Mpc Container Ships As

Good afternoon and good morning, everyone. This is Konstantin Barg, CEO of MPC Containerships, and I'm joined by our CFO, Moritz Fuhrmann. I would like to welcome you to our Q4 2022 earnings call. Thank you for joining us to discuss MPC Containerships fourth quarter earnings. This morning, we have issued a stock market announcement covering MPCC's fourth quarter results for the period ending December 31st, 2022. The release as well as the accompanying presentation for this conference call are available on the investor and media section of our website. Please be advised that the material provided and our discussion today contain certain forward-looking statements and indicative figures. Actual results may differ materially from those stated or implied by forward-looking statements due to risk and uncertainties associated with our business. Now, before we start with today's presentation, I would like to address a few words from my side reflecting on the past year. We are pleased to report another strong quarterly result today, rounding off what has been the best financial year since MPCC's foundation. This past year has brought a variety of challenges and opportunities, including periods with the highest charter rates in the history of container shipping, but also significant geopolitical and macroeconomic challenges. and a rapid decline in freight and charter rates throughout the second half of the year 2022. At MPCC, we focus on being agile and well-equipped to adjust our operations and strategy to fit the prevailing market conditions. During the first half of 2022, we were able to capitalize on the strong charter market by locking in long-term charter contracts at very attractive rates, establishing a very solid charter backlog of $1.5 billion. We also continue to deleverage the company and currently operate with an industry-low leverage. Over the past month, as part of our ongoing strategy for selective portfolio optimization, we have announced several new and accretive portfolio measures, which include continued divestment from our Bluewater joint venture, for example, as well as investment in younger, larger, scrubber-fitted vessels with existing charter contracts. These measures are not only earnings accreted, but also important efforts to maintain our long-term competitive position. The container market has clearly come down from the historical highs seen in 2021 and early 2022, yet it is important to understand that the charter market is still at a very healthy level. We will discuss all of this in more detail during today's presentation, and I would like to hand over to our CFO, Moritz Fuhrmann, who will run us through the first agenda point of today's call.

Thank you, Konstantin. Kicking off the presentation, we will be looking at some highlights from the financial year 2022, obviously concluding the strongest year that MPCC has experienced in history. Net profit came in at 104 million. for Q4 and $435 million for the entire fiscal year 2022. Based on the adjusted net profit for Q4, the Board has declared a recurring dividend payment of $15 cents. This obviously excludes the event-driven dividend of $7 cents that is being distributed today. Including the event-driven dividend just mentioned, this brings us to a total distribution to shareholders of $537 million since February 22. While we have focused on returning capital to shareholders, we are also very much focused on deleveraging the balance sheet. Currently, based on Q4, we're looking at 16% leverage ratio and at the same time also very important pillar in our strategy is the fleet optimization. So during 22 and in Q1 23, we have been able to divest some of our joint venture ships and older ships in the fleet, while at the same time acquiring secondhand ships that are immediately accretive from an EPS and DPS perspective. And on top, we have concluded very interesting new building projects in 22. Looking at the market development. Obviously, the last six months have been characterized by falling box rate rates via the time charter rates. There was a very inactive period prior Chinese New Year. What we experience now after Chinese New Year is a rapid increase in activity, a lot of inquiries from charters that is also being reflected now in time charter rates, durations, but also in the S&P markets. So, what we see currently is that time shutter rates are stabilizing at levels above historical averages. The general outlook for our feeder segment is more favorable relative to the larger segments due to very good supply-demand dynamics. The order book via the fleet age is certainly more manageable looking at the feeder segment relative to the 8,000-plus TU segments. market uncertainties, MPCC is very well positioned going forward for 2023. As of today, we have a revenue backlog of $1.5 billion and we have fixed out 86% of days contracted for 2023. Again, as for today, our guidance for revenues is between 610 to 630 million on the revenue side and EBITDA between 420 to 450 million. Looking into more detail on some company KPIs, again, revenue EBITDA and profit