2020 Bulkers Ltd. Clarksons Platou Securites Drybulk Seminar 29 October, 2019
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This presentation (the "Presentation") has been prepared by 2020 Bulkers Ltd. (the "Company") and is made 29 October, 2019 solely for information purposes. The Presentation does not constitute any recommendation to buy, sell or otherwise transact with any securities issued by the Company.
No representation, warranty or undertaking, express or implied, is made by the Company and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. The Company shall have no responsibility or liability whatsoever (for negligence or otherwise) for any loss arising from the use by any person or entity of the information set forth in the Presentation. All information set forth in the Presentation may change materially and without notice. In making the Presentation public the Company undertakes no obligation to provide additional information or to make updates thereto. The information set forth in the Presentation should be considered in the context of the circumstances prevailing at the date hereof and has not been and will not be updated to reflect material developments which may occur after such date unless specifically stated in such update(s).
Matters discussed in the Presentation include "forward looking statements". "Forward looking statements" are statements that are not historical facts and are usually identified by words such as "believes", "expects", "anticipates", "intends", "estimates", "will", "may", "continues", "should" etc. These "forward looking statements" reflect the Company's beliefs, intentions and current expectations concerning, among other things, the Company's results, financial condition, liquidity position, prospects, growth and strategies. "Forward looking statements" include statements regarding: objectives, goals, strategies, outlook and growth prospects, future plans, events or performance and potential for future growth, liquidity, capital resources and capital expenditures, economic outlook and industry trends, developments in the Company's market, the impact of regulatory initiatives and the strength of the Company's competitors. "Forward looking statements" involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The "forward looking statements" included herein are based upon various assumptions, many of which, in turn, are based upon further assumptions. This includes, without limitation, the Company's review of historical operating trends, data contained in the Company's records and data available from third parties. Although the Company believes that these assumptions were reasonable when the relevant statements were made, they are inherently subject to significant known and unknown risks, uncertainties, contingencies and other factors which are difficult or impossible to predict and which are beyond the Company's control. "Forward looking statements" are not guarantees of future performance and such risks, uncertainties, contingencies and other important factors which are inherent thereto could cause the actual results of operation, financial condition and liquidity position of the Company or the industry in which it operates to differ materially from those results which, expressed or implied, are contained herein. No representation to the effect that at any of the "forward looking statements" or forecasts will come to pass or that any forecasted result will be achieved are made.
The Presentation and the information contained herein does not constitute or form a part of and should not be construed as an offer for sale or subscription or of solicitation or invitation of any offer to subscribe for or purchase any securities issued by the Company.
2 | A new business model is needed for listed drybulk companies
Significant value destruction in shipping stocks historically… …however the underlying business was good
800
~35% IRR buying a Capesize in 2002 holding until 2018 700 250 5.5x Money multiple 600 200 13 500
400 150
300 USDm Rebased share share price Rebased 100 197 184 200
100 50
0 36 0 2002 Purchase EBITDA 2002- Residual value Total cash flow price 2018
