(21st March 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 audited consolidated results of the Company and its subsidiaries (collectively the “Group”) for the year ended 31st December 2012.

For the year ended 31st December 2012, revenue of the Group decreased by 6% year-on-year to HK$10,005,705,000 (2011: HK$10,656,121,000). Impacted by external factors such as the slowdown of the container coatings market, operating difficulties faced by shipping enterprises, soaring operating costs, and decline in newbuild deliveries, revenue of various core shipping services business segments declined by 9% to HK$8,620,568,000 as compared with 2011 (2011: HK$9,494,319,000).

Facing the tough market environment, the Group timely adopted countermeasures, including：(i) strengthening the credit management, and successful collection of long outstanding trade receivables resulting in the reversal of provision for impairment of trade and other receivable; (ii) strict control over selling, administrative and general expenses leading to the reduction in overall level of operating expenses; (iii) enhancing yields on liquid cash leading to the substantial increase in finance income；and (iv) taking advantage of the corporate headquarters’ cash on hand to reduce subsidiaries’ external borrowings and thereby substantially reducing finance costs as compared with the previous year. Through these efforts, the profit attributable to equity holders of the Company for the year only declined by 7% to HK$363,006,000 as compared with 2011 (2011: HK$390,339,000).

Basic earnings per share was 23.98 HK cents (2011: 25.80 HK cents).

Dividend

The Board has recommended a final dividend of 6 HK cents (2011: 7 HK cents) per share for the year ended 31st December 2012. Together with the interim dividend of 2 HK cents (2011: 2 HK cents) per share, the total dividends of 8 HK cents per share (2011: 9 HK cents) represented a dividend payout ratio of 33% (2011: 35%).

Business Review

The performance of the Group’s key business segments during 2012 is described as below:

Core Business – Shipping Services
In 2012, the pace of global economic recovery remained slow. The imbalance between supply and demand in the shipping market has not been effectively alleviated, resulting in the ongoing depressed shipping freight rates. Coupled with high level of operating costs, the operating environment of shipping companies and shipyards further deteriorated.

Facing the complex, volatile and severe market environment, COSCO International strengthened its cost control, enhanced management level, and intensified the awareness of customer service, sparing no effort to maintain its existing customer base during the year. Based on the client’s needs, the Group made corresponding arrangements for centralised procurement for COSCO fleets in supply of marine spare parts and marine insurance. Meanwhile, the Group actively explored the businesses outside COSCO Group and made achievement to a certain extent. During the year, revenue from the shipping services businesses fell by 9% to HK$8,620,568,000 (2011: HK$9,494,319,000), in which the three largest business segments, namely marine fuel supply, coatings and supply of marine equipment and spare parts recorded declined by 7%, 21% and 5% respectively compared with that in 2011. Profit before income tax from shipping services was HK$402,705,000 (2011: HK$487,770,000), representing a decrease of 17% as compared with 2011. The decrease was mainly attributable to the significant drop in profit before income tax of the coatings segment and the ship trading agency segment.

(1) Ship Trading Agency Services
During the year, the shipping market remained sluggish. Shipowners and shipping companies were not optimistic about the future. As a result, there were delays in delivery of newbuild vessels ordered through COSCO International Ship Trading Company Limited (“COSCO Ship Trading”), a wholly-owned subsidiary of the Company. During the year, newbuild delivery decreased by 32%, aggregating 1,850,000 dead weight tonnages (2011: 2,710,000 dead weight tonnages), leading to the decline in recognised commission income from newbuild. A total of 1,068,000 dead weight tonnages (2011: 1,064,000 dead weight tonnages) of second-hand vessels were transacted. Although the amount of total tonnage was similar to that in 2011, the ship prices were lower, resulting in the reduction of the commission income from second-hand vessels. During the year, revenue from the ship trading agency segment decreased by 27% to HK$109,340,000 (2011: HK$150,156,000) as compared with 2011. Segment profit before income tax was HK$76,526,000 (2011: HK$112,530,000), representing a drop of 32% as compared with 2011.

During the year, new contracts of 4 (2011: 8) newbuild vessels, amounting to 1,232,000 dead weight tonnages (2011: 460,000 dead weight tonnages), were signed through COSCO Ship Trading. As at 31st December 2012, newbuild vessels of 5,140,000 dead weight tonnages ordered through COSCO Ship Trading were scheduled for delivery in the coming two years, and related commission income will be recognised upon delivery of new vessels.

(2) Marine Insurance Brokerage Services
During the year, 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”) shifted their focus of business development, in response to market trends and changes, to emerging shipping companies of other large state-owned enterprises outside COSCO Group, leading to satisfactory growth in the hull and machinery insurance business. In addition, by taking the advantage of the implementation of centralised procurement for various shipping companies within COSCO Group, COSCO Insurance Brokers paid great effort in coordination with insurance companies, and achieved success in policy renewal work of hull and machinery insurance for COSCO fleets. Regarding the new businesses, COSCO Insurance Brokers stepped up efforts and made a breakthrough in the development of insurance brokerage business for offshore engineering.

