Q4 2021 Atlas Corp Earnings Call
Welcome to the Atlas Corp, fourth quarter 2021 earnings conference call I would like to remind everyone that this conference call is recorded today 17th 2022.
I would now like to turn the call over to Robert Weiner head of Investor Relations at Atlas Corp.
Thank you Chris Good morning, everyone and thank you for joining us today to discuss <unk> Corp's fourth quarter 2021 earnings report.
We issued our earnings release yesterday evening after market close.
We will refer to our quarterly earnings release accompanying earnings presentation and earnings supplemental work for today in this conference.
All can be found on the investors tab on our website Atlas Corporation Dot com.
I'd like to remind you that our discussion today contains forward looking statements and I draw your attention to the disclaimer on slide number two.
Company earnings presentations.
Please note that we report non-GAAP financial measures.
Which we believe provide investors a clearer understanding of the performance of our businesses.
The earnings release contains supplemental financial tables and information pertaining to our quarterly earnings report and includes definitions of non-GAAP financial measures. The reconciliation.
Reconciliations of certain 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 may refer to on our call discussion it can be found on our website.
Please turn to slide number three.
Now, let me turn to a personal update this will be my last conference call that will be leaving Atlas at the end of the month I want to thank the Atlas team and Atlas as investors and analysts all of whom it has been my pleasure to work with and get to know.
I believe Atlas is very well positioned to continue its growth and creation of value for shareholders.
Taking over.
Lead of Investor Relations is Wilcox Levy, who will be based in Vancouver, Canada.
On the call with me are Ben Chen President and Chief Executive Officer of Atlas Corp.
Grant Talbot, Chief Financial Officer of Atlas Corp.
Joining us on the call during the Q&A session Seaspan, Chief Commercial Officer, Peter Curtis Cspan's, Chief operational Officer Torsten Peterson.
In our prepared remarks, we will open up the form Bill question and answer session.
With that I am pleased to turn the call over to Atlas Corp, CEO , Mr. Bing Chen.
Thank you Rob and good morning, everyone. Thank you for joining our call.
I would like to begin by thanking Bob for his contribution to Atlas a success and we wish him the best in his future endeavors.
Today, My comments will focus on Q4, and 2021 highlight key developments at Seaspan and APR and our through cycle performance since 2018.
Then I will hand over to Graham Towboat to present, our Q4 2021 results and financial update.
Please turn to slide four.
I am pleased to report that we beat our upgraded 2021 guidance delivering record financial performance, despite the global supply chain disruptions and the pandemic.
We continue to benefit from a robust container shipping market and our long term strategic partnership is with our liner customers along with the deployment of Apr's assets in new contracts and regions, resulting in a year over year adjusted EBITDA growth of 28%.
We have locked in significant and high quality growth through our seven $6 billion investment in <unk> Newbuild vessels.
All backed by long term quality charters in addition to $6 9 billion.
Committed financings.
This has resulted in a total gross gross contracted cash flow balance of $18 billion.
The year end.
In 2021, we strengthened our balance sheet improve our financing flexibility and continued optimizing our cost of capital as we progress towards an investment grade credit rating.
I'm also very pleased to report a solid first quarter performance that capped a record year.
Atlas deliberate robust double digit growth across revenue adjusted EBITDA and adjusted earnings per share compared to the same quarter last year.
We are very pleased with this performance and we are well positioned to continue delivering material value to our shareholders in 2022.
Please turn to slide five.
Let's review selected key developments at Seaspan.
The Newbuild vessel program is a testament of <unk> integrated platform, which we have consistently invested in over the past 20 years.
In response to the customer demand, we have leveraged our integrated platform through our people process and systems to execute on our 17th vessel Newbuild program, which is unprecedented in the industry.
This newbuild program further differentiate these plants competitive dominance delivering 11 $4 billion of gross contracted cash flows over 11 five years average charter duration.
Three vessels, an 18 year charters have been delivered ahead of the schedule. So far with 67 vessels to be delivered over the next three years.
Reinforcing our successful track record of building over 110 vessels since <unk> inception, which does not include our 70 vessels Newbuild program.
During the fourth quarter, our vessel utilization rate was 98, 5%, which is consistent with our vessel utilization since IPO.
This performance was underpinned by successfully executing over 8200 crew changes despite the operational challenges presented by a pandemic.
We continue to benefit from the strong market.
That's up to 15% of our fleet is exposed to floating index rates and we forward fixed 10 vessels during the Q4 and 68 vessels total in 2021.
Leading to only five charter rolled off in 2000 22014 in 2023 and 27% in 2024 as of plenty plenty one year Ed.
In addition, we achieved a historical record low lost time injury frequency of 0.4, as we continue to focus on safety of our people.
These successes together with our disciplined cost control drove our strong Q4, and 2021 performances and demonstrates our consistent operational excellence.
Please turn to slide six.
Now, let's review select key developments at APR.
After two years of the global pandemic mobile power market demand is beginning to improve globally.
With projects resuming after postponement and disruptions.
