14 Aug 2019 28 February 2019
Company and Market Review 1 Pacific Basin
Pacific Basin Overview World’s largest owner and operator of modern Handysize & Supramax ships Cargo system business model – consistently outperforming market rates Own 115* Handysize and Supramax vessels, with total 240+ dry bulk ships on the water serving major industrial customers around the world Hong Kong headquartered and HKEX listed, 12 offices worldwide, 340 shore-based staff, 3,800+ seafarers # Strong balance sheet with US$2.5bn+ total assets and US$300mn+ cash Our vision: To be a shipping industry leader and the partner of choice for customers, staff, shareholders and other stakeholders www.pacificbasin.com Pacific Basin business principles and our Corporate Video * Including 2 Supramax vessels delivered into our fleet in July 2019 2 # As at January 2019 Pacific Basin
Understanding Our Core Market 3 Pacific Basin
Our Business Model Continues to Outperform Our business model has been refined over many TCE Outperformance Compared to Market years. We are able to generate a TCE earnings in Last 5 Years premium over market rates because of our high US$2,000 US$1,530 laden percentage (minimum ballast legs), which is made possible by a combination of: Daily Handysize Daily Supramax Premium Premium Fleet scale High-quality interchangeable ships Handysize Supramax US$/day US$/day Experienced staff 12,000 14,000 Global office network $12,190 $10,060 Cargo contracts, relationships and direct 12,000 10,000 $10,860 $9,170 interaction with end users 10,000 8,000 High proportion of owned vessels facilitating 8,000 greater control and minimising trading 6,000 $7,790 6,000 constraints $5,750 4,000 4,000 Versatile ships and diverse trades in minor bulk 2,000 2,000 0 0 15 16 17 18 1H19 15 16 17 18 1H19 PB Premium Baltic Indices 4 Pacific Basin
Competitive at Every Level 1H19 Outperforming indexes and most publicly reporting companies 1 TCE/day HS: US$9,170/day Cargo focused business model with 90% plus laden percentage SM: US$10,860/day Scale, focus and sister ship effects US$3,990 1 /day 2 Opex/day In-house management Scale benefits and efficient systems 3 G&A/day US$730 2 /day Focused on good quality, predominantly Japanese-built 4 Interest US$820/day Cost/day secondhand ships Fleet financed through long-term secured facilities at industry leading cost 1 US$3,990/day is 1H19 blended daily opex of Handysize and Supramax 5 2 Spread over both owned and chartered-in ships Pacific Basin
Disappointing 1H19 but PB Continues to Outperform the Market PB Handysize TCE Performance PB Supramax TCE Performance US$/day net* US$/day net* 1H19 1H19 PB Handysize PB Supramax 14,000 PB TCE: 12,000 PB TCE: $10,860 Baltic Handysize Index (BHSI)* Baltic Supramax Index (BSI)* $9,170 12,000 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 4Q 1Q 2Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2016 2017 2018 2019 2016 2017 2018 2019 Our Handysize and Supramax daily TCE earnings outperformed the BHSI and BSI indices by 59% and 39% respectively * excludes 5% commission 6 Pacific Basin Source: Baltic Exchange
Markets are Recovering Handysize (BHSI) Supramax (BSI) Market Spot Rates in 2016-2019 Market Spot Rates in 2016-2019 US$/daynet* US$/daynet* 14,000 12,000 13 Aug 2019 12,000 $10,760 2018 10,000 2017 13 Aug 2019 10,000 2017 $7,400 8,000 2018 8,000 2016 6,000 2016 6,000 4,000 4,000 2,000 2,000 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2016 2017 2018 2019 2019 started weaker than last two years with a more pronounced Chinese New Year dip, followed by a recovery which has gained momentum during the summer Easing of export disruptions in Brazil, sound minor bulk demand growth, and IMO 2020 effects on the global fleet bode well for the freight market We expect to see stronger market conditions in the remainder of 2019, although with continued volatility due to uncertainty about the trade war, slower economic growth than in recent years and the impact of African Swine Fever on soybean imports to China * excludes 5% commission 7 Pacific Basin Source: Baltic Exchange, data as at 13 Aug 2019
