Welcome you all to COSCO SHIPPING International s 2017 annual results analyst meeting. I am Zhu Jianhui. It is a great pleasure to have this opportunity to meet all friends from the investment community. Thank you for your long term interest and support to COSCO SHIPPING International. 1
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First of all, let me briefly go through the annual results of 2017. 3
In 2017, global economy achieved satisfactory results resulted from the revived investment, rebounded manufacturing and steady growth of world trade. Driven by the good momentum for macroeconomic growth, coupled with the shipping cyclical and structural reasons, the international shipping market has shown a relatively strong signs of recovery. We could obviously see this point from the annual results of many shipping companies this year. Benefited from the recovering shipping market, COSCO SHIPPING International achieved a satisfactory performance. The Company s businesses maintained steady growth as always. During the year, the total revenue of the Group was HK$8.8 billion. The profit attributable to the equity holders of the Company reached HK$357 million, up 50% YOY as compared with 2016. The basic earnings per share was 23.26 HK cents. 4
To return to the shareholders for their long term support, the board of directors recommended a final dividend of 12 HK cents per share for 2017, Together with the interim dividend of 6 HK cents per share, total dividends amounted to 18 HK cents per share, up 89% YOY, representing a payout ratio of 77%. 5
In 2017, the Group s shipping service industrial cluster achieved preliminary results. The acquisition of CSHT Marine in January 2017 further enlarged the business scale of marine equipment supply, and made a solid progress on resources integration. This year, we will keep looking for all opportunities suitable for acquisitions. For the existing businesses, we placed high attention on the entirety of shipping services industrial cluster. It s obvious that the synergy effect among businesses was enhanced with marked improvement. In addition, the Company actively extended the existing business chain and enhanced its profitability, based on the whole lifecycle of the ships and its entire solutions. As at the end of last year, the Group s net cash reached HK$6.5 billion, such strong financial position will support the future development of the Company. 6
Let s first have a review on the shipping services markets and the performance of each of our business segments in 2017. 7
During the year, the global total newbuilding delivery decreased by 4% YOY, in which Chinese shipyards delivery up 5% to 38mn DWT, accounting for 39% globally. As at the end of December 2017, Chinese shipyards had newbuilding orderbook on hand of 88.1 mn DWT. 8
In 2017, benefitting from the consistent growth of global trade volume, the shipping market s demand for new containers sharply increased, both output and price of new containers in China went up. The total output during the year was 3.15mn TEU, markedly increased by 75% YOY; The average selling price of new container increased by 54% YOY to US$2,238 per TEU. 9
During the year, segment revenue from shipping services was HK$8.14 bn, increased by 22% YOY, mainly because of the marked increase in revenue of marine fuel supply business. Profit before income tax (PBT) increased by 13% to HK$311 mn as compared to 2016, mainly attributable to the increase of profit contribution from ship trading agency and others. 10
Let s look at the various business segments: Ship Trading Agency Services: revenue from ship trading agency services increased by 38% YOY to HK$137 mn, and the operating profit increased by 43% YOY to HK$89.70 mn. It was mainly because of the year-on-year increase of the number of new build contracts and new build deliveries. Some previously delayed newbuild vessels were also gradually delivered during 2017. Therefore, commission incomes from both newbuild and secondhand vessels increased markedly. 11
Marine Insurance Brokerage: During the year, COSCO Insurance Brokers have achieved good results in the renewal of protection and indemnity insurance, charterer s liability insurance, ship repair insurance and shipbuilding risk insurance, and non-marine insurance brokerage services such as comprehensive terminal insurance and vehicle insurance, etc. The commission income from insurance brokerage remained stable. The revenue and operating profit from insurance brokerage services amounted to HK$95.80 mn and HK$67.52 mn respectively. 12
Supply of Marine Equipment and Spare Parts: Despite the recovery in the shipping market, the modernised and young vessels with relatively less demand for spare parts had impact on the equipment supply business. Nevertheless, the Company completed its acquisition of CSHT Marine Machinery Suppliers Limited, and expanded business to the market outside COSCO SHIPPING Group. Segment revenue from supply of marine equipment and spare parts increased by 13% YOY to HK$1.2bn, and the operating profit increased by 14% YOY to HK$58.25 mn. 13
