Dida Inc. — Interim / Quarterly Report 2014

Aug 29, 2014

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibilities for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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CHINA SHIPPING DEVELOPMENT COMPANY LIMITED 中海發展股份有限公司

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

(Stock Code: 1138)

2014 INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2014

Financial Highlights

• Turnover increased by 20.33% to approximately RMB6,291 million

• Operating cost increased by 0.6% to approximately RMB5,474 million

• Profit for the period attributable to owners of the Company is approximately RMB39.44 million

• Basic earnings per share was RMB0.0116

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 2014 (the “ Reporting Period ”), together with the comparative figures for the six months ended 30 June 2013. The Group’s interim results have not been audited but have been reviewed by the Company’s international auditor, Baker Tilly Hong Kong Limited (Certified Public Accountants in Hong Kong).

I. MAJOR FINANCIAL DATA

The interim results of the Group for the Reporting Period have been reviewed by Baker Tilly Hong Kong Limited in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”) and set out as follows:

— 1 —

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2014

		**For the **	six months
		**ended **	30 June
		2014	2013
		(Unaudited)	(Unaudited)
	Note	RMB’000	RMB’000
Revenue
Turnover	3	6,290,693	5,227,790
Operating costs		(5,474,088)	(5,443,374)
Gross profit/(loss)		816,605	(215,584)
Other income and gains	4	8,063	18,514
Marketing expenses		(22,727)	(20,244)
Administrative expenses		(195,234)	(182,877)
Other expenses		(18,490)	(18,116)
Share of profits/(losses) of joint ventures		114,216	(37,735)
Finance costs	5	(594,302)	(467,507)
PROFIT/(LOSS) BEFORE TAX	6	108,131	(923,549)
Tax	7	(34,645)	(5,355)
PROFIT/(LOSS) FOR THE PERIOD		73,486	(928,904)
Other comprehensive expense
Item that may be reclassified subsequently
to profit or loss, net of nil tax:
Exchange realignment		32,837	(102,809)
Net (loss)/gain on cash flow hedges		(214,185)	3,647
Share of other comprehensive income of
joint ventures		1,426	—
Other comprehensive expense for the period		(179,922)	(99,162)
Total comprehensive expense for the
period		(106,436)	(1,028,066)

— 2 —

		**For the **	six months
		**ended **	30 June
		2014	2013
		(Unaudited)	(Unaudited)
	Note	RMB’000	RMB’000
Profit/(loss) for the period attributable to:
Owners of the Company		39,437	(922,687)
Non-controlling interests		34,049	(6,217)
		73,486	(928,904)
Total comprehensive expense for the
period attributable to:
Owners of the Company		(13,957)	(1,019,366)
Non-controlling interests		(92,479)	(8,700)
		(106,436)	(1,028,066)
Earnings/(loss) per share	8
- Basic		1.16 cents	(27.10) cents
- Diluted		1.16 cents	(27.10) cents

— 3 —

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2014

		30 June	31 December
		2014	2013
		(Unaudited)	(Audited)
	Note	RMB’000	RMB’000
NON-CURRENT ASSETS
Investment properties	10	1,076,280	1,076,280
Property, plant and equipment	10	49,551,537	47,467,664
Investments in associates	11	807,453	—
Investments in joint ventures		4,694,865	4,552,714
Loan receivables		280,218	219,289
Available-for-sale investments		35,294	5,825
Derivative financial instruments		—	151,027
Deferred tax assets		292,144	297,590
		56,737,791	53,770,389
CURRENT ASSETS
Inventories		970,212	888,287
Trade and bills receivables		1,991,639	1,750,285
Prepayments, deposits and other receivables		733,291	486,174
Cash and cash equivalents		3,509,674	1,919,204
		7,204,816	5,043,950
Assets classified as held for sale	10	—	28,140
		7,204,816	5,072,090
CURRENT LIABILITIES
Trade and bills payables		1,244,130	1,542,733
Other payables and accruals		608,817	917,101
Current portion of provision for onerous
contracts		170,747	175,287
Current portion of derivative financial
instruments		—	1,940
Current portion of notes, interest-bearing
bank and other borrowings		13,977,229	8,565,055
Current portion of other loans		44,963	29,874
Current portion of obligations under finance
leases		41,479	41,479
Tax payable		14,481	12,072
		16,101,846	11,285,541
NET CURRENT LIABILITIES		(8,897,030)	(6,213,451)
TOTAL ASSETS LESS CURRENT
LIABILITIES		47,840,761	47,556,938

— 4 —

	30 June	31 December
	2014	2013
	(Unaudited)	(Audited)
	RMB’000	RMB’000
EQUITY
Equity attributable to owners of the Company
Issued capital	3,404,556	3,404,556
Reserves	17,808,198	17,822,815
	21,212,754	21,227,371
Non-controlling interests	892,688	984,506
	22,105,442	22,211,877
NON-CURRENT LIABILITIES
Provision for onerous contracts	172,967	174,407
Derivative financial instruments	69,987	4,689
Notes, interest-bearing bank and other borrowings	15,569,927	15,412,552
Other loans	791,256	714,234
Obligations under finance leases	428,022	448,456
Bonds payable	8,491,006	8,391,928
Deferred tax liabilities	212,154	198,795
	25,735,319	25,345,061
TOTAL EQUITY AND NON-CURRENT
LIABILITIES	47,840,761	47,556,938

— 5 —

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2014

CONDENSED CONSOLIDATED STATEMENT OF For the six months ended 30 June 2014	CASH FLOWS
	**For the six **	months
	**ended 30 **	June
	2014	2013
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
NET CASH INFLOW FROM OPERATING
ACTIVITIES	1,473,310	637,517
INVESTING ACTIVITIES
Interest received	16,294	9,738
Purchases of property, plant and equipment	(4,329,933)	(1,437,926)
Proceeds from disposal of property, plant and
equipment	286,108	113,042
Proceeds from disposal of held-to-maturity
investments	20,000	—
Loans to associates	(51,534)	(58,050)
Dividends received from joint ventures	19,100	16,800
Dividends received from available-for-sale
investments	298	1,630
Investments in held-to-maturity investments	(20,000)	(87,000)
Investments in joint ventures	(52,722)	(670)
Investments in associates	(830,240)	—
Investments in available-for-sale investments	(29,455)	—
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES	(4,972,084)	(1,442,436)
FINANCING ACTIVITIES
Interest paid	(395,378)	(353,098)
Net cash inflow from notes, bank and other
borrowings	5,474,796	166,871
Contribution from non-controlling shareholders of
subsidiaries	—	8
NET CASH INFLOW/(OUTFLOW) FROM
FINANCING ACTIVITIES	5,079,418	(186,219)
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS	1,580,644	(991,138)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD	1,919,204	3,285,745
Effect of foreign exchange rate changes, net	9,826	(12,863)
CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD	3,509,674	2,281,744
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Cash and bank balances	3,509,674	2,281,744

— 6 —

NOTES TO THE INTERIM FINANCIAL INFORMATION

For the six months ended 30 June 2014

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

1.1 Basis of preparation

The interim financial information has been prepared in accordance with the applicable disclosure requirements of Appendix 16 to The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Hong Kong Accounting Standard (“ HKAS ”) 34 “Interim Financial Reporting” issued by the HKICPA.

The interim financial information does not include all the information and disclosures required in an annual report, and should be read in conjunction with the Company’s consolidated financial statements for the year ended 31 December 2013 set out in the Company’s 2013 annual report.

1.2 Significant accounting policies

The interim financial information has been prepared on the historical cost basis, except that investment properties and derivative financial instruments are measured at fair values. In addition, asset classified as held-for-sale are stated at the lower of carrying amount and fair value less costs to sell.

A number of new or revised Hong Kong Financial Reporting Standards (“ HKFRSs ”) are effective for the financial year beginning on 1 January 2014. Except as described below (Note 1.3), the same accounting policies, presentation and methods of computation have been followed in this interim financial information for the six months ended 30 June 2014 as were applied in the preparation of the Company’s consolidated financial statements for the year ended 31 December 2013.

1.3 Impact of new and revised HKFRSs and changes in accounting policies

Impact of new and revised HKFRSs

In the current period, the Group has adopted the following new and revised HKFRSs issued by the HKICPA that are effective and relevant to the Group’s financial year beginning 1 January 2014. The adoption of these new and revised HKFRSs has had no material effect on the interim financial information of the Group for the current and previous accounting periods.

