Global Ship Lease, Inc. (GSL) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. And welcome to the Global Ship Lease Fourth Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. And I would now like to turn the conference to our host, Mr. Ian Webber, Chief Executive Officer of Global Ship Lease. Sir, you may begin.

Thank you very much. Good morning, everybody, and thanks for joining us today. I hope that you’ve been able to have a look at the press release, the earnings release that we issued earlier on this morning, and been able to access the slides that accompany this call through our website. As usual, the first two slides remind you that the call today may include forward looking statements that are based on current expectations and assumptions and are by their nature, inherently uncertain and outside of the company’s control. Actual results may differ materially from these forward-looking statements due to many factors, including those described in the Safe Harbor section of the slide presentation. We also draw your attention to the Risk Factors section of our most recent Annual Report, which we filed on Form 20-F, and you can obtain this via our website or via the SEC’s. All of our statements are qualified by these and other disclosures in our reports filed with the SEC. We don’t undertake any duty to update forward-looking statements. For reconciliations of the non-GAAP financial measures to which we will refer during this call to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued this morning, which is also available on our website. As usual, I’ll start the call by reviewing fourth quarter highlights, as well as the important progress that we made through 2014. I’ll follow that with an overview of our fleet and our growth strategy. And after some comments on the container shipping industry as a whole and on the market opportunity that we believe exists for further acquisitions in the space, I will turn the call over to Susan for her comments on our financials. Then after brief concluding remarks, we would be happy to take your questions. Slide 3, shows our highlights for the fourth quarter, during which we continued to benefit from our core operating strategy of generating stable and predictable cash flows on the back of our mainly long-term fixed rate time charters. But most importantly, and as you know, we also completed on our first acquisition in the quarter buying the OOCL Tianjin, representing the start of successfully executing on our growth strategy after the crucial and enabling financial steps we took earlier in the year. In this respect, we have done exactly what we said we would do. Refinance the business and introduce the growth elements on an accretive basis. First, in Q4 2014 we generated strong and stable revenue of just under $37 million and an adjusted EBITDA of $22.6 million. Both of these metrics are increase from previous recent quarters due to the addition of the OOCL Tianjin to our fleet at the end of October. For the full-year 2014, revenues were $138.6 million and adjusted EBITDA was $83.3 million. Secondly, we successfully expanded our contract coverage by extending the time charter for Ville d’Aquarius, one of our 4,100 TEU vessels with Sea Consortium as a higher rate than previously, in fact, 12% higher than she had previously been earning. Further in the quarter, as I mentioned, we purchased the 8,063 TEU OOCL Tianjin for $55 million immediately chartering her back to the seller Orient Overseas Container Lines on delivery, which was on October 28, 2014. The charter has a duration of 36 to 39 months at charter option and a fixed rate of $34,500 a day. This increases our contracted revenue by between $37.7 million and $40.9 million for the 36 months to the 39 months’ worth of charter cover. And we expect to generate approximately $9.4 million of annual EBITDA. We also through this acquisition further diversify our charter portfolio with the addition of our top tier container liner companies. Finally, I will say now that we’re delighted to have started 2015, positively, taking another major step forward migrating to an additional sale on lease-back transaction for a second 8,100 TEU vessel on similarly attractive terms. Taken together, these two salient purchase transactions have increased our EBITDA generation capacity by almost 25% from the underlying 2014 run rate. On the Q4 2013 call, a little over a year ago, we were talking to you about further loans of value waiver - covenant waivers under our old restrictive credit facility, prospects for refinancing to gain flexibility and opportunities to make acquisitions in those - the midsized and smaller vessels segment sections. Looking at the full-year 2014, Slide 5, sorry, Slide 4 illustrates just how transformative the last 12 months have been for GSL. And a lot of the stuff that we were talking about a year ago becomes redundant, no more loans of value waivers, for example. As you know, we’ve made enormous progress in strengthening our financial flexibility by accessing diverse sources of non-dilutive capital, freeing ourselves from restricted maintenance covenants, and eliminating short-term debt maturities. Additionally, as I mentioned, we started diversifying our charter portfolio by adding high-quality charterers beyond that continuing and most important historical relationship with CMA CGM. Finally, we substantially expanded our earnings power by investing approximately $110 million in charter-attached transactions for the two 8,100 TEU vessels, adding almost $19 million to our annualized EBITDA capacity and earning the equivalent of a 17% also free cash flow yield on those transactions. We assess internal rates of return on these investments to be mid-teens or perhaps a little higher. So we come a very long way since this time last year. And it’s worth emphasizing that these developments as we illustrate on Slide 5 are a means to an end that end reaching our strategic goals accretive fleet growth leading to the institution, the initiation of a meaningful and sustainable dividend for our shareholders. With the refinancing, which was enabling and more recently the two highly attractive vessel acquisitions, we’ve overcome many of the obstacles which were previously stood between us and the payments of the dividend. We’re now highly focused on being in a position in 2015 to securely and consistently exceed the 2.25 times fixed charge coverage ratio test, which is set out in our high yield notes, which unlocks our dividend paying capacity. Later on the call, I’ll give you further details on trends and market opportunities that guide our fleet growth strategy, but first, let’s discuss our operating results. Slide 6, summarizes our financial results over the last five years. Also due to our focus and strategy on having most, if not all of our fleet on a long-term fixed rate charters with high-quality counterparties, we’ve been able to deliver consistent, stable