Dida Inc. - Interim / Quarterly Report 2005

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CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1138)

2005 INTERIM RESULTS ANNOUNCEMENT

The board of directors (the “ Board ”) of China Shipping Development Company Limited (the “ Company ”) is pleased to announce the interim results of the Company and its subsidiaries (the “ Group ”) for the six months ended 30 June 2005 (the “ Reporting Period ”), together with the comparative figures for the six months ended 30 June 2004. The Group’s interim results have not been audited but have been reviewed by the Company’s international auditors, Ernst & Young (certified public accountants in Hong Kong).

I. MAJOR FINANCIAL DATA

The interim results of the Group for the Reporting Period have been reviewed by Ernst & Young, in accordance with SAS 700 “Engagement to Review Interim Financial Reports” issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”), as compared with those for the six months ended 30 June 2004, and are as follows:

(1) Condensed Consolidated Income Statement (Note 1):

			RMB’000
		January-June	January-June
Items	Notes	2005	2004
		(Unaudited)	(Unaudited)
			(Restated)
Turnover	3	4,200,778	3,113,597
Operating costs		(2,281,654)	(1,928,116)
Gross profit		1,919,124	1,185,481
Other revenue and gains	4	195,499	77,972
Administrative expenses		(114,436)	(111,477)
Other operating expenses		(64,713)	(63,808)
Profit from operating activities	5	1,935,474	1,088,168
Finance costs		(65,789)	(48,920)
Profit before tax		1,869,685	1,039,248
Tax	6	(263,232)	(152,826)
Net profit for the period		1,606,453	886,422
Attributable to
Equity holders of parent		1,604,549	885,851
Minority Interest		1,904	571
Net profit for the period		1,606,453	886,422
Earnings per share	7	RMB0.4824	RMB0.2663
Dividends	8	—	—

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(2) Condensed Consolidated Balance Sheet

		30 June	31 December
	Notes	2005	2004
		(Unaudited)	(Audited)
		RMB’000	RMB’000
			(Restated)
NON-CURRENT ASSETS
Fixed assets		11,051,195	9,738,048
Long term investment		4,000	4,000
Deferred staff expenditure		64,510	70,901
Deferred tax assets		19,856	20,860
Negative goodwill		—	(1,386)
		11,139,561	9,832,423
CURRENT ASSETS
Bunker oil inventories		217,974	146,252
Trade and bills receivables		301,046	157,205
Other receivables		310,607	270,078
Cash and cash equivalents		1,060,048	1,312,646
		1,889,675	1,886,181
CURRENT LIABILITIES
Trade payables		273,374	165,008
Tax payable		52,175	44,449
Other payables and accruals		424,165	503,405
Current portion of interest-bearing bank and other
borrowings, and finance lease payables		561,564	410,109
		1,311,278	1,122,971
NET CURRENT ASSETS		578,397	763,210
TOTAL ASSETS LESS CURRENT LIABILITIES		11,717,958	10,595,633
NON-CURRENT LIABILITIES
Interest-bearing bank and other borrowings		1,889,187	1,847,867
Finance lease payables		48,261	76,395
		1,937,448	1,924,262
		9,780,510	8,671,371
EQUITY
Equity attributable to equity holders of the parent
Issued capital		3,326,000	3,326,000
Reserves		6,440,315	4,834,180
Proposed final dividend		—	498,900
		9,766,315	8,659,080
Minority interests		14,195	12,291
		9,780,510	8,671,371

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Notes:

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

These condensed consolidated interim financial statements are prepared in accordance with the applicable requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”), the Hong Kong Accounting Standard (“ HKAS ”) 34: Interim Financial Reporting and other relevant HKASs and Interpretations, the Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by HKICPA.

The accounting policies and basis of preparation adopted in these condensed consolidated interim financial statements are consistent with those adopted in the Company’s 2004 Annual Report except for the new adoption of HKFRSs and HKASs as disclosed in note 2 below.

