Safe Bulkers - Earnings Call - Q1 2025

Transcript

Operator (participant)

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call on the first quarter of 2025 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 in 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 212-661-7566. I must advise you that this conference is being recorded today. The archived webcast of the conference call will soon be made available on the Safe Bulkers website, www.safebulkers.com.

Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from results projected from these forward-looking statements. Additional information concerning the factors that can cause the actual results to differ materially from those in the forward-looking statements is contained in the first quarter 2025 earnings release, which is 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 Chairman and CEO of the company, Mr. Polys Hajioannou. Please go ahead, sir.

Loukas Barmparis (President)

Hello. I will do the presentation. Good morning to all. I'm Loukas Barmparis, President of Safe Bulkers, and I'm welcoming you to our quarterly results. During the first quarter of 2025, we faced soft and shattered markets due to seasonality, geopolitical uncertainties, and concerns related to tariffs, which could affect global trade and growth. We maintained our strong balance sheet and took delivery of our 12th newbuild. In this volatile environment, we continued to renew our fleet, focusing on operational excellence, environmental performance in relation to IMO regulations, and the creation of long-term value for our shareholders, maintaining a strong capital structure, ample liquidity, and a leverage of about 7%. Further, to our repurchase program of roughly 3% of the company's common stock, which we fully completed, we've declared a $0.05 per share dividend, rewarding all common shareholders.

We remain focused on capital allocation towards our newbuilds program, on improving our operational efficiency and environmental footprint, as all our actions are targeting to increase the wealth of our shareholders. Following a comprehensive review of the forward-looking statements language, which is presented in slide two, let's proceed to examine the supply-side dynamics in slide four. The dry bulk fleet is projected to grow by about 2.8% on average in 2025 and in 2026 due to stable new deliveries and increased recycling with Panama's vessels comprising the largest share. The order book now stands at about 11% of the current fleet, and newbuilding orders have slowed. Asset prices are projected to weaken further in the second, and second-hand ships' price may fall in line with the freight market. Recycling volumes are anticipated to rise through as market continues to prompt the retirement of older vessels.

30% of ship capacity in the order book will be capable of using alternative fuels upon delivery, and out of those ships, 40% can use LNC, 37% methanol, and 23% ammonia. However, the dual-fuel order book in the dry bulk sector is minimal. We do have two dual-fuel new builds on order with delivery by Q1 2027, and currently, about 25% of the existing global fleet is older than 15 years. Safe Bulkers fleet now counts 12 Phase Three Vessels on the water, all delivered after 2022. In addition, 24 vessels have been environmentally upgraded, and 11 are eco-vessels, having superior design efficiencies. 80% of our fleet comprises Japanese-built vessels, surpassing the global average of 40%, while our average fleet age is about 10 years old.

We believe that as energy-efficient designs will have an advantage in the coming years, we will become even more commercially competitive, as we have on our order book six more Phase Three Vessels, which will place prices well below the prevailing market to be delivered to us by the first quarter of 2027, positioning us favorably to compete within the stringent greenhouse gas targets. It is worth noting that MEPC 83 has adopted the new environmental regulation in relation to global fuel standard, which conceptually is similar to fuel EU regulation. The global implementation of a fuel standard that penalizes the excess of fuel carbon intensity compared to specific predetermined reducing limits broadens the scope of the regional fuel EU and will substantially affect the vessel's tradability 2028 onwards, promoting the use of alternative fuels and the energy-efficient Phase Three Vessels.

The recent decisions of the MEPC 83 dictate a faster pace towards decarbonization. Moving on to slide five, we present an overview of the demand and basic commodities trade. The combination of trade war, as expressed through tariffs and the Chinese property crisis, elevates policy uncertainty and poses a considerable downside risk for global growth and against disinflation. For our segment, we anticipate a softer freight rate market and supply grows faster than demand, and we expect an increasing focus on the existing fleet, decarbonization, and on energy-efficient new buildings. The global GDP growth expectations for 2025 and 2026, as reflected in the IMF's April forecast, call for a growth around 2.8% in the coming years, combined by a gradual control of inflationary pressures.

According to BIMCO, the forecasted global dry bulk demand will be from -1% to 0% in 2025, followed by a growth from 1.5% to 2.5% in 2026, with grains and mineral bulks being the best-performing sectors. China's slower growth may hinder demand for dry bulk commodities like iron ore and coal. Iron ore shipments are estimated to slightly grow as a result of weak Chinese demand and increased recycled steel uses. Coal trade will be affected by the rising renewable energy use in Asia and the increased coal production in China and India. Grain and mineral bulk shipments are predicted to rise and expected to be a key growth driver. The IMF projects China's GDP growth to be 4% in 2025 and in 2026, signaling a slowdown in consumption amid delayed stabilization in the property market and persistently low consumer confidence and trade uncertainty.

