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HK Bourse: Results Announcement From Cosco International Holdings Ltd. -11-

23 Mar 2017 4:22 am
    upon the completion of acquisition of CSHT Marine by the Company at the beginning of 
    January 2017, CSHT Marine also became one of the members of COSCO Yuantong Operation 
    Headquarters. COSCO Yuantong Operation Headquarters are principally engaged in the sale 
    and installation of marine equipment and spare parts for existing and new build vessels, as 
    well as equipment of radio communications systems, satellite communications and navigation 
    systems for ships, offshore facilities, coastal stations and land users; marine materials supply 
    and voyage repairs. Its existing business network covers cities such as Hong Kong, Shanghai 
    and Beijing, etc. and countries such as Japan, Singapore, Germany and the United States of 
    America, etc. 
                                             - 24 - 
    During the year, each shipping company made strenuous effort to save cost in a weak 
    shipping market. Coupled with the fact that the increase in vessel scrapping volume reduced 
    the demand for marine spare parts and maintenance, the sales volume of COSCO Yuantong 
    Operation Headquarters was directly affected. Facing the fierce market competition, COSCO 
    Yuantong Operation Headquarters continued to enhance its marketing services. By formulating 
    customised service standards, adjusting key customer service improvement programs and 
    actively visiting customers, it provided one-on-one professional services to its customers. 
    Meanwhile, COSCO Yuantong Operation Headquarters actively intensified effort to develop 
    business outside COSCO SHIPPING Group and successfully acquired new customers outside 
    COSCO SHIPPING Group, achieving fast growth in such external business. In addition, 
    COSCO Yuantong Operation Headquarters explored additional non-traditional services, such 
    as vessel inspection services and overseas repairing services etc., in response to market 
    changes and customers' needs. These services not only satisfied customers' needs but also 
    created new profit drivers for the Group. In order to further strengthen the materials supply 
    business, a distribution center of marine materials established in Singapore had been officially 
    put into operation based on its regional positioning and geographical advantage. 
    During the year, revenue from marine equipment and spare parts segment was 
    HK$1,064,999,000 (2015: HK$1,096,698,000), representing a decrease of 3% as compared to 
    2015. Segment profit before income tax was HK$51,808,000 (2015: HK$46,561,000), 
    representing an increase of 11% as compared to 2015, which was mainly attributable to the 
    continuous and enhanced effort on cost control and the reversal of provision for impairment of 
    trade receivables of HK$1,761,000 (2015: provision for impairment of trade receivables of 
    HK$4,059,000) during the year. 
1.4 Production and Sale of Coatings 
    The coating business of the Company primarily includes the production and sale of container 
    coatings, industrial heavy-duty anti-corrosion coatings and marine coatings. COSCO Kansai 
    Paint & Chemicals (Tianjin) Co., Ltd. ("COSCO Kansai (Tianjin)"), COSCO Kansai Paint & 
    Chemicals (Zhuhai) Co., Ltd. ("COSCO Kansai (Zhuhai)"), () 
    (COSCO Kansai Paint (Shanghai) Co., Ltd.*) ("COSCO Kansai Paint (Shanghai)") and 
    COSCO Kansai (Shanghai) are non-wholly owned subsidiaries of the Company (collectively 
    "COSCO Kansai Companies"). COSCO Kansai (Tianjin), COSCO Kansai (Zhuhai) and 
    COSCO Kansai Paint (Shanghai) are principally engaged in the production and sale of 
    container coatings and industrial heavy-duty anti-corrosion coatings, while COSCO Kansai 
    (Shanghai) is primarily engaged in the sale of container coatings and industrial heavy-duty 
    anti-corrosion coatings. Jotun COSCO, a 50/50 joint venture formed by the Company and 
    Jotun A/S, Norway, an international coating manufacturer, is principally engaged in the 
    production and sale of marine coatings. 
    For container coatings, as a result of the continued sluggish shipping market during the year, 
    market demand for new build containers and the prices of new containers dropped. The 
    operating results of COSCO Kansai Companies were significantly affected despite the fact that 
                                            - 25 - 
they successfully developed new customers by providing differential services. For marine 
coatings, Jotun COSCO put greater effort into marketing and customer care, which helped to 
maintain its leading position in China's marine coating market. 
