Q4 2019 Earnings Call
Welcome to the Seaspan Corporation conference call to discuss the financial results for the quarter and your ended December 31 2018.
Sure Mike everyone. At this conference is being recorded today February 19 2020.
Dirty am eastern time, it will be available for replay.
Starting today at 11, 30 am eastern time.
Hosting the call today is being changed President and Chief Executive Officer.
Peter Kurdish executive.
Vice President and Chief commercial and technical Officer.
Ryan Peterson Chief Financial Officer.
Be open.
Well the call for questions and after the presentation for management.
<unk> Mr., David so-called Germany, the board and worsened Peterson Chief Executive.
Vice President of ship management will also be available for questions.
I'll turn the call over to right of course.
Good morning, everyone and thank you for joining us to discuss Seaspans fourth quarter earnings. This morning prior to the call British issued a press release announcing Seaspans fourth quarter results for the period ended December 31st 2019, the release as well as the accompanying presentation for the conference call.
Are they able on the Investor Relations section of our website.
If you'd please turn to slide three.
I would like to remind you that our discussion today contains forward looking statements actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with our business, which are discussed in the risk factor section of our annual report filed with the S. You see on form 20-F for the year ended December 31st 2018.
Our risk factors, maybe updated from time to time in our filings with the FCC. Please note that we assume no obligation to update any forward looking statements with that I'll now pass the call over to Mr. been Chen to discuss the spans performance.
Thank you Ryan please turn to slide four.
Over the past two years, we have maintained a laser focus on our five key priorities and installed the core competencies of successful asset managers and operators.
These consist of consistent operational excellence created customer partnership solid financial strength quality growth opportunities and disciplined capital allocation.
With this as our foundation it is our vision to continue sustainable growth and create shareholder value.
The results are evidenced by our country constantly improving performance and transformation of our container shipping franchise.
We have further deepen our position as the leader in the owner operators space as well as our longstanding reputation for for asset lifecycle management.
As our core competencies continue to strengthen the brought its no now at the right time for us to apply these core competencies beyond the shipping industry and into the new verticals, well, we can scale and leverage our expertise and create long term sustainable shareholder value.
Before going further I would like to take the opportunity to think I would dedicate team at Seaspan, our customers and our stakeholders, Oh <unk> I trusted partners.
Over the past 20 years Seaspan, we have invested and built a unique differentiated business model that brings us unparalleled competitive advantages.
These advantages comps in the form of eight.
Hi, elite predictable business model, but the long term fixed rate charters.
A top quality customer base sub in seven of the wards top eight liners and at attractive fleet of large fibers versatile modern vessels with over 70% of which is greater than 9000 T U.
The balance sheet flexibility with a focus on de leveraging utilizing our flexible portfolio financing program and of course, Oh integrated platform.
Oh into paid it platform is the result of decades of investment in people processes and systems, which delivers differentiated value travel customers through our approach to fool asset lifecycle management solutions.
This includes the design construction financing operations commercial so and purchase and demolitions.
To deliver these best in class solutions, However requires a dedicated team of both onshore and offshore stuff.
In addition, our.
Our executive leadership team led by Peter Boston, Tina and Ryan its world class and possesses complementary skills combined with decades of diversified industry knowledge and expertise.
When it comes through operational excellence, it's not something that just happens. It is the result of a culture deeply committed to excellence and strong focus on detail I.
Our goal was always to be the safest most reliable best solution provider for our customers.
Companywide consistent efforts to improve safety a representative of our emphasis on operational excellence and we're proud of the fact that our industry leading safety record is a proxy for our top performance and service quality.
We also take qualitative measures, including our service standards through the customer feedback surveys well we have received a consistent praised for fuel consumption and cargo loading. In addition, we're actively working with our 4300 seafarers as a team focusing on training and retention.
Oh seafarers other people well in constant contact with our customers, therefore, retaining and best the best talent and investing in their training is vital to our business with a focus of our people were able to built and to maintain confidence in our customers shown taste, our ability to deliver best in class.
Formats.
Now for the financing performance financial performance.
Coupled with a strong financial and operational results, we're confident that our transformation to Atlas Corp, and the acquisition <unk> energy will support our growth momentum throughout Twentytwenty.
