Pacific Basin Shipping Limited

Welcome to today's Pacific Basin 2023 Annual Results Announcement Conference Call. I am pleased to present Chief Executive Officer, Mr. Martin Frueger, and Chief Financial Officer, Mr. Michael Jorgensen. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Mr. Frueger, please begin.

Thank you very much. Welcome, ladies and gentlemen. And thank you for attending Pacific Basin's 2023 Annual Result Earnings Call. As said, my name is Martin Frohgård, CEO of Pacific Basin, and I'm joined by our CFO, Michael Jorgensen. Assuming that you have already gone through the presentation, we will briefly highlight some of the key points discussed in it before we proceed with the Q&A session. Please turn to slide three. First of all, let me start by extending my appreciation to our dedicated seafarers and shore-based employees who have contributed to delivering a strong set of results in 2023. In 2023, we achieved a net profit of $109 million and an underlying profit of $119 million with an EBITDA of $347 million. This resulted in a 6% return on equity and an earning per share of 16.5 Hong Kong Cent. Despite challenges such as slowing global growth, higher interest rates and increased vessel supply, we delivered a solid result. Our result was largely due to the increased global demand for dry bulk, particularly from China post-COVID reopening. Our large core business generated $167 million before overheads, despite the weaker freight market, while our operating activity, which includes vessels chartered in for less than 12 months, contributed $26 million, having generated a margin of $1,090 net per day over 23,480 operating days. Leveraging our high level of cash generation, we have reduced debt, expanded our owned and fleet's deadweight carrying capacity and maintained a robust financial position with $549 million in available committed liquidity. In view of our solid financial results, strong cash generation, and confidence in the long-term fundamentals of the dry ball market, the board recommends a final basic dividend of 1.6 Hong Kong cent per share and an additional final special dividend of 4.1 Hong Kong cent per share, which combined with the 6.5 Hong Kong cents per share interim dividend distributed in August 2023 amounts to $82 million, representing 75% of our net profit for the full year. This will be the third consecutive year that the board has returned dividends above 50% of annual net profit, and we continue to be committed to distributing excess cash to shareholders through dividends. Please turn to slide four. Management aim to maintain a robust and flexible capital structure throughout the shipping cycle to meet our commitments, strategic objectives, and maximize shareholder returns. We aim to create shareholder value through optimizing our capital structure, investing in value-adding and counter-cyclical growth opportunities, and distributing funds to our shareholders. Over the last six years, we have generated a profit of $1.55 billion and paid out in excess of $1 billion in dividends to shareholders, representing 69 of our net profits, highlighting our ability to deliver attractive long-term returns over the shipping cycle. Our unwavering dedication is evident in our distribution policy, which commit us to paying out at least 50% of annual net profit, excluding vessels' disposal gains. We continue to retain our general mandate for the buyback of shares of up to 10% of the share capital of the company, and we will continue to consider this as an additional way to return capital to shareholders. Please turn to slide five. In 2023, average market spot freight rates for the Baltic Exchange Anti-Size Index and the Baltic Exchange Supermax Index were 8,990 and 10,680 net per day, respectively. Despite increased dry bulk loadings overall in 2023, Anti-Size and Supermax market freight rates declined due to decelerating global economic growth. high interest rate and increased supply due to new building deliveries and limited congestion in China. In August 2023, freight rates experienced a significant seasonal increase due to various factors. These factors include increased seasonal demand, ongoing growth in ton-mile demand resulting from the Russia-Ukraine conflict, restrictions on Panama Canal passage and later on disruptions in Red Sea transit. These combined circumstances contributed to an improved supply and demand balance, which supported higher rates, particularly in the Atlantic Basin. Current forward freight agreements commonly referred to as FFA for Q1 and Q2 are 11,730 and 13,930 per day, and US dollar 12,990 and 15,600 per day for handy size and supermax vessels respectively, indicating an improving market going forward. In 2024, freight rates began higher than in 2023, and we started the year with good cover for the first quarter. We recently observed an increase in seasonal dry ball demand, a typical trend after the conclusion of the Lunar New Year festivities Additionally, the limited transit of dryball vessels through the Suez and Panama Canal continues to benefit supply, which should also support freight rates. Please turn to slide six. Global dryball loading volumes grew approximately 2% year-on-year, supported by China's reopening. Miner bulk loading increased 1% in 2023 due to increased loading of bauxite, steel