Ladies and gentlemen, welcome to the conference call of Hutchison Port Holdings Trust annual results announcement for the year end 31st December 2023. Now, I will hand over to Mr. Ivor Chow, the CEO of Hutchison Port Holdings Trust. Mr. Chow, please begin.
Thank you. Thank you all for joining our 2023 full-year results investor call. Just like my previous calls, I would start off kind of going through how 2023 went, especially the second half. Then I will probably spend more time talking about what I expect and what I see for 2024 and some of the challenges and whatnot. Then I will hand over to Jimmy, who is our CFO, and he will go through the actual figures with you. If you talk about 2023 as a whole, obviously it is a disappointing year. But if you look at the first half versus second half, the first half was definitely disappointing in the sense that when COVID was lifted, when things start kind of recovering in China and Hong Kong, things were quite slow in the first half.
We were down quite a bit, and we knew it was difficult to kind of catch up in the second half. Third quarter, it was slightly better than what we have saw in the first half of 2023. But the last quarter in 2023 was actually decent in the sense that Yantian in Shenzhen has finally turned a corner into positive territory. We actually had positive growth for Yantian in the last quarter. Hong Kong, we have not bottomed out yet, but the decline is narrowing quite a bit. In fact, if you look at January numbers, which is already kind of published, Hong Kong was up as well, partially due to Chinese New Year, but things were up. Looking in February, things seems to continue.
Overall, 2023 was not a very good year, but I think, coming out of the fourth quarter, we are slightly more positive from an outlook perspective. But I will kind of go over the risk for 2024 later on. Overall, from a cash flow generation point of view, we still continue to do well on that front. We continue to pay down our debt in 2023. Because of high interest rate, getting that debt down over the last couple of years have helped kind of mitigate some of our interest costs, despite rates rising fairly rapidly over the last 24 months. So interest rate does took a big part in affecting kind of like the overall cash flow for 2023.
But from a distribution standpoint, obviously the first half distribution was much lower than in first half of 2022. Our distribution was down almost close to 15% in the first half.
In terms of the final dividend, we are paying out HKD 0.077 per unit, which is slightly lower than our final dividend in 2022, which is HKD 0.080 . So roughly around 4% down for the final dividend compared to year before. That reflects the fact that second half, particularly the fourth quarter, our financials were a bit better, and we could afford from a cash flow point of view to catch up a little bit on the full year dividend. So overall, we came in around HKD 0.132 for the full year, which based on our year-end share price is about 11.4%. So that's from a cash flow point of view. More importantly, looking into 2024, kind of preempting some of the questions that will come later on. There's a couple of things that we're having a lookout for.
One of them, number one, is what's happening in the Red Sea. All of you will know that because of the conflict in the Middle East, vessels coming out of Asia into the Red Sea and nearby Yemen is having difficulty crossing the Suez into the Med and then to Europe. As a result, having a lot of these big vessels having required to circumvent South Africa instead to get to Europe. The result of that is the rotation of a lot of these European routes are extended for somewhere between 10- 14 days in the voyage, resulting in less capacity because the ships takes longer to get back into Asia. Obviously, that's a positive for our customer, the shipping lines, because the freight rates have been on the rise as a result of that interruption, if you will.
From a port standpoint, we would be starting seeing some skip calls because ships are not returning as quickly as they should. There is some of that effect in January, but despite seeing some of that, we are still up year-on-year in January. So from that point of view, export to U.S. remains still quite strong ahead of Chinese New Year. We still look to the U.S. trade to be doing fairly well in the first quarter. I think so far we haven't seen any real negative impact from the Red Sea, but it is something that we are watching very closely as it develops. Hopefully it will be like a short-term phenomena, and hopefully resolving within a short period of time. But so far, we haven't seen any negative impact, but that is something that might impact volume coming into the first half.
