Chairman Speech

Dear Shareholders,

The weak market conditions for the shipping and shipbuilding industries continued in 2016. Against the challenges, AVIC International Maritime Holdings Limited (the ”Company” and together with its subsidiaries, the ”Group”) made significant progresses on multiple fronts. These included the enhancement of synergies between business segments, strengthened sales and marketing capabilities, securing of new orders, demonstration of capabilities in R&D and ship design, establishment of the AVIC brand, streamlining of operations, and improvement on operational quality and efficiency. Our consistent effort has led us through the thickness of the market downturn and borne fruit in terms of product upgrading, and we made our historical record in vessel delivery. I’m proud of the achievements that we made, and on behalf of the board of directors, I would like to extend my sincere gratitude to all employees of the Group.

Review On 2016

In 2016, we made substantial effort in the expansion and penetration of the overseas market, with Europe, countries along the “One Belt, One Road”, and other developing countries as a focus. Through providing comprehensive and integrated services from presales to post sales, the Group secured a total of 15 effective orders, with a total contract value of USD524 million. New orders included the 3100 lane meter and 2160 lane meter Ro-pax vessels, and 2500 lane meter Ro-Ro vessels that the Group obtained jointly with AVIC Weihai Shipyard Co., Ltd (“AVIC Weihai”), and two units of 16,300 DWT dual-fuel chemical tankers and two units of 7,999 DWT dual-fuel chemical tankers that the Group obtained jointly with AVIC Dingheng Shipyard Co., Ltd (“AVIC Dingheng”). With the chemical tanker orders, AVIC Dingheng further strengthened its leading position in the niche area in the market, ranked No.1 in China and No.3 in the world with its outstanding orderbook for small-medium size chemical tankers, and No. 1 in the world with its outstanding orders for dual-fuel propelled vessel orders. Deltamarin, at the same time, furthered its track record in order taking with the vessel design contract for the largest mega passenger vessel in Germany in history. The order will keep Deltamarin’s capacity highly utilized for the next two years.

Amid prolonged weak market sentiment for the shipping industry and heightened competition in the shipbuilding industry, the Group, together with the associate shipyards, delivered a total of 25 vessels of various types in its shipbuilding project management business in 2016.

We accelerated technological upgrading and the promotion of 3D vessel design in 2016, and assisted the associate yards in setting up the first design team for the innovative “authentic 3D” smart manufacturing of vessels. At the same time, we strengthened the capabilities in integrated research in ‘smart manufacturing’ and ‘internet + coordinated manufacturing’, and enhanced our leading position in vessel design.

We also assisted the associate shipyards in their upgrading towards ‘high-technology, high-value added’ products, so as to build up a solid foundation for sustained profitability in future. For AVIC Dingheng, it focused on small-medium size, high-end stainless chemical tankers and LNG carriers. It has constantly improved the environmental-friendly features, and reinforced its reputation in the market. For AVIC Weihai, it has achieved the breakthrough in the transition towards specialized vessels, such as Ro-pax.

We introduced innovative management framework and consolidated global resources. In order to improve operational quality and efficiency, we further streamlined our operations through removing redundant shareholding layers; through stringent cost control, we reduced management cost for various levels, and enhanced automation-supported efficiency and synergies between business segments. With the new project management committee for the RO-PAX project, the associate shipyards drew resources and expertise from industry veterans, and instated systematic control over key procedures, including planning, supply chain, design and synergy, safety and quality, and created a strong safeguard for the successful execution of projects.

Outlook

2016 was a year of challenges, which we faced with proactiveness and strength, and we are well-positioned to embrace the growth opportunities in 2017 and beyond.

In view of the uncertainties in geopolitics, global economy and the market conditions for the shipbuilding industry, we could still face some testing times in 2017. However, we remain committed to our vision and mission, and determined to tackle the challenges and move forward.

We aspire to become an integrated provider for the supply chain of the shipbuilding industry with strong competitive edge globally, and we will work hard to achieve this vision in 2017. We will put increased effort in global sales and marketing, R&D and procurement through product upgrading and quality/efficiency improvement, and provide clients with quality products with good value for money. In addition, we will create value with the extension of our technology and management expertise to external supply chain, and enhance our brand value.

We will further play out our strength in international trade, and continue to expand and penetrate China and overseas markets. Through improving the capabilities in technological services, we will focus on the R&D of energy-efficient, environmental friendly, highly-specialized and high-valueadded vessels, introduce innovative vessel types that cater to the evolving requirement from customers and adhere to the product upgrading strategy. Stainless steel chemical tankers and Ro-Ro passenger vessels will be the flagship products for our promotion on the global market, and we will seek to maximize our order book.

We will improve on capital management and consider innovative financing options, and in turn improve capital efficiency and lower the financing cost. We will also achieve value creation through enhanced supply chain related services.

On behalf of the board of directors, I would like to express my sincere appreciation to the management team and employees for their dedication and commitment to the Group. Thank you, our business partners and customers, for your unwavering support, and I look forward to closer collaboration with you in the years to come. With continued effort, we strive to optimize our operational and financial performance in 2017 to return to shareholders. As the market has shown some signs of recovery, we are confident that the Group is well positioned to tap on increased business opportunities, and the future will only be brighter for the Group.

Dr Diao Weicheng
Executive Chairman

 

1 JPMorgan "Asian shipbuilding industries – Chinese yards: 140 yards have disappeared, more to disappear for the next two years" – Jan 6, 2016