MPC Container Ships ASA

OSE:MPCC

Earnings Call Analysis

MPC Container Ships Reports Solid Q4 and 2023

MPC Container Ships has delivered solid performance for the fourth quarter and the entirety of 2023 in a challenging market, with high fleet utilization and adherence to low leverage strategy at 13%. The company has focused on sustainability efforts and rewarded shareholders with high dividend yields, declaring $0.13 per share for Q4 and distributing $790 million since 2022, covering more than 50% of market cap. Total dividends for ‘23 represent over 40% yield, maintaining an unchanged cash position despite significant outflows and adding a new $100 million credit facility, testifying to prudent financial management and growth potential.

Economic Context and Global Growth Prospects

The macroeconomic outlook sets a muted tone for growth, with the global GDP forecast being slightly revised up by 0.1-0.2 for 2023 and 2024 due to a robust U.S. economy and support in China. However, growth rates remain below the historical average of 3.8%, as higher interest rates and debt burdens are expected to weigh on the economy in 2024. World trade growth projections stand at 3.3% for 2024 and 3.6% for 2025, also lower than the historical figures around 4.5% to 5%.

Strategic Fleet Optimization and Shareholder Returns

The company is strategically streamlining its fleet from 66 vessels in 2021 to 60 vessels, boosting the eco-friendliness of its fleet through significant retrofits, acquisitions, and newbuildings. This fleet optimization is coupled with vigorous returns to investors, having paid nearly $800 million in dividends over the last two years. On the balance sheet front, they have pushed the leverage ratio low at 13%, bolstered by more than 50% of their fleet being debt-free and a fresh $100 million revolving credit facility, creating high financial flexibility.

Comprehensive Investment in Fleet Renewal and Performance Backlog

The company has committed around $400 million to fleet renewal, including $265 million on 5 new eco-efficient vessels with attached long-term charters, and roughly $150 million on secondhand eco-vessels. These measures are expected to yield about 30% savings compared to conventional vessels. About 18 vessels are undergoing retrofits, further enhancing fleet competitiveness. The company boasts a high revenue backlog of around $1 billion with an EBITDA backlog of $700 million, translating into high certainty in revenues and profitability for the next years, with 78% of 2024's trading days already fixed and a promising rate for 2025 at 36% coverage.

Protecting Value and Dividend Policy

Enterprise value is fortified by current contracts and the fleet's value, estimated around $830 million, significantly exceeding the net interest-bearing debt and market cap. The company performs a sensitivity analysis based on historical and current market rates, which indicates potential growth trajectories for the upcoming years. Their dividend policy stands firm, distributing 75% of the adjusted net profit quarterly, forecasting a strong dividend yield for 2024 and 2025.

Financial Guidance amid Market Volatility

The company's performance in 2023 was commendable with lucrative financial and operational results. Moving forward, despite market volatility, primarily due to uncertainties like the Red Sea crisis, the robust revenue backlog positions them comfortably for 2024. They are aiming for a greenhouse gas emission intensity reduction of 35.5% by 2030, aligning with IMO targets. For 2024, they project revenues between $435 million to $470 million and an EBITDA of $240 million to $280 million, reflecting cautious optimism in a changing market landscape.

Capital Expenditure Projections and Dividend Distribution

CapEx figures for 2024 are estimated to range between $55 million to $65 million for drydocking and retrofitting. There's an additional running CapEx through operational expenses estimated around $20 million. Furthermore, $165 million in installments for the newbuilding program is due in 2024, with the majority already secured through European bank financing. The distribution of dividends will abide by the established policy of 75% of adjusted net profits and will not be made as a return of capital due to the depletion of the share premium account.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to MPC Container Ships' Q4 2023 Earnings Call. [Operator Instructions] This call is being recorded. I'll now turn the call over to the speakers. Please begin.

[Constantin Baack, executive]

Thank you, operator. Good afternoon and good morning, everyone. This is Constantin Baack, CEO of MPC Container Ships, and I'm joined by our CFO, Moritz Fuhrmann. I would like to welcome you to our Q4 2023 earnings call. Thank you for joining us today to discuss MPC Container Ships' fourth quarter earnings.This morning, we have issued a stock market announcement covering MPCC's fourth quarter and full year results for the period ending December 31, 2023. The release as well as the accompanying presentation for this conference call are available on the Investor Media section of our website. Please note and be advised that the material provided and our discussion today contain forward-looking statements and indicative figures. Actual results may differ materially from those stated or implied by forward-looking statements due to the risks and uncertainties associated with our business.Before we start with today's presentation, a few words from my side reflecting on the fourth quarter and the full year 2023. We are pleased to report another solid performance and very robust financials today. The results underscore MPC Containership's continued progress, resilience and ability to maintain operational excellence in a volatile market environment with modest growth and geopolitical challenges.Fleet utilization remained high and we continued to adhere to our low leverage strategy with a leverage of 13% and a high number of vessels debt free. Throughout 2023, MPCC has emphasized sustainability initiatives, working closely with our charter customers to conclude mutual projects and investments with an aim to reduce carbon emissions and foster a more environmental friendly maritime landscape.MPCC recently set new greenhouse gas emissions intensity reduction targets in line with the IMO's industry carbon intensity targets, demonstrating our dedication to decreased emissions, while we remain also strongly committed to our low leverage strategy and distribution policy.Another key feature of our performance is our commitment to shareholder returns, including the dividend declared for the fourth quarter. Our total dividends distributed and declared over the last 12 months amount to approximately $350 million, representing more than 50% of the company's market cap at the beginning of 2023. Looking ahead, our charter backlog remains robust, providing us with significant earnings visibility and reinforces our confidence going forward.With that said, I would like to hand over to my colleague and CFO, Moritz Fuhrmann, who will guide us through the first agenda point.

