Safe Bulkers - Earnings Call - Q1 2020
June 9, 2020
Transcript
Speaker 0
Ladies and gentlemen, thank you for standing by, and welcome to the Safe Bulkers Conference Call to discuss the First Quarter twenty twenty Financial Results. Today, we have with us from Safe Bulkers' Chairman and Chief Executive Officer, Mr. Polis Piguiano President, Doctor. Lucas Bomberas Chief Financial Officer, Mr. Konstantinos Panamopoulos and Chief Operator Officer, Mr.
Ioannis Fontenos. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at (212) 661-7566. I must advise you that this conference is being recorded today.
Before we begin, please note that this presentation contains forward looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended concerning future events. The company's growth strategy and measures to implement such strategies, including expected vessel acquisitions and entering into further time charters. Words such as expects, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are identified are intended to identify forward looking statements. Although the company believes that the expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the company.
Actual results may differ materially from those expressed or implied by such forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to, changes in the demand for dry bulk vessels competitive factors in the market in which the company operates, risks associated with operations outside The United States and other factors listed from time to time in the company's filings with the Securities and Exchange Commission. The company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in the company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based. And now I pass the floor to Konstantinos Please go ahead, sir.
Speaker 1
Good morning to all. I am Konstantinos Ademopoulos, CFO of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the 2020. I would like to start by thanking our seafarers for their commitment and dedication throughout this harsh period as collectively we continue to serve our charters. Moving to slide four, we have been active in all fronts operational, financial and commercial taking measures to ease the impact of COVID-nineteen.
In the operational forefront and in relation to our seafarers on board, the company's COVID-nineteen management plan has been disseminated to the vessels incorporating measures to protect seafarers and shore employees' health and well-being and to keep all our vessels sailing continuously servicing our charters. In our shore operations, we have contracted remote real business efficiently through since 03/20/2020 and reopened our offices on 05/04/2020. So far,
Speaker 2
we have
Speaker 1
zero COVID-nineteen incidents both on board and at all. We secured the normal supply of bunkers provisions in potable water at main ports under specific procedures to avoid contact with port personnel. All critical technical services are maintained and as all crew changes have been suspended, we have developed a detailed plan of such changes in order to increase crew availability and meet replacement demand once the changes resume. We have been also active in our environmental investments as seen in Slide five. From the beginning of the year and until 05/29/2020, even during the peak of the COVID-nineteen pandemic, our program of dry dockings, ballast water treatment systems and scrubber installations has continued.
We have concluded six dry dockings, five ballast water installations, four scrubber installations and had one resale newbuild vessel delivered. In the financial forefront in Slide six, following the refinancing concluded early twenty twenty, which provided us with $53,100,000 of additional liquidity and a drawdown of $10,000,000 from our unsecured RCF, we took a further step in close cooperation with our lenders to preserve our strong financial position by pushing back to 2022 and 2023 a total of $39,100,000 of loan repayments scheduled for 2020 and 2021 and also by growing down 36,400,000 from existing available facilities. Moving to Slide seven. In the commercial front, we have reached an agreement with a prominent charterer for four period time charters of non scrubber fitted Panamax class vessels. Three five year charters at a daily gross charter hire of 11,750 for the first two years and for the next three years at Baltic Exchange comes at max TES-eighty two-five TC times 97% less $2,150 starting in the 2020.
And one year charter at the daily gross charter rate linked to the Baltic Exchange Test 82 5TC index times 109% starting in the 2020, thus prolonging our future cash flows. The anticipated aggregate gross revenue of these four charters is $54,700,000 until 2025 basis calculations of the current FFA curve. Let's move now into analyzing the market conditions. In Slide nine, we present the outlook of the market as of the June in terms of charter rates for Capes and Capesamaxes. So far, the market is mainly driven by COVID-nineteen and its effect in total economies.
Most advanced economies have already announced in use packages to address the adverse effect of the pandemic. Another important driver so far is The U. S.-China trade war and the long anticipated implementation of Phase one deal, which was struck back in January. Seasonality is a constant driver in the selling market, setting the first quarter of every year as the weakest in terms of charter rates. Turning to Slide 10, we present certain representative data on China, which seems to be the first country to recover from the pandemic.