Two of Aps contracts totaling 400 megawatts wrote off in the fourth quarter.
The first right at the start of the quarter and the second is 15 days into the quarter.
This reduced our quarterly utilization rate to the low 60% range and this is consistent with last years and reflects the seasonality of power demand and subsequent demobilization period of these projects.
We have recently entered into three new deployments, which includes a renewal of Aps.
Contract in California for 90 megawatts, a new market contract in Brazil for 228 megawatts and the dry leasing of five turbines to taxes spaced counterparty for 120 megawatts.
Similar to Seaspan and APR achieved a strong LTI rate of 0.23.
APR is strengthening its platform by focusing on increasing the utilization of the turbines, while developing long term power projects.
Disciplined manner, which in turn generating predictable long term contracted cash flow.
Please turn to slide seven.
I would like to wrap up my comments by reflecting on our past successes and what is in store as we build on our continued momentum.
2017 was a turning point in our company's history following David Sokol appointment as the chairman of the Board, we began the transformation of our governance and business model.
I then joined in 2018 and began strengthening our management team and building and embedding our five core competencies, which is consistent operational excellence creative customer partnerships solid financial strength quality growth and disciplined capital allocation.
Since that time, we have built a consistent track record of strong performance through a diverse set of market conditions, which is further evidence of our resilient business model that delivers value through cycles.
We have enhanced the business model and management team are focused on delivering creative customer solutions by leveraging our fully integrated platform.
Actively manage our balance sheet to improve our financial strength and.
And have significantly grown our franchise with $18 billion of quality long term contracted cash flow, which provides predictable financial performance and significant value for our shareholders.
These themes coupled with our consistently strong performance drive our upgraded 2022 guidance, which Graeme will share it.
Later in the call.
Thank you for your time today I look forward to seeing you all at our Investor day and discussed in the future of Atlas in more detail.
So I will now turn the call over to our CFO Grant please.
Thank you Bing and good morning, everyone. Thanks, very much for joining us today and.
Let's jump straight into it and turn to slide number eight place.
So we've delivered a strong Q4 and full year performance in 2021, which is being mentioned exceeded our raised financial guidance, which was issued during our Q2 2021 earnings call last August .
During Q4 2021 Atlas achieved the following performance relative to Q4 2020.
Revenue growth of 18, 1% to $428 million.
Adjusted EBITDA growth of 18, 8% to $294 million.
<unk> growth of 17% to $190 million.
<unk> per share growth of 14, 3% to 72.
And adjusted EPS growth of 44, 8% to 42.
We're very proud about teams consistent high performance during a period of considerable global uncertainty and operational challenges caused by the pandemic.
These results demonstrate the resilience of our fully integrated platform, which provides consistent delivery in all market conditions.
We've never guided the ongoing supply chain disruptions with minimal impact due to the diligent efforts of our operations team and see Paris.
We have continued to deliver a high level of operational efficiency and service to our customers with asset utilization of 98, 5% in the quarter.
Please turn to slide number nine.
Throughout 2021, we continued our focus on strengthening and optimizing our balance sheet.
This slide captures select issuances redemptions restructurings and initiatives demonstrating our continued commitment to active balance sheet management.
2021 was a busy year for the financing team and that list as a whole.
We have executed an aggressive portfolio of transactions, which has positively impacted our capital structure and financial capacity.
We broadened our access to global and unsecured capital markets.
Improved our financing flexibility.
Incorporated sustainability linked financings.
And optimize that cost of capital.
Our ability to execute on these initiatives continues to build our competitive positioning and the critical elements on our journey to achieve an investment grade credit rating.
We've been working close with the rating agencies on our past achievements and future goals and we're pleased to see that our strong credit profile continues to develop.
While I am proud of our team's accomplishments and we are fully funded for the delivery of our Newbuild program.
We continue to place high importance on quality growth and strengthening our financial profile.
We will therefore continue to actively manage our balance sheet is a critical component of our business model.
Next I'd like to highlight the impacts of these actions on our business in 2021.
Please turn to slide 10.
These metrics capture a significant financial evolution in 2021.
We've managed to outgrowth effectively from a credit perspective.
And we've carefully planned and executed all aspects of our investment and financing decisions.
We delivered quality growth alongside considerable increases in our unencumbered asset base.
Proportion of unsecured debt and improved leverage profile.
These are all key metrics that rating agencies used in the assessment about credit rating.
We will continue to optimize our balance sheet throughout 2022 and.
And look forward to sharing these developments with you in due course.
Now, let's look at the future and the impact of our Newbuild program. Please turn to slide 11.
As previously noted we have de risked our Newbuild program far ahead of delivery through the completion of associated financings.
Long term contracted charters and cash flows and.
And deployment of our experienced Newbuild site teams.
This slide details, how our 17th vessel Newbuild program contributes to our financial performance through 11 $4 billion of incremental gross contracted cash flows that's.
That's approximately $1 billion annually when all new builds are deliberate.
With an average charter duration of 11, five years and with some charters, adding as long the program will contribute cash flows until 2042.
