MPC Container Ships ASA

OSE:MPCC

Earnings Call Transcript 2022-Q4

[Constantin Baack, Chief Executive Officer]

Good afternoon and good morning, everyone. This is Constantin Baack, CEO of MPC Container Ships, and I am joined by our CFO, Moritz Fuhrmann. I would like to welcome you to our Q4 2022 Earnings Call. Thank you for joining us to discuss MPC Container Ship's fourth quarter earnings. This morning, we have issued a stock market announcement covering MPCC's fourth quarter results for the period ending December 31, 2022. The release as well as the accompanying presentation for this conference call are available on the Investors & Media section of our website. Please be advised that the material provided and our discussion today contain certain forward-looking statements and indicative figures. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business.

Now, before we start with today's presentation, I would like to address a few words from my side reflecting on the past year. We are pleased to report another strong quarterly result today rounding off what has been the best financial year since MPCC'S foundation. This past year has brought a variety of challenges and opportunities, including periods with the highest charter rates in the history of container shipping, but also significant geopolitical and macroeconomic challenges and rapid decline and freight and charter rates throughout the second half of the year 2022.

At MPCC, we focus on being agile and well equipped to adjust our operations and strategy to fit the prevailing market conditioners. During the first half of 2022, we were able to capitalize on the strong charter market by locking in long term charter contracts at very attractive rates, establishing a very solid charter backlog of US$1.5 billion. We also continued to deleverage the company and currently operate with an industry low leverage. Over the past month as part of our ongoing strategy for selective portfolio optimization, we have announced several new and accretive portfolio measures, which includes continued divestment from our Bluewater joint venture, for example, as well as investments in younger, larger, scrubber-fitted vessels with existing charters contracts. These measures are not only earnings-accretive, but also important efforts to maintain our long-term competitive position.

The container market has clearly come down from the historical highs seen in 2021 and early 2022. Yet it is important to understand that the charter market is still at a very healthy level. We will discuss all of this in more detail during today's presentation, and I would like to hand over to our CFO, Moritz Fuhrmann, who will run us through the first agenda point of today's call.

[Moritz Fuhrmann, Chief Financial Officer]

Thank you, Constantin. Kicking off the presentation, we will be looking at some highlights from the financial year 2022. Obviously, concluding the strongest year that MPCC has experienced in history. Net profit came in at US$104 million for Q4 and US$435 million for the entire fiscal year 2022. Based on the adjusted net profit for Q4, the board has declared a recurring dividend payment of US$0.15. This obviously excludes the event driven dividend of US$0.07 that is being distributed today. Including the event driven dividend just mentioned this brings us to a total distribution to shareholders of US$537 million since February 2022. While we have focused on returning capital to shareholders, we are also very much focused on deleveraging the balance sheet. Currently, based on Q4, we're looking at 16% leverage ratio and at the same time also a very important pillar in our strategy is the fleet optimization. So during 2022 and in Q1 2023, we have been able to divest some of our joint venture ships and older ships in the fleet, while at the same time, acquiring secondhand ships that are immediately accretive from an EPS and DPS perspective. And on top, we have concluded very interesting new building projects in 2022.

Looking at the market development. Obviously, the last six months have been characterized by falling box rate rates via the time charter rates. There was a very inactive period prior Chinese New Year. What we experienced now after Chinese New Year is a rapid increase in activity, a lot of inquiries from charterers that is also being reflected now in time charter rates durations, but also in the S&P market. So what we see currently is that time charter rate was stabilizing at levels above historical averages. The general outlook for our feeder segment is more favorable relative to the larger segments due to very good supply-demand dynamics. The order book via the fleet age is certainly more manageable looking at the feeder segment relative to the 8,000-plus TEU segments. Despite market uncertainties, MPCC is very well positioned going forward for 2023. As of today, we have a revenue backlog of US$1.5 billion, and we have fixed out 86% of days contracted for 2023. Again, as per today, our guidance for revenues is between US$610 million to US$630 million on the revenue side and EBITDA between US$420 million to US$450 million.

Looking into more detail on some company KPIs, again, revenue, EBITDA and profit development very favorable 2022 relative to 2021. Balance sheet, again, focus has been very much on deleveraging the balance sheet. We have currently 30-plus vessels unencumbered on the balance sheet, which gives us a lot of flexibility going forward. Financial KPIs. For the full year 2021, we have distributed $1.03, and that is a combination of recurring dividends as well as event-driven dividends. Obviously, focus going forward will be to maintain the dividend capacity of the company. Operational KPIs. Unfortunately, on the operating side of things, we had some one-off effects in Q4 that led to elevated OpEx levels. If we were to normalize COVID with – and insurance impact, the OpEx will be normalized by probably between $400 to $500 per day, which is then more in line with the full year 2020. This obviously has been offset by the favorable TCE that the fleet was able to achieve in the market and also very, very positive is the utilization of close to 89% lion's share of the off-hire that we experienced in 2022, especially in Q4 was related to CapEx and dry docks events.

