Q4 2021 Global Ship Lease Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the global ship lease fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation.
The question and answer session to ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded and if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Ian Weber. Please go ahead.
Thank you very much and apologies for being part of the mix Okay.
Good afternoon, everybody and welcome to the G. S. L fourth quarter 2021 earnings conference call.
As normal the slides that accompany today's presentation are available on our website at www <unk> Boucher. Please don't call me.
Slides two and three remind you that today's call may include forward looking statements, which are based on current expectations and assumptions and are by their nature inherently uncertain and outside the company's control.
Actual results may differ materially from these forward looking statements due to many factors, including those described in the Safe Harbor section of this presentation.
We also draw your attention to the risk factors section of our most recent annual report on form 20-F.
Which is for 2020 and was filed with the SEC on March 19 2021.
China is falling our websites ball bond the SEC's.
All of our statements are qualified by these and other disclosures in our reports filed with the SEC we.
We do not strike any duty to update forward looking statements.
For reconciliations of the non-GAAP financial measures to which we will refresh or in this call to the most directly comparable measures calculated and presented in accordance with GAAP you should refer to the earnings release that we issued this morning, which is also available on our website.
As usual I'm joined today by our executive Chairman, George Your recourse Chief financial officer hostile surplus.
Commercial officer, Tom Lister.
George will begin the call with behind level commentary on GSL in our industry, and then Tassos, Tom and I will take you through our achievements accordingly.
Any results and financials.
Current market and after that we'll be pleased to take your questions.
Turning now to slide four I'll pass the call over to George.
Thank you Ian and good morning, or good afternoon to all of you joining us today.
Before I get into the slides a few words about the dreadful situation in Ukraine.
He feels very wrong to be discussing the implications for our business over this conflict in the midst of a humanitarian crisis on this scale.
But we recognize that it's important to provide context to the extent that we can.
The situation is obviously dynamic it's far too early to assess the blow the repercussions.
I'll keep my comments narrow and industry focused.
Last year, the combined containerized throughput operation and opinion Black Sea ports was about 1.8 million Teus.
That's against global Containerized volumes of around 201 million Teus in the same period.
It's though it's felt likely that a significant portion of those black sea related Williams will be rerouted via north German and Baltic ports.
There will be clearly localized and regional disruption to trade patents routes and volumes.
The Big question for our industry of course is what will be the impact of sanctions.
And Russias reaction to those sanctions.
On the global macroeconomic environment.
Obviously, a critical question, but also one that it is far too soon to answer.
Although we note that some of their lines have just put a freeze on cargo bookings to and from Russia.
In the meantime, we will focus very strongly on safeguarding our people our ships and the cargo they catty.
Now back to the slides.
I'm very pleased to say that the highly supportive containership market conditions that I highlighted on our previous calls have continued.
Demand for container shipping services grew by 7.1% in 2021 filing in excess of the 1.4% capacity growth in shapes below 10000, Teu with GSA lease.
Oh specializing.
And so far this year, we have forward straight through the Chinese new year period, which is typically a weaker period of the year.
Our seasonal azuela cyclical industry.
2022 forecasts are currently for a full point to demand growth again, five in excess of the 1.7% capacity growth below 10000 Teu.
As a result, we're experiencing record high freight and charter markets.
With the support of these strong fundamentals, we have accomplished a great deal in the last 14 months.
We acquired 23 ships or an opportunistic immediately accretive basis.
A total of just under half a billion dollars and increasing the size of our fleet by more than 50%.
A demonstration of the impact and good timing of our growth ease that EBITDA in fourth quarter 'twenty to 'twenty, one with 65 ships was $85 4 million.
More than double the 58.7 million reported for fourth quarter 'twenty 'twenty.
Before the 'twenty, one 2021 shapes additions.
We secured 51 your charters for our fleet.
Adding more than $1.5 billion of contracted revenue spread out over several years.
I would kindly highlight that and number of their attractive charters that we agreed during 2021 where I don't have full was stopped basis.
And thus we expect to see the full cash effect from those new charters building as 'twenty to 'twenty two progression.
Particularly in the fourth quarter.
Where do you financed more than $400 million of debt.
Materially reducing our cost of debt.
And we have also hedged all of our floating interest rate exposure.
And updated credit ratings of double b minus and be one.
We delivered record earnings with a normalized 22 into one earnings per share or $4.86.
I was I expand.
As I expect many of you are well aware, we announced the initiation of a quarterly dividend just over a year ago, well originally contemplating a dividend of 12 cents per said before more than doubling it in very short order to 25 cents driven by a surge of accretive growth.
And long term charter signings.
We have subsequently announced that starting without dividend for this current quarter.
First quarter 'twenty to 'twenty two the payout will increased 775 cents per share per quarter more than triple the originally contemplated amount in just over a year.
This sustainable dividend payment.
He is an important component of our dynamic capital allocation policy, which now includes.
The return of a substantial amount of capital to shareholders through a sustainable dividend.
And under our newly introduced 40 million share repurchase authorization.
Slight improvement for decarbonization.
Balance sheet strengthening.
And fleet renewal through selective disciplined accretive and opportunistic acquisitions.
All of which Ian will discuss in more detail.
Fundamentally.
So.
We will continue to execute the long term shareholder oriented strategy that has served us very well to this point and we'll continue to deploy our capital in such a manner as maximizes value for our shareholders.
In our risk adjusted.
Stay in the board and I have to say the word twice sustainable opportunistic manner.
To put this in context.
But it doesn't.
Approximately $46 2 million to shareholders in 2021.
The $6 2 million by dividends and $10 million in stock buybacks.
Which was a little more and the net unrestricted cash generated in the year after capex growth and debt amortization.
So essentially all of our available cash flow.
Looking at the EBITDA calculator on page 22 of the slides.
They must gifts $120 million of cash flow.
