Hutchison Port Holdings Trust (NS8U) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the conference call of Hutchison Port Holdings Trust annual results announcement for the year ended 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, and 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. And then I'll probably spend more time talking about what I expect and what I see for 2024 and some of the challenges and whatnot. And then I'll 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's 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 saw in the first 2 -- first half of 2023, but 2024 -- sorry, the last quarter in 2023 was actually decent in the sense that Yantian and Shenzhen has finally turned the corner into positive territory. We actually have positive growth at Yantian in the last quarter. Hong Kong, we haven't 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 Yantian was up, Hong Kong was up as well, partially due to Chinese New Year, but things were up and looking in February, things seems to continue. So overall, 2023 wasn't a very good year. But I think coming out of the fourth quarter, we're slightly more positive from an outlook perspective. But I'll 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 the 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 the first half of 2022. Distribution was down almost close to 15% in the first half. In terms of the final dividend, we are paying out HKD 0.77 per unit, which is slightly lower than our final dividend in 2022, which is HKD 0.08. So roughly around 4% down for the final dividend compared to year before. And that reflects the fact that in the second half, particularly the fourth quarter 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. But 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 are having a look out 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 [indiscernible] is having difficulty crossing the Suez into the [indiscernible] and then to Europe. And as a result, having a lot of these big vessels having required to circumvent South Africa instead to get to Europe. And the result of that is the rotation of a lot of these European routes are extended for somewhere between 10 to 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 and the shipping lines because the freight rates have been on the rise as a result of that interruption, if you will. But 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 before ahead of Chinese New Year. So 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. And hopefully, it will be kind of like a short-term phenomenon 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. So we'll report back on that a little bit more as it develops and publicly during our interim call. So that's the number one risk factor you will -- that you 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 decided to create a new alliance that's going to start in 2025. Hapag previously is one of the key line within the alliance. So Hapag leaving and joining [indiscernible] Sea to start the Gemini announcement, we do expect some reshuffling of the alliances while 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 has announced its intention to leave that particular alliance, but we do expect some reshuffling of the major alliances within 2024. And we are also assessing the impact on that potential on new alliance. But my general feeling that 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 and the new Gemini alliances, both Hapag and Maersk are going to be focusing more on the [indiscernible] arrangements and therefore, the large ports like Yantian will certainly benefit from that front. Overall, I don't feel that it's going to be a negative for the Trust, but it is something that as we get more information on the new alliance, especially its rotation, its deployment, we'll know a little bit better. So that's something that we are watching out for. The second uncertainty, if you will, especially with the remaining alliances. Number three, that we're watching out for, obviously, is interest rates. As some of you already know, that Fed has indicated that interest rate is unlikely to be rising more and there are possibility of rates declining -- rate cuts 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. And looking at some of the refinancing we have to do, the rate environment hopefully will be bit more positive as the year develops. So that's the number three thing that we're watching out for. And 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. The 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 and with overall Hong Kong, if we can have a low level of growth or even flat year, we would be pretty happy. Hong Kong, I think, is not just the port itself, Hong Kong's overall economy has been suffering in 2023. And 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 fairly -- 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. We take advantage of the advantages that Shenzhen has and to see whether Hong Kong can be complementary to Yantian, especially we have some of the bigger alliance being rolled out. So we definitely haven't given up on Hong Kong from a volume standpoint and from the business standpoint. And 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. And we do expect fairly strong growth in the import of electric vehicles into Hong Kong for 2024 as well. And the margins of that particular business is fairly well, although the size is not particularly large at this point in view, but we do expect fairly good growth for this particular segment of business in 2024. So again, kind of in summary, for 2024, we are cautiously optimistic. Volume so far, first 2 months has been pretty decent. Some of the things that we watch out for so far as some of the risk factor identify hasn't really affected volume as much. And 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.