We'll report back on that a little bit more as it develops and probably during our interim call. That's the number one risk factor, if you will, that we see. Second of all, from a 2024 point of view, is the formation of the Gemini Alliance. Some of you might know that Maersk and Hapag-Lloyd decided to create a new alliance that's going to start in 2025. Hapag-Lloyd previously is one of the key line within the alliance. Hapag-Lloyd leaving and joining Maersk to start the Gemini announcement. We do expect some reshuffling of the alliances, especially the big alliances, in 2024. So far, there hasn't been any news as to what's happening with the remaining members of the alliance now that Hapag-Lloyd has announced its intention to leave that particular alliance. But we do expect some reshuffling of the major alliances within 2024.
We are also assessing the impact on that potential new alliance. My general feeling that it is going to be positive for Yantian in particular. Yantian has always been a port in South China that handles some of the largest vessels in the world. The new Gemini Cooperation, both Hapag-Lloyd and Maersk, are going to be focusing more on the hub-and-spoke arrangements. Therefore, the large ports like Yantian will certainly benefit from that front. Overall, I do not feel that it is going to be a negative for the trust. It is something that as we get more information on the new alliance, especially its rotation, its deployment, we will know a little bit better. So that is something that we are watching out for. The second uncertainty, if you will, especially with the remaining alliances. Number three that we are watching out for, obviously, is interest rates.
As some of you already know, the Fed has indicated that interest rate is unlikely to be rising more, and there are a possibility of rates declining, a rate cut this year, sometime this year. Certainly, if rates do come back down, we do certainly see that as a positive for us as we continue to reduce debt and try to manage our interest cost increase year-on-year. Looking at some of the refinancing we have to do, the rate environment hopefully will be a bit more positive as the year develop. So that is the number three thing that we are watching out for. Finally, coming back, focusing on Hong Kong. As I already said, Yantian is doing fairly well. We are still proceeding with our expansion in Yantian in terms of the East Port expansion, because volume continues to grow in Yantian that we expect in 2024.
Hong Kong has had a fairly difficult year for 2023. Volume is down overall. While we do expect the volume decline to subside in the first half, and hopefully we will find bottom somewhere by the mid of the year. With overall Hong Kong, if we can have low level of growth or even flat year-on-year, we will be pretty happy. Hong Kong, I think it is not just the port itself. Hong Kong overall economy has been suffering in 2023. We are looking into discussing with the various government, including Hong Kong and Shenzhen government, to see what we can do more to help the port of Hong Kong. I think Hong Kong, as we have spoken before, Hong Kong remains, we believe, to be fairly strategically important to Beijing in terms of its connectivity to the rest of the world.
We are looking more to further integrate the assets between Hong Kong and Shenzhen and take advantage of the advantages that Shenzhen has, and to see whether Hong Kong can be complementary to Yantian, especially with some of the bigger lines being rolled out. So we definitely have not given up on Hong Kong from a volume standpoint and from a business standpoint. In terms of some of the other developments in Hong Kong, we have been looking for new businesses in Hong Kong. One area particularly strong that we have seen growing in 2023 is in electric vehicles. We started handling a lot of the imports of electric vehicles into Hong Kong in the fourth quarter of last year. We do expect fairly strong growth in the import of electric vehicles into Hong Kong for 2024 as well.
The margins for that particular business is fairly well, although the size is not particularly large at this point of view. But we do expect fairly good growth for this particular segment of business in 2024. Again, in summary for 2024, we are cautiously optimistic. Volume so far for the first two months has been pretty decent. Some of the things that we watch out for so far, some of the risk factor identified hasn't really affected volume as much. In fact, some of them could be a positive for Hong Kong and Yantian as it develops, and we'll report back a little bit more in our interim results. But for now, I'll turn it over to Jimmy to go over some of the figures with you, and certainly, we'll take some of your questions after Jimmy finishes. Thank you.
Sure. Thank you, Ivor. If I could take you through the numbers with reference to the presentation slides that we have uploaded onto our website. If we look at the presentation slides, if we look at the overall business overview for year ended 31st December 2023. You can look at page 10. That shows our throughput over the five years. If you look at the throughput in 2023, we handled altogether 21.3 million TEU, which is 6% lower than that in 2022. If you remember, in the first half, the year-on-year throughput drop was 15%. So in the second half, the situation does improve compared with the first half, and we end up having a drop of 6% for the full year.
