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ANNUAL REPORT 2005

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China COSCO Holdings Company Limited12th Floor, Ocean Plaza, 158 Fuxingmennei Street, Beijing,

the People's Republic of China

http://www.chinacosco.com ��

02China COSCO Holdings Company LimitedANNUAL REPORT 2005

Chairman

Contents

China COSCO Holdings Company Limited ANNUAL REPORT 2005

Company Profile

Company Information

Major Events

Financial Highlights

Chairman’s Statement

Management Discussion and Analysis

Directors, Supervisors and Senior Management

Directors’ Report

Report of the Supervisory Committee

Corporate Governence Report

Notice of the Annual General Meeting

Auditors’ Report

Consolidated Balance Sheet

Balance Sheet

Consolidated Income Statement

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Consolidated Financial Statements

Financial Summary

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The overseas listed flagship

for shipping business of COSCO Group

A major global supplier

of integrated container shipping services

01

02

Company Profile

China COSCO Holdings Company LimitedANNUAL REPORT 2005

China COSCO Holdings Company Limited ( “ChinaCOSCO” or the “Company”, together with itssubsidiaries, the “Group”) was established in thePeople’s Republic of China (the “PRC”) on 3 March2005. It is the overseas listed flagship for shippingbusiness of China Ocean Shipping (Group) Company(“COSCO”, together with its subsidiaries, the “COSCOGroup”), the second largest integrated shippingcompany in the world. China COSCO owns 100% ofCOSCO Container Lines Company Limited (“COSCON”)and approximately 52% of COSCO Pacific Limited(“COSCO Pacific”), a company which is listed on theMain Board of The Stock Exchange of Hong KongLimited (the “Stock Exchange”). The Group is one of theleading global providers of integrated container shippingservices to international and domestic customers. Itsbusiness includes the provision of a wide range ofcontainer shipping, container terminal, container leasing,freight forwarding and shipping agency services acrossthe container shipping value chain. The Company wassuccessfully listed on the Main Board of the StockExchange in Hong Kong on 30 June 2005.

As at 31 December 2005, the Group operated a fleet of124 container vessels through COSCON, with a totalcapacity of 322,000 TEUs, which ranks it amongst thetop ten of all global container vessel fleets in the world.The Group provides container liner shipping services inthe Trans-Pacific route, the Asia-Europe route, the Intra-Asia route, other international routes and domesticroutes in the PRC. The Group’s vessel fleet calls at over120 ports in over 40 countries and regions across the

world, providing integrated container shipping servicesto its customers along 66 international trade lanes, 16international feeder service routes, 9 PRC coastalservice routes and 55 Pearl River Delta and YangtzeRiver feeder service routes. At the same time, the Groupowned 291 sales and service points in major cities in thePRC. It also owned 70 and managed and used 84 salesand service points overseas. The coverage of the abovenetwork enables the Group to provide quality door-to-door services to its customers.

The Group is also engaged in the business of containerterminals, container leasing and logistics servicesthrough COSCO Pacific. As at 31 December 2005, theGroup has invested in 20 terminal projects globally. Thecontainer terminals owned by the Group recorded anannual throughput of approximately 26 million TEUs,which ranks it the fifth in the world. As at 31 December2005, the scale of the Group’s container fleet reached1,042,852 TEUs. The Group’s container leasingbusiness represents about 11% of the market share,ranking it the third in the world. In addition, the Groupowns 16.23% of China International Marine Containers(Group) Co., Ltd. (“CIMC”). CIMC is the world’s largestcontainer manufacturer, representsing over 50% of themarket share.

Being the overseas listed flagship of COSCO Group forshipping business, with its market experience and globaladvantage, China COSCO is heading towards thedirection of becoming a leading integrated shippingservices enterprise in the world.

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Company Information


Registered OfficeOcean Plaza, 12th Floor

158 Fuxingmennei Street

Beijing 100031, PRC

Place of Business in Hong Kong49th Floor, COSCO Tower

183 Queen’s Road Central

Hong Kong

Board of DirectorsWEI Jiafu (Executive Director, Chairman and CEO)

ZHANG Fusheng

(Non-executive Director and Vice Chairman)

CHEN Hongsheng

(Executive Director and President)

WANG Futian (Non-executive Director)

LI Jianhong (Non-executive Director)

MA Zehua (Non-executive Director)

MA Guichuan (Non-executive Director)

SUN Yueying (Non-executive Director)**

LIU Guoyuan (Non-executive Director)

LI Boxi (Independent Non-executive Director)

TSAO Wen King, Frank

(Independent Non-executive Director)

HAMILTON Alexander Reid

(Independent Non-executive Director)*

CHENG Mo Chi

(Independent Non-executive Director)**

* Chairman of Audit Committee

** Member of Audit Committee

Joint Company SecretariesZHANG Yongjian

YEUNG Chun Wai, Anthony

Authorised RepresentativesCHEN Hongsheng

YEUNG Chun Wai, Anthony

Qualified AccountantYEUNG Chun Wai, Anthony

AuditorsPricewaterhouseCoopers

Major BankersBank of China

Industrial and Commercial Bank of China

China Merchants Bank

Legal AdviserPaul, Hastings, Janofsky & Walker

Hong Kong H Share Registrar and TransferOfficeComputershare Hong Kong Investor Services Limited

Units 1712-1716

17th Floor, Hopewell Centre

183 Queen’s Road East

Wanchai, Hong Kong

Websitehttp://www.chinacosco.com

04

Major Events


2005

March China COSCO was established in Beijing.

April COSCO Pacific signed a joint venture heads of agreement to establish a joint venture to constructand operate a container terminal at Nansha Port Phase II.

COSCON was awarded “The Best Shipping Line (China Trade)” by Cargonews China.

COSCON signed a construction contract for four of the world’s largest container vessels (10,000TEUs) with Nantong COSCO KHI Ship Engineering Co., Ltd.. The first vessel is expected to bedelivered in 2008.

COSCO Pacific was selected as one of the Forbes Global 2000 Enterprises in 2005.

May COSCON was awarded five awards in The Fourth China Shipping Industry Awards in 2004,namely (i) the “Best Shipping Company Golden Wheel Prize”, (ii) “China to the US (west and eastcoast) service”, (iii) “China to Europe service”, (iv) “China to Korea service” and (v) “Coastal service(Pan Asia)” for its integrated shipping services. Its subsidiary, COSCO International FreightCompany Limited, was awarded the “Best Freight Forwarding Service Company Gold Prize”.

COSCO Pacific signed a joint venture contract to acquire a 20% equity interest in Nanjing LongtanContainer Limited. The joint venture company commenced operation on 26 August.

COSCON was named “The 2005 Best Carrier for Fast East/East Canada service” by CanadianInternational Freight Forwarders’ Association (CIFFA). This was COSCON’s fourth consecutive yearof winning the same award.

June China COSCO (1919.HK) was listed and commenced trading on the Stock Exchange.

July China COSCO has been officially added to FTSE China Index, FTSE Asia Pacific Index (excludingJapan, Australia and New Zealand), FTSE All-world Index, FTSE Global Emerging Market Index,FTSE/Hang Seng Asian Cyclical Index, and Xinhua FTSE QDII Hong Kong Index.

August Shanghai Pan Asia Shipping Company Limited signed a building contract in relation to nine 200TEUs container vessels with Chongqing Dongfeng Ship Industry Company.

11 container vessels owned by COSCON was named “Quality Vessels of the 21st Century” in theUS.

Wei Jiafu, Chairman of China COSCO, was elected again the Chairman of China Shipowners’Association by unanimous vote at the members’ meeting of China Shipowners’ Association.

September China COSCO was officially added to Hang Seng China Enterprises Index.

COSCO Pacific signed an agreement with Ningbo Port Group Ltd. to form joint venture companyto develop Berth Number 7 of Beilun Container Terminal Phase IV. COSCO Pacific owns 20% ofthe equity interest in the joint venture.

COSCON and COSCO International Freight Co., Ltd. (COSFRE) jointly invested and incorporatedCOSCO South-China International Freight Co., Ltd. in Shenzhen to consolidate the marketingentities in the Southern China region and Hong Kong.

05China COSCO Holdings Company Limited

ANNUAL REPORT 2005

October Wei Jiafu, Chairman of China COSCO, was awarded the “Achievement Award in Shipping” by therenowned shipping and trading association in the US, International Propeller Club. It was the firsttime for International Propeller Club, since its establishment in 1927, to confer this award to theCEO of a shipping company outside the US.

COSCON, K-Line and Hanjin Shipping jointly commenced operation of the South China- MiddleEast express service.

COSCO Pacific was named the “Best Practices in Investor Relations among Asian ComprehensiveEnterprises” and “Best Practices in Investor Relations among Chinese Enterprises” by aninstitutional investor magazine.

November COSCON, Evergreen Marine Corp and Hapag-Lloyd Container Line strengthened theircooperation by consolidating the Far East/Red Sea service and providing direct service forSouthern China.

COSCON was awarded “Shipping Line of the Year” in Asia Logistics Awards 2005 organized byINFORMA Group, publisher of Lloyd’s List, an authoritative media in the shipping industry.

COSCON, K-Line, Yang Ming and Hanjin Shipping convened a meeting and determined that thefocus of the strategic plans for 2006 is to consolidate strategic alliance and enhancecompetitiveness.

Wei Jiafu, Chairman of China COSCO, was awarded a medal by the King of Belgium forrecognising his outstanding contributions to Belgium’s economic development and traderelationship between China and Belgium.

COSCO Logistics Co., Ltd. came first amongst the “Top 100 China Logistics Companies” for thesecond consecutive year.

December The opening ceremony of Yangshan port of Shanghai International Shipping Centre was held inPhase 1 of Yangshan Port. COSCON’s vessel, MV “COSCO CHINA”, with 8,204 TEUs,participated in the ceremony.

COSCO Pacific signed a joint venture agreement to acquire Phase II of Shanghai Yangshan Port.COSCO Pacific owns 10% of the equity interest in the joint venture.

COSCO Pacific signed an agreement to acquire a 20% interest in the Suez Canal ContainerTerminal S.A.E. in Egypt.

Wei Jiafu, Chairman of China COSCO, was elected the “2005 CCTV China Economic Figure ofthe Year”.

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Financial Highlights


2005 2004

RMB’000 RMB’000 Change

Turnover 39,165,710 32,188,669 21.7%

Operating profit 7,054,873 5,045,716 39.8%

Profit before income tax 7,450,250 5,243,300 42.1%

Profit attributable to equity holders of the Company 5,450,805 4,157,960 31.1%

Basic earnings per share (RMB) 1.06171 1.01414 4.7%

Final dividend per share (RMB) 0.13 N/A N/A

Dividend payout ratio 29.8% N/A N/A

Total assets 51,675,654 44,249,567 16.8%

Total liabilities 25,730,562 30,847,045 -16.6%

Minority interests 7,508,740 5,953,318 26.1%

Equity attributable to the equity holders of the Company 18,436,352 7,449,204 147.5%

Net debt to equity ratio 32.9% 96.6% N/A

Gross profit margin 21.9% 20.0% N/A

Chairman WEI JIAFU


What is the “China Factor”? In Beijing, the urban map is being re-drawn soswiftly that road signs can hardly keep up with the new roads andbuildings. In the global shipping market, large quantity of containers areshipped from China to countries all around the world. This is a sign of thehuge impact of China’s economic growth on the global economy, andnowhere is this impact deeper than in the area of global shipping. As globalcompetition intensifies, the demand for Chinese manufacturing will shiftfrom quantity to quality, which in turn creates more opportunities for China’slogistics and shipping services. The future of the China Factor will put newpressure on global shipping companies to create innovative services andimprove service quality to meet the needs of their customers in the contextof global competition.

The China Factor has led the international shipping industry into a new era.With globalisation and outsourcing trend, China will consolidate its positionof being the “Factory of the World”. And yet, the China Factor faces manychallenges as well, ranging from high oil prices to international terrorismand protectionism. These make it imperative for shipping companies toimprove both the capacity and quality of its shipping services to meet themarket demand, to build global alliances across the shipping industry andto establish a more harmonious atmosphere for dialogue with theircounterparts in the industry, the governments, and the investors.

Going forward, China COSCO will strengthen her leading position inthe global shipping industry as it utilises the opportunities of theChina Factor.


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CHAIRMAN’S STATEMENT

In 2005, the world’s shipping market kept up its

momentum and spectacular growth after setting a

record high in 2004, while the “China Factor” continued

to power the industry’s development in China and

around the world. Meanwhile, the combined effect of

globalisation and the shifting of production bases to

Asia has provided a solid foundation for the steady

growth of the shipping market in China. As one of the

world’s leading providers of integrated container

shipping services, the Group is well positioned to

benefit from the strength of China’s domestic economy

and international trade. This is due to its fully-integrated

container shipping value chain, the positive synergy

among its diversified businesses, its quality customer

base, its worldwide network of sales and services, as

well as its advanced information technology systems.

The Group achieved impressive business growth in

2005. During the year, the turnover was

RMB39,165,710,000 and profit attributable to equity

holders of the Company was RMB5,450,805,000, an

increase of 21.7% and 31.1% respectively, exceeded

the profit forecast made when China COSCO was

listed in June 2005. In particular, COSCON, a wholly-

owned subsidiary of China COSCO and the largest

container shipping company in China, attained very

outstanding results in 2005. COSCON recorded a total

container shipping volume of 4,534,610 TEUs and a

total turnover of RMB31,959,809,000, an increase of

19.7% and 17.0% respectively over 2004. The Group’s

container terminal business, which is conducted

through COSCO Pacific, continued to grow rapidly. In

2005, the Group’s container terminals handled a total

throughput of 26,079,612 TEUs, an increase of 16.2%

over 2004. The Group’s container leasing business is

conducted through Florens Container Holdings Limited

(“Florens”). As of 31 December 2005, Florens owned

and managed a container fleet of approximately

1,042,852 TEUs. Its world ranking of being the fourth

largest container company has been promoted to the

third place in 2005.

In line with the long-term development strategy of the

Group, the Board has recommended payment of a final

dividend of RMB0.13 per share (pre-tax) based on the

payout rate indicated in the China COSCO’s listing

prospectus of 29.8%.

2005 was a very significant year for China COSCO in its

corporate history. In the first half of the year, the Group

completed its asset restructuring and was successfully

listed on the Stock Exchange. The listing exercise

enabled us to expand the capacity, to improve the age

and structure of our container vessel fleet, to enhance

our “door-to-door” service platform and to further

optimise our capital structure. All in all, it provided a

strong support to the business development of the

Group.

During the year under review, the Group has

successfully made integration to the value chain of

container shipping, giving full synergic effect among the

various business entities, and enhancing the Group’s

overall capabilities against market risks. In respect of

container shipping, the Group further reduced its

operation risks through various measures such as

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futures trading by which the Group has been able to

reduce its operation costs and mitigate impact brought

about by oil price risks. In addition, in order to expand

the Group’s market share in the shipping market, while

paying attention on the emerging market opportunities,

the Group also promoted on the formation of global

feeder network. During the year, the Group also

continued to enhance information management and

overall level of management, so as to create more

values to customers.

The Group firmly believes that a sound framework of

corporate governance is the cornerstone for the

sustainable growth of its business value. Currently, the

Company retains four independent non-executive

directors, which is above the requirement set out in the

Rules Governing the Listing of Securities on The Stock

Exchange of Hong Kong Limited (the “Listing Rules”).

Besides, the Board has set up five board committees

and an executive committee. The board committee will

help the Board evaluate, review and recommend

development strategies and risk management

measures, monitor and safeguard the independence of

external auditors, and review the nomination of

directors and the relevant remuneration policies, etc.

The executive committee will approve the investment

projects of the Group in accordance with the authority

granted by the Board. China COSCO also aimed at

continuously improving and enhancing its risk

management and internal control procedures so as to

promptly respond to and resolve any potential risk.

opening new shipping services, re-designing the

existing shipping services and adjusting the allocations

of capacities of the various services. At the same time,

the Group has strengthened the coverage and

competitiveness of CKYH Consortium, a consortium

consisting of COSCON, K-Line, Yang Ming and Hanjin

Shipping. For example, CKYH Consortium has

confirmed in the meeting held on 3 November 2005

that the focus of the strategic plan in 2006 will be to

consolidate the strategic alliances and strengthen

competitiveness. CKYH Consortium not only provides

cooperation in the main-routes, but will also expand the

cooperation scope to the joint establishment of feeder

service network. In respect of container terminals, the

Group has continued its global expansion strategy, and

has entered into major joint venture and acquisition

agreements in respect of Guangzhou Nansha Port

Phase II terminal, Shanghai Yangshan Port Phase II

terminal and Suez Canal Terminal at Port Said, Egypt.

In respect of container leasing, the Group further

explored markets and expanded the strengths of its

container fleets through strategic cooperation

partnership with various large shipping companies, and

port operators. In respect of logistics business, on the

basis of continuous consolidation of its brand

advantages, the Group has made further in-depth

development into the target markets, integrated

resources and enhanced the level of its operations.

At the same time, the Group also dedicated in reducing

its operation costs, and capitalising on various

measures such as centralised purchases of fuel and


ANNUAL REPORT 2005

According to the forecast of the World Bank and the

International Monetary Fund, etc., the global economy

will maintain its steady growth in 2006 and the growth

rate will be similar to that of 2005. 2006 is the first year

for the implementation of the PRC government's

"Eleventh Five-year Plan". We believe that, in the

context of China's continued industrialisation and

urbanisation, as well as the upcoming Beijing Olympics

in 2008, China will continue to realise high economic

growth. Hence, the Group believes that China is likely

to uphold its position as the world's factory and

maintain the substantial growth in its imports and

exports. According to the "Eleventh Five-year Traffics

Technology Development Rule" announced by the

Ministry of Communications in China, the throughput of

China's ports was 4,910,000,000 tons and the

throughput of containers was 75,800,000 TEUs in

2005, which ranked China as number one in the world

in three consecutive years. It is expected that, during

the next five years period, the throughput of China's

coastal ports and the throughput of containers will

realise an average of 8.0% and 12.2% annual growth

respectively. Therefore we believe that the global

demand for container shipping, as well as for container

terminals and the ancillary facilities and services, will

continue to increase. The Group stands to benefit

under such a favorable outlook.

Against this exciting backdrop, however, we are aware

of the challenges ahead. From 2005 till now, rising

crude oil prices, the revaluation of the Renminbi, market

skepticisms on the demand and supply equilibrium of

the global shipping industry, as well as the restructuring

within the industry aroused concerns from the

investment market. As one of the world's major

providers of integrated container shipping services, the

Group is fully prepared to develop strategies to

enhance its operating efficiency. We also intend to

adopt necessary measures to reduce the effects

associated with rising oil prices and Renminbi

appreciation. Meanwhile, supported by the positive

global economic prospects and the "China Factor", it is

our belief that the industry's demand and supply will be

relatively balanced in the coming years.

Going forward, we will continue to increase our

competitiveness to become one of the world's leading

global integrated shipping companies in terms of

business scale, range of services, profitability and

customer satisfaction. To this end, we will continue to

improve our information systems and cost-control

measures. We will also continue to optimise our

container vessel fleet capacity and our shipping route

and terminal networks and services to enhance our

"door-to-door" services. Accordingly, we aim to further

improve customer satisfaction and increase our

profitability so as to create better shareholder value.

Looking back to our achievements in the past year, I

would like to take this opportunity to express the

Board’s gratitude to our shareholders, customers,

employees and business partners for their generous

and unfailing support to the Group. In the future, we

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look forward to working more closely with all of you to

create an even stronger marine fleet, an even wider

shipping network and an even more flexible logistics

system. I believe that China COSCO is heading towards

to become the world’s leading shipping enterprise and

will play its role to the full as the overseas listed flagship

for shipping business of the COSCO Group. Let us

anticipate even more brilliant prospects for the Group in

the international shipping market.

WEI Jiafu

Chairman

11 April 2006

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Review of Overall Performance

Benefiting from the favorable conditions in the global

economy and international shipping, the Group’s

business segments which include container shipping,

container terminals, container leasing, freight

forwarding and shipping agency services, etc. had

grown rapidly during the year. The Group’s gross

turnover for 2005 was RMB39,165,710,000,

representing an increase of 21.7% over 2004. Its profit

before income tax and profit attributable to equity

holders of the Company were RMB7,450,250,000 and

RMB5,450,805,000, representing an increase of 42.1%

and 31.1% over 2004 respectively. The substantial

increase in the Group’s profit, as compared with last

year, was due to the continuous growth in shipping and

port handling volume and revenue, reasonable control

of the costs, better utilisation of resources and

enhanced information management.

Review of Operations

Container Shipping Business

Rapid Growth in Shipping Volume and Turnover

In 2005, the Group’s container shipping business

achieved a shipping volume of 4,534,610 TEUs,

representing an increase of 19.7% on a year-to-year

basis. All major routes, including Trans-Pacific, Asia-

Europe, Intra-Asia and China routes achieved growth,

of which Asia-Europe was the most obvious, with a

growth rate reaching 31.7%. The next was China

routes, which had reached a growth rate of 25.1%. The

increase in shipping volume for container shipping

business in 2005 was due to the fact that the shipping

market continued the good momentum from 2004.

Moreover, the Group had timely increased its number of

ships and strength in solicitation activities. The Group

also increased its shipping capacities, added new

services and increased its existence in emerging

markets.

The turnover of the Group’s container shipping

business in 2005 amounted to RMB31,959,809,000,

representing a growth of 17.0% on a year-to-year basis

over the previous year. Trans-Pacific, Asia-Europe,

Intra-Asia, other international routes and China routes

had achieved growth. Among them, Asia-Europe and

China routes had achieved the best performed growth,

reaching 24.5% and 29.2% respectively. The increase

in turnover from container shipping business was due

to the increase in shipping volume on major routes,

details of which are shown in the following tables:


ANNUAL REPORT 2005

Shipping volume by markets

For the year ended 31 December

2005 2004 Change

TEUs TEUs %

Trans-Pacific 1,183,899 1,000,360 18.3

Asia-Europe (including the Mediterranean) 1,002,561 761,013 31.7

Intra-Asia (including Australia)* 1,392,828 1,214,578 14.7

Other international (including Trans-Atlantic) 240,873 241,369 -0.2

PRC 714,449 571,132 25.1

Total 4,534,610 3,788,452 19.7

* 2005 and 2004 figures include the shipping volume handled by Coheung Marine Shipping Company Limited

Turnover by markets


2005 2004 Change

RMB’000 RMB’000 %

Trans-Pacific 12,527,188 10,680,016 17.3

Asia-Europe (including the Mediterranean) 9,154,183 7,354,971 24.5

Intra-Asia (including Australia) 5,935,908 5,352,822 10.9

Other International (including Trans-Atlantic) 2,573,389 2,270,638 13.3

PRC 1,480,948 1,146,609 29.2

Sub-total 31,671,616 26,805,056 18.2

Chartered out 288,193 514,787 -44.0

Total 31,959,809 27,319,843 17.0

016



Optimisation of the trunk routes network

In line with market development and customer

demand, the Group undertook an innovative

reorganisation of its services on trunk east-west routes.

Together with its CKYH Consortium, COSCON further

consolidated and optimised their shipping services to

European/US destinations to further enhance their

service quality and coverage and reduce the risks and

costs of routes development. In the Trans-Pacific

routes, the Group enlarged the service coverage of the

Pacific Northwest route by directly calling at the ports of

Busan and Portland. In addition, the Group reorganised

its European services, and introduced a new loop.

Besides, COSCON also cooperated with Hanjin and K

Line in introducing a new service between South China

and the Persian Gulf.

Development of emerging markets

Through the co-operation with other shipping

companies, COSCON made an aggressive effort in

developing emerging markets. During the year, utilising

the opportunity in reorganising its European shipping

services, Kuala Lumpur was added as a calling port, in

order to focus on the development in the South Asian

subcontinent market. Since April, the US East Coast

biweekly service began to call at Panama, marking

COSCON’s entry to the Caribbean market. The South

China — Red Sea service was reopened in response to

the demand of the Red Sea market brought by the

addition of Jeddah port to the reorganised European

routes. In addition, COSCON introduced a series of

feeder services on the Southeast Asia — Australia,

Hong Kong — Manila , the Naples — Adriatic Sea,

India — Pakistan, and the intra-Bohai routes. The

above global feeder service network enhanced the

Company’s development of the emerging markets.

110,000 TEUs were added through the development of

emerging markets with a revenue of RMB620 million in

2005.

Enhancement of shipping capacity

Our container ship fleet is an essential component of

our competitive edge. To expand its market share and

satisfy the shipping demand of its newly developed

markets, the Group added 9 new vessels with a

combined shipping capacity of 39,240 TEUs during the

year. As of 31 December 2005, the Group had a total

of 124 vessels with an aggregate capacity of 322,414

TEUs, representing an increase of 8% over the previous

year. In addition, the Group recalled certain vessels on

short-term leases to make available the most resources

to cope with the demand in the peak season. As a

result, its available shipping spaces achieved an

increase of 14% over the previous year.

As of 31 December 2005, the Group had an orderbook

of 23 vessels with a combined shipping capacity of

about 180,000 TEUs, which are expected to

commence operation in the next few years. Among the

vessels, 11 are time chartered vessels with a combined

shipping capacity of 79,733 TEUs. The strategies for

the fleet include constantly increasing the proportion of

large-size vessels, in order to enhance the fleet

structure. In the first half of the year, the Group entered

into contracts with Hyundai Heavy Industries and

Nantong COSCO KHI Ship Engineering Co., Ltd. for

the building of a total of eight 10,000 TEU vessels,

making it the first company in the shipping industry to

order vessels of such size.


ANNUAL REPORT 2005

Improvement of information systems and networks

The Group leveraged advanced information technology

to further build up its efficient customer service system.

In 2005, COSCON further advanced its e-commerce

service by introducing various interactive service

features, including online booking, online shipping

instructions, online printing of bill of lading, electronic

equipment release and online arrival advice. Besides, a

self-service interactive voice response system was

launched in China. The above services have given

tremendous convenience to the global customers of

COSCON, thereby enhancing its service branding and

corporate image.

In line with its business development, the Group

focused on promoting integrated business information

system, IRIS-2, in emerging markets and regions in

which it actively pursues business expansion. Besides,

further steps were taken to improve the features of the

management information system to enable the full

performance of its functions in improving yield

management and reducing costs.

To support the enlarged shipping capacity of the

Company, the Group established 16 additional points of

sales and services globally. Efforts were also made to

reorganise its sales network in the South China region

in order to enhance the Group’s service quality and

market share in the area.

Stringent Cost Controls

The Group reduced the proportion of transshipment

cargoes by optimal route-planning and increasing the

proportion of direct port-calling. It also actively adjusted

the structure of the cargo base. These had resulted in a

reduction of transshipment costs. Meanwhile, the

Group implemented dynamic management of shipping

spaces to maintain a high utilisation rate and improve

the control of the flow of orders. The Group also

effectively lowered the cost on containers by raising the

utilisation rate and reducing the turnaround time.

Besides, IRIS-2 system was used for cost control

which has saved service cost substantially.

The Group had also redesigned the arrangement of

shipping routes, schedules and speeds of ships in

order to minimise the voyage costs.

In addition, the Group also improved its cost control on

fuel procurement. Coupled with the adoption of

centralised procurement and futures trading, the Group

managed to reduce its fuel costs to below market

levels. Owing to the synergy effect resulting from

business integration, the Group also strengthened its

bargaining power and restrained the rate of increase in

port charges.

Business Strategies

In 2006, the Group will further expand its share of the

existing markets, while stepping up its efforts in

developing emerging markets. On the one hand, the

Group will actively utilise the vessels which will be

delivered in 2006 to advance the shipping capacity of

its trunk routes, in order to enlarge its market share in

the European and US markets. On the other hand, it

will actively focus on developments in the emerging

markets to promote the formation of global feeder

service network. At the same time, the Group will

further develop its information systems and adopt

innovative digital marketing initiatives. Under a more

customer-oriented marketing strategy, the Group will

further segmentise its customers in order to formulate

018



more personalised sales strategies and enhance its

services for high value customers.

Container Terminal Business

In 2005, the Group’s container terminal business, which

is operated through COSCO Pacific, maintained strong

growth momentum, with its total throughput achieving

an annual growth of 16.2% to 26,079,612 TEUs.

During the year, the overall performance of the

container terminal business in China was outstanding,

with growth in their aggregate throughput reaching

16.1%. The performance was particularly brilliant for

Qingdao Qianwan Terminal and Yingkou Terminal in the

Bohai Rim, Yangzhou Yuanyang Terminal and

Zhangjiagang Win Hanverky Terminal in the Yangtze

River Delta, COSCO-HIT Terminal and Yantian Terminal

Phases I, II & III in the Pearl River Delta. Specifically, the

total throughput of the container terminals in the Bohai

Rim grew to 9,370,361 TEUs, representing an annual

growth of 25.2%. As for the container terminals in the

Yangtze River Delta, their total throughput rose to

6,831,502 TEUs, representing an annual growth of

6.1%. The total throughput of the container terminals in

the Pearl River Delta grew by 15.6% year on year to

9,196,652 TEUs.

In respect of the overseas market, the total throughput

of the container terminals of the Group grew by 19.1%

to 681,097 TEUs. Due to the growth in the throughput

of the Singapore Port and the improvement in the

operating efficiency of the terminals, the throughput of

the COSCO-PSA Terminal increased by 6.8% to

611,013 TEUs. As for the European market, the

Antwerp Terminal commenced operation in September

2005.

During the year, by way of acquiring shares in new

terminals and investing in the construction of new

berths in its existing terminals, the Group further

consolidated its global business network. Currently,

certain projects are pending government approvals. For

the year, 30 new berths were added, increasing the

total number of berths of the Group to 100.


ANNUAL REPORT 2005

Throughput and Annual Growth Rate of the Container Terminals of COSCO Pacific

Container Terminal (TEUs) Shareholding 2005 2004 +/-(%)

(%)

Pearl River Delta 9,196,652* 7,956,727* +15.6

COSCO — HIT Terminal 50 1,841,193 1,697,212 +8.5

Yantian Terminal (Phases I, II & III) 4.45-5 7,355,459 6,259,515 +17.5

Yantze River Delta 6,831,502 6,436,076 +6.1

Shanghai Terminal 10 3,646,732 3,650,319 -0.1

Shanghai Pudong Terminal 20 2,471,840 2,339,479 +5.7

Zhangjiagang Win Hanverky Terminal 51 377,121 328,199 +14.9

Yangzhou Yuanyang Terminal 55.59 157,123 118,079 +33.1

Nanjing Longtan Terminal 20 178,686 — N/A

Bohai Rim 9,370,361 7,483,974 +25.2

Qingdao Qianwan Terminal 20 5,443,086 4,532,769 +20.1

Qingdao Cosport Terminal 50 605,791 385,856 +57.0

Dalian Port Container Co. 8 2,467,465 2,172,252 +13.6

Dalian Port Terminal 20 132,984 — N/A

Yingkou Terminal 50 633,573 393,097 +61.2

Tianjin Five Continents Terminal 14 87,462 — N/A

Overseas 681,097 571,863 +19.1

COSCO-PSA Terminal 49 611,013 571,863 +6.8

Antwerp Terminal 20 70,084 — N/A

Total throughput 26,079,612 22,448,640 +16.2

* Shekou Terminal was disposed of on 23 March 2005, and throughput from the terminal for both years have been excluded

from the table above.

020



During the year, the Group adjusted the development

strategy for its terminal operations in the Pearl River

Delta. In order to consolidate its financial resources and

the geographic advantage of the Pearl River Delta,

COSCO Pacific disposed of its 17.5% equity interest in

Shekou Container Terminals Ltd. Immediately

afterwards, COSCO Pacific signed a joint venture

agreement in respect of Nansha Port Phase II in

Guangzhou, thereby acquiring a 59% equity interest in

the joint venture company. Besides, COSCO Pacific

also signed a joint venture agreement in respect of 4

berths in Yangshan Port Phase II in Shanghai, thereby

acquiring a 10% equity interest in the joint venture

company. In its another major acquisition during the

year, COSCO Pacific signed a share purchase

agreement in respect of a 20% equity interest in the

Suez Canal Terminal at Port Said, Egypt, further

reinforcing the solid strengths of COSCO Pacific as a

global container terminal operator.

The policy of the Group is to fully utilise each

investment opportunity and speed up globalisation

process. The continued success of COSCO Pacific’s

container terminal business is attributable to its strategy

of cooperation and is closely related to the strategic

alliance relationship it has formed with the world’s major

shipping companies and operators. On the other hand,

COSCO Pacific will benefit from the global shipping

network of COSCON to implement a high growth, high

returns development strategy for its container terminal

operations. It is expected that the terminals recently

acquired or completed and commenced operation will

give an additional boost to the total container

throughput of COSCO Pacific in 2006.

Container Leasing Business

The Group’s container leasing business is conducted

through Florens, a wholly-owned subsidiary of COSCO

Pacific. In 2005, Floren’s ranking among the global

container leasing companies rose from the fourth to the

third, with a worldwide market share of approximately

10.9%, which was higher than that of 10.1% in 2004.

The number of customers of Florens also expanded

from 218 in 2004 to 256 in 2005, while its fleet grew by

13.5% to 1,042,852 TEUs.

In 2005, the container leasing business grew steadily,

benefiting from the strong growth of international trade

and the increased market share of the Group, with

turnover increasing by 6.4% and amounting to

RMB2,262,976,000. It is expected that in 2006, with

the commissioning of 1,220,000 TEUs of new vessels

capacity being made available for use in the container

shipping market, the demand for containers will

increase further to the advantage of the container

leasing industry.


ANNUAL REPORT 2005

Freight Forwarding, Shipping Agency and Logistics

Business

The Group’s freight forwarding and shipping agency

business is operated by certain PRC and overseas

subsidiaries of COSCON, which are mainly engaged in

providing supporting services to COSCON and in

assisting the company in strengthening its cost control.

The freight forwarding and shipping agency business of

the Group achieved rapid growth, reaching a turnover

of RMB8,202,784,000, representing an annual growth

of 39.1% over 2004. This was attributable to not only

the increase in the cargo volume handled, but also the

introduction of more value-added services to the

customers, thereby driving the continued rapid growth

in revenues. In addition, revenues received from newly

established subsidiaries around the world also

contributed to the growth in revenues.

Meanwhile, COSCO Logistics, with number one

ranking in China and in which the Group owns 49%

equity interest through COSCO Pacific, substantially

lifted the standards of the door-to-door service of the

Group by way of business integration.

Other Businesses and Investments

The Group holds shares, through

COSCO Pacific, in 4 container

manufacturing enterprises, namely CIMC

(approximately 16.23%), Shanghai CIMC

Reefer Containers Co., Ltd.

(approximately 20.0%), Shanghai CIMC

Far East Container Co., Ltd.

(approximately 20.0%), and Tianjin CIMC

North Ocean Container Co., Ltd. (approximately

22.5%). In 2005, these companies contributed

RMB480,886,000 in net profit to COSCO Pacific.

Among them, approximately 16.23% shareholding of

CIMC, the acquisition of which was completed by

COSCO Pacific in December 2004, contributed

RMB455,645,000 in net profit to COSCO Pacific for the

first time in 2005.

Financial Analysis

Turnover

In 2005, the turnover of the Group was

RMB39,165,710,000, representing an increase of

RMB6,977,041,000 or 21.7% as compared with the

amount of RMB32,188,669,000 in 2004. During the

year, growth was recorded in all business segments of

the Group.

(I) Container Shipping Business

Turnover from the container shipping business

increased by RMB4,639,966,000 to

022



RMB31,959,809,000, or 17.0%, in 2005. The

rapid growth was sustained by the high freight

rates and the sharp increase of 19.7% in shipping

volume.

(II) Container Terminal Business

Turnover from the container terminal business

increased by 2.7% to RMB158,351,000. This was

mainly because, Zhangjiagang Win Hanverky

Container Terminal Co., Ltd., a container terminal

of the Group, aggressively expanded its domestic

shipping business and successfully increased its

throughput by 14.9%, resulting in an increase of

its turnover by 13.1% to RMB102,340,000, as

compared to RMB90,498,000 in 2004.

(III) Container Leasing Business

During the year, the demand for containers in the

shipping market was stable, and the average

utilisation rate of the Group was maintained at a

relatively high level. In addition, the Group made

an aggressive effort in expanding its container fleet

for international customers to 665,528 TEUs

(2004: 591,283 TEUs), resulting in a 8.8%

increase in the rental income from international

customers. Meanwhile, the rental income from the

intra-group leasing to the container shipping

segment also rose by 3.6%. As a result of the

above two factors, the turnover of the container

leasing and related businesses of the Group grew

by 6.4% to RMB2,262,976,000.

(IV) Freight Forwarding and Shipping Agency Business

The Group’s turnover generated from the freight

forwarding and shipping agency business in 2005

increased by RMB2,304,396,000 to

RMB8,202,784,000, representing an annual

increase of 39.1%. The growth was attributed to

the increase in the container cargo volume

handled.

Cost of services

The Group’s total cost of services increased by

RMB4,838,065,000, or 18.8%, from

RMB25,752,985,000 in 2004 to RMB30,591,050,000

in 2005, which was proportional to the increase in

turnover and revenues. In particular, the increase of the

cost of services was comparatively higher for the

container shipping, freight forwarding and shipping

agency businesses.

(I) Container Shipping Business

The total cost of services for the container

shipping business increased to

RMB23,335,778,000 in 2005, representing an

increase of 15.0%, as compared with or

RMB20,284,178,000 in 2004.

• In 2005, the total costs of equipment and

cargo transportation were

RMB12,814,112,000, representing an

increase of 3.7% as compared with the

amount in 2004. The Group increased its

strength in cost controls and the costs in

equipment and cargo transportation rise at a

slower pace than with shipping volume which

in turn have reduced the unit cost for

equipment and cargo transportation.

• In 2005, the total voyage costs were

RMB6,437,517,000, representing an

increase of 48.1% as compared with

RMB4,347,640,000 of the corresponding


ANNUAL REPORT 2005

period in 2004. This was mainly attributable to

the increase in fuel costs and port charges. Oil

prices rose continuously in 2005, coupled with

the increase of shipping capacity and number

of voyages, resulting in fuel costs substantially

higher than the previous year and, which

represents an increase of 61.6% over the

previous year. In addition, the Company has

increased shipping capacity whereby large

new vessels were deployed on the Trans-

Pacific and Asia-Europe routes. The increase

in vessel tonnage and number of voyages

resulted an increase in port charges of 21.6%

in 2005 as compared to the corresponding

period of the pervious year. Fuel costs and

port charges are the two factors contributing

the substantial increase in voyage costs of this

year over the previous year.

• Vessel costs were RMB4,084,149,000,

representing an increase of 14.0% or

RMB501,889,000 as compared with RMB

3,582,260,000 in 2004, which was mainly due

to the increase in vessels and is lower than the

increase in the total shipping costs and

shipping volume.

(II) Container Terminal and Container Leasing Businesses

The costs of services for the container terminal

business of the Group mainly comprise container

handling costs, depreciation charges, repairs and

maintenance costs, and wages. The costs of

services for the container terminal business was

RMB91,299,000 in 2005, representing an increase

of 13.4% over 2004, mainly due to the proportional

increase in the handling volume.

The costs of services for the container leasing

business primarily comprise depreciation charges

and container handling expenses, such as depot

costs and repairs and maintenance costs. In 2005,

the costs and expenses of the container leasing

business were RMB857,620,000, which were

RMB5,241,000 less as compared to the amounts

of RMB862,861,000 in 2004. The increase in the

number of containers this year led to an increase in

depreciation charges. However, this factor was

partly offset by the decrease in operating costs for

the containers, which in turn were due to the high

container utilisation rates maintained throughout

the year.

(III) Freight Forwarding and Shipping Agency Business

The costs of services for the freight forwarding and

shipping agency businesses (including land

transportation and other related transportation

charges and fees paid to third party carriers)

increased by 39.4% to RMB6,306,353,000 in

2005. The increase was due to the rapid increase

in shipping and transportation volume.

Other gains

Other gains of the Group includes dividend income from

available-for-sale financial assets, interest income, gain/

loss on interest rate swap contracts, and gain/loss on

foreign exchange. In 2005, other gains of the Group

amounted to RMB179,427,000, representing a decrease

of RMB107,483,000 or 37.5% as compared to the

amount of RMB286,910,000 in 2004. In particular,

dividend income was RMB145,149,000, which

represents a decrease of RMB36,374,000 from 2004.

Certain business segments of the Group settled their

accounts in currencies other than the US dollar. Owing

024



to fluctuations in exchange rates, a loss on foreign

exchange of RMB171,628,000 was recorded.

Meanwhile, interest income for the year increased by

RMB126,037,000 to RMB173,277,000 primarily due to

the increase in bank balances.

Other operating income

Other operating income in 2005 amounted to


RMB477,372,000, or 86.9%, over 2004. This was

mainly due to the gain on disposal of the investment in

Shekou Terminals of RMB512,117,000 during the year.

Selling, administrative and general expenses

Selling, administrative and general expenses increased

by RMB620,512,000 (or 33.3%) from

RMB1,861,681,000 in 2004 to RMB2,482,193,000 in

2005. This was principally due to increase in staff costs

resulting from an expansion in the freight forwarding and

shipping agency network and expenses incurred for the

restructuring and listing exercises.

Other operating expenses

Other operating expenses in 2005 amounted to

RMB243,477,000, representing a decrease of

RMB120,804,000, or 33.2%, over 2004. This was

mainly due to the decrease in sale of returned containers

during the year as compared to 2004.

Finance costs

The Group’s finance costs increased by

RMB228,633,000, or 35.7%, from RMB639,760,000 in

2004 to RMB868,393,000 in 2005. Due to the increase

of interest rates, the Company’s borrowing costs have

increased. Furthermore, the Group obtained additional

US dollar loans due to the restructuring prior to its listing.

New borrowings were also raised to finance the capital

expenditure during the year. As a result, there was a

corresponding increase in interest expense.

Share of profits less losses of jointly controlled

entities and associates

Net profit contribution from jointly controlled entities in

2005 amounted to RMB601,852,000, representing an

increase of 7.3% as compared to the amount of

RMB560,731,000 in 2004. In particular, Qingdao

Qianwan Container Terminal Co., Ltd. contributed a net

profit of RMB173,835,000, representing an increase of

36.3% over 2004. The results of COSCO Logistics Co.,

Ltd. had grown 7% in 2005 comparing to that of 2004

together with cessation of goodwill amortisation in 2005,

contributed profit of RMB123,373,000 to COSCO

Pacific.

Net profit contribution from associates amounted to

RMB661,918,000, representing a 139.3% increase as

compared to the amount of RMB276,613,000 in 2004.

CIMC, which became an associate of the Group at the

end of last year, made a profit contribution of

RMB455,645,000 (2004: not applicable) for the year.

Antwerp Gateway NV, in which the equity interest was

acquired at the end of last year, recorded a loss of

RMB10,684,000 due to its start-up operation.

Income tax expenses

The Group’s taxation increased from RMB285,757,000

in 2004 to RMB651,319,000 in 2005. The significant

increase was on the one hand, due to the lower tax

charge in 2004 resulting from the utilisation of previously

unrecognised tax losses, and on the other hand, the

higher income tax payable by the Group due to the


ANNUAL REPORT 2005

growth in profits of the subsidiaries in the PRC and

overseas countries.

On 15 September 2005, pursuant to the Domestic

Enterprise Income Tax Concession Policy of Pudong

New District, the Shanghai Local Tax Office granted its

approval to COSCON that, effective from 1 January

2005, the enterprise income tax rate payable by

COSCON is reduced to 15%.

Financial position

Cashflows

The Group’s principal sources of liquidity and capital

resources are cash flows generated from operations,

listing proceeds and bank loans. Apart from the

proceeds raised from the initial public offering, cash

inflows from operating activities of the Group remained

stable.

The Group’s net cash generated from operating activities

increased by RMB714,514,000, from

RMB5,437,803,000 in 2004 to RMB6,152,317,000 in

2005. The Group’s operating profit before changes in

working capital in 2005 was RMB7,894,012,000, an

increase of RMB1,326,953,000 from that of 2004.

Net cash used in investing activities in 2005 of

RMB7,615,297,000 was primarily used to purchase

property, plant and equipment, such as containers,

container vessels, computers and office equipments

totalling RMB5,820,152,000 and there was a payment

of RMB2,874,478,000 in settlement of the consideration

payable to a subsidiary of COSCO. Meanwhile, the

Group received RMB649,536,000 in proceeds from the

disposal of Shekou Terminals as well as a total of

RMB841,680,000 in dividends from its jointly controlled

entities, associates and available-for-sale financial

assets.

The Group received RMB4,811,772,000 in net cash

from financing activities during 2005. On 30 June 2005,

a total of 2,244,000,000 H shares, with a nominal value

of RMB1.00 (consisting of 2,040,000,000 new shares

and 204,000,000 shares converted from domestic

shares), were issued at HK$4.25 each and were fully

paid in cash. The Group’s financial position was

significantly improved as a result of the receipt of net

proceeds of RMB8,817,797,000 from the issuance of

shares by the Company.

Cash and cash equivalents

As at 31 December 2005, the Group’s cash and cash

equivalents totalled RMB8,147,375,000, representing an

increase of RMB3,252,843,000, or 66.5%, as compared

to the amount of RMB4,894,532,000 as at 31

December 2004. Of the amount, RMB2,159,856,000

was the remaining balance of proceeds from the share

issue as at 31 December 2005.

The Group’s principal sources of liquidity and capital

resources have been, and are expected to continue to

be, cash flows generated from operating activities, the

issuance of new shares and debt financing from banks.

The Group’s principal uses of cash have been, and are

expected to continue to be, for operational costs,

repayment of loans, purchase of container vessels and

containers, investment in container terminals and the

funding of the Group’s digital information technology

systems.

026



Debt analysis

Breakdown by category:

As at As at

31 December 31 December

Category 2005 2004

RMB’000 RMB’000

Short-term loans 2,123,108 2,006,761

Long-term borrowings

Within one year 2,196,863 3,580,099

Between one to two years 2,246,889 1,581,925

Between two to five years 5,359,537 4,994,548

Over five years 4,763,077 5,672,970

Subtotal 14,566,366 15,829,542

Total 16,689,474 17,836,303

The Group’s secured borrowings amounted to RMB10,631,675,000, while unsecured borrowings amounted to

RMB6,057,799,000 represent respectively 63.7% and 36.3% of the total borrowings.

Assets and liabilities

As at 31 December 2005, total assets of the Group was


RMB7,426,087,000 from RMB44,249,567,000 as at 31

December 2004. Total liabilities amounted to

RMB25,730,562,000, as compared to

RMB30,847,045,000 as at 31 December 2004. Equity

attributable to the Company’s equity holders amounted

to RMB18,436,352,000, representing an increase of

RMB10,987,148,000 from RMB7,449,204,000 as at the

end of 2004. As at 31 December 2005, the equity

attributable to the Company’s equity holders per share

was RMB3.00, representing an increase of 64.8% as

compared to RMB1.82 at the end of 2004. The reason

for the increase was mainly due to increase in the

retained earnings for the year and the net proceeds of

the new shares issued pursuant to the listing.

Cash and cash equivalents of the Group as at the end of

2005 amounted to RMB8,147,375,000 million, as

compared to RMB4,894,532,000 as at 31 December

2004. Total outstanding borrowings as at the end of

2005 amounted to RMB16,689,474,000, as compared

to RMB17,836,303,000 as at the end of 2004. The net

debt-to equity ratio as at the end of 2005 was 32.9%,

representing a substantial decrease from 96.6% as at

the end of 2004. Interest coverage was 10.01 times,

compared to 10.51 times at the end of 2004. Long-term

borrowings totalling RMB10,631,675,000 (2004:

RMB11,785,188,000) were primarily pledged by certain

property, plant and equipment of the Group with net

book value of RMB14,875,047,000 (2004:

RMB14,202,241,000) to certain banks and financial

institutions as collaterals. The pledged assets

represented 52.4% (31 December 2004: 55.8%) of the

total property, plant and equipment.


ANNUAL REPORT 2005

Breakdown by denomination:

The Group had US dollar borrowings equivalent to

RMB15,780,374,000 and RMB borrowings amounting

to RMB909,100,000 represent respectively 94.6% and

5.4% of the total borrowings.

Contingent liabilities

As at 31 December 2005, the Group had provided

guarantees on a bank borrowing granted to an associate

in the amount of RMB176,899,000 (31 December 2004:

RMB Nil). The claim amounts of the pending lawsuits

totalled at RMB32,656,000. Except for the above and

information disclosed in the Group’s consolidated

financial statements, the Group had no other significant

contingent liabilities.

Foreign exchange and interest rate risks management

In accordance with the requirements of HKAS21, the

management of the Group has determined to adopt US

dollar as the functional currency in view of the fact that

the business activities of the Company and its

subsidiaries mainly operate in such places where the US

dollar is used for transaction purposes. Besides, it is

considered that, given the status of the US dollar in the

international financial market, such arrangement will help

minimise the impact of fluctuations in exchange rates on

the profitability of the Group which might otherwise arise

where the local currency is used as the functional

currency.

The Group controlled the foreign exchange risk by

conducting borrowings as far as possible in currencies

that match the Group’s functional currency used for

transacting the assets and cash receipts of the Group’s

core businesses. Borrowings for the container leasing

business were mainly loans in US dollars, which

matched well with the US dollar revenues and expenses

of the leasing business, minimising any potential foreign

exchange exposure.

In respect of the financing activities of jointly controlled

entities and associates, such as COSCO-HIT Terminal,

COSCO-PSA Terminal and Antwerp Terminal, all material

borrowings were denominated in the respective

functional currencies to minimise the Group’s exposure

to the exchange risks of these investments.

During the year, the Group continued to exercise

stringent control and monitoring mechanisms over the

use of financial derivatives for hedging against its interest

rate risks.

The Group also monitored and adjusted its debt portfolio

of fixed and floating interests from time to time to reduce

market rate risks.

028



DIRECTORS

The Company has two executive directors, seven non-executive directors and four independent non-executive

directors. There is no family relationship between any of the directors, the supervisors or senior management of the

Group.

