Q1 2021 Atlas Corp Earnings Call
[music].
Okay.
Cool.
First quarter 2021 earnings conference call.
I would like to remind everyone that this conference call is being recorded today may four 2021, I would now like to turn the call over to Robert Weiner head of Investor Relations at Atlas Corp.
Good morning, everyone. Thank you for joining us today to discuss our Atlas Corp, first quarter 2021.
We issued our earnings release last evening after market close we will refer to our quarterly earnings release accompanying earnings presentation.
Supplemental documents today in this conference, which all can be found on the Investor Relations tab on our web site Www Atlas Corporation Dotcom.
I would like to remind you that our discussion today contains forward looking statements and I'd like to draw your attention to the disclaimer on page two and the accompanying earnings presentation.
With this quarterly report you will note that we continue to report non-GAAP measures, which we believe provide investors a clearer understanding of the performance of our businesses. The first quarter earnings release contains supplemental financial tables and information pertaining to our first quarter earnings report and includes definition of non-GAAP net.
The actual measures and reconciliation.
Such non-GAAP measures to the most closely comparable U S. GAAP measures. These definitions may also be found in the appendices at the back of the earnings presentation, which we will refer to in our call discussion can be found on our website.
In addition, we have provided historical financial information through 2018, which are also available on the Q1 supplemental workbook on our website.
Please turn to slide number three.
On the call with me today are <unk>, Chen President and Chief Executive Officer of Atlas Corp, and Green Talbot, Chief Financial Officer of Atlas Corp.
Joining us on the call during the Q&A session are <unk> <unk> Chief commercial officer.
Peter Curtis and Seaspan, Chief operational Officer Torsten Peterson.
We will open up to a question and answer session. Following our formal remarks.
Please turn to slide number four.
I am pleased to now turn the call over to Atlas Corp, CEO <unk> Chen.
Thank you Rob and good morning, everyone. Thank you for joining our call.
Please turn to slide five.
I'm pleased to report a strong Q1 financial performance, which was directly in line with our expectations.
We are on track to achieve our 2021 annual financial guidance.
Our performance affirms our long term focus on quality growth and differentiated investment attributes.
Let me reiterate that our business is not subject to short term market swings like many others.
We are highly dependable and consistent since our fully integrated platform is built on long term contracted cash flow backed by global leading liners.
In the first quarter of 2021 Atlas achieved revenue growth of 28% to $372 6 million.
Adjusted EBITDA growth of 21, 1% to $237 $9 million.
<unk> growth of 27, 6% to $159 $2 million and <unk> per share growth of 13, 2% to <unk> 60 per share.
And we recently paid our 63rd consecutive quarterly dividend.
I'm proud of our team as these results reiterate our continued resiliency operational excellence and performance for the remainder of 2021 and beyond.
We stand ready and focused on facing any challenges ahead.
Please turn to slide six.
In just five short months <unk> added 37, new builds and four secondhand vessels.
Through our total investment of $4 7 billion.
We have added a gross contracted cash flow of $7 billion.
And since this quarter alone, we achieved 47% growth of our fully delivered fleet on a teu basis.
Adding 536000 Teu.
This sets a record for seaspan and perhaps within the industry.
This historical growth has been made possible due to our focus on the following key aspects of our business.
First we always have a good understanding of the underlying market situation and anticipate a few steps ahead.
Second our customers needs always come first.
Third we are constantly creating opportunities versus participating in auctions.
Fourth our relentless focus on building our five key competencies.
And fifth we have a world class team of highly experienced professionals, who are ready to execute at all times.
For the same reasons, we have able to successfully complete 15 secondhand acquisitions in 2019 in 2020, then adjusted to our record Newbuild program.
This quality growth is important as it facilitates great scalability reliability and flexibility to create win win outcomes with our customers through all market cycles.
Especially with this new builds we have gained deeper trust from our customers through our ability to assist with special design shipyard negotiations construction financing chartering and operations.
This is a great example of the fully integrated platform as we always talked about.
As the table shows.
Have significantly strengthened our fleet in the following segments.
912000 Teu of new builds.
224000, Teu, new builds which are our first ultra large vessels.
And also a first for owner operator, let source for this segment.
26, 15000 Teu new builds in this first strategic category, featuring 10 dual fuel LNG new boats.
Long for secondhand acquisitions of 215000, Teu and to 8500 Teu vessels.
Please turn to slide seven.
The past three years has been transformational and this has continued in Q1 2021.
Here, we highlight the dramatic change since the start of 2021.
We have upgraded our offering with significant additions to the 15% to 16000 Teu segments as well as for the 24000 Teu segment.
Today, 79% of our fleet on a teu basis is positioned within the strategic 10000 Teu in greater segments.
Expect it to be the workhorse vessels in the coming decades for global trade.
We're very pleased have evolved our fleet into such a comprehensive diversified and diversified portfolio to meet our customers' needs and truly lead the industry.
Please turn to slide eight.
We have also diversified our customer base.
When I first joined Costco chartered approximately 40% of our fleet on a teu basis.
Today, no single customer is more than 20%.
Our customers are eight out of the top 10 liners.
With our top three customers represent 54% of the revenue at the end of Q1 2021.
Compared to 75% at the end of 2017.
This is clearly a differentiation as we are growing in tandem with our customers, while fulfilling their needs to creating win win outcomes.
We continue to be well positioned for quality growth throughout with deeper and broader partnerships with each customer.
Please turn to slide nine.
Our record fleet growth fleet optimization and customer base diversification drives a third important distinctions of our resilient and differentiated platform.
The growth of our growth contracted cash flows.
Since the start of 2021, we have grown growth contracted cash flow by 102% to $12 1 billion.
These are long term.
Hi, Ali visible cash flows secured by customer demand.
This results in higher quality cash flows longer lease durations and increased resiliency of our business through all economic cycles.
Our deep and creative customer partnerships investing.