As a team we are well positioned and confident for our will continue to sustainable quality growth and the long term value creation.
We also extremely fortunate to have the full support of our two largest shareholders the Washington companies and the Fairfax Financial Holdings.
He spent continually benefits from these two committed capital partners not only are we always a line you know strategic vision, but this relationship also makes a strong stronger competitive company and more effective team by leveraging their network and expertise.
When it comes to the growth opportunities and capital allocation. Our disciplined approach is built upon a rigorous investment a process and the strict sets of quantitative and qualitative criteria.
This approach has enabled us to create long term value in finding high quality assets and to capitalize on opportunities based on all customers needs.
Within this key priority our competitive advantage I based on the following four pillars.
First I would diversified flexible portfolio financing program enables us to quickly act on opportunistic and special situations.
Second as a best in class operator enables us to generate the maximum cash flow on a same assets.
Third creative customer partnership that mutually benefit all parties, one being that our partners provides us with backing in terms of long term chartering opportunities and the others being a twod best address the customer business needs such as vessel modification upgrades creative financing charter them all.
If occasions et cetera.
Fourth.
Deep industry network that provides us with a strong proprietary deal flow for example, the 400 million plus of acquisition of the seven vessels. In 2019 was a result of working closely with our financing partners and customers to create win win outcomes.
The $750 million acquisition <unk> energy with is attractive long term cash flow.
Came about from our key investor and partner Fairfax.
So please turn to slide five.
2019 was another year of quality growth for Seaspan marked by a number of corporate financial and operational achievements, which I will like to address here.
During 2019, we executed agreements to acquire seven vessels on long term charters, increasing seaspans contracted revenue to $4.3 billion with an average remaining term of four and 4.2 years on a fully deliberate fleet basis.
We remain committed to providing our stakeholders with a business sustained by long term cash flow.
This is one of the strength of our business model as it minimizes short term volatility caused by external impacts such as the trade war and Corona virus.
Operationally, a seaspans commitment to being the safest most reliable solution provider for our customers result in best in class performance on the T. matrix, we monitor.
We achieved fourth quarter vessel utilization of 99.1% and 98.9% for the full year the highest since the year ended December 31st 2014.
In addition, as of December 31st 2019, we had achieved seven consecutive months with no idle days.
This achievement is a testament to the teams focus on operational excellence as well as this I was strong customer partnerships.
We look forward to continuing to exceed our customers expect patient throughout 2000 Twentytwenty.
Operating earnings were $116.5 million for the first quarter and the record of $687 million for the full year, while our cash flow from operations was $137.8 million for the fourth quarter and the record $783 million for the full year.
He P.S. per diluted shares was 24 cents for the fourth quarter of 2019, while full year EPS, but diluted shares reached $1.67 cents for the full year.
Changes in fair value of financial you instruments contributed to one centsper diluted shares for the first quarter and the loss of 16 cents per diluted shares for the full year.
As a reminder, the 2020 $7 million cash received from the contract modification in Q1 2019 accelerated our operating profit in the cash flows which in turn adversely influenced the remaining three quarters, we estimate the adverse first quarter impact to be.
$12.5 million of net earnings and a six cents of the S.
During the first quarter, we took delivery of five of the six Containerships. We acquired in Q4 2019 and took delivery of the six in January Twentytwenty.
The acquisition of these large in high quality vessels Seaspan is approaching 1 million to you as we continue executing on our quality growth strategy through disciplined capital allocation.
By leveraging our strong balance sheet growing our trustee cousin of a partnership and our unique integrated platform, we are well positioned to expand our market leading position to capture the increasingly attractive opportunities in the containership sector.
And our Investor day in November we made two major announcement. The first of these was the reorganization of Seaspan to form Atlas corporate color.
A new global asset manager and operate in the second is the acquisition of <unk> energy a global leader in fast tracking mobile power solution in a transaction valued at $750 million.
These two developments and our continued commitment to strengthen seaspans global market, leading position have laid the foundation for us to deploy capital through cycles and across verticals in a disciplined manner.
