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In 2014, driven by the accelerated adjustment of fleet structure by the shipowners, the demand for relevant shipping services increased. Except for drop in revenue from marine fuel and other products which constitutes higher percentage in the Group’s total revenue, all other shipping services segments recorded revenue growth of varying degrees. In 2014, the Group’s revenue declined by 18% YOY to HK$7,588,213,000 (2013 HK$9,308,434,000), mainly due to the gradual withdrawal from relatively high risks businesses. Gross profit for the year increased by 16% to HK$804,492,000 (2013 HK$694,265,000), while overall average gross profit margin added 3.1 percentage points to 10.6%. The increase was mainly attributable to the improvement of gross profit margins of container coatings and asphalt products, as well as the increase in commission income of ship trading agency with higher margin. In addition, finance income during the year increased by 52% to HK$142,977,000 (2013 HK$94,155,000), as the Group successfully secured higher deposit rate from banks. Furthermore, profit contribution from the Group’s joint venture, Jotun COSCO, surged by 511% to HK$64,738,000 (2013 HK$10,600,000). All these resulted in the significant increase of COSCO International’s overall profit in 2014. Profit attributable to equity holders of the Company for the year markedly increased by 49% YOY to HK$358,970,000 (2013 HK$241,610,000). Basic earnings per share was 23.70 HK cents (2013 15.96 HK cents). The overall results were satisfactory. Dividends The Board has recommended the payment of a final dividend of 10 HK cents (2013 3.5 HK cents) per share for the year ended 31st December 2014. Together with the interim dividend of 3 HK cents per share (2013 2 HK cents), the total dividends per share for 2014 reached 13 HK cents (2013 5.5 HK cents), greatly increased by 136% YOY, representing a dividend payout ratio of 55% (2013 34%). Meanwhile, after thorough discussion, the Board approved to temporarily increase its annual dividend payout ratio from previously not less than 25% of net profit to not less than 50% of net profit, prior to obtaining practical progress in major investment project in the future. In case, after the Company publishes major transaction announcement in relation to investment project, the annual dividend payout ratio will maintain at the level of not less than 25% of net profit, subject to the results, availability of distributable reserves and cash flow position of the Company at that time. Business Review The performance of the Group’s key business segments during 2014 is described as below Core Business – Shipping Services In 2014, shipowners accelerated fleet restructuring. As a result, volume of both new build contracts and scrapped old vessels increased significantly during the year, which boosted the demand for the Group’s various shipping services business, including ship trading agency services. In response to such market dynamics, the Group spared no effort to develop existing business and actively explored the markets by focusing on its marketing services and undertaking transformation, and achieved satisfactory results. The Group’s profit before income tax from shipping services grew by 34% YOY to HK$393,370,000 (2013 HK$293,608,000), mainly driven by the contribution from coatings, ship trading agency and marine equipment and spare parts segments. (1) Ship Trading Agency Services In 2014, COSCO Group intensified efforts in fleet restructuring by scrapping old vessels and ordering new ones. As a result, transaction volume of secondhand vessels ordered through COSCO International Ship Trading Company Limited (“COSCO Ship Trading”), a wholly-owned subsidiary of the Company, rose by 24% YOY to 3,980,000 dead weight tonnages (2013 3,208,000 dead weight tonnage) or 82 vessels (2013 67 vessels); volume of new build contracts surged by 115% YOY to 5,150,000 dead weight tonnages (2013 2,392,000 dead weight tonnages) or 58 vessels (2013 18 vessels); new build delivery increased by 24% to 1,860,000 dead weight tonnages (2013 1,505,000 dead weight tonnages). As at 31st December 2014, the amount of new build vessels ordered through COSCO Ship Trading and pending delivery reached 85 vessels or 9,320,000 dead weight tonnages, which were scheduled for delivery in the coming two to three years. During the year, commission income from new build vessels, secondhand vessels and others increased significantly as compared to 2013, driving the revenue from ship trading agency services up by 25% YOY to HK$128,710,000 (2013 HK$103,243,000). Segment profit before income tax reached HK$88,885,000 (2013 HK$72,624,000), up by 22% as compared to 2013. (2) Marine Insurance Brokerage Services 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’’) dedicatedly helped COSCO Group’s fleet to renew insurance policy as the centralised procurement agent of hull & machinery insurance and war risk insurance. It has also strived to consolidate and develop ship repairer’s liability and ship builder’s risks insurance within COSCO Group, and strengthened the expansion into non-marine insurance business. In addition, COSCO Insurance Brokers continued to steadily develop customers outside COSCO, particularly the new customers and business from shipping companies controlled by other sizable state-owned enterprises. During