d'Amico International Shipping SA

MIL:DIS

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the d'Amico International Shipping third quarter and 9 months 2022 results.

[Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo d'Amico, Chairman and CEO.

Please go ahead, sir.

[Paolo d'Amico, executive]

Thank you. So welcome to our third quarter and 9 months result presentation. Let's go straight to the presentation itself. As usual, we jump the executive summary because we don't want to repeat ourselves twice. And I leave the floor to Carlos for the first part of it.

Please, Carlos.

[Antonio Carlos Balestra Mottola, executive]

Thank you, Paolo. And good afternoon to everyone.

So just as usual, a quick glance at our fleet composition as at the end of the quarter: 36 vessels, which 24 MRs; and the same number of handies and LR1s, 6 of each. For -- of -- in terms of control, 19 are owned. 8 are bareboat chartered and 9 are time chartered-in. Young fleet, average age of 7.5 years, mostly [ MR class and -- almost 78% ]; and also 78% Eco design, meaning by that vessels which were delivered since 2014 and which are -- consume around 30% less fuel than the conventionally designed vessels. This fleet composition is the result of important investments we did between 2012 and in 2019 to renew our fleet. Over that period, we ordered and received 22 newbuildings. Since then, we have had mostly maintenance CapEx, which has been falling actually over the last [ few years ].

This year, we had a few opportunities that we could seize in terms of investments, the first one being the redemption of the shares of our JV partner in Glenda International for around $27 million. That company controlled 4 MR vessels, 3 built in 2011 and 1 built in 2010. And the values of -- the implicit values of the vessels acquired were around $21 million, whilst today they are of around $27 million, so that was a very good deal for us, yes. And we were, I must say, lucky with the timing because the agreement was reached just before vessels' values started moving sharply upwards.

We also had a purchase option on a vessel time chartered-in. This purchase option was in yen. And the strong depreciation of the yen relative to the dollar made that purchase option very attractive, so we were able to declare that option and acquire the vessel. It still has to be delivered to us. It will be delivered towards the end of November for $30 million. The vessel, it's a 5-year-old vessel built in the Onomichi shipyard, a very good shipyard in Japan. We have [ touched out with the ] vessel since its delivery, so we knew it very well. The vessel value today is probably around $39 million to $40 million, so also that one was, we believe, a very good deal which allows us to significantly lower our breakeven on that particular vessel.

Going forward, we still have only mostly maintenance CapEx. And we do have, however, another option on a vessel, a time charter-in, as we will look in more detailed later in the presentation, that we are likely to exercise.

Going on, here we look at bank financing repayments and balloons. And as previously discussed, we have already refinanced all the debt which was maturing in 2023. And we only have one facility maturing in 2024 with a balloon of around $22 million, and so yes, that is also quite positive from our perspective. Although, of course, today, this is not a big concern for us as it was in the past given the very strong markets we are experiencing. The daily repayments on the loans [indiscernible] from 2019 to 2022. As a result of the recent refinancings, these increased in 2023 but should start then gradually falling again.

Going on to the next page, the purchase option on the leased vessels. They -- we exercised and sold the High Priority in 2021. It was one of the oldest vessels in our fleet. And this year, we exercised and refinanced some new leasing transactions, the High Fidelity and the High Discovery. We have 6 other options on these vessels that can be exercised. We are most likely gradually going to be exercising them over the coming quarters and years as a way of deleveraging and reducing our breakeven and strengthening our company to be able to then act countercyclically at the right time. So that is a potential use of funds going forward.

Here we then look at the vessels which are time chartered-in and on which we have purchase options. One, as previously mentioned, the High Adventurer was already exercised. And we have also the High Explorer, which has a purchase option in yen, and we have to exercise it by January next year. And it is the price in yen is the same as for the High Adventurer, and so it is likely that we are going to be exercising this option in the coming months. The other options, the remaining 4 options on these vessels that are time chartered-in are in the money, but they are at a significantly higher value relative to the High Adventurer and Explorer, so we are unlikely to exercise them anytime soon.

Going on to the following page, here we show our contract coverage. The blue line includes both the time-chartered contracts and the bareboat charter contracts. The average rates on this coverage is moving up quite sharply over the coming quarters. It is of around $20,500 for Q4 this year. It was of only $15,500 in Q3 and it rises to just over $28,000 for 2023. We have fixed recently some vessels at some very attractive rates and that is why these average rates have been moving up fast, and we might decide to take some more coverage. We are likely to take some more coverage at the current very attractive rates. We would like to reach coverage of around 20% to 30%, at least [ for 2023 ], at the current high rates.

