Mpc Container Ships As

Good afternoon and good morning, everyone. This is Konstantin Bach, CEO of MPC Containerships, and I'm joined by our CFO and co-CEO, Moritz Fuhrmann. I would like to welcome you to our Q1 2025 earnings call. Thank you for joining us to discuss MPC Containerships first quarter 2025 earnings. This morning, we have issued a stock market announcement covering MPCC's first quarter results for the period ending March 31st, 2025. The release as well as the accompanying presentation for this conference call are available on the news and investor section of our website. Please be advised that the material provided and our discussion today contain 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. Before we guide you Through our Q1 earnings call presentation, let me share some initial reflections on the first quarter 2025. We're very pleased to report another solid performance and a strong quarterly result, despite prevailing macroeconomic and geopolitical uncertainties. Overall, Q1 has been an excellent quarter and a good start to the year for NPCC. With that said, I'm happy to hand over to Moritz.

Good morning and good afternoon everyone and welcome to MPCC's earnings call for the first quarter of 2025. Following our agenda for today, we will start as usual with the review of the Q1 highlights, after which we will spend some time on the current market, followed by the outlook for the remainder of 2025. Kicking off with the highlights, we continue to post strong results, both from a financial and operational perspective. As we have seen in the previous quarters, adjusted EBITDA came in at 66 million US dollars for the first quarter. From a market perspective, both the container and the chartering markets remain very strong. We continue to take advantage of the prevailing market environment. We see chart rates and durations remain very healthy, and we have further increased the employment coverage in line with our long-term chartering strategy. And as a result, the backlog, the revenue backlog now stands at 1.1 billion US dollar with 96% and 77% coverage of open days in 2025 and 2026, respectively. In addition, the board of directors has declared the company's 14th consecutive dividend in the amount of 8 cents per share, which will bring the total dividend paid to investors to north of 1 billion US dollars over the last three years. And importantly, going forward, we will continue to emphasize on long-term sustainable return to shareholders. On the asset side, we continue to execute on our fleet optimization as we agreed the sale of seven vessels in total across two separate transactions. The vessels sold have an average age of around 17 years and hence support our goal of building a long-term sustainable fleet. That is future-proof, especially given the regulatory landscape in which it becomes more and more difficult to renew. As we continue to upload older non-strategic assets, we're very happy to have taken delivery of our first two methanol dual-fuel new buildings that has entered services in January and April this year and commenced a 15-year time charger with our customer NCL. It has been a very busy quarter on the debt side. First of all, we closed our first Japanese lending transaction at highly attractive terms, which also marked the entrance into a deep and strategic market for MPCC. And secondly, we have successfully tapped our existing senior unsecured sustainability link bond, raising another $75 million and bringing the total outstanding bond to $200 million. The capital that we have raised will obviously support MPCC in its fleet renewal and optimization efforts going forward and obviously being an integral part to the company's capital structure. Looking ahead into the remainder of 2025 and as the market continues to be very supportive, we will strongly focus on further driving our fleet optimization and our retrofit program to improve the fleet composition. and at the same time enhance the long-term shareholder value. Based on the current market, we reconfirmed the revenue guidance of 485 million to 500 million, and on the EBITDA side, we also reconfirmed the guidance between US dollar 305 million to 325 million. Turning to the next slide and looking at some of the KPIs for the first quarter, as just mentioned, revenue and profitability are more or less in line with the previous quarter. First quarter gross revenue came in at 127 million, while the adjusted profit for the quarter was 48 million. From a balance sheet perspective, the bond tab as well as the drawdown under our new building financing has increased the leverage ratio to 32%, which remain very moderate from our perspective. However, the net debt position has actually decreased on a quarter by quarter basis. now standing at around 200 million as mentioned before the board has declared a dividend of eight dollar cents per share which will be paid in june 25 and the operational cash flow generation remains very strong in this quarter with 75 million as you can see at the top right We continue to see good feed utilization with 96% and OPEX has been slightly below expectation due to some shifting effects on the P&L, meaning that we will probably see a catch-up effect or a make-hole during the coming quarters. But so far, things are expected to be in line with budget from a full-year perspective. Looking at slide number five and spending some time on our recent chartering activity via the market condition, it is pretty evident that despite the negative noise and macro uncertainty that we see in the markets, we continue seeing strong demand from top tier liner companies for feeder tonnage for our vessels. Both chart rates and durations are holding up strongly as can be seen by the five fixtures concluded since our last reporting. Depending on the vessel size, our new fixtures reach well into 2028. And for the remainder of 25, we only have four vessels open for recharging if you exclude another four vessels with a relatively wide re-delivery window. And that basically means our P&L is shielded to a large