In class execution, and solid financial strength makes Atlas the reliable solution provider of choice.
This slide clearly shows our record progress achieved in Q1.
As I mentioned gross contracted cash flow increased by 102% to $12 1 billion.
Fully deliberate fleet grew by 27%.
Adding 36 vessels.
We increased <unk> by 47% to $1 7 million Teu.
Average fleet age decreased by $2 one years to five two years.
And the remaining lease term increased to six eight years from four three years.
This high performance execution enables us to deliver consistent and sustainable value creation to our shareholders.
Please turn to slide 10.
Yes, she is important and timely as responsible corporate citizens. It is important to lead the industry development of ESG initiatives.
Our teams are highly committed to leading our industries through operational excellence high business standard ethics and principles.
We look forward to issuing our inaugural sustainability report at the end of Q2.
Also we are proud of our recent strategic partnership with the Maersk Mckinney Motor Center for zero carbon shifting and it become a signatory of the UN global compact.
Our strong commitment to ESG is also evidenced by our long history in innovative sabre ship designs.
And also adding 10 15000 teu dual fuel LNG new boats.
Finally, we see the increasing need for ESG as an important requirement for our customers lenders and investors.
Our teams have made great progress through linking our capital structure with sustainability measures such as our recent sustainability linked loan and bond financing.
Yeah.
Please turn to slide 11.
Yes.
I will conclude my formal remarks by providing an update on our 2021 priorities, which we outlined at our Investor day.
First quality growth and disciplined capital allocation.
This has been clearly demonstrated by our team during the quarter.
Plus he spent we have increased our total teu by 47% to grow our growth contracted cash flow to $12 1 billion.
For APR energy, we are proud to successfully secure mexicali fast power contracts, which now marks our third year in a role of providing power to the region.
Aps contracted service are rated at 330 megawatts through 10 gas turbines compared to last year's contract for eight turbines rated at 265 megawatts.
This increases our penetration in the important market with significant future growth opportunities.
Second we are further enhancing our multi platform business.
Because he spent we continue to optimize our fleet, while diversifying our customer mix.
For <unk>, we continue to exit the diesel generation market through a measured and prudent approach.
A big part of increasing our competitiveness is the quality of our people.
And in this regard we recently at an experienced CFO Philip Lord to further strengthen the APR team.
Our JV with Z E Energy group will provide unique and innovative growth opportunities for both parties.
In addition, he will provide further revenue diversification in the maritime and energy sectors.
We look forward to providing updates.
We also continue to be innovative leaders by continuously optimizing our capital structure and improving our financial position.
Our financial strength and flexibility executing of opportunities is unmatched and is one of our key competitive differentiators.
Overall, we had a record start to 2021, our achievements, thus far solidifies, our exciting future and the ability to create sustainable value for our shareholders.
I look forward to reporting on our progress in the coming months.
Please turn to slide 12.
I will now turn the call over to our CFO Graham pulpwood.
Thanks, Good morning, everyone and thank you for joining us today.
Could you please turn to slide number 13.
Q1, 2021, and the same delivered continued strong performance compared to Q1 2020.
Revenue increased by 28%.
370 to $2.
$6 million.
Adjusted EBITDA.
<unk> by 21, 1% to $237 9 billion.
<unk> was $159 2 million, which increased by 27, 6% over the first quarter of 2020.
Our first quarter earnings per share was 31 cents per diluted share compared to 15 cents in the first quarter of 2020.
Seaspan fleet Teu capacity grew by 68, 9%.
Well by 48 vessels.
And asset utilization for Q1, 2021, with 99, 2% and 63, 7% at Seaspan and APR, respectively.
At quarter end gross contracted cash flows for Atlas standard of $12 1 billion.
Closing liquidity was up 112, 7% to $837 5 billion.
And that was declared and paid at 60 <unk> consecutive dividend.
Our performance continues to reflect both the predictability and stability of our returns coupled with the impacts of quality growth in our asset base.
This performance differentiates us from our competitors as well as many mid cap companies from the public market.
Our operational excellence creative customer partnerships.
Quality growth.
Financial strength and disciplined capital allocation that is at five P. Competencies continue to be highly effective in delivering sustainable value to our shareholders.
Please turn to slide number 14.
During the first quarter of 2021, we've continued to enhance our capital structure and liquidity.
We're constantly working to optimize our cost of capital.
Position, our financial resources to stay nimble and flexible pursue opportunities.
Our liquidity stood at $837 5 million at March 31st.
And we have 31 unencumbered vessels with $1 $1 billion in net book value.
Additionally, we continue to make progress on our objective to achieve an investment grade credit rating.
Kroll Bond rating has recently placed seaspan on upgrade watch in relation to the current investment grade rating of Triple B minus.
For our portfolio financing program.
And WPZ corporate writing.
As I have noted how diversification of capital sources and continued strong operating and financial performance as key reasons for the improved outlook.
You'll see on this slide the continued progress Atlas has made over the past year effectively managing our liquidity and debt.
At the same time significantly growing the business.
We grew by 48 vessels and improved fleet utilization.
While deleveraging as evidenced by our net debt to adjusted EBITDA ratio, which improved by one full turn of one times.
Please turn to slide number 15.
Now I'd like to discuss several initiatives that our finance teams have been hard at work on to further strengthen our financial position.
For our secured debt capital, we're working on several priorities.
Firstly, we are working diligently on the financing of that current growth investments.
To date, we have secured financing for the four secondhand vessels we acquired.
Which is approximately $400 million.
We expect financing for 13, Newbuild vessels will close during quarter, two which is approximately $1 4 billion.
And we are in an advanced engagement for financing the remaining 24, newbuild vessels, which is approximately $2 9 billion.
And these are expected to close during Q3 of this year.
Additionally, Atlas has been developing a global base of credit and equity investors.
On the credit side, we recently issued two unsecured notes in the Nordic market.
