Safe Bulkers - Earnings Call - Q2 2021
July 29, 2021
Transcript
Speaker 0
Thank you for standing by, ladies and gentlemen, and welcome to the Balkers conference call to discuss the Second Quarter twenty twenty one Financial Results. Today, we have with us from Safe Balkers Chairman and Chief Executive Officer, Mr. Polis Hadiou Anou President, Doctor. Lucas Ban Paris and Chief Financial Officer, Mr. Konstantinos Adam Polis.
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. Forward looking statements.
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 strategy, 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 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, change 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 Doctor. Van Paris. Please go ahead, sir.
Speaker 1
Good morning. I'm Lucas Barbares, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the 2021. We are happy to present the financial results for the 2021. And Synopsys is profitability, fleet renewal at the edge of the technology and deleveraging targeting to create shortly a company where its net debt is comparable to steel value of the vessels creating value for our shareholders.
The above are presented in Slide four. We reached $81,600,000 in net revenues, dollars 50,200,000.0 of EBITDA and $0.31 of adjusted earnings per share. We ordered eight vessels, GHG EDI Phase three NOx Tier three compliant Japanese newbuilds with early deliveries two in 2022, four in 2023 and two in Q1 twenty twenty four at very competitive prices ahead of our competition. At the same time, we have sold six vessels, three of which are yet to be delivered with $47,600,000 outstanding sale proceeds and acquired two Secondhand Panamax. We believe that by 2024, we will be able to renew about one fourth of the fleet with Phase three compliant newbuilds while substituting at the same time some older vessels with younger second hand vessels.
In terms of deleveraging, we have a $125,500,000 decrease in debt from $607,700,000 as of 2020 year end to 482.2 as of 07/23/2021. At the same time, we maintain our financial flexibility by preserving a strong cash position of $115,600,000 and our undrawn borrowing capacity available under revolving reducing debt facilities to $67,000,000 All these actions we believe will position the company to a whole new level of competitiveness well ahead of the competition. We are here for the long run. In Slide five, we show balance sheet analysis. The assets are presented of course in their book value noting that presently we believe that asset values substantially exceeds the book values.
Let's turn to Slide seven to have a quick look on present charter market conditions. As shown on the top graph, the Capes market for the year to date is outperforming 2020. Presently Capes are trading at about $32,000 The year to date average at about $24,800 as compared to 2020 average for the same period, which was $9,600 Similarly for Capsaramax's, the market remains strong throughout this year. Presently, trades at the region of $32,000 with a year to date average of 23,900 as compared to 7,900 for the same period in 2020. Current market prospects with strong demand and balanced order book are reflected in the FSA chair, which is marked in healthy and sustainable levels.
Turning to the next Slide number eight, we present the development on pricing of certain commodities, which are leading indicators for the shipping. The continuous increase on prices during the last period is signifying their underlying demand. The strong demand from China continues and the control of COVID-nineteen will lead to the opening and normalization of other importing countries as for example, India. Furthermore, leading countries such as United States and China have been preparing for post pandemic plans to boost their economies. These facts are expecting to enhance in vessel growth and altogether to boost the demand for dry bulk cargoes further.
On the Slide nine, we present the status of the fleet in terms of values and expected supply. On the top graph, we present the values of five year old Capes and Panamaxes as assessed by Baltic Exchange. During the last month, it is evident a sharp increase of the vessels value. For Capes in particular, the values have set more than 40% in the same period in 2020 and have gained about $21,000,000 per vessel since the lows in 2016. Similarly for five year old Panamaxes, the values have gained about 45% since same period in 2020 and have gained about 18,000,000 per vessel since 2016 lows.
The above assessment is indicative for the average Baltic type vessel. Japanese built vessels built at high specifications have increased demand and can achieve even higher values. Our fleet consists of mostly Japanese big vessels with high specifications and many commercial and operational upgrades. Looking on the order book on the bottom graph, we note that the growth of the fleet for both Capes and Panamaxes is minimal and does not exceed the 3% on each year. Taking into account the expected scrapping, we may conclude that the expected demand for dry bulk vessels for the next years to come will be significantly higher than the actual supply of vessels.
Under current market conditions, at CPaaS both in Japan and China, we do not expect that the order book may increase significantly for the next couple of years The shipyards are occupied with orders from other sectors such as containers and tankers and there is no space for additional drive back orders. Furthermore,
Speaker 2
only few shipyards have developed new environmental efficient designs which together with ongoing environmental discussions for emission is expected to discuss new orders.
