14 Oct 2015
Strategy and Market Update 2 2015 Analyst Day
Our Increased Focus on Dry Bulk Early 2012 2015 Fully dry bulk focused Four business units US$m ME Towage 17 Newbuildings Terminals, etc Towage Minor player with no World’s largest competitive RoRo 81 Handysize advantage Dry Bulk Ships owner & operator Dry Bulk in operation Ships >40% of Strong platform but our fleet is owned only about 25% of our fleet was owned US$2 billion of long-term assets US$1.6 billion of long-term assets including newbuildings G&A: US$77million G&A: US$57million 3 2015 Analyst Day
Experienced Management - Team Numbers Indicate Years in Chairman & BOD Company / Years in Shipping CEO Mats Berglund 3/29 Asset Management Morten Ingebrigtsen Finance & Accounting, CFO Andrew Broomhead 26/29 12/12 HR P.B. Subbiah Company Secretary & Risk 12/21 Kitty Mok 19/19 Chartering Chartering Pacific & Global Atlantic & Global Commercial Operation Technical & Crewing, CTO Handysize Handymax Suresh Prabhakar Charlie Kocherta Surinder Brrar Kristian Helt 15/39 15/37 8/30 13/15 4 2015 Analyst Day
Handysize Vessel Values Handysize vessel values at historical lows US$ Million 55 50 45 40 35 Sep 2015: 30 Newbuilding (35,000 dwt) 25 US$20.5m 20 5 years (32,000 dwt): 15 US$13.0m 10 04 05 06 07 08 09 10 11 12 13 14 15 Second hand values substantially flat in recent months 5 Source: Clarksons Platou 2015 Analyst Day
Dry Bulk Supply & Demand Quarterly YOY change % 25% 20% Supply 15% 10% Demand 5% 0% -5% 2010 2011 2012 2013 2014 2015 Demand Supply Analyst's demand forecast Demand disappointment due primarily to much lower Chinese coal imports 6 Source: Clarksons Platou 2015 Analyst Day
Dry Bulk Supply – Self Correcting Factors New Vessel Ordering is Down Number of Delivery Per quarter annualised in % of fleet (dwt) 25% Chinese yards Slippage 24% delivering 20% Handy bulk vessels decreased Orderbook 15% from 54 in 2012 Cancellations & 10% to 21 in 2015 Conversions 11% 5% Fleet Growth is Reducing 1.6% 0% 18% 2012 2013 2014 2015 Total Drybulk 16% Year-on-Year Increased Scrapping 14% Net Fleet Growth (%) Mil dwt FY14: Jan - Sep 15: 12% 16 mil dwt 24 mil dwt 12 10% 10 8% 8 6% 4% 6 2% 4 0% 03 04 05 06 07 08 09 10 11 12 13 14 15 2 0 Expecting net fleet growth 2013 2014 2015 for 2015 of about 2.5% Handysize scrapping (25,000-39,000 dwt) Other dry bulk scrapping 7 Source: Clarksons Platou 2015 Analyst Day
Chinese Minor Bulk Imports Million Tonnes 30 25 20 15 10 5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2015 2014 2013 Chinese imports of 7 minor bulks including Logs, Soyabean, Fertiliser, Bauxite, Nickel, Copper Concentrates & Manganese Ore These 7 commodities make up over one third of the cargo volumes we carry YTD Chinese imports of minor bulks down 2% yoy but growing since March to lend some support to demand for Handysize and Handymax ships Chinese imports of Bauxite increased YOY and soybeans and cereal grains are up substantially; Chinese steel exports also increased 8 Source: Bloomberg 2015 Analyst Day
Beating the Markets 9 2015 Analyst Day
Dry Bulk Market and Strategy Dry Bulk Market Pacific Basin Benefits : Uncertain market situation - Oversupplied global fleet and reduced growth in dry bulk commodity demand – especially coal into China Now fully Handy focused Scrapping, NB cancellations & postponements and very little new ordering are helping to mitigate supply growth Business Model Premium Strategy High-quality predominately Fully focused on our world-leading Handy dry bulk business, now well Japanese-built fleet structured and out of non-core Redelivering expiring and long-term chartered-in ships Experienced staff, globally Relying more on owned ships, complemented by shorter-term and index-linked chartered ships Managing our business for a continued weak market in the medium Access to Capital term, focused on safeguarding our positive EBITDA generation and cash position Well positioned Reduce costs, optimise our teams, fleet and cargo combinations 10 2015 Analyst Day
Cargo Mapping 11 2015 Analyst Day
Cargo System – Outperforming Market Cargo Contract Business Model – Outperforming Market Indices Experienced staff & global office network Large fleet of high-quality substitutable ships US$/day Large portfolio of cargo contracts & relationships Direct end-user interaction 15,000 High laden percentage (<10% ballast legs) 12,500 Backhaul cargoes are the interlocking $9,340 10,000 mechanism $8,070 7,500 Average premium last 5 years = US$2,380/day 5,000 $5,320 2,500 0 2011 2012 2013 2014 2015 YTD Baltic Handysize Index - net rate PB Handysize Performance 12 2015 Analyst Day