Finally on December Thirtyth 2019, a we increased the committed amount under the portfolio financing program by $155 million and expected to further increase the committed amount by $70 million in February 2022, a total of $1.7 billion to $5 billion.
The net proceeds from the program intended to finance the previously announced acquisition of six high quality Containerships.
Please turn to slide six.
Two aspects I would like to focus on our our commitment to strengthening customer partnership and our operational excellence.
Our partnership approach allows us to exceed expectations true understanding our customers' requirements and the priorities to achieve this in.
2019, we executed agreements to acquire seven high quality Containerships on long term charter was top global liners. We also signed and will you with Costco shipping energy transportation, expanding I'll close relationship with Costco into potential new area Silver Corporation.
By working with a key customer we signed a mutually beneficial charter modification agreement, creating a strong win win outcome for both parties Lastly, our innovative index based contract structure is another example of how Seaspan creates solutions for our customers and enable long term charters that deliver value.
Customers and our shareholders.
We were able to achieve these results well needs through the tremendous efforts of our global team.
Operationally, we achieved seven consecutive months with no idle days as of December 31st 2019.
Our lost time injury frequency, which is how we measure our safety performance improved 40% from 2018 to make 2019, our safety yeah on record.
Our emphasis on a safety culture and not only has benefit our well being of our seafarers, but there are also clear correlations between high safety standards and better operational.
Performance, therefore by encouraging safety, we are also encouraging superior performance and efficiency.
During 2019, Seaspan managed a seamless transition to the IMO Twentytwenty regulations successfully prepared all of our 118 vessels to be IMO Twentytwenty fuel compliant as of January 1st Fund your 20.
Finally, our 2019 utilization rate of 98.9%, what's the best since the year ended December 31st 2014.
You noted for us to further grow our customer partnership and advance our industry, leading position, we will stay focused on operational excellence as this one of the most important differentiating factors and the went up the key reasons why major line has continued to grow and deepen their partnership with Seaspan.
I'll now pass it over to Peter Curtis, who will discuss the current industry outlook.
Thank you Ben please turn to slide seven [noise].
Before discussing the fourth quarter 2019.
First like bought a couple of comments regarding the industry.
The container shipping markets, but 2019 under five.
Driven primarily by improved fundamentals and scrubber related projects as we've discussed in prior quarters.
Throughout 2019, the charter party the charter markets benefit from three primary themes, namely marginal degree or capacity removals at a little over 2000 200000 to you.
It was almost double that of 2018.
Secondly, the continued discipline and focus of liner companies in regard to supply demand balance and thirdly, the supply disruption due to scrubber retrofits and which includes the combination of vessel taken out of service.
Stronger retrofitting as well as significant delays or pay off.
Turning to Q4.
In regard to almost 2020, which had a deadline of first of January 2020.
He spent completed the fuel change of over our entire athlete within budget and without disruption on target for the deadline.
Team spent on the amount of time and effort planning to enjoy execution for a smooth transition and I'm close communication with our customers to minimize impact on both.
We are proud about team developed under seven cost effective methods of tank cleaning and preparation.
As previously announced 10 of our vessels will have scrubber retrofits and as of today.
First two ships and the shipyard.
Listen well underway.
Well I'm charter rates remained stable throughout the fourth quarter with larger vehicles for money on them on an rights will not cause vessels remaining at healthy levels.
He is benefiting from the cascading of demand.
Yes.
[noise] smaller three to five segments continued to underperform against the wider market as a result, the cascade effect and likely compounded by almost 2020.
Increasing the slot costs as fuel cost increase.
We see the potential for incremental slow steaming and associated network adjustments to maintain them on the tonnage above fetus last segment.
In terms of vessel values, the second hand prices remain somewhat resilient, but relatively limited if some activity.
We have seen and continue to assess opportunities.
Well if you visible.
And grow fleet as we have demonstrated with the announcement over a number of Stifel acquisitions in the fourth quarter.
As being discussed one of our benefits one of the benefits of our strong customer and industry relationships that these deals are often internally sourced where we focus on delivering mutually beneficial and creative solutions and transactions in cooperation with our customers.
I'd like to take a moment to address the issue of Corona virus and Seaspans position.
Vessels for obvious reasons, a topic of discussion with our personnel customers shipyards and other stakeholders.
