Annual Financial Report

1. Letter to Shareholders

Dear Shareholders,

Business Environment

As a result of post-COVID demand rebounding and slow ship turnover in 2021, the excessive demand in the dry bulk shipping market pushed freight rates up. In October, BDI reached the highest level since 2008. Market conditions in the second half of 2021 continued into the first half of 2022. However, a slow decline started approxiamately when China imposed lockdowns in response to COVID-19.

Inflation and geopolitical challenges in the world created more uncertainties in the global economy as a whole in 2022. Tight monetary policies adopted by many countries to counter inflation had an impact on interest rates and exchange rates around the world and affected both trade and investment. The Russia-Ukraine war continued. The effects also showed in trade of energy and food. Adjustments in supply chains involving China may become another factor in market conditions.

Faced with uncertain market conditions and increasingly stringent environmental requirements, dry bulk shipping companies remained relatively cautious toward newbuilding investment. In particular, rising building costs and the uncertain future of carbon reduction technologies discouraged newbuilding investment. Hence, newbuilding orders account currently for only 7.2% of the global tonnage, which is relatively low over the last decade. Given the close relationship between dry bulk shipping and global economic activities over the years, lower elasticity of demand for certain goods and insufficient growth in capacity will provide fundamental support for medium- and long-term freight rates.

Looking forward to 2023, inflation is showing signs of easing, and China is moving away from lockdowns. The overall demand may grow stronger than it did in 2022. Meanwhile, carbon reduction requirements, such as the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII), will come into effect in 2023. As shipowners have been working hard to mitigate the impacts, the immediate effects on the market capacity may turn out to be not as drastic as expected. However, the pressure on operation involving old and less energy efficient ships is still huge. Carbon reduction and carbon disclosure policies being implemented by many countries and measures to move toward zero carbon measures are all putting pressure on the transport supply. We maintain a cautiously optimistic outlook on 2023.

2022 Business Results

In 2022, we added 6 newbuild ships, sold 1 ship, and added 1 ship under management. The number of ships in our fleet saw a net increase of 6 and counted a total of 140 at the end of the year. The 6 newbuild ships included 3 kamsarmax and 3 handysize. The ship sold was a kamsarmax.

While market conditions in 2022 were not as good as in the second half of 2021, our average gross profit margin peaked in the second quarter of 2022, even rising above the level in the fourth quarter of 2021 due to a higher percentage of ships on index-linked hire and a higher average of fixed hire after contract renewal. Despite the decline in the second half year due to market conditions, the annual revenue reached US$835.8 million, up by 21.8% compared to the previous year. The net operating profit was US$385.1 million, and the operating profit margin was 46.08%.

In terms of nonoperating income, income from ship purchases and sales and early termination penalties both fell in 2022. However, a weaker Japanese yen allowed a foreign exchange gain of US$12.5 million to be recognized. Meanwhile, interest expenses rose to US$43.8 million for the year due to much higher USD interest rates. We continued to lower debts in 2022. The debt ratio benefited from a weaker Japanese yen and fell to 50%. The net profit before tax was US$354.9 million for the year. The EPS, reaching NT$14.16, broke the record set in 2021 and became the new historic high.

2023 Business Plan

We expect to receive another 7 newbuild ships in 2023. They include 2 kamsarmax and 5 handysize, all of which are made by Japanese builders including Imabari, Namura, Onomichi, and Tsuneishi. All of them are eco-ships that comply with the Tier III NOx emission standards.

We are maintaining a higher percentage of charters with index-linked hire as we believe the market is more likely to improve in the second half of 2023. The portfolio will be allocated more towards fixed rent or locked into certain underlying indexes when market conditions become more stable.

Furthermore, the outlook on the container shipping market is not as optimistic as the last two years. Prices of building dry bulk carriers can be expected to become more negotiable. For the purpose of making our energy efficient fleet more competitive in the long run, we will work actively with shipbuilders and long term charterers to explore ships with new specifications aligned with future environmental trends.

Chairman: James Lan

Click on, or paste the following link into your web browser, to view the associated PDFhttp://www.rns-pdf.londonstockexchange.com/rns/6060R_1-2023-3-2.pdf