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spk01: First quarter 2021 earnings conference call. I would like to remind everyone that this conference call is being recorded today, May 4th, 2021. I would now like to turn the call over to Robert Weiner, head of investor relations at Atlas Corp.
spk10: Thank you. Good morning, everyone. Thank you for joining us today to discuss Atlas Corp's first quarter 2021 earnings. We issued our earnings release last evening after market closed. We will refer to our quarterly earnings release, accompanying earnings presentation, and supplemental documents today in this conference, which all can be found on the investor relations tab on our website, www.atlascorporation.com. I would like to remind you that our discussion today contains forward-looking statements, and I'd like to draw your attention to the disclaimer on page two in the accompanying earnings presentation. With this quarterly report, you will note that we continue to report non-GAAP measures, which we believe provide investors a clearer understanding of the performance of our businesses. The first quarter earnings release contains supplemental financial tables and information pertaining to our first quarter earnings report and includes definition of non-GAAP financial measures and reconciliation of GUT's non-GAAP measures to the most closely comparable U.S. GAAP measures. These definitions may also be found in the appendices at the back of the earnings presentation, which we will refer to in our call discussion. It can be found on our website. In addition, we have provided historical financial information through 2018, which are also available in the Q1 supplemental workbook on our website. Please turn to slide number three. On the call with me today are Ving Chen, President and Chief Executive Officer of Atlas Corp. and Graham Talbott, Chief Financial Officer of Atlas Corp. Joining us on the call during the Q&A session are C-SPAN's Chief Commercial Officer, Peter Curtis, and C-SPAN's Chief Operational Officer, Torsten Petersen. We will open up to a question and answer session following our formal remarks. Please turn to slide number four. I am pleased to now turn the call over to Atlas Corp CEO, Bing Chen.
spk11: Thank you, Rob, and good morning, everyone. Thank you for joining our call. Please turn to slide five. I'm pleased to report a strong Q1 financial performance, which was directly in line with our expectations. We are on track to achieve our 2021 annual financial guidance, and our performance affirms our long-term focus on quality growth and differentiated investment attributes. Let me reiterate that our business is not subject to short-term market swings like many others. We are highly dependable and consistent since our fully integrated platform is built on long-term contracted cash flow backed by global leading liners. In the first quarter of 2021, Atlas achieved revenue growth of 20.8% to $372.6 million, adjusted EBITDA growth of 21.1% to $237.9 million, FFO growth of 27.6% to $159.2 million, and FFO per share growth of 13.2% to 60 cents per share. And we recently paid our 63rd consecutive quarterly dividend. I'm proud of our team as these results reiterate our continued resiliency, operational excellence, and performance for the remainder of 2021 and beyond. We stand ready and focused on facing any challenges ahead. Please turn to slide six. In just five short months, C-SPAN added 37 new builds and four secondhand vessels. Through our total investment of $4.7 billion, we have added a gross contracted cash flow of $7 billion. And since this quarter alone, we achieved 47% growth of our fully delivered fleet on a TU basis, adding 536,000 TU. This sets a record for C-SPAN and perhaps within the industry. This historical growth has been made possible due to our focus on the following key aspects of our business. First, we always have a good understanding of the underlying market situation and anticipate a few steps ahead. Second, our customers' needs always come first. Third, we are constantly creating opportunities versus participating in auctions. Fourth, our relentless focus on building our five key competencies. And fifth, we have a world-class team of highly experienced professionals who are ready to execute at all times. For the same reasons, we have able to successfully complete 15 secondhand acquisitions in 2019 and 2020, then adjust it to our record new build program. This quality growth is important as it facilitates great scalability, reliability, and flexibility to create win-win outcomes with our customers through all market cycles. Especially with these new builds, we have gained deeper trust from our customers through our ability to assist with vessel design, shipyard negotiations, construction, financing, chartering, and operations. This is a great example of the fully integrated platform as we always talked about. As the table shows, we have significantly strengthened our fleet in the following segments. Nine 12,000 TU new builds, two 24,000 TU new builds, which are our first ultra-large vessels, and also a first for owner-operator vessels, for this segment, 26 15,000 TEU new builds in this strategic category featuring 10 dual-fuel LNG new builds, along with four secondhand acquisitions of two 15,000 TEU and two 8,500 TEU vessels. Please turn to slide seven. The past three years has been transformational and this has continued in Q1 2021. Here, we highlight the dramatic change since the start of 2021. We have upgraded our offering with significant additions to the 15 to 16,000 TEU segments, as well as for the 24,000 TEU segment. Today, 79% of our fleet on a TEU basis is positioned within the strategic 10,000 TEU and greater segments, which are expected to be the workhorse vessels in the coming decades for global trade. We're very pleased to have evolved our fleet into such a comprehensive, diversified, and versatile portfolio to meet our customers' needs and truly lead the industry. Please turn to slide eight. We have also diversified our customer mix. When I first joined, Costco chartered approximately 40% of our fleet on a TU base. Today, no single customer charters more than 20%. Our customers are eight out of the top 10 liners, with our top three customers representing 54% of the revenue at the end of Q1 2021, compared to 75%. at the end of 2017. This is clearly a differentiation as we are growing in tandem with our customers while fulfilling their needs through creating win-win outcomes. We continue to be well positioned for quality growth through our deeper and broader partnerships with each customer. Please turn to slide nine. Our record fleet growth, fleet optimization, and customer-based diversification drives a third important distinction of our resilient and differentiated platform, the growth of our growth contracted cash flows. Since the start of 2021, we have grown growth contracted cash flow by 102% to $12.1 billion. These are long term, highly visible cash flows secured by customer demand. This results in higher quality cash flows, longer lease durations, and increased resiliency of our business through all economic cycles. Our deep and creative customer partnerships, best in class execution, and solid financial strength makes Atlas the reliable solution provider of choice. This slide clearly shows our record progress achieved in Q1. As I mentioned, gross contracted cash flow increased by 102 percent to $12.1 