuss their reports.

In addition, the Audit Committee considers the financial performance, position and prospects of the Group and ensures that they are properly monitored and reported on.

The Audit Committee met two times in 2015. The principal activities and significant issues considered include:

Key area

Action taken

Relationships with suppliers

The Audit Committee requested that the auditor visit a sample of the group's suppliers of their choosing as part of their audit procedures. This additional step was taken to understand and gain assurance over the integrity of the supply chain.

Operation of financial controls

The Audit Committee considered the Group's application of its financial policies and procedures which were established following the Group's AIM listing in 2015. The Audit Committee requested that management report to them on compliance with these policies and procedures as well as asking the auditor to additionally review compliance, particularly in respect of the approval of significant payments.

Cash balances

The Audit Committee reviews the appropriateness of the Group's banking arrangements. It noted that the majority of the Group's funds were held with HuaXia Bank in China. Additionally, as part of this review, the Audit Committee requested that the auditor perform additional procedures around the verification of cash balances, including physically visiting the various bank branches to obtain direct confirmations.

Revenue, trade receivables and inventory

The Audit Committee considered the group's application of the accounting policies specifically in relation to revenue recognition, trade receivables and inventory. The Audit Committee requested that the auditor provide additional focus on these areas in reporting their findings to the Audit Committee.

External audit

In considering the quality of the external audit, the Audit Committee assessed the reports from Crowe Clark Whitehill LLP during the 2015 audit. The actions included approving the audit plan and discussing and challenging the significant findings of the audit.

Remuneration Committee

The Remuneration Committee, which comprises Richard Sweet, Dr. Wang Shaodong, Jonathan Quirk and Mircle Yap, is responsible for making recommendations to the Board on remuneration policy for directors, including the setting of directors' salaries and incentive payments. The Committee reviews the performance of the executive Directors and senior management and sets and reviews their remuneration and the terms of the service contracts, determines the payment of bonuses to the Executive Directors and considers the Group's bonus and other incentive schemes.

Nomination Committee

The Remuneration Committee, which comprises Dr. Wang Shaodong, Jonathan Quirk, Richard Sweet, and Mircle Yap, is responsible for the selection and appointment of Directors and the regular review of the structure, size and composition of the Board in relations to the requisite skills, knowledge and experience of the Board.

AIM Rules Compliance Committee

The Compliance Committee which comprises Jonathan Quirk, Dr. Wang Shaodong, Li Xianzhi and Mircle Yap, has the primary responsibility to ensure compliance with the AIM Rules in particular concerning disclosure of information required under the AIM Rules. The Committee will function closely with the Board to ensure that the Company's Nominated Adviser (NOMAD) is provided with the information required by the NOMAD to carry out their responsibilities under the AIM Rules.

The meetings of Compliance Committee are carried out in conjunction with the proceedings in the Board meetings wherein compliance with the AIM Rules and the release of information and communications with the Company's NOMAD and the market are highlighted and informed to the Board.

Internal Controls

The Board is ultimately responsible for the Group's system of internal controls, including financial, operational, compliance control and risk management, and for reviewing and monitoring its effectiveness. The system of internal controls is designed to manage and minimise risk, rather than eliminate it. In pursuing these objectives, internal controls can only provide a reasonable and not absolute assurance against material misstatements or loss.

The key elements of the control systems in operation are:

the Board meets regularly with a formal schedule of matters reserved to it for decision

the Board has put in place an organisational structure with clear and defined lines of responsibility and with appropriate dilatation of authority

procedures have been established for the planning, approval and monitoring of capital expenditure and information systems for monitoring the Group's financial performance against approved budgets and forecasts

significant risks and associated controls and monitoring procedures are reported regularly to the Board to enable the Directors to review the effectiveness of the systems of internal control

Investors Relations

The Company meets with its institutional shareholders and analysts as appropriate and encourages communication with private shareholders via the AGM. In addition, the Company uses the annual report and accounts, interim statement and website (www.aquaticfoods-ir.com) to provide further information to shareholders.

Auditor

In accordance with Section 113 of the Companies (Jersey) Law 1991, a resolution for the reappointment of Crowe Clark Whitehill LLP will be proposed at the next Annual General Meeting.

