DRY CARGO TONNAGE PROCUREMENT Capital Markets Day Henrik Lykkegaard Madsen Vice President Copenhagen, Denmark 1 June 2012 NORDEN Dry Cargo Tonnage Procurement 1
AGENDA Business model Fleet overview Tonnage strategy aspects Regional trends in shipbuilding NORDEN Dry Cargo Tonnage Procurement 2
ASSET LIGHT BUSINESS MODEL NORDEN is the no. 1 foreign charterer of Japanese tonnage Long term charter contracts with options have been an important element in the expansion of NORDEN since the late 90 s Flexible fleet *Active (on order) Capacity Coverage and customer focus Employment Sale and purchase Technical competencies inhouse Option-based flexibility 3-7 year firm periods Owned 29 (5) LT chartered w. POP 40 (13) LT chartered 23 (1) Contracts of affreightment TC out FFA market Customer relations Logistical efficiencies 2-10 year firm periods Quick and easy cover Flexibility and scale Arbitrage Single-trip charters Other chartered (90) Spot market People Brand Systems * Active fleet per 30 June 2011 Active fleet per 31 March 2012 NORDEN Dry Cargo Tonnage Procurement 3
DRY CARGO CORE FLEET OVERVIEW Vessel type Owned (on order) LT TC (on order) w/pop w/o POP Size (DWT) Typical length Main cargoes 3 (-) 1 (-) 0 (-) >150,000 289 metres Iron ore and coal Capesize 4 (-) 3 (1) 0 (-) 85-120,000 245 metres Iron ore and coal Post-Panamax 5 (-) 11 (7) 0 (1) 65-82,500 225 metres Iron ore, coal, bauxite, grain Panamax Handymax Handysize 4 A (1 A ) 13 (4) 18 (2) 7 (3) 11 (-) 12 (-) 40-60,000 190 metres 25-40,000 170 metres Iron ore, coal, bauxite, cement, cement clinker, grain, fertililser, petcoke Cement, clincker, grain, petcoke, steel, logs, alumina, wood pellets, fertilizer, alumina A Of which 1 units in 50%-owned joint venture * Per 31 March 2012 NORDEN Dry Cargo Tonnage Procurement 4
TONNAGE STRATEGY ASPECTS Portfolio management Buy or lease Design Timing Financing NORDEN Dry Cargo Tonnage Procurement 5
PORTFOLIO MANAGEMENT HANDYMAX TC period option Minimum Firm Duration Firm Period Optional Duration Optional Period TC POP Own 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 NORDEN Dry Cargo Tonnage Procurement 6
PORTFOLIO MANAGEMENT PANAMAX TC period option Minimum Firm Duration Firm Period Optional Duration Optional Period TC POP Own 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 NORDEN Dry Cargo Tonnage Procurement 7
TYPICAL TC WITH PURCHASE OPTION Purchase vessel at pre-determined price (Can be exercised at any time during year) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Typical arrangement Handymax 7 year minimum period Option to purchase after year 5 Options to extend for further 3 years one year at a time Flat pre-agreed rates first 7 years Slightly increasing rates years 8-10 Optional period Upside is retained if vessel prices go up Downside is limited Cost and earnings can be matched first 7 years Extensions only if profitable NORDEN Dry Cargo Tonnage Procurement 8
OWNERSHIP vs TC w/pop Ownership Full asset upside Full operational flexibility Flexibility to exit any time Influence on design and quality Upgrades/flexibility with yards Long term TC w/pop Asset upside for a premium No Owners liabilities Hedge against OPEX escalation New regulations No upfront cash commitment No residual value risk Optionality NORDEN Dry Cargo Tonnage Procurement 9
VESSEL SPECIFICATIONS Size within segment Fuel efficiency Other specifications CO 2 fittings Log fittings Ice class NORDEN Dry Cargo Tonnage Procurement 10
SIZE OF VESSELS IS INCREASING Mill. dwt 60 50 Handysize Handymax Panamax Post- Panamax Capesize Conventional size range 40 30 20 10 0 Source: Clarksons pre 1996 1996-2000 2001-2005 2006-2012 On order NORDEN Dry Cargo Tonnage Procurement 11
NEW FUEL EFFICIENT DESIGNS Impact of slowsteaming and different markets Comparison of different designs against the standard Tess 52 type vessel - used in calculating the Baltic Supramax Index (BSI) clearly shows the advantage of newer designs and slowsteaming Tess52 doing 14 knots earning USD 10,000 p/d USD/day 13.000 12.000 11.000 10.000 9.000 8.000 Tess52 doing 14 knots earning USD 20,000 p/d USD/day 22.000 21.000 20.000 19.000 18.000 17.000 16.000 7.000 MES56 - old design NEO56 - new design 15.000 MES56 - old design NEO56 - new design Service speed Slowsteam Service speed Slowsteam NORDEN Dry Cargo Tonnage Procurement 12
NEWBUILDING PRICES AT HISTORICAL LOWS Yards are close to marginal cost limited downside in newbuilding prices Gross margin in YEN declined d by 18% Newbuilding price in USD increased by 28% Yard sector consolidation expected Panamax newbuilding price (Index = 100) 300 250 200 150 100 50 0 1999 2001 2003 2005 2007 2009 2011 Panamax newbuilding USD Panamax excl steel cost - USD Panamax excl steel cost - YEN Sources: Clarksons, Bloomberg US 10yr gov. rates NORDEN Dry Cargo Tonnage Procurement 13
FINANCING Significant financing missing over the next two years 9 Bank terms if available are more strict Government backed financing 7 available in main shipbuilding nations for a few high quality 6 names 5 Japanese financing is particularly interesting US government bond yield and BBB spread (%) 8 4 3 US 10-yr government bond yield US 10-yr government bond yield incl. BBB spread 2 1 0 2002 2003 2004 2005 2006 2007 2008 2009 20100 2011 Source: Bloomberg NORDEN Dry Cargo Tonnage Procurement 14
REGIONAL TRENDS IN SHIPBUILDING Far East dominance Japanese shipbuilding under pressure Deliveries by country as a % of world total 100% 90% Aging workers 80% High yen value High costs Consolidation expected 70% 60% 50% Setting up overseas facilities (China, Philippines and Vietnam) 40% Japan is focusing on simple 30% designs and high productivity 20% Quality in China is improving 10% 0% 1990 1994 1998 2002 2006 2010 China South Korea Japan Source: Clarksons NORDEN Dry Cargo Tonnage Procurement 15
Thank you for your attention ANY QUESTIONS? NORDEN Dry Cargo Tonnage Procurement 16