2020 Bulkers with strong focus on capital discipline, low cash breakeven and dividends. Strong alignment with shareholders
Source: Company, Bloomberg, Clarkson Research Services Limited (SIN)
3 | Our business model
Invest at attractive entry point
Full alignment of interest as The right assets - 8 Scrubber founders & management are fitted Newcastlemax with largest shareholders proven premium vs Capesize
Stop investing as asset values Low cost and risk increases corporate structure
Free cash flow to be paid as Attractive financing / moderate monthly dividends leverage => low cash breakeven
4 | Our ships earn a significant premium to a standard Capesize
High Performing assets delivering into a strong market
1) 15% Larger cargo intake vs. standard Capesize - Proven premium vs. standard Capesize1) based on 6 concluded fixtures with 1st class + counterparts 20% Lower fuel consumption than standard Capesize1) - Average index-linked earnings of ~USD 34,0003) + per day based on today’s spot market, before taking into account scrubber economics which Fuel saving vs. non-scrubber fitted Newcastlemax2) 35% will apply from Jan 1st 2020
Name Built/Delivery Charter terms Charterer Bulk Sandefjord August, 2019 3 years index-linked timecharter with share of scrubber profit Koch Supply & Trading Bulk Santiago September, 2019 12-15 months timecharter @ usd 19,525 per day Koch Supply & Trading Bulk Seoul October, 2019 12-16 months timecharter @ usd 22,250 per day Koch Supply & Trading Bulk Shanghai November, 2019 11-13 months index-linked timecharter with share of scrubber profitST Shipping (Glencore) Bulk Shenzen January, 2020 11-13 months index-linked timecharter with share of scrubber profitST Shipping (Glencore) Bulk Sydney January, 2020 3 years index-linked timecharter with share of scrubber profit Koch Supply & Trading Bulk Sao Paulo April, 2020 Bulk Santos May, 2020 7,25 ship years on the water in 2020
(1) Baltic Exchange Capesize reference vessel (2) Based on current 2020 Swaps for HFO vs LSFO Singapore (3) Gross TCE rate based on Baltic 5TC index on 29 Oct, 2019 5 | FY 2020 Cash breakeven budget of USD 14 150 per day 1)
(3) Last done index fixture compared to a standard Capesize 2) Capesize historical rates
165 160 155 Standard Capesize rate “ 7 145 150 145 38% Newcastlemax Premium (last done in the market) “ 2 715 140 80 75% of scrubber benefit at USD 245 per ton LSFO vs HFO “ 5 035
(USD'000/day) 70 - 5% commission “ (745) 60 - Newcastlemax premium (35% vs Baltic type Capesize) dayrate “ 3 122 50
Capesize 40 Newcastlemax earnings with Capesize rate of USD 7 145 /day 14 150 30
20
10
0
1 year Capesize TC rate 2020 BE non-scrubber Capesize equivalent
Based on last done index fixtures, 2020 Bulkers covers its average cash breakeven when a standard Capesize earns USD 7 145 per day
(1) Based on Libor rate of 2% (2) Baltic Exchange Capesize reference vessel (3) 1 year TC for Baltic Exchange reference Capesize 180,000 DWT without scrubbers. Monthly data. Source: Company, Clarkson Research Services Limited (SIN) 6 | Potential free cash flow to equity per share
NOK Potential Free Cash Flow to Equity Per Share 70 FREE CASH FLOW SHARE PER EQUITY TO FLOW CASH FREE 60
50
40
30
20
10
- 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 50 000
2020 2021
STANDARD CAPESIZE RATE
- Assumes open ships chartered at Baltic Capesize Index + 38% and 75% share of scrubber economics - Free cash flow to equity = revenues – opex – g&a – debt service - All calculations are indicative and no guarantee can be given for actual achieved results 7 | Limited supply growth on the horizon
Dry bulk orderbook as % of fleet Dry bulk Newbuild contracts(1) Number of active shipyards(2)
120 80% 600
551 70% 100 500 484 60% 455
80 400 50% 370
60 315 40% 300 USDbn
as % of fleet of as % 283
249 30% 248 Number of of Number shipyards 229 40 200
Orderbook 206
20% 161
20 100 10% 81 51 55
0% 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Bulkcarrier Orderbook % Fleet Bulk carriers No of yards taking orders
(1) For vessels larger than 20,000 dwt (2) With at least one order larger than 1,000 GT on order, includes merchant and ship-shaped offshore vessels Source: Clarkson Research Services Limited 8 | Trade growth for key commodities traded by Capesize and Newcastlemax has been strong and relatively stable historically