Looking at the company's charter activity throughout 2022, I mean, you can see the clear development throughout the year, very positive, obviously, that we've been able in the first quarter to conclude 23 pictures with an average TCE rate of close to $40,000 per day. Q2 represents the 1,300 TEU new buildings that we concluded with a 15-year time charter backed by an operator via the cargo operator and then the clear path visible in Q3 and Q4 with rates coming down significantly from Q1. But nevertheless, we've been able to fix eight ships in total at rates above historical average, which obviously is a positive. Very important for us in 2022 and year-to-date 2023, but also going forward in 2023 and 2024 is the active portfolio management. Again, we will emphasize on returning capital to investors. But at the same time, we look to optimize the fleet structure. In 2022, we have divested eight ships with an average age of 16 years. In addition, we concluded two charter amendments, bringing forward some cash flow while returning the assets on the balance sheet. So the divestments generated a total proceeds of US$241 million. On the investment side of things, we ordered four new buildings and year-to-date acquired two secondhand ships with an average age of 4 – 4.5 years and a total capacity of 19,800. So, overall, we were able to lower the fleet – the fleet age profile and increase the TEU operated once the new buildings are being delivered. Obviously, the secondhand acquisitions that we've done in Q1 2023 are immediately accretive and supportive to mid to long term EPS and DPS.

Also very important to mention is that the total construction and acquisition CapEx for the four new buildings and the two secondhand vessels is US$256 million and which is entirely backed by contracted EBITDA of US$288 million. I think a very important point to mention that the entire projects are being derisked through attached employment. At the same time, we are very much focused on decarbonization. We have invested heavily in CapEx in 2022, making the fleet fit for EEXI and CII. We've been carrying out biofuel trials with some charter partners. We have been executing some retrofit measures in – with joint investments with charterers. So also a positive sign that charters are willing to commit to retrofit together with tonnage owners. And then again, just mentioned the 1,300 TEU dual-fuel methanol powered new buildings that we ordered in 2022 and that are being delivered in 2024, hopefully establishing the first green corridor in Northern Europe.

Looking at the cash development in 2022 and especially just wanted to show the allocation of capital. So based on a healthy charter market and the rates that we've been able to lock in, we've been generating operating cash flow of US$582 million. As just mentioned, we invested heavily in our trading fleet. So there was some CapEx and we paid the first new building installments totaling US$100 million. And on the finance cash flow, again, the focus is twofold here. One is returning capital to investors. So throughout 2022, we've been distributing US$439 million in dividends to investors while at the same time reducing debt on the balance sheet of US$91 million, broad-strokes 70% have been paid off dividends, 15% debt reduction and 15% CapEx for new buildings.

While we focus on portfolio optimization, we obviously don't lose focus on returning capital to shareholders. So wanting to zoom in a bit more detail in what has happened since Q4 2021. So again, overall, year-to-date, we distributed US$537.5 million to shareholders, US$310 million was from recurring dividend, roughly 60%, roughly 40% was event driven dividends. Clear intention going forward is to continue to pay dividends and hence investments in the fleet and the fleet optimization is crucial for the company and for the management. Looking at the share price in early 2022 and taking into account the dividend paid in 2022, this would have been yielded a dividend yield of close to 50%, which obviously, in our view, is very compelling.

On that positive note, hopefully, I'm handing over to Constantin.

[Constantin Baack, Chief Executive Officer]

Thank you, Moritz. I would like to continue with a market update and then continue with a company outlook. Please move to Slide 10 of the presentation. Starting off with some observations from the container freight markets. The graph on the left-hand side shows the key indicators for ocean freight, namely the freight rate index and annual TEU throughput. While freight rates have come down significantly from all-time highs, volumes have basically peaked in 2021, coming slightly down in 2022 and are expected to run flat in 2023 before they are actually expected to bounce back in 2024. Whilst the geopolitical and macroeconomic outlook is not particularly positive with high inflation and high interest rates and we are rather in a global economic downturn scenario, the IMF has recently slightly upgraded its GDP forecast, and there are also first positive signs of relaxation for the latter part of 2023, some of which are depicted on the right-hand side of this slide. Some indicators are actually fairly good at least trending upwards and signaling more positive economic growth perspectives. And for example, in the Eurozone, we see inflation significantly down, and that's following also the trend in the U.S. And we also see certain European commission upgrades, for example, on GDP forecast for 2023. Of course, the sustainability of those trends remain to be seen, but at least there are some more positive signals out there.

Please turn to Page 11 of the presentation where we now look at the S&P market and charter market dynamics in a bit more detail in terms of rates and also secondhand prices and vessel availability. Looking at the chart at the left-hand side, it becomes apparent that S&P prices and charter rates have also come down quite notably from the historic highs seen in end 2021 and early 2022, yet they have recently stabilized. And what we have observed at least kind of a leveling out. And just over the last few days or this first week, we have seen on a week-on-week basically increase in time charter rate indices that have been reported, both from [indiscernible], for example, and some of which can also be evidenced when looking at our most recent charter fixtures, we'll get to that in a bit. And that means, as Moritz has also indicated that we do see increased charter requirements also or in particular also from the large liner operators that have been fairly inactive in Q3, Q4 2022. Over the past few weeks, there has been way more activity in post Chinese New Year, as expected, yet, obviously, it's a positive signal. And now also the indices show at least start to increase in terms of rate levels, and you can see a bit of a flattening out or maybe even bottoming out at this stage.

On the right-hand side of this chart, you can – of this page you can see availability of charter vessels since 2020. And you can see that the overall TEU availability has come down quite notably by more than two thirds. If you compare 2020 with 2021 reasoning, obviously being the fact that during 2020 latter part and certainly 2021, in the first half of 2022, we have seen longer charters being fixed across segments and sizes and therefore the availability of tonnage has somewhat dried out going forward. In addition, what is also interesting to note, and that's illustrated in some of the boxes at the bottom of this slide, bottom right, in particular, and the second right, and that is that we have already observed slower service speeds. Here, we have referred to the Clarks Index, Speed index, which has shown a minus 4% decrease in January 2023 on a year-on-year basis.