results in a market that experience significant cyclical volatility, which you can see from the chart at the top of the slide, which shows an index of the rates in the short-term charter market, which is generally seen as an indication of the strength or not the container shipping industry. Our results, which appear at the bottom of the slide, are largely insulated from the sharp swings, at least, in the early part of the time series in that time charter index, and from a continuing historic low level of market rates, which we see in more recent years. With a high-quality and well maintained fleet and as the final line of the table shows, we’ve been able to achieve consistently high fleet utilization at or near 100%, particularly if you exclude scheduled drydocking, which isn’t unavoidable period of downtime, approximately every five years for each vessel. Minimal downtime is important for us, because it provides us with maximized revenues and our strong and predictable cash flows. Looking at quarter 4, 2014, our utilization was 99%, the 1% shortfall from 100% was primarily related to 19 days of planned drydockings for one vessel on a regulatory basis the CMA CGM Matisse, and for one vessel on the somewhat discretionary basis, the Thalassa we dry-docked her in December, principally to modify her bulbous bow to improve fuel efficiency at slower speeds. But we took the opportunity to complete the most regular way drydocking work, including repainting the underwater parts. Aside from the Tianjin for which we completed a drydocking early this year 2015, there were no further regulatory drydockings scheduled for the current year. Now turning to Slide 7, we show our fleet and charter portfolio, including the OOCL Tianjin, which began this charter at the end of October, and the additional vessel that we’ve recently agreed to purchase. We expect to complete on this acquisition in the next couple of weeks, and at that time we will announce the completion and also provide details of the counterparty. As of December 31, 2014, the weighted average age of our fleet was approximately 10.7 years out of an economic life of approximately 30 years. Our weighted average remaining contract term, the charter cover that we have going forward was around 6.4 years, excluding the two 4,100 TEU vessels, which are now operating on the short-term contract. And these - this 6.4 years of charter coverage provides us with substantial forward visibility on cash flows. Indeed our contracted revenue stream at December 31, 2014, stood at approximately $872 million and this doesn’t include the approximate $40 million contribution to that number from the second 8,100 TEU vessel. Importantly, with stated charter expirations and none of these until late 2017, aside from the two spot ships, which we successfully kept an employment on where recently the asset class is seeing good or maybe fragile improvements in market day rates. We have significant insulation from the swings that can be seen in the broader market - time charter market. This stability and forward visibility enables us to confidently pursue our strategy, which is outlined on Slide 8. First, it’s our attention to maintain strong contract coverage for our fleet with high-quality counterparties, primarily fixing vessels on longer-term and fixed rate time charters. Second, we see the value of developing a diversified portfolio of top tier charterers to complement our preexisting and strong relationship with CMA CGM. We made real progress on this front in the last 15 months or so, particularly with the addition of OOCL’s charter of Tianjin and we look forward to achieve further diversification where appropriate with other high quality liner operators. Third, through 2014 we seized a number of opportunities to enhance our financial and strategic flexibility, improve our liquidity and strengthen our balance sheet. These improvements including our $420 million bond offering which closed in March last year; the establishment of a $40 million revolving credit facility, at the same time providing immediate liquidity; and the elimination of our short-term debt, the old Series A preferred shares by buying them out at a substantial discount with the proceeds of a non-diluted perpetual preferred offering. These steps have freed us from restricted maintenance covenants like the loan-to-value covenant I mentioned earlier and importantly also eliminated the requirement for us to use all of our cash flow to repay debt, and thus enabling us to achieve accretive fleet growth and the pursuit of the payments of the dividend. We believe that there will be further opportunities for us to improve our capital structure, which we keep under review at all times and we will continue to pursue courses of actions that will be additive to shareholder value. Finally, our strategic priority remains the effective allocation of capital between accretive fleet growth and once we’re in a position so to do, the initiation of a meaningful and sustainable dividend. The two recent vessel acquisitions have demonstrated the attractiveness of opportunities that exists in a fragile container ship market where asset values remain cyclically low. The significant EBITDA contributions from the two charters have brought us a great deal closer to reaching the requisite fixed charge coverage ratio and our focus is now on being able to pass that test consistently and securely during 2015, so that we’ll be in a position to initiate a dividend. That said, as with all dividend declarations to specific timing and size of the dividend will be determined by the board. Turning to Slide 9, you will see an outline of our recent vessel acquisitions. The detail is mostly specific to OOCL Tianjin, but the terms for the second vessel are essentially the same other than that the purchase is a little lower at $53.6 million for a ship that is normally one year older. As mid-sized vessels acquired through highly and immediately accretive chart for attached transactions, these acquisitions represent both the quality of opportunities that exist for a well-regarded, well-capitalized lessor, such as ourselves, and also the avenue by which we have success in pursuit of this strategic goals I described a moment ago, targeting passing the fixed charge coverage ratio. These acquisitions also diversify our charter portfolio and together increase contracted revenue by between $75 million and $82 million, increase annualized EBITDA capacity by around $19 million and this represents a purchase price to EBITDA multiple of better than 6 times. It’s equivalent as we said before to have a free cash flow yield of 17%. And in achieving internal rates of returns of mid-teens or higher as we assess. We have delivered on the target returns that we discussed previously while increasing our EBITDA capacity by almost 25%. These acquisitions meet our strict vessel-specific and economic transaction criteria. Slide 10, shows the continuing evolving deployment of the class of container vessels which contain our two acquisitions to 7,500 to 9,000 TEU bands, which includes 8,100 TEU ships. 