the year, commission income from COSCO Insurance Brokers continued steady growth. Revenue from marine insurance brokerage services increased by 2% YOY to HK$91,000,000 (2013 HK$89,453,000). Segment profit before income tax was HK$64,206,000 (2013 HK$64,310,000), flat with that in 2013. (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), engaging in the supply of marine equipment and spare parts, continued to strengthen marketing and improving services, and achieved fruitful results in the expansion of customers outside COSCO Group. In 2014, revenue from marine equipment and spare parts supply increased by 18% YOY to HK$1,050,186,000 (2013 HK$888,522,000); and segment profit before income tax increased 37% YOY to HK$41,666,000 (2013 HK$30,405,000). This was mainly attributable to the increased demand for marine equipment and spare parts to be used on new ships, which was boosted by surged new build contracts. Besides, the results also included the contribution from Yuan Hua Technical & Supply Corporation in the United States, which was acquired in August 2014, and from Hanyuan Technical Service Center GmBH in Germany, which was acquired in June 2013. On 6th August 2014, Yuantong and COSCO Americas entered into a share purchase agreement, whereby Yuantong acquired 51% of the issued share capital of Yuan Hua Technical & Supply Corporation from COSCO Americas. The acquisition further improved the Group’s global service network of marine equipment and spare parts, and its service ability to procure and supply marine equipment and spare parts in the Americas region. (4) Production and Sale of Coatings In 2014, COSCO Kansai Companies, subsidiaries of the Company, which are mainly engaged in the production and sale of container coatings and industrial heavy-duty anti-corrosion coatings, together with Jotun COSCO, a joint venture of the Company, that is mainly engaged in the production and sales of marine coatings, continued to maintain the No. 1 position in China’s container coatings market and marine coatings market respectively. As for the sales of coatings, the sales volume of container coatings by COSCO Kansai maintained stable during the year, and amounted to 49,516 tonnes (2013 49,540 tonnes), and the sales volume of industrial heavy-duty anti-corrosion coatings increased by 24% YOY to 15,061 tonnes (2013 12,121 tonnes), as COSCO Kansai has been delivering industrial coatings for the Hong Kong-Zhuhai-Macau Bridge project during the year. As for marine coatings, Jotun COSCO stepped up efforts in promoting the high-end products to seize the opportunities of increasing demand for high-performance and environmentally-friendly marine coatings. Together with more projects of ship maintenance and repair coatings won by Jotun COSCO during the year, the sales volume of marine coatings in 2014 grew by 10% YOY to 86,308 tonnes (2013 78,758 tonnes). As at 31st December 2014, Jotun COSCO had marine coatings contracts on hand to be supplied for 382 new build vessels or 33,590,000 dead weight tonnages. These contracts were scheduled to be delivered in the coming two to three years, which guaranteed to some extent the stable development of Jotun COSCO’s future business. In 2014, revenue from coatings segment was HK$1,391,004,000 (2013 HK$1,323,348,000), up by 5% as compared to 2013. Segment profit before income tax increased by 64% YOY to HK$178,664,000 (2013 HK$108,776,000). This was mainly attributable to (i) the increase in the average gross profit margin of coatings products, benefitted from the price drop of raw materials which are mainly composed of petroleum refined products and metal powders; (ii) the reversal of provision for impairment of trade receivables (net of provision) of HK$22,180,000 by COSCO Kansai upon its successful collection of outstanding receivables; and (iii) the significant increase in the Group’s share of profit from Jotun COSCO of HK$64,738,000 (2013 HK$10,600,000), markedly jumped by 511% as compared to 2013, which includes the one-off exchange gain of HK$14,345,000 realised upon the liquidation of Jotun COSCO’s subsidiary in Guangzhou during the year. Besides, Jotun COSCO made a one-off provision for impairment of trade receivables and resulted in a decline in the Group’s share of profit of HK$37,958,000, net of tax in the 2013 results. In order to meet the needs of future development of the coatings business, and to keep a strategic geographic presence, the Group spared no effort to push forward the construction of the two joint ventures’ new factories. The construction of Jotun COSCO’s new plant in Qingdao was completed and production in stages has commenced. It is expected to commence full production in May 2015; while COSCO Kansai has started the construction of its new plant in Shanghai in March 2014, which is expected to commence production in June 2015. (5) Trading and Supply of Marine Fuel and Related Products In face of the complicated shipping market and the oil price fluctuation, Sinfeng Marine Services Pte. Ltd. (“Sinfeng”), the Group’s wholly owned subsidiary in Singapore, continued to strengthen risk management, and gradually withdrew from certain businesses of relatively high risks. As a result, the total sales volume of marine fuel products during the year reduced by 26% YOY to 864,335 tonnes (2013 1,162,465 tonnes). Revenue from the marine fuel and other products segment decreased by 30% YOY to