2. IMPACT OF NEW HKFRSs AND HKASs

The HKICPA has issued a number of new HKFRSs, and HKASs and Interpretations, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group and the Group’s jointly-controlled entities have adopted the following HKFRSs and HKASs issued up to 30 June 2005. These standards have had no significant impact on these condensed consolidated interim financial statements except for those disclosed in note (c) and note (f) below.

HKAS 17 Leases
HKAS 31 Interest in Joint Ventures
HKAS 32 Financial Instruments: Disclosure and Presentation
HKAS 36 Impairment of Assets
HKAS 38 Intangible Assets
HKAS 39 Financial Instruments: Recognition and Measurement
HKAS 40 Investment Property
HKFRS 2 Share-based Payments
HKFRS 3 Business Combinations

These HKFRSs and HKASs prescribe new accounting measures and disclosure practices as follows:

(a) HKAS 17 prescribes the accounting treatment for leasehold land. Leasehold land and buildings were previously carried at cost less accumulated depreciation and impairment loss. Following the adoption of HKAS 17, a lease of land and building should be split into a lease of land and a lease of building in proportion to the relative fair values of the leasehold interests in the land element and the building element of the lease at the inception of the lease. The land lease prepayment is stated at cost and amortised over the period of the lease whereas the leasehold building is stated at cost less accumulated depreciation and impairment loss. The adoption of this HKAS has had no significant impact on the financial statements.

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(b) HKFRS 2 prescribes the accounting treatment for employee share options. Prior to this, the provision of share options to employees did not result in a charge to the income statement. Following the adoption of HKFRS 2, the fair value of share options on the date of acceptance is amortised over the relevant vesting periods to the income statement. The adoption of this HKFRS has had no impact on the financial statements.
(c) HKFRS 3, HKAS 36 and HKAS 38 prescribe the accounting treatment for goodwill. Prior to this, negative goodwill was amortised to the income statement on a straight-line basis over the remaining average useful life of the acquired depreciable/amortizable assets. Following the adoption of HKFRS 3, HKAS 36 and HKAS 38, the carrying value of negative goodwill of Rmb1,386,000 arising from acquisition of a subsidiary in prior year was derecognised by way of a corresponding adjustment to the opening retained earnings at 1 January 2005.
(d) HKAS 32 and HKAS 39 prescribe the accounting treatment for recognition, measurement, derecognition and disclosure of financial instruments. The adoption of these HKASs has had no significant impact on the financial statements.
(e) HKAS 40 prescribes the accounting treatment for investment property. The adoption of this HKAS has had no impact on the financial statements.
(f) HKAS 31 “Interest in joint ventures”, which supersedes SSAP 21 “Accounting for interests in joint ventures”, allows the adoption of proportionate consolidation for investments in jointly-controlled entities. The Group determined to change the accounting policy for investments in jointly-controlled entities from equity method to proportionate consolidation. Such change in accounting policy was accounted for retrospectively and involve recognising aproportionate share of the jointly-controlled entities’ assets, liabilities, income and expenses into similar items in the condensed interim financial statement on a line-by-line basis. However, such treatment had no impact on the Group’s net profit of the Reporting Period and the net assets as of 30 June 2005.

3. TURNOVER

Turnover represents gross revenue arising from shipping operations, net of business taxes and surtaxes. Business taxes and surtaxes charged on the income statements for the Reporting Period amounted to RMB93,040,000 (six months ended 30 June 2004: RMB73,043,000 (Restated)).

4. OTHER REVENUE AND GAINS

Other revenue and gains mainly represent revenue of RMB39,045,000 arising from leasing of vessels, revenue of RMB7,661,000 arising from management of vessels, revenue of RMB37,009,000 arising from sales of coal, net gain on foreign exchange of RMB13,052,000, interest income of 10,097,000 and net gains on disposal of vessels of RMB80,500,000 during the Reporting Period.