billion. Fully delivered fleet grew by 27 percent, adding 36 vessels. We increased TU by 47 percent to 1.7 million TU. average flea age decreased by 2.1 years to 5.2 years, and the remaining lease term increased to 6.8 years from 4.3 years. This high-performance execution enables us to deliver consistent and sustainable value creation to our shareholders. Please turn to slide 10. ESG is important and timely, As responsible corporate citizens, it is important to lead the industry's development of ESG initiatives. Our teams are highly committed to leading our industries through operational excellence, high business standards, ethics, and principles. We look forward to issuing our inaugural sustainability reports at the end of Q2. Also, we are proud of our recent strategic partnership with the Maersk McKinney-Mueller Center for zero carbon shipping and become a signatory of the UN Global Compact. Our strong commitment to ESG is also evidenced by our long history in innovative saver ship designs and also adding 10,000, 15,000 TU dual-fuel LNG new builds. Finally, we see the increasing need for ESG as an important requirement for our customers, lenders, and investors. Our teams have made great progress through linking our capital structure with sustainability measures, such as our recent sustainability-linked loan and bond financings. Please turn to slide 11. I will conclude my formal remarks by providing an update on our 2021 priorities, which we outlined at our investor day. First, quality growth and disciplined capital allocation. This has been clearly demonstrated by our team during the quarter. For C-SPAN, we have increased our total TEU by 47%, grow our gross contracted cash flow to $12.1 billion. For APR Energy, we are proud to successfully secure Mexicali Fast Power contracts, which now marks our third year in a row of providing power to the region. APR's contracted service are rated at 330 megawatts through 10 gas turbines compared to last year's contract for eight turbines rated at 265 megawatts. This increases our penetration in an important market with significant future growth opportunities. Second, we are further enhancing our multi-platform business. For C-SPAN, we continue to optimize our fleet while diversifying our customer mix. For APR, we continue to exit the diesel generation market through a measured and prudent approach. A big part of increasing our competitiveness is the quality of our people. And in this regard, we recently add an experienced CFO, Philip Lord, to further strengthen the APR team. Our JV with the ZE Energy Group will provide unique and innovative growth opportunities for both parties. In addition, it will provide further revenue diversification in the maritime and energy sectors. We look forward to providing updates. We also continue to be innovative leaders by continuously optimizing our capital structure and improving our financial position. Our financial strength and flexibility for executing opportunities is unmatched and is one of our key competitive differentiators. Overall, we had a record start to 2021. Our achievements thus far solidifies our exciting future and ability to create sustainable value for our shareholders. I look forward to reporting on our progress in the coming months. Please turn to slide 12, and I will now turn the call over to our CFO, Graham Talbot.
spk07: Thanks, Bing. Good morning, everyone, and thank you for joining us today. Could you please turn to slide number 13? Q1 2021, the team delivered continued strong performance compared to Q1 2020. Revenue increased by 20.8% to $372.6 million, Adjusted EBITDA increased by 21.1% to $237.9 million. FFO was $159.2 million, which increased by 27.6% over the first quarter of 2020. Our first quarter earnings per share was $0.31 per diluted share compared to $0.15 in the first quarter of 2020. c-span fleet teu capacity grew by 68.9 percent or by 48 vessels an asset utilization for q1 2021 was 99.2 percent and 63.7 percent at c-span and apr respectively at quarter end gross contracted cash flows for atlas stand at 12.1 billion dollars Closing liquidity was up 112.7% to $837.5 million, and that was declared and paid its 63rd consecutive dividend. Our performance continues to reflect both the predictability and stability of our returns, coupled with the impact of quality growth in our asset base. This performance differentiates us from our competitors as well as many mid-cap companies in the public market. Our operational excellence, creative customer partnerships, quality growth, financial strength and disciplined capital allocation, that is our five key competencies, continue to be highly effective in delivering sustainable value to our shareholders. Please turn to slide number 14. During the first quarter of 2021, we've continued to enhance our capital structure and liquidity. We're constantly working to optimize our cost of capital and position our financial resources to stay nimble and flexible to pursue opportunities. Our liquidity stood at $837.5 million at March 31st, and we have 31 unencumbered vessels with $1.1 billion in net book value. Additionally, we continue to make progress on our objective to achieve an investment grade credit rating. Kroll Bond Rating has recently placed C-SPAN on Upgrade Watch in relation to the current investment grade rating of BBB- for our portfolio financing program and BBB corporate rating. They have noted our diversification of capital sources and continued strong operating and financial performance as key reasons for their improved outlook. You'll see on this slide the continued progress Atlas has made over the past year, effectively managing our liquidity and debt, while at the same time significantly growing the business. We grew by 48 vessels and improved fleet utilization, while deleveraging as evidenced by our net debt to adjusted EBITDA ratio, which improved by one full turn, or one times. Please turn to slide number 15. Now I'd like to discuss several initiatives that our finance teams have been hard at work on to further strengthen our financial position. For our secured debt capital, we're working on several priorities. Firstly, we're working diligently on the financing of our current growth investments. To date, we've secured financing for the four secondhand vessels we acquired, which is approximately $400 million. We expect financings for 13 new build vessels will close during quarter two, which is approximately $1.4 billion. And we're in advanced engagement for financing the remaining 24 new build vessels, which is approximately $2.9 billion. And these are expected to close during Q3 of this year. Additionally, Atlas has been developing a global base of credit and equity investors On the credit side, we recently issued two unsecured notes in the Nordic market. Specifically, the first was closed in January for $200 million and was our inaugural Nordic issue, a three-year sustainability-linked unsecured note at 6.5%. The second, in April, for $300 million, was a five-year sustainability-linked unsecured note at the same 6.5%. so an increase in amount and tenor over our inaugural issuance. As mentioned, we actively manage our balance sheet and liquidity to ensure that we maintain our strength for future growth and through cycle stability. We had ample liquidity at the end of the first quarter, an increase of nearly 113% over last year's Q1, providing Atlas with significant flexibility and strength to deliver operational