HKAS 32 (Amendments) Offsetting financial assets and financial liabilities HKAS 36 (Amendments) Recoverable amount disclosures for non-financial assets HKAS 39 (Amendments) Novation of derivatives and continuation of hedge accounting

— 7 —

Impact of HKFRSs issued but not yet effective

Improvement to HKFRSs Annual improvements to HKFRSs 2010 — 2012 Cycle[1] Improvement to HKFRSs Annual improvements to HKFRSs 2011 — 2013 Cycle[1] HKFRS 7 and HKFRS 9 Mandatory effective date of HKFRS 9 and transition (Amendments) disclosures[2] HKFRS 9 Financial instruments[2] HKFRS 11 (Amendments) Accounting for acquisition of interests in joint operation[3] HKFRS 15 Revenue from contracts with customers[4] HKAS 16 and HKAS 38 Clarification of acceptable methods of depreciation and (Amendments) amortisation[3]

• 1 Effective for annual periods beginning on or after 1 July 2014.

• 2 Available for application — the mandatory effective date will be determined when the outstanding phase of HKFRS 9 are finalised.

• 3 Effective for annual periods beginning on or after 1 January 2016.

• 4 Effective for annual periods beginning on or after 1 January 2017.

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, the Group considers that these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

2. CHANGE IN ACCOUNTING ESTIMATES

Effective from 1 January 2014, the Group adjusted the residual values of vessels from USD470 (approximately RMB2,960) per light displacement ton to USD420 (approximately RMB2,560) per light displacement ton. As a result of these changes in accounting estimates, the depreciation increased by approximately RMB29,038,000 for the six months ended 30 June 2014, and that would have increased by approximately RMB1,093,479,000 for the future periods.

3. REVENUE AND SEGMENT INFORMATION

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the services they provide. Each of the Group’s business segments represents a strategic business unit that offers services which are subject to risks and returns that are different from those of the other business segments. The Group’s business segments are categorised as follows:

• (a) oil shipment; and

— 8 —

(b) dry bulk shipment

— coal shipment

— iron ore shipment

• other dry bulk shipment

Business segments

There is seasonality for the Group’s turnover but the effect is small. An analysis of the Group’s turnover and contribution to the gain/(loss) from operating activities by principal activity and geographical area of operations for the period is set out as follows:

By principal activity: Oil shipment Dry bulk shipment - Coal shipment - Iron ore shipment - Other dry bulk shipment Other income and gains Marketing expenses Administrative expenses Other expenses Share of profits/(losses) of joint ventures Finance costs Profit/(loss) before tax Total segment assets Oil shipment Dry bulk shipment Unallocated corporate assets Total segment liabilities Oil shipment Dry bulk shipment Unallocated corporate liabilities		For the six months 2014 (Unaudited) Turnover Contribution RMB’000 RMB’000 2,819,076 408,436 1,221,838 38,604 1,459,597 373,924 790,182 (4,359) 3,471,617 408,169 6,290,693 816,605 8,063 (22,727) (195,234) (18,490) 114,216 (594,302) 108,131 23,593,632 30,913,782 9,435,193 63,942,607 13,903,545 22,163,419 5,770,201 41,837,165	ended 30 June 2013 (Unaudited) Turnover Contribution RMB’000 RMB’000 2,641,678 (117,212) 1,265,770 (135,482) 1,078,222 137,341 242,120 (100,231) 2,586,112 (98,372) 5,227,790 (215,584) 18,514 (20,244) (182,877) (18,116) (37,735) (467,507) (923,549) 22,702,435 15,972,687 18,470,364 57,145,486 15,969,338 12,599,097 5,219,545 33,787,980

— 9 —

Segment contribution represents gross profit/(loss) from each segment without allocation of central administration costs (including directors’ remuneration), marketing expenses, other expenses, share of profits/(losses) of joint ventures, other income and gains and finance costs. This is the measure reported to chief operating decision makers for the purposes of resource allocation and performance assessment.

The carrying value of tankers and dry bulk vessels at 30 June 2014 amounted to RMB20,358,354,000 and RMB24,966,712,000 respectively (31 December 2013: RMB23,802,813,000 and RMB19,895,788,000 respectively).

Geographical segments

By geographical area: Domestic International Other income and gains Marketing expenses Administrative expenses Other expenses Share of profits/(losses) of joint ventures Finance costs Profit/(loss) before tax Turnover Total segment turnover Less: inter-segment transactions Total consolidated turnover

For the six months ended 30 June 2014 2013 (Unaudited) (Unaudited) Turnover Contribution Turnover Contribution RMB’000 RMB’000 RMB’000 RMB’000 2,428,332 324,619 2,248,904 (25,374) 3,862,361 491,986 2,978,886 (190,210) 6,290,693 816,605 5,227,790 (215,584) 8,063 18,514 (22,727) (20,244) (195,234) (182,877) (18,490) (18,116) 114,216 (37,735) (594,302) (467,507) 108,131 (923,549) 6,290,693 5,227,790 — — 6,290,693 5,227,790

— 10 —

Other information

For the six months ended 30 June 2014 (Unaudited)

Additions to segment non-current assets Depreciation Loss on disposal of property, plant and equipment Interest income	Oil shipment RMB’000 866,587 429,961 (28,758) 3,887	Dry bulk shipment RMB’000 1,449,717 489,813 (67,420) 3,391	Others RMB’000 841,318 4,074 (3,600) 9,016	Total RMB’000 3,157,622 923,848 (99,778) 16,294

	**For the **	**six months **	ended 30 June 2013	ended 30 June 2013
		(Unaudited)
	Oil	Dry bulk
	shipment	shipment	Others	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Additions to segment non-current assets	230,915	1,139,688	389,362	1,759,965
Depreciation	403,898	404,523	1,201	809,622
Loss on disposal of property, plant and
equipment	(157)	(8,989)	(1)	(9,147)
Interest income	14,385	13,482	4,325	32,192

The principal assets employed by the Group are located in the People’s Republic of China (“ PRC ”) and, accordingly, no segment analysis of assets and expenditure has been prepared.

— 11 —

4. OTHER INCOME AND GAINS

	**For the **	six months
	**ended **	30 June
	2014	2013
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Other income
Bank interest income	8,917	27,960
Rental income from investment properties	8,710	10,385
Government subsidies (note)	10,050	9,605
Interest income from loan receivables	7,117	2,338
Interest income from held-to-maturity investments	260	1,894
Others	6,570	4,409
	41,624	56,591
Other losses
Derivative financial instruments: reclassified from hedging
reserve on disposal	(1,636)	—
Dividends from available-for-sale investments	298	1,630
Exchange gains/(losses), net	40,538	(33,599)
Loss on disposal of property, plant and equipment, net	(99,778)	(9,147)
Waiver of other payables	24,209	—
Others	2,808	3,039
	(33,561)	(38,077)
Other income and gains	8,063	18,514

Note: The Group received government subsidies for business development purpose and refund of value-added tax. There were no unfulfilled conditions or contingencies relating to these subsidies.

— 12 —

5. FINANCE COSTS

	**For the **	six months
	**ended **	30 June
	2014	2013
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Total finance costs
Interest expenses in:
- Bank loans and other borrowings repayable within five
years	265,163	195,277
- Bank loans and other borrowings repayable over five
years	115,354	125,642
- Corporate bonds	124,260	124,122
- Convertible bonds	96,089	91,718
- Notes	58,907	59,356
- Finance leases	14,054	10,661
- Hedge loans	2,048	3,335
Other loans or borrowings costs and charges	1,677	132
	677,552	610,243
Less: Interest capitalised	(83,250)	(142,736)
Finance costs	594,302	467,507

— 13 —

6. PROFIT/(LOSS) BEFORE TAX

The Group’s profit/(loss) before tax is arrived at after charging:

	**For the **	six months
	**ended **	30 June
	2014	2013
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Cost of shipping services rendered:
Bunker oil inventories consumed and port fees	2,756,773	2,947,331
Others (including vessel depreciation and crew expenses)	2,717,315	2,496,043
	5,474,088	5,443,374
Operating lease rentals:
Land and buildings	22,531	24,288
Vessels	414,132	255,648
Total operating lease rentals	436,663	279,936
Staff costs (including directors’ remuneration, salaries,
pension and crew expenses)	846,265	849,963
Depreciation	923,848	809,622
Dry-docking and repairs	180,055	164,819

7. TAX

(i) Hong Kong Profits Tax

Hong Kong Profits Tax was not provided for in the interim financial information as the Group did not have any assessable profits arising in Hong Kong during the six months ended 30 June 2014 and 2013.