Chinese economy contracted by almost 7% in Q1. In response, China has announced the fiscal measures it intends to take to stimulate the economy back to growth territory. And these include a fiscal stimulus package of almost 3,600,000,000,000.0 yen that's equivalent about $05,000,000,000,000 a raise in the financial government's special bond quota of 3,750,000,000,000.00 yen an issuance of 1,000,000,000,000 yen of central government special bonds targeted as COVID-nineteen relief. And finally, business tax cuts and fee reductions were 500,000,000,000,000 in total. As evident in the bottom graph, Chinese industrial production indicators are rebounding signaling what seems to be hopefully a V shaped market recovery.
The special purpose bonds should be the catalyst for a boost in industrial production and consequently for the uplift in demand in marine transportation commodities when the conditions in China normalize. Slide 11, we analyze the developments on imports of the major drybulk commodities. As shown on the top graph, total iron ore imports to China in the January to April period were up 5% versus the same period of 2019. Rapid spread of COVID -nineteen in Brazil has halted exports of iron ore, which are down 17% year on year. This explains partially the depressed charter rates on caves.
In the graph in the middle of the page, we presented thermal coal and pygmyte imports to China for the January through April period, which were increased by 46.6 versus the same period in 2019. And on the bottom graph, we see that soybean imports to China in the same four months with a marginal increase versus the same period of 2019. We believe that the positive news coming from China and the gradual recovery of other importing countries worldwide will eventually increase demand for bulk. On Slide 12, we present the status of the order book on KH and Panamaxes to post Panamaxes. Order book is declining after 2020 with slippage and cancellations due to COVID-nineteen creating extensive delays.
The combination of raising of fleet, low charter rates and increased CapEx for complying with environmental regulations may intensify scrapping activity, which has diminished due to lockdowns of demolition countries like India and Bangladesh. Lastly, the ongoing environmental discussions for emissions and decarbonization do not favor new orders. On Slide 13, we present the effect of the global lockdowns and mobility restrictions on demand for oil and fuel. As presented on the top graph, according to BNP, the global oil demand is also expected to evolve on a V shape. In the middle and bottom graphs, we present The U.
S. Supplied oil demand and the gasoline demand. We believe that as global lockdowns ease, oil demand will continue to improve in the 2020. Slide 14, we present the price of the spread differential also known as HI5 between the IMO 2020 compliant fuel versus the heavy fuel oil, which is used now only on the scrubber fitted vessels in correlation with Brent prices. Compliant fuel and distillate products are closely related to the open up and recovery of global economies.
The compliant fuel prices versus the HFO prices has shrunk. As evident on the graph, HI5 spread is correlated with Brent prices. We expect that the end of the global lockdown will lift mobility restrictions and hence the demand for oil and fuel. This will probably lead to recovery of vent prices and to wider HI5 spread differential. Turning to Slide 15 in the context of our environmental social responsibility.
Despite the tough environment, we have retrofitted 18 scrubbers and 55 ballast water treatment systems with an aggregate cost of $55,800,000 By the end of the 2020, we will have completed our scrubber installation program. On the bottom table, we estimate that expected downtime is for Q2 and 2020, so as to assist our analysts with efforts and projections. Now let's summarize the key market takeaways on Slide 16. Zonality patterns are repetitive, intensified after Chinese New Year by the COVID-nineteen pandemic. We believe that delays in Chinese shipyard, delays in ports due to quarantine, the diminished scrapping and excessive environmental investments will control the supply side.
As China has introduced a fiscal stimulus package of about $05,000,000,000,000 its industrial indicators are advancing signaling what might possibly be a V shape of the market recovery. There is a declining order book from 2020 onwards. At the same time, discussions on emissions and decarbonization will not favor new orders. The combination of slippage and cancellations due to the COVID-nineteen pandemic may create extensive delays. Furthermore, the aging fleet, low freight rates and increased environmental CapEx may enhance the scrapping activity.
The global lockdown has adversely affected the demand for oil and distillate fuels. We expect a slow rebound of global oil demand in the second half of this year as global lockdowns ease oil demand. Fuel price spread differential has shrunk for this result during the 2020, but that recovers, then this debt might recover as well. Slide 17, the keynotes points are the visibility, which is in excess of $107,000,000 in the remark that we've done numerous dry docking already hit 90% of our environmental investments. Such liquidity in this updated environment provides us with flexibility.