excellence fund our growth and meet our commitments to debt and equity holders. We've experienced dramatic increase in both the company's access to capital market opportunities and a broadened scope of capital market solutions available to execute. Accordingly, the challenge is not obtaining capital, but obtaining the right capital to meet our objectives. Please turn to slide number 16. On this slide, you'll see our balance capital structure illustrating our continued diversification of capital sources. Our primary goal is to continue our progress towards achieving investment grade corporate credit rating. To do so, we need to actively manage our balance sheet and continuously seek opportunities for improvement. We need to maintain and consistently optimize a global base of diversified capital sources, as well as continue to increase our access to the capital markets while also executing on a wider base and breadth of capital market opportunities. We need to further strengthen our balance sheet while facilitating growth. In other words, ensure strict and prudent capital allocation. Finally, we're focused on increasing our maturities to better match the long-term nature of our contracted cash flows. As you would appreciate, this is a process of constant optimization. Capital is our natural resource and a key value driver in our business and as such needs to be carefully managed. Please turn to slide number 17. I will finish my remarks with details about our recent growth in contracted cash flow. On this slide we illustrate the power of long-term charters which provide stability and dependability in our business and is a defining investment attribute of our company. As being mentioned earlier, we set a C-SPAN record, if not an industry record, by adding 41 total vessels in less than five months' time. We're very proud of the high-performance execution of our teams to achieve this milestone. As you see on this slide, we've significantly added to our cash flow profile, increasing visibility of our returns and creating greater dependability in our investment thesis. It's important to note that the gross contract and cash flows represented in this slide do not include any future growth. This depicts only what we have under contract today and we're an active growth orientated company and we expect that to continue as we move forward. In summary, Atlas has a very strong financial position, clear avenues to fund growth and considerable access to capital. The container shipping industry is expecting strong operational performance and improving credit profiles, and energy projects are beginning to develop. Within the context of these strong and improving industry profiles, as well as the prospect for an improved credit rating at Atlas, I'm confident in our ability to continue to deliver quality growth through disciplined capital allocation to drive sustainable and increasing value for our shareholders. Operator, we'd now like to open the lines to questions. Thank you.
spk06: Thank you. As a reminder, ladies and gentlemen, you will need to press star one to ask the question. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chris Weatherby with Citi. Your line is open.
spk09: Hello, this is William and Mark for Chris. Thank you for taking my question. So first I just wanted to start off with your capital allocation priorities and ratio to greatest opportunities. So after purchasing those 36 vessels, I was just wondering how you think about the opportunities going forward. Are you looking to add more new builds on the defense side or are you looking to also, you know, how do you balance that with like maybe looking at secondhand vessels or thinking about repaying debt or increasing the dividend or maybe even share purchases?
spk07: Good morning. So thanks very much for the question. As we've mentioned before, we don't sort of specifically focus on either new build or second hand. It's sort of every opportunity that comes in the market driven by our customers we'll have a look at. There's still plenty of opportunities in the market. So even after this growth period that we've been through, it's not that there's now a shortage. But as you can imagine, new build starts to get more expensive as things heat up. And sometimes secondhand do become more attractive. But we're a bit agnostic as to which way we go. It really just depends on the deal that's present in the market at that time. So it's not like we strategically position ourselves to do one or the other.
spk09: All right. Thank you. And I also was interested in discussing, you know, in the context of your overall fleet renewal strategy and growth prospects, how do you guys think about maybe selling vessels in the future or maybe some of your older or smaller tonnage? And, you know, would you consider selling it to strengthen the current market?
spk07: Yeah, it's a great question. Obviously, vessel prices are increasing in the current market, but also the contract rates. And I think you're well aware that we don't really focus on the short-term contract market, so we're not really players in the short-term peak spot rates that you see. And ideally, we will just do the math, either calculate the vessel values and then look at our cash flows associated with contracting or chartering out the vessels. Obviously, the other important element to this is we've got a number of very strategic, important customers So the first priority really is servicing their demands. And if they require tonnage and we can get the right price that meet our economics, then that's what we will do. However, it is a good time to sell as well. So it is a good opportunity to recycle capital for us. So it's basically just down to good old discounted cash flow calculation overlaid with an appreciation for our customers' demands.
spk09: Okay, thank you. And just one final question. So conceptually, when you're thinking about APR, you know, it seems like you guys are really positioning the business for a pivot to broader opportunities within the energy space. I mean, do you guys envision the potential to grow that business aggressively like you've done on the C-SPAN side?
spk07: Yeah, we would hope to. I think our chairman made it clear a little while ago about our aspirations that we have for APR and really what we plan to do there is to leverage the capabilities in C-SPAN. So if you think of some of the core attributes of C-SPAN, which is very infrastructure-like, very long-term stable cash flow orientated, that's where we want to start to pivot the energy platform to away from the very short-term special situations market. That being said... There's good money in the short-term special situation market as well, and we've been doing quite a bit of work over the last year to prepare the business to move forward. The Mexicali deal that was recently announced, I think it's easy for people to assume that that's just a renewal of an existing agreement, but it was far from that. It was a heavily competed, negotiated, totally restructured package from what we had worked on previously. So that was quite an achievement to get that through. And there's also a growing and developing pipeline internationally that we're starting to work on. So it's not that the segment that we're in at the moment is not competitive and delivering value. It's just that longer term, we would like to build in longer term stable cash flows with top quality credit at the other side.