WEI Jiafu（魏家福）

Mr. Wei, aged 56, is currently an executive director, the chairman and CEO of the Company. He joined the COSCO

Group in 1967 and has been the president of COSCO since November 1998. He joined the Group in 1997. He has

been the chairman of COSCO HK and COSCON since 2000. He became an executive director and the chairman of

COSCO Pacific in 2000, and was redesignated as a non-executive director and the chairman in 2005, in which role

he will continue to be responsible for formulating the company’s overall strategy and policy. Mr. Wei is the chairman of

the board of COSCO Investment (Singapore) Limited and COSCO International. He had been the general manager of

Sino-Tanzania Joint Shipping Company, president of COSCO Holding (Singapore) Pte Ltd, managing director of

COSCO Tianjin and COSCO Bulk Carrier Co. Limited. He joined the Company in March 2005. With nearly 40 years

experience in navigation and international shipping business, Mr. Wei, a former marine captain, has excellent business

decision-making capability and substantial capital markets experience. During his office as the president of COSCO

Holding (Singapore) Pte Ltd in 1993, COSCO Investment (Singapore) Limited successfully became the first overseas

listed company of COSCO. Under the leadership of Mr. Wei, both COSCO Pacific and COSCO Investment

(Singapore) Limited have become overseas blue chip listed companies. His strategic view and world vision in his

outstanding leadership has continuously enhanced the sustainable development of COSCO. Mr. Wei is also chairman

of China Shipowners’ Association, chairman of China Group Companies Promotion Association, chairman of China

Federation of Industrial Economics, director of the Board of Boao Forum for Asia, and advisor of the Panama Canal

Authority. Mr. Wei obtained his Doctorate from Tianjin University and his Master of Transportation Planning and

Management degree from Dalian Maritime University. He is also a senior engineer. In 1999, he was awarded the

honour of special contribution to the State. He was elected into the 16th CPC Central Committee for Discipline

Inspection in 2002.


ANNUAL REPORT 2005

ZHANG Fusheng（張富生）

Mr. Zhang, aged 56, is currently a non-executive director and the vice chairman of the Company. He joined the

COSCO Group and the Group in 1999 and has been an executive vice president and the secretary of the CPC sub-

committee of COSCO in 2002. He was appointed as a director of COSCON in 2002. He was an executive director of

COSCO Pacific from 2003 to 2005. He had been a deputy director of the No.1 division of Tianjin Port Authority,

deputy director of personnel and labour department of MOC, director of institutional reform and regulatory

department of MOC (spokesman of MOC), and vice president of the Beijing branch of Bank of Communications. He

became the secretary of the CPC sub-committee of COSCON and COSCO Shanghai in 1999. Mr. Zhang joined the

Company in March 2005. He has over 30 years of experience in administration and management of shipping

companies, and also has experience in financial management and business operation. An expert in management with

wide exposure in managing different companies within the COSCO Group during his career, Mr. Zhang has

demonstrated outstanding leadership qualities throughout the course of development of the COSCO Group. Mr.

Zhang obtained a Master degree in transportation management and engineering from Wuhan University of

Communications Science and is a senior engineer. In 2003, Mr. Zhang was elected a member of the 10th National

People’s Congress of the PRC.

CHEN Hongsheng（陳洪生）

Mr. Chen, aged 56, is currently an executive director and the president of the Company. Mr. Chen joined the COSCO

Group in 1975 and has been an executive vice president of COSCO since 1998. Although he is an executive vice

president of COSCO, following his appointment as an executive director and the president of the Company, Mr. Chen

no longer oversees other areas in COSCO but will spend his full efforts and time in directing and supervising the

Group’s affairs. Mr. Chen joined the Group in 1997 and has been an executive director of COSCO Pacific since 2003

and a director of COSCON since 2004. He had been the deputy general manager of Penavico Nantong Branch

Company, general manager of shipping department of Penavico, general manager of COSCO Beijing International

Freight Forwarding Company, deputy managing director of COSCO International Freight Forwarding Co., Ltd., deputy

general manger of COSCO Container Lines, managing director of COSCO International Freight Forwarding Co., Ltd.,

deputy managing director of COSCON, chairman of COSCO Shipping Co., Ltd (its A shares listed on Shanghai Stock

Exchange). He joined the Company in March 2005. Mr. Chen is one of the experienced experts engaging in the

container shipping and logistics business at its initial stage in the PRC. He has 30 years of experience in shipping

industry with extensive experience in enterprise operation and management. Mr. Chen is currently a vice chairman of

China Enterprise Confederation and China Enterprise Directors Association. Mr. Chen graduated from Sichuan

Foreign Language College and Capital University of Economics and Business in postgraduate studies in business

administration. He is a senior economist.

030



WANG Futian（王富田）

Mr. Wang, aged 56, is currently a non-executive director of the Company. He joined the COSCO Group in 1976. In

2004, he became an executive vice president of COSCO. He joined the Group in 1997 and became the chairman of

the supervisory committee of COSCON in 2000. He has been a director of COSCON since 2004. He was an

executive director of COSCO Pacific from 2003 to 2005. In 1987, he became a member of the senior management of

Dalian Ocean Shipping Company. He became a member of the senior management of COSCO in 1992. Mr. Wang

has been the Chief Legal Counsel of COSCO since March 2005. Mr. Wang was a former marine captain and has 30

years of experience in the shipping industry and extensive experience in corporate operation and management. Mr.

Wang graduated from Dalian Maritime University, majoring in navigation and Capital University of Economics and

Business in postgraduate studies in business administration. He is a senior engineer.

LI Jianhong（李建紅）

Mr. Li, aged 49, is currently a non-executive director of the Company. He joined the COSCO Group in 1989 and

became an executive vice president of COSCO in 2000. He joined the Group in 1997 and was appointed an

executive director of COSCO Pacific. He had been the general manager of Nantong Shipyard and managing director

of COSCO Industry Co., Ltd. and COSCO Property Ltd., assistant president and chief commercial officer of COSCO.

Mr. Li is also the chairman of CIMC. He joined the Company in March 2005. Mr. Li has over 20 years of experience in

corporate management and over 10 years of experience in shipping enterprise management. He has extensive

experience in capital markets and asset management. Mr. Li graduated from the University of East London in the

United Kingdom with a Master of Business Administration degree and holds a Master of Business Administration

degree from Jilin University. He is a senior economist.

MA Zehua（馬澤華）

Mr. Ma, aged 53, is currently a non-executive director of the Company. He joined the COSCO Group in 1977 and

became an executive vice president of COSCO in 2001. He was an executive director of COSCO Pacific from 2003

to 2005. He was the deputy manager of the transportation division of COSCO, general manager of COSCO UK Co.,

Ltd., general manager of business development division and assistant president of COSCO, the president of COSCO

North America Inc., deputy managing director of COSCO Guangzhou and managing director of Qingdao Ocean

Shipping Company. He joined the Company in March 2005. Mr. Ma has nearly 30 years of experience in the shipping

industry and extensive experience in management and operation of shipping companies. Mr. Ma graduated from

Shanghai Maritime University with a Master of International Laws degree. He is a senior economist.


ANNUAL REPORT 2005

MA Guichuan（馬貴川）

Mr. Ma, aged 51, is currently a non-executive director of the Company. He joined the COSCO Group in 1978 and

was the Chairman of the union of COSCO in 1998. He had been involved in the management of Qingdao Ocean

Shipping Company for many years and became the person-in-charge of Qingdao Ocean Mariner’s College in 1994.

From 2001 to 2003, he became a standing committee member of CPC committee and deputy mayor of Yinchuan,

Ningxia. He joined the Company in March 2005. Mr. Ma has nearly 30 years of experience in the shipping industry

and extensive experience in ship and crew management. In 2003, Mr. Ma was elected an executive committee

member of the 14th national representatives congress of All-China Federation of Trade Unions. Mr. Ma graduated

from Dalian Maritime University majoring in engineering management and Capital University of Economics and

Business in postgraduate studies in administration business.

SUN Yueying（孫月英）

Ms. Sun, aged 47, is currently a non-executive director of the Company. She joined the COSCO Group in 1982 and

has been the chief financial officer of COSCO since 2000. She joined the Group in 2000. She has been a director of

COSCON in 2000 and an executive director of COSCO Pacific in the same year. She was appointed as a director of

COSCO HK in 2002. She was the vice director of the finance department of Tianjin Ocean Shipping Co., the finance

manager of COSCO Japan Co., Ltd, the general manager of the finance and capital division of and the deputy chief

financial officer of COSCO. She joined the Company in March 2005. Ms. Sun has over 20 years of experience in the

shipping industry and extensive experience in corporate financial management. Ms. Sun graduated from Shanghai

Maritime University majoring in shipping finance and accounting. She is a certified accountant and a senior

accountant.

LIU Guoyuan（劉國元）

Mr. Liu, aged 54, is currently a non-executive director of the Company. Mr. Liu joined the COSCO Group in 1975 and

has been an executive director and the vice chairman and president of COSCO HK since 2000. He joined the Group

in 2000. He is currently the vice chairman of the board of COSCO International, the chairman of COSCO (H.K.)

Shipping Company Limited, COSCO (Hong Kong) Industry & Trade Holdings Limited, COSCO Network Ltd., COSCO

(HK) Property Development Ltd. and COSCO Net Beijing Limited. Mr. Liu had been the chief economist of COSCO

Group, deputy managing director of COSCO Tianjin and president of COSCO Europe GmBH. He joined the

Company in March 2005. Mr. Liu has over 30 years of experience in the shipping industry and extensive experience

in corporate management, shipping operation management and investment management. Mr. Liu obtained the

Masters of Laws degree from the Law School of the University of Washington, U.S.. He is a senior economist.

032



LI Boxi（李泊溪）

Ms. Li, aged 70, is currently an independent non-executive director of the Company. Ms. Li was a senior researcher,

an executive member and head of the development forecast division of the Development Research Center of the

State Council of the PRC. She had long been involved in research of corporate strategy. Ms. Li was elected as a

member of the 7th and 8th National People’s Congress of the PRC. She is currently the chairman of the committee of

the global competitive organisation, a part-time professor of Nan Kai University and the chief strategic development

consultant of the China Housing Industry Association. She is among the first group awarded the title of special

contribution expert to the State. Ms Li was appointed as an independent non-executive director in June 2005.

TSAO Wen King, Frank（曹文錦）

Mr. Tsao, aged 80, is currently an independent non-executive director of the Company. He has many years of

experience in the shipping industry, and is the founder of IMC Holdings Ltd (“IMC”). He had been the executive

chairman of IMC since 1966. From 1995 to 1997, Mr. Tsao assumed the position of honorary chairman of IMC. Mr.

Tsao is also a non-executive director of Asia Financial Holdings Ltd., a listed company in Hong Kong, and a director

of a number of Hong Kong companies. Currently, he serves as the chairman of Hong Kong Shipowners Association

and Suntec City Development Pte Ltd.. Mr. Tsao was appointed as an independent non-executive director in June

2005.

HAMILTON Alexander Reid（韓武敦）

Mr. Hamilton, aged 64, is currently an independent non-executive director of the Company. He is also an independent

non-executive director of a number of Hong Kong listed companies and a director of a number of Hong Kong private

companies. He was an independent non-executive director of COSCO Pacific from 1994 to 2005 and of COSCO

International from 1997 to 2004. He was a partner of PricewaterhouseCoopers, with whom he practised for 16

years. He has over 20 years experience in audit and accounting. Mr. Hamilton was appointed as an independent

non-executive director in June 2005.

CHENG Mo Chi （鄭慕智）, OBE, JP

Mr. Cheng, aged 55, is an independent non-executive director of the Company. He is the chairman of the Main Board

Listing Committee and of the Growth Enterprise Market Listing Committee of the Stock Exchange. He is also an

independent non-executive director of a number of Hong Kong listed companies. He is a non-executive director of a

number of Hong Kong listed companies. Mr. Cheng is a Senior Partner of P.C. Woo & Co. He was a chairman of The

Hong Kong Institute of Directors and is currently its honourable president and chairman emeritus. Mr. Cheng was a

councillor of the Legislative Council. Mr. Cheng was appointed as an independent non-executive director in June

2005.


ANNUAL REPORT 2005

SUPERVISORS

LI Yunpeng（李雲鵬）

Mr. Li, aged 47, is currently a supervisor and the chairman of the supervisory committee of the Company. He joined

the COSCO Group in 1976 and has been a member of senior management of COSCO since 2004. He joined the

Group in 2000 and was the supervisor of COSCON. Mr. Li was an executive director of COSCO Pacific from 2003 to

2005. Mr. Li joined COSCO in 1998 and had been the deputy general manager of the executive division, general

manager of the supervision division (audit division), general manager of the human resources division and assistant

president. Mr. Li joined the Company in March 2005. Mr. Li has 30 years of experience in the shipping industry and

extensive experience in corporate management and human resources. Mr. Li obtained a Master’s degree in ship and

marine engineering from Tianjin University. He is a senior engineer.

WU Shuxiong（吳樹雄）

Mr. Wu, aged 51, is currently a supervisor of the Company. He joined the COSCO Group in 1972 and the Group in

1997. He has been the secretary to the committee of the CPC and deputy general manager of COSCON since 2002.

He had been a marine chief engineer, deputy director of the fourth shipmanagement department of COSCO

Shanghai, general manager of Shanghai Far East Container Manufacturing Co. Ltd., deputy managing director of

COSCO Shanghai and deputy managing director and safety and quality control manager of COSCON. He joined the

Company in March 2005. Mr. Wu has over 30 years of experience in the shipping industry and extensive experience

in corporate management. Mr. Wu graduated from Shanghai Jiao Tong University, majoring in transportation

management. He is a senior engineer.

LI Zonghao（李宗豪）

Mr. Li, aged 48, is currently a supervisor. He joined the COSCO Group in 1980 and became the general manager of

the supervisory division (audit division) of COSCO in 2001. He joined the Company in March 2005. Mr. Li has over 20

years of experience in shipping industry and extensive experience in internal control. Mr. Li graduated from a law

school with a bachelor degree and in 2001, he graduated from Capital University of Economics and Business in

postgraduate studies in business administration.

YU Shicheng（於世成）

Mr. Yu, aged 51, is currently an independent supervisor of the Company. He was appointed as an independent

supervisor of the Company in 2005. Mr. Yu is currently the president of Shanghai Maritime University, vice chairman of

China Navigation Association, vice chairman of China Maritime Law Association and an arbitrator of China Maritime

Arbitration Commission. He is a professor and a lawyer, has been engaging in teaching and research on the topics of

maritime laws and international maritime policies. He was awarded the honour of special contribution to the State in

1994.

034



KOU Wenfeng（寇文峰）

Mr. Kou, aged 40, is currently an independent supervisor of the Company. He was appointed as an independent

supervisor of the Company in 2005. Mr. Kou is currently the general manager of Panwin Investment Consultant

Company Limited and the legal representative of Zhong Fa International Asset Appraisal Company Limited. He had

been the director of the enterprise departments of SASAC and the state asset fund manager of the MOF for more

than ten years, mainly responsible for management work relating to reforms, conversion into stock companies,

reorganisation of assets, and the issue and listing of shares, of State-owned enterprises. He graduated from the

Finance Department of Dongbei University of Finance and Economics. He is a registered asset appraiser in the PRC.

SENIOR MANAGEMENT

XU Lirong（許立榮）

Mr. Xu, aged 48, is an executive vice president of the Company. Mr. Xu joined COSCO Group in 1975 and the Group

in 1999. Mr. Xu was appointed as an executive director of COSCO Pacific in 2000 and was redesignated as a non-

executive director in 2005. He had been a marine captain and deputy director of the first ship management

department of COSCO Shanghai, the general manager of Shanghai International Freight Forwarding Company, the

deputy managing director of COSCO Shanghai and the president of Shanghai Shipping Exchange. He joined the

Company in March 2005. Mr. Xu has over 30 years of experience in the shipping industry. He has extensive

experience in corporate management as well as container shipping business management. Mr. Xu obtained his

Master of Business Administration degree from a joint programme by Shanghai Maritime University and the

Maastricht School of Management of the Netherlands. Mr. Xu is a senior engineer.

SUN Jiakang（孫家康）

Mr. Sun, aged 46, is an executive vice president of the Company. Mr. Sun joined the COSCO Group in 1982 and the

Group in 2002. He became a vice president of COSCO HK in the same year. He has been an executive director and

the managing director of COSCO Pacific in 2002 where he is responsible for the overall strategic planning, corporate

development, management and administration of the company. In 2005, Mr. Sun was elected as the vice chairman of

the board of directors of COSCO Pacific. He had been the director of the third division and second division of the

COSCO Container Lines, the general manager of transportation division and assistant president of COSCO. He

joined the Company in March 2005. Mr. Sun has over 20 years of experience in the shipping industry, and has

extensive experience in the container shipping business and in the operation and management of container shipping

terminals. Mr. Sun holds a Doctor’s degree in Philosophy in Management from Preston University, U.S. and a Master’s

degree in management from Dalian Maritime University. He is a senior engineer.


ANNUAL REPORT 2005

HE Jiale（何家樂）

Mr. He, aged 51, is the chief financial officer of the Company. Mr. He joined the COSCO Group in 1974 and the

Group in 1998 as the chief accountant of COSCON. He was the finance director of COSCO (Hong Kong) Group

Limited and an executive director of COSCO Pacific from 2003 to 2005, Mr. He had been the deputy director of the

finance division of Shanghai Ocean Shipping Company, the deputy general manager of finance department of the

COSCO Container Lines, the deputy general manager of finance and capital department of COSCO and the chief

financial officer of COSCON. He joined the Company in March 2005. Mr. He has over 30 years of experience in the

shipping business and has extensive experience in corporate finance and finance management. Mr. He graduated

from the postgraduate studies of management science and engineering from Shanghai University. He is a senior

accountant.

ZHANG Yongjian（張永堅）

Mr. Zhang, aged 54, is the secretary of the board and one of the joint company secretaries of the Company. Mr.

Zhang joined COSCO Group in 1976. He was the general manager of the strategic planning and development

division of COSCO in 2002. Mr. Zhang was the general manager of the shipping department and the deputy

managing director of Dalian Ocean Shipping Company and assistant president and the general manager of the

strategic planning and development division of COSCO HK. He joined the Company in March 2005. Mr. Zhang has

30 years of experience in the shipping business, as well as in legal affairs. Mr. Zhang graduated from the Shanghai

Maritime University and the Dalian Maritime University. He has a Master of Law degree. He is a senior economist.

JOINT COMPANY SECRETARIES

ZHANG Yongjian（張永堅）

Mr. Zhang is one of the joint company secretaries of the Company. For further details regarding Mr. Zhang’s

experience, please see the section headed “Senior Management” above.

YEUNG Chun Wai Anthony（楊俊偉）

Mr. Yeung is one of the joint company secretaries of the Company. For further details of Mr. Yeung’s experience,

please see the section headed “Qualified Accountant” below.

036



QUALIFIED ACCOUNTANT

YEUNG Chun Wai Anthony（楊俊偉）

Mr. Yeung, aged 30, is the qualified accountant of the Company pursuant to Rule 3.24 of the Listing Rules. Mr. Yeung

is employed by the Company on a full time basis and is a member of the Company’s senior management. He joined

the Company in March 2005. Mr. Yeung graduated from the University of Hong Kong and holds a bachelor degree in

Business Administration (accounting and finance). He is a committee member of the ACCA, and an associate

member of the ACCA, the Hong Kong Logistics Association, the Institute of Management Accountants and an

honorary vice-president to the advisory board of the Business Association of the University of Hong Kong.

037

Directors’ Report


The Board has pleasure in presenting the Report of the Directors for the year 2005 together with the audited financial

statements of the Group for the year ended 31 December 2005.

Principal Activities

The Group is engaged in providing integrated container shipping services, including container shipping business,

container terminals business, container leasing business, freight forwarding and shipping agency services as well as

logistics services. The Company is an investment holding company and details of the principal activities of the

Company’s principal subsidiaries as at 31 December 2005 are set out in note 41 to the consolidated financial

statements.

Results of the Group

The Group’s results for the year ended 31 December 2005 as prepared in accordance with the Hong Kong Financial

Reporting Standards (“HKFRS”) are set out on page 87 of this report.

Financial Summary

A summary of the results and of the assets and liabilities of the Group for the last four financial years are set out in the

section headed “Financial Summary” of this report.

Profit Appropriation and Dividends

According to the “Regulation Relating to Corporate Reorganisation of Enterprises and the Related Management of

State-owned Capital and Financial Treatment” notice issued by the Ministry of Finance and the reorganisation

agreement entered into by the Company and COSCO on 9 June 2005, the increase in net assets (excluding the

undistributed portion of COSCO Pacific) as a result of the profits generated by the Group during the period between

30 June 2004 (date of valuation) and 3 March 2005 (date of the establishment of the Company) (“initial profit period”)

shall be payable to COSCO.

Pursuant to the shareholders’ resolution approved by shareholders of the Company on 9 June 2005, the increase in

net assets of RMB1,695,121,000 as a result of the profits generated by the Group (excluding COSCO Pacific) during

the period between the date of valuation and 31 December 2004 and a final dividend of RMB299,423,000 for 2004

by COSCO Pacific attributable to the COSCO, totalling RMB1,994,544,000, were paid to COSCO before listing.

038

Directors’ Report


As regards the portion of the net assets increased during the period between 1 January 2005 and 3 March 2005

(“remaining period of the initial profit period”) payable to COSCO, BDO Reanda Certified Public Accountants Co., Ltd.

appointed by the Company, has conducted a special audit of the Company’s financial statements prepared in

accordance with the relevant accounting principles and financial regulations applicable to PRC companies (“PRC

GAAP”) and of changes in combined shareholders’ equity. As far as the net assets increased during the remaining

period of the initial profit period, the Company determined, after making necessary adjustments, the amount payable

to COSCO is RMB826,096,000, including an interim dividend for 2005 by COSCO Pacific attributable to COSCO

calculated based on the number of days payable to COSCO. As regards the unpaid portion of the net assets

increased during the remaining period of the initial profit period, it is retained as a special reserve which amounted to

RMB279,422,000, the benefit of which is solely attributable to COSCO pursuant to the “Reply in respect to Relevant

Issues concerning the Handling of Net Assets in the Reorganisation of the Core Shipping Business of China Ocean

Shipping (Group) Company for Overseas Listing” (Guo Zi Chan Quan [2005] No. 571) issued by the State-owned

Assets Supervision and Administration Commission. The amount will be converted into domestic shares of the

Company held by COSCO at the offer price of HK$4.25 per share within three years following the listing of the

Company’s shares.

Pursuant to the shareholders’ resolution approved by shareholders of the Company on 9 June 2005, the audited

profit after tax of the Company for the period from the date of establishment (excluding the day) to the date on which

foreign investors hold the shares of the Company according to law and their names are registered in the register of

members (excluding the day) (“subsequent profit period”), will be distributed to COSCO in full as a special distribution

in accordance with the principle of the lower of profits attributable to equity holders of the Company under the PRC

GAAP and the HKFRSs, following the appropriation of 10% each for the statutory surplus reserve, discretionary

surplus reserve and statutory public welfare fund and after making necessary adjustments. BDO Reanda Certified

Public Accountants Co., Ltd. and PricewaterhouseCoopers, who were engaged by the Company, have conducted

special audits of the consolidated income statement of the Group prepared in accordance with the PRC GAAP and

the HKFRSs respectively. According to the special audit results, based on the consolidated net profit realised during

the period as determined under the PRC GAAP, and after the appropriation of 10% each for statutory surplus reserve

fund, statutory public welfare fund and discretionary surplus reserve, the profit to be distributed by the Company to

COSCO for that period is RMB967,926,000, including an interim dividend for 2005 by COSCO Pacific Limited

attributable to COSCO calculated based on the number of days for that period.

The Board recommended the payment of a final dividend of RMB0.13 per share (pre-tax) to the equity holders whose

names appear on the register of shareholders on 15 June 2006.


ANNUAL REPORT 2005

Use of Proceeds from the Company’s Initial Public Offering

The net proceeds from the Company’s issue of new shares at the time of its listing on the Stock Exchange in June2005 amounted to approximately RMB8,817,797,000. As of 31 December 2005, the net proceeds were used, asstated in the prospectus of the Company, for capital expenditures, enhancing the Group’s “door-to-door” servicessystems, repayment of loans, and as working capital and general corporate purposes.

Major Suppliers and Customers

For the year ended 31 December 2005, the Group’s purchases attributable to the Group’s five largest suppliers wereless than 30% of the Group’s total purchases, and the aggregate sales attributable to the Group’s five largestcustomers were less than 30% of the Group’s total sales.

Reserves

Details of movements in the reserves of the Company and the Group during the year and details of the distributablereserves of the Company as at 31 December 2005 are set out in note 22 to the consolidated financial statementsprepared in accordance with the HKFRS contained herein.

Statutory Reserve Funds

Details of the statutory reserve funds are set out in note 22(b) to the consolidated financial statements prepared inaccordance with the HKFRS contained herein.

Property, Plant and Equipment and Investment Properties

During the year, the Group incurred approximately RMB5,680,710,000 on acquisition of property, plant andequipment for expansion of its shipping capacity. Details of movements in property, plant and equipment andinvestment properties of the Group and the Company during the year are set out in notes 6 and 7 to the consolidatedfinancial statements.

The properties interests of the Group including the interests in certain of the above properties that are attributable tothe Group, together with those of its jointly-controlled entities in which the Group held equity interests of more than50%, were valued by Sallmanns (Far East) Limited, an independent property valuer as at 31 March 2005 amounted toRMB2,687,624,000 and RMB1,254,261,000, respectively. The net revaluation surplus as disclosed in the Company’sprospectus, representing the excess of market value of the properties over their book value, was approximatelyRMB189,529,000. In accordance with the Group’s accounting policy, all properties are stated at cost lessaccumulated depreciation and impairment losses. As such, the net revaluation surplus arising from the valuation hasnot been recognised in the Company’s consolidated financial statements for the year ended 31 December 2005. Hadthe properties been stated at such valuation, an additional depreciation of RMB6,040,000 would have been incurredfor the year ended 31 December 2005.

Employees’ Retirement Plan

Details of the employees’ retirement plans are set out in note 25(b) to the consolidated financial statements preparedin accordance with the HKFRS contained herein.

040

Directors’ Report


Directors and Supervisors

The directors of the Company during the year were as follows:

Name Date of Appointment as Director

Executive director

WEI Jiafu (Chairman and CEO) 7 March 2005

CHEN Hongsheng (President) 7 March 2005

Non-executive director

ZHANG Fusheng (Vice Chairman) 7 March 2005

WANG Futian 7 March 2005

LI Jianhong 7 March 2005

MA Zehua 7 March 2005

MA Guichuan 7 March 2005

SUN Yueying 7 March 2005

LIU Guoyuan 7 March 2005

Independent non-executive director

LI Boxi 9 June 2005

TSAO Wen King, Frank 9 June 2005

HAMILTON Alexander Reid 9 June 2005

CHENG Mo Chi 9 June 2005

The supervisors of the Company during the year were as follows:

Name Position Date of Appointment as Supervisor

LI Yunpeng Chairman of Supervisory Committee 3 March 2005

WU Shuxiong Supervisor 3 March 2005

LI Zonghao Supervisor 3 March 2005

YU Shicheng Independent supervisor 9 June 2005

KOU Wenfeng Independent supervisor 9 June 2005

Independence of the Independent Non-executive Directors

The Company has received the letter of annual confirmation issued by each of the independent non-executive

directors of the Company as to his/her independence pursuant to Rule 3.13 of the Listing Rules. All of the four

independent non-executive directors of the Company are considered by the Company as independent persons.


ANNUAL REPORT 2005

Biography of Directors, Supervisors and Members of the Senior Management

Biography of directors, supervisors and members of the senior management as at the date hereof are set out onpages 28 to 36 of this report.

Connected Transactions

Pursuant to Chapter 14A of the Listing Rules, the following connected transactions of the Company requiredisclosures in the annual report of the Company:

1. Non-exempt continuing connected transactions under subsisting agreements

(1) Sub-leasing of time charters from COSCO to COSCON

Seven independent vessel owners had entered into seven bareboat charters with COSCO Maritime (UK)Limited, a wholly-owned subsidiary of COSCO, in relation to seven vessels. By providing seaman servicesand vessel management services, COSCO sub-leases these seven vessels to COSCON under sevensub-time charter agreements, which were entered into between COSCO and COSCON during the periodfrom 25 July 2001 to 24 April 2002. Set out below is the information on these seven charter agreements:

Date of delivery ofvessel pursuant Vessel

Date of charter Term of charter to charter CapacityName of vessel agreement agreement agreement (TEU)

COSCO Antwerp 27 September 2001 From date of delivery 27 September 2001 5,446to 14 January 2008(lessee has an optionto extend the termfrom one year to12 years)

COSCO Hamburg 10 October 2001 From date of delivery 10 October 2001 5,446to 14 January 2008(lessee has an optionto extend the termfrom one year to12 years)

COSCO Rotterdam 13 February 2002 From date of delivery 13 February 2002 5,446to 14 October 2008(lessee has an optionto extend the termfrom one year to12 years)

042

Directors’ Report


Date of delivery of

vessel pursuant Vessel

Date of charter Term of charter to charter Capacity

Name of vessel agreement agreement agreement (TEU)

COSCO Felixstowe 24 April 2002 From date of delivery 24 April 2002 5,446

to 14 October 2008

(lessee has an option

to extend the term

from one year to

12 years)

COSCO Hong Kong 17 April 2002 From date of delivery 17 April 2002 5,446

to 14 October 2008


to extend the term

from one year to

12 years)

COSCO Shanghai 25 July 2001 From date of delivery 25 July 2001 5,446

to 14 January 2008


to extend the term

from one year to

12 years)

COSCO Singapore 12 December 2001 From date of delivery 12 December 2001 5,446

to 14 January 2008


to extend the term

from one year to

12 years)

The term of each of the four out of the seven sub-time charters run from the date of delivery of the

vessels to 14 January 2008, while the term of each of the other three sub-time charters run from the date

of delivery of the vessels to 14 October 2008.

The Group paid a total of RMB450,416,000 as sub-time charter hire fees in respect of the sub-time

charters mentioned above for the year ended 31 December 2005.


ANNUAL REPORT 2005

(2) Sub-time charters from COSCO to COSCON

SG Almond Inc., SG Gondola Inc. and SG Pacmar Inc., the respective owners of the three vessels,

COSCO Sakura, COSCO Ran and COSCO Kiku, had entered into the three bareboat charters with each

of River Aquamarine Maritime Inc., River Nereid Maritime Inc. and River Azure Maritime Inc., wholly-

owned subsidiaries of COSCO. By providing seaman services and vessel management services, COSCO

then sub-leases these three vessels to COSCON under time-charter arrangements. Three time charter

agreements were entered into between COSCO, Pan Asia and COSCON in March 2005 in view of the

recent establishment of Pan-Asia in 2004. Set out below is the information on these three charter

agreements.

Date of delivery of

vessel pursuant Vessel



COSCO Sakura 31 March 2005 77 calendar months after 31 August 2001 542

the delivery date (lessee has

an option to extend the

term for 60 calendar months)

COSCO Kiku 31 March 2005 82 calendar months after the 31 January 2002 542

delivery date (lessee has an

option to extend the term

for 60 calendar months)

COSCO Ran 28 March 2005 80 calendar months after 28 November 2001 542


an option to extend the term


044

Directors’ Report


COSCO had further entered into three new time charter agreements with COSCON in 2005 and the

arrangement of which is similar to those for COSCO Sakura, COSCO Ran and COSCO Kiku as

mentioned above. South New Shipping Inc., South Great Shipping Inc. and South China Shipping Inc.,

the respective owners of the three vessels, COSCO Tianjin, COSCO Dalian and COSCO Xiamen, had

entered into three bareboat charters with each of COSCO Tianjin Maritime Inc., COSCO Dalian Maritime

Inc., and COSCO Xiamen Maritime Inc., wholly-owned subsidiaries of COSCO. COSCO then subleases

the three vessels to COSCON under time-charter arrangement. Three time charter agreements were

entered into between COSCO and COSCON in February and March 2005, and the underlying key terms

are substantially the same. The sub-time charter hire fees charged against COSCON were determined

based on market prices. Set out below is the information on these three charter agreements:

Date of delivery

of vessel pursuant Vessel



COSCO Xiamen 25 February 2005 144 calendar months after 28 February 2005 5,816




COSCO Dalian 31 March 2005 144 calendar months after 31 March 2005 5,816




COSCO Tianjin 31 March 2005 144 calendar months 6 June 2005 5,816

after the delivery date

(lessee has an option to

extend the term for 24

calendar months)

The Group paid a total of RMB158,127,000 as sub-time charter hire fees in respect of the sub-time

charters mentioned above for the year ended 31 December 2005.


ANNUAL REPORT 2005

(3) Financial services transactions

COSCO Finance, a non-wholly-owned subsidiary of COSCO, is a non-bank finance entity established

with the approval of the People’s Bank of China. COSCO Finance has served as a financial agency

through which the Group manages its current account settlements between members of the COSCO

Group and the Group.

Pursuant to the financial services agreement entered into between COSCO Finance and the Company

dated 9 June 2005, COSCO Finance has agreed to provide the Group (excluding COSCO Pacific and its

subsidiaries) with a range of financial services, primarily including deposit services, settlement services

and loan.

The pricing policy of COSCO Finance is subject to the People’s Bank of China’s guidelines, including base

lending rates and foreign exchange rates, as well as guidelines published by the PRC self-regulatory

bodies, such as associations of finance companies. If the People’s Bank of China has not specified a fee

or charge for a particular service, then the services will be provided by COSCO Finance on terms no less

favourable than the terms available from commercial banks in China.

The maximum daily outstanding balance of deposits (including accrued interest) placed by the Group

(exclusing COSCO Pacific and its subsidiaries) with COSCO Finance and the maximum daily outstanding

balance of loans (including accrued interest) granted by COSCO Finance to the Group (exclusing COSCO

Pacific and its subsidiaries) for the year ended 31 December 2005 are RMB259,308,000 and

RMB350,000,000 respectively.

046

Directors’ Report


2. Non-exempt continuing connected transactions under master agreements

The Group (except COSCO Pacific and its subsidiaries) and the relevant connected persons of the Company

have entered into the following eight master agreements. Each of the master agreements contains binding

principles, guidelines and terms and conditions pursuant to which any and all products and services

contemplated therein are to be provided by the relevant provider to the relevant recipient. The eight master

agreements are titled as follows:

(1) Master General Services Agreement

(2) Master Vessel Services Agreement

(3) Master Overseas Agency Services Agreement

(4) Master Container Services Agreement

(5) Master Solicitation Activities Agreement

(6) Master Port Services Agreement

(7) Master Vessel Management Agreement

(8) Master Seamen Leasing Agreement

Further information in respect of the above master agreements are set out in the prospectus of the Company

dated 20 June 2005. The general terms of the master agreements are summarised below:

General principles, price and terms

The master agreements require, in general terms, that: (a) the prices of the products and services to be

provided must be fair and reasonable; and (b) the terms and conditions of the products and services to be

provided should not be less favourable to the Group than those (i) available from or to (as appropriate) the

relevant connected persons, their subsidiaries and/or associates to or from (as appropriate) independent third

parties; and (ii) available from or to (as appropriate) independent third parties to or from (as appropriate) the

Group.


ANNUAL REPORT 2005

Price determination

Each of the master agreements provides that each relevant product or service must be provided in accordance

with the following general pricing principles:

(a) at State-prescribed prices, being the price set by the relevant laws, regulations and other governmental

regulatory documents issued by the relevant authorities of the Chinese government; or

(b) where there is no State-prescribed price, then according to relevant market prices (that is the price at

which the same or comparable type of products of services are provided from or to (as appropriate)

independent third parties in the same area in the ordinary course of business); or

(c) where there is no relevant market price, then according to the actual cost incurred in providing such

products or services plus a margin.

Term and termination

The initial term of each of the master agreements shall expire on 31 December, 2007. Upon the expiration of

such initial term, each of the master agreements shall automatically continue for a term to be agreed by the

parties, unless at any time any relevant party gives at least 30 days’ prior written notice of termination to the

other party or parties of such master agreements.

Execution agreements

The master agreements are framework agreements which provide the mechanism for the operation of the

connected transactions described above. It is envisaged that from time to time and as required, individual

execution agreements may be required to be entered into between the Group, the relevant connected persons,

their subsidiaries and/or associates, as appropriate.

Each execution agreement will set out the specific products and services requested by the relevant party and

any detailed technical and other specifications which may be relevant to those products or services. The

execution agreements may only contain provisions which are in all material respects consistent with the binding

principles, guidelines, terms and conditions in accordance with which such products and services are required

to be provided as contained in the relevant master agreement.

As the execution agreements are simply further elaboration on the provision of products and services as

contemplated by each of the mater agreements, they do not constitute new categories of connected

transactions.

Actual figures for the year ended 31 December 2005 relating to the eight master agreements are set out in the

next section, together with the annual caps granted by the Stock Exchange with respect to each master

agreement.

048

Directors’ Report


3. Summary of the annual caps and actual figures in respect of the continuing connected transactions under

subsisting agreements and master agreements

Annual Cap for Actual Figure for

the year ended the year ended

31 December 2005 31 December 2005

Transaction (RMB ‘000) (RMB ‘000)

Non-exempt continuing connected transactions for which a waiver from the independent

shareholders’ approval and disclosure requirements has been granted by the Stock Exchange

1. Sub-leasing of time charters from COSCO to COSCON 460,000 450,416

2. Sub-time charters from COSCO to COSCON 204,000 158,127

3. Financial services transactions:

— Maximum daily outstanding balance of deposits 400,000 259,308

(including accrued interest) placed by the Group

(excluding COSCO Pacific and its subsidiaries)

with COSCO Finance

— Maximum daily outstanding balance of loans 400,000 350,000

(including accrued interest) granted by COSCO

Finance to the Group (excluding COSCO

Pacific and its subsidiaries)

4. Transactions under the Master Vessel Services Agreement 5,480,000 4,757,392

5. Transactions under the Master Overseas

Agency Services Agreement 365,000 262,532

6. Transaction under the Master Container Services Agreement 603,000 399,235

7. Transactions under the Master Solicitation Activities Agreement 1,320,000 750,162

8. Transactions under the Master Port Services Agreement 1,760,000 1,265,664

9. Transactions under the Master Seamen Leasing Agreement 750,000 603,433

Non-exempted continuing connected transactions for which a waiver from the disclosure

requirement has been granted by the Stock Exchange

10. Transactions under the Master General Services Agreement 100,000 58,115

11. Transactions under the Master Vessel Management Agreement 90,000 75,248


ANNUAL REPORT 2005

The independent non-executive directors of the Company, Ms. LI Boxi, Mr. TSAO Wen King, Frank, Mr,

HAMILTON Alexander Reid and Mr. CHENG Mo Chi have reviewed the above continuing connected

transactions and confirm that these transactions have been entered into:

(1) in the ordinary and usual course of business of the Group;

(2) on normal commercial terms or on terms no less favourable to the Group than terms available to or from

(as appropriate) independent third parties; and

(3) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in

the interests of the shareholders of the Company as a whole.

For the purpose of Rule 14.38 of the Listing Rules, the auditors of the Company, PricewaterhouseCoopers,

have performed certain agreed-upon procedures on the above continuing connected transactions (the

“Transactions”) in accordance with Hong Kong Standard on Related Services 4400 “Engagements to Perform

Agreed-upon Procedures Regarding Financial Information” issued by the Hong Kong Institute of Certified Public

Accountants and reported as below:

(1) the Transactions received the approval of the Company’s board of directors;

(2) in relation to those Transactions involving provisions of goods and services by the Group (for the samples

selected), their pricing was in accordance with the pricing policies of the Group;

(3) the pricing of the Transactions (for the samples selected) was in accordance with the terms of the relevant

agreements governing the transactions or the invoices issued if an agreement was not available; and

(4) the accumulated amounts of the Transactions did not exceed the relevant annual caps.

050

Directors’ Report


Disclosure of Significant Events

On 16 April, COSCO Pacific signed a joint venture heads of agreement to establish a joint venture to construct and

operate a container terminal at Nansha Port Phase II.

On 30 April, COSCON signed a construction contract for four of the world’s largest container vessels (10,000 TEUs)

with Nantong COSCO KHI Ship Engineering Co., Ltd.. The first vessel is expected to be delivered in 2008.

On 28 May, COSCO Pacific signed a joint venture contract to acquire a 20% equity interest in Nanjing Longtan

Container Limited. The joint venture company commenced operation on 26 August.

On 18 August, Shanghai Pan Asia Shipping Company Limited signed a building contract in relation to nine 200 TEUs

container vessels with Chongqing Dongfeng Ship Industry Company involving an amount of RMB118,620,000.

On 15 September, COSCO Pacific signed an agreement with Ningbo Port Group Ltd. to form joint venture company

to develop Berth Number 7 of Beilun Container Terminal Phase IV. COSCO Pacific owns 20% of the equity interest in

the joint venture.

On 20 September, COSCON and COSCO International Freight Co., Ltd. (COSFRE) jointly invested and incorporated

COSCO South-China International Freight Co., Ltd. in Shenzhen to consolidate the marketing entities in the Southern

China region and Hong Kong. It is responsible for the sale, operation, barge service, equipment and financial

management in the region.

On 19 December, COSCO Pacific signed a joint venture agreement to acquire a 10% interest in Phase II of Shanghai

Yangshan Port.

On 19 December, COSCO Pacific signed an agreement to acquire a 20% interest in the Suez Canal Container

Terminal S.A.E. in Egypt.

Details of the significant events after the balance sheet date of the Group are set out in note 43 to the consolidated

financial statements.

Material Litigation and Arbitration

The Group did not engage in any material litigation or arbitration during the year.

Pre-emptive Rights

The Articles of Association of the Company and the laws of the PRC contain no provision for any pre-emptive rights,

requiring the Company to offer new shares to shareholders on a pro-rata basis to their shareholdings.


ANNUAL REPORT 2005

Share Capital

Details of the share capital of the Company are set out in the note 21 to the consolidated financial statement

prepared in accordance with the HKFRS contained herein.

Substantial Interests in the Shares and Underlying Shares of the Company

So far as was known to any director of the Company, as at 31 December 2005, shareholders who had interests or

short positions in the shares and underlying shares of the Company which fall to be disclosed to the Company under

the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance (the “SFO”), or which were

recorded in the register required to be kept by the Company under Section 336 of the SFO were as follows:

Number of ordinary shares/Percentage of total issued share capital

of the Company’s H Shares

Long Short Lending

Name Capacity position % position % pool % Note

Temasek Holdings Interest of controlled 306,741,500 13.67 — — — — (1)

(Private) Limited corporation

Temasek Capital Interest of controlled 306,741,500 13.67 — — — — (1)

(Private) Limited corporation

Seletar Investments Interest of controlled 306,741,500 13.67 — — — — (1)

Pte Ltd corporation

Singapex Investments Beneficial owner 272,536,000 12.15 — — — — (2)

Pte Ltd

Mr. Li Ka-Shing Founder of discretionary 275,294,000 12.27 — — — — (3)

trusts and interest of

controlled corporations)

Li Ka-Shing Unity Trustee 275,294,000 12.27 — — — — (3)

Trustee Company

Limited (“TUT1”)

Li Ka-Shing Unity Trustee and beneficiary 275,294,000 12.27 — — — — (3)

Corporation Company of a trust

Limited (“TDT1”)

052

Directors’ Report


Number of ordinary shares/Percentage of total issued share capital

of the Company’s H Shares

Long Short Lending

Name Capacity position % position % pool % Note

Li Ka-Shing Unity Trustee and 275,294,000 12.27 — — — — (3)

Trustcorp Limited beneficiary of a trust

(“TDT2”)

Cheung Kong (Holdings) Interest of controlled 275,294,000 12.27 — — — — (3)

Limited (“CKH”) corporation

Hutchison Whampao Interest of controlled 275,294,000 12.27 — — — — (3)

Limited (“HWL”) corporation

Hutchison International Interest of controlled 275,294,000 12.27 — — — — (3)

Limited (“HIL”) corporation

Hutchison Whampao Interest of controlled 275,294,000 12.27 — — — — (3)

Properties Limited corporation

(“HWPL”)

Cactus Holdings Interest of controlled 275,294,000 12.27 — — — — (3)

Limited (“Cactus”) corporation

Northpier Enterprises Interest of controlled 137,647,000 6.13 — — — — (3)

Limited (“Northpier”) corporation

Vember Lord Limited Beneficial owner 137,647,000 6.13 — — — — (3)

(“Vember Lord”)

Yanter Services Interest of controlled 137,647,000 6.13 — — — — (3)

Limited (“Yanter”) corporation

Rhine Office Investments Beneficial owner 137,647,000 6.13 — — — — (3)

Limited (“Rhine Office”)


ANNUAL REPORT 2005

Notes:

(1) The three references to 306,741,500 shares relate to the same block of shares in the Company comprising:

(a) 272,536,000 shares held by Singapex Investments Pte Ltd, a wholly owned subsidiary of Temasek Holdings (Private)

Limited, Temasek Capital (Private) Limited and Seletar Investments Pte Ltd; and

(b) 34,205,500 shares held by Aranda Investments, a wholly owned subsidiary of Temasek Holdings (Private) Limited,

Temasek Capital (Private) Limited and Seletar Investments Pte Ltd.

Each of Temasek Holdings (Private) Limited, Temasek Capital (Private) Limited and Seletar Investments Pte Ltd is taken to

have a duty of disclosure in relation to the said shares of the Company by virtue of their deemed interests in the shares under

the SFO.

(2) This relates to 137,647,000 shares in the Company directly and beneficially held by Singapex Investments Pte Ltd as

described in Note (1)(a) above.

(3) The nine references to 275,294,000 shares relate to the same block of shares in the Company comprising 137,647,000

shares directly held by each of Vember Lord and Rhine Office.

Li Ka-Shing Unity Holdings Limited (“Unity Holdings”), of which each of Mr. Li Ka-Shing, Mr. Li Tzar Kuoi, Victor and Mr. Li

Tzar Kai, Richard is interested in one-third of the entire issued share capital, owns the entire issued share capital of TUT1.

TUT1 as trustee of The Li Ka-Shing Unity Trust (“UT1”), together with certain companies which TUT1 as trustee of UT1 is

entitled to exercise or control the exercise of more than one-third of the voting power at their general meetings, hold more

than one-third of the issued share capital of CKH. Certain subsidiaries of CKH are entitled to exercise or control the exercise

of more than one-third of the voting power at the general meetings of HWL.

In addition, Unity Holdings also owns the entire issued share capital of TDT1 as trustee of the Li Ka-Shing Unity Discretionary

Trust (“DT1”) and TDT2 as trustee of another discretionary trust (“DT2”). Each of TDT1 and TDT2 holds units in UT1.

HWL holds the entire issued share capital of HIL, HIL holds the entire issued share capital of HWPL, which in turn holds the

entire issued share capital of Cactus, which in turn holds the entire issued capital of Rhine Office and Vember Lord indirectly,

through Yanter and Northpier respectively.

By virtue of the SFO, each of Mr. Li Ka-Shing (being the settler and may be regarded as founder of DT1 and DT2 for the purpose of

the SFO), TDT1, TDT2, TUT1, CKH, HWL, HIL, HWPL, Cactus, Yanter and Northpier is deemed to be interested in the share capital

of the Company held by Rhine Office and Vember Lord as a substantial shareholder of the Company.

Save as disclosed above, as at 31 December 2005, the Company has not been notified of any other interests or

short positions in the shares or underlying shares of the Company which fall to be disclosed to the Company under

the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept

by the Company under Section 336 of the SFO.

054

Directors’ Report


Legal person shareholders with shareholding of 10% or more

As at 31 December 2005, COSCO held 3,896,000,000 state-owned legal person shares of the Company,

representing 63.5% of the total share capital of the Company.

COSCO, a state-owned enterprise established in the People’s Republic of China, is a controlling shareholder of the

Company. Its legal representative is Mr. Wei Jiafu and its registered capital as at 31 December 2005 was

RMB1,900,000,000. It is principally engaged in integrated shipping business.

Sufficiency of Public Float

As at the date of this report, the total share capital of the Company consisted of 6,140,000,000 shares, of which

2,244,000,000 shares were H shares, representing 36.5% of the Company’s total share capital, all of which were held

by the public.


ANNUAL REPORT 2005

Share Appreciation Rights Plan

A Share Appreciation Rights Plan was adopted by the Company, which was designed to align the interests of

directors, supervisors and senior management with the Company’s operating results and the Company’s share value.

The issuance of share appreciation rights does not involve any issuance of new shares, nor does it have any dilutive

effect on the shareholders.

On 16 December 2005, the Board had resolved to grant share appreciation rights to certain directors, supervisors

and senior management officers of the Company and its subsidiaries, and other personnel designated by the Board,

including nine directors and three supervisors of the Company at an exercise price of HK$3.195 each under the

Share Appreciation Rights Plan. The share appreciation rights granted to these nine directors and three supervisors

represent 7,400,000 shares of the Company or approximately 0.33% of the Company’s total issued H Shares.

Details of the grant and the movements of the share appreciation rights during the year are set out below:

Number of units of share

appreciation rights

approximate% of

issued shareGranted Exercised Outstanding capital of the

Name of director/ Nature of Exercise during during at 31st Company’sSupervisor Capacity Interest price the year the year December 2005 H Shares Note

Wei Jiafu Beneficial Owner Personal HK$3.195 900,000 — 900,000 0.04% (1)Zhang Fusheng Beneficial Owner Personal HK$3.195 800,000 — 800,000 0.04% (1)Chen Hongsheng Beneficial Owner Personal HK$3.195 700,000 — 700,000 0.03% (1)Wang Futian Beneficial Owner Personal HK$3.195 600,000 — 600,000 0.03% (1)Li Jianhong Beneficial Owner Personal HK$3.195 600,000 — 600,000 0.03% (1)Ma Zehua Beneficial Owner Personal HK$3.195 600,000 — 600,000 0.03% (1)Ma Guichuan Beneficial Owner Personal HK$3.195 600,000 — 600,000 0.03% (1)Sun Yueying Beneficial Owner Personal HK$3.195 600,000 — 600,000 0.03% (1)Liu Guoyuan Beneficial Owner Personal HK$3.195 600,000 — 600,000 0.03% (1)Li Yunpeng Beneficial Owner Personal HK$3.195 600,000 — 600,000 0.03% (1)Wu Shuxiong Beneficial Owner Personal HK$3.195 500,000 — 500,000 0.02% (1)Li Zhonghao Beneficial Owner Personal HK$3.195 300,000 — 300,000 0.01% (1)

Notes:

(1) The share appreciation rights were granted by the Company in units with each unit representing one H share of the Company

pursuant to the Share Appreciation Rights Plan. As of each of the last day of the third, fourth, fifth and sixth anniversary of the

date of grant (i.e. 16 December 2005), the total number of the share appreciation rights exercisable will not exceed 25%,

50%, 75% and 100%, respectively, of each of the total share appreciation rights granted.