and ores and concentrates. Bauxites continue to be the main driver of increased miner bulk loadings, primarily from Guinea and which are mainly carried in Cape size and Panamax vessels. Grain loadings decreased by 1% on year year-on-year due to limited exports of grain from Argentina and the United States due to drought, while the Ukraine Black Sea exports remain affected due to the conflict. Brazil achieved record grain loadings in 2023, benefiting from favorable weather conditions, improved agricultural practices, and increased demand from China. On the other hand, Coal loadings increased 4% year-on-year, largely because of record Chinese import, despite record domestic coal production. India also imported record coal as favorable economic growth, though increased electricity demand. Iron ore loadings increased 4% year-on-year due to increased production from Australia and Brazil. Additionally, there was a significant rise in export from India, which is predominantly carried on supermax vessels. Please turn to slide seven. Our core business generated average handy size and supermax daily TCE earnings of 12,250 and 13,830 net per day, respectively in 2023, which is a decrease of 48% and 51% compared to, of course, the much stronger 2022 earnings. Our TCE earnings in the fourth quarter 2023 for both our handy-sized and supermax vessels were positively impacted by prior period freight tax adjustments, which relate to freight earnings completed by our vessels in the past few years and are not changes in accounting treatments. For the first quarter 2024, we have covered 100% of our committed vessel stays on both our handy-sized and supermax vessels at 11,170 and 13,480 net per day, respectively. For 2024, we have covered 54% and 71% of our core business days for handy size and supermaxes at 10,160 and 12,610 net per day, respectively. Please note our supermax forward cover estimates exclude the scrubber benefit, which is currently about 1,110 per day across our core supermax fleet. We continue to be long vessels and we believe we hold sufficient backhaul cover to optimize our voyages, such as by combining front haul and backhaul trades, and those enhance our vessel utilization and earnings. Our focus will be to maximize earnings with higher paying front haul cargoes. Please turn to slide eight. In 2023, our handy-sized and our supermax vessels outperformed the indices by 3,260 per day and 3,150 per day, respectively. Our large core fleet of handy-sized and supermax vessels contributed $97 million and $70 million, respectively. Our handy-sized and supermax vessels have now outperformed the index over the last nine and 10 quarters, respectively. Our Supermax vessels' outperformance has benefited from scrubber installed across our core fleet, with scrubber contributing $850 per day to our outperformance in 2023. Currently, our core vessel compromise of 57 Supermaxes, of which 32 are fitted with scrubbers. Our operating activity generated a positive margin of 1,090 net per day over 23,480 operating day. Our operating day increased 18% as compared to same period last year. We continue to target further growth in our operating business, which provide us with an ongoing opportunity to leverage our commercial and operational expertise, as well as our global proximity to our customers to generate additional income for the business. Our operating activity margin was compressed in the fourth quarter of 2023 as a result of the need to cover cargo position in a fast upwards moving freight market during the end of the period. Please turn to slide nine. Our hand-designed owned vessels costs have decreased mainly due to lower crew repatriation costs as COVID-related controls have been relaxed. We continue to improve our cost competitiveness with our indicative owned fleet cash break-even level reducing to 4,930 net per day, which is a 13% reduction year-on-year. Please turn to slide 10. Our Supermax and Hedgesize's old vessel depreciation costs increased mainly due to higher dry docking costs and investments in fuel efficiency technology, including silicone and anti-fouling paints. Our blended Supermax costs remain cost competitive, and we are scheduled to re-deliver five higher cost long-term chartered vessels during 2024. These vessels were chartered in during the higher rate environment of 2022. Indicative old fleet cash break-even level reduced to 5,090 net per day, which is a 2% reduction year on year. Please turn to slide 11. During the period, we acquired eight high-quality Japanese modern second-hand vessels, These included six Ultramax vessels and one Supermax vessel and one handy size vessel. In 2023, we have sold eight vessels consisting of seven handy size and one Supermax vessel with an average age of 20 years. Additionally, we sold one handy size vessel in 2024, which we expect to deliver to the buyer by May 2024. Given increasingly strict existing and incoming decarbonization regulation, such old and less efficient vessels will become increasingly challenging to operate. We therefore consider it wise to gradually divest ourselves of our least efficient vessels. We remain committed to our long-term strategy to grow our own fleet of supermax vessels by acquiring high-quality modern second-hand vessels and to renew our handy-sized fleet by replacing our older and