development, very favorable, 22 relative to 21. Balance sheet, again, focus has been very much on deleveraging the balance sheet. We have currently 30 plus vessels unencumbered on the balance sheet, which gives us a lot of flexibility going forward. Financial KPIs, for the full year 21, we have distributed $1.03, and that is a combination of recurring dividends as well as eventual dividends. Obviously, focus going forward will be to maintain the dividend capacity of the company. Operational KPIs, unfortunately, on the operating side of things, we had some one-off effects in Q4 that led to elevated OPEX levels. If we were to normalize COVID and insurance impacts, The OPEX would be normalized by probably between $400 to $500 per day, which is then more in line with the full year 2020. This obviously has been offset by the favorable TCE that the fleet was able to achieve in the market. And also very, very positive is the utilization of close to 89% line share of the off-hire that we experienced in 2022. especially in Q4, was related to CAPEX and dry docking events. Looking at the company's charter activity throughout 22, I mean, you can see the clear development throughout the year. Very positive, obviously, that we've been able in the first quarter to conclude 23 fixtures with an average TC rate. of close to $40,000 per day. Q2 represents the 1,300 new buildings that we concluded with a 15-year time charter backed by an operator via the cargo operator. And then the clear path visible in Q3 and Q4. with rates coming down significantly from Q1, but nevertheless, we've been able to fix A-SHIPs in total at rates above historical average, which obviously is positive. Very important for us in 22, and here today, 23, but also going forward in 23 and 24, is the active portfolio management. We will emphasize on returning capital to investors, but at the same time, we look to optimize the fleet structure. In 22, we have divested eight ships with an average age of 16 years. In addition, we concluded two charter amendments bringing forward some cash flow while returning the assets on the balance sheet. So the divestment generated a total proceeds of 241 million. On the investment side of things, We ordered four new buildings and year-to-date acquired two second-hand ships with an average age of 4.5 years and a total capacity of 19,800. So overall, we were able to lower the fleet age profile and increase the TU operated once the new buildings are being delivered. Obviously the second hand acquisitions that we've done in Q1-23 are immediately accretive and supportive to mid to long term EPS and DPS. Also very important to mention is that the total construction and acquisition for the four new buildings and the two second hand vessels is $256 million, which is entirely backed by contracted EBITDA of $288 million. I think a very important point to mention that the entire project is being de-risked through attached employment. At the same time, we are very much focused on decarbonization. We have invested heavily in CARB-X in 2022, making a fleet fit for EEXI and CII. We've been carrying out biofuel trials with some charter partners. We have been executing some retrofit measures with joint investments with charters. It's also a positive sign that charters are willing to commit to retrofit together with tonnage owners. And then, again, just mentioned the 1300-year-old dual fuel method, no power, new buildings that we ordered in 22 and that are being delivered in 24, hopefully establishing the first green corridor in Northern Europe. Looking at the cash development in 22, and especially just wanting to show the allocation of capital. So, based on the healthy charter market and the rates that we've been able to log in, we've been generating operating cash flow of $582 million. As just mentioned, we invested heavily in our trading fleet, so there was some and we paid a new building installment totaling $100 million, and on the finance cash flow, again, The focus is twofold here. One is returning capital to investors. So throughout 2022 we've been distributing $439 million in dividends to investors while at the same time reducing debt on the balance sheet of $91 million. Broad strokes, 70 percent have been paid off dividends, 15 percent debt reduction, and 15 percent CapEx for new buildings. While we focus on portfolio optimization, we obviously don't lose focus on returning capital to shareholders, so wanting to zoom in a bit more detail in what has happened since Q4 21. So again, overall, year to date, we distributed $537.5 million to shareholders. $310 million was from recurring dividend, roughly 60%, roughly 40% was event-driven dividend. Clear intention going forward is to continue to pay dividends and enhance investments in the fleet, and the fleet optimization is crucial for the company and for the management. Looking at the share price in early 2022 and taking into account the dividends paid in 2022, this would have been yielded a dividend yield of close to 50%, which obviously in our view is very compelling. On that positive note, hopefully I'm handing over to Constantine.