Specifically the first was closed in January for $200 million and was our inaugural Nordic issue.
Three year sustainability linked unsecured note of six 5%.
The second in April for $300 million with a five year sustainability linked unsecured note at the same six 5%.
So an increase in amount of antenna non accrual issuance.
As mentioned, we actively manage our balance sheet and liquidity to ensure that we maintain our strengths for future growth and through cycles stability.
We had ample liquidity at the end of the first quarter, an increase of nearly 113% over last year's Q1.
Providing atlas with significant flexibility and strength to deliver operational excellence fund out growth and meet our commitments to debt and equity holders.
With experienced dramatic increase in both the company's excess the capital market opportunities.
And a broad scope of capital market solutions available to execute.
Accordingly, the challenge is not obtaining capital obtaining the right capital to meet our objectives.
Please turn to slide number 16.
On this slide you'll see a balanced capital structure illustrating our continued diversification of capital sources.
Our primary goal is to continue our progress towards achieving investment grade corporate credit rating.
To do so we need to actively manage our balance sheet and continuously seek opportunities for improvement.
We need to maintain and consistently optimized so global base of diversified capital sources.
As well as continue to increase our access to the capital markets. While also executing on a wider base and Britain as capital market opportunities.
We need to further strengthen our balance sheet, while facilitating growth in other words from Shaw strict and prudent capital allocation.
Finally, we are focused on increasing our maturities to better match the long term nature of our contracted cash flows.
As you would appreciate this is a process of constant optimization.
Capital is a natural resource and a key value driver in our business and as such needs to be carefully managed.
Please turn to slide number 17.
I will finish my remarks with details about our recent growth in contracted cash flow.
On this slide we illustrate the power of long term charters, which provides stability and dependability in our business and this is a defining investment attribute about company.
As Bill mentioned earlier, we set a seaspan record if not an industry record.
By adding 41 total vessels and less than five months time.
We're very proud of the high performance execution of our teams to achieve this milestone.
As you see on this slide we have significantly added to our cash flow profile, increasing visibility about returns.
And creating greater dependability, and our investment thesis.
Yes.
It's important to note the gross contracted cash flow is represented in this slide do not include any future growth.
This depicts what we have under contract today.
We're an active growth oriented company and we expect that to continue as we move forward.
In summary, Atlas has a very strong financial position clear revenues to fund growth and considerable excess to capital.
The container shipping industry is expecting strong operational performance and improving credit profiles.
And then as your projects are beginning to develop.
Within the context of these stronger improving industry profiles as well as the prospect from improved credit rating at Atlas.
And our ability to continue to deliver quality growth through disciplined capital allocation to drive sustainable and increasing value for our shareholders.
Operator, we'd now like to open the lines to questions. Thank you.
Thank you.
Reminder, ladies and gentlemen, you may need to press star one to ask the question.
To withdraw your question press the pound key.
Net star one to ask a question.
Please standby, while we compile the Q&A Ralph.
Okay.
Our first question comes from the line of Chris Wetherbee with Citi. Your line is open.
Hello, This is landmark, but Chris Thank you for taking my question.
So first I just wanted to start off with your capital allocation priorities.
Where you see the greatest opportunity so after purchasing those 36 vessels.
I'm just wondering how you think about.
The opportunities going forward are you looking to add more new builds on the defense side or are you looking to also how do you balance that with like maybe looking at second hand vessels or thinking about repaying debt or increasing the dividend or maybe even share repurchases.
Yeah.
Hi, good morning. Thanks, Thanks, very much for the question.
As we've mentioned before we don't specifically focus on either new build or secondhand at sort of every opportunity that comes from the market.
Driven by our customers will have a look at.
There is still plenty of opportunities in the market. So even after this growth period that we've been through it's not that.
There's now a shortage, but as you can imagine newbuild starts to get more expensive.
Things heat up and sometimes secondhand do become more attractive, but we're a bit agnostic as to which way. We go it's really just depends on the deal.
That's present in the market at that time, so its not likely sort of strategically position ourselves to do one or the other.
Alright. Thank you would also have interest in discussing it.
Context overall.
Our renewal strategy and growth prospects, how do you guys.
Think about maybe selling vessels in the future or maybe some of your older or smaller tonnage and would you consider selling into strength in the current market.
Yes, it's a great question.
Vessel prices are.
Pricing in the current market, but also the contract rights.
I think youre, well aware that we that really focus on the short term contract market. So we had not really plays in the short term peak spot price that you see.
And ideally we will just do the math either calculate the vessel values and then look at our cash flows associated with contracting chartering out the vessels.
Obviously, the other important element to this is we've got a number of very strategic important customers. So the first priority really is servicing their demands and they say require tonnage we can get the right price that made our economics.
That's what we will do.
However, it is a good time to sell as well. So there is a good opportunity to recycle capital for us.
So it's basically just down to good old discounted cash flow calculation either light with an.
And appreciation for our customers' demands.
Okay. Thank you and just one final question So protection, we think about APR.
It seems like you guys are really positioning the business for our pivot to broader opportunities within the energy space. I mean, do you guys envision the potential to grow that business aggressively like you've done on the eastern side.
Yes, we would hope so I think our chairman made a clear a little while ago about our aspirations that we have for IPO.
And really what we plan to do there is to leverage the capabilities and Seaspan. So if you think of some of the core attributes of Seaspan, which is very infrastructure like.
Very long term stable cash flow oriented.
That's why we want to start to pivot the energy platform to away from the very short term special situations market that being said, there's good money in the short term.
Special situation market as well.
And we've been doing quite a bit of work over the last year to prepare the business to move forward.
The Mexicali.
A deal that was recently announced.
I think it's easy for people to assume that that's just a renewal of an existing agreement.
But it was far from that it was a heavily competed negotiated totally restructured package from what we had worked on previously so.
So that was quite an achievement to get that through and there's also a growing and developing pipeline internationally.