Signed by order of the directors

Li Xianzhi

Director

28 June 2016

Consolidated Statements of Comprehensive Income

For the year ended 31 December 2015

2015

2014

Note

RMB'000

RMB'000

Revenue

5

978,747

856,080

Cost of sales

(700,646)

(586,317)

Gross profit

278,101

269,763

Other income

11,955

9,000

Selling and distribution expenses

(85,592)

(69,484)

Administrative expenses

(21,247)

(17,409)

IPO expenses

-

(7,838)

Other operating expenses

(2)

(49)

Operating profit

183,215

183,983

Finance income

1,037

739

Finance costs

(2,458)

(2,777)

Profit on ordinary activities before taxation

181,794

181,945

Income tax expense

6

(41,390)

(44,939)

Profit after taxation

140,404

137,006

Profit after taxation brought forward

140,404

137,006

Other comprehensive income

103

546

Total comprehensive income attributable to owners of the parent

140,507

137,552

Earnings per share (EPS):

Basic and diluted

7

1.25

1.37

Consolidated Statements of Financial Position

As at 31 December 2015

Year ended

31 December

Year ended

31 December

2015

2014

Note

RMB'000

RMB'000

Non-current assets

Property, plant and equipment

9

29,321

22,314

Land use rights

10

1,876

1,920

31,197

24,234

Current assets

Inventories

11

55,627

47,510

Trade receivables

306,694

277,066

Other receivables, deposit and prepayment

12

4,620

2,871

Cash and bank balances

13

380,419

193,903

747,360

521,350

Total Assets

778,557

545,584

Current liabilities

Trade payables

131,885

102,934

Other payables and accruals

14

35,847

44,393

Short term borrowings

17

42,040

41,470

Income tax payable

9,274

15,294

219,046

204,091

Equity

Stated capital

15

85,238

-

Reserves

16

474,273

341,493

559,511

341,493

Total Equity and Liabilities

778,557

545,584

Consolidated Statements of Changes in Equity

For the year ended 31 December 2015

Stated

Capital

Capital

reserve

Statutory

reserve

Merger

reserve

Translation

reserve

Distributable

Retained

profits

Total

equity

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Balance at 1 January 2014

-

31

11,193

22,394

-

185,323

218,941

Profit for the year

-

-

-

-

-

137,006

137,006

Other comprehensive income:

Foreign currency translation differences for foreign operations

-

-

-

-

546

-

546

Total comprehensive income

for the year

-

-

-

-

546

137,006

137,552

Adjustment arising from

restructuring exercise

-

-

-

(15,000)

-

-

(15,000)

Balance at 31 December 2014

-

31

11,193

7,394

546

322,329

341,493

Profit for the year

-

-

-

-

-

140,404

140,404

Other comprehensive income:

Foreign currency translation differences for foreign operations

-

-

-

-

103

-

103

Total comprehensive income

for the year

-

-

-

-

103

140,404

140,507

Issuance of share capital

87,167

-

-

-

-

-

87,167

Share issuance costs

(1,929)

-

-

-

-

-

(1,929)

Dividend paid

-

-

-

-

-

(7,727)

(7,727)

Transferred to statutory reserve

-

-

3,524

-

-

(3,524)

-

Balance at 31 December 2015

85,238

31

14,717

7,394

649

451,482

559,511

Consolidated Statements of Cash Flows

For the year ended 31 December 2015

Note

2015

2014

RMB'000

RMB'000

Cash flow from operating activities

Profit before taxation

181,794

181,945

Adjustment for:

Amortisation of land use rights

44

44

Depreciation of property, plant and equipment

2,185

2,214

Interest expense

2,458

2,777

Loss on disposal of plant and equipment

14

11

Interest income

(1,037)

(739)

Operating cash flows before movements in working capital

185,458

186,252

Increase in inventories

(8,117)

(7,375)

Increase in trade and other receivables

(31,708)

(137,235)

Increase in trade and other payables

18,588

57,692

(Increase)/decrease in bank balance restricted in use

1,895

(1,361)

Cash generated from operating activities

166,116

97,973

Interest paid

(2,458)

(2,777)

Income tax paid

(47,410)

(41,524)

Net cash generated from operating activities

116,248

53,672

Cash flows (for)/from investing activities

Acquisition of property, plant and equipment

(9,205)

(3,389)

Proceeds from disposal of property, plant and equipment

-

10

Interest received

1,037

739

Cash outflow on group construction

-

(15,000)