(ii) PRC Corporate Income Tax

Under the Law of the People’s Republic of China on Corporate Income Tax Law (the “ CIT Law ”) and Implementation Regulation of the CIT Law, the tax rate of the Group is 25%.

— 14 —

Non-resident enterprises without an establishment or a place of business in the PRC or which have an establishment or a place of business in the PRC but which relevant income is not effectively connected with the establishment or the place of business in the PRC, will be subject to withholding tax at the rate of 10% (unless reduced by treaty) on various types of passive income such as dividends derived from sources within the PRC. The Group has already assessed the impact of the withholding tax and considered the withholding tax would not have a significant impact on the results of operations and financial position of the Group.

	**For the **	six months
	**ended **	30 June
	2014	2013
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Group:
Hong Kong	—	—
PRC
- Charge for the period	15,556	2,191
- Under provision in prior years	284	1
Deferred tax charge	18,805	3,163
Total tax charge for the period	34,645	5,355

8. EARNINGS/(LOSS) PER SHARE

(a) Basic earnings/(loss) per share

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company by the weighted average number of ordinary shares in issue during the period.

	**For the **	six months
	**ended **	30 June
	2014	2013
	(Unaudited)	(Unaudited)
Profit/(loss) attributable to owners of the Company
(RMB’000)	39,437	(922,687)
Weighted average number of ordinary shares in issue
(thousands)	3,404,556	3,404,553
Basic earnings/(loss) per share (RMB cents per share)	1.16	(27.10)

— 15 —

(b) Diluted earnings/(loss) per share

The diluted earnings/(loss) per share for the six months ended 30 June 2014 and 2013 is the same as the basic earnings/(loss) per share as the assumed exercise of the outstanding convertible bonds has anti-dilutive effect.

9. DIVIDEND

The directors do not recommend the payment of an interim dividend for the six months period ended 30 June 2014 (six months ended 30 June 2013: Nil).

10. INVESTMENT PROPERTIES, PROPERTY, PLANT AND EQUIPMENT AND ASSETS CLASSIFIED AS HELD FOR SALE

During the six months ended 30 June 2014, additions to construction in progress amounted to RMB3,146,100,000 (six months ended 30 June 2013: RMB1,693,188,000).

During the six months ended 30 June 2014, the construction of 2 tankers at cost of RMB1,009,343,000 and 7 dry bulk vessels at cost of RMB1,680,114,000 (six months ended 30 June 2013: 5 tankers at cost of RMB1,207,193,000 and 5 dry bulk vessels at cost of RMB1,511,985,000) were completed and were transferred from construction in progress to vessels, in which no vessel held under finance leases was completed (six months ended 30 June 2013: 4 dry bulk vessels at cost RMB657,150,000 were held under finance lease upon completion) and no vessel was under repair and transferred to construction in progress (six months ended 30 June 2013: 1 tanker with net carrying amount of RMB64,118,000 was under repair and was transferred to construction in progress). Meanwhile, no vessel (six months ended 30 June 2013: 1 used vessel at cost of RMB47,840,000) was acquired during the six months ended 30 June 2014.

During the six months ended 30 June 2014, 14 dry bulk vessels and 7 tankers with net carrying amount of RMB238,057,000 and RMB131,315,000 respectively (six months ended 30 June 2013: 1 dry bulk vessel and 3 tankers with net carrying amount of RMB35,786,000 and RMB93,828,000 respectively) were disposed. Of which, no vessels (31 December 2013: 2 dry bulk vessels with net carrying amount of RMB28,140,000) were being included in assets held for sale as at 30 June 2014.

As at 30 June 2014, the net carrying value of vessels of RMB45,325,066,000 (31 December 2013: RMB43,698,601,000) includes an amount of RMB625,115,000 (31 December 2013: RMB636,363,000) in respect of assets held under finance leases.

As at 30 June 2014, investment properties with fair value of RMB1,076,280,000 (31 December 2013: RMB1,076,280,000) were leased.

There is no significant change in the fair value of investment properties during the six months ended 30 June 2014. The investment properties comprise of commercial buildings located at 670 Dong Da Ming Road, Shanghai, the PRC, held under medium term lease.

— 16 —

11. INVESTMENTS IN ASSOCIATES

30 June 31 2014 (Unaudited) RMB’000 Cost of unlisted investments in associates 867,461 Share of profits and other comprehensive expenses, net of dividend income (60,008) 807,453	December 2013 (Audited) RMB’000 8 (8) —

On 20 June 2014, China Shipping Tanker Co., Limited (“ CS Tanker ”), a wholly-owned subsidiary of the Company, entered into an equity transfer agreement with Sinochem International Corporation, a stated-owned enterprise, pursuant to which CS Tanker acquired 20% equity interests of Shanghai Beihai Shipping Company Limited (“ Shanghai Beihai Shipping ”), a sino-foreign joint venture enterprise established in the PRC, at a consideration of RMB830,000,000 plus/minus 20% of profit/(loss) of Shanghai Beihai Shipping for the period from 1 January 2014 to the date of completion of the registration of transfer in the relevant authority.

Shanghai Beihai Shipping is principally engaged in the provision of shipping services. It is an unlisted entity whose quote market price is not available.

— 17 —

II. MANAGEMENT DISCUSSION AND ANALYSIS

(I) Analysis of International and Domestic Shipping Markets during the Reporting Period

In the first half of 2014, global economy achieved relatively stable growth in general despite a still sluggish recovery which provided limited impetus to drive market demand. On the other hand, due to increasing shipping capacity, the contradiction of capacity oversupply has not achieved substantial improvement which hindered recovery of the shipping market.

In the first half of 2014, with moderate recovery of the world’s major economies, demand for oil grew steadily. Domestic crude oil market recorded basically stable volumes and prices, while domestic refined oil market registered significant decrease both in volumes and prices. International oil shipping market fluctuated significantly, and the overall level was better as compared to the same period of 2013. The annual average value of freight index for three typical routes in the VLCC market (Middle East - Far East, Middle East - the US and the Gulf, West Africa - China) rose 25% year-on-year, while the annual average value of freight index for three typical routes for three types of vessels in the international clean oil market fell 16% year-on-year.

For international dry bulk cargo shipping market, due to volatile downstream demand for major types of cargoes, international dry bulk cargo shipping market in the first half of 2014 showed a trend of turbulence at low level after sharp fall and rebound and the performance generally remained at a low level, with BDI average of 1,180 points, up 40.3% year-on-year, while the annual average value of the Coastal Bulk Freight Index (CBFI) was 1,067 points, up 2.3% year-on-year.

(II) Review of Operating Results during the Reporting Period

In 2014, faced with a complicated market environment, the Group further deepened its strategy of “major clients, great co-operation and comprehensive services” and firmly adhered to innovative thinking and mode of operation, achieving new breakthroughs and resulted in the areas of management improvement, marketing, costs control, costs reduction and efficiency enhancement as well as safety management. With significant improvement in operating conditions, the Group maintained an overall trend of stable development.

— 18 —

During the Reporting Period, the Group completed 105.2 million tonnes of cargo shipment and the volume of freight shipping turnover was 260.8 billion tonne-nautical miles, representing an increase of 8.0% and 29.2%, respectively, year-on-year. Revenue from principal operations (after business tax and surcharge, same as below) was RMB6.291 billion, representing an increase of 20.33% year-on-year. Costs of principal operations amounted to RMB5.474 billion, representing an increase of 0.6% year-on-year. The Company achieved net profit attributable to owners of the parent of RMB39.437 million as compared with loss attributable to owners of the parent of RMB922.687 million in the same period last year.