But we're starting to work on so it's not that the segment that we're in at the moment is not.
Competitive and delivering value, it's just that longer term, we would like to build in longer term stable cash flows with top quality credit.
Right.
Okay. Thank you for taking my questions.
Thank you.
Thank you.
Our next question comes from Atlanta, Randy Gibbons with Jefferies. Your line is open.
Howdy gentlemen, how's it going.
Good Thanks, Randy how are you good good so as a result of all these kind of new building orders you mentioned you have $4 $7 billion in Capex in the coming years. So I guess, how much debt do you plan on adding against these vessels and then for the remaining equity portion with your common shares trading.
At a three 5% yield it is common equity the most likely way to finance the remainder.
So at the moment.
The majority of those new builds will be funded by debt.
Portfolio of those debt packages has.
L T D side between <unk> 75 up to 100%, depending on which route we take with them.
Sorry.
That would sort of be the bulk but that being said there is capital commitments out beforehand.
And that is being funded through equity.
And as we said we had over $800 million in cash at the end of the quarter.
And.
We will plan further further rises at.
At this stage, we're looking at the equity side, but.
It's really a matter of getting the house in order on the liquidity side and then we'll work with.
More focused around building the correct overall capital structure.
As we mentioned Randy Stuewe.
Still very focused on delivering on our investment grade.
Credit rating.
And to that end, we are planning to sort of get our first public corporate writing.
Probably around Q3 Q3 this year.
And then following that will sort of stop putting the pieces of the puzzle together to get us through to investment grade probably over the next year or two.
So there's quite a few moving parts and.
As you mentioned, we should have most of the financing concluded around these vessels by the end of Q3 and a significant compounded by the end of Q2.
Total buy me, a month and a half or why.
Got it okay.
And then I guess second question. Unlike a lot of your peers you don't disclose the time charters durations rates for your smaller vessels. So with that can you maybe provide some color on the current average charter duration and rates for your 2500 5000 Teu vessels.
And I guess any kind of coming up in the near term and what kind of charter durations are you looking at for those.
Yes.
You bet.
Yes, it's Peter Yeah, good morning to you.
That's a good question, we actually have.
Various situations.
Generally speaking we saw roll offs.
Along the lines of DRAM has been mentioning the strategic requirements.
<unk> customers.
Yeah.
What we see in the market today is there's an ability to.
Ex this longer term durations.
Our guidance.
Uh huh.
High demand for tonnage and that's exactly what we're doing.
Nonetheless.
No.
Dealing with our customers.
Day in day out.
We're achieving multiyear.
The charter periods.
And just this is pain just to add what Peter is saying that they're specifically for example for 40 to 50.
Currently what we have been signed year its between three to five years and five years at a rate about $27000 per day.
So this is this is what are the rates that we've been signing and also the duration.
One of the question you might ask is is that okay, you might be viable.
I haven't seen a huge spike in our Q1 revenue in consideration of the current market rate, but really what we have been our approach has been really taking a long term approach in the sense that if you compare a five year $27000 per day.
Okay.
Contract versus a two year three year 30000, net $32000 per day, you will see a short term optically optically you will see a short term spike and the <unk>.
Revenue, but after one or two years you your vessel will be open for uncertainty versus what we have taken is for a longer period of time. So we are actually seeing the next 345 years, a very stable cash flow and also on a total cash flow basis. For example, even looking at 40 to 50.
On the $27000 a day, you get close to $40 million.
Cash contracted cash flow so.
I think.
For us we taken that the current benefit over a stable sustainable period of time that is also consistent with our long term cash.
Cash and long term contract business model.
And if I could just add relevance for Q1, we actually haven't had any roll offs.
Q1 run rate charters.
Okay.
Leads to my final question here just in terms of those 34, so let's call. It 4000 to 5000 Teu vessels you have do you have any rolling off in 2021 day, so how many.
Yes, just for 2021 for the 40 to 50, we have six of them.
We also have.
For 2500.
These are the vessels, that's going to be rolled off in Q3 and Q4.
And right now we have these vessels has not be sales for long term is not really as you can imagine it's not because that we cannot fix it rather right now from the same vessel, we have been receiving multiple multiple requests from the customers. So therefore, what we trying to do is to try to use in the limited number of supply to <unk>.
<unk> a optimal solution, while we can satisfy different customers. So.
That's what we are still holding on at this moment.
For 2022, and 2023 as we said our fleet on any given time is roughly between 10% to 20% of the vessels on the spot in either re delivery.
The 2022, we have just shy of 30 vessels of which that currently we are in active discussions with our customers.
In discussion about the expansion.
Those vessels, we anticipate to probably conclude them towards the second.
Second half of the year and in 2023.
We only have about 22 vessels for re delivery.
And these are the vessel is again I think.
We probably expect to have the conversations with our customers.
What's the second half of the year because.
Bogged down.
Down the road, but.
Alternatively for the 2023 re deliveries. We are also currently using those as part of our new creative service offerings, which come from there.
In discussions with our customer which will be different from our conventionally one on one vessel offering. So this is something that gives you an overview of what our roll off in the next three years.
Got it great well that's it from me thanks, so much.
Thank you Ron Thank you Randy.
Thank you. Our next question comes from the line of Omar <unk> with Clarkson. Your line is open.
Hi, Thank you good morning, guys.
Sort of just wanted to follow up.
Yes.
Sort of a follow up to that to the previous discussion.
And you touched on this a little bit from your earlier comments I wanted to ask sort of about the market and your latest dialogue with liners. Obviously container demand has been very strong miners are seeing record freight rates and we've seen no response from basically chartering or outright buying any available ships in driving rates higher and.
Clearly we have also seen a bunch of new building orders all against long term charges for the most part.
Given how things are now have you noticed any shift.
And how long or are your customers are thinking about things.
Do they feel more comfortable with the supply situation Thats currently there and on the comp or is there still a lot more discussions and a lot more opportunities on the newbuild in front.