After debt amortization of which 60 million, 50% is committed to dividends.
This is up 65% on the 'twenty to 'twenty, one dividends and does not take into account any stock buybacks, nor incremental capex in response to decarbonization selective fleet renewal will further balance sheet improvement.
If you now turn to slide five.
I'll describe the big picture for our industry at this moment.
While there are many factors that play a role in determining the strength or weakness of the container ship market and.
And Tom will cover a number of them later.
The broad strokes are very straight forward in this case.
In the face of sustained demand for the transportation of containerized cargos and.
And a limited supply of container ships liner companies have been willing to offer at much higher rates and for much longer durations.
Our available during more normal periods.
They're able to offer us these stamps because the liners themselves have been making our records profits and transforming their balance sheets.
The high level of underlying freight demand, which was thought initially.
Italy to be a temporary phenomenon has proven to be highly durable.
Meanwhile, containership supply, particularly in the mid size and smaller segments, where we operate.
It remains very limited.
This has meant that both charter rates.
How should the values have sustained that upward trajectory.
Moving forward there.
The vessel supply in the relevant segments and inventory restocking represents a further incremental layer of demand on top of fundamentals.
As you can see in the lower left the stroke market has quite rationally resulted in a near total absence of any scrapping even four vessels that would in normal markets almost certainly be scrapped.
By 'twenty 'twenty four.
Nearly 8% of the global fleet under 10000 Teu.
We'll be over 25 years old.
Including much lower specification donuts.
But we would expect to be removed from service when a normalization of demand thus REIT tightening the market.
As clearly supportive as the fundamental situation is.
It is also a button there is real uncertainty in the overall macro environment.
The ongoing potential for further COVID-19 variance inflation and of course geopolitical uncertainty, specifically surrounding Russia, and Ukraine, which introduces substantial complexity into the regional economy and supply chain with broader implications throughout the world, none of which I'll get clear.
Further they need to Decarbonize our industry.
We live by and evolution of both regulation and customer needs, it's likely to play an increasing role in our business in the quarters and years ahead.
In the long term this will involve changes to propulsion and design for new ships entering the global fleet.
But many of the new technologies remain unproven and not speculative at this stage.
Ah GSL, we will be focused on enhancing the fuel efficiency of our existing ships.
Collaboration with Atlanta partners, using proven technologies and solutions.
Across the global fleet, we expect that compliance with the new regulations coming into effect in January of 'twenty to 'twenty three will likely result in slower average sailing speeds.
While it is hard to assess the degree to which the global fleet may slow down.
Reduction in average speed of just one not equates to reducing effective supply by 5% to 6%.
We will come back to capital allocation later in the presentation, but I will briefly summarize.
As the excellent service that we signed in 2021 increasingly come into effect and build their contribution to earnings we have greater discretion in allocating capital.
Are there any increasing amounts to shareholders.
We also keep in mind, improving our fleet to respond to the carbonization imperative and also strengthening our balance sheet.
We will maintain our strict discipline of fleet renewal.
Through selective acquisitions that generate accretive growth on a non speculative basis, we did not chase assets at public options. What are the highest bid wins and we have passed on far more acquisition opportunities than we have pursued over the last year.
If we do not have high conviction that that acquisition will be in the best long term interest of the company and our shareholders, we simply do not take it forward.
Beyond that we.
We will continue to optimize our balance sheet, while also returning capital to shareholders in the form of our increased dividend and also on an opportunistic basis through the $40 million share repurchase authorization announced today.
With that I will turn the call to Ian.
Thank you George please turn to slide six.
In 2021 we enhanced our earnings by both expanding our fleet by more than 50% and also securing finding attractive long term charters across our existing fleet.
On this slide which shows the 43 vessels we earned at the beginning of last year, we indicated don't blame the 'twenty one chances that we added since the beginning I'm trying to stretch, Iran. Totally many eight sorry totaling nearly $900 million in additional contracted revenue.
You'll see that many of these chances extend one out through the middle of a true tear into the middle of the decade or even longer Oregon onto our in many cases at rates that are multiples of that product.
All else equal an increase in the charter rates go straight to our bottom line.
Also as you can see here the vessels are fully booked through 2023, I think we have three open days this year at the moment I'm much of 2023.
Sorry, if I said trying to transfer them on 'twenty 'twenty, three with fully booked through 'twenty, 'twenty, two which read out.
The days of March of 2023 Years', Cabos, giving us strong visibility.
Given the extraordinary tightness of the market there may be some opportunities to food fix more of our vessels one in advancing various bars.
On the next slide slide seven we show a good 23 vessels that we acquired during the course of last year, which have now been delivered and are generating revenue for us.
These ships have increased our contracted revenue by $650 million.
The dark blue bars on this slide although his legacy charters that were in place when we agreed the transactions too.
So a considerable benefits these below market charter rates translated into below market prices for the vessels themselves when we purchased the ships.
The red bars on this slide show those tranches that were agreed subsequent to the acquisitions by us and bus which reflect the strength of the charter market.
As was the case with the existing fleet. These newly agreed chances are far higher rates conveyors. They replaced some of them trouble or more of the.
Previous rates and they extended for multiple years.
In total as George mentioned, our actions during 2021 have increased our adjusted EBITDA.
For the fourth quarter of 'twenty, 'twenty $1 million to $85.4 million, which is 2.2 times that's for the same quarter last year quarter four in 2020.
They have also increased our adjusted EBIT to our backlog.
$1.2 billion and brought our total contract cover to $1.8 million on average over the next.
Two six years.
On the next slide slide eight I will provide some illustrative guidance on how our contract cover flows through into our earnings.
To be clear.
We are not providing a forecast, but rather providing you with a framework for understanding our revenue and adjusted EBITDA in the three illustrative scenarios, we've set out along with the various assumptions spelled out in detail in the EBITDA calculation in the appendix of this presentation.