Thank you, Moritz. I would like to continue with a market update and then continue with a company outlook. Please move to slide 10 of the presentation, starting off with some observations from the container freight market. The graph on the left-hand side shows the key indicators for ocean freight, namely the freight rate index and NUOTU throughput. While trade rates have come down significantly from all-time highs, volumes have basically peaked in 2021, coming slightly down in 2022, and are expected to run flat in 2023 before they are actually expected to bounce back in 2024. While the geopolitical and macroeconomic outlook is not particularly positive with high inflation and high interest rates, And we are rather in a global economic downturn scenario. The IMF has recently slightly upgraded its GDP forecast, and there are also first positive signs of relaxation for the latter part of 2023, some of which are depicted on the right-hand side of this slide. Some indicators are actually fairly good, at least trending upwards and signaling more positive economic growth perspectives. For example, in the Eurozone, we see inflation significantly down and that's following also the trend in the US. And we also see certain European Commission upgrades, for example, on GDP forecast for 2023. Of course, you know, the sustainability of those trends remain to be seen, but at least there are some more positive signals out there. Please turn to page 11 of the presentation where we now look at the S&P market and charter market dynamics in a bit more detail in terms of rates and also second-hand prices and vessel availability. Looking at the chart at the left-hand side, it becomes apparent that S&P prices and charter rates have also come down. quite notably from the historic high seen in 2021 and early 2022, yet they have recently stabilized. And what we have observed at least kind of a leveling out and just, you know, the last few days or this first week, we have seen on a week-on-week basically increase in time charter rate indices that have been reported both from Bremer and Howe Robinson, for example, Some of which can also be evidence when looking at our most recent charter fixtures. We'll get to that in a bit. And that means, as Moritz has also indicated, that we do see increased charter requirements. Also, or in particular, also from the large liner operators that have been fairly inactive in Q3, Q4 2022. Over the past few weeks, there has been way more activity post-Chinese New Year as expected, yet obviously it's a positive signal. And now also the indices show at least start to increase in terms of rate levels, and you can see a bit of a flattening out or maybe even bottoming out at this stage. On the right-hand side of this chart, of this page, you can see availability of charter vessels since 2020, and you can see that the overall TU availability has come down quite notably by more than two-thirds if you compare 2020 with 2021, reasoning obviously being the fact that during 2020's latter part, and certainly 2021 in the first half of 2022, we have seen longer charters being fixed across segments and sizes, and therefore the availability of tonnage has somewhat dried out going forward. In addition, what is also interesting to note, and that's illustrated in some of the boxes at the bottom of this slide, bottom right in particular, and second right, and that is that we have already observed slower service speeds. Here we have, you know, referred to the Clarkson speed index, which has shown a minus 4% decrease in January 2023 on a year-on-year basis. What we can confirm is, also looking at our very own fleet, that we do see service speed reductions up to 10% in certain trades. Obviously, there are definitely differences in regional trades as far as the speed profile is concerned. But what we also believe is that this is not yet based on revised schedules by liner companies, but rather on individual orders to go slower. And we believe that the actual effect of revised schedules and port rotations and trades might only be visible throughout 2023. It's obviously too early to draw a firm conclusion from this, but we do expect to see CLIRA in the next couple of months and quarters, and I certainly expect that we will see more implications from regulation on speed profiles, et cetera. And that's the bottom right box where we have shown some figures. It is quite interesting to see, in fact, that we have seen quite a number of new feeder services being opened between October 2022 and February 2023. In fact, it has been 68 new services that have been opened, which compared to the same the year before represents around 45% more services. So there is an increased activity. Also there it's probably a bit too early to draw a conclusion what that means, but certainly there are a number of new services being opened and certainly more than 12 months ago. Overall, to summarize kind of the macro picture, the freight market picture and also the charter and S&P market picture, It's quite interesting in my view to see that in 2022 we have seen a tumbling macro economy and at the same time actually chart rates have held up quite well in the container industry in general, basically seeing record levels. And that means the macro economy has