Major Revenue Segments of the Group

 

Overall business environment

The principal activities of CIG Yangtze Port PLC (the “Company”) and its subsidiaries (collectively, the “Group”) are investment in and development, operation and management of container and other ports, conducted through its various ports, and the provision of port related, logistics and other services including integrated logistics, port and warehouse leasing and the supply chain management and trading services, mainly conducted through the WIT Port(武漢陽邏港), the Multi-Purpose Port(通用港口), the Hannan Port(漢南港), the Shayang Port(沙洋港)and the Shipai Port(石牌港), located within the Yangtze River Basin in Hubei province, the PRC.


The WIT Port and the Multi-Purpose Port

The WIT Port is located along the Yangtze River in the Yangluo Economic Development Zone, Wuhan, Hubei, the PRC. The strong and well established industrial base of Wuhan featuring operators in major industries, including automobile and its components, chemical, steel, textile, machinery and equipment as well as those in the construction materials businesses have been and will continue to be the principal providers of gateway cargoes to the WIT Port. Due to the inherent water-depth limitations along the upstream regions of the Yangtze River, it precludes bigger ships from navigating directly between those areas and Shanghai. The trans-shipment service provided by the WIT Port offers a more economical alternative to ship container cargoes using bigger ships carrying more containers to and from Shanghai and overseas. Surrounding areas which are serviced by the WIT Port include Hunan, Guizhou, Chongqing, Sichuan, Shanxi, Henan, Hubei and Shaanxi Provinces. Strategic initiatives by the government for shipping companies and the WIT Port promotes direct shipment to the Yangshan Port in Shanghai (江海直達) have further strengthened the position of the WIT Port as a trans-shipment port at the mid-stream of the Yangtze River. The Group has also developed port related services including agency and integrated logistics service businesses to expand its revenue sources, including bonded warehousing, customs clearance, break bulk and distribution at the WIT Port. The Multi-Purpose Port, which is located adjacent to the WIT Port, extends the container handling capacity of the Group to beyond that of the WIT Port and supplements the terminal service business operation of the Group alongside the WIT Port.

The Hannan Port

In the second quarter of 2016, the Group successfully completed the acquisition of Zall Infrastructure Group Company Limited and its subsidiaries (the “Hannan Group”), a group which owns, amongst others the Hannan Port, for a consideration which was settled by way of allotment and issue of 408,010,509 new shares of the Company. The Hannan Port is located along the Yangtze River in Wuhan, adjacent to the Shanghai-Chengdu, Beijing Zhuhai Expressway and within 80 kilometers from the Beijing-Guangzhou Beijing-Kowloon rail link and is the principal contributor of port and warehouse leasing income to the new property business segment of the Group. The Group plans to develop the Hannan Port into a multi-purpose service platform in phases, providing terminal, warehousing and logistics services and such other services including RORO (Roll on Roll off), terminal, bulk cargo transportation and storage, automobile spare parts processing and logistics.


The Shayang Port

In the second quarter of 2016, the Group successfully acquired 60% equity interest in Shayang County Guoli Transportation Investment Co., Limited ( 沙洋縣國利交通投資有限公司, “Shayang Guoli”) for a consideration of RMB47,148,000. Shayang Guoli is principally engaged in (i) the investment, construction, development and management of transportation infrastructure; (ii) management and operation of the transportation-related advertising business; and (iii) land-related development through land reserve development centres; and owns the integrated port construction project in Phase 1 of the central port area in the Shayang Port. The Shayang Port is one of the major port construction projects under the “12th Five-Year Plan” of Hubei Province of the PRC, which will serve as a water transportation hub connecting surrounding six provinces, an essential material distribution centre of Central Wuhan and also a superior port area for the middle reaches of the Han River. The investment was made as part of the Group’s strategy to establish a synergistic connection between the Shayang Port and the WIT Port in the Yangtze River Basin. This serves to maximise the WIT Port’s advantage as a logistics centre of the Yangtze River, which is in line with the development trend of “One Belt, One Road” policy in the PRC, and is beneficial to the Group implementing its strategic aims in the Yangtze River Basin.


The Shipai Port

In December 2016, the Group acquired 60% equity interest in Zhongxiang City Port Development Co., Limited ( 鐘祥市中基港口發展有限公司, “Zhongxiang City Port Co.”) for a consideration of RMB52,810,000. Zhongxiang City Port Co. is principally engaged in (i) the investment, development and management of transportation infrastructure, (ii) loading and unloading of cargoes, and (iii) shipping agency services. Zhongxiang City Port Co. is also involved in the development project of a port, logistics and industrial mixed-use port district with an area of approximately 25 square kilometers located in Shipai County, Zhongxiang City, Jingmen, Central Hubei (the “Shipai Port”). The port portion of Shipai Port is to occupy an area of approximately 2.5 square kilometers with the planned construction of four (4) 1000-tonne class berths together with a logistical park covering approximately 2.5 square kilometers to be constructed next to the port area.


Zhongji Tongshang Construction

In January 2017, the Group acquired Zhongji Tongshang Municipal Construction Engineering (Wuhan) Co., Ltd. ( 中基通商市政工程(武漢)有限公司 (formerly known as Hubei Haiwote Municipal Construction Engineering Co. Limited*, 湖北海沃特市政工程有限公司), (“Zhongji Tongshang Construction”) for a total consideration of RMB43,600,000. Zhongji Tongshang Construction is principally engaged in undertaking municipal construction projects. The acquisition of Zhongji Tongshang Construction will act as the platform for the Group to diversify its business and explore new business opportunities in the construction industries.