Explaining the Market Movement in 2019 What can Make it Stronger? Continued minor bulk growth (bauxite, Why was the Beginning of the Year Weak? nickel, manganese ore, etc.) Trade war – less soybean Chinese infrastructure stimulus African Swine Fever – less soybean Chinese steel production / coal imports Flooding in Mississippi River – Iron ore trade resumed in Brazil & Australia impeded grain exports from US Strong grain volumes out of Black Sea & Iron ore disruptions – East Coast South America Vale dams & Australian weather IMO 2020 and environmental regulations – 1H is seasonally weak (e.g. CNY) supply contraction 2H is seasonally stronger 8 Pacific Basin
Minor Bulk Expected to Drive Demand into 2020 Annual Change in Dry Bulk Tonne-miles Demand Overall Dry Bulk Tonne-miles Demand Growth Since 2010 Iron Ore Annual change in 16% Billion tonne-miles Coal 1,500 Grain 14% 13.4% +4.6% Minor Bulk 12% 1,200 +3.1% +3.0% 10% 900 +2.2% +1.3% +1.4% 8% +2.1% +2.2% +4.0% 6.1% 6.0% 5.6% 6.0% 600 6% 4.6% +4.5% +4.8% +5.0% 300 4% 3.0% 3.1% 2.1% 1.3% 0 2% 1.1% -0.3% 0% -3.4% Minor -300 10 11 12 13 14 15 16 17 18 19E 20F 2016 2017 2018 2019E 2020F Bulk Clarksons Research estimates total dry bulk tonne-mile demand growth was 0.6% in 1Q19 affected by significantly disrupted iron ore and grain trades. 2H is typically stronger than 1H and Clarksons estimates 1.3% growth in overall dry bulk tonne-mile demand in 2019 and 3.1% in 2020 Despite weaker US-China trade, minor bulk demand remains strong, benefitting from growth particularly in Chinese imports of bauxite, nickel and manganese ore. Minor bulk tonne-mile demand is expected to grow at 4.5% in 2019 and 4.8% in 2020 9 Pacific Basin Source: Clarksons Research, as at June 2019
Net Fleet Growth Reducing for Handysize / Supramax Handysize / Supramax Supply Development Overall Dry Bulk Supply Development Mil Dwt Mil Dwt Current Orderbook: Current Orderbook: 35 2.7% 3.5% 1.0% 100 3.4% 5.6% 2.2% 30 49% 37% 80 25 48% 42% 37% 60 20 41% 36% 34% 5.7% 15 3.8% 21% 40 17% 3.7% 4.4% 3.3% 10 2.9% 2.9% 2.7% 2.5% 2.4% 2.3% 2.6% 20 5 1.3% 2.2% 0 0 -5 -20 -10 -40 -15 2014 2015 2016 2017 2018 2019E 2020F 2021+F 2014 2015 2016 2017 2018 2019E 2020F 2021+F New Deliveries YTD Shortfall Scheduled Orderbook Scrapping YTD Scrapping Forecast Net Fleet Growth 1.6% overall net dry bulk fleet growth in 1H19, about the same as one year ago Source: Clarksons Research, as at July 2019 10 Pacific Basin
Better Supply Fundamentals for Handysize Scheduled Over 1H19 Scrapping as Average Over Orderbook 15 Years % Existing Fleet Age 20 Years as % of as at 1 Jul 2019 Existing (Annualised) Fleet Lower orderbook Handysize – 84m dwt 5.5% 10 11% 18% 0.4% (25,000-41,999 dwt) More older Supramax – 201m dwt 7.9% 10 8% 17% 0.4% ships (42,000-64,999 dwt) Panamax – 229m dwt 11.0% 10 8% 18% 0.2% (65,000-119,999 dwt) Capesize and larger – 324m dwt 15.3% 9 5% 12% 2.2% (120,000+ dwt) Total Dry Bulk – 855m dwt 11.2% 10 7% 16% 1.1% (>10,000 dwt) 11 Source: Clarksons Research, as at 1 July 2019 Pacific Basin
Favourable Minor Bulk Supply and Demand Outlook Total Dry Bulk Supply and Demand Minor Bulk Demand and Handysize/Supramax Supply % YOY Change 6% 5.0% 4.8% 8% Tonne-mile Demand Growth (%) 5% 4.5% Net Fleet Growth (%), (deliveriesnet of scrapping) 4% 6% 2.5% 3% 2.3% 2% 1.3% 4% 3.0% 1% 3.1% 2.7% 0% 2.6% 2014 2015 2016 2017 2018 2019E 2020F 2.9% 2% Demand (Tonne-mile) Net Fleet Growth 1.3% Major Bulk* Demand and Capesize/Panamax Supply 0% 2014 2015 2016 2017 2018 2019E 2020F 8% 2019 weak start – trade war uncertainty and 7% iron ore / grain weakness 6% 5% Attractive supply fundamentals in our 3.3% 3.2% 4% 2.9% segments approaching IMO 2020 3% 2% Other factors than supply and demand can 1.9% 1% 1.6% also drive rates: bunker prices and speed, off- 0% hire, congestion, sentiment, etc. -1% -0.9% 2014 2015 2016 2017 2018 2019E 2020F * Major Bulk includes iron ore, coal and grains 12 Pacific Basin Source: Clarksons Research, supply data as at July 2019
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