Our ability to produce long term period charters despite market conditions adding front loaded cash flows visibility is a hard evidence of excellent relations with our charters. Our ability to complete our environmental investments in the peak of the pandemic is evidence of our expertise. And lastly, our smoothened debt profile for the next years, Leverage ratio comfortably stands at 63% is an evidence of the trust and support from our lenders. Let's continue with our liquidity in Slide 19, which as of May 2920 will present on the blue columns our repayment schedule on a pro form a basis, taking into account the financing activities. The new loan facility for our last newbuild was delivered and they have secured the revolving credit facility versus the repayment schedule as of 03/31/2020.
Besides providing us with an additional liquidity of $53,100,000 During the first quarter, we drew down $10,000,000 by our through our secured RCF. In April 2020, we drew down an additional $10,000,000 available under this RCF. In addition, in close cooperation with our lenders, we pushed back $39,100,000 on the payment. 2022 and 2023 were originally scheduled for 2021, thus expanding the average tenure,
Speaker 0
creating a smoother repayment profile, maintaining
Speaker 1
the same cap while maintaining the same governance of debt. This resulted in increasing our flexibility during this Overall, the following the quarter end, the company drew down $36,400,000 production pushed back $39,100,000 payments. To Slide 21, we present our quarterly daily OpEx, which stood at $4,771 External quarterly daily G and A stood at $13.71 dollars The aggregate figure for both these numbers for Q4 twenty nineteen was $6,142 demonstrating our focus on clean operations. We believe that this $6,100 for both OpEx and G and A when comparing apples to apples is one of the industries lower. Of the lowest, given the fact that we include in our OpEx all our dry docking expenses and in our G and A, our direct compensation and all expenses related to the administration, while other companies may not include these numbers.
Moving on to Slide 22, we present our quarterly TCE, which stood at $9,089 affected by COVID-nineteen versus our quarterly OpEx, which stood at 4,701 Let's move to Slide 23 with our quarterly financial highlights for the 2020 compared to the same period of 2019. Net revenues decreased by 5% to $45,700,000 from forty eight point three million dollars Our time charter equivalent rate per vessel decreased to $9,089 per day or $12,280 during the same period in 2019. Daily vessel OpEx increased by 15% to $4,771 compared to $4,153 for the same period in 2019, whereas daily OpEx excluding dry docking and pre delivery expenses decreased by 3% to $4,285 for the 2020 compared to 4,150 for the same period last year. Our adjusted EBITDA for the 2020 decreased to $9,400,000 compared to $24,900,000 for the same period in 2019. Our adjusted loss per share for the 2020 was $0.13 calculated on a weighted average number of 103,400,000.0 shares compared to adjusted earnings per share of $03 during the same period in 2019, calculated on a weighted average number of 101,600,000.0 shares.
Closing our presentation on Slide 24, we present our quarterly fleet data and average daily indicators compared to the same period last year. I would like to emphasize that in this period, we have worked extensively despite the tough market conditions, and we have contracted three, five year period time charters and one year period time charter adding front loaded cash flows. We have refinanced a large part of our debt early in 2020. It took step further to push back the $20.20 dollars loan repayments. We also drew down $36,400,000 We have installed heating scrubbers with only two remaining.
We have a strong balance sheet and comfortable leverage, a smooth debt profile for 2022 and '20 and 2021 and liquidity of $127,200,000 Finally, we took measures to protect our seafarers and show employees' health and well-being and kept all of our vessels sailing continuously servicing our charters. Once again, we would like to thank all our seafarers for their commitment and dedication and efforts throughout this tough period. Going forward, we'll maintain our determination to preserve our strong financial position in which we currently are as we believe that the market signs are there for a market rebound once the COVID-nineteen impact is fully underway. Our press release presents in more detail our financial and operational results. We're now open to take questions.
Speaker 0
And your first question comes from Chris Wetherbee.
Speaker 1
Hey, guys. Good morning.
Speaker 3
This is James on for Chris.