— 19 —

1. ANALYSIS OF PRINCIPAL OPERATIONS

An analysis of the principal operations in terms of products transported and geographical regions during the Reporting Period is as follows:

									Increase/
								decrease in
									operating
								turnover as
									compared
Sub-business or		Operating					with the same
sub-product		Turnover					period in 2013			Gross profit margin
		(RMB’000)							(%)		(%)
										The first	The first
										half of 2014	half of 2013
Domestic		1,044,607							3.4	33.3	16.9
Crude oil shipment		928,092							8.3	37.8	22.8
Refined oil
shipment		116,515							-23.9	-3.0	-15.8
International		1,774,469							8.8	3.4	-17.7
Crude oil shipment		1,044,953							35.6	4.4	-29.4
Refined oil
shipment		729,516							-15.3	2.0	-7.2
Sub-total of oil
shipment		2,819,076							6.7	14.5	-4.4
Domestic		1,383,725							11.7	-1.6	-15.9
Coal shipment		1,028,085							16.1	3.1	-10.0
Iron ore shipment		123,494							-32.0	-44.9	-29.2
Other dry bulk
cargoes shipment		232,146							35.2	0.4	-32.0
International		2,087,892							55.0	20.6	7.3
Coal shipment		193,753							-49.0	3.5	-12.3
Iron ore shipment		1,336,103							49.0	32.1	21.2
Other dry bulk
cargoes shipment		558,036							693.1	-0.9	-64.3
Sub-total of bulk
shipment		3,471,617							34.2	11.8	-3.8
Total		6,290,693							20.3	13.0	-4.1

— 20 —

(1) Shipping business — Oil shipments

In the first half of 2014, while adhering to the “major clients and great co-operation” strategy, the Group paid close attention to market changes and carried out reforms and innovation in areas such as operating philosophy and business models, hence achieved good results accordingly.

For domestic oil shipments, the Group continued to strengthen its cooperation with China National Offshore Oil Corporation (“ CNOOC ”) to rearrange port capacity, and significantly improved the shipping efficiency of the Group’s fleet for domestic oil shipment. Meanwhile, the Group seized the new opportunity from capital injection into Shanghai Beihai Shipping and Shenzhen Tri-Dynas Oil & Shipping Co., Ltd. to actively promote full cooperation with CNOOC and Shanghai Beihai Shipping. In the first half of the year, the Group maintained a leading position in domestic crude oil shipment market (52.68% market share). Faced with the overall trend of rapid decline of domestic refined oil market in recent years, particularly the structural shrinking of market for big vessels of ten thousand tonnes and above, the Group adopted a strategic exit strategy and leveraged on the complementary advantages between domestic and international shipments to timely adjust allocation of domestic and international shipping capacities, thereby achieving notable improvement in operating efficiency of both domestic and international refined oil shipments.

For international oil shipments, the Group actively explored new markets and new routes, further optimized structures of existing routes, strengthened analysis of budget and final accounts of voyages, and continued to optimize speed with the best economic benefit, thereby significantly improving the comprehensive income and risk-resistant ability of the VLCC fleet. During the Reporting Period, the operating efficiency of the Group’s VLCC fleet was significantly better than the market level.

— 21 —

Table Showing Operating Conditions for Oil Shipment Segment in the First Half of 2014

Transportation volume Billion tonne nautical miles YOY Increase/ Decrease Domestic 8.40 2.1% Crude oil shipment 7.69 17.1% Refined oil shipment 0.71 -57.2% International 94.65 8.1% Crude oil shipment 73.82 11.4% Refined oil shipment 20.83 -2.1% Total 103.05 **7.6% **	Revenue Gross profit margin RMB’000 YOY Increase/ Decrease 1H 2014 1H 2013 1,044,607 3.4% 33.3% 16.9% 928,092 8.3% 37.8% 22.8% 116,515 -23.9% -3.0% -15.8% 1,774,469 8.8% 3.4% -17.7% 1,044,953 35.6% 4.4% -29.4% 729,516 -15.3% 2.0% -7.2% 2,819,076 6.7% 14.5% -4.4%

(2) Shipping business — Dry bulk shipments

For domestic bulk shipments, in 2014, the Group continued to strengthen marketing with focus on COA contract negotiations, striving to enhance contract completion rate. Meanwhile, the Group actively innovated its contract pricing models and adopted fixed price, index linked and other pricing models based on customer needs to ensure basic COA contracts completion according to the progress. In 2014, the Group signed contracts of 51,050,000 tonnes, new customer contracts of 4,900,000 tonnes, of which the fixed freight rates contracts was 11,150,000 tonnes (22%), and the contract freight rates were significantly higher than that of the market over the same period. In a sluggish market, a more market-oriented and more flexible pricing mechanism is in the better interest of the Group as a whole.

— 22 —

Offshore dry bulk cargo shipment became another bright spot in the Group’s operation in 2014. In the first half of the year, revenue from offshore dry bulk cargo shipment was RMB2.088 billion, accounting for over 60% of the total dry bulk cargo shipment revenue, and shipment profit was approximately RMB431 million. For VLOC fleet operation, the Group relied on long-term COA agreements for realization in advance source of cargo shipment of each vessel to ensure the smooth operation of all 14 VLOC vessels. The voyage efficiency of the VLOC vessels surpassed expected operating objectives. In the first half of the year, the VLOC vessels achieved a shipping volume of 11,500,000 tonnes, representing an increase of 12.5% year-on-year, and realized an operating revenue of RMB1.116 billion, shipment profits of RMB390 million, and gross profit margin of 35.1%, creating an important effect in ensuring the Group’s economic returns. For small and medium sized fleet, the Group was fully aware of the trend for slowing growth of coal shipment. It further strengthened research and judgment of market segments, actively adjusted shipment source structure, strengthened contract solicitation for imported coal, grains and fertilizers. During the Reporting Period, non-coal shipment accounted for 48% of the total shipment volume, representing an increase of approximately 31% year-on-year. Through a series of effective measures, the Group’s international dry bulk cargo fleet achieved significantly improved operating efficiency.

— 23 —

Table Showing Operating Conditions for Dry Bulk Shipment Segment in the First Half of 2014

Transportation volume Billion tonne nautical miles YOY Increase/ Decrease Domestic 36.61 10.2% Coal shipment 29.03 11.9% Iron ore shipment 3.71 14.9% Other dry bulk cargoes shipment 3.87 -4.2% International 121.16 66.3% Coal shipment 6.77 -30.8% Iron ore shipment 81.04 56.6% Other dry bulk cargoes shipment 33.35 194.1% Total 157.77 **48.7% **	Revenue Gross profit margin RMB’000 YOY Increase/ Decrease 1H 2014 1H 2013 1,383,725 11.7% -1.6% -15.9% 1,028,085 16.1% 3.1% -10.0% 123,494 -32.0% -44.9% -29.2% 232,146 35.2% 0.4% -32.0% 2,087,892 55.0% 20.6% 7.3% 193,753 -49.0% 3.5% -12.3% 1,336,103 49.0% 32.1% 21.2% 558,036 693.1% -0.9% -64.3% 3,471,617 34.2% 11.8% -3.8%

Note: Other dry bulk cargoes include metal ore, non-metallic ore, steel, cement, timber, grain, insecticide, fertilizer and so on except for coal and iron ore.

(3) Progress made in LNG shipments

In 2014, the Group continued to promote the LNG shipment business. On one hand, it strived for existing project development and steadily proceeded with the phase I vessel construction of Mobil (DES) project and APLNG project while actively implementing the tendering for the APLNG phase II project. On the other hand, the Group actively explored new projects and participated in the tendering for the YAMAL gas transportation project jointly with Japan’s Mitsui O.S.K Lines Limited, and successfully entered into a basket of contracts in relation to 3 LNG vessels for phase I of such project in July 2014.

— 24 —

With the rapid growth of LNG import volumes and improving LNG terminal networks, the demand for domestic LNG waterway transportation emerged accordingly, and small size LNG vessels waterway transportation will become important means to support distribution, transit and peak shipment adjustment for coastal large LNG terminal. To this end, the Group carefully carried out market research studies for coastal LNG transportation to explore the expansion into coastal LNG transportation, and participation in vessel building, purchasing and leasing projects. Meanwhile, the Group strengthened coordination with major domestic oil companies, and is currently studying cooperation with CNOOC in the area of coastal LNG transportation.