[Moritz Fuhrmann, executive]

Thank you, Constantin. Turning to the first agenda point, as just mentioned, being the full year '23 highlights. We have posted in our view a very strong full year financial figures with $711 million in gross revenues and close to $430 million in adjusted EBITDA. We as a company have distributed $0.64 per share, leading to a dividend yield in '23 of more than 40% and 10% already implied in '24 as the dividend just announced by the Board.While returning capital to shareholders, we have continued to delever the balance sheet with a current leverage ratio of 13%, which arguably is industry low from a container company perspective. On the asset side, we have continuously worked on our fleet optimization as we went through '23 and as we have divested 13 older vessels and acquired 7 younger ships.From a market perspective, the container markets have seen a recent uplift fueled by the geopolitical events in the Middle East. However, it remains to be seen, though, how sustainable the entire situation is.When turning to the next slide and looking at some of the fourth quarter '23 KPIs, the quarterly financial performance is more or less in line with the previous quarters when adjusting for certain nonrecurring items. In Q4, MPCC has taken further impairments on the fleet as well as CapEx write-offs in the tune of $41 million. Those effects have been normalized from a dividend calculation, and consequently, the Board declared another dividend of $0.13 per share.From a cash flow generation perspective, the performance remains strong. And as mentioned before, debt has been reduced further, now standing at $4 million in net debt and with a low leverage ratio of 13%. Operationally, the fleet remains well employed with an average TCE of close to $27,500 per day for Q4, and at the same time, fleet utilization remains high with 98%, being again a testament to the operational performance of our fleet.Talking about operations and turning to the next slide. In '23, we as a company have planned retrofit investments of a total of $23 million across a number of vessels, leading up to 20% improvements from an emission perspective. And some of those retrofits are actually combined with an early charter extension as well as cost-sharing arrangements with the respective operator.On the newbuilding side, we announced earlier this year the investment into one additional newbuild, being a 1,300 TEU that comes with a 7-year time charter with Unifeeder, being one of the largest feed operator globally. The vessel itself will be owned in a joint venture structure together with the operator. And I think most importantly, this investment is in line with previous newbuilding deals that we have done as this investment is also fully covered through the contracted EBITDA.When it comes to the geopolitical situation in the Middle East and the Red Sea in particular and a view of crew safety, MPCC vessels discontinued transmitting through the Red Sea, and as of today, we have no exposure to the geopolitical events going on in the Middle East.Turning to the next slide and looking at our portfolio. We have seen a short-term strengthening in the time charter market, and consequently, managed to fix a number of vessels at relatively attractive rates, but also a decent duration, up to 12 months. The most recent pictures we can report were around $16,500 per day for a 2,800 TEU and close to $18,500 per day for a 3,500 TEU.In addition, we have agreed early time charter extensions, as mentioned before, with rate blendings as well as early extensions in combination with retrofit investments. In those particular instances, MPCC agreed a floor ceiling structure with upside sharing for the extension period, especially with one particular customer.On the S&P side, we have successfully handed over the vessels AS ROMINA and AS PAULINA since we announced the sale late '23. And in addition, we have agreed the sale of AS CLARITA for $10.3 million with drydock due delivery in Q2 or Q3, and hence, managing some of our CapEx positions in 2024.Looking at the cash development on the next slide. Again, a very strong operational performance of $532 million in operations cash flow, setting the base for the debt reduction, vessel investments as well as significant dividend payouts in '23. The cash position remained almost unchanged relative to last year despite significant investments, debt reduction and dividends. The cash development is in our view a testament to our ability in managing fleet renewal as well as shareholder return while maintaining a low leverage.In addition, at the end of '23, we have added a new revolving credit facility, which remains undrawn as of today and gives us as a company additional capacity in the tune of USD 100 million.Turning to the next slide, which is the dividend slide, and a fantastic graph to show. Again, a continued strong dividend performance as the Board declared another recurring dividend of $0.13 to be distributed in March; full year '23 dividend yields of more than 40%, which is more or less in line with 2022; and the year-to-date yield of 10% already basis the January share price. This brings the total distributions to shareholders to $790 million since we embarked on our dividend journey in early 2022.And on that positive note, I'm handing over to Constantin for some market updates.

[Constantin Baack, executive]

