Good afternoon and good morning, everyone. This is Constantin Baack, CEO of MPC Container Ships, 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 Container Ships' first quarter 2025 earnings. This morning, we have issued a stock market announcement covering MPCC's first quarter results for the period ending March 31, 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 are 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 MPCC. 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 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 charter rates and durations remain very healthy, and we have further increased the employment coverage in line with our long-term chartering strategy.
As a result, the revenue backlog now stands at $1.1 billion, 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 $0.08 per share, which will bring the total dividend paid to investors to north of $1 billion over the last three years. Importantly, going forward, we will continue to emphasize 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 maneuver.
As we continue to offload older non-strategic assets, we are very happy to have taken delivery of our first two methanol dual-fuel new buildings that have entered services in January and April this year and commenced a 15-year time charter 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. Second, we have successfully tapped our existing senior unsecured sustainability-linked 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 of 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-$500 million, and on the EBITDA side, we also reconfirmed the guidance between $305 million and $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 profit for the quarter was, 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 remains 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 $8 per share, which will be paid in June 2025, 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 futurization 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 market, we continue seeing strong demand from top-tier liner companies for feeder tonnage for our vessels. Both charter 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 2025, we only have four vessels open for rechartering if you exclude another four vessels with a relatively wide redelivery 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 AS Venia 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. These vessels will be handed over to the new owners in the next coming weeks, and the sales are 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.
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. 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.
While we have sold obviously more vessels than we bought, I think it is 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, 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. 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. Having said that, our investment efforts of around $600 million over the last three years have, as you can see at the bottom right, yielded a significant improvement in our fleet composition as it now features three methanol dual-fuel vessels, of which one is to be delivered in 2026, 11 eco-vessels, as well as 24 vessels that will have undergone substantial retrofits. It is the clear intention that going forward we will 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 under 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. From a gross debt perspective, we're currently at around $440 million, which is substantially below the fleet's fair market value of around $1.5 billion. 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. While we continue to reduce our average financing cost over time, we have no debt maturities before 2027. In addition, we have been awarded Bahrain Marine Money for our successful and innovative ECA-covered green loan with Deutsche Bank and Sinoshorn. 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. When looking at our financing silo, it clearly outlines the comfortable employment coverage on the heightened financing break-even, while the debt-free silos feature both a comfortable break-even as well as sufficient headroom between break-even 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 were dominated by the good operating cash flows of $75 million, one and two by $110 million 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 retained further flexibility through $75 million 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.
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, being a fantastic testament to our capital allocation strategy and our emphasis on long-term shareholder return. All in all, MPCC, I think it is important to mention, remains very disciplined on the capital allocation side, as we have always done. On that note, I hand over to Constantin for the market update and the outlook 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 storm of tariff hikes and tariff pauses, which has led to misaligned capacities and congestion across major trade lanes. It is an environment in which freight rates can thrive, and that is exactly what we are seeing. 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 U.S. trade policy. The list of tariffs introduced by the U.S. 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 regulation is now 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 discussions 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. 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 HARPEX 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 TEU. The market is very tight for the remainder of 2025. Since January 2024, the time charter index increased by more than 150%. In sum, charter 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. Second-hand prices, another topic to look at, have likewise increased by around 40%-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%-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 Clarksons 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 edge 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 that 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 mid-size 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 4,000 TEU, 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 mainline trades, especially the Trans-Pacific, it is important not to lose sight of the strong market fundamentals in intra- and intra-regional trades. Mainline volumes will not be the growth drivers of container trade 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 TEU, 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 wildcard events. Four key factors that will drive how the market will develop over the next 12-24 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 cost and complexity, it may also create windows of opportunity for modern fuel-efficient vessels, especially in the sub-8,000 TEU 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 pattern. 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 is still a significant shortfall in modern-sized, mid-sized ships, and again, especially below 8,000 TEU. Still, on a global scale, supply growth is forecast 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 TEU 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 the domino effect with others quickly following suit. That would rapidly unwind the current detour, bringing those additional 12% TEU miles back to zero. 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 the foundation of the company is clear and transparent communication and walking the talk. On this slide, we have illustrated MPCC's development since the 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 buildup 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 the 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 market.