5. PROFIT FROM OPERATING ACTIVITIES

The profit of the Group from operations has been arrived at after charging of the following depreciation and amortisation expenses:

	RMB’000	RMB’000
	January-June	January-June
	2005	2004
		(Restated)
Depreciation:
Owned fixed assets	423,286	370,878
Finance leased fixed assets	10,475	10,475
Amortisation of deferred staff expenditure	6,391	6,392

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6. TAX

Tax includes the tax of the Group and that of the jointly-controlled entities of the Group.

Effective from 1 January 1998, assessable profits earned by the Company in the People’s Republic of China (“PRC”) are calculated in accordance with PRC tax regulations and subject to an income tax rate of 15%.

No Hong Kong profits tax has been provided for as no assessable profits were earned in or derived from Hong Kong during the Reporting Period (six months ended 30 June 2004: Nil).

Assessable profit earned by the Group in countries other than the PRC is subject to the applicable tax rate of the countries where its business is operated.

Tax for the Reporting Period included deferred taxation of RMB1,004,000 (six months ended 30 June 2004: Nil).

7. EARNINGS PER SHARE

The calculation of basic earnings per share is based on net profit attributable to shareholders for the Reporting Period of RMB1,604,549,000 (net profit attributable to shareholders for the corresponding period in 2004: RMB885,851,000) and the 3,326,000,000 shares in issue during the Reporting Period (six months ended 30 June 2004: 3,326,000,000 shares in issue).

8. INTERIM DIVIDEND

The Board does not recommend the distribution of any interim dividend for the Reporting Period (six months ended 30 June 2004: Nil).

(3) Differences in financial statements prepared under the PRC accounting standards (“PRC Accounting Standards”) and the accounting principles generally accepted in Hong Kong (“HKGAAP”):

		RMB’000
	January-June	January-June
	2005	2004
	(Unaudited)	(Unaudited)
Net profit attributable to shareholders prepared
under the PRC Accounting Standards	1,607,557	895,728
Adjustments for depreciation, gain on disposal of
vessels, deferred staff expenditure and others	(3,008)	(9,877)
Net profit attributable to shareholders prepared
under the HKGAAP	1,604,549	885,851

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		RMB’000
	30 June	31 December
	2005	2004
	(Unaudited)	(Audited)
Shareholders’ equity prepared under the PRC
Accounting Standards	9,607,542	8,524,297
Adjustments for revaluation surplus, depreciation,
gain on disposal of vessels, deferred staff
expenditure and others	158,773	134,783
Shareholders’ equity prepared under HKGAAP	9,766,315	8,659,080

II. CHANGES OF SHARE CAPITAL STRUCTURE AND MAJOR SHAREHOLDER

(1) Changes of share capital structure

During the Reporting Period, there is no change in either the total number of the shares of the Company or the share capital structure of the Company. The Company has issued a total amount of 3,326,000,000 shares, including 1,680,000,000 State-owned legal person shares, 1,296,000,000 H shares and 350,000,000 A shares.

(2) Information of shareholders

As at 30 June 2005, the total number of shareholders of the Company is 48,233, of which 581 are holders of H shares.

The top 10 shareholders of the Company:

		Number of
	Increase/	shares held
	Decrease	as at the			Number of
	during the	end of the			Shares
	Reporting	Reporting	Percentage		pledged or	Type of
Name of shareholders	Period	Period	(%)	Class	locked up	shareholders
China Shipping (Group) Company	0	1,680,000,000	50.51	unlisted	0	State legal
						person shares
HKSCC Nominees Limited	+3,078,500	1,278,912,997	38.45	listed	unknown	H shares
China Bank-Fortis Haitong Income -	-1,319,416	20,000,000	0.60	listed	unknown	A shares
Fund Investment Fund
China Merchants bank Shareholders Co.,	+1,841,669	17,867,192	0.54	listed	unknown	A shares
Ltd - CITIC Classic Allocation Fund
China Everbright Bank Co. ,Ltd - Jutian	-5,017,927	11,897,552	0.36	listed	unknown	A shares
Infrastructure Sector Securities
Invenstment Fund
The Bank of Communication - Efund 50	+8,457,687	10,752,056	0.32	listed	unknown	A shares
Index Fund
China Merchants bank Shareholders Co.,	+1,904,697	9,000,008	0.27	listed	unknown	A shares
Ltd — China Merchants Securities
Investment Fund
The Bank of Communication- Fortis	+5,699,620	9,000,000	0.27	listed	unknown	A shares
Haitong Best Selection Securities
Investment Fund
Jingfu Securities Investment Fund	+1,742,347	6,377,725	0.19	listed	unknown	A shares
Shanghai Securities Co., Ltd	+2,984,883	6,077,957	0.18	listed	unknown	A shares