I'll highlight just a few things.
As mentioned, we are fully contracted essentially through 2022 so our revenue for the year is not sensitive to any changes in the charter market or charter rates agreed by ourselves there.
<unk> ability and revenue will be driven by the actual amounts of offshore compared to our assumptions all far for Drydocking and.
Unplanned off hire for breakdowns.
Looking out to 2023 spot exposure remains limited.
According to the EBITDA calculation, which I mentioned before it's on page 22 of the presentation, 86% of our ownership days for 2023 all covered.
Moreover, the vessels that are due to come open in 2023 currently have rates, reflecting the previous week markets, meaning that that re chartering would increase our cash flow under any of the three illustrative scenarios mentioned here.
For context, and as I mentioned last quarter GM sales run rate adjusted EBITDA in 2019 and 2020. The two years since our 2019 merger was beside and was approximately $119 million a year.
So to the extent of the improvements here is dramatic.
In short we are in a good position with high visibility of cash flows EBITDA through at least the medium term.
With very limited reliance on the charter market.
It is particularly reassured given the current geopolitical and economic backdrop.
Okay.
Moving on to slide nine I'll discuss our dynamic approach to capital allocation.
We're now generating a great deal more cash flow than in the past from growth from improved charter rates and as such we have an expanded set of opportunities to allocate capital in a way, even sustainably maximizes shareholder value and relative returns on a risk adjusted basis.
As you saw in 2021, we do pursue accretive growth and fleet renewal opportunities on a selective and disciplined basis.
George mentioned, we've foregone far more growth opportunities than we sued as we've maintained strict discipline and a set of criteria that they serve GSL shareholders very well.
Importantly, we also look to return capital to investors on a sustainable value creating basis.
As mentioned, we are increasing our quarterly dividend to <unk> 37 on a half cents per share more than trebled.
The level of indicators, you're just over a year ago.
We believe that we're well positioned to robot reliably support this payments on a sustainable basis.
We also intend to pursue share buybacks on an opportunistic basis.
As you saw in the third quarter of 2021, when we repurchased $10 million of GSO shares and canceled them.
Additionally, we've announced today that our board has put in place a $40 million share repurchase authorization, enabling us to move quickly to opportunistically repurchase shares in the market without the administered seems like I'm, having to seek board approval.
Please note as George has already said.
The cash effect of a higher rate charters builds as 2022 develops and further our dry docking schedule is weighted towards Q1, and Q3, sorry, Q1, Q2, and Q3 and consequently cash availability is weighted towards the latter part of the year.
So over the course of less than one year, we significantly increased the amounts of capital being returned to shareholders and expect to continue this trend.
Higher quarterly dividend, which we've announced and the new 40 million dollar repurchase authorization.
To repeat what George said earlier, because it's important we returned to shareholders a little more than all of our net unrestricted cash flow last year after capex growth and debt amortization. This return was by way of dividends and stock repurchases.
For 2022 based on the EBITDA calculation on page 10 Institute, 50% of operating cash flow. After the same margins that any motivation.
Dry docking et cetera.
He was committed to dividends on the preferred and common stock.
This does not take into account any stock buybacks or incremental capex.
George also mentioned in response to Decarbonization selected fleet renewal or further balance sheet improvement.
We also continue to look for opportunities to not just refinance and lower our cost of debt, but also to deliver in a way that builds equity value managing balance sheet risk.
Finally, and importantly in addition to the Capex that is inherent in our ongoing operations for regulatory dry Dockings. For example, we also expect to deploy capital to meet evolving market and regulatory demands of decarbonization.
We intend to focus on deploying proven technologies and solutions to enhance carbon footprint.
On the fuel efficiency of our fleet.
Rather than any of the current speculative alternatives.
We expect such capex to be promotional benefits and increasing the attractiveness of athletes and thus our ability to continue to charter our ships at premium rates as we've been able to do in the past.
Of course.
When weighing these options.
We and the board take into consideration the risks to our cash flows are expected profitability through the cycle and the regulatory market variables ahead of us.
Fundamentally, though we focus on generating long term value for our shareholders targeting a balanced approach to capital allocation that builds shareholder value on a sustainable basis in what is a cyclical industry.
With that I'll turn the call over to Tassos to talk you through our financials.
Thank you Ian on Slide 10, we have summarized our 2021 financial highlights revenue for the year was $448 million up from 282 8 million in 2020 'twenty.
Similarly, adjusted EBITDA for the year was $252 2 million up from $163 $2 million in 2020.
Our normalized income, which adjust for the one off items increased from 14 $9.6 million in 'twenty 'twenty $177 million in 2021.
Moving to the balance sheet items much of these cuts being previously covered but I would highlight the following.
We had $203.5 million of cash at year end of which $128 4 million as restricted and approximately 25 million represent a minimum free liquidity level set from our debt facilities.
We also refinanced $383.1 million of debt within 2021, and an additional $26 2 million within 2022 till to date materially reducing our annual debt service and eliminating any maturities before may 2024.
We have purchased instruments capping LIBOR on 992 million of our floating rate debt at zero point, 75% the.
The first interest rate cap on $484 1 million or a dad, who was put in place in December 2021 at a cost of seven medium.
The second cap of 507 9 million of debt was put in place in February of this year at a cost of $15 4 million.
The other items on this slide so it says they sit by you will be familiar with from our third quarter earnings call, but that will be happy to address any questions you might have during Q&A.
For the record our detailed financial statements are appearing full on slides 11 through 13.
Now on Slide 14, you can see in the upper left our scheduled amortization in the coming years.
He is prudent, especially in a cyclical industry like ours with assets that have infinite life, we amortize and adequate amount each year as agreed with our lenders will be lagging our cash flows to deleverage and to limit our exposure to refinance risk alone maturity.
