Safe Bulkers - Q1 2024

Transcript

Operator (participant)

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call on the first quarter 2024 financial results. We have with us Mr. Polys Hajioannou, Chairman and Chief Executive Officer, Dr. Loukas Barmparis, President, and Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company. At this time, all participants are on a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at two one two, six six one, seven five six six. I must advise you that this conference is being recorded today, April 30th, 2024.

The archived webcast of this conference call will soon be made available on the Safe Bulkers website at www.safebulkers.com. Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from the result projected from those forward-looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward-looking statements is contained in the first quarter 2024 earnings release, which is also available on the Safe Bulkers website. Again, www.safebulkers.com. I would now like to turn the conference call to one of your speakers today, the President of the company, Dr. Loukas Barmparis. Please go ahead, sir.

Loukas Barmparis (President)

Good morning to all. I'm Loukas Barmparis, President of Safe Bulkers. In the first quarter of 2024, we operated within a more robust market in comparison to the previous year. In alignment with our environmental, social, and governance strategy, we ordered one additional Phase 3 newbuild. Concurrently, we continue to process of modernizing our fleet by divesting three older vessels. Moreover, we executed the repurchase for 4.9 million shares of our common stock while declaring a dividend of $0.05 per share of common stock. Our strategic focus persists on fostering enduring value for our shareholders and affording a resilient capital structure. This commitment is further evidenced by our efforts towards a young and energy-efficient fleet, thereby securing operational excellence in anticipation of forthcoming stringent environmental regulations.

We ensure that our capital expenditure is adequately covered by our contracted future revenues, fortifying our balance sheet towards a trajectory of sustainable growth. Subsequent to a comprehensive review of our forward-looking statements, language presented in slide two, our attention transitions to the market update in slide four. Noteworthy is the volatility experienced in the Cape market segment. It is pertinent to highlight that all eight of our Capes are presently period chartered, boosting on average a remaining chartered duration of exceeding two years with an average daily rate of approximately $24,400. This provides us with an appreciable degree of cash flow visibility, notwithstanding the prevailing daily market rate today of around $19,500. On the Panamax front, the charter market is at about $17,200.

Progressing to slide five, we present an overview of CRB commodity indexes fluctuation in basic commodities future prices. The geopolitical landscape, with tensions in regions such as Middle East, the Red Sea and Ukraine, underscores the heightened level of global uncertainty. The global economic recovery is slow but steady. The dry bulk market is expected to remain strong in 2024, with a tightening supply and demand balance attributed to increased cargo volumes, particularly in the Capesize segment, driven by higher iron ore shipments from Brazil to China, and China. Rerouting away from the Red Sea and Panama Canal has also bolstered demand in smaller segments. There is expectation of gradual control of inflation. Despite the delay in interest rate cuts, the expectation for global economy for global economic resilience remains strong.

The IMF April forecast of a 3.2% expansion in global GDP for both 2024 and 2025 is accompanied by control of inflationary pressures. According to BIMCO, the forecasted global dry bulk demand growth stands at 3% increase for 2024. In China, the IMF April projection of GDP growth for 2024 stood at 4.6%. China faces challenges, of course, in growth dynamics driven by the internal factors, while the resilience of India's robust domestic demand and sustained infrastructure investments emerges as a stabilizing force amidst the prevailing economic uncertainty. Let us now proceed to examine the supply side dynamics in slide six. The dry bulk order book remains at single-digit percentages. Our outlook remains optimistic regarding the near to medium-term trajectory of the freight market, underscored by the low order book.

Approximately 35% of the medium-sized fleet surpasses the 15-year mark, increasing the anticipated impact of fleet aging and stringent environmental regulations. Vessels constructed in Japan have superior design efficiencies. 85% of our company's fleet comprises of Japanese-built vessels, surpassing the global average of 40%.... strategic advantage positions our fleet favorable to compete within the environmental-based charter market. As one of the few dry bulk companies with a substantial Phase 3 order book strategically positioned below prevailing market valuations and a strong commitment to compete on the basis of operational and environmental excellence. Fleets comprising of efficient Japanese vessels and vessels delivered first 2010, 2014, we will be able to remain relevant and compete within the stringent regulatory frameworks and greenhouse gas targets. Another of our recent developments is in slide eight.