In terms of the distribution of this throughput, if you look at the gray bar, that shows the throughput from YICT, our Yantian terminal, and also HICT is our terminal in Huizhou. You would see that for those two terminals, our volume in the second half of 2023 is only 1% lower as compared to that in 2022. In Hong Kong, where we have our HIT, COSCO-HIT, and ACT terminals, you would see that the volume in the second half of 2023 is 15% lower compared with the same period in 2022. So that's the volume picture. If you look at the key financial performance, starting on page 12. On the left-hand side, you would see our revenue for 2023 and 2022. In 2023, our total revenue was HKD 10.6 billion. That is 13% lower than 2022.
The decrease was contributed by the 6% decrease in throughput that we saw in the previous slide, and also because storage income decreased somewhat to a more normalized level similar to the pre-COVID level as the global chain is less congested and less disrupted in 2023, and containers tend to stay in our terminals for a lesser period of time. If you look at the two pie charts on the right-hand side in terms of revenue split by geography. In 2023, 24% of our revenue was generated from Hong Kong SAR, and 76% of our revenue came from mainland China. On the next page, on page 13, you would see our CapEx in 2023. These are mainly maintenance CapEx in nature, and amount in 2023 is HKD 490 million, which is about the same level as that in 2022 and also in the previous years as well.
Typically, our maintenance CapEx is around the mark of HKD 500 million. Next, on page 14, you would see the key financial positions. Both our short-term debt and long-term debt have come down in 2023. If you count the total consolidated debt on our balance sheet, it has come down from HKD 27.1 billion in 2022 to HKD 25.7 billion in 2023. That represented a HKD 1.4 billion reduction in total consolidated debt. If we look at our net attributable debt, that is at the final row in this table, you would notice that our net attributable debt has decreased from HKD 20.1 billion- HKD 19.8 billion at the end of 2023. On next page, on page 15, that is the information on our distribution per unit. In the first half, we already distributed HKD 0.055, and in the second half, as Ivor mentioned, we will distribute HKD 0.077.
Taking the first half and the second half distribution together, that is HKD 0.132, which is roughly 9% lower compared with last year. But if you look at the first half and second half distribution separately, first half distribution of HKD 0.055 is about 15% lower than that in 2022. The second half distribution of HKD 0.077 is only 4% lower than that in 2022. That reflects what Ivor mentioned in his comment earlier, that the second half performance is somewhat better than the first half performance in terms of the business performance. So at HKD 0.132 for the full year, that represents a yield of in excess of 11%, looking at the closing market price as at the end of 2023. The record date for the distribution is the 16th of February. The payment of distribution will be made on the 27th of March.
Finally, on the page 16, that is the summary financial performance summary P&L for 2023. Revenue and other income, as I mentioned, is HKD 10.6 billion. That is roughly 13% down compared with the year before. If you look at the cost items, we had some reduction across all the cost items in cost of services rendered, in staff cost, and depreciation as well. Altogether, the reduction amounts to HKD 667 million in 2023. Operating profit at HKD 3.3 billion, it is about 22% lower than the year before. Interest and other finance cost at HKD 872 million is about HKD 200 million more than what we had in 2022. But with the interest rate outlook, as I mentioned just now, hopefully that interest cost will start to come down in 2024. Profit after tax at HKD 1.5 billion is roughly 41% down.
But if we look at a proxy of our cashflow generating ability, if you estimate the EBITDA from this information disclosed, you would notice the drop in EBITDA is significantly less than what you would see in the drop in profit after tax. That is all I would like to bring to your attention for the summary financial results. Our detailed financial results is also uploaded on our webpage, which you can refer to. That sums up the presentation management wants to give today.
Yeah. We are happy to take any questions that you may have.