Now I'll turn to a recap of about 2021 full year performance comparing our guidance to actual results.
Turn to slide 12 please.
As a reminder, we issued our initial 2021 guidance during our Q4 2020 earnings call.
And we updated this during our Q2 2021 earnings call in August .
As communicated earlier, we outperformed our raised 2021 guidance across all key metrics, which has been a common theme since the 2017 inflection point being spoke about earlier.
Our ability to do this on a sustained basis demonstrates the resilience of our business model and delivering delivery of consistent.
Quality growth.
Now look at our initial 2022 financial guidance, if Youll turn to slide 13. Please.
The midpoint of that versus full year 2022 guidance is as follows.
Revenues are expected to be 171 8 billion.
And adjusted EBITDA is expected to grow to 113 8 billion.
You will find the segmented guidance for Seaspan and APR in the appendix of the presentation.
As previously communicated we have been taking advantage of the current market environment to recycle capital through divestment of non strategic assets.
This guidance includes the impact of the divestment of two vessels, which have been fully executed.
We have another five vessels sales underway, but not concluded at the time of this forecast VITAS.
Details of the financial impact of these transactions are included in the Endnotes and this presentation.
We will provide a more comprehensive update on our capital recycling program and long term financial guidance at our upcoming Investor day.
Please turn to slide 14.
I'd like to summarize a great 2021 performance by leaving you with five key takeaways.
Firstly Atlas consistently delivered in 2021 building upon our past success and driving quality growth generating $18 billion of long term predictable gross contracted cash flows.
Secondly, our 2021 financial results for both Seaspan and Atlas.
And Ipi exceeded our raised 2021 guidance provided in August .
So it'd be a newbuild program is fully financed through innovative structures with favorable terms.
Fourth we continue to improve our capital structure and credit rating increase our financial flexibility.
Operating sustainability linked financing and optimizing our cost of capital.
And last but not least we plan to hull of Atlas's 2022 Investor day.
On Wednesday March 30, and we hope that you'll join us to discuss the future direction and focus of Atlas together with our unique value proposition.
We look forward to your participation as we had been.
So thank you for your interest today and operator wed now like to open the line for questions. Thank you.
Thank you Sir.
As I wanted to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
Then compile the Q&A roster.
Yes.
Yes.
Our first question comes from Chris Wetherbee of Citigroup. Your line is open.
Hey, guys James on for Chris Thanks for taking the question.
As you look out across the delivery schedule what Steve.
<unk> or possibility that you can have some of the deliveries accelerated in that maybe there is upside to the guidance that you actually put out today.
Yes.
Hey, Good morning, James This is Spain.
With regarding to your question for the past year 2021 we actually had.
Three deliveries, which to US ahead of the schedule for <unk> 2022 we schedule to have eight vessels scheduled to be delivered throughout the year and we anticipate the first of all all of these vessels will be delivered on schedule and.
Some of them might have some.
Early deliveries, but we do not anticipate material early advanced delivery for this year and for the coming years of delivery, which we have.
We have plenty of four vessels for delivery in 2023, and 35 vessels for delivery in 2024, all of those vessels. So far on schedule and this is where where we stand and I think we will update.
The market as we continue to executing on our <unk>.
New Bill program, which so far I think everything is on schedule and with some of them right now ahead of schedule.
Got it and then a follow up on that is there any opportunity to reprice.
Our charter out or.
Chin change terms or whatnot within the existing book of business, which might create upside to it. So I'm just trying to understand sort of the brackets around how to think rather than the guidance that you gave and sort of the sensitivity ranges if you will.
Yes. Thank.
Thank you for these newbuild contract those.
Terms are hell or high water, meaning that they are fixed for those for those.
Terms that we have disclosed to you.
However in the event.
If the customers and owners like ourselves mutually get into any kind of modifications to those agreements that could potentially change the terms, but this is not something we expect in to answer your question.
Your question probably is more towards this end that where is the potential variation upside of revenue for the 2022, I think that it's more on the existing fleet.
Part of our fleet as we said, it's about 15% of our fleet is exposed to the spot market because they are index linked so as the market continue to going up then we will potentially have the opportunity to benefit the upside.
All the other possibilities as for example, we have right now this year, we have five vessels rolled off for re chartering and those are the ones that would also have.
Terms that.
To be to be negotiated with the customers, but other than that I believe that.
Whatever we have giving out the guidance are those numbers that reflect the expectation based on the information is available.
And actually this is that the one of the key.
Differential at differentiating factor for Seaspan is the our business is very predictable.
We have quality contracts and we have predictable contracts and Thats why.
This is the cornerstone of our business model, which is long term.
Predictable quality cash flow.
And if I could just add to that James the other element to this is obviously that we're proactively forward fixing on our contracts.
So when we do have roll ups.
<unk>, yet that are up and coming we are actively working with our customers to extend those going forward so as being points out the short end of the market is not where we place our focus.
We're really into the long term contracted cash flows with stable results. However, we do have some exposure in the short term, but that's not our key area of focus.
Thank you and then.