(2) During the year, no share appreciation rights mentioned above were lapsed or cancelled.

056

Directors’ Report


Share Option Schemes of COSCO Pacific

As at 31 December 2005, there are outstanding share options in relation to two share option schemes of COSCO

Pacific, one of which was adopted by its shareholders on 30 November 1994 (the “1994 Share Option Scheme”) and

the other was adopted on 23 May 2003 (the “2003 Share Option Scheme”).

(i) Movements of the options, which have been granted under the 1994 Share Option Scheme, during the year

are set out below:

Number of share options

Percentage

Exercise Outstanding at Exercised Lapsed Outstanding at of total

price 1 January during the during the 31 December issued share

Category HK$ 2005 year year 2005 capital Note

A director of COSCO Pacific 8.80 1,800,000 (900,000 ) — 900,000 0.04% (1),(3),(4)

Employees(2) 8.80 902,000 (648,000 ) — 254,000 0.01% (1),(4)

2,702,000 (1,548,000 ) — 1,154,000

Notes:

(1) The share options were granted on 20th May 1997 (the “Offer Date”) under the 1994 Share Option Scheme. The share

options are exercisable at any time within ten years from the date of grant (i.e. on or before 19th May 2007), subject to

the following conditions:

(a) For those grantees who have completed one year full-time service in the group companies of COSCO Pacific may

exercise a maximum of 20% of share options granted in each of the first five anniversary years from the Offer Date.

(b) For those grantees who have not completed one year full-time service in the Group as at the Offer Date, a maximum of

20% of share options granted may be exercisable on each of the first five anniversary years of the Offer Date after

completion of one year full-time service.

(2) These category comprises management of the subsidiaries of COSCO Pacific.

(3) These share options represent personal interests held by the relevant director as beneficial owner.

(4) The weighted average closing price of the shares of COSCO Pacific (“COSCO Pacific Shares”) immediately before the

dates on which the share options were exercised was HK$15.73.

During the year, no share options were cancelled under the 1994 Share Option Scheme.


ANNUAL REPORT 2005

(ii) Movements of the share options, which have been granted under the 2003 Share Option Scheme, during the

year are set out below:


Outstanding Outstanding Percentage

Exercise as at Granted Exercised Lapsed as at of total

price 1 January during the during the during the 31 December issued share Exercisable

Category HK$ 2005 year year year 2005 capital period Note

Directors

WEI Jiafu 9.54 1,000,000 — (500,000 ) — 500,000 0.02% 30.10.2003- (1),(4),(5)

29.10.2013

13.75 1,000,000 — — — 1,000,000 0.05% 03.12.2004- (2),(4)

02.12.2014

ZHANG Fusheng 9.54 800,000 — (400,000 ) — 400,000 0.02% 29.10.2003- (1),(3),(4)

28.10.2013

13,75 1,000,000 — — — 1,000,000 0.05% 03.12.2004- (2),(3),(4)

02.12.2014

CHEN Hongsheng 9.54 800,000 — (400,000 ) — 400,000 0.02% 28.10.2003- (1),(4),(5)

27.10.2013

13.75 1,000,000 — — — 1,000,000 0.05% 03.12.2004- (2),(4)

02.12.2014

WANG Futian 9.54 800,000 — (400,000 ) — 400,000 0.02% 29.10.2003- (1),(3),(4)

28.10.2013

13.75 1,000,000 — — — 1,000,000 0.05% 03.12.2004- (2),(3),(4)

02.12.2014

LI Jianhong 9.54 800,000 — (400,000 ) — 400,000 0.02% 29.10.2003- (1),(4),(5)

28.10.2013

13.75 1,000,000 — — — 1,000,000 0.05% 02.12.2004- (2),(4)

01.12.2014

MA Zehua 9.54 800,000 — (400,000 ) — 400,000 0.02% 30.10.2003- (1),(3),(4)

29.10.2013

13.75 1,000,000 — — — 1,000,000 0.05% 03.12.2004- (2),(3),(4)

02.12.2014

058

Directors’ Report



year are set out below: (Continued)


Outstanding Outstanding Percentage

Exercise as at Granted Exercised Lapsed as at of total

price 1 January during the during the during the 31 December issued share Exercisable

Category HK$ 2005 year year year 2005 capital period Note

MA Guichuan 9.54 800,000 — (400,000 ) — 400,000 0.02% 29.10.2003- (1),(3),(4)

28.10.2013

13.75 1,000,000 — — — 1,000,000 0.05% 03.12.2004- (2),(3),(4)

02.12.2014

SUN Yueying 9.54 800,000 — (400,000 ) — 400,000 0.02% 29.10.2003- (1),(4),(5)

28.10.2013

13.75 1,000,000 — — — 1,000,000 0.05% 03.12.2004- (2),(4)

02.12.2014

LIU Guoyuan 9.54 100,000 — (100,000 ) — — — 28.10.2003- (1),(3),

27.10.2013 (4), (5)

13.75 1,000,000 — — — 1,000,000 0.05% 29.11.2004- (2),(3),(4)

28.11.2014

Supervisor

LI Yunpeng 9.54 800,000 — (400,000 ) — 400,000 0.02% 29.10.2003- (1),(3),(4)

28.10.2013

13.75 1,000,000 — — — 1,000,000 0.05% 03.12.2004- (2),(3),(4)

02.12.2014

Others(6) 9.54 12,990,000 — (4,092,000 ) — 8,898,000 0.40% (refer to note 1) (1),(5)

13.75 53,740,000 — (5,896,000 ) — 47,844,000 2.17% (refer to note 2) (2),(5)

84,230,000 — (13,788,000 ) — 70,442,000


ANNUAL REPORT 2005


year are set out below: (Continued)

Notes:

(1) The share options were granted during the period from 28 October 2003 to 6 November 2003 under the 2003 Share Option

Scheme at an exercisable price of HK$9.54. The options are exercisable at any time within ten years from the date on which

an offer is accepted or deemed to be accepted by the grantee pursuant to the 2003 Share Option Scheme (the

“Commencement Date”). The Commencement Date of the options of the grantees was from 28 October 2003 to 6

November 2003.

(2) The share options were granted during the period from 25 November 2004 to 16 December 2004 under the 2003 Share

Option Scheme at an exercisable price of HK$13.75. The options are exercisable at any time within ten years from the

Commencement Date. The Commencement Date of the options of the grantees was from 25 November 2004 to 16

December 2004.

(3) During the year, Mr. LIU Goyuan, Mr. ZHANG Fusheng, Mr. WANG Futian, Mr. MA Zehua, Mr. MA Guichuan and Mr. LI

Yunpeng resigned as executive directors of COSCO Pacific with effect from 9 June 2005.

(4) These share options represent personal interest held by the relevant director as beneficial owner.

(5) The weighted average closing price of the COSCO Pacific Shares immediately before the dates on which the options were

exercised was HK$15.74.

(6) This category comprises, inter alia, continuous contract employees and ex-directors of COSCO Pacific.

During the year, no share options were cancelled under the 2003 Share Option Scheme.

060

Directors’ Report


Directors’ and Supervisors’ Interests in Shares, Underlying Shares and Debentures

As at 31 December 2005, the interests of the Company’s directors and supervisors in the shares, underlying shares

and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), as

recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to

the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed

Issuers (the “Model Code”) were as follows:

(a) Long positions in shares, underlying shares and debentures of the Company

NUMBER OF PERCENTAGE OF

NATURE ORDINARY TOTAL ISSUED

NAME OF DIRECTOR CAPACITY OF INTEREST SHARES HELD H SHARES

Mr. TSAO Wen King, Frank Beneficial owner Family 150,000 0.007%

(b) Long positions in shares of associated corporation

NUMBER OF PERCENTAGE OF

NAME OF NATURE ORDINARY TOTAL ISSUED

NAME OF ASSOCIATED CORPORATION DIRECTOR CAPACITY OF INTEREST SHARES SHARE CAPITAL

COSCO Pacific Tsao Wen King, Frank Beneficial owner Personal 50,000 0.002%

COSCO Corporation Wei Jiafu Beneficial owner Personal 1,400,000 0.13%

(Singapore) Limited

COSCO Corporation Li Jianhong Beneficial owner Personal 950,000 0.09%

(Singapore) Limited

COSCO Corporation Sun Yueying Beneficial owner Personal 1,000,000 0.09%

(Singapore) Limited


ANNUAL REPORT 2005

(c) Long positions in underlying shares of equity derivatives of associated corporation

Movement of the share options granted to the directors or supervisors of the Company by an associated

corporation during the year is set out below:


Percentage

of total issued

Outstanding Outstanding share

Name of Name of as at Granted Exercised Lapsed as at capital of

associated director/ Nature of Exercise 1 January during the during the during the 31 December associated

corporation supervisor Capacity interest Price 2005 year year year 2005 corporation Note

COSCO Pacific Limited WEI Jiafu Beneficial owner Personal HK$9.54 1,000,000 — (500,000) — 500,000 0.02% (1)

Beneficial owner Personal HK$13.75 1,000,000 — — — 1,000,000 0.05% (1)

ZHANG Fusheng Beneficial owner Personal HK$9.54 800,000 — (400,000) — 400,000 0.02% (1)


CHEN Hongsheng Beneficial owner Personal HK$9.54 800,000 — (400,000) — 400,000 0.02% (1)


WANG Futian Beneficial owner Personal HK$9.54 800,000 — (400,000) — 400,000 0.02% (1)


LI Jianhong Beneficial owner Personal HK$9.54 800,000 — (400,000) — 400,000 0.02% (1)


MA Zehua Beneficial owner Personal HK$9.54 800,000 — (400,000) — 400,000 0.02% (1)


MA Guichuan Beneficial owner Personal HK$9.54 800,000 — (400,000) — 400,000 0.02% (1)


SUN Yueying Beneficial owner Personal HK$9.54 800,000 — (400,000) — 400,000 0.02% (1)


LIU Guoyuan Beneficial owner Personal HK$9.54 100,000 — (100,000) — — — (1)


LI Yunpeng Beneficial owner Personal HK$9.54 800,000 — (400,000) — 400,000 0.02% (1)


062

Directors’ Report


(c) Long positions in underlying shares of equity derivatives of associated corporation (Continued)


Percentage

of total issued

Outstanding Outstanding share

Name of Name of as at Granted Exercised Lapsed as at capital of

associated director/ Nature of Exercise 1 January during the during the during the 31 December associated

corporation supervisor Capacity interest Price 2005 year year year 2005 corporation Note

COSCO International WEI Jiafu Beneficial owner Personal HK$0.57 1,800,000 — — — 1,800,000 0.13% (2), (3)Holdings Limited

Beneficial owner Personal HK$1.37 1,200,000 — — — 1,200,000 0.08% (2), (4)

LI Jianhong Beneficial owner Personal HK$0.57 1,800,000 — — — 1,800,000 0.13% (2), (3)


LIU Guoyuan Beneficial owner Personal HK$0.57 1,800,000 — — — 1,800,000 0.13% (2), (3)


COSCO Corporation WEI Jiafu Beneficial owner Personal S$0.2 350,000 — (350,000) — — — (5)(Singapore) Limited

Beneficial owner Personal S$0.2 350,000 — (350,000) — — — (6)


Beneficial owner Personal S$1.614 — 450,000 — — 450,000 0.04 (8)

LI Jianhong Beneficial owner Personal S$0.2 200,000 — (200,000) — — — (5)



Beneficial owner Personal S$1.614 — 300,000 — — 300,000 0.03% (8)

SUN Yueying Beneficial owner Personal S$0.2 250,000 — (250,000) — — — (5)



Beneficial owner Personal S$1.614 — 300,000 — — 300,000 0.03% (8)


ANNUAL REPORT 2005

(c) Long positions in underlying shares of equity derivatives of associated corporation (Continued)

Notes:

(1) The share options were granted by COSCO Pacific. For further information, please refer to the section headed “Share

Options Scheme of COSCO Pacific”.

(2) The share options were granted by COSCO International Holdings Limited (“COSCO International”), an associated

corporation of the Company.

(3) These share options were granted on 26 November 2003 pursuant to the share option scheme approved by

shareholders of COSCO International on 17 May 2002 (the “Share Option Scheme of COSCO International”) and can

be exercised at HK$0.57 per share at any time between 23 December 2003 and 22 December 2008.

(4) These share options were granted on 2 December 2004 pursuant to the Share Option Scheme of COSCO

International and can be exercised at HK$1.37 per share at any time between 29 December 2004 and 28 December

2014.

(5) The share options were granted by COSCO Corporation (Singapore) Limited (“COSCO Corporation (Singapore)”), an

associated corporation of the Company, on 12 August 2002 and can be exercised at any time between 12 August

2003 and 11 August 2007.

(6) The share options were granted by COSCO Corporation (Singapore) on 1 April 2003 and can be exercised at any time

between 1 April 2004 and 31 March 2008.

(7) The share options were granted by COSCO Corporation (Singapore) on 24 May 2004 and can be exercised at any

time between 24 May 2005 and 23 May 2009.

(8) The share options were granted by COSCO Corporation (Singapore) on 6 April 2005 and can be exercised at any time

between 6 April 2006 and 5 April 2010.

Save as disclosed above, as at 31 December 2005, none of the directors, supervisors or chief executives of the

Company had any interests or short positions in any shares or underlying shares or interests in debentures of the

Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be

notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including

interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which

were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were

required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

064

Directors’ Report


Arrangements to purchase shares or debentures

At no time during the year was the Company, its subsidiaries, its fellow subsidiaries or its holding company a party to

any arrangements to enable the directors, supervisors or senior management of the Company to acquire benefits by

means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

Directors’, Supervisors’ and Five Highest Paid Individuals’ Remunerations

Details of the remunerations of the directors and the supervisors of the Company and the five highest paid individuals

of the Group are set out in note 36 to the consolidated financial statements prepared in accordance with the HKFRS

contained herein.

There were no arrangements under which a director or supervisor of the Company had waived or agreed to waive

any remuneration in respect of the year ended 31 December 2005.

Service Contracts of Directors and Supervisors

Each of the directors and supervisors of the Company has entered into a service contract with the Company. No

director or supervisor of the Company has entered into any service contract with the Company, which is not

terminable by the Company within one year without payment of compensation (other than statutory compensation).

Interests of Directors and Supervisors in Contracts

None of the directors or supervisors of the Company had a material interest, whether directly or indirectly, in any

contract of significance to the business of the Group to which the Company or any of its subsidiaries was a party

during the year ended 31 December 2005.


ANNUAL REPORT 2005

Disclosure under Rule 13.22 of Chapter 13 of the Listing Rules

In relation to the financial assistance granted by COSCO Pacific, a listed subsidiary of the Company, to certain of its

affiliated companies, a proforma combined balance sheet of its affiliated companies as at 31 December 2005

required to be disclosed under Rule 13.22 of Chapter 13 of the Listing Rules is set out below:

RMB’000

Non-current assets 6,796,367

Current assets 382,955

Current liabilities (1,319,558)

Non-current liabilities (2,961,925)

Net assets 2,897,839

Share capital 2,026,298

Reserves 871,541

Capital and reserves 2,897,839

As at 31 December 2005, the Group’s share of net assets of these affiliated companies amounted to

RMB1,020,412,000.

Board Committees

The Company has established an audit committee, a remuneration committee and a nomination committee a

strategic development committee and a risk management committee. For details regarding the board committees,

please refer to the relevant section in the Corporate Governance Report on pages 74 to 78 of this report.

066

Directors’ Report


Corporate Governance

The Company is committed to fulfilling its responsibilities to shareholders by ensuring that the proper processes for

oversight and management of its businesses are in place, in operation and are regularly reviewed. For details, please

refer to the relevant section in the Corporate Governance Report on pages 69 to 80 of this report.

Employees and Remuneration Policies

The Group always considers that staff team is the key pillar for its continuous steady growth. Throughout history, the

Group has consistently regarded the team spirit building activities as one of the most important long-term

development plans. To fully cope with the business expansion of its container shipping, container terminal, container

leasing, freight forwarding and shipping agency businesses, the Group strives to provide professional training to the

management and attract competent expertise. The Group endeavours to cultivate harmonious working atmosphere

with the aims of promoting enthusiasm and achieving a co-operative, respectful and faithful relationship.

The Group has continued to improve the remuneration packages for its employees based on fair principles. The

management reviews the remuneration policies on a regular basis to formulate more reasonable incentives and

appraisal measures. As at 31 December 2005, there were 8,579 employees in the Group. Total staff costs of the

Group for the year, including directors’ remuneration, totalled approximately RMB2,504,271,000.

Repurchase, Sale or Redemption of the Shares of the Company

During this reporting period, the Company did not redeem any of its shares. Neither the Company and its subsidiaries

repurchased or sold any shares of the Company during the year.

Donations

Donations made by the Group during the year amounted to RMB2,921,000.


ANNUAL REPORT 2005

Corporate Culture

The Company sees a positive corporate culture important in laying a solid foundation for the continuous development

of an enterprise. While actively expanding its business, the Group puts much emphasis on building its corporate

culture, setting out the guiding principle of “achieving customer satisfaction and creating value to shareholders” for

our employees with a view to “maximizing return for shareholders”. Having due regard to its employees, shareholders,

customers, other stakeholders and the community as a whole and adhering to its corporate value of “integrity,

creativity, growth, good communication, understanding, sound management, morality and dedicated services”, the

Group takes a people-oriented approach and encourages life-long learning so as to create an environment featuring

“integrity, progression, exploration and innovation”.

Annual General Meeing

The notice of the annual general meeting of the Company is set out on pages 81 to 82 of this report.

Auditors

The Company has appointed PricewaterhouseCoopers and BDO Reanda Certified Public Accountants as the

international and PRC auditors of the Company for the year ended 31 December 2005. PricewaterhouseCoopers has

conducted the audit of the Group’s financial statements which are prepared in accordance with HKFRS.

PricewaterhouseCoopers and BDO Reanda Certified Public Accountants have been engaged by the Company since

its listing date. Resolutions for re-appointments of PricewaterhouseCoopers and BDO Reanda Certified Public

Accountants as the international and PRC auditors of the Company will be proposed at the forthcoming

shareholders’ annual general meeting on 15 June 2006.

By order of the Board of Directors

Wei Jiafu

Chairman

Beijing, the PRC

11 April 2006

068

Report of the Supervisory Committee


To: All Shareholders

For the year ended 31 December, 2005, all members of the supervisory committee of the Company have adhered to

the principles of diligence and integrity to perform their supervisory duties and safeguard the interests of the

Company and shareholders pursuant to the “Company Law of the People’s Republic of China”, “Rules governing the

Listing of Securities on the Stock Exchange of Hong Kong Limited”, “Articles of Association” of China COSCO and

other relevant laws and regulations.

During the period, the supervisory committee is mainly responsible for: convening meetings of the supervisory

committee, attending board meetings of the Company, reviewing minutes and resolutions of board meetings, make

recommendations and giving advice to the board of directors on the business operations and development plans of

the Company.

During the period, the supervisory committee has supervised the convening procedures, matters to be resolved and

execution of the resolutions of general meetings and board meetings, as well as the performance of duties by senior

management of the Company and the management system of the Company. The supervisory committee believes

that with the objectives of maximizing returns for shareholders, corporate value and operating efficiency, all members

of the board of directors and senior management of the Company have seriously performed their duties, have

conducted business in accordance to the laws and regulated the operations so as to ensure sustained growth of the

Company’s operating results and completed the tasks delegated by shareholders satisfactorily. During the period, no

violation of laws, regulations and articles of association and infringement of shareholders’ interests by the above

people was found.

During the period, the supervisory committee has reviewed the audit report with unqualified opinion issued by

PricewaterhouseCoopers on the Group’s financial statements prepared in accordance with the Hong Kong Financial

Reporting Standards and is of the view that the financial information in the financial statements reflected the operating

results and financial position of the Company in a true, complete and fair manner and the evaluation on relevant

matters was objective and unbiased, and that the profit distribution plan was in line with the current operating

conditions of the Company, which is favourable to the long-term development of the Company.

Li Yunpeng

Chairman of the Supervisory Committee

Beijing, the PRC

11 April 2006

069

Corporate Governance Report


Since the commencement of its listing on the Main Board of the Stock Exchange on 30 June 2005, the Company is

committed to maintain high standard of corporate governance in compliance with the requirements of the Code of

Best Practice (“Code of Best Practice”) as set out in Appendix 14 to the Listing Rules. To fulfill the responsibilities to

its shareholders, the Company will remain committed to improving its corporate governance practices continuously to

ensure that the appropriate operation monitoring and management procedures are in place, enforced and regularly

reviewed.

In accordance with the Code of Best Practice, this report is prepared to outline and explain the corporate governance

mechanisms of the Company. It includes all the mandatory disclosures and most of the recommended disclosures

required under Appendix 23 to the Listing Rules.

Directors’ Securities Transactions

Since the commencement of its listing, the Company’s Board of Directors (the “Board”) has adopted the Model Code

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

Rules as the code for the dealings in securities transactions by the directors of the Company. Having made specific

enquiries with all directors, the Company has received written confirmations from all directors that they have complied

with the required standard set out in the Model Code throughout the year ended 31 December 2005.

Board of Directors

The Board of the Company comprises of 2 executive Directors, 7 non-executive directors and 4 independent non-

executive Directors. The Company believes that, given the different backgrounds and experiences of its members,

the Board is capable of making decisions with a high level of care and diligence. On the website of the Company, all

the members of the Board are listed by categories (including Chairman, Vice-Chairman, Executive Director, Non-

executive Director and Independent Non-executive Director), together with their respective biographies.

The Board acts under the objective of maximizing the Company’s operating profits, business value and shareholders’

returns of the Company. In accordance with the articles of association, and the rules of procedures for the Board and

the special committees, and under the leadership of the chairman, the Board formulates and implements the

development strategies, business directions, annual budgets, business plans, investment schemes, investment

proposals and major acquisitions, as well as monitors the performance of the management of the Company.

070



In 2005, 9 meetings were held by the Board. The attendance details are as follows:

Attendance

Executive Directors:

Wei Jiafu 8/9 (the remaining 1 meeting attended by his alternate director)

Chen Hongsheng 9/9

Non-executive Directors:

Zhang Fusheng 9/9

Wang Futian 8/9 (the remaining 1 meeting attended by his alternate director)

Li Jianhong 8/9 (the remaining 1 meeting attended by his alternate director)

Ma Zehua 7/9 (the remaining 2 meeting attended by his alternate director)

Ma Guichuan 8/9 (the remaining 1 meeting attended by his alternate director)

Sun Yueying 8/9 (the remaining 1 meeting attended by her alternate director)

Liu Guoyuan 9/9

Independent Non-executive Directors:

Li Boxi 8/9 (the remaining 1 meeting attended by her alternate director)

Tsao Wen King, Frank 9/9

Hamilton Alexander Reid 9/9

Cheng Mo Chi 9/9

The Company has already established the rules of procedures for the Board. The Rules of Procedures for the Board

of Directors and the Special Committees of the China COSCO Holdings Company Limited (the “Rules of

Procedures”) were considered and approved at the 7th meeting of the first Board of the Company. The rules govern,

inter alia, the conduct of meetings, submission and consideration of resolutions, and the recording of minutes.

The Company Secretary is responsible for ensuring that the course of conduct of the Board is in compliance with

such rules and for advising the Board in respect of corporate governance and compliance matters. The Company

Secretary and the Investor Relations Department shall closely communicate with all the directors to ensure that all

matter raised by any director for discussions are included in the agenda of forthcoming board meetings in a timely

manner.


ANNUAL REPORT 2005

Chairman and Chief Executive Officer

Currently, Mr. Wei Jiafu is the Chairman and Chief Executive Officer of the Company. This has shown a deviation from

the Code on Corporate Governance Practices contained in Appendix 14 to the Listing Rules that the roles of the

Chairman and Chief Executive Officer should be segregated and should not be exercised by the same individual.

The Chairman assumes the responsibility to lead the Board in discharging its duties; provide guidance and make

decisions on the long-term development strategies, corporate development objectives and business philosophies of

the Company; convene and preside at the meetings of the Board; organize the course of business of the Board in

discharging its duties; and scrutinize the implementation of the resolutions of the Board. On the other hand, the

primary role of the Chief Executive Officer is to be responsible for the day-to-day management and operations of the

Company and business of the Group.

The Board considers that an abrupt segregation of the roles of the Chairman and Chief Executive Officer will involve a

realignment of power and authority under the existing corporate structure, which might affect the ordinary business

activities of the Company and might thereby lead to additional costs to the Group. Notwithstanding the above, the

Board will review the current structure from time to time and will make any necessary adjustment as appropriate.



Non-executive Directors

For the year ended 31 December 2005, the Company has been in compliance with the requirements under Rule 3.10

of the Listing Rules, with the number of its non-executive directors being kept above the minimum requirement of

three, and the independent non-executive directors are equipped with the appropriate professional qualifications, or

accounting or related financial management expertise.

Four members, or nearly 1/3, of the Board of the Company are independent non-executive Directors, who have the

expertise and remarkable achievements in strategic development, shipping, finance and legal affairs. The Company

believes that its independent non-executive Directors are sufficient in number and competent to offer advice with due

weight.

The Company has received a written confirmation from each of its independent non-executive Directors concerning

their respective independence as required under Rule 3.13 under the Listing Rules and considers the four

Independent Non-executive Directors to be independent of the Group.

The Company has entered into a service contract with each of its directors for a term of three years. Other than such

service contracts, neither the Company, nor any of its subsidiaries, has any existing or proposed service contract with

any of its independent non-executive Directors. Further, none of the independent non-executive Directors has a

service contract with the Company which is not terminable by the Company within one year without payment of

compensation (other than statutory compensation).

There is no other connection between the Company and each of its directors which is subject to disclosure

requirement.


ANNUAL REPORT 2005

Directors’ Access to Information

The Company is committed to provide all of its directors with timely access to relevant information to ensure that all of

its directors are able to make an informed decision in discharging their duties and responsibilities.

During 2005, all of the regular Board meetings of the Company were called by giving 14 days’ notice in writing

together with the agenda. As for other Board meetings, the Company has also duly observed the requirement of

giving at least 14 days’ notice in writing. Prior to any Board meetings, the Company Secretary and Investor Relations

Department took the initiative to consult the directors in respect of any material matter to be included in the agenda.

Matters discussed in the Board meetings were recorded and compiled with due care by the Company Secretary. The

records (including minutes) of the Board meetings are kept as important files at the premises of the Company, and

have been available to the directors of the Company as and when necessary.

Formal and informal communications between the management and directors of the Company were carried out via

Board meetings and other activities from time to time.

Quarterly reports on the state of affairs of the Company were submitted to all the directors on a quarterly basis. Since

November 2005, such reports have been submitted to all the directors on a monthly basis to ensure all directors are

informed of the material matters of the Company in a timely manner.

Directors’ Responsibilities for Financial Statements

This section, which sets out the responsibilities of directors for financial statements, shall be read in conjunction, but

interpreted in its own context, with the auditor’s report contained in this annual report, in which the auditor’s

responsibility to report is explained.

The directors acknowledge their responsibility for ensuring that the financial statements are properly prepared to

reflect a true and fair view of the Company and of the Group for each financial year.

The directors are of the view that in the preparation of the financial statements, appropriate accounting policies and

relevant accounting principles and the Group are consistently applied and complied with.

Having made reasonable enquiries, the directors are of the view that the Company has sufficient resources to sustain

its operations in the foreseeable future, and that they are not aware of any uncertainty or situation of a material nature

which may affect the Company’s ability to continue as a going concern. Therefore the directors consider that it is

appropriate to prepare the financial statements of the Company on a going concern basis.



Committees under the Board

There are six committees under the Board and each of these committees has their specific terms of reference. Each

of the members of such committees is authorized to make the relevant decisions within the terms of reference of their

respective committees.

(1) Remuneration Committee

The Remuneration Committee of the Company, established in April 2005, comprises two independent non-

executive Directors and one non-executive Director. It is chaired by Mr. Cheng Mo Chi (Chairman), and the

other two members are Mr. Ma Zehua and Mr. Alexander Reid Hamilton.

The Remuneration Committee is mainly responsible for making recommendations to the Board on the

remuneration polices and structures for the Directors and Supervisors of the Company. In addition, the

Remuneration Committee is also responsible for assessing the performance and determining the salary

packages of the management with the reference to the corporate objectives approved by the Board from time

to time. The Remuneration Committee convenes meetings whenever necessary and reports to the Board.

The details of the terms of reference of the Remuneration Committee are set out in the listing prospectus of the

Company, which can be made available for inspection at any time from the Investor Relations Department of

the Company. The Company also intends to post the details of such information on its website

(www.chinacosco.com) in due course.

During the year, the Remuneration Committee held one meeting, on 16 December 2005, which was attended

by all three members and during which the remuneration matters of the senior management of the Company

were discussed. According to the “Management Practices Concerning the Remunerations of the Senior

Management of China COSCO” submitted by the Remuneration Committee to the Board, the remuneration of

the senior management have been linked to the operating performance of the Company.

The Remuneration Committee is provided with forthcoming assistance in discharging its duties by the Human

Resources Department and Investor Relations Department of the Company. Where necessary and subject to

the established procedures, the committee members may also seek independent professional advice with

costs incurred to be borne by the Company.


ANNUAL REPORT 2005

(2) Nomination Committee

The Nomination Committee of the Company, established in April 2005, comprises two independent non-

executive Directors and one non-executive Directors. It is chaired by Mr. Tsao Wen King, Frank and the other

two members are Mr. Wang Futian and Mr. Cheng Mo Chi.

The Nomination Committee is mainly responsible for nominating potential candidates for directorships,

reviewing the nomination of directors and making recommendations to the Board on directorship

appointments. The details of the terms of reference of the Nomination Committee are set out in the listing

prospectus of the Company, which can be made available for inspection at any time from the Investor Relations

Department of the Company. The Company also intends to provide the details of such information on its

website (www.chinacosco.com) in due course.

Under Article 96 of the Articles of Association of the Company, “the proposed directors on the first Board shall

be nominated by the promoters and returned by election in the inaugural meeting of the Company.” The first

Board was formed accordingly. In 2005, although the Nomination Committee did not meet formally, its

members did exchange views on the performance of the members of the Board. The Nomination Committee

will convene meetings whenever necessary and report to the Board.

The Nomination Committee is provided with forthcoming assistance in discharging its duties by the Human

Resources Department and Investor Relations Department of the Company. Where necessary and subject to

the established procedures, the committee members may also seek independent professional advice and any

cost incurred shall be borne by the Company.

(3) Audit Committee

The Audit Committee of the Company, established in April 2005, comprises two independent non-executive

Directors and one non-executive Director. It is chaired by Mr. Alexander Reid Hamilton and the other two

members are Ms. Sun Yueying and Mr. Cheng Mo Chi. All members of the committee are competent and

experienced in understanding, analysing and reviewing the financial reports of listed companies. Mr. Hamilton,

the chairman, was formerly a partner of Pricewaterhouse and left the practice about twenty years ago and

ceased to have an economic interest therein at least five years ago. Neither Mr. Cheng Mo Chi, nor Ms. Sun

Yueying was a partner of the auditors of the Company.

For the year ended 31 December 2005, the Company has been in compliance with the requirements relating to

audit committee under Rule 3.21 of the Listing Rules.



The Audit Committee is mainly responsible for reviewing and monitoring the financial reporting procedures of

the Company. It is also responsible for overseeing all matters in respect of, among other things, the

appointment, remuneration, removal and resignation of auditors. Besides, it is the duty of the audit committee

to review the robustness of the internal control system, including the ongoing review of the effectiveness of

various checks and balances in respect of the corporate structure and business processes of the Company, as

well as considering the existence of any potential risks and the degree of urgency in controlling them to ensure

the smooth business operation and effective implementation of the corporate goals and strategies of the

Company. The scope of review covers finance, operation, legal compliance and risk management. Meanwhile,

the Audit Committee reviews the internal audit plans of the Company and submits reports and

recommendations to the Board from time to time. The details of the terms of reference of the Audit Committee

can be made available for inspection at any time from the Investor Relations Department of the Company. The

Company also intends to post the details of such information on its website (www.chinacosco.com) in due

course.

During the Period, the Audit Committee of the Company had only one meeting, which was attended by all

members as well as the president of the Company and Chief Financial Officer, who were invited to offer advice

on the relevant matters. During the meeting, the Audit Committee reviewed the management, accounting

policies and principles, internal control and financial reports of the Group, including the consolidated interim

financial reports prepared by the Company in accordance with the Hong Kong Financial Reporting Standards.

The minutes, prepared by the Company Secretary and endorsed by the chairman of the Audit Committee, was

sent to the members of the committee within seven days of the meeting.

The Audit Committee is provided with forthcoming assistance in discharging its duties by the Finance

Department and Investor Relations Department of the Company. Where necessary and subject to the

established procedures, the committee members may also seek independent professional advice with costs

incurred to be borne by the Company.


ANNUAL REPORT 2005

(4) Strategic Development Committee

The Strategic Development Committee of the Company, established in April 2005, comprises two independent

non-executive Directors and one non-executive Director. It is chaired by Ms. Li Boxi and the other two

members are Mr. Ma Guichuan and Mr. Tsao Wen King, Frank.

The committee is responsible for considering, evaluating, reviewing and making recommendations to the Board

in respect of proposed major investments, acquisitions and disposals. It is also responsible for conducting

post-investment evaluation of investment projects and for reviewing and considering the overall strategic

direction and business developments of the Company. The details of the terms of reference of the Strategic

Development Committee are set out in the listing prospectus of the Company, which can be made available for

inspection at any time from the Investor Relations Department of the Company. The Company also intends to

post the details of such information on its website in due course.

The Strategic Development Committee is provided with forthcoming assistance in discharging its duties by the

Strategic Development Department and Investor Relations Department of the Company. Where necessary and

subject to the established procedures, the committee members may also seek independent professional advice

and any cost incurred shall be borne by the Company.

(5) Risk Management Committee

The Risk Development Committee of the Company, established in April 2005, comprises two independent non-

executive Directors and one non-executive Director. It is chaired by Mr. Li Jianhong and the other two members

are Ms. Li Boxi and Mr. Tsao Wen King, Frank.

The Risk Development Committee provides independent support to the Board to identify the operational risks

of the Company, monitor and manage these risks, set the direction for the Group’s risk management Strategies

and strengthen the risk management system of the Group. The details of the terms of reference of the Risk

Management Committee are set out in the listing prospectus of the Company, which can be made available for

inspection at any time from the Investor Relations Department of the Company. The Company also intends to

post the details of such information on its website in due course.

The Risk Management Committee is provided with forthcoming assistance in discharging its duties by the

Strategic Development Department, Finance Department and Investor Relations Department of the Company.

Where necessary and subject to the established procedures, the committee members may also seek

independent professional advice with costs incurred to be borne by the Company.



(6) Executive Committee

Under the approval granted in the 9th meeting of the first Board, the Executive Committee of the Company wasestablished in December 2005 to facilitate the business management of the Group in a more efficient andeffective manner. The terms of reference, scope of responsibilities and rules of procedures, applicable to thecommittee, inter alia, have been expressly approved by the Board.

The committee is formed by the directors and senior management of the Company. It is chaired by Mr. WeiJiafu and other members include Mr. Zhang Fusheng, Mr. Chen Hongsheng, Ms. Sun Yueying, Mr. Xu Lirong,Mr. Sun Jiakang, Mr. He Jiale and Mr. Zhang Yongjian. The committee is responsible for reviewing andapproving investment projects within the authority delegated by the Board. Notwithstanding the necessarypowers given to the Executive Committee by the Board, prior written approval of the Board is required forconducting of the major transactions.

The minutes of each meeting of the committee shall be forwarded to all members of the Board within sevendays of the date of the meeting. Resolutions of the Executive Committee are subject to the endorsement at thenext Board meeting subsequent to such resolutions were passed.

Remuneration of Auditors

The Company appointed PricewaterhouseCoopers and BDO Reanda Certified Public Accountants Co., Ltd. as theCompany’s international and PRC auditors on 9 June 2005.

The fees for the audit services, audit-related services and non-audit services provided by the above auditors to theGroup for the period amounted to RMB27,277,000, RMB15,094,000 and RMB2,154,000 respectively.

Internal Control

The Board is responsible for the general internal control of the Group. In order to strengthen its internal control, theCompany, since it was founded, has established a series of codes and regulations, including the “ProvisionalInvestment Management Code for China COSCO Holdings Company Limited”, the “Investment Management Codefor China COSCO Holdings Company Limited”, the “Borrowing and Guarantee Management Code for China COSCOHoldings Company Limited”, the “Code for the Performance Appraisal of the Management of the MemberCompanies of China COSCO”, and the “Regulations Monitoring the Connected Transactions of COSCO ContainerLines Company Limited”. The Company considers that, through overseeing and examining their implementation, thevarious codes and regulations can be effectively inferred thereby generating the effect as desired for improving thestate of affairs of the various businesses of the Company.

The management and directors of the Company held a series of discussions on the effectiveness of the riskmanagement and internal control systems. Mr. Hamilton, the chairman of the Audit Committee, even made a visit tothe headquarters of the Company and to COSCON, a subsidiary of the Company, to discuss with the managementand executives of different functions the internal audit and internal controls of the Company.


ANNUAL REPORT 2005

The Company believes that the constant improvement and effective implementation of its internal control system can

facilitate the timely reaction to potential risks threatening the Company for the better protection of the interests of its

customers and shareholders.

The Board is largely satisfied with the internal control performance of the Company.

Shareholders’ Rights

The Board and the senior management of the Company are well aware of their respective responsibilities to represent

the interests of the shareholders as a whole and to do their best to create better value to the shareholders.

Article 52 of the Articles of Association of the Company expressly provides for the rights of the shareholders. Under

section 8 of the Articles, the right to attend, to receive notices to, and to vote in general meetings and the rules of

procedure for general meetings are specifically set out to safeguard the rights of the shareholders to express their

opinions in general meetings.

The Company has made aggressive efforts to set up multiple communication channels so as to keep its shareholders

informed in a timely manner of its state of affairs:

• Subsequent to its listing on 30 June 2005, the Company announced its interim results on 15 September 2005.

To keep its shareholder updated of its state of affairs, despite the shortness of time, the Company announced

its quarterly operational summary for the third quarter of 2005 on 10 November 2005.

• General meetings, as a means of communications between the directors and the management, and the

shareholders of the Company, are given a high priority by the Company. Therefore, all the directors and senior

management of the Company will try their best to attend every general meeting.

• News and information relevant to the corporate and business affairs of the Company are uploaded onto the

website of the Company from time to time.

• Shareholders may also contact the company secretary through the Investor Relations Department (852-2809

8028, 86-10-6649 2295/6649 2292) or by email at [email protected].



Investor Relations

The Company considers that good investor relations are conducive to the development of a broader access to

financing, which will help reflect the intrinsic value of the business in the share price, thereby creating value to the

shareholders.

In June 2005, under the leadership of the Chairman, Mr. Wei Jaifu, the senior management of the Company

participated in the roadshow world tour for the promotion of the initial public offering of the shares of the Company.

During the period, the executives met hundreds of investors and other parties around the world through, among

others, one-to-one meetings, press release conferences and luncheon meetings.

The Company’s investor relations activities are coordinated by the secretary to the Board, who is a member of the

senior management. Besides, the Investors Relations Department of the Company has been set up to assume the

responsibilities for information disclosure and communications to external parties. Since listed, the Company has

been in strict compliance with the relevant rules and regulations on information disclosure. It has also been striving to

disclose the important news and events of the Company to the public and the investment community the soonest

practicable and to maintain good two-way communications with different sectors via various communication

channels. By way of two-way communications, the Company is able to help the investors and relevant parties to

appreciate the intrinsic value of its business, and to understand the key issues of concern of the investors so as to

further improve the standards of corporate governance of the Company.

The Company maintains contact and communications with, among others, fund managers, analysts and the

business media in a pragmatic and high efficiency manner. During the period under review, the Company successfully

organized numerous management interviews, telephone conferences and visits by analysts and investors. The

Company also actively participated in a number of investor forums held by investment banks to promote its corporate

profile. At the same time, an investor relations webpage was created on the website of the Company

(www.chinacosco.com) to address the enquiries of the investors. In the second half of 2005, the Company met 198

investors and relevant parties in different meetings. Among the figure, 64% were fund managers, 21% analysts and

15% the business media.

Abiding by the principles of high transparency, integrity, fairness and openness, the Company will continue to

maintain smooth communication channels with different sectors. By doing so, the Company will be able to create

better business and shareholders’ value.

2006 will be the first complete year of operation of the Company after its listing in Hong Kong. The Company will

leverage its wealth of experience to respond to changes in regulatory policies and to take into account the comments

of its shareholders so as to keep on improving its corporate governance standards to support the sustainable healthy

growth of the Company.

081

Notice of Annual General Meeting


NOTICE IS HEREBY GIVEN that an annual general meeting of China COSCO Holdings Company Limited (the

“Company”) will be held at 2:30 p.m. on Thursday, 15 June 2006 at Function Room, 47th Floor, COSCO Tower, 183

Queen’s Road Central, Hong Kong for the purposes of considering and, if thought fit, passing the following

resolutions (with or without modifications) as ordinary resolutions of the Company:

AS ORDINARY RESOLUTIONS

1. To consider and approve the report of the board of directors of the Company (the “Board of Directors”) for the

year ended 31 December 2005.

2. To consider and approve the report of the supervisory committee of the Company for the year ended 31

December 2005.

3. To consider and approve the report of the auditors and audited consolidated financial statements of the

Company for the year ended 31 December 2005.

4. To consider and approve the payment of a final dividend for the year 2005 and the profit appropriation proposal

(including making an appropriation to the discretionary surplus reserve) as proposed by the Board of Directors.

5. To consider and approve the re-appointment of PricewaterhouseCoopers as the international auditors and BDO

Reanda Certified Public Accountants as the PRC auditors of the Company to hold office until the conclusion of

the next annual general meeting and to authorize the Board of Directors to fix their remuneration.

And to consider and approve other matters, if any.

By order of the Board of Directors

WEI Jiafu

Chairman

Beijing, the PRC

24 April 2006

Notice of Annual General Meeting


Notes:

1. According to the Articles of Association of the Company, resolutions at general meetings of the Company will be determined

by a show of hands unless a poll is required under the Listing Rules or demanded before or after any vote by show of hands.

A poll may be demanded by the chairman of the meeting or at least two shareholders entitled to vote, present in person or by

proxy, or by one or more shareholders present in person or by proxy representing 10% or more of all shares carrying the

voting rights at the meeting singly or in aggregate. Irrespective of whether the voting is carried out by show of hands or by

poll, the votes counted will be based on the number of shares represented by such votes.

2. The register of members will be closed from 17 May 2006 to 15 June 2006, both days inclusive, during which period no

transfer of shares will be effected. Holders of H shares and domestic shares of the Company whose names appear on the

register of members of the Company on 16 May 2006 at 4:00 p.m. are entitled to attend this meeting.

3. A shareholder entitled to attend and vote at this meeting may appoint one or more proxies to attend and vote in his stead. A

proxy need not to be a shareholder of the Company.

4. The instrument appointing a proxy must be in writing under the hand of a shareholder or his attorney duly authorised in

writing. If the shareholder is a corporation, that instrument must be either under its common seal or under the hand of its

director(s) or duly authorised attorney(s). If that instrument is signed by an attorney of the shareholder, the power of attorney

authorising that attorney to sign or other authorisation document must be notarised.

5. In order to be valid, the form of proxy together with the power of attorney or other authorisation document (if any) must be

deposited at the registered office of the Company for holders of domestic shares and at the Company’s H share registrar,

Computershare Hong Kong Investor Services Limited (address: Units 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s

Road East, Wanchai, Hong Kong) for holders of H shares not less than 24 hours before the time appointed for the holding of

this meeting or any adjournment thereof (as the case may be). Completion and return of a proxy form will not preclude a

shareholder from attending and voting in person at this meeting if he so wishes.

6. Shareholders who intend to attend this meeting in person or by proxy should return the reply slip to the registered office of

the Company for holders of domestic shares and the Company’s H share registrar, Computershare Hong Kong Investor

Services Limited, for holders of H shares not later than 20 days before the date of this meeting, i.e. Friday, 26 May 2006.

7. Shareholders or their proxies attending this meeting shall produce their identity documents.

083

Auditors’ Report


AUDITORS’ REPORT TO THE SHAREHOLDERS OF

CHINA COSCO HOLDINGS COMPANY LIMITED

(incorporated in the People’s Republic of China with limited liability)

We have audited the financial statements on pages 84 to 207 which have been prepared in accordance with accounting

principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing

financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and

applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion

to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for

the contents of this report.

Basis of opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified

Public Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the

financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the

preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the

Company and the Group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in

order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from

material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the

financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion the financial statements give a true and fair view of the state of the affairs of the Company and of the Group as at

31 December 2005 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in

accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 11 April 2006

084

Consolidated Balance SheetAs at 31 December 2005


Note 2005 2004

RMB’000 RMB’000

(Restated)

ASSETS...............................................................................................................................................................................................................................................................................................................................................................................................................

Non-current assets...............................................................................................................................................................................................................................................................................................................................................................................................................

Property, plant and equipment 6 28,376,792 25,462,443...............................................................................................................................................................................................................................................................................................................................................................................................................

Investment properties 7 6,828 13,880...............................................................................................................................................................................................................................................................................................................................................................................................................

Leasehold land and land use rights 8 198,052 155,930...............................................................................................................................................................................................................................................................................................................................................................................................................

Intangible assets 9 148,084 171,234...............................................................................................................................................................................................................................................................................................................................................................................................................

Jointly controlled entities 11 3,264,509 3,048,483...............................................................................................................................................................................................................................................................................................................................................................................................................

Associates 12 4,068,554 3,287,705...............................................................................................................................................................................................................................................................................................................................................................................................................

Available-for-sale financial assets 13 2,233,042 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Investment securities 14 — 610,057...............................................................................................................................................................................................................................................................................................................................................................................................................

Deferred income tax assets 16 63,733 39,593...............................................................................................................................................................................................................................................................................................................................................................................................................

Finance lease receivables 15 30,241 38,518...............................................................................................................................................................................................................................................................................................................................................................................................................

Restricted bank deposits 18 207,711 93,509.........................................................................................................................................................................................................................................................................................................................................................................................

38,597,546 32,921,352.........................................................................................................................................................................................................................................................................................................................................................................................Current assets...............................................................................................................................................................................................................................................................................................................................................................................................................

Inventories 19 536,896 318,409...............................................................................................................................................................................................................................................................................................................................................................................................................

Trade and other receivables 20 4,377,629 6,104,163...............................................................................................................................................................................................................................................................................................................................................................................................................

Current portion of finance lease receivables 15 10,355 10,765...............................................................................................................................................................................................................................................................................................................................................................................................................

Derivative financial assets 17 5,853 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Pledged bank deposits 18 — 346...............................................................................................................................................................................................................................................................................................................................................................................................................

Cash and cash equivalents 18 8,147,375 4,894,532.........................................................................................................................................................................................................................................................................................................................................................................................

13,078,108 11,328,215.........................................................................................................................................................................................................................................................................................................................................................................................

Total assets 51,675,654 44,249,567


ANNUAL REPORT 2005

Note 2005 2004

RMB’000 RMB’000

(Restated)

EQUITY...............................................................................................................................................................................................................................................................................................................................................................................................................

Capital and reserves...............................................................................................................................................................................................................................................................................................................................................................................................................

Share capital 21 6,140,000 4,100,000...............................................................................................................................................................................................................................................................................................................................................................................................................

Reserves 22 11,498,152 3,349,204...............................................................................................................................................................................................................................................................................................................................................................................................................

Proposed final dividend 22 798,200 —.........................................................................................................................................................................................................................................................................................................................................................................................

18,436,352 7,449,204...............................................................................................................................................................................................................................................................................................................................................................................................................

Minority interests 7,508,740 5,953,318.........................................................................................................................................................................................................................................................................................................................................................................................

Total equity 25,945,092 13,402,522.........................................................................................................................................................................................................................................................................................................................................................................................

LIABILITIES...............................................................................................................................................................................................................................................................................................................................................................................................................

Non-current liabilities...............................................................................................................................................................................................................................................................................................................................................................................................................

Long-term borrowings 23 12,369,503 12,249,443...............................................................................................................................................................................................................................................................................................................................................................................................................

Amount due to COSCO 24 — 9,105...............................................................................................................................................................................................................................................................................................................................................................................................................

Other non-current liabilities 25 127,662 105,881...............................................................................................................................................................................................................................................................................................................................................................................................................

Derivative financial liabilities 17 16,199 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Deferred income tax liabilities 16 708,706 804,798.........................................................................................................................................................................................................................................................................................................................................................................................

13,222,070 13,169,227.........................................................................................................................................................................................................................................................................................................................................................................................Current liabilities...............................................................................................................................................................................................................................................................................................................................................................................................................

Trade and other payables 26 7,357,719 11,673,069...............................................................................................................................................................................................................................................................................................................................................................................................................

Short-term loans 27 2,123,108 2,006,761...............................................................................................................................................................................................................................................................................................................................................................................................................

Current portion of long-term borrowings 23 2,196,863 3,580,099...............................................................................................................................................................................................................................................................................................................................................................................................................

Taxes payable 830,802 417,889.........................................................................................................................................................................................................................................................................................................................................................................................

12,508,492 17,677,818.........................................................................................................................................................................................................................................................................................................................................................................................

Total liabilities 25,730,562 30,847,045.........................................................................................................................................................................................................................................................................................................................................................................................