World seaborne iron ore trade (28.2% of dry bulk trade in 2018) World seaborne coal trade (23.8% of dry bulk trade in 2018)
1,60 1,40
1,40 1,20
1,20 The iron ore trade has been The coal trade has been expanding 25 out of last 29 1,00 expanding 28 out of last 29 years, with 5.0% CAGR years, with 4.7% CAGR 1,00 0,80
0,80
0,60 Billion tonnes Billion tonnes 0,60
0,40 0,40
0,20 0,20
0,00 0,00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
World Seaborne Iron Ore Trade World Seaborne Total Coal Trade
Source: Clarkson Research Services Limited (SIN)
9 | Iron ore shipments are recovering after 1H disruptions
Brazilian iron ore shipments Australian iron ore shipments Million tonnes, 3-week moving average Million tonnes, 3-week moving average
10 20
9 18 8
7 16
6
5 14
4 12 3
2 10 jan feb mar apr mai jun jul aug sep okt nov des jan feb mar apr mai jun jul aug sep okt nov des 2018 2019 2018 2019
Source: Arrow Shipbroking Group
10 | China will eventually need to restock iron ore inventories
Chinese steel production remains strong… While Chinese mills have been destocking iron ore inventories1)
100 0,8
90 0,7
80
0,6
70
0,5 60
50 0,4
40
Tons per month (million) 0,3
30
0,2
20
0,1 10
0 0 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 jan. 11 jan. 12 jan. 13 jan. 14 jan. 15 jan. 16 jan. 17 jan. 18 jan. 19
China Steel Production Iron ore inventories at mills million tons
(1) Inventory shown as average per mill based on survey sample of 64 mills, representing ~30% of Chinese steel output Source: MySteel, Bloomberg, J.P. Morgan, Reuters, Company, Clarkson Research Services Limited (SIN)
11 | Impact of IMO 2020 regulations is reducing effective supply
Capesize scrubber retrofitting timeline Increased reports of delays for scrubber retrofits
300 number of ships fitted with scrubbers . Average retrofit times estimated around 40 days, with reports 250 of some retrofits taking up to 60 days
200
150 . Some repair yards have overbooked their capacity
100 . Reports of delayed deliveries of scrubbers from manufacturers 50 Oct-19 Estimate Aug-19 Estimate 0 . Number of estimated total retrofits up by ca 5% since end Q2 jul.19 jul.20 jan.19 jan.20 jun.19 jun.20 okt.19 feb.19 feb.20 apr.19 apr.20 sep.19 des.19 aug.19 nov.19 mai.19 mai.20 mar.19 mar.20 Capesize scrubber installations by end 2020 Higher fuel prices will reduce speeds for ships without scrubbers
450 Impact on non scrubber fitted Capesize vessels Decrease in optimal speed -7,50 % 159 360 Portion of fleet without scrubber YE 2020 80 % 19 Avg time at sea 65 % 270 Reduction in effective supply -3,9 % 92 469 180 Impact on scrubber fitted Capesize vessels Increase in optimal speed 3,60 % 90 199 Portion of fleet with scrubber YE 2020 20 % Avg time at sea 65 % 0 Increase in effective supply 0,5 % To be fitted Under discussion Potential* Already fitted Total Net reduction in effective Capesize supply -3,4 %
Source: Arrow Shipbrokering group Calculations: Company
12 | Key reasons for investing in 2020 Bulkers
- Assets with proven earnings power delivering at attractive point in the cycle.
- Based on last done index fixtures – 2020 Bulkers earns its cash breakeven when a standard Capesize earns ~USD 7,000 per day.
- Solid Balance sheet
- Significant dividend yield capacity driven by low cash breakeven combined with performance of Newcastlemax:
- Current spot rates imply >NOK 25 per share free cash flow to equity 1)
- 2020 Bulkers aims to pay monthly dividends once full fleet is delivered, targeting first payout in Q4 2019
- Sponsors and Management are the largest shareholder and are focused on capital discipline and shareholder alignment
- Favorable supply demand balance near term: - Iron Ore production and export volumes recovering after 1H 2019 disruptions - Expected supply side inefficiencies driven by scrubber retrofits and lower speed as IMO 2020 regulations are implemented
1) Mark to market - assuming 8 Newcastlemax trading spot at Index linked charter reflecting Baltic 5TC Index + 38% with 75% share of scrubber economics based on HFO vs LSFO spread of USD 245 per ton.
13 | Questions?
14 |