Thank you, Moritz. I would now like to run you through the market section of the presentation. So please turn to Slide 11. Before we cover some more specific container market parameters, I would like to start with a global perspective and looking at the global economy and some related macro topics.On this slide, on the left-hand side, you can see a graph looking at GDP growth historically and expectations going forward. Global growth forecasts have recently been revised slightly upwards by 0.1 and 0.2 in 2023 and 2024 on the back of a robust U.S. economy and fiscal support in China. Still growth rates remain below the historical averages. And we're looking here on the left-hand side, the dotted line, 2019, which is around 3.8% as interest rates and high debt are expected to weigh in on growth in 2024.On the right-hand side, you can see a graph looking at world trade and consumer prices, the red line being the world consumer prices and the blue line being world trade volume. World trade growth is projected at 3.3% in 2024 and 3.6% in 2025, below the historical averages, which are more in the vicinity of 4.5% to 5%. And elements holding back world trade are rising trade distortions and certainly also geopolitical uncertainty.At the same time, global inflation is falling faster than expected. And overall, the macro picture provides a somewhat slightly more stable outlook going forward, but it is, as I said, below historical averages. And yet, we continue to face quite a few macroeconomic and geopolitical risks that potentially affect the picture going forward.Now please turn to the next page, where we now move in a bit more detail into the container shipping markets, specifically the freight market and the charter and S&P market. Let's start with the freight market. On the left-hand side, as you can see, volumes in terms of annual seaborne trade are up, and spot rates have recently gone up as well, mainly driven by the ongoing Red Sea disruptions, and spot rates are significantly above historical averages today. Long-term rates do not show such a strong response yet as some of the shippers remain reluctant to agree on higher rates. And how this will turn out remains to be seen and we will have to wait the next couple of weeks and months.The chart on the right-hand side shows charter rates and secondhand prices. The steep upward trend corresponding to the freight rate development can be observed. But not only have charter rates improved significantly, the Harpex index has risen by 30% since the beginning of the year. But at the same time, charter durations are also following with vessels recently chartered out for longer periods, which we have now also seen on our fleet, as Moritz has alluded to earlier.Secondhand prices moved sideways most of last year. But since February 2024, secondhand prices also responded to the strong charter market. And you can see that here on this slide as well that secondhand price index has also gone up. Looking at the idle fleet, not illustrated here, but always a very important indicator when looking at charter rates and values. We have basically seen vessel inactivity peaking at 6.4% at the end of February 2023 and throughout the year, with a bit of up and down. That has gradually declined. And today, we're looking at an idle fleet of below 1% by end of January, which is obviously representing a very, very tight market and understandable given the increased demand due to the Red Sea disruptions.Now please turn to the next page, where we now move into further details in terms of market fundamentals and especially the supply-demand situation. On the left-hand side, here, you can see the development of demand and supply growth over the years. The blue line reflects the supply growth and the red line the demand growth. If the net fleet growth projections are combined with the growth projections of container trade, it becomes obvious that the huge order book combined with subdued demolitions and record deliveries this year could lead to an oversupply in the market.Even though total demand growth is expected to recover from 2024 onwards, it will most likely be offset by relatively strong total net fleet growth. Hence, the supply-demand gap could be relatively huge this year. The wildcard in this respect is the duration of the Houthi attacks on merchant shipping.In the current quarter of 2024, the effects of the macro -- market disruptions are already quite evident as we have explained throughout the presentation. Should the attacks continue to force merchant vessels to take a detour around the Cape of Good Hope for longer in 2024, the market fundamentals could prove to be more balanced than initially expected. However, this remains to be seen and is certainly nothing that we base our business decisions on.On the right-hand side, you see the heat map that we basically show every quarter, where we look at the fleet that is above 20 years of age on the x-axis by TEU cluster and the ratio order book to fleet on the y-axis. As you can see, we believe there's a particular interesting pattern when you -- and structure in the fleet when you look at the smaller vessel sizes going forward.Now please turn to the next page, where we move into more detail into the Red Sea situation and its implications on the market and on our business. I would like to start with some headlines. First of all, roughly around 10% of global seaborne trade volumes pass through the Suez Canal and around 30% of global container trade volumes actually pass through the Suez Canal. Those are 2 figures that already show that it is a very crucial sea passage through that canal for worldwide container shipping.Now let's look at this slide in a bit more detail. The left graph shows the Red Sea area and the implications of diversions around the Cape of Good Hope, and the right graph shows only the physical vessel transitions through the Suez Canal. Latest assessments from Clarksons are that around 620 vessels are being diverted, leading to an additional TEU demand, ton-mile demand of 10% to 12%, which is extremely sizable looking at the overall market.Obviously, the big question is the longevity of the situation, which remains unclear. And as I said, certainly nothing that we base our business decision on. However, we are already seeing, as we mentioned before, a significant uptick in demand for vessels, partly a reshuffling of service offerings. And we, at this stage, cannot rule out that the situation might last for a bit longer.Some of the facts at the bottom right of the page, implication that we've seen on freight rates, on charter rates, on asset prices and certainly on additional TEU demand. So there is quite a significant impact from the situation on the market as we speak today.I would like to now turn to the company outlook section. So please turn to Slide 16 that is, I would say -- please -- or 15. Please move on. I would like to start with a short strategic brief looking at our strategic priorities today. It's basically -- the key focuses are threefold. It's the portfolio operations, it's balance sheet management and capital allocation. When looking at portfolio and operations, it certainly is, as Moritz has alluded to as well, optimizing the fleet, potentially continuing to sell some older vessels, bring in some newer vessels on a selective basis, and thereby, then create value down the road for the company without compromising obviously on our priority that I'll get to in a minute, and that is returning capital to shareholders.We are very excited about the operational performance of our vessels over the last couple of years, and we continue to, at the same time, also reduce the fleet's carbon footprint through investments in new technologies, new vessels, retrofits, et cetera.Another priority is our balance sheet management or how do we deal with risks and opportunities in the market. We have taken a number of measures over the last years to create a significant flexibility in the balance sheet, and at the same time, reduce leverage.In a world that is currently characterized by quite some geopolitical volatility and macroeconomic risks and opportunities for that matter, we believe it is the right approach to operate with a very rock-solid balance sheet, and we will continue to do that going forward. We believe that is the foundation for executing on our strategy.And lastly, but certainly not least, the capital allocation. [ No ] question we are finding in our view a good balance between replacing ships, investing in our existing vessels, and hence, providing the company and its shareholders with a very solid fundament going forward from a value perspective. And at the same time, returning significant capital to investors and reducing debt for that matter to operate on a very, very low risk profile. So these are the 3 key elements for our strategy going forward, and we believe this will be the fundamental to create further shareholder value.So let's look at some figures and some key parameters on how we shaped and positioned the company over time. And