So the percentage of our Eco fleet has been increasing over the years. And this trend should continue over the coming years as we sell some of our older vessels in our fleet.

Going on to the following page. This is a new slide that we didn't include in the past in our presentation, but we wanted to align ourselves with our peers which provide also an outlook on the earnings of the current quarter. And so here we are showing, based on the fixed dates, both relating to period contracts and to spot days already fixed, what is the blended rate achieved, so far, which is $32,440. This is composed by 46% of the available days in the quarter fixed through spot contracts at an average rate of $37,500; and period-rate contracts, representing 20% of the available days, at an average rate of $20,500.

So we have 65% of our days covered at this blended rate of $32,440 and 35% of our days in the quarter still open. Here these are not indications of what we expect to earn on these free days, but we just made some assumptions. Of course, you as analysts and investors are free to make your own assumptions given how the market is performing and what the outlook for the remaining of -- rest of the quarter is, but -- [ so I will say ] these are quite conservative assumptions as we look here at what our earnings would be. If we are in the $20,000 per day on average of the free days, the -- our blended earnings for the quarter would be $28,000, around $28,000. If we earned $25,000 per day on the open days, then our earnings for the quarter will be $30,000. And if we earned $30,000 per day on the free days, our blended earnings for the quarter would be $31,600. And that is higher than the blended rate we achieved in -- yes, Q3.

So it doesn't look like a very high hurdle to overcome to earn $30,000 per day on the remaining open days given, so far, we have achieved $37,500 on the spot days and the market continues to be very strong. We've actually -- looking at the paper market. The expectation is for the market to strengthen further in the second half of November and in December this year.

So going on to the following page. This slide is slightly modified relative to what we presented before. We decided here to show also, on the left in the bottom, what are the potential earnings from the contracts which are already fixed in relation to Q4. That includes both the spot days already fixed and the time chartered days already fixed, assuming P&L break-even costs, all inclusive, of $15,000 per day but excluding, of course, nonrecurring items. And that would imply that on these fixed days we already have locked in $36 million in profit for Q4, so assuming the remaining days are employed at breakeven, this is -- would be the profits that we would be earning in Q4. And for 2023, we did the same exercise assuming the same P&L breakeven of $15,000 per day. And the locked-in profits there from the period contracts is $20 million.

So on the right-hand side then we show, given the sensitivity that we show on the upper part of the page in -- of $1.1 million -- "for every $1,000 per day" change in the TC equivalent earnings, how this affect -- would affect our overall earnings for Q4 and for 2023 and 2024. So we show then, if our earnings on the free days was -- were $20,000 per day, in Q4, our results, our recurring results, would be of $40 million. If our earnings on our free days were $25,000 per day, our overall recurring net results would be of $46 million. And if our earnings on our remaining free days were of $30,000 per day, then our net earnings for the period will be of $51 million. We do the same exercise also for 2023, and you can see how the earnings would vary.

Here we show the evolution of our daily operating costs and of our G&A. We are -- yes, we are glad that the -- we managed to keep under control the daily operating costs despite the inflationary environment that we are confronting. Unfortunately, I believe that is going to be more complicated to keep at the same level going next year because we are likely, especially on the crews, to face some upward pressure in this respect. Ukrainian crews are important for our vessels and generally for the industry. And of course, there are some issues today finding enough Ukrainian seafarers, so -- recruiting Ukrainian seafarers, so it was a market that was already tight. And so that is, of course, not helping.

On the right-hand side, we show the G&A, where the [ evolution has ] been not as positive as on the operating costs. Of course, partly, this is related to the greater traveling that is happening now. There is also some catch-up traveling for business purposes after the COVID period. There is also some accruals of benefits linked to the long-term incentive plan which are taken into account this year and which are also contributing to the increase in G&A. Nonetheless, it is important to note that they remained below the 2018 figures.