What we can confirm is also looking at our very own fleet that we do see service speed reductions up to 10% in certain trades. Obviously, there are definitely differences in regional trade as far as the speed profile is concerned. But what we also believe is that this is not yet based on revised schedules by liner companies but rather on individual orders to go slower. And we believe that the actual effect of revised schedules and port rotations and trades might only be visible throughout 2023. It's obviously too early to draw a firm conclusion from this, but we do expect to see clearer in the next couple of months and quarters. And I certainly expect that we will see more implications from regulation on speed profiles, et cetera.

Furthermore, and that's the bottom right box, where we have shown some figures. It is quite interesting to see, in fact, that we have seen quite a number of new feeder services being opened between October 2022 and February 2023. In fact, it has been 68 new services that have been opened, which compared to the same period the year before, represents around 45% more services. So, there is an increased activity. Also there – it’s probably a bit too early to draw a conclusion what that means. But certainly there are a number of new services being opened and certainly more than at 12 months ago.

Overall, to summarize kind of the macro picture, the freight market picture and also the charter and S&P market picture, it’s quite interesting. In my view to see that in 2022, we have seen a tumbling macro economy. And at the same time, actually, charter rates have held up quite well in the container industry in general, basically seeing record levels. And that means the macro economy has dropped first, while the charter market last year has still remained fairly strong initially and then has followed with quite significant decrease in Q3 and Q4.

What we now see is, I wouldn’t say the opposite, but almost the opposite. The charter market is still moving sideways and starting to increase somewhat and at least there are certain macro signs more for the latter half of this year, obviously that show a rather improving perspective. Of course, the sustainability of this trend remains to be seen especially in light of the current economic downturn. But there are a few, I would say, comforting trends that we have seen recently.

Now, please turn to Page 12 of the presentation where we take a closer look at the order book composition by size, but also by fuel type. Let me start from the left hand side to the right. Basically what we see is here, TEUs on order by different side segments. So on the X axis, you see zero to 4,000 TEU, 4,000 to 8,000 TEU and above 8,000 TEU as far as the order book is concerned. What you can see is that in terms of order book to fleet ratio, the very significant portion of the order book in general and also comparing it to the fleet on the water is the very large ships. And the smaller the ship – the smaller the order book and relative and the absolute terms.

What is also quite interesting is the different colors stacking in the different columns here being global liner carriers, intra-regional carriers, and either non-operating carriers, charter backed i.e., vessels ordered by tonnage providers with the charter attached or without a charter attached. These are the two blue colors parts of the column. And the interesting part there is that if you look at the very large line of the global line of companies, they have basically deployed their capital and have invested into the very large ships. And the smaller segment and even more interesting when we come to the next slide, when we also look at the age profile in that context has been in comparison underbuilt, certainly when you look at the age profile.

And for the global liner companies, if you then also shift to the right hand side with the different pie charts here, you can also see the different fuel types, dual fuel versus conventional fuel order book when you look at the different sizes and segments. And what is visible is that the larger the ship, the more mixed the picture being LNG and methanol dual fuel and engines on the very large ships, why is that. And that is basically because the whole fuel infrastructure is known and can be used on the main lane trades where the very large ships operate.

So the fuel and let’s say propulsion technology question is way easier to answer on the very large ships because the fuel infrastructure is there especially for LNG and supposedly over time also for methanol. The smaller the vessels the fewer kind of or the more vessels with conventional propulsion have been ordered. And we believe that especially looking at the large liner companies, that they will throw their dice over time once there is a clearer picture on the right fuel, on the right trade.

Currently, the smaller vessels are and they will remain the flexible part of the supply offering and the service offering of the liner companies. Therefore, they have not focused on ordering big time. And we believe looking at the age profile, this is extremely important going forward to maintain the same service offering, and we do expect over the next couple of years that there will be more orders in the smaller sizes, which are however looking actually at the age profile also necessary.

And on the note of age profile, let me move to the next slide, Slide 13. And here on the top left, we can see a matrix where we have shown on the Y axis, the order book to fleet in percentage. So just to run through a few numbers, for example, 12,000 TEU to 17,000 TEU. Order book is around 60 to 80, let’s say around 70% of the fleet on the water. And the smaller the vessels, the lower the kind of order book to fleet ratio becomes. And on the X axis, you can see the age profile in terms of percentage of the fleet being above 20 years of age. And as you can see, 3,000 TEU to 6,000 TEU and 1,000 TEU to 3,000 TEU, the intra-regional kind of tonnage that we are involved in is on the very right side.

So we believe the supply and demand dynamics are extremely favorable. If you compare that with the order book and with the kind of current preparedness of the large liner companies in particular, and they could move the needle on the order book to, but only they could move the needle in fact that there is a significant requirement to continue to upsize or to increase the orders over the next three, four, five years. We believe conventional propulsion tonnage like our own existing tonnage is still very well positioned. But there will be more activity in this field going forward. And we believe this is a very positive kind of supply situation when it comes to the smaller vessel sizes.