On the upper right you can see the dramatic reduction in our cost of debt from seven 7% at year end 2018, six 3% in early 2021, and all the way to four 7% now.
And it would be just like ours is greatly increases our competitiveness.
The lower left you will see that the trading liquidity in our stock has increased substantially over the last year, making it far easier for the vessel to take position in GSL, particularly as our public float increased to 84% by year end.
With that I will tell you you know what it's at home.
Thanks Stefan.
Slide 15 is intended to highlight the ship sizes on which all businesses focused which will help with the subsequent slides in context.
And many of you will have heard this before but I'll repeat it. Nevertheless, GSL is focused on midsize and smaller ships, which is shorthand for ships ranging from about 2000 Teu up to about 10000 Teu.
Top map on the left shows the deployment of our sizes of ship Aida ships under 10000, Teu and emphasizes the operational flexibility.
As you can see they're deployed pretty much everywhere.
Bottom, Matt O'neill and shows where the big ships those larger than 10000 Teu were deployed which tends to be on the east West main lane or arterial trades, where the cargo volumes and shoreside infrastructure.
And it's important to note that over 70% of global Containerized trade volumes in fact, 72% in 2021, all moved outside these main lanes and the north South regional and intermediate trades served by ships like ours.
George covered the demand side in his opening remarks, highlighting the rebound in containerized volumes with year on year growth of seven 1% in 2021 and for the moment at least forecast to be four 2% in 2022 with continued supply chain disruption amplifying the demand.
For effective supply.
So the next slides are mainly supply oriented.
Slide 16 shows the supply side trends that tend to be a barometer of health for the sector. The top chart shows idle capacity, which at year end was 0.6%. This is pretty much full employment, which remain the case during the traditional flu season and through Chinese new year, So a very strong baseline.
But the bottom chart tells a similar story.
Recycling scrapping was almost nonexistent for container ships in 2021, which has remained the case through the first couple of months of this year.
The explanation is straightforward why scrap even an ancient ship if you can employ a very lucratively to illustrate.
This point, a 25 year old feeder has just been fixed by one of our competitors for a little over three years at $41000 a day.
And you'll remember that we fixed Kumar Z, a 20 year old feeder just a couple of months back of $38000 a day for similar period, which in turn was up on $32000 a day for a couple of her sisters fixed two months prior.
I'll come back to this later.
In the meantime, please turn to slide 17, which looks at the order book.
Here you can see on the left the composition of the order book by size segment.
As I'm sure you will have read in the industry press and as we acknowledged on our last earnings call. The order book has expanded during the course of 2021 2021, reaching an overall order book to fleet ratio of 23, 4% at year end.
However, this overlooks the fact that the order book is very heavily weighted towards the bigger ships over 10000 Teu.
If on the other hand, you look at our focused segments of 2000 to 10000 Teu highlighted in the Red box you can see that these sizes. The order book to fleet ratio is significantly lower but only eight 7%.
Another point to emphasize when discussing your order book is the delivery schedule is back loaded by this I mean, the order book deliveries tend to be weighted more heavily towards 2023, and 2024 now slipping into 2025 rather than to 2022.
This back loading as significant as 2023 monks the implementation of the new environmental regulations, which we expect to cause a slowing down of the global fleet, reducing effective supply.
It also ties into the point George underlined earlier in his commentary on slide five that mid size and smaller containership fleet.
The global fleet is aging as you can see from the chart on the right of this slide if script scrapping what continued to be differed by the end of 2024 between seven and a half and 8% of sub 10000 Teu capacity currently on the water would be at least 25 years old and candidates for recycling.
Yards.
Net this out against the total order book of sub 10000 Teu due to be delivered from year end 'twenty, one 2021 through to the end of 2024, and you would get implied net growth and these sizes of just 2.3% to 3% per year I hasten to add but two 3% total.
Over the coming three years.
So in short.
We continue continue to see supportive supply side fundamentals for our focused size segments.
Which brings us to slide 18, the charter market.
The chart here provides an index covering charter market rates for a basket of container ship sizes and shows the general direction of travel for the market as a whole being.
The index is up by almost four times as you can see on where it was at the start of 2021 and bind incredible nine times since the lows of 2020.
It is important to note here that the index is based on short term fixtures by which I mean fixtures of under a year and usually with just a few months, which explains the apparent and I emphasize apparent loss of momentum in the second half of 2021.
What is really happening here is that the market migrated to longer term fixtures of the type we as GSL have always been focused upon at the expense of the short term market and as you can see from the rates on the right hand side of this slide the market for multi year charters has remained very strong indeed with rates firming, especially.
Vigorously in the smaller sizes as well as illustrated by the three feet of fixtures, including that of the commodity the commodity I referenced earlier.
So the supply side fundamentals suggest more of the same in 2022 and 2023.
As we all know the macro and geopolitical environment makes the demand side exceptionally difficult to call at the moment.
With that I'll turn the call back to George to wrap up.
Thank you Tom.
I will briefly summarize and then we would be happy to take your questions.
The signing of a large number of long term charters at higher rates and selectively acquiring ships. We entered 2022 with a $1.8 billion of concept cover over two six years.
Easily providing cash flow to cover all of our debt service.
Capex and dividends for 'twenty to 'twenty, two and 'twenty to 'twenty three.
We thus have no reliance on further than yours throughout the end of 'twenty two 'twenty three.
So of course, we intend to pursue additional charters for those ships coming open in 2023.
Our fleet of hiring for midsized post Panamax and smaller container ships is in the sweet spot of the market.
While there is essentially zero idle capacity or scrapping at the moment that mid size and smaller fleet is aging.
Scrapping backlog.
Set against that negligible order book.
And in government regulations, we might actually see effective capacity shrink from 'twenty to 'twenty three.