extent from any adverse market movements in the foreseeable future. On the asset side, while we have already successfully delivered the RS Fenya to her new owners, we have further divested seven smaller, older container vessels in two distinct transactions, generating gross sales proceeds of about 94 million US dollars. These vessels will be handed over to the new owners in the next coming weeks, and the sales are increasing. very much in line with our fleet optimization strategy, while the sales proceeds are intended to be reinvested into our fleet renewal efforts. Some of the sold vessels are being delivered with existing time charters attached, and consequently, future revenue will not be recognized in the MPCC P&L. However, given the strong chartering activity, we maintained a total revenue backlog of 1.1 million US dollars. On the next slide, we take a step back, reflecting a bit on our successful capital allocation strategy since 2021, which marked for us the transition from what we called a growth phase, when we have built up the fleet, where we have invested a lot of capital into the strategic execution phase. And between 2021 and today, we have in total bought and sold 68 vessels. I think which is a great testament for the transactional DNA of MPCC and the ability of us being able to execute on accretive transactions irrespective of the market cycle that we operate in. And while we have sold obviously more vessels than we bought, I think it's very important to note that we have not only reduced the average age of the fleet and increased the average vessel size, I think we have more importantly or most importantly significantly increased the available trading days by more than 40%, and therefore the tail end value of our fleet, which adds substantial long-term value to our company. On a more general note and going forward, we will continuously place very strong emphasis on both strategic and opportunistic fleet renewal in a market environment that will likely present many, many interesting opportunities. And coupled with our retrofit program, which has shown efficiency improvement by up to 20%, we are very confident to rightfully position our fleet for the future. When assessing new investment opportunities, as in the past, we will focus very much on de-risking through time charter coverage, especially in the current market environment, essentially managing appropriately residual risk. And having said that, our investment efforts of around 600 million over the last three years have, as you can see at the bottom right, have yielded in a significant improvement of our fleet composition, as it now features three dual-fuel methanol vessels, of which one is to be delivered in 26, 11 echo vessels, as well as 24 vessels that will have undergone substantial retrofits. And it's the clear intention that going forward we'll be able to execute on the same scale and further drive the fleet renewal as we have done in the past. Turning to slide number seven and looking at the balance sheet development as well as the status quo. we have continued to optimize the company's capital structure by tapping our senior unsecured sustainability-linked bond, as well as drawing on their strategic senior secure financings that are all against long-term charters, as can be seen at the bottom right when looking at the different financing silos. The cash break even of around $17,700 per day is sufficiently covered by the respective secure time charters. And from a gross debt perspective, we're currently at around 440 million, which is substantially below the fleet fair market value of around $1.5 billion. And while the net debt is also close to three and a half times covered by our projected EBITDA backlog. Balance sheet flexibility is absolutely key for us in MPCC and consequently we retain 33 debt-free vessels on our balance sheet with a fair market value of around 800 million US dollars. And while we continue to reduce our average financing costs over time, we have no debt maturities before 2027. And in addition, we have been awarded marine money for our successful and innovative ECA-covered green loan with Deutsche Bank and Sinochon. Generally speaking, we follow a pretty strict debt financing principle, trying to align leverage and cash flow visibility, while at the same time trying to keep a substantial part of the fleet unencumbered. And when looking at our financing silo, it clearly outlines the comfortable employment coverage on the heightened financing break-even ratio. while the debt-free silos feature both a comfortable breakeven as well as sufficient headroom between breakeven levels and the current employment cover. In MPCC, we eventually intend to manage residual risk appropriately, as mentioned before, and position our assets best for the volatile shipping markets, as we have seen in the past and will also probably experience in the future. Looking at slide number eight, cash flows in Q1 2025 was dominated by the good operating cash flows of 75 million, one and two, by 110 million US dollars in debt drawdowns throughout the quarter, significantly improving the company's cash position. and the investment capacity to 226 million by the end of March. In addition to the balance sheet liquidity, we retain further flexibility through 75 million US dollar in undrawn RCF capacity. This was slightly being offset by investments into our fleet and regular debt repayments, but also MPCC's 13th consecutive dividend in the amount of $40 million was paid in the first quarter, and together with the dividend declared today that will be paid in June, the total shareholder distribution since we started paying dividends roughly three years ago, will surpass the threshold of 1 billion US dollar, being a fantastic testament to our capital allocation strategy and our emphasis on long-term shareholder return. And all in all, MPCC, I think it's important to mention, remains very disciplined on the capital allocation side, as we have always done. On that note, I hand over to Konstantin for the market update and the hot rock section.