Coatings: The two joint ventures are engaged in the production and sale of container coatings, industrial heavy-duty anti-corrosion coatings and marine coatings. For container coatings, as the container shipping market recovered and the mandatory use of water-based coatings, which increased both sales volume and price of container coatings. The revenue of COSCO Kansai increased by 40% YOY to HK$889mn. However, the significant increase in raw material prices in 2017 squeezed gross profit margins of COSCO Kansai. In 2017, COSCO Kansai recorded an operating profit of HK$7.17mn. 14
In 2017, even though the number of new build vessels delivery from the Chinese shipyard slightly increased, the market competition was fierce. The sales volume of Jotun COSCO s marine coatings decreased by 2% YOY to 90,567 tonnes. The share of profit dropped by 28% YOY to HK$63.86mn. It was mainly attributable to the squeezed gross profit margins as a result of the increased raw material prices. Combined the results from the two coatings JVs, profit before income tax from coatings segment increased by 3% YOY to HK$74.93mn during the year. 15
Marine Fuel Supply Business: The Company s wholly-owned subsidiary, Sinfeng Marine Services, continued to adopt prudent business strategy, and develop the business with creditworthy customers. The sales volume of marine fuel increased by 9% YOY to 2.32 mn tonnes. Benefitting from the oil price rise, segment revenue increased by 22% YOY to HK$5.82 bn. The Group s 18%-owned associate Double Rich contributed HK$10.46 mn as share of profit during the year, increased by 15% YOY, mainly attributable to the increased volume of bonded bunker in China during the year. The profit before income tax from marine fuel supply business increased by 31% YOY to HK$15.75 mn. 16
General Trading (mainly asphalt): During the year, the asphalt projects settled decreased year-on-year. Sales volume of asphalt down by 15% YOY to 154,000 tonnes as compared to 2016. The sales revenue declined by 15% YOY to HK$650 mn. The operating profit decreased by 20% to HK$7.36 mn, owing to the declined gross profit as a result of the decline in sales revenue. 17
Next, let s go through the financial review. 18
In 2017, the Group s gross profit reached HK$627 mn, up by 15% YOY. The increase in overall gross profit was mainly attributable to increase in income from ship trading agency, coatings and marine equipment and spare parts businesses. The overall gross profit margin slightly dropped by 0.2 percentage point to 7.1%. Net other income and gains increased YOY significantly to HK$94.13 mn, mainly because of the strong performance of USD against HKD during the year, leading to significant exchange gains of HK$56.78 mn from the bank deposits denominated in USD of the corporate headquarters and various subsidiaries; the disposal gains of property, plant and equipment of HK$15.52mn, and a government subsidy income of HK$11.53 mn recognised regarding a special subsidy granted by the Shanghai Baoshan District Government. Finance income increased by 37% YOY to HK$125 mn, mainly due to higher interest income generated from the cash on hand. During the year, the return on cash reached 1.9%, which was 20 basis points higher than the 3-month USD LIBOR rate as at the end of December 2017. The share of profit of joint ventures declined by 28% YOY, mainly attributable to the decrease in share of profit of marine coatings manufacturer, Jotun COSCO. 19
Profit Breakdown: In 2017, the profit contribution from the three traditional shipping services businesses which mainly serve ship owners, including ship trading agency, marine insurance brokerage, and supply of marine equipment and spare parts, accounted for 53% in total; profit contribution from coatings segment accounted for 18% of the Group s total; marine fuel supply business contributed 4%; general trading and others contributed 25%, which was mainly finance income. The composition of the Company s overall profit remained fairly diversified. 20
Balance Sheet: As at the end of December 2017, COSCO SHIPPING International had total asset of HK$9.6 bn, total liability was HK$1.4 bn, and total equity excluding non-controlling interests was HK$7.9 bn. The Group had net cash of HK$6.5 bn. NAV per share and net cash per share were HK$5.16 and HK$4.23 respectively. 21
Cash Flow: During the year, net cash outflow from operating activities was HK$203 mn, mainly resulted from year-on-year increase in inventories, trade and other receivables. Net cash generated from investing activities was HK$272 mn, increased as compared to 2016. It was mainly attributable to the increases in finance income and dividends received from joint ventures. Net cash outflow from financing activities was HK$397 mn, mainly attributable to the yearon-year increases in dividend expenses paid to the Company s equity holders and to the non-controlling interests. My financial review comes to an end. Thank you! 22