Speaker 4
I just wanted to start with start with the balance sheet and touch on some of the refinancing. I just wanted to get a sense of, like, where you were. Are there additional refinancings that you'd like to pursue? Are you comfortable with what you've done so far? Just kinda wanted to get a sense of what sort of the target capital structure is right now or what goals you're sort of working towards and sort of see where you are in that process?
Speaker 2
Yes. This is Lucas. Look, we are quite happy. We have concluded very quickly this refinancing of certain facilities. Of course, the major job was done late last year.
And right now, you can see the principal payment schedule for the following years. And we are we feel quite comfortable because we sit on a substantial liquidity, which can cover the 2020 and 2021 principal payments. Having said that, of course, shouldn't forget that the debt to asset ratio is 63%, which is still quite comfortable. And so the company, we feel the management feels that we are very fine at this position.
Speaker 4
Got it. And kinda wanted to get a sense of the preferred within that context. Is there anything that you think that you could opportunistically do there, or is that actually something that you're also comfortable with?
Speaker 2
Could you please repeat the question?
Speaker 3
Yes. I just also wanted to
Speaker 4
touch on the preferreds. Are you comfortable with them where you are? Or is given the current environment, is there something that you could do opportunistically there, possibly repurchase at a discount? Or they are fairly high cost of capital. So just and then to get a sense of if there's anything you could do on that side of the capital structure as well.
Speaker 2
We are quite comfortable with preferred, and I think the preferreds have played a very good, let's say, substantial part of the equity of the company. And I think we should continue to maintain them in our balance sheet for, let's say, next periods.
Speaker 4
Got it. And then looking at OpEx, I know it's up about 3% year over year, as you said. Just wanted to get a sense of if that is the right run rate to think of moving forward or if there you have any opportunities to move it down or if there's anything sort of onetime ish in there, essentially trying to get an outlook for OpEx per day.
Speaker 2
Look, the OpEx I mean, the OpEx that we always present is not comparable with several other companies that report differently the OpEx and the dry docking expenses. We report everything together. And if you consider that, we should think that we did a large number of dry dockings and installations during the first quarter despite the fact that we had this COVID-nineteen outbreak. We did it with our people in China. And we are quite comfortable.
In the next quarter, I mean, we expect that this figure probably will go down because we have less dry dockings. And the other thing
Speaker 5
is that also we have a program of
Speaker 2
reducing OpEx during this period. So I think that we're quite happy and even in comparison with all our peers.
Speaker 4
Yes. Got it. But on the I think you called out that OpEx per day, excluding drydocking expenses, was roughly $4,300 or $4,285 if we look So at that moving forward, how what should we be thinking of that particular number being and then also your ability to reduce that through some of your initiatives? Just trying to get an x dry docking and ex delivery expenses. Just trying to get a sense of what that might do across the next couple of quarters.
Speaker 2
Yes. I think that we should look for a figure between 4,000 and 4,200. This is a reasonable assumption on our efforts. And on that, then you need to top up with dry docking expenses, as we said.
Speaker 4
Got it. And then if you're thinking about sort of the outlook at the moment, like what is your expectation for rates? Is it do you think it will be slow and gradual and occur maybe mid next year? Do you think it will be sort of sharp and pointed and you could actually see some level of recovery in this year? Just trying to understand sort of the outlook for the sort of shape of recovery, if you will.
Speaker 5
Yes. This is Paulis. So what we expect is the second half of this year to move towards breakeven levels or slightly above breakeven levels. But as this uncertainty is still there with the pandemic and nobody knows how it will develop, if there is a second round coming or if if there is a vaccine that may be produced, A lot will depend on that. If things go normal get normalized, we expect that we will have a very strong 2021 because the supply of new buildings will be much less than what is this year, and demand will be back on track.
So we believe that we are we should have a good next eighteen months if we don't have a new surprise from the pandemic.
Speaker 4
Got it. Okay. That's it for me. Thank you.
Speaker 2
Thank you.
Speaker 0
Your next question comes from Reggie Vivian.
Speaker 3
How are you gentlemen? How is it going?
Speaker 1
Yes, fine. Thank you.
Speaker 3
Excellent. We have a few questions for me. So looking at the kind of share issuances,
Speaker 1
you
Speaker 3
repurchased, I think, was like 3,300,000.0 shares. What is the average price of that? And then are you looking to be more conservative now or still looking at share repurchases at these levels?