We will now begin the question and answer section. Participants with question to pose, please press star one on your telephone keypad, and you will be placed in the queue. To cancel the queue, please press star two. Mr. Herbert Lu from Goldman Sachs. Go ahead, sir.
Thanks, management, for hosting this briefing. I am Herbert, Transportation Analyst at Goldman Sachs. Actually, I have three questions. The first question is about the volume outlook. Just to follow up on the 2024 outlook, as you mentioned, we see a very strong throughput in Yantian in November and December. Do you think this trend could continue, and what is your expectation for 2024? Do you think the throughput already bottomed out if considering Yantian and Hong Kong terminals as a whole? Given it seems Yantian's volume only flattish versus pre-COVID level, while Hong Kong keeps losing volume to maybe other ports in the Pearl River Delta, like Shenzhen or Guangzhou. My second question is about the tariff. Can we still expect a slight tariff increase for Hong Kong and Shenzhen ports for 2024? The third question is on DPU guidance.
Despite a big decline in earnings, the DPU only drops slightly year-over-year in 2023. How about the guidance for the new year? Thank you.
Thank you, Herbert. The first question is on volume outlook in 2024. In the fourth quarter, we see a pretty strong volume coming out from both Yantian and Hong Kong, particularly in Yantian. I think the outlook for 2024, as Ivor mentioned, I think we are positive in terms of the volume, especially if we look at the volume that during the first two months of the year.
Yeah. I would definitely say that Hong Kong for us, we're looking at kind of flattish year-on-year, if we could, because we still expect first half to be challenging for Hong Kong. But we do expect Hong Kong to stabilize in the second half and possibly recovering a little bit as well. So Hong Kong, we expect it to be fairly flat. But Yantian we do expect it to grow. Whether it grow 2%- 3% or 4%- 5%, 5%- 6%, it's difficult to see really to forecast these days, especially when trade is very volatile and affected by factors like what's happening in the Red Sea and the U.S. election and interest rates and all those things.
I would say we do expect Yantian to do fairly well in 2024, but whether it kind of stay at the current high recovery levels, probably not. But we definitely are expecting at least minimum 2%, 3% kind of volume growth for Yantian, and hopefully more. But we'll know a little bit better by middle of the year.
Yep. Herbert, the second question that you have is on tariff increase in 2024. I think you can look in that in conjunction with the throughput outlook. So in Yantian, I think with a more robust export market that we're expecting. So there would be, I would say, some optimism in terms of tariff increase. But in Hong Kong, looking at the market outlook, perhaps you will be looking at a more flattish tariff profile in Hong Kong.
Correct. I would say Yantian, you would typically be looking at kind of CPI-ish, kind of low, 1%-2% tariff increase that we would try to pursue.
Yep. Herbert, your third question is on DPU guidance for 2024. I think with the market outlook that we have presented, I think in 2024, the DPU that we expect would be not less than what we have distributed in 2023.
Correct. I think from a cash flow generation point of view, we would continue our practice of repaying debt up to about HKD 1 billion. The remaining will be all distributed. Given the outlook that Yantian is positive and Hong Kong likely to be flattish and to the extent with some growth, we do expect DPU to remain not less than something that we have achieved this year.
I see. Thank you. By combining the outlook for volume and the tariff, can we expect a better earnings for 2024? Because the volume can be better and the tariff can pass on the cost to the customers.
Right. No, I would say it is a fair comment. We do expect. Last year, there is still some tail end of the storage income coming in the first quarter of last year, which we will not enjoy, but we do expect that the volume increase in the tariff will probably be able to offset that loss in storage income that we have in the first quarter. Resulting overall, still, unless the market turns sour after the first or second quarter, we do expect some positive growth for revenue in 2024.
I see. Thank you. Very helpful.
Thank you.
Mr. Nan Nan from T. Rowe Price Group. Please go ahead, sir.