And the charter market all signals are positive with freight market continuing to be red Hot lineup forecast another year of exceptional profitability and charter markets currently up almost nine times from the mid 2020 lows.
Finally.
Also cash flows expands.
We're allocating capital to maximize long term value through it.
Greatly increased dividend and our newly announced repurchase authorization substantially increasing the return of capital to shareholders.
Slight improvement for decarbonization.
Fleet renewal through selective disciplined accretive and opportunistic acquisitions.
And further deleveraging, which also contributes to creating equity value.
With that we would be happy to take your questions.
Okay.
As a reminder to ask a question do we need to press star one on your telephone to withdraw your question Jess.
All key police saddened by it will compile the Q&A roster.
Okay.
Our first question will come from the line of Randy Gibbons from Jefferies. You may begin.
Howdy team GSL how's it going.
Great great. Thank you.
Great. Indeed, I guess first question here about the dividend good to see the increase how did you decide on that amount should we expect some continued smaller increases in the future as vessels are for fixed and then how do you balance that dividend with share repurchases clearly your share prices is pretty undervalued here.
Yeah do you want to.
Sure I'll try this.
Yeah. Thanks Randy.
Yes, I mean, we we review the dividend will capital allocation.
More generally, but let's focus on shareholder returns.
We review the return of capital to shareholders regularly as you would expect.
With the refinancing of our expensive high yield notes back in January of last year, we were able to announce a 12% dividend.
We reviewed that a couple of months later.
We were about to announce a real dividends.
And we announced 25 cents because we saw that there was more cash available from the improving market from some groups we.
We reviewed the game.
Of Oh towards the end of 2021.
With further Grayson was further forward fixings.
And determined but 37 on the half since it's all a 15 year.
Was an appropriate allocation of capital to shareholders and crucially.
Was sustainable given IV or the future on this is this is not a science as youll.
We all appreciate it.
And forward cover forward contract cover which has been increasing as we've said.
In absolute terms dollar numbers and timeline for <unk>.
Awesome commitment gives us higher visibility and great degree of confidence we've looked again more recently.
Prior to this earnings call that the convocation and determined that we should allocate more to shareholders. This time round.
The boards.
To determine the best way of doing it in the circumstances.
Was too Chris.
Create this 40 million dollar share.
Share buyback authorization Rob.
Rather than further increase the dividend.
We expect Randy to continue this dynamic approach.
Capital allocation more widely the competing demands we talked about decarbonization imperatives fleet renewal deleveraging.
And return of capital to shareholders. We expect to continue to review this on an ongoing basis as the market develops and yes to your crucial question to two.
We get further visibility on 2023 with forward fixed things of new charters.
The cash flow effects of which will only come through during 2023 of course, then that will feed into.
Determination about increasing the dividend or not.
But the history is that we've responded to the improvements in cash flow and crucially improvements in forward cover supporting sustainability.
That's true and sort of increased amounts of capital allocated to shareholders.
Okay.
Alright, that's fair and then kind of touching on that you do have a couple of vessels coming off charter in early 'twenty three we've seen some peers locking in charters to start at that timeframe already so when do you expect to kind of four fix those and you're getting kind of inquiries on those now.
Well yeah.
We're working on on on all of our full with pictures.
And what we're trying to get the best out of it.
So.
You know it is a it's complicated.
Complicated mix, we've got some ships some smaller some bigger ships and we're trying to.
Make the best mix and the best possible for fixtures, but this is out but I always right now except for fixing our ships is a top priority.
Got it Alright, and then just one quick modeling question, you saw $18 4 million or so on the amortization.
The charter adjustments and other things in the fourth quarter do you have a run rate for that for kind of quarterly ease in 'twenty, two and 'twenty three.
I can answer that.
Just a quick look at it.
This is this is the inherent value in below market charters on the ships that are required in 2021 .
We call them getting precise figures, but kind of the.
The effect in each quarter will reduce as time goes by antibodies legacy charters the below market once it's filed.
Maybe you can assume but.
These charges are going to a couple of years to go to an all he is the guy at this stage that we bought the ships in the middle of the year sorry.
There'll be a reducing our mountains.
Intangible credits coming through over the next couple of years.
Got it.
Kind of straight line depreciation.
Yep.
Level run with that that's it for me, Thanks, again and congrats on the solid quarter.
<unk>.
Our next question will come from the line of Liam Burke from B Riley.
Again.
How is everybody today.
Smiling.
I'm not as familiar.
I was interested on the 23 vessels that you acquired.
In a very accretive manner.
Some of them were I mean about a third of them are over 20 years old.
They were purchased.
The acquisition implied a scrap value for these vessels, which translated into a healthy return would you anticipate any of these vessels actually staying in the global fleet and re charter or do you just anticipate alright.
Good deal is a good deal, we'll just scrap them.
Well it is.
Very much depends on.
The market, we generally do not think that shapes 25 years or older. It's going to be easy to beat the chartered unless the market is red hot like to date.
But the we've.
We've got plenty of life, which we can squeeze out of Iowa exist.
Existing fleet.
And you know we.
We might surprise ourselves.
When the the end of these charters come to an end.
The thing is that the ships, we have which are a bit older. Like you said all show up quite unique because that post panamax ships and those ships.
Are not being built enough and those ships that carry a big advantage.
In the U C III regulations.
And why what I mean by that they see a regulation, which is a very complicated equation.
Coming into effect film Festival January 23.
Yeah. It is up to make it simple for for the people who listen.
There is a there are five categories a b C. D are the ships and easily the ships have to trade on a b or C.
Now.
What whether that ship is an a b or C.
Our D N knee, which you shouldn't be.
It is a it's a it's a matter of it's a combination of how.
How much fuel burning and therefore she'll do a meeting.
How much capital you have on a boat show very economic shape that cat is half its cargo.
It's been a life because you have you are polluting without moving.
A lot of cargo.
