COSCO SHIPPING Holdings 2021 Q3 Results Teleconference Minutes

COSCO SHIPPING Holdings 2021 Q3 Results Teleconference Minutes

2021.11.1 15:00-16:00 GMT+8

1.Presentation from the Company

From the perspective of overall market supply and demand:

Since the beginning of this year, as the world economy has gradually recovered from the recession caused by COVID-19, global trade has rebounded. Thanks to the rapid recovery of global trade, the demand for replenishment in Europe and the US has been relatively strong.

In terms of capacity supply, in the first nine months of this year, the market delivered a total of 810,000 TEU of capacity, and the scrapped capacity was only 13,000 TEU, which was far below the normal level. At the same time, the market idle capacity rate at the end of September also remained at a very low level of 0.6%.

To meet the shipping demand of customers, all shipping companies including COSCO SHIPPING Holdings' dual-brand fleet have deployed more capacity. However, the bottleneck of global supply chain industry, e.g., the problem of port congestion, has restricted the effective fleet capacity, leaving the tight supply of capacity an unsolved problem for the time being.

Under the influence of the above factors, the fundamentals of the container shipping market remained strong during the Reporting Period. From January to September, the average of China's Export Container Freight Index (CCFI) was 2,399 points, representing a year-on-year increase of 169%. From July to September, the average of the CCFI index increased by 229% year-on-year and 38% quarter-on-quarter.

Reviewing the Company's operations

During the Reporting Period, COSCO SHIPPING Holdings implemented regular epidemic prevention and control to protect the wellbeing and health of all staff onshore and offshore. Meanwhile, the Company has actively made effort to implement the task of "Ensuring Stability on Supply Chain". The Company has been upholding the philosophy of providing "customer-oriented" services through measures such as increasing shipping capacity, guaranteeing container supply and providing better services, thereby ensuring global transportation services and actively fulfilling the

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social responsibility. The financial results during the Period increased substantially year on year.

During the Reporting Period, the Company generated a revenue of RMB231.5 billion and recorded a net profit attributable to the equity holders of RMB67.6 billion. Net operating cash inflow was RMB113.9 billion, and the asset-liability ratio at the end of the Reporting Period was 59%, decreasing by 12 percentage points compared with the beginning of the year. Net assets attributable to equity holders at the end of the Reporting Period were RMB112 billion.

In terms of business segments, the container shipping business:

As of September 30, 2021, the Company operated 517 container ships with approximately 2.98 million TEU, of which the capacity of self-owned and bareboated ships accounted for over 70%. So, our fleets have a clear competitive advantage among peers. In addition, the Company now holds an order for 32 new vessels featuring nearly 600,000 TEU, and the future fleet structure will also be continuously optimized.

Recently, adhering to the "customer-oriented" philosophy, relying on the global network and sea-rail intermodal transportation resources, the Company has launched the "Trans-pacific BCO Express Line" service to provide customers with a more efficient, integrated and customer-friendly logistics solution.

The new service reflected the Company's comprehensive service capability and profound industry accumulation in network resources, terminal resources and inland resources.

The Company recorded a freight volume of 20.45 million TEUs in the first nine months, representing a year-on-year increase of 8%. Among them, the shipping volume of foreign trade routes increased by 10.5% year-on-year, and the shipping volume of domestic trade routes decreased slightly by 0.7% year-on-year.

In the first nine months, the Company's container shipping business segment achieved revenue of USD33.24 billion, representing a year-on-year increase of 117.5%. Among them, revenue from foreign trade routes increased by 125.7% year-on-year.

The unit revenue of the Company's international routes was USD1,944, representing a year-on-year increase of 104.3%, and the unit revenue of the domestic trade routes was RMB 2,326, representing a year-on-year increase of 14.1%.

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In terms of terminal business:

From January to September 2021, the total throughput of COSCO SHIPPING Ports reached 96.43 million TEUs, representing a year-on-year increase of 5.9%. Among them, the throughput of the controlled terminal was 17.28 million TEUs, representing a year-on-year increase of 4.9%; the throughput of the non-controlled terminals was 79.15 million TEUs, an year-on-year increase of 6.1%.

In addition, COSCO SHIPPING Ports continues to improve its global terminal layout. For example, in September this year, the Company announced the acquisition of a 35% stake in the Container Terminal Tollerort ("CTT Terminal") of the Hamburg Port in Germany. With the superior geographical conditions and efficient operation as well as the management capabilities of the Port of Hamburg, the Company will further leverage the advantages in the synergy of port and shipping.

In the first three quarters, the Company has achieved perfect results in strategic execution, industrial operation, customer service and social responsibility, and has also shown a very strong ability to participate in international competition. At the current point in time, the customer structure, source structure, fleet structure and terminal layout of COSCO SHIPPING Holdings have laid a very good foundation for the Company's future development. We expect future progress to be more stable, of higher quality and more sustainable.