we believe that can be quite well described by looking at some key parameters over time. This is basically representing some of the points that I've just mentioned on the previous slide. Looking from top to bottom and starting with the fleet composition. And we have here compared the end of 2021 with end of 2023. Looking at the number of vessels, 66. We have slightly shrunken the fleet to 60 vessels. We have increased the eco portion of our fleet by either doing significant retrofits or committing to significant retrofits, buying eco vessels and/or entering into newbuilding transactions. So we have been and we are in process of optimizing our fleet profile.Secondly, distributions. We have over the last 2 years and a bit paid almost $800 million in dividends, underscoring our commitment to returning capital to investors. And the same applies to our leverage ratio, which is the next 2 bars here, where, as I mentioned before, we have created a very high flexibility in our balance sheet. We have a new undrawn USD 100 million RCF facility, as Moritz has mentioned. And we have way more than 50% of our fleet debt free at this stage.At the same time, we operate on a low leverage ratio, 13% only. And we believe the combination of low leverage and high capacity and flexibility in the balance sheet is key in these times. And to sum up the different elements on this slide, I think it shows that you can repay debt significantly, attain a very high flexibility on the balance sheet, and at the same time, renew your fleet and pay out significant dividends. And we will going forward also balance between those elements going forward.So please turn to the next slide, where we talk in a bit more detail on the fleet renewal strategy that we have executed. On the left-hand side, you see vessel sales versus acquisitions for the years 2022 and 2023. We have sold 20 vessels. We have acquired 12 vessels. We have sold those 20 vessels at an average age of 17 years. At the same time, we have bought modern vessels or newbuilds with an average age of 4 years considering newbuilds at a year of 0 basically for that statistics.We have slightly upsized the average TEU, i.e., we have not just sold older vessels, but also relatively smaller vessels compared to the ones that we have taken in. And an interesting element is the total days available, and that is obviously a reflection of having sold older vessels. So despite having net sold 8 vessels, we are basically gaining 30,000 additional days compared to maintaining the old ships. So we believe this strategically is a very a solid move and provides us with -- and our investors with further runway, further opportunity to gain from the market developments going forward.Now more specifically on the fleet renewal and optimization investments. And Mortiz alluded to some of these aspects earlier. There are basically 3 pillars. And overall, we have committed an investment volume of more than $400 million or around $400 million on newbuildings, secondhand vessels and retrofits, again, underscoring our commitment to executing the fleet renewal exercise.We have ordered in total 5 newbuildings, 2 5,500 TEUs and 3 dual-fuel 1,300 TEUs, all of which come with charters attached. So the total CapEx -- construction CapEx of roughly $265 million is fully derisked by contracted EBITDA through contracts that come along with these newbuildings of more than $285 million. And those contracts are 7 and 15 years, respectively. So rational newbuilds, how we call it, we execute on that strategy, and we will be, going forward, selective when looking at these kind of deals.On the secondhand part, we have also invested roughly $150 million in new secondhand eco-vessels, a series of 5 vessels, which allow us roughly 30% savings compared to similar conventional vessels.And lastly, but certainly not least, and Moritz also mentioned that aspect, a significant retrofitting program with retrofits across our fleet, around 18 vessels being involved. And it includes hydrodynamic optimizations of the new propellers, alternative power and various energy-saving measures. We believe this will make our fleet competitive; this will make our company competitive. And we believe this fleet renewal strategy is a well-balanced exercise to create value going forward.When we move to the next slide, we can look at the backlog in a format that we have presented over the years. We are obviously now looking ahead from -- on 2024 and the following years. What you can see, that we are presently looking at a revenue backlog of around $1 billion. And then projected EBITDA backlog based on the calculation -- for details please refer to the appendix and the footnotes -- of around $700 million. And you can see for each year, respectively, the contracted revenue backlog accordingly.Looking at 2024 specifically. Available trading days, we have around 78% of the days fixed, we have around 22% of the days open, which means we have a very high visibility on earnings for 2024 already in a market that is potentially seeing some volatility towards the latter half of this year. 2025, we have also been able to ramp up our positions there by executing a few charter extensions, forward extensions, as Moritz has mentioned. And we're now looking at 36% of the days covered at a very attractive charter rate of above 28,000. And beyond, we even have some coverage for 2026 and 2027, obviously linked to our newbuilding program.Let me now move on to the next slide, where we are showing on the left-hand side kind of how our enterprise value is protected through the fleet and the locked-in contracts. From left to right, we look at the net interest-bearing debt as per end of this year. The market cap of the company arriving at the enterprise value, compare that with a projected EBITDA backlog. The net sales that have not yet been concluded. That gives us already an excess value above the current EV, meaning we are already covered through the projected EBITDA backlog. And on top of that comes the fleet value. We have here for illustrative purposes looked at the fleet value as per vessels value of around $830 million, providing a very significant upside potential.Now on the right-hand side, we have looked at open rate sensitivity basically coming from the open day, fixed day logic that I just ran you through on the previous slide, and then look at 10-year historical average rates for our fleet basket or current market rates for our fleet basket for the open days. And that gives you an idea of where we end in terms of potential operating revenues and net profit. Please note that this is an illustrative sensitivity analysis only, but it gives you an idea of the developments for the company potentially for '24 and '25.At the bottom right, you see what that means in terms of implied dividend yield, applying our dividend policy of 75% of adjusted net profit being paid out. So we are looking at a very solid dividend yield for 2024 and certainly also for 2025 on that basis.Now let me conclude this presentation on the next slide with some summarizing comments and a bit of an outlook. So we are -- we believe it was a fantastic year 2023 for MPC Container Ships with positive financial and operational performance and a few measures that have further optimized our balance sheet. And we will continue and have already continued with the execution of our fleet renewal strategy. This will create value going forward. We firmly believe in that. We will do that selectively and only where it is accretive and is rational to do so. But we do see, given our market position, opportunities that contribute to this.The container market improvement towards end of last year and certainly early this year is driven by the Red Sea crisis. The longevity of that situation remains to be seen. But for the time being, we have been able to capture that -- the benefits from that by chartering out vessels at elevated rates and improved periods. The revenue backlog, as I mentioned, of $1 billion and the contract coverage of almost 80% of available days for next year make us comfortable looking into -- looking at 2024 and beyond.And finally and importantly, we are also targeting well-to-wake greenhouse gas emission intensity reductions of 35.5% by 2030 from the 2022 baseline and to net zero by 2050, in line with the IMO's carbon intensity targets. We'll elaborate on that in more detail when we release our ESG report next month.And finally, we are providing financial guidance for next year. As we mentioned, the market is volatile. The second half of 2024 might see a different situation in the Red Sea. In which case, there might be some more market volatility, lower charter rates, et cetera. So we have taken a stance to factor that into our guidance. We see revenues of $435 million to $470 million potentially depending on market developments and an EBITDA of $240 million to $280 million.And on that note, I'm happy to conclude today's presentation and would like to hand back to the operator. And I thank you for your attention so far. Back to you, operator.

