14 Oct 2015 Strategy and Market Update 2 2015 Analyst Day Our - - PowerPoint PPT Presentation

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14 Oct 2015 Strategy and Market Update 2 2015 Analyst Day Our - - PowerPoint PPT Presentation

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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 Worlds

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SLIDE 1

14 Oct 2015

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SLIDE 2

2015 Analyst Day

Strategy and Market Update

2

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2015 Analyst Day

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Our Increased Focus on Dry Bulk

Early 2012 2015 Four business units Fully dry bulk focused Strong platform but

  • nly about 25% of
  • ur fleet was
  • wned

Minor player with no competitive advantage World’s largest Handysize

  • wner & operator

>40% of

  • ur fleet is owned

G&A: US$77million G&A: US$57million US$2 billion of long-term assets including newbuildings US$1.6 billion of long-term assets

Dry Bulk Ships Terminals, etc RoRo Towage 81 Dry Bulk Ships in operation ME Towage 17 Newbuildings

US$m

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2015 Analyst Day

Experienced Management - Team

Chairman & BOD Finance & Accounting, CFO Andrew Broomhead 12/12 Asset Management Morten Ingebrigtsen 26/29 HR P.B. Subbiah 12/21 Chartering Pacific & Global Handysize Surinder Brrar 8/30 Chartering Atlantic & Global Handymax Kristian Helt 13/15 Commercial Operation Suresh Prabhakar 15/39 Technical & Crewing, CTO Charlie Kocherta 15/37 4 Numbers Indicate Years in Company / Years in Shipping Company Secretary & Risk Kitty Mok 19/19 CEO Mats Berglund 3/29

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2015 Analyst Day

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Handysize Vessel Values

  • Second hand values substantially flat in recent months

Source: Clarksons Platou

Handysize vessel values at historical lows

10 15 20 25 30 35 40 45 50 55 04 05 06 07 08 09 10 11 12 13 14 15 US$ Million 5 years (32,000 dwt): US$13.0m Sep 2015: Newbuilding (35,000 dwt) US$20.5m

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2015 Analyst Day

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Dry Bulk Supply & Demand

  • Demand disappointment due primarily to much lower Chinese coal imports

Source: Clarksons Platou

  • 5%

0% 5% 10% 15% 20% 25% 2010 2011 2012 2013 2014 2015 Demand Supply Analyst's demand forecast Quarterly YOY change %

Supply Demand

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2015 Analyst Day

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Dry Bulk Supply – Self Correcting Factors

Source: Clarksons Platou

New Vessel Ordering is Down Fleet Growth is Reducing

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 03 04 05 06 07 08 09 10 11 12 13 14 15 Total Drybulk Year-on-Year Net Fleet Growth (%)

Delivery Slippage Orderbook Cancellations & Conversions Number of Chinese yards delivering Handy bulk vessels decreased from 54 in 2012 to 21 in 2015

Handysize scrapping (25,000-39,000 dwt) Other dry bulk scrapping 2 4 6 8 10 12 2013 2014 2015 FY14: 16 mil dwt Jan - Sep 15: 24 mil dwt Mil dwt

  • Expecting net fleet growth

for 2015 of about 2.5% Increased Scrapping

11% 24% 1.6% 0% 5% 10% 15% 20% 25% 2012 2013 2014 2015 Per quarter annualised in % of fleet (dwt)

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2015 Analyst Day

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Chinese Minor Bulk Imports

Source: Bloomberg 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

5 10 15 20 25 30 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million Tonnes 2013 2015 2014

  • 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
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2015 Analyst Day

Beating the Markets

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2015 Analyst Day

Dry Bulk Market and Strategy

Dry Bulk Market

  • Uncertain market situation - Oversupplied global fleet and reduced

growth in dry bulk commodity demand – especially coal into China

  • Scrapping, NB cancellations & postponements and very little new
  • rdering are helping to mitigate supply growth

Strategy

  • Fully focused on our world-leading Handy dry bulk business, now well

structured and out of non-core

  • Redelivering expiring and long-term chartered-in ships
  • 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

term, focused on safeguarding our positive EBITDA generation and cash position

  • Reduce costs, optimise our teams, fleet and cargo

combinations

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Business Model  Premium High-quality predominately Japanese-built fleet Experienced staff, globally Access to Capital Pacific Basin Benefits: Now fully Handy focused

Well positioned

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2015 Analyst Day

Cargo Mapping

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2015 Analyst Day

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Cargo System – Outperforming Market

  • Experienced staff & global office network
  • Large fleet of high-quality substitutable ships
  • Large portfolio of cargo contracts & relationships

 Direct end-user interaction

  • High laden percentage (<10% ballast legs)

Backhaul cargoes are the interlocking mechanism

Average premium last 5 years = US$2,380/day

Cargo Contract Business Model – Outperforming Market Indices

Baltic Handysize Index - net rate PB Handysize Performance US$/day 2,500 5,000 7,500 10,000 12,500 15,000 2011 2012 2013 2014 2015 YTD $8,070 $9,340 $5,320