Hi, this is Nan from T. Rowe Price Group. Thanks very much for hosting the call. I have a question regarding the Red Sea disruption. You mentioned that you have started seeing vessels were not returning as scheduled. Would you mind elaborating a bit more on that? If you have to give a number, what is the percentage of impact on volume at current stage?
Right.
That is question number one. Thank you.
Okay. I'll take the Red Sea one first. As I say, normal, typically, from Yantian or Asia to Europe, the voyage takes around 20- 25 days, typically. With them going around Cape Town, that voyage increased by roughly 10- 14 days. You're talking about a 50% increase in voyage on one way, and therefore two ways. You're talking about extending that rotation by almost 20 days to a month. We're not seeing shipping lines deploying a lot of additional vessels into the rotation in order to alleviate that particular problem. You can imagine with the fixed amount of ships that are taking longer, that particular rotation will not be able to meet its regular schedule, and therefore, ships will not come back on time.
Now, so far, I don't have a fixed number per se, but I would say right now, I think we're seeing every rotation, maybe one or two vessels skip call. I would say that number could be around somewhere between 10%-20%. Again, pure guess on my part because I don't have the shipping lines, and every line is different. I don't have the shipping lines information. What I'm seeing from a port perspective, we do see some skip calls. But shipping lines are also making effort to adjust their rotation to accommodate that as well. It's a complex exercise that the liners are doing. But coming back, though, what I'm seeing is that goods are not stuck at the port at this point in time. Unlike what happened during COVID, when the whole supply chain was interrupted.
Boxes were basically stuck at the port, and ports were earning exceptional storage income as a result of that. But so far, the Red Sea interruption hasn't resulted in a lot of boxes being held up at the port at this point in time. Therefore, I would say the impact is not that significant at this point in time, but it would start snowballing if the interruption continues for quite a number of months. I mean, like when it happened in COVID, the initial six months, the shipping lines weren't really affected. In fact, volume was down, and things were quite poor for the shipping lines in the first six months of COVID. It was only about six months that shipping lines start seeing congestion and rates starts picking up, and shipping lines fared a lot better after that.
Unless this is like a prolonged interruption. Short-term wise, I don't expect any negative impact. But by interim results, if I don't see it resolving, I'll be able to tell a lot more the actual impact from the actual interruption. I hope that kind of answers a little bit.
Yes, thanks very much. That's really helpful. The second question is regarding, you mentioned about, the EV imports. I know it's probably low base for now, but what are the sort of EV brands you import? Is that from Europe or I guess it's from Europe to.
Actually.
China, this transshipment by nature?
Right. Actually, you will be surprised. It is actually local imports into Hong Kong from China. For us, whether it comes from Europe or comes from China, far away, close away, we earn the same margin. So we do not really concern ourselves where it comes from, but we do know that it comes mainly from China, either Shanghai or even Shenzhen. There are mixed number of brands, Tesla, BYD, SAIC, all sorts. And you can see that in Hong Kong, the number of EVs being rolled out, new EVs in Hong Kong, there are just quite a few of them. And we do expect that number to triple or quadruple this year for us.
Yeah, that is really helpful. Thanks very much. I have no more questions.
Thank you.
Miss Peggy Mak from Phillip Securities. Please go ahead, madam.
Thank you. Thank you very much for the opportunity. Thanks management for the call. I refer you to page seven of your slides. There is a point that you raised about shippers direct shipment to China, in China instead of transshipping via Hong Kong. Do you see this trend still continuing? If so, how much more volume do you think Hong Kong will be losing from here? That is my first question.
Yep. So that particular question comes down to the issue with Hong Kong is shipping lines are structurally leaving Hong Kong and choosing another location. I would say that phenomena started happening quite a number of years ago, not only recently. Last year in particular, we felt it a little bit more than usual. The reason for that is that 2023 was a particularly weak market.
For China export. A lot of the surrounding ports nearby, including people Herbert mentioned, Shenzhen, Guangzhou, all the other ports. Their export volume was down quite a bit. For them, they needed a volume to backfill their utilization. Typically, and the easier one, they went after transshipment volume that Hong Kong had.