Total equity and liabilities 51,675,654 44,249,567

Net current assets/(liabilities) 569,616 (6,349,603)

Total assets less current liabilities 39,167,162 26,571,749

On behalf of the Board

Wei Jiafu Chen Hongsheng

Director Director

086

Balance SheetAs at 31 December 2005


Note 2005

RMB’000

ASSETS...............................................................................................................................................................................................................................................................................................................................................................................................................

Non-current assets...............................................................................................................................................................................................................................................................................................................................................................................................................

Property, plant and equipment 6 6,219...............................................................................................................................................................................................................................................................................................................................................................................................................

Intangible assets 9 119...............................................................................................................................................................................................................................................................................................................................................................................................................

Subsidiaries 10 6,868,438.........................................................................................................................................................................................................................................................................................................................................................................................

6,874,776.........................................................................................................................................................................................................................................................................................................................................................................................Current assets...............................................................................................................................................................................................................................................................................................................................................................................................................

Trade and other receivables 20 355,033...............................................................................................................................................................................................................................................................................................................................................................................................................

Amounts due from subsidiaries 10 10,761,230...............................................................................................................................................................................................................................................................................................................................................................................................................

Bank balances and cash 18 2,262,888.........................................................................................................................................................................................................................................................................................................................................................................................

13,379,151.........................................................................................................................................................................................................................................................................................................................................................................................

Total assets 20,253,927.........................................................................................................................................................................................................................................................................................................................................................................................

EQUITY...............................................................................................................................................................................................................................................................................................................................................................................................................

Share capital 21 6,140,000...............................................................................................................................................................................................................................................................................................................................................................................................................

Reserves 22 7,519,336...............................................................................................................................................................................................................................................................................................................................................................................................................

Proposed final dividend 22 798,200.........................................................................................................................................................................................................................................................................................................................................................................................

Total equity 14,457,536.........................................................................................................................................................................................................................................................................................................................................................................................

LIABILITIES...............................................................................................................................................................................................................................................................................................................................................................................................................

Current liabilities...............................................................................................................................................................................................................................................................................................................................................................................................................

Trade and other payables 26 1,138,649...............................................................................................................................................................................................................................................................................................................................................................................................................

Amounts due to subsidiaries 10 4,411,050...............................................................................................................................................................................................................................................................................................................................................................................................................

Short-term loans 27 242,106...............................................................................................................................................................................................................................................................................................................................................................................................................

Taxes payable 4,586.........................................................................................................................................................................................................................................................................................................................................................................................

5,796,391.........................................................................................................................................................................................................................................................................................................................................................................................

Total liabilities 5,796,391.........................................................................................................................................................................................................................................................................................................................................................................................

Total equity and liabilities 20,253,927

Net current assets 7,582,760

Total assets less current liabilities 14,457,536

On behalf of the Board

Wei Jiafu Chen Hongsheng

Director Director

087

Consolidated Income StatementFor the year ended 31 December 2005


Note 2005 2004

RMB’000 RMB’000

(Restated)

Turnover 5 39,165,710 32,188,669...............................................................................................................................................................................................................................................................................................................................................................................................................

Cost of services (30,591,050) (25,752,985).........................................................................................................................................................................................................................................................................................................................................................................................

Gross profit 8,574,660 6,435,684...............................................................................................................................................................................................................................................................................................................................................................................................................

Other gains, net 28 179,427 286,910...............................................................................................................................................................................................................................................................................................................................................................................................................

Other operating income 1,026,456 549,084...............................................................................................................................................................................................................................................................................................................................................................................................................

Selling, administrative and general expenses (2,482,193) (1,861,681)...............................................................................................................................................................................................................................................................................................................................................................................................................

Other operating expenses (243,477) (364,281).........................................................................................................................................................................................................................................................................................................................................................................................

Operating profit 29 7,054,873 5,045,716...............................................................................................................................................................................................................................................................................................................................................................................................................

Finance costs 30 (868,393) (639,760).........................................................................................................................................................................................................................................................................................................................................................................................

Operating profit after finance costs 6,186,480 4,405,956...............................................................................................................................................................................................................................................................................................................................................................................................................

Share of profits less losses of...............................................................................................................................................................................................................................................................................................................................................................................................................

- jointly controlled entities 11 601,852 560,731...............................................................................................................................................................................................................................................................................................................................................................................................................

- associates 12 661,918 276,613.........................................................................................................................................................................................................................................................................................................................................................................................

Profit before income tax 7,450,250 5,243,300...............................................................................................................................................................................................................................................................................................................................................................................................................

Income tax expenses 31 (651,319) (285,757).........................................................................................................................................................................................................................................................................................................................................................................................

Profit for the year 6,798,931 4,957,543

Attributable to:...............................................................................................................................................................................................................................................................................................................................................................................................................

Equity holders of the Company 32 5,450,805 4,157,960...............................................................................................................................................................................................................................................................................................................................................................................................................

Minority interests 1,348,126 799,583.........................................................................................................................................................................................................................................................................................................................................................................................

6,798,931 4,957,543

Distributions (in respect of periods prior to listing) 33 3,893,440 3,131,392

Final dividend proposed 33(e) 798,200 N/A

RMB RMB.........................................................................................................................................................................................................................................................................................................................................................................................

Earnings per share for profit attributable to the

equity holders of the Company...............................................................................................................................................................................................................................................................................................................................................................................................................

- basic 34 1.06171 1.01414

- diluted 34 1.05528 1.01414

088

Consolidated Statement of Changes in EquityFor the year ended 31 December 2005


Equityattributable to

the Company’s Minority TotalNote equity holders interests equity

RMB’000 RMB’000 RMB’000

As at 1 January 2005...............................................................................................................................................................................................................................................................................................................................................................................................................

Balance as at 1 January, as previously reported as equity 7,449,204 — 7,449,204...............................................................................................................................................................................................................................................................................................................................................................................................................

Balance as at 1 January, as previouslyseparately reported as minority interests — 5,953,318 5,953,318.........................................................................................................................................................................................................................................................................................................................................................................................

7,449,204 5,953,318 13,402,522...............................................................................................................................................................................................................................................................................................................................................................................................................

Opening adjustments for the adoption of HKFRS 3,HKASs 32, 39 and 39 (Amendment) in respect of:

...............................................................................................................................................................................................................................................................................................................................................................................................................

- Redesignation of investment securities asavailable-for-sale financial assets 1,016,182 923,096 1,939,278

...............................................................................................................................................................................................................................................................................................................................................................................................................

- Recognition of unamortised transactioncosts on bank borrowings and notes 68,633 23,051 91,684

...............................................................................................................................................................................................................................................................................................................................................................................................................

- Recognition of interest rate swap contractsas derivative financial instruments 7,021 6,378 13,399

...............................................................................................................................................................................................................................................................................................................................................................................................................

- Derecognition of negative goodwill 86,243 78,343 164,586...............................................................................................................................................................................................................................................................................................................................................................................................................

- Share of opening adjustments of jointlycontrolled entities and associates 25,664 23,313 48,977

...............................................................................................................................................................................................................................................................................................................................................................................................................

1,203,743 1,054,181 2,257,924.........................................................................................................................................................................................................................................................................................................................................................................................As at 1 January 2005, as restated 8,652,947 7,007,499 15,660,446...............................................................................................................................................................................................................................................................................................................................................................................................................

Fair value gains on available-for-sale financial assets 64,689 59,641 124,330...............................................................................................................................................................................................................................................................................................................................................................................................................

Share of reserves of a jointly controlled entityand associates 8,929 3,151 12,080

...............................................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (393,559) (140,429) (533,988)...............................................................................................................................................................................................................................................................................................................................................................................................................

Net expense recognised directly in equity (319,941) (77,637) (397,578)...............................................................................................................................................................................................................................................................................................................................................................................................................

Profit for the year 5,450,805 1,348,126 6,798,931.........................................................................................................................................................................................................................................................................................................................................................................................Total recognised income for 2005 5,130,864 1,270,489 6,401,353...............................................................................................................................................................................................................................................................................................................................................................................................................

Reserve realised upon disposal of anavailable-for-sale financial asset (261,381) (237,871) (499,252)

...............................................................................................................................................................................................................................................................................................................................................................................................................

Recognition of minority interests in relation tocertain jointly controlled entities reclassifiedto subsidiaries — 71,940 71,940

...............................................................................................................................................................................................................................................................................................................................................................................................................

Increase in equity from minority shareholdersof a subsidiary (10,435) 141,628 131,193

...............................................................................................................................................................................................................................................................................................................................................................................................................

Distributions 33 (3,893,440) — (3,893,440)...............................................................................................................................................................................................................................................................................................................................................................................................................

Dividends paid to minority shareholders of a subsidiary — (745,648) (745,648)...............................................................................................................................................................................................................................................................................................................................................................................................................

Issue of new shares 9,232,683 — 9,232,683...............................................................................................................................................................................................................................................................................................................................................................................................................

Share issue expenses (414,886) — (414,886)...............................................................................................................................................................................................................................................................................................................................................................................................................

Contributions from minority shareholders of subsidiaries — 703 703.........................................................................................................................................................................................................................................................................................................................................................................................

As at 31 December 2005 18,436,352 7,508,740 25,945,092


ANNUAL REPORT 2005

Equity

attributable to

the Company’s Minority Total

Note equity holders interests equity

RMB’000 RMB’000 RMB’000

As at 1 January 2004...............................................................................................................................................................................................................................................................................................................................................................................................................

Balance as at 1 January, as previously reported as equity 1,946,268 — 1,946,268...............................................................................................................................................................................................................................................................................................................................................................................................................

Balance as at 1 January, as previously

separately reported as minority interests — 5,285,448 5,285,448.........................................................................................................................................................................................................................................................................................................................................................................................As at 1 January 2004, as restated 1,946,268 5,285,448 7,231,716...............................................................................................................................................................................................................................................................................................................................................................................................................

Share of reserves of a jointly controlled entity

and associates (596) — (596)...............................................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences 8,414 — 8,414...............................................................................................................................................................................................................................................................................................................................................................................................................

Net income recognised directly in equity 7,818 — 7,818...............................................................................................................................................................................................................................................................................................................................................................................................................

Profit for the year 4,157,960 799,583 4,957,543.........................................................................................................................................................................................................................................................................................................................................................................................

Total recognised income for 2004 4,165,778 799,583 4,965,361...............................................................................................................................................................................................................................................................................................................................................................................................................

Increase in equity from minority shareholders

of a subsidiary (9,221) 274,319 265,098...............................................................................................................................................................................................................................................................................................................................................................................................................

Distributions 33 (3,311,700) — (3,311,700)...............................................................................................................................................................................................................................................................................................................................................................................................................

Disposal of subsidiaries — (2,032) (2,032)...............................................................................................................................................................................................................................................................................................................................................................................................................

Dividends paid to minority shareholders of a subsidiary — (406,732) (406,732)...............................................................................................................................................................................................................................................................................................................................................................................................................

Capital contributions 22(e) 4,658,079 — 4,658,079...............................................................................................................................................................................................................................................................................................................................................................................................................

Contributions from minority shareholders of subsidiaries — 2,732 2,732.........................................................................................................................................................................................................................................................................................................................................................................................

As at 31 December 2004 7,449,204 5,953,318 13,402,522

090

Consolidated Cash Flow StatementFor the year ended 31 December 2005


Note 2005 2004

RMB’000 RMB’000

Cash flows from operating activities...............................................................................................................................................................................................................................................................................................................................................................................................................

Cash generated from operations 37(a) 6,238,672 5,470,868...............................................................................................................................................................................................................................................................................................................................................................................................................

Interest received 176,039 50,763...............................................................................................................................................................................................................................................................................................................................................................................................................

Net cash settlement from interest rate swap contracts 21,168 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Taxation paid (283,562) (83,828).........................................................................................................................................................................................................................................................................................................................................................................................

Net cash from operating activities 6,152,317 5,437,803.........................................................................................................................................................................................................................................................................................................................................................................................

Cash flows from investing activities...............................................................................................................................................................................................................................................................................................................................................................................................................

Purchase of property, plant and equipment (5,820,152) (2,834,198)...............................................................................................................................................................................................................................................................................................................................................................................................................

Purchase of leasehold land and land use rights (40,727) —...............................................................................................................................................................................................................................................................................................................................................................................................................

Purchase of intangible assets (52,017) (16,568)...............................................................................................................................................................................................................................................................................................................................................................................................................

Investments in jointly controlled entities and associates (375,122) (2,884,630)...............................................................................................................................................................................................................................................................................................................................................................................................................

Purchase of available-for-sale financial assets/investment securities (157,490) (109,422)...............................................................................................................................................................................................................................................................................................................................................................................................................

Proceeds from disposal of property, plant and equipment 476,896 1,467,688...............................................................................................................................................................................................................................................................................................................................................................................................................

Proceeds from disposal of investment properties 6,763 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Proceeds from disposal of intangible assets 264 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Net cash outflow from disposal of subsidiaries 37(b) — (13,609)...............................................................................................................................................................................................................................................................................................................................................................................................................

Cash received from disposal of jointly controlled entities and associates 15,596 68,836...............................................................................................................................................................................................................................................................................................................................................................................................................

Cash received from disposal of investment securities — 460...............................................................................................................................................................................................................................................................................................................................................................................................................

Cash received from disposal of available-for-sale financial assets 649,536 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Loans advanced to a jointly controlled entity,

associates and investee companies (312,396) (349,074)...............................................................................................................................................................................................................................................................................................................................................................................................................

Repayments of loans advanced to jointly controlled entities,

associates and investee companies 157,325 214,788...............................................................................................................................................................................................................................................................................................................................................................................................................

Dividends received from jointly controlled entities 433,619 49,571...............................................................................................................................................................................................................................................................................................................................................................................................................

Dividends received from associates 262,912 495,144...............................................................................................................................................................................................................................................................................................................................................................................................................

Dividends received from investment securities — 181,523...............................................................................................................................................................................................................................................................................................................................................................................................................

Dividends received from available-for-sale financial assets 145,149 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Increase in amounts due from COSCO — (2,000,000)...............................................................................................................................................................................................................................................................................................................................................................................................................

Decrease in amounts due to subsidiaries of COSCO (2,891,597) —...............................................................................................................................................................................................................................................................................................................................................................................................................

(Increase)/decrease in restricted bank deposits (113,856) 7,489.........................................................................................................................................................................................................................................................................................................................................................................................

Net cash used in investing activities (7,615,297) (5,722,002).........................................................................................................................................................................................................................................................................................................................................................................................


ANNUAL REPORT 2005

Note 2005 2004

RMB’000 RMB’000

Cash flows from financing activities 37(d)...............................................................................................................................................................................................................................................................................................................................................................................................................

Drawdown of long-term borrowings 6,248,448 6,745,461...............................................................................................................................................................................................................................................................................................................................................................................................................

Repayment of long-term borrowings (6,733,031) (5,675,919)...............................................................................................................................................................................................................................................................................................................................................................................................................

Capital element of finance lease obligations — (5,104)...............................................................................................................................................................................................................................................................................................................................................................................................................

Interest element of finance lease obligations — (2,029)...............................................................................................................................................................................................................................................................................................................................................................................................................

Decrease in amount payable to a bank — (1,000,000)...............................................................................................................................................................................................................................................................................................................................................................................................................

Decrease in amounts due to fellow subsidiaries — (768,899)...............................................................................................................................................................................................................................................................................................................................................................................................................

Decrease in amounts due to parent company (9,105) (338,788)...............................................................................................................................................................................................................................................................................................................................................................................................................

Decrease in amount due to a fellow subsidiary under current liabilities — (237,470)...............................................................................................................................................................................................................................................................................................................................................................................................................

Proceeds from exercise of share options of a subsidiary by grantees 179,901 343,628...............................................................................................................................................................................................................................................................................................................................................................................................................

Distributions (2,099,419) (421,810)...............................................................................................................................................................................................................................................................................................................................................................................................................

Contributions — 3,038,628...............................................................................................................................................................................................................................................................................................................................................................................................................

Dividends paid to minority shareholders of subsidiaries (753,568) (406,732)...............................................................................................................................................................................................................................................................................................................................................................................................................

Contributions from minority shareholders of subsidiaries 703 2,732...............................................................................................................................................................................................................................................................................................................................................................................................................

Interest paid (805,871) (503,359)...............................................................................................................................................................................................................................................................................................................................................................................................................

Other incidental borrowing costs and charges paid (34,083) (72,719)...............................................................................................................................................................................................................................................................................................................................................................................................................

Proceeds from issue of new H shares 9,232,683 —...............................................................................................................................................................................................................................................................................................................................................................................................................

Share issue expenses (414,886) —.........................................................................................................................................................................................................................................................................................................................................................................................

Net cash from financing activities 4,811,772 697,620.........................................................................................................................................................................................................................................................................................................................................................................................

Net increase in cash and cash equivalents 3,348,792 413,421...............................................................................................................................................................................................................................................................................................................................................................................................................

Cash and cash equivalents at 1 January 4,894,532 4,495,145...............................................................................................................................................................................................................................................................................................................................................................................................................

Translation differences on cash and cash equivalents (95,949) (14,034).........................................................................................................................................................................................................................................................................................................................................................................................

Cash and cash equivalents at 31 December 18 8,147,375 4,894,532

092



1 General information and Reorganisation

China COSCO Holdings Company Limited (the “Company”) was incorporated in the People’s Republic of China (the “PRC”)

on 3 March 2005 as a joint stock company with limited liability under the Company Law of the PRC. The address of its

registered office is Ocean Plaza, 12th Floor, 158 Fuxingmennei Street, Beijing 100031, the PRC. As part of the restructuring

of China Ocean Shipping (Group) Company (“COSCO”) and its subsidiaries, (collectively “COSCO Group”), COSCO

underwent a group reorganisation (the “Reorganisation”), as detailed below, in preparation for a listing of the Company’s H

shares on the Main Board of The Stock Exchange of Hong Kong Limited (the “Main Board”).

The Company and its subsidiaries (collectively the “Group”) provides integrated container shipping services to international

and domestic customers. The Group’s businesses include the provisions of a range of container shipping, container

terminal, container leasing and freight forwarding and shipping agency services all over the world.

Pursuant to the Reorganisation, the Company issued 4,100,000,000 non-publicly tradable State-owned legal person

shares (“Domestic Shares”) of RMB1.00 per share in exchange for the equity interests of certain subsidiaries, jointly

controlled entities and associates (collectively the “Relevant Companies”) transferred to the Company by COSCO Group.

The Reorganisation comprised mainly the following:

(a) Transfer of the equity interests in COSCO International Freight Co., Ltd, COSCO Container Shipping Agency

Company Limited, Shanghai Pan Asia Shipping Company Limited (“Pan Asia”), and certain overseas companies and

their respective subsidiaries, jointly controlled entities and associates from COSCO Group to COSCO Container Lines

Company Limited (“COSCON”). The equity interests in the PRC companies were transferred at cash consideration

totalling RMB5,000,000 and the equity interests for the overseas companies were transferred at cash consideration

totalling RMB62,743,000.

(b) Transfer of the entire equity interest in COSCO Investments Limited (“COSCO Investments”), and the then 52.39%

equity interest in COSCO Pacific Limited (“COSCO Pacific”) (of which approximately 9.6% were directly held by

COSCO Investments) and its respective subsidiaries, jointly controlled entities and associates from COSCO (Hong

Kong) Group Limited (“COSCO HK”), a wholly owned subsidiary of COSCO, to COSCO Pacific Investment Holdings

Limited (“COSCO Pacific Investment”) at a total consideration of approximately US$347,285,000 (equivalent to

approximately RMB2,874,478,000). The consideration included a shareholder loan due from COSCO Investments to

COSCO HK of approximately US$196,490,000 (equivalent to approximately RMB1,626,348,000) and was settled in

cash by COSCO Pacific Investment.

Prior to the transfer of the entire interest in COSCO Investments from COSCO Group to COSCO Pacific Investment,

COSCO Investments disposed of all of its investments other than the equity interests in COSCO Pacific to two

subsidiaries of COSCO HK at a consideration of US$203,357,000 (equivalent to approximately RMB1,683,185,000).

The disposal resulted in a gain of approximately RMB1,428,385,000 and was accounted for as a deemed

contribution from COSCO for the year ended 31 December 2004 (note 22(e)).

(c) The entire equity interests in COSCON and COSCO Pacific Investment after the equity transfers described above

were injected into the Company by COSCO in exchange for Domestic Shares issued by the Company upon

incorporation.


ANNUAL REPORT 2005

1 General information and Reorganisation (Continued)

(d) Transfer of the equity interests in, and assets and liabilities of, certain overseas companies from COSCO Group to

certain overseas subsidiaries of COSCON at cash consideration totalling RMB175,988,000.

The Reorganisation was completed in March 2005. Accordingly, the Company became the holding company of the

companies now comprising the Group.

The H shares of the Company were listed on the Main Board on 30 June 2005 (the “Listing Date”). Details of movements in

the Company’s share capital are set out in note 21 to the consolidated financial statements.

The directors of the Company (the “Directors”) regard COSCO, a state-owned enterprise established in the PRC, as being

the Company’s parent company (note 40).

These consolidated financial statements have been approved for issue by the board of directors on 11 April 2006.

2 Summary of significant accounting policies

(a) Basis of preparation

The Group resulting from the Reorganisation referred in note 1 above is regarded as a continuing entity. Accordingly,

the consolidated financial statements for the year ended 31 December 2005 (the “Consolidated Financial

Statements”), including comparative figures, have been prepared on the merger basis as if the Company had been

the holding company of those companies comprising the Group throughout the two years ended 31 December 2004

and 2005 presented, or since their respective dates of incorporation/establishment or from the effective dates of

acquisition/up to the effective dates of disposal, whichever is the shorter period.

These Consolidated Financial Statements have been prepared in accordance with Hong Kong Financial Reporting

Standards (“HKFRSs”) issued by Hong Kong Institute of Certified Public Accountants (“HKICPA”). The Consolidated

Financial Statements have been prepared under the historical cost convention, except that, as disclosed in the

accounting policies below, available-for-sale financial assets and derivative financial assets and financial liabilities are

stated at fair value.

The preparation of the Consolidated Financial Statements in conformity with HKFRSs requires the use of certain

critical accounting estimates. It also requires management to exercise its judgement in the process of applying the

Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where

assumptions and estimates are significant to the Consolidated Financial Statements, are disclosed in note 4.

094



2 Summary of significant accounting policies (Continued)

(b) Changes in significant accounting policies

In 2005, the Group adopted the new/revised HKFRSs below, which are relevant to its operations. The comparative

figures in respect of 2004 have been amended as required, in accordance with the relevant requirements.

HKAS 1 Presentation of Financial Statements

HKAS 2 Inventories

HKAS 7 Cash Flow Statements

HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

HKAS 10 Events after the Balance Sheet Date

HKAS 16 Property, Plant and Equipment

HKAS 17 Leases

HKAS 21 The Effects of Changes in Foreign Exchange Rates

HKAS 23 Borrowing Costs

HKAS 24 Related Party Disclosures

HKAS 27 Consolidated and Separate Financial Statements

HKAS 28 Investments in Associates

HKAS 31 Investments in Joint Ventures

HKAS 32 Financial Instruments: Disclosure and Presentation

HKAS 33 Earnings per Share

HKAS 36 Impairment of Assets

HKAS 37 Provisions, Contingent Liabilities and Contingent Assets

HKAS 38 Intangible Assets

HKAS 39 Financial Instruments: Recognition and Measurement

HKAS 39 (Amendment) Transition and Initial Recognition of Financial Assets and Financial Liabilities

HKAS 40 Investment Property

HKFRS 2 Share-based Payment

HKFRS 3 Business Combinations

HKAS-Int 12 Consolidation - Special Purpose Entities

HKAS-Int 12 (Amendment) Scope of HKAS- Int 12 Consolidation – Special Purpose Entities

HKAS-Int 15 Operating Leases - Incentives

HKAS-Int 21 Income Taxes - Recovery of Revalued Non-Depreciable Assets


ANNUAL REPORT 2005


(b) Changes in significant accounting policies (Continued)

The overall effects of the adoption of the new/revised HKFRSs are to increase the opening equity (including minority

interests) as at 1 January 2005 by RMB2,257,924,000, the profit for the year ended 31 December 2005 by

RMB534,780,000 and net assets as at 31 December 2005 by RMB2,079,372,000. There was no significant impact

on the profit for the year ended 31 December 2004 following the adoption of the new/revised HKFRSs. Summary of

the effects of adopting the new/revised HKFRSs and the earnings per share for profit attributable to the equity

holders of the Company are set out in note 2(b)(x) to the Consolidated Financial Statements. The major changes in

the Group’s significant accounting policies or the presentation of financial statements as a result of the adoption of

these new/revised HKFRSs are summarised as below:

(i) HKAS 1

The adoption of HKAS 1 has mainly resulted in the following presentational change in the Group’s financial

statements:

(1) minority interests are now required to be shown within the Group’s equity. On the face of the consolidated

income statement, minority interests are presented as an allocation of the total profit or loss for the year;

(2) the Group’s share of profits less losses (net of income taxes) of jointly controlled entities and associates

are required to be presented on the face of the consolidated income statement; and

(3) investment properties are now required to be presented on the face of consolidated balance sheet.

(ii) HKAS 16

Under HKAS 16, when a vessel is acquired, the costs of major components which are usually replaced or

renewed in connection with the dry-docking are identified and depreciated over the period to next estimated

dry-docking date. Costs incurred on subsequent dry-docking of a vessel are capitalised and depreciated over

the period to the next estimated dry-docking date. Dry-docking costs were previously charged to the

consolidated income statement when incurred.

This represents a change in accounting policy. However, as the resulting impact of this change is not material

as a whole, this change has not been applied for retrospectively and a prior year adjustment has not been

made.

The residual values and the useful lives of property, plant and equipment are now required to be reviewed and

adjusted, if appropriate, at each financial year end.

The Directors have reviewed the residual values of vessels and containers, and accordingly, depreciation charge

of vessels and containers for the year ended 31 December 2005 has been calculated based on the revised

estimated residual values. This represents a change in accounting estimate. The change has been accounted

for prospectively.

The Directors have reviewed the residual values of other property, plant and equipment and useful lives of

property, plant and equipment and do not consider that there are significant changes from the previous

estimates.

096





(iii) HKAS 17

The adoption of revised HKAS 17 has resulted in a change in accounting policy relating to reclassification of

leasehold land and land use rights from property, plant and equipment and investment properties to operating

leases. The up-front prepayments made for the leasehold land and the land use rights are expensed in the

consolidated income statement on a straight-line basis over the period of the lease or where there is

impairment, the impairment is charged to the consolidated income statement. In prior years, the leasehold land

and land use rights were stated at cost less accumulated depreciation and impairment losses while the

leasehold land as included in investment properties was stated at valuation.

Since the resulting impact of this change is not material as a whole, it has not been applied retrospectively and

a prior year adjustment has not been made.

(iv) HKAS 21

HKAS 21 requires items included in the financial statements of each of the Group’s entities are measured using

the currency of the primary economic environment in which the entity operates (the “functional currency”). The

Company’s functional currency is United States Dollar (“US dollar” or “US$”). The Consolidated Financial

Statements are presented in Renminbi (“RMB”).

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at

the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such

transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated

in foreign currencies are recognised in the income statement.

Translation differences on monetary and non-monetary items are included in the income statement and reserve

respectively.

This represents a change in accounting policy. However, as the resulting impact of this change is not material

as a whole, this change has not been applied retrospectively and a prior year adjustment has not been made.

(v) HKAS 24

HKAS 24 has extended the identification and disclosure of related parties to include state-owned enterprises.

Related parties include COSCO and its subsidiaries, other state-owned enterprises and their subsidiaries

directly or indirectly controlled by the PRC government, other entities and corporations in which the Company is

able to control or exercise significant influence and key management personnel of the Group and COSCO as

well as their close family members.


ANNUAL REPORT 2005



(vi) HKAS 32, HKAS 39 and HKAS 39 (Amendment)

The adoption of HKASs 32, 39 and HKAS 39 (Amendment) has resulted in changes in the accounting policies

relating to the following:

(1) the Group’s investment securities which were previously stated at cost less provision for impairment

losses are now redesignated as available-for-sale financial assets and carried in the balance sheet at their

fair values. The amount, being the difference between the fair values of these available-for-sale financial

assets and their previous carrying amounts as at 31 December 2004, was credited to the Group’s

opening equity as at 1 January 2005;

(2) the interest rate swap contracts as entered into between the Group and certain financial institutions are

now classified as derivative financial assets/liabilities and recognised in the balance sheet at their

respective fair values. In prior years, derivative financial assets/liabilities were not required to be

recognised in the balance sheet pursuant to the Statements of Standard Accounting Practice issued by

the HKICPA. The recognition of interest rate swap contracts at their fair values as at 1 January 2005 has

resulted in a net increase in the Group’s opening equity as at 1 January 2005;

In addition, the Group has adopted hedge accounting when the hedging relationship between the interest

rate swap contracts with notional principal amounts of US$200,000,000 and the notes as issued by the

Group (note 23(d)) was fully designated and documented. The effect of the application of hedge

accounting is to reduce the fair value loss on interest rate swap contracts for the year ended 31

December 2005; and

(3) the Group’s borrowings or notes which were previously stated at their original carrying amounts are now

required to be stated initially at their fair values, net of transaction costs incurred, and then subsequently

stated at amortised cost. The unamortised transaction costs in respect of these borrowings and notes as

at 31 December 2004, which were previously expensed as incurred, are included in the related

borrowings or notes by a corresponding credit adjustment to the Group’s opening equity as at 1 January

2005.

As HKAS 39 does not permit to recognise, derecognise and measure financial assets and liabilities on a

retrospective basis, all the related financial impact on the Consolidated Financial Statements are reflected as

opening adjustments to the Group’s equity as at 1 January 2005 and accordingly, the comparative figures as

presented in the Consolidated Financial Statements have not been restated.

098





(vii) HKAS 40

The adoption of revised HKAS 40 has resulted in a change in accounting policy for the Group’s investment

properties. Until 31 December 2004, the investment properties were carried at valuation. In accordance with

the provision of HKAS 40, the Group opted for the cost model and the investment properties are carried at cost

less accumulated depreciation and impairment. The net book value of investment properties as at 31

December 2004 was deemed as the cost on 1 January 2005. Any adjustments, including the reclassification of

any amount previously held in revaluation reserve for investment properties, are made to the opening balance of

retained profits. Depreciation on deemed cost commences in 2005 accordingly.

As at 31 December 2004, the valuation of investment properties was less than their original cost and the

revaluation deficits had already been charged to the income statement in prior years and there was no

investment property revaluation reserve. Consequently, no adjustment on opening equity is required.

(viii) HKFRS 2

The adoption of HKFRS 2 has resulted in a change in the accounting policy for share-based payments.

One of the Group’s subsidiaries operates an equity-settled, share-based compensation plan. Until 31

December 2004, the provision of share options granted by the subsidiary to the Group’s employees did not

result in expense in the income statement. With effect from 1 January 2005, the fair value of the employee

services received in exchange for the grant of the share options of the subsidiary is recognised as an expense.

The total amount to be expensed is determined by reference to the fair value of the share options granted by

the subsidiary.

As all the share options previously granted by the subsidiary were vested on or before 1 January 2005 and

accordingly, no adjustment is made in the Consolidated Financial Statements pursuant to the transitional

provisions as set out in HKFRS 2.


ANNUAL REPORT 2005



(ix) HKFRS 3

The adoption of HKFRS 3 has resulted in a change in the accounting policy for goodwill and negative goodwill.

In prior years, goodwill or negative goodwill on acquisitions of subsidiaries, jointly controlled entities or

associates on or after 1 January 2001 was:

- Amortised on a straight-line basis over its estimated useful life of not exceeding 20 years; and

- Assessed for impairment on goodwill at each balance sheet date.

In accordance with the provisions of HKFRS 3:

- The Group ceased amortisation of goodwill with effect from 1 January 2005;

- Accumulated amortisation of goodwill as at 31 December 2004 has been eliminated with a corresponding

decrease in the cost of goodwill;

- Goodwill is tested annually for impairment, as well as when there is indication of impairment; and

- The carrying amount of negative goodwill as at 31 December 2004 is derecognised and reflected as an

adjustment to the Group’s opening equity as at 1 January 2005.

Upon the adoption of HKFRS 3, the derecognition of a negative goodwill from the acquisition of an associate

was credited to the Group’s opening equity as at 1 January 2005 in accordance with HKFRS 3.

The adoption of HKASs 2, 7, 8, 10, 23, 27, 28, 31, 33, 36, 37, 38, HKAS-Ints 12, 12 (Amendment), 15 and 21 did

not result in any significant change to the Group’s significant accounting policies and the presentation of the

Consolidated Financial Statements.

100





(x) Summary of effects on adopting new/revised HKFRSs

The following tables set out the effects of adopting the new/revised HKFRSs on the Consolidated Financial

Statements.

(a) Consolidated balance sheet at 31 December 2005

Effect of adopting

HKASs 32,

39 & 39

HKAS 1 HKAS 16 HKAS 17 (Amendment) HKAS 40 HKFRS 3 Total

Property, Plant

Presentation and Equipment

of Financial Dry-docking Residual Financial Investment Business

Statements costs values Leases Instruments Property Combinations

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Increase/(decrease) in net assets:..........................................................................................................................................................................................................................................................................................................................................................

Assets..........................................................................................................................................................................................................................................................................................................................................................

Property, plant and equipment (6,828 ) 37,823 184,297 (167,918 ) — — — 47,374..........................................................................................................................................................................................................................................................................................................................................................

Investment properties 6,828 — — — — (4,393 ) — 2,435..........................................................................................................................................................................................................................................................................................................................................................

Leasehold land and land use

rights — — — 198,052 — — — 198,052..........................................................................................................................................................................................................................................................................................................................................................

Jointly controlled entities — — — — 2,704 — 20,886 23,590..........................................................................................................................................................................................................................................................................................................................................................

Associates — — — — 33,322 — 158,031 191,353..........................................................................................................................................................................................................................................................................................................................................................

Available-for-sale financial assets — — — — 2,233,042 — — 2,233,042..........................................................................................................................................................................................................................................................................................................................................................

Investment securities — — — — (710,415 ) — — (710,415 )..........................................................................................................................................................................................................................................................................................................................................................

Derivative financial assets — — — — 5,853 — — 5,853..........................................................................................................................................................................................................................................................................................................................................................

Trade and other receivables — — — — 9,410 — — 9,410..........................................................................................................................................................................................................................................................................................................................................................

Liabilities..........................................................................................................................................................................................................................................................................................................................................................

Derivative financial liabilities — — — — (16,197 ) — — (16,197)..........................................................................................................................................................................................................................................................................................................................................................

Deferred income tax liabilities — (5,472 ) (23,083 ) — — — — (28,555 )..........................................................................................................................................................................................................................................................................................................................................................

Long-term borrowings — — — — 123,430 — — 123,430.................................................................................................................................................................................................................................................................................................................................................

Net assets — 32,351 161,214 30,134 1,681,149 (4,393 ) 178,917 2,079,372

The adoption of HKFRS 3, HKASs 32, 39 and 39 (Amendment) do not require the restatement of the

comparative figures of the relevant balance sheet items. All the related financial effects of RMB2,257,924,000

on the consolidated balance sheet as at 31 December 2004 are reflected as opening adjustments to the

Group’s equity as at 1 January 2005. In addition, since the resulting impact of adoption of HKASs 16, 17 and

21 are not material as a whole, this change has not been applied retrospectively and prior year adjustments

have not been made. Accordingly, the consolidated balance sheet as at 31 December 2004 has not been

separately presented.


ANNUAL REPORT 2005



(x) Summary of effects on adopting new/revised HKFRSs (Continued)

(b) Consolidated income statement for the year ended 31 December 2005

Effect of adopting

HKASs 32,

39 & 39

HKAS 1 HKAS 16 HKAS 17 HKAS 21 (Amendment) HKAS 40 HKFRS 3 Total

Property, Plant

Presentation and Equipment Foreign

of Financial Dry-docking Residual Currency Financial Investment Business

Statements costs values Leases Translation Instruments Property Combinations

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Decrease in cost of services — 110,059 — — — — — — 110,059..........................................................................................................................................................................................................................................................................................................................................................

Increase in other gains, net — — — — 284,130 18,673 — — 302,803..........................................................................................................................................................................................................................................................................................................................................................

Decrease/(increase) in

depreciation and amortisation — (72,236 ) 184,297 30,134 — — (289 ) — 141,906..........................................................................................................................................................................................................................................................................................................................................................

Decrease in other operating income — — — — — — (4,104 ) — (4,104 )..........................................................................................................................................................................................................................................................................................................................................................

(Decrease)/increase in share

of profits less losses of..........................................................................................................................................................................................................................................................................................................................................................

- jointly controlled entities (101,599 ) — — — — (4,029 ) — 21,195 (84,433 )..........................................................................................................................................................................................................................................................................................................................................................

- associates (31,833 ) — — — — 467 — (5,487 ) (36,853 )..........................................................................................................................................................................................................................................................................................................................................................

Decrease in finance costs — — — — — 525 — — 525..........................................................................................................................................................................................................................................................................................................................................................

Decrease/(increase) in income tax expenses 133,432 (5,472 ) (23,083 ) — — — — — 104,877.................................................................................................................................................................................................................................................................................................................................................

Increase/(decrease) in profit for the year — 32,351 161,214 30,134 284,130 15,636 (4,393 ) 15,708 534,780

Increase/(decrease) in earnings per share..........................................................................................................................................................................................................................................................................................................................................................

- basic (RMB cents) — 0.63 2.83 0.31 5.53 0.16 (0.09 ) 0.16 9.53.................................................................................................................................................................................................................................................................................................................................................

- diluted (RMB cents) — 0.63 2.81 0.30 5.50 0.16 (0.09 ) 0.16 9.47

No adjustment was made to the consolidated income statement for the year ended 31 December 2004

following the adoption of the new/revised HKFRSs, except that HKAS 1 affected the presentation of minority

interests, share of net after-tax results of jointly controlled entities, associates and other disclosures for that

year. Accordingly, the effect of adopting the new/revised HKFRSs on the consolidated income statement for the

year ended 31 December 2004 has not separately disclosed and presented.

102




(c) Standards, interpretation and amendments to be published that are not yet effective for the year ended 31 December

2005

The HKICPA has issued the following new standards, amendments and interpretations which are not yet effective for

the year ended 31 December 2005:

Effective for accounting

periods beginning

on or after

HKFRS Interpretation 4 “Determining whether an

Arrangement contains a Lease” 1 January 2006

HKAS 19 (Amendment), “Employee Benefits - Actuarial Gains

and Losses, Group Plans and Disclosures” 1 January 2006

HKAS 39 (Amendment), “Financial Instruments: Recognition

and Measurement”:

- The Fair Value Option 1 January 2006

- Cash Flow Hedge Accounting of Forecast Intragroup

Transactions 1 January 2006

- Financial Guarantee Contracts 1 January 2006

Amendments, as a consequence of the Hong Kong

Companies (Amendment) Ordinance 2005, to:

- HKAS 1 “Presentation of Financial Statements” 1 January 2006

- HKAS 27 “Consolidated and Separate Financial Statements” 1 January 2006

- HKFRS 3 “Business Combinations” 1 January 2006

HKFRS 7 “Financial Instruments: Disclosures” 1 January 2007

HKAS 1 (Amendment) “Presentation of Financial Statements:

Capital Disclosures” 1 January 2007

The Group has not early adopted the above standards, amendments and interpretations in the Consolidated

Financial Statements. The Group has already commenced an assessment of the related impact to the Group but is

not yet in a position to state whether substantial changes to Group’s accounting policies and presentation of the

Consolidated Financial Statements will be resulted.


ANNUAL REPORT 2005


The significant accounting policies applied in the preparation of the Consolidated Financial Statements are set out

below.

(d) Group accounting

The Consolidated Financial Statements include the financial statements of the Company and all its subsidiaries made

up to 31 December.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-

consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group, other than

those subsidiaries acquired pursuant to the Reorganisation (notes 1 and 2(a)). The cost of an acquisition is measured

as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of

exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent

liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,

irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the

Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the

fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Investment in a jointly controlled entity/an associate is accounted for using the equity method from the date on which

it becomes a jointly controlled entity/an associate. The measurement and recognition of goodwill is same as that of

goodwill arising from the acquisition of subsidiaries. Goodwill relating to a jointly controlled entity/an associate is

included in the carrying amount of the investment. Appropriate adjustments to the investor’s share of the profits or

losses after acquisition are made to the consolidated financial statements based on their fair values at the date of

acquisition.

The consolidated income statement includes the Group’s share of the results of jointly controlled entities and

associates for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the jointly

controlled entities and associates and goodwill (net of any accumulated impairment losses) on acquisition.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other

unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made

payments on behalf of the associate.

Intercompany transactions and balances between group companies are eliminated. Unrealised gains on transactions

between group companies and between the Group and its jointly controlled entities and associates to the extent of

the Group’s interest are eliminated. Unrealised losses are also eliminated but (considered an impairment indicator)

unless the transaction provides evidence of an impairment of the asset transferred.

Accounting policies of subsidiaries, jointly controlled entities and associates have been changed where necessary to

ensure consistency with the policies adopted by the Group.

104




(d) Group accounting (Continued)

(i) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern

the financial and operating policies generally accompanying a shareholding of more than one half of the voting

rights. The existence and effect of potential voting rights that are currently exercisable or convertible are

considered when assessing whether the Group controls another entity.

In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment

losses. The results of subsidiaries are accounted by the Company on the basis of dividend income.

(ii) Jointly controlled entities

A jointly controlled entity is a joint venture established as a corporation, partnership or other entity in which the

ventures have their respective interests and establish a contractual arrangement among them to define joint

control over the economic activity of the entity.

(iii) Associates

Associates are all entities over which the Group has significant influence but not control, generally

accompanying a shareholding of between 20% and 50% of the voting rights.

(e) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the

primary economic environment in which the entity operates (the “functional currency”). The Company’s

functional currency is US dollar and its consolidated financial statements are presented in RMB. Presentation

currency is different from the Company’s functional currency because the Company is a PRC incorporated

company which is required to present its financial statements in RMB.


ANNUAL REPORT 2005


(e) Foreign currency translation (Continued)

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at

the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such

transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated

in foreign currencies are recognised in the consolidated income statement, except when deferred in equity as

qualifying cash flow hedges or qualifying net investment hedges.

Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale

are analysed between translation differences resulting from changes in the amortised cost of the securities, and

other changes in the carrying amount of the securities. Translation differences are recognised in the income

statement, and other changes in carrying amount are recognised in equity.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain

or loss. Translation differences on non-monetary financial assets and liabilities are recognised in profit or loss as

part of the fair value gain or loss. Translation differences on non-monetary financial assets are included in equity.

(iii) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary

economy) that have a functional currency different from the presentation currency are translated into the

presentation currency as follows:

(1) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that

balance sheet;

(2) income and expenses for each income statement are translated at average exchange rates (unless this

average is not a reasonable approximation of the cumulative effect of the rates prevailing on the

transaction dates, in which case income and expenses are translated at the dates of the transactions);

and

(3) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations,

and of borrowings and other currency instruments designated as hedges of such investments, are taken to

equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in

the income statement as part of the gain or loss on sale

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and

liabilities of the foreign entity and translated at the closing rate.

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(f) Property, plant and equipment

(i) Assets under construction

Assets under construction represent primarily vessels and buildings under construction, and plant and

equipment pending installation and are stated at cost less accumulated impairment losses. Cost includes all

direct costs relating to the construction of the assets and acquisition.

No depreciation is provided for assets under construction until such time as the relevant assets are completed

and ready for intended use. Assets under construction are transferred to relevant categories of property, plant

and equipment upon the completion of their respective construction.

(ii) Container vessels and containers

Container vessels and containers are stated at cost less accumulated depreciation and impairment losses.

Container vessels and containers are depreciated on a straight-line basis on an anticipated useful life of 25

years and 12 to 15 years respectively, after taking into account the estimated residual values. Cost incurred in

replacing or renewing the separate assets (dry-docking costs) of container vessels are capitalised and

depreciated on a straight-line basis over the estimated period until the next dry-docking (note 2(b)(ii)).

(iii) Other property, plant and equipment

Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Other property, plant and equipment are depreciated at rates sufficient to write off their costs less accumulated

impairment losses over their estimated useful lives to their respective residual values estimated by the Directors

on a straight-line basis. The estimated useful lives of these assets are summarised as follows:

Buildings 25 to 50 years

Trucks, chassis and motor vehicles 5 to 10 years

Computer and office equipment 3 to 5 years

Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs

are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is

probable that future economic benefits associated with the item will flow to the Group and the cost of the item

can be measured reliably. All other repairs and maintenance are expensed in the income statement during the

period in which they are incurred.

The residual values of the property, plant and equipment and their useful lives are reviewed and adjusted, if

appropriate, at each financial year end. An asset’s carrying amount is written down immediately to its

recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds

and the carrying amount of the relevant asset, and is recognised in the income statement.


ANNUAL REPORT 2005


(g) Leasehold land and land use rights

Leasehold land and land use rights represent prepaid operating lease payments for land less accumulated

amortisation and any impairment losses. Amortisation is calculated using the straight-line method to allocate the

prepaid operating lease payments for land over the remaining lease term.

(h) Investment properties

Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the

companies in the consolidated group, is classified as investment property.

Investment properties are stated at cost less accumulated depreciation and impairment losses. The cost less

accumulated impairment and residual values of investment properties are depreciated on a straight-line basis over

their estimated useful lives of 25 to 50 years (note 2(b)(vii)).

(i) Intangible assets

(i) Goodwill

Goodwill represents the excess of purchase consideration over the fair value of the Group’s share of the net

identifiable assets of subsidiaries, jointly controlled entities and associates acquired at the date of acquisition.

Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of jointly

controlled entities and associates is included in investments in jointly controlled entities and associates

respectively.

Goodwill is tested annually or when an indication of impairment exists for impairment and carried at cost less

accumulated impairment losses. Impairment loss on goodwill are not reversed. Gains and losses on the

disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to

cash-generating units for the purpose of impairment testing.

(ii) Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to

use the specific software. These costs are amortised over their estimated useful lives of 5 years on a straight-

line basis.

Costs associated with developing or maintaining computer software programmes are recognised as an

expense as incurred. Costs that are directly associated with the production of identifiable and unique software

products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond

one year, are recognised as intangible assets. Direct costs include the software development employee costs

and an appropriate portion of relevant overheads.

Computer system under development are transferred to computer software upon the completion of the

respective development and amortisation will then be commenced accordingly over the estimated useful lives

of 5 years on a straight-line basis.

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(j) Impairment of assets

Assets that have an indefinite useful life are at least tested annually for impairment and are reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that

are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in

circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the

amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher

of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are

grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-

financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment

at each reporting date.

(k) Assets under leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessors are accounted for

as operating leases. Leases that substantially transfer to the lessees all the risks and rewards of ownership of assets

are accounted for as finance leases.

(i) Where the company is the lessee

(1) Operating leases

Payments made under operating leases (net of any incentives received from the leasing company) are

expensed in the income statement on a straight-line basis over the lease periods.

(2) Finance leases

Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased

assets or the present value of the minimum lease payments. Each lease payment is allocated between

the capital and finance charges so as to achieve a constant rate on the capital balances outstanding. The

corresponding rental obligations, net of finance charges, are included in current and non-current liabilities.

The finance charges are charged to the income statement over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated useful lives or the

lease periods.


ANNUAL REPORT 2005


(k) Assets under leases (Continued)

(ii) Where the company is the lessor

(1) Operating leases

When assets are leased out under operating leases, the assets are included in the balance sheet

according to their nature and where applicable, are depreciated in accordance with the Group’s

depreciation policies, as set out in note 2(f) above. Revenue arising from assets leased out under

operating leases is recognised in accordance with the Group’s revenue recognition policies, as set out in

note 2(x)(iii) below.

(2) Finance leases

Finance leases for assets leased out are leases of assets which contain a provision giving the lessee an

option to acquire legal title to the assets upon the fulfillment of certain conditions stated in the contracts.

When assets are leased out under a finance lease, the present value of the minimum lease payments is

recognised as a receivable. The difference between the gross receivable and the present value of the

receivable is recognised as unearned finance income. Revenue on containers leased out under finance

leases is recognised in accordance with the Group’s revenue recognition policies, as set out in note 2(x)(iii)

below.

(l) Investments

Prior to 31 December 2004:

The Group classified its investments in securities, other than subsidiaries, jointly controlled entities and associates as

investment securities.

Listed and unlisted investments which were intended to be held on a continuing basis were stated at cost less

provision for impairment losses.

The carrying amounts of individual investments were reviewed at each balance sheet date to assess whether the fair

values had declined below the carrying amounts. When a decline other than temporary had occurred, the carrying

amount of such investment was reduced to its fair value. The impairment loss was recognised as an expense in the

income statement. This impairment loss was written back to income statement when the circumstances and events

that led to the write-downs and write-offs ceased to exist and there was persuasive evidence that the new

circumstances and events would persist for the foreseeable future.

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(l) Investments (Continued)

From 1 January 2005 onwards:

The Group classifies its investments as available-for-sale financial assets. Management determines the classification

of its investments at initial recognition and re-evaluates this designation at every reporting date.

Available-for-sale financial assets are non-derivatives and they are included in non-current assets unless management

intends to dispose of the investment within 12 months of the balance sheet date.

Available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from changes in the fair

value of monetary and non-monetary securities classified as available-for-sale are recognised in equity. When

securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in

the income statement as gains or losses from investments.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active

(and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of

recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow

analysis, and option pricing models making maximum use of market input and relying as little as possible on entity-

specific input.

The Group assesses at each balance sheet date whether there is objective evidence that available-for-sale financial

assets are impaired. A significant or prolonged decline in the fair value of the securities below its cost is considered as

an indicator that in determining whether the securities are impaired. If any such evidence exists the cumulative loss

(measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that

financial asset previously recognised in the income statement) is removed from equity and recognised in the income

statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the

income statement.

(m) Derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently

remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative

is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain

derivatives as hedge of the fair value of a recognised liability (note 2(b)(vi)(2)).

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged

items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group

also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are

used in hedging transactions are highly effective in offsetting changes in fair values of the hedged items.

The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining hedge item is

more than 12 months, and as a current asset or liability, if the remaining maturity of the hedged item is less than 12

months. Trading derivatives are classified as a current asset or liability.