 

Operating results

  2016 2015 Increase/ (Decrease)
  HK$'000 % HK$'000 % HK$'000 %
             
Terminal service

82,505

39.9 89,225 46.9 (6,720) (7.5)
Integrated logistics service 75,393 36.4 77,284 40.7 (1,891) (2.4)
Property business 24,844 12.0 1,865 1.0 22,979 1,232.1
Container handling, storage & other service 22,932 11.0 20,420 10.7 2,512 12.3
General and bulk cargoes handling service 1,358 0.7 1,316

0.7

42 3.2
             
  207,032 100.0 190,110 100.0 16,922 8.9


For the year ended 31 December 2016, the Group’s revenue amounted to HK$207.03 million (2015 restated: K$190.11
million), representing an increase of 8.9% as compared to 2015. The increase in revenue was mainly attributable to the
increase in revenue of HK$22.98 million in port and warehouse leasing income of the property business from the annan
Port, acquired by the Group in 2016 and container handling, storage & other service income HK$2.51 million; which was
partially offset by (i) the decrease in revenue of HK$1.89 million in the integrated logistics service business; and (ii) the
decrease in revenue of HK$6.72 million in the terminal service business principally as a result of the decrease in container throughput caused by the continuing deployment of price cutting tactics by the neighbouring competing ports of WIT Port and the drop in overall tariff rates as the Group lowered its tariff rates to align them with that of neighbouring competing ports during the year to increase competitiveness.

 

Container Thoughput

Container volume and throughput

  2016 2015 Increase/ (Decrease)
  TEUs % TEUs % TEUs %
             
Gateway cargoes 270,228 66.7 266,786 65.0 3,442 1.3
Trans-shipment cargoes 135,156 33.3 143,522 35.0 (8,366) (5.8)
             
  405,384 100.0 410,308 100.0 (4,924) (1.2)

In terms of market share, for the year ended 31 December 2016, the WIT’s market share dropped to approximately 37.4% (2015: 38.7%) based on the aggregate of 1,084,540 TEUs (2015: 1,061,400 TEUs) handled in 2016 and 2015 respectively for the whole of Wuhan. The drop in market share was mainly attributable to the deployment of tariff cutting tactics by its neighbouring competing ports to induce customers to use their ports.

Total throughput achieved by WIT for 2016 was 405,384 TEUs, which was a decrease of 4,924 TEUs or 1.2% of that of 410,308 TEUs for 2015. Of the 405,384 TEUs handled in 2016, 270,228 TEUs (2015: 266,786 TEUs) or 66.7% (2015: 65.0%) and 135,156 TEUs (2015: 143,522 TEUs) or 33.3% (2015: 35.0%) were attributed to gateway cargoes and trans-shipment cargoes, respectively. The gateway cargoes throughput increased by 1.3% to 270,228 TEUs (2015: 266,786 TEUs) and the trans-shipment cargoes throughput decreased by 5.8% to 135,136 TEUs (2015: 143,522 TEUs).

The Group has been facing competition from neighbouring port operators of WIT capturing market shares from the Group through their deployment of tariff cutting tactics and the drop in throughput volume was a direct result of such tactics which drew business to these neighbouring ports.


Average tariff

Tariffs which were denominated in Renminbi (“RMB”), were converted into Hong Kong Dollars, which is the reporting currency of the Group. The average tariff for gateway cargoes for the year under review was RMB224 (equivalent to approximately HK$262) per TEU (2015: RMB252 (equivalent to approximately HK$313) per TEU), representing a year-on-year decrease of 11.1%. The average tariff for trans-shipment cargoes was RMB45 (equivalent to approximately HK$53) per TEU (2015: RMB63 (equivalent to approximately HK$78) per TEU) which decreased by 28.6% from that of 2015. The decrease was principally due to the lowering of its tariff rates by the Group to align them with that of neighbouring competing ports during the year to increase competitiveness.

 

 

 

 

 

 

Integrated logistics service

Integrated logistics service business of the Group is rendering agency and logistics service, including provision of freight forwarding, customs clearance, transportation of containers. Revenue from this business segment decreased by 2.4% to HK$75.39 million (2015 restated: HK$77.28 million), which accounted for 36.4% (2015 restated: 40.7%) of the Group’s total revenue for the year under review.

 

General and bulk cargoes

General and bulk cargoes decreased by 9.5% to 67,641 tons (2015: 74,749 tons) in 2016. However, the contribution of general and bulk cargoes was minimal and accounted for less than 1.0% of the Group’s revenue for the year under review.


Property business

Income for the property business was generated from port and warehouse leasing business of the Hannan Port. Hannan Port owns investment properties of leasehold lands, berth, commercial buildings and pontoon located in Wuhan, the PRC. The increase in revenue was mainly due to the commencement of leasing since late 2015 and the increase in business during the year of 2016.


Gross profit and gross profit margin

Gross profit for 2016 rose by 5.5% to HK$99.41 million (2015 restated: HK$94.25 million). Gross profit margin dropped
slightly by 1.6 percentage point to 48.0% (2015 restated: 49.6%). These were mainly due to the offsetting effect of (i) drop
in overall container tariff rates; and (ii) increase in port and warehouse leasing income of the property business from the
Hannan Port, with relatively higher gross profit margin, which accounted for 12.0% of total revenue.

 

 

Other income

Other income for 2016 rose by 159.8% to HK$29.80 million (2015 restated: HK$11.47 million). The increase was mainly attributable to the increase in government subsidies granted to the Group of HK$17.68 million to HK$28.10 million (2015 restated: HK$10.42 million).

Pursuant to the general development of the port business in Wuhan, the Hubei Provincial and the Wuhan Municipal governments have been providing support to the development of the container throughput in the form of subsidies to the Group. The increase mainly comprised of government subsidies of HK$14.03 million granted by the Wuhan Municipal government to support the development of the Shayang Port.