dropped first, while the charter market last year has still remained fairly strong initially and then has followed with quite significant growth. decrease in Q3 and Q4. What we now see is, I wouldn't say the opposite, but almost the opposite. The charter market is still moving sideways and starting to increase somewhat. And at least there are certain macro signs more for the latter half of this year, obviously, that show a rather improving perspective. Of course, the sustainability of this trend remains to be seen, especially in light of the current economic downturn. But there are a few, I would say, comforting trends that we have seen recently. Now please turn to page 12 of the presentation where we take a closer look at the order book composition by size but also by fuel type. Let me start from the left hand side to the right basically. What we see is here TEUs on order by different size segments, so on the x-axis you see 0 to 4,000 TU, 4 to 8,000 TU, and above 8,000 TU as far as the order book is concerned. What you can see is that in terms of order book to fleet ratio, a very significant portion of the order book in general, and also comparing it to the fleet on the water, is the very large ships. And the smaller the ship, the smaller the order book in relative and in absolute terms. What is also quite interesting is the different colors stacking in the different columns here, being global liner carriers, intra-regional carriers. and either non-operating carriers charter-backed, i.e., vessels ordered by tonnage providers with a charter attached or without a charter attached. These are the two blue-colored parts of the column, and the interesting part there is that if you look at the very large liner, the global liner companies, they have basically deployed their capital and have invested into the very large ships. And the smaller segment, and it's even more interesting when we come to the next slide, when we also look at the age profile in that context, has been in comparison underbuilt, certainly when you look at the age profile. And for the global liner companies, if you then also shift to the right-hand side with the different pie charts here, you can also see the different fuel types, dual fuel versus conventional fuel, or the book, when you look at the different sizes and segments and what is Visible is that the larger the ship, the more mixed the picture being LNG and methanol dual fuel engines on the very large ships. Why is that? That is basically because the whole fuel infrastructure is known and can be used on the mainline trades where the very large ships operate. Let's say propulsion technology question is way easier to answer on the very large ships because the fuel infrastructure is there, especially for LNG and supposedly over time also for methanol. The smaller the vessels, the fewer or the more vessels with conventional propulsion have been ordered. We believe that especially looking at the large liner companies that they will throw their dice over time. once there is a clearer picture on the right fuel on the right trade. Currently, the smaller vessels are and they will remain the flexible part of the supply offering and the service offering of the liner companies. Therefore, they have not focused on ordering big time. We believe, looking at the age profile, extremely important going forward to maintain the same service offering. And we do expect over the next couple of years that there will be more orders in the smaller sizes, which are, however, looking at the age profile, also necessary. And on the note of age profile, let me move to the next slide, slide 13. And here on the top left, we can see a matrix where we have shown On the Y-axis, the order book to fleet in percentage, so just to run through a few numbers, for example, 12,000 to 17,000 TU order book is around 60 to 80, let's say around 70% of the fleet on the water. The smaller the vessels, the lower the order book to fleet ratio becomes. On the X-axis, you can see the age profile. in terms of percentage of the fleet being above 20 years of age. And as you can see, 3,000 to 6,000 TU and 1,000 to 3,000 TU, intra-regional kind of tonnage that we are involved in is on the very right side. So we believe the supply and demand dynamics are extremely favorable. If you compare that with the order book and with the kind of current preparedness of the large liner companies in particular, and they could move the needle on the order book, but only they could move the needle in fact. that there is a significant requirement to continue to upsize or to increase the orders over the next three, four, five years. We believe conventional propulsion tonnage like our own existing tonnage is still very well positioned, but there will be more activity in this field going forward, and we believe this is a very positive kind of supply situation when it comes to the smaller vessel sizes. Let me continue with a company outlook on slide 15 here. And this is an illustration that we have used over the past quarter, so basically looking at the backlog. What we see here is that for 2023, the blue columns represent the operating days fixed and open. So for 2023, we have 86% of the days fixed. And 14% open, we have, and that's at the top of the column in the