COSCO International announces 2012 interim results
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 2012. For the six months ended 30th June 2012, the Group’s revenue decreased by 21% to HK$4,478,772,000 (2011: HK$5,702,493,000), in which revenue derived from the shipping services was HK$4,235,244,000 (2011: HK$5,261,287,000), down by 20% as compared to the same period last year.
During the period, the profit attributable to equity holders of the Company slightly dropped by 1% to HK$232,415,000 (2011: HK$234,114,000) as compared with the same period of 2011. In response to operating pressures resulted from the macroeconomic environment, the Group strived to enhance the profitability of its existing businesses, and meanwhile, implemented several countermeasures, including: (i) stringent control of customers’ credit risk, cutting back business dealings with customers with higher potential risks, successful collection of long-term outstanding trade and other receivables and thus reversing the provision for impairment of trade and other receivables; (ii) strengthening control of selling, administrative and general expenses leading to the reduction of overall operating expenses; (iii) enhancing yields on liquid cash leading to the substantial increase in finance income; and (iv) reducing the external borrowings of subsidiaries of the Group by taking advantage of the corporate headquarters’ abundant cash in hand, leading to substantial decrease in financial cost as compared to the same period last year. All these efforts, together with the increased profit contribution from jointly controlled entities, resulted in a stable level of profit attributable to equity holders of the Company for the period as compared to the same period of 2011.
Basic earnings per share was 15.35 HK cents (2011: 15.49 HK cents).
Dividend
The Board declared an interim dividend of 2 HK cents (2011: 2 HK cents) per share for the six months ended 30th June 2012.
Business Review
The performance of the Group’s various key business segments in the first half of 2012 is hereby described as below:
Core Business – Shipping Services
During the first half of 2012, the Group’s various shipping services businesses were affected to different degrees by the slowdown of the global economy, continuous depressed shipping market and stringent cost controls adopted by shipping companies, as well as the weak container manufacturing market. However, the effect of the weak shipping market on the shipping services industry was relatively limited, due to the continuous delivery of numerous new build vessels and the fact that there is no direct correlation between the revenue from shipping services and the change of shipping freight rate.
During the period, the Group alleviated the impact resulting from the revenue decline of certain business units by adopting several countermeasures specifically in response to the actual situation, in which particularly including the successful exploration of business outside COSCO Group in certain business units, and the gradual achievement of synergy effects amongst various business units. During the first half of the year, revenue derived from shipping services was down by 20% year-on-year to HK$4,235,244,000 (2011: HK$5,261,287,000). Profit before income tax from shipping services was HK$273,197,000 (2011: HK$312,844,000), a year-on-year decrease of 13%.
(1) Ship Trading Agency Services
During the first half of this year, the shipping market remained stagnant. Shipowners and shipping companies were pessimistic towards the future estimates. As a result, COSCO International Ship Trading Company Limited (“COSCO Ship Trading”), a wholly-owned subsidiary of the Company, only completed transactions for the sale and purchase of 12 second-hand vessels, fewer than 25 vessels (including new build and second hand vessels) recorded in the same period of 2011, aggregating 427,000 dead weight tonnages (2011: 1,131,000 dead weight tonnages). COSCO Ship Trading mainly derives its commission income recognised on the delivery of new build vessel orders in hand. Though there were some delays in new build vessel delivery caused by the sluggish market conditions, the management of COSCO Ship Trading enhanced communications and coordination with shipbuilders and shipowners, and well completed the deliveries of new build vessels during the period. New build vessels of 1,296,000 dead weight tonnages (2011: 1,200,000 dead weight tonnages) ordered through COSCO Ship Trading were delivered during the period. Revenue from ship trading agency segment in the first half of the year declined by 11% year-on-year to HK$63,735,000 (2011: HK$71,214,000). Segment profit before income tax was HK$48,331,000 (2011: HK$55,318,000), representing a decrease of 13% over the same period of 2011.
As of 30th June, 2012, the undelivered new build vessels orders in hand through COSCO Ship Trading amounted to 4,470,000 dead weight tonnages, which are expected to be delivered in the coming two to three years in succession.