Therefore, it negatively affected Hong Kong market share in 2023. The pressure is a little bit less now in the sense that export is picking up once again. You see Yantian in a positive trend and you see that also in the Western Shenzhen and the Guangzhou side. With export being driven up, then they have less spare capacity to go after some of the transshipment, because transshipment typically earns a lower margin anyway. We also see the pressure being less. As I said before, we are seeing that Hong Kong decline from a transshipment point of view narrowing over the last quarter. We are seeing a positive growth for Hong Kong for the first time in quite a number of months in January this year. We expect February to be just as well.
As I said before, I expect Hong Kong, probably the downtrend will cease by the middle of the year and there is a chance that we can regrow the volume. In terms of Hong Kong continuing to lose market share, at this point in time, I had not seen it.
What I mean is that I have not seen an accelerated deterioration of the volume trend in Hong Kong. If anything, that downtrend is subsiding a little bit.
Okay. Thanks. That is very clear. My last question is, there was dividend paid to non-controlling shareholders in the first half of HKD 2.9 billion, but nothing was paid in second half. Can you remind us what was this about, this HKD 2.9 billion? Why is that big sum being paid out in first half? Thank you.
Typically, distribution to non-controlling shareholders, it relates to our payment of dividend in Yantian. Because we only hold effective interest around 52%, somewhere between 52%- 53% of Yantian. When we pay our dividend from Yantian, our non-controlling shareholders will also receive the dividend. It is just a timing of declaring that dividend in Yantian, and where second half, we did not need to declare that dividend. It is just a regular distribution trend. It is not a regular half year thing that we do. Typically, we do it once a year.
I see. There was nothing special about that payment like you try to gear up Yantian, no?
No. In fact, that payment is just distribution from the profit of Yantian. Typically, how the trust channel the cash from the operating entity, every year, Yantian will make a profit, and the board will then declare a dividend from Yantian, and it would get paid post year. So in 2023, we will be paying out the 2022 dividend. And part of that dividend, half of that dividend will go to the NCI.
I see. Okay. Thanks. That is clear. Thank you very much. That is all from me. Thank you.
Thank you.
Deepak Maurya from HSBC. Go ahead, sir.
Hi. Thank you, Ivor. Thank you, Jimmy, for the presentation and the color on the Red Sea situation. I had a few questions around the debt. Is there any refinancing coming up for 2024? Will that also get refinanced at relatively higher costs? What would be your approach, if any, on fixed versus floating? At this stage, what would you be looking at?
Yeah, thank you, Deepak. In terms of refinancing need for 2024, we do have a bond coming to maturity towards the end of the year. Our current intention is to refinance it by a bank loan. Depending on how the market interest rate goes in the second half of the year, we will decide whether to finance it by bank loan or by a bond issuance. The reason why I say that is, if you look at the debt maturity, apart from this bond coming due in the fourth quarter of this year, there will be other debts coming due in the first quarter of next year as well. So we are really looking at the two in conjunction, and see what is the best opportunity or best window to refinance these two debts together in the second half of the year.
Hopefully by the second half of the year, the market interest rate would have come down, and we will be able to refinance it at a lower rate. But in terms of whether to refinance it by a fixed or floating debt, it is something that we will look at when it comes to the actual refinancing.
Mm-hmm. Okay. With respect to the debt which is already there on the balance sheet, have we seen the P&L impact of higher interest rates already filter through to the second half? What I am intending to ask is whether we have seen the peak of interest cost increase. It increased 30% net interest, right? If nothing else changes, and if there is no new debt being refinanced, does it mean that we have already seen the peak, or is there some more increase to filter through to the P&L?
Right. I think my short answer would be 2024, I do not expect a sharp increase in interest cost anymore because there is Well, we do not forecast an underlying increase in rates. But as we refi those debts that we took on five years ago, during which time the rates were lower, even if the Federal Reserve rates come down 25 basis points, 50 basis point right now, we would still be looking at interest cost increase compared to when we did the financing five years ago. But that would probably come in into 2024, rather I am sorry, 2025 rather than 2024.