blue circle, we have $576 million in revenues contracted at an average TCE of around $32,000 per day. And we still have 14% of the days open. That obviously goes down over the years to come. So 2024, it's 57%, and 2025, 23%, and so forth. Overall, we look at a revenue backlog of around 1.5 billion and at a projected EBITDA backlog of around 1.1 billion. This is a very robust backlog, and we believe that is a very good foundation to continue to return capital to shareholders, but at the same time continue to grow and build the company. On the next slide, slide 16, we have looked at the upcoming open positions in 2023. This is the number of vessels. Obviously, depending on the charter duration fixed, we might have individual vessels coming open more than once in one year since periods have come down. But this is kind of a snapshot if you look at the number of vessels we have. Since the last update for Q3, which was mid-November last year, we have seen six shifts, four of which were 2023 positions, and we have illustrated those at the bottom right. Average rate on those pictures was around $15,500 to $16,000 per day, and the average period was six to eight months. Worth noting, that this goes from 1,200 tu's up to maybe Panamax 4,300 tu's. And what we have observed in particular with the February 2023 fixtures, that is reflecting basically the significantly increased activity. Also with O&E and MSE, for example, some of the large operators back at the table to take in additional tonnage capacity. And worth highlighting that, for example, the CPI was also a bit of a forward extension. So I'm not saying we're back to the same level that we've seen in 2022 in terms of forward extensions in Q1 that year. But what we do see is a way more active requirement list of the liner operators and fixtures where we see still solid rates, also in historical context, and also periods. Now to the charter backlog, we obviously see currently, as I've stressed in the market section, a development where freight rates have come down. Having said that, the top liner companies in particular, but most of the liner companies in general, operators in general, have a very healthy balance sheet, very strong cash positions, basically net cash positions. Nevertheless, looking at our charter backlog, we have around almost three quarters of our revenue backlog with the top 20 liner companies. We have two thirds with the top 10 liner companies. And our backlog spans, on average, over roughly 2.2 years, which is also, in our view, a very good kind of short time span as this, from a pure de-risking standpoint, de-risks this backlog very, very quickly. Overall, we are very happy with the counterparty situation. Now, looking at the value proposition and also kind of upside potential of the company and we have looked at the current kind of de-risking of our enterprise value from left to right, net interest-bearing debt or net debt basically being in Q4 being around $30 million roughly. We have a market cap of roughly a shade below $800 million, looking at an enterprise value of $813 million. And if we then compare that with a projected EBITDA backlog alone, we see that there is a significant excess value above the current EV. And this kind of small de-risking bridge, so to say, does not cater for any residual value upside from the fleet on the water, which It's obviously 66 vessels. Yes, most of them still have charters, so the projected EBITDA backlog represents that to some extent. But, you know, in any event, we believe that the vessels will have a significant value. And if you look at the glass half empty, that's probably the recycling value. We certainly don't look at the glass half empty because we see that every charter that we conclude in this market adds EBITDA to the fleet, as we have just discussed when we looked at the most recent pictures. And looking at the charter-free value of our fleet today, according to Vessel's value, we are around $952 to $1 billion in value. So we see that there is a significant upside potential, while the downside is very well protected with the existing contract. Looking at some sensitivity. In terms of rate sensitivity, of course, with just a shade below 90% of the day six for 2023, the sensitivity is quite low when you look at the 2023 results. For 2024 and 2025, that increases, as can be observed on this graph when we look at on the top left operating revenues for 2023, 2024, 2025, according to a certain rate sensitivity as well as net profit. What we have used here is firstly the current market rates for our vessel basket, which is not much dissimilar to the Clarkson 10-year historical average, and we also looked at the 5-year historical average of Clarkson. And we have also looked at what that means in terms of the implied dividend yield applying our dividend policy. And that means in case of a five-year historical average, you are basically de-risking more than 100% of the current cap, market cap. And even at current rates or 10-year historical averages, a very significant part would be de-risked over the next three years alone when you look at the implied dividend yields. And on that note, I would like to hand over to Moritz to run you through some of our balance sheet considerations and the debt profile.