During the year, revenue from coatings segment was HK$637,033,000 (2015: 
HK$1,109,466,000), representing a significant decrease of 43% as compared to 2015. The 
decrease was mainly due to the decline in sales volume and price of container coatings as 
compared to 2015. Segment profit before income tax was HK$72,635,000 (2015: 
HK$184,807,000), representing a decrease of 61% as compared to 2015, which included the 
decrease in the Group's share of profit from Jotun COSCO. 
1.4.1 Container Coatings and Industrial Heavy-duty Anti-corrosion Coatings 
    COSCO Kansai (Tianjin), COSCO Kansai (Zhuhai) and COSCO Kansai Paint (Shanghai) 
    have coating plants in Tianjin, Zhuhai and Shanghai respectively. These coating plants 
    are respectively located in the Pan-Bohai Rim, the Pearl River Delta and the Yangtze 
    River Delta, the three most economically developed regions of China. 
    Facing the tough market condition, COSCO Kansai Companies, during the year, actively 
    strived for every order by segmenting their target customers, enhancing communication 
    by visiting customers and improving their marketing services, consolidated their strategic 
    cooperation relationships with container manufacturing enterprises and endeavoured to 
    promote and publicise their water-based coatings, all such initiatives achieved promising 
    results. COSCO Kansai Companies also actively expanded into the special container 
    market and offered quality services to major container manufacturers and container 
    owners, thereby gaining the support and trust from key customers. However, the sales 
    volume of container coatings decreased by 57% from 38,099 tonnes in 2015 to 16,237 
    tonnes during the year, mainly due to the decrease in the output of new containers in 
    China and fierce market competition as compared to 2015. 
    In addition, COSCO Kansai Companies continued to vigorously develop the business of 
    industrial heavy-duty anti-corrosion coatings, actively formulated sales and marketing 
    strategies for each business sector, established a regional sales network, optimised 
    organisational structure, focused on key customers and key projects, and increased market 
    development effort. While consolidating the market share of existing businesses, COSCO 
    Kansai Companies also strived to develop new areas of business and have made 
    achievement in developing the integrated industrial and construction machinery sector. A 
    series of products in relation to protective coatings for nuclear power plants developed by 
    COSCO Kansai Companies have been granted the authentication by the Science and 
    Technology Product Identification Conference () organised by the 
    China Nuclear Energy Association, thereby further consolidating the leading position of 
    COSCO Kansai Companies in the said industry. During the year, the sales volume of 
    industrial heavy-duty anti-corrosion coatings together with workshop primer amounted to 
    16,654 tonnes (2015: 16,081 tonnes), representing an increase of 4% as compared to 
                                       - 26 - 
    2015. Moreover, COSCO Kansai Companies were awarded "The Top 10 Anti-Corrosion 
    Coating Brands Awards of China" by  (HC Coating Network) for the seventh 
    straight year. 
1.4.2 Marine Coatings 
    Jotun COSCO is principally engaged in the production and sale of marine coatings in the 
    region of China including China Mainland, Hong Kong and Macau Special 
    Administrative Regions. 
    During the year, a significant decrease in the number of new build vessel orders received 
    by Chinese shipyards and ships in need of dock repair were recorded. In line with the 
    increasing industrial competition under the rigorous market conditions, Jotun COSCO 
    increased customer visits so as to proactively maintain and reinforce the customer 
    relationship with major domestic shipyards and shipowners and segmented the market and 
    its target customers based on the market trend and demand of marketing services so as to 
    gradually establish a service system with differentiated products, services and marketing. 
    In addition, it strived to obtain coating orders with better terms for new build vessels 
    through selective market development and spared no effort to strengthen coatings for 
    repair and maintenance business in order to maintain its market share. Meanwhile, Jotun 
    COSCO strived for product enhancement, facilitated energy saving and emission 
    reduction of vessels while focusing on the promotion of HPS (Hull Performance 
    Solution) as well as the combination of vessel maintenance concept with maintenance 
    coating products. Jotun COSCO offered solutions to its customers according to their 
    business needs so as to maintain its leading position in China's marine coating market. 
    Furthermore, Jotun COSCO formulated a strategy of exploiting the potentials of its 

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