Speaker 2
Look, The manager is very comfortable with the the company, and that's why he from time to time, we have repurchase problems. And I think that in the future, according to our assessment, we may continue to do such repurchase programs either opportunistically or to support the stock price.
Speaker 3
Sure. And the average price for the shares that were repurchased?
Speaker 2
Could you please repeat?
Speaker 4
The average price for
Speaker 3
the shares that have been repurchased?
Speaker 2
It's it's
Speaker 5
we we have not reported that, but it's it's quite close to what the levels I mean, it's below the levels of stock today.
Speaker 1
I think it's around the you know?
Speaker 3
Around what? Sorry. You couldn't hear.
Speaker 1
Around around this this no. This is the price of $81.01 Yeah. $1.10, I think.
Speaker 3
Okay. So similar to the price you offered for the vessel. But okay, can you provide some color on the recent jump in the rates for Capesizes and kind of your expectations of this kind of going forward?
Speaker 5
Capesizes rates are improving the last two or three weeks. We expect very soon the market to get over $15,000 a day, the spot market. Thereafter, a lot depends of how also the trend in of the pandemic is developing in Brazil. If this is if there's no big surprises there and we can maintain the safety of the workers in the in the mines, we don't get any big surprises from from that place. We think that there will be an increased volume of Brazilian iron ore moving to China.
We see that the demand is there. You see that the price is going up. While iron ore is more than $100 a ton, so we expect the volume of Brazilian iron ore to help the market substantially. I think the market already improving. So basically, the usual pickup in demand, we that was in the past starting after the Chinese New Year, usually in April.
This year, because of the pandemic in the Western Hemisphere, is delayed, and we see it now in June. So it's a two months delay from other years. So I expect to see a very strong July to December period for the iron ore grade.
Speaker 3
Sure. Okay. And then I guess last question with all that in consideration. Now that we're in almost mid June, can you give some guidance on the second quarter compared to the first quarter in terms of that daily TCE? I know for the first quarter, you're at $9,100 Where do you kind of view the second quarter to be?
Speaker 5
Yes. We don't give guides as such, but we expect definitely second quarter will be better than first quarter.
Speaker 3
Okay. Better than first quarter. Sounds good. Well, thanks so much.
Speaker 1
Yes, thank you.
Speaker 0
Your next question comes from Richard Diamond.
Speaker 4
First,
Speaker 6
great job in a difficult environment. And, you know, when the market's hot, it's easy to look good. But this is a true demonstration of character. My question is that, my impression is that mining involves, you know, by its very nature, social distancing. I mean people are wearing masks and they're far apart.
So, you know, it looks like the mines should be able to reopen in Brazil. But I wondered if you could just give us some commentary what you see happening on the ground in Brazil. Thank you.
Speaker 5
When you mean on the ground, you mean in the various ports around the world?
Speaker 6
No. On the ground in Brazil, what's happening today? You know, what is your
Speaker 1
observation position We
Speaker 5
saw we saw that reports over the weekend that there was some closure of mines in Brazil in because of some increased, you know, COVID nineteen hits by some workers there. But I don't think this will last very long. Already Vale gave reassurances that they are their production will not be affected. Maybe there will be little bit of shortage of pellets for the local market. So as far as exports are concerned, I don't I don't think we will see any great deal of change of what of what was planned for for export.
So we are reasonably optimistic. And with also the improvement of the Far Eastern market, Capes will not balance in volumes towards Brazil. They they some of them, they are staying busy in the Pacific. And this will give a chance, the long haul trade to help boost the the market. So last year, the second half of last year, we enjoyed rates of $35,000 per day on the Capesizes.
This year, we'll copy this is even that we have rates around $20,000 at the peak of Q3, we will be very happy with these numbers.
Speaker 6
Share your sentiment. Thank you very much.
Speaker 2
Thank you.
Speaker 0
Gentlemen, there are no further questions. I will turn the call back over to you.
Speaker 1
So and this concludes our conference call for the Q1 earnings. Thank you very much for your participation, and we look forward to seeing you.
Speaker 2
You. Thank you. Bye.
Speaker 0
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.