This includes the declaration of 5%, or $0.05, dividend per common share, divestment of three older vessels, the delivery of two Phase 3 newbuilds, alongside the initiation of orders for two additional Phase 3 vessels. In slide nine, we present Safe Bulkers' key attributes, such as our robust management ownership, alignment, comfortable leverage, ample liquidity, contracted revenues, a sterling track record, and the quality and competitiveness of our fleet, strategically positioned to leverage on the regulatory landscape, remaining true to our commitment to expand by building a resilient company and reward our shareholders. Moving to slide 10, we present an insight into the advantage of our green fleet.

The breakdown presented in the top right graph underscores the environmental credentials of our fleet, comprising today of 46 vessels, with 20 vessels having undergone environmental upgrades, nine being Phase 3 and 11 being Eco, and the remaining six scheduled to be upgraded within this year. The bottom graph represents our fleet renewal strategy with a divestment of 12 older vessels, acquisition of seven secondhand vessels, a steadfast ordering comprising of seven plus one Phase 3 newbuilds, resulting to a stable 10-year average fleet age over the past four years, as confirmed by Slide 11. This trajectory of fleet expansion serves as a testament to our commitment towards sustainability. I now pass the floor to our CFO, Konstantinos Adamopoulos, for our quarterly financial overview.

Konstantinos Adamopoulos (CFO)

Thank you, Loukas, and good morning to everyone. As the general notes, during the first quarter of 2024, we operated in a stronger charter market environment compared to the same period in 2023, with increased revenues due to higher charter hires. This earnings from charter fleet vessels increased operating expenses and higher interest expenses due to increased interest rates. Let us focus now on our liquidity, our cash flows, and our capital structure, as presented in Slide 13. We are maintaining a comfortable leverage of 34%. Our debt of $534 million remains comparable to our fleet's current value of $338 million, although our fleet is about 10 years old.

Our weighted average interest rate stood at 6.51% for our consolidated debt, with a portion of EUR 100 million being fixed at 2.95% coupon in an unsecured five-year bond. We have paid $79 million of our capital expenditure requirement in relation to our existing order book, the remaining capital expenditure at $201 million. Our liquidity and capital resources stand strong at approximately $215 million, which, together with the contracted revenue of about $276 million, provides flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation to seven existing unencumbered vessels and eight newbuilds upon their delivery. Moving on to Slide 14 with our quarterly financial highlights for the first quarter of 2024 compared to the same period of 2023.

Our adjusted EBITDA for the first quarter of this year stood at $46.8 million, compared to $33.1 million for the same period in 2023. Our adjusted earnings per share for the first quarter of 2024 was $0.20, calculated on a weighted average number of 100.4 million shares, compared to $0.10 during the same period in 2023, calculated on a weighted average number of 118.4 million shares. In Slide 15, we present our quarterly operational highlights for the first quarter of 2024 in comparison to the same period of 2023.

During the first quarter of this year, we operated at 47.08 vessels on average, earning a TCE of on average $18,158, compared to 43.3 vessels, with earning on average TCE of $10,760 during the same period in 2023. The company's net income for the first quarter of 2024 was $25.3 million, compared to net income of $19.3 million during the same period in 2023. Concluding in Slide 16, we present a list of our Phase 3 vessels already in our fleet. The global economy is experiencing multiple challenges. Persistent inflation, tight financial conditions, Russia's invasion in Ukraine, Middle East crisis, all weigh on the market outlook.

Based on our financial performance, the company's board of directors declared a $0.05 dividend per common share. We'd like to emphasize that the company is maintaining a healthy cash position of about $82 million as of April 19, 2024, another $164 million available in revolving credit facilities.

Overall, a combined liquidity and capital resources of $246 million. Furthermore, we have contracted spot and period time charter contracts of $274 million net of commissions and before scrap revenue, as well as additional forward capacity in relation to seven unencumbered existing ships and eight new builds upon their delivery. We believe our strong liquidity and our comfortable leverage will enable us to expand further our fleet while still rewarding our shareholders. This concludes our presentation. We are now ready for the Q&A session.