First and foremost as the safety of accrue.
We are ensuring the appropriate protection for our personnel, let's see I'm not sure through the best safety practices and close dialogue with our customers and risk management, but.
Of course, we also follow the various requirements.
Hi, I'm governments, and the locations where all vessels cool.
As we always say, we're a business that is both on long term contracted cash flows.
Such short term items really impact us in a materially.
This is true corona virus as well.
The ways in which we have seen Corona virus effect show up.
Being around our Drydocking schedule that will slow down a trophy office in China due to the regulations of came into force to avoid migration of people during and after the Chinese new year holidays.
Which reported a forced to mitigate and contain the spread.
We are leveraging our relationships with customers as well as shipyards and let it get impacts.
In terms of global trade and affects on container trades, it's too early to determine what the full impact would be.
Certainly the extension of the Chinese new holidays has influenced manufacturing in China, and those results and slowdown in both imports and exports.
This has resulted from our customers adjusting schedule.
And affecting many blank sailings.
All of Seaspans vessels remain on higher other than two vessels, which are in drydock and all fixed for for employment.
I will now move on to discussing industry supply.
Please turn to slide I.
In regards to the idle fleet.
Capacity effective has shown a small increase and currently that as it was at approximately 6% up from four and 5% early and less apart of Q4.
It was primarily due to the number of large vessels.
Undergoing scrubber retrofitting.
And these being included in the classification of idle.
These laws this whole accounted for about 60% of the aggregate idle capacity.
The effect of idle fleet significantly lower than less at approximately 2% and for the most part was made up of vessel smaller than 3000 to you.
The order book remains at historically low level.
But a small increase and ordering in the last quarter of 2019. The largest of then being 10 units or 23000 to you placed by evergreen.
The Slops Nick.
Over 35 to send to the order book.
As mentioned the individual liner companies continue to display a high degree of discipline in regard to ordering and coordinate those through their alliances.
The natural effect on charter tonnage providers, because the adoption of assuming loved the supply.
In regards to recycling as mentioned 2019 ended with volumes almost double 2018 figures, but below expectations.
Charter rates benefited from supply disrupt disruption from scrubber retrofitting and trade route upsizing, resulting in improved charter rates and therefore reduced appetite for recycling.
We are optimistic that there will be continued longer term tricia three high fuel prices, providing a positive emphasis.
The increase recycling volumes through 2020 and onwards.
Lastly, we expect that on the shorter term charter rates should continue to be positively affected by scrubber Retrofitting Street 2020, barring the immediate effect of the Corona virus matter.
I'll now hand, the call over to Ryan.
[noise]. Thank you Peter if we could all please turn to slide nine I will provide a summary of our financial results for the fourth quarter and four year.
Our vessel utilization for the fourth quarter was 99.1% an increase from 97.5% in the fourth quarter of 2018, well definitely utilization for the full year was 98.9% up from 97.9% in 2018.
Our 2000 2019 revenue decreased by 2.3% to $288 million for the quarter ended but increased by 3.2% to $1.132 million for the full year.
As a reminder, during the year seaspan recognize $227 million of income from a charter modification new seven vessels were subsequently rechartered to other customers at market rates.
Contract modification pulled forward revenue decreased revenue for the quarter by an estimated $30 million.
And $38.5 million for the full year.
Adjusting for this Q4 revenue would have increased by approximately 2% with full year revenue increasing by approximately 7%.
For the full year, we exceeded the top end of our guidance range.
2019 operating cost per ownership day, which is measured as ship operating expense divided by ownership days increased by 7.4% in the quarter.
An increased 5.1% for the full year.
The fourth quarter increase in operating cost per ownership day was primarily due to higher scheduled maintenance and repairs for the full year, we held costs flat at a 0.1% increase below general inflation.
General and administrative expenses were $9.8 million in the fourth quarter, which included $3.3 million of transaction expenses and $33.1 million for the full year for the full year, we were inline with our guidance or expense guidance range. Excluding the transaction expenses, we were at the bottom end of our guidance range.
On the operating earnings our operating earnings for the fourth quarter were $116.5 million and a record $687 million for the full year, representing an increase for the full year a 46.2%.