Thank you, Moritz. I would like to continue with the next agenda point, which is the market. Let me start with a brief update on the current market environment. The first and most important message is that volatility is here to stay. Last week alone, Trans-Pacific freight rates surged by more than 30% week on week. Carriers have found themselves in a perfect zone of tariff hikes and tariff pauses, which has led to misaligned capacities and congestion across major trade lanes. It's an environment in which freight rates can thrive, and that's exactly what we're seeing. But this is about more than just short-term rate spikes. We believe that market volatility will persist well beyond the current surge. There are several underlying factors in play. Firstly, the shipping industry is navigating an increasingly complex mix of geopolitical tensions and regulatory shifts, which are making strategic planning more difficult, but also creating opportunities for non-operating owners like us at MPCC. A key source of disruption right now is US trade policy. The list of tariffs introduced by the US government is long. It includes substantial duties on Canada and Mexico, special tariffs on the automotive sector, and most significantly, sweeping tariffs on Chinese goods, even though these are still on their 30-day pause with lower tariffs. Today, 14% of global container trade by volume is already subject to U.S. tariffs. Historically, or better, during recent years, that figure has been more, 2-3%. In sum, the U.S. tariff situation remains difficult, and the initial impact is disruptive to supply chains. Looking forward, additional regulations are on the horizon. The USTR 301 proposal would introduce new port fees aimed at Chinese-owned and Chinese-built vessels with phased implementation beginning this October. On top of that, the Ships for America Act currently under discussion could impose yet another layer of cost and complexity on the global shipping industry. At the same time, we are witnessing renewed geopolitical tensions in the Middle East. The ceasefire between Israel and Hamas that had been in place earlier this year has now collapsed. Israel is pushing forward with plans to retake Gaza, while the United States has escalated its military operations in Yemen. The Houthis, meanwhile, continue with attacks in Israel. This has left the security situation in the Red Sea highly unstable. At present, there is no indication of near-term return to the Suez route for most carriers. Instead, rerouting via the Cape of Good Hope remains the default. And yet, amid this volatile backdrop, we are seeing sustained strength and resilience in critical segments, the charter market and S&P market. Next slide. The charter market displayed here via the HAPEX has been robust going into 2025. Despite numerous uncertainties and volatility, the market remains on a plateau due to ongoing scarcity of available tonnage. Looking at the number of fixtures reported, there were roughly 33% fewer fixtures concluded in Q1 compared to Q1 last year. However, there is still quite a solid number of vessels being fixed, as we observed a total of around 220 fixtures in Q1 2025. The decline can mostly be attributed to the limited availability of vessels. Especially in the sizes above 3,000 TU, the market is very tight for the remainder of 2025. Since January 2024, the time charter index increased by more than 150%. In sum, chart rates and periods remain robust on a good level, not only in Q1, but until today, as you have also heard from Moritz when looking at our most recent fixtures. Secondhand prices, another topic to look at, have likewise increased by around 40% to 50% since January 2024. The good market environment for ship owners has resulted in the strongest second-hand market for tonnage outside the pandemic boom in the last 14 years. As a result, the second-hand market is still busy, with the same level of activity being reported compared to Q1 2024. Roughly 50 to 60 vessels have been sold, just like one year ago. It is predominantly the big liner operators like MSC and CMA and some non-operator owners that are still securing tonnage to grow their fleet. Looking a little further, data from Clarkson's research show that after three years of record orders, the appetite of new builds among owners is weakening somewhat, which has seen new building prices finally etch down a bit. Let's continue by looking at some additional market parameters on slide 12. specifically vessel availability and forward fixing in more detail. You can see that the development of forward availability of vessels on the left-hand side here has significantly dropped in 2024 and continued their trajectory during the first months in 2025. The decline of open positions has helped the charter rates to remain healthy despite the macroeconomic uncertainties. Only a few vessels are readily available and the term prompt tonnage usually refers to ships that are only available at least a couple of weeks out. As a result, owners remain calm and do not see the need to secure the first employment opportunity that presents itself. When looking at what