A day in the life of a Chartering Manager – Cargo Useful tips for using this PowerPoint template: ￭ Cover Select one ship photo that represents the best of Pacific Basin and your presentation subject 1) Insert or paste the picture into the cover slide (see sample for inspiration on look and feel) 2) Right click your mouse and choose “ Format background” and choose 3) “Hide Background graphics” to hide the content layout on the cover slide ￭ Presentation title change: Click “View” in the top menu bar 1) Choose “Slide Master” 2) Go up and click the first slide on the left hand side layout formats 3) In the main slide, click the “Presentation Title” box and change the text 4) Close the “slide Master” 5) 13 2015 Analyst Day
Daily work Collecting market information Calling Port information Calculating 14 2015 Analyst Day
Daily work Negotiating Following up Team work 15 2015 Analyst Day
A day in the life of a Chartering Manager – Tonnage Useful tips for using this PowerPoint template: ￭ Cover Select one ship photo that represents the best of Pacific Basin and your presentation subject 1) Insert or paste the picture into the cover slide (see sample for inspiration on look and feel) 2) Right click your mouse and choose “ Format background” and choose 3) “Hide Background graphics” to hide the content layout on the cover slide ￭ Presentation title change: Click “View” in the top menu bar 1) Choose “Slide Master” 2) Go up and click the first slide on the left hand side layout formats 3) In the main slide, click the “Presentation Title” box and change the text 4) Close the “slide Master” 5) 16 2015 Analyst Day
Time Chartering In – A Brief Introduction Typical would involve the following: ￭ Read overnight emails including BDI Market and fixture reports. ￭ Either a call with overseas offices or desk ‘scrum’. ￭ Circulate market orders or discussion with brokers. ￭ Assess what comes in and market direction. ￭ Circulate market information to overseas offices throughout the day. ￭ COB send out a daily report advising market rumours, what ships are rating, fixtures and market commentary. ￭ Potentially concluded a fixture….afternoons into evenings is when most fixing actually takes place!! 17 2015 Analyst Day
Booking Ships….. Pricing / Booking Cargo Market the Order Tonnage Lists The CP details. Lift subs Chartering and clean fix. In Process Compare tonnage and run P/L Fix on subjects / nominate to head Enter into a firm trade charterers. 18 2015 Analyst Day
Bunker Derivatives Mark-to-Market Accounting Treatment 19 2015 Analyst Day
Our hedging policy • We HEDGE bunker exposure on ALL firm fixed-rate forward cargoes and Contracts of Affreightment (COAs) • Any cargo loading >2 months from the date of fixing • Assumptions considered based on: • Intended physical bunker port; Ship’s deviation; • • Speed; and • Bunker delivery cost 20 2015 Analyst Day
Why hedge accounting doesn’t qualify • Accounting standards require very high correlation between the derivative and the physical commodity at execution date • Derivative month and voyage start/end dates do not match • Location of reference bunker derivative (Singapore, Rotterdam) and physical bunker lifting port do not match • PB chooses not to use hedge accounting for those that qualify in order to: • Avoid confusion over qualifying / non qualifying portion • Reduce potential P/L impact of an expected qualify hedge turns out to not meet the hedge criteria 21 2015 Analyst Day
What happen to physical bunker Physical Bunker Prices (1) CoA fixing (30 Sep 15) $230 (2) & (3) In between (YE 15/16) $330/270 (4) CoA execution (30 Jan 17) $270 (1) (2) (3) (4) Oct-Dec 15 2016 30/Jan/17 30/Sep/15 YE 2015 YE 2016 30/Jan/17 value value Cash Fix CoA Balance Balance Balance Change Change settlement Physical Bunker value (230) (330) (270) (270) (270) Change in value - (100) 60 B/S Cash (270) (270) (270) P/L Reserve (earnings) / loss 270 270 270 - - - P/L Voyage results before underlying profits (270) (270) (270) (270) 22 2015 Analyst Day
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