Now, let me continue with a company outlook on Slide 15 here. And this is illustration that we have used over the quarters – over the past quarters. So basically looking at the backlog what we see here is that for 2023 and the blue columns represent the operating days fixed and open. So for 2023, we have 86% of the days fixed and 14% open, we have, and at the top of the column in the blue circle, we have $576 million in revenues contracted at an average TCE of around $32,000 per day. And we still have 14% of the days open. That obviously goes down over the years to come. So 2024, it’s 57%, and 2025, 23% and so forth. Overall, we look at a revenue backlog of around $1.5 billion and add a projected EBITDA backlog and around $1.1 billion. This is a very robust backlog and we believe that is a very good foundation to continue to return capital to shareholders. But at the same time continue to grow and build the company.

On the next slide, Slide 16, we have looked at the upcoming open positions in 2023. This is the number of vessels, obviously, depending on the charter duration fixed. We might have individual vessels coming open more than once in one year since periods have come down. But this is kind of the snapshot if you look at the number of vessels we have. Since the last update in Q3, for Q3, which was mid-November last year, we have been six ships, four of which were 2023 positions and we have illustrated those at the bottom right, average rate on those pictures where was around $15,500 to $16,000 per day. An average period was six months to eight months worth noting that this goes from 1,200 TEUs up to Baby Panamax 4,300 TEUs.

And what we have observed, in particular with the temporary 2023 fixtures, that is reflecting basically the – significantly increased activity also with one E [ph] and MSC, for example some of the large operators back at the table to take an additional tonnage capacity and worth highlighting that for example, the CPR was also a bit of a forward extension. So I’m not saying we’re back to the same level that we’ve seen in 2022 in terms of forward extensions in Q1 that year. But what we do see is a way more active requirement list of the liner operators and fixtures where we see still solid rates, also rates also in historical context and also period.

Now to the charter backlog, we obviously see currently – and as I’ve stressed in the market section, a development where freight rates have come down. Having said that, the top liner companies in particular, but most of the liner companies in general, operators in general have a very healthy balance sheet, very strong cash positions, basically net cash positions. So nevertheless, looking at our charter backlog, we have around almost three quarters of our revenue backlog with the top 20 liner companies. We have two thirds with the top 10 liner companies, and our backlog spends on average over roughly 2.2 years, which is also in our view, a very good kind of short time span as this from a pure de-risking standpoint, de-risk this backlog very, very quickly. Overall, we are very happy with the counterparty situation.

Now looking at the value proposition and also kind of upside potential of the company, we have looked at the current kind of de-risking of our enterprise value from left to right, net interest bearing debt on net debt basically being in Q4, being around $30 million roughly. We have a market cap of around roughly shade [ph] below $800 million, looking at an enterprise value of $813 million. And if we then, compare that with a projected EBITDA backlog alone we see that there is a significant excess value above the current EV.

And this kind of small de-risking bridge, so to say, does not cater for any residual value upside from the fleet on the water, which is obviously 66 vessels. Yes, and most of them still have charters with the projected EBITDA backlog represents that to some extent. But in any event, we believe that the vessels will have a significant value. And if you look at the glass half empty, that’s probably the recycling value. We certainly don’t look at the glass half empty because we see that every charter that we conclude in this market adds EBITDA to the fleet.

As we’ve just discussed, when we looked at the most recent pictures, and looking at the charter free value of our fleet today according to vessels value, we are around U.S. $952 million to U.S. $1 billion in value. So we see that there is a significant upside potential why the downside is very well protected with the existing contracts.

Looking at some sensitivity, in terms of rate sensitivity, of course, with just a shape below 90% of the day six or 2023, the sensitivity is quite low when you look at the 2023 results for 2024 and 2025 debt increases as can be observed on this graph. When we look at on the top left, operating revenues for 2023, 2024, 2025, according to a certain rate sensitivity as well as net profit.

What we have used here is firstly the current market rates for our vessel basket, which is not much dissimilar to the Clarkson 10-year historical average. And we also looked at the five-year historical average of Clarkson. And we have also looked at what that means in terms of the implied dividend yield, applying our dividend policy. And that means in case of a five-year historical average, you are basically de-risking more than a 100% of the current cap – market cap. And even at current rates or 10-year historical averages, a very significant part would be de-risked over the next three years alone when you look at the implied dividend yield.

And on that note, I would like to hand over to Moritz to run you through some of our balance sheet considerations and the debt profile.

[Moritz Fuhrmann, Chief Financial Officer]

Thank you, Constantin. Since the debt reduction, or let’s call it de-leveraging of our balance sheet is key to us. We wanted to spend some more time on the debt profile going forward. As you can see significant repayments up until the end of 2024. By the end of 2023, we are projected with a gross debt number of 80 million that is roughly 1.5 million per ship in the fleet, which is a very conservative level in our view. At the same time just wanting to illustrate the headroom that we have from a gross debt perspective to the recycling value of the entire fleet, probably not the right measure to use given the fleet age profile.

But just wanted to illustrate how conservatively leverage the balance sheet is. So we will continue on that path certainly. One caveat to make in that respect is probably that if we look at specific projects that have a long – a very long-term cash flow attached, then we are willing to look at higher leverage. And in that connection, we’re happy to report that we secured pre and post-delivery financing for our two 5,500 TEU ships that are being built in Hanjin and Korea. The financing remains subject to documentation. This is being worked on as we speak. But in this instance, we are obviously trying to capitalize the strong charter rate attached to the new buildings to incur slightly higher dept relative to the second hand trading fleet.