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Description of the relationship amongst the top ten shareholders:

There are no relationships between the first largest shareholder and the second to tenth largest shareholders. However, it cannot be confirmed as to whether there are any such relationships or whether they are acting in concert amongst the second to tenth largest shareholders.

III. MANAGEMENT DISCUSSION AND ANALYSIS

(1) Scope of the principal businesses of the Group and its operating conditions

The Group is principally engaged in the cargo shipping. Cargo shipping mainly consists of the shipment of oil and dry bulk cargoes (primarily coal) along the coastal region of the PRC and internationally.

During the six months ended 30 June 2005, the PRC domestic economy sustained a steady improvement due to the macro-economic control measures adopted by the central PRC government. The GDP growth rate was 9.5%, as compared with the same period of 2004. The demand for crude oil shipping in the domestic shipping market was strong, and the cargo resources of crude oil and product oil were sufficient; the cargo resources in the international oil shipping market were also sufficient, whereas the shipping rate fluctuated significantly. On the other hand, the severe situation of the domestic coastal coal shipment eased off, but the shipping capacity remained short of supply, and the demand for coal shipment remained strong; the international dry bulk cargo shipping market fell due to the decrease of the energy products of China, and the Baltic dry bulk shipping rate index (the “BDI”) fell from over 6,200 points at the end of 2004 to 2,521 points at the end of June 2005. Facing with such changes in both domestic and international shipping market, the Group focused on the thermal coal shipping and oil shipping. By making readjustment to its operation strategies, and by spending substantial efforts in controlling its operating costs, the Group made further improvement in its operating profit and fulfilled the target set by the board of directors for the first half year of 2005. The growth of the operating results of the Group continued to be strong. During the first half of 2005, the volume of cargo undertaken by the Group was 65.68 million tons, and the shipping volume was 74.91 billion tonne-nautical miles, increasing by 6.4% and 21.3%, respectively, as compared with the same period of 2004. The total revenue derived from shipment was RMB4,201 million (after operation tax and supplementary duty), and the net profit was RMB1,605 million, increasing by 34.9% and 81.1%, respectively, as compared with the same period of 2004.

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(2) Analysis of the principal operations

An analysis of the principal operations in terms of products transported (Unit: RMB’000) is set out as follows:

				Increase/ (decrease)	Increase/ (decrease)	Increase/ (decrease)
				in turnover	in operating	in gross profit
			Gross	as compared	costs as compared	margin as compared
		Operating	profit	with the same	with the same	with the same
Description	Turnover	costs	margin	period of last year	period of last year	period of last year
			(%)	(%)	(%)	(%)
Oil transportation	2,204,690	1,265,925	42.6	23.64	11.83	6.1
Coal transportation	1,534,276	834,504	45.6	60.71	31.10	12.3
Others	461,812	181,225	60.8	22.88	13.56	3.3

An analysis of the principal operations in terms of geographical regions (RMB’000) is set out as follows:

		Increase/(decrease) in
		turnover as compared
		with the same
Regions	Turnover	period last year
		(%)
Domestic transportation	2,581,320	28.48
International transportation	1,619,458	46.62

Oil Transportation

Oil transportation has been one of the Group’s core businesses and will be the focus for further development. During the first half of 2005, facing with the changes in the oil transportation in domestic and foreign trades, the Company proactively made adjustments to its transportation structure, increased its efforts in market exploration, at the same time, made efforts in overcoming the difficulties in the diversification in the Ningbo-Shanghai-Nanjing piping, transhipment of oil imports and fluctuations in the transportation prices in foreign trades, and obtained favorable economic efficiency. During the first six months of 2005, the volume of oil shipped by the Group was 35.823 billion tonne-nautical miles, and the revenue derived from oil shipment was RMB 2,205 million, increasing by 35.7 per cent and 23.64 per cent respectively as compared with the same period of 2004.