8,000 TEU vessels have been in the global fleet for around 15 years and as the largest lowest unit cost vessels at the time, they were initially deployed on the main east-west trades, notably Asia to Europe. As you know the industry has been constantly upsizing as trade grows and as unit cost becomes increasingly important. The deployment of our larger vessels, 18,000 TEU, 20,000 TEU vessels into the Asia-Europe trades, drives the cascade as those vessels are deployed in those trades, displacing what then become the now the second largest vessel types. Often the displaced vessels are sent to the Transpacific in the first instance, and as the cascade continues, over time they spread throughout the global container trade system. This slide which now includes data for 2014, shows the effective cascading of this asset class and provides comfort that the class has increasingly flexible deployment opportunities, which is clearly very important for us as an owner with regard to future employment prospects when the initial three year or so charters come to an end. A few words on the overall market, and we use slides which we presented before and which will be familiar to many of you. I’ll go into a little detail on the overall, supply demand dynamics that we feel are supportive, the small to medium size vessel segment that we focus on, and that constitutes the majority of our fleet, and it’s the area that we look at most closely for our future growth. Slide 11 shows overall supply and demand. The left hand chart which shows a 14-year view also includes the time charter index, the red line, which can be used as I mentioned before as a crude measure of the state of health or not of the industry. Looking at that line, the time charter index, you can see how volatile the cycles have been, peaks in 2004, 2005 on the back of surging export trades out of China. And troughs in 2009 where demand growth collapsed, indeed it went negative, and the massive order book representing approximately 60% of standing capacity, the order book for new container ships was exposed. However, as the chart on the right shows - which shows supply and demand growth in recent years and importantly a forecast on the next couple of years, supply and demand is much more imbalanced as the result of more modest ordering of new tonnage, the order book to fleet ratio is currently around 18%, way down off the peak of 60%, I just mentioned. So modest ordering of new tonnage, and accelerated rate so scraping of older ships, due mainly to economic pressures on owners often in Germany. Now this is limited between the two limited supply growth while demand growth has been more dependable in the last couple of years and if these forecasts are correct looking forward to 2015 and 2016. It’s worth noting by the way that status quo, supply growth as a percentage has to exceed demand growth because of the imbalance in container trade and the need to build capacity for the on average faster growing lead leg [ph] of each trade length. A more balanced supply-demand position should as we know be more positive for owners with upward pressure on both charter rates and asset values. Indeed, a good illustration of this dynamic is that recently we’ve seen Panamax charter rates firm quite significantly as congestion on the U.S. West Coast as a result of industrial action has soaked up spare capacity along with the earlier upsizing of some services into West Africa, say 2,500 TEU vessels to 4,000 TEU vessels. All of this has created incremental demand for Panamax type ships and a very welcome positive effect on time charter rates in the short term market. Now, obviously this positive may reverse as congestion eases in the West Coast over the next couple of months following a resolution for the underlying labor dispute, but that spare capacity could be absorbed by increasing demand if only from seasonal FX, as we know this industry is seasonal as well as cyclical. However, as we know the global economy remains fragile and it’s really very difficult to get a very clear picture going forward. But I think we’re in a far better position now than we have been for some time, as illustrated by the tension that we’ve seen in Panamax vessels just recently. Just to remind you bringing it closer to home, at Global Ship Lease, we’re largely insulated from short-term market conditions with our two vessels deployed in the spot market, representing just about 4% of our revenue. The order book does remain predominantly for very large vessels that hasn’t changed vessels of over 10,000 TEU on up to around now 20,000 TEU or maybe a little bit more, much of that is destined for the Asia Europe trade and will thus continue to drive the cascade. The mid-sized ship and smaller fleets remains under represented in the order book with a small order book and the increased levels of scraping forecasts on for a slight net reduction in the size of the global container fleet at and below 5,200 TEU in size, ship short-term, that’s good for owners. On Slide 12, shows that small and medium sized trades, and this is beginning to look at - this is looking primarily at demand on Slide 12. Slide 12 shows that the medium sized and smaller trades are in aggregate the largest, this is the pie chart on the left-hand side comprising around 70% of global container trade. They also grow relatively strongly these trades as shown by the charter on the right-hand side, and so demand factors for medium size and smaller trades are positive. And these trades are necessarily served by medium sized and smaller vessels, whereas I just noted, supply growth is constrained leading to potentially overall good supply demand dynamics. And this is exactly our area of focus, medium sized ships and smaller for both our existing fleets and full growth opportunities. Slide 13 looks at freight rate by tradelane over the last four years together with the same rate time charter index that you’ve seen in previous slides. You can see whilst charter rates have remained relatively flat, bumping along the bottom of the long-term lows, freight rates and in particular in the Asia Europe trade, which is the pale blue line have demonstrated significant volatility with periodic general rate increases imposed by the carriers usually ahead of seasonally strong shipping periods having a positive, but often short limited effect on freight rates. Lastly in this section, we’ll have a look at Slide 14, which shows how asset values have developed since 2000. With a decline in the second-hand price index in the last quarter of 2014 or so, it’s ticked off a little since then, but not materially. The environment remains very attractive for purchases of tonnage with the medium liquidity. I’ll hand over now to Susan for her comments on our financials.