spk09: Okay. Thank you for taking my questions.
spk07: Thank you.
spk06: Thank you. Our next question comes from the line of Randy Givens with Jefferies. Your line is open.
spk04: Howdy, gentlemen. How's it going?
spk07: Good, thanks, Randy.
spk04: How are you?
spk07: Great.
spk04: Good, good. So, yeah, as a result of all these kind of new building orders, you mentioned you have $4.7 billion in CapEx in the coming years. So I guess how much debt do you plan on adding against these vessels? And then for the remaining equity portion, with your common shares trading at a 3.5% yield, is common equity the most likely way to finance the remainder?
spk07: So at the moment, the majority of those new builds will be funded by debt, and the portfolio of those debt packages has LTV, I'd say, between 75% up to 100%, depending on which route we take with them. So the That would sort of be the bulk of it. That being said, there is capital commitments out beforehand, and that is being funded through equity. As we said, we had over $800 million in cash at the end of the quarter, and we will plan further raises. At this stage, we're looking at the equity side, but it's really a matter of getting the house in order on the liquidity side, and then we'll work – more focused around building the correct overall capital structure. As we mentioned, Randy, we're still very focused on delivering on our investment grade credit rating. And to that end, we are planning to sort of get our first public corporate rating probably around Q3 this year. And then following that, we'll sort of start putting the pieces of the puzzle together to get us through to investment grade probably over the next year or two. So there's quite a few moving parts, and as you mentioned, we should have most of the financing concluded around these vessels by the end of Q3, and a significant component by the end of Q2. So it's sort of only a month and a half away.
spk04: Got it. Okay. And then I guess second question, unlike a lot of your peers, you don't disclose the time charters, durations, rates for your smaller vessels. So with that, can you maybe provide some color on the current average charter durations and rates for your 2,500 to 5,000 TEU vessels? And I guess any kind of coming up in the near term and what kind of charter durations are you looking at for those?
spk08: Yeah, it's Peter here. Morning to you.
spk04: Hey, Peter.
spk08: That's a good question. We actually have various situations. Generally speaking, we address our roll-offs along the lines that Graham has been mentioning, the strategic requirements of our customers. What we see in the market today is an ability to access longer-term durations against this high demand for tonnage, and that's exactly what we're doing. Nonetheless, dealing with our customers day in, day out, we're achieving multi-year charter periods.
spk11: This is Ben. Just to add what Peter is saying that specifically, for example, for 4250, currently what we've been signing is between three to five years. The five years at the rate about $27,000 per day. So this is what the rates we've been signing and also the duration. One of the questions you might ask is that, okay, you probably haven't seen a huge spike in the Q1 revenue in consideration of the current market rate. But really, our approach has been really taking a long-term approach in the sense that if you compare a five-year $27,000 per day contract versus a two-year or three-year, $30,000 or $32,000 per day, you will see a short-term, optically, you will see a short-term spike on the revenue, but after one or two years, your vessel will be open for uncertainty, versus what we have taken is a longer period of time. So we are actually seeing the next three, four, five years a very stable cash flow. And also, on a total cash flow basis, for example, if you're looking at 42.50, on $27,000 a day, you get close to $40 million of the contracted cash flow. So overall, I think for us, we're taking the current benefit over a stable, sustainable period of time that is also consistent with our long-term contract business model.
spk07: And if I could just add for relevance for Q1, we actually haven't had any roll-offs in Q1 and recharters.
spk04: Okay, well, yeah, that leads to my final question here. Just in terms of those 34 or so, let's call it, 4,000 to 5,000 TU vessels you have. Do you have any rolling off in 2021? And if so, how many?
spk11: Yeah, just for 2021, for the 4250, we have six of them. We also have four, 2,500. These are the vessels that's going to be rolled off in Q3 and Q4. The reason right now we have these vessels has not been fixed for long term. It's not really As you can imagine, it's not because that we cannot fix it. Rather, right now, for the same vessel, we have been receiving multiple requests from the customers. Therefore, what we're trying to do is try to use the limited number of supply to find an optimal solution where we can satisfy different customers. That's what we are still holding on at this moment. For 2022 and 2023, As we said, our fleet on any given time is roughly between 10 to 20% of the vessels on the spot, in other words, for re-delivery. For the 2022, we have just shy of 30 vessels, of which currently we are in active discussions with our customers in discussion about the extension of those vessels. We anticipate to probably conclude them towards the second half of the year. And in 2023, we only have about 22 vessels for re-delivery. And these other vessels, again, I think we probably expect to have conversations with our customers towards the second half of the year because it's far down the road. But alternatively, for the 2023 re-deliveries, we are also currently using those as part of our new creative service offerings, which currently we are in discussions with our customer, which will be different from our conventionally one-on-one vessel offering. So this is something that gives you an overview of what our roll-off in the next three years.
spk04: Got it. Great. Well, that's it for me. Thanks so much. Thank you, Randy. Thank you, Randy.
spk06: Thank you. Our next question comes from the line of Omar Noctua with Clarkson. Your line is open.
spk12: Hi, thank you. Good morning, guys. Sort of just a follow-up. Hey, Graham. Yeah, just sort of a follow-up to the previous discussion, and you touched on this a little bit in your earlier comments. You know, I wanted to ask sort of about, you know, the market and your latest dialogue with liners. Obviously, Container demand has been very strong. Miners are seeing record freight rates, and we've seen their response of basically chartering or outright buying any available ships and driving rates higher. And clearly, we've also seen a bunch of new building orders, all against long-term chargers for the most part. Given how things are now, have you noticed any shifts? and how liners or your customers are thinking about things. Do they feel more comfortable with the supply situation that's currently there and on the come, or is there still a lot more discussions and a lot more opportunities on the new building front?