On the one hand, i.e., by locking in period charters at highly attractive levels and selectively carrying out divestments and selling ships 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. Creating value is not only about a high dividend. We have at the same time also optimized our balance sheet, as Moritz 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 relationships. 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%-50% of net profit, 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 rebalanced 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 the inception of MPCC. Now, what does that mean in terms of capital allocation strategy?. We have put some of the bullets on the right-hand side, but let me guide you through some of the considerations. Firstly, 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%-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 2025, 2026, and 2027. We are 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. 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.
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 open charter positions in this year and partly even next year. Now, let's move forward to the next slide, 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 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 rates in blue and the 10-year average from Clarksons 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. 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 are looking forward to the future with confidence. 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? First of all, we have 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 8-10 vessels where we have carried out smaller retrofits. We would always consider retrofitting 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 are also looking at the possibility of certain designs to dispose ships. 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 of the ships. Currently, where we see price levels, we would definitely on some what we deem weaker designs that do not necessarily have the same retrofit path, consider disposing ships going forward.
The next question is concerning the today announced adjustment of the dividend policy. Is the new policy of reducing the payout ratio to half a permanent or a temporary decision?.
If you may comment on how you arrived at such a decision, especially when you stated in the report that forward availability is decreasing, the number of fixtures is increasing, and rates are high. I think it's needless to say that this decision has been carefully and very diligently considered before, obviously, announcing and taking a step back and understanding that shipping obviously is a very cyclical business and that also the capital allocation strategy should be adapted to the specific point in the cycle where you are. Again, taking a step back to when the company was founded in 2017, the capital allocation was full steam ahead on building a fleet. Everything has been invested to build a sizable fleet.
In 2020, have entered the next strategic phase in our company where the focus has shifted into harvesting the fantastic market that we have been experiencing. We have ever since started to return, now with the dividend announced today, which will be paid in June. We will be north of $1 billion paid out in dividends. At the same time, we have been able to also invest significantly in the fleet renewal. $600 million is the figure that we are stating that has been invested both in, or it is actually three pillars. It is new building investments, modern second-hand ships, and opportunistic second-hand ships, as well as retrofit investments in the fleet. We have also, from a balance sheet perspective, managed to lower the debt burden and free up some of the collateral.
If we look ahead, and we believe, or we're convinced that we are now entering into the third sort of phase of the company, if we look ahead, it is very hard to predict how the market will develop in the foreseeable future, especially given today's macroeconomic uncertainty. There will be strong regulatory shifts upcoming. At the same time, looking at the feeder market in particular, we see a very, very strong underinvestment in the current fleet. That's why I believe it is the right point in time to adjust the payout ratio from the originally 75%- 30%,50% to ensure the needed flexibility to execute going forward on the needed fleet renewal and strategic opportunistic because we want to grow the fleet. We strongly believe that there's massive value from a shareholder's perspective in growing the fleet beyond today.
That obviously is a shift in the long-term value creation while maintaining our sort of disciplined, transparent shareholder focus on return and distributions. Again, the payout ratio has been adjusted. Beyond that, there is still the possibility to pay out event-driven distributions as we have done in the past. That will not change. From that perspective, we have a lot of flexibility going forward, and we believe that this is the right sustainable payout ratio going forward. Yes, the market is performing very well as we speak, but as I just mentioned, there is a lot of macroeconomic uncertainty looking ahead. In order to be prepared for any opportunities that might arise on the horizon, we think it is prudent to adjust the payout ratio from 75%- 30%,50%. The next question is on a P&L item.
Could you please provide some more color on the increase in other income and the decrease in depreciation?. The increase in other income is primarily driven by insurance payments. We had a few main engine damages on our vessels, and now the insurance money that is covering those damages is flowing into P&L through the other income. The decrease in depreciation is linked to the 3,800 vessels that we acquired in the second half of 2024. We acquired those vessels with below-market time charters, and thanks to some IFRS magic, there is actually a write-up on those assets, which is now being reflected in the P&L. From the second quarter and going into the third quarter, the depreciation on the P&L is expected to normalize and be in the tunes of around $20 million per quarter. Next question.