The aforementioned contract modification decreased operating earnings by approximately $13 million for the quarter.
Adjusting for this Q4 operating earnings would have decreased by 3% with the full year operating earnings increasing by 6.3%.
GAAP EPS per diluted share was 24 cents for the quarter of 2019, while full year EPS per diluted share reached 1.1 dollar 67 cents for the full year.
Changes in the fair value financial instruments contributed to one cent per diluted share for the fourth quarter and a loss of 16 cents per diluted share for the four year.
Cash flow from operations for the quarter was $137.8 million a record $783 million for the full year.
Onto the balance sheet, our balance sheet, our cash balance at the end of Q4 2019, including short term investments was $195 million.
We could please turn to slide 10, I will provide an overview of seaspans progression as a result of our execution on our strategy over the past two years.
On this slide we present, a simple table to provide a sense of how our key performance metrics have evolved since the management team took over.
Since 2017, we have significantly improved both our fleet size and composition through strategic acquisitions of 30 large modern vessels, increasing the total capacity of Seaspan squeezed by over 300000 to you, allowing seaspan to approach nearly 1 million do you have capacity.
Over the same period Seaspan has also improved its fleet utilization from 95.7% in 2017% to 98.9% in 2019, the highest achieved by Seaspan since 2014.
The evolution of this metric is a demonstration of our commitment to operational excellence and customer partnerships through the improvement of utilization has come with a larger fleet and more complex customer related relationships and engagements.
Our focus pursuing opportunistic acquisitions of Containerships continuous cost improvement and creativity on customer solutions is also reflected in our financial results with earnings per diluted share increasing from 94 cents in 2017 to $1.67 cents in 2019.
Cash flow from operation operating activities also reached a record high for 2019 of $783 million.
These improvements across our operations in cap cashflow combined with a relentless focus on capital allocation has allowed us to make significant strides in strengthening our balance sheet, increasing shareholder equity by 29% and reducing our net debt to equity ratio from 1.5 times to 1.1 times.
All while increasing our capital structure flexibility lowering our cost of capital via the creation of a one of the kind portfolio financing program.
These achievements. This has helped translate into considerable returns for our shareholders with a 45% annualized growth rate of the share price and Seaspans common shares during the same time period.
If we could please turn to slide 11, I will further discuss some of the more recent developments across our capital structure.
As discussed in the previous slide over the course of 2019, we made significant improvements across our capital structure.
We continue to improve on our liquidity position with several financing initiative the latest being an increase of $155 million committed under the current portfolio financing program, bringing the total committed to 1.655 under the facility with a further $70 million expected in February 2020.
The incremental amount will be used to finance. The recent acquisition of six containerships through this facility. We have also delivered improved liquidity to the corporation by adding $300 million of revolving credit capacity under the financing program.
During the fourth quarter $327 million went to purchase.
The first five vessels and on January 24th of 2020, we closed the purchase of the last special for an additional $63 million, while paying down throughout the course of 2019, approximately 30 $735 million of debt across our portfolio.
At December 30, Onest 2019, our net debt to equity ratio was 1.1 times attendance and considerable improvement from the 1.6 times at the same time last year.
We are pleased with our progress we've made over the past quarter and throughout 2019, we believe we are well positioned to leverage our strong balance sheet to explore new growth opportunities and continue to create long term value for us for our stakeholders.
Finally, if we could please turn to slide 12, I will go over our forward looking guidance.
As stated on previous earnings calls, we will issue guidance with Q4 results and update this as necessary when we report Q2, rather than adjust or our outlook quarterly.
As always please note that the following amounts are based on current information and estimates are subject to change.
Seaspans 2020 essentially.
He spent 2020 fiscal year, we anticipate revenue will be will be between 1.17 billion and $1.195 billion.
By operating expense is expected to be within a range of 240 and $250 million.
Our DNA expense is expected to be in a range between 35 and $40 million.
And finally operating lease expense is expected to be in a range of 145 in $155 million.
That concludes my formal remarks, and without I would like to turn the call over back to our CEO Mr. being Chen.
Thank you Ryan you into 2019, Seaspan delivered record annual revenue of $1.13 billion, the operating earnings of $687 million and the cash flow from operations of $783 million operationally, we delivered a.