2. Costs and expenses analysis

In the first half of 2014, while achieving well in transportation operations, the Group seriously and consistently implemented the various requirements of the Board on further enhancing management, costs reduction and efficiency improvement. Starting on operational management and overall budget management, cost management and control was further strengthened and all types of various costs and expenses were effectively under control, especially the costs of fuel the control of which was excellent. In the first half of 2014, the Group incurred costs of principal operations of RMB5.474 billion, representing an increase of 0.6% year-on-year. Effective costs control has ensured notable improvement in operating profit of the Group. The composition of the main operating costs are analysed as follows:

	In the first	In the first	Increase/	Composition
Item	half of 2014	half of 2013	decrease	ratio in 2014
	(RMB ’000)	(RMB ’000)	(%)	(%)
Fuel cost	2,300,899	2,422,575	-5.0	42.1
Port cost	455,874	524,756	-13.1	8.3
Sea crew cost	727,878	787,749	-7.6	13.3
Lubricants expenses	136,998	122,835	11.5	2.5
Depreciation	911,365	797,884	14.2	16.7
Insurance expenses	122,658	127,898	-4.1	2.2
Repair expenses	180,055	190,681	-5.6	3.3
Charter cost	414,132	255,648	62.0	7.6
Others	224,229	213,348	5.1	4.0
Total	5,474,088	5,443,374	0.6	100.0

— 25 —

In the first half of 2014, the Group incurred fuel costs of RMB2.301 billion, representing a decrease of 5.0% year-on-year and accounting for 42.1% of the costs of principal operations. The Group achieved significant costs reduction by adopting measures including implementing economic shipping speed, centralized purchase, locking oil purchases and various energy-saving measures. While the turnover volume increased by 29.2% year-on-year, the fuel consumption volume was 612,000 tonnes, representing a minor increase of 4.9% year-on-year, and the average fuel consumption was 2.35 kg/1,000 nautical miles, decreased by18.9% year-on-year.

Regarding sea crew costs, in 2014, the Group implemented reform of its crew management system by entering into sea crew management agreements with China Shipping (Group) Company (“ China Shipping ”) for the provision of sea crew and related services to the Group, which enabled the Group to reduce crew costs of approximately RMB59.87 million in the first half of 2014.

In addition, the Group further strengthened communication and coordination with ports, insurance companies and P&I Clubs. As a result, actual expenditures on port charges and insurance fees of the Group decreased RMB68.88 million and RMB5.24 million respectively in the first half of 2014.

In the first half of 2014, the Group incurred depreciation of RMB911 million, representing an increase of 14.2% year-on-year. Such increases were due to: (1) 9 new vessels with a total capacity of 1.128 million dead weight were delivered during the Reporting Period; (2) effective from 1 January 2014, the Group adjusted the residual values of vessels from USD470 (approximately RMB2,960) per light displacement ton to USD420 (approximately RMB2,560) per light displacement ton. As a result of these changes in accounting estimates, the depreciation increased by approximately RMB29,038,000 for the six months ended 30 June 2014.

In the first half of 2014, the Group incurred charter cost of RMB414 million, representing an increase of 62.0% year-on-year. Such increases were due to the fact that the Group chartered in 23 bulk vessels with a total capacity of 1,349,000 deadweight tonnes during the Reporting Period, representing an increase of 198% year-on-year.

3. Interests in the joint venture’s results

In the first half of 2014, the Group recognised approximately RMB114 million as its income from its joint ventures as compared to a loss of RMB38 million during the same period in 2013. In the first half of 2014, the 5 joint ventures

— 26 —

achieved a shipping volume of 67.95 billion tonne-nautical miles, representing a decrease of 3.3% as compared with the same period in 2013. The operating turnover achieved by the 5 joint ventures in the first half of 2014 was approximately RMB4.398 billion, representing an increase of 26% as compared with the same period in 2013, with a net profit of approximately RMB185 million, as compared to a net loss of RMB112 million during the same period in 2013. The 5 joint ventures of the Group are mainly engaged in domestic coastal bulk transportation, and their operating revenue and profits increased significantly due to the domestic coastal coal contract freight rate increased as compared to 2013.

As at 30 June 2014, the 5 joint ventures owned 89 bulk vessels with a total capacity of 4.7 million deadweight tonnes and 12 vessels under construction with the capacity of 626,000 deadweight tonnes.

The operating results achieved by the 5 joint ventures in the first half of 2014 are as follows:

	Interest
	held
	by the	Shipping	Operating	Net
Company Name	Company	volume	revenue	profit/(loss)
		(billion
		tonne
		nautical
		miles)	(RMB’000)	(RMB’000)
Shenhua Zhonghai Marine
Co., Limited	49%	38.20	1,738,875	199,292
Shanghai Times Shipping
Co., Limited	50%	23.79	2,241,133	(31,853)
Guangzhou Development
Shipping Co., Limited	50%	3.77	267,880	11,895
Shanghai Friendship
Marine Co., Limited	50%	0.98	64,440	177
Huahai Petrol
Transportation & Trading
Co., Limited	50%	1.21	86,106	5,000
Total		67.95	4,398,434	184,511

— 27 —

In the first half of 2014, the net profit achieved by China Shipping Finance Co., Limited, a non-shipping joint venture, with 25% interest held by the Company, was RMB111,040,000 (the first half of 2013: RMB74,251,000).

(III) Financial analysis

1. Net cash outflow/inflow

The net cash inflow and outflow from operating activities of the Group is RMB1,473,310,000 and RMB637,517,000 for the six months ended 30 June 2014 and 2013 respectively.

2. Capital commitments

The Group had the following capital commitments as at 30 June 2014 of which RMB1,641,364,000 (31 December 2013: RMB5,980,812,000) will be due within one year.

	30 June	31 December
	2014	2013
	(Unaudited)	(Audited)
	RMB’000	RMB’000
Authorised and contracted for:
Construction and purchases of vessels (Note A)	7,379,974	9,586,595
Equity investments (Note B)	539,668	592,868
	7,919,642	10,179,463

Note:

• A. According to the construction and purchase agreements entered into by the Group from January 2007 to June 2014, these capital commitments will fall due in 2014 to 2017.

• B. Included capital commitments in respect of equity investments are the commitment to invest in joint ventures, Shenhua Zhonghai Marine Co., Limited.

In addition to the above, the Group’s share of the capital commitments of its associate which are contracted for but not provided amounted to RMB618,621,000 (31 December 2013: RMB895,929,000). The Group’s share of the capital commitments of its joint ventures, which are contracted for but not provided amounted to RMB1,008,763,000 (31 December 2013: RMB1,296,397,000); which are authorised but not contracted for amounted to RMBNil (31 December 2013: RMB4,900,000).

— 28 —

3. Capital structure

As at 30 June 2014, the equity attributable to the owners of the Company and net debts (as total debt (which includes interest-bearing bank borrowings, notes, other loan, finance lease and bonds payable) less cash and cash equivalents) amounted to approximately RMB21,212,754,000 and approximately RMB35,834,208,000 respectively and the debt-to-equity ratio was 169% (31 December 2013: 130%).

4. Trade and bills receivables

The carrying amounts of trade and bills receivables approximate their fair values.

An ageing analysis of trade and bills receivables is as follows:

1 - 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years	30 June 2014 (Unaudited) Balance Percentage RMB’000 % 1,780,911 90 204,508 10 3,944 — 266 — 2,010 — 1,991,639 100	31 December 2013 (Audited) Balance Percentage RMB’000 % 1,559,506 89 108,813 6 47,208 3 33,251 2 1,507 — 1,750,285 100	31 December 2013 (Audited) Balance Percentage RMB’000 % 1,559,506 89 108,813 6 47,208 3 33,251 2 1,507 — 1,750,285 100
			100

The Group normally allows an average credit period of 30 to 120 days to its major customers. In view of the fact that the Group’s trade and bills receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade and bills receivables are non-interest-bearing.

— 29 —

5. Trade and bills payables

The carrying amounts of trade and bills payables approximate their fair values.

An ageing analysis of trade and bills payables is as follows:

1 - 3 months 4 - 6 months 7 - 9 months 10 - 12 months 1 - 2 years Over 2 years	30 June 2014 (Unaudited) Balance Percentage RMB’000 % 873,036 70 169,957 14 110,492 9 57,403 5 26,139 2 7,103 — 1,244,130 100	31 December 2013 (Audited) Balance Percentage RMB’000 % 1,388,738 90 71,612 5 49,090 3 17,928 1 5,889 — 9,476 1 1,542,733 100	31 December 2013 (Audited) Balance Percentage RMB’000 % 1,388,738 90 71,612 5 49,090 3 17,928 1 5,889 — 9,476 1 1,542,733 100
			100

The trade payables are non-interest-bearing and are normally settled in 1 to 3 months.