spk11: Hey, good morning, Omar. This is Fain. Our customers, liners today in general, throughout, I believe they are rather disciplined. Today, if you're looking at all the new builds that we're talking about still, these are the segments that it's relatively new, it's very versatile, and I think in terms of total amount of the new builds today still in terms of what we have been looking at. In terms of the supply side over the past maybe three or four years, this is the amount that still is reasonable. So fundamentally, we see that from a demand side, it's very still disciplined. On the supply side today, we're probably close to 15% to 18% of the total market volume. But this 18% is still a reasonable amount of the growth to compensate some of those historically low built over the past three, four years. And right now, as the, you know, the slots and also the price goes up, and I think, you know, the market itself in a way that also I think that, you know, provides the kind of, I would say, the barrier. And also in this time around, what you have seen is different from the past is that, you know, as you correctly pointed out, there's very few speculative funds. orders. Rather, all these, you know, new builds are backed by either the liner themselves or by the owners that, like ourselves, with the long-term charter that attach to it. So, overall, I believe that the supply side is still rather, I would say, healthy.
spk12: Thanks, Ben. Yeah, certainly agree with that. And I wanted to maybe just sort of follow up. You mentioned the steel prices rising. You started ordering in December. Is there any color you can give on how return profiles have maybe shifted over the past, say, four or five months? Obviously, the way you guys do your business, these seem more project-specific, and so maybe the cost of construction maybe isn't that significant to you, but Maybe in general, in terms of the return profile, have you noticed anything on that front, if it's moving higher, lower, or is it maybe sideways since December?
spk11: Yeah, for us, the return profile has been always consistent. As we said, we are very disciplined, whether it's a new build, whether it's second-hand. We always make sure that quantitatively and qualitatively the return that meets our investment criteria. So for us, actually, we see the return has been consistent or slightly improved. In terms of overall market today, as you can see, that's what I said earlier, as the price today versus the price in December, of course, there has been an increase quite materially in the sense that the raw material, particularly for steels, has increased and the price has increased. and also the scalacity of the slots, because right now you're talking about the slots, it's mostly towards the third or fourth quarter of 2024 to 2025. So therefore, with the increase of the commodity or raw material cost, as well as the further down to the delivery slot into two to three, four years from now, at that return, it becomes less and less attractive. So that's what I think that's the current market.
spk12: Thanks, Dane. That's very, very helpful. You know, one final one. Graham, you highlighted the financing of the 13 new bills in the second quarter and, you know, basically the remaining 24 coming up in the third quarter. Pretty quick turnaround, I would say. I think you touched on this, but do you mind just expanding maybe just a little bit on, you know, the financing that you were looking at what does it look like in terms of LTV and then maybe how the repayment profiles would look? Any comment you can give on how those financings would look would be helpful.
spk07: Sure, sure. So there's a number of different financing structures we're using and some of the, I would say, the sort of more competitive ones take a little bit longer to get in place and they're sort of the ones we're targeting with Q3. and they involve ECA financing, which obviously comes with a sort of improved tenor and cost that takes a little bit longer administratively to get all of that in place. So that's sort of a big chunk of what comes in Q3. The balance is primarily with Chinese leasing companies. There's a portfolio of them that we've worked with. And normally by the time the team's sort of placed a shipbuilding contract and a charter contract, we're already sitting on multiple term sheets to consider. And so really it's a matter of considering this whole portfolio of opportunities we've got to finance and what's the best way to do it. Now, all of the options that we're looking at include pre-delivery financing. So as you're well aware, there's a number of tranches, payments that get made prior. to actually taking delivery of the vessel. They vary a little bit, but normally four lots of 10%, sometimes three lots of 10%. They're all financed through these packages. Some of them actually pay it out on delivery, so then they sort of reverse and allocate the full amount to it. So that's the sort of portfolio we're working with, and we're locking in and announcing several of those in the near term. They're all very competitive with good tenor. There's a lot of competition in that market, which is great. And we've got very good relationships with the various banks and institutions that we're dealing with there. So I'm pretty comfortable that we'll get all of that in place. I think the other thing I'd point out, which is of interest to people, is sort of the capital spend profile related to the new builds. We'll be filing our 6K on Thursday, And you'll see in there there's a more detailed breakdown of the capital spend over 21, 2, 3, 4 in relation to the new build program.
spk12: Great. Look forward to that. Thanks, Graham, and thanks, Bing. Thank you. Thank you.
spk06: Thank you. Our next question comes from the line of Sanjay Ramaswani with Bank of America. Your line is open.
spk13: Great. Thanks for all the call this morning, guys. Maybe just shifting to APR, thoughts on when we can kind of expect that utilization to come back into the mid-70s? You know, you've talked about, I think, an ideal contract versus spot market split and obviously the shift towards a more contracted portfolio similar to C-SPAN, but maybe when can we expect that utilization to start increasing from the low 60s and kind of what's built into the
spk07: the current outlook for 2021 thanks i think um it's fair to say with mexicali that that will pick up a bit um of course in terms of utilization um based on the allocation of 10 units to mexicali that means um 26 out of our 30 turbines will be deployed and in terms of um The diesel generation units, I think we're running with about 40, 48 or so idle units there out of a fleet of 439. But as we've articulated previously, we're sort of progressively going to be winding down our exposure to the diesel generation market because it's not a strategic direction that we want to plan on. So I think the main priority at the moment is getting all of those turbines deployed. And, you know, currently post-Mexicali, we've only got four left idle. And the team's working hard on deployment of those at the moment. But I think the obvious thing is that this is a very lumpy market. So you get jumps in short-term contracts and unfavorable. Fortunately, we participate in sort of special situation type opportunities and they're very hard to plan, but they also come with a premium as well. So I think that's what we want to sort of maybe shift our reliance away from that a little bit, provide a stronger base, which we can use to then amortize our cost over and then sort of also to take advantage of those special situations when they arise.