And the distance you're traveling.
So it's a combination of the three but very important is the amount of cargo you carry show shapes that Cary.
A lot of cargo.
Have a better rating then shapes up carry less cargo and I'm talking about assuming a full capacity.
Let's say a ship is 100% loaded you've got a 5000 take you for example, Panamax ship and 5000 Teu post Panamax to post Panamax ship can take 40% more cargo loaded containers.
The panamax because it's wider more stable therefore that shape, he's going to have a better rating.
So most of that old ships, if you've seen a flip a post panamax. So they have this advantage of course.
We have to modify our ships and we are going to modify our assumption we have taken into account the capex for that.
We have to modify our ships for two reasons one is that the type.
<unk> mission is that is directly related to the fuel consumption show. The Moorefield you Ben that more should we give me traditionally.
But also it sold.
For the tableau mission better position, we wouldnt want to fire ships, but.
Equally.
Today after this conflict of Russia and Ukraine.
Fuel prices have gone through the roof. There are seven months $800, which is the highest price just went to 2013.
And apart from the fact that environmentally if these important shapes to consume a little fuel as well as the people as possible. So that don't meet that too much C. O. Two from from a commercial perspective, you know purely still expensive. So it is also double its a double it's a double dip you know it is very important it's become an import.
And in two respects for the liner companies have shaped that consumes less fuel show any improvement we do try to shape stood at youth consumption is giving us a double benefit and ability to fix those ships.
Or extend the existing charters or do a commercial agreement with charters going forward.
Great George.
So youre right.
I'm, sorry, I, just want to know how to kind of thing.
And maybe the same thing I am going to just add a couple of comments and circle back to your original question.
You're absolutely right. When we ran the investment analyses on the 23 ships that we acquired last year.
We have a.
Applied pretty conservative criteria.
<unk> that they may be scrapped out at the end of the initial charters will be the charters that we have visibility on however.
We do see scope to extend significantly beyond that time horizon as a result to add upside to the returns and if you scroll through the presentation shift to slide 13, Youll see on the right hand side of that slide.
The age profile by size segment of the global fleet and you can see that yes.
It's true a number of our ships are aging, but also it would be.
The peer group for each of those segments is also aging, which again adds to our view that particularly in light of a comparatively small order book for midsize and smaller tonnage and the aging peer group there is scope, particularly with the enhancements that Georgia has discussed.
Just now to extend the life and enhance the returns of the acquisitions, we've made and was that the point youre going to make too yes.
Tom.
We think similarly.
Sort of I mean, we just re emphasize is the cautious approach we had when we're making decisions to purchase ships, we don't rely on strong markets continuing.
We look to very skinny residual value scrap values.
And we must ensure that we can the required return on IBRA.
A three to five year timeframe not running the vessels out to say a 13 year long.
Great.
I guess on the other front you are looking at potential acquisitions. Every day you mentioned in prepared comments that you have walked away from a lot of deals.
Do you still see opportunity out there considering the fact that asset values are sky high.
Well the obvious answer is we did not but.
Yep.
As our business is very peculiar.
We might find transactions square shapes have existing charter shows such as the deals we've done with a with a mask where you're buying a ship with a specific charter attached rates with Atlanta company and then at Sep, sending at least about kind of thing which might bring the high returns.
We require and to allocate capital for <unk> transactions.
We're not out we're not definitely looking to buy any charter face. It I mean, we're not looking to buy anything that it does not meet our strict stringent criteria and therefore, that's why you've seen after this.
Let's say acquisitions.
Acquisitions of flurry, we did sold as many ships we did nothing.
We don't believe that.
We should grow the company for the sake of growth absolutely not this is not how you make money in shipping whether it's public or private company.
It's all about timing of the acquisition.
Once the market of course.
Deflates It does it's a cyclical business it will deflate at that point.
Then a lot more opportunities will come up which will help us.
Our fleet.
And to bring down the road.
But its age of our fleet.
But right now I would say that the only deals that would make sense. If at all would be deals where we have certainty of income.
Calculated returns I don't know, Tom if you want to add something.
Sure.
Thanks, George Yes, I'd, just echo what we said really in the prepared remarks, which is in broader terms capital allocation.
Is all about relative returns on a risk adjusted basis.
For the last six months or so in our view.
We should be directing capital towards returns to shareholders and Delevering.
Rather than directing it towards acquisitions simply because although we're seeing plenty of opportunities as George says those opportunities don't meet our risk and return criteria, but this is a cyclical industry and if we are to continue to generate attractive cash flows over the long term we of.
Of course have to have an eye to fleet renewal, but it's all about timing those acquisitions will structuring them in such a way that the risk and return profile fits.
If if I may add to this.
Nope in 2021 when it turned all the money that was surplus.
Company to the shareholders and more than all.
So that that shows you that.
We have a policy, where we have a sustainable dividend and I have to say sustainable is this is a company that she sells policy.
We're not we don't have any dividend for 12 months, we're having a sustainable dividend.
And then we see what's what's happening over and above that money and we allocate it.
Properly, depending on where we stand on the cycle, what's the what's the cash flow contract of how we're doing with forward fixed and so on and so forth.
But I think our actions speak for themselves.
It's nice when a company to go out and say you know I'm going to dividends out X percentage of my cash flow or my net income or whatever.
We have done that the 100 per cent actually last year.
And well as we speak we are at 50% of the current yen and we don't intend to stay there obviously.
Returning to the shareholders, it's got to be more than 50%.
But actions speak for ourselves.
And I'm I'm, a shareholder at major shareholder of the company and I feel very happy with this return to shareholders.
Great. Thank you very much.
Yeah.
Once again Thats star one for a question Star one.
Next question comes from the line of J <unk> from value Investor's edge you may begin.
Hey, good morning, gentlemen, good afternoon tea over in Europe , Congrats on the excellent results today.