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. Now if we look at the presentation slides, if you look at the overall business overview for year ended 31st December 2023. You can look at Page 10, that shows our throughput over the 5 years. Now if you look at the throughput in 2023. We handled altogether 21.3 million TEU, which is 6% lower than that in 2022. Now 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. Now in terms of the distribution of this throughput, if you look at the gray bar, which shows the throughput from YICT, our Yantian terminal and also HICT is our terminal in Huizhou. Now you would see that for those 2 terminals, our volume in the second half of 2023 is only 1% lower as compared to that in 2022. Now 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. Now if you look at the key financial performance, starting on Page 12. Now on the left-hand side, you would see our revenue for 2023 and 2022. Now in 2023, our total revenue was HKD 10.6 billion. That is 13% lower than 2022. Now 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 a 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 2 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. Now 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 has 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's at the final row in this table, you would notice that our net attributable debt has decreased from HKD 20.1 billion to HKD 19.8 billion by the end of 2023. On next page, on Page 15, that's the information on our distribution per unit. Now in the first half, we already distributed HKD 0.55 and in the second half, as Ivor mentioned, we will distribute HKD 0.77. Now taking the first half and the second half distribution together, that's 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 0.55 is about 15% lower than that in 2022. And the second half distribution of HKD 0.77 is only 4% lower than that in 2022. And that reflects what Ivor mentioned in our -- 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 at the end of 2023. And the record date for the distribution is the 16th of February, and the payment of distribution will be made on the 27th of March. Now finally, on the Page 16, that's the summary financial performance summary P&L for 2023. Revenue and other income, as I mentioned, is HKD 10.6 billion. That's roughly 13% down compared with the year before. If you look at the cost items, we had some reduction in -- across all the cost items in cost of services rendered and staff costs and depreciation as well. Altogether, the reduction amounts to HKD 667 million in 2023. Our operating profit at HKD 3.3 billion, it's about 22% lower than the year before. Interest and other finance costs at HKD 872 million, it's 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 cash flow 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. And that's all I would like to bring to your conclusion -- to your attention for the summary financial results. Now our detailed financial results is also uploaded on our web page, which you can refer to. And that sums up the presentation management wants to give today.

We're happy to take any questions that you may have.

[Operator Instructions] Mr. Herbert Lu from Goldman Sachs.

I'm Herbert, Transportation Analyst at Goldman Actually, I have 3 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 Shenzhen Yantian in November and December. Do you think this trend could continue? And what's your expectation for 2024? And do you think the throughput already bottomed out, if considering Yantian and Hong Kong terminals as a whole? Given it seems Yantian volume only flattish versus pre-COVID level, Hong Kong keeps losing volume to maybe other ports in the Pure river data like Shenzhen or Guangzhou. My second question is about the tariffs. Can we still expect a slight tariff increase for Hong Kong and Shenzhen port for 2024? And the third question is on DPU guidance. Despite a big decline in earnings, the DPU only dropped slightly year-over-year in 2023, then how about the guidance for the new year?

Thank you, Herbert. So the first question is on volume outlook in 2024. Now in the fourth quarter, we see a pretty strong volume coming out from both Yantian and Hong Kong, particularly in Yantian. So 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 2 months of the year.

I will definitely say that Hong Kong -- I would say 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. And now whether it grow 2% to 3% or 4% to 5%, 5% to 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. So 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.

Yes. Herbert, the second question that you have is on tariff increase in 2024. I think you can look in that in conjunction with 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. And I would say, Yantian, you would typically be looking at kind of CPI-ish kind of low on 1% to 2% kind of tariff increase that we would try to pursue.

Yes. Herbert, your third question is on DPU guidance for 2024. I think with the market outlook that we have presented, I think the -- in 2024, the DPU that we expect would be not less than what we have distributed in 2024 -- 3.

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 and the remaining will be all distributed. And 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.

And by combining the outlook for volume and tariff, can we expect 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's a fair comment. We do expect -- now there is -- last year, there's 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, we'll 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.

Mr. [indiscernible] from [indiscernible].

This is [indiscernible] from [indiscernible]. I have a question regarding the Red Sea disruption. So you mentioned about that. You had started seeing vessels were not returning as scheduled. Would you mind elaborating a bit more on that? And if you have to give a number, what is the percentage of impact on volume at current stage? So that is question number one.

Okay. I'll take the Red Sea one first. So as I say, normal typically from Yantian or Asia to Europe, the voyage takes around 20 to 25 days typically. And with them going around Cape Town, that voyage increased by roughly 10 to 14 days. So you're talking about a kind of 50% increase in voyage on one way and therefore, 2 ways, you're talking about extending that rotation by almost 20 days to a month. So -- and we're not seeing shipping lines deploying a lot of additional vessels into the rotation in order to alleviate that particular problem. So you can imagine with the fixed amount of ships, taking longer, ships will -- 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 1 or 2 vessels skip call, I would say that number could be around somewhat 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. So 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. So it's a complex exercise that the liners are seeing -- are doing. But what -- coming back to 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 kind of exceptional storage income as a result of that. But so far, the Red Sea interruption hasn't resulted in a lot of the boxes being held up at the port at this point in time. And therefore, I would say the impact is not that significant at this point in time, but it would start [indiscernible] if the interruption continues for quite a number of months. I mean, kind of like when it happened in COVID, the initial 6 months, the world wasn't really -- the shipping lines weren't really affected. In fact, volume was down and things were quite poor for the shipping lines in the first 6 months of COVID. It was only about 6 months that shipping lines start seeing congestion and grade starts picking up and shipping lines fare a lot better after that. So unless this is kind of 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. That's really helpful. The second question is regarding -- you mentioned about the EV imports. I know it's probably a 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 China, this transshipment by nature?