spk11: Just to add to what Graham just said, you know, we do expect the utilization to gradually improve starting from now on for this year. So I would think that this year our utilization should be equal or better than last year.
spk13: Okay, great. Thanks, Bing. And maybe just attached to that, just with the Zeti Group JV, Is there any, I mean, now it's been a couple of months since you announced that JV. Can you give any color on some of the opportunities that have started to emerge from that JV? And potentially, I think you mentioned natural gas opportunities at the last call. So maybe pivoting away from container ship or maritime and energy to new verticals. But is there any kind of color that you have from some of the initial opportunities there? Yeah.
spk11: As we shared last time during the investor day, our JV partner is a conglomerate. They primarily engage in three main activities. One is the power generation, and the second one is LNG. The third one is all the peripheral environmental transportation financing service that's supporting the two core businesses. The opportunity that we have with them is in two areas in terms of the JV. One is in the maritime. Maritime because they have the shipping activities, and specifically they also have the environmental technology in areas such as the scrubber. So those are the areas that both from the The general shipping, as well as from the emission perspective, they have the technology and the manufacturing capabilities that we can join force and get the synergy and expand the revenue sources. On the energy side, I think that is an area that we can also work on together, particularly as we're looking at expanding our offerings to larger and long-term power projects where ZE has a credible, large power-generating utilities companies. I think they have the resources, they have the track record, they also have the expertise to work with us in developing the future long-term large power projects. And also combining, that's the third stream is combining maritime and also power. As you might know that in terms of the power space that we can develop the marine mobile power solutions. This is something that our ZE group that they have already in the process of developing those offerings, and that is something that we can work with them, contributing our expertise, and together we can go to the market and provide a service. So overall, what we're looking at is both from energy, from maritime, and also combined and energy maritime solutions. That's the three areas we see that JV will be able to provide those incremental growth opportunities.
spk13: Sure, that's very helpful. And just attached to that, is there any kind of timeframe that we can look to see in terms of top-line incremental growth from this JV? Is it a two-half, 21, 2022 story?
spk11: Yeah, as you know that we announced the JV formation about one and a half months ago, we need to go through a process to formally establish a legal entity in China's special trading zone that will take a couple of months to create that legal entity to obtain the license, the business license. And subsequent to that, it will take approximately... 30 days to 60 days to get the clearance from the Chinese antitrust clearance. So I think from a timing perspective, we probably should anticipate this business to be formally in operation by the beginning of third quarter. And in the meantime, even though without the formally, you know, establishment of the joint venture, I think we and them are informally looking at, for example, the power project as well as some environmental projects together. So this is running on a parallel basis.
spk13: Great. Thanks, Bing. Thanks, Graeme. Appreciate it. Thank you.
spk06: Thank you. Our next question comes from the line of Liam Burke with B. Rowley. Your line is open.
spk00: Yes, thank you. Bing, Graham discussed in his prepared comments about how the pipeline of potential acquisitions of fleet assets is pretty extensive. With higher asset prices and the charters associated with potential new builds, Has that affected understanding your return discipline? Has that affected the size of the pipeline as you look at potential future projects?
spk11: For us, so far, we have not seen a major impact because, you know, even though there might be the increase on the ship prices, But for us, it's always looking at the same return or better return. So therefore, that has to be reflected in terms of the charter rate. So overall, I think so far, the market or our client also understand the market condition. And I think what we actually was able to and have been able to do is to be able to find the most effective and most I would say, cost-efficient way to develop those projects. And that's what our value added. And this is why also we were able to have the ability to develop these 37 new build projects. So I think our customer really is looking to us to be able to provide that kind of solution by working with multiple stakeholders within that process. And going forward, and I think we will continue to play that role, and I believe that from a return perspective, we will always stay very disciplined, whether it's a new build or secondhand.
spk00: Fair enough. And if I look at, I mean, in that context, situation, you can continue to make acquisitions based on your flexibility of funding plus the charters and the cost of the asset. Operationally, do you have a sense as to what the size of the fleet would be, or do you just take a look at adding these higher return assets and then potentially divesting yourselves of the lower return assets?
spk11: Yeah, operationally, I think that, you know, we are very extremely proud of, you know, our team and being able to manage and operate such a large fleet in the current extremely logistically restricted environment. And I think our team, Thorsten and his team, has done an excellent job. We have, you know, total about close to 5,000 seafarers working 724. So I think they have done a great job. In terms of the asset, I think what you're talking about, the lower return, high return on assets, this is something actually is part of our residual risk management function, which our team manages on a daily basis. We have a team called Asset Integrity. They're basically looking at from a technical perspective in terms of looking at what are the best composition of our fleet. We also have the Investment Committee which is looking at from a financial perspective whether we invest or we divest the assets As Graham has mentioned earlier, you know for us we looking at each every asset You know to answer the questions whether we should operate or whether we should divest Ultimately is a cash flow so far. Maybe you have another question is and why we haven't see you guys selling the assets and The reason to be very simple is because that today when we're looking at our ability to be able to generate in the future cash flow, the discounted cash flow, the total amount of cash flow versus the market sell price, we have not seen those opportunities where the sell price is greater or equal to the free cash flow that we can generate from the operating of As I used the example just now for the 4250. 4250 today, as I mentioned earlier, for $27,000 a day for five years, taking out the OPEX of somewhere around $5,500 per day. So we still have a net cash flow of roughly about $30 million at the end of five years. Assuming I scrap the vessel at the end of five years, the scrap value will be somewhere between $5 to $7 million, and today probably more like $7 million with the high steel price. So for 4250, by then it will be 25, 26 years old, with a net cash flow of somewhere around $35, $36 million. Today, the 4250 in the market that people want to buy, somewhere around $28 or $30 million. So that's why, you know, we think, you know, we will continue to evaluate on a real-time basis. At the same time, I think our strength of, you know, operating the assets and get the, you know, maximum utilization and also get the preferred charter terms from our customers, and that's the preferred way to go.