6. Provision for onerous contracts

	30 June	31 December
	2014	2013
	(Unaudited)	(Audited)
	RMB’000	RMB’000
At beginning of period/year	349,694	—
Provisions made during the period/year	84,432	349,694
Provisions utilised during the period/year	(93,650)	—
Exchange realignment	3,238	—
At end of period/year	343,714	349,694
Less: current portion of provision for onerous
contracts	(170,747)	(175,287)
Non-current portion of provision for onerous
contracts	172,967	174,407

— 30 —

As at 30 June 2014, the Group had a provision of RMB343,714,000 (31 December 2013: RMB349,694,000) for onerous contracts relating to the non-cancellable chartered-in oil tankers and dry bulk vessel contracts.

As at 30 June 2014, the committed charterhire expenses of non-cancellable chartered-in oil tankers and dry bulk vessel contracts with lease term expiring over 24 months from the end of the Reporting Period and with period not being covered by chartered-out oil tankers and dry bulk vessels contracts of which management cannot reliably assess their onerous contracts amounted to approximately RMB2,876,183,000 (31 December 2013: RMB3,031,793,000).

7. Derivative financial instruments

30 June	31 December
2014	2013
(Unaudited)	(Audited)
RMB’000	RMB’000

Carried at fair value Cash flow hedges: - Interest rate swap agreements Assets Non-current portion Liabilities Current portion Non-current portion	— — (69,987) (69,987)	151,027 (1,940) (4,689) (6,629)

As at 30 June 2014, the Group held thirty-one (31 December 2013: thirty-two) interest rate swap agreements, the total notional principal amount of the outstanding interest rate swap agreements was approximately USD609,800,000 (approximately RMB3,752,007,000) (31 December 2013: USD651,134,000 (approximately RMB3,969,870,000)). The interest rate swap agreements, with maturity in 2016, 2031 and 2032 are designated as cash flow hedges in respect of the bank borrowings with floating interest rates.

— 31 —

As at 30 June 2014, the floating interest rates of the bank loans were London interbank offered rate (“ Libor ”) + 0.42% or 2.20% (31 December 2013: Libor + 0.42% or 0.45% or 2.20%).

The gains and losses for the interest rate swap agreements during the period are as follows:

	**For the six **	months	months
	**ended 30 **	June
	2014		2013
	(Unaudited)	(Unaudited)
	RMB’000	RMB’000
Total fair value (loss)/gain included in the
hedging reserve	(214,185)		3,647
Hedge loan interest included in finance costs	(2,048)		(3,335)
Total (loss)/gain on cash flow hedges of
interest rate swap agreements for the current
period	(216,233)		312

On 28 January 2014, the Group released one of interest rate swap agreement with Citibank, N.A., Hong Kong, the notional principal amount of the interest rate swap agreement was approximately USD41,334,000 prior to maturity in January 2016.

— 32 —

8. Notes, interest-bearing bank and other borrowings

• (a) The Group’s notes, interest-bearing bank and other borrowings are analysed as follows:

					31
				30 June	December
		Annual effective		2014	2013
		Interest	Maturity	(Unaudited)	(Audited)
		(%)		RMB’000	RMB’000
Current liabilities
(i)	Bank loans
	Secured	10% discount to the
		People’s Bank of
		China (“PBC”)
		benchmark interest
		rate, 3 months Libor,
		3 months Libor +
		1.30%, Libor +
		0.38% to 1.70%,
		4.50%, 6.46%	2014-2015	1,335,447	1,627,229
	Unsecured	9% discount to the
		PBC benchmark
		interest rate, Libor +
		0.60% to 4.00%,
		3.50% to 6.55%	2014-2015	4,659,490	1,575,940
				5,994,937	3,203,169
(ii)	Notes
	Unsecured	3.90%	2014-2015	2,999,837	2,998,949
(iii)	Other
	borrowings
	Secured	6.00%, 6.46%	2014-2015	252,395	6,630

— 33 —

Annual effective 30 June 2014 Interest (%) Maturity (Unaudited) RMB’000 Unsecured 10% discount to the PBC benchmark interest rate, Libor + 1.60% to 2.90%, 6 months Libor + 2.50%, 5.02% to 6.00% 2014-2015 4,730,060 4,982,455 Notes, interest-bearing bank and other borrowings — current portion 13,977,229 Non-current liabilities (i) Bank loans Secured 10% discount to the PBC benchmark interest rate, 3 months Libor + 2.20%, Libor + 0.38% to 2.15%, 6.46% 2016-2037 9,009,678 Unsecured 3 months Libor + 2.40%, Libor + 1.70% to 1.85%, 1.68%, 6.55% 2019-2024 2,811,310 11,820,988 (ii) Other borrowings Secured 6.00%, 6.46% 2023 133,620	31 December 2013 (Audited) RMB’000 2,356,307
	2,362,937
	8,565,055
	8,109,880 2,092,182
	10,202,062
	137,700

— 34 —

Annual effective 30 June 2014 Interest (%) Maturity (Unaudited) RMB’000 Unsecured 10% discount to the PBC benchmark interest rate, 6 months Libor + 2.50%, 6.51% 2017-2018 3,615,319 3,748,939 Notes, interest-bearing bank and other borrowings — non-current portion 15,569,927	31 December 2013 (Audited) RMB’000 5,072,790
	5,210,490
	15,412,552

— 35 —

• (b) As at 30 June 2014, the Group’s notes, interest-bearing bank and other borrowings were repayable as follows:

	30 June	31 December
	2014	2013
	(Unaudited)	(Audited)
	RMB’000	RMB’000
Analysed into:
(i) Bank loans:
Within one year or on demand	5,994,937	3,203,169
In the second year	1,336,427	1,675,888
In the third to fifth year, inclusive	5,410,157	3,886,845
Over five years	5,074,404	4,639,329
	17,815,925	13,405,231
(ii) Notes:
Within one year or on demand	2,999,837	2,998,949
(iii) Other borrowings:
Within one year or on demand	4,982,455	2,362,937
In the second year	8,415	2,079,420
In the third to fifth year, inclusive	3,643,369	3,026,010
Over five years	97,155	105,060
	8,731,394	7,573,427
	29,547,156	23,977,607

As at 30 June 2014, certain of the Group’s bank loans were secured by (i) pledges or mortgages of the Group’s 41 vessels (31 December 2013: 34 vessels) and another 8 vessels under construction (31 December 2013: 4 vessels under construction) with total net carrying amount of RMB19,579,596,000 (31 December 2013: RMB16,299,120,000) and (ii) trade receivables of RMB99,413,000 (31 December 2013: RMB504,705,000).

The carrying value of the Group’s notes, interest-bearing bank and other borrowings approximate their fair values.

— 36 —

Except for secured bank loans of RMB10,025,390,000 (31 December 2013: RMB9,598,438,000), unsecured bank loans of RMB6,525,417,000 (31 December 2013: RMB2,947,739,000) and unsecured other borrowings of RMB615,319,000 (31 December 2013: RMB426,767,000) which are denominated in USD, all other borrowings are denominated in RMB.

• (c) Details of the notes as at 30 June 2014 are as follows:

	30 June	31 December
	2014	2013
	(Unaudited)	(Audited)
	RMB’000	RMB’000
Principal amount	3,000,000	3,000,000
Notes issuance costs	(8,245)	(8,245)
Proceeds received	2,991,755	2,991,755
Accumulated amortisation	8,082	7,194
	2,999,837	2,998,949

Notes with principal amount of RMB3,000,000,000 were issued by the Group to investors on 3 August 2009. The notes carried a fixed interest yield of 3.90% per annum and were issued at a price of 100 per cent of its principal amount, resulting in no discount on the issue. The notes became interest bearing since 4 August 2009, payable annually in arrears on 4 August of each year. The notes matured on 3 August 2014.

9. Risk on foreign currency

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to United States Dollar (“ USD ”) and Hong Kong Dollar (“ HKD ”) against RMB. Foreign exchange risk arises from future commercial transactions, and recognised assets and liabilities.

