(20th August 2013, Hong Kong) The board of directors (the “Board”) of COSCO International Holdings Limited (“COSCO International” or the “Company”, stock code: 00517) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (collectively the “Group”) for the six months ended 30th June 2013.

For the six months ended 30th June 2013, revenue of the Group slightly decreased by 0.4% year-on-year to HK$4,461,412,000 (2012: HK$4,478,772,000), in which revenue derived from the shipping services declined by 7% to HK$3,933,850,000 (2012: HK$4,235,244,000), accounting for 88% (2012: 95%) of the total revenue of the Group. Revenue from general trading segment increased by 117% year-on-year to HK$527,562,000 (2012: HK$243,528,000), accounting for 12% (2012: 5%) of the total revenue of the Group.

During the first half of 2013, the shipping market remained depressed and the oversupply of shipping capacity was serious, leading to deterioration of the operating environment of shipping enterprises and shipyards. Ship owners continued to postpone delivery of new build vessels and tighten cost controls over ship repair and maintenance. In addition, the volume of new build vessels deliveries decreased year by year and competition in coatings market intensified, which brought great negative impact on COSCO International, whose major customers included ship owners, shipyards and container manufacturers. During the period, the profit attributable to equity holders of the Company for the period decreased by 44% year-on-year to HK$130,924,000 (2012: HK$232,415,000).

There was a reversal of an impairment provision in relation to the collection of outstanding trade receivable from a defaulting customer of marine fuel and other products of US$3,823,000 (equivalent to approximately HK$29,662,000) recorded in the 2012 interim results. If this one-off item was excluded, profit attributable to equity holders of the Company for the period would have decreased by 35% as compared with the same period of 2012.

Basic earnings per share was 8.65 HK cents (2012: 15.35 HK cents).

Dividend

The Board has declared an interim dividend of 2 HK cents (2012: 2 HK cents) per share for the six months ended 30th June 2013.

Business Review

The performance of the Group’s key business segments during the first half of 2013 is described below:

Core Business – Shipping Services
During the first half of 2013, as the shipping market remained weak and shipping companies carried out stringent cost controls, coupled with a decrease in volume of new build vessel deliveries year by year, revenue from the Group’s shipping services decreased by 7% to HK$3,933,850,000 (2012: HK$4,235,244,000) as compared with the same period of 2012. Except for marine insurance brokerage services, the revenues of all core shipping services sectors decreased to varying degrees. The depression of the operating profit which was resulted from the decreases in revenue and gross profit of the core shipping services sectors, the decline of the share of profit from Jotun COSCO, a jointly controlled entity of the Company, and the reversal of impairment provision of trade receivable in the first half of 2012, which was a one-off event, leading to the profit before income tax from shipping services during the period down by 45% year-on-year to HK$150,113,000 (2012: HK$273,197,000). However, this represented an increase of 16% as compared with the shipping services’ profit before income tax of HK$129,508,000 recorded in the second half of 2012.

Facing a complex and severe market conditions, COSCO International spared no effort in developing its existing business operation by capitalising on opportunities as being the sole agent of COSCO Group’s centralised procurement of marine equipment and spare parts, and marine insurance.

The Group also maintained its existing customer base by focusing on its marketing services, enhancing service consciousness, and actively explored the markets outside COSCO Group. In addition, the Group further improved its global geographic presence by acquiring Hanyuan Technical Service Center GmbH in Hamburg, Germany in June 2013, enhancing the Group’s capacity in the procurement and supply of marine equipment and spare parts in Europe.

(1) Ship Trading Agency Services
During the first half of 2013, there were delays in delivery of new build vessels ordered through COSCO International Ship Trading Company Limited (“COSCO Ship Trading”), a wholly-owned subsidiary of the Company. New build vessels aggregating 745,600 dead weight tonnages (2012: 1,296,000 dead weight tonnages) ordered through COSCO Ship Trading were delivered during the period, down by 42% year-on-year.