Net cash used in/ generated from investing activities

(8,168)

(17,640)

Cash flows from/(for) financing activities

Dividends paid

8

(7,602)

-

Proceeds from issue of share capital

86,279

-

Net drawdown of interest-bearing bank borrowings

570

3,500

Net cash generated from financing activities

79,247

3,500

Net increase in cash & cash equivalents

187,327

39,532

Effects of foreign exchange translation

1,084

(47)

Cash and equivalent at beginning of year

187,576

148,091

Cash and equivalent at end of year

13

375,987

187,576

NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

The Company was incorporated in Jersey as a public limited company with company number 116402. The registered office of the Company is Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES.

Hong Kong Hanhe was incorporated in Hong Kong on 25 September 2012 and acquired a wholly owned subsidiary, Yantai Kanwa Food Co., Ltd ("Yantai Kanwa") on 25 May 2013. Yantai Kanwa is a company established as a wholly foreign owned enterprise ("WFOE") in the PRC, and was incorporated on 15 November 1999.

Yantai Zhenhaitang was incorporated in the PRC on 1 November 2007. On 16 September 2014, Yantai Kanwa acquired the entire issued share capital of Yantai Zhenhaitang Foodstuff Co., Ltd ("Yantai Zhenhaitang").

The principal activities of the entities of the Group are as follows:-

Country of

Name of Company

Incorporation

Principal Activities

i)

AFG

Jersey

Investment holding

ii)

Hong Kong Hanhe

Hong Kong

Investment holding.

iii)

Yantai Kanwa

PRC

Processing and trading of aquatic products

agricultural and meat products.

iv)

Yantai Zhenhaitang

PRC

Trading and distributing of processed frozen

aquatic products and pre-packaged food.

2. Basis Of Preparation

The consolidated financial information of the Group has been prepared using accounting policies which are consistent with those adopted in Part 3 of the AIM Admission Document of the Company dated 28 January 2015, as well as applying the following accounting policy in respect of the basis of consolidation as extracted from the financial statements.

The consolidated financial information has been prepared on a historical cost basis. The consolidated financial information is presented in RMB, except when otherwise indicated.

The financial information does not constitute the Company's statutory financial statements for the year ended 31 December 2015 but is derived from those financial statements. The statutory financial statements will be delivered following the Company's Annual General Meeting. The Auditors have reported on those financial statements; their reports were unqualified.

The Directors considered IFRS 3 "Business Combinations" (Revised 2008) as the appropriate accounting treatment. However, they concluded that the Group fell outside of the scope of IFRS 3 (revised 2008) since the Group represents a combination of entities under common control.

In accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, in developing an appropriate accounting policy, the Directors have considered the pronouncements of other standard setting bodies and specifically looked to accounting principles generally accepted in the United Kingdom ("UK GAAP") for guidance (FRS 102) which does not conflict with IFRS and reflects the economic substance of the transaction.

2. Basis Of Preparation (CONT'D)

Under UK GAAP, the assets and liabilities of both entities are recorded at book value, not fair value. Intangible assets and contingent liabilities are recognised only to the extent that they were recognised by the legal acquirer in accordance within applicable IFRS, no goodwill is recognised, any expenses of the combination are written off immediately to the income statement and comparative amounts, if applicable, are restated as if the combination had taken place at the beginning of the earliest accounting period presented.

Therefore, although the Group reconstruction did not become unconditional until 23 October 2014, these consolidated financial statements are presented as if the Group structure has always been in place, including the activity from incorporation of the Group's principal subsidiary. All entities had the same management as well as majority shareholders.

On this basis, the Directors have decided that it is appropriate to reflect the combination using merger accounting principles as a group reconstruction under FRS 102 in order to give a true and fair view. No fair value adjustments have been made as a result of the combination.

Functional and presentation currency

The financial statements are measured and presented in the currency of the primary economic environment in which the key trading entities operates (its functional currency). The consolidated financial statements of the Group are presented in Renminbi ("RMB"), which is the presentation currency for the consolidated financial statements. The functional currency of each of the individual entity is the local currency of each individual entity. For reference the year end exchange rate from Pounds Sterling to RMB was 9.5923 (2014: 9.5467).

All financial information presented in RMB has been recorded to the nearest thousand ("RMB'000"). They have been prepared under the historical cost convention, except for financial instruments that have been measured at fair value through profit and loss.