Okay. Makes sense. If I may ask a question on your associates and joint venture line, right? The losses have increased from a low base, of course. Nevertheless, given where the profitability now is, it appears to be significant. I just wanted to get your thoughts on what is driving this loss from single digits to over HKD 100 million in 2023. Should we see this as the run rate or should this moderate in the future?
Yeah. I think in terms of the year-on-year change, the increase is because of the less profit that we make in our Hong Kong associates and JVs. Our Hong Kong terminals, Hongkong International Terminals, is 100% owned, but our COSCO-HIT Terminals and Asia.
Yeah.
Container terminals are not. If you look at the line, the share of profit less loss after tax of associated companies and JVs, it comprises a number of companies. But those two are the main drivers in terms of the change. Because of the Hong Kong situation, we saw a reduction in throughput of around 15% last year. We saw a reduction in the profit from those two companies.
I would say that figure will pop. I am not looking to see it re-increasing this year versus last year. I would say that would be the max that we would see out of it for 2023. Partially because 2022 was such a good year. Some of our joint venture also profited from the abnormal high congestion storage fees that we enjoyed around the region, and all those was lost in 2023.
2023, and that affected overall performance, and with the interest cost increase affected them as well. I do expect that number to come down a little bit, but it has to come back to volume, especially in Huizhou, in some river ports, as well as Hong Kong, HICT and COSCO-HIT. Which were affected by Hong Kong as well, like Jimmy said. But we do expect that number to be more moderate this year.
Okay. Thank you. Maybe one last question from me before I jump back in the queue. On your Yantian expansion, what is the status of that progress of that project? Any color on that?
Right. The progress is according to schedule, for us anyway. The government is keen to roll that out as Yantian gets more busy. With volume increasing thus far, there is that need for new capacity in Yantian. We still are on target to roll out sometime in the end of 2025, early 2026.
Okay. May I just quickly clarify on the debt repayments? You did mention that you will repay about HKD 1 billion of debt per annum. You will continue with that run rate. When we look at the bonds which are coming up for refinancing, does this mean that you will let them You will just repay those bonds, or is it that you will refinance some other debt on the balance sheet?
Yeah. We probably would refinance the floating rate bank borrowings. For the bonds, I think it is cleaner if we just refinance it in totality, and we choose other more expensive loans that we can pay back.
Thank you. All the best.
Thank you.
Mr. Paul Chew from Phillip Securities . Please go ahead.
Yeah. Hi. Paul from Phillip Securities. Thanks for the call. Just a few questions. Just relating back to the dividends to non-controlling shareholders or MI. It has been climbing quite rapidly, and also outpacing your minority interest, I guess, at the P&L level. So I am just wondering, what is the dividend policy there? Because this outflow is really pulling up the group net debt, I guess. Just my first question. My second question is, does it make sense if Gemini has a strategy to use Southeast Asia as the single transshipment hub from Europe as a single destination, and everything has to come to Europe?
J ust my second question. My third question is, just your thoughts on, apart from Suez Canal, we also have this Panama drought. So I am just wondering, I know the other side of the U.S., but does it affect any of your volumes and so forth?
Yeah. Thanks again for taking my questions.
No problem. I will take on the Gemini and Panama question, and Jimmy can come back to the MI one. In terms of the Gemini, I would say I am actually going up to Shanghai to meet with Maersk after Chinese New Year as well to understand a little bit better. Because the announcement itself, there is still a lot of things that internally they have to work out. So there is nothing that is cast in stone in that point. But from the way I read it, is that they would be increasingly focused on more using hub-and-spoke instead of more direct calls. So from that point of view, having a regional transshipment hub will be quite important.
So obviously it is our intent to secure Yantian as the major transshipment hub in the region, if we can. But at this point in time, there is no concrete decision by the alliance yet.