Therefore, COSCO SHIPPING Group, the controlling shareholder of the Company, has recently increased its share interest of the Company, which fully reflects the controlling shareholder's confidence in the prospect of the Company's future development and its endorsement of the Company's investment value.

In the future, COSCO SHIPPING Holdings will actively seize market opportunities and implement regular epidemic prevention and control. The Company will make every effort to ensure the smooth operation of the customer's shipping demand and the supply chain. The Company will also strengthen business model innovation and be committed to building a more stable and long-term cooperative relationship with customers. While providing customers with better services, the Company will further enhance its ability to resist risks or cyclical fluctuations to create value for customers and return for shareholders.

2.Q&A session

1. Q: The three alliances of shipping companies passed the European Consortia Block Exemption Regulation in 2018. Does the Exemption need to be reassessed next year?

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The target of alliance existence is for several shipping companies to share transport capacity, realize network scale effect and cost competitive advantage to provide more comprehensive service coverage and provide customers with higher frequency services. At the same time, the alliance needs to strictly abide by anti-monopoly laws and regulations.

For example, if a single shipping company has 8 ships a week and other members of the alliance have 16 ships a week, the alliance could integrate 24 ships a week. From the perspective of route coverage and sailing frequency, customers can enjoy greater convenience. However, if the independent carrier has only 8 ships, it may affect the customers' plan for preparation and shipment. Therefore, the alliance could be the best way to guarantee that customers of different audiences of each shipping company can enjoy more frequent ships. 24 ships could provide more comprehensive services than 8 ships. This is the most meaningful reason for the existence of alliances.

The operation mechanism of the alliance of shipping companies is compliant and mature, which is conducive to providing customers with wider coverage and higher quality services. So far, there is no sign that the alliance exemption will be excluded.

2. Q: The Los Angeles and Long Beach port surcharges for overdue piled boxes are expected to be charged on the 15th. What will the impact be?

First, the US ports impose overdue surcharges with an aim that all parties will jointly solve the situation of terminal congestion and speed up the circulation of container goods.

Second, the Company will actively communicate with the authorities and cargo owners and explain especially the potential additional costs to the shippers.

Third, COSCO SHIPPING Holdings advocates the attitude of being responsible for our customers. After learning about the issuance of the administrative order, the Company immediately discussed the countermeasures with the customer, the wharf and the railway company. We formulated a plan immediately to avoid excessive detention of goods as soon as possible or huge loss of customers.

Fourth, the biggest advantage of the Company is that the three wharfs used in LA/LB with a long history, strong operation ability and coordination ability, to maximize the stable operation of the TP route, and then into the company's service advantage, win the trust and support of customers.

Fifth, the specific effect of the policy needs to be continuously tracked and observed after the official entry into force of the executive order on November 15, such as

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whether the container turnover rate has been improved or the recovery of terminal operation, etc.

3, Q: There was a large proportion of votes against the upper limit of the annual financial services agreement in the resolution of the general meeting of shareholders on last Friday. What is the reason behind this?

The Company raised the upper limit of the annual financial service agreement in the COSCO SHIPPING Finance Company, mainly due to the enhancement of the Company's profitability and the significant improvement of cash inflow. Therefore, it needed to be re-signed. Some institutional investors holding H shares of the Company voted against the proposal under the advice of overseas voting consultants. However, this agreement is actually beneficial to the Listed Company. First, COSCO SHIPPING Finance Company holds the finance license and features good reputation and mature risk control mechanism. Second, as the core enterprise of the Group, COSCO SHIPPING Holdings can obtain some corresponding preferential policies in COSCO SHIPPING Finance Company.

4. Q: There were more than RMB60 billion liabilities in the Company's accounts. The interest expense in the first three quarters was RMB2.7 billion yuan. The debt financing cost of 5% was not low. The Company has a healthy cash flow. Do you plan to further reduce liabilities?

As for the liabilities and the debt financing cost, the data you mentioned may not be accurate. By the end of September, the company's interest-bearing liabilities was RMB131.3 billion in total, including leasing liabilities of 48 billion yuan, loans from financial institutions and other interest-bearing liabilities of 83.3 billion yuan. At the end of September, the total cash and cash equivalents was RMB144.1 billion in the Company's consolidated balance sheet, so in fact, the Company has been in the state of net cash.

With regard to the work of reducing financial costs, the Company are also constantly promoting the arrangement of debt structure optimization in the future.

The debt financing cost of financial institutions is currently about 2.3%, which is also relatively low among peers. In terms of the absolute value of financial expenses, the net financial expenses from January to September were RMB2.07 billion. However, some of these financial expenses came from the impact of the IFRS-16. After the implementation of the new leasing accounting standards, the rents paid by operating leases with longer leasing period are now regarded as lease liabilities in balance sheet.

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