Wisdom Marine Regulatory News (WML)

1. Letter to Shareholders

Dear Shareholders,

External Environment

The Brumadinho dam disaster led to a more volatile market in the first quarter of 2019, especially for capesize ships,. Later, when the US-China trade dispute was not resolved successfully as expected, the mood turned more pessimistic in the market as a whole. Despite rebounding in the third quarter, the market saw shipping companies still reluctant to take risks and more cautious toward newbuilding and long-term chartering agreements. Furthermore, shipping companies and cargo owners are opting to wait and see before the upcoming 2020 global sulphur limit. Many in the market are currently using low-sulphur fuel as the answer to sulphur emission control. However, the approach will inevitably lead to a low-sulphur fuel shortage and rising fuel prices. A period of adjustment is likely to be needed.

The outbreak of coronavirus disease at the beginning of 2020 caused the Chinese New Year holidays to be extended. Many cities took the necessary measures to prevent the disease from spreading and imposed traffic restrictions. These restrictions had a severe impact on the dry bulk shipping market in the first quarter. The sudden change of market conditions was a harsh blow to a market already grappling with the low-sulphur shift. Such market volatility, while threatening the confidence of shipping companies, puts constant pressure on the supply of ships. The demand in shipping may be cyclical, but shows steady growth over the medium- to long-term. Therefore, the market is often seen rebounding after drastic market volatility induced by short-term factors. For example, the slowing demand may pick up pace after the volatility in the first quarter. It is likely that the shipping outlook can be encouraged to turn upward at some point. Relatively low newbuilding investment due to the cautious stance adopted by most since 2019 suggests a potentially larger gap between the supply and the rising demand as well as more room for rebounding.

2019 Business Results

In 2019, we had 2 new build ships, 1 new bareboat chartered and 1 new time chartered ship, added 2 to ships under management, disposed 6 ships, and terminated the lease of 1 ship. The number of ships in our fleet undergoes a net decrease of 1 to 129. The non-operating income from disposal of ships was US$3.2 million.

Owing to our excellent timing in newbuilding lease negotiations, we managed to achieve a 40% or higher gross profit margin in 2019 despite a volatile market. New contracts on existing ships delivered the same returns, but the percentage of short-term contracts in terms of revenue rose from 16.8% to 21.3%. Given the replacement of older, smaller ships with newer, bigger ships while keeping the total number of ships about the same, the revenue rose by 3.2% from US$433 million to US$447 million. However, vessel depreciation, crew salary, maintenance costs, and higher fuel prices pushed the gross profit margin down from 27.8% to 25.8%.

In terms of non-operating income, we received US$22.6 million from termination of contract in addition to the income from disposal of ships in 2019. Exchange rates were relatively stable. The annual exchange loss was US$2.4 million. Overall, our net operating profit was US$110 million and net profit was US$71 million in the year.

2020 Business Plan

We expect to have 7 more new ships delivered in 2020. They include 2 kamsarmax, 4 supramax and 1 handysize. All are built by first class Japanese builders, such as Imabari, JMU, Namura, and Kawasaki. In particular, 2 comply with the Tier III NOx emission standards, and 2 are environment-friendly vessels equipped with desulfurization devices.

Facing greater uncertainty in the external environment, we will take a short-term focused approach and have more self-operated ships to remain flexible. It will allow us to stay up to date on market developments and be ready to negotiate more stable contracts after the low-sulphur impact and the coronavirus outbreak have subsided.

Meanwhile, we will look for opportunities to sell our older vessels. Ship sales will not only facilitate replacement of old vessels, but also reduce our exposure to interest rate volatility by disposing assets to improve our capital structure.

James Lan, Chairman

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