ANNUAL REPORT 2005


(m) Derivative financial instruments and hedging activities (Continued)

Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the

income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to

the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings

is recognised in the income statement within finance costs. The gain or loss relating to the ineffective portion is

recognised in the income statement within other gains. Changes in the fair value of the hedge fixed rate borrowings

attributable to interest rate risk are recognised in the income statement within finance costs. If the hedge no longer

meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedge item for which the

effective interest method is used is amortised to profit or loss over the period to maturity.

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative

instruments that do not qualify for hedge accounting are recognised immediately in the income statement within other

gains.

(n) Inventories

Inventories, primarily bunkers and resaleable containers, are stated at the lower of cost and net realisable value.

Costs are calculated on a weighted average basis. Net realisable value of bunkers is the expected amount to be

realised from use as estimated by the Directors whereas that of resaleable containers is determined on the basis of

anticipated sales proceeds less estimated selling expenses.

(o) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using

the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables

is established when there is objective evidence that the Group will not be able to collect all amounts due according to

the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter

bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the

trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and

the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision

is recognised in the income statement within other operating expenses.

(p) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid

investments with original maturities of three months or less, and bank overdrafts.

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(q) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it

is more likely than not that an outflow of resources will be required to settle the obligation, and a reliable estimate of

the amount can be made. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is

determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an

outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation

using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the

obligation. The increase in the provision due to passage of time is recognised as interest expense.

(r) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in

equity as a deduction, net of tax, from the proceeds.

(s) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental

costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including

fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities

exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference

between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement

over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the

liability for at least 12 months after the balance sheet date.

(t) Government grants

Grants from the government are recognised at their fair value when there is a reasonable assurance that the Group

will comply with the conditions attaching with them and that the grants will be received.

Grants relating to income are deferred and recognised in the consolidated income statement over the period

necessary to match them with the costs they are intended to compensate. Grants with no future related costs are

recognised as income in the year in which they become receivable.


ANNUAL REPORT 2005


(u) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees.

A provision is made for the estimated liability for annual leave and long service leave as a result of services

rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Bonus entitlements

The expected cost of bonus payments is recognised as a liability when the Group has a present legal or

constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation

can be made.

Liabilities for bonus are expected to be settled within twelve months and are measured at the amounts

expected to be paid when they are settled.

(iii) Retirement benefit costs

The Group has both defined benefit and defined contribution plans throughout the world, the assets of which

are generally held in separate trustee-administered funds. The plans are generally funded by payments from

employees and the relevant companies in the Group, determined by periodic actuarial calculations if required.

A defined contribution plan is a retirement benefit plan under which the Group pays fixed contributions into a

separate entity. Contributions under the defined contribution plans are charged to the income statement as

expense when incurred.

The Group also makes payments and contributions on a monthly basis according to various defined

contribution retirement benefit plans organised by relevant municipal and/or provincial governments in the PRC

and other relevant countries. The Group has no further obligations for post-retirement benefits beyond these

payments as they fall due. Payments made under these plans are expensed as incurred.

A defined benefit plan is a retirement benefit plan that is not a defined contribution plan. Under the plan, an

amount of retirement benefit that an employee will receive on retirement is defined, usually dependent on one or

more factors such as age, years of service and compensation.

The liability recognised in the balance sheet in respect of defined benefit retirement plans is the present value of

the defined benefit obligation at the balance sheet date less the fair value of retirement plan assets, together

with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit

obligation is calculated annually by independent actuaries using the projected unit credit method. The present

value of the defined benefit obligation is determined by discounting the estimated future cash outflows using

interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be

paid and that have terms to maturity approximating to the terms of the related retirement benefit liability.

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(u) Employee benefits (Continued)

(iii) Retirement benefit costs (Continued)

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess

of the greater of 10% of the value of retirement plan assets or 10% of the present value of the defined benefit

obligation are recognised in the income statement over the employees’ expected average remaining working

lives.

Past service costs are recognised immediately as income, unless the changes to the retirement benefit plan are

conditional on the employees remaining in service for a specified period of time (the vesting period). In this

case, the past-service costs are amortised on a straight-line basis over the vesting period.

(iv) Other post-employment obligations

The Group also provides post-retirement healthcare benefits to their retirees. The entitlement to these benefits

is conditional on the employee remaining in service up to retirement age and the completion of a minimum

service period. The expected costs of these benefits are accrued over the period of employment using the

same accounting methodology as used for defined benefit retirement plans. Actuarial gains and losses arising

from experience adjustments, and changes in actuarial assumptions in excess of the greater of 10% of the

value of plan assets or 10% of the defined benefit obligation, are charged or credited to income over the

expected average remaining working lives of the related employees. These obligations are valued annually by

independent qualified actuaries.

(v) Early retirement benefits

Employee early retirement benefits are recognised in the period in which the Group has entered into an

agreement with the employee specifying the terms of early retirement or after the individual employee has been

advised of the specific terms. The specific terms vary among the early retired employees depending on various

factors including position, length of service and district of the employee concerned.

(vi) Housing funds

All full-time employees of the Group are entitled to participate in various government-sponsored housing funds.

The Group contributes on a monthly basis to these funds based on certain percentages of the salaries of the

employees. The Group’s liability in respect of these funds is limited to the contributions payable in each period.


ANNUAL REPORT 2005


(u) Employee benefits (Continued)

(vii) Share-based payments

The Group regularly entered into equity-settled or cash-settled share-based payment transactions with

employees.

Employee services settled in cash

Employee services received in exchange for cash-settled share-based payments, are recognised at the fair

value of the liability incurred and are expensed when consumed or capitalised as assets, which are depreciated

or amortised. The liability is remeasured at each balance sheet date to its fair value, with all changes recognised

immediately in the income statement.

Employee services settled in equity instruments

One of the Group’s subsidiaries operates an equity-settled, share-based compensation plan. The fair value of

the employee services received in exchange for the grant of the share options of the subsidiary is recognised as

an expense. The total amount to be expensed over the vesting period is determined by reference to the fair

value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting

conditions are included in assumptions about the number of options that are expected to become exercisable.

At each balance sheet date, the Group revises its estimates of the number of options that are expected to

become exercisable. It recognises the impact of the revision of original estimates, if any, in the consolidated

income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds

received net of any directly attributable transaction costs are credited to share capital (nominal value) and share

premium when the options are exercised.

(v) Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax

bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. However, the

deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other

than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the

balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred

income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available

against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, jointly controlled

entities and associates, except where the timing of the reversal of the temporary difference is controlled by the Group

and it is probable that the temporary difference will not reverse in the foreseeable future.

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(w) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed

by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the

Group. It can also be a present obligation arising from past events that is not recognised because it is not probable

that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the Consolidated Financial Statements. When a

change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the

occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.

Contingent assets are not recognised but are disclosed in the notes to the Consolidated Financial Statements when

an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(x) Recognition of revenue and income

The Group recognises revenues and income on the following basis:

(i) Revenue from container shipping

Freight revenues from the operation of international and domestic containerised transportation business are

recognised on a percentage of completion basis, which is determined on the time proportion method of each

individual vessel voyage.

(ii) Revenue from container terminal operations

Revenue from container terminal operations is recognised when the services rendered are complete and the

vessel leaves the berth.

(iii) Revenue from lease rental income

Rental income arising from assets leased out under operating leases are recognised on a straight-line basis

over the period of each lease.

Revenue on assets leased out under finance leases is allocated to accounting period to give a constant

periodic rate of return on the net investment in the lease in each period.


ANNUAL REPORT 2005


(x) Recognition of revenue and income (Continued)

(iv) Revenue from freight forwarding and shipping agency

Revenue is recognised when the services are rendered.

For freight forwarding business, it generally coincides with the date of departure for outward freights and the

time of transfer of goods to the customers at the designated location for inward freight. For shipping agency

services, it generally coincides with the date of departure of the relevant vessels from the port.

Where the Group effectively acts as a principal in arranging transportation of goods for customers, revenue

recognised generally includes the carrier’s charges to the company. Where the Group effectively acts as an

agent for the customers, revenue recognised comprises fees for services provided by the Group.

(v) Income from sale of containers

Revenue from sale of containers is recognised on the transfer of risks and rewards of ownership, which

generally coincides with the time when the containers are delivered to customers and title has passed. Direct

costs relating to the lifting and storage of containers for sale are expressed as incurred.

(vi) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable

is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash

flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as

interest income. Interest income on impaired loans is recognised using the original effective interest rate.

(vii) Dividend income

Dividend income is recognised when the right to receive payment is established.

(viii) Income on sale of investments

Income on sale of investments is recognised when the title to the investments is passed to the purchaser.

(y) Dividend distribution

Dividend distribution to the Company’s equity holders is recognised as a liability in the financial statements in the

period in which the dividends are approved by the Company’s equity holders.

(z) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that

necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the

cost of that asset.

All other borrowing costs are charged to the income statement in the year in which they are incurred.

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(aa) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services

(business segment), or in providing products or services within a particular economic environment (geographical

segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting, the Group has determined that business segments are

presented as the primary reporting format and geographical as the secondary reporting format.

3 Financial risk management

(a) Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price

risk), credit risk, liquidity risk and interest rate risk. The management manages and monitors these exposures to

ensure appropriate measures are implemented on a timely and effective manner. The Group’s overall risk

management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse

effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk

exposures. Details of these financial instruments are disclosed in respective notes. The risks associated with these

financial instruments and the policies on how to mitigate these risks are set out below.

(i) Market risk

(1) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency

exposures (such as RMB and EURO dollar), primarily with respect to the US dollar. Foreign exchange risk

arises from future commercial transactions, recognised assets and liabilities and net investments in

foreign operations. The Group currently does not have a foreign currency hedging policy. However, the

management monitors foreign exchange exposure and will consider hedging significant foreign currency

exposure should the need arise.

(2) Price risk

The Group is exposed to equity securities price risk because the Group’s investments are classified as

available-for-sale financial assets which are required to be stated at their fair values (see fair value

estimation below). The Group is also exposed to bunker’s price risk, the Group uses bunker forward

contracts to manage this risk.

(ii) Credit risk

The Group has no significant concentrations of credit risk. It has policies in place to ensure that credit sales are

made to customers with an appropriate trading history. The Group has policies that limit the amount of credit

exposure to any financial institution.


ANNUAL REPORT 2005

3 Financial risk management (Continued)

(a) Financial risk factors (Continued)

(iii) Liquidity risk

The Group adopts prudent liquidity risk management which implies maintaining sufficient cash and bank

balances, having available funding through an adequate amount of committed credit facilities and the ability to

close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to

maintain flexibility in funding by keeping committed credit lines available.

(iv) Cash flow and fair value interest rate risk

As the Group has no significant interest bearing assets, other than deposits and cash and cash equivalents, the

Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Group raises short-term loans and long-term borrowings at floating rates as well as fixed rates, based

upon the capital market conditions and the Group’s own internal requirements. Interest rate swap contracts

with financial institutions are used to achieve the optimum ratio between fixed and floating rates. The Group

uses certain interest rate swap contracts as hedge of the fair value of notes issued by the Group.

(v) Fair value estimation

The fair values of the Group’s available-for-sale financial assets are determined by reference to the methods

below:

– the quoted market price when the related investment is traded in an active market;

– valuation techniques (including pricing models or discounted cash flow models); and

– the price for similar recent transactions, with adjustment on the different in market conditions and

circumstances.

For major unlisted investment, the Group will determine the fair value of available-for-sale financial assets by

reference to valuation report of an independent professional valuer.

The fair value of interest rate swap contract is calculated as the present value of the estimated future cash

flows.

The nominal values less impairment provision (as applicable) of trade receivables and payables are assumed to

approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting

the future contractual cash flows at the current market interest rate that is available to the Group for similar financial

instruments.

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4 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including

expectations of future events that are believed to be reasonable under the circumstance.

Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,

seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material

adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Impairment of container vessels and containers

The Group’s major operating assets represent container vessels and containers. The Group tests annually whether

container vessels and containers have suffered any impairment in accordance with the accounting policy stated in

note 2(j). The recoverable amounts of container vessels and containers have been determined based on value-in-use

calculations. These calculations require the use of estimates on the projections of cash inflows from the continue use

of container vessels and containers (including the amount to be received for the disposal of container vessels and

containers) and discount rate.

(ii) Useful lives and residual values of container vessels and containers

The Group’s major operating assets represent container vessels and containers. Management determines the

estimated useful lives of container vessels and containers by reference to the Group’s business model, its assets

management policy and also the industry practice. The useful lives could change significantly as a result of the

changes in these factors. The depreciation expense will increase where useful lives are less than previously estimated

lives.

Management determines the residual values of its container vessels and containers based on all relevant factors

(including the use of the current scrap value of steels in an active market as a reference value) at each measurement

date. The depreciation expense will change where the residual values are different from previously estimated values.

(iii) Fair value of available-for-sale financial assets

If information on current or recent prices of available-for-sale financial assets is not available, the fair values of

available-for-sale financial assets are determined using valuation techniques (including discounted cash flow model or

price/earnings multiple model). The Group uses assumptions that are mainly based on market conditions existing at

each balance sheet date.

(iv) Impairment of goodwill and other assets

The Group tests annually whether goodwill and other assets have suffered any impairment in accordance with the

accounting policy stated in note 2(j). The recoverable amount of an asset or a cash generating unit is determined

based on value-in-use calculations which require the use of assumptions and estimates.


ANNUAL REPORT 2005

4 Critical accounting estimates and judgements (Continued)

Critical accounting estimates and assumptions (Continued)

(v) Provision of operating costs

Operating costs, which mainly comprise container and cargo costs, vessel and voyage costs, sub-route and

transportation costs, are recognised on a percentage of completion basis. Invoices in relation to these expenses are

received approximately up to 6 months after the expenses have been incurred. Consequently, recognition of

operating costs is based on the rendering of services as well as the latest tariff agreed with vendors.

If the actual expenses of a voyage differ from the estimated expenses, this will have an impact on operating costs in

future periods.

(vi) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the

worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax

determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is

different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax

provisions in the period in which such determination is made.

(vii) Revenue recognition

The Group recognises container shipping revenues on a percentage of completion basis, which is determined on the

time proportion method of each individual voyage.

Critical judgements in applying the Group’s accounting policies

Income taxes

Deferred tax liabilities have not been established for the withholding tax and differential tax that would be payable on the

undistributed profits of certain subsidiaries primarily operating in the United States of America or the PRC as the Directors

consider that the timing of the reversal of the related temporary differences can be controlled and such temporary

differences will not be reversed in the foreseeable future (note 16).

122



5 Turnover and segment information

Turnover represents gross revenues from container shipping, container terminal, container leasing and freight forwarding

and shipping agency, net of discounts allowed, where applicable.

2005 2004

RMB’000 RMB’000

Container shipping (note a) 31,959,809 27,319,843.........................................................................................................................................................................................................................................................................................................................................................................................

Container terminal 106,378 99,274.........................................................................................................................................................................................................................................................................................................................................................................................

Container leasing (note b) 1,227,429 1,127,659.........................................................................................................................................................................................................................................................................................................................................................................................

Freight forwarding and shipping agency 5,872,094 3,641,893.........................................................................................................................................................................................................................................................................................................................................................................................

39,165,710 32,188,669

Notes:

(a) Revenue from container shipping include charterhire income under operating leases of RMB288,193,000 for the year ended 31

December 2005 (2004: RMB514,787,000).

(b) Revenue from container leasing is analysed below:

2005 2004

RMB’000 RMB’000

Operating lease rentals 1,223,072 1,122,916.........................................................................................................................................................................................................................................................................................................................................................................................

Finance lease income 4,357 4,743.........................................................................................................................................................................................................................................................................................................................................................................................

1,227,429 1,127,659

(c) Primary reporting format - business segments

In accordance with the Group’s internal financial reporting, the Group has determined that business segments are presented as the

primary reporting format and geographical as the secondary reporting format.

The Group is organised on a worldwide basis into the following segments:

- Container shipping

- Container terminal and related businesses

- Container leasing

- Freight forwarding and shipping agency

- Other operations that primarily comprise container manufacturing, banking and investment holding

Unallocated income mainly represents corporate interest income. Unallocated costs mainly represent corporate expenses. Segment

assets consist primarily of property, plant and equipment, investment properties, leasehold land and land use rights, intangible

assets, inventories, receivables and operating cash, and mainly exclude investments in jointly controlled entities, associates,

available-for-sale financial assets and investment securities, derivative financial assets, deferred income tax assets and corporate

assets. Segment liabilities comprise operating liabilities and mainly exclude items such as current and deferred income tax liabilities,

distribution payable, corporate borrowings and related hedging derivatives. Capital expenditure comprises additions to property,

plant and equipment, investment properties, leasehold land and land use rights and intangible assets, including additions resulting

from acquisitions through business combination.


ANNUAL REPORT 2005

5 Turnover and segment information (Continued)

(c) Primary reporting format - business segments (Continued)

Year ended and as at 31 December 2005

FreightContainer forwarding

terminal and Inter-Container and related Container shipping Other segmentshipping businesses leasing agency operations elimination TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Turnover.........................................................................................................................................................................................................................................................................................................................................................................................

External sales 31,959,809 106,378 1,227,429 5,872,094 — — 39,165,710.........................................................................................................................................................................................................................................................................................................................................................................................

Inter-segment sales — 51,973 1,035,547 2,330,690 — (3,418,210) —.........................................................................................................................................................................................................................................................................................................................................................................................

31,959,809 158,351 2,262,976 8,202,784 — (3,418,210) 39,165,710.........................................................................................................................................................................................................................................................................................................................................................................................

Segment results 4,705,310 216,743 1,287,470 397,726 6,123 — 6,613,372.........................................................................................................................................................................................................................................................................................................................................................................................

Profit on disposal of anavailable-for-salefinancial asset (note 29(b)) — 512,117 — — — — 512,117

.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated income 148,522.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated expenses (219,138).........................................................................................................................................................................................................................................................................................................................................................................................

Operating profit 7,054,873.........................................................................................................................................................................................................................................................................................................................................................................................

Finance costs (868,393).........................................................................................................................................................................................................................................................................................................................................................................................

Share of profits less losses of- jointly controlled entities — 449,012 — 127,615 25,225 — 601,852

.........................................................................................................................................................................................................................................................................................................................................................................................

- associates — 136,427 — 5,567 519,924 — 661,918.........................................................................................................................................................................................................................................................................................................................................................................................

Profit before income tax 7,450,250.........................................................................................................................................................................................................................................................................................................................................................................................

Income tax expenses (651,319).........................................................................................................................................................................................................................................................................................................................................................................................

Profit for the year 6,798,931.........................................................................................................................................................................................................................................................................................................................................................................................

Segment assets 23,445,451 422,903 12,622,708 4,351,793 113 (1,887,249) 38,955,719.........................................................................................................................................................................................................................................................................................................................................................................................

Jointly controlled entities — 1,624,257 — 1,493,052 147,200 — 3,264,509.........................................................................................................................................................................................................................................................................................................................................................................................

Associates — 970,232 — 24,955 3,073,367 — 4,068,554.........................................................................................................................................................................................................................................................................................................................................................................................

Available-for-sale financial assets — 2,134,744 — 8,945 89,353 — 2,233,042.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated assets 3,153,830.........................................................................................................................................................................................................................................................................................................................................................................................

Total assets 51,675,654.........................................................................................................................................................................................................................................................................................................................................................................................

Segment liabilities 12,274,448 1,030,500 4,665,640 4,551,742 443,861 (1,887,249) 21,078,942.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated liabilities 4,651,620.........................................................................................................................................................................................................................................................................................................................................................................................


Depreciation and amortisation 835,980 10,753 886,338 72,322 3,911 — 1,809,304.........................................................................................................................................................................................................................................................................................................................................................................................

Capital expenditure 2,688,135 35,791 2,749,623 300,860 7,287 — 5,781,696.........................................................................................................................................................................................................................................................................................................................................................................................

Provision for impairmentof trade receivables — — 11,376 15,897 — — 27,273

.........................................................................................................................................................................................................................................................................................................................................................................................

Other non-cash expenses 6,236 1,900 16,117 2,290 1,833 — 28,376

124




(c) Primary reporting format - business segments (Continued)

Year ended and as at 31 December 2004 (Restated)

FreightContainer forwarding

terminal and Inter-Container and related Container shipping Other segmentshipping businesses leasing agency operations elimination Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Turnover.........................................................................................................................................................................................................................................................................................................................................................................................

External sales 27,319,843 99,274 1,127,659 3,641,893 — — 32,188,669.........................................................................................................................................................................................................................................................................................................................................................................................

Inter-segment sales — 54,984 999,911 2,256,495 — (3,311,390 ) —.........................................................................................................................................................................................................................................................................................................................................................................................

27,319,843 154,258 2,127,570 5,898,388 — (3,311,390 ) 32,188,669.........................................................................................................................................................................................................................................................................................................................................................................................

Segment results 3,495,858 240,497 1,073,901 210,989 (666 ) — 5,020,579.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated income 85,083.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated expenses (59,946 ).........................................................................................................................................................................................................................................................................................................................................................................................

Operating profit 5,045,716.........................................................................................................................................................................................................................................................................................................................................................................................

Finance costs (639,760 ).........................................................................................................................................................................................................................................................................................................................................................................................

Share of profits lesslosses of- jointly controlled entities — 425,893 — 109,511 25,327 — 560,731

.........................................................................................................................................................................................................................................................................................................................................................................................

- associates — 145,212 — 503 130,898 — 276,613.........................................................................................................................................................................................................................................................................................................................................................................................

Profit before income tax 5,243,300.........................................................................................................................................................................................................................................................................................................................................................................................

Income tax expenses (285,757 ).........................................................................................................................................................................................................................................................................................................................................................................................

Profit for the year 4,957,543.........................................................................................................................................................................................................................................................................................................................................................................................

Segment assets 19,802,632 431,099 11,037,299 5,058,914 38,483 (1,948,872 ) 34,419,555.........................................................................................................................................................................................................................................................................................................................................................................................

Jointly controlled entities — 1,402,033 — 1,514,867 131,583 — 3,048,483.........................................................................................................................................................................................................................................................................................................................................................................................

Associates — 866,668 — 18,203 2,402,834 — 3,287,705.........................................................................................................................................................................................................................................................................................................................................................................................

Investment securities — 467,030 — 34,805 108,222 — 610,057.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated assets 2,883,767.........................................................................................................................................................................................................................................................................................................................................................................................

Total assets 44,249,567.........................................................................................................................................................................................................................................................................................................................................................................................

Segment liabilities 16,166,420 903,846 3,352,748 5,468,213 3,330,816 (1,948,872 ) 27,273,171.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated liabilities 3,573,874.........................................................................................................................................................................................................................................................................................................................................................................................


Depreciation and amortisation 922,684 10,446 842,341 105,225 3,600 — 1,884,296.........................................................................................................................................................................................................................................................................................................................................................................................

Capital expenditure 601,613 8,947 2,279,122 257,490 4,114 — 3,151,286.........................................................................................................................................................................................................................................................................................................................................................................................

Provision/(reversal of provision) forimpairment of trade receivables (6,632 ) — (182 ) 34,232 — — 27,418

.........................................................................................................................................................................................................................................................................................................................................................................................

Other non-cash expenses 23,439 — 7,367 34,204 — — 65,010


ANNUAL REPORT 2005


(d) Secondary reporting format - geographical segments

The Group’s businesses are managed on a worldwide basis. The turnover generated from the world’s major trade

lanes for container shipping business mainly includes Trans-Pacific, Asia-Europe, Intra-Asia, PRC and Trans-Atlantic

which are reported as follows:

Geographical Segment trade lanes

America Trans-Pacific

Europe Asia-Europe

Asia Pacific Intra-Asia

China domestic PRC

Other international market Trans-Atlantic and others

In respect of container leasing, the movements of containers under operating leases or finance leases are known

through reports from the lessees but the Group is not able to control the movements of containers except to the

degree that the movements are restricted by the terms of the leases or where safety of the containers is concerned. It

is therefore impracticable to present segment information by geographical area and thus the turnover of which is

presented as unallocated turnover.

In respect of other activities including container terminals and freight forwarding, shipping agency and logistics,

turnover is based on the geographical locations in which the business operations are located.

The Group’s total assets are primarily dominated by its container vessels and containers. The Directors consider that

the nature of the Group’s business precludes a meaningful allocation of container vessels and containers and their

related capital expenditure to specific geographical segments as defined under the HKAS 14 “Segmental reporting”

issued by the HKICPA. These container vessels and containers are primarily utilised across geographical markets for

shipment of cargoes throughout the world. Accordingly, geographical segment information is only presented for

turnover.

2005 2004

RMB’000 RMB’000

America 12,527,188 10,682,762.........................................................................................................................................................................................................................................................................................................................................................................................

Europe 9,524,197 7,473,639.........................................................................................................................................................................................................................................................................................................................................................................................

Asia Pacific 6,280,865 5,507,037.........................................................................................................................................................................................................................................................................................................................................................................................

China domestic 7,032,641 5,126,934.........................................................................................................................................................................................................................................................................................................................................................................................

Other international market 2,573,387 2,270,638.........................................................................................................................................................................................................................................................................................................................................................................................

Unallocated 1,227,432 1,127,659.........................................................................................................................................................................................................................................................................................................................................................................................

Total turnover 39,165,710 32,188,669

126



6 Property, plant and equipment

Group

Trucks,

chassis Computer Assets

Container and motor and office under

Buildings vessels Containers vehicles equipment construction Total


Cost.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January 2005 572,914 25,483,788 14,771,333 402,035 754,715 635,485 42,620,270.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (1,373) (323,237) (366,887) (1,016) (8,661) (11,263) (712,437).........................................................................................................................................................................................................................................................................................................................................................................................

Reclassifications 27,091 — — 1,576 117,270 (145,937) —.........................................................................................................................................................................................................................................................................................................................................................................................

Additions 88,063 121,978 2,692,282 55,553 103,964 2,618,870 5,680,710.........................................................................................................................................................................................................................................................................................................................................................................................

Disposals/transfers (21,550) — (997,214) (165,365) (28,028) — (1,212,157).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 665,145 25,282,529 16,099,514 292,783 939,260 3,097,155 46,376,386.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated depreciation.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January 2005 85,754 11,646,531 4,796,854 192,772 435,916 — 17,157,827.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (16) (115,596) (124,769) (681) (5,570) — (246,632).........................................................................................................................................................................................................................................................................................................................................................................................

Charge for the year 23,615 696,483 875,035 31,747 106,044 — 1,732,924.........................................................................................................................................................................................................................................................................................................................................................................................

Disposals/transfers (3,826) — (571,003) (45,104) (24,592) — (644,525).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 105,527 12,227,418 4,976,117 178,734 511,798 — 17,999,594.........................................................................................................................................................................................................................................................................................................................................................................................

Net book value

At 31 December 2005 559,618 13,055,111 11,123,397 114,049 427,462 3,097,155 28,376,792


ANNUAL REPORT 2005

6 Property, plant and equipment (Continued)

Group

Trucks,

chassis Computer Assets

Container and motor and office under

Buildings vessels Containers vehicles equipment construction Total


Cost.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January 2004 620,917 26,601,768 13,673,223 260,565 709,887 65,342 41,931,702.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences 2,435 (793) 2 2,412 6,971 — 11,027.........................................................................................................................................................................................................................................................................................................................................................................................

Reclassifications 3,874 — 8,818 2,659 18,759 (34,110) —.........................................................................................................................................................................................................................................................................................................................................................................................

Additions 30,840 — 2,242,628 167,639 55,811 604,253 3,101,171.........................................................................................................................................................................................................................................................................................................................................................................................

Disposals/transfers (78,303) (1,117,187) (1,153,338) (18,178) (35,472) — (2,402,478).........................................................................................................................................................................................................................................................................................................................................................................................

Disposals of subsidiaries (6,849) — — (13,062) (1,241) — (21,152).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2004 572,914 25,483,788 14,771,333 402,035 754,715 635,485 42,620,270.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated depreciation.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January 2004 80,227 11,041,215 4,702,816 166,729 367,865 — 16,358,852.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences 399 (239) 6 1,906 4,587 — 6,659.........................................................................................................................................................................................................................................................................................................................................................................................

Charge for the year 22,665 824,586 826,390 46,494 90,539 — 1,810,674.........................................................................................................................................................................................................................................................................................................................................................................................

Disposals/transfers (13,368) (219,031) (732,358) (14,106) (26,322) — (1,005,185).........................................................................................................................................................................................................................................................................................................................................................................................

Disposal of subsidiaries (4,169) — — (8,251) (753) — (13,173).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2004 85,754 11,646,531 4,796,854 192,772 435,916 — 17,157,827.........................................................................................................................................................................................................................................................................................................................................................................................

Net book value

At 31 December 2004 487,160 13,837,257 9,974,479 209,263 318,799 635,485 25,462,443

128



6 Property, plant and equipment (Continued)

Company

Computer

Motor and office

vehicles equipment Total

RMB’000 RMB’000 RMB’000

Cost

Additions 1,400 5,309 6,709.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated depreciation

Charge for the year (58) (432) (490).........................................................................................................................................................................................................................................................................................................................................................................................

Net book value

At 31 December 2005 1,342 4,877 6,219

Notes:

(a) The aggregate cost and accumulated depreciation of the leased assets, where the Group is the lessor under the operating lease

arrangements, are set out below:

Container

Containers vessels Total

RMB’000 RMB’000 RMB’000

At 31 December 2005

Cost 7,940,649 — 7,940,649.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated depreciation (2,319,028) — (2,319,028).........................................................................................................................................................................................................................................................................................................................................................................................

5,621,621 — 5,621,621.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2004

Cost 8,023,823 1,001,033 9,024,856.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated depreciation (2,091,581) (705,816 ) (2,797,397).........................................................................................................................................................................................................................................................................................................................................................................................

5,932,242 295,217 6,227,459

(b) As at 31 December 2005, certain containers and container vessels with an aggregate net book value of RMB4,126,067,000 and

RMB10,748,980,000 respectively (2004: RMB2,730,673,000 and RMB11,471,568,000) were pledged as securities for loan facilities

granted by banks or third parties (note 23(i)).

(c) During the year, the Group transferred containers with an aggregate net book value of RMB171,529,000 (2004: RMB263,382,000)

to inventories.

(d) As at 31 December 2004, the net book value of chassis held under finance leases by the Group was RMB115,171,000.


ANNUAL REPORT 2005

7 Investment properties

Group

2005 2004

RMB’000 RMB’000

At 1 January (note a) 13,880 12,738.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (183) —.........................................................................................................................................................................................................................................................................................................................................................................................

Reclassifications — (1,275).........................................................................................................................................................................................................................................................................................................................................................................................

Disposals (6,580) —.........................................................................................................................................................................................................................................................................................................................................................................................

Depreciation (289) —.........................................................................................................................................................................................................................................................................................................................................................................................

Revaluation (note 29) — 2,417.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 6,828 13,880.........................................................................................................................................................................................................................................................................................................................................................................................

Cost 7,113 13,880.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated depreciation (285) —.........................................................................................................................................................................................................................................................................................................................................................................................

Net book value 6,828 13,880

Notes:

(a) The investment properties as at 31 December 2004 were revalued on an open market value basis by DTZ Debenham Tie Leung

Limited and Sallmanns (Far East) Ltd., independent professional property valuers.

The net book value of the properties as at 31 December 2004 was deemed as the cost as at 1 January 2005. The portion of

prepaid operating lease payments has not been segregated from the investment properties as the amount is insignificant to the

Group.

(b) During the year ended 31 December 2004, certain investment properties of RMB530,000 and RMB745,000 were transferred to

buildings and leasehold land respectively.

(c) The fair value of the investment properties as at 31 December 2005 was RMB11,161,000.

130



8 Leasehold land and land use rights

Group2005 2004

RMB’000 RMB’000

At 1 January 155,930 130,969.........................................................................................................................................................................................................................................................................................................................................................................................

Additions 48,969 34,822.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (4,931) 1,380.........................................................................................................................................................................................................................................................................................................................................................................................

Amortisation (1,916) (4,303).........................................................................................................................................................................................................................................................................................................................................................................................

Disposals — (6,938).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 198,052 155,930

Notes:

(a) The Group’s interests in leasehold land and land use rights represent prepaid operating lease payments and their net book values

are analysed as follows:

Group

2005 2004

RMB’000 RMB’000

In Hong Kong, held on:

Leases of over 50 years 130,681 105,806.........................................................................................................................................................................................................................................................................................................................................................................................

Leases of between 10 to 50 years 1,934 2,096.........................................................................................................................................................................................................................................................................................................................................................................................

132,615 107,902.........................................................................................................................................................................................................................................................................................................................................................................................

Outside Hong Kong, held on:

Leases of over 50 years 9,091 —.........................................................................................................................................................................................................................................................................................................................................................................................

Leases of between 10 to 50 years 56,346 48,028.........................................................................................................................................................................................................................................................................................................................................................................................

65,437 48,028.........................................................................................................................................................................................................................................................................................................................................................................................

198,052 155,930

(b) As at 31 December 2005, land use rights outside Hong Kong with net book value of RMB13,598,000 (2004: RMB14,369,000) were

pledged as securities for loan facility granted by a bank (note 23(i)).


ANNUAL REPORT 2005

9 Intangible assets

Group Company

Computer

Computer software software

2005 2004 2005

RMB’000 RMB’000 RMB’000

Cost 439,112 393,854 132.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated amortisation and impairment (291,028) (222,620) (13).........................................................................................................................................................................................................................................................................................................................................................................................

Net book value at 31 December 148,084 171,234 119.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January 171,234 223,712 —.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (728) 273 —.........................................................................................................................................................................................................................................................................................................................................................................................

Additions 52,017 16,568 132.........................................................................................................................................................................................................................................................................................................................................................................................

Amortisation (74,175) (69,319) (13).........................................................................................................................................................................................................................................................................................................................................................................................

Disposal/write-off (264) — —.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 148,084 171,234 119

10 Subsidiaries

Company

2005

RMB’000

Unlisted investments, at cost 6,868,438

Current assets.........................................................................................................................................................................................................................................................................................................................................................................................

Amounts due from subsidiaries (note a) 10,761,230

Current liabilities.........................................................................................................................................................................................................................................................................................................................................................................................

Amounts due to subsidiaries (note a) (4,411,050)

Notes:

(a) The amounts due from/(to) subsidiaries are unsecured, interest free and have no fixed terms of repayment.

(b) Details of principal subsidiaries as at 31 December 2005 are shown in note 41(a) to the Consolidated Financial Statements.

132



11 Jointly controlled entities

Group2005 2004

RMB’000 RMB’000

Share of net assets 2,669,929 2,422,725.........................................................................................................................................................................................................................................................................................................................................................................................

Goodwill on acquisition (note a) 421,741 395,028.........................................................................................................................................................................................................................................................................................................................................................................................

Loans to jointly controlled entities (note b) 172,839 230,730.........................................................................................................................................................................................................................................................................................................................................................................................

3,264,509 3,048,483

Unlisted investments, at cost 4,732,755 4,717,822

Notes:

(a) The carrying amount of goodwill on acquisition of jointly controlled entities as at 31 December 2005 mainly represented the goodwill

on acquisition of equity interests in COSCO Logistics Co., Ltd (“COSCO Logistics”), Qingdao Qianwan Container Terminal Co., Ltd

and Nanjing Port Longtan Containers Co., Ltd of RMB340,974,000 (2004: RMB349,712,000), RMB43,272,000 (2004:

RMB44,381,000), and RMB36,582,000 (2004: N/A) respectively. The estimated useful lives of goodwill range from 20 years to 35

years by reference to the respective joint venture periods of jointly controlled entities. The movement during the year is as follows:

Group

2005 2004

RMB’000 RMB’000

Cost.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January, as previously reported 415,778 46,707.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (10,387) —.........................................................................................................................................................................................................................................................................................................................................................................................

Elimination (note 2(b)(ix)) (20,232) —.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January, as restated 385,159 46,707.........................................................................................................................................................................................................................................................................................................................................................................................

Additions 36,582 369,071.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 421,741 415,778.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated amortisation.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January, as previously reported 20,750 —.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (518) —.........................................................................................................................................................................................................................................................................................................................................................................................

Elimination (note 2(b)(ix)) (20,232) —.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January, as restated — —.........................................................................................................................................................................................................................................................................................................................................................................................

Amortisation for the year — (20,750).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December — (20,750).........................................................................................................................................................................................................................................................................................................................................................................................

Net book value.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 421,741 395,028

The recoverable amount of the goodwill is determined based on value-in-use calculations. These calculations use cash flow

projections based on financial budgets approved by management of respective jointly controlled entities covering a one-year period.

Cash flows beyond the one-year period are extrapolated using the estimated growth rates stated below. The growth rates do not

exceed the long term average growth rate for container terminal and logistics business in the PRC.


ANNUAL REPORT 2005

11 Jointly controlled entities (Continued)

Key assumptions used for value-in-use calculations include:

(i) the growth in the projected earnings before interest, depreciation, amortisation and income tax (“EBITDA”) of respective jointly

controlled entities for the coming five years ranging from 5% to 16%;

(ii) the growth rates used to extrapolate cash flow projections beyond a five years’ period ranging from 3% to 5%; and

(iii) a discount rate of 10%.

Management determined projected EBITDA based on past performance and its expectations for the market development. The

discount rates used are pre-tax and reflect specific risks relating to the relevant industry.

Based on the management’s assessment, no impairment has been recognised for the year ended 31 December 2005.

(b) The loans to jointly controlled entities are unsecured. Except for an amount of RMB77,522,000 (2004: RMB81,027,000) which

bears interest at 1.60% (2004: 1.60%) per annum above the applicable swap offer rate as determined by the Association of Banks

in Singapore, the remaining balance is interest free. Loans to jointly controlled entities of RMB77,522,000 (2004: RMB81,027,000)

and RMB95,317,000 (2004: RMB149,689,000) are wholly repayable on or before October 2013 and January 2035 respectively.

(c) The Company has no directly owned jointly controlled entity as at 31 December 2005 and 2004. Details of principal jointly controlled

entities as at 31 December 2005 are shown in note 41(b) to the Consolidated Financial Statements.

(d) The financial information below represents the Group’s interests in respective jointly controlled entities.

Profits less

Non-current Current Non-current Current Minority losses after

assets assets liabilities liabilities interests Turnover income tax

RMB$’000 RMB$’000 RMB$’000 RMB$’000 RMB$’000 RMB$’000 RMB$’000

2005.........................................................................................................................................................................................................................................................................................................................................................................................

COSCO-HIT Terminals (Hong

Kong) Limited 1,184,197 234,964 (1,117,900 ) (108,988 ) — 541,827 229,162.........................................................................................................................................................................................................................................................................................................................................................................................

COSCO Logistics 772,584 2,124,408 (121,634 ) (1,562,714 ) (68,863 ) 5,245,074 123,373.........................................................................................................................................................................................................................................................................................................................................................................................

Others 1,982,566 609,718 (651,749 ) (606,660 ) — 1,412,062 249,317.........................................................................................................................................................................................................................................................................................................................................................................................

3,939,347 2,969,090 (1,891,283 ) (2,278,362 ) (68,863 ) 7,198,963 601,852.........................................................................................................................................................................................................................................................................................................................................................................................

2004.........................................................................................................................................................................................................................................................................................................................................................................................

COSCO-HIT Terminals (Hong

Kong) Limited 1,269,088 161,029 (1,147,374 ) (83,424 ) — 531,491 262,985.........................................................................................................................................................................................................................................................................................................................................................................................

COSCO Logistics 672,374 2,175,552 (79,095 ) (1,628,789 ) (63,650 ) 3,882,269 98,074.........................................................................................................................................................................................................................................................................................................................................................................................

Others 1,881,341 896,687 (780,260 ) (778,934 ) (71,820 ) 1,489,721 199,672.........................................................................................................................................................................................................................................................................................................................................................................................

3,822,803 3,233,268 (2,006,729 ) (2,491,147 ) (135,470 ) 5,903,481 560,731

There are no significant contingent liabilities relating to the Group’s interest in the jointly controlled entities, and no significant

contingent liabilities of the jointly controlled entities themselves.

134



12 Associates

Group

2005 2004

RMB’000 RMB’000

Share of net assets 3,953,562 3,409,625.........................................................................................................................................................................................................................................................................................................................................................................................

Goodwill on acquisition (note a) 702 1,556.........................................................................................................................................................................................................................................................................................................................................................................................

Negative goodwill on acquisition (note a) — (164,596).........................................................................................................................................................................................................................................................................................................................................................................................

Loans to associates (note b) 114,290 41,120.........................................................................................................................................................................................................................................................................................................................................................................................

4,068,554 3,287,705

Investments, at cost.........................................................................................................................................................................................................................................................................................................................................................................................

- Listed shares in Hong Kong 1,768,899 1,814,227.........................................................................................................................................................................................................................................................................................................................................................................................

- Unlisted shares 1,828,026 1,541,600.........................................................................................................................................................................................................................................................................................................................................................................................

3,596,925 3,355,827

Market value of listed shares 1,113,663 1,083,956

Notes:

(a) Movement of goodwill/(negative goodwill) during the year is as follows:

Group

Negative

Goodwill goodwill Total

RMB’000 RMB’000 RMB’000

Cost

At 1 January 2004 — — —.........................................................................................................................................................................................................................................................................................................................................................................................

Additions 1,556 (164,596 ) (163,040).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2004, as previously reported 1,556 (164,596 ) (163,040).........................................................................................................................................................................................................................................................................................................................................................................................

Derecognition (note 2(b)(ix)) — 164,596 164,596.........................................................................................................................................................................................................................................................................................................................................................................................

At 1 January 2005, as restated 1,556 — 1,556.........................................................................................................................................................................................................................................................................................................................................................................................

Partial disposal of equity interest (815) — (815).........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (39) — (39).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 702 — 702.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated amortisation

At 1 January 2004 and 31 December 2004 — — —.........................................................................................................................................................................................................................................................................................................................................................................................

Net book amount

At 31 December 2005 702 — 702

At 31 December 2004 1,556 (164,596 ) (163,040)

The goodwill/negative goodwill as set out above was arisen from acquisitions of associates which were completed in December

2004 and accordingly no amortisation was recognised for the year ended 31 December 2004. In accordance with HKFRS 3, with

effect from 1 January 2005, the Group is required to cease amortisation of goodwill/negative goodwill (note 2(b)(ix)).


ANNUAL REPORT 2005

12 Associates (Continued)

Notes: (Continued)

(b) Loans to associates are unsecured. Balance of RMB66,288,000 (2004: RMB41,120,000) bears interest at 2% (2004: 2%) per

annum above the 10-year Belgium prime rate and has no fixed terms of repayment. The remaining balance of RMB48,002,000

(2004: RMBNil) bears interest at Tokyo Inter-Bank Offered Rate per annum (2004: N/A) and is wholly repayable in April 2008.

(c) The Company has no directly owned associates as at 31 December 2005 and 2004. Details of principal associates as at 31

December 2005 are shown in note 41(c) to the Consolidated Financial Statements.

(d) The financial information below, after making adjustments to conform to the Group’s significant accounting policies, represents the

Group’s interests in respective associates:

Profits less

Total Total Minority losses after

assets liabilities interests Turnover income tax

RMB$’000 RMB$’000 RMB$’000 RMB$’000 RMB$’000

2005

Liu Chong Hing Bank Limited 10,559,034 (9,187,527) — 407,939 82,120.........................................................................................................................................................................................................................................................................................................................................................................................

China International Marine Containers

(Group) Co., Ltd. (“CIMC”) 2,762,421 (1,056,494) (145,611) 5,021,326 455,645.........................................................................................................................................................................................................................................................................................................................................................................................

Others 1,845,611 (823,872) — 280,228 124,153.........................................................................................................................................................................................................................................................................................................................................................................................

15,167,066 (11,067,893) (145,611) 5,709,493 661,918

2004

Liu Chong Hing Bank Limited 9,008,422 (7,661,009) — 268,109 80,949.........................................................................................................................................................................................................................................................................................................................................................................................

CIMC 2,757,027 (1,397,571) (139,426) N/A N/A.........................................................................................................................................................................................................................................................................................................................................................................................

Others 940,559 (98,377) — 327,066 195,664.........................................................................................................................................................................................................................................................................................................................................................................................

12,706,008 (9,156,957) (139,426) 595,175 276,613

136



13 Available-for-sale financial assetsGroup

2005

RMB’000

At 1 January 2005 2,549,449.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (56,884).........................................................................................................................................................................................................................................................................................................................................................................................

Additions 278,971.........................................................................................................................................................................................................................................................................................................................................................................................

Disposals (642,824).........................................................................................................................................................................................................................................................................................................................................................................................

Reclassification to associates (20,000).........................................................................................................................................................................................................................................................................................................................................................................................

Net revaluation surplus recognised in equity 124,330.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 2,233,042

Available-for-sale financial assets included the following:

Listed securities in Hong Kong (note b) 89,353.........................................................................................................................................................................................................................................................................................................................................................................................

Unlisted investments (note c) 2,143,689.........................................................................................................................................................................................................................................................................................................................................................................................

2,233,042

Notes:

(a) Available-for-sale financial assets as at 31 December 2005 comprise investments in equity securities of the investee companies andthe shareholders’ loans advanced to an investee company (with the nominal value of RMB402,994,000). The loans advanced to aninvestee company are unsecured, interest free and have no fixed terms of repayment.

(b) Listed securities represents equity interest in an entity which is principally engaged in the operation and management of internationaland domestic container marine transportation.

(c) Unlisted investments mainly comprise equity interests in entities which are engaged in container terminal operations in Yantian,Tianjin and Dalian of China mainland.

14 Investment securitiesGroup

2004

RMB’000

Equity securities, at cost (note a)

- listed investments in Hong Kong 108,231.........................................................................................................................................................................................................................................................................................................................................................................................

- unlisted investments 192,898.........................................................................................................................................................................................................................................................................................................................................................................................

- unlisted investments in fellow subsidiaries 22,100.........................................................................................................................................................................................................................................................................................................................................................................................

Loans to an investee company (note b) 287,692.........................................................................................................................................................................................................................................................................................................................................................................................

Provision (864).........................................................................................................................................................................................................................................................................................................................................................................................

610,057

Market value of listed shares 105,821

Notes:

(a) All the listed and unlisted investment securities and loans to an investee company have been redesignated as available-for-salefinancial assets upon the adoption of HKASs 32 and 39 (note 2(b)(vi)).

(b) Loans to an investee company were unsecured and had no fixed terms of repayment. Except for an amount of RMB103,018,000which bore interest at Hong Kong dollar prime rate per annum, the remaining balance was interest free.


ANNUAL REPORT 2005

15 Finance lease receivables

Present

value of

minimum

Unearned lease

Gross finance payment

Group receivables income receivable

RMB’000 RMB’000 RMB’000

As at 31 December 2005

Not later than one year 13,752 (3,397) 10,355.........................................................................................................................................................................................................................................................................................................................................................................................

Later than one year and not later than five years 33,790 (5,585) 28,205.........................................................................................................................................................................................................................................................................................................................................................................................

Later than five years 2,076 (40) 2,036.........................................................................................................................................................................................................................................................................................................................................................................................

49,618 (9,022) 40,596.........................................................................................................................................................................................................................................................................................................................................................................................

Less: Amount included under current assets (13,752) 3,397 (10,355).........................................................................................................................................................................................................................................................................................................................................................................................

35,866 (5,625) 30,241

As at 31 December 2004

Not later than one year 14,923 (4,158) 10,765.........................................................................................................................................................................................................................................................................................................................................................................................

Later than one year and not later than five years 38,952 (8,372) 30,580.........................................................................................................................................................................................................................................................................................................................................................................................

Later than five years 8,484 (546) 7,938.........................................................................................................................................................................................................................................................................................................................................................................................

62,359 (13,076) 49,283.........................................................................................................................................................................................................................................................................................................................................................................................

Less: Amount included under current assets (14,923) 4,158 (10,765).........................................................................................................................................................................................................................................................................................................................................................................................

47,436 (8,918) 38,518

As at 31 December 2005, the Group entered into 19 (2004: 20) finance leases contracts for leasing of certain containers.

The average term of the finance lease contracts is 3 years (2004: 4 years).

The cost of assets acquired for the purpose of leasing under finance leases amounted to RMB65,990,000 (2004:

RMB64,966,000) as at 31 December 2005.

Unguaranteed residual values of assets leased under finance lease contracts are estimated at approximately RMB73,000

(2004: RMB74,000).

138



16 Deferred income tax

Deferred income tax is calculated in full on temporary differences under the liability method using taxation rates ranging

from 15% to 44% for the year (2004: 15% to 44%).

The movement on the net deferred tax liabilities is as follows:

Group

2005 2004

RMB’000 RMB’000

At 1 January (765,205) (226,701).........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences 12,732 (98).........................................................................................................................................................................................................................................................................................................................................................................................

Credited/(charged) to consolidated income statement (note 31) 107,500 (117,319).........................................................................................................................................................................................................................................................................................................................................................................................

Charged to equity (note 33) — (421,087).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December (644,973) (765,205)

Deferred income tax assets are recognised for tax losses carry forwards to the extent that realisation of the related tax

benefit through the future taxable profits is probable. As at 31 December 2005, the Group has unrecognised tax losses of

RMB75,417,000 (2004: RMB35,404,000) to carry forward, among which, the tax loss of RMB3,306,000 will expire at the

end of year 2006, RMB580,000 will expire at the end of year 2007 and RMB1,355,000 will expire at the end of year 2008.

As at 31 December 2005, deferred tax liabilities of RMB919,200,000 (2004: RMB205,719,000) have not been established

for the tax liabilities that would be payable on the repatriation of undistributed profits of certain subsidiaries primarily

operating in the United States of America and the PRC totalling RMB4,521,800,000 (2004: RMB697,701,000) as the

Directors consider that the timing of the reversal of the related temporary differences can be controlled and such temporary

differences will not be reversed in the foreseeable future.

The Company did not recognise any deferred income tax for the period ended 31 December 2005 and as at 31 December

2005 as the temporary difference is insignificant to the Company.