This decreased commissions from the new build vessels, which could have been recognised as revenue. The second-hand vessels market remained stagnant as there were obvious disparities in price expectation between buyers and vendors. A total of 379,000 dead weight tonnages (2012: 427,000 dead weight tonnages) of second-hand vessels were transacted during the period, representing a decrease of 11% year-on-year. Meanwhile, ship prices remained at lower levels, resulting in the reduction of the commission income from second-hand vessels. During the period, revenue from ship trading agency segment decreased by 30% to HK$44,628,000 (2012: HK$63,735,000) as compared with the same period of 2012. Segment profit before income tax was HK$29,860,000 (2012: HK$48,331,000), representing a decrease of 38% as compared with the same period of 2012.

As at 30th June 2013, new build vessels ordered through COSCO Ship Trading pending delivery amounted to 4,394,600 dead weight tonnages, which were scheduled for delivery in the coming two years. The related commission income will be recognised upon delivery of new vessels.

(2) Marine Insurance Brokerage Services
During the period, COSCO (Hong Kong) Insurance Brokers Limited, a wholly-owned subsidiary of the Company, and Shenzhen COSCO Insurance Brokers Limited, a non-wholly owned subsidiary of the Company (collectively “COSCO Insurance Brokers”), leveraged on their role as the sole agent of centralised procurement of hull and machinery insurance for COSCO Group. They strengthened the businesses within COSCO Group and also explored new clients outside COSCO Group, especially the emerging shipping companies controlled by other large state-owned enterprises. Furthermore, COSCO Insurance Brokers stepped up efforts to develop new businesses, among which the project on offshore units’ builders’ risk insurance gained a breakthrough.

During the period, revenue and profit from the insurance brokerage segment maintained steady growth. Revenue increased by 4% to HK$43,755,000 (2012: HK$41,952,000) as compared with the same period of 2012. Segment profit before income tax was HK$31,316,000 (2012: HK$30,073,000), representing an increase of 4% as compared with the same period of 2012.

(3) Supply of Marine Equipment and Spare Parts
During the year, as shipping companies exercised stricter cost control over ship repairs and maintenance, orders of marine equipment and spare parts from ship owners shrank to varying extents. This led to the decline in revenue of Yuantong Marine Service Co. Limited, a wholly-owned subsidiary of the Company, and its subsidiaries (collectively “COSCO Yuantong Operation Headquarters”). During the period, revenue from marine equipment and spare parts segment was HK$389,729,000 (2012: HK$464,294,000), down by 16% as compared with the same period of 2012.

In addition, COSCO Yuantong Operation Headquarters fully coordinated with the implementation of the centralised procurement of spare parts by COSCO Group, which lowered the profit margin from the sale of marine equipment and spare parts in the short run. During the period, profit before income tax from marine equipment and spare parts segment slid by 63% as compared with the same period of 2012 to HK$14,932,000 (2012: HK$40,124,000). However, in the long run, COSCO Yuantong Operation Headquarters, being the sole agent of COSCO Group for the centralised procurement of marine spare parts, will help develop the markets outside COSCO Group and secure more favourable terms from manufacturers, thereby further expanding the earnings scale outside COSCO Group.

(4) Production and Sale of Coatings
During the first half of 2013, COSCO Kansai Paint & Chemicals Co., Ltd. (“COSCO Kansai Companies”), a subsidiary of the Group mainly engaged in the production and sale of container coatings and industrial heavy-duty anti-corrosion coatings with its factories located in Tianjin, Shanghai, and Zhuhai, together with Jotun COSCO Marine Coatings (HK) Limited (“Jotun COSCO”), a jointly controlled entity of the Company, that is mainly engaged in the production and sales of marine coatings with its factory in Qingdao, continued to maintain the no. 1 positions in China’s container coating market and marine coating market respectively.