is being done in terms of fixtures, as a general comment, we have seen continued demand for our midsize and smaller container ships from the liner operators as they look to maximize flexibility in their networks to accommodate changing flows of cargo. The fixing of vessels for forward positions picked up again going into 2025. Generally, forward fixtures increased due to the scarcity of tonnage. The majority of fixtures that were concluded further out than others were reported in the larger sizes above 4000 TU, whereas the supply of vessels is already very limited for 2025. As a result, the non-operating owners fleet can still be deemed fully employed based on a very low count of idle vessels. Moving on to the next slide where we present A bit more specifics on regional markets, and we believe that going forward, regional markets will continue to grow, but the regional fleets not so much. What does that mean specifically? On the demand side, while we see strong volatility in freight rates on the mainland trades, especially the Trans-Pacific, it is important not to lose sight of the strong market fundamentals in intra-regional trades. Mainland volumes will not be the growth drivers of container trades in the coming years. The average annual growth of only around 1% is expected over the coming years. At the same time, intra-regional trade, the core market for the MPCC fleet, is expected to grow by 3.5% annually on average for the next two years. The container trade volume on intra-regional trades is also significantly higher than the total volume on the mainline trades, which clearly demonstrates the importance of intra-regional traffic. Looking at the supply side, we see growth potential in intra-regional trade, but we don't see the corresponding fleet serving these trades growing at the same pace. Within MPCC's core segment, vessels between 1,000 to 8,000 TU roughly, almost a quarter of the fleet is already 20 years old or older. On the other hand, the order book is small in relation to the fleet, at just 6% compared to 47% of the fleet, including larger sizes in the segment. Smaller and older units are less adaptable to regulatory compliance due to the less economically viable retrofit case for smaller units. Hence, we see a considerable need for fleet renewal and potential in MPCC's core segment towards younger, more efficient units. As we look ahead on the next slide, slide 14, the market remains shaped by a set of wildcards events. Four key factors that will drive how the market will develop over the next 12 to 24 months are shown on this slide. Firstly, regulation and decarbonization. The regulatory landscape continues to evolve and the implications of the IMO net zero framework could reshape the new building market. While compliance will raise costs and complexity, it may also create windows of opportunity for modern, fuel-efficient vessels, especially in the sub-8000TU segment, where a significant modernization gap still exists. U.S. tariffs and trade tensions is another topic where trade policy remains a major source of uncertainty. The escalation of U.S. tariffs and the USTR 301 proposal could deepen fragmentation in global trade patterns. In the longer term, we see a strengthening of regional trades and increased relocation of manufacturing that has already started a few years ago and that might be accelerated by the most recent developments. In the near term, the stop-start of tariff announcements and pauses could cause bullwhip effects along supply chains. Supply outlook, in general, the fleet supply is another wildcard to watch closely. The order book to fleet ratio currently stands at 30%, but the growth is heavily skewed towards larger tonnage. In contrast, there are still a significant shortfall in modern-sized, mid-sized ships, and again, especially below 8000U. Still, on a global scale, supply growth is forecasted to exceed demand growth by 2.7% in 2026 and 1.1% in 2026. Red Sea disruptions and finally the situation in the Red Sea as a very important factor remains an operational wildcard. The ongoing rerouting around the Cape of Good Hope continues to add about 12% in TU miles to the market. At this stage, a return to the Suez route appears unlikely in the near term. But once conditions improve and the first major carrier shapes its network back to the Red Sea, we can expect a domino effect with others quickly following suit. that would rapidly unwind the current detour, bring those additional 12% TEU miles back to zero. And that brings us to the outlook section and how MPCC is positioned to navigate this environment. Let's move on to the next slide, slide 16. Now let me start with a few general comments. History has proven that shipping is a cyclical business and we expect this to continue. It is our conviction that shipping, at least the asset-heavy part of it, is almost a pure capital allocation business. Prices paid for assets, as well as effectively managing residual value risk and upside, are key factors for generating attractive full-cycle returns. There are times to place a strong emphasis on investing and deploying capital, and there are times