Okay.
Hey, good morning, Omar this is Frank.
Our customers in line is today in general throughout I believe.
Disciplined.
Today you'd be looking at all the new builds that we're talking about steel.
The segment's net debt it is relatively new its very versatile and.
In terms of total amount of the Newbuild today's deal.
In terms of what's really happening.
In terms of the supply side over the past maybe.
Maybe three or four years is to the amount of debt.
Reasonable so fundamentally we see that from.
The demand side is very disciplined on the supply side today, we probably close to 15% to 18% of the total total.
Market volume, but this 18% is still.
Reason the amount of the growth to compensate some of those.
Historically low built over the past three or four years.
And right now ask them at the slots and also the price goes up and I think.
The market itself in a way that also.
I think that debt.
Provides that kind of.
I will say that area and also in this time around when you have seen is different from the past.
As you as you correctly pointed out.
Few speculative orders rather all of these.
A new Bill it's opex.
Either the line of themselves or by the owners like ourselves with the long term charter attached to it. So overall I believe that the <unk>.
Price side is still rather.
I would say healthy.
Thanks, Dan Yes, certainly.
Agree with that and I wanted to maybe just sort of follow up you mentioned that steel prices are rising.
You started ordering in December and maybe is there any color you can give on.
How return profiles that maybe shifted over the past day, four or five months.
Obviously the way you guys are.
Do your business it seemed more project specific and so maybe the cost of construction maybe isn't that significant to you, but maybe just in general in terms of the return profile have you noticed anything on that front, that's moving higher lower or is it maybe sideways since December.
Yes for us the return profile and always.
As we said that we were very disciplined.
Whether it's a new growth where the secondhand, we always make sure that quantitatively and qualitatively the return that meets our investment criteria. So for US actually we see the return has been consistent or slightly improved in terms of the overall market today.
That's what I said earlier as the.
As the price today versus the price in December of course, there has been increased quite quite materially in the sense that the raw material, particularly for steels.
The increase in others.
The price increase and also the sketch to scale a city of the slots because right now you're talking about the slots.
Mostly is towards the third or fourth quarter of 2024 to 2025.
So therefore with the increased of the.
The commodity raw material cost as well as further down to the delivery slot into two to three or four years from now.
And that return it become less and less attractive. So that's what I think that's the current market.
Thanks, Tim.
Very very helpful.
One final one Greg you highlighted the financing of the <unk>.
<unk> built in the second quarter and basically the remaining 24 coming up in the third quarter, a pretty quick turnaround I would say I think.
You touched on this but do you mind, just expanding maybe just a little bit on the financing that you were looking at.
What does it look like in terms of LTV and then maybe how the repayment profiles would look and any color you can give us on how those financing would be helpful.
Sure sure.
So there's a number of different financing structures, we're using and.
Some of the.
I would say the sort of more competitive ones take a little bit longer to get in place and that's sort of the ones we're targeting.
Q3.
They involve ACI financing.
It comes.
With a sort of improved tenure and cost that takes a little bit longer.
Ministry of it later to get all of that in place.
So that's sort of a big chunk of what comes in Q3.
The balance is primarily with.
Chinese leasing companies as a portfolio of them that we've worked with.
And <unk>.
Normally by the time, the teams sort of price the shipbuilding contract and a charter contract.
Already sitting on multiple term sheets to consider.
And so I really it's a matter of considering this whole portfolio of opportunities, we've got to finance and what's the best way to do it now all of the options that we're looking at include pre delivery financing so as you're well aware, there's a number of tranches payments that get made program.
To actually taking delivery of the vessel.
They vary a little bit, but normally for lots of 10%, sometimes three lots of 10%.
They will finance through these packages and some of them actually pay it out on delivery side, a nice sort of reverse.
The full amount to it.
So that's the sort of portfolio, we're working with and we looking in and announcing several of those in the near term.
They're all very competitive with good tenant.
There's a lot of competition in that market, which is great.
We've got very good relationships with the various banks and institutions that we're dealing with there.
So I'm pretty comfortable that we'll get all of that in place I think the other thing I'd point out some which is of interest to people is sort of the capital spend profile related to the new builds.
We will be filing our 6K on Thursday, and Youre, saying that there is a more detailed breakdown.
Capital spend either.
21, 234 in relation to the Newbuild program.
Great look forward to that thanks, Graham and thanks, Dan.
Thank you. Thank you very much.
Thank you.
Question comes from the line of Sanjay <unk> with Bank of America. Your line is open.
Great. Thanks, a lot with all of this morning guidance.
Maybe just shifting to <unk>.
Thoughts on when we can kind of expect that utilization to come back into the into the mid seventies you've talked about.
An audio contract versus spot market split and obviously the shift towards.
Contracted portfolio and let the baseband, but maybe when when can we expect that you might they should start increasing from the low <unk> and kind of what's built into the current outlook for 2021.
Yeah.
Thanks, I think it's.
Set aside with mexicali that that won't pick up a bit.
Of course in terms of utilization.
Based on the allocation of 10 units Mexicali that means.
26 at about 32 bonds will be deployed.
And in terms of.
The.
The diesel generation units I think we're running with about 40 40 idle idle units there out of a fleet of 439.
As we've articulated previously with sort of.
Progressively guidance would be.
Finding down our exposure to the diesel generation market, because it's not a strategic direction that we.
Want to plan on.
So I think the main priority at the moment is getting all of those turbines deployed and.
Currently post Mexicali, we've only got four left idle.
And the team's working hard on to deployment of those at the moment.
But I think the obvious thing is that this is a very.
Lumpy market.
So you get jumps in short term contracts.
Fortunately, yes.
Fortunately, we participate in sort of a special situation types.
Attunity <unk> and they're very hard to plan, but they also come with a premium as well. So I think that's what we want to sort of might be shipped out reliance away from that a little bit and to provide a stronger base, which we can use to then amortize out cost.