Speaker 1
Turning to the next Slide 10, we touch upon the current status of fuels and their pricing. Our company has invested in the exhaust gas cleaning technology which allows our ships fitted with scrubbers to comply with IMO 2020 regulations for certain emissions by burning high sulfur fuel oil instead of IMO compliant fuel, which is a very low sulfur fuel oil. The differential in the price between very low sulfur fuel oil and the high sulfur fuel oil, the so called high five is translated to avenues for scrubber fitted vessels. Presently, the high five differential in Singapore, for example, sets at about $125 per metric ton. According to future markets as shown in the graph on the bottom, these prices are sustainable through 2023.
The scrubber fitted post Panamax burns about $7,500 year. This brings the scrubber gain to about $900,000 per year or about $2,500 per day. The recovery of global economies, the restoration of mobility and the recovery of crude oil prices may lead to even higher wider high pipe differential. As shown in the top graph presently, the Brent price are trading to pre pandemic levels at the highest of the last five years. Let's summarize all the key takeaways in Slide 11.
The order book is minimal and its lowest level since 2002 as decarbonization discussions not favor new orders. Most cities are preoccupied with containers and tankers orders until 2024 and only few cities have developed new environmental efficient designs. We have experienced an exceptionally strong start of 2021 with robust volumes of iron ore, coal and grain. Demand for commodities has been exceptionally strong during the first quarter. We have seen increased government spending on post pandemic stimulus programs and continuing green of the global economy.
We have experienced Brent prices recovery, which may lead to even wider high five spread differential than that of today of about $120 per ton. And lastly, gating of the fleet and the increased environmental restrictions for emissions may enhance the scrapping activity. This gives us a support for our future process in relation to market conditions that will prevail in the following quarters. Now let me pass the floor to our CFO, Konstantinos Salamopoulos, for our financial overview.
Speaker 3
Thank you, Lucas, and good morning to everyone. Let me start with our chartering performance in Slide 13, where we present our quarterly TCE, which stood at $21,098 versus our quarterly OpEx, which stood at $4,874 Moving on to Slide 14, we present our quarterly daily OpEx, which stood at $4,874 and our quarterly G and A daily G and A would suit at $14.48 dollars The aggregate figure of those numbers is $6,322 which demonstrates our focus on lean operations. We believe that this number is one of the industry's lowest, if not the lowest, given the fact that we include in our OpEx all our dry docking and pre delivery expenses and in our G and A, our management fees, directors and officers compensation and all expenses related to our administration. Moving on to our debt profile as seen in Slide 16, we present our repayment schedule as of the June year. As of June 30, we had turning now to liquidity.
As of June 30, we had $127,400,000 in cash, cash equivalents, fund time deposits and restricted cash. We had another $67,000,000 in undrawn borrowing capacity available under revolving reduced security facilities and $54,700,000 available in secured commitments for loan and sale and leaseback agreements in relation to two newbuild vessels and the refinancing of an existing vessel. Furthermore, excluding the vessels committed for sale, which had not been delivered yet, we had additional borrowing capacity in relation to one unencumbered existing vessel and to three newbuilds upon their delivery. Slide 16 will present our debt amortization schedule versus the scrap value of our fleet. We have a smooth debt repayment profile for the next two years, gradually deleveraging our company following considerable debt repayments we have made this quarter.
If you now move to Slide 17 with our quarterly financial highlights for the 2021 compared to the same period of last year. As a general note, during the 2021, we operated in an improved charter market environment compared to the 2020 with lower interest expenses while our net revenues of $81,600,000 compared to $48,300,000 for the same period in 2020 were further increased by the earnings from scrubber fitted vessels and our reduced voyage expenses. During the 2021, we had a time charter equivalent rate of $21,098 compared to $8,094 for the same period in 2020. The net income from the second quarter of this year reached $32,400,000 compared to a net loss of $13,900,000 during the 2020. Net revenues increased by 69% to $81,600,000 for the 2021 compared to $48,300,000 for the same period in 2020, mainly due to the increased TCE of our fleet as a result of the improved market assisted by the additional revenues earned by our scrubber fitted vessels.