Just wanted to touch on M&A and sort of understand.
The capacity or appetite that you have at the moment and sort of what those are what looks attractive sort of just turn out basically get a consensus sort of the capital priorities in the near term and then potentially maybe upside through something a bit more inorganic. Thank you.
Yes.
The MAA side right now for shipping as you know the market right now it's very.
Tight on the supply side.
Very disciplined in terms of allocating capital whether for the newbuild or secondhand vessels for obvious reasons, but that being said we are.
Leveraging our I would say the value added services for example on our fuel development side I think that that will be the opportunity where we can combine the allocation of capital in terms of either new build vessels with the value added on the for example.
Device on the fuel on the design side of it so the answer to <unk>.
On the shipping container shipping side I think the opportunity is there, but we will be we are very disciplined.
And also we are very selective in deploying that capital.
And we will only deploy the capital when we see the right opportunity with the right return.
On the on the.
Energy side.
We are applying the same capital allocation discipline, we are evaluating opportunities in.
Renewable energy or gas to power Fsrus to power those type of opportunities around the world. However, I think at this point, we have to be very.
<unk> in the sense that we need to find the right opportunity, where we have the right angle and also have the right I would say at the synergy with the API business that we are currently is in the process of transforming so.
We are in general I think we have so far over the past, yes. We said we deployed seven $6 billion of capital, which is quite a significant amount of our capital allocation.
And.
This year going forward, we will continue to evaluate the opportunities in both segments.
But we will be very disciplined.
Thank you.
Thank you.
Our next question comes from Randy <unk> of Jefferies. Your line is open.
Good morning, gentlemen, this is Chris Robertson on for Randy How are you hi, Chris good. Thank you.
So you guys are known obviously for your strategic partnerships with your customers. So I just wanted to ask about how are your conversations now as compared to maybe three or even six months ago as it pertains to appetite for further new buildings and could you talk about your customers' needs in terms of efficiency upgrades or.
ESG related initiatives as it relates to upcoming regulations and just the ESG environment.
Hi, Chris.
Peter Curtis.
Yes, it's a very topical question indeed.
I'll come back to what we've said.
Many times over the past.
But at least a year.
And that.
It's going to be a demand too.
<unk>.
For the ESG purposes as well as.
A large portion of the fleet is aging.
As I mentioned before somewhere around 40% of the fleet.
As below 9500 Teu.
Nothing has been built in the past 10.
12 years, so this will be coming up for replacement.
Exactly when each customer will make their own decisions.
Up to them.
But we are in continuous discussion with many of our customers.
<unk>.
New designs novel fuels et cetera.
This led actually to our 70 ship order book in regards to ESG.
The existing fleet.
These R&D discussions that we have.
There's quite a bit.
That is it doesn't appear immediately obvious.
In regards to the technologies required to do the conversions.
And these are aspects that we discussed.
Providers of equipment, such as <unk>.
Main engine manufacturers and the like so.
This will be indeed, a journey.
Over the next decade or so.
Sure.
One that will provide opportunities for sure.
Okay, great switching over to the APR assets.
You've spoken previously about wanting to target longer term projects compared to them.
Current business model, how far along is this process and what further steps you need to take with APR to transform it into that type of longer term business model.
Yes. This is Ben again.
Yes, you are right that for API. Our goal is to transform the business into a business model that is similar to a <unk> model that is long term contracted cash flow oriented business to do that of course, the nature of that business would be different from today, we are primarily focusing on.
These are short term.
Fast power services.
To do that as you know that.
There are many opportunities out there where you.
Looking at the dose gas powered.
<unk> or renewable projects. However, I think what we have to look at is considering the risk return and priority of allocating the capital.
Hence that.
Today as I said earlier for us for us to make that kind of at your investment into the long term.
Long term projects that has to be at that debt in a way that the.
The project itself that has to have an angle for us in the waveform that return from the business rationale and also from the that the risk profile.
Those are the things that we need to take into consideration when we make those investments.
As you know right now the market is still in evolution the energy market itself. It's an evolution. So we want to make sure that as the market is in is in development that we need to find the right opportunity plus right now with the Covid, obviously slowed down a lot of <unk>.
<unk> and thirdly, as I had mentioned earlier that.
In terms of allocating the capital.
Over the over the past 12 months that we have made significant capital allocation in the <unk> side, and maybe we take a step back when we.
Built a transformed the sea spend into the Atlas.
At the holding company the idea was that we have to.
<unk> platform, one being the container shipping the other one being the energy power segment. The reason we.
Choosing the power is because we think this is a infrastructure platform that have shared a similar characteristics as we have on the shipping side and also.
With the APR as a starting point, which is the platform that at the time when we acquired we understand their work that needs to be done not today in looking back is that the speed.
Outcome has been.
<unk>.
At the level, we expected I think we have behind it but the reason we are behind it as I say that because theres. Some uncontrollable external factors and also because that we still is in the process of finding those right investment opportunities. So it will take some time for us to <unk>.
Find the right investment so that we are not.