Going concern

After the assessment of the available financial information and reviews, and also taking into account the nature of the business that has continuing recurring revenue with high cash conversion that generates significant cash resources as reflected in the current financial position of the Group with cash position of RMB380 million as at 31 December 2015, the Directors believe that the Group has adequate resources to continue to operate for the foreseeable future. Therefore it is appropriate to continue to adopt the going concern basis of accounting in the preparation of the consolidated financial statements.

New Standards, amendments and interpretations to published standards not yet effective

The Directors have considered those Standards and Interpretations, which have not been applied in the Financial Statements but are relevant to the Group's operations, that are in issue but not yet effective and do not consider that any will have a material impact on the future results of the Group.

3. Basis Of CONSOLIDATION

The consolidated financial statements include the financial statements of all subsidiaries. The financial year ends of all entities in the Group are coterminous.

The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control over the operating and financial decisions is obtained and cease to be consolidated from the date on which control is transferred out of the Group. Control is achieved where the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

All intercompany balances and transactions, including recognised gains arising from intergroup transactions, have been eliminated in full. Unrealised losses are eliminated in the same manner as recognised gains except to the extent that they provide evidence of impairment.

The financial information of the subsidiary is prepared for the same reporting period as that of Group, using consistent accounting policies.

4. Significant Accounting Policies

Critical accounting estimates and assumptions

The preparation of financial information in conformity with IFRS requires the use of certain critical accounting The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Directors of the Company to exercise their judgement in the process of applying the accounting policies which are detailed below. These judgements are continually evaluated by the Directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The key estimates and underlying assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods, are discussed below:

a) Allowance for trade and other receivables

Management reviews its loans and receivables for objective evidence of impairment at least quarterly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgment as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in.

The allowance policy for doubtful debts of the Group is based on the ageing analysis and management's ongoing evaluation of the recoverability of the outstanding receivables. Once a debtor has been identified as having evidence of impairment, it is regularly reviewed and an appropriate impairment provision applied.

b) Income Taxes

There are certain transactions and computations for which the ultimate tax determination may be different from the initial estimate. The Group recognises tax liabilities based on its understanding of the prevailing tax laws and estimates of whether such taxes will be due in the ordinary course of business. Where the final outcome of these matters is different from the amounts that were initially recognised, such difference will impact the income tax and deferred tax provisions in the year in which such determination is made.

c) Write-down of Inventories

Reviews are made periodically by management on damaged, obsolete and slow-moving inventories. These reviews require judgement and estimates. Possible changes in these estimates could result in revisions to the valuation of inventories.

5. revenue

Revenue represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

Analysis of revenue from the sales of goods is as follow:

2015

2014

RMB'000

RMB'000

Fish

704,942

586,180

Holothurian

137,531

132,315

Cephalopods

41,753

44,003

Shrimps and shellfish

38,688

33,935

Others

55,833

59,647

978,747

856,080

6. Income Tax Expense

2015

2014

RMB'000

RMB'000

Current tax expense

41,390

44,939

A reconciliation of income tax expense applicable to the profit before taxation at the statutory tax rate to income tax expense at the effective tax rate is as follows:-

2015

2014

RMB'000

RMB'000

Profit before taxation

181,794

181,945

Tax at the applicable tax rate of 25%

45,448

45,486

Tax effects of:-

Non-deductible expenses

-

9

Under provision in prior year

448

381

Tax exempt

(5,560)

(3,321)

Tax rate differential

1,054

2,384

41,390

44,939

According to the China Income Tax Law, income derived from preliminary processing of fishery or aquiculture products are tax exempted.

The Group's activities in the PRC are subject to corporation tax of 25% during the financial year on profit before taxation in accordance with the relevant laws and regulations in the PRC.

No deferred tax has been provided, as the Group did not have any significant temporary differences which gave rise to a deferred tax asset or liability at the reporting dates.

7. EARNINGS PER SHARE

On 3 February 2015, the company's shares had been admitted to trading on the AIM market of the London Stock Exchange. The Company had further issued 5,792,081 Placing Shares and 7,434,000 Subscriber Shares. The total issued ordinary shares of the company were 113,226,081. The earnings per share information is as follow:

2015

2014

Profit after taxation (RMB)

140,404,000

137,006,000

Weighted average number of ordinary shares

111,994,062

100,000,000

Basic earnings per share

1.25

1.37

The diluted loss per share was not applicable as there were no dilutive potential ordinary shares outstanding at the end of the reporting period.