Daily vessel OpEx increased by 3% to $4,874 compared to $4,799 This increase was a result of the combined effect of reduced dry dockings
Speaker 2
and
Speaker 3
provisions of technical services, but increased crew repatriation expenses due to the COVID-nineteen pandemic. Daily vessel OpEx excluding dry docking and pre delivery expenses increased by 9% to $4,568 for the 2021 compared to $4,207 for the same period in 2020. Our adjusted EBITDA for the 2021 increased to $54,100,000 compared to $6,300,000 for the same period last year. Our adjusted earnings per share for the 2021 was $0.31 calculated in a weighted average number of $19,000,100 shares compared to a loss per share of $0.16 during the same period in 2020 calculated in a weighted average number of 102,700,000.0 shares. Closing our presentation on Slide 18, we present our quarterly fleet data and average daily indicators compared to the same period last year.
We would like to emphasize that the company is maintaining strong cash position of $115,600,000 as of July 23 that provide us with flexibility to follow our plan aiming to gradually renew our fleet with a view of forthcoming environmental changes in regulations and further deleverage our balance sheet targeting to create value for our shareholders. Once again, we would like to thank our seafarers for their commitment and dedication throughout this tough period. Our press release will present in more detail our financial and operational results, and we are now ready to take your questions.
Speaker 0
Thank you. Your first question comes from the line of from Ben Ben Nolan from Stifel. Please go ahead. Your line is open.
Speaker 4
Thank you. So I have a couple. Good morning or afternoon, I guess, first.
Speaker 3
My first question relates to the
Speaker 4
newbuilding activity. Obviously, you guys have been sort of at the forefront of the innovations of design, but and have always had high quality equipment from primarily Japan. But they're still conventionally fueled or used oil relative to some of the other designs that we see a lot now, be that maybe LNG or ammonia. Can you maybe talk through the idea of how you decided on your propulsion systems versus some of the other what seemed to be increasingly popular alternatives?
Speaker 1
Yes. I don't think that I mean, if you assess the actual situation, there are no presently other alternatives. Ammonia or hydrogen or alternative fuels will be under assessment and I strongly believe that this will be the case and have let's say this shift towards the new fuels after about at least ten years from now or even fifteen. So we have followed a pragmatic approach. To tell you the truth, the LNG as you mentioned is not actually a real solution.
It could be an intermediate solution, but LNG has discrete factor of our methane, which is I think about 100 times more greenhouse gas effective compared to CO2. So it's not clear that if you order an LNG, this LNG will be compatible with the new regulations after a five or six or seven years. The second point is that the other fuels basically do not exist. They are under discussions and also and we know that because we are in the shipyard and we participate in such designs also ourselves and we have received the first information. On the other hand, we have followed a pragmatic approach.
And when we say Phase three, I want to make clear that Phase three is applicable after 2025. It's not the vessels that are produced today, because today we have Phase two vessels, not Phase three vessels, which represent 20% reduction of emissions compared to 2008 and not 30% which is the Phase three. So a Phase three vessel that we ordered is a vessel that will start its production between 2530 before the vessels before the shift of to new technologies like I don't know maybe ammonia or hydrogen whatever it prevails which will come towards the mid of 02/1930, 02/1930. So I don't believe that there is a question whether you want to invest or not. This is an investment which is clear advantage to us.
We will be we will have the best vessels compared to the market. We can compete easily all of the existing fleet with extremely low emissions compared to everybody else and while the others will wait to see what the technology will come after ten years from 2025.
Speaker 4
Yes. Appreciate that. Although what we do sometimes see is people that order ships that maybe aren't fueled by whatever is the alternative, but have the ability to be converted relatively easily. Is there any ability of the new builds that you have to convert to alternative fuels relatively easily?
Speaker 1
If you can give me one name and one city that has a design, then we can discuss. So let's not say about work, let's say about reality. So I don't believe presently in principle everything can be converted. So an LNG for example can be converted, but it has huge convention costs. You need to have a different systems for storage etcetera, etcetera.
So we don't want to play this game of advertisement. We just follow what is the best available technology, right? I mean after twenty twenty five to 2030 and between 2025 and 02/1930, we may order the technology that will be available for the next decade. If you have special, if you give me a design, I can tell you whether what you say is correct, because we don't believe that design are tradable right now or even exist.