to place a strong emphasis on returning capital to investors. Maintaining a through-the-cycle balance sheet that is robust whilst ensuring appropriate investment capacity at hand to be able to act strategically and opportunistically is a key principle for us. So is a proactive approach to fleet and portfolio optimization. Now these are some of the key principles that we act upon. Another key principle that we have subscribed to since foundation of the company is clear and transparent communication and walking the talk. On this slide, we have illustrated MPCC's development since foundation of the company in 2017. It shows how we have acted in different market phases to create value for MPCC and our shareholders. Firstly, the growth phase. During our initial growth phase, we have placed full focus on fleet build-up and deployment of capital. Initially, we have acquired 70 vessels whilst we have sold six at attractive prices based on a counter-cyclical investment thesis focused on the smaller vessel sizes. During this phase, we did not pay any dividends as we placed full focus on deploying capital with a goal and promise to shift gear and return capital to investors when the time is right. During the next phase, which we call the strategic execution phase, with a historically strong container market, we have executed on our investment thesis and strategy by realizing value via the charter markets, On the one hand, i.e. by locking in period charters at highly attractive levels and selectively carrying out divestments and selling shifts at historically high prices. Consequently, as promised, we have returned significant capital to investors based on a very high payout ratio of 75% of net profit. More than $1 billion in dividends over the past years have made MPCC one of the leading dividend stocks in global shipping in terms of dividend yield. But creating value is not only about a high dividend. We have at the same time also optimized our balance sheet, as Morris has alluded to earlier, and we have optimized our vessel portfolio, having been a seller and a buyer of ships over the last couple of years and having invested $600 million in our fleet renewal program. We have further strengthened our relationship, strategic relationship, I should say, with our liner customers as evidenced by a series of charter package deals and joint retrofits, which are good examples for our excellent On the way forward, looking ahead, as discussed throughout the presentation, we see changing market dynamics, high uncertainty and volatility. And this, we believe, will create an attractive set of opportunities for accretive growth. And we are therefore rebalancing our capital allocation strategy. A sustainable recurring dividend will continue to be an integral part of our capital allocation strategy. Now let me move to slide 17 and elaborate in a bit more detail on the rebalancing capital allocation for accretive growth. Let me provide some more perspective on the way forward. The rebalancing of our capital allocation strategy is being done in order to continue to develop MPCC in the best interest of the company and its shareholders. This is based on our market expectations. as well as our firm belief that we will see an interesting set of opportunities, as well as strategic fleet renewal investment prospects. Our balanced approach includes, firstly, full commitment to a sustainable dividend at an adjusted level of 30 to 50% of net profits, combined with retaining parts of the cash earnings in order to continue to develop MPCC as a leading tonnage provider and create long-term value for the company and its shareholders. The rebalance capital allocation strategy does certainly not mean that we will go all in in the market right now. It does mean that we will take a balanced approach, and in any case, we will continue to be rational in our divestment and investment decisions, adhering to our principle that we have followed over the years and since inception of MPCC. Now, what does that mean in terms of capital allocation strategy? And we have put some of the bullets on the right-hand side, but let me guide you through some of the considerations. we will continue to carry out portfolio enhancements. That is, we will continue to pursue strategic and opportunistic growth, both in second-hand and new buildings, with a clear focus on managing residual value risk and upside. We will focus on accretive deals for P&L and long-term value, and we will seek active investments into the existing fleet, including retrofits, significantly advancing the vessel's performance and tail-end value of the respective vessels. Secondly, we will continue our rational capital allocation approach in different market phases. That is, focus on long-term and sustainable growth for shareholders and other stakeholders and focus on returns that will be driven by well-timed capital deployment with a strong emphasis on timing of investing versus returning capital. A clear dividend policy and commitment based on 30% to 50% of adjusted net profit as well as event-driven distributions. Thirdly, always active balance sheet management. Focus