Operator (participant)

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Omar Nokta with Jefferies. Please proceed with your question.

Omar Nokta (Managing Director)

Hi, guys. Thank you. Good afternoon. A couple of questions for me. Maybe just first off, perhaps on the, you know, the term charter market. Noticed you fixed the Maria for four to five years at just under $26,000. You know, that ship, say, looks like a standard Cape, 10 years old, but the rate's pretty high relative to, you know, clearly market averages in recent years, and also even just forward assessments, whether it's the FFAs or the one-year, three-year, five-year charter market assessments. Is there something specific on the charter, or is there anything specific on the ship that gives it this type of premium, or is this simply the going rate now for a four to five year contract?

Polys Hajioannou (Chairman and CEO)

Yes. This vessel was with a specific charter on index link, and as the market was rising in Q1, the charter wanted to change it into long-term period charter of fixed rates. So the company took advantage of that requirement and converted this to four-year charter, which, as you said, is above the current market, given that the vessel is Japanese built and environmentally upgraded with various fixtures that have improved recently her consumption. So we managed to achieve for four years, minimum four years of $25,950 per day, which is a very healthy rate, and the company locked in at that time.

Also, at the same time, we had another vessel, a 2012 build, which we fixed forward for delivery in September of this year for 18-24 months at $26,000 a day, which is also a very healthy rate, given that the fixture is on forward days. So there was this spot of opportunity, and we had the right vessels at the right time available, and we managed to secure these long charters, which usually, typically are available on hot markets of Capesize vessels.

Omar Nokta (Managing Director)

Yeah. Yeah, and you know, obviously, the market's eased, but it's still obviously very solid, generally speaking. What do you-- how would you characterize the liquidity now in the, in the term market? Would you be able to repeat that type of duration, you know, going out 12 to 18 months or four years? Could you do that? Obviously, the rate may have come down, but is there enough liquidity still to be able to secure that type of, visibility?

Polys Hajioannou (Chairman and CEO)

Look, this, these sort of charters come at the spots when you have a very hot Capesize spot market. So if the spot market is $40,000 or going even higher than $40,000, charters can book contracts, can cover in the futures market their exposure, and such deals are available so long you have the right vessel available at the right moment. Most of our Capesize, almost all of them, they are on period charters. You know, some of them, they expire in 2025, some in 2026. But in a hot market, let's assume we have a hot market in the second half of the year, could be opportunity.

One charter wants to extend one year ahead of time one of the other vessels, and could switch an existing charter into something longer and bigger. So all these scenarios, you know, we are very hands-on on what's going on in the freight market, as we are working in-house all our chartering activities. And when the opportunity arises, we try to take the advantage of such requirements. On the Kamsarmax vessels, of course, the charter durations are much shorter because the forward curve is not moving usually that fast as with the Capesize rates. And on those one, the charters are more like one year or one and a half year duration.

Omar Nokta (Managing Director)

Okay. Thanks for that color. And then just on a separate topic, just on the, you know, capital allocation, just wanted to ask what you're thinking in terms of, you know, the buyback going forward. You bought a good amount of stock, obviously, under the five million share authorization from late last year. You did cancel just before finishing the full five million. You effectively got close to it, but you didn't do all of it. But you went ahead and terminated it. Just want to get a sense, any reason why you canceled it with a little bit left to go? Any thoughts on, you know, a new one? And then also, is it just simply, you know, the stock performance being so strong, is why you backed off from the buyback recently?

Loukas Barmparis (President)

About capital allocation, as you are aware, I mean, we push our earnings from operations towards the new investments because it's very important to renew the fleet and to be competitive in the following years. Because the new regulations will have a substantial-- will create substantial problems to ships that cannot perform. And we don't want to over-leverage the company, so I want to point out that the leverage today is in this quarter was 34%. In terms of the buyback program, the buyback program almost exhausted, but we all...