(2) Marine Insurance Brokerage Services
In face of the gloomy market conditions, shipping companies reduced operating expenses including insurance premiums during the period, leading to great divergence in premium expectation between shipowners and insurers. In this regard, COSCO (Hong Kong) Insurance Brokers Limited and Shenzhen COSCO Insurance Brokers Limited (collectively “COSCO Insurance brokers”), subsidiaries of the Company, did a great deal of coordination work, so that annual insurance policy renewal work could be carried out smoothly. In addition, COSCO Insurance Brokers shifted its focus of business development to new shipping companies belonged to other large state-owned enterprises in response to the market trends and changes. Coupled with the successful promotion of hull and machinery co-insurance to customers outside COSCO Group, these initiatives led to an increase of 13% in segment revenue from marine insurance brokerage to HK$41,952,000 (2011: HK$37,128,000) during the period. Segment profit before income tax was up by 21% year-on-year to HK$30,073,000 (2011: HK$24,906,000).
(3) Supply of Marine Equipment and Spare Parts
Yuantong Marine Service Co., Limited, a wholly-owned subsidiary of the Company, and its subsidiaries (collectively “COSCO Yuantong Operation Headquarters”), are engaged in the supply of marine equipment and spare parts. Their business network spreads over Hong Kong, Shanghai, Beijing, Japan and Singapore, etc. After implementing a centralised operation model last year, COSCO Yuantong Operation Headquarters stepped-up its marketing efforts, improved service quality and bargained for more favourable conditions from suppliers by economies of scale, and thereby reaped higher profitability. However, sales of spare parts dropped during the first half of the year because various shipowners reduced their orders of spare parts and supplies to save costs. During the period, revenue from marine equipment and spare parts segment was HK$464,294,000 (2011: HK$482,388,000), down by 4% over the same period last year. Segment profit before income tax was HK$40,124,000 (2011: HK$42,550,000), representing a decrease of 6% over the same period of 2011. This included the reversal of provision for impairment of trade receivables of HK$4,557,000 (2011: provision for impairment of trade receivables of HK$233,000).
(4) Production and Sale of Coatings
Impacted by the global economic downturn, demand from the container manufacturing market in early 2012 followed the depressed market sentiment from the second half of 2011 and started to improve since March this year. The Group’s subsidiary, COSCO Kansai Paint & Chemicals Co., Ltd. (“COSCO Kansai”), which has three factories located in Tianjin, Shanghai and Zhuhai, is engaged in the production and sale of container coatings and industrial heavy-duty anti-corrosion coatings. In the first half of the year, COSCO Kansai closely monitored the market and adopted effective sales strategy, which resulted in a surge of orders in the second quarter as compared to the first quarter of the year, and thereby maintained its leading position in the container coating market in China. In addition, Jotun COSCO Marine Coatings (HK) Limited (“Jotun COSCO”), a jointly controlled entity of the Company principally engaged in the production and sale of marine coatings, benefitted from the sustained high volume of new build deliveries in China and a drop in raw material prices in the first half of the year, and recorded substantial profit growth as compared to the same period of 2011. During the period, revenue from the coatings segment was HK$714,445,000 (2011: HK$1,041,595,000), down by 31% year-on-year, mainly caused by the decline in sales of container coatings. Segment profit before income tax was HK$114,161,000 (2011: HK$159,248,000), representing a decrease of 28% year-on-year.
In the sales of container coatings, during the first half of the year, sales volume of container coatings by COSCO Kansai substantially decreased by 37% to 25,806 tonnes, as compared with its historical high level of 40,939 tonnes in the same period of 2011. In spite of the weak market, COSCO Kansai continued to strengthen its research and improvement of its applied technology, resulting in cost reduction and enhancement of gross profit margin. Meanwhile, it dedicated to increasing its brand influence as a leading container coatings supplier by promoting itself to container owners to gain higher recognition, and actively fulfilling its social responsibilities through raising investment in the research and development of water-based container coatings and promoting the production of more various kinds of green coating products.
As for the sales of industrial heavy-duty anti-corrosion coatings, COSCO Kansai recorded sales volume of industrial heavy-duty anti-corrosion coatings together with workshop primer of 5,933 tonnes (2011: 5,151 tonnes), representing an increase of 15% over the same period of 2011. In the first half of the year, COSCO Kansai continued to step up its efforts to develop industrial heavy-duty anti-corrosion coatings business so as to strengthen its core competitiveness. It set up task forces to conduct various project researches on different industries and carry out follow-up work. In addition, it focused on the expansion of coating businesses for bridges, oil storage tanks, wind turbines and nuclear power generators, through its sales networks in Chengdu in Western China and Wuhan in Central China, in order to make them become new business highlights.