spk00: Great. Thank you, Ben.
spk11: Thank you. Thank you, Lime.
spk00: Thanks, Len.
spk06: Thank you. Our next question comes from the line of Michael Goldie with BMO Capital Markets. Hi, guys.
spk02: Thank you for taking my question. At present, about 15% of the container ship fleet expires in a given year. With the longer contracts of these new builds and any potential contract renegotiations, where do you think you can get that annual expiration number down to?
spk08: So you're asking where on average can we get our roll-offs down to on an annual basis, if I understand you, Michael? Yeah. So that's really a function of the existing charters and when they come off. So what we do look at, of course, is what our waterfall in the future looks like. So whenever we go into charter negotiations, we have that in mind. Of course, when we do new builds, we like to have long-term charters. Those vessels come off anywhere from two to three and a half years from the date of signing the contract. So that takes care of that. So really, the flip side of the coin is the near-term roll-off, which I think Bing has described quite adequately. We certainly engage in a strategic manner with our customers. He mentioned a novel approach to it that we're working on right now, which covers both ends of the spectrum. ultimately achieves longer term charters. So I'll give you some illustration. Say last year, 2021 looked like, say, 25 vessels. We're down to about 11 now and we're in active discussions on how to take care of those 11 and put them away for extended periods of time. We're already in discussions around 2022. how to box up some of those 30 vessels for multi-year contracts, and 2023, that's a little bit of a way away, as you heard earlier. Long and the short is our approach to our customers is on a full-spectrum offering basis, and we discuss with them their needs well into the future and try and lock in tonnage, be it new build, be it acquisition, from the existing market or be it the tonnage that we have at hand.
spk11: Just to add what Peter said, in general, not only in the current good market, we as a general approach is that we always proactively working with our liner customers in looking at what their network planning needs are, and then we, you know, working on a very proactive basis. And so, therefore, you know, in terms of these road-offs, you know, currently, even for 2022, the reason that we still have about, you know, close to 30 vessels is because that we are still in a similar situation right now as we in 2021 is that, you know, we have multiple customers looking for the same and that is why we are also in the process of working on optimal solutions where we can satisfy all our customers with an optimal solution. But in any given time, our utilization, as we said, since the beginning of the company until today, we have always maintained over 98 percent utilization over the past 18, 20 years. If you're looking at last year, looking at this year, this quarter we have 99 over 99.2. Last year we have also over 98 percent. So the utilization rate hopefully will be a good reference point to show that our ability of being able to constantly, you know, redeploy and constantly generating the new growth So these are the two things I think it's really the differentiation factor of C-SPAN's business model because we are always able to deploy these assets and we always find a ways whether it's in the current good market or even in 2020, if you may recall in the height of April and a year ago this time when China was locked down we were able to deliver four second vessels to our customers. That was a year ago. So this is something that we have been able to deliver the kind of service to our customer and build that kind of trust, and that's how we're going to continue to manage our business going forward.
spk02: Perfect. And just one more. Given all of the new build orders, where do you think your market share is today? Has it increased as a result of all these new contracts?
spk11: Yes, yes. You know, if you're looking at our just purely on an absolute basis, by these new deliveries coming to the operations, we will reach the capacity of 1.7 million TEU. And if you're looking at an independent owner-operator space today, we are far, far, I think, in the lead than our peers. So I think definitely, for sure, as the tonnage provider today in a space that, you know, in terms of that market, we definitely are far apart from our peers. But the other part is that, you know, more importantly is that if you're looking at not only the fleet size, but also looking at the fleet composition, I think it's very important that this growth, that it really represents the best asset quality. They're the largest, they're the large vessel, they are the most fuel-efficient vessel, and they are also most versatile vessels. So these are the best in-class assets that today we are the only one in owner-operator space that has this composition of the best in-class assets. And that is, I think, is equally more important than the size.
spk02: Perfect. Thank you very much.
spk11: Thank you.
spk06: Thank you. Our final question comes from the line of Ben Nolan with Thiefel. Your line is open.
spk03: Thanks. I have a couple left here that I wanted to work in. I'm a little curious about the creative chartering strategy that you discussed a little bit. Is Is part of that your ability to sort of offer existing assets to clients and maybe pair that with also doing new builds with them, for instance, giving them access to your vessels, maybe even at a little bit of a discounted rate for the current hyperinflated spot market, but in exchange you're also sort of able to, do new builds or something like that, kind of leverage your market position with your financial strength.
spk11: Thank you, Ben. What I mean by creative chartering in the new build case, as you just highlighted, is that really today, if you're looking at liners, I think they all financially, I think, are very strong. They have an abundance of cash flows. So theoretically today, liners could go directly to the yards, which yards today also know who liners are. But the reason they're going to us is because, as you know, that doing a new build is a very, I would say, comprehensive process. a very complicated process. It involves the design, the understanding, the negotiation with the shipyard, understanding what their specific requirements, the slot availability, and et cetera. So for C-SPAN really is what I call a super connector where we can put ourselves being in the middle and execute in a very effective and efficient way to deliver the best solution, whether it's a slot, whether it's a design, whether it's a decision on the fuel selections and the technical part, as well as financing and operations. So that is why we are always able to provide that kind of a solution. Sometimes the liner customer wants to get a better idea in terms of what are the fuel selections are. Sometimes they want to have an early slot. Sometimes they want to have a different type of a design that they may want to modify over the time. So this is something where our team have the multi-disciplined capabilities and expertise And this is something that we have always referred to in our discussions, saying that we have the integrated platform. The integrated platform is multidisciplined for the case like a new build, that it is a very complicated process. And my colleague, Peter, he will be able to elaborate a lot more on the complexity of this kind of project. And that's how we will be able to always to be able to find the ways to deliver the kind of solutions to address the needs of our customers, whether it's technical, whether it's construction, whether it's the environment, whether it's operation or financing.