For shipping oil products in the PRC, the Company made use of the increasing opportunities arising from the offshore oil, the Company kept on enhancing communication with China National Offshore Oil Corp (“CNOOC”) and making full use of its superiority on shipping capacity, so as to stabilize its share in the offshore crude oil shipping market. For the first half of 2005, the Group achieved a shipping volume of 5.54 billion tonne-nautical miles of offshore oil, and also achieved a revenue of RMB514 million derived from such shipping business, increasing by 32.3 per cent and 30.3 per cent, respectively, as compared with the same period of 2004. The Company

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also made use of the increasing opportunities arising from demand for domestic product oil and offshore oil, and raised both shipping capacity and shipping rates for such shipment. For the first half of 2005, the Group achieved a shipping volume of 2.24 billion tonne-nautical miles of domestic product oil, and also achieved a revenue of RMB208 million derived from such shipping business, increasing by 68 per cent and 84.6 per cent respectively as compared with the same period of 2004.

For shipment of foreign trade oil, facing with the market characteristics of relatively stable shipment prices of medium and small size tankers and significant fluctuations in VLCC transportation prices, the Group’s revenue from the shipment of foreign trade oil increased due to improved market research and corresponding measures taken by the Group, thus allowing the foreign trade oil business to further expand. During the Reporting Period, the Group made substantial efforts to arrange for the shipping routes of the three newly added oil tankers, and actively expanded the import and export oil shipment and the oil shipment between third countries, and achieved good operating results in international oil shipment. For the first half of 2005, the Group achieved a shipping volume of 25.76 billion tonne-nautical miles, and also achieved a revenue of RMB1,139 million, increasing by 44.1 per cent and 45.7 per cent, respectively, as compared with the same period of 2004.

2. Dry Bulk Cargo Transportation

The dry bulk cargo shipped by the Group mainly consists of coal, as well as ores, fertilisers, grain and other large volume bulk cargo. During the first half of 2005, the overall demands in domestic coal transportation still maintained its strong position despite the impact of the macro control of the Group, which slowed down the speed of economic growth, and increase in hydro power consumption. The Group has made active adjustment to the allocation of its shipping capacity according to the cargo supply, and raised the freight rate of coal along the domestic coast of the PRC, thus bringing about substantial growth to economic benefits. In the beginning of 2005, the Group has finalized the signing of the shipment contracts and freight rate agreement with its major customers, which account for over 90 per cent of the target shipping volume of the Group. For the first half of 2005, the Group achieved a total shipping volume of coal of 28.053 billion tonne-nautical miles, and achieved a revenue of RMB 1,534 million derived from coal transportation, increasing by 14.4 per cent and 61.5 per cent respectively as compared with the same period of 2004, of which the volume of coal shipped by the Group along the domestic coast was 24.805 billion tonne-nautical miles, and the shipping revenue was RMB1,415 million derived from transportation of coals, increasing by 18.6 per cent and 56.8 per cent, respectively, as compared with the same period in 2004.

For other dry bulk cargo transportation, BDI for the first half of the year continued to fall. At the same time, the demand for thermal coal in coastal regions increased. The Company correspondingly reduced input in other dry bulk cargo transportation capacity. Nevertheless, as the rental charges were relatively high for the shipment contracts signed by the Company, the income from bulk cargo still achieved growth. During the

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Reporting Period, the Group achieved a total turnover of dry bulk cargo of 11.03 billion tonne nautical miles, and a total revenue of RMB462 million from such dry bulk shipment, representing an increase of 21 per cent as compared with the same period of 2004.