In the sales of marine coatings, benefited from the favorable circumstance of a large amount of new build vessels delivered in the shipbuilding market in China, Jotun COSCO, capitalised on market opportunities and spared no effort in sales and marketing as well as good customer relations, so as to raise the number of orders. Additionally, it stepped up its efforts in promoting energy-saving and emission-reduction products and therefore maintained its leading position in the marine coating market in China. During the period, the sales volume of marine coatings amounted to 45,606,000 litres (equivalent to approximately 61,568 tonnes) (2011: 44,000,000 litres (equivalent to approximately 59,400 tonnes)), representing an increase of 4% over the same period of 2011. As at 30th June 2012, Jotun COSCO had coatings contracts in hand for new build vessels amounting to 30,390,000 dead weight tonnages pending delivery. The coatings will be delivered in the coming two to three years, which guarantees Jotun COSCO’s future business to a certain extent.
During the period, the Group’s share of profit from Jotun COSCO was HK$29,868,000 (2011: HK$20,883,000), up by 43% over the same period of 2011.
Furthermore, in order to meet the future development needs of the coating business, the Group strived to work on the construction of the new plants of the two coating joint ventures. At present, the construction of the new plant in Qingdao by Jotun COSCO has commenced and is expected to be completed by the end of the year, while the relocation of COSCO Kansai’s plant in Shanghai has been actively underway.
(5) Trading and Supply of Marine Fuel and Related Products
In response to the deteriorating global economy and shipping market during the period, Sinfeng Marine Services Pte. Ltd. (“Sinfeng”), a wholly-owned subsidiary of the Group which is primarily engaged in the trading of marine fuel in Singapore, adopted sound business strategies and cut back business dealings with customers with higher potential risks, in order to control operational risks. The total sales volume of marine fuel products for the period was 545,900 tonnes, down by 29% as compared with 767,104 tonnes in the same period of 2011. During the period, revenue from the marine fuel and other products segment was HK$2,950,818,000, down by 19% as compared with HK$3,628,962,000 in the same period of 2011. In addition, Sinfeng successfully collected the outstanding trade receivables from a defaulting customer (including interest arising from overdue payments and legal costs). Therefore, Sinfeng reversed the relevant impairment provision of US$3,823,000 (equivalent to approximately HK$29,662,000).
In addition, the Group’s 18% equity interest associate namely Double Rich Limited (“Double Rich”), is engaged in trading of fuel and oil products and provision of bunker oil supply services in Hong Kong. During the period, the Group’s share of profit from Double Rich was HK$9,571,000 (2011: HK$11,486,000), down by 17% year-on-year.
Profit before income tax from marine fuel and other products segment was HK$40,508,000 (2011: HK$30,822,000), up by 31% as compared to the corresponding period last year. This included reversal of provision for impairment of trade receivables as mentioned above.
General Trading
The Company’s wholly-owned subsidiary, COSCO International Trading Company Limited (“CITC”), engaged in trading of asphalt, general marine equipment and marine supplies, as well as other comprehensive trading. During the period, CITC faced fiercer market competition. In addition, the shortage of funds for highway construction projects in various provinces affected the construction progress of certain projects and led to halt or delay in some works. As a result, the sales volume of asphalt of CITC amounted to 25,137 tonnes, representing a decrease of 45% as compared with 46,035 tonnes in the same period of 2011.
During the first half of the year, revenue from general trading segment was HK$243,528,000 (2011: HK$441,206,000), decreased by 45% year-on-year. Segment profit before income tax decreased by 59% year-on-year to HK$4,196,000 (2011: HK$10,113,000, including gain of HK$4,299,000 on the disposal of 50% equity interest in Shanghai Ocean International Trading Co. Ltd.).
Awards & Honors
The Group dedicates itself to pursuing high standards of corporate governance, maintaining good investor relations, and proactively fulfilling corporate social responsibilities. Since the beginning of the year, the Company won several awards, including “Gold Award for Social Responsibility and Investor Relations” in the Asset Corporate Awards 2011 by the Asset Magazine, “The Best of Asia” in the Corporate Governance Asia Recognition Awards 2012 and “Best CSR (China Company)” in the Asian Excellence Recognition Awards 2012 by Corporate Governance Asia, and “Caring Company” logo for the 4th consecutive year by the Hong Kong Council of Social Service. The Company’s 2011 annual report won Silver Awards of “Chairman’s Letter” and “Interior Design” in the category of Shipping Services in the 26th International ARC Awards. Besides, COSCO International was selected as a constituent of Hang Seng Corporate Sustainability Benchmark Index on 10th August 2012, which reflected that the Company’s remarkable achievements in environmental protection, social responsibility and corporate governance had been highly acclaimed in the capital market.