As for container coatings, during the first half of 2013, the total volume of new build containers in China remained flat year-on-year. COSCO Kansai gained the trust and support of customers through proactive communications with container manufacturing enterprises and container owners. During the period, the sales volume of container coatings of COSCO Kansai amounted to 27,234 tonnes, representing an increase of 6% as compared with 25,806 tonnes in the same period of 2012. As for industrial heavy-duty anti-corrosion coatings, impacted by the slowdown of economic growth in China, bridge and construction machinery businesses decreased. The sales volume of industrial heavy-duty anti-corrosion coatings together with workshop primer declined by 9% year-on-year to 5,370 tonnes (2012: 5,933 tonnes).

As for marine coatings, facing the impact from the decline in the total volume of new build vessels construction in China and the delay in delivery of new build vessels by shipowners, the sales volume of marine coatings of Jotun COSCO dropped by 39% year-on-year to 27,794,000 litres (equivalent to approximately 37,522 tonnes) (2012: 45,606,000 litres, equivalent to approximately 61,568 tonnes). During the period, the Group’s share of profit from Jotun COSCO recorded HK$5,157,000 (2012: HK$29,868,000), significantly decreased by 83% as compared to the same period of 2012. The decrease was mainly attributable to the decline in the sales revenue of marine coatings, the relative fixed operating expenses and the one-off expenses generated from Jotun COSCO’s new plant in Qingdao.

As at 30th June 2013, Jotun COSCO had coating contracts in hand for new build vessels amounting to 24,950,000 dead weight tonnages pending delivery. The coatings were scheduled to be delivered in the coming two years, which guaranteed Jotun COSCO’s future business to a certain extent.

During the period, revenue from coatings segment (i.e. revenue of COSCO Kansai) was HK$684,640,000 (2012: HK$714,445,000), down by 4% year-on-year. Due to the decline in the gross profit margin of container coatings and the decline of the share of profit from Jotun COSCO, the segment profit before income tax from coatings segment decreased by 46% as compared to the same period of 2012 to HK$61,364,000 (2012: HK$114,161,000).

In order to meet the future development needs of the coating business unit and maintain a sound geographic presence in China, the construction of a new coating plant of Jotun COSCO located in Qingdao with an annual production capacity of 67,500 tonnes was completed during the period and was expected to officially commence operation by the end of the year. The preparation for the construction of COSCO Kansai’s new plant in Shanghai has progressed steadily, and it is expected to complete construction by the end of 2014 at its earliest. In addition, COSCO Kansai succeeded in bidding for the largest coating procurement contract for the main bridge project of the Hong Kong-Zhuhai-Macao Bridge, with the contract amount of over RMB110 million, laying a solid foundation for obtaining other subsequent major bridge projects.

(5) Trading and Supply of Marine Fuel and Related Products
Sinfeng Marine Services Pte. Ltd. (“Sinfeng”), a wholly-owned subsidiary of the Company in Singapore and primarily engaged in the trading of marine fuel, continued to adopt prudent business strategies to respond to the depressed shipping market. Sinfeng implemented key customer marketing strategy, and emphasised on maintaining business partnership with customers of good credits. During the period, the total sales volume of marine fuel products was 562,323 tonnes, up by 3% as compared with 545,900 tonnes in the same period of 2012. However, affected by the reduction in price of marine fuel, revenue from the marine fuel and other products segment was down by 6% year-on-year to HK$2,771,098,000 (2012: HK$2,950,818,000).

In addition, Double Rich, in which the Group owns an 18% equity interest, is principally engaged in the trading of fuel and oil products and the provision of bunker oil supply services in Hong Kong. During the period, the Group’s share of profit from Double Rich was HK$9,498,000 (2012: HK$9,571,000), slightly down by 0.8% as compared with the same period of 2012.