ANNUAL REPORT 2005

16 Deferred income tax (Continued)

The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same taxation jurisdiction)

during the year is as follows:

Group

Deferred income tax liabilities

Accelerated Undistributed

tax Accrued profits of

depreciation revenues subsidiaries Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2004 (754,073) (81,852) — (935) (836,860).........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences 2 — — — 2.........................................................................................................................................................................................................................................................................................................................................................................................

Charged to consolidated income statement (441,032) (28,742) — — (469,774).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2004 and 1 January 2005 (1,195,103) (110,594) — (935) (1,306,632).........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences 25,843 — — — 25,843.........................................................................................................................................................................................................................................................................................................................................................................................

(Charged)/credited to

consolidated income statement 161,708 90,608 (176,000) 616 76,932.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 (1,007,552) (19,986) (176,000) (319) (1,203,857)

Group

Deferred income tax assets

Tax losses Others Total

RMB’000 RMB’000 RMB’000

At 1 January 2004 545,926 64,233 610,159.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences — (100) (100).........................................................................................................................................................................................................................................................................................................................................................................................

Credited to consolidated income statement 327,647 24,808 352,455.........................................................................................................................................................................................................................................................................................................................................................................................

Charged to equity (note 33) (421,087) — (421,087).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2004 and 1 January 2005 452,486 88,941 541,427.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (10,681) (2,430) (13,111).........................................................................................................................................................................................................................................................................................................................................................................................

Charged/(credited) to consolidated income statement (42,710) 73,278 30,568.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 399,095 159,789 558,884

140



16 Deferred income tax (Continued)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets

against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts,

determined after appropriate offsetting, are shown in the consolidated balance sheet:

Group

2005 2004

RMB’000 RMB’000

Deferred income tax assets 63,733 39,593.........................................................................................................................................................................................................................................................................................................................................................................................

Deferred income tax liabilities (708,706) (804,798).........................................................................................................................................................................................................................................................................................................................................................................................

(644,973) (765,205)

The amount shown in the consolidated balance sheet

include the following:.........................................................................................................................................................................................................................................................................................................................................................................................

Deferred income tax assets to be recovered after more than 12 months 63,733 39,444.........................................................................................................................................................................................................................................................................................................................................................................................

Deferred income tax liabilities to be settled after more than 12 months (701,006) (653,388)

17 Derivative financial assets/liabilities

Group

2005 2005

Assets Liabilities

RMB’000 RMB’000

Interest rate swaps

- cash flow hedges (note a) 5,853 —.........................................................................................................................................................................................................................................................................................................................................................................................

- fair value hedges (note b) — 16,199.........................................................................................................................................................................................................................................................................................................................................................................................

Total 5,853 16,199

Notes:

(a) The notional principal amounts of the related interest rate swap contracts amounted to US$100,000,000 (equivalent to

approximately RMB807,020,000) (2004: US$100,000,000 (equivalent to approximately RMB827,700,000)) which were committed

with the fixed interest rates ranging from 3.88% to 4.90% (2004: 3.88% to 4.90%) per annum. These interest rate swap contracts

do not qualify for hedge accounting.

(b) The notional principal amount of the related interest rate swap contracts amounted to US$200,000,000 (equivalent to approximately

RMB1,614,040,000) (2004: US$200,000,000 (equivalent to approximately RMB1,655,400,000)) which were committed with the

interest rates ranging from 1.05% to 1.16% (2004: 1.05% to 1.16%) per annum above the London Interbank Offered Rate

(“LIBOR”). These interest rate swap contracts have been designated as a hedge of the fair value of the notes issued by a subsidiary

of Group upon their hedging relationship was fully designated and documented during the year (note 23(d)).

(c) As at 31 December 2005, there were notional amounts of outstanding bunker forward agreements of US$24,864,000 (equivalent to

approximately RMB200,656,000) (2004: US$23,766,000 (equivalent to approximately RMB196,713,000)) entered into by the

Group. The fair value of the outstanding bunker forward agreements has not been recognised in the Group’s financial statements as

at 31 December 2005 as the amount is not significant to the Group.


ANNUAL REPORT 2005

18 Deposits and cash and cash equivalents

Group Company

2005 2004 2005

RMB’000 RMB’000 RMB’000

Non-current portion

Restricted bank deposits (note a) 207,711 93,509 —.........................................................................................................................................................................................................................................................................................................................................................................................

Current portion

Pledged bank deposits (note b) — 346 —.........................................................................................................................................................................................................................................................................................................................................................................................

Cash and cash equivalents

Money market fund investments (note c) 64,562 — —.........................................................................................................................................................................................................................................................................................................................................................................................

Deposits placed with COSCO Finance Co., Ltd

(“COSCO Finance”) (note d) 54,441 71,214 —.........................................................................................................................................................................................................................................................................................................................................................................................

Bank balances and cash - unpledged 8,028,372 4,823,318 2,262,888.........................................................................................................................................................................................................................................................................................................................................................................................

8,147,375 4,894,532 2,262,888.........................................................................................................................................................................................................................................................................................................................................................................................

Total deposits and cash and cash equivalents (note e) 8,355,086 4,988,387 2,262,888

Notes:

(a) Restricted bank deposits are deposits held as security for repayment of bank loans of the Group and are restricted for the purpose

of the related banking facilities (note 23(i)).

(b) Pledged bank deposits are funds deposited in retention accounts for bank loan repayment or required to be utilised for specific

purposes.

(c) Money market fund investments are highly liquid investments with original maturities within 3 months.

(d) Deposits placed with COSCO Finance, an associate/a fellow subsidiary, bear interest at prevailing market rates.

(e) As at 31 December 2005, exchange controls apply to certain bank balances and cash, which are held by certain subsidiaries of the

Group with bank accounts operating in the PRC, amounted to RMB1,599,478,000 (2004: RMB1,215,179,000).

The carrying amounts of deposits and cash and cash equivalents are denominated in the following currencies:

Group Company

2005 2004 2005

RMB’000 RMB’000 RMB’000

US dollar 3,145,126 2,882,058 117,161.........................................................................................................................................................................................................................................................................................................................................................................................

RMB 1,252,274 805,404 139,762.........................................................................................................................................................................................................................................................................................................................................................................................

HK dollar 2,225,455 277,750 2,005,965.........................................................................................................................................................................................................................................................................................................................................................................................

EURO dollar 570,062 286,813 —.........................................................................................................................................................................................................................................................................................................................................................................................

Other currencies 1,162,169 736,362 —.........................................................................................................................................................................................................................................................................................................................................................................................

8,355,086 4,988,387 2,262,888

(f) The effective interest rates on short-term bank deposits as at 31 December 2005 were in the range of 0.60% to 5.44% per annum

(2004: 0.18% to 5.50% per annum); these deposits have an average maturity of 65 days (2004: 73 days). The bank balances earn

interests at floating rates based on daily bank deposit rates.

142



19 Inventories

Group

2005 2004

RMB’000 RMB’000

Bunker 499,343 288,322.........................................................................................................................................................................................................................................................................................................................................................................................

Resaleable containers and others 37,553 30,087.........................................................................................................................................................................................................................................................................................................................................................................................

536,896 318,409

20 Trade and other receivables

Group Company

2005 2004 2005

RMB’000 RMB’000 RMB’000

Trade receivables (note a)

- third parties 2,697,957 2,052,671 —.........................................................................................................................................................................................................................................................................................................................................................................................

- subsidiaries of COSCO 617,251 648,191 —.........................................................................................................................................................................................................................................................................................................................................................................................

- jointly controlled entities 325,891 173,386 —.........................................................................................................................................................................................................................................................................................................................................................................................

- related companies 8,970 262,896 —.........................................................................................................................................................................................................................................................................................................................................................................................

3,650,069 3,137,144 —.........................................................................................................................................................................................................................................................................................................................................................................................

Bills receivables (note a) 53,219 40,566 —.........................................................................................................................................................................................................................................................................................................................................................................................

3,703,288 3,177,710 —.........................................................................................................................................................................................................................................................................................................................................................................................

Prepayments, deposits and other receivables 443,909 521,875 3,618.........................................................................................................................................................................................................................................................................................................................................................................................

Due from related parties (note c).........................................................................................................................................................................................................................................................................................................................................................................................

- COSCO 16,467 2,032,583 —.........................................................................................................................................................................................................................................................................................................................................................................................

- subsidiaries of COSCO 59,544 182,334 313,775.........................................................................................................................................................................................................................................................................................................................................................................................

- jointly controlled entities 58,666 73,690 37,640.........................................................................................................................................................................................................................................................................................................................................................................................

- associates 566 — —.........................................................................................................................................................................................................................................................................................................................................................................................


230,432 2,404,578 351,415.........................................................................................................................................................................................................................................................................................................................................................................................

4,377,629 6,104,163 355,033


ANNUAL REPORT 2005

20 Trade and other receivables (Continued)

Notes:

(a) The normal credit period granted to the customers is generally in the range of 25 to 90 days. At 31 December 2005, the aging

analysis of trade and bills receivables is as follows:

2005 2004

RMB’000 RMB’000

1-3 months 3,489,622 2,841,880.........................................................................................................................................................................................................................................................................................................................................................................................

4-6 months 154,958 200,503.........................................................................................................................................................................................................................................................................................................................................................................................

7-12 months 63,671 113,611.........................................................................................................................................................................................................................................................................................................................................................................................

1-2 years 22,609 44,781.........................................................................................................................................................................................................................................................................................................................................................................................

2-3 years 2,545 34,787.........................................................................................................................................................................................................................................................................................................................................................................................

3,733,405 3,235,562.........................................................................................................................................................................................................................................................................................................................................................................................

Provision for impairment (30,117) (57,852).........................................................................................................................................................................................................................................................................................................................................................................................

3,703,288 3,177,710

(b) The carrying amounts of trade and bills receivables are denominated in the following currencies:

2005 2004

RMB’000 RMB’000

US dollar 2,336,540 1,837,914.........................................................................................................................................................................................................................................................................................................................................................................................

RMB 562,727 791,443.........................................................................................................................................................................................................................................................................................................................................................................................

EURO dollar 419,142 282,577.........................................................................................................................................................................................................................................................................................................................................................................................

Other currencies 384,879 265,776.........................................................................................................................................................................................................................................................................................................................................................................................

3,703,288 3,177,710

(c) The amounts due from related parties are unsecured and interest free.

(d) The carrying amounts of trade and other receivables approximate their fair values.

144



21 Share capital and equity linked benefits

(a) Share capital

Number of Nominal

shares Value

(thousands) RMB’000

Registered, issued and fully paid.........................................................................................................................................................................................................................................................................................................................................................................................

Domestic Shares of RMB1.00 each 3,896,000 3,896,000.........................................................................................................................................................................................................................................................................................................................................................................................

H shares of RMB1.00 each 2,244,000 2,244,000.........................................................................................................................................................................................................................................................................................................................................................................................

As at 31 December 2005 6,140,000 6,140,000

A summary of the movements in the Company’s issued share capital for the period from 3 March 2005 (date of

incorporation of the Company) to 31 December 2005 was as follows:

Domestic

Shares H shares Total

RMB’000 RMB’000 RMB’000

Incorporation on 3 March 2005 (note i) 4,100,000 — 4,100,000.........................................................................................................................................................................................................................................................................................................................................................................................

Domestic Shares converted into H shares (note ii) (204,000) 204,000 —.........................................................................................................................................................................................................................................................................................................................................................................................

Issue of new shares upon listing (note ii) — 2,040,000 2,040,000.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 3,896,000 2,244,000 6,140,000

Notes:

(i) The Company was incorporated on 3 March 2005, with an initial registered share capital of RMB4,100,000,000, divided into

4,100,000,000 shares with a nominal value of RMB1.00 each. 4,100,000,000 shares with a nominal value of RMB1.00 each

were issued to COSCO, all of which were credited as fully paid, in consideration for the transfer of the Relevant Companies to

the Company pursuant to the Reorganisation as referred to in note 1 to the Consolidated Financial Statements.

The Domestic Shares rank pari passu, in all material respects, with the H shares. Nonetheless, the transfer of Domestic

Shares (including Domestic Shares held by the Directors, the supervisors and the staff of the Company, if any) is subject to

certain restrictions imposed by the PRC law from time to time.

(ii) The Company’s H shares were listed on the Main Board on 30 June 2005 and 2,244,000,000 H shares, consisting of

2,040,000,000 new shares and 204,000,000 shares converted from Domestic Shares, with a nominal value of RMB1.00

each were issued to the public by way of international offering and public offer at HK$ 4.25 (equivalent to approximately

RMB4.53) each.

The Company raised net proceeds of approximately RMB8,817,797,000 from the issuing of 2,040,000,000 new shares, of

which paid-up share capital was approximately RMB2,040,000,000 and share premium was approximately

RMB6,777,797,000.

The net proceeds from the sales of 204,000,000 H shares converted from Domestic Shares were approximately

RMB880,541,000, after deducting the relevant portion of share issuing expenses of approximately RMB42,727,000. The

National Social Security Fund is entitled to the net proceeds in connection with the sales of these shares. The net proceeds

were paid to the National Social Security Fund during the year.

(iii) The comparative of share capital shown in the consolidated balance sheet represents 4,100,000,000 shares with a nominal

value of RMB1.00 each in the share capital of the Company prior to the share conversion and the issue of new issue upon

listing.


ANNUAL REPORT 2005

21 Share capital and equity linked benefits (Continued)

(b) Share appreciation rights

The Group has adopted a cash-settled, share-based payment scheme (the “Plan”) which was approved in the

shareholders’ meeting held on 9 June 2005. The Plan provides for the grant of share appreciation rights (“SARs”) to

eligible participants, including the Directors (excluding independent non-executive Directors), supervisors, company

secretary, senior management of the Company and COSCON Group and other grantees as approved by the

Company’s board of directors (collectively “the Grantees”). The Plan will remain in force unless otherwise cancelled or

amended.

Under the Plan, the holders of SARs are entitled the rights to receive an amount in respect of the appreciation in

market value of the Company’s H shares from the date of grant of SARs and the date of exercise. No shares will be

issued under the Plan and therefore the Company’s equity interests will not be diluted as a result of the issuance of

SARs. The maximum number of unexercised SARs permitted to be granted under the Plan is, upon their exercise,

limited to 10% of the Company’s H shares in issue at any time during each year. The maximum number of SARs

granted to any eligible participant (including share appreciation rights granted prior to this Plan) is limited to 25% of

the total number of SARs in issue at any time. Any further grant of SARs in excess of the above limits is subject to the

approval of the Company’s board of directors.

The exercise period of all SARs commences after a vesting period and ends on a date which is not later than 10

years from the date of grant of the SARs. As of each of the last day of the third, fourth, fifth and sixth anniversary of

the date of grant, the total number of SARs exercisable will not exceed 25%, 50%, 75% and 100%, respectively, of

the total SARs granted to the respective eligible participants.

Movements in the number of SARs granted by the Company during the year ended 31 December 2005, for which

the grant was approved by the Company’s board of directors on 16 December 2005, are set out below.

For the year ended 31 December 2005

Number of units of SARs

Granted Exercised Lapsed Outstanding at

Exercise during during during 31 December

Category Note price the year the year the year 2005

Directors (i) HK$3.195 6,000,000 — — 6,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Supervisors (i) HK$3.195 1,400,000 — — 1,400,000.........................................................................................................................................................................................................................................................................................................................................................................................

Other continuous

contract employees (i) HK$3.195 12,525,000 — — 12,525,000.........................................................................................................................................................................................................................................................................................................................................................................................

Others (i), (ii) HK$3.195 2,225,000 — — 2,225,000.........................................................................................................................................................................................................................................................................................................................................................................................

22,150,000 — — 22,150,000

146




(b) Share appreciation rights (Continued)

Notes:

(i) The SARs were granted by the Company on 16 December 2005 and are exercisable between 16 December 2007 to 15

December 2015.

(ii) The SARs were granted to other grantees as approved by the Company’s board of directors (including certain employees of

COSCO) during the year and are classified in the category of “Others”.

The fair value of SARs at the date of grant as determined using the Black-Scholes valuation model was HK$1.9454 per unit. The

significant inputs into the model were share price of HK$ 3.425, exercise price, expected life of SARs of 10 years, expected

dividend rate, and risk-free interest rate of 5.24%. The expected volatility is estimated based on historical daily share price of the

Company for the year. The intrinsic value of SARs as at 31 December 2005 is HK$0.225 per unit.

The fair value of SARS has not been recognised in the Group’s financial statements for the year ended 31 December 2005 as the

amount is insignificant to the Group.

(c) Share options of a subsidiary

The Group’s subsidiary, COSCO Pacific, operates share option schemes whereby options may be granted to eligible

employees and directors or any participants (as defined in the relevant share option schemes) of the Group, to

subscribe for its shares.

Movements of the share options granted by COSCO Pacific during the year ended 31 December 2005 and 2004 are

set out below:



Outstanding Reclassified Outstanding

at Granted Exercised Lapsed (to)/ at

Exercise 1 January during during during from other 31 December

Category Note price 2005 the year the year the year category 2005

HK$ (note (vi))

Directors (iv) 9.54 6,700,000 — (3,400,000) — — 3,300,000.........................................................................................................................................................................................................................................................................................................................................................................................

(v) 13.75 9,000,000 — — — — 9,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Supervisor (iv) 9.54 800,000 — (400,000) — — 400,000.........................................................................................................................................................................................................................................................................................................................................................................................

(v) 13.75 1,000,000 — — — — 1,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Other continuous

contract employees (iii) 8.80 2,702,000 — (1,548,000) — — 1,154,000.........................................................................................................................................................................................................................................................................................................................................................................................

(iv) 9.54 11,670,000 — (3,682,000) — — 7,988,000.........................................................................................................................................................................................................................................................................................................................................................................................

(v) 13.75 43,990,000 — (4,846,000) — (1,000,000) 38,144,000.........................................................................................................................................................................................................................................................................................................................................................................................

Others (iv) 9.54 1,320,000 — (410,000) — — 910,000.........................................................................................................................................................................................................................................................................................................................................................................................

(v) 13.75 9,750,000 — (1,050,000) — 1,000,000 9,700,000.........................................................................................................................................................................................................................................................................................................................................................................................

86,932,000 — (15,336,000) — — 71,596,000


ANNUAL REPORT 2005


(c) Share options of a subsidiary (Continued)



Outstanding Outstanding

at Granted Exercised Lapsed at

Exercise 1 January during during during 31 December

Category Note price 2004 the year the year the year 2004

HK$

Directors (iv) 9.54 7,600,000 — (900,000 ) — 6,700,000.........................................................................................................................................................................................................................................................................................................................................................................................

(v) 13.75 — 9,000,000 — — 9,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Supervisor (iv) 9.54 800,000 — — — 800,000.........................................................................................................................................................................................................................................................................................................................................................................................

(v) 13.75 — 1,000,000 — — 1,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Other continuous

contract employees (ii) 5.53 1,580,000 — (1,580,000 ) — —.........................................................................................................................................................................................................................................................................................................................................................................................

(iii) 8.80 10,600,000 — (7,898,000 ) — 2,702,000.........................................................................................................................................................................................................................................................................................................................................................................................

(iv) 9.54 31,240,000 — (19,550,000 ) (20,000 ) 11,670,000.........................................................................................................................................................................................................................................................................................................................................................................................

(v) 13.75 — 43,990,000 — — 43,990,000.........................................................................................................................................................................................................................................................................................................................................................................................

Others (iv) 9.54 6,180,000 — (4,860,000 ) — 1,320,000.........................................................................................................................................................................................................................................................................................................................................................................................

(v) 13.75 — 10,050,000 (300,000 ) — 9,750,000.........................................................................................................................................................................................................................................................................................................................................................................................

58,000,000 64,040,000 (35,088,000 ) (20,000 ) 86,932,000

Notes:

(i) All the outstanding options were vested and exercisable as at 31 December 2005 and 2004. The Group has no legal or

constructive obligation to repurchase or settle the options in cash. As all grants of share options were vested on or before 1

January 2005 and accordingly, no adjustment is made in the Group’s financial statements pursuant to the transitional

provisions as set out in HKFRS 2.

(ii) The share options were granted on 1 July 1996 under the COSCO Pacific’s 1994 share option scheme and are exercisable

on or before 30 June 2006, subject to the following conditions:

Percentage of the total number of

options granted to each grantee which

can be exercised (including the options Price level per share at which

which have already been exercised) the options can be exercised #

20% of the options HK$6.50 or above




100% or the options HK$8.50 or above

# The price level refers to the closing price of COSCO Pacific’s shares on The Stock Exchange of Hong Kong Limited at

the date prior to the exercise of the options.

148




(c) Share options of a subsidiary (Continued)

(iii) The share options were granted on 20 May 1997 (the “Offer Date”) under the COSCO Pacific's 1994 share option scheme

and are exercisable on or before 19 May 2007, subject to the following conditions:

1 For those grantees who have completed one year full-time service in the Group may exercise a maximum of 20% of

share options granted in each of the first five anniversary years from the Offer Date.

2 For those grantees who have not completed one year full-time service in the Group as at the Offer Date, a maximum of

20% of options granted may be exercisable in each of the first five anniversary years of the Offer Date after completion

of one year full-time service.

For those share options granted on 20 May 1997 under the COSCO Pacific's 1994 share option scheme, all grantees may

reserve their rights to exercise and accumulate their share options exercisable during their employment within the COSCO

Pacific group.

(iv) The share options were granted during the period from 28 October 2003 to 6 November 2003 under the COSCO Pacific's

2003 share option scheme at an exercise price of HK$9.54. The options are exercisable at any time within ten years from the

date on which an offer is accepted or deemed to be accepted by the grantee under the COSCO Pacific's 2003 share option

scheme from 28 October 2003 to 6 November 2003.

Following the resignation of an employee, 20,000 share options were lapsed during the year ended 31 December 2004.

(v) The share options were granted during the period from 25 November 2004 to 16 December 2004 under the COSCO

Pacific's 2003 share option scheme at an exercise price of HK$13.75. The options are exercisable at any time within ten

years from the date on which an offer is accepted or deemed to be accepted by the grantee under the COSCO Pacific's

2003 share option scheme from 25 November 2004 to 16 December 2004.

(vi) Certain share options were granted to the directors or senior management of COSCO and fellow subsidiaries which are

disclosed in the category of “Others”. A director of a subsidiary was resigned in 2005. The options granted to him were re-

classified from the category of “Other continuous contract employees” to “Others” during the year.

(vii) The exercise of the 15,336,000 (2004: 35,088,000) share options during the year yielded the proceeds, net of transaction

costs, of RMB179,901,000 (2004: RMB343,628,000).

(viii) Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

2005 2004

Average Average

exercise Number of exercise Number of

price per share price per share

share options share options

HK$ HK$

At 1 January 12.60 86,932,000 9.30 58,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Granted N/A — 13.75 64,040,000.........................................................................................................................................................................................................................................................................................................................................................................................

Exercised 11.08 (15,336,000) 9.23 (35,088,000).........................................................................................................................................................................................................................................................................................................................................................................................

Lapsed N/A — 9.54 (20,000).........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 71,596,000 86,932,000

The weighted average closing price of the COSCO Pacific’s shares on the dates when the share options were exercised was

HK$15.73 (2004: HK$13.35) per share.


ANNUAL REPORT 2005

22 Reserves

Group

(Accumulated

Statutory losses)/

Capital reserve Exchange retained

reserve funds reserve profits Total


As at 1 January 2004 (64,095) 147,993 17,253 (2,254,883) (2,153,732).........................................................................................................................................................................................................................................................................................................................................................................................

Profit for the year — — — 4,157,960 4,157,960.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences — — 8,414 — 8,414.........................................................................................................................................................................................................................................................................................................................................................................................

Share of reserves of jointly

controlled entities and associates — (596) — — (596).........................................................................................................................................................................................................................................................................................................................................................................................

Release of reserves upon deemed disposals (9,072) (613) 464 — (9,221).........................................................................................................................................................................................................................................................................................................................................................................................

Transfer of reserves — 59,485 — (59,485) —.........................................................................................................................................................................................................................................................................................................................................................................................

Distributions (note 33).........................................................................................................................................................................................................................................................................................................................................................................................

- distribution of reserves — — — (1,148,081) (1,148,081).........................................................................................................................................................................................................................................................................................................................................................................................

- transfer of COSCO Pacific — — — (1,248,130) (1,248,130).........................................................................................................................................................................................................................................................................................................................................................................................

- deferred income tax — — — (421,087) (421,087).........................................................................................................................................................................................................................................................................................................................................................................................

- dividends paid to then shareholders — — — (389,304) (389,304).........................................................................................................................................................................................................................................................................................................................................................................................

- disposal/transfer of other subsidiaries — — — (86,036) (86,036).........................................................................................................................................................................................................................................................................................................................................................................................

- others — — — (19,062) (19,062).........................................................................................................................................................................................................................................................................................................................................................................................

Contributions (note e).........................................................................................................................................................................................................................................................................................................................................................................................

- capital injection to a subsidiary 3,000,000 — — — 3,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

- waiver of payable balances

from related parties — — — 229,694 229,694.........................................................................................................................................................................................................................................................................................................................................................................................

- transfer of investments to

then shareholders — — — 1,428,385 1,428,385.........................................................................................................................................................................................................................................................................................................................................................................................

As at 31 December 2004 2,926,833 206,269 26,131 189,971 3,349,204

150



22 Reserves (Continued)

Group

(AccumulatedSpecial Statutory Investment losses)/

Capital reserve reserve revaluation Exchange retainedreserve (Note d) funds reserve reserve profits Total


As at 1 January 2005, as previously reported 2,926,833 — 206,269 — 26,131 189,971 3,349,204.........................................................................................................................................................................................................................................................................................................................................................................................

Opening adjustments for the adoption ofHKFRS 3, HKASs 32, 39 and 39 (Amendment)in respect of:- Redesignation of investment securities as available-for-sale financial assets — — — 1,016,182 — — 1,016,182

.........................................................................................................................................................................................................................................................................................................................................................................................

- Recognition of unamortised transaction costs on bank borrowings and notes — — — — — 68,633 68,633

.........................................................................................................................................................................................................................................................................................................................................................................................

- Recognition of interest rate swap contracts as derivative financial instruments — — — — — 7,021 7,021

.........................................................................................................................................................................................................................................................................................................................................................................................

- Derecognition of negative goodwill — — — — — 86,243 86,243.........................................................................................................................................................................................................................................................................................................................................................................................

- Share of opening adjustments of jointly controlled entities and associates 3,161 — 11,545 14,524 — (3,566 ) 25,664.........................................................................................................................................................................................................................................................................................................................................................................................

As at 1 January 2005, as restated 2,929,994 — 217,814 1,030,706 26,131 348,302 4,552,947.........................................................................................................................................................................................................................................................................................................................................................................................

Capital reduction of a subsidiary (3,720,000 ) — — — — 3,720,000 —.........................................................................................................................................................................................................................................................................................................................................................................................

Capitalisation upon reorganisationof the Company (note a) 2,248,316 279,422 (217,814 ) — (26,131 ) (2,283,793 ) —

.........................................................................................................................................................................................................................................................................................................................................................................................

Share premium arising from issuance ofnew H shares 7,192,683 — — — — — 7,192,683

.........................................................................................................................................................................................................................................................................................................................................................................................

Share issue expenses (414,886 ) — — — — — (414,886 ).........................................................................................................................................................................................................................................................................................................................................................................................

Profit for the year — — — — — 5,450,805 5,450,805.........................................................................................................................................................................................................................................................................................................................................................................................

Release of reserves upon.........................................................................................................................................................................................................................................................................................................................................................................................

- disposal of an available-for-sale financial asset — — — (261,381 ) — — (261,381 ).........................................................................................................................................................................................................................................................................................................................................................................................

- deemed disposals (4,796 ) — — (5,639 ) — — (10,435 ).........................................................................................................................................................................................................................................................................................................................................................................................

- disposal of a jointly controlled entity (279 ) — — — — — (279 ).........................................................................................................................................................................................................................................................................................................................................................................................

Fair value gain on available-for-sale financial assets — — — 64,689 — — 64,689.........................................................................................................................................................................................................................................................................................................................................................................................

Share of reserves of a jointly controlled entity andassociates 9,208 — — — — — 9,208

.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences — — — — (393,559 ) — (393,559 ).........................................................................................................................................................................................................................................................................................................................................................................................

Transfer of reserves (note b) — — 1,081,763 — — (1,081,763 ) —.........................................................................................................................................................................................................................................................................................................................................................................................

Distributions (note 33).........................................................................................................................................................................................................................................................................................................................................................................................

- distributions to COSCO — — — — — (3,788,566 ) (3,788,566 ).........................................................................................................................................................................................................................................................................................................................................................................................

- transfer of other subsidiaries — — — — — (94,568 ) (94,568 ).........................................................................................................................................................................................................................................................................................................................................................................................

- others — — — — — (10,306 ) (10,306 ).........................................................................................................................................................................................................................................................................................................................................................................................

As at 31 December 2005 8,240,240 279,422 1,081,763 828,375 (393,559 ) 2,260,111 12,296,352

Representing:Reserves 8,240,240 279,422 1,081,763 828,375 (393,559 ) 1,461,911 11,498,152.........................................................................................................................................................................................................................................................................................................................................................................................

2005 final dividend proposed — — — — — 798,200 798,200.........................................................................................................................................................................................................................................................................................................................................................................................

As at 31 December 2005 8,240,240 279,422 1,081,763 828,375 (393,559 ) 2,260,111 12,296,352


ANNUAL REPORT 2005


Company

Special Statutory

Capital reserve reserve Accumulated Exchange

reserve (note d) funds loss reserve Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Capitalisation upon incorporation of

the Company (note a) 2,489,016 279,422 — — — 2,768,438.........................................................................................................................................................................................................................................................................................................................................................................................

Loss for the period from

3 March 2005 to

31 December 2005 (note 32) — — — (75,297) — (75,297).........................................................................................................................................................................................................................................................................................................................................................................................

Share premium arising from

issuance of new H shares 7,192,683 — — — — 7,192,683.........................................................................................................................................................................................................................................................................................................................................................................................

Share issue expenses (414,886) — — — — (414,886).........................................................................................................................................................................................................................................................................................................................................................................................

Distribution (note 33 (b)) — — — (967,926) — (967,926).........................................................................................................................................................................................................................................................................................................................................................................................

Exchange difference (note f) — — — — (185,476) (185,476).........................................................................................................................................................................................................................................................................................................................................................................................

Transfer to statutory reserve funds

(note b) — — 1,081,763 (1,081,763) — —.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 9,266,813 279,422 1,081,763 (2,124,986) (185,476) 8,317,536

Representing:

Reserves 9,266,813 279,422 1,081,763 (2,923,186) (185,476) 7,519,336.........................................................................................................................................................................................................................................................................................................................................................................................

2005 final dividend proposed — — — 798,200 — 798,200.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 9,266,813 279,422 1,081,763 (2,124,986) (185,476) 8,317,536

Notes:

(a) As described in note 2(a) to the Consolidated Financial Statements, the financial statements of the Group for the years ended 31

December 2005 and 2004 have been prepared on the basis of merger accounting as if the Company had been the holding

company of those companies comprising the Group throughout the two years ended 31 December 2004 and 2005, or since the

respective dates of incorporation/establishment or from the effective dates of acquisition/up to the effective dates of disposal,

whichever is a shorter period. Upon the incorporation of the Company on 3 March 2005, the net value of the interests in COSCON

and COSCO Pacific Investments transferred to the Company from COSCO was converted into the Company’s share capital of

RMB4,100,000,000 of RMB1.00 each with the then existing reserves eliminated (save for investment revaluation reserve) and the

resulting difference dealt with in the capital reserve, special reserve (note 22(d)) and retained profits.

152




(b) Statutory reserve funds

In accordance with the PRC Company Law and the Company’s articles of association, the Company is required to allocate 10% of

its profit after tax as determined in accordance with the relevant accounting principles and financial regulations applicable to PRC

companies (“PRC GAAP”) and regulations applicable to the Company, to the statutory surplus reserve until such reserve reaches

50% of the registered capital of the Company. The appropriation to the reserve must be made before any distribution of dividends to

equity holders. The statutory surplus reserve can be used to offset previous year’s losses, if any, and part of the statutory surplus

reserve can be capitalised as the Company’s share capital provided that the amount of such reserve remaining after the

capitalisation shall not be less than 25% of the share capital of the Company.

In accordance with the PRC Company Law, the Company is required to appropriate 5% to 10% of its profit after tax, as determined

in accordance with PRC GAAP and regulations applicable to the Company, to its statutory public welfare fund for capital

expenditure on staff welfare facilities, the ownership in respect of which belongs to the Group. The statutory public welfare fund is

not available for distribution to equity holders except under liquidation. The appropriation to this fund must be made before any

distribution of dividends to equity holders.

On 9 June 2005, the equity holders of the Company approved the appropriations of RMB173,023,000 to each of the statutory

surplus reserve, statutory public welfare fund and discretionary surplus reserve. Each appropriation represents 10% of the

Company’s profit after tax for the period from 4 March 2005 to 30 June 2005 as determined in accordance with PRC GAAP.

For the year ended 31 December 2005, further appropriations of RMB281,347,000 to each of the statutory surplus reserve and

statutory public welfare fund. Each appropriation represents 10% of the Company’s profit after tax for the period from 1 July 2005 to

31 December 2005, as determined in accordance with PRC GAAP. An appropriation of 10% to the discretionary surplus reserve is

proposed and is subject to the equity holders’ approval at the forthcoming annual general meeting. This proposed appropriation to

the discretionary surplus fund is not reflected in the financial statements until it has been approved at the annual general meeting,

and will be reflected as an appropriation of retained profits for the year ending 31 December 2006.

(c) In accordance with the articles of association of the Company, the net profit after tax of the Company for the purpose of dividend

payments is based on the lesser of (i) the net profit determined in accordance with the PRC GAAP; and (ii) the net profit determined

in accordance with HKFRSs.

On this basis, as at 31 December 2005, amount of retained profits available for distribution (after initial and special distributions to

COSCO on profits relating to periods prior to listing totalled RMB3,788,566,000 (note 33) and the appropriation of reserves (note

22(b)) was approximately RMB1,724,455,000, being the amount determined in accordance with the PRC GAAP.

(d) The Company has obtained from the Ministry of Finance an approval pursuant to which the Company is permitted to retain as a

special reserve, the benefit of which is solely attributable to COSCO, an amount representing the profit of COSCO Pacific

attributable to the Group for the period from 30 June 2004 to 3 March 2005 (being the date of incorporation of the Company) less

dividends payable by COSCO Pacific to the Group in respect of that period. At 31 December 2005, specific reserve amounted to

RMB279,422,000 (note 33(a)).

With regard to such special reserve, pursuant to the reorganisation agreement dated 9 June 2005 entered into between the

Company and COSCO, the Company has agreed with COSCO that it will, at a time it considers appropriate and, in any event,

within three years from the Listing Date, convert such special reserve into domestic shares to be held by COSCO at HK$4.25 per

share, subject to obtaining prior approval from the State-owned Assets Supervision and Administration Commission of the State

Council for such conversion.


ANNUAL REPORT 2005


(e) Contributions during 2004 represented the following:

2004

RMB’000

Capital injection in cash to a subsidiary 3,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Waiver of payable balances

- from COSCO 161,539.........................................................................................................................................................................................................................................................................................................................................................................................

- from subsidiaries of COSCO 68,155.........................................................................................................................................................................................................................................................................................................................................................................................

229,694.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on disposal of investments * 1,428,385.........................................................................................................................................................................................................................................................................................................................................................................................

4,658,079

* This represented the gain on disposal of investments by COSCO Investments (note 1(b)).

(f) The Company’s functional currency is US dollar which is different from its presentation currency. Assets and liabilities are translated

at closing rate and income and expenses are translated using the exchange rates prevailing at the dates of the transactions, any

differences are dealt with in the exchange reserve of the Company.

23 Long-term borrowings

Group

2005 2004

RMB’000 RMB’000

Bank loans

- secured (note i) 10,570,648 11,452,327.........................................................................................................................................................................................................................................................................................................................................................................................

- unsecured 1,588,449 1,455,676.........................................................................................................................................................................................................................................................................................................................................................................................

Secured other loans (note i) 61,027 332,861.........................................................................................................................................................................................................................................................................................................................................................................................

Finance lease obligations (note c) — 118,796.........................................................................................................................................................................................................................................................................................................................................................................................

Notes (note d) 2,346,242 2,469,882.........................................................................................................................................................................................................................................................................................................................................................................................

14,566,366 15,829,542.........................................................................................................................................................................................................................................................................................................................................................................................

Current portion of long-term borrowings (2,196,863) (3,580,099).........................................................................................................................................................................................................................................................................................................................................................................................

12,369,503 12,249,443

154



23 Long-term borrowings (Continued)

(a) The long-term borrowings are analysed as follows:

Group2005 2004

RMB’000 RMB’000

Wholly repayable within five years

- bank loans 7,920,595 7,356,254.........................................................................................................................................................................................................................................................................................................................................................................................

- other loans 61,027 84,569

7,981,622 7,440,823.........................................................................................................................................................................................................................................................................................................................................................................................

Not wholly repayable within five years

- bank loans 4,238,502 5,551,749.........................................................................................................................................................................................................................................................................................................................................................................................

- other loan — 248,292.........................................................................................................................................................................................................................................................................................................................................................................................

- finance lease obligations — 118,796.........................................................................................................................................................................................................................................................................................................................................................................................

- notes 2,346,242 2,469,882.........................................................................................................................................................................................................................................................................................................................................................................................

6,584,744 8,388,719

14,566,366 15,829,542


ANNUAL REPORT 2005


(b) The Group’s long-term borrowings were repayable as follows:

Group2005 2004

RMB’000 RMB’000

Bank loans

- within one year 2,173,798 3,529,319.........................................................................................................................................................................................................................................................................................................................................................................................

- in the second year 2,222,049 1,528,475.........................................................................................................................................................................................................................................................................................................................................................................................

- in the third to fifth years 5,346,415 4,851,235.........................................................................................................................................................................................................................................................................................................................................................................................

- over five years 2,416,835 2,998,974.........................................................................................................................................................................................................................................................................................................................................................................................

12,159,097 12,908,003.........................................................................................................................................................................................................................................................................................................................................................................................

Other loans

- within one year 23,065 41,649.........................................................................................................................................................................................................................................................................................................................................................................................

- in the second year 24,840 44,319.........................................................................................................................................................................................................................................................................................................................................................................................

- in the third to fifth years 13,122 107,439.........................................................................................................................................................................................................................................................................................................................................................................................

- over five years — 139,454.........................................................................................................................................................................................................................................................................................................................................................................................

61,027 332,861.........................................................................................................................................................................................................................................................................................................................................................................................

Finance lease obligations

- within one year — 9,131.........................................................................................................................................................................................................................................................................................................................................................................................

- in the second year — 9,131.........................................................................................................................................................................................................................................................................................................................................................................................

- in the third to fifth years — 35,874.........................................................................................................................................................................................................................................................................................................................................................................................

- over five years — 64,660.........................................................................................................................................................................................................................................................................................................................................................................................

— 118,796.........................................................................................................................................................................................................................................................................................................................................................................................

Notes

- over five years 2,346,242 2,469,882.........................................................................................................................................................................................................................................................................................................................................................................................

14,566,366 15,829,542

156




(c) The minimum lease payments under finance leases are summarised as follows:

2005 2004

RMB’000 RMB’000

The minimum lease payments

- within one year — 14,754.........................................................................................................................................................................................................................................................................................................................................................................................

- in the second year — 14,754.........................................................................................................................................................................................................................................................................................................................................................................................

- in the third to fifth years — 44,259.........................................................................................................................................................................................................................................................................................................................................................................................

- over five years — 73,134.........................................................................................................................................................................................................................................................................................................................................................................................

— 146,901.........................................................................................................................................................................................................................................................................................................................................................................................

Future finance charges on finance leases — (28,105).........................................................................................................................................................................................................................................................................................................................................................................................

Present value of finance lease obligations — 118,796

(d) Details of the notes as at 31 December 2005 are as follows:

2005 2004

RMB’000 RMB’000

Principal amount 2,421,060 2,483,100.........................................................................................................................................................................................................................................................................................................................................................................................

Discount on issue (15,325) (15,718).........................................................................................................................................................................................................................................................................................................................................................................................

Notes issuance cost (14,526) —.........................................................................................................................................................................................................................................................................................................................................................................................

Proceeds received 2,391,209 2,467,382.........................................................................................................................................................................................................................................................................................................................................................................................

Accumulated amortised amounts of

- discount on issue 4,269 2,500.........................................................................................................................................................................................................................................................................................................................................................................................

- notes issuance cost 4,043 —.........................................................................................................................................................................................................................................................................................................................................................................................

Effect of fair value hedge (53,279) —.........................................................................................................................................................................................................................................................................................................................................................................................

2,346,242 2,469,882

Notes with principal amount of US$300,000,000 (equivalent to approximately RMB2,421,060,000) were issued by a

subsidiary of COSCO Pacific to investors on 3 October 2003. The notes carried an interest yield of 5.96% per annum

and were issued at a price of 99.367 per cent of their principal amount with a coupon rate of 5.875% per annum. The

notes bear interest from 3 October 2003, payable semi-annually in arrear on 3 April and 3 October of each year,

commencing on 3 April 2004. The notes are guaranteed unconditionally and irrevocably by COSCO Pacific and listed

on the Singapore Exchange Securities Trading Limited.

Unless previously redeemed or repurchased by COSCO Pacific, the notes will mature on 3rd October 2013 at their

principal amount. The notes are subject to redemption in whole, at their principal amount, together with accrued

interest, at the option of COSCO Pacific at any time in the event of certain changes affecting the taxes of certain

jurisdictions.


ANNUAL REPORT 2005


(e) The exposure of the Group’s long-term borrowings to interest rate changes and the contractual repricing dates are as

follows:

6 months 6 to 12 1 to 5 Over

or less months years 5 years Total


At 31 December 2005

Total borrowings 430,773 1,766,090 7,606,426 4,763,077 14,566,366.........................................................................................................................................................................................................................................................................................................................................................................................

Effect of interest rate swaps — — — (1,614,040) (1,614,040).........................................................................................................................................................................................................................................................................................................................................................................................

430,773 1,766,090 7,606,426 3,149,037 12,952,326

At 31 December 2004

Total borrowings 160,100 3,419,999 6,576,473 5,672,970 15,829,542.........................................................................................................................................................................................................................................................................................................................................................................................

Effect of interest rate swaps — — — (1,655,400) (1,655,400).........................................................................................................................................................................................................................................................................................................................................................................................

160,100 3,419,999 6,576,473 4,017,570 14,174,142

(f) The carrying amounts of the long-term borrowings are denominated in the following currencies:

2005 2004

RMB’000 RMB’000

US dollar 14,543,374 15,822,341.........................................................................................................................................................................................................................................................................................................................................................................................

RMB 22,992 7,201.........................................................................................................................................................................................................................................................................................................................................................................................

14,566,366 15,829,542

(g) The carrying amounts and fair value of the long-term borrowings are as follows:

Carrying amounts Fair values

2005 2004 2005 2004

RMB’000 RMB’000 RMB’000 RMB’000

Bank loans 12,159,097 12,908,003 12,090,767 12,862,173.........................................................................................................................................................................................................................................................................................................................................................................................

Other loans 61,027 332,861 60,010 331,702.........................................................................................................................................................................................................................................................................................................................................................................................

Finance lease obligations — 118,796 — 118,796.........................................................................................................................................................................................................................................................................................................................................................................................

Notes 2,346,242 2,469,882 2,514,012 2,457,350.........................................................................................................................................................................................................................................................................................................................................................................................

14,566,366 15,829,542 14,664,789 15,770,021

The fair values are based on cash flows discounted using a weighted average borrowing rate of 5.20% (2004: 4.90%)

per annum.

158




(h) The effective interest rates per annum at the balance sheet date were as follows:

2005 2004

US$ RMB US$ RMB

Bank loans 2.80% to 5.83% 4.70% 2.40% to 3.91% 4.40%.........................................................................................................................................................................................................................................................................................................................................................................................

Other loans 6.80% — 6.80% —.........................................................................................................................................................................................................................................................................................................................................................................................

Notes 6.00% — 6.00% —

(i) The secured bank and other loans are secured, inter alia, by one or more of the following:

(i) First legal mortgage over certain container vessels, containers and land use rights.

(ii) Assignment of the charter, rental income and earnings, requisition compensation, insurance and container lease

agreements relating to certain container vessels and containers.

(iii) Shares and bank deposits of certain subsidiaries.

(iv) Assignment of refund guarantee and shipbuilding contracts relating to certain container vessels.

(v) Corporate guarantees provided by COSCO and a fellow subsidiary as set out below:

2005 2004

RMB’000 RMB’000

COSCO — 3,972,720......................................................................................................................................................................................................................................................................................................................................................................

Fellow subsidiary — 307,365......................................................................................................................................................................................................................................................................................................................................................................

— 4,280,085

24 Amount due to COSCO

The balance as at 31 December 2004 was unsecured, financing in nature and was repaid prior to the listing of the

Company’s shares.

25 Other non-current liabilities

2005 2004

RMB’000 RMB’000

Provision for one-off housing subsidies (note a) 66,583 79,485.........................................................................................................................................................................................................................................................................................................................................................................................

Early retirement benefit obligations (note a) 9,854 15,769.........................................................................................................................................................................................................................................................................................................................................................................................

Retirement benefit obligations (note b) 51,225 10,627.........................................................................................................................................................................................................................................................................................................................................................................................

127,662 105,881


ANNUAL REPORT 2005

25 Other non-current liabilities (Continued)

Notes:

(a) Movements for the year are as below:

Provision for one-off Early retirement

housing subsidies benefit obligations

2005 2004 2005 2004

RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 79,485 79,485 15,769 15,769.........................................................................................................................................................................................................................................................................................................................................................................................

Reversal of over provision (9,037) — — —.........................................................................................................................................................................................................................................................................................................................................................................................

Payments during the year (3,865) — (5,915) —.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 66,583 79,485 9,854 15,769

In 2000, the State Council issued a circular stating that one-off cash housing subsidies should be made to those eligible employees

who have not been allocated with staff quarters at all or who have not been allocated with quarters up to the prescribed standards

before 31 December 1998 when the staff quarter allocation schemes were terminated. The subsidies are determined based on staff

member’s years of service, position and other criteria. In addition, monthly cash housing allowances should be made to other

employees following the withdrawal of allocation of staff quarters. The specific timetable and procedures of implementation of these

policies are to be determined by individual provincial or municipal governments based on the particular situation of the province or

municipality.

The Group has provided for the one-off cash housing subsidies based on the relevant detailed local government regulations when

they are promulgated, or the available information and the best estimate of the management when the local regulations have not

been promulgated. The subsidies were charged to the consolidated income statement in 2000 when the State Council Circular in

respect of cash subsidies was issued and that the payment of which is determined to be probable and the amounts can be

reasonable estimated.

(b) Retirement benefit obligations

Group

2005 2004

RMB’000 RMB’000

Balance sheet obligations for:

Defined benefits (note (i)) 16,975 10,627.........................................................................................................................................................................................................................................................................................................................................................................................

Post-employment medical benefits (note (ii)) 34,250 —.........................................................................................................................................................................................................................................................................................................................................................................................

51,225 10,627

Expensed in income statement for (note 35):

Defined benefits (note (i)) 9,056 11,350.........................................................................................................................................................................................................................................................................................................................................................................................

Post-employment medical benefits (note (ii)) 34,825 —.........................................................................................................................................................................................................................................................................................................................................................................................

43,881 11,350

Notes:

(i) Defined benefits

There is a retirement benefit plan operating as defined benefit plan in a subsidiary of the Group in United States of America.

The assets of the funded plans are held independently of the subsidiary’s assets in separate trustee administered funds. The

plans are valued by a qualified actuary, Summit Financial Corporation, annually using the projected unit credit method.

160




(i) Defined benefits (Continued)

The amounts recognised in the balance sheet are determined as follows:

2005 2004

RMB’000 RMB’000

Present value of funded obligations 40,422 30,918......................................................................................................................................................................................................................................................................................................................................................................

Fair value of plan assets (11,471) (9,055)......................................................................................................................................................................................................................................................................................................................................................................

28,951 21,863......................................................................................................................................................................................................................................................................................................................................................................

Unrecognised actuarial losses (7,740) (5,118)......................................................................................................................................................................................................................................................................................................................................................................

Unrecognised past service cost (4,236) (6,118)......................................................................................................................................................................................................................................................................................................................................................................

Liability on the balance sheet 16,975 10,627

Fair value of the plan assets are analysed as follows:

2005 2004

percentage percentage

Equity instruments 61% 63%......................................................................................................................................................................................................................................................................................................................................................................

Debt instruments 20% 19%......................................................................................................................................................................................................................................................................................................................................................................

Other assets 19% 18%......................................................................................................................................................................................................................................................................................................................................................................

100% 100%

The amounts recognised in the income statement are as follows:

2005 2004

RMB’000 RMB’000

Current service cost 2,749 2,620......................................................................................................................................................................................................................................................................................................................................................................

Interest cost 1,937 1,485......................................................................................................................................................................................................................................................................................................................................................................

Expected return on plan assets (807) (578)......................................................................................................................................................................................................................................................................................................................................................................

Net actuarial losses recognised during the year 94 32......................................................................................................................................................................................................................................................................................................................................................................

Past service cost 5,083 7,791......................................................................................................................................................................................................................................................................................................................................................................

Total expense, included in staff costs 9,056 11,350

The expenses were included in selling, administrative and general expenses.

The actual return on plan assets was RMB713,000 (2004: RMB546,000).

The movement in the liability recognised in the balance sheet is as follows:

2005 2004

RMB’000 RMB’000

At 1 January 10,627 2,289......................................................................................................................................................................................................................................................................................................................................................................

Exchange differences (264) —......................................................................................................................................................................................................................................................................................................................................................................

Total expense, included in staff costs as shown above 9,056 11,350......................................................................................................................................................................................................................................................................................................................................................................

Contributions paid (2,444) (3,012)......................................................................................................................................................................................................................................................................................................................................................................

At 31 December 16,975 10,627


ANNUAL REPORT 2005


(i) Defined benefits (Continued)

The principal actuarial assumptions used were as follows:

2005 2004

Discount rate 5.50% 5.75%......................................................................................................................................................................................................................................................................................................................................................................