Going on to the following page, we show the ratio between the net financial position and fleet market value, which not surprisingly has improved markedly since the end of last year. We are now at 42%. Of course, this is the result of the cash that -- significant cash we generated this year as well as the increase in asset values. And yes, in the end of 2018, this figure was at 73%, so I mean, this is a very big improvement. And we are glad that we can count today on a very strong balance sheet. We have $85 million in cash and cash equivalents at the end of the quarter.

Here we look at the key P&L line items. The profit for the quarter Q3 was of $44 million. And over the 9 months, it was of $63 million. Excluding nonrecurring items, the profit for the -- for Q3 was of almost $46 million; and for the first 9 months of the year, of $68 million.

Looking in greater detail at the daily results of our vessels. Those employed in the spot market, as previously mentioned, earned on average at just over $37,000 per day, which is more than 3x more than what they earned in Q4 '21. And they -- given the -- also the contracts that we had at an average rate of around $15,500, the blended rate for Q3 was of $30,230, in Q3. And the blended rate for the 9 months was of $22,400.

I pass it over to Paolo for the market overview.

[Paolo d'Amico, executive]

Thank you, Carlos.

Now of course, we had a strong upside from last year to today in earnings and, as a consequence, in the fleet value. We are still below the last cycle peak, but this doesn't mean that we are going to repeat ourselves in the same way. This is something that has to be seen, but the fundamental are very strong. And today, an MR is currently valued for a 1-year period at $32,500 and an LR1 is valued at $42,500. By the way, we fixed 2 LR1s at $43,000, so we even did better than these Clarkson (sic) [ Clarksons ] assumptions.

Talking about the situation in Ukraine. And as you very well know, starting in December 1, we will be -- the crude, Russian crude, will be sanctioned by EU. And by February 1, the products will be sanctioned. Already, the flow of crude is going down, is reducing due to the fact that the sanction works in a way that you have to discharge the Russian cargo before the 1st of December. So whatever is on the water today has to be -- has to arrive to destination before the 1st of December and which means that traders are already not taking position on Russian oil.

What is going to happen is that, of course, Russian have to look for something like 1.5 million barrels per day of crude and 1 million barrel per day of products. They have to look for new clients. It's, I will say, clear that the clients will be mostly China, India and Turkey. And if they manage to have enough fleet to move this oil without it but -- if the so-called dark fleet will be big enough to take care of Russian trade, this is going to move around, but as I said, we find it extremely unlikely. On the product side -- and now we have to see with the new president what's going to happen, but Brazil struck a deal, with Bolsonaro and Putin, for supply of diesel. Diesel is extremely important in Brazil. So if [ we ] should receive this Russian diesel at a highly discounted price, [ the parties has to be extremely fluid as ] going to continue this type of deal -- but just to give you an idea how long and how far, the Russian crude and the Russian product, they have to navigate to get to new markets now that they lost fuel.

Saying that, on the European side, as I said last time, Europe has to look for her own products in other -- from other sources. And this is going to happen either Middle East, either China; or if there is any availability, in United States, but the United States, as you know, are very short of diesel, especially in this moment. But this also adds new tonne miles [ to the today ] equation, as you can see, is very tight; and is, let's say, for us a very good market. So the sanction are going certainly to tighten more the freight market, and we expect an increase out of this on the freight rates. How much, has to be seen. There have been various calculation, but we prefer not to make numbers.

COVID, Page 23, is not anymore, excluding China, a problem, thanks god. I, let's hope it stays this way. China is the only one which still does lockdown. In some ways, it's even a good thing because, if China was there buying crude and buying products today with the rest of the world, the cost of a barrel, you can imagine where it -- could that be.

The refining -- the demand for refining products is the -- recovered totally from disaster of COVID-19. The demand is growing. As far as global demand, we expect to go basically where we were before COVID, so around [ 100 million ] barrel per day. The refinery runs in '21 rose by 3.2 million barrel on average, and we expect another 1.3 million barrel of increase in refining capacity. The refining products inventory are still very low. United States is facing a strong shortage of diesel on the East Coast. And this has been -- the stocks are something like 56% under -- 56% of what they used to be on as an average over last 10 years, so you can imagine how tight the market is over there.

And where we can see recovery, a strong recovery, on the product side always is from jet fuel because people are traveling again. And we have recovered on the gasoline, but it's flattening out due to the price. And the prices start affecting the demand. Instead, on the jet fuel, we see a very strong potential coming in. We have more and more flights coming in operation and so [ we can surge ]. Then we expect also a strong crude tanker market, which helps us a lot. It does help us for 2 elements. Number one, we have a number of [ swing ] ships like the LR2s that -- they move from crude to products. If crude is strong enough, it could well shift to crude and stay in crude; and this will be limiting even more the supply side on products.