Thank you, Ian. Please turn to Slide 16, for a summary of our financial results for the three months ended December 31, 2014. We generated revenue of $36.9 million, during the fourth quarter, up approximately $800,000 from revenue of $36.1 million in the comparative 2013 period. The increase in revenue from the addition of OOCL Tianjin on October 28, 2014, was partially offset by first reduced revenue on four vessels following charter extensions by three years to late 2019, as a lower daily rate of $15,300 compared to $18,465 previously, and this was effective February 1, this last year. And second from 19 days additional offhire in the quarter for the regulatory drydocking of CMA CGM Matisse and for the drydocking to modify the bulbous bow of CMA CGM Thalassa to improve fuel efficiency at slower speeds, as well as other normal drydock books. There were no drydockings in the comparative period last year. The 19 days for drydockings plus one day of unplanned offhire during the three months ended December 31, 2014, resulted in an overall utilization of 98.8%. In the comparable period last year, there was a single day of unplanned offhire the utilization of 99.9%. Vessel operating expenses were $12.6 million for the three months period with an average cost for ownership day in the fourth quarter of $7,736, compared to $7,511 for the same period in 2013, up $225, or 3%. The increase was primarily attributable to higher crude costs. Interest expense for the three months ended September 31, [ph] 2014 was $11.8 million, including interest, amortization of deferred financing costs, and original issue discount on the notes and the commitment fee on the company’s undrawn $40 million revolving credit facility. Our derivative hedging instruments were all terminated on March 19, 2014, and had no effect on the results for the fourth quarter 2013. This compares to a realized loss of $2.9 million and $2.5 million unrealized gain in the comparative period last year. Net loss for the quarter was $0.9 million. For the full-year 2014, net income was $5 million, after an $8.6 million gain on redemption of the old Series A Preferred Shares together with a $1.9 million non-cash mark-to-market gain up to the point that the interest rate derivatives were terminated on March 19, as non-cash $3 million accelerated write-off of deferred financing costs. Normalized net loss adjusted for non-cash items for the three months ended December 31, 2014 was $0.9 million, the same as the reported net loss for the quarter. The normalized net income for the comparable prior year period was $5.4 million. Slide 17 shows the balance sheet. The key items as of the quarter end: cash at $33.3 million; total assets of $886.6 million, of which $836.5 million is vessels, including the latest addition to the fleet from the end of October; long-term debt of $414.8 million and shareholders’ equity of $438.1 million. The next slide, Slide 18 shows our cash flows. Two items to mention here, our net cash provided by operating activities was $26.8 million in the fourth quarter and cash used in investing activities of $57.1 million for the purchase of Tianjin and drydocking costs. I would now like to turn the call back to Ian for closing remarks.