Also in this connection and looking at the headroom that we have between the growth stats and the recycling value of the fleet, we’re currently exploring certain measures, so to speak to see if we could implement or put in place certain debt instruments that would be helpful in context of the fleet optimization measures that we are envisaging for 2023 and 2024.

And on that note, I’m handing back to Constantin.

[Constantin Baack, Chief Executive Officer]

Thank you, Moritz. And just to conclude before we open the floor for questions on where we stand and the quick summary and the short outlook as well and where do we stand today. We see continued strong financial and operational performance in 2022, and we expect to continue that in 2023. We look at a very low leverage company industry low leverage, I would argue with more than 50% order fleet being unencumbered, i.e., high flexibility in the balance sheet as also alluded to by Moritz. And we continue to execute our strategy of continuous fleet optimization without compromising on kind of on the dilution of EPS or DPS. We always maintain a very strong focus on doing accretive transactions, as we have shown over the last couple of years when optimizing the fleets or renewing the fleets.

Of course, the charter market has consolidated, but it has consolidated in line with historical averages over the recent months. And we have observed some positive signs, including at least rate wise, a bit of a flattening out, if not bottoming out. In the midterm, we clearly see in particular for the supply side when it comes to the smaller vessels, meaning intra-regional tonnage that we focus on a favorable supply development. We certainly believe that the order book is pretty much geared towards the large shifts and provides for quite a positive trend when we look at our various segment.

And lastly, looking forward with our revenue backlog, we have a very solid visibility when it comes to our earnings for 2023 in any event but even beyond. And with that and our balances structure, we believe we are very well positioned to capture market opportunities as they arise on a selective basis and certainly continue our path of returning capital to investors for the time ahead.

And with that, I would like to hand back to the operator and open the floor for questions.

[Operator]

Thank you. [Operator Instructions] There are currently no phone questions. I will hand back to you for webcast questions.

[Constantin Baack, Chief Executive Officer]

Thank you, operator. There are a few questions through the web. And we – Moritz and I will answer them and go through. And I would like to start with a question of Rodale, which I will read out. Congratulations on another great result, finishing off the best financial year in the history of MPCC. Can you elaborate on the more long-term situation, long-term plan for the company what will be the main priorities in different phases of the business cycle?

Of course, a highly relevant question for the – and as we have done over the last six years, basically, we try to always be very prudent and rational in when we allocate our capital on new projects and when we rather keep our feet still and basically roll out our, in this sense, chartering and portfolio strategy. As we have done last year with a very significant dividend yield, we have faced a clear focus on returning capital to investors. We believe the current backlog is still a very good fundamental to continue to execute on the strategy of returning capital investors yet given and more went through the cash flow bridge for last year, given our ability to not just only pay dividends, but at the same time, deleverage the company further and also make use of opportunities.

We will continue to selectively also optimize the portfolio by buying ships if the risk profile is right. And if we believe like the ones that we bought earlier this year, the secondhand vessels, we believe it will add and be accretive on an EPS and also DPS basis, similarly with the new buildings, we have seen that the new buildings that we have done have been what I would call rational newbuildings, i.e., construction CapEx being fully derisked through the charter that we concluded simultaneously. This deal is obviously not out there in the market on a daily basis. You need to work on them, you need to develop them and we will take selective steps when it comes to potential newbuilds, always being aware of the market environment, of course. So we will continue to act rationally in the different phases of the container markets. We believe we have taken the right steps so far, and we will continue to act rational accordingly, taking very sound capital allocation decisions as we move forward.

There's the second question, talking about supply-demand balance, saying in the report, the future outlook for the supply demand balance shows quite some encouraging outlook for the years to come versus consider the effect of the different environmental regulations coming up. And in brackets, which in the presentation is estimated to decrease effective supply intra-regional trades by around 11%. I guess we did not imply that by the figures that we provided that this will be the active supply impact on all intra-regional trade. We rather – we have rather seen that there are certain trades where there is such an impact already. As I alluded to during the market presentation, we have seen slower speeds through the Clarksons Index on a global scale and very specifically on our fleet on an intra-regional scale. But as I said, we believe this does not yet factor in potential shift or change in schedules and port rotations, et cetera, by the liner companies. Certainly, the two [indiscernible] will also add to at least a less efficient market in our view. It will be interesting to see how that will play out. In general, we certainly believe that the supply side will be affected in a sustainable way, meaning slower speeds in the months and quarters and years ahead.

There is another question, which relates to share buybacks. The company has delivered quite substantially with regards to both recurring and event-driven distributions during the last 12, 13 months. Will there be a shift in company's priorities towards share buybacks once the share premium account is emptied? Of course, that is a highly relevant question as well. We have established the dividend policy early last year, which also gives room for share buyback. We will, of course, continue what is in the best interest of our shareholders if there are certain benefits from acting opportunistically on share buybacks, for example, also on the structured way. And as I have mentioned in previous calls, for the recurring distribution on a quarterly basis, we would potentially rather maintain the dividend structure. But in case of vessel sales, we might also up for share buybacks.