less efficient handy-sized vessels with younger and larger handy-sized vessels. Our core fleet consists of 132 handy-sized and supermax vessels, and including chartered vessels in our operating business, we have approximately 266 vessels underwater overall. Please turn to slide 12. To support the future growth and renewal of our core fleet, we have signed agreements for the long-term inwards charter of both Hattie size and Ultramax vessels. During the period, we took delivery of three Japanese built Hattie size vessels on long-term time charter. These time charters all comes with options to extend the charter agreement period at a fixed rate and or purchase the vessels at a fixed price. Additionally, we have signed long-term charter agreements for four Japanese-built heavy-sized new buildings, all with scrubbers, as well as long-term time charters for four Ultramax new buildings. Each of these time charters also come with an option to extend the charter agreement at a fixed rate, as well as having the option to purchase the vessel at a fixed price, which further expands our optionality. It is important to note that these handy-sized and supermax vessels are newer, larger, and more efficient with the ability to earn approximately 20% and 16% above the speed, respectively. Our collaboration with NSY and Mitsui is progressing well in designing an efficient dual-fuel vessel capable of running on fuel oil or sustainable methanol. However, we remain cautious in our approach to invest in new buildings due to current historically high new building prices. We expect to be ready to build such a vessel with delivery well ahead of our regional 2030 target. However, we anticipate ordering activity within our sector for such dual-fuel, mid-size, dry-bulk, low-emission vessels will be limited in 2024. I will now hand over to Michael, who will present the financials, and I will be back afterwards with outlook and strategic summaries. Michael?

Thank you very much, Martin. And good evening, ladies and gentlemen. Please turn to slide 14 for an overview of our P&L statement and financial performance. As you can see, given our lower daily TCE earnings, both our underlying profit and EBITDA were lower, despite decreased owned vessel and chartered costs. Our G&A has decreased, mainly due to lower discretionary remuneration provisions, given the low result for the period. we took a one-off non-cash impairment of $16 million relating to eight of our smaller, older handy-sized vessels. It's important to note that their carrying values represent only 4% of our own fleet. These eight vessels are below 30,000 tons deadweight carrying capacity with an average age of 15 years, which have less earnings capacity compared to our main fleet of standard handy-sized and supermax vessels. Below underlying profit, our net profit was further improved by gains on vessel disposals. Please turn to slide 15. Our operating cash inflow for the period was $286 million, and that is inclusive of all long and short-term charter hire payments. This compares with $874 million in the full year 2022. We had $92 million in proceeds from the sale of eight small handy-sized vessels, one Supermax vessel, and one Ultramax vessel, which we delivered in the period. In December, 2023, we successfully concluded our first sustainability link unsecured revolving credit facility of $150 million. This facility will give us improved financial flexibility and aligns with our commitment to sustainability with interest margin adjustments tied to carbon intensity and crew safety performance, which we prioritize among our most important ESG issues. CAPEX spending remains well controlled and for 2023 total $252 million of which we paid approximately $119 million for one second-hand handy-sized vessel and eight second-hand Ultramax vessels, and around $62 million for dry dockings and investments in fuel efficiency technology, which Martin discussed earlier. We expect CapEx for 2024 to be approximately $65 million, predominantly relating to dry dockings and investments in fuel efficiency technology and excluding any vessel purchases. We have paid out $280 million in dividends, which relates to the 2022 final basic and special dividend of 26 Hong Kong cents per share, which we paid in May, 2023, and the interim dividend of 6.5 Hong Kong cents per share in August 2023. Our borrowings in the period decreased due to net repayments of $81 million following the normal amortization profile of our loans. Please turn to slide 16. Despite significant shareholder distribution, we continue to maintain a healthy financial position with $549 million of available committee liquidity, which includes $262 million of cash and deposits. This is why we reduced debt and expanded our deadweight carrying capacity by 4%. Our net borings are now just 2% of our own vessel's net book value, and we currently have 62 unmortgaged vessels. Our goal going forward is to ensure that we maintain a robust, safe and flexible capital structure. Our distribution policy is to pay out dividends of at least 50% of our annual net profit, including missile disposal gains, and thereby any additional distributions can be in the form of either special dividends and or share buybacks. I will now hand you over to Martin for his outlook and strategy summary. Thank you, Michael.