Thank you, Susan. Before we move on to your questions, let’s use Slide 19 to briefly summarize the company’s core strengths and our strategy for creating value for our shareholders and other stakeholders. First, we’ve enjoyed success in making attractive and immediately accretive acquisitions, as we said we would do. We successfully entered into two sale and leaseback transactions, one to complete in the next couple of weeks, we expect that between them locking contracted revenue of between $75 million and $82 million over three years. And so and expand our EBITDA capacity by around $19 million a year, which is an increase of nearly 25% from the underlying 2014 run rate. Second, excluding our two 41,000 TEU vessels, which represents only 4% or so of our overall revenue and remained marginally EBITDA negative. Our fleet is fully contracted through late 2017 with contracted revenue of approximately $872 million, excluding the second acquisition and a weighted average remaining contract duration of 6.4 years at the end of 2014. This strong forward visibility and significant insulation from short-term market volatility has enabled us to confidently execute on our growth strategy, including the earlier refinancing at the beginning of 2014, and we’ll ultimately form the basis for dividend for our shareholders. First, our strong stable revised capital structure includes no refinancing obligations until 2019, when our secured notes due. Although, I’ll note in passing that we have the option of calling them from April 2016, should we find market conditions the time favorable. We’ve also eliminated our short-term preferred debt payable by installments from August 2016, and restricted maintenance covenants that have previously limit our ability to optimally allocate capital. Finally, we believe that our strategic and financial flexibility offers further opportunities during this time of continuing cyclically low asset values and fragile industry conditions where liner operators are looking to improve liquidity and are open for further sale and lease back transactions. Indeed, 2015 has started well. I’ll note that we will remain disciplined in our pursuit of charter-attached acquisitions. This is growth with an objective, not growth for growth sake. On those acquisitions, we want to be with high-quality counterparties, they need to be immediately accretive to cash flow. They need to demonstrate good internal rates of returns. And we believe that our approach will benefit from the supportive supply demand dynamics that we see for midsize and smaller vessels going forward. Acquisitions will enhance our earning power to be able to allow us to securely and consistently pass the fixed charge coverage ratio test. We continue to evaluate causes of actions that move us closer to accomplishing this goal, and we are focused on passing that test during 2015, so that our Board can be in a position to initiate a meaningful and sustainable dividend for our common shareholders. That concludes our formal remarks. I would like to hand the call back to the operator to explain the Q&A process.