Utilization rate of 98.9% for the full year the highest since December 31st 2014, and our key safety metrics such as lost time injury frequency now stands at an all time low.
Our unique integrated platform is a source of long term value creation with $4.3 billion contracted revenue and average remaining term of four and 4.2 years on a fully deliberate fee basis that enable us to grow strong lasting partnerships with our customers.
In addition over the past two years, we have deployed over $2 billion in capital in a container shipping sector growing our fleet over 300000 to you during the period and now approaching 1 million to you.
Through our laser focused commitment to our five key priorities the hard work of our leadership team and all of our 4600 onshore and offshore employees globally Seaspan has proven itself as the leader in the owner operators space.
We thank you for your time today and with that I will pass the call back to the operator, who will open the call for questions.
Thank you as a reminder, asked a question you'll need to press star one on your telephone to withdraw your question precipice, Okay, they symbolic and part of Q and a roster.
Our first question on conifer line of Randy given its from Jefferies. You may begin.
Hey, guys. This is Chris Robertson on for Randy Thanks for taking our call. The first questions for Peter Peter on those two.
Vessels that are getting a scrubber retrofits at the moment or they're gonna be any delays related to corona virus there at the port.
And any any concerns for the remaining vessels in that program too.
Hi, Chris Thanks, let Christian.
Sure no not really.
We've worked around some of the difficulties, but we've weve faced in terms of logistics of getting put some pieces to the odd, but we've managed to do pretty well on that on the following a vessel. It's not so much an extension of the state of through all the.
But shifting of the tight.
The vessel arrives at the odd so the impact to us is expected to be minimal.
Okay, Great and Peter can you kind of remind is from the charter arrangements regarding those vessels is it simply just a step up agreement that pays for the installation plus a small return on that.
In all cases, we have returns.
The we have two different arrangements one is a step up.
The other one is actually a pause through with a.
And amount for operating expense plus a return on any any costs that we've been could.
Okay.
I'm.
It's changing gears here you know we've we've heard in both the tanker and the volcker market that theres kind of some downward pressure on ordering newbuilding vessels just related to the regulatory and technological uncertainty that's out there right now, especially as it relates to IMO 2030, and some of that you pending regulations.
So what do you think the way forward is for the container industry in terms of meeting the IMO 2030 carbon emissions goals and our other similar concerns out there within your industry segment about newbuildings.
That's a very good question.
There's no clip part the IMO put forth targets.
There's no regulation around it so.
So we don't know exactly how the IMO and then there is a nations through their own legislation would actually regulated.
That said you know our AR.
Our.
Operating platform has always been one way, we look for a innovation which includes.
Retrofitting on vessels improving vessels going forward in terms of the lines for improved.
Efficiencies et cetera, So we've actually already made great strides towards meeting that through outside the program, which you probably recall.
In regards to other technologies.
You know that there's a lot of.
Reports and media about different parts of fuel that trend I think pragmatism needs to prevail in terms of the availability of these types of fuels and indeed, the technologies as they become available.
Gotcha, Thanks, Peter Hi, Brian. This this questions for you on your 2020 financial guidance can you clarify how many operating days that assumes for that revenue in ship Opex.
Oh from an operating days standpoint, we limit our disclosure to revenue and operating expenses you can look through our fleet table, though that we disclose and our fleet is pro forma on a fully delivered basis will be 119 vessels for 2020, and you'll get a good sense of what those days are.
Gotcha, Alright, guys keep up the good work appreciate your time. Thank you.
Your next question will come from line of sight, Ajay <unk>, how much Swami from Bank of America, you may begin.
Good morning, guys. Thanks for taking my question. He maybe just a question for you paid off.
I know you mentioned in your prepared remarks about the second hand.
Environment for build spot remaining resilient I'm just.
Just to hear about how youre, how you're thinking about the return profile of Newbuilds in this environment and whether you see second hand prices remaining resilient across 2020.
Yeah. This is a being Chen I I will answer your question the way we see the obviously on one hand, you know the new built is a is that have the you know they did the request on going well, we working closely with our customer, but the same time, we see.