Thank you thank you Jenny.
So great discussion I, so far I wanted to dive into the cash balance and a discussion of the refinancing a little bit I apologize if I missed it I got on the call a little later, but I wanted to dig into the restricted cash balances a little bit more of Theres, a massive restricted cash balance a lot of its non current it was that related to the recent.
Nancy or is that expected to be on the balance sheet long term in that form.
Danny you want to answer that.
Cool.
Yes, it is a big number Julia and thank you for pointing it out because it's important in understanding the cash that's available when you look at look at the balance sheet and see $200 million you think whoa.
Actually you know 150 of that sum locked up by formally as restricted cash.
Now we have a minimum liquidity requirements outside the restricted cash of 25 million Bucks.
For our banking facilities.
Vast majority of 100, and nothing 28 million of restricted cash relates to.
One generic answer which is charter hire received in advance this is advanced payments.
Full chances that we renegotiated we negotiated in the second half of last year.
It's commercially very sensitive so we come towards pretty much their balance sheets.
But we would expect this.
To continue to build a little.
In the short term.
As a charterer pays us.
Above the agreed right.
And then the payment.
Drops down and we draw on this restricted cash to make up the credit through revenue in our P&L. So this is this is mostly advanced payment tomorrow. It will be a feature of the balance sheet for the next little while but over time the amount will reduce.
Yeah. Thanks for thanks for diving into that a little bit I noticed you have the interesting revenue item right. Yes, you accrue those those charters down it's like an additional revenue line item yes.
Yes.
Other side of the technically the August probably the answer is deferred revenue.
Yeah, Yeah, Yeah, it's a good idea.
Credit deferred revenue.
I wanted to circle back on we've talked about this in previous conference calls, but I wanted to circle back on the baby bonds. I know you issued some more of those last spring and summer to help with the growth and its been very accretive but now they are sitting there at 8% and a much higher cost than most of your other loans we talked about.
The call option, that's available and that was I know you have to pay a slight premium now.
Is there any interest is that on a near term table for perhaps the next year or is that more of something we'd look towards maturity to take care of.
Well, it's a tough but it's it's it's one of the things that we have in our mindset.
Talk to you about it yeah.
Like I have said in the number of time is that for us. It's a primary goal to reduce the cost base is something that we have done since 2018 and would continue to do.
Is it something that we examine our it couldnt be cold.
At the end of the year. So this is something that Oh.
Our plan to examine what it's going to be the appropriate time in the appropriate opportunity to for us to save money.
Yes, it certainly makes sense it depends what other opportunities you have of course, a little niche question here on the ship charters I noticed you have a few CMA CGM ships are about 4000 teus previous to this ive listed them is expiring somewhere between third quarter of this year and in first quarter 'twenty three obviously the market.
Strong so we expect those to go to at least the latest exploration date, but now on your presentations, you're showing those same shifts and you're showing them going out until the middle of 'twenty three where there are some additional options that weren't listed previously or what's going on with those ships.
Tommy This is thinks its home yeah. So thanks, George So I'm sorry. This may have been lost in the footnotes, but if you look at the footnotes to slides six and seven you will see that what what is happening here with the following under most charter agreements a charterer has the option to.
And on a crude off hire days that have built up during the lifetime of a given charter. So if for example would be that the ships being off hire for 30 days.
And dry dock the charterer has the option to add those 30 days on to the end of the charter now. This is something we haven't really seen or at least I haven't seen in the industry. Since about 2005, you know the last super cycle bumps because capacity is so tight and because the lines are so anxious to hang onto.
The capacity for just as long as they can in their networks.
It's something that we're beginning to see again now hence the stretching of the expected delivery dates.
Into the subsequent quarters for a number of these vessels. So it's a function really of the.
The tremendous good health of the markets Jay but in this in this case paradoxically it works against Us a little bit.
Yeah.
Yes, certainly it's certainly noted the slippage on in a few of those ships I mean, it'll be the right current rate is decent but it means that a lot of the.
Early 'twenty three is now middle twenty-three right our final question.
What's kind of the next couple of shifts that you would expect to the Ford fixed and when would be the timeline for those I know that you have the GSL. Susan is one of the vessels that comes up at the end of this year I think you have the Nicholas as well it comes up soon.
Is there something we can expect to see bye bye see this summer or is this more of like a 2023 thing.
Well.
We are we are trying to fix them.
Sooner rather than later.
And I would I would imagine that that's something that we should you should see before the summer.
But you know always.
This isn't a matter of negotiation, but this is out you know prime.
Target Easter for fixing our ships.
They'll just those but any 'twenty to 'twenty three ship.
This is a top priority as I said before to try and fix those ships are forward.
Yeah. It sounds good but you have a lot of ships with the CMA CGM that look pretty darn attractive. So hopefully you can get a deal done congrats on the excellent results and we will look forward to the stock price are catching up to the valuations here.
Thank you.
Our next question comes from the line of Frodo Monica dull.
Clarksons Securities you may begin.
Yeah. Thank you hi, guys.
Hello, Hello, Justin Bergner.
Yeah.
I just want to there are first of all I applaud your decision to buy back shares.
Uh huh.
Something that a lot of investors.
Requested I think so on given the big discount to that yeah. I think this is good news.
Both.
Yes of course, but also implies quite.
That's good.
Maybe you have touched upon it.
Are there any constraints.
The buyback program.
In terms of timing.
Price of oil.
No further than.
There are some management's discretion.
However.
Obviously subject to availability of cash so are you and maybe you were going to say that we see.
Thanks, Tom.
As we said in there.
Yes.
We build cash, but it's back loaded really in 2022, so it's practical constraints.
However, the market develops.
Absolutely.
Yes, I understand.
On the carbon Nicholson investments you're targeting.
Some more color on what.
What type of equipment or investments, we're looking at it.