Expected return on plan assets 8.00% 8.00%

(ii) Post-employment medical benefits

There is a post-employment medical benefit plans in the United States of America. The method of accounting, assumptions

and the frequency of valuations are similar to those used for defined benefit plans.

The main actuarial assumption is a long-term increase in health costs of 10% in 2006 and increase grading down to 5% in

2016 and after.

The amounts recognised in the balance sheet were determined as follows:

2005

RMB’000

Present value of funded obligations 63,209......................................................................................................................................................................................................................................................................................................................................................................

Fair value of plan assets (624)......................................................................................................................................................................................................................................................................................................................................................................

62,585......................................................................................................................................................................................................................................................................................................................................................................

Unrecognised actuarial losses (2,427)......................................................................................................................................................................................................................................................................................................................................................................

Unrecognised past service cost (25,908)......................................................................................................................................................................................................................................................................................................................................................................

Liability in the balance sheet 34,250

Fair value of the plan assets are analysed as follows:

2005 2004

percentage percentage

Equity instruments 61% —......................................................................................................................................................................................................................................................................................................................................................................

Debt instruments 17% —......................................................................................................................................................................................................................................................................................................................................................................

Other assets 22% —......................................................................................................................................................................................................................................................................................................................................................................

100% —

The amounts recognised in the income statement were as follows:

2005

RMB’000

Current service cost 5,915......................................................................................................................................................................................................................................................................................................................................................................

Interest cost 3,114......................................................................................................................................................................................................................................................................................................................................................................

Expected return on plan assets 49......................................................................................................................................................................................................................................................................................................................................................................

Net actuarial losses recognised during the year —......................................................................................................................................................................................................................................................................................................................................................................

Past service cost 25,747......................................................................................................................................................................................................................................................................................................................................................................

Total expense, included in staff costs 34,825

The expense was included in selling, administrative and general expenses.

The actual return on plan assets was RMB49,000 (2004: N/A).

162




(ii) Post-employment medical benefits (Continued)

Movement in the liability recognised in the balance sheet:

2005

RMB’000

At 1 January —......................................................................................................................................................................................................................................................................................................................................................................

Total expense, included in staff costs as shown above 34,825......................................................................................................................................................................................................................................................................................................................................................................

Contributions paid (575)......................................................................................................................................................................................................................................................................................................................................................................

At 31 December 34,250

26 Trade and other payablesGroup Company

2005 2004 2005

RMB’000 RMB’000 RMB’000

Trade payables (note a)

- third parties 1,219,930 1,659,317 —.........................................................................................................................................................................................................................................................................................................................................................................................

- subsidiaries of COSCO 335,209 182,927 —.........................................................................................................................................................................................................................................................................................................................................................................................

- jointly controlled entities 192,749 206,895 —.........................................................................................................................................................................................................................................................................................................................................................................................

- associates 137,129 — —.........................................................................................................................................................................................................................................................................................................................................................................................


2,490,328 2,300,224 —.........................................................................................................................................................................................................................................................................................................................................................................................

Other payables and accruals 2,955,952 3,386,524 24,805.........................................................................................................................................................................................................................................................................................................................................................................................

Distribution payable to COSCO (notes 33(a) and (b)) 1,794,022 — 967,926.........................................................................................................................................................................................................................................................................................................................................................................................Due to related parties (note c)

- COSCO 116,364 2,669,090 —.........................................................................................................................................................................................................................................................................................................................................................................................

- subsidiaries of COSCO 1,053 3,298,117 145,918.........................................................................................................................................................................................................................................................................................................................................................................................

- jointly controlled entities — 19,114 —.........................................................................................................................................................................................................................................................................................................................................................................................

117,417 5,986,321 145,918.........................................................................................................................................................................................................................................................................................................................................................................................

7,357,719 11,673,069 1,138,649

Notes:

(a) As at 31 December 2005, the aging analysis of trade payables of the Group is as follows:

2005 2004

RMB’000 RMB’000

1-6 months 2,305,917 2,096,012.........................................................................................................................................................................................................................................................................................................................................................................................

7-12 months 72,601 58,343.........................................................................................................................................................................................................................................................................................................................................................................................

1-2 years 81,188 50,224.........................................................................................................................................................................................................................................................................................................................................................................................

2-3 years 12,425 42,465.........................................................................................................................................................................................................................................................................................................................................................................................

Above 3 years 18,197 53,180.........................................................................................................................................................................................................................................................................................................................................................................................

2,490,328 2,300,224


ANNUAL REPORT 2005

26 Trade and other payables (Continued)

(b) The carrying amounts of trade payables are denominated in the following currencies:

2005 2004

RMB’000 RMB’000

US dollar 1,255,305 1,081,730.........................................................................................................................................................................................................................................................................................................................................................................................

RMB 712,722 702,637.........................................................................................................................................................................................................................................................................................................................................................................................

EURO dollar 165,401 177,876.........................................................................................................................................................................................................................................................................................................................................................................................

HK dollar 138,258 141,421.........................................................................................................................................................................................................................................................................................................................................................................................

Other currencies 218,642 196,560.........................................................................................................................................................................................................................................................................................................................................................................................

2,490,328 2,300,224

(c) The amounts due to related parties are unsecured and interest free.

(d) The carrying amounts of trade and other payables approximate their fair values.

27 Short-term loans

Group Company

2005 2004 2005

RMB’000 RMB’000 RMB’000

Bank loans

- secured (note a) — 372,443 —.........................................................................................................................................................................................................................................................................................................................................................................................

- unsecured 1,773,108 1,634,318 242,106.........................................................................................................................................................................................................................................................................................................................................................................................

1,773,108 2,006,761 242,106.........................................................................................................................................................................................................................................................................................................................................................................................

Unsecured loan from COSCO Finance (note b) 350,000 — —.........................................................................................................................................................................................................................................................................................................................................................................................

2,123,108 2,006,761 242,106

Notes:

(a) Bank loans as at 31 December 2004 were secured by trade receivables of a subsidiary amounting to RMB417,657,000.

(b) The loan from COSCO Finance, bore interest at 5.02% per annum as at 31 December 2005.

(c) The effective interest rates of short-term bank loans, as at 31 December 2005 were in the range of 4.70% to 5.58% (2004: 3.26%

to 5.31%) per annum .

164



27 Short-term loans (Continued)

(d) The carrying amounts of short-term loans approximate their fair values. The carrying amounts of the short-term loans are

denominated in the following currencies:

Group Company

2005 2004 2005

RMB’000 RMB’000 RMB’000

US dollar 1,237,000 1,357,761 242,106.........................................................................................................................................................................................................................................................................................................................................................................................

RMB 886,108 649,000 —.........................................................................................................................................................................................................................................................................................................................................................................................

2,123,108 2,006,761 242,106

28 Other gains, net

2005 2004

RMB’000 RMB’000

Dividend income from listed and unlisted investments 145,149 181,523.........................................................................................................................................................................................................................................................................................................................................................................................

Interest income from

- deposits with COSCO Finance (note 18(d)) 1,057 7,815.........................................................................................................................................................................................................................................................................................................................................................................................

- loan to a jointly controlled entity (note 11(b)) 2,642 2,429.........................................................................................................................................................................................................................................................................................................................................................................................

- loans to associates (note 12(b)) 2,673 66.........................................................................................................................................................................................................................................................................................................................................................................................

- loan to an investee company (note 14(b)) — 5,422.........................................................................................................................................................................................................................................................................................................................................................................................

- third parties 166,905 31,508.........................................................................................................................................................................................................................................................................................................................................................................................

173,277 47,240.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on interest rate swap contracts not qualifying as hedges 32,629 —.........................................................................................................................................................................................................................................................................................................................................................................................

Net gain on interest rate swap contracts — 31,742.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange (loss)/gain, net (171,628) 26,405.........................................................................................................................................................................................................................................................................................................................................................................................

179,427 286,910


ANNUAL REPORT 2005

29 Operating profit

Operating profit is stated after crediting and charging the following:

2005 2004

RMB’000 RMB’000

Crediting:

Gain on disposal of jointly controlled entities and dissolution of an associate, net* 1,029 3,203.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on partial disposal of an associate* 1,458 —.........................................................................................................................................................................................................................................................................................................................................................................................

Recovery of bad debts* 62,459 575.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on disposal of property, plant and equipment* 25,324 77,162.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on disposal of investment securities* — 93.........................................................................................................................................................................................................................................................................................................................................................................................

Government subsidy* (note a) 129,061 99,335.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on deemed disposal of a subsidiary* 48,708 78,530.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on disposal of an available-for-sale financial asset* (note b) 512,117 —.........................................................................................................................................................................................................................................................................................................................................................................................

Write-back of revaluation deficit of investment properties

previously recognised* (note 7) — 2,417.........................................................................................................................................................................................................................................................................................................................................................................................

Gross rental income from investment properties* 457 668

Charging:

Auditors’ remuneration 32,331 11,637.........................................................................................................................................................................................................................................................................................................................................................................................

Amortisation

- leasehold land and land use rights 1,916 4,303.........................................................................................................................................................................................................................................................................................................................................................................................

- intangible assets 74,175 69,319.........................................................................................................................................................................................................................................................................................................................................................................................

Cost of bunkers and fuel consumed 4,694,189 2,923,007.........................................................................................................................................................................................................................................................................................................................................................................................

Cost of resaleable containers sold# 155,026 263,743.........................................................................................................................................................................................................................................................................................................................................................................................

Depreciation

- owned property, plant and equipment leased out under operating leases 496,580 468,247.........................................................................................................................................................................................................................................................................................................................................................................................

- other owned property, plant and equipment 1,236,344 1,337,182.........................................................................................................................................................................................................................................................................................................................................................................................

- property, plant and equipment held under finance leases — 5,245.........................................................................................................................................................................................................................................................................................................................................................................................

- Investment properties 289 —.........................................................................................................................................................................................................................................................................................................................................................................................

Outgoings in respect of investment properties 33 41.........................................................................................................................................................................................................................................................................................................................................................................................

Operating lease rentals

- container vessels 1,845,413 1,163,570.........................................................................................................................................................................................................................................................................................................................................................................................

- containers 752,510 550,292.........................................................................................................................................................................................................................................................................................................................................................................................

- land and buildings 122,126 160,612.........................................................................................................................................................................................................................................................................................................................................................................................

- other property, plant and equipment 260,862 209,264.........................................................................................................................................................................................................................................................................................................................................................................................

Provision for impairment of trade receivables# 27,273 27,418.........................................................................................................................................................................................................................................................................................................................................................................................

Provision for resaleable containers# — 5,322.........................................................................................................................................................................................................................................................................................................................................................................................

Write-off of resaleable containers# — 2,045.........................................................................................................................................................................................................................................................................................................................................................................................

Loss on disposal/write-off of property, plant and equipment# 4,712 13,705

* Item included in other operating income

# Item included in other operating expenses

166



29 Operating profit (Continued)

Notes:

(a) In 2005 and 2004, subsidies have been granted by a local government to a subsidiary of the Group by way of a refund of certain

business tax paid by that subsidiary for the years ended 31 December 2004 and 2003, as an encouragement to the business

development and improvement of that subsidiary.

(b) The amount represented gain on disposal of the 17.5% equity interest in Shekou Container Terminals Ltd. to China Merchants

Holdings (International) Company Limited in March 2005.

30 Finance costs

2005 2004

RMB’000 RMB’000

Interest expenses:.........................................................................................................................................................................................................................................................................................................................................................................................

- bank loans 684,787 216,074.........................................................................................................................................................................................................................................................................................................................................................................................

- other loans.........................................................................................................................................................................................................................................................................................................................................................................................

- wholly repayable within five years 3,115 52,491.........................................................................................................................................................................................................................................................................................................................................................................................

- not wholly repayable within five years — 9,314.........................................................................................................................................................................................................................................................................................................................................................................................

- loans from COSCO Finance wholly repayable within one year 5,669 19,432.........................................................................................................................................................................................................................................................................................................................................................................................

- notes not wholly repayable within five years 132,859 145,882.........................................................................................................................................................................................................................................................................................................................................................................................

- loans from a minority shareholder of a subsidiary — 389.........................................................................................................................................................................................................................................................................................................................................................................................

- amounts due to COSCO — 47,798.........................................................................................................................................................................................................................................................................................................................................................................................

- amounts due to fellow subsidiaries — 57,972.........................................................................................................................................................................................................................................................................................................................................................................................

- finance lease obligations — 2,029.........................................................................................................................................................................................................................................................................................................................................................................................

826,430 551,381.........................................................................................................................................................................................................................................................................................................................................................................................

Amortised amount of transaction costs on long-term borrowings 19,694 —.........................................................................................................................................................................................................................................................................................................................................................................................

Amortised amount of discount on issue of notes 1,859 1,987.........................................................................................................................................................................................................................................................................................................................................................................................

Other incidental borrowing costs and charges 20,410 86,392.........................................................................................................................................................................................................................................................................................................................................................................................

868,393 639,760


ANNUAL REPORT 2005

31 Income tax expenses

2005 2004

RMB’000 RMB’000

(Restated)

Current income tax

- PRC enterprise income tax (note a) 694,987 124,085.........................................................................................................................................................................................................................................................................................................................................................................................

- Hong Kong profits tax (note b) 5,440 10,462.........................................................................................................................................................................................................................................................................................................................................................................................

- Overseas taxation (note c) 59,829 34,272.........................................................................................................................................................................................................................................................................................................................................................................................

Over provision in prior years (1,437) (381).........................................................................................................................................................................................................................................................................................................................................................................................

758,819 168,438.........................................................................................................................................................................................................................................................................................................................................................................................

Deferred income tax (note 16) (107,500) 117,319.........................................................................................................................................................................................................................................................................................................................................................................................

651,319 285,757

The Group’s share of income tax expense of jointly controlled entities and associates for the year totalling RMB101,599,000

(2004: RMB124,093,000) and RMB31,833,000 (2004: RMB43,808,000) are included in the consolidated income

statement as share of profits of jointly controlled entities and associates respectively.

Notes:

(a) PRC enterprise income tax

The provision for enterprise income tax is based on the statutory rate of 33% on the taxable income of each of the PRC companies

of the Group as determined in accordance with the relevant PRC income tax rules and regulations for the year, except for certain

subsidiaries, which are taxed at reduced rates ranging from 15% to 27% based on different local preferential policies on income tax

and approval by relevant tax authorities.

The Group’s PRC sourced income from container leasing is currently exempt from income tax in the PRC in accordance with a

notice granting temporary exemption of income tax on rental payments made to foreign companies for leasing of containers which

are used in international transportation (Guo Shui Fa (1993) No. 49) issued by the State Administration of Taxation of the PRC on 12

March 1993.

(b) Hong Kong profits tax

Hong Kong profits tax has been provided at the rate of 17.5% (2004: 17.5%) on the estimated assessable profits for the year.

(c) Overseas taxation

Taxation on overseas profits has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in

the countries in which the Group operates. These rates range from 22% to 44% during the year (2004: 22% to 44%).

168



31 Income tax expenses (Continued)

(d) The taxation on the Group’s profit before income tax differs from the theoretical amount that would arise using the tax rate of the

home country of the Company as follows:

2005 2004

RMB’000 RMB’000

(Restated)

Profit before income tax 7,450,250 5,243,300.........................................................................................................................................................................................................................................................................................................................................................................................

Less: Share of profits less losses of jointly controlled entities and associates (1,263,770) (837,344).........................................................................................................................................................................................................................................................................................................................................................................................

6,186,480 4,405,956

Calculated at a tax rate of 33% 2,041,538 1,453,965.........................................................................................................................................................................................................................................................................................................................................................................................

Effect of differential tax rates of other territories (339,972) (189,909).........................................................................................................................................................................................................................................................................................................................................................................................

Effect of preferential tax rate of domestic subsidiaries (13,702) (14,557).........................................................................................................................................................................................................................................................................................................................................................................................

Effect of unrecognised deferred tax liabilities on differential tax rate of domestic subsidiaries (492,144) —.........................................................................................................................................................................................................................................................................................................................................................................................

Income not subject to income tax (143,875) (59,643).........................................................................................................................................................................................................................................................................................................................................................................................

Expenses not deductible for taxation purposes 66,346 78,679.........................................................................................................................................................................................................................................................................................................................................................................................

Utilisation of previously unrecognised tax losses (2,665) (826,803).........................................................................................................................................................................................................................................................................................................................................................................................

Tax losses not recognised 13,519 1,244.........................................................................................................................................................................................................................................................................................................................................................................................

Effect of exchange losses directly recognised in equity (32,556) —.........................................................................................................................................................................................................................................................................................................................................................................................

Effect on deferred tax assets/liabilities due to the change in tax rates (175,572) —.........................................................................................................................................................................................................................................................................................................................................................................................

Recognition of previously unrecognised tax losses — (421,087).........................................................................................................................................................................................................................................................................................................................................................................................

Recognition of temporary differences previously not recognised (88,670) 262,539.........................................................................................................................................................................................................................................................................................................................................................................................

Reversal of deferred tax liabilities previously recognised (170,899) —.........................................................................................................................................................................................................................................................................................................................................................................................

Over provision in prior years (1,437) (381).........................................................................................................................................................................................................................................................................................................................................................................................

Others (8,592) 1,710.........................................................................................................................................................................................................................................................................................................................................................................................

Income tax expenses 651,319 285,757

(e) Business tax

Pursuant to various PRC business tax rules and regulations, the Group is required to pay business tax to relevant local tax bureaus

as below.

Revenues derived from container shipping for inbound shipment and freight forwarding and shipping agencies, and terminal

operations provided by the Group in the PRC are subject to business tax at rates ranging from 3% to 5% during the year. The

related business tax is included in the cost of services.

Certain subsidiaries are currently exempt from business tax on PRC sourced rental income earned from container leasing in

accordance with a notice granting exemption from business tax for foreign enterprises which have no establishment in the PRC

earning rental income from leasing of movable properties (Guo Shui Fa (1997) No. 35) issued by the State Administration of Taxation

of the PRC on 14 March 1997.


ANNUAL REPORT 2005

32 Profit attributable to equity holders of the Company

The profit attributable to equity holders of the Company include a loss of the Company to the extent of RMB75,297,000.

33 Distributions

2005 2004

RMB’000 RMB’000

Distributions to COSCO

- Initial, paid (note a) 1,994,544 —.........................................................................................................................................................................................................................................................................................................................................................................................

- Initial, payable (note a) 826,096 —.........................................................................................................................................................................................................................................................................................................................................................................................

- Special, payable (note b) 967,926 —.........................................................................................................................................................................................................................................................................................................................................................................................

3,788,566 —.........................................................................................................................................................................................................................................................................................................................................................................................

Transfer of other subsidiaries (note c) 94,568 67,743.........................................................................................................................................................................................................................................................................................................................................................................................

Transfer of COSCO Pacific (note 1(b)) — 1,248,130.........................................................................................................................................................................................................................................................................................................................................................................................

Distribution of reserves (note d) — 1,148,081.........................................................................................................................................................................................................................................................................................................................................................................................

Disposal of subsidiaries — 18,293.........................................................................................................................................................................................................................................................................................................................................................................................

Deferred income tax (note 16) — 421,087.........................................................................................................................................................................................................................................................................................................................................................................................

Dividends to then shareholders — 208,996.........................................................................................................................................................................................................................................................................................................................................................................................

Others 10,306 19,062.........................................................................................................................................................................................................................................................................................................................................................................................

3,893,440 3,131,392

Included in the consolidated statement of changes in equity:

2005 2004

RMB’000 RMB’000

Total distributions 3,893,440 3,131,392.........................................................................................................................................................................................................................................................................................................................................................................................

Add: final dividend to then shareholders proposed in the prior year — 180,308.........................................................................................................................................................................................................................................................................................................................................................................................

3,893,440 3,311,700

Notes:

(a) In accordance with the “Provisional Regulation Relating to Corporate Reorganisation of Enterprises and the Related Management of

State-owned Capital and Financial Treatment” notice issued by the Ministry of Finance (English translation is a direct translation of

Chinese title of the notice), which became effective from 27 August 2002, after the Company’s incorporation, the Company is

required to make a mandatory distribution to COSCO, in an amount equal to the combined net profit of the Group generated during

the period from 30 June 2004 to 3 March 2005 (being the date of incorporation of the Company) (the “Initial Profit Period”), as

determined based on audited financial statements prepared in accordance with the PRC GAAP, after giving effect to relevant

necessary adjustments.

The amounts distributable to COSCO in respect of the Initial Profit Period and the amounts retained as a special reserve as at 3

March 2005 were RMB2,820,640,000 and RMB279,422,000 (note 22(d)) respectively, as derived based on the audited financial

statements prepared in accordance with the PRC GAAP. The Company passed a shareholders’ resolution on 9 June 2005 to

approve an amount of RMB1,994,544,000 as part of initial distribution to COSCO, which was paid prior to the Listing Date. As at 31

December 2005, the distribution payable to COSCO in respect of the Initial Profit Period was RMB826,096,000, of which payment

will be made in 2006.

170



33 Distributions (Continued)

(b) Pursuant to the resolution of the extraordinary shareholders’ meeting dated 9 June 2005, it was resolved to make a special

distribution by the Company to COSCO in an amount equal to the aggregate of the amounts of the distributable profit of the Group

(excluding COSCO Pacific) and dividend payable by COSCO Pacific to the Group, in respect of the period from 4 March 2005 to 29

June 2005 (the “Subsequent Profit Period”). The amounts to be distributable to COSCO for the Subsequent Profit Period is

determined based on audited consolidated income statement prepared in accordance with the PRC GAAP or with the HKFRSs,

whichever is lower. The amount distributable to COSCO for the Subsequent Profit Period was RMB967,926,000, as determined

based on the audited consolidated income statement prepared in accordance with the PRC GAAP.

(c) Pursuant to various agreements entered into between the Group and COSCO Group pursuant to the Reorganisation, COSCO

Group transferred equity interests in, and assets and liabilities of, certain overseas companies to the Group. The difference, being

the considerations paid over the net asset value of the companies transferred, was treated as a deemed distribution to COSCO

Group in the Group’s financial statements.

(d) This represented the distribution of reserves of certain overseas subsidiaries to their then shareholders pursuant to the directors’

resolutions of these companies dated 1 January 2004.

(e) Final dividend proposed

2005 2004

RMB’000 RMB’000

Final, proposed, of RMB0.13 per ordinary share (2004: N/A) 798,200 N/A

At the meeting held on 11 April 2006, the Directors proposed a final dividend of RMB0.13 per ordinary share for the year ended 31

December 2005. This proposed dividend is not reflected as a dividend payable in the financial statements, but will be reflected as an

appropriation of retained profits for the year ending 31 December 2006.


ANNUAL REPORT 2005

34 Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted

average number of ordinary shares in issue during the year.

The comparative basic earnings per share is calculated based on the profit attributable to the equity holders of the

Company and on the assumption that 4,100,000,000 domestic shares issued upon the incorporation of the Company in

connection with the Reorganisation which were deemed to have been in issue since 1 January 2004.

2005 2004

(Restated)

Profit attributable to equity holders of the Company RMB5,450,805,000 RMB4,157,960,000.........................................................................................................................................................................................................................................................................................................................................................................................

Weighted average number of ordinary shares in issue 5,133,972,603 4,100,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Basic earnings per share RMB1.06171 RMB1.01414

Diluted

Diluted earnings per share is calculated based on the profit attributable to equity holders of the Company and the weighted

average number of ordinary shares in issue during the year, after adjusting for the number of dilutive potential ordinary

shares deemed to be issued at no consideration on the assumption that the special reserve had been converted into

Domestic Shares at the offer price of HK$4.25 (note 22(d)).

2005

Profit attributable to equity holders of the Company RMB5,450,805,000.........................................................................................................................................................................................................................................................................................................................................................................................

Weighted average number of ordinary shares in issue 5,133,972,603.........................................................................................................................................................................................................................................................................................................................................................................................

Adjustments for assumed conversion of special reserve 31,292,600.........................................................................................................................................................................................................................................................................................................................................................................................

Weighted average number of ordinary shares for diluted earnings per share 5,165,265,203.........................................................................................................................................................................................................................................................................................................................................................................................

Diluted earnings per share RMB1.05528

As the Company had no diluted instruments for the year ended 31 December 2004, the diluted earnings per share was

equal to the basic earnings per share.

172



35 Staff costs

An analysis of staff costs, including Directors’, supervisors’ and key management’s emoluments, is set out below:

2005 2004

RMB’000 RMB’000

Crew expenses 612,978 604,464.........................................................................................................................................................................................................................................................................................................................................................................................

Wages and salaries 1,467,148 1,180,015.........................................................................................................................................................................................................................................................................................................................................................................................

Housing benefits (note a) 46,472 19,809.........................................................................................................................................................................................................................................................................................................................................................................................

Retirement benefits costs

- defined benefit plans (note 25(b)) 43,881 11,350.........................................................................................................................................................................................................................................................................................................................................................................................

- defined contribution plans (note b) 64,726 35,383.........................................................................................................................................................................................................................................................................................................................................................................................

Welfare and other expenses 269,066 242,629.........................................................................................................................................................................................................................................................................................................................................................................................

2,504,271 2,093,650

Notes:

(a) These include contributions to PRC government sponsored housing funds (at rates ranging from 5% to 20% of the employees’

basic salary) for full time employees in the PRC during the year.

(b) The employees of the subsidiaries in the PRC participate in various retirement benefit plans organised by the relevant municipal and

provincial governments in the PRC under which the Group was required to make monthly contributions to these plans at rates

ranging from 9% to 20%, dependent on the applicable local regulations, of the employees’ basic salary for the year.

In addition, the Group participates in various defined contribution retirement schemes for its qualified employees in certain countries

outside the PRC. Employees’ and employers’ contributions are calculated based on various percentages of employees’ gross

salaries or fixed sums and length of service. The assets of the schemes are held separately from those of the administered funds

independently.

Forfeited contributions totalled RMB66,000 were utilised during 2004 and no forfeited contributions were available as at 31

December 2005 and 2004 to reduce future contributions.

Contributions totalling RMB19,383,000 (2004: RMB13,305,000) payable to various retirement benefit plans at 31 December 2005

are included in other payables and accruals.

(c) The staff costs disclosed above do not include the amounts of benefits in kind provided to the Directors, supervisors and the

Group’s key managements in respect of staff quarters, share options and share appreciation rights being granted during the year.

Further details of the emoluments of the Directors, supervisors and senior management are disclosed in note 36 to the Consolidated

Financial Statements.


ANNUAL REPORT 2005

36 Emoluments of Directors, supervisors and senior management

(a) Directors’, supervisors’ and senior management’s emoluments

Details of the emoluments paid and payable to the Directors, supervisors and senior management of the Company

by the Group in respect of their services rendered for managing the business of the Group during the year are as

follows:

2005 2004

RMB’000 RMB’000

(Restated)

Independent non-executive Directors.........................................................................................................................................................................................................................................................................................................................................................................................

- Fees 685 223.........................................................................................................................................................................................................................................................................................................................................................................................

Executive and other non-executive Directors.........................................................................................................................................................................................................................................................................................................................................................................................

- Fees 1,639 1,052.........................................................................................................................................................................................................................................................................................................................................................................................

- Salaries and allowances 4,564 5,403.........................................................................................................................................................................................................................................................................................................................................................................................

- Benefits in kind 322 43,922.........................................................................................................................................................................................................................................................................................................................................................................................

- Discretionary bonuses 22 —.........................................................................................................................................................................................................................................................................................................................................................................................

7,232 50,600.........................................................................................................................................................................................................................................................................................................................................................................................

Supervisors.........................................................................................................................................................................................................................................................................................................................................................................................

- Salaries and allowances 1,659 789.........................................................................................................................................................................................................................................................................................................................................................................................

- Benefits in kind 75 4,842.........................................................................................................................................................................................................................................................................................................................................................................................


- Retirement benefit contributions 16 14.........................................................................................................................................................................................................................................................................................................................................................................................

- Others 44 —.........................................................................................................................................................................................................................................................................................................................................................................................

1,944 5,645.........................................................................................................................................................................................................................................................................................................................................................................................

Senior management.........................................................................................................................................................................................................................................................................................................................................................................................


- Benefits in kind — 14,526.........................................................................................................................................................................................................................................................................................................................................................................................


- Others 61 52.........................................................................................................................................................................................................................................................................................................................................................................................

- Retirement benefit contributions 23 —.........................................................................................................................................................................................................................................................................................................................................................................................

8,090 18,422.........................................................................................................................................................................................................................................................................................................................................................................................

17,266 74,667

Benefits in kind for the year ended 31 December 2004 mainly represented the aggregate fair values of the share

options granted to the Directors, a supervisor and senior management under the COSCO Pacific’s share option

scheme which had not been accounted for in the Group’s financial statements pursuant to the transitional provisions

of HKFRS 2. COSCO Pacific did not grant any share options during the year ended 31 December 2005 (note 21(c)).

174



36 Emoluments of Directors, supervisors and senior management (Continued)

(a) Directors’, supervisors’ and senior management’s emoluments (Continued)

Benefits in kind for the year ended 31 December 2005 mainly represented the aggregate fair value of the SARs

granted to the Directors, supervisors and certain key management members at the date of grant (details of which

refer note 21(b)). During 2005, the number of SARs granted to the Directors and supervisors were 6,000,000 and

1,400,000 respectively.

(b) Directors’ emoluments

Details of the remuneration of each of the Director are set out below:

Year ended 31 December 2005

Salaries

and Benefits Discretionary

Name of Directors Fees allowances in kind bonuses Total


Wei Jiafu 158 1,181 49 — 1,388.........................................................................................................................................................................................................................................................................................................................................................................................

Zhang Fusheng 63 1,097 43 — 1,203.........................................................................................................................................................................................................................................................................................................................................................................................

Chen Hongsheng 126 970 38 — 1,134.........................................................................................................................................................................................................................................................................................................................................................................................

Wang Futian 200 — 32 — 232.........................................................................................................................................................................................................................................................................................................................................................................................

Li Jianhong 288 — 32 — 320.........................................................................................................................................................................................................................................................................................................................................................................................

Ma Zehua 199 — 32 — 231.........................................................................................................................................................................................................................................................................................................................................................................................

Ma Guichuan 200 — 32 — 232.........................................................................................................................................................................................................................................................................................................................................................................................

Sun Yueying 265 — 32 — 297.........................................................................................................................................................................................................................................................................................................................................................................................

Liu Guoyuan 140 1,316 32 22 1,510.........................................................................................................................................................................................................................................................................................................................................................................................

Li Boxi 111 — — — 111.........................................................................................................................................................................................................................................................................................................................................................................................

Cheng Mo Chi 147 — — — 147.........................................................................................................................................................................................................................................................................................................................................................................................

Hamilton Alexander Reid 284 — — — 284.........................................................................................................................................................................................................................................................................................................................................................................................

Tsao Wen King, Frank 143 — — — 143.........................................................................................................................................................................................................................................................................................................................................................................................

2,324 4,564 322 22 7,232


ANNUAL REPORT 2005


(b) Directors’ emoluments (Continued)

Year ended 31 December 2004

Salaries

and Benefits Discretionary

Name of Directors Fees allowances in kind bonuses Total


Wei Jiafu 163 — 4,842 — 5,005.........................................................................................................................................................................................................................................................................................................................................................................................

Zhang Fusheng 127 — 4,833 — 4,960.........................................................................................................................................................................................................................................................................................................................................................................................

Chen Hongsheng 127 — 4,833 — 4,960.........................................................................................................................................................................................................................................................................................................................................................................................

Wang Futian 127 — 4,833 — 4,960.........................................................................................................................................................................................................................................................................................................................................................................................

Li Jianhong 127 — 4,833 — 4,960.........................................................................................................................................................................................................................................................................................................................................................................................

Ma Zehua 127 — 4,833 — 4,960.........................................................................................................................................................................................................................................................................................................................................................................................

Ma Guichuan 127 — 4,842 — 4,969.........................................................................................................................................................................................................................................................................................................................................................................................

Sun Yueying 127 — 4,842 — 4,969.........................................................................................................................................................................................................................................................................................................................................................................................

Liu Guoyuan — 5,403 5,231 — 10,634.........................................................................................................................................................................................................................................................................................................................................................................................

Hamilton Alexander Reid 223 — — — 223.........................................................................................................................................................................................................................................................................................................................................................................................

1,275 5,403 43,922 — 50,600

Note:

During the year, no emoluments were paid by the Group to any of the Directors as an inducement to join or upon joining the Group

or as compensation for loss of office. No Directors of the Company waived or agreed to waive any emoluments during the year.

(c) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group during the year are as follows:

Number of individuals

2005 2004

Directors — 1.........................................................................................................................................................................................................................................................................................................................................................................................

Employees 5 4.........................................................................................................................................................................................................................................................................................................................................................................................

5 5

176




(c) Five highest paid individuals (Continued)

None of the Directors’ emoluments as disclosed in note 36(b) above was included in the emoluments paid to the five

highest paid individuals (2004: one Director). Details of emoluments paid to the five (2004: four) highest paid non-

Director individuals are as follows:

2005 2004

RMB’000 RMB’000

(Restated)


- Benefits in kind — 17,597.........................................................................................................................................................................................................................................................................................................................................................................................

- Discretionary bonuses 2,132 944.........................................................................................................................................................................................................................................................................................................................................................................................

- Retirement benefit contributions 164 33.........................................................................................................................................................................................................................................................................................................................................................................................

13,390 27,232

The emoluments of the above non-Director individuals fell within the following bands:

Number of individuals

2005 2004

HK$1,500,001 to HK$2,000,000 (equivalent to

approximately RMB1,560,000 to RMB2,080,000) 2 —.........................................................................................................................................................................................................................................................................................................................................................................................






approximately RMB6,240,000 to RMB6,760,000) — 2.........................................................................................................................................................................................................................................................................................................................................................................................





5 4


ANNUAL REPORT 2005

37 Notes to the consolidated cash flow statement

(a) Reconciliation of profit before income tax to cash generated from operations:

2005 2004

RMB’000 RMB’000

Profit before income tax 7,450,250 5,243,300.........................................................................................................................................................................................................................................................................................................................................................................................

Depreciation 1,733,213 1,810,674.........................................................................................................................................................................................................................................................................................................................................................................................

Amortisation of intangible assets 74,175 69,319.........................................................................................................................................................................................................................................................................................................................................................................................

Amortisation of leasehold land and land use rights 1,916 4,303.........................................................................................................................................................................................................................................................................................................................................................................................

Amortised amounts of transaction costs on long-term borrowings

and discount on issue of notes 21,553 1,987.........................................................................................................................................................................................................................................................................................................................................................................................

Dividend income from listed and unlisted investments (145,149) (181,523).........................................................................................................................................................................................................................................................................................................................................................................................

Share of profits less losses of.........................................................................................................................................................................................................................................................................................................................................................................................

- jointly controlled entities (601,852) (560,731).........................................................................................................................................................................................................................................................................................................................................................................................

- associates (661,918) (276,613).........................................................................................................................................................................................................................................................................................................................................................................................

Gain on disposal of investment securities — (93).........................................................................................................................................................................................................................................................................................................................................................................................

Gain on disposal of an available-for-sale financial asset (512,117) —.........................................................................................................................................................................................................................................................................................................................................................................................

Interest expenses 826,430 551,381.........................................................................................................................................................................................................................................................................................................................................................................................

Interest income (173,277) (47,240).........................................................................................................................................................................................................................................................................................................................................................................................

Gain on deemed disposal of a subsidiary (48,708) (78,530).........................................................................................................................................................................................................................................................................................................................................................................................

Provision for impairment of trade receivables 27,273 27,418.........................................................................................................................................................................................................................................................................................................................................................................................

Recovery of bad debts (62,459) (575).........................................................................................................................................................................................................................................................................................................................................................................................

Provision for resaleable containers — 5,322.........................................................................................................................................................................................................................................................................................................................................................................................

Write-off of resaleable containers — 2,045.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on disposal of property, plant and equipment (20,612) (63,457).........................................................................................................................................................................................................................................................................................................................................................................................

Revaluation surplus of investment properties — (2,417).........................................................................................................................................................................................................................................................................................................................................................................................

Gain on disposal of jointly controlled entities and

dissolution of an associate, net (1,029) (3,203).........................................................................................................................................................................................................................................................................................................................................................................................

Gain on partial disposal of an associate (1,458) —.........................................................................................................................................................................................................................................................................................................................................................................................

Gain on interest rate swap contracts not qualifying as hedges (32,629) —.........................................................................................................................................................................................................................................................................................................................................................................................

Net gain on interest rate swap contract — (31,742).........................................................................................................................................................................................................................................................................................................................................................................................

Exchange loss — 11,042.........................................................................................................................................................................................................................................................................................................................................................................................

Other incidental borrowing costs and charges 20,410 86,392.........................................................................................................................................................................................................................................................................................................................................................................................

Operating profit before working capital changes 7,894,012 6,567,059.........................................................................................................................................................................................................................................................................................................................................................................................

Increase in inventories (218,487) (14,600).........................................................................................................................................................................................................................................................................................................................................................................................

Decrease/(increase) in trade and other receivables 1,592,546 (2,654,251).........................................................................................................................................................................................................................................................................................................................................................................................

(Decrease)/increase in trade and other payables (2,989,573) 1,695,249.........................................................................................................................................................................................................................................................................................................................................................................................

Decrease in other taxes payable (75,076) (122,479).........................................................................................................................................................................................................................................................................................................................................................................................

Decrease/(increase) in finance lease receivables 12,744 (110).........................................................................................................................................................................................................................................................................................................................................................................................

Increase in other non-current liabilities 22,506 —.........................................................................................................................................................................................................................................................................................................................................................................................

Cash generated from operations 6,238,672 5,470,868

178



37 Notes to the consolidated cash flow statement (Continued)

(b) Disposal of subsidiaries

2005 2004

RMB’000 RMB’000

Net assets disposed of:.........................................................................................................................................................................................................................................................................................................................................................................................

Property, plant and equipment and intangible assets — 7,979.........................................................................................................................................................................................................................................................................................................................................................................................

Other non-current assets — 481.........................................................................................................................................................................................................................................................................................................................................................................................

Other current assets — 33,569.........................................................................................................................................................................................................................................................................................................................................................................................

Bank balances and cash — 13,609.........................................................................................................................................................................................................................................................................................................................................................................................

Other current liabilities — (35,313).........................................................................................................................................................................................................................................................................................................................................................................................

Minority interests — (2,032).........................................................................................................................................................................................................................................................................................................................................................................................

— 18,293

Net cash outflow in respect of the disposal of subsidiaries is analysed as follows:

2005 2004

RMB’000 RMB’000

Cash consideration — —.........................................................................................................................................................................................................................................................................................................................................................................................

Bank balances and cash in hand disposed of — (13,609).........................................................................................................................................................................................................................................................................................................................................................................................

Net cash outflow in respect of disposal of subsidiaries — (13,609)

(c) Major non-cash transactions

(i) During the year ended 31 December 2004, the amount due to a fellow subsidiary was set off against

consideration receivable of RMB1,683,185,000 arising from the disposal of investments.

(ii) During the year ended 31 December 2004, the amount due to a subsidiary of COSCO of RMB1,626,348,000

formed part of the consideration payable which was included under current liabilities.

(iii) During the year ended 31 December 2004, amount payable to a bank RMB2,000,000,000 outstanding as at 1

January 2004 was novated to COSCO by COSCON and settled through the amount due from COSCO.

(iv) On 31 December 2004, the amount due to a fellow subsidiary of US$360,000,000 (equivalent to

RMB2,980,000,000) was transferred and novated to COSCO through COSCON.

(v) On 31 December 2004, COSCO and COSCON entered into a loan transfer agreement with a bank, as part of

the debt restructuring of COSCO, to replace the Group’s net payable balances of RMB3,973,000,000

(consisting of borrowings from COSCO of RMB4,804,000,000 and a receivable balance from COSCO of

RMB831,000,000) with bank borrowings of the same amount.

(vi) During the year ended 31 December 2004, the Group entered into finance lease arrangements in respect of

assets with a total capital value at the inception of the leases of RMB123,900,000.


ANNUAL REPORT 2005


(c) Major non-cash transactions (Continued)

(vii) The Group disposed of certain subsidiaries to fellow subsidiaries at nil consideration and the net assets of

which were treated as deemed distributions to COSCO of RMB18,293,000 for the year ended 31 December

2004.

(viii) On 1 January 2004, certain overseas companies distributed reserves of RMB1,148,081,000 to their then

holding company which is now a fellow subsidiary. The balance was subsequently novated to COSCO through

COSCON.

(ix) In 2004, COSCO Group transferred the equity interests in certain PRC and overseas subsidiaries to the Group

for consideration of RMB62,743,000 (note 1(a)), of which RMB37,180,000 was subsequently novated to

COSCO through COSCON. The remaining balance of RMB17,119,000 was included in amounts due to related

parties as at 31 December 2004 and of RMB13,444,000 was paid during 2004.

(x) In 2004, COSCO and certain fellow subsidiaries waived the rights to receive the balances of RMB122,911,000

and RMB68,155,000 from the Group and the waiver of balances was treated as capital contribution.

(xi) In 2005, the Group derecognised the finance lease arrangements in respect of assets with a total value of

RMB118,796,000.

180




(d) Analysis of changes in financing during the year

Amount

Amounts payable to a

Amount due to bank under

due to fellow Minority non-current

Borrowings COSCO subsidiaries interests liabilities


Balance at 1 January 2004 12,672,978 2,171,893 5,873,171 5,285,448 3,000,000.........................................................................................................................................................................................................................................................................................................................................................................................

Amortised amount of

discount on issue of notes 1,987 — — — —.........................................................................................................................................................................................................................................................................................................................................................................................

Drawdown of borrowings 6,745,461 — 1,796,462 — —.........................................................................................................................................................................................................................................................................................................................................................................................

Repayment of borrowings (5,675,919) (338,788) (2,565,361) — (1,000,000).........................................................................................................................................................................................................................................................................................................................................................................................

Inception of finance lease

obligations (note c(vi)) 123,900 — — — —.........................................................................................................................................................................................................................................................................................................................................................................................

Finance lease payments (5,104) — — — —.........................................................................................................................................................................................................................................................................................................................................................................................

Transfer (note c(iv)) — 2,980,000 (2,980,000) — —.........................................................................................................................................................................................................................................................................................................................................................................................

Disposal of investments (note c(i)) — — (1,683,185) — —.........................................................................................................................................................................................................................................................................................................................................................................................

Assignment of balances

(notes c(ii), c(iii) and c(v)) 3,973,000 (4,804,000) (1,626,348) — (2,000,000).........................................................................................................................................................................................................................................................................................................................................................................................

Distribution of reserves (note c(viii)) — — 1,148,081 — —.........................................................................................................................................................................................................................................................................................................................................................................................

Transfer of certain oversea

subsidiaries (note c (ix)) — — 37,180 — —.........................................................................................................................................................................................................................................................................................................................................................................................

Increase in equity upon deemed

disposal of subsidiaries — — — 274,319 —.........................................................................................................................................................................................................................................................................................................................................................................................

Disposal of subsidiaries — — — (2,032) —.........................................................................................................................................................................................................................................................................................................................................................................................

Minority interests’ share of profit — — — 799,583 —.........................................................................................................................................................................................................................................................................................................................................................................................

Contributions from minority

shareholders of subsidiaries — — — 2,732 —.........................................................................................................................................................................................................................................................................................................................................................................................

Dividends paid to minority

shareholders of subsidiaries — — — (406,732) —.........................................................................................................................................................................................................................................................................................................................................................................................

Balance at 31 December 2004 17,836,303 9,105 — 5,953,318 —.........................................................................................................................................................................................................................................................................................................................................................................................


ANNUAL REPORT 2005


(d) Analysis of changes in financing during the year (Continued)

Share capital Amount

(including share due to Minority

premium) Borrowings COSCO interests

RMB’000 RMB’000 RMB’000 RMB’000

Balance at 1 January 2005,

as previously reported — 17,836,303 9,105 5,953,318.........................................................................................................................................................................................................................................................................................................................................................................................

Opening adjustments for the

adoption of HKFRS 3,

HKASs 32, 39 and 39

(Amendment) in respect of.........................................................................................................................................................................................................................................................................................................................................................................................

- Redesignation of

investments securities

as available-for-sale

financial assets — — — 923,096.........................................................................................................................................................................................................................................................................................................................................................................................

- Recognition of unamortised

transaction cost on

bank borrowings and notes — (91,684) — 23,051.........................................................................................................................................................................................................................................................................................................................................................................................

- Recognition of interest rate

swap contracts as

derivative financial

instruments — — — 6,378.........................................................................................................................................................................................................................................................................................................................................................................................

- Derecognition of negative

goodwill — — — 78,343.........................................................................................................................................................................................................................................................................................................................................................................................

- Share of opening

adjustments of jointly

controlled entities and

associates — — — 23,313.........................................................................................................................................................................................................................................................................................................................................................................................

Balance at 1 January 2005,

as restated — 17,744,619 9,105 7,007,499.........................................................................................................................................................................................................................................................................................................................................................................................

182




(d) Analysis of changes in financing during the year (Continued)

Share capital Amount

(including share due to Minority

premium) Borrowings COSCO interests

RMB’000 RMB’000 RMB’000 RMB’000

Proceeds from issue

of new H shares 9,232,683 — — —.........................................................................................................................................................................................................................................................................................................................................................................................

Share issue expenses (414,886) — — —.........................................................................................................................................................................................................................................................................................................................................................................................

Exchange differences — (419,241) — (140,429).........................................................................................................................................................................................................................................................................................................................................................................................

Amortised amounts of transaction

costs on long-term borrowings

and discount on issue of notes — 21,553 — —.........................................................................................................................................................................................................................................................................................................................................................................................

Drawdown of borrowings — 6,248,448 — —.........................................................................................................................................................................................................................................................................................................................................................................................

Repayment of borrowings — (6,733,031) (9,105) —.........................................................................................................................................................................................................................................................................................................................................................................................

Derecognition of finance lease

obligations (note c(xi)) — (118,796) — —.........................................................................................................................................................................................................................................................................................................................................................................................

Effect of fair value hedge — (54,078) — —.........................................................................................................................................................................................................................................................................................................................................................................................

Release of reserves upon.........................................................................................................................................................................................................................................................................................................................................................................................

- disposal of an available-for-

sale financial asset — — — (237,871).........................................................................................................................................................................................................................................................................................................................................................................................

- deemed disposals — — — 141,628.........................................................................................................................................................................................................................................................................................................................................................................................

Fair value gain of available-for

sale financial assets — — — 59,641.........................................................................................................................................................................................................................................................................................................................................................................................

Share of reserves of a jointly

controlled entity and associates — — — 3,151.........................................................................................................................................................................................................................................................................................................................................................................................

Increase in equity interest in

subsidiaries (previously jointly

controlled entities) — — — 71,940.........................................................................................................................................................................................................................................................................................................................................................................................

Minority interests’ share of profit — — — 1,348,126.........................................................................................................................................................................................................................................................................................................................................................................................

Dividends paid to minority

shareholders of a subsidiary — — — (745,648).........................................................................................................................................................................................................................................................................................................................................................................................

Contributions from minority

shareholders of subsidiaries — — — 703.........................................................................................................................................................................................................................................................................................................................................................................................

At 31 December 2005 8,817,797 16,689,474 — 7,508,740


ANNUAL REPORT 2005

38 Contingent liabilities

The following is a summary of the significant contingent liabilities as at 31 December 2005:

Group

2005 2004

RMB’000 RMB’000

Guarantee for bank loan facilities granted to an associate (note a) 176,899 —.........................................................................................................................................................................................................................................................................................................................................................................................

Pending lawsuits (note b) 32,656 36,100.........................................................................................................................................................................................................................................................................................................................................................................................

209,555 36,100

Notes:

(a) As at 31 December 2005, Antwerp Gateway NV., an associate of the Group, had bank loans facilities of EURO143,400,000

(equivalent to approximately RMB1,373,729,000), of which EURO18,466,000 (equivalent to approximately RMB176,899,000) is

guaranteed by the Group.

(b) In 2003, the Group was involved in a personal injury case in which a truck was involved in a traffic accident in Illinois, the US,

resulting in death and injury of a number of individuals. Upon advice of US legal counsel, the Directors considered that the exposure

liable to the Group, if any, is fully covered by the Group’s insurance policies.

The Group is subject to other claims in respect of a number of litigations currently under way. As at 31 December 2005, the Group

is unable to ascertain the likelihood and amounts of the respective claims. However, based on advice of legal counsel, the Directors

are of the opinion that, while the claims have not been provided for in the Consolidated Financial Statements or included in the

contingent liabilities as disclosed above, either the Group’s insurance coverage will be adequate to cover any final claims to be

settled or the final claims amounts will be insignificant to the Group.

(c) The Company did not have any significant contingent liabilities as at 31 December 2005.

184



39 Commitments

(a) Capital commitments

Group

2005 2004

RMB’000 RMB’000

Authorised but not contracted for.........................................................................................................................................................................................................................................................................................................................................................................................

Containers 2,562,757 2,919,099.........................................................................................................................................................................................................................................................................................................................................................................................

Vessels 304,000 8,731,959.........................................................................................................................................................................................................................................................................................................................................................................................

Other property, plant and equipment 94,264 115,506.........................................................................................................................................................................................................................................................................................................................................................................................

Investments 675 23,966.........................................................................................................................................................................................................................................................................................................................................................................................

Intangible assets 7,918 —.........................................................................................................................................................................................................................................................................................................................................................................................

2,969,614 11,790,530

Contracted but not provided for.........................................................................................................................................................................................................................................................................................................................................................................................

Containers 67,233 95,599.........................................................................................................................................................................................................................................................................................................................................................................................

Vessels 7,395,075 1,774,059.........................................................................................................................................................................................................................................................................................................................................................................................

Other property, plant and equipment 96,258 66,959.........................................................................................................................................................................................................................................................................................................................................................................................

Investments (note i) 5,744,723 2,906,080.........................................................................................................................................................................................................................................................................................................................................................................................

Intangible assets 11,805 —.........................................................................................................................................................................................................................................................................................................................................................................................

13,315,094 4,842,697

Notes:

(i) The Group’s contracted investments as at 31 December 2005 are as follows:

Group

2005 2004

RMB’000 RMB’000

Investments in:.........................................................................................................................................................................................................................................................................................................................................................................................