Given the current high asset values, do you see greater value in expanding the fleet through new build orders or by acquiring younger second-hand vessels?. Additionally, if attractive vessels or M&A opportunities remain limited, should we expect any additional adjustments to the dividend policy?. Taking the latter part first, the dividend policy is there to stay. That is why we have decided to adjust the dividend policy to be sustainable from a long-term perspective. On the asset side, we would like to have as much flexibility as possible. We would like to be able to act in the current market, and that means being able to buy asset at, historically speaking, high prices but mitigating the entry by long-term charters, both on a second-hand basis, but also on a new building basis, but also going forward, be able to act opportunistically if asset value should change.
The next question is around optimizing the fleet. Are you only optimizing or renewing your ship portfolio, or are you also planning on growing the fleet?. I mean, over the years, obviously, we have done that hand in hand. I mean, over the last couple of years, we have, on a net basis, sold more ships than we have acquired. Yet, as Moritz has presented earlier, we have added runway in terms of more trading days because we have bought more modern, younger ships. I think one should not necessarily only think in number of ships, but in number of capacity available and age of the fleet and trading days available. There we have actually grown over the last couple of years, at least in terms of the vessels that we have sold versus the vessels that we have bought.
Going forward, we would at all times consider to grow. We believe there is a certain minimum scale that you should have as a container tonnage provider vis-à-vis your customers to be in a more strategic dialogue. I mean, there's not a line in the sand, but I would say we should not go below 40 ships in order to have a constant and frequent dialogue with our customers. That would also include growth. We clearly have the ambition, and we believe the market is right also to selectively take growth measures. That is also why we have rebalanced our capital allocation strategy going forward. Yes, we would consider also growing, but not for the purpose of growing, but for the purpose of generating shareholder value going forward. There's another question, and that is regarding the order book.
Why do you think there is such a discrepancy in order book across TEUs with very low order book for vessels below 8,000 TEU?. Obviously, that is a topic that we have discussed over the last couple of years and quarters. I think there is no very simple answer, but part of the answer is that at least as far as propulsion technology is concerned, for example, it is easier to order larger ships, i.e., the premium you pay in terms of fuel technology is, relatively speaking, smaller if you go for a larger ship. You also have more clarity on where the ships trade, mainly on the east-west routes, the mainline trades, whereas the smaller vessels are more flexible and they will basically trade globally in regional markets all over the world. Therefore, to take a decision on the propulsion technology has not been easy.
Secondly, and very importantly, the charter market for the smaller vessels, i.e., the availability for liner operators to charter in vessels has been significantly higher for the smaller vessels. In the past, we had like 1,500 ships per annum available to the charter market. Now, at the moment, with longer charter periods, etc., we're rather looking at 300-400 vessels a year. We do believe that there will be a significant catch-up needed in terms of replacing the tonnage in the smaller sizes, as we have alluded to across or throughout the presentation. Those are a few reasons why we haven't seen orders. We do believe there will be more orders this year and also going forward because we need to replace all the global fleet needs to be replaced in the smaller sizes with more than 1,000 ships above 20 years of age.
There is a clear path towards a fleet renewal necessity going forward.
Next question that is on the screen is, how much debt do you have on the seven vessels sold for delivery in Q2 and Q3?. Number two, you have a significant cash position as of end of Q1 and with more to come from sale of seven vessels in Q1, Q3. In addition to securing additional debt of $52 million drawn in May, taking the proforma cash to more than $350 million, do you have any investment besides the new building deliveries and the joint venture vessel explaining the dividend policy cut, or do you expect to build a large cash pile for investments in the medium term horizon?.
To answer the first question, there was only very, very limited debt attached to the seven vessels in the tune of between $3 million and $4 million. On the second question, obviously, ideally, you always have immediate use of proceeds or deployment of capital, as we luckily had when we raised the bond the first time around in October when we managed to immediately acquire a small fleet of modern ships. We do not have this immediate opportunity right now, but obviously, building up a cash position is certainly designed to be deployed in the foreseeable future. As we speak, we are working on what we believe is very interesting opportunities from a fleet renewal perspective. It is certainly not the intention to just sit on a large amount of idle cash on a balance sheet without having proper use for it.
There is a question that says, you've been clear regarding your intention to modernize the fleet. Should you order new builds, or do you think about ordering alongside a long-term contract relative to speculative ordering?. I guess we have been clear since inception of MPCC that we would always look at investments on a risk-adjusted basis. We have not, until this date, ordered a ship on speculation. To the contrary, we have actually done new builds with charters attached where the EBITDA exceeds the new building price. We would always look at a de-risking, a certain de-risking of a new building order. We would opt for new buildings with long-term charters attached, bringing down or managing the residual value risk in a way that we believe it is, after the charter, an attractive entry point overall. That is kind of the way we would approach it.