8. Dividends

2015

2014

RMB'000

RMB'000

Dividends declared and paid

7,727

-

7,727

-

The dividend declared and paid was subjected to 10% withholding tax in accordance with the relevant laws and regulations in the PRC.

9. PROPERTY, PLANT AND Equipment

Leasehold buildings

Office equipment

Research equipment

Plant and machinery

Motor vehicles

Total

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

RMB'000

Cost

As at 1 January 2014

25,781

675

45

9,612

678

36,791

Additions

23

28

3

3,234

101

3,389

Disposals

-

(28)

-

(54)

(38)

(120)

As at 1 January 2015

25,804

675

48

12,792

741

40,060

Additions

28

-

-

9,048

129

9,205

Disposals

-

-

-

-

(142)

(142)

At 31 December 2015

25,832

675

48

21,840

728

49,123

Accumulated depreciation

As at 1 January 2014

8,839

475

28

5,960

329

15,631

Charge for the year

1,169

57

6

879

103

2,214

Disposals

-

(24)

-

(43)

(32)

(99)

As at 1 January 2015

10,008

508

34

6,796

400

17,746

Charge for the year

1,173

45

4

857

105

2,184

Disposals

-

-

-

-

(128)

(128)

At 31 December 2015

11,181

553

38

7,653

377

19,802

Net carrying amount

As at 31 December 2015

14,651

122

10

14,187

351

29,321

As at 31 December 2014

15,796

167

14

5,996

341

22,314

(a) All property, plant and equipment held by the Group are located in the PRC.

(b) The following property, plant and equipment have been pledged to licensed banks as security for banking facilities granted to the Group as disclosed in Note 20 to the financial information:-

2015

2014

RMB'000

RMB'000

At carrying amount:-

Leasehold buildings

13,377

14,423

10. Land Use Rights

2015

2014

RMB'000

RMB'000

At cost:-

At 1 January/At 31 December

2,228

2,228

Accumulated amortisation:-

At 1 January

308

264

Amortisation charge

44

44

At 31 December

352

308

Carrying amounts:-

Amortisation due:

- not later than one year

44

44

- later than one year

1,832

1,876

At 31 December

1,876

1,920

m2

m2

Land areas

20,416

20,416

The carrying amounts of the land use rights that have been pledged to licensed banks as security for banking facilities granted to the Group as disclosed in Note 15 to the financial information are as follows:

2015

2014

RMB'000

Land use rights

1,876

1,920

Amortisation is provided to write off the cost of the land use rights over the leasehold periods of 50 years.

11. Inventories

2015

2014

RMB'000

RMB'000

At cost:-

Raw materials

29,610

27,599

Finished goods

26,017

19,911

55,627

47,510

Recognised in profit or loss

Inventories recognised as cost of sales

647,772

543,877

12. Other Receivables, Deposit And Prepayment

2015

2014

RMB'000

RMB'000

Other receivables

48

50

Advances to suppliers

-

1,909

Prepayments

4,572

912

4,620

2,871

13. Cash And Bank Balances

2015

2014

RMB'000

RMB'000

Cash in hand

11

119

Cash at banks

380,408

193,784

Cash and bank balances

380,419

193,903

Less: Bank balances restricted in use

(4,432)

(6,327)

Cash and cash equivalents

375,987

187,576

Effective interest rate (per annum)

0.35%

0.39%

The Chinese Renminbi is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Group is permitted to exchange Chinese Renminbi for foreign currencies through banks that are authorised to conduct foreign exchange business.

14. Other Payables And Accruals

2015

2014

RMB'000

RMB'000

Other payable

8,125

12,912

Accrued salary

7,257

6,544

Accruals

20,433

24,928

Amount owing to a director

32

9

35,847

44,393

The amount owing to a director is unsecured, interest-free and repayable on demand.

15. Stated Capital

2015

Number

of shares

RMB'000

Issued:

On incorporation as at 11 August 2014

2

-

Issued in pursuant to the Framework Agreement as at

23 October 2014

49,999,998

Subdivision of existing shares as at 28 January 2015

50,000,000

-

Placing Shares and Subscriber Shares as at

3 February 2015

13,226,081

87,167

Less: Issuance costs

-

(1,929)

At the end of the year

113,226,081

85,238

On incorporation, the Company issued two ordinary shares at no par value with an unlimited share capital.