Next question is whether MPCC will rather be a seller or a buyer of vessels in the quarters ahead. I think the market is extremely volatile, and we probably a bit challenging to already today give a key indication for kind of all the quarters ahead. What we have seen, for example, in this quarter for the first quarter in 2023 that we have been both a buyer and a seller of vessels. And I think that boils down to the question of optimizing the portfolio. Optimizing does not necessarily always mean making the fleet younger. It certainly is one aspect of it, but it is also making the fleet fit for what is ahead and that means new regulation, that means certain trades, that means fuel consumption, that means docking cycles, et cetera. So we will constantly seek to improve the portfolio composition and we will act potentially as a buyer and the seller in this market environment. Having said that, if we are on the buying side, we would always maintain a kind of rational approach in terms of not ordering speculative newbuilds. For example, we will always stick to our kind of principles of derisking the investment over a certain period of time or have a solid derisking profile, at least, and that's what we will continue to do.

And then obviously, also covering the next question, which is in relation to our joint venture, which has come down in terms of number of vessels. And there's a question about the future plans on the joint venture, whether there are any plans of buying new or selling vessels, our joint venture partner and is a party that is probably more on the divesting path at present. The joint venture has a lot of history, obviously, because it was one of the first vessels that we bought in this joint venture, and it's not a strategic joint venture as such. And I would rather expect the joint venture to be, I wouldn't say, wound down, but to be reduced in terms of number of vessels than growing. The next question Moritz is probably more for you if you would like to take over this.

[Moritz Fuhrmann, Chief Financial Officer]

Yes. The next question relates to a debt repayment postponement that we announced with the quarterly report. So the report states that in February 2023, the group postponed, the US$50 million repayment of it, US$70 million three revolving credit facility by six months to July 2023. What's the reason for this? Is it linked to the delivery of the new vessels [indiscernible]. Yes, that is correct. It is linked to the acquisition of those two secondhand ships. I think important to mention that looking at the entire balance sheet, there's ample liquidity available. But during Q1, there was a lot of, so to speak, cash events and uncertainty towards the timing of those events. So as conservative as we are, we simply wanted to postpone those with repayment by six months to be on the safe side when it comes to dividend payments, but also the vessel acquisitions.

[Constantin Baack, Chief Executive Officer]

Okay. There's one more question relating to fleet employment overview, the fleet employment overview for Q4 2022 shows in part significantly higher pictures above HARPEX index prices to kind of some of these contract period going into 2025. Are these contracts linked to the HARPEX index? How high is the probability of renegotiations measures are being taken against this? What happens if charters become insolvent if this risk covered? How quickly can the vessels be put into the service of other charterers? And well, of course, the counterparty risk, that's why we spent a slide on it in this market environment with our backlog. Counterparty risk is probably the single most relevant risk when you look at the, let's say, sustainability of our backlog. But as I mentioned, we believe the line of companies, they have never been in better shape in history, right? I mean we have seen very solid years and the past two years we still see, as I mentioned, basically net cash position of most of these.

So in general, we feel very comfortable with the, let's say, financial stability of our counterparts. Now there's kind of a nuance to that question. If I get that right, it's a question of renegotiations and measures are taken against it, obviously, and what happened with charters become insolvent. Obviously, we have a contract and history has shown that these contracts are at least legally extremely stable and extremely reliable. Renegotiations have been seen post COVID, but the liners back then we're in a completely different situation. We have obviously seen some niche players, newcomers to the, let's say, operator markets over the last couple of quarters being a bit under pressure. Having said that, and that's why we spent some time on the various slides for our counterparties. We believe we have a very solid set of counterparties. We do not see any risk, and we haven't been approached on any renegotiation so far. And therefore, we believe the combination of solid counterparties and the contractual relationship makes us very comfortable in terms of counterparty risk.

There's another question to it regarding fleet optimization. The sale of AS Cleopatra has already been completed or about to be according to the fleet employment overview in Q3 2022 presentation AS Cleopatra has a contract until August 2024. What has happened to this contract? Was it part of the deal? Yes, of course, the vessel was sold with the charter attached. That's why we have been able to generate a very attractive price. So the vessel was sold with the charter attached, yielding a very good -- or bringing forward very solid cash flows for us, which have been considered in the event-driven distribution that has been paid out this very day.

There is another question from Christopher Skyer. For the nine vessels coming open in 2023, which have not been chartered out, how is the interest among chargers for these vessels? Is it possible to fix forward the open Q2 and Q3 positions already? And how are you balancing duration versus rate levels when you are renegotiating – when you're negotiating with charters? As I mentioned earlier, the RCP was the first vessel where we were a bit in a more forward fixing mode again, that was, I would say, not unique, but it's not standard to forward fixed vessels in this market. So we basically fix vessels as they roll off charter.

So basically, between 0 and 30 days before the role of charters. And that is the usual market in which we move forward today. So we don't have any specific dialogues. We actually had one or two dialogues on some forward positions recently, but nothing that I would say we can fix tomorrow. And as I mentioned in the presentation, the recharter requirements and the dialogue has increased in activity, but that doesn't mean we can forward fix any open line positions tomorrow. And in terms of balancing duration versus rate levels, of course, that is a combination of things, and obviously, a number of requirements counterparty, and it also means what kind of service do the liners want to operate in these assets. So we basically see some requirements being more on the short-term end of things, two to four months maybe and some are longer. So we would continue to opt for longer, obviously, always looking also at the overall staggered charter portfolio book that we have as a group, but we would look in maximizing our EBITDA at this stage.

Another question relates to alternative fuels. Are you considering the use of rotor ships in the future? Well, I mean, this is obviously something that we look at all kinds of things. Rotor ships are certainly not on the radar at this stage. But we obviously spent quite some time in improving the potential profile of our own ships, but rotor ships is nothing that we would consider at this stage.