The more attractive opportunities, where the second hand vessels is one is in demand from both sides. One is from the seller site and the other part is found the liner side and it which is why that we will successfully acquired the seven vessels over the past five months' time.
It is very important I think a you know see spend in this sector, where that we provide the solutions to our customers where that you know there's a there's that the men from a from our line that side to that from their business requirements. At the same time that Seaspan has the balance sheet and has the ability and the customer.
Base, where it's very attractive to the stylus, whether we are able to execute so going forward, we see the increasing activities and because that the special roles that yeah. The seaspan plays in this marketplace because we're not buying these vessels on a speculative have faces rather we have.
Find these vessels to service our customers needs. Meanwhile, feel the said you know that did the I would say the role in the marketplace to be able to bridge the seller and the by him and we see that a it will continue to grow and plus that if we're looking at the you know opportunities, particularly.
In a in the Chinese market, where it has been the center of the you know container shipping activity just over the past the decades, particularly in the areas of financing that shipbuilding and also the you know the liner companies I think we have a very you know.
Broader and network well, we working with the you know the leasing houses were working with the banks were working with the financial investors were working with the yachts and also the customers and that's how we will be able to get these proprietary deals where that brings the value to our customer and also to our shareholders.
Right, that's really useful thanks for that being maybe.
Maybe just a question for line here I'm, just on BD utilization levels, but we should expect moving into 2020.
Great job I'm, not a with the slide showing the improvement from from 2017 to 29 thing I'm just with the with the order book got at these low levels and you know given the tight supply environment fall.
Oh for shipping where should we kind of see that utilization level out in 2020, and do you expect if it's if not <unk> plus 99% utilization level to sustain itself across the next couple of years.
Thanks for that it's a good question the way that I would.
To help to answer that is if you look at our fleet disclosures again in our table provided in our 6K, you'll see us the number of vessels that we have in the contracts that are in place and then I think if you work through the the guidance range, that's implied to that you'll see what's contracted versus what's not in you'll get a sense of how we.
Think about spot exposure or short term exposure for the fleets are for the vessels that would be rolling off contract in 2020.
I'll, let Peter jump in and talk a little bit about some of the supply and demand dynamics here, but I think broadly we as you'll see and what's included in our guidance range. We continue to feel ER positive momentum and are very confident in our operating results and financial results in 2020.
Sure.
Thank you Ryan essentially covered with the.
Many of the what how we see a the way forward with.
The the upsizing of various trades are not only on the mine tried but on the on the smaller trades.
And the cascading effect.
With a larger ships coming in two for instance, the Asia Europe right.
Push pull down there's also a pull effect on the many other trades.
If you're reflect on what we said at Investor day.
On a go some illustrations on the on the upsizing and many of the.
Intra regional trade, which.
Actually account for a will have a 60% of a global move so we see we see the.
The situation being optimistic.
Right and that makes sense and great job on the on the results again and bidding God.
Thank you and as a reminder, that star one for questions Star one.
Next question will come from mine, a Friday shimbun from BMO capital markets you may begin.
Good morning.
Thanks for taking my question.
Maybe I mean, we're seeing a lot of disruption here on both the demand side then the supply side of this container shipping.
And the three a in terms of grown a virus and IMO and.
From a tree the volatility as well the this.
The this drive more opportunities to acquire assets in this environment are you seeing stronger pipeline.
For potential.
Hi, My me.
Hey, Good morning. This has been then I will answer. This question then Peter feel free to jump in its you answer your question that you know, which we got into this corona virus I think the impact currently that that's not has not directly a result in increased opportunity to have the assets.
Up for sale and the reason being I think at the impact so far is relatively its umang manmade because you know this this virus itself a based on the current you know statistics, that's been published its its under control rather the impact is caused by the measures that is being imposed.
Caused by the government to make sure that they have they will be able to.
Curtail the spread of the virus in the short period of time, and secondly, I think at this time around it because the general public awareness of the of the fear factor is that the much higher levels than before.
And so therefore that you note with the impact of the locked down that was the you know the currency impact has being on the supply and demand side. However, I think to expand on that on your question is is that we anticipate a based on the current trend.