[Operator]

[Operator Instructions] As no one has lined up for questions on this call, I'll hand it back to the speakers for any written questions online.

[Moritz Fuhrmann, executive]

Thank you, operator. There's a few questions through the web, and we will go through them one-by-one. Starting at the top, a dividend question. Will the distribution be made as a return of capital? Or this is no longer a share premium account to be paid out? If returns of capital are no longer possible, will there be a Norwegian withholding tax for many investors?The share premium account has been depleted in the first half of last year already. And to the second part of the question, it obviously depends on the jurisdiction from which you invest in -- investing into the stock, to answer the question on withholding tax.The next question has been submitted in Norwegian. Translated, it is, will dividends be paid in the current year every quarter?On this question, I can only refer to our dividend policy to which we stick obviously, which is that we are distributing 75% of adjusted net profits on a quarterly basis.Question #3 is of operational nature. What is your expected average utilization and TCE for 2026?I think normally we would say past performance is not an indicator of future guidance or estimates. But on the utilization, I can only refer you to what we have been posting historically, which is the utilization between 95% and 100%. And when it comes to TCE, it's even more difficult because we don't have a crystal ball. So it's very hard to predict any markets beyond 6 months, I would say. So very hard to say anything on time charter rates for 2026.The next question is, could you please share the expected operating and growth CapEx figures for 2024?Yes, looking at the CapEx program for MPCC in '24, when it comes to drydocking expenditures as well as retrofit expenditures, we're moving in the region of USD 55 million to USD 65 million. And then there's also a running CapEx element through the OpEx, which is in the tune of around $20 million. And on top, we have obviously also our newbuilding program. So the outstanding installments in 2024 is around $165 million, of which, obviously, the majority has already secured financing from European banks.

[Constantin Baack, executive]

Okay. I'm happy to take the next one. There is a question regarding older vessels, specifically how many older vessels from the current fleet are subject to sale should a good deal be available? Do we have a cut off age for vessels?Let's start with the latter part of the question first. We don't have a cut off age for vessels. In fact, as alluded to during the presentation, we will carry out quite a significant retrofit program, which in our view will actually prolong the useful life of certain vessels that are subject to these retrofits. And we have done that to a large extent hand in glove with our chartering partners, meaning have secured deployment against such retrofits.We do believe that the improvements of up to 20% from an efficiency standpoint can be achieved. And therefore, I think it's more the type of vessel, the status of the vessel that is relevant and status means technical condition, is the vessel retrofitted or not? Is it already equal or semi-equal? So those aspects play a key role. So, there's no age cutoff to the second part of the question.To the first part of the question, of course, and we have shown that we will make use of opportunities. Of course, we would consider additional sales of nonstrategic or, let's say, less efficient vessels as part of our general fleet renewal strategy. Again, as alluded to during the presentation, we will not rush into it, but we will, over time, renew the fleet. And as explained, we have sold 20 ships over the last 2 years, bought 12, have added on a net-basis available days, i.e., have rejuvenated the fleet quite significantly, and we will continue that path.And that does include sales. And certainly -- and we have just today announced the sale of AS Lauretta. So there -- once there are sale opportunities at a good price and where we can potentially also reduce the CapEx exposure, meaning cash outflows linked to dockings, et cetera, like is the case in case of AS Lauretta, we will definitely consider that. And hence, the sale of older vessels is certainly on the agenda, but we are not in a rush. We will do that selectively just as we do acquisitions.Next question, Moritz, you want to take that?

[Moritz Fuhrmann, executive]

Yes. How many ships are going to dry docking in the near future and how does it impact the company financially? So, for 2024, we have 21 dry dockings scheduled. Obviously, it comes at a cost, and the cost varies a bit between geographical locations, whether you have to dry dock the vessel in the Far East being China or in Europe than probably being Turkey. So obviously, there's a cash outflow from dry docking the ships. And I mentioned some numbers earlier in the call when it comes to both the dry-docking expenditure, the expected dry-docking expenditure, I should say, plus retrofit investments into our vessels.Next question. Do you think about repaid debt down to 0? If I look at the balance sheet today, from a net debt perspective, we are already close to 0. However, mentioning the CapEx, again, going forward with the new buildings being delivered, which have financing secured, we will obviously incur at least in '24 a bit higher leverage. Important to note, this is only against 4 ships out of a total of a fully delivered fleet of 63 ships. So, the trading fleet, so to speak, excluding the new builds, we'll also going forward, be on a very low leverage basis. But from a total group perspective, will we go down to 0? The answer is probably no because of the newbuilds that are being delivered.