Then sort of also to take advantage of those special situations when they arise.
Sure.
Okay.
Graham just had.
We do expect that utilization to gradually improve but starting from now on for this year. So I would think that this year, our utilization should be equal or better than last year.
Okay, great. Thanks Pam.
And maybe just.
Just with the very group JV.
Is there any I know it's been a couple of months since you announced that that JV can you give any color on some of the opportunity.
<unk> to emerge from that JV.
Potentially I think you mentioned natural gas opportunities at the last call. So maybe pivoting away from from containership, our maritime and energy into new verticals, but is there any kind of color that you have from from some of the initial operating these assets.
Yes, as we shared last time during the Investor day.
Our JV partner is a conglomerate.
<unk> engaged in three main activity one is the power.
Generation and the second one is the LNG. The third one is the order.
Environmental and transportation financing service, that's supporting the two core businesses.
The opportunity that we have with them is in two areas in terms of the JV. One instance in maritime maritime because they have the shipping activities.
And specifically they also have the environmental technology in areas such as the scrubber. So those are the areas that both from the general shipping as well as the net debt.
From the emission perspective.
The technology and manufacturing capabilities that we can join forces and then get the synergy.
And expanded revenue.
Sources.
On the energy side I think that is an area that we can also working on together.
Particularly as we looking at expanding our offerings to larger and a long term power projects were Z as a credible.
Large power generating.
Utilities companies I think they have the resources NAV that track record.
So have the.
The expertise to work with us.
In the future.
Long term large power projects and also combining the.
Third midstream is to combine in maritime and also power as you might know that in terms of the power space that we can develop the <unk>.
Net debt.
Marine mobile power solutions. This is something that our Z.
Group that they have already in the process of developing those offerings and that is something that we can work with them.
<unk>, our expertise and that together we can.
Moving to the market and provide the services so old war that we looking at interest of both of that.
Energy.
Every time and also combined in energy Maritime solutions. That's the three areas, we see that JV will be able to provide those incremental growth opportunities.
Sure that's very helpful and just attached to that is there any kind of timeframe that we can look to see in terms of.
Top line incremental growth from this JV.
Two half 'twenty, one 2022 story.
Yeah.
As you know that we announced the JV.
Formation about.
One and half months ago, we need to go through a process to formally established a legal entity in China as special trading zone that will take.
A couple of months to create that legal entity to obtain the license the business license and subsequent to that it will take approximately 30 days to 60 days to get the clearance from.
The Chinese anti trust.
Clearance.
From a timing perspective.
But you should anticipate this business to be formally.
In operation by the.
At the beginning of third quarter.
In the meantime, even though without the EBIT formerly.
Establishing.
The joint venture I think we and them informally looking at for example, the power project as well as some environmental projects together. So this is it running on a parallel basis.
Great. Thanks, Ben Thanks, Greg appreciate it thank you.
Thanks.
Our next question comes from the line of Lambert with B Riley Your line is open.
Thank you.
Thing.
<unk> discussed in his prepared comments about how the pipeline of potential acquisitions of fleet assets is pretty is pretty extensive.
With higher asset prices and the consciousness charters associated with potential new builds.
Has that affected understanding your return discipline has that affected the size of the pipeline as you look at potential future projects.
So far we have not seen a major impact because.
Even though.
They might be the increase on the day ship prices, but to for US is always looking at the.
At the same return or better return. So therefore, there has to be reflected in terms of the charter rate. So overall I think as so far.
The market or our client also understand the market condition.
And I think what we actually was able to and has been able to do is to be able to find.
One of the most effective and most cost.
Cost efficient way to develop those projects and that's what our value added and this is why also.
We're able to have the ability to you know to.
To develop this 37, new newbuild projects. So I think our customer really is looking to us.
To be able to provide that kind of solution.
With multiple stakeholders within that process.
And going forward and I think we will.
We'll continue to play that role and I believe that from a.
From a return perspective.
Always.
Stay stay very disciplined whether it's a newbuild secondhand.
Fair enough and if I look at it.
In that situation you can continue to make acquisitions based on your flexibility of funding plus.
Charters and the cost of the asset.
Operationally do you have a sense as to how what the size of the fleet would be or do you just take a look at adding these higher return assets and potentially.
Divesting yourselves from the lower return.
That's it.
Yes, operationally I think.
We are very extremely proud of but.
Our team and being able to manage to manage and operate such a large fleet in the current extremely logistically restricted environment and I think our team by Boston and his team has done an excellent job. We have a total of about close to 5000 seafarers working $700000.
So I think they've done a great job in terms of assets I think what you're talking about the.
Lower return high return on assets.
This is something actually as part of our residual risk management function, which our team are managing on a daily basis, we have a team called asset integrity.
Basically looking at from a technical perspective in terms of looking at what are the best composition of our fleet. We also have the investment committee, which is looking at from a financial perspective, whether we invest all we divest the assets as Glenn has mentioned in early.
For us we are looking at each and every assets.
To answer the question as to whether we should operate whether we should divest.
<unk> is a cash flow so far maybe you have another question is why we haven't seen you guys selling the assets. The reason it would be very simple.
Because that today, when we looking at our ability to be able to generate in the future cash flow at the discounted cash flow.
The total amount of cash flow versus the market sell price, we have not seen those opportunities where the sales price is greater than or equal to the free cash flow that we can generate from the operating of vessels as I use. The example, just now for the $42 50.
40% to 50 today as I mentioned earlier for <unk> $7000, a day well five years, taking out opex of somewhere around 5500 per day. So we still have at net net cash flow of roughly about $30 million at the end of five years.
Assuming a scrap the vessel at the end of five years that day.
Scrap value will be somewhere between $5 million to $7 million in today, probably more like $7 million with the high steel price. So from 40 to 50 with a.
