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Chairman's Message

Extracted from Annual Report 2014

Dear Valued Investors,

On behalf of your Board of Directors (the “Board”), I am pleased to deliver the annual report of Pacific Andes Resources Development Limited (“PARD” or the “Company”) and its subsidiaries (collectively “PARD Group” or the “Group”) for the financial year ended 28 September 2014 (“FY2014”).

Over the previous five years, our business strategy of combined growth through acquisition and organic growth delivered stable, positive compound annual growth in revenue, earnings and profit after tax. This demonstrates sound business fundamentals. Following the very significant acquisition of Copeinca AS (“Copeinca”) in 2013, we decided in 2014 to sharpen our focus on organic growth. We set out two important initiatives: first, consolidate our existing business to enhance profitability and asset utilisation, and second, deleverage the Group’s balance sheet. The aim has been to create the most competitive business model, building on the leadership we have established over time. I am pleased to report that we have achieved significant progress on these initiatives in FY2014.

Financial and Operations Review

For the year under review, we recorded strong growth in both gross and net profit. Our net profit attributable to shareholders increased by 27.5% to HK$953.4 million from HK$747.7 million in FY2013. Gross profit registered sound growth of 27.7% to HK$1,793.0 million and gross margin improved to 22.1% from 16.0% in FY2013. Despite the fact that the Group was only able to utilise 61% of its fishing quota in Peru for the major April to July fishing season because of the effects of El Niño, the Group was nonetheless able to generate solid results for the first year of consolidation of Copeinca into the Group. This demonstrates the potential of the enlarged business to deliver impressive returns in the future, meeting the growing demand for fishmeal and fish oil.

The Group’s profit benefited from initiatives designed to improve overall performance of our Peruvian Fishmeal operations, including the closure of two fishmeal processing plants, reduction in fleet size, and centralisation of the engineering and vessel maintenance workforce. While we have made significant progress, we still have more to accomplish to strengthen our long- term growth and margins.

During the year, the Frozen Fish Supply Chain Management (the “Frozen Fish SCM“) Division continued to build on its core competencies to maintain its strong market position in China. However, due to lower sales volume, revenue recorded a 27.7% drop from HK$4,435.0 million to HK$3,205.5 million.

We have taken decisive action to improve our balance sheet and I am pleased to report that we are well on track to achieve the target of improving our net debt to equity ratio to below 75% in the next two years. The key steps taken are as follows:

  1. We realized cash through the sale of non-core investments. Through the disposal of the 18.09% equity interest in Tassal Group Limited (“Tassal”), we realised a gain of HK$316.4 million, representing a gain of nearly 100% on the initial investment.
  2. We extended the maturity profile of our borrowings by refinancing short term borrowings through the issuance of a 3-year S$200 million bond.
  3. After the end of FY2014, PARD announced a proposed 4-for-5 rights issue to raise approximately S$195.5 million. We intend to utilise the net proceeds to reduce the Group’s gearing (including, mainly to support and/or assist China Fishery in the redemption of the Copeinca Notes). Upon completion of the rights issue and full redemption of the Copeinca Notes, proforma net debt to equity ratio will improve from 90% to 76.5%. We also expect that our interest cost will be reduced and our profitability improved.

The Board did not declare dividends for FY2014 due to our commitment to strengthening the Company’s balance sheet. Looking forward, the Board will assess the payment of dividends in the light of future business performance.

In FY2015, we will continue our efforts to reduce the Group’s overall borrowings so as to have a strong and resilient financial foundation to better support future growth.

Market and Operations Review

Sales to China are expected to continue to be the major source of revenue for the Group. China’s imports of frozen fish have grown steadily over the last 8 years and per capita consumption of fish is predicted to continue to grow up to 2022. Globally, the Food and Agriculture Organisation (the “FAO”) predicts that the fishery markets will continue to be strengthened with export value for fish and fishery products expected to reach USD140 billion1 in 2014, a 4% increase when compared with 2013.