(3) Financial analysis

During the first half of 2005, the Group made some effective measures to increase its major operating revenue; on the other hand, the Group continued to implement its overall control on the operating costs. During the first half of 2005, the total operating costs of the Group were RMB2,282 million, representing an increase of 18.3 per cent as compared with the same period of 2004, far lower than the growth rate of operating revenue of 34.9 per cent.

Since the beginning of 2005, the further increase of the demand for oil throughout the world, led to the high level in international crude oil price. As part of the counter-measures against the significant increase in fuel prices, the Group strengthened its evaluation of the vessels in respect of their full-saving performance. On the other hand, more efforts were put into the renovation and application of energy-saving technologies to its vessels. The Group also carefully increased the proportion of fuel oil used, and would choose ports with lower fuel prices for filling (as appropriate) based on the routes of the vessels. By adopting these measures, the fuel cost of the Group was effectively controlled. During the Reporting Period, the turnover of the Group increased by 21.3 per cent. as compared with the same period of 2004, whereas the oil consumption volume of the Group increased only by 12.3 per cent. as compared with the same period of 2004. For the first half of 2005, the fuel cost of the Group was RMB 818 million, representing an increase of 30.8 per cent as compared with the same period of 2004, and accounting for 35.9 per cent of the total operating costs of the Group. In addition, the Group also made effective measures to successfully control the increased rate of port charges, maintenance costs and other major operating costs. The ratio between the operating costs and the operating revenue remained at the same level as compared with the same period of 2004.

During the Reporting Period, there are no material acquisitions and disposals of the Company’s subsidiaries or associated companies.

a. Net cash inflow

During the Reporting Period, the net cash inflow from operating activities of the Group increased from RMB1,201,656,000 (restated) for the corresponding period in the previous year to RMB1,938,973,000, representing an increase of 61.4%. The increase of net cash inflows was mainly due to the increase in principal operations and favourable condition in respect of recovery of funds.

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b. Commitments on capital expenditures

As at 30 June 2005, the commitments on capital expenditures for the Group amounted to RMB2,996,273,000 (31 December 2004: RMB4,381,222,000). The source of funding was mainly financed by the Company’s working capital and bank loans.

c. Capital structure

As at 30 June 2005, the shareholders’ equity, bank loans, other interest-bearing borrowings and finance leases payable amounted to RMB9,766,315,000, RMB2,412,142,000 and RMB86,870,000 respectively. The debt-to-equity ratio was 33% (31 December 2004: 35%).

d. Borrowings

As at 30 June 2005, the Group’s (excluding jointly-controlled entities’) total borrowing (excluding finance leases payable) was RMB2,324,642,000. Borrowings repayable within one year amounted to RMB450,455,000. Among the borrowings, RMB596,015,000 were guaranteed by China Shipping (Group) Company, the controlling shareholder of the Company. Other bank loans amounting to RMB1,039,927,000 were pledged by 40 vessels owned by the Company. As at 30 June 2005, the total net book value of such vessels were RMB3,078,378,000. The remaining bank borrowings repayable amounted to RMB688,700,000, and were neither secured nor guaranteed. Interests of the above loans were calculated at the annual rate from 4.698% to 6.12%. The Group’s gearing ratio was 25%, calculated by dividing total liabilities over total assets of the Group.

e. Risk on foreign currency

As at 30 June 2005, the Group’s foreign exchange liabilities mainly comprised of finance lease rental payable in EURO dollars equivalent to approximately RMB86,870,000. In addition, the Company would pay dividend of H shares in Hong Kong dollars. Given the increasing significance of the Group’s international shipping business, changes in exchange rate would have certain impacts on the Group’s profitability. Therefore, in respect of the changes in exchange rate, the Group will study the impact of exchange rate mechanism on shipping enterprises. It will also implement effective measures proactively to minimise exchange risks.

