HSBC Transport, Infrastructure & Logistics Conference June 2019 - PowerPoint PPT Presentation

HSBC Transport, Infrastructure & Logistics Conference June 2019 Mats Berglund, CEO, Pacific Basin 25 June 2019

A Weak Start to the 2019 Dry Bulk Market PB Handysize TCE Performance PB Supramax TCE Performance US$/day net* US$/day net* PB 1Q TCE: PB 1Q TCE: PB Supramax PB Handysize 14,000 12,000 $10,400 $9,080 Baltic Handysize Index (BHSI)* Baltic Supramax Index (BSI)* 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 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2016 2017 2018 2019 2016 2017 2018 2019 PB Continued to Outperform Market * excludes 5% commission 2 Pacific Basin Source: Baltic Exchange

Much Less Soybeans (Animal-feed) from US to China Oct-Jan 3 Pacific Basin Source: USDA

Dry Bulk Market Factors Why weak market? What can make it better?  Trade war – less soybean  Minor bulk growth  African Swine Fever – less soybean  Chinese stimulus  Mississippi water levels  Chinese steel production  Iron ore disruptions –  Fall Army Worm Vale dams & Australian weather  IMO 2020 supply contraction  Capesize & up orderbook large  Handysize orderbook small  1H is seasonally weak  2H is seasonally stronger  Catch-up after current one-off negatives 4 Pacific Basin

Minor Bulk Expected to Drive Demand in 2019 Annual Change in Dry Bulk Tonne-miles Demand Overall Dry Bulk Tonne-miles Demand Growth Since 2010 Annual change dry bulk demand Iron Ore Bn tonne-miles 16% Coal 1,500 +4.7% 13.4% Grain 14% Minor Bulk 1,200 12% +3.1% +2.9% 10% 900 +1.7% +1.8% +2.2% +1.9% 8% +1.8% 6.1% 6.1% 600 +2.2% 5.6% 6.0% +2.7% 6% 4.7% +5.1% +4.2% +4.2% 300 4% 2.9% 3.1% 2.2% 1.7% 0 2% 1.0% -2.3% 1 3 Minor 2 0% Bulk -300 10 11 12 13 14 15 16 17 18E 19F 20F 2016 2017 2018E 2019F 2020F  In January and February 2019: 1 China reducing US grain buying  7 key minor bulk commodities (including grain) into China grew 7% YOY 2 Iron ore disruptions  Chinese iron ore and coal imports declined 3% YOY  We expect continued growth in minor bulk demand and grain to bounce back 3 Versatile minor bulk less exposed to  A resolution to trade tensions would provide a welcome boost to the market trade disruption  Minor bulk demand expected to grow 4.2% in 2019 5 Pacific Basin Source: Bloomberg, Clarksons Research, as at April 2019

China Reached Another All-time High for Crude Steel Production in May  China produced 89.1 million tonnes of crude steel in May which is equivalent to an annualised pace of 1.049 billion tonnes  The share of China’s steel that gets exported has been declining the last few years. In May the steel exports represented 6% of the produced steel 6 Pacific Basin Source: Bloomberg

YTD Iron Ore and grain Weigh on Chinese Imports while Most Minor Bulks are up 7 Pacific Basin Source: Bloomberg

Better Supply Fundamentals for Handysize / Supramax (I) YTD Scrapping as Scheduled Average Over Over % of Existing Fleet Orderbook Age 20 Years 15 Years as at 1 Apr 2019 as % of (annualised) Existing Fleet Lower orderbook Handysize – 84m dwt 5.6% 10 11% 19% 0.2% (25,000-41,999 dwt) More older Supramax – 199m dwt 7.3% 10 8% 17% 0.2% ships (42,000-64,999 dwt) Panamax – 226m dwt 11.0% 10 8% 19% 0.2% (65,000-119,999 dwt) Capesize and larger – 321m dwt 15.3% 9 5% 13% 2.6% (120,000+ dwt) 11.1% 10 8% 16% 1.2% Total Dry Bulk – 847m dwt (>10,000 dwt) 8 Pacific Basin Source: Clarksons Research, as at 1 April 2019

