Chairman Speech

Dear Shareholders,

It has been another eventful year in 2018, as the maritime market was impacted by a few external factors other than the demand and supply fundamentals. The uncertainties associated with the trade tension and ongoing discussions between China and the U.S., as well as the forthcoming IMO rules on vessel emissions, weighed on market sentiment. As a result, despite a promising start in the market in early 2018, the recovery slowed down in the later part of the year. We at AVIC International Maritime Holdings Limited (“AVIC Maritime” or the “Group”) have, however, leveraged on our strong capabilities in ship design and a wide range of shipbuilding related services, attained another year of growth.

Financial Overview

Revenue from ship-design service, contributing 65% of the Group’s total revenue, increased by 39% year-on-year (“yoy”) to RMB381.0 million. Revenue from the shipbuilding project financing business, contributing 21% of the Group’s total revenue, increased by 118% yoy to RMB124.8 million. Due to lower revenue from shipbuilding construction service, total revenue of RMB587.7 million on Group level was 9% lower in FY2018 than in FY2017. However, gross profit increased by 29% yoy to RMB344.9 million in FY2018, and gross profit margin increased to 59% in FY2018 compared to 41% in FY2017, attributable mainly to the strong performance of the ship-design and shipbuilding project financing businesses.

The Group reported net profit of RMB38.8 million in FY2018, 46% higher compared to FY2017. Net profit attributable to shareholders increased by 2% yoy to RMB27.3 million in FY2018.

World-Class Ship-Design Capabilities

Our design unit, Deltamarin Ltd (“Deltamarin”) is widely recognized as one of the best ship design companies in the world. Its relentless pursuit of innovative, eco-friendly and cost-efficient design of vessels has won it numerous accolades over the past three decades. Thanks to its wide-range of expertise in various types of vessels, including cruises, ferries and Ro-Pax vessels, Ro-Ro vessels (including Ro-Ro vessels and pure care truck carriers (PCTC)), containerships, dry bulkers, tankers and other vessels, its business is well insulated against the market downturn for a single category of vessels.

Over the past few years, Deltamarin has solidified its leading position in the design of high-tech, energy efficient and dual-fuel vessels that are capable of navigating in challenging weather conditions. In 2018, Deltamarin continued to build up its strong order book. New contracts secured include providing consultancy and engineering services to Guangzhou Shipyard International Co, Ltd in China for the DFDS (Det Forenede Dampskibs-Selskab) Ro-Pax ferries, and providing basic and detail design as well as site assistance services for a Global Class mega cruise ship to MV Werften of Germany. In January 2019, Blue Star Line has contracted Deltamarin for the design of Titanic II, as part of its grand plan to create an authentic Titanic experience for modern people with modern safety procedures. In March 2019, Deltamarin has signed a contract with Rauma Marine Constructions Oy for the basic and detail design services for all hull and machinery areas of a car passenger ferry for Kvarken Link AB. Together with several other major vessel design orders in its order book, Deltamarin will see high capacity utilization until 2022.

As our shipbuilding construction business was going through some down-cycle, Deltamarin has become an increasingly prominent part in the Group’s integrated shipbuilding supply chain. Its excellent design capability has not only made direct contribution to our financial performance, but also created important synergies for the development of the Group’s other businesses.

Penetrating Niche Shipbuilding Market

We worked closely with our associated shipyards, AVIC Dingheng and AVIC Weihai, principally on shipbuilding design, maritime management and consultancy services, including shipbuilding project financing and management services. Anticipating the challenges in the shipbuilding market in 2018, we placed great focus on order win, on-time delivery, quality and cost control, as well as production safety, and achieved another record year in terms of ship delivery.

AVIC Dingheng and AVIC Weihai have established a strong foothold in the niche markets for small and mediumsized chemical tankers and gas carriers and Ro-Pax vessels, respectively. Leveraging on the strong ship-design capabilities of Deltamarin, the yards have also incorporated the latest ship design to meet the new and increasingly stringent environmental protection regulations.

Specifically, 2018 has been a remarkable year for the construction of Ro-Pax vessels. In October 2018, AVIC Weihai delivered an 880-passenger, 2,160 lanemeter Ro-Pax, New Grand Peace to customer. It’s among the highest-specification Ro-Pax vessel to be operated on the China-South Korea route. AVIC Weihai has also made important progress in the building of several high-end, 3,100 lanemeter Ro-Pax vessel for Stena Line of Sweden, as a milestone project in the yard’s strategic upgrading plan to become one of the best Ro-Pax shipyards in the world.

In 2018, we navigated the market conditions and drove forward the business with increased efforts both internally and externally. Internally, we continued to improve our management system, including processes such as strategic planning, supply chain, design and coordination, production safety and quality management. These processes created the conditions for the smooth execution of our projects, and helped us streamline the processes to achieve better cost control. In order to incorporate the latest shipbuilding technology and improve efficiency, we increased the use of the 3D design system in more projects, while building up the expertise in the authentic 3D smart manufacturing and the research in “Internet + collaborative manufacturing”.

Externally, we continued to explore the overseas market, especially in Europe, the Belt-and-Road countries and other developing countries, providing integrated maritime services throughout the shipbuilding value chain.

Outlook And Strategy

The maritime industry is still in the early stage of recovery, and the process of the recovery is affected by various factors, including economic growth, business fundamentals and geopolitical factors. The ongoing consolidation of China’s shipbuilding industry will help companies with strong competitive advantages strengthen its market position. However, competition on the shipbuilding market is intense, and currently it’s still a ship owners’ market.

Challenges should remind us to remain focused and driven, so that we will play out our business potential, backed by our parent company, The Aviation Industry Corporation of China, Ltd.’s strong support for us with their financial resources, brand value, the network, as well as technology, talents and the management structure.

In 2019, we will continue to enhance our business value and create additional income through shipbuilding supply chain services and sharing our technological and management expertise. Through providing comprehensive support to Deltamarin and creating synergies, we aim to grow Deltamarin’s business and financial performance to the next level. In terms of internal management, we will continue to upgrade our product offering, ensure safe production, strengthen financial management with innovative financing methods, so as to improve capital efficiency and reduce financing costs.

In 2019, we will, as always, commit ourselves to developing our core capabilities in shipbuilding management services and ship-design, constantly exploring new technologies and new ideas to cope with new challenges. With a global horizon, we seek to be a market leader and a transformed state-owned enterprise. We are making solid steps to become a leading provider of integrated marine services, as we improve our financial performance and return to our shareholders.

In Appreciation

On behalf of the Board, I would like to express my sincere appreciation to the management team and employees for their dedication and commitment to the Group. To our business partners and customers, thank you for your unwavering support and I look forward to a closer collaboration and partnership with you in the years to come. To our valued shareholders, we are thankful for your unrelenting support and confidence in us, and we strive to optimize the financial performance and sustain the growth in return.

Dr Diao Weicheng
Executive Chairman