<unk> investment for the sake of making the investment into those long term contracts at the same time actually there's a lot of work has been done not even though today. We are in the still in the short term power.
That market, but in terms of the risk profile in terms of the the regions the locations and the quality of the contracts. These are the areas that we as the new owner as part of our strengthening the platform. These are the things that we're working on behind the scenes that improve the quality of the <unk>.
And this is a basis for us to prepare ourselves to get into that type of a long term contract it.
Projects and this is something that we'll continue to work on and.
Again at this we will have to find the right opportunity instead of.
Working against a specific timeline.
If I could just add that also there's quite a bit of effort in terms of building our internal infrastructure on this so building out our business development resources in Asia Africa, and Central America Honorable taken place and we're building a much more consistent pipeline of opportunities, but it is being says it's one thing to sort of as you sow.
Stand in the traffic and be part of the deal flow, but then we just have to find the right opportunities that meet our investment criteria.
I'm not going to rush the follow up question to that.
It's kind of a two part one is on your revenue guidance.
What do you expect the contribution is from APR This year and I guess related two things comments just then.
Are you looking at any.
Tien generally related businesses in shipping such as floating LNG or floating storage regasification units or something that can help supplement the gas power generation, but on the shipping front.
Yes look I think.
The question earlier around M&A and growth opportunities. This is probably more of a subject for our investor day coming up at the end of March but.
What I can size, we've consistently screen, obviously adjacencies across.
Both platforms.
Core part that we're in and then there's a lot of things developing around the periphery, which have a lot of logical consequences, but once again, it's one thing to screen those opportunities and then the next thing is to actually find ones that will meet all of the thresholds and criteria that we're looking for so we are active in looking at all those opportunities.
But we just have to be.
Cautious and I think patient to make sure that we find the right ones.
Pick up on that more.
In the Investor day.
Alright, gentlemen, thank you for your time.
Thank you.
Yes.
Thank you.
Our next question comes from Ben Nolan of Stifel. Your line is open.
Yes. Thanks.
Good morning evening or whatever time.
Hum.
Alright.
The.
If I could just follow up on the APR I see your broken out guidance in the presentation and I appreciate that.
It is a bit lower than what we saw in 'twenty one.
Two parts to this and maybe a little just a little bit more clarity as to why that is but then also how should we think about the cadence of it.
In terms of how youre thinking about it in your own guidance there.
So thanks, Ben good question.
You're right there is a breakout.
Of IPR that was included in the presentation for the guidance.
Yes.
I'll start with this.
Got it.
Quite a significant based on our guidance and IP off of 'twenty one.
And.
That's quite material.
So we've got all sort of coming off a high going into 'twenty two.
The main issue in 2022 relates to Argentina.
So Argentina has been a long term contract that's been in place and that rolls off.
During 2022 with four turbines completing contracts in January and the currently being Demobbed.
And then in May we've got the conclusion of another 10 to bonds, which then also rolling off.
<unk> will then be migrated across to Brazil.
So that transition.
Which is actually the main impact on our guidance for this year. So we do have.
As you say it has softened.
Down from previous year, we were up to.
Our guidance was originally $195 million to $200 million in revenue for <unk>.
2021 and.
And we're looking at 117.
At the midpoint for 2022.
Primary driver being repositioning of the units out of Argentina.
I got you. So the first half of the year should be a little lower and then see some pickup in the back half of the year and then if we think about it from a long term perspective. This is probably.
Lower than normal year or is that is that a fair way to think about it.
That's correct, yes, given that Heska Oracle leverage that's correct.
And the other thing that we have also mentioned is to make sure that people are clear on how the Matteo.
Revenue reporting works, so I think as Youre aware.
Contractors on the.
And then injunction at the moment, but it's it's in.
Indemnified through our contract with the agenda.
So we get proceeds for that but as reported in a different line item sides.
Isolated in the earnings release, so I just want to make it clear that people need to take that into consideration when they are forecasting.
Certainly.
I appreciate the color.
If I could switch over to the.
Seaspan side of the business for a moment.
You've sold or are selling seven ships I think you said there were five that are coming off contract.
Should we think about those as potential sales candidates as well, maybe just looking to monetize.
Elevated prices here.
Or are you thinking more just.
Signing new contracts on those and any thoughts there.
So I wouldn't I wouldn't cross link those five with the divestment then so okay. The divestment focuses specifically around the older end of the fleet.
Predominantly around the Panamaxes, which are early 2000 vintage.
And we've got an excellent opportunity in the market.
Monetize those from two aspects one is obviously to generate some cash.
Can use to manage our balance sheet, but secondly, these are the vessels that.
Could potentially be more challenged in the future as there's.
A lot of new build activity, obviously going to be coming in in 'twenty four 'twenty five.
The ones that are less efficient and potentially noncompliant with future requirements. So it's a good opportunity for us to expose the five that are coming off.
In terms of roll off might not necessarily be those vessels.
Turning to content plus five.
Understood and then and then lastly for me if I could.
You guys have done a good excellent job.
Procuring financing.
Some fixed not all fixed.