India, on the other hand, continues to perform and is projected to experience the fastest growth among major economies, with a forecasted 6.2% GDP increase in 2025 and 2026. Increased renewable energy and industrial growth will be key drivers for India's economic momentum. Its expanding domestic market and manufacturing sector may continue to contribute positively to the dry bulk demand, with infrastructure investments playing a vital role. Summing up the supply-demand equilibrium on slide six, the supply growth is expected to continue to outpace demand, exerting pressure on freight rates. The cape market segment has been weak through the year. On the other hand, all eight of our capes are presently period chartered, with an average remaining chartered duration of two years and an average daily chartered rate of $23,000.

There's about $16,000 on the spot market, providing us visibility of cash flows, topping $137 million in contract revenue backlog from capes alone, excluding the Scrubber benefit. On the Panamax front, the charter market stands soft at about $11,500. Moving to slide eight, we present an overview of our quarterly highlights. We have declared our 14th consecutive quarterly dividend of $0.05, representing a 5.5% dividend yield, while at the same time, our free cash flow finances our new building program. Furthermore, we completed the repurchase program of 3 million common shares. We maintained ample liquidity, profitability, and capital resources of $276 million, with a comfortable leverage of 37%. Why? We achieved zero vessels for 2024 in the D and E carbon intensity CII rating of IMO. Lastly, recently, we took delivery of our 12th Phase Three Newbuild, serving as a testament to our commitment towards sustainability.

In slide nine, we present our return to shareholders of $73.6 million paid in common dividends and $69 million paid in common share repurchases since 2022. We have been consistent in generating sustainable returns across market fluctuation as a result of our track record, hedge fund management, and our overall business model. Concluding the company's update, in slide eight, we present our strong fundamentals. Safe Bulkers is a dry bulk company with $390 million market cap, 47 vessels on the water, having $317 million scrap value. We maintain significant firepower with $128 million cash, $149 million in drawn RCFs, and $176 million borrowing capacity against our significant order book of six newbuilds, mainly in Japanese shipyards.

We consistently focus on our majority Japanese-built fleet, which has a balance on energy efficiency and lower CO2 taxation, reflecting our CII rating of zero vessels at the bottom ratings of D and E for 2024. We maintain a young, technologically advanced fleet, strong balance sheet, comfortable leverage, and a low net debt per vessel of $8.5 million for a 10 years old fleet. We have built a resilient business model with cash flow visibility of $203 million in revenue backlog, healthy expansion for sizable fleet that achieves scale, and a 1.5% annualized dividend yield strategically positioned to leverage on the environmentally regulatory landscape. I now pass the floor to our CFO, Konstantinos Adamopoulos, for our quarterly financial overview. Konstantinos, the floor is yours.

Konstantinos Adamopoulos (CFO)

Thank you, Loukas, and good morning to all. During the first quarter of 2025, we operated in a weaker capital market environment compared to the same period in 2024, with decreased revenues, decreased earnings from scarred fleeted vessels, and increased operating expenses. Moving now on slide two, with our quarterly financial highlights for the first quarter of 2025 compared to the same period of last year. Our adjusted EBITDA for the first quarter of 2025 stood at $29.4 million, compared to $64.3 million for the same period in 2024. Our adjusted earnings per share for the first quarter of 2025 was $0.05, calculated on a weighted average number of 105.1 million shares, compared to $0.20 during the same period in 2024, calculated on a weighted average number of 110.4 million shares.

On the graph on the top, during the first quarter of 2025, we operated 46 vessels on average, earning an average daily Time Charter equivalent of $14,655, compared to 47.08 vessels on average, earning a Time Charter equivalent of $18,158 during the same period in 2024. Our daily vessel operating expenses increased by 6% to $5,765 for the first quarter of 2025, compared to $5,442 for the same period in 2024. Daily vessel earning expenses, excluding Dry-docking and bid delivery expenses, increased by 10% to $5,546 for the first quarter of 2025, compared to $5,038 for the same period in 2024. Concluding our presentation in slide 13, we present a quick overview of our quarterly operational highlights for the first quarter of 2025.

We would like to highlight that based on our financial performance, the company's board of directors declared a $0.05 dividend per common share. We would like to emphasize that the company is maintaining a healthy cash position of around $122 million as of May 9, 2025, and another $128 million available in committed revolving trade facilities. We have combined liquidity and capital resources of $250 million. Furthermore, we have contracted revenue from our non-tangible spot and period Time Chartered contracts of $179 million net of commissions, which is before any additional Scrubber revenue. We also have additional borrowing capacity in relation to six new builds upon their delivery and one existing new build, which is debt-free.