As a result of growing affluence, global demand for protein will continue to rise. In turn, this will accelerate global demand for fishmeal and fish oil as essential feed ingredients for aquaculture, in addition to farmed animal production. Approximately 68% of fishmeal and fish oil is utilised in aquaculture and, based on the latest forecast by the FAO, total production by the world aquaculture sector is set to grow at 4.14%2 per year through to 2022, significantly faster than previous forecasts.

1 Issue 3/2014, Globefish Highlights, FAO
2 FAO: Aquaculture can grow faster, raising micronutrient supply from fish, 14 November 2014

At the end of November 2014, Peru’s marine institute, Imarpe, completed its second assessment of the Peruvian Anchovy fishery for the fishing season scheduled to run from November 2014 until January 2015. The institute found a 94% density of juvenile fish (less than six months old) in the north-centre region which led the institute to recommend that the fishing season not be opened. These conditions were assessed to be the result of cyclical warming of the waters which caused the Anchovy stocks to temporarily disperse. On 22 December 2014, Imarpe submitted a further report to the Peruvian Ministry of Production and, as a consequence, the Ministry announced that it would maintain closure of the north- centre fishery until the environmental conditions return to normal and the Anchovy stocks recover. Imarpe noted the progressive normalisation of the environmental conditions and the steady recovery of the biological condition of the Anchovies.

Industry in general believes that the high percentage of juveniles is a very positive indicator for the major April to July fishing season of 2015, which generally represents about 60% of the annual catch. The Peruvian Anchovy resource has shown itself to be able to recover quickly from these cyclical events, as it is well-managed under the effective fishery management policy adopted by the Peruvian Government.

In the long-term, we believe that strong demand from aquaculture and farmed animal production will continue to push up prices of both fishmeal and fish oil. China, the world’s largest pig farming country, will require increased supply of fishmeal for its growing pig farming industry. This demand will be a key driver of future growth for the fishmeal and fish oil market, and in particular for the Group.

Corporate Social Responsibility

We released our second sustainability report in July this year. The report which meets the Global Reporting Initiative (GRI)’s A+ level of reporting, the highest level available, highlighted the Group’s developments in environmental sustainability, social compliance and product responsibility and outlines its sustainability commitments for 2014/2015. It has won widespread acclaim for its breadth of coverage and transparency, and reflects the leadership position that the Group is seeking to take in sustainability within the industry.

As a responsible corporate citizen, PARD is fully committed to its policy on corporate social responsibility. As we deal with a vast variety of quality seafood products, the Group is keenly aware of the importance of sustainable fishing and biological framework as well as in ensuring our actions are in total compliance with environmental, legal and social requirements.

Riding on this year’s theme, “Responsible seafood – from global to local”, the Group is focusing on implementing our global commitment at the local levels, maintaining a strong connection with local culture. We believe this is critically important to the long term health of the community and sustainability of our business.

Outlook and Prospects

The Group is focused on three core strategies for future growth. First, we will maintain our high exposure to the aquaculture supply chain through our Fishery and Fish Supply Division, leveraging the strong and growing demand for fishmeal and fish oil. This business will continue to be the major contributor to the Group’s revenue. We are in an advantageous position as one of the world’s leading and largest producers and exporters of fishmeal and fish oil, as the demand for fishmeal and fish oil continues to grow in the coming years and decades.

Second, we will continue to extract value from synergies and efficiencies generated by the integration of the Peruvian Fishmeal Operations. We are committed to becoming the most efficient fishmeal and fish oil producer in Peru.

Third, we will be disciplined in our capital and cash flow management. This involves a focus on operating cash generation, reduction in borrowings and finance costs, shortening the working capital cycle and reduction in capital expenditure.

I am confident that the consolidation of our businesses in FY2014 has better prepared us for, and laid a solid foundation for strong growth ahead and continued profitability in the coming years.


I would like to express my deepest gratitude to our shareholders, customers, business partners, advisers and bankers for their continued support and confidence in the Group.

I would also like to thank our Management and employees for their dedication, hard work and professionalism.

Finally, I would like to thank my fellow directors for their guidance and strategic counsel to the Management and for the support they have accorded to me.

I look forward to your continued support and I believe, together we can deliver outstanding results.

Ng Joo Siang

27 December 2014