As we as we look forward and especially as some of that that begins to hit the balance sheet.
How should we think about the component of debt has fixed interest rates versus that that is.
As floating but or hedged right on your interest rate how do we think about your hedge position over the next few years, if you could elaborate on that.
Yes, it's a good question and it's something also that I wouldn't mind picking up at the Investor The Investor day, but.
We do actively manage this end, we've recently actually just taken out $500 million hedge.
To switch.
From floating to fixed.
On some of that debt.
Running at about 65% to 70% hedged against our long term contracted.
Because obviously, we focus on our childhood contracts, which are fixed and therefore matching the ratio of fixed debt.
Two the fixed revenues.
It's something we monitor every month.
Type positions on so given the inflationary environment that we're moving into with St hedging more recently in terms of looking at that in these material longer term hedges.
And then adjusted every quarter.
When we review it to see how we're positioned we have another look at the forward curves.
Mike an assessment if we're in the right spot.
So it's a fairly proactively managed part of the business and I'm happy to share more details on that at the Investor day.
Alright, great well I look forward to.
Hearing more about that thank you guys.
Thanks, a lot.
Thank you.
Up next we have Michael <unk> of BMO capital markets. Your line is open.
Hi, guys Hi, Michael for taking my question.
On the APR.
When we look at the guidance for this year you addressed this a little bit just a moment ago, but.
How can we should we think about.
Those summer months is again being very high utilization with peaking power contracts or with these kind of a newly announced one year contracts will be a bit smoother for the back half of the year, including Q4.
Yes. Good question, Michael given the discussion we've had around the end of last year.
The forecast for this year should be more stable in that.
Got the deployment of the Brazil contract, which commences in may and that runs.
Strike through until past the end of the year, it's a 12 months deployment.
What's the potential options to extend.
So those deployments that linked with the other one with the five units that we put with.
Texas based company.
Both of those.
We'll run through both Q3 and four so.
So that should provide more stability.
End of the year.
We will still be obviously looking for participation in the Mexicali round, which we're bringing in for a few years now.
And we would expect.
That we participate in that but that once again that is a very much a peaking power arrangement.
And really sort of hits in Q3.
But apart from that.
I would say that the forecast for this year should be more stable in the second half of the year because of those two new deployments we've got.
And the the Mexicali, that's not included in our guidance correct.
Yes.
No no.
Michael This is Spain actually may be the other way to look at is that APR right. Now has total in total 30 turbines III zero out of the 30 turbine Graham just add debt out of that 16 has already been contracted for the rest of the year, which is for the Mexicali, which is for the EP.
<unk>.
In Brazil, and also for Texas kind of party and also for <unk>. So we have 14 turbines that is in Argentina for them. It's just started.
B D mobilized which is going to take some time.
Once to demobilize, and then export the equipment out of the country and the other 10 of the turbines is scheduled to complete its contracted services in Argentina by end of May and following then we will start the demobilization again, so that will be taking.
<unk> for those equipment to be repositioned.
<unk>.
The next deployment. So in this year that you will you can take into consideration of 14 turbines is in transition that they're in the mobilization and demobilization mode and Thats just the nature of that business. So therefore.
As we as we provided the guidance right now is taking full consideration of what I say is just now meaning <unk> is being deployed is in operations. The other 14.
They're in the process of finishing up and start in the period of demobilization and mobilization.
Okay. Thank you.
And then on APR taxes. It was obviously very high this quarter.
Is this something based on the nature of the business that we can kind of expect seasonally each year or was this more of a one time with some of the demobilization that are about to happen.
Yes, there was a one off.
Tax expense item that was related to the exit from Argentina. So.
October when we sort of declare that we'd be exiting Argentina at the conclusion of our contracts, we were carrying a deferred tax asset.
And the country, given our exit we won't be utilizing that tax asset. So there is a noncash adjustment.
Approximately $15 million.
The tax expense line as a one off non sorry noncash adjustment for that exit.
Okay, and then final question for me.
Obviously, youre doing a good job de risking that outlook.
The sale of these vessels is this something we could potentially see mora with other older ships and then.
In addition to the Ford fixing in the vessel sales or are there any other kind of tools to.
To position yourself for that 2024 25 timeframe.
Yes, we do have more vessels that enter sorry are you guys doing.
Go ahead please.
No I was just going to say, we do have more vessels and.
And that all or a part of the fleet and they are being actively marketed where appropriate. So it's not just a blanket.
But we're going to exit all of those vessels that depends on a number of other factors in terms of how they're contracted.
But we are actively working on selling some more of them so well.
We will be able to give them more.
Some view of that at the Investor day.
Also.
As you would have noted from the earnings release.
These vessels are being sold.
Direct to third parties, but some of them are also being sold into a joint venture with <unk> J J D.
And we.
We will explain the mechanism of how that works as well.
At the Investor day.
Perfect. Thank you very much.
Thanks Mark.
Thank you.
Our next question comes from Ken <unk> of Bank of America. Your line is open.
Good morning, Ken.
One moment please.