Actually, you'll be surprised. It's actually local imports into Hong Kong from China. So for us, whether it comes from Europe or comes from China, far way, closer way, we earn the same margin. So we don't really concern ourselves where it comes from, but we do know that it comes mainly from China, either Shanghai or even Shenzhen. There are a mixed number of brands, Tesla, BYD, SAIC, all sorts. And you can see that in Hong Kong, the number of EVs are being rolled out new EVs in Hong Kong. They're just quite a few of them. And we do expect that number to triple, quadruple this year for us.

[indiscernible] from Phillip Securities.

I refer you to Page 7 of your slides. There is a point that you raised about [indiscernible] direct shipment to China -- in China instead of transshipping to via Hong Kong, do you see this trend still continuing? If so, like how much more of holding -- how much more holding would do you think Hong Kong will be losing from here? This is my first question.

Yes. So that particular question comes on to the issue with Hong Kong is shipping lines are structurally leaving Hong Kong and choosing our location. I would say that phenomenon happened -- started happening quite a number of years ago, not only kind of recently. But last year, in particular, we felt it a little bit more than usual. The reason for that is 2023 was a particularly weak market for China export. And a lot of the surrounding ports nearby, including people, Herbert mentioned, Shenzhen, Guangzhou, all the other ports, the export volume was down quite a bit. So for them, they needed volume to backfill their utilization. And typically, they -- and the easy one they went after transshipment volume that Hong Kong has. And therefore, negatively affected Hong Kong market share in 2023. But 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 Guangzhou side. And 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. So we also see the pressure being less. And as I said before, we are seeing that Hong Kong decline from a transshipment point of view narrowing over the last quarter. And we are seeing a positive growth for Hong Kong for the first time, maybe quite a number of months in January this year, and we expect February to be just as well. So as I said before, I expect Hong Kong, probably the down trend will cease by the middle of the year, and there is a chance that we can regrow the volume. So in terms of Hong Kong continuing to lose market share at this point in time, I haven't seen it. What I mean is that I'm not seeing an accelerated deterioration of the volume trend in Hong Kong, if anything, that downtrend is subsiding a little bit.

Okay. And my last question is there was dividend paid to noncontrolling shareholders in the first half of about HKD 2.9 billion, but nothing on stake in second half. Can you remind us what is about this HKD 2.9 billion. Why is the big sum being paid out in the first half?

Typically, distribution to noncontrolling shareholders relates to our payment of dividend in Yantian and because we only hold effective interest around 32 -- somewhere between 52% to 53% of Yantian. So when we pay out dividend from Yantian, our noncontrolling shareholders will also receive a dividend. So it was just a timing of [indiscernible] that dividend in Yantian and where in second half, we didn't need to declare that dividend. So it's just a regular distribution trend. It's not a regular half year thing that we do. Typically, we do it once a year.

I see. So there was like anything special about that payment that you try to grow up Yantian...

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'd be paying out the 2022 dividend. And part of that dividend -- half of that dividend will go to the NCI.

Mr. Deepak Maurya from HSBC.

I had a few questions around the debt. Is there any refinancing coming up for 2024? And will that also get refinanced at relatively higher costs? And what would be your approach, if any, on fixed versus floating at this stage, what would you be looking at?

Yes. Thank you, Deepak. In terms of refinancing need for 2024, we do have a bond coming to maturity towards the end of the year. Now our current intention is to refinance it by a bank loan. Now depending on how the market interest rate goes in the second half of the year, we will decide whether we will -- to finance it by bank loan or by a bond issuance. Now 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 out of that coming due in the first quarter of next year as well. So we are really looking at the 2 in conjunction and see what is the best opportunity or best window to refinance these 2 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.

Okay. And then 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 filtered through to the second half? What I'm intending to ask is whether we have seen the peak of interest cost increase, it increased 30% net interest, right? So if nothing else changes and if there's no new debt being refinanced, does that mean that we've 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 don't expect a sharp increase in interest rate -- interest cost anymore because there is -- we don't forecast an underlying increase in rates. But as we [indiscernible] those debt that we took on 5 years ago, during which time the rates were lower, even if the Fed rates come down 25, 50 basis points right now, we would still be looking at interest cost increase compared to when we did the financing 5 years ago. But that would probably come in into 2024 -- sorry, 2025 rather than 2024.

Okay. Okay. Makes sense. And if I may ask a question on your associates and joint venture line, right? The losses have increased from a low base, of course. But 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? And should we see this as a run rate? Or should this moderate in the future?