On 23 October 2014, the company allotted and issued 49,999,998 Ordinary Shares of no par value pursuant to the Framework Agreement.

On 28 January 2015, the company had been subdivided its existing 50,000,000 ordinary shares into 100,000,000 of ordinary shares. On 3 February 2015, the company's shares had been admitted to trading on the AIM market of the London Stock Exchange. The Company had further issued 5,792,081 Placing Shares and 7,434,000 Subscriber Shares. The total issued ordinary shares of the company were 113,226,081.

16. Reserves

2015

2014

Note

RMB'000

RMB'000

Capital reserve

(a)

31

31

Statutory reserves

(b)

14,717

11,193

Merger reserves

(c)

7,394

7,394

Translation reserve

649

546

Distributable retained profits

451,482

322,329

474,273

341,493

(a) Capital Reserve

Capital reserve is premium received on the issue of share capital.

(b) Statutory Reserve

According to the relevant PRC regulations and the Articles of Association of the subsidiaries, it is required to transfer 10% of each subsidiary's respective profit after income tax to its statutory surplus reserve until its reserve balance reaches 50% of its registered capital. The transfer to this reserve must be made before the distribution of dividends to equity owners. Statutory surplus reserve can be used to make good previous years' losses, if any, and be converted into paid-in capital in proportion to the existing interests of equity owners, provided that the balance after such conversion is not less than 25% of the registered capital.

(c) Merger Reserve

The accounting treatment for Group reorganisations is scoped out of IFRS 3. Accordingly, as required under IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors the Group has referred to current UK GAAP to assist its judgement in identifying a suitable accounting policy. The introduction of the new holding company has been accounted for as a capital reorganisation using the merger accounting principles prescribed under current UK GAAP. Therefore the consolidated financial statement of Aquatic Foods Group PLC is presented as if Aquatic Foods Group PLC has always been the holding company for the Group.

The use of merger accounting principles has resulted in a balance on Group capital and reserves that have been classified as a merger reserve and included in the Group's shareholders' funds. The consolidated financial statements include the results of the Company and all its subsidiary undertakings made up to the same accounting date.

17. BorroWINGS

2015

2014

RMB'000

RMB'000

Trade finance

14,040

13,470

Interest-bearing bank borrowings - secured

28,000

28,000

Total amount reclassified as current liabilities

42,040

41,470

Trade finance was secured by cross guarantees of the subsidiaries between Yantai Kanwa and Yantai Zhenhaitang.

Interest-bearing bank borrowings were secured by:

(a) land use rights of the Group (Note 10)

(b) property of the Group (Note 9)

(c) personal guarantees by a director of the Group

Interest-bearing bank borrowings bear effective interest rates of 6.33% (2014: 5.75%) per annum is repayable within one year.

18. Related Party Disclosure

(a) Identities of related parties

The company has related party relationships with its subsidiaries as disclosed in note 1, its directors, key management personnel and entities of which the director and/or by management have significant financial interests.

(b) Other than those disclosed elsewhere in the financial information, the Group also carried out the following significant transactions with the related parties as disclosed below:-

2015

2014

RMB'000

RMB'000

Director's remuneration:

- short-term employee benefits

3,124

666

- defined contribution plans

8

8

3,132

Other key management personnel:

- short-term employee benefits

1,310

1,636

- defined contribution plans

27

35

1,337

1,671

Total key management personnel remuneration

4,469

2,345

19. WARRANT ISSUED

On 28 January 2015, the company granted 50,000 warrants to S.P. Angel Corporate Finance LLP, the company's nominated adviser, at the exercise price of 70 pence each with expiring date of 5 years. The directors have used Black Scholes model as recommended under IFRS 2 in valuing the share based payment charge. The fair value of the services received in consideration for the issue of the warrants was measured at the date of grant was approximately RMB 48,000. A charge of RMB 48,000 has been recognised in equity for the year within stated capital with an equivalent increase in stated capital.

20. Subsequent events

There were no material events subsequent to the end of the financial year under review that have not been reflected in this report as at the date of this report.

- ENDS -


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