AFG Aquatic Food

Aquatic Foods Group Plc

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

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 nine months ended 30 September 2015.

Highlights:

•   Unaudited Group revenue for the nine months ended 30 September 2015 up 19.9% to RMB 678.7 million (2014: RMB 565.9 million)

•   Gross margins in Q3 under pressure from challenging market conditions but full year 2015 expectations remain unchanged

•   Unaudited cash balance at 30 September 2015 RMB 329.5 million

•   Renewed focus on increasing exports and sales to PRC supermarkets

•   Positive progress in relation to acquisition of new facility

•   Group expects to continue to grow through 2016 but at more modest rates than those experienced over the last few years

•   Significant one year sales contract with Yihe International Corporation

Revenue breakdown by product category

Gross Margin by Product Category

Fish

Sales of fish products have continued as the largest product category for AFG, representing 71% of sales for the year to 30 September 2015 (2014: 64%).

During the last quarter the Group's product mix has been impacted by consumer demand changes, reflected in a reduced average price per kilogram of processed fish. Consequently fish sales have not increased at the same rate as kilograms processed.

Notwithstanding the above, turnover for fish products for the nine month period to 30 September 2015 has still increased strongly at over 32% higher than the same period during the nine months to 30 September 2014.

The Group's top three fish products are mackerel, greenling and cod.

Sea Cucumbers

Sales of Sea cucumber products have continued to be impacted by attitudes in China towards the giving of conspicuous high value gifts.  Gross margins for the nine months to 30 September 2015 were approximately 39%.

Cephalopods

Sales of Cephalopods (principally squid and cuttlefish) for the nine months to 30 September 2015 were 11% lower as compared to the prior year period. Gross margins were approximately 30%.

Others

Sales of gift boxes have slowed in the third quarter with sales down by approximately 13% on the prior year period. This reflects the Government policy of discouraging corporate gift-giving. Gross margins have remained broadly steady at approximately 29%.

Market environment and Outlook

While the Group continues to expand its sales in the PRC, the trading environment has become more challenging reflecting wider factors in the Chinese economy. Consequently the Group is seeking to exploit new sales channels by specifically targeting sales to PRC supermarkets, a more resilient part of the Chinese foods market, through its distributor partners as well as a focus on export markets although the latter tend to attract lower margins.

The Group maintains a strong cash position although working capital has been impacted by increasing trade debtors as a result of wider market influences. The Group maintains a strong focus on cash collection with only a small proportion (<5% by value) of distributors seeking to extend contractual credit terms.

The Directors expect the current challenging market conditions to continue over the near term, resulting in a more measured growth trajectory during 2016 for sales as well as profitability. The Directors intend to position the Company for renewed growth in China as well as from export markets where the Group has already made significant progress through its contract with Yihe International Corporation, which represents a total value of USD 15.4 million (approximately RMB 99 million: £10.1 million) supplying Yihe with 11 separate seafood products over the course of one year.

Reflecting the Directors continued confidence in the Group's fundamental growth prospects, the Group has progressed its investment plans for a new facility and is currently awaiting final regulatory consent for its expansion plans from the relevant regional authorities. The Directors look forward to updating the market further in connection with these plans.

Li Xianzhi, Chief Executive Officer of Aquatic Foods Group Plc, said: "The Group has delivered an impressive trading performance despite the current market conditions.    Aquatic Foods plans to continue building our revenues by focusing our growth strategy on more resilient sales channels, namely PRC supermarkets and export markets.  The Company will utilise current distributors as well as investigating new avenues of distribution while increasing efforts to export products internationally, following Aquatic Food's successful collaboration with Yihe International Corporation. Overall the Board is pleased with the resilience and growth achieved by the Group, given the challenging market conditions we are currently experiencing through certain channels in China."

* For illustrative purposes the exchange rate as at 31 December 2014 was 1 GBP: 9.6 RMB.

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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.