And number two, the VLs, they used to, in -- let's say, in a difficult month, the newbuildings, they used to load full cargo. And when I talk a full cargo, I'm talking 2 million barrels, a full cargo of diesel oil in the Far East, in China, Singapore, Korea; and carrying it to North Europe, but on their way to North Europe they were stopping in West Africa, doing ship-to-ship operation, so they were basically killing 2 markets for us, the West Africa market that used to be supplied by MRs from North Europe and the [ north -- Europe ] market itself. But thanks god, due to the fact they are making a lot of money on crude, they will stay [ out ]. So it's another element of supply [ which we have out of our way ].

Then long-term demand is there. It's healthy and resilient. I mean we are -- the participation through seaborne -- the share of the products of total seaborne trade is [ always ] increasing. Always on the long-term demand -- you know this slide very well, for those who are -- who have been with us recently. We have the -- all the refineries in Europe are closing down; and all the growth in refining capacity coming up between Middle East and Far East, principally in -- from China. In the Far East, Australia and New Zealand: New Zealand closed the last refinery they had, and Australia already lost 50% of the refining capacity, so they are both supplied by Singapore and Korea. And this trade is growing every day -- every year.

Shale oil will be on long term. I'm always talking about long-term-demand. Shale oil be there. We have a majority today of private company drilling, so not subject to environmental pressures of shareholders or pressure from shareholders to be paying dividends and not to spend in production. Because they are private company, they can do what they want, and they are investing in production, so we can expect, thanks to this, an increase of oil -- or shale oil products in the future.

There are a number of elements, I will say, more [ ruling ] elements, that will limit our future supply. We have 2 indexes which are extremely severe coming in, in Europe next year, and they are both related to CO2 emissions. As a consequence of these indexes, [ the old ships, they, however ], have to reduce their speed, and this is reducing supply; and -- or even go to demolition because they are not going to be economical anymore. So even from the [ ruling ] side in Europe, we have this element, which of course, for those who have a younger fleet like we have is [ more of a -- with more of a positive ].

When the fleet, due to a very low order book, is becoming older -- a big number of -- 57% is going to overtake the 15 year of age. This is a moment where the ship is technical still very valid, but from a commercial point of view, the big oil companies or the big traders, they don't trade them anymore, so they have to move to secondary trades with second -- let's say, second quality type of traders. And 13% are over 13 -- or 20 years of age, and this is an element instead of thinking of scrapping your ship. So the candidates going on and not being replaced by newbuildings, can you see -- we can expect the fleet growth, but we are going to see it in a few pages, basically is close to 0.

The delivery, as you can see, in the coming months are really nonexistent. I mean I think that [ only the ] element of the indexes coming in force, the European indexes that I was saying before, can offset completely the newbuilding capacity coming in operation in these months. We do not think that we are going to see [ our last 2 ] newbuildings, for 2 elements. Number one, if you want a ship today, you are going to have it in at the end of '24, if not beginning '25. And you don't know what the market will be. It's too far away. Number two, it's going to be an extremely expensive ship; and you tend to refrain to put money on these numbers. And number three, with the technical limitation that we don't know what technology is going to be needed. As you know, we are entering in this decarbonization, so you can easily make a mistake. So this is keeping -- and you will see it finally on Page 37. The fleet is not growing. I mean we expect a 0.5% growth. This is coming from Clarkson, but we are talking 0.5%. It's like saying 0.

Save that, I leave to Carlos for the NAV. Thank you.

[Antonio Carlos Balestra Mottola, executive]

Thank you, Paolo.

Yes, this is the usual graph we show with our NAV evolution. And between June and September, there was a sharp increase, which reflects the results we achieved and also the increase in asset value. So our NAV increased from $420 million to around $610 million, so it's almost a 50% increase. On a per share basis, it increased from $0.34 per share to $0.5 per share.

And so although our share price has performed very well also during the period, here we are showing our share price as at 30th of September, but since then, it has traded up significantly. We are still trading at a very important discount to NAV. And of course, this is an NAV which we expect to continue rising over the coming quarters. Maybe there is still -- there is some upside but maybe not as strong as we have seen in terms of increases in asset values, but the cash we expect to generate in Q4 and in 2023 should drive the future increases in NAV. And so there are still potentially quite a lot of upsides to our share price, we believe.