There is another question. Any insight you can provide on how you think about the trade-off between acquiring assets and the S&P market versus ordering, considering current asset values?. Again, it's always looking at, let's call it, adjusted entry price into the asset. Can we buy ships?. And if you buy ships with, in today's market, with charters attached, be it new builds or be it second-hand ships, you would obviously buy them implicitly at a lower price than today's price because you have cash flow attached that brings down the entry price. That's the way we would look at it weighing up. I think one should expect us to do similar transactions as the ones that we have done in the most recent phase. Again, we have, over the last three to four years, sold 39 ships. We have bought 28 ships.
The ones that we have bought, we believe, have been extremely good investments in terms of a de-risked entry price. You should consider similar transactions to be carried out going forward. There is one more question. Sorry, can you go back to the question?. There is one more question. How should we think about dividends being declared at the low or high end of the 30%-50% payout going forward?. Secondly, how do share repurchase play into the new return policy?. I would start with the first part. I mean, we have intentionally provided a range of 30%-50% to cater for, firstly, the volatility in the market and the somewhat uncertainty around the outlook. At the same time, the ability to possibly utilize opportunities that we see in the market.
We would define and discuss with the board on each quarter what the payout ratio will be. There will be a dividend, and the dividend will be in the range of 30%-50%, considering the parameters that I've just mentioned. Secondly, share repurchases, how do they play into new return policy?. I mean, share purchases have always been part of the capital allocation strategy. We would, of course, consider that, in particular, if we see a significant shift in share price and a significant disconnect between the inherent value of the company and the share price and the valuation in the market. Share purchases will be part of the strategy going forward.
Having said that, we do also believe that creating long-term value in the company by continuing the investment strategy that we have carried out since inception, i.e., buying at a price in the cycle that is either low or that is a reduced entry price by having charters attached, is something that we believe is extremely attractive as well. That is why we want to also develop the company further by increasing the modern or modernizing the fleet going forward. We see extremely attractive dynamics when you look at supply and demand in our sector. We do also see opportunities on the share basis, sorry, on the asset basis and new building basis. A share buyback would definitely be and is a topic that we discuss and consider. There is a question.
What is your comment on the market shock from changing the dividend policy this much, basically overnight, given the relatively sound market outlook and the company's significant revenue backlog and cash balance, and thus no obvious need for change?. As I said, and also Moritz alluded to, it is a very thorough consideration that we have done over the last couple of months and quarters, considering the market outlook, considering the opportunities that we see, and considering that a dividend will be, has been, and will continue to be an important ingredient in our capital allocation policy. We do believe that we will be able to generate value by continuing to do what we have done over the last couple of years, deploying capital when the time is right and returning capital investors. We will continue to do so via dividends.
A share price reaction that, as we have seen today, is obviously not good. I mean, we will continue to work the plan that we have. We believe we have shown over the last eight years that we are able to generate value across cycles, that we have shown that the way we allocate capital does create value for shareholders, and that we are a good partner to our stakeholders. We will continue that path. I do think that throughout the presentation, we have explained how we want to approach that. We have also explained why we believe there are significant opportunities going forward, and we will continue to execute on that path.
Next question is, why do you not let your shareholders benefit from the net profit you made from the seven ships you recently sold?. As you just mentioned, this should be one of the event-driven events.
Yeah, as mentioned, event-driven remains part of the overall mix of the dividends. As also explained throughout the presentation and just now, we strongly believe that there's more long-term value in recycling the capital into opportunistic and strategic opportunities and to grow the fleet going forward, and hence to extend the long-term and the tail end value of the fleet. Because, again, shipping is a cyclical industry. In the next, in the foreseeable future, especially based on the current demand and supply dynamics in the feeder segment, we are a strong believer that we will run into another strong upcycle. We want to be perfectly positioned to take advantage of that cycle. You do not do that by only having a small fleet of between 20 and 30 ships.