We believe our strong liquidity and our comfortable leverage provide flexibility to our management in capital allocation, and this would enable us to expand the fleet further, build a resilient company, and create a long-term prosperity for our shareholders. Thank you, and we are now ready to take your questions.

Operator (participant)

Thank you. We'll now begin the question-and-answer session. If you'd like to ask a question at this time, you may press star one from your telephone keypad and a confirmation tone to indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. While we point out the symbol of the queue, it is star one to ask a question. Thank you. Our first question comes from the line of Omar Nokta with Jefferies. Please proceed to your questions.

Omar Nokta (Managing Director)

Thank you. Hi, guys. Good afternoon. Thank you for the update. Clearly, you've been buying back shares at a fairly decent rate, I'd say, clearly over the past few years. You launched a 5 million share buyback three months ago. You finished it up fairly quickly. How are you thinking about buybacks from here? Obviously, there's still a lot of uncertainty just given the macro, but the outlook maybe seems to have gotten slightly better, perhaps, just based off of the way the financial markets have acted here post this China-U.S. agreement, and maybe that brings about a more positive attitude. Just wanted to get a sense from you, how does this backdrop affect your view on further share purchases from here?

Loukas Barmparis (President)

Yes. As you're aware, we always react on a very consistent basis and according to certain principles. The things that we are considering in order to initiate a buyback program is, first of all, what is the condition of the market? In profitable markets, we tend to buy more shares. The second is the price of our stock. If we feel that the stock price is depressed, we may initiate buyback programs. Generally, as already said several times, we believe that our stock is undervalued. Quite often, it's worth investing for everybody, not only for us. It's worth investing in our stock instead of buying a new ship.

Omar Nokta (Managing Director)

Yep. Makes sense. I guess maybe just as you kind of think about the idea of buying your stock, obviously, NAV seems across different metrics or different whomever is calculating it, it's definitely materially above the current stock price. What would you—can you maybe just give perhaps how you're seeing the sale and purchase market as it is now? We understand that values have been rather elevated given where freight rates are and some of the uncertainty in the market. Can you just give a flavor of what you're seeing in ship values and how things are looking directionally?

Konstantinos Adamopoulos (CFO)

Yes. Hello from me. The S&P values, I would say, that have dropped in the last six months around 25% on the older ships and around 10%-15% on the very modern ships. It is not really attractive prices to start buying ships right now, considering where the freight market is. At this point of time, we are not doing much. We have our new buildings to take delivery of, and we are doing the buyback from time to time. Of course, also the buyback, we do not want to do it too fast or too much in a hurry because the company still has to take delivery of six ships. We do not want to do a very fast buyback until the market improves, freight market improves.

We are there, and we're waiting for the opportune time to buy stock once it remains depressed in a situation that we have better signs of some improvement in the freight market. If the freight market stays at current levels, we are not going to rush and buy more stock at such a freight market because we have to keep all companies' options open.

Omar Nokta (Managing Director)

Yep. Makes sense. Great. Thank you. I'll turn it back.

Operator (participant)

The next question is from the line of Clement Mullins with Value Investor's Edge. Please proceed with your questions.

Clement Mullins (Analyst)

Hi. Good afternoon, and thank you for taking my questions. I wanted to start by following up on Omar's questions on buybacks. Could you confirm whether the 3 million share program was exhausted during the first quarter? If not, how much was spent post-quarter end?

Konstantinos Adamopoulos (CFO)

Yes. This I think we have reported, and it has been exhausted. Yes. All 3 million have been purchased. So the program has been completed.

Clement Mullins (Analyst)

Yeah. I was asking if you could clarify whether any repurchases were done after quarter end for modeling purposes mostly.

Konstantinos Adamopoulos (CFO)

After? After quarter end? Only in the first quarter. I mean, the whole repurchase program was completed within the first quarter.

Clement Mullins (Analyst)

That's very helpful. Thank you. I also wanted to ask about your Capesizes, which are all now employed on medium-term contracts. You have a couple of those coming open later this year. Is there any appetite to trade them on spot, or would you prefer to fix them on Time Charters?

Loukas Barmparis (President)

Yes. One has come open; it's coming open this month. At the moment, the charter rates, the period charter rates are not at the levels we would hope for long period. We will opt for round voyages in the spot market at the current levels and try then after a month or so to refix them maybe on period if there is a better environment. The other one will come open. There's another one that most likely will come open around August. Again, we will judge at the time if we will go if she's delivered in August. That's the earlier part of the window. If she's delivered at that point, we will see at the time what is the best thing to do. Generally, we are trading the spot market unless we see period employment of a couple of years above $20,000, then we consider the period employment.

Clement Mullins (Analyst)

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

Loukas Barmparis (President)

Thank you.

Operator (participant)

Thank you. At this time, I'll turn the floor back to management for closing remarks.

Loukas Barmparis (President)

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

Operator (participant)

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.