And in connection with that what's the Capex.
We expect the Capex.
The fuel savings from that type of thing.
Well we have a.
Specific program that we're looking to buy a gift shape and had design lab that's.
Throughout the whole fleet for our E X XI and ability to improve the obvious answer is that.
Of course, it's a special need Sip shotgun I'll give you a color on the on the size of it right now but.
They are the things that you can do on a ship to improve these and don't want to come into this more it's changing the bulbous bow.
Changing the propeller.
Those are those are major changes.
Applying a silicon based.
Paints.
They set some even more in niche innovative solutions, such as had bubbles et cetera, which we havent yet.
Sure.
It looked in depth.
<unk>.
Putting some special let's call it appliances and the bulk of the propeller.
Help the flow of water and make the ship more efficient.
Those could give.
Anything between.
12% to 17% a improvement.
In the fuel consumption and hence C O two emissions, but Tom.
Don't know if I covered that sure that would be I think that would be.
So that would be that would be if we put all of these accomplishments on one ship individually got smaller.
But I can't say, it's a suite of enhancements that we would be looking at but from you've got the longest but there are two stages to this one is responding to the changing regulations directly effective on the first of January next year and then two is the more general what are we doing to improve your efficiency.
Mrs.
On the commercial that's right yes.
Yes.
And within that program as you'll understand.
And this is where things get commercially a little bit sensitive and so we have to be a little bit guarded in our discussions, but but clearly if you enhance the ship and you reduce the fuel consumption and thus emissions of that ship the economic benefits of <unk>.
Through primarily in the short term.
To the charterer.
In the longer term, obviously, they accrue to the ship owner because you have a commercially more attractive ship, but in the short term their crews. The charterer. So we would be looking for a collaborative approach with our charterers with the liner operations to improve.
Improved ships and I guess, it's a bit of a crude analogy.
But it's an easy one in the past we have installed scrubbers on two of our ships and we did so because.
The wars economic justification and doing so so.
Yeah. This is a commercial as well as an operational as well as a regulatory issue and where where we along with the rest of the industry are feeling our way I would say at the moment.
Okay.
Okay.
So this would be.
Some type of profit share agreement, perhaps one article potentially potentially but potentially a rate premium potentially a longer charter potentially shed capex potentially potentially potentially so there isn't a uneasy response to you because it's something that not only we but the industry and the market is a.
Whole is evolving at the moment.
But if I may say, Florida, I think you're thinking of that transaction such as in think get us more more ore or bulk is what do you have.
The shape Uh huh.
The base rate and then there's a profit share.
And containers, we don't have that because there's no.
There's no index to benchmark and get the profit share and container is what you get is.
In addition in English the charter rates or longer charter rates at.
At the same rate or something some shedding so it's a different way of doing it at the beauty about it is that these different ways more of a certain way.
In tankers bulk is you'll have a profit sharing but for profitably said has to exist and as we know bankers in bulk as they they trade more in the spot market rather than a long term charters.
Therefore, it's unexpected hopeful profit Watson containers is more of a you know solid certain profit.
Let's put it this way.
Sure I understand.
Okay.
Given your investment.
And what.
What's your current assessment of the <unk>.
The need for slow steaming or perhaps or maybe if you have any asthma that's enough on the wider fleet that would be.
Helpful. Thanks.
What I would say that the.
The general idea is that.
The World Fleet right now is trading around 2021 notes.
I would say for the exciting numbers to work and to see a et cetera.
We would expect the world fleet with trading around.
Around 19 knots.
As a general rule I mean, the modern ships can trade higher.
Ah the less more than ships can trade lower so the average of 19.
But let's let's not forget that.
I am more than 21 notch, we haven't seen for a decade.
So right now we're at the maximum let's say realistic speed now.
Fuel comes into play right now, which wasn't the case in the last three months ago.
Fuel is a very important issue, which right now C O two emissions for the rest of the year, there's not an issue.
But it will become an issue in January of 'twenty, three but before this becomes an issue fuel has already become an issue now the freight recession of course to high.
And probably a lot of companies will not slow down because of fuel as we speak with these kind of freight rates.
Let's keep in mind that.
You know, it's a double a its a double effect you know pure consumption and shoot for emissions, they're going up with the pressure.
One thing I'd like to say, a which is very important.
And you guys understand it and Clarkson says you are experts in shipping.
With your brokers.
The fact that the CIA calculation takes into us into it into kind of into effect a big portion of what the card with the ship has.
That is going to be in my opinion.
At a protection for future for the future for Cascade.
We will not have we cannot have big ships.
Moving around half empty.
As the Cascade, yes.
2016, 2015, 2000 and the <unk>.
These yes, Atlanta company with a bigger ship than they needed because they they had all of them and they didn't know what to do with interval into into trades that did not need it.
And they only had to pay fewer but I figured it was cheaper than now the CAA calculation is gonna kill shots.
Her practice, because if if if you have a ship half empty its disastrous for the CIA calculation.
So keep that in mind, it's an interesting angle.
Okay. Thank you very much.
Yeah.
Interconnect.
A follow up from the line of Randy given from Jefferies. You may begin.
Hey, guys I know a long call, but just a quick question what is the current outstanding preferred equity amount.
Trying to get that calc for the income statement.
Its around its made a little bit higher than 100 million, if I remember correctly Harrington.
100, okay perfect.
That's it thank you al.
Thank you.
Thank you and this concludes today's conference call. Thank you for.
Sorry. This concludes the Q&A I'll turn it over to Ian Webber for any closing remarks.
Thank you very much. Thank you all for listening to us.
It's been a good call.
We appreciate your questions.
Look forward to getting there.
Great.
Hi, My starting in the second week of May.
We will issue our first quarter uncertainty 'twenty two results.
Thank you very much.
Thank you very much holds.
That's okay with today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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Yes.