Yes.
Okay.
Let me can host Sir your line is.
Hi, good.
Good afternoon, good morning, Hello.
Greg are there Ken.
Yes, so so.
Sorry, I don't know what happened I got dropped before but thanks for getting me back in.
So just to follow up on that this is the first time I think I've ever seen seaspan that I can recall selling vessels. So just to follow up on that last answer maybe Greg just talk about the market versus re chartering versus versus running it to the end of the life.
Versus selling in this high demand market.
What made you take those moves.
The benefit you see versus given the strong rates in the market.
Continuing to charter that and then.
You mentioned the sale to the joint venture maybe walk through why that was done versus.
What the advantages are there.
Sure Ken.
Good morning, Ken.
Good morning, guys.
Yes.
Yes.
Maybe I can try to answer your question with regard into the sale of the vessels. So you're absolutely right that maybe this is a surprise in the first time, you'll see that we saw in the vessel is really because.
Our perspective actually.
Managing the residual risk is the call I will say competencies of Seaspan and this is what we do in terms of managing the whole lifecycle of the assets. The reason that you have not seen that selling the asset. That's at this point is because.
The fall of two reasons, one is because our vessels typically I always under a long term charter. So therefore that we.
We always have the demand from the customer and second reason is that our fleet in general young.
Young.
On a fully delivered basis.
Our fleet is about six and half years younger than the industry average.
When it comes to the asset divestments, whether you sale or you work them until the end of the life. It really depends on how really depends on how you're going to be able to utilize the assets.
Whoever buys the asset they are going to see how much the asset is going to be able to generate the projected future cash flow and then discount them back to get the value as you know that typically.
When you see the vessel sales as they say, that's a charter attached or charter free.
So in our case, we always have the charter attached and a lot of times when somebody wants to buy the assets typically they are value is lower than ours, because our charter attached is always higher because we have a better customer demand of the vessels actually flip inside of it.
Is that if you're looking at 2019 to 2020, we actually bought.
19 secondhand vessels for the exact reasons is because we can buy these vessels because we can buy those vessels at charter free.
All we can buy those vessels at very little charter attached and then we turn around we will be able to have a much longer and good quality of charter attached to it that's why we will be able to create the value.
In the current market, obviously, we still doing active management of the assets as part of our fleet optimization.
One is talking about fleet age the other one is talking about fleet sizes the size.
Before we had this 25 7000 new built.
Our fleet size has been around 80% above 10000, Teu and then with this $25 7000, new built now we have about 75% of the fleet that is.
It's about 10000 Teu, so we continue to managing the fleet composition.
In terms of the size the efficiency that design and also now the fuel so.
With these vessels currently has been sold or in the process potentially being sold to our position has always been that looking at what is the best way either we are going to use them.
Charter them till the end of their life or if there is an opportunity where the market will be able to offer the better than the.
Our work until the end of the life scenario in other words between the sale or keep that's where we will be selectively making those sales also we need to take into consideration of our.
Customers' needs so that we always take into multiple considerations in making those sales decision, but overall again I think I wanted to make sure is that in terms of residual risk management. This is the core of what we have tried to focusing on and this is something that we will continue and in the current mark.
But obviously you see these type of opportunities coming up and we opportunistically.
Capture those opportunities.
Yes.
If I could this is Dave Sokol, maybe echo a little bit of what Boeing has said because I can tell you. The board is extremely pleased with what the management team has done in the last four years and.
We recognize that our business model is more risk adverse and more customer centric.
But many others, but I think it's.
Really important some of the points being made.
As I look back and joined the company in 2017 on the Board. This company was frankly near default on its debt.
Had no long term plan.
Managing what was then one third of the fleet we have today.
When you look at that and look at your default credit rating in 2017, not only have they grown funds from operation for $250 million to almost $800 million over that period. It's also today, one notch under investment grade.
So not only three times, the cash flow, but of a much much higher quality of cash flow.
And the other element is that their recycling out of the older ships and only procuring along with our customers.
High quality environmentally sensitive ships going forward in order to meet the demands there going to be coming.
Yes.
Today, I mean, one could argue that we should have been not contracted long term and just take advantage of spot market prices.
And that was we said openly back in 2017 2018 that was not the business model.
This model is to lock in long term partnerships with customers fair to them fair to us, but avoid the supply demand imbalances that inevitably occur.
And that allows the company to then reinvest in high quality ships that meet the future demands.
And when you look at all of that over the last four years. The fact that <unk> group has done.
Credible job of the lowest injury frequency rate in the industry, even though they have the largest fleet of ships.
98% plus utilization of three times the number of ships we had in 2017.
But also importantly, the difference that Peter Curtis as team has made in all of the environmental advancement. So.
Wow.
The model was not to take advantage of the peak and to avoid to also avoid that.
Trough of earnings.
If you had noticed very few of Seaspan as competitors have announced any large building programs and there's two reasons for that number one the <unk>.
Customers need high quality performance and a long term basis, and if youre going to build a lot of ships you've got to have the credit quality the equity base to financial.