You know the you know with with the mall with half of the people in the coastal city right now it's already return into two to work plus that the Chinese government has you know the experience in and and the effective ways of Ah you know controlling the virus.
I, we we believe that you know the impact will be not sustained and Ah. So therefore that I think in terms of the no impact to that to the to the supply side and the demand side over the time, most likely will be a taped out a in a month or two to the maximum.
And that would that be in a situation I think a you know that the two to ER will be that recovery quarter and Q3 in Q4 will be the quarter that will be ramping up a particularly with regarding to the a manufacturing sector and I think it will be able to have some ramping up factors. So that's.
What we see in terms of the impact of the Oh, the Corona is virus on the supply side of the of the vessel that is for sale on the demand side of it I think a we continued to see our customers you know having that demand for fixing the a the charger and given the Seaspans business model actually.
You know, we have very little or you know a handful of vessels that is gonna be on spot over the next month, so too because that we have a majority of our vessel is just on long term charter as I said it earlier, we have a very predictable business model with a long term charger and specifically we.
What about $4.3 billion of revenue that is on the long term charter an average of four and half yourself a guaranteed to chop them and that's exactly the model actually you know insulate us from the the short term market Volatilities, such as the trade War and Corona advisors for now.
Okay. That's helpful and just a follow up kinda on on this question is.
During the Investor day, and obviously as you move toward this I'd love to structure.
You you've highlighted that do you know you you'd like to be invested in more verticals over the medium term.
And is very desired to diversify the opposite base of <unk>.
Company away from container shipping or discreetly strictly going to be based on where you find the returns to be.
More interesting rocket fuel cost capital.
Yeah. The answer to that is no. We we have no intention to diversify away from container shipping a sector. Rather we actually will continue to be fully committed to that sector. As you can see over the past five months, we actually deployed over 400 million.
Wallace and acquired to seven vessels within the five months period of time.
So this is definitely the case, where we are fully committed I in terms of the Atlas Corp, and that is a you know platform because seaspan, we as Seaspan. We're very proud that you know we are capable of operating the assets at the same time, we own the assets, whereas.
As many of our peers, who actually once the owned assets, but they don't really operate the assets and that's the key difference. That's why highlight just I know we are the asset manager and the we are the owner and operator. So Atlas is the platform where allows us to be able to enough have further scale.
Our business because you know we have the ability in terms of.
Operating the assets and if you're looking at HP off as an example, I think <unk> fits very naturally into this atlas platform because at one is that the business. She has a lot of a similar characteristics in the sense that it is a capital intensive it's the you know operating and owner of.
Looking at where we have to long term contract and therefore, you know I think at these two businesses bears a lot of similarity and also you know I think in terms of the prospects that is that you know they own the good assets and have a lot of growth potential.
So from an investment perspective, we absolutely focusing on the return and the risk adjusted return in it in a sense that.
Yes, I also a specific the outlined during our investor.
Investor Day presentation, where Seaspan I think we are very disciplined a in Ah you know stick into the investment criteria and those are the investment criteria that plus what needs to have the business rationale and secondly that he has to have a customer needs and thirdly. It has to you know.
Half the list the risk adjusted return and Fourthly has to be a quick accretive and fit business that them. You know you have to have the positive impact to the balance sheet. So you know in terms of up in terms of investment we will continue to stick to these investment.
Criterias and only and if only when we see those type of up right business opportunities has the right. Russian now that meet these investment criteria. Then, we'll we'll be making that investment decision and with the you know that the containership space I think a we have a competitive.
Advantage as I outlined in the earlier at discussion those are unparalleled advances that we have today, namely our you know the top quality customer, but customer base. Our long term you know contract our financing capability, our excellent a consistent operational in.
Quality and I was a platform the integrated platform, which is scalable it which is you know flexible and also if efficient. So therefore I think that that is the sector will continue to grow at the same time. We also looking at other verticals, if and when there is right opportunities that meet.
Our investment criteria.
That's helpful. Thank for the comment then Ah congrats from stronger phones this year.
Thank you.
[noise] here and I'm not showing any further questions at this time I like to turn the call back to being Chen for any closing remarks.
Thank you all very much for your time and participation and wish you all have a great day.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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