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(4) Disposal of assets (Unit: Rmb’000)

			Profit/(Loss)	Profit/(Loss)
				arising
				from	Connected
			Price of	disposal	transaction	Pricing
Assets	sold	Time of Disposal	Disposal	of assets	(Yes/No)	Policy
Daqing	218	26 February 2005	14,000	5,855	No	Market price
		(date of contract)
Daqing	242	22 December 2004	24,840	9,179	Yes	Market price
		(date of contract)
Ninghe		22 December 2004	57,131	51,462	Yes	Market price
		(date of contract)
Daqing	231	27 June 2005	15,925	14,004	Yes	Market price
		(date of contract)

(5) Business prospects

In the second half of 2005, the growth in the world economy will further stimulate the further demand for the energy. Following the increase in the demands for petroleum, coal and grain and the traditional transportation of ores for winter reserves, BDI transportation price index will fluctuate to a certain extent. Following the improvement in the macroeconomic environment in the PRC, sources of cargo for sea transportation is expected to remain sufficient which should provide a favorable environment for the Group to realise its operating target for the year.

The high-speed growth of the economy of the PRC over the years has significantly stimulated growth in crude oil imports into the country. Ensuring security in oil transportation would provide broader scope for the further development of Chinese shipping enterprises. Oil transportation has always been a key development focus of the Group. Revenue from oil transportation has accounted for 52.5 per cent of the total revenue of the Group. As at 30 June 2005, the Group is the owner of 77 oil tankers with a total capacity of 2,910,000 DWT. The Group has entered into contracts to construct 12 oil tankers with a total capacity of 932,000 DWT, all of which are expected to be put into use before the end of 2008. During the second half of 2005, 4 tankers with total shipping capacity of 234,000 DWT are expected to come into operation. Meanwhile, the Group has been closely following the strategic plans of certain countries in respect of oil security systems, and will take full advantage of the major opportunities brought by the renewed rapid development of the Chinese oil shipping industry. In addition, the Company will make much efforts to enhance cooperation with major customers, so as to increase its market share of the Group for the imported crude oil transportation.

In terms of dry bulk cargo transportation, the Group will continue to focus on the domestic coastal coal transportation, and make full use of the allocation of its shipping capacity for international and domestic shipment. In addition, the Group will increase its market share and operating efficiency by carrying out different ways of cooperation with its major customers. As at the end of June 2005, the Group and the Company’s 3 jointly-controlled entities owned 89 bulk carriers, with a total shipping capacity of

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2,950,000 DWT (including the 11 bulk carriers owned by three jointly-controlled entities, with shipping capacity of 300,000 DWT). In the second half of 2005, 2 bulk carriers with total capacity of 114,600 DWT ordered in 2003 are expected to be put into use.

Due to both international and domestic economic situation and the further improvement in the shipping capacity of the Group in 2005, the total shipping volume and operating revenue are expected to sustain steady growth. Meanwhile, the Group will keep an eye out for the fluctuation of fuel prices and also make much effort to control operating costs, so as to fulfil the annual operating target set by the Board.

(6) Alert on significant change in net profit

It is expected that the accumulated net profit of the Group from January to September 2005 will increase substantially by over 50 per cent as compared with the same period of 2004. The increase was primarily attributable to the following:

a. the domestic cargo transportation continued to grow constantly, which will be favourable to the overall operation of the Group;
b. efforts were devoted to increase the revenue and tighten the expenditure for the Group, which have obtained significant achievements; and
c. more shipping capacity is put into use as compared with the same period of 2004.

IV. SIGNIFICANT EVENTS

(1) Purchase, sale or redemption of the Company’s listed securities

Neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of its listed securities during Reporting Period.

(2) Compliance with the code of Corporate Governance Practice

The Company has complied throughout the half-year ended 30 June 2005 with the Code Provisions set out in the Code on Corporate Governance Practice contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

(3) Audit Committee

In compliance with Rule 3.21 of the Listing Rules, the Company has established an audit committee to review the financial reporting procedures and internal control and provides guidance thereto. The audit committee of the Company comprises 3 independent non-executive Directors. The Audit Committee has reviewed the interim results of the Company during the Reporting Period.