But it is something that we will try to work towards. In terms of Panama, not so much because while U.S. trade, so far West Coast has been handling them quite well. But going through the East Coast and then crossing to Europe, taking that particular route is just very costly and also very time-consuming. So I think most are still taking the South Africa route rather than going to the Panama Canal. And the volume reduction in the Panama Canal is just the fact that they have restricted passage within the canal, and the fact that the East Coast port in the U.S. are fairly congested as well. So I think it has more to do with the overall efficiency of the U.S. ports than anything else. But in terms of volume affected, so far, no.
There is adequate capacity deployed to the U.S. where U.S. trade continues to be quite strong, not so much affected by Panama. I will let Jimmy answer the MI question.
Sure. In terms of the distribution to minorities, the increase you see in 2023, compared with 2022, was partly due to the fact that, at the JV level, they bought at the JV level, decided to increase the dividend distribution. And the reason why they decided to increase the distribution is because in prior years
The distribution was made particularly less because of the buffer that the JV wanted to keep at the JV level for the East Port expansion. Now, with the East Port expansion gradually moving forward according to schedule, there is no longer a need to keep excess cash at the JV level. The board decided hence to upstream that cash to the shareholders, and therefore you would see an increase in the dividend distribution to non-controlling interest.
Yantian during 2022, where we had a fairly good year because storage income kind of broke record, and we have exceptional profit during that year. So we decided to kind of distribute it all up to the trust and to the NCI so that we can utilize the cash to pay down the debt, and because interest rates are high, to manage our interest costs as well. So we did have a kind of exceptional dividend that affected the MI payment a little bit more. In terms of dividend policy, obviously we control Yantian, we manage it. So we do decide the distribution policy, and we typically distribute 100% of the profit.
Moving forward, can I assume that this so-called excess cash has been paid out and the future dividends should more or less come close to the minority interest?
Correct.
Oh, okay. Sure.
Correct.
Yeah. Thanks. Just one last thing. Could I just follow up? You mentioned about skip calls or blank sailing. My initial thoughts was that because of the Red Sea and this excess capacity, the liners just flooding the route with more vessels rather than have skip calls or blank sailings. But I guess from your comments, you are beginning to see more and more skip calls. Yeah. If I could just.
Yes.
My last question.
I think if you look at the underlying rates, if you look at the last quarter last year, rates for Europe was only around $1,800- $1,000. Whereas rates now are at $5,000, $6,000. And the only way that they could have gone up that high is basically managing the capacity tonnage calling. For them, I definitely see that the rotation has less capacity as a result of the Red Sea interruption. That is why hence, we do expect over the next couple of months, there will be more skip calls, unless, as you say, the liners start putting more vessels into it. But that is just a balance between price and capacity.
Okay, great. Thanks again, and also want to wish you and the management a very good year of the dragon. Thank you.
Thank you.
Thank you.
Ms. Maggie Wang from DBS Bank. Go ahead, madam.
Oh, hi. Thank you management for the. Hi. Thank you management for the call. Can you hear me?
Yes.
Yes.
Yes, go ahead.
Yeah. I just have one question. May I double-check if any update on the ongoing debt repayment program? The company still plan to repay about HKD 1 billion debt per year, right?
Correct.
Correct.
This year, when I talk about the distribution, it is already with that HKD 1 billion repayment in mind. Basically, what I'm doing is looking at my total cash flow for that particular year. I'm allocating HKD 1 billion to debt repayment and the rest to DPU distribution. As I've covered in previous ones, when it comes to a time when the board is comfortable with the debt levels, we can potentially reduce debt repayment and increase DPU. From our share price, when we talk about the yield, we talk about the actual distribution. But we do generate a lot more cash than just the deep distribution payout.
Okay. Thank you.
Thank you. Thank you everyone for joining the call, as that was the last question on screen. Thank you very much, and we'll see you again during the interim call as well as some of the investors meeting. Thank you very much.
Ladies and gentlemen, as there are no further questions, this concludes today's conference call. Thank you for your participation. You may now disconnect.