09:50 COSCO INTL HOLD<00517> - Announcement (5) Notes: (1) The increase in the technology usage fee in the year ended 31st December 2004 was due to the growth in sales of coatings by the Kansai Companies. The proposed annual cap amount is based on the forecast on usage fee which is arrived from multiplying the forecast on the turnover of the Kansai Companies for the 3 years ending 31st December 2007 by the usage fee rate. The increase of technology usage fee is attributable to the anticipated growth in sales of coatings since the Kansai Companies is planning to expand its production capacity in 2006. (2) The amount of raw materials purchased decreased in the year ended 31st December 2004 because the Kansai Companies shifted to source certain percentage of raw materials from other third parties at competitive prices. However, since it is expected that Japan Kansai and NKM are prepared to offer more competitive prices to get back the orders, when forecasting the percentage of total purchases from Japan Kansai and NKM in 2005--2007, the said percentage of raw materials purchased from other third parties is added back to the actual percentage in 2004. The proposed annual cap amount is arrived based on the forecast of such amount as well as the total raw materials purchased by the Kansai Companies, which is expected to increase in line with growth in sales, in each of the 3 years ending 2007. (3) Total amount of commission paid to NKM was particularly low for the years ended 31st December 2003 and 2004 because the Kansai Companies opt for other customers not referred by NKM. After discussions between NKM and the management of the Kansai Companies, it is expected that referrals from NKM will resume a higher level in the coming 3 years as a result of the effect of recent booming in the shipping industry and shipbuilding industry and the expansion of NKM's client base. The management of the Kansai Companies expected that total commission will reach approximately 15--18% of the total sales of the Kansai Companies. The proposed annual cap amount is arrived based on those forecast sales referrals amount multiplying by the commission rate. (4) No sales of container coatings and marine coatings were previously made to NKM, the proposed annual cap amount was arrived based on the forecast of the amount of such type of transaction for the 3 years ending 31st December 2007 taking into account the actual purchase orders of NKM during the first four months of 2005. (5) Sales of container coatings and marine coatings decreased in the year ended 31st December 2003 due to the reduction of orders from the COSCO Group. However, this kind of sales rebounded in 2004 and it is anticipated that sales will increase in line with the growth of the industry in the coming years. The proposed cap amount was arrived taking into account the actual sales of coatings during the first four months of 2005 and upcoming possible orders during 2005--2007. (6) Commission paid to the COSCO Group decreased in the years ended 31st December of 2003 and 2004 due to the reduction in referrals of businesses by the COSCO Group. It is however expected that commission to the COSCO Group will increase as a result of the effect of recent booming in the shipping industry and shipbuilding industry. The proposed annual cap amount was arrived based on the estimated sales in the coming 3 years taking into account that coating sales for new build ships is expected to increase. In determining the respective annual cap amounts for each of the three years ending 2005, 2006 and 2007, the Company has (i) examined and compared the audited accounts of the Kansai Companies for the years ended 31st December 2003 and 31st December 2004; (ii) discussed with the management of the Kansai Companies on the forecasts of the annual cap for the Continuing Connected Transactions; and (iii) taken into account the potential growth and the possible expansion of the production capacity of the Kansai Companies. In order to comply with the Listing Rules, the Company has been monitoring the total consideration in respect of the Continuing Connected Transactions for the period between 1st January 2005 and 23rd May 2005 so that it will not exceed the 2.5% threshold. It is expected that the volume of the Continuing Connected Transactions will increase substantially after the Company has obtained Independent Shareholders' approval at the SGM. Since April 2005, the total consideration for all such Continuing Connected Transaction that has taken place has exceeded the 0.1% threshold under Rule 14A.33(3) of the Listing Rules but not exceeded the 2.5% threshold under Rule 14A.34 of the Listing Rules. The Stock Exchange informed the Company that the Company may have breached Rule 14A.32 of the Listing Rules since April 2005 and reserves its right to take appropriate action against the Company and/or its directors on the matter.