[Operator Instructions] And our first question comes from Mark Suarez of Euro Pacific Capital. Please go ahead.

Hi. Good morning, Ian and Susan. Thanks for taking my questions here.

Welcome.

Morning.

Yes, just to maybe touch on the later transaction, if you just look at your balance sheet, look at your estimated fixed charges or at least what I’m estimating for 2015, it seems that you are either very close or at satisfying your fixed charge coverage covenant. And so I’m wondering with that, is strategy this year to add another vessel before looking to restate a sustainable dividend, then - and if so should we expect a similar transaction in terms of vessel size and employment terms sometime in 2015?

Mark, thank you. We are close to passing the test. We have not passed the test yet. It’s a very quantitative threshold that we need to pass. So that it’s great to have something which is black and white to focus on. We are not quite there. And we need a little bit more EBITDA, which can come through additional growth and/or cost savings. All we need are lower fixed charges which would drive a smaller requirement for EBITDA. So there is more work for us to do. But we have a number of believers that we can pull and we’re very focused on pulling those leaders, and the most obvious one, of course, is further acquisitions. I like the ones that we’ve done before depending upon our liquidity and investment capacity and let me touch on that which is the next obvious question. We have a tender offer, as people know to make to purchase $20 million of our bonds. We have to make that offer by the end of April, and it would have to close within 30 days to 60 days thereafter. If the tender offer is taken up then our interest cost reduces by $2 million, which helps us to pass the test. If the tender offer is not taken up, we have $20 million that we can use to contribute to further acquisitions. We would be generating cash at the rate of $4 million or $5 million on average per quarter. We have one unlevered asset in the balance sheet right now that Tianjin is low leverage on her. And obviously, if we were looking at buying another vessel or vessels, we have the opportunity of putting leverage on those vessels. So between those three sources of potential finance are the lack of acceptance, the tender offer, our own internal liquidity, and potential leverage on new acquisitions. We believe we have enough fire power to be able to buy enough EBITDA to help us pass the test. And that’s ignoring capital markets transactions, tack-ons to the bonds or follow-ons to the perpetual preferred. That’s probably a more comprehensive answer than you were expecting.

No, I appreciate that answer. Those are very helpful, Ian. I’m just wondering with that and just to follow-up on that answer you gave me, in terms of the tender offer, I mean, it sounds to me like, is the potential acquisition conditional on a tender offer, or is that something you would do regardless, if you find a good transaction in 2015?