As at 30 June 2014, the Group’s foreign exchange liabilities mainly comprised secured bank loans equivalent to approximately RMB10,025,390,000 (31 December 2013: RMB9,598,438,000), and unsecured bank loans and other

— 37 —

borrowings equivalent to approximately RMB7,140,736,000 (31 December 2013: RMB3,374,506,000). In addition, the Company would pay dividend for H shares in HKD.

The Group does not have any significant exposure to foreign exchange risk.

Given the increasing revenue from the Group’s international shipping business, changes in exchange rates will have certain impact on the Group’s profitability. Therefore, the Group will further strengthen its efforts in monitoring and studying exchange rate fluctuations, and will actively implement effective measures to strive to avoid exchange rate fluctuation risks. Firstly, the Group will strive to break even USD payables/receivables for its operations. Secondly, the Group will conscientiously analyze and compare available financial instruments for averting exchange rate risks, so as to hedge and lock in financial costs, and to effectively protect against risks caused by exchange rate fluctuations.

10. Contingent liabilities

• (1) In August 2011, one of the Group’s cargo vessels “Bihuashan” collided with “Li Peng 1”, which caused “Li Peng 1” to sink afterwards. The Group has set up a Limitation of Liability for Maritime Claims Fund amounting to RMB22,250,000. Since the Group had been insured, all compensation will be borne by the insurance company. As at 30 June 2014, the Group was still in the process of settling all the issues concerned.

• (2) In January 2012, fuel leakage occurred in one of the Group’s tanker “Daiqing 75” during its voyage in Bohai Sea of the PRC. As at 30 June 2014, claims on damage caused by the fuel leakage amounted to an aggregate of RMB17,224,000 plus court costs. Of which, RMB11,000,000 had been fully settled by insurance companies. Since the Company had been insured with PICC Property and Casualty Company Limited and West of England Insurance Services (Luxembourg) S.A., all compensation will be borne by the insurance companies. As at 30 June 2014, the Group was still in the process of settling all the issues concerned.

• (3) East China LNG Shipping Investment Co. Ltd., a non wholly-owned subsidiary of the Company, holds 30% equity interests in each of Aquarius LNG Shipping Limited (“ Aquarius LNG ”) and Gemini LNG Shipping Limited (“ Gemini LNG ”), and North China LNG Shipping Investment Co. Ltd., a non wholly-owned subsidiary of the Company, holds 30% equity

— 38 —

interests in each of Capricorn LNG Shipping Limited (“ Capricorn LNG ”) and Aries LNG Shipping Limited (“ Aries LNG ”). Each of these four companies above entered into ship building contracts for the construction of one LNG vessel. After the completion of the LNG vessels, the four companies would, in accordance with time charters to be signed, lease the LNG vessels to the following charterers:

Company name Charterer Aquarius LNG Papua New Guinea Liquefied Natural Gas Global Company LDC Gemini LNG Papua New Guinea Liquefied Natural Gas Global Company LDC Aries LNG Mobil Australia Resources Company Pty Ltd. Capricorn LNG Mobil Australia Resources Company Pty Ltd.

On 15 July 2011, the Company entered into four guaranteed leases (the “ Lease Guarantees ”). According to the Lease Guarantees, the Company irrevocably and unconditionally provided the charterers, successors and transferees of the four companies listed above with guarantee (1) for the four companies to fulfil their respective obligations under the lease term, and (2) to secure 30% of amounts payable to charterers under lease term.

According to the term of the lease guarantees and taking into account the possible increase in the value of the lease commitments and the percentage of shareholdings by the Company in the above four companies, the amount of lease guaranteed by the Company is limited to USD8.2 million (approximately RMB51 million).

The guarantee period is limited to that of the lease period, which is 20 years.

• (4) On 9 March 2013, one of the Group’s cargo vessels “CSB Talent” had a broken bollard caused by strong wind at the dock and collided with several parked vessels nearby, which resulted in damage of the floating dock and other facilities. As at 10 July 2013, the claims on damage caused by the collision amounted to an aggregate of RMB95,000,000. Since the Company had been insured with PICC Property and Casualty Company Limited (Guangzhou Branch) and The London Steam Ship Owners Mutual Insurance

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Association Limited, all compensation will be borne by the insurance companies. As at 30 June 2014, the Group was still in the process of settling all the issues concerned.

• (5) On 23 December 2013, five of the Group’s oil tankers “Danchi”, “Baichi”, “Daiqing 71”, “Daiqing 72” and “Ruijintan” extracted oil from “Bohaiyouyihao” owned by CNOOC (Tianjin Branch). This act was sued by a group of plantiffs for ocean pollution. As at 23 April 2014, claims on damage caused by ocean pollution amounted to an aggregate of RMB47,452,000. Since the Company had been insured with PICC Property and Causalty Company Limited (Shanghai Branch), the London P&I Club and SKULD, all compensation will be borne by the insurance companies. As at 30 June 2014, the Group was still in the process of settling all the issues concerned.

(IV) Others

1. Fleet expansion

In 2014, the Group fully capitalized state subsidies and support policies for shipping companies to timely adjust fleet structure and actively promote implementation of the “12th Five-Year” fleet development plan. In the first half of the year, a fleet of 9 new vessels with a total capacity of 1,128,000 deadweight tonnes have been delivered for use, which comprised 2 new oil tankers with a total capacity of 430,000 deadweight tonnes and 7 new bulk vessels with a total capacity of 698,000 deadweight tonnes. In addition, 21 old vessels of 614,000 deadweight tonnes were demolished. Following the adjustment to the fleet composition, the current fleet composition of the Group was further optimized. The average single vessel capacity kept on rising, the average age of the vessels decreased year by year, and the degree of large-size, low-carbon, new and remote vessel operations further enhanced, thereby strengthening the market competitiveness of the fleet.

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As at 30 June 2014, the Group owned 195 vessels with a total capacity of 17.59 million deadweight tonnes. The composition of the Group’s fleet is as follows:

Number of vessels Deadweight tonnes (million) Tankers 69 7.54 Bulk vessels 126 10.05 Total 195 17.59	Average age (years) 6.1 9.6
	8.4

2. Significant Investments

For details of significant investments held by the Group, please refer to Notes 10 and 11 in the notes to the interim financial information.

(V) Outlook and highlights for the second half of 2014

1. Competitive landscape and development trend in the industry

The second half of 2014 was characterized by a slow recovery of global economy. International trade is likely to rebound from the sluggish situation, and it is anticipated that low growth rate may become a normal trend in the next few years.

The shipping market will undergo a slow and modest recovery, while the traditional peak shipping season in the second half of the year is expected to drive the development of the market to a certain extent. However, the cumulative effects caused by the previous oversupply of tonnage have led to difficulty to substantially alleviate the supply and demand imbalance in the short term. It is expected that the global shipping market will continue to fluctuate at a low level on the whole.

2. Development strategies and work initiatives of the Company

In response to the continuously depressed market environment, the Group will solidify its current position on one hand and hold a vision for the future on the other in the second half of 2014. On the basis of ensuring completion of our annual goal, the Group will further deepen reform and innovation as well as

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excellent operation for enhancement of our risk-resistant ability, sustainable development capability and core competitiveness. Our work initiatives will focus on the following aspects:

• (1) Enhance marketing efforts, deepen the cooperation with major customers and strengthen customer management and customer services. Facing tough market conditions, the Group will continue to adhere to the strategy of “major clients, great co-operation and comprehensive services”, increase service awareness continuously and strive to satisfy customer needs and provide value-added services actively, in order to enhance the executive capability on management of major clients and increase development efforts to expand the market customer base.

In 2014, for oil shipment operations, cooperation with the top three domestic petroleum companies will be strengthened continuously, with focus on protecting the market shares on coastal crude oil and domestic offshore oil and the fixed load ratio of Unipec’s VLCC, and utilizing the joint advantages of domestic and offshore trading markets to increase revenue. For bulk cargo shipment operations, the Group will focus on improving the pricing mechanism and contract performance mechanism for COA contracts, improve customer management, consolidate benefits from associated companies, strengthen communication with senior staff of partners, and maintain good cooperation results with associated companies. Meanwhile, the Group will make good use of the unified platform for bulk cargo operations to allocate shipping capacities reasonably between long-term chartering and spot market contracts, increase the market share of offshore shipment operations and improve the structure of cargo sources. For LNG shipment operations, the Group will further enhance the integrated capabilities on LNG project development, vessel construction management, business management, bank financing, crew and vessel management, in order to safeguard the LNG market for the two major groups, Sinopec and PetroChina, and actively develop cooperation with other LNG importers.