[Constantin Baack, executive]

I can take the next one. There's a question, will the newbuilds be delayed? We are -- obviously, most of the shipyards certainly in Korea are facing delays at the moment. We expect on the first 2 vessels that we will receive in terms of new builds, the 5,500 TEUs, we expect roughly 1.5 to 2 months delay. On the remaining vessels, we don't expect any delays. And the delays that we expect are pretty much in line with what we have been seeing in Korea. The delay is being compensated through liquidated damages by the yard. So financially, we don't expect that to be a disadvantage, but that is basically where we are.

[Moritz Fuhrmann, executive]

So next question is, can you elaborate on the cash breakeven of the company? The answer is, I mean, obviously, the cash breakeven varies from year-to-year, given that dry dockings are being factored into the cash breakeven, and there's a different number of dry dockings each year. Looking at '24, we are looking at the cash breakeven in the tune or around $11,000 from a fee perspective, obviously under certain assumptions.

[Constantin Baack, executive]

Okay. Then there is a question, could you indicate the lifetime for feeder vessels? And with regard to this and having new regulation as of 1st of January, could this -- hang on, could this -- where is it? Could this in future change your view on vessel depreciation? So the question is whether a new regulation and lifetime is effective and changed our view on vessel depreciation? We still see, on average, a useful life of 25 years. In fact, looking at the age profile of the fleet and certainly the very, very slim order book with regards to the smaller vessels, we definitely continue to believe that the useful life will be at least 25 years.In addition, as I alluded to earlier, we have a significant retrofit program, which might even extend the useful life above, which will definitely make the vessels commercially more viable and more attractive, and we believe will also increase the -- potentially extend the useful life of the vessels. But 25 years is still our base case. That will still be the basis also for the depreciation scheme.

[Moritz Fuhrmann, executive]

Next question is again on growth CapEx. So am I right to assume that growth CapEx in '25 will be much lower than '24? The simple answer is yes because our 4 out of 5 new buildings will be delivered in '24. So the lion's share of the growth CapEx is assumed this year. The fifth new building is being delivered in without significant installments to be paid in 2025. So we will see a slight uptick in growth CapEx again in '26.

[Constantin Baack, executive]

And there is one more question on the Red Sea situation. Does the Red Sea trouble have a negative effect on MPCC? Is there any cost for MPCC or is it covered by charter? First of all, as explained during the presentation, the Red Sea situation is adding ton-mile demand. And more specifically, it has an effect on the trading pattern. It means rerouting of a number of vessels today around the Cape of Good Hope rather than through the Suez Canal. And that, on the general market and hence, also on MPC, has a rather positive effect.In terms of cost implications and negative implications, we have also in consideration of the safety and well-being of our crew, which is the most critical element in our consideration. We have not gone into the Red Sea area since late last year in light of the dangerous situation for our crew and our ships, and we will continue to do so. So, there is no negative financial effect from the current situation. And on the overall market, there is rather an effect of additional ton-mile demand, i.e., a counter effect countering the significant supply coming into the market.Then there is a question, what effect on revenues or profits higher margin, for example, do you expect due to your ESG measures, increase in daily rates, more days available or simply higher chances of ships being chartered out or other factors? Definitely, the commercial attractiveness of the ships is increasing with a retrofit investment and also with our new builds, of course. You can see that our newbuilds have 7 and 14-year contracts, respectively where the secured EBITDA exceeds the construction CapEx. So that is a significant benefit, and we are renewing the fleet.Furthermore, there is -- furthermore, there is obviously a consideration with regards to commercial attractiveness. It does -- might mean you get a higher rate. It might mean you get employment when the market is really bad. In any event, in our view, it means that the relationship with the charterer becomes even more stickier. And the reason why we believe this is clearly that we have already agreed as part of our joint retrofit investment program with many charters that, firstly, they share some of the CapEx. So, we have a shared CapEx investment program. And secondly, we have been able to forward extend some of the charters. So, we have an immediate payback on these measures.So, we do believe that they are increasing the commercial attractiveness. They are also increasing our attractiveness vis-a-vis our customers. And I would argue that in terms of the number of retrofits and the number of newbuild constellations amongst our tonnage provider peers, we have a very solid stand. And we believe that that will be creating long-term value for shareholders and cash flow visibility as well. So overall, there is a lot of positive things that come hand-in-hand. It's not just ESG measures for the purpose of doing ESG measures, it's actually working hand in glove with your customers and benefiting also the company from a pure financial and cash flow standpoint.

[Moritz Fuhrmann, executive]

The next question in line. The low range of guidance seems to be very conservative, applying a rate of $4,000 per day on open days on IFRS-adjusted basis. Is this what you have applied? Obviously, we can't comment on the internal assumptions when it comes to open days. But it's, I think, fair to say that this is not a number that we have applied in our internal models. I think, which is, I think, important to note and you've already mentioned the IFRS-adjusted basis when it comes to our newbuilds, but also important to note is, again, this year, we have a heavy lifting to do when it comes to dry docking and retrofits. So there will be a significant number of dry dock and off-hire applied to our fleet.And in addition, and Constantine mentioned during the earnings call, the expected volatility towards the end of Q3 and Q4. Obviously, yes, we are conservative when it comes to open days, but also conservative when it comes to repositioning of vessels between charters and also, again, when it comes to the dry dockings of the vessel, you also need to factor in some repositioning of vessels from the actual trading region into the dry docks, be it in China or in Turkey.The second part of the question, also the cost guidance seems to be lifted versus $162 million and $23 million, what's the reason for the increase to $190 million to $195 million? Glancing at the numbers, it seems the $162 million from '23 as pure OpEx plus G&A. Whereas the $190 million to $195 million also includes commissions as well as voyage expenditures. And the core OpEx, yes, is assumed to be going up in '24, simply basis that we have a change of capitalization policy. So we will capitalize less items in the OpEx going forward, but naturally leads to a higher IFRS OpEx, but this will be going forward, offset by what we expect to be lower depreciation in the P&L.