Through the implementation of the above business strategies, COSCO Insurance Brokers maintained stable commission income from marine insurance brokerage services. During the year, revenue from marine insurance brokerage segment was HK$85,142,000 (2011: HK$85,486,000), flat as compared with 2011. Segment profit before income tax was HK$61,861,000 (2011: HK$61,172,000), represented an increase of 1% as compared with 2011.

(3) Supply of Marine Equipment and Spare Parts
During the year, Yuantong Marine Service Co. Limited, a wholly-owned subsidiary of the Company, and its subsidiaries (collectively “COSCO Yuantong Operation Headquarters”) made the relevant arrangements of centralised procurement for COSCO fleets starting from 2013, which benefited COSCO Yuantong Operation Headquarters to bargain for more favourable terms from suppliers through its advantage of economies of scale, and to reap greater economic benefits. However, due to the increased scrapping of old ships and delays in replacement of marine spare parts in various shipping companies to reduce repair and maintenance costs, the orders of marine spare parts and materials shrank by varying degrees, and gross profit margin was squeezed. During the year, revenue from marine equipment and spare parts segment declined by 5% as compared with 2011, to HK$923,102,000 (2011: HK$970,159,000). Segment profit before income tax was HK$50,950,000 (2011: HK$64,767,000), down by 21%. This included a reversal of a provision for impairment of trade receivables of HK$2,628,000 (2011: provision for impairment of trade receivables of HK$4,724,000).

In addition, the Group has actively promoted the service network development in overseas areas in order to form a global marine spare parts supply service network on the basis of the existing network covering Hong Kong, Shanghai, Beijing, Japan and Singapore, and in March 2013, the Group signed a memorandum in relation to a proposed acquisition of the entire issued share capital of Hanyuan Technical Service Center GmbH from COSCO Group in Germany, for a consideration of not more than EUR1,200,000 (equivalent to approximately HK$12,012,000).

(4) Production and Sale of Coatings
During the year, due to the less demand in the container manufacturing market and the decline in newbuild deliveries, the demand for container coatings and marine coatings decreased. Despite this, COSCO Kansai Paint & Chemicals Co., Ltd. (“COSCO Kansai”), subsidiaries 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, mainly engaged in the production and sales of marine coatings with its factory in Guangzhou, successfully expanded their market share by leveraging on their strengths in customer development, technology and brand, thereby maintaining their leading positions in the markets of container coatings and marine coatings for newbuild vessels and for ship repair and maintenance in China. During the year, revenue and profit before income tax from the coatings segment were down by 21% and 31% respectively to HK$1,274,861,000 (2011: HK$1,608,654,000) and HK$158,744,000 (2011: HK$230,798,000) as compared with 2011. The decrease was mainly attributed to the decline in revenue from container coating business.

As for container coatings, the demand for new containers had been weakened since the second half of 2012. This led to decline in the demand for container coatings. In addition to the low level of container prices and fiercer price competition in container coatings market, the gross profit of container coatings was squeezed. During the year, orders for COSCO Kansai’s container coatings declined substantially. The total sales volume of container coatings of COSCO Kansai in 2012 amounted to 46,656 tonnes, representing a decrease of 18% as compared with 56,979 tonnes in 2011. As for industrial heavy-duty anti-corrosion coatings, COSCO Kansai Companies continued to increase its efforts in market development, resulting in an increase of 9% in the sales volume of industrial heavy-duty anti-corrosion coatings together with workshop primer to 11,670 tonnes (2011: 10,701 tonnes).

As for marine coatings, because there has been a decline in newbuild deliveries since the second half of 2012, the annual sales volume of marine coatings decreased by 13% as compared with 2011, to 84,981,000 litres (equivalent to approximately 114,724 tonnes) (2011: 97,918,000 litres (equivalent to approximately 132,189 tonnes) . As at 31st December 2012, Jotun COSCO had contracts on hand of marine coatings for newbuild vessels amounting to 24,750,000 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 year, the Group’s share of profit from Jotun COSCO was HK$38,303,000 (2011: HK$48,677,000), down by 21% as compared with 2011. The decline was not only attributable to the decline in sales volume, but also mainly due to the one-off expenses incurred from Jotun COSCO’s plan to relocate its production line from the plant in Guangzhou to the new plant in Qingdao in 2013, including severance payments to staff, provision for impairment of fixed assets and project management fees in respect of construction works of the new plant.

In order to strengthen the competitiveness of the two coating companies and to consolidate the Group’s market leadership in China’s coating market, the Group has been pushing forward the construction of the new plants of the two joint ventures. The new plant of Jotun COSCO located in Qingdao with an annual production capacity of 67,500 tonnes, will commence production this year. The preparation for the construction of COSCO Kansai’s new plant in Shanghai has been in progress, and it is expected to complete construction by the end of 2014, with an annual production capacity of 75,000 tonnes.