Now let s look at the prospects in 2018. 23
In terms of the situation this year, I believe that the global economy and world trade will maintain stable growth. There were many market forecast made by a number of authoritative agencies. I need not talk about this too much. For our shipping industry, the economic and trade growth rate will bring forth strong support and generate momentum for the recovering demand of shipping market. Meanwhile, the events including the operation of Ocean Alliance and THE ONE, the corporate actions such as COSCO SHIPPING acquired OOIL, etc, gradually revealed the effect of industry structural integration. The market competition had turned to become more rational. We have reasons to believe that the seaborne trade will go forward to the positive direction. But we have to pay attention to the uncertainties of the world economic growth resulted from the tightened monetary policies introduced by many economic entities, increasing inflation expectations, geopolitical tensions, especially the intensified trade protectionism and other factors, which may also cast a shadow over the development of shipping industry. Meanwhile, the imbalance of supply and demand in the shipping market will still be the sword of Damocles hanging over the shipping market. These problems should be resolved with more consensus, rationality and intelligence. For the shipping service business relying on the shipping, the demand for modern ships and professional ship operation will create room for new businesses for shipping service enterprises. But it is also a tough and upgraded challenge. Generally speaking, the shipping services industry will maintain its unique stability in 2018. 24
In 2018, COSCO SHIPPING International will continually insist on the strategic plan of development of shipping services industrial cluster and investment platform for non-financial business. As for the building of shipping services industrial cluster, the Company still strives to become a world-class and the best shipping services company in China. Adhering to the development strategy of COSCO SHIPPING Group proactively, the Company will strive to enhance the consolidation and restructuring of shipping service assets under COSCO SHIPPING Group, and will seek external acquisition opportunities for shipping services business. Meanwhile, the Company will review its own business structure and search for appropriate opportunities for adjustment, in a bid to strengthen the synergy effect, expand the scope of shipping service business, extend and improve the industrial chain of shipping services, and gradually build up the core competitiveness of shipping services industrial cluster. Confronted with the contracted traditional business, we will shift our mindsets to integrate new technology into our existing business sectors, actively look for and extend to new business areas with high added-values, so as to fully enhance the profitability of each business unit. As for the investment platform for non-financial business, we will attach the development of One Belt, One Road and Guangdong-Hong Kong-Macao Bay Area" to the development of the Company. As a member of shipping companies, we are advance-guards of One Belt, One Road" and supplier for the shipping industry. So there is no reason for the shipping service to be absent when the shipping enterprises develop along with the One Belt One Road. This is not only our opportunity, but also the real demand. We had years of experience in Hong Kong. We are confident to contribute ourselves. These are our new development opportunities. We will pay high attention on opportunities arisen from new economies and emerging industries, and look for investment in the industries related to new energy, new technology and new materials, etc. We hope this platform will bring real profits to our shareholders as soon as possible. 25
In 2018, thanks for support from our shareholders and investors, COSCO SHIPPING International was selected as a constituent of Hang Seng Composite Index series and Hang Seng Stock Connect Hong Kong Index Series. We will take this as a new beginning to further establish an effective and transparent operational system, and to keep our shareholders fully informed and balance the interests of our stakeholders, enhance communications with investors and actively collect opinions and advices from investors, thereby enabling the corporate value to be reasonably reflected in the capital market, and finally maximizing our corporate value and the shareholders return. This is the end of the presentation of COSCO SHIPPING International s 2017 annual results. Thank you. 26
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