Message to Shareholders

Extracted from Annual Report 2009

Dear Valued Investors,

On behalf of the Board of Directors ("Board"), I am delighted to present the Annual Report for PARD. On 26 August 2009, the Group changed its financial year end date from 31 March to 28 September. The change of year end aligns the Group's financial year end with that of its subsidiary, China Fishery Group Limited ("China Fishery"), which owns and operates the company's upstream fishing operations. The Board considers the change would allow all the Group's companies to have a co-terminous year end and thus facilitate the preparation of the Company's consolidated accounts with the same year end date and save its audit costs substantially. As a result, this annual report covers a 6-month period from 1 April 2009 to 28 September 2009 ("6MFY2009").

Being in the consumer staple sector, our business remained resilient and was not affected by the global financial tsunami. Indeed, we recorded 31.8% growth in net profit attributable to equity holders for the six-month period from 1 April to 28 September 2009, which is the financial period under review for this annual report following the change in the Group's financial year end from 31 March to 28 September. Besides achieving improved profits, we also capitalised on opportunities to expand our business, such as establishing a strong presence in the South Pacific for our fishing division.

The Group's Rights Issue in July 2009 which raised a total of HK$1,092.0 million provided a sound financial base to support our expansion activities. The proceeds from the Rights Issue was used for:

1. increasing the Group's stake in the Group's upstream fishing division – China Fishery (HK$37.0 million);
   
   
2. the repurchase of convertible bonds and senior notes (HK$72.0 million);
   
   
3. the balance payment for the acquisition of China Fishery (HK$416.5 million) in 2007; with the balance for general working capital.

As a result, net debt to equity ratio reduced from 90.9% to 72.1% as at 28 September 2009. The Group will have greater flexibility in utilising its financial resources going forward.

In view of our solid performance in 6MFY2009, the Board has proposed a dividend of 0.6 Singapore cents (S$0.006) per share. Shareholders can opt to receive their dividend in cash or fully paid shares based on the attractive price of S$0.25 per share.

Another important corporate development for the Group in 6MFY2009 was the change in name to Pacific Andes Resources Development Limited from Pacific Andes (Holdings) Limited. We believe that the new name better represents the Group's strategy and commitment to developing, marketing and distribution of under-utilised marine resources from the world's oceans to consumers. Going forward, we will continue to focus on this strategy and commitment as we cement our foothold in the South Pacific, continue to explore new fishing grounds and deepen our market access in existing and new markets.

Business review

The Group's frozen fish supply chain management ("Frozen Fish SCM") division continued to deliver stable and consistent returns. The Frozen Fish SCM division benefitted from economies of scale and saw an increase in trading volume during the period. We also successfully expanded our market access and entered the Eastern European market during the period. However, in view of the lower purchasing power as a result of the challenging economic environment, we adjusted our sales mix during the period by increasing the sales of lower-priced fish and correspondingly reducing that of higher-priced products. This led to level sales for the division at HK$2,057.2 million in 6MFY2009 compared to HK$2,042.5 million in the comparative period last year.

Meanwhile, the Group's fishing division saw our maiden revenue contribution from trial fishing operations in the South Pacific operations, which commenced in July 2009. We expanded the fishing fleet in the South Pacific with the addition of seven catcher vessels and a factory trawler to the five super-trawlers that were re-deployed from the North Pacific operations.

The Group was able to re-deploy the super-trawlers due to the strategic move to even out vessel utilisation throughout the year in the North Pacific operations, which enabled us to reduce costs as well as the number of vessels required without reducing annual catch volume. In line with this strategic move, there was a partial shift in fishing activity in the North Pacific from the first to the fourth quarter of the calendar year. This shift resulted in a temporary drop in sales from the fishing division to HK$1,670.4 million for its first 6 months compared to HK$1,040.2 million last year.

6MFY2009 also saw the implementation of the Individual Transferable Quota ("ITQ") system in Peru, leading to enhanced margins, improved product quality and better yield rate in the fishing division's fishmeal operations. Vessel and fishmeal processing plants utilisation improved, which enabled the Group to consolidate the number of processing plants in Peru from eight to six, and the number of vessels in operation from 39 to 29 in 6MFY2009. Although fishmeal prices softened during the period in line with falling commodity prices worldwide, the Group has been seeing a general uptrend in fishmeal prices due to stronger market demand for fishmeal, particularly in agricultural countries such as the PRC. As we will continue to further enhance the operating efficiency and utilisation of our fleet and fishmeal processing plants, profitability is expected to improve for our fishmeal operations.

Financial review

PARD achieved net profit attributable to owners of HK$284.1 million in 6MFY2009, a 31.8% increase on the back of further cost management initiatives and better economies of scale, which pushed up gross profit margin to 18.9%. The Group's strategic move to even out fleet utilisation in the North Pacific operations had led to a temporary effect of lower sales for this period, dipping 4.0% to HK$3,727.6 million. Earnings per share reached 14 Hong Kong cents (HK$0.14) per share, up 3.3% from the comparable period last year.

The Group's financial position strengthened in 6MFY2009 with an enlarged capital base and improved net debt to equity ratio following the completion of the Rights Issue in July 2009. As at 28 September 2009, the Group's total assets amounted to HK$12,859.6 million and net asset value per share was HK$2.10.

Outlook and Development Plans

As the world's population continue to grow and consumers become increasingly affluent and health conscious, the Group expects demand for fish to continue to rise. According to the Food and Agriculture Organisation of the United Nations ("FAO"), fish consumption in the PRC is expected to increase from 25.6kg in 2003 to over 30kg in 2030, while fish consumption in developing countries such as Africa will also increase. The Group has a very strong presence in the PRC and is currently the country's largest supplier of imported frozen fish. The PRC is also a significant global processing base, which the Group can leverage on as an ideal logistics and product trading hub. At the same time, we are also rapidly growing our presence in the African market. Hence these growth forecasts certainly bode well for the Group's development.

While we continue to pursue growth opportunities, we remain committed to our deeply-held belief in sustainable fishing. We will maintain our focus on abundant and under-utilised ocean resources, source fish from and operate in sustainable fishing grounds. Going forward, we will continue to explore and capture market share in new fishing grounds with abundant and underutilised fish species. Also, we will persist with our efforts in consolidation and efficiency improvements to further enhance our margins.

In addition, we are also strategically expanding our market presence, particularly in Eastern Europe and Africa. In countries where PARD has established a presence, we plan to drive product diversification to help increase our market share.

Acknowledgement

I would like to express my sincere thanks to my fellow Directors for their invaluable guidance and support as the Group continues to execute our strategy of developing, marketing and distributing under-utilised marine resources from the world's oceans to consumers.

My deepest appreciation as well for the unyielding support of all our stakeholders, including our customers, business partners, bankers, advisers, shareholders, staff and crew members. With your continued support, we look forward to another rewarding year.