And then it will be $25 26 years old with a net cash flow of somewhere around 30, 36, $35 $96 million at to date of 40 to 50 in the market that people want to buy somewhere around $28 million to $30 million. So thats why we think.
We will continue to.
Evaluate on a real time basis at the same time I think our strength.
Operating the assets and get the maximum utilization and also get the preferred charter terms from our customers and that's the preferred way to go.
Great. Thank you Brian.
Thank you. Thank you your line.
Thanks, Thank you.
Our next question comes from the line of Michael <unk> with BMO capital market.
Line, if I got it.
Got it.
My question.
At present about 15% of the containership fleet expires in a given year.
With the longer contracts of these new builds and any potential contract renegotiations, where do you think you can get that annual exploration number down too.
Yes.
Yeah.
Okay Alright.
Peter.
Alright.
Thank you.
You're asking where on average can we get our runoffs down to on an annual basis, if I understand you Michael.
Yes.
So that's really a function of all the existing charters and when they come off.
So what we do look at of course is what.
Our waterfall.
In the future it looks like so.
Whenever we go into into charge in negotiations.
We have that in mind.
Of course when.
When we do new builds we'd like to have a long term charters.
Those vessels come off anywhere from two to three and a half years from from the date of signing a contract.
So that takes care of that.
Really the flip side of the coin.
Yes.
The near term rollover, which I think Bing has described.
Quite adequately.
We certainly engage in a strategic manner with our customers.
As he mentioned day.
A novel approach to that that we're working on right now.
Which covers both ends of the spectrum and ultimately achieve longer term charters.
I'll give you some illustration.
So last year 2021 looked like.
Slide 25 vessels we.
We down to about 11, now and we're in active discussions on how to take care.
The living and put them away for extended periods of time line.
We're already in discussions around 2022.
How did bulks up.
Some of those 30 vessels for multiyear contracts and.
In 2023, that's a little bit away. It was you had earlier.
And the short is.
Our approach to our customers.
Full spectrum offering.
Basis, and we discuss with them the needs well into the future and trying to lock in tonnage be it Newbuild acquisition.
From the existing market or be it the tonnage that we have.
At that time.
It just.
Peter.
Just to add to what Peter said in general not only in the current good market.
As a general approach is that we always are proactively working with our line of customers and looking at what their network planning needs are and then working on a very proactive basis.
And so therefore in terms of these roll offs.
Currently even for 2022, the reason that we still have about close to 30 vessels is because that we are still in a similar situation right now as we in 2021 is that we have multiple customers looking for the same vessels and that is why.
We had also in the process of.
Looking on a optimal solutions, where we can satisfy.
No.
All our customers with a optimal solution.
But in any given time.
Our our utilization as we said since the beginning of the company until today, we have always maintained at over 98% utilization over the past 18 to 20 years, if you're looking at last year looking at this year. This quarter, we have 99 over 99.2 nausea.
We have also over 98% so the utilization rate hopefully will be good reference point to show that our ability of being able to constantly.
Redeploy and constantly generating growth.
So that's these are the two things that I think is really.
Differentiation.
<unk> business model, because we are always able to deploy these assets and we will always find ways, whether it's in the current good market.
Even in 'twenty 'twenty, if you may recall.
In the height of April and a year ago.
This time, when China was locked down we will able to deliver it for second vessels to our customers.
That was a year ago. So this is something that we.
This is something that we have been.
<unk> able to deliver that.
Kind of a service to our customers and build that kind of trust and that's how we're going to continue to manage our business going forward.
Perfect and just one more day.
Given all of the Newbuild orders, where do you think your market share is today has it increased as a result of all these new contracts.
Yes, yes.
If you're looking at our our just pure purely on an absolute basis.
By these new deliveries come into the operations, we will reach the capacity of one 7 million Teu.
And if you would be looking at.
In the independent.
Owner, operator space today, we are far far.
I think in the <unk>.
Lead than our peers.
So I think it definitely for sure.
As the tonnage provided today in this space.
In terms of that market, we definitely.
Apart from our our peers at the other part is that.
More importantly, looking at not only the fleet size, but also looking at the fleet composition I think it's very important that.
Is growth.
That is really represents the best asset quality.
Lodge at the large vessel day.
The most fuel efficient vessel and Theyre also most diverse tayo vessels. So these are the best in class assets that today, we are the only one in one out.
Operator space that has this composition of the best in class assets and that is I think it's equally more important than the size.
Perfect. Thank you very much.
Thank you. Thank you.
Our final question comes from the line of Ben Nolan with Stifel. Your line is open.
Yeah. Thanks.
So I have a couple left here that I wanted to work in.
I'm, a little curious about sort of the creative chartering strategy that you discussed a little bit.
It is.
As part of that your ability to sort of.
Offer existing assets to clients and maybe pair that with also doing new builds with them for instance, giving them access to your vessels, maybe even at a little bit of a discounted rate for the.
Current hyper inflated.
Spot market, but in exchange.
You are also sort of able to.
<unk> <unk>.
<unk> or <unk> or something like that kind of.
Your your market position with your financial strength.
Thank you thank you Ben.
What I mean by <unk>.
<unk> chartering in the new build a case that you just highlighted.
Really today, if you're looking at liners I think they all financially.
A very strong and they have.
Abundance of cash flows so theoretically today line is could flow directly into the yards, which got today also know who liners.
But the reason, they're going to us because as you know that doing a new abilities.
Mary.
With a comprehensive.
Very complicated process involves the design.
Understanding the negotiation with the shipyard.
Understanding that.
What were there specific requirements the slot availability and et cetera. So the <unk> really is the what I call a super connected where we can put ourselves being in the middle and execute in a very effective and efficient way day.
<unk> the best solution, whether its a slot where that's at.
Design, whether it's.
Assertion on net fuel selections.
And then the technical part as well as financing and operations. So that is why the.