spk03: Right. Okay. So I guess what you're saying is that you're not sort of leveraging your existing portfolio to help win new builds. You're able to do that sort of independently. Is that correct? Correct.
spk11: Largely, yes. Largely, that's correct.
spk03: Okay. Now, maybe if I could shift a little bit to the macro. Obviously, you guys and others have ordered a lot of ships since the first of the year. As has been talked about, we're almost entirely on long-term contracts, and the liners are obviously very hungry for tonnage. Is there a point at which you start to look at in the future, let's say the 2023 order book or something like that, and say, boy, that We might be headed for a little bit of a rough patch here. Is there any sort of future concern as to, you know, just the sort of normal troughs of markets like this as a function of supply? Or are we not yet at that stage in your view?
spk11: You know, fundamentally, we believe we are still of the opinion that the fundamentals of supply and demand is still healthy. If we're looking at what the recent new build, yes, the absolute number might be higher, but if you're looking at over a period of time over the past three years or four years, and also you're looking at the next three or four years on an annual basis, the new tonnage that's been released versus the replacement of the tonnage, I think still that is, in general, it's balanced. Plus, on the demand side, I think the liners today are still, as I said earlier, they're rather disciplined. And if you're looking at the global trade, I think today, yes, on one hand, for sure that COVID has made the situation, I think, more severe. But just taking out the COVID, I believe that overall the demand and overall growth on the global trade, according to the industry estimate, this is about 5%, 4%, 3%, 2% increase over the next three, four years, so that you will have a continued increase of the global trade. At the same time, the supply side is reasonably, I think, it's reasonable growth. Let's also remember that for the past three years or four years, we had a historically low order book. And also in the last few years until this year, I think in terms of the scrap has been almost immaterial. So I think in 2013, 14, 2023, 2024, yes, there might be more tonnages coming in. But I think the impact will be the cascading of those older vessels, the smaller vessels, And for C-SPAN, really, for all those new builds, we have the long-term contract ranging from five to 18 years. So really, for us, this is actually we are expecting, we're looking forward to the future because that's where our growth is going to come to the reality. And for our existing fleet, As we said, at any given time, our spot or re-delivery is somewhere between 10 to 15 percent. If we're looking at right now from 22, 23, I believe that our number and also TEU, number of vessels and the total amount of TEU is very manageable in a month. And I think for 2022, we should be able to, I think, get most of them fixed by the end of the second half of the year. For 2023 and onward, we actually, as I mentioned earlier, in active discussions with our customer in looking at even, you know, having different ways of providing the services or tonnages to better service our customer needs with more flexibility. At the same time, allows us to be able to have the kind of, you know, flexibility as well to optimize the fleet and servicing all our customers' needs. without significantly increasing the actual number of vessels. So this is something that we are looking forward to in the coming years as the market continues to evolve.
spk03: Okay. And then lastly for me, if I could, just kind of a balance sheet type question. Graham, as you – and I realize that there's still a lot of moving parts here, but based on sort of where we sit today, do you have any thoughts as to sort of what maybe the annual amortization profile of the debt should look like going forward and then maybe sort of connected to that a little bit? You talked about getting a corporate – investment credit rating later this year. When you think about that, is that like a typical S&P and Moody's, or are you still contemplating that being sort of more the, what's it, cruel rating?
spk07: Yeah, I think it's hard there. So the crawl rating was something that was done in relation to the portfolio lending program initially that was put in place last year. The work that we're doing currently and have been for a little while now is with Moody's and we've also commenced engagements with S&P and Fitch. So when I refer to, just to be clear, not investment grade by Q3 this year, I wish, but the first step is obtaining our formal corporate rating from one of those institutions that we've just been discussing. And That will then position us with a rating in the market that everyone knows and understands. And then we're on a journey from there to push that up to investment grade, which will take a period of time. It could be one to two years. We don't have a set timeline for it. You've got to balance up, as you say, many moving components to get there. But all I can say is it's very top of mind and we're very committed to Obviously, through the new build program, you start to push up on your gearing a bit, and we're very conscious of that, and we sort of model out our cash flows throughout and past the new build program to make sure that we've got all of that adequately planned and covered. And, of course, it then comes up very quickly after that once you start to get the cash flows coming in from these new vessels entering into the fleet and entering into service. So there is a tightening, and there's no hiding that, and I think everyone's well aware of it, but we've got plenty of time to work on optimizing that, and it's not a concern for us at the moment. Like I said, our cash forecasting is comfortable within all of our covenants and limits that we set, and so it's really a matter of how can we work it harder to optimize it during that timeframe further.
spk03: Right. And any idea what we should be thinking about from a data amortization, annual data amortization profile, perhaps?
spk07: Yeah. I'm not sure that I have an average number I can give you, Ben. I could, you know, because each package is slightly different. You know, it could be between 5% and 10% amortization on different packages. I'm happy to get back to you with a more structured answer. Okay.
spk03: Yeah, I appreciate it. Thanks.
spk06: Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.
spk11: Thank you. Thank you, everyone, for taking the time to join our earnings call. We look forward to seeing you in the next quarter, and I wish everyone all the best and stay safe and healthy. Thank you all very much.
spk06: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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