Yes. 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. Now our Hong Kong terminal HIT is 100% owned, but our COSCO-HIT and Asia container target open not. So if you look at those -- the line share of profit loss after tax of associated companies and JVs, it comprises a number of companies, but those 2 are the main drivers in terms of the change. So because of the Hong Kong situation, we reduced -- we saw a reduction in throughput of around 15% last year. So we saw a reduction in the profit from those 2 companies.

I would say we're not that figure pop -- I'm not looking to see it reincreasing this year versus last year. So I would say that would be the max that we would see out of it for 2023, partially because 2022 is such a good year. Some of our joint venture also profited from the normal high congestion storage fees that we enjoy around the region, and all those was lost in 2023, and that affected overall performance and with the interest cost increase affected them as well. So 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, ACT 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. Okay. And then maybe one last question from me before I jump back in the queue. On your Yantian expansion, I mean what is the status of that progress of the project and any color on that?

Right. So the progress is according to schedule for us anyway. The government is keen to roll that out as Yantian gets more busy and with volume increasing thus far, there is that need for new capacity in Yantian. So we still are on target to roll out in -- sometime in the end of 2025, early 2026.

Okay. Okay. And then may I just quickly clarify on the debt repayments. You did mention that you'll repay about HKD 1 billion of debt per annum you'll continue with that run rate. So when we look at the bonds, which are coming up for refinancing, does this mean that you will let them -- I mean you just repay those bonds? Or is it that you will refinance some other debt on the balance sheet?

Yes, we probably would refinance the floating rate bank borrowings. Now for the bonds, I think it's cleaner if we just refinance it in totality, and we choose more expensive loans that we can pay back.

Mr. [indiscernible] from [indiscernible] Research.

Just a few questions. Just relating back to the dividends to noncontrolling shareholders or MI [indiscernible] has been coming quite rapidly. And also obviously your minority interest at this at the P&L level. So I just wonder 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, there is supposedly -- or does it make sense Gemini has a strategy to use Southeast Asia as the single transshipment hub from Europe as a single destination and everything has come to Europe. Just my second question. My third question is just your thoughts on apart from [indiscernible], we also have this Panama [indiscernible] I know the other side of the U.S., but does it affect any of your volumes and [indiscernible]?

I'll 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'm actually calling up [indiscernible], to meet with Maersk after Chinese New Year as well to understand a little bit better because the announcement itself, there's still a lot of things that internally we have to work out. So there's nothing is cast in stone in that point. But because -- from the way I read it is that they would be increasingly focused on more using [indiscernible] 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 this is something that we will try to work towards. In terms of Panama, not so much because 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 rather than going to the Panama Canal. And the kind of volume reduction in [indiscernible] canal just the fact that they have kind of 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 in the U.S. ports than anything else. But in terms of volume affected, so far, no, there's adequate capacity deployed to the U.S., where U.S. trade continues to be quite strong, not so much affected by Panama. I'll let Jimmy answer the MI question.

Sure. Now in terms of the distribution to minorities. Now the increase you see in 2023 compared with 2022 was partly due to the fact that at the JV level, the board 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 and the Board decided, hence, to upstream that cash to the shareholders. And therefore, you would see an increase in the dividend distribution to noncontrolling interest.

And also Yantian during 2022 where we had a fairly good year because storage income kind of booked record and we have exceptional profit during that year. So we decided to distribute 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.

So moving forward, can I assume that the [indiscernible] excess cash has been paid up and the future dividends more or less come close to the minority interest.

Right.

Just one last one, should I just -- you mentioned about skip calls of [indiscernible]. My initial thought was that -- but because of the Red Sea and this excess capacity, the lines [indiscernible] just flooding the route with more vessels rather than have keep calls of [indiscernible] savings. But I guess from your comments you're beginning to see more and more skip calls [indiscernible] if I could just -- my last question...

I think if you look at the underlying rates, if you look at the last quarter last year, right? Rates for Europe was only around $1,000 -- $800 to $1,000, whereas rates now at $5,000, $6,000. And the only way that they could have gone up that high is basically managing the capacity tonnage calling. So for them, I definitely see that the rotation has less capacity as a result of the Red Sea interruption. So that's 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's just a balance between price and capacity.

Ms. Maggie Wang from DBS Bank.

Can you hear me?

Yes, please go ahead.

Yes. 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. So this year, when I talk about the distribution, it is already with that HKD 1 billion repayment in mind. So basically, what I'm doing is looking at my total cash flow for that particular year, I am allocating HKD 1 billion to debt repayment and the rest to DPU distribution. And as I've covered in previous ones, when it comes to time when the Board is comfortable with the debt levels, we can potentially reduce debt repayment and increase DPU. So 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 deep distribution payout. And thank you for everyone for joining the call as that was the last question on screen. So 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.