Better Supply Fundamentals for Handysize / Supramax (II) Handysize / Supramax Supply Development Overall Dry Bulk Supply Development Mil Dwt Mil Dwt Current Orderbook: Current Orderbook: 100 Total: 6.8% 35 Total: 11.1% 80 30 49% 37% 3.3% 2.8% 0.7% 4.3% 5.1% 1.7% 25 42% 48% 60 36% 37% 20 41% 34% 40 19% 15 5.7% 3.8% 23% 4.4% 3.7% 2.9% 3.0% 2.4% 10 3.3% 2.5% 2.5% 20 1.9% 2.2% 5 2.2% 0.8% 0 0 -5 -20 -10 -40 -15 2014 2015 2016 2017 2018E 2019F 2020F 2021F+ 2014 2015 2016 2017 2018E 2019F 2020F 2021F+ New Deliveries Scrapping Net Fleet Growth Shortfall Scrapping Forecast Net Fleet Forecast Scheduled Orderbook  Scrapping remains very low for Handysize/Supramax, but has increased for the larger vessel segments  Steadily reducing net fleet growth in Handysize/Supramax segment 9 Source: Clarksons Research, as at April 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% 8% Tonne-mile Demand Growth (%) 5.1% Net Fleet Growth (%), (deliveries net of scrapping) 5% 4.2% 4% 6% 4.2% 4.7% 2.5% 3% 1.9% 2% 4% 3.1% 2.9% 1% 0.8% 2.5% 0% 3.0% 2.9% 2.2% 2% 2014 2015 2016 2017 2018E 2019F 2020F 1.7% Demand (Tonne-mile) Net Fleet Growth Major Bulk* Demand and Capesize/Panamax Supply 0% 2014 2015 2016 2017 2018E 2019F 2020F Two declines stand out: 8%  2019 weak start – trade war uncertainty and 1 China reduced its coal imports in 2015 7% Major iron ore export disruptions in 2019 Chinese import policies 2 6%  Attractive supply fundamentals in our segments 5% with supply disruptions expected approaching 4% 3.2% 2.8% 3.0% IMO 2020 3% 2%  Factors other than supply and demand can also 2 1.9% 1% 1.7% drive rates: bunker prices and speed, off-hire, 0% 1 0% congestion, sentiment, etc. 2014 2015 2016 2017 2018E 2019F 2020F * Major Bulk includes iron ore, coal and grains 10 Pacific Basin Source: Clarksons Research, as at April 2019

Dry Bulk Market Factors Why weak market? What can make it better?  Trade war – less soybean  Minor bulk growth  African Swine Fever – less soybean  Chinese stimulus  Mississippi water levels  Chinese steel production  Iron ore disruptions –  Fall Army Worm Vale dams & Australian weather  IMO 2020 supply contraction  Capesize & up orderbook large  Handysize orderbook small  1H is seasonally weak  2H is seasonally stronger  Catch-up after current one-off negatives 11 Pacific Basin

Pacific Basin Strategy and Position 12 Pacific Basin

Understanding Our Core Market 13 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$1,910 US$1,430 laden percentage (minimum ballast legs), which is made possible by a combination of: Daily Handysize Daily Supramax Premium Premium Fleet scale   High-quality interchangeable ships Handysize Supramax US$/day net US$/day net  Experienced staff 14,000 12,000  Global office network $12,190 $10,060 12,000  Cargo contracts, relationships and direct 10,000 $10,400 $9,075 interaction with end users 10,000 8,000  High proportion of owned vessels facilitating 8,000 1 greater control and minimising trading 6,000 6,000 constraints $7,540 $5,730 4,000 4,000  Versatile ships and diverse trades in minor bulk 2,000 2,000 0 0 15 16 17 18 1Q19 15 16 17 18 1Q19 PB Premium Baltic Indices 14 Pacific Basin

AR18 Results Competitive at Every Level 1 TCE/day  Outperforming indexes and most companies who report publicly  Cargo focused business model with 90% plus laden percentage 2 Opex/day  US$3,850*/day in 2018  Scale, focus and sister ship effects  In-house management 3 G&A/day  Scale benefits and efficient systems  US$740/day spread over both owned and chartered ships in 2018 4 Capital  Focused on good quality, predominantly Japanese-built secondhand ships Cost/day  Fleet financed through long-term secured facilities at industry leading cost 15 Pacific Basin * US$3,850*/day is 2018 blended daily opex cost of Handysize and Supramax

Well Positioned for the Future Our TCE Efficient Cost More Owned Sensitivity toward Outperform Vessels with Structure Market Rates* Market Fixed Costs Market Rate Annual Group 106 111 +/- G&A Overheads 92 86 Average PB premium US$1,000 80 US$75.7m 75 over market indices in daily TCE US$59.8m last 5 years 1 : 40 34 US$ 1,910 /day 12 13 14 15 16 17 18 19 Our Underlying Result Handysize TCE Jan Jan +/- 2014 2018 US$ 1,430 /day Owned Vessel Breakeven US$ Daily Vessel Incl. G&A overheads Supramax TCE Operating Expenses 35-40m US$ 8,360 /day (Combined Handysize and Supramax) Handysize 2 US$4,370 US$3,850 US$ 9,040 /day Supramax 3 US$16.1m reversal of onerous contract provisions in 2018  Not available in 2019 2014 2018 1 PB Premium as at 8 April 2019 2 2018 PB owned Handysize $7,410/day + G&A overheads $950/day ≈ US$8,360/day 16 Pacific Basin 3 2018 PB owned Supramax $8,090/day + G&A overheads $950/day ≈ US$9,040/day * Based on current fleet and commitments, and all other things equal