• (2) Accelerate fleet structure adjustment and proceed with fleet structure optimization at a steady pace. Fully leveraging the state policy of “demolishing old and building new” regarding vessels, the Group will continue to enhance fleet structure optimization, complete well disposal of old and obsolete vessels and construction and delivery of big vessels, and, through close combination of fleet “streamlining” and “strengthening”,

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actively pursue fleet upgrade and technology upgrade to develop the fleet towards the direction of low-carbon, large-size and energy saving operations, thereby enhancing the economic benefit and the overall competitiveness of the fleet.

• (3) Adhere to the costs-come-first and excellent operation strategy to continuous improve efficiency and costs advantages. In the second half of the year, the Group will further strengthen and improve comprehensive energy saving mechanism and further enhance energy saving through fleet technologies. While fuel saving measures such as locking oil purchases and implementing economic shipping speed will be implemented continuously, such concepts and models will gradually cover the management and control of various costs items such as crew expenses, vessel repair charges, port charges, to create an advantage of low costing.

• (4) Strengthen funds management and expand financing channels to secure development funds. According to the new vessel delivery plans, the capital expenditure of the Group for the second half of 2014 and 2015 will be approximately RMB2.57 billion and RMB2.78 billion respectively. In this connection, the Group will further strengthen cooperation with banks, fully utilize both domestic and international markets and reasonably use financial instruments to secure the required capital funds, and will continuously enhance operating benefits and efficiency of capital operations, reduce financing costs and maintain a relatively sound financial structure, so as to prevent financial risk and capital risk practicably.

• (5) Continue to strengthen safety development to ensure safety development of the enterprise. Safe production is a matter of lives. We will firmly instil the working philosophy of “pursuing a safety management system to achieve safe operation and management” with a focus on collision avoidance, pirate prevention and pollution prevention, further strengthen the safe production responsibility system, and actively promote establishment of safety standards for safety management.

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III. OTHER MATTERS

1. Possible Accumulated Net Profit for the Nine Months ended 30 September 2014

Since the beginning of 2014, there has been certain improvement in the domestic and overseas shipping markets. Based on information currently available to the Company, it is expected that the Group may record accumulated net profit for the nine months ended 30 September 2014, as compared to a net loss of approximately RMB1.19 billion attributable to the equity holders of the Company for the nine months ended 30 September 2013.

2. Events after the Reporting Period

On 8 July 2014, Arctic Blue LNG Shipping Limited, Arctic Green LNG Shipping Limited and Arctic Purple LNG Shipping Limited (the “ JV Companies ”), each of which is a joint venture of the Group, entered into three shipbuilding contracts with Daewoo Shipbuilding & Marine Engineering Co., Ltd. and DY Maritime Limited (the “ Shipbuilders ”) and the three time charter agreements with YAMAL Trade Pte. Ltd. (the “ Charterer ”). As a result, the Company entered into three corporate guarantees on the same date in favour of the Shipbuilders and three owner’s guarantees in favour of the Charterer in connection with the due performance of the JV Companies’ obligations under the three shipbuilding contracts and the three time charter agreements, to the extent of USD490,000,000 (approximately RMB3,014,872,000) and USD6,400,000 (approximately RMB39,378,000) respectively.

On 30 July 2014, CS Tanker entered into an equity transfer agreement with Shanghai Shipping (Group) Company, a wholly-owned subsidiary of China Shipping, pursuant to which CS Tanker acquired further 20% equity interests of Shanghai Beihai Shipping at a consideration of RMB830,000,000 plus/minus 20% of profit/(loss) of Shanghai Beihai Shipping for the period from 1 January 2014 to the date of completion of the registration of transfer in the relevant authority.

At an extraordinary general meeting of shareholders held on 12 August 2014, the Company passed a special resolution of changing the conversion price from RMB8.60 per share to RMB6.24 per share in accordance with the terms of issuance of convertible bonds effective from 14 August 2014.

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3. Compliance with the Corporate Governance Code

The Board is committed to the principles of corporate governance and focuses on enhancing shareholders’ value. In order to reinforce independence, accountability and responsibility, the posts of Chairman of the Board and the CEO are assumed by different individuals so as to maintain independence and balanced judgment and views.

During the Reporting Period, the Company has complied with the code provisions set out in the Corporate Governance Code set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”). The Company has established four professional committees under the Board, including an audit committee (“ Audit Committee ”), a remuneration and appraisal committee, a strategy committee and a nomination committee with defined terms of reference.

4. 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 the Reporting Period.

5. Audit Committee

The Board has established an Audit Committee to review the financial reporting procedures and internal control of the Group and to provide guidance thereto. The Audit Committee comprises all four independent non-executive Directors of the Company.

The Audit Committee has reviewed the interim results of the Company for the Reporting Period.

6. Compliance with the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules

The Company has adopted the Model Code set out in Appendix 10 to the Listing Rules as its code of conduct regarding Director’s securities transactions.

Following specific enquiries made with the Directors, supervisors and chief executives of the Company, the Directors have confirmed to the Company that each of them has complied with the Model Code during the six months ended 30 June 2014.

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7. Employees

The adjustments of employee remuneration is 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 Company. Under this mechanism, management of employees’ remuneration will be more efficient while employees will be motivated to work hard to bring encouraging results for the Company. Save for the remuneration policy disclosed above, the Company does not maintain any share option scheme for its employees and the employees do not receive any bonus. The Company regularly provides its administrative personnel with training on various subjects, including operation management, foreign languages, computer skills, industry know-how and policies and laws. Such training may be in different forms, such as seminars, site visits and study tours.

As at 30 June 2014, the Company had 697 employees (as at 30 June 2013:7,991). In 2014, the Group implemented reform of its crew management system by entering into sea crew management agreements with China Shipping for the provision of sea crew and related services to the Group. During the Reporting Period, the total staff cost was approximately RMB846 million (The same period in 2013: approximately RMB850 million), in which, the sea crew cost was approximately RMB728 million (The same period in 2013: approximately RMB788 million).

8. Investor Relations

The Company has actively and faithfully performed its duties regarding the disclosure of information and the work on investor relations. The Company has strictly abided by the principles of regulation, accuracy, completeness and timely disclosure of information. The Company has established a designated department for investor relations, which is responsible for matters concerning investor relations and has formulated the “Investor Relations Management Measures” to regulate the relations with the investors. Through various approaches and channels such as organizing results presentation, roadshow, telephone conference, a corporate website, investors’ visits to the Company and answering the investors’ enquires, the Company’s management strengthened close communications and relationship with the investors and analysts, thereby enhancing investors’ recognition of the Company.

The Company has maintained investor relations section at its website at www.cnshippingdev.com to disseminate information to its investors and its shareholders on a timely basis.

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9. Supplementary information to be published on the websites of the Stock Exchange and the Company

All details on the financial and related information of the Company containing all information as required by the Listing Rules to be set out in this announcement is published on the website of the Stock Exchange (www.hkex.com.hk) and the Company (www.cnshippingdev.com).

The financial information set out above does not constitute the Company’s statutory financial statements for the six months ended 30 June 2014 and 2013, but is derived from the condensed consolidated financial statements prepared in accordance with the applicable disclosure requirements to the Listing Rules and HKAS 34 “Interim Financial Reporting”. The condensed consolidated financial statements for the six months ended 30 June 2014 will be included in the interim report of the Company for the six months ended 30 June 2014 and delivered to the Company’s shareholders as well as made available on the Company’s and the Stock Exchange’s website.

By order of the Board China Shipping Development Company Limited Xu Lirong Chairman

Shanghai, the PRC 29 August 2014

As at the date of this announcement, the Board of Directors of the Company comprises Mr. Xu Lirong, Mr. Zhang Guofa, Ms. Su Min, Mr. Huang Xiaowen, Mr. Ding Nong, Mr. Liu Xihan, Mr. Yu Zenggang, Mr. Han Jun and Mr. Qiu Guoxuan as executive Directors, Mr. Zhang Jun, Mr. Wang Wusheng, Mr. Lin Junlai, Mr. Ruan Yongping and Mr. Ip Sing Chi as independent non-executive Directors.

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