We believe that covers the main presentation, so I pass it over [ to Yul ] for the question-and-answer session.

[Operator]

[Operator Instructions] The first question is from Daniele Alibrandi of Stifel.

[Daniele Alibrandi, analyst]

First of all, congrats for the strong results. I was suspecting one of the best quarter in your history, but when I look at the commentary you gave on Q4, I mean, I'm not that sure that, that was Q3. Anyway, my first question, actually the $1 million question: I really appreciate the comments you provided us on where we stand in terms of TC fixed rates and coverage in Q4. This was very, very helpful. Nevertheless, when it comes down to forecast these 2 parameters for the next year, this is a much more difficult exercise. So you provided us the picture where we stand today, on the slides, but I was trying to figuring out where we could land at the end of next year. I know that this is a function of where the spot rates will be, which are the opportunities that you can take on securing these strong rates on the fixed side and so on, but maybe if you can elaborate a little bit -- and what's your best guess on these?

[Antonio Carlos Balestra Mottola, executive]

That's really a $1 million question or more than that, I will say, more than $1 million, but I -- well, I wish we knew, but I think we cannot help you much more than what we did by providing the sensitivity analysis. And what are the earnings on the contracts that we already secured? And given different scenarios, what the earnings could be for next year and also taking into account, Daniele, that the time charter rates today are very high. And they do reflect an expectation that the market is going to be very strong next year. 1-year rates, I'm talking about. So an Eco MR is around $33,000 per day and an Eco LR1 is around $43,000 per day. So that can help you guide you in your -- I guess, in your forecasts. We internally prefer to be a bit more prudent, but that doesn't mean that -- we actually expect and hope -- we are a bit superstitious, but we expect and hope to do better than the numbers we are providing when we do these simulations and say, "Okay, what will happen at $20,000 or $25,000 or $30,000 per day?" These are, of course, historically speaking, very good numbers, but as things stand today, we could actually do even better than that, yes. So it's -- but if it ended up being $25,000, it will still be a great year, I mean, so it's -- yes.

[Paolo d'Amico, executive]

[ Is it ]?

[Daniele Alibrandi, analyst]

Can we say -- let's say 2 things, that -- first of all, that -- at these level of spot rates, is it correct that it still represent like 5% or, for sure, less than 10% of the total value of cargo still at these rates? So maybe spot has possibly some way to go up. And also, given that the TC are really attractive, maybe you will take advantage progressively of these high rates.

[Antonio Carlos Balestra Mottola, executive]

Yes, yes, it is true. I mean we did mention we are not in a hurry to cover our vessels with TC contracts. We will do it if we find the right opportunities, but we feel that today, at least for periods of 1 year, the rates starts to make sense. So we have started taking coverage on the -- we covered the 2 LR1s. And Paolo mentioned that $43,000 per day. And we covered also one of the older vessels in our fleet, an MR2, for 1 year. And we are likely to take more coverage going forward and reach this 20% to 30% level of coverage that I was referring to previously, but we don't have any formal commitments to do. So I mean we will do it if we feel that it is the right thing to do. And currently the numbers seem to make sense, so -- but we will keep reevaluating the situation constantly when making these decisions.

[Daniele Alibrandi, analyst]

Got it. The last one is that we all know that there are 2 key catalysts basically, 1 in month in December, the other 1 in February, with the sanction on Russian products [ in Europe ] kicking in. So we -- you perfectly explained as what can happen and I'm really struggling to see maybe the what can go wrong. So sorry for the question, but what do you think maybe can -- the other flip of the coin? What can both -- can go wrong with -- actually it is suspected by all of us in terms of higher [indiscernible] demand.

[Paolo d'Amico, executive]

What it can go wrong, I mean, in respect of the sanction. Is this...

[Daniele Alibrandi, analyst]

Yes.