We would be regardless. We are not going to sit here and wait and see what the bondholders do. We are working on stock all of the time. If the bondholders - as I say, if the bondholders take up the offer then the interest charge drops, and we need lesser EBITDA to pass the test. If we don’t take up the tender offer then we have an extra $20 million to invest in tonnage.

Great, okay. That’s very helpful. That’s all I have for now. Thanks, Ian. Thanks for your time.

Our next question comes from Katja Jancic with Sidoti & Company. Please go ahead.

Good morning

Good morning, Katja.

You mentioned there is no more drydocking scheduled for this year, what about 2016, can you provide some information on that please?

Not immediately, I think, it racks up that we’ll get the schedule and we’ll come back on to that later on in the call.

Okay. That’s all from me. Thank you.

Our next question comes from Charles Rupinski from Global Hunter Securities. Please go ahead.

Good morning.

Good morning, Charles.

Just a quick question on the retrofitting of the bulbous bow on more fuel efficiency on slow steaming for your vessel, can you just give me some color on how your fleet - how many are candidates for this type of conversion versus aren’t? And at some point in the future should speeds move up, what would the consequences would be just a little bit more color on that, maybe?

Sure. You will know that many of the major liner companies have engaged in programs of modifying the bulbous bows to their larger vessels on the Asia-Europe trade in the light of the high fuel pricing and slower steaming to achieve increased fuel efficiencies. We were servicing very closely with our charterer CMA CGM on this project, and we’re pleased to have invested in our relationship by performing this work. And just in parting the - we bow a portion of the cost of the investment in the modification and our assessment is that overall the transaction is very, very positive for us in terms of asset values.

Okay.

She is probably the only vessel in our fleets, where it’s worth considering such modification, but if that charterer has ideas, we’re always happy to discuss those ideas with them.

Okay.

The rest of our fleets has as far as possible been modified to be able to slow - to say it efficiently at lower speeds mainly engine modifications, not physical modifications through the vessel. What happens if service stage increase, well, that’s a big question. We don’t know whether they will, if our oil price that’s low-ish at the moment, but it’s ticked up recently. The lines are quite happy slow steaming, because it’s absorbing capacity, as well as continuing to be more efficient. If they’re only burning 50 tons of fuel rather than 80 tons of fuel, it doesn’t really matter whether it’s costing $600 or $250 a ton, they are still saving money.

Great.

Major lines have said, that irrespective of the reduction in oil price, they are not going to speed up, we are happy doing what they are now. The modified bulbous bow does not mean that vessel cannot sail at higher speeds. It - I guess, it would be marginally less sufficient than with the original bow. We’ll have to wait and see. And just to note, fuel cost is for the account of the charterer, rather than our self, anyway in this particular vessel has another 10 years to run on the charter.

Okay, great. Well, this is very helpful. Thank you.

[Operator Instructions] And our next question comes from Nicole Torraco from Onex Capital Partners. Please go ahead.

Hi. Just you talked around it a little bit. But in terms of prioritizing your cash between further acquisitions and dividend payments, are you able to sort of talk a little bit about where your focus would be?

I think I’ll better answer that by saying what I said before about the level of a potential dividend. I mean, we want to use our free cash flow for both growth and the return income to our equity. We’re generating roughly $50 million to $60 million of free cash flow a year $100 million of EBITDA less, $45 million of debt service preferred and high yield notes. And we’re not going to speculate on the level of the dividend, but we look to the dividends that are our contemporaries, competitors or peers, all paying, and I think the Board would be informed by the source of yields, but the licensee has been a customary of delivering, say, you can sort of reverse into allocation of that $40 million, almost $50 million of free cash flow between growth and dividend in that way.

Okay. Thanks.

There are no further questions…

So to answer your question, it looks like, we have four drydockings in 2016, maybe five, it’s five, including one of the 4,100 TEU vessels.

There are no further questions at this time. I would like to turn it back to Ian Webber for any final remarks.

Great. Thanks very much. Thanks for listening to us, and we look forward to updating you further on our call to discuss the first quarter 2015. Thank you.