2016 Q3 Trading Update

Aquatic Foods Group Plc

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

Trading update

Aquatic Foods Group Plc (AIM: AFG), a leading Chinese marine foods and seafood processor and producer supplying to export and local markets, is pleased to provide the following trading update for the 9 month period ended 30 September 2016.

Financial Highlights

· Unaudited revenue for the Group for the 9 months ended 30 September 2016 decreased by 5.0%, or RMB 33.8 million (c£4.0 million), to RMB 644.9 million (c£76.3 million) compared with the corresponding period in 2015 (9M 2015: RMB 678.7 million, c£80.3 million). Q3 revenue improved by 5.1% compared with Q1 and 10.6% compared with Q2 2016.

· Despite the reduction in revenue, sales volume for the 9 months to 30 September 2016 was 3.0% higher than that in the same period in 2015, reflecting the continued demand for our products, although at lower average prices. Quarterly sales volumes during 2016 have remained fairly consistent at around 5,100 tonnes.

· Unaudited gross margin which had started to decline from August 2015 has stabilised and for the 9 months to 30 September 2016 was 24.5%, although still significantly lower than that in the same period during 2015 (30.5%).

· Unaudited gross profit for the 9 months ended 30 September 2016 was RMB 157.9 million (c£18.7 million), a decrease of RMB 48.8 million (c£5.8 million) or 23.6% compared with of the same period in 2015 (9M 2015: RMB 206.7 million, c£24.5 million).

· The unaudited net profit margin for the 9 months ended 30 September 2016 is expected to be around 10-11%, subject to foreign exchange adjustment. The net profit margin for the calendar year 2015 was 14%.

· Cash as at 30 September 2016 was approximately RMB 432 million, c£51 million (as at 30 June 2016: 417 million, c£49.3 million).

Note: Financial information above is converted into Sterling Pounds for illustrative purposes, at 8.4537, being exchange rate approximating to that ruling at 10 November 2016.

Product categories

Fish

Sales of fish products accounted for approximately 70% of the Group's 9 months revenue (9M 2015: 70%), or 85% of Group's sales volume (9M 2015: 85%).

The revenue generated from fish products decreased by approximately 6% compared with 9M 2015, although volume increased by 3%. This decrease in revenue is predominately due to the Group's strategy price reduction in this difficult market environment to remain competitive in order to protect current market share.

The lower average selling prices have resulted in a reduction in gross profit margin of fish products to 23% (9M 2015: 29%). 

Sea Cucumbers

Sales of sea cucumber products decreased slightly by 2%, whilst volume increased by 1.4%, compared with 9M 2015.

Gross margin fell to 30% (9M 2015: 39%) as a result of augmented cost especially raw material input cost.

Cephalopods

Sales of Cephalopods (principally squid and cuttlefish), though only a modest proportion of total group sales of 5%, were the only product category that has reported a revenue growth compared with 9M 2015.

Sales of cephalopods products increased by approximately 3% both by value and by volume compared with 9M 2015. Nevertheless, gross profit declined by 15% primarily due to rising costs. Gross margin declined to 25% (9M 2015: 30%).

Shrimp and Shellfish

Sales value decreased by approximately 8% whilst volume decreased by approximately 4% compared with 9M 2015, reflecting the general price pressure in the current market. As a result, gross profit margins were down to approximately 26% (9M 2015: 31%).

Others

These are primarily sales of gift boxes. Sales decreased by 8% and gross profit were down to 25% (9M 2015: 29%).

Cash and working capital

The cash position of the Group remains solid. The Group was able to convert most of its net profit into cash. The working capital requirement of the Group remains fairly stable. In the 9 months ended 30 September 2016, the decrease in trade and other receivables is comparable with the decrease in trade and other payables. Unaudited cash balance at 30 September 2016 was RMB 432 million, the majority of which is held in the PRC with approximately GBP2.7 million held predominantly in Hong Kong.

Market environment, Outlook and Strategy

The Group's operating environment remains challenging and the Board expects these difficult conditions to continue in the near term. While market growth in China has slowed in the past year, the Group has increased its marketing and advertising efforts in order to maintain its market position in China. The Group entered into a new advertising arrangement and incurred new advertising expenses of RMB 9.0 million during the 9 months ended 30 September 2016 aimed at further promotion of the "Zhenhaitang" brand

The Group is also actively looking for overseas business development opportunities as well as working to increase its sales to supermarkets in the PRC.

Whilst the Board is mindful of the potential challenges that lie ahead, the Board believes that such a demanding business environment also present consolidation opportunities. AFG's strong cash position allows the Group to take advantage of this difficult time to grow via merger and acquisitions. Accordingly the Group will review potential acquisition opportunities as well as the continued potential for organic expansion into a new site. In addition the Group continues to review growth and improvement opportunities in production capacity and efficiency through increasing process automation.

In the longer term, the Board believe the demand for pre-processed and ready to eat products will continue to increase in China, whilst more concerns will also be placed on food hygiene and safety. With a history in servicing demanding export markets, AFG has developed a reputation for adopting the highest standards for quality, safety and sustainability. The Group will leverage on this strength and continue to focus on "Zhenhaitang" brand building.

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 Group has been prudently preserving its cash to ensure that it is in the best position to sustain difficult trading periods as well as ensuring that the Group is fully prepared to take advantages of this to grow when M&A opportunities present themselves.

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 -

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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.