[Paolo d'Amico, executive]

Look. On short term, what it can go wrong is a peace, if you want to. I mean the fact that we lift the sanction itself and Russia goes back where it was, but even with Russia going back where it was and where it is today, because today Russia is exporting these products, yes, we go back to where we are today. So I wouldn't -- is -- [ it is ] a beautiful way to go wrong. And of course, if the conflict will be resolved on the medium term, the world will be, by far, better. So I think things will improve in our direction. Consumption will go up in -- for different reasons, yes, so the overall picture, to me at least, it doesn't look -- I don't see what -- the other side of the coin, not exactly in this moment. Maybe it's one of the few [indiscernible] in my life, but frankly, today, the way things are, I see it quite positively. Let's put it this way. It's always to be prudent.

[Antonio Carlos Balestra Mottola, executive]

Yes. Take into account, Daniele, that demand this year, oil demand, would have increased much more if this war hadn't occurred. I mean this war is -- created economic mayhem. I mean it was a lot of inflation and forced central banks to increase interest rates very fast, and it's starting to affect demand. And this could -- this [ war ] could worsen potentially in the coming quarters, but if there were a peace agreement, we would expect then a much more benign economic scenario, as Paolo was saying. And we might lose some tonne miles. By that, I mean the distances sailed might shorten again. Maybe there some inefficiencies would disappear, but the flip side, the positive flip side, will be that consumption would -- and volumes transported would increase much faster. So it is not a given that it would be negative.

And potentially, I would say, if I were to think of what is -- the worst scenario that could happen is deep recession in the U.S. and Europe because of the monetary tightening coupled with high commodities prices; and China not reopening, and so Chinese GDP growth remaining depressed because of continuous COVID lockdowns, that; and OPEC+ remaining very disciplined in cutting supply in the face of a nonspectacular growth in demand or a potential contraction in demand. Today, the base case scenario still for oil demand, even taking into account all these factors, is to increase next year, but if the situation from a macroeconomic perspective were worse than currently anticipated by most analysts and we were to experience a contraction and if OPEC were to react to that by cutting oil supply, then potentially we could have an issue, which, however, could in theory still be compensated by an increase in tonne miles because the effects of these sanctions still have to come into [ pay ], the full effect of this sanction. So yes. So even that scenario is not necessarily a bad scenario for us, but yes, if -- there could be, let's say, a correction at a certain point, but we don't expect it to be a long-lasting correction because the supply side is -- looks very good.

[Operator]

The next question is from Massimo Bonisoli of Equita.

[Massimo Bonisoli, analyst]

Congratulations for the results as well from my side. I have 2 question. One is on the -- let's say, on the -- on rates. I understand that you are taking some more coverage, but clearly the -- now the coverage rates are quite strong, so why not accelerating the coverage in your portfolio? And if you can give us some color on the willingness of the clients to, let's say, engage at such high rates for longer terms; if they are very willing or very reluctant right now, just to have an idea from the other side.

And the second question is on the -- let's say, on the new vessel. How long does it take from the day of the order to receive a new vessel on the market right now? I understood there are some concern regarding the new technology, and that's something that we appreciate, but -- just to understand how quick a new vessel can arrive on the market.

[Paolo d'Amico, executive]

Now the reason why we didn't take more coverage is because there was a very strong differential between the spot rates and what the charters were prepared to pay for periods. As you rightly say, say how much the charters are reluctant or prepared to take certain [ rate scheme ]. They were not on the beginning. This thing is changing. It's working in progress, so it's not something that [ it ] happens tomorrow morning. Things are getting to maturity. And as we see, as we saw in the case of the 2 LR1s we fixed for 1 year at $43,000 a day, as we see rates entering in certain -- let's say, at certain levels, we are willing to take, but we have in our mind, anyhow, a coverage for next year between 20% and 30%. This is not the bible in the sense we will -- it will be always the market dictating what we are going to do, but this is the ballpark where we want to arrive. As far as the traders and the oil companies, they are certainly more prepared to look at longer term today. They are even looking somewhat at 3 years. 3 years is still very much discounted, so we wait a little bit on looking at such a long thing. And I have to say we also would like to wait for February to see how in reality the sanction will work because what we said is what we expect, but I mean reality can be different even if I doubt it, I mean.

But so today is really -- is a life that you really [ live ] every day. And every day [ is a different day ], so to take a strategic position that we want to take and we will take needs some more maturity, with the way the market is going, also because -- don't forget that we have this result, but on the first quarter of this year, we lost money. So the speed how the market is recovering and the way the markets is proposing itself, it really changes every day. And we are trying to be prudent, which is always our sort of -- this is our bible, but in the meantime, we know that we have to exploit the market the way it is today because it's unique.