on low and moderate leverage and general high flexibility, as well as optionality through a high degree of debt-free vessels on the balance sheet and the diversification of sources of funding, as Moritz has alluded to. Now, taking a step back in sum, we have developed MPCC successfully in different market phases by executing our strategy and being adaptable and rational in terms of capital allocation strategy. Going forward, we will continue to build MPCC in that way in order to create value regardless of market environment. Now, from a more strategic dimension to the company-specific outlook on slide 18. where we look at charter backlog on the left, and you can find some more details of the coverage. As explained in detail by Moritz, we have continued to utilize the strong market, and we have increased our coverage for 25, 26, and 27. We're basically looking at almost a full utilization for this year already in terms of operating days, and we have almost 80% covered for next year with visibility of almost 30% for 2027. That is a very good basis to continue to develop the company going forward. And furthermore, in terms of counterparties, more than 90% or around 90% is covered by top 10 liner companies or backed by long-term cargo commitments. And on the right-hand side, you can also see the open positions for the remainder of this year and next year. And we already have active dialogue on a number of positions of open charter positions in this year and partly even next year. Now let's move forward to the next slide and where we have shown on slide 19 what we deem is a strong value proposition in terms of low risk and significant upside. We firmly believe MPCC has a strong value proposition with significant upside and let me explain why. As you can see on the left-hand side, the current enterprise value is fully covered by the projected EBITDA backlog of 0.7 billion US dollars and the recycling value. Further significant upside potential is present from the existing fleet of 54 vessels plus further earnings capacity. In addition, we have run on the right-hand side an indicative sensitivity analysis on open rates based on the charter coverage that we have, In two scenarios, one is the current market rate in blue and the 10-year average from Clarkson's in gray. And you can see the outcome. And that is basically underpinning firstly our resilience, but also our earnings capacity going forward. Before we now open the floor for questions, let me summarize some key takeaways from today's call. Q1 has been another good quarter for MPCC, and based on a strong operational execution, we look at an excellent backlog and forward visibility into 2025 and also 2026. Despite the current geopolitical, macroeconomic, and regulatory environment, the container market continues to show resilience, supported by strong second-hand demand, firm-time charter rates, as well as durations, and basically no idle capacity. With our rebalanced, disciplined capital allocation strategy, we continue to focus on a continuous dividend distribution as well as strategic fleet renewal and opportunistic growth. Additionally, we have strengthened our financial flexibility by tapping our bond and diversifying our funding sources, including entry into the Japanese financing market. And lastly, we also reaffirm our full-year guidance, highlighting our continued confidence in the company's outlook and market position. We are looking forward to the remainder of 2025 and to create further value for MPCC. And we're looking forward to the future with confidence. And on that note, I'm opening the floor for questions. Thank you very much. All right. We have the first questions coming in here via the web. And I'm happy to start off with the first question, which is about retrofitting. The question is, what is the plan for the 33 conventional ships built between 2005 and 2010? Do they all need retrofitting or do you plan to do so? Or is there an option of selling more of them? So first of all, we have retrofitting. done quite a number of retrofits for vessels, for all kinds of vessels, of course, also for vessels built between 2005 and 2010. Overall, we have retrofitted around 24 ships with more major retrofits, meaning the bulbous bow and propeller and paint system. But we have also done probably 8 to 10 vessels where we have carried out smaller retrofits. We would always consider to retrofit ships in order to improve the commercial viability of the ship and or potentially hand-in-hand with our chartering partners, get charter extensions, etc., and simply to improve the vessel's quality. Having said that, at the same time, we're also looking at the possibility of certain designs to dispose ships. And as you have heard throughout the presentation, we have been quite active in selling ships throughout Q1 this year, in total seven ships. And we would at all times consider both investing in the ships and or disposing the ships. And currently where we see price levels, we would definitely on some of what we deem weaker designs that don't necessarily have the same retrofit path, consider disposing ships going forward.