We are always able to provide that kind of a solution sometimes the line a customer wants to get a better idea in terms of what are the fuel selection. So sometimes they wanted to have the earliest slot some.
Sometimes they wanted to have a different type of a design that they may want to modify over the time. So this is something where our team.
Have them multi disciplined.
Capabilities and expertise and this is something that we have always referred to in our discussion, saying that we have the integrated platform. The integrated platform and it's a multi disciplined efforts with a case like a newbuild that it is a very complicated process into my colleague Peter He will.
<unk> be able to elaborate a lot more on the complexity of this kind of project and Thats, how we will be able to.
Always.
Be able to find ways to deliver the kind of solutions to address the needs of our customers, whether it's a technical whether it's a construction whether it's the environment is.
Operations are financing.
Right Okay.
Sure.
You're saying is that youre not sort of leveraging your existing portfolio.
To help win new builds or youre able to do that sort of independent mindset.
Correct largely gets larger that day.
Correct.
Okay.
Yes.
Now, maybe if I could shift a little bit to the macro obviously, you guys and others have ordered a lot of ships since the first of the year.
This has been talked about are almost entirely on long term contracts from the liners are obviously very hungry for.
Tonnage.
Is there a point at which you start to look at in the future at let's say the 2023 order book or something like that and say boy that we might be headed for a little bit of a rough patch here.
Is there any sort of future concern.
As to just the sort of normal troughs of markets like this is a function of supply.
Or are we not yet at that stage in your view.
Yes.
Fundamentally we believe we are still of the opinion that the fundamentals of supply and demand is still healthy.
If we're looking at what the recent Newbuild, yes, the absolute number might be higher but if you're looking at over a period of time over the past three years four years and also you are looking at the next three or four years on an annual basis, the new tonnage that's been released.
The replacement of the tonnage I think it is still at that is that is in general it's balanced plus on the demand side.
The line is today I still as I said earlier they are rather disciplined.
And if you're looking at the global trade I think today, yes on one hand for sure that COVID-19.
Has has made the situation.
I think a more severe but just taking out the COVID-19 I believe that.
Award of demand and overall growth on a global trade. According to the industry estimate is about 5%, 4% and 2% increase over the next three or four years. So that you will have a continued increase of the global trade at the same time day supply side. This is reasonably I think.
It's reasonable growth.
Let's also remember that for the past three years four years, we had to historically low.
Order book and also in the last few years until this year I think the income the scrap has been almost immaterial.
I think in 2013 14 to 2023 2024, yes, there might be.
Our tonnage is coming in.
But I think that the impact will be the cascading of those.
Older vessels.
More vessels.
And for Seaspan really for all of those Newbuild.
The long term contracts ranging from five to 18 years, so really for us is actually.
We are expecting we're looking forward to the future because thats, where our growth is going to come to reality and for our existing fleet.
We as we said at any given time, our spot a re deliveries somewhere between 10% to 15%. We're looking at right now from 'twenty two 'twenty three I believe that.
Our number.
And also Teu number of vessels that net total amount of Teu, it's very manageable in amount and I think for 2022, we should be able to get most of them fixed by the end of the second half of the year for 2023, and what we actually as I mentioned that earlier.
In active discussions with our customer and looking at even have.
In a different ways of providing the services our tonnages to better.
Our service our customer needs with more flexibility at the same time allows us to be able to have that kind of flexibility as well to optimize.
The fleet and servicing our customers' needs without significantly increasing.
The actual number of vessels. So this is something that we are looking forward to.
Into the in the coming years as the market continues to evolve.
Okay, and then lastly from me if I could just kind of a balance sheet type question.
Graham as you and I realize that there is still a lot of moving parts here, but.
Based on sort of where we sit today.
Do you have any thoughts as to sort of what maybe the annual.
Amortization profile of the debt should look like.
Going forward and then maybe sort of connected to that a little bit you talked about getting a corporate investment grade credit rating later this year when you think about that.
Is that is that like a typical S&P and Moody's or you still are.
Contemplating that being sort of model.
What's the accrual.
Right.
Yes.
Good day, sorry, the co writing that was something that was.
In relation to the portfolio lending program initially that was put in place last year.
The work that we're doing currently in headline total wall now is with Moody's and we've also commenced engagements with S&P and Fitch.
So just to be clear non investment grade by Q3 this year I wish.
But.
<unk> stepped through some timing al formal.
Corporate rating from one of those institutions that we've just been discussing.
And that will then position us with the writing in the market, but everyone knows and understands and then we're on a journey from there to push that up to investment grade, which will take a period of time could be one to two years. We don't have a set time line or you've got a balance as you say may be moving components to get there but.
All I can size, it's very top of mind and were very committed.
Obviously through the Newbuild program, you start to push up on the gearing a bit.
Very conscious of that.
Sort of model out our cash flows through.
Out in past the Newbuild program to make sure that we've got all of that adequate planned covered and of course then it comes off very quickly after that.
You start to get cash flow is coming in from from these new vessels entering into the fleet and entering service.
So there is a tightening.
No hiding that and I think everyone's well aware of it.
We've got plenty of time to work on optimizing that and Thats not a concern for us at the moment like I said the cash forecasting is comfortable within all of our covenants limits reset.
So it's really a matter of how can we worked hard to optimize it during that timeframe.
Right and any idea of what we should be thinking about from a debt amortization.
Annual debt amortization profile and print.
Yeah.
Not sure if I have an average number I can give you.
Dan.
Yes, because the each package has slightly different it could be between five and 10%.
Amortization on different packages.
I'm happy to get back to you with a.
More structured answer.
Yeah I appreciate it thanks.
Thank you.
I'm showing no further questions in the queue I would now like to turn the call back over to management for closing remark.
Well. Thank you. Thank you everyone for taking the time to join our earnings call.
We look forward to.
To see you in the next quarter end.
Everyone.
Best and stay safe and healthy. Thank you all very much.
Thank you.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
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