Profit before income tax of marine fuel and other products segment was HK$12,641,000 (2012: HK$40,508,000), representing a decrease of 69% as compared with the same period of 2012. The decrease was mainly attributable to the inclusion of a reversal of an impairment provision of trade receivables of US$3,823,000 (approximately equivalent to HK$29,662,000) in the same period of 2012. Excluding the one-off item, the profit before income tax of marine fuel and other products segment would have been up by 17%.

General Trading
COSCO International Trading Company Limited (“CITC”), a wholly-owned subsidiary of the Company, is principally engaged in trading of asphalt, general marine equipment and marine supplies, as well as other comprehensive trading. During the period, CITC’s sales volume of asphalt surged by 142% year-on-year to 60,773 tonnes (2012: 25,137 tonnes), which benefitted from the increased highway construction projects in central and western China. The revenue and profit before income tax from general trading segment during the period were up by 117% and 235% year-on-year, to HK$527,562,000 (2012: HK$243,528,000) and HK$14,053,000 (2012: HK$4,196,000) respectively.

Awards & Honors

With years of unremitting efforts in enhancing corporate governance, strengthening investor relations and fulfilling corporate social responsibility, the Group gained a number of awards and recognitions during the period, including “Gold Award for Corporate Governance, Social Responsibility, Environmental Responsibility and Investor Relations” in the Asset Corporate Awards 2012 organised by The Asset, Asia’s renowned financial magazine, for the third consecutive year; “Asia’s Icon on Corporate Governance”, the highest accolade in the 9th Corporate Governance Asia Recognition Awards organised by Corporate Governance Asia; and the “Best CSR” and “Best Investor Relations Company” in the Asian Excellence Recognition Awards, organised by Corporate Governance Asia, for the second time. The Company was also awarded the “Corporate Citizenship Logo (Enterprise Category)” in the 3rd Hong Kong Corporate Citizenship Award Scheme, co-organised by Hong Kong Productivity Council and the Committee on the Promotion of Civic Education, in recognition of the Company’s contribution in corporate social responsibility. Furthermore, Hang Seng Indexes Company Limited released its Hang Seng Index Series Quarterly Review Report on 9th August. COSCO International was selected again as a constituent member of Hang Seng Corporate Sustainability Benchmark Index. This accomplishment reflected the Company continually gained recognition and support from the capital market for its persistent efforts in environmental protection, social responsibility, and corporate governance.

Outlook

Looking ahead to the second half of the year, the growth of the global economy is expected to remain slow, while complex changes in macroeconomic environment will continue to affect the development of shipping industry and related businesses. It is anticipated that the overall market conditions will remain grim, with persisting imbalances between supply and demand and limited upside freight rates. Facing a sluggish and uncertain market, the operations of companies in the shipping, shipbuilding and relevant industries are subject to varying degrees of impact and constraint, which will put enormous pressure on the profit growth of COSCO International’s existing businesses in the future.

Mr. Ye Weilong, Chairman of the Board of COSCO International, commented, “Rare opportunities are always hidden in crisis. We believe there are more opportunities for existing and new businesses of COSCO International in related areas of shipping service. The Group will push forward the development of existing and new businesses steadily, on the basis of strict control on various operational risks. For our existing businesses, we will utilise our position of being the sole agent of COSCO fleet, as well as its advantages in scale and expertise. We will increase our business volume within COSCO Group and secure favourable terms from more manufacturers at the same time, thus developing more markets outside COSCO Group. Meanwhile, we will further promote business transformation and upgrade of shipping service business segments. Through utilizing our global network, offering high quality services and products with core competitiveness, COSCO International will gradually transform from an agent to a one-stop shipping services provider. In new business development, we will make good use of the cash on hand by adhering to the establish strategic development plan, and continue to proactively hunt for opportunities to push forward the establishment of a global sales and services network and the acquisitions of shipping service-related projects inside and outside COSCO Group. At the same time, we will actively study the exploration into the upstream and downstream along the value chain of existing businesses. By the corporate vision of becoming a global leading one-stop shipping service provider, we will strive to create the greatest returns for our shareholders.”

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