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(4) Remuneration Committee

The remuneration Committee is headed by Mr. Wang Daxiong, an executive director of the Company. The other two members of the remuneration committee are Mr. Xie Rong and Mr. Hu Honggao, both being independent non-executive directors of the Company. The remuneration committee of the Company has adopted terms of reference which are in line with the Code on Corporate Governance contained in Appendix 14 of the Listing Rules.

(5) Shareholdings of Substantial Shareholders

As at 30 June 2005, the following persons held 5 per cent or more interests in the relevant class of shares of the Company as recorded in the register required to be kept under Section 336 of the Securities and Futures Ordinance (“SFO”):

			Percentage of
			total Number	Percentage of
			of the	total number
		Number	relevant	of issued
Name of shareholders	Class of shares	of shares	class shares	shares
China Shipping	State-owned	1,680,000,000	82.76%	50.51%
(Group) Company	shares
HSBC Investments	H shares	102,730,000	7.93%	3.09%
(Hong Kong) Limited		(long position)
J.P. Morgan Chase & Co.,	H shares	67,722,000	5.23%	2.04%
		(long position)
		123,072,000	9.50%	3.70%
		(short position)
		40,842,000	3.15%	1.23%
		(lending pool)

Save as disclosed above, the register required to be kept under Section 336 of the SFO showed that the Company had not been notified of any interests or short positions in the shares or underlying shares of the Company as at 30 June 2005.

(6) Interests of directors and supervisors in the share capital of the Company

During the Reporting Period, none of the directors, supervisors, chief executives of the Company or their associates had any interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Section XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO, or otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies. None of directors, supervisors, chief executives of the Company or their associates had been granted or had exercised any such rights during the six months ended 30 June 2005.

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(7) Employees

Adjustment of employee remuneration are calculated in accordance with the Company’s turnover and profitability and is determined by assessing the correlation between the total salary paid and the economic efficiency of the enterprise. Under this mechanism, management of employees remuneration will be more efficient while employees will be motivated to work hard to bring encouraging results of the Company. Save from the remuneration disclosed above, the Company does not maintain any share option scheme for its employees and the employees do not enjoy any bonus. The Company regularly provides for its administrative personnel training on various subjects, including operation management, foreign languages, computer skills, industry know-how and policies and laws, in different forms, such as seminars, site visits and study tours.

(8) Employee housing

According to the relevant local laws and regulations, the Group and its employees are required to contribute their respective contributions to an accommodation fund according to a certain percentage of the salaries and wages of the employees. There are no other significant obligations beyond the contributions to the said fund. The Company provided staff quarters to selective employees and according to a housing reform scheme in Shanghai, arrangements were made to transfer the staff quarters to employees who agreed to remain in service for a period of 10 years. For 2000, nearly all of the staff quarters have been transferred to employees on the above basis. The net book value of staff quarters has been reclassified as deferred staff expenditure and is amortised on a straight-line basis over 10 years, which approximates the expected service period of the relevant employees.

(9) Supplementary information to be published on the website of the Stock Exchange

All details on the financial and related information of the Company containing all information as required by paragraph 46(1) to 46(9) of Appendix 16 to the Listing Rules is published on the website of the Stock Exchange (www.hkex.com.hk).

By order of the Board China Shipping Development Company Limited Li Shaode Chairman

Shanghai, the PRC 10 August 2005

As at the date of this announcement, the Board of Directors of the Company is comprised of Mr. Li Shaode, Mr. Wang Daxiong, Mr. Mao Shijia, Mr. Wang Kunhe and Mr. Yao Zuozhi as executive directors, Mr. Xie Rong, Mr. Hu Honggao and Mr. Zhou Zhanqun as independent non-executive directors.

Please also refer to the published version of this announcement in The Standard.

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