[Constantin Baack, executive]

Then there is a question around the Germany alliance. How do you anticipate the Germany alliance hub and spoke operation affects you? First of all, maybe a few basic words on the alliance itself and then the impact on us or nonoperating owners in general. The cooperation will start February next year. And the service setup is basically east west and I think in total, it's 50 to 60 services and around 6,000 port calls. So, it's quite a significant alliance, roughly 290 to 300 vessels involved, 4 million TEU. So, it really is a significant impact on the service offering on the market.The network will be centered at least that's what has been communicated so far around 12 key hubs. And it will include simplified loops and fewer calls. So, what does that mean? We expect a more-firm announcement in the -- towards Q3 this year with first preliminary service details. I think for us or impact for nonoperating owners, if there are simplified loops with fewer calls, that would imply an additional need for smaller vessels for the onward transportation of cargoes. So, that could be a net positive for feeder vessels. And I mean, they will predominantly focus on the major trade routes. So, they might depend on feeders to feed the main liners. So those are the 2 aspects.Of course, it's too early to really draw a conclusion on the actual implication. What we have seen that the Germany members also triggered -- likely triggered by the Red Sea situation have taken in quite a number of additional charter vessels. It remains to be seen how they will actually treat then the, let's say, last mile of feeding lag once their service offering is put in place. But overall, I think there is a potential upside for feeders or for intra-regional vessel sizes, but it remains to be seen what that will actually mean.There's a question around -- there was some confusion regarding the largest owner, NPC Capital acquiring feeder vessels recently. Can you elaborate, Constantine? Yes, I don't know if there was confusion. I think the media confused something that was at least not MPC containership acquiring these vessels. And there was also no feeder vessels. They were kind of intra-regional baby Panamax vessels that were acquired by a group of investors, including MPC Capital, unrelated to MPC containerships.We have, as explained, a clear strategy with renewing our fleet with buying selectively rather more on eco tonnage and the vessels that we acquired were, I think, around 14, 15 years of age with an existing charter to CMA. So, if there was any confusion that confusion was on the part of the media because we certainly haven't announced anything, and we certainly haven't been involved in that deal as MPC containerships.Then there's a question around the order book. Given that shipyards are largely booked until 2026, do you see an advantage for MPCC? Additionally, do you think we might see a strong cycle in '25, '26 based on this information? What is your overall view on this? I think it's extremely difficult to forecast the markets as Moritz mentioned on -- with the reference to the chartering market further out than the next 6 months, even 3 months out might be challenging sometimes.And so, we will have to see 2026 is way out 2025. 2026 is a market where we will at least see fewer newbuildings being delivered. So, that means on a supply side, there is less pressure coming from deliveries into the market. On the demand side, obviously, that is linked also to the global development, GDP development, trade development. I personally think that we will at least see a rebalancing of supply and demand growth in '25-'26, whether that will translate into a strong cycle that remains to be seen because, of course, we now have a situation where the sizable order book that is being delivered this year and that has been delivered last year is somewhat being digested by the Red Sea situation.So, we will have to see what happens on the demand side, what happens on the supply side. And is there any wildcard event such as the Red Sea situation or others that might affect the market. So it is very difficult. I think how do we treat -- or how do we address this as MPCC. We address it by continuing our strategy, low leverage, high number of vessels unencumbered and debt-free stick to our distribution policy, but at the same time, operate on a very low leverage and have liquidity available in order to take -- make use of opportunities as they may arise. So, I think we have all the flexibility, and we will be able to benefit from a market whether it's a strong cycle or not a strong cycle, and therefore, we believe we are well prepared.

[Moritz Fuhrmann, executive]

Okay. Next question, how many by percentage MPC sea vessels were heading through the Suez Canal before? I think the question is, it's not only Suez Canal, it's probably also the Red Sea situation. And before means probably before the Houthi rebels started attacking commercial vessels. The number of ships was 5 that we had been operating in that particular region. So, from a relative perspective, less than 10% of the fleet. But as mentioned in the call, we have discontinued with our vessels transiting that specific region.The next question is how do you consider asset sales versus entering into new contracts? Now, yes, the current market situation is obviously, is better than what we have anticipated at the end of '23. There seems to be a window now, and we have acted on the AS Lauretta when it comes to selling vessels, but you have seen that we have also fixed a number of ships in Q1. This, it's not a simple straightforward answer because we will consider, obviously, also dry-docking position of certain vessels, designs, age structure of certain ships, and there's assets that are considered more core relative to vessels that are considered probably more sales candidates.So, the answer is really on an opportunistic basis. Will there more asset sales this year? Potentially, yes, if the market holds up. As it does now, it could be attractive for us to offload some of our older ships and managing further some of the dry-docking positions in '24. And on top, if some of the core vessels that we want to retain in the fleet for longer, we can fix or we can continue to fix at least 12 months at decent rates, we will continue to do.The next question is, again, on CapEx. How many dry docks do you have scheduled for 2025? The number of dry docks is 8. So, it's considerably less than in '24, and hopefully, less operational headache that we will have in '24.