Speaker 4
Got you. Okay, that's helpful. And then lastly for me, you guys have been pretty active, very active under that ATM program that you have. Can you maybe talk through the thinking behind that? I mean, obviously, you are ordering new ships, but you're also selling older ships and making a lot of money on the existing fleet.
So it doesn't look like you really need the money at the moment. What's the thinking behind the activity on the ATM program?
Speaker 1
Look, the idea is very simple. We have designed a company that wants to create value for its shareholders and I tell you that the majority shareholder is the family that owns our management and the Hajjang family. So the design we have clearly described how we look at company that will be able to be very profitable in the future and also at the same time be able to pay dividends to the shareholders. We don't want a company which is over levered. So this is the one point.
We want a company which is has low leverage about say 30%, 35% of the assets. Second, we don't want a company which has a fleet, an old fleet that after 2023 and following I mean 2025 etcetera, we have to pay the vessels will not be able to compete especially when you have Chinese vessels will not be able to compete with in the market and have to pay environmental taxes either in Europe or United States or have to do to withdraw your fleet if it's in a category E or you have to do additional investments within three years if it's in category B and to and all such vessels we have substantial programs. We want a company that has basically its backbone has a solid Phase three vessels. We have also about ten, eleven eco ships which were both in the previous after 2015. And so this is the second point.
So if you have a company with a low interest, low leverage, low interest expense, young fleet, Japanese fleet, durable company, solid company, low emissions, this company can will be able to generate the best profits after one year from now and we'll be able to pay also dividend at certain point of time. We don't want to create a company over levered and pay a dividend now or do that. On this respect, we have we have been two things. The one is selling all the vessels, which you see this is a replacement, a renewal strategy. So we have sold a few vessels and the prices in which we sell are very good.
And the second point that we are doing is that we have also the ATM, which at the end at the back of our mind at certain point of time, both companies from time to time access the public markets one way or the other. So it's not a big deal for us to have some equity in our balance sheet, which basically is not dilutive because as you can see the profits, we always pick the profits because the market is very good and with a new technology ships, we will continue to do that. So basically this is an investment for the future of the company. And of course, when we do all this job in the right way as we have designed, then we will be able to continue, then we will be able to do
Speaker 2
also to work our shareholders in the future.
Speaker 4
Okay. That's helpful. And since you brought it up, you talked about wanting to pay dividend. How close are you to that at this point? I mean, you're making money and again, the balance sheet is stronger.
Is that something that that we, you know, you think is a twelve month or or less kind of an event?
Speaker 1
I cannot say how close or how far we are because half a year before, we were very far. But now we are we could be closer. The issue is that as you can see, we had the leverage yes. Yes, Pauline? If I may add here,
Speaker 2
if I may add, the good market has started only six months ago around February. We're still six months into a good market. It's most important for the company to deleverage and renew its fleet first and then to consider the dividends because now we have work to do and this is what we are doing and we are not staying still. We prove it quarter after quarter both the deleveraging policy and the fleet renewal policy. So there will come a time that the dividend will come for the benefit of all shareholders.
Speaker 1
Hello? Yes. Did did you hear that? Yes. What I want to Thank say is
Speaker 2
that the the good market is only six months old. You know, I mean, we expect this market should last a year or two more. And the order book is so small in dry bulk. All the yards are fully booked until '24 with major activity in containers. And before that, we have major activity in tankers, but we have no activity in bulkers.
So we expect a strong market with all the regulations that they are coming in front of us to prevail for more for more years, one or two years more from now. So a company to reinstate the dividend has to do it after you finish off with your deleveraging priority and your fleet renewal priority.
Speaker 4
Right. Thank you for that.
Speaker 2
Yes. Thank you.
Speaker 0
Thank you. Your next question comes from the line of Randy Giveans from Jefferies. Please go ahead. Your line is open.
Speaker 5
How are you gentlemen? How is it going?
Speaker 0
Thank you, fine. Fine,
Speaker 1
thank you. I
Speaker 5
guess two questions for me here. Looking at your chartering strategy,
Speaker 4
you clearly have a lot
Speaker 5
of your days already booked for the back half of the year. Has your chartering strategy changed at all given the kind of current market strength? And then also, what are your quarter to date spot rates achieved thus far? It seems like the vast majority of your third quarter is already booked. So just trying to compare 3Q 'twenty one versus the $21,000 a day you earned in 2Q 'twenty one.