(5) Trading and Supply of Marine Fuel and Related Products
During the year, Sinfeng Marine Services Pte. Ltd. (“Sinfeng”), a wholly-owned subsidiary of the Company in Singapore which is primarily engaged in the trading of marine fuel, adopted sound business strategies, and strictly controlled operational risks by cutting back business dealings with customers with potential risks, in response to the downturn of shipping market. The total sales volume of marine fuel products for the year declined by 12% to 1,200,070 tonnes as compared with 2011. Revenue from marine fuel supply and other products segment was HK$6,228,123,000, down by 7% as compared with HK$6,679,864,000 in 2011. Sinfeng successfully collected all outstanding trade receivables from a customer defaulting on trade receivables (including interest arising from overdue payments and legal costs). Sinfeng reversed the relevant impairment provision of US$3,823,000 (equivalent to approximately HK$29,654,000) during the year.

Double Rich, in which the Group owns 18% equity interest, is principally engaged in trading of fuel and oil products and provision of bunker supply services in Hong Kong. Due to the decrease in its investment income, the Group’s share of profit from Double Rich fell by 45% as compared with 2011, to HK$13,796,000 (2011: HK$25,091,000) during the year.

During the year, profit before income tax of marine fuel and other products segment was HK$54,624,000 (2011: HK$18,503,000), representing an increase of 195% as compared with 2011. This included reversal of provision for impairment of trade receivables as mentioned above.

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 year, CITC endeavoured to explore the emerging markets and actively stepped up its marketing efforts by establishing sales network in, among others, Guizhou and Guangxi, while it achieved a breakthrough of market exploration in Guangxi. However, due to the shortage of capital in highway construction across China’s provinces in the first half of the year, the progress of some construction projects was impeded, and completion dates and settlement times were delayed to 2013, resulting in a decrease of 3% in sales volume of asphalt to 121,454 tonnes as compared with 2011. Due to several factors including the increase in asphalt selling prices, revenue from general trading segment rose by 19% as compared with 2011, to HK$1,385,137,000 (2011: HK$1,161,802,000). Segment profit before income tax increased by 7% as compared with 2011 to HK$15,724,000 (2011: HK$14,688,000, including the gain of HK$4,318,000 on the disposal of 50% equity interest in Shanghai Ocean International Trading Co. Ltd.).

Awards & Honors

With years of unremitting efforts in enhancing corporate governance, promoting investor relations and fulfilling corporate social responsibility, COSCO International won a number of international and regional awards and honors in 2012, some of which were awarded for the first time. They are: “Honorable Mention” in the category of “Main Board Companies – Hang Seng Composite Index Constituent Companies” of the Hong Kong Corporate Governance Excellence Awards 2012, co-organized by the Chamber of Hong Kong Listed Companies and the Centre for Corporate Governance and Financial Policy of Hong Kong Baptist University; 2011 Annual Report won Platinum Award in the Best Corporate Governance Disclosure Awards 2012 in the category of “Non-Hang Seng Index (Mid-to-small Market Capitalization)” organised by Hong Kong Institute of Certified Public Accountants and “Honorable Mention” in the Hong Kong Management Association’s Best Annual Report 2012 for the first time. The Company was also honored with the Best CSR (China Company) in the Asian Excellence Recognition Awards 2012 organised by Corporate Governance Asia. The most gratifying was that the Company had been selected as a constituent of Hang Seng Corporate Sustainability Benchmark Index in September 2012, which reflected the high recognition of the Company’s sustainability in capital market.

Outlook

Looking forward to 2013, the global economy is expected to remain complicated and ever-changing. Although the recovery momentum is still weak, the overall situation will be slightly better than 2012. As for shipping market, because the supply of global shipping capacity continues to grow in 2013, imbalance between supply and demand will persist. It is expected that freight rates will not recover significantly. The operating pressure experienced by shipping enterprises remains high as they are continually affected by the high level of operating costs. As a result, shipping enterprises will adopt various measures to greatly reduce their costs, which will bring challenges to the Group’s core business of shipping services.

Mr. Ye Weilong, Chairman of the Board of COSCO International, commented, “Facing the uncertainties in the market, we will follow our established strategic objectives, and “seize opportunities and pursue development” while strictly controlling operational risks. For our existing businesses, we will focus on marketing and customer services, and, in particular, further expand the scale of our core business relying on the advantage of being the sole agent of COSCO fleets in centralized procurement of ship trading, marine insurance brokerage and supply of marine equipment and spare parts. For new business development, COSCO International will continue to proactively push forward the establishment of global sales and services network, and to work on the acquisitions of projects related to shipping service inside and outside COSCO Group, and at the same time, actively to study the expansion into the upstream and downstream along the value chain of existing businesses. COSCO International will grasp opportunities of developing shipping service related businesses by making good use of the cash on hand, step by step, transform into a global leading “one-stop shop” shipping services provider, and create greater returns for our shareholders.”

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