[Constantin Baack, executive]

Then there's another question. Congratulations for the work done. My simple and basic calculation, fleet value plus expected 2024 dividend 0.2 share value between NOK 20 and NOK 24. It now stands at approximately NOK 14 after a small plunge earlier today. Would you risk an explanation for this? Thanks.Well, it's obviously always difficult to forecast capital market reactions. But maybe in terms of valuation and since there's one additional question on my view or our view on share price. We have a slide in the deck where we explain how we see the protection of the value at the current share price valuation. So we truly believe that you can skin the cat left or right. You can look at fleet value and expected dividends. You can look at EBITDA backlog. We believe that the company is -- the value of the company for sure is very well protected and provides significant upside.Now why is the share trading at NOK 14? Difficult to give you the exact answer because it's for everyone to decide to buy or sell the stock. What I can just say is that looking at our assessment that we see significant upside in the stock. I believe that currently, there's a lot of momentum, negative momentum, uncertainty out there, geopolitical risk, macroeconomic risks, a concern about a significant supply coming into the market in terms of containers for '24 and beyond.So, I think there is certainly not a positive momentum when you look at the container industry in general. Some of the liners have written rate figures in Q4 and will likely do so in Q1. Q2 will definitely be a much stronger quarter for the liners. We have, for example, had utilization-wise, I think, our best quarter ever, at least year-to-date, the first couple of months. And we have a very solid earnings outlook.So, I do believe a lot of that is momentum. A lot of that is scrutiny and uncertainty. But in the long run, I think value will surface. We have shown that we make value surface by paying dividends and kind of honoring investors of their support. And we will continue to do so. And I truly believe that we will see an uplift in share price, but momentum plays a key role.Then there's a question. We hear about India as a massive upcoming economy. Any thoughts on the world market developments and containers regarding regions, especially in the feeder segment MPCC? Well, it's obviously quite a diverse picture. There are economies that are getting stronger and stronger in India to name the one that you have named here is certainly one. We have already seen a significant inflow and outflow of box volumes with regards to India. We expect that we'll continue. We expect that demand in India, so internal demand will increase, but potentially also exports will increase significantly. So that is certainly a market segment to watch out for.Globally, I mean, we're obviously still looking at U.S., China and Europe in terms of pure volumes as the key markets. But there are other markets picking up. Intra-regional trade is picking up. So, it's a lot going on. And we have just also seen disruptions in the Red Sea leading to additional ton-mile demand. We have seen the Germany lines, as I alluded to earlier, slightly changing their strengths, leading to more likely more feeder demand, what vessel size remains to be seen.So I think overall, regional trade is actually set to benefit from that. But I think it's premature to kind of draw a conclusion or give any region, let's say, the wild card to be the most relevant one. But I think India, since you named it is definitely rising nation when it comes to containerized volumes.

[Moritz Fuhrmann, executive]

Next question. Can you comment specifically on the magnitude and timing of changes for depreciation and OpEx given the change in capitalization policy?Timing-wise, this is effective as of 1st of Jan '24. On the magnitude, it's a bit too early to sort of specify the numbers and the change of capitalization policy. However, you have seen that we have taken some further impairments in Q4. And that alone obviously, will also have an impact on the depreciation in the years to come. Again, not trying to be too specific when it comes to future depreciation, but we expect depreciation to be somewhat lower in June of between 10% and 20% going ahead relative to '23.And the next question is also related somewhat. Do you think the value of the ship will go down in the next quarters to likely took down the appreciation in Q4? I mean, naturally shipping vessels are depreciation assets. However, we all know that shipping is a volatile market. So, we will see values going up and down. We did take some impairments on a future view. That is correct. Do we expect to take further impairments in the next quarter? I don't expect this to happen.However, we talked about volatility before and the market uncertainty ahead that is very hard to predict. So, by the end of '24 and maybe start '25, we will assess again. But in the foreseeable future, meaning in the next 1 or 2 quarters, I don't expect any further write-offs on our vessels.Then there's a question on the cost of debt. Would you mind reminding us of your current average cost of debt expressed as a percentage?Assuming a fully delivered fleet, meaning the fully financed newbuilds, our cost of debt will be around on a weighted basis, I think, 2.5%, more or less. And our financing things are back to floating rates. So you would need to add the current 3 months SOFR to the tune of [ 2.5% ] to arrive to [indiscernible] all-in cost of debt for our fleet.

[Constantin Baack, executive]

Then there is one more question. That says have MPC ever thought to be taken over as it fits perfectly with their vessel sizes to bigger shipping lines? Are there any thoughts about that in the management. So, I guess the question is, have there ever been -- has there ever been interest raised with us by any liner companies to acquire the fleet or the company? No, it hasn't.And I do agree it fits well with the needs of the liner companies, but a lot of our ships obviously chartered out to different line of companies. So, we have not been approached. And I think at this stage, in terms of capital allocation priorities also of the liners, they would rather opt for new builds. That will be my expectation rather charter in the vessels than owning the vessels in our fleet. And I think they still want to have also strong partners from a tonnage provider standpoint, at least that's what we are discussing with our customers on a daily basis. So, the answer is no.Yes, I think that's the last question. Unless operator, there's any questions through the line.

[Operator]

No one has lined up for questions on the call. So, I'll hand it straight back to you.

[Constantin Baack, executive]

Okay. Very good. Then I would like to thank all of you for your interest, for your questions, for attending. I can say we are excited about 2024. We believe MPCC is very well positioned to tackle 2024 and make use of the opportunities out there, and we are excited about the quarters ahead and looking forward to hearing talking in the next quarter. All the best. Take care.