I mean, we all believe in the company that the price of our stock, repeating it's our belief, is quite low compared to the asset value. So from time to time, we may take the advantage of the opportunity to initiate an additional buyback program, although this has not been yet decided. And the other form is that at the same time, we reward our shareholders with a steady dividend. Until now, $0.05 per share, which is also, I think, reasonable on the basis also of the capital increases.

Because we expect that the stock price of our stock will increase as the new regulations will come and play a major role in the charter market.

Omar Nokta (Managing Director)

Thank you. No, that makes sense. Appreciate it. That's it for me. Thank you.

Operator (participant)

Our next question comes from the line of Climent Molins with Value Investors Edge. Please proceed with your question.

Climent Molins (Head of Shipping Research)

Good afternoon. Thank you for taking my questions. Following up on Omar's question on the repurchases, could you provide some commentary on the average price paid per share and on the amount that was spent post-quarter end?

Loukas Barmparis (President)

Yes, that's for sure. We don't declare the exact prices, but what we can say is that we have almost exhausted the existing buyback program. And any decision in the future will depend on the capital allocation that we think it's better. So we can, for example, I could say that we moved towards an acquisition of a new big vessel, as you are aware. So this played an important role. So we are targeting also the new build market. And of course, but we believe that our price is quite low compared to the net asset value of our fleet.

Polys Hajioannou (Chairman and CEO)

Of course, if I may add, you may see the last quarter, the stock price was between $4 and $5. So you have a low, a low, a low fee, a low, price on the low, on the bottom part and on the upper part. So it was in that range. The purchases with what was in the market range. What I may add more, what's happening right now in the market, and it's the most important thing to take note of. We have secondhand prices rising the last two quarters, especially in the first quarter of this year with the strong trade market.

We see this on all types of vessels, on all the spectrum from Ultramax, Kamsarmax, Capesize, all of secondhand price vessels are rising by $3 million-$4 million the last quarter or so. The company is also using some of its older ships, as you have noticed, as cash. It's cashing in on those older ships to finance new acquisitions, mainly on new technology Phase 3, IMO Phase 3 vessels. On the other hand, we have to say that the opportunity for fleet renewal is not unlimited, given the fact that most of the shipyards are now booked in berths in second half 2027 or even first half 2028. The opportunities are becoming less and fewer and fewer.

So you may find the old berth, if you have good relations with yards in Japan, the old berth every now and then, and this is the opportunity one should not be losing when such a berth is available, to take advantage and book the berth. That's why we need liquidity, not only for share repurchases, but also to take advantage of those opportunities when they arise. And I don't think in the next six to nine months, something will change. To the contrary, we believe that we are entering into a tighter market. We know that the latest data from Suez Canal is that passages are 66% lower than now than they were in end of November when the crisis began.

We see that the strikes on the merchant shipping by the Yemen rebels is continuing. So we don't expect this to change anytime soon, which will add fuel to the present freight market. So the company must be ready to make use of its liquidity, not only on share repurchase, but on other opportunities as they arise before all these opportunities are gone. Because what we cannot order a new build for 2028 delivery, you can understand, is four years forward, is too far away, and the cost of the delivery installments is very high. So when the opportunity arise for early birds, we should be able to move quickly.

Climent Molins (Head of Shipping Research)

Thanks for the color. I also wanted to ask about operating expenses, which increased quarter-over-quarter, although from a very low starting point. Could you provide some commentary on the forecasts you have for operating expenses for the remainder of the year?

Loukas Barmparis (President)

Usually the operating expenses we see in the first quarter are a little bit more, a little bit increased. The reason is that because there are substantial supplies of spares that will be used for the dry dockings. And so you may see, if you compare the last quarter of the year and the first quarter of this year, you will see that it's a substantial increase. However, we don't expect annually to have a substantially different figure.

Climent Molins (Head of Shipping Research)

Makes sense. That's all for me. Thank you for taking my questions, and congratulations for the quarter.

Loukas Barmparis (President)

Thank you.

Operator (participant)

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Loukas Barmparis (President)

Thank you very much for attending this quarter, our quarter results webcast. We're looking forward to discuss again with you in the next quarter. Have a nice day.

Operator (participant)

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.