As far the second question. Today, if you order an MR, you are going to have a delivery in '24 at earliest. What's...

[Antonio Carlos Balestra Mottola, executive]

End of '24.

[Paolo d'Amico, executive]

Yes, end of '24. What happened, that the LNG, it moved in very early. And the containers moved in very early, and if you follow the rest of the shipping industry, you'll notice that. So the yard, they fill up their capacity, mostly these 2 type of ships. We have [ leading ] space to tankers. This is a good thing because it's going to restrain the supply for quite a while. As far as new technology, okay, you can read it on the papers. I mean we are talking about many things. I still suspect that we are still going on fuels, maybe blended. We buy your fuels for a while before we do -- really do a big change because not only the technology is not totally there but is -- the supply network which is not totally there. Because we can even have an engine which goes on ammonia. If I don't see and I don't find the ammonia, I cannot refuel my ships. So it's the whole thing that has to go to maturity; and this is going to take years, maybe more years than I think. I hope I [indiscernible].

[Operator]

The next question is from Matteo Bonizzoni of Kepler.

[Matteo Bonizzoni, analyst]

I have 2 questions. The first one is related on the purchases option, which you have on your leased vessels. So you show that you have still 6 purchase options in the money. The question is just to understand. What is the maximum theoretical cash-out [ that will resize ] these options? And how these cash-outs compares with the IFRS liabilities? Just to assess the net balance on your total net financial position in case you exercise. The second question is as regards your capital allocation. Clearly you have dramatically improved your loan-to-value to 42%. It was, let's say, above 60% only a few quarter ago, so a very, very sharp improvement. What are your thinking about capital allocation, including dividends but, above all, including a potential return to a more aggressive CapEx mode or fleet expansion or other decision of these kinds?

[Antonio Carlos Balestra Mottola, executive]

Yes. Thank you. So regarding the purchase options, it depends, of course, when we exercise these options, but I will say that most of them today are between -- the purchase option price is between $22 million and $19 million. So that is, let's say, the residual leasing liability that has to be settled to exercise these options. And of course, this declines over time, but so we can -- as a very rough of the envelope, you can assume between [ 120 and 125 ] if they were all exercised today, to exercise these 6 remaining options and keep them -- the vessels debt free. So that is just a rough approximation of the deleveraging that could be achieved in this respect. The purchase option on the High Explorer, it's in yen. And at today's yen values, it's around just below $30 million, so -- but yes. So yes.

And in terms of dividends, our expectation is that a dividend -- of course, this is a decision that has to be taken by the Board and then by the shareholders, but our expectation is that a dividend will be distributed next year out of the 2022 results. It might not be a very big payout ratio this year, but it is a signal and that -- and the idea is that this, the payout ratio, will increase over time as we deleverage our balance sheet. And what we will look at is not necessarily the ratio between the net financial position and the fleet market value at a certain point in time but the ratio between the net financial position and the [ average ] market value of our vessels over the cycle. So we will look over the last 10 years at these averages and look at this [ indebtedness ] ratio when deciding what portion of our profits to pay out as dividends.

I don't know if this answered the question. In terms of other investments, we don't have any plans to -- currently toward our newbuildings, for the reasons Paolo mentioned. And I think we are not the only ones who are thinking [ that way ]. And that is why only 24 vessels were ordered this year in the MR1, MR2, LR1 segments, which is a very low number. And it's you -- the -- a new vessel today will cost you around 44 million, 45 million, delivered. And that is not including the financing costs between the date you ordered a vessel and the date the vessel is delivered to you. And then in 2 years time, you might have missed a good portion of this the market, so is that a good idea? And you remain with an expensive vessel in your fleet, so I think that it's -- it doesn't look very appealing today, to order newbuildings. And that is the reason why very few are being ordered. I hope that answered your question.

[Operator]

[Operator Instructions] Gentlemen, there are no more questions registered at this time. I'll turn the call back to you for any closing remarks.

[Paolo d'Amico, executive]

Okay, gentlemen, thank you very much for being with us. Of course, we are extremely satisfied from the results; and we hope, in the future, to keep going the way we did now.

So thank you to be here. And I hope -- I mean we will talk full -- at the next call. Thank you. Bye-bye.