- Qingdao Qianwan Container Terminal Co., Ltd 839,462 884,646.........................................................................................................................................................................................................................................................................................................................................................................................

- Antwerp Gateway NV 654,421 1,458,813.........................................................................................................................................................................................................................................................................................................................................................................................

- Dalian Port Container Terminals Co., Ltd 713,341 —.........................................................................................................................................................................................................................................................................................................................................................................................

- Others 356,679 530,472.........................................................................................................................................................................................................................................................................................................................................................................................

Terminal projects in:.........................................................................................................................................................................................................................................................................................................................................................................................

- Nansha of Guangzhou 2,365,343 —.........................................................................................................................................................................................................................................................................................................................................................................................

- Others 815,477 32,149.........................................................................................................................................................................................................................................................................................................................................................................................

5,744,723 2,906,080


ANNUAL REPORT 2005

39 Commitments (Continued)

(a) Capital commitments (Continued)

(ii) Amounts of capital commitments relating to the Group’s interest in the jointly controlled entities are as follows:

2005 2004

RMB’000 RMB’000

Authorised but not contracted for 67,128 61,250.........................................................................................................................................................................................................................................................................................................................................................................................

Contracted but not provided for 59,042 68,542.........................................................................................................................................................................................................................................................................................................................................................................................

126,170 129,792

(b) Operating lease arrangement - where the Group is the lessor

At 31 December 2005, the Group had future minimum lease receipts under non-cancellable operating leases as

follows:

Group

2005 2004

RMB’000 RMB’000

Vessels and containers.........................................................................................................................................................................................................................................................................................................................................................................................

- not later than one year 838,027 875,475.........................................................................................................................................................................................................................................................................................................................................................................................

- later than one year and not later than five years 1,898,248 1,532,078.........................................................................................................................................................................................................................................................................................................................................................................................

- later than five years 83,632 215,790.........................................................................................................................................................................................................................................................................................................................................................................................

2,819,907 2,623,343.........................................................................................................................................................................................................................................................................................................................................................................................

Investment properties and other properties.........................................................................................................................................................................................................................................................................................................................................................................................


- later than one year and not later than five years 7,317 12,781.........................................................................................................................................................................................................................................................................................................................................................................................


12,836 19,304.........................................................................................................................................................................................................................................................................................................................................................................................

Other property, plant and equipment.........................................................................................................................................................................................................................................................................................................................................................................................



30,352 27,479.........................................................................................................................................................................................................................................................................................................................................................................................

2,863,095 2,670,126

The future lease receipts above do not include those lease contracts with the amount of future lease receipts

depends on the timing of pick up and drop off of containers by lessees during the lease period of the contracts.

186



39 Commitments (Continued)

(c) Operating lease commitments - where the Group is the lessee

At 31 December 2005, the Group had future aggregate minimum lease payments under non-cancellable operating

leases as follows:

Group

2005 2004

RMB’000 RMB’000

Land and buildings.........................................................................................................................................................................................................................................................................................................................................................................................




270,055 207,814.........................................................................................................................................................................................................................................................................................................................................................................................

Vessels and containers.........................................................................................................................................................................................................................................................................................................................................................................................

- not later than one year 2,734,247 2,135,589.........................................................................................................................................................................................................................................................................................................................................................................................

- later than one year and not later than five years 8,909,207 9,570,024.........................................................................................................................................................................................................................................................................................................................................................................................

- later than five years 7,669,724 8,559,998.........................................................................................................................................................................................................................................................................................................................................................................................

19,313,178 20,265,611.........................................................................................................................................................................................................................................................................................................................................................................................

Other property, plant and equipment.........................................................................................................................................................................................................................................................................................................................................................................................



32,776 16,463.........................................................................................................................................................................................................................................................................................................................................................................................

19,616,009 20,489,888

(d) The Company did not have any significant commitments as at 31 December 2005.

40 Significant related party transactions

The Company is controlled by COSCO, the parent company and a state-owned enterprise established in the PRC.

COSCO itself is a state-owned enterprise controlled by the PRC government. In accordance with HKAS 24 “Related Party

Disclosures” issued by the HKICPA, other state-owned enterprises and their subsidiaries (other than COSCO group

companies), directly or indirectly controlled by the PRC government, are also defined as related parties of the Group.

For the purpose of the related party transaction disclosures, the Group has identified, to the extent practicable, its

customers and suppliers as to whether they are state-owned enterprises. Nevertheless, the Directors believe that

meaningful information in respect of related party transactions has been adequately disclosed.


ANNUAL REPORT 2005

40 Significant related party transactions (Continued)

In addition to the related party information disclosed elsewhere in the Consolidated Financial Statements, the following is a

summary of significant related party transactions entered into the ordinary course of business between the Group and its

related parties during the year.

2005 2004

RMB’000 RMB’000

Transactions with COSCO.........................................................................................................................................................................................................................................................................................................................................................................................

Expenses.........................................................................................................................................................................................................................................................................................................................................................................................

Vessel costs.........................................................................................................................................................................................................................................................................................................................................................................................

Subcharter expenses (note a) 113,236 —

Transactions with subsidiaries of COSCO and its related entities

(including jointly controlled entities and associates).........................................................................................................................................................................................................................................................................................................................................................................................

Revenues.........................................................................................................................................................................................................................................................................................................................................................................................

Container shipping income (note b) 392,823 391,017.........................................................................................................................................................................................................................................................................................................................................................................................

Shipping-related service income (note l) 15,888 13,707.........................................................................................................................................................................................................................................................................................................................................................................................

Freight forwarding and shipping agency income (note c) 23,786 52,812

Expenses.........................................................................................................................................................................................................................................................................................................................................................................................

Vessel costs.........................................................................................................................................................................................................................................................................................................................................................................................

Vessel services expenses (note d) 267,871 263,250.........................................................................................................................................................................................................................................................................................................................................................................................

Crew expenses (note e) 603,433 604,464.........................................................................................................................................................................................................................................................................................................................................................................................

Subcharter expenses (note a) 495,307 501,346.........................................................................................................................................................................................................................................................................................................................................................................................

Vessel management expenses (note e) 75,248 52,580.........................................................................................................................................................................................................................................................................................................................................................................................

Voyage costs.........................................................................................................................................................................................................................................................................................................................................................................................

Bunker costs (note f) 4,489,521 2,713,529.........................................................................................................................................................................................................................................................................................................................................................................................

Port charges (note g) 1,261,996 1,141,714.........................................................................................................................................................................................................................................................................................................................................................................................

Equipment and cargo transportation costs.........................................................................................................................................................................................................................................................................................................................................................................................

Commission and rebates (note h) 229,363 369,742.........................................................................................................................................................................................................................................................................................................................................................................................

Cargo and transhipment and equipment and repositioning expenses (note i) 231,931 234,047.........................................................................................................................................................................................................................................................................................................................................................................................

Transportation and depot services expenses (note j) 151,482 92,514.........................................................................................................................................................................................................................................................................................................................................................................................

Management fee expenses (note l) 21,257 59,383.........................................................................................................................................................................................................................................................................................................................................................................................

General service expenses (note l) 19,527 7,278.........................................................................................................................................................................................................................................................................................................................................................................................

Rental expenses (note l) 42,646 20,921.........................................................................................................................................................................................................................................................................................................................................................................................

Sales commission for handling of vessels sales (note l) — 10,136.........................................................................................................................................................................................................................................................................................................................................................................................

188




2005 2004

RMB’000 RMB’000

Others.........................................................................................................................................................................................................................................................................................................................................................................................

Consideration received for the disposal of a subsidiary and

assignment of a shareholders’ loan (note m) 12,760 —.........................................................................................................................................................................................................................................................................................................................................................................................

Purchase of building (note m) 18,600 —.........................................................................................................................................................................................................................................................................................................................................................................................

Downpayments for purchase of container vessels (note o) 392,100 —.........................................................................................................................................................................................................................................................................................................................................................................................

Purchase of.........................................................................................................................................................................................................................................................................................................................................................................................

- an associate (note p) — 1,056,384.........................................................................................................................................................................................................................................................................................................................................................................................

- jointly controlled entities (note q) — 1,252,910.........................................................................................................................................................................................................................................................................................................................................................................................

Disposal of jointly controlled entities (note m) — 41,040.........................................................................................................................................................................................................................................................................................................................................................................................

Disposal of investments in a subsidiary (note m) — 32,189.........................................................................................................................................................................................................................................................................................................................................................................................

Share of general and administrative expenses by a fellow subsidiary (note r) — 33,648

Transactions with jointly controlled entities of the Group.........................................................................................................................................................................................................................................................................................................................................................................................

Revenues.........................................................................................................................................................................................................................................................................................................................................................................................

Container shipping income (note b) 297,991 487,775.........................................................................................................................................................................................................................................................................................................................................................................................

Freight forwarding and shipping agency income (note c) 21,632 39,027.........................................................................................................................................................................................................................................................................................................................................................................................

Management fee income (note l) 21,056 21,222

Expenses.........................................................................................................................................................................................................................................................................................................................................................................................

Voyage costs.........................................................................................................................................................................................................................................................................................................................................................................................

Port charges (note g) 1,091,301 1,001,664.........................................................................................................................................................................................................................................................................................................................................................................................

Equipment and cargo transportation costs.........................................................................................................................................................................................................................................................................................................................................................................................

Commission and rebates (note h) 16,622 43,159.........................................................................................................................................................................................................................................................................................................................................................................................

Cargo and transhipment and equipment and repositioning expenses (note i) 5,093 43,015.........................................................................................................................................................................................................................................................................................................................................................................................


Rental expenses (note l) 4,595 4,825.........................................................................................................................................................................................................................................................................................................................................................................................

Others.........................................................................................................................................................................................................................................................................................................................................................................................

Purchase of containers (note s) 301,642 51,293

Transactions with associates of the Group.........................................................................................................................................................................................................................................................................................................................................................................................

Expenses.........................................................................................................................................................................................................................................................................................................................................................................................

Container freight charges (note l) 14,562 9,245

Others.........................................................................................................................................................................................................................................................................................................................................................................................

Purchase of containers (note s) 866,147 239,106


ANNUAL REPORT 2005


2005 2004

RMB’000 RMB’000

Transactions with other state-owned enterprises.........................................................................................................................................................................................................................................................................................................................................................................................

Revenues.........................................................................................................................................................................................................................................................................................................................................................................................

Container shipping income (note b) 2,867,281 1,674,515.........................................................................................................................................................................................................................................................................................................................................................................................

Freight forwarding and shipping agency income (note c) 459,062 412,046.........................................................................................................................................................................................................................................................................................................................................................................................

Container rental income (note l) 17,281 18,042.........................................................................................................................................................................................................................................................................................................................................................................................

Interest income on bank deposits (note l) 41,527 15,314

Expenses.........................................................................................................................................................................................................................................................................................................................................................................................

Vessel costs.........................................................................................................................................................................................................................................................................................................................................................................................

Vessel services expenses (note d) 74,497 76,020.........................................................................................................................................................................................................................................................................................................................................................................................

Port charges (note g) 1,365,032 960,796.........................................................................................................................................................................................................................................................................................................................................................................................


General service expenses (note l) 7,320 3,066.........................................................................................................................................................................................................................................................................................................................................................................................

Interest expense (note k) 421,314 244,370

Notes:

(a) COSCO and its subsidiaries leased thirteen vessels to COSCON and Pan Asia by way of sub-time charter arrangements. The

periods of the sub-time charters are of six to twelve years. The daily charterhire rate for each vessel was agreed on a mutual basis.

(b) COSCON provided a subsidiary of COSCO, COSCO Logistics and its subsidiaries and certain state-owned enterprises with

container shipping services. These services were charged on a mutually agreed basis, except for the transactions with the

subsidiary of COSCO and jointly controlled entities, which are governed by the terms under Master Solicitation Activities Agreement

since 9 June 2005 (note n) and the underlying execution agreements. COSCO Logistics was owned as to 51% directly by COSCO

and as to 49% indirectly by COSCO Pacific since January 2004.

(c) The subsidiaries of the Group provided the subsidiaries of COSCO, certain jointly controlled entities of the Group, certain state-

owned enterprises with freight forwarding, shipping agency and related services. The services were charged based on a certain

percentage of the related freight revenue or fixed amounts per volume handled or as terms governed by the Master Overseas

Agency Services Agreement dated 9 June 2005 (note n).

(d) Certain subsidiaries of COSCO and state-owned enterprises provided COSCON and its subsidiaries with lubricants, paint for vessel

repairing, paint for maintenance, vessel materials and parts, vessel radio and communication equipment, etc. The vessel services

were charged on a mutually agreed basis, except for the transactions with subsidiaries of COSCO which are governed by the terms

under Master Vessel Services Agreement dated 9 June 2005 (noted n).

(e) Shanghai Ocean Shipping Company (“SOSC”), a wholly-owned subsidiary of COSCO, provided the Group with crew and vessel

management services. The services rendered were charged based on a mutually agreed basis prior to Listing Date or based on the

actual costs incurred by SOSC and governed by the terms under Master Vessel Management Agreement and Master Seamen

Leasing Agreement dated 9 June 2005 (note n).

190




(f) Certain subsidiaries and jointly controlled entities of COSCO provided COSCON and its subsidiaries with bunkers at prices with

reference to market rates and governed by the terms under Master Vessel Services Agreement dated 9 June 2005 (note n).

The Group entered into bunker forward agreements through Chimbusco (Singapore) Pte Ltd (“Chimbusco”), a jointly controlled

entity of COSCO. No service fees was charged by Chimbusco for the arrangements of bunker forward agreements.

As at 31 December 2005, there were notional amounts of outstanding bunker forward agreements of RMB200,656,000 (2004:

RMB196,713,000) entered into by the Group for itself and certain fellow subsidiaries. The gain or loss on bunker forward

agreements is shared between the Group and the fellow subsidiaries based on their respective actual consumption of bunker for the

year.

(g) Certain jointly controlled entities of COSCO and jointly controlled entities of the Group and certain state-owned enterprises provided

the Group with container terminal handling and storage services, port services and shipping services. The services rendered were

charged at terms as agreed with the related parties or at terms based on respective underlying agreements entered into between

the Group and the respective related companies or at terms governed by the Master Port Services Agreement dated 9 June 2005

(note n).

(h) Certain subsidiaries of COSCO and certain subsidiaries, jointly controlled entities and an associate of COSCO Logistics, and certain

jointly controlled entities of the Group provided COSCON with shipping agency, freight forwarding, freight solicitation, slot booking

services and other related services. The service was charged based on a certain percentage of the related freight revenue, the

quantity of cargo solicited, at terms as agreed with the related parties and at terms governed by the Master Overseas Agent

Services Agreement dated 9 June 2005 (note n) and the underlying execution agreements.

(i) Certain subsidiaries of COSCO and jointly controlled entities of the Group provided the Group with container services including

provision of container depots, repairs, towage, examination and maintenance of containers and related services. The container

services were charged at terms as agreed with the related parties or at terms governed by the Master Container Services

Agreement dated 9 June 2005 (note n) and the underlying execution agreements.

(j) Certain subsidiaries, jointly controlled entities and associates of COSCO and COSCO Logistics, certain jointly controlled entities of

the Group and state-owned enterprise provided the Group with transportation and depot services. The charges were based on the

terms as governed by the Master Container Services Agreement or Master Solicitation Services Agreement dated 9 June 2005 (note

n) and the underlying execution agreements or at terms as agreed with the related parties.

(k) Interest was charged for loans with state-owned banks in accordance with the terms as set out in the respective agreements or as

mutually agreed between the parties in concern.

(l) These transactions of revenues and expenses in nature were conducted based on terms as set out in the underlying agreements,

based on statutory rates or market prices or actual cost incurred, or as mutually agreed.

(m) These transactions were conducted at terms as set out in the relevant agreements entered into between the Group and the parties

in concern.

(n) On 9 June 2005, the Group (other than COSCO Pacific group) and COSCO Group entered into eight master agreements effective

on or after 9 June 2005 with an initial term of three years relating to the provision of general services, vessel services, agency and

management services, container services solicitation activities, port services, vessel management services, seamen leasing,

properties leasing, provision of products and services. Upon the expiry of the initial term, each of the master agreements shall

automatically continue for a term to be agreed by the parties of such master agreements. Each of the eight master agreements

contains binding principles, guidelines and terms and conditions pursuant to which any and all products and services contemplated

therein are to be provided by the relevant provider to the relevant recipient. The fee of each relevant product or service under each

of the master agreements is determined with reference to state-prescribed prices, market price or the actual cost incurred in

providing such products or services plus a margin. The master agreements are framework agreements which provide the

mechanism for the operation of the related party transactions and individual execution agreements were entered into between the

Group and the related parties, if appropriate.


ANNUAL REPORT 2005


(o) In April 2005, the Group entered into several ship building contracts with Nantong COSO KHI Ship Engineering Co., Ltd., a related

party of the Group, for the construction of four 10,000 TEU container vessels. The total contract price was approximately

US$485,800,000 (equivalent to approximately RMB4,021,200,000). As at 31 December 2005, RMB392,100,000 was paid.

(p) On 19 August 2004, COSCO Container Industries Limited (“COSCO Container”), a wholly owned subsidiary of COSCO Pacific,

entered into an agreement with COSCO to acquire its 163,701,456 non-publicly tradable State-owned legal person shares in CIMC,

representing approximately 16.23% of the issued share capital of CIMC, at a cash consideration of RMB1,056,384,000 (equivalent

to approximately US$127,240,000). CIMC, whose A shares and B shares are listed and traded on the Shenzhen Stock Exchange, is

primarily engaged in the manufacturing and sale of modern traffic and transport equipment such as containers, modern road

transport vehicles and airport ground equipment. The acquisition of CIMC was completed on 31 December 2004.

(q) (i) Pursuant to an agreement dated 22 September 2003 (the “Agreement”), COSCO Pacific Logistics Company Limited

(“CPLCL”), a subsidiary of the Group, agreed to acquire from COSCO its 49% equity interest in COSCO Logistics, a then

wholly owned subsidiary of COSCO, at an aggregate amount of RMB1,180,410,000 (equivalent to approximately

US$142,179,000), comprising an amount payable to COSCO of RMB446,410,000 and capital contribution to COSCO

Logistics of RMB734,000,000. The acquisition was completed in January 2004.

CPLCL also paid COSCO an additional consideration of RMB50,000,000 (equivalent to approximately US$6,022,000) in

September 2004 pursuant to the conditions as set out in the Agreement.

(ii) Pursuant to an agreement dated 15 June 2004, COSCO Ports (Yingkou) Limited, a subsidiary of the Group, agreed to

acquire from COSCO its entire 50% equity interest in a company established in the PRC which is principally engaged in the

provision of container terminal business in Yingkou, at a cash consideration of RMB22,500,000. The acquisition was

completed in August 2004.

(r) In the prior year, the general and administrative expenses were shared by a subsidiary of COSCO for the general and administrative

services provided by the Group. The sharing of the expenses incurred was calculated based on the headcount involved in general

and administrative work of the staff of COSCON for the fellow subsidiary.

(s) The purchases of containers from jointly controlled entities of the Group and subsidiaries of CIMC were conducted at terms as set

out in the agreements entered into between the Group and the parties in concern.

192




Balances with related parties

Other than those disclosed elsewhere in the Consolidated Financial Statements, the outstanding balances with related

entities at year end are as follows:

2005 2004

RMB’000 RMB’000

Deposits.........................................................................................................................................................................................................................................................................................................................................................................................

- State-owned banks and other state-owned

non-bank financial institutions (note a) 5,007,356 1,735,742

Loans.........................................................................................................................................................................................................................................................................................................................................................................................

- State-owned banks and other state-owned

non-bank financial institutions (note a) 7,857,147 10,117,748

Trade and other receivables.........................................................................................................................................................................................................................................................................................................................................................................................

- State-owned enterprises (note b) 302,839 444,456

Trade and other payables.........................................................................................................................................................................................................................................................................................................................................................................................

- State-owned enterprises (note b) 133,943 194,819

Notes:

(a) The deposits and loans were in accordance with the terms as set out in the respective agreements or as mutually agreed between

the parties in concern. The interest rates were set at prevailing market rates.

(b) Trading balances with state-owned enterprises have similar terms of repayments as the balances with third parties while other

balances with state-owned enterprises are unsecured, interest free and repayable on demand.


ANNUAL REPORT 2005


Share options granted by related parties

Share options were granted to the Company’s Directors and employees of the Group by two fellow subsdiaries, COSCO

International Holdings Limited (“COSCO International”) and COSCO Corporation (Singapore) Limited (“COSCO Corporation

(Singapore)”). Movement during the year are as follows:

Number of units of share options

Outstanding Outstanding

at Granted Exercised Lapsed at 31

Exercise 1 January during during during December

price 2005 the year the year the year 2005 note

Share Options of

COSCO International.........................................................................................................................................................................................................................................................................................................................................................................................

Directors HK$0.57 5,400,000 — — — 5,400,000 (i).........................................................................................................................................................................................................................................................................................................................................................................................

HK$1.37 3,600,000 — — — 3,600,000 (ii).........................................................................................................................................................................................................................................................................................................................................................................................

Employees HK$0.57 5,000,000 — (300,000) — 4,700,000 (i).........................................................................................................................................................................................................................................................................................................................................................................................

HK$1.37 4,600,000 — — — 4,600,000 (ii).........................................................................................................................................................................................................................................................................................................................................................................................

18,600,000 — (300,000) — 18,300,000

Share options of COSCO

Corporation (Singapore).........................................................................................................................................................................................................................................................................................................................................................................................

Directors S$0.2 800,000 — (800,000) — — (iii).........................................................................................................................................................................................................................................................................................................................................................................................

S$0.2 850,000 — (850,000) — — (iv).........................................................................................................................................................................................................................................................................................................................................................................................

S$0.735 1,700,000 — (1,700,000) — — (v).........................................................................................................................................................................................................................................................................................................................................................................................

S$1.614 — 1,050,000 — — 1,050,000 (vi).........................................................................................................................................................................................................................................................................................................................................................................................

3,350,000 1,050,000 (3,350,000) — 1,050,000

Notes:

(i) The share options were granted on 26 November 2003 under the share option scheme adopted by COSCO International on 17

May 2002 (the “COSCO International Scheme”). The options are exercisable at any time between 23 December 2003 to 22

December 2008.

(ii) The share options were granted on 2 December 2004 by COSCO International under the COSCO International Scheme. The

options are exercisable at any time between 29 December 2004 to 28 December 2014.

(iii) The share options were granted by COSCO Corporation (Singapore) on 12 August 2002 The options are exercisable at any time

between 12 August 2003 and 11 August 2007.

(iv) The share options were granted by COSCO Corporation (Singapore) on 1 April 2003 and are exercisable at any time between 1

April 2004 and 31 March 2008.

(v) The share options were granted by COSCO Corporation (Singapore) on 24 May 2004 and are exercisable at any time between 24

May 2005 and 23 May 2009.

(vi) The share options were granted by COSCO Corporation (Singapore) on 6 April 2005 and are exercisable at any time between 6

April 2005 and 5 April 2010.

194



41 Particulars of subsidiaries, jointly controlled entities and associates

(a) Subsidiaries

As at 31 December 2005, the Group had direct and indirect interests in the following principal subsidiaries:

Place of Attributable equity

incorporation/ Issued/registered interest to the

establishment Type of and fully paid equity holders

Name and operations Principal activities legal entity up share capital of the Company

2005 2004

Shares held directly

1 COSCO Container Lines PRC Container transportation Limited liability RMB2,380,000,000 100% 100%

Company Limited company

COSCO Pacific Investment Hong Kong Investment Limited liability 500 ordinary shares of 100% 100%

Holdings Limited # holding company HK$1,000 each

Shares held indirectly

COSCO Container PRC Shipping Limited liability RMB80,000,000 100% 100%

Shipping Agency agency company

Company Limited

COSCO International PRC Freight forwarding Limited liability RMB200,000,000 100% 100%

Freight Co., Ltd. and transportation company

3 COSCO Pacific Limited # Bermuda Investment holding Limited liability 2,198,966,298 52.03% 52.18%

company ordinary shares of

HK$0.1 each

COSCO Investments Limited # British Virgin Investment holding Limited liability 1 ordinary share of 100% 100%

Islands/ company US$1

Hong Kong

Dalian COSCO PRC Freight forwarding Limited liability RMB20,000,000 100% 100%

International Freight company

Co., Ltd.

COSCO Tianjin PRC Freight forwarding Limited liability RMB20,000,000 100% 100%


Co. Ltd.

COSCO Qingdao PRC Freight forwarding Limited liability RMB24,300,000 100% 100%


Co. Ltd.

COSCO Wuhan PRC Freight forwarding Limited liability RMB34,950,000 51% 51%


Co., Ltd.

COSCO Shanghai PRC Freight forwarding Limited liability RMB114,000,000 100% 100%


Co., Ltd.


ANNUAL REPORT 2005

41 Particulars of subsidiaries, jointly controlled entities and associates (Continued)

(a) Subsidiaries (Continued)





2005 2004

Shares held indirectly

COSCO Southern China PRC Freight forwarding Limited liability RMB10,000,000 100% —

International company

Freight Co., Ltd.

COSCO Xiamen PRC Freight forwarding Limited liability RMB7,560,000 100% 100%


Co., Ltd.

COSCO Beijing PRC Freight forwarding Limited liability RMB5,705,600 100% 100%


Co., Ltd.

COSCO Xian PRC Freight forwarding Limited liability RMB8,000,000 100% 100%


Co., Ltd.

COSCO Seabow PRC Freight forwarding Sino-Foreign USD1,000,000 70% 70%

International Freight joint venture

Co., Ltd.

Welley Shipping Company PRC Domestic transportation Limited liability RMB13,000,000 100% 100%

(China) Limited agency company

COSCO Qingdao Container PRC Shipping agency Limited liability RMB10,000,000 100% 100%

Shipping Agency company

Co., Ltd.

COSCO Shanghai Container PRC Shipping agency Limited liability RMB10,000,000 100% 100%


Co., Ltd.

COSCO Dalian Container PRC Shipping agency Limited liability RMB3,000,000 100% 100%


Co., Ltd.

COSCO Guangzhou Container PRC Shipping agency Limited liability RMB16,000,000 100% 100%


Co., Ltd.

COSCO Xiamen Container PRC Shipping agency Limited liability RMB10,000,000 100% 100%


Co., Ltd.

COSCO Shenzhen Container PRC Shipping agency Limited liability RMB5,000,000 100% 100%


Co., Ltd.

196









2005 2004

Shares held indirectly (Continued)

4 COSCO Tianjin Container PRC Shipping agency Limited liability RMB15,000,000 51% 51%


Co., Ltd.

4 Shanghai O G Enterprise PRC Freight forwarding Limited liability US$4,000,000 70% 70%

Co., Ltd. company

Shanghai Pan Asia Shipping PRC International ocean Limited liability RMB668,800,000 100% 100%

Company Limited shipping, national company

inshore and inland

river internal trade

containers transportation

COSCO Information and PRC Software developing, Sino-foreign equity US$250,000 60% 60%

Technology (Shanghai) Ltd. technical service and joint venture

supporting

China Ocean Shipping Canada Shipping agency Limited liability 400,000 shares of 100% 100%

(Canada) Inc. company US$4.67 each

China Ocean Shipping Canada Shipping agency Limited liability 100 shares of 100% 100%

(East Canada) Inc. company US$0.7 each

COSCO Agencies United States of America Shipping agency Limited liability 1,000 shares of 100% 100%

(Los Angeles), Inc. company US$0.1 each

COSCON France SAS France Freight forwarding Limited liability 500 shares of 100% 100%

(formerly Air Sea Lines Sarl) company EURO16 each

COSCON (UK) Ltd United Kingdom Shunting and Limited liability 100 shares of GBP1 each 100% 100%

(formerly JNF Services Limited) haulage contracting company

COSCO Belgium NV Belgium Shipping agency Limited liability 100 shares of 100% 100%

company EURO1,250 each

COSCO Iberia Ship Agency, Spain Shipping agency Limited liability 10,000 shares of 70% 70%

S.A. company EURO6.02 each

COSCO Container Hong Kong Shipping agency Limited liability 1,000,000 shares of 100% 100%

Line Agencies Limited # company HK$1 each

North Star Shipholding Panama/Japan Vessel owning and Limited liability 1,000 shares of 100% 100%

Ltd. S.A. chartering company US$1 each

COSCO Japan Express Ltd Japan Shipping agency Limited liability 10,000,000 shares of 100% —

company JPY 1 each


ANNUAL REPORT 2005







2005 2004


COSKOR Shipping Co., Ltd. Korea Freight forwarding Limited liability 60,000 shares of 100% 100%

(formerly COSCO Logistics company KRW5,000 each

(Korea) Co., Ltd.) #

Wonseong Shipping Co., Ltd. Korea Shipping agency Limited liability 50,000 shares of 100% 100%

(formerly Coshan Shipping company KRW5,000 each

Co., Ltd.) #

Freightworld Pte Ltd. Singapore Shipping agency and Limited liability 200,000 shares of 100% 100%

freight forwarding company SGD 1 each

Freightworld (M) Sdn. Bhd Malaysia Shipping agency and Limited liability 100,000 shares of 100% 100%

freight forwarding company RM1 each

Five Star Shipping and Australia Shipping agency Limited liability 100,000 shares of 100% 100%

Agency Company company AUD 1 each

Pty. Ltd.

BPSC International Australia Freight forwarding Limited liability 110,000 shares of 100% 100%

Shipping & Cargo company AUD 1 each

Service Pty Ltd.

COSCO (New Zealand) New Zealand Shipping agency and Limited liability 100,000 shares of 100% 100%

Limited freight forwarding company NZD 1 each

Green Leaf Promotions New Zealand Management service Limited liability 25,000 shares of 100% 100%

Limited company NZD 1 each

Cheer Hero Development Limited # Hong Kong Container handling, Limited liability 10,000 ordinary shares of 39.02% 39.14%

storage and company HK$10 each

stevedoring

COSCO Container Hong Kong Investment holding, Limited liability 2 ordinary shares of 52.03% 52.18%

Services Limited # depot handling, company HK$1 each

storage and

container repairing

COSCO Pacific (China) PRC Investment holding Limited liability US$37,496,000 52.03% 52.18%

Investments Co. , Ltd company

COSCO Pacific Finance (2003) British Virgin Islands/ Financing Limited liability 1 ordinary share of 52.03% 52.18%

Company Limited # Hong Kong company US$1

COSCO Pacific Logistics British Virgin Islands/ Investment holding Limited liability 1 ordinary share of 52.03% 52.18%

Company Limited Hong Kong company US$1

198









2005 2004


Florens Container Macau/ Sale of old Limited liability 1 quota (share) of 52.03% 52.18%

(Macao Commercial Offshore) Worldwide containers and company MOP100,000

Limited # administration of

marine shipping

container activities

Florens Container Corporation S.A. # Panama/ Container leasing Limited liability 100 ordinary shares of 52.03% 52.18%

Worldwide company US$100 each

Florens Container Holdings Limited # British Virgin Islands/ Investment holding Limited liability 22,014 ordinary shares of 52.03% 52.18%

Hong Kong company US$1 each

Florens Container Inc. # United States of Container leasing Limited liability 1 ordinary share of US$1 52.03% 52.18%

America company

Florens Container, Inc. (1998) # United States of Container leasing Limited liability 100 ordinary shares of 52.03% 52.18%

America company US$1 each

Florens Container Inc. (1999) # United States of Container leasing Limited liability 100 ordinary shares of 52.03% 52.18%


Florens Container, Inc. (2000) # United States of Container leasing Limited liability 100 ordinary shares of 52.03% 52.18%


Florens Container, Inc. (2001) # United States of Container leasing Limited liability 1 ordinary share of 52.03% 52.18%

America company US$1

Florens Container, Inc. (2002) # United States of Sale of old containers Limited liability 1 ordinary share of 52.03% 52.18%






Florens Container, Inc. (2005) United States of Container leasing Limited liability 1 ordinary share of 52.03% —


Florens Container Services Australia Provision of container Limited liability 100 ordinary shares of 52.03% 52.18%

(Australia) Pty Limited management services company AUD1 each

Florens Container Services Hong Kong/ Provision of container Limited liability 100 ordinary shares of 52.03% 52.18%

Company Limited # Worldwide management services company HK$1 each

Florens Container Services Germany Provision of container Limited liability 2 shares of 52.03% 52.18%

(Deutschland) GmbH. management services company EURO 12,782.30 each


ANNUAL REPORT 2005







2005 2004


Florens Container Services Italy Provision of container Limited liability 20,000 quotas of 52.03% 52.18%

(Italy) S.R.L. management services company EURO 0.52 each

Florens Container Services Japan Provision of container Limited liability 200 ordinary shares of 52.03% 52.18%

(Japan) Co., Ltd. management services company JPY 50,000 each

Florens Container Services United Kingdom Provision of container Limited liability 183,610 ordinary shares of 52.03% 52.18%

(UK) Limited management services company GBP1 each

Florens Container Services United States of America Provision of container Limited liability 1,000 ordinary shares of 52.03% 52.18%

(USA), Ltd. management services company US$0.001 each

Florens Management Services Macau Provision of container Limited liability 1 quota (share) of 52.03% 52.18%

(Macao Commercial Offshore) management services company MOP100,000

Limited #

Florens Shipping Corporation Bermuda/ Container leasing Limited liability 12,000 ordinary shares of 52.03% 52.18%

Limited # Worldwide company US$1 each

Greating Services Limited # Hong Kong Transportation of Limited liability 250,000 ordinary shares of 52.03% 52.18%

containers company HK$1 each

Zhangjiagang Win Hanverky PRC Operation of container Sino-foreign US$16,800,000 26.54% 26.62%

Container Terminal terminal joint venture

Co., Ltd.

COSCO (Cayman) Mercury Cayman Islands/ Investment holding Limited liability 50,000 ordinary shares of 100% 100%

Co., Ltd. # Singapore company US$1 each

Honor River Maritime Inc. Panama/ Vessel owning and Limited liability 2 ordinary shares of 100% 100%

Worldwide chartering company US$100 each

Starry Shipping Inc. Panama/ Vessel owning and Limited liability 2 ordinary shares of 100% 100%


Pretty River Shipping Inc. Panama/ Vessel owning and Limited liability 2 ordinary shares of 100% 100%


Dainty River Shipping Inc. Panama/ Vessel owning and Limited liability 2 ordinary shares of 100% 100%


Sky Manna Maritime Inc. Panama/ Vessel owning and Limited liability 2 ordinary shares of 100% 100%


Golden Cascade Corporation # Liberia/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


200









2005 2004


Golden Shore Corporation # Liberia/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


2 Buyihe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Chaoshanhe Maritime Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Chuanhe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


2 Caiyunhe Maritime Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


2 COSCO Line New Jersey Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%

Shipping Inc. # Worldwide chartering company US$100 each

2 COSCO Line New York Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%

Shipping Inc. # Worldwide chartering company US$100 each

Daqinghe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


2 Hanihe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Hutuohe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


2 Jingpohe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


2 Jinyunhe Maritime Inc. # Panama/ Vessel owning and Limited liability 1,000 ordinary shares of 100% 100%


2 Luhe Shipping Inc. # Panama/ Vessel owning and Limited liability 10,000 ordinary shares of 100% 100%


2 Lubahe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Daqinghe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Miyunhe Maritime Inc. # Panama/ Vessel owning and Limited liability 1,000 ordinary shares of 100% 100%



ANNUAL REPORT 2005







2005 2004


2 Naxihe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


2 Ninghe Shipping Inc. # Panama/ Vessel owning and Limited liability 10,000 ordinary shares of 100% 100%


Qiyunhe Maritime Inc. # Panama/ Vessel owning and Limited liability 1,000 ordinary shares of 100% 100%


Wanhe Shipping Inc. # Panama/ Vessel owning and Limited liability 10,000 ordinary shares of 100% 100%


2 Xibohe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Xinhuihe Maritime Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Yangjianghe Maritime Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Yongdinghe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Yuehe Shipping Inc. # Panama/ Vessel owning and Limited liability 10,000 ordinary shares of 100% 100%


2 Yuguhe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


2 Yunhe Shipping Inc. # Panama/ Vessel owning and Limited liability 10,000 ordinary shares of 100% 100%


Zhaoqinghe Maritime Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Ziyahe Shipping Inc. # Panama/ Vessel owning and Limited liability 100 ordinary shares of 100% 100%


Fenghou Maritime Inc. # Panama/ Vessel owning and Limited liability 1,000 ordinary shares of 100% 100%


Haihou Maritime Inc. # Panama/ Vessel owning and Limited liability 1,000 ordinary shares of 100% 100%


Longhou Maritime Inc. # Panama/ Vessel owning and Limited liability 1,000 ordinary shares of 100% 100%


202









2005 2004


Tianhou Maritime Inc. # Panama/ Vessel owning and Limited liability 1,000 ordinary shares of 100% 100%


COSCO Charleston Panama/ Vessel owning Limited liability 1,000 ordinary shares of 100% 100%

Maritime Inc. # Worldwide company US$10 each

COSCO New York Panama/ Vessel owning Limited liability 1,000 ordinary shares of 100% 100%

Maritime Inc. # Worldwide company US$10 each

COSCO Boston Maritime Inc. # Panama/ Vessel owning Limited liability 1,000 ordinary shares of 100% 100%


COSCO Norfolk Maritime Inc. # Panama/ Vessel owning Limited liability 100 ordinary shares of 100% 100%


COSCO Asia Maritime Inc. # Panama/ Vessel owning Limited liability 1,000 ordinary shares of 100% —


COSCO Africa Maritime Inc. # Panama/ Vessel owning Limited liability 1,000 ordinary shares of 100% —


COSCO Europe Maritime Inc. # Panama/ Vessel owning Limited liability 1,000 ordinary shares of 100% —


COSCO America Maritime Inc. # Panama/ Vessel owning Limited liability 1,000 ordinary shares of 100% —


COSCO Oceania Shipping Limited. # Hong Kong/ Vessel owning Limited liability 10,000 ordinary shares of 100% —


COSCO Pacific Shipping Limited. # Hong Kong/ Vessel owning Limited liability 10,000 ordinary shares of 100% —


COSCO Indian Ocean Shipping Hong Kong/ Vessel owning Limited liability 10,000 ordinary shares of 100% —

Limited # Worldwide company US$1 each

COSCO Atlantic Shipping Limited. # Hong Kong/ Vessel owning Limited liability 10,000 ordinary shares of 100% —


COSCO Container Lines Hong Kong Marine services Limited liability 1,000,000 shares of 100% 100%

(Hong Kong) Co., Limited. # company HK$1 each

COSCO Container Lines German/Europe Shipping agency Limited liability EURO1,500,000 100% 100%

Europe GmbH # company


ANNUAL REPORT 2005







2005 2004


COSCO Container Lines Japan Japan Marine services Limited liability JPY40,000,000 100% 100%

Co., Ltd. company

COSCO Container Lines United States of Shipping agency Limited liability 1,000 ordinary shares of 100% —

Americas, Inc. America company US$0.01 each

Coheung Marine Shipping Hong Kong/ Marine transportation Limited liability 2,980,000 shares of 100% —

Company Limited # Korea company US$1 each

COSCO (Cayman) Golden Cayman Islands/ Treasury Limited liability 1,000 shares of 100% 100%

Company Limited # Worldwide company US$1 each

# Subsidiaries audited by PricewaterhouseCoopers

1 In June 2005, COSCO Container Lines Company Limited reduced its registered capital from RMB6,100,000,000 to

RMB2,380,000,000.

2 Shares of these subsidiaries have been pledged to banks as securities for loan facilities granted (note 23(i)).

3 All shares of COSCO Pacific held by the Group have been held as custody for loan facilities granted to a subsidiary by banks.

4 Those companies were classified as jointly controlled entities as at 31 December 2004.

204




(b) Jointly controlled entities

As at 31 December 2005, the subsidiaries of the Group had direct interests in the following principal jointly controlled

entities:

Percentage of interest

in ownership/

votingpower/

Place of profit sharing

incorporation/ Issued/registered attributable to the

establishment Principal Type of and fully paid equity holders

Name and operations activities legal entity up share capital of the Company

2005 2004

COSCON Italy S.R.L. Italy Ocean transportation Limited liability 100,000 shares of 50% —

company EURO 1 each

COSCO-HIT Hong Kong Operation of Limited liability 2 “A” ordinary shares of 26.02%/ 26.09%/

Terminals (Hong Kong) container terminal company HK$10 each and 26.02%/ 26.09%/

Limited 2 “B” ordinary shares of 26.02% 26.09%

HK$10 each

4 non-voting

5% deferred shares of

HK$10 each

Qingdao Cosport PRC Operation of container Sino-Foreign RMB337,868,700 26.02%/ 26.09%/

International Container terminal joint venture 26.02%/ 26.09%/

Terminals Co., Ltd. 26.02% 26.09%

Shanghai CIMC Reefer Containers PRC Container manufacturing Sino-Foreign US$31,000,000 10.41%/ 10.44%/

Co., Ltd. joint venture 11.13%/ 11.17%/

10.41% 10.44%

Shanghai CIMC Far East Container PRC In liquidation Sino-Foreign US$9,480,000 10.41%/ 10.44%/

Co., Ltd. (note) joint venture 10.41%/ 10.44%

10.41% 10.44%/

Tianjin CIMC North PRC Container manufacturing Sino-Foreign US$16,682,000 11.71%/ 11.75%/

Ocean Container joint venture 10.41%/ 10.44%/

Co., Ltd. (note) 11.71% 11.75%

Qingdao Qianwan Container PRC Operation of container Sino-Foreign US$199,962,500 10.44%/ 10.41%/

Terminal Co., Ltd. terminal joint venture 9.49%/ 9.46%/

10.44% 10.41%


ANNUAL REPORT 2005


(b) Jointly controlled entities (Continued)


in ownership/

votingpower/





2005 2004

COSCO Logistics Co., Ltd. PRC Shipping agency, Sino-Foreign RMB1,582,029,851 25.49%/ 25.57%/

freight forwarding, joint venture 23.12%/ 23.19%/

third party logistics and 25.49% 25.57%

supporting services

Yangzhou Yuanyang PRC Operation of container Sino-Foreign US$29,800,000 28.92%/ 29.01%/

International Ports terminal joint venture 26.02%/ 26.09%/

Co., Ltd. 28.92% 29.01%

Yingkou Container Terminals PRC Operation of container Sino-Foreign RMB8,000,000 26.02%/ 26.09%/

Company Limited terminal joint venture 29.73%/ 29.82%/

26.02% 26.09%

COSCO-PSA Terminal Singapore Operation of container Limited liability SGD48,900,000 25.49%/ 25.57%/

Private Limited terminal company 26.02%/ 26.09%/

25.49% 25.57%

Nanjing Port Longtan PRC Operation of container Limited liability RMB474,000,000 10.41%/ —

Container Co., Ltd. terminal company 11.56%/ —

10.41% —

COSCO Container Lines Netherlands Shipping agency Limited liability EURO18,000 50% —

(Netherlands) B.V. company

Note: During the year ended 31 December 2004, the Group’s share of the results of its jointly controlled entities, Shanghai CIMC

Far East Container Co., Ltd. and Tianjin CIMC North Ocean Container Co., Ltd. (collectively “Shanghai and Tianjin CIMC”),

were based on the guaranteed profits as stated in the relevant subcontracting agreements entered into with the venturer of

Shanghai and Tianjin CIMC. The guaranteed profit arrangements for Shanghai and Tianjin CIMC were valid for the period from

1 January 2000 to 31 December 2004.

Shanghai CIMC Far East Container Co., Ltd. (“Shanghai Far East”) commenced its liquidation in October 2005. The Directors

consider that the liquidation of Shanghai Far East will not have any material impact on the Group’s financial statements.

206




(c) Associates

As at 31 December 2005, the subsidianies of the Group had direct equity interests in the following principal

associates:


in ownership/

voting power/





2005 2004

Shanghai Pudong PRC Operation of container Sino-foreign RMB1,900,000,000 10.44%/ 10.44%/

International Container terminal joint venture 10.41%/ 10.41%/

Terminals Limited 10.44% 10.41%

COSCO Finance PRC Banking and related Limited liability RMB800,000,000 17.25% 5%

Co., Ltd. (note ii) financial services company

Antwerp Gateway NV Belgium Operation of Limited liability EURO14,000,000 10.41%/ 13.05%/

(note i) container terminal company 9.25%/ 11.59%/

10.41% 13.05%

China International PRC Container manufacturing Limited liability RMB2,016,966,706 8.45%/ 8.47%/

Marine Containers company (327,402,912 non-publicly 13.01%/ 13.05%/

(Group) Co., Ltd. tradable shares, 8.45% 8.47%

(note ii) 605,866,438 “A” shares and

1,083,697,356 “B” shares),

all of RMB1 each

Dalian Automobile Terminal PRC Construction and Limited liability RMB160,000,000 15.61%/ 15.65%/

Co., Ltd. operation of company 14.86%/ 14.90%/

automobile terminals 15.61% 15.65%

Dalian Port Container Terminal PRC Operation of container Limited liability RMB240,000,000 10.41%/ 10.44%/

Co., Ltd. terminal company 9.46%/ 9.49%/

10.41% 10.44%

Liu Chong Hing Bank LImited Hong Kong Banking and Limited liability 435,000,000 ordinary 10.41%/ 10.44%/

related financial company shares of HK$0.5 each 5.78%/ 5.80%/

services 10.41% 10.44%

Notes:

(i) The Group disposed of 5% equity interest in Antwerp Gateway NV to a third party in July 2005 and the gain on disposal

amounted to RMB1,436,496.

(ii) The Directors consider that the Group has significant influence over CIMC and COSCO Finance through its representatives on

the board of directors of CIMC and COSCO Finance respectively.


ANNUAL REPORT 2005


All subsidiaries, jointly controlled entities and associates are private companies, or if incorporated or established outside

Hong Kong, have substantially the same characteristics as a Hong Kong incorporated private company.

The English names of certain subsidiaries, jointly controlled entities and associates referred to in the Consolidated Financial

Statements represent management’s best efforts at translating the Chinese names of these companies as no English

names have been registered.

42 Comparatives

The Group has adopted new/revised HKFRSs which are effective for accounting periods commencing on or after 1 January

2005. As mentioned in note 2(b) to the Consolidated Financial Statements, this has resulted in changes to the presentation

of certain items and the comparative figures have been restated. In addition, certain comparative figures have been

reclassified to confirm with the current year’s presentation.

43 Events after the balance sheet date

As at 31 December 2005, a wholly owned subsidiary of COSCO Pacific holds 327,402,912 of non-publicly tradable shares

of CIMC (the “CIMC Shares”). On 13 March 2006, CIMC announced that, after the consultation with The Shenzhen Stock

Exchange (the “SZSE”), it will commence the necessary procedures under the Equity Division Reform (the “CIMC’s

Reform”).

On 4 April 2006 and 11 April 2006, the Company announced the COSCO Pacific’s proposal for the conversion of the CIMC

Shares to become tradable in the SZSE “A” share market (the “Proposal”). Under the Proposal, COSCO Pacific will grant

put-option certificates (the “Put-options”) to the holders of CIMC tradable A shares (the “A-Share Equity Holders”) in the

proportion of 7 Put-options for every 10 CIMC tradable A shares being hold by these A-Share Equity Holders. With these

Put-options, the A-Share Equity Holders are entitled to sell certain portion of their CIMC tradable A shares to COSCO

Pacific at an exercise price of RMB10 per share during a pre-defined exercisable period. The impact of the Proposal on the

Group’s future financial results and position largely depends on the future market prices of CIMC tradable A shares and the

Put-options which will be listed and tradable on the SZSE. On the assumption that all the Put-options are exercised in full

upon the expiry date, COSCO Pacific has to pay a total sum of approximately RMB4,241,000,000 in cash to acquire

certain portion of the CIMC tradable A shares from the A-Share Equity Holders and COSCO Pacific’s equity interest in

CIMC will then be increased from 16.23% to 37.26%.

The implementation of the Proposal is conditional upon the requisite approval of shareholders of CIMC on 28 April 2006

and the fulfilment of certain condition precedents as set out in the Proposal. If the Proposal is not being approved, COSCO

Pacific has to provide another proposal for the CIMC’s Reform and different proposal will have different financial implications

on the Group’s financial statements.

208

Financial Summary



2005 2004 2003 2002

RMB’000 RMB’000 RMB’000 RMB’000

(Restated) (Restated) (Restated)

Turnover 39,165,710 32,188,669 25,852,874 20,925,740

Operating profit/(loss) after finance costs 6,186,480 4,405,956 2,050,206 (883,487)................................................................................................................................................................................................................................................................................................................................................................................................

Share of profits less losses of jointly controlled

entities and associates 1,263,770 837,344 481,202 432,591................................................................................................................................................................................................................................................................................................................................................................................................

Profit/(loss) before income tax 7,450,250 5,243,300 2,531,408 (450,896)................................................................................................................................................................................................................................................................................................................................................................................................

Income tax (651,319) (285,757) (177,506) (146,757)................................................................................................................................................................................................................................................................................................................................................................................................

Profit/(loss) for the year 6,798,931 4,957,543 2,353,902 (597,653)

Profit/(loss) attributable to:

- Equity holders of the Company 5,450,805 4,157,960 1,742,228 (1,196,183)................................................................................................................................................................................................................................................................................................................................................................................................

- Minority interests 1,348,126 799,583 611,674 598,530................................................................................................................................................................................................................................................................................................................................................................................................

6,798,931 4,957,543 2,353,902 (597,653)

As at 31 December

2005 2004 2003 2002

RMB’000 RMB’000 RMB’000 RMB’000

(Restated) (Restated) (Restated)

Total assets 51,675,654 44,249,567 39,124,943 40,625,251

Total liabilities (25,730,562) (30,847,045) (31,893,227) (35,191,410)

Total equity 25,945,092 13,402,522 7,231,716 5,433,841

Note:

The financial figures for the year 2004 and 2005 were extracted from the audited consolidated financial statements whilst the financial figures for

the year 2002 and 2003 were derived from the accountants’ report of the Company’s prospectus dated 20 June 2005 with adjustments following

the adoption of HKFRS.

ANNUAL REPORT 2005

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China COSCO Holdings Company Limited12th Floor, Ocean Plaza, 158 Fuxingmennei Street, Beijing,

the People's Republic of China

http://www.chinacosco.com ��

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