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2015 Analyst Day

A day in the life of a Chartering Manager – Cargo

Useful tips for using this PowerPoint template:

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2015 Analyst Day

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Daily work

Calling Calculating Port information Collecting market information

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2015 Analyst Day

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Daily work

Following up Team work Negotiating

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2015 Analyst Day

Useful tips for using this PowerPoint template:

￭ Cover 1)

Select one ship photo that represents the best of Pacific Basin and your presentation subject

2)

Insert or paste the picture into the cover slide (see sample for inspiration on look and feel)

3)

Right click your mouse and choose “ Format background” and choose “Hide Background graphics” to hide the content layout on the cover slide

￭ Presentation title change: 1)

Click “View” in the top menu bar

2)

Choose “Slide Master”

3)

Go up and click the first slide on the left hand side layout formats

4)

In the main slide, click the “Presentation Title” box and change the text

5)

Close the “slide Master”

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A day in the life of a Chartering Manager – Tonnage

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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!!

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2015 Analyst Day

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Pricing / Booking Cargo Market the Order

The Chartering In Process

Tonnage Lists Compare tonnage and run P/L Enter into a firm trade Fix on subjects / nominate to head charterers. CP details. Lift subs and clean fix.

Booking Ships…..

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2015 Analyst Day

Bunker Derivatives Mark-to-Market Accounting Treatment

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2015 Analyst Day

  • 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

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Our hedging policy

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2015 Analyst Day

  • 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
  • rder 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

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Why hedge accounting doesn’t qualify

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2015 Analyst Day

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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)

Oct-Dec 15

(2)

2016

(3)

30/Jan/17

(4) 30/Sep/15

value

YE 2015

value

YE 2016

Cash

30/Jan/17 Fix CoA

Change

Balance

Change

Balance

settlement

Balance 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)

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2015 Analyst Day

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What happen to bunker derivative during its life

Bunker Derivative Values (1) CoA fixing (30 Sep 15) $0 (2) & (3) In between (YE 15/16) $100/40 (4) CoA execution (30 Jan 17) $40

(1)

Oct-Dec 15

(2) 30/Sep/15

value

YE 2015 Fix CoA

Change

Balance Bunker swap Physical Bunker value (230) (330) Change in bunker value

  • (100)

Bunker swap value 100 Change in derivative value

100

B/S Cash 40

  • Derivative assets / (liabilities)
  • 100

100 P/L Reserve (earnings) / loss (40)

(100)

(100)

  • P/L

Voyage results before underlying profits 40

  • Derivative M2M

after underlying profits

  • 100

40

100

M2M profit for increase in market value of original hedge goes to B/S & P/L

A

2016

(3)

value

YE 2016

Change

Balance (270)

60

40

(60)

  • (60)

40

60

(40)

  • (60)

(60)

M2M loss for decrease in market value of hedge goes to B/S

B

30/Jan/17 30/Jan/17

(4)

Eliminate Cash

30/Jan/17

previous M2M settlement

Balance

(270) (270)

  • 40
  • (40)
  • 40

40

(40)

  • 40

(40)

(40)

  • 40

(40)

  • (40)

40

Eliminate previous M2M balance due to settlement of hedge, nothing to do with change in bunker value

C

Cash received from bunker swap counter-party

D

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2015 Analyst Day

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How our bunker hedge works - summary

At Fixing of COA Physical bunker price $230 Bunker derivative $0 At Execution of COA Physical bunker price $270 Bunker derivative $(40)

Physical bunker B/S Cash (270) P/L Reserve (earnings) / loss 270

  • P/L

Voyage results before underlying profits (270) (270)

  • Bunker swap

B/S Cash 40 Derivative assets / (liabilities)

  • P/L Reserve (earnings) / loss

(40)

  • P/L

Voyage results before underlying profits 40 Derivative M2M after underlying profits

  • 40

(net effect of + + )

A B C

Net effect of execution B/S Cash (230) Derivative assets / (liabilities)

  • P/L Reserve (earnings) / loss

230

  • P/L

Voyage results before underlying profits (230) Derivative M2M after underlying profits

  • (230)
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2015 Analyst Day

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Summary

2015 Interim Report: Note to Financial Statement Note 7(e)

A C B D

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2015 Analyst Day

  • We HEDGE only. We do not trade.
  • Hedge accounting not available for most derivatives
  • M2M creates fluctuation in P/L during the derivative’s life
  • M2M fluctuations are non cash
  • We disclose M2M movement after Underlying Results
  • Actual derivative settlements are included before Underlying Results

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Summary

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2015 Analyst Day

Disclaimer

This presentation contains certain forward looking statements with respect to the financial condition, results of operations and business of Pacific Basin and certain plans and objectives of the management of Pacific Basin. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of Pacific Basin to be materially different from any future results or performance expressed or implied by such forward looking statements. Such forward looking statements are based on numerous assumptions regarding Pacific Basin's present and future business strategies and the political and economic environment in which Pacific Basin will operate in the future.

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Contact IR – Emily Lau E-mail: elau@pacificbasin.com ir@pacificbasin.com Tel : +852 2233 7000

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