There's one more question here. Can you elaborate more on your two acquisitions, especially how you look at the vessels after the expiry of current contracts? What kind of earnings have you assumed on new contracts? Should we expect you to do similar transactions going forward? Well, these vessels, as we have communicated also when we made the announcement and had a few specific features. First of all, very favorable dry-dock position, i.e., no CapEx in the years to come, secondly equipped with scrubbers. We believe the element of scrubbers is very favorable at the moment in the charter market. The benefit for liner customers on those vessels is somewhere between $5,000 and $6,500 per day given the current spread and the trading profile.

The vessels have a very favorable profit sharing arrangement. And we believe that when the rechartering will take place in the future of these vessels, we believe that there is a very high likelihood that we get compensated for the scrubber element. And we believe the scrubber element alone has a very significant upside potential. And at the same time, downside protections and hence a very solid likelihood of the vessels being reach at good rates. That was kind of looking at the overall portfolio. Also measure where we have increased overall TEU size, which we believe will also be favorable going forward. And as I mentioned this scrub element and this slightly younger vintage where the decisive factors. Will we do more deals of that nature? We will see, and if the de-risking is something that works well, then we would consider it. But we are no rush to buy, not to sell vessels. We are in a very comfortable position and we will take it step by step in each case, either being a buyer or seller of vessels in our fleet.

So let’s look at the next question. Hi, Constantin. Referring to the favor of the audible perspective for smaller ships, to what degree do you see this threatened by larger older tonnage possibly moving into MPCC segment as cascading effects when the larger operating segment, the larger new tonnage starts to arrive into the market? I think to look at this picture, it is important to understand how do, for example, intra-regional trades operate. It’s certainly not the largest subtrade when looking at TEU. But in terms of number of vessels, it is the single largest market globally. You have roughly 50% of the number of vessels failed on intra-regional trades. And on these intra-regional trades, you have around 98% of the vessels smaller than 5,000 TEU and that is – has happened over the last 10 years.

So there has been no significant cascading into those trades. Does that mean I would rule that out going forward? I would probably not rule that out. But there are physical and that means draft and port infrastructure restrictions and port side berth lengths restrictions, et cetera, that limit the effect of cascading. So there will never be a perfect cascade down to the very small ships in my book.

And secondly, there are also, let’s say more trade specific and logistical constraints that prevent the perfect cascade from happening. And that is related to port rotation. For example, you cannot maintain the same schedule, especially now with new services being opened of all the new services that are being opened. They are mainly smaller vessels because you would usually always start trades with smaller vessels. So to maintain the same schedule with the larger vessel is basically impossible. And that means there are limits to the perfect cascading, and therefore we believe that there is a certain element of protection as also evidence if you look at the history of the last 10 years, 15 years when it comes to the risk of cascading.

Another question, if you have $440 million in EBITDA this year, do you think MPCC will give a 30% dividend for financial year 2022? What about 2024 or at least answer for 2023? I must confess, I don’t really understand the question. I think someone mixed out the numbers here. What can be said, and I mean we have that on all the various slides, is that, for example, Slide 8 where we have illustrated the dividend use, we have illustrated the mess behind that dividend yield. So the reference data point is the stock price first of January, 2022. And then looking at all the dividends that have been paid and or declared, that gives a dividend yield of 47%. And we have shown a sensitivity as part of the slide. If you look at what was that slide, I think that was Slide 19 where we looked at the sensitivity.

We of course don’t give a dividend yield guidance. What we give is context in terms of what would be the implied yield at certain rate assumptions applying the dividend policy of the company. And that is a visible on Slide 19. So I would refer to that various slides and then actually illustrates the potential sensitivity for 2023, 2024, and 2025. So I think that should answer the question.

And there’s another question on your illustration of HARPEX and second hand values on Slide 11. There’s a great mismatch between those two indexes earlier, they kind of followed each other more closely, but now there’s a gap between the second hand price and the charter rate. What are your thoughts on vessel values going forward, especially with the fact that the free growth in your segment is very low?

First of all, there is a gap and that gap has narrowed between let’s say second half of 2021 and first part of 2022, where we have seen also longer periods on the charter market. So determining an asset value was basically three years EBITDA, which was three years contract that you could achieve at that point in time plus gap, and that was also reflected by the second hand price. So that gap closed. Now, we are obviously back to a more shorter period market and therefore the gap wideness, as you will also see if you look at that chart for the period prior to January 2021 for example, where the gap was in general slightly wider. And that obviously reflects the high uncertainty in the earnings when you have shorter charter periods. So I guess that is should serve as part of the answer in in any event. I personally believe that the S&P prices should also follow somewhat the dynamics in the charter market, meaning if there’s a flattening out, bottoming out, I would expect that we will also see no significant further drop in second hand prices.

Then next question. So I think your company has the most value, and that is why you are capable to give us [indiscernible] dividends for this quarter, which is 8% dividend in one quarter. Why are you so undervalued at a 2.2 PE and with EBITDA backlog? So huge was enterprise value, and you still have 900 million or so of ships with pre charter. Why is the market so blind to your value? You should be at two times higher price. Do you agree? Obviously, we strongly believe that there are significant value potential and value upside while there’s a significant low downside risk when you look at our company, and that’s what we have also explained during the presentation. I think the issue here is that investors in the market looks at sectors and obviously the container sector has seen very difficult years between 2008 and basically 2021.