Speaker 2
Yes. Look, first of all, the first of all, regarding the period charters, as I said in previous calls, the period charter is, for the time, still controlled by the major charterers to the so called FFA, Kelvin, the FFA, the forward trade agreements and which for the forward years are not at satisfactory levels for '23 or '24. So you cannot really utilize three or four or five year charters that like we see now on container business. So the company prepares to work in the spot market or short period or or up to one year because you can get the maximum benefit during those periods. I expect as the spot market improves in the following quarters that charters will come out and meet the higher freight rates for two or three year periods.
But at the moment, we only see sensible numbers for the up to twelve months period. Beyond that, if you start talking for two year period, the charterers ask heavy discounts. So I don't see what is the point for a company to invest in two years when you you are doing the year one, let's say, at the high twenties and the year two at the at the low teens. There's no point to fix it. The year two at low teens and make average of $2,122,000 dollars a day because you can get it done the year one and then keep the ship in the spot market.
So
Speaker 1
we don't believe
Speaker 2
we don't believe there will be order book in '22 or '23 to spoil the party from that point of view. And we still believe the supply will be strong because we see handysize rates of $30,000 a day. We see Supramax rates of $30,000 a day. We see Camsomax of the same and Capesize of the same. We never before remember Handysize earning $30,000 a day even in the in the good times of the of of 02/2010, 2011 that we have strong market.
The handysize, we're earning $16,000 a day of 17. So it means now the minor bulk is moving and is moving with the with the bulk carriers and not on containers. And this is boosting a lot the the base of the market and the strength of the market. So I believe that the two or three year charters, we have to wait a little bit longer before before those come. As far as the other question you said about the third quarter, the numbers are increasing.
Yes. This is this is true, but the market the levels are have increased from q one. So it's reasonable to expect that the numbers will be higher in the third quarter as it looks now. We only we're only we are only through the first month of the third quarter, but it's higher than what it was in the second quarter till now.
Speaker 1
Got it.
Speaker 5
Yep. Yep. I I was just saying, I know with with your recent charting activity, almost a 100% of
Speaker 4
the third quarter is what you thought. But,
Speaker 5
alright. Well, looking at your your balance sheet, you know, you have, obviously, a very robust cash balance, a 100 and, you know, $15,000,000 plus all the the cash available from the asset sales. How are you looking at kind of current in terms of renewal, looking at further acquisitions, maybe more divestitures of the older vessels? What are your plans on that in the coming months?
Speaker 2
Yes. We have the we have eight new buildings. This we have sold six older vessels. So these are coming these are coming in as replacement for all of the older vessels. I don't expect we can find reasonably priced newbuildings from now on.
It will be very difficult the type of ships we want from Japan. So we'll mostly concentrate on modern second hand acquisition. So if we are to sell a vessel built in o four or o five, we'll try to replace it with a ten year younger vessel built in twenty twelve, thirteen, fourteen, that sort of period. So from now on, we tend to concentrate on secondhand acquisitions. We have a couple of deals under negotiation.
We are gonna conclude in the next few weeks. You know, I mean, I think it's a prudent strategy to continue that way because also on the shipyards, we see that they their their cost has gone up. There's still prices going up, but they are increasing their prices. So for us, also, deliveries that is twenty five years away now is looking is looking a bit far away for us. So we have to wait for for new ships and also for now some time for new technologies to to evolve if the this may be in hydrogen vessels or ammonia vessels or other things or LNG.
I don't know. No one knows what fuel will prevail and what technology will prevail. So we are happy we've got these eight vessels to replace ships we already sold. And the priority for us is to keep renewing the fleet and to deleverage the company, and we are doing that very fast as you have we have demonstrated in our last two quarter earnings. We have solid profits.
It's looking good,
Speaker 0
and let's let's make the
Speaker 2
company as attractive as possible for investors to join in and enjoy the good returns in the next quarters that are coming. Yes.
Speaker 4
All right. Well, hey, that's
Speaker 5
it for me. Thanks again.
Speaker 1
Thank you.
Speaker 0
Thank you. There are no further questions at this time. I will hand the call back to you.
Speaker 1
Thank you very much for attending this conference call where we presented our quarter results and we are looking forward to discuss again with you in the next quarter. Thank you very much again and have a nice day.
Speaker 5
Thank
Speaker 0
you. Thank you. That does conclude today's conference. Thank you for participating. You may now disconnect.