You want to make sure that you have sufficient scale to have a meaningful impact in such a cycle. There is a very short balance sheet question, leverage going-forward?. From a leverage perspective, we will continue to be conservative as we have been in the past. On a gross basis, the leverage has gone up. On a net debt basis, the leverage has actually been slightly decreased relative to the previous quarter. The clear intention is to not over-leverage the company. We want to stay prudent. We want to make sure that the balance sheet remains intact throughout cycles. Yes, we are at a good point in the cycle, but that can change going forward. You want to make sure that both the leverage on the vessels, but also the break-even remains to be manageable.
Also from a flexibility perspective, currently, we have around 50% of the fleet being debt-free. Not necessarily saying that is a number we want to keep forever, but we certainly want to keep specific amounts of vessels as fully debt-free on the balance sheet, also being, again, a testament to us being very conservative from a balance sheet management perspective.
There is a follow-up question to the audible question earlier. A follow-up question, are you aiming for bigger in terms of TEU ships in the future?. I mean, referring to one of the slides that Moritz has presented earlier, I mean, obviously, the vessels that we have sold over the last couple of years have, on average, been smaller, older, and the ones that we have bought have been larger and younger. That is a trend that we believe, also seeing how the market develops, will continue.
That does not mean smaller ships are out of focus for us. We would try to develop the right ships and acquire the right ships where we see value for money. That does not necessarily have to be only larger ships. I guess in terms of trend, we have invested in slightly larger ships recently. I would not rule out that that trend or that trajectory will continue. There is another question on dividends. Is it still not possible of spreading the dividends, i.e., paying them monthly?. I mean, we have looked at that in the past. I think a quarterly dividend is a very frequent dividend, in my view, for shipping. Considering also the size, different SPVs, upstreaming of liquidity, having closing accounts, etc., we believe that a quarterly dividend is the right thing to go about. Smaller companies might be able to do it monthly.
In our view, quarterly is the way to go about it. That is what we will do going forward. There is one more question. Have small vessel rates held up or been better during the period of uncertainty because canceled orders due to tariffs made it more economic for charters to send a full small ship than use a larger half-full vessel?. Might this be a feature during continued volatility, as does the MPCC?. If I understand the question correctly, it is basically around utilization of ships on certain trades and whether small vessels will actually be benefit. I do not think that the way this question is at least raised, that that will be a clear benefit. Having said that, I do think that intraregional trade, as we have said throughout the presentation, has increased disproportionately stronger than mainland trades on average over the last 10, 20 years.
We believe that will actually be even accelerated going forward with everything that is happening in the world at present. Intraregional trade will continue to grow disproportionately stronger. On intraregional trades, 98% of the ships deployed there will be below and have been below 5,000 TEU. We clearly see a demand that is structurally supported when it comes to demand growth, structurally supported by that trading pattern. That obviously meets a very low order book in the smaller sizes and more than 1,000 vessels above 20 years of age. Meaning there is, in the next three to five years, we do believe there will be a supply crunch. There is a need to replace the tonnage. That is also why we have rebalanced our capital allocation strategy.
I think one of the last questions here is, you mentioned cycles and you mentioned lots of uncertainties.
How would you identify the top or bottom of a cycle?. You can obviously look historically and compare asset values and charter rates. I think it's fair to say that from a historical perspective, we are operating in a rather high market, so probably being closer to the top of the cycle. Going forward, yes, there's lots of uncertainties. You have erratic behavior, let's call it, coming out of the U.S. You have a tariff landscape that is ever-changing, very hard to pin down. You have probably penalties being imposed by the U.S. on Chinese-owned and built vessels. You have a new IMO regulation that is also likely being introduced from 2027. Yes, there's lots of uncertainties. Also, if you combine those uncertainties with the current supply-side outlook in the feeder segment, we believe it can also create a lot of opportunities.
Obviously, we don't have a glass ball. We cannot predict whether the market will increase from here or whether it will decrease from here. Irrespective of what the market will do, we want to be best positioned from a capital perspective to act. Because, again, of the supply-demand dynamics that we foresee in the next couple of years, we want to make sure to be able to renew the fleet and be perfectly positioned for the next phase, as we have done ever since the inception of the company.
It seems there are no further questions coming in. Thank you for your interest and for all the questions. We obviously appreciate the interaction. As we said throughout the presentation, we believe we are very well positioned for the market ahead. We are excited about 2025 and 2026 and beyond.
Thank you very much again. Stay tuned. Speak soon. All the best. Bye-bye.