So very long period of difficult markets. We have seen the best container market in history in 2021 and part of 2022. And I think now it’s fighting a sentiment what it’s worth highlighting, and we continue to stress that not every company operating in the container market is the same. In terms of risk profile, in terms of upside, in terms of valuation and downside protection. Therefore, I strongly agree that there is a significant value upside when you look at our company. Not only, compared to other market values us, but also compared to other market participants. We have – I would say, a very simple valuation metrics we have locked in cash flows. So you would need to look at counterparty risk. We have a fleet that will have a value at the end of each charter. We believe that might have a significant value at the end of the charter. So we also agree that there’s a significant upside in the valuation of the company.

There’s another question about our rates. Why do you expect the charter rates to increase from 2024 onwards? Again, I think we, as I mentioned, we have not stated that charter rates will increase. I do believe that charter rates will stabilize and will come back because I believe that over the past years ahead of the COVID crisis, let’s say ahead of 2020, the cost of transportation was not reflected in the charter rates. And I believe cost of transportation will continue to increase and so do charter rates. I do believe that and referring to the various comments on the supply side, that we will continue to see a favorable supply side in particular on the smaller sizes. And of course, the demand side plays an important role and to predict the demand side is a bit of a crystal ball question, but it is certainly linked to also the macroeconomic development, which at least we believe will continue to rebalance in 2024 in line with expected GDP development.

So on the back of that, I think there will be more nuanced view on charter rates and that is why we believe there will be rebalancing also charter rates, and we can already today see the bottoming out or at least flattening out of charter rates as what is still above historical average levels. The next one I hand over to Moritz.

[Moritz Fuhrmann, Chief Financial Officer]

Yes, thank you. Next question is threefold. Number one, how is it looking for cost control inflation? Number two, will more ships be sold? And number three, what’s the average age of the MPCCP [ph]? For number one, there’s obviously probably also referring to the OpEx in Q4 where we have seen some inflated numbers relative to Q3, but also relative to full year and last year. It’s important to mention that there have been some one-off effects relating to COVID travel restrictions. I mean, COVID is almost over in the western part of the world, but in the eastern part of the world, especially in Asia, you still have COVID restrictions that are trickling down into higher OpEx. But our expectation is that this is the – that this is phasing out in 2023 and 2024. So our expectation is that [indiscernible] cost is coming down. Otherwise inflation is already baked in into the OpEx budget for next year, especially in terms of lube oils and other line items.

Number two, I think it’s fair to say that that we will be acting opportunistically. So again, referring to the peak optimization that we’ve talked about a lot today, we might be selling ships, we might be acquiring ships, but there’s no vessels in the fleet that are earmarked for a specific sale date in 2023 especially given where the charter market is currently heading, it’s certainly more valuable for the company to keep vessels trading in the fleet despite their age. And handing over to number three, with that sentence the current average age of the MPCCP that’s around 15.5 years, but that is excluding the new buildings that have been delivered in 2024.

[Constantin Baack, Chief Executive Officer]

There’s another question on sailing pattern. Do you see changes in sailing patterns as we see within dry bulk and tankers having an influence on your business? That’s the first part of the question. The second part is, and major relocations of the fleet to new routes and of geographies. As I mentioned before, what we have seen is quite a number of new feeder services being opened between October last year and February this year, 68 in total, which is a significant increase compared to a prior year figure similar period. So what we do see is that, especially with kind of a slightly different market environment now also, lower earnings or lower freight rates for the liner companies that we see more and more services being tested, is that potentially a reflection of relocation of production, and in the end, some of the shippers or basically the producing companies to relocate production to be more resilient in their supply chain.

We have seen certain trends with significant increase in volumes out of Vietnam, for example, and already with trade war in 2019. And obviously the whole COVID disruption of supply chains of various industries and companies that has added to that. So we do see a bit of a trend to relocation of production. And is that a trend where I could already draw a conclusion and provide clear numbers. I guess that is slightly premature.; But we do see certain trends to that effect, and I think the number of new feeder services I mentioned also in our call is proof to that. There’s another question. Right now, if dividend are classed as return of capital, how much longer do you suppose can this last before return of capital is not longer feasible?

And that is basically a similar question than the question around making use of the share premium account. So we have, I think around 230 million before ahead of the upcoming dividend around 200 million, 230 million in capacity left in the share premium account. But we will obviously, as I mentioned before, consider ways to make the best and more sufficient structure to return capital to investors, potentially including also an element of share buyback. However, this is premature as we still have enough capacity left for the time being.

So there is another question around private takeover similar to Atco [ph]. Well, I guess time will tell. I think given the fact that we are significantly undervalued, this will be a costly exercise for whomever would want to do that. So I think this is a very special question which at this stage, I would not, I mean, we haven’t been approached at least to put it that way. Is there any more question? I think operator, is there any questions through the line? I think we went through all the questions through the web at this stage.

[Operator]

There are no phone questions, sir.

[Constantin Baack, Chief Executive Officer]

Okay. Then let’s wait a couple of more seconds to see whether anything else is coming in. We obviously already have 70 minutes. Okay. There are no further questions. Operator, I would hand back to you to conclude the call and thanks everyone for the interest and for participating and we are excited about 2023. And there’s certainly more to come from MPCC. And again, thanks for your participation.