Although the market in 2011 proved to be much weaker than expected, we successfully met many challenges while continuing to build and position our company to meet our goals for growth.

With increasing concerns over the global economy as the year progressed, trade demand slowed resulting in weak and inconsistent volumes in the major east-west markets. Temperate demand in the United States and Europe ultimately resulted in the absence of the traditional peak season and full year growth rates in the low single digits. For our shipping line customers, the vessel supply and demand imbalance worsened significantly causing a collapse of freight rates. The pipeline delivering new and larger vessels quickly outstripped the soft growth in demand creating a loss making outlook for the year. The introduction of new vessel capacity is set to continue through next year keeping shipping line markets under severe price and profit pressure.

 
Mr. Sean A. Kelly
CEO
Modern Terminals Limited
Hong Kong Port has again proven itself to be resilient in the face of changing regional market dynamics. Hong Kong remains a vibrant and important market for the world・s largest shipping lines who value the port・s strategic location, free port status and terminal operating efficiency. Modern Terminals・ growth in 2011 was negatively impacted by a reduction in volume from one of our main customers due to changes in their vessel deployments in both China and the Pearl River. Despite this, our terminal facilities in Hong Kong remain at high utilization levels, and strong customer demand allowed us to quickly back fill most of the lost volume. Completing this effort to bring new business into Modern Terminals to restore our market position will continue into 2011 and be our top priority.

Major developments in our other Business Units include Da Chan Bay Terminal One・s successful completion of the ：National Port Inspection； process and achievement of ：Full Port Opening； status as announced by the Ministry of Transportation in December. The delay in achieving this has severely restricted our ability to enter the market and we now look forward with enthusiasm and confidence to strong growth starting next year. Taicang International Gateway continues to reach new levels of throughput with growth across key market segments. We continue to expand our business in the Domestic Shipping, International Feeder, and Intra Asia markets strengthening the port・s value proposition while creating critical mass and positioning Taicang for expansion to new markets and continued growth.

We should be especially proud of the progress we have made in the area of Corporate Social Responsibility (CSR). For the second consecutive year, the HKQAA-HSBC CSR Advocate Mark was awarded to our company for outstanding performance with respect to putting CSR into operational practice. It is also very encouraging to report we passed the ISO14001 Environmental Management System audit and renewed the Certificate with high marks. Lastly, we have greatly expanded our focus and effort on employee volunteer work through the Modern Volunteer Force; supporting our partner school, Cotton Spinners Association Secondary School, and via a range of company-organized activities with various charity organization partners. I believe we are just beginning to build momentum in our CSR programs and have much more to contribute in this area. I want to express my heart-felt appreciation to all who contributed to our success.

As we near the year of our current company vision, ：2015；, we have been reviewing our progress towards our clearly stated goals, as well as discussing the extension of our vision and strategies to plan for longer-term company goals.

The outlook for 2012 can only be described as continued uncertainty given the unprecedented nature of the challenges facing the global economy.
Despite the uncertainties in the market, we are well-positioned to face the challenges. I have full confidence that we have the right people, capability and priorities to take on 2012!



Sean A. Kelly