HK$3,978,870,000 (2013 HK$5,655,961,000). Double Rich, in which the Group owns 18% equity interest, is principally engaged in trading of fuel and oil products, provision of marine bunker supply services, and sourcing of light diesels and fuel oil in Hong Kong. During the year, the Group’s share of profit from Double Rich was HK$16,272,000 (2013 HK$13,703,000), up by 19% as compared to 2013, which was mainly due to the increase in finance income. During the year, profit before income tax from marine fuel segment was HK$19,949,000 (2013 HK$17,493,000), up by 14% as compared to 2013. General Trading COSCO International Trading Company Limited (“CITC”), a wholly-owned subsidiary of the Company, is principally engaged in trading of asphalt, general ship supplies, as well as other comprehensive trading. During the year, the sales volume of asphalt by CITC maintained stable, and reached 136,159 tonnes (2013 133,732 tonnes), up by 2% YOY. Meanwhile, in order to control operational risk, CITC ceased the commodity trading of steel, resulting in revenue decrease from the general trading by 24% YOY to HK$948,443,000 (2013 HK$1,247,907,000). Segment profit before income tax was HK$2,995,000 (2013 HK$5,761,000), dropped by 48% YOY, mainly caused by the exchange loss generated from intragroup loan denominated in foreign currency due to the fluctuations of Renminbi exchange rate. Awards & Honors With years of unremitting efforts in enhancing corporate governance, strengthening investor relations and fulfilling corporate social responsibility, COSCO International received twelve international and regional awards and recognitions during the year, including the “Best Investor Relations Company” in the 4th Asian Excellence Recognition Awards, the “Asia’s Icon on Corporate Governance” in the 10th Corporate Governance Asia Recognition Awards, both organised by Corporate Governance Asia magazine; the Gold Award of The Asset Corporate Awards 2014 organised by The Asset magazine; the “Special Mention Award” in the category of Non-Hang Seng Index (Mid-to-small Market Capitalisation) in the Best Corporate Governance Disclosure Awards 2014 held by Hong Kong Institute of Certified Public Accountants; and the “5 Years Plus Caring Company logo” awarded by the Hong Kong Council of Social Service. Prospects Looking ahead in 2015, the global economic recovery will be exposed to a number of uncertainties. The overcapacity issue will continue to exist in shipping industry that is still likely to remain in trough. Therefore, shipowners are expected to take counter measures to control various costs, which will bring pressure to our shipping services business. However, the PRC Government recently has been keen on the study of strategic plan, such as “One Belt and One Road” and “Yangtze River Economic Belt”, the development of “Free Trade Zones”, and a series of relevant policies and guiding documents to support the development of shipping industry. These present favorable and new opportunities to various shipping services business of the Group, laying a solid foundation for the sustainable and healthy development of COSCO International in the mid-to-long term. Mr. Sun Jiakang, Chairman of the Board of COSCO International, said, “With the strong cash position, seasoned professionals and a global service network, COSCO International will see more development opportunities. In the future, the Group will step up its efforts to develop the 'integrated shipping services platform'. As for existing business, COSCO International will further promote the transformation and upgrade, so as to consolidate and improve the profitability of core business. At the same time, COSCO International will continue to explore new business in shipping services areas, and actively study the upstream and downstream along the value chain of existing businesses. With the full support from COSCO Group and COSCO (Hong Kong) Group, COSCO International will make every effort to achieve sustainable growth, creating great returns for shareholders.” Company Background COSCO International Holdings Limited (“COSCO International”) is listed on the main board of The Stock Exchange of Hong Kong Limited. Its stock code is 00517. In recent years, COSCO International has focused its strategic business position on the development of the shipping services business. It aims to become a global leading one-stop shipping services provider to provide professional services to shipowners worldwide. Its core businesses include ship trading agency, marine insurance brokerage, supply of marine equipment and spare parts, production and sale of coatings and trading and supply of marine fuel and related products. The headquarters of COSCO International is in Hong Kong and its business network covers Mainland China & Hong Kong, Singapore, Japan, Germany and the USA, etc. Relationship with Parent Company COSCO International is a listed company owned by COSCO (Hong Kong) Group Limited (“COSCO (Hong Kong) Group”), which is a wholly-owned subsidiary of China Ocean Shipping (Group) Company (“COSCO”). COSCO Group is one of the most recognised multinational conglomerates in the world, which focuses mainly on shipping, logistics, shipbuilding and ship repairing, as well as other shipping related businesses. COSCO (Hong Kong) Group is an important overseas regional headquarters of COSCO Group. Cosco Corporation (Singapore) Limited |