And the fact that this team has put seven $5 billion of long term financing to backup those charters again, just from the board's perspective really wanted to be clear that we couldnt be prouder of the management team and the steps, we're taking and.
And we think there's significant value every year along the way.
And welcome to continue to do that but don't want them swing for fences.
Four four.
Projects or opportunities that don't have adequate cash flow returns and adequate.
Credit quality.
Any way to the team extremely good work.
They are actually I would love to follow up with you on all of them.
Question on APR, but I don't know if being if you wanted to just wrap up on the on the sale to the joint venture what what the purpose was there or if thats really.
Is that truly an independent sale is that staying in the company, maybe just give us a perspective quickly I know Graham said, well maybe more at the Investor day bottle, if theres a quick thoughts that you want to throw out there.
Sure.
The very quickly joint venture is a 50 50 between Atlas and Z, which is a prevention energy power company in China. So that is a joint venture.
<unk> between <unk> spend and a joint venture is at arm's length in terms of the value.
This is really based on a fair market value.
The arrangement of debt transactions that <unk> spend will continue to provide the ship management and commercial management.
And then the joint venture will take the ownership of the asset and Thats no different than sell into any other third party, except that it is a related party, but is an arm's length basis and will provide a ship management services.
Maybe I'll just add Ken.
The vessel is sold into that venture than.
<unk> financed within that venture so we extract the full cash.
Proceeds from the sale and the joint ventures, non consolidated for us with no recourse on the debt. So that's why I said I'd like to cover in a bit more detail at Investor day, because it actually is quite a bit.
Quite a unique structure that we've got there so it works very well for all parties.
It sounds great.
So just if we could just revisit the peer obviously, it's taken a lot of time on the call and being noted earlier that you'd like to very predictable market and I think thats, what the whole concept of Seaspan and the long term contracts yet APR. Since you acquired it is seem to be anything but in terms of the consistency right. We've had rolling contracts change of management.
Maybe can you just set the stage here in terms of deployment of capital through the segment, maybe you mentioned some potential M&A, but the shifts in the contracts how do you see the business blending are expanding within the organization.
I think first of all you have to step back and rest.
Two things one I mean, we knew what APR was what their business model was when we acquired it but we also knew that they had a lot of issues that had to be worked through and the former owners.
Appropriately indemnified us to be able to work through a lot of those issues and so so yes. There is a lumpiness there the ultimate goal for US is not to just be in the in the short term energy business as we've said all along it is to you.
Utilize that platform to get into the segments of the energy transition lets take your place globally over time.
And so we think that the short term expertise that they have had the good work they've done frankly, one of the only companies that has actually.
Biding significant megawatts in the U S today to help offset some of the the.
Imitation from renewable power Thats been overbuilt with some regions.
They've done a good job with that.
Not a business model that long term.
Fifth with what we think of Atlas's business model, but it will.
The short term power market will continue to be a player but our goal is for that platform to be much more involved in the energy transition is going forward.
Could be completely fair and I think we've said this each year.
Covid has certainly slowed us down because the ability to deal with markets around the world when you can't travel to them when they can't meet with you.
There's obviously been significant I think youre going to see significant change in that reality happening this year and in the future. Although many countries are still much more locked down.
In North America, but that's where we want to be we want to have long term relationships.
They don't necessarily it's a different industry.
And the energy side, then shipping in the sense that much broader a much larger market.
Contracts can be bulk straight contractual relationships or they can be regulatory relationships.
And so there is a lot of opportunity there, but I think our expertise which is more global through APR.
We're seeing a lot of a lot of potential, but but I think if you followed my past and brings past.
We're not going to jump at things that don't have a appropriate risk adjusted return.
So it's going to be getting APR to where we want it to be is going to take time, but we're not going to allocate a lot of capital there.
Unless we have opportunities.
That had the right risk.
An outcome potential so.
We're frankly excited to have that sector as part of the business.
But it's early days.
But I would also.
You want to.
Look at the transition that took place at Seaspan over the last five years and.
That's been.
Frankly extraordinary.
And well done by the team there.
But.
APR at some point, we will have similar opportunities.
Just have to you have to see through my experience of the last 40 years.
Investing business, particularly when Youre looking for for <unk> business model.
Is it things happen about every five to seven years in different industries and they provide enormous opportunity.
I will never ever forget.
And Ron filed for bankruptcy had opened up 18 months of the investment.
Investment opportunities in the energy and the energy industry.
And those things happen in each industry and they happen over time, you just can't predict.
We're just not going to jump into things on to come we will we will get involved where we know we can we can develop long term sustainable cash flows and continue to build the <unk>.
Shareholder value for outlook.
Wonderful I appreciate the time, Dave Thank you for I think.
Alright, Thanks, Ken.
Thank you.
Further questions in the queue.
This will then conclude today's conference call. Thank you all for participating you may now disconnect and have a okay.
Thanks, everyone.
Thank you. Thank you I look forward to seeing you all on our Investor day, which is on the March 30 <unk>.
So thank you all and see you soon.
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