Safe Bulkers - Earnings Call - Q3 2021

Transcript

Speaker 0

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call to discuss the Third Quarter twenty twenty one Financial Results. Today, we have with us from Safe Bulkers Chairman and Chief Executive Officer, Mr. Polis Hajiwano President, Doctor. Lucas Banparis and Chief Financial Officer, Mr. Konstantinos Adamopoulos.

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 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 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, changes in the demand for drybulk 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. Baum Paris. Please go ahead, sir.

Speaker 1

Good morning to all. I'm Lucas Barbaris, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the 2021. We are happy to report that our profitability has increased during the 2021 compared to the previous quarter. A synopsis is that as we move to year end, we are gradually nearing our target leverage, maintaining a healthy liquidity position and making significant progress on our fleet renewal strategy.

We have also begun contracting period time charters to provide better visibility to our future cash flows. The above are presented in more detail in Slide number four. We reached €92,500,000 in net revenues, 72,400,000.0 of EBITDA and €0.40 of adjusted earnings per share. We have on order eight newbuilds Greenhouse EBI Phase three NOx Tier three compliant Japanese from Japanese cities with early deliveries, two in 2022, four in 2023 and two in 2024 at very competitive prices ahead of our competition. At the same time, we have sold seven vessels, two of which are yet to be delivered, with $37,300,000 outstanding sale proceeds and a relevant $7,300,000 outstanding debt.

And we have acquired four secondhands, one of which yet to be delivered with $28,100,000 outstanding CapEx. We believe that by 2024, we will be able to renew about one fourth of the fleet with Phase III compliant newbuilds with while substituting at the same time some older vessels with younger secondhand vessels. In terms of deleveraging, we have 214,300,000 decrease in debt from EUR 616,200,000.0 as of 2020 year end to EUR 401,900,000.0 as of 10/29/2021. At the same time, we maintain our financial flexibility by preserving a healthy cash position of EUR 92,200,000.0, 88,900,000.0 in undrawn borrowing capacity available under revolving reducing credit facilities, 46,200,000.0 in secured commitments from loan and sale and leaseback arrangements and 29,300,000.0 additional incremental revolving reducing credit facility upon the expected consummation of an agreed new credit facility. 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

Speaker 2

are positioned, of course, in

Speaker 1

their book value, noting that presently we believe that asset values exceed the book values considerably. Let's turn to Slide number 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 continues to outperform 2020. Capes lately have been volatile, driving the dynamic driving by dynamics, which we will analyze in our presentation, reaching a high of $87,000 per day and currently are trading at about $27,000 per day. The year to date average is about $33,008 as compared to 2020 average for the same period, which was $13,000 Similarly for Tamsul Marxes, the market remained strong throughout this year, peaking twice close to US40000 dollars per day, presently trading at US26000 dollars with a year to date average of $27,002 per day as compared to $9,005 for the same period in 2020.

The prevailing energy crisis and the coal shortage in China, coupled with the COVID-nineteen restrictions are likely to support the market. Turning to Slide eight, we present the development on pricing of certain commodities, which are leading indicators for shipping. We have seen a strong demand for commodities across the board during 2021 and the rapid surge in prices is followed by a recent correction. In the case of iron ore, as presented in the top left, the excessive increase of prices, which is now followed by a correction, had been initially driven by the strong demand from China, while lately the seasonal trading patterns are easing the market. In the case of coal, the shortage in stockpiles and the need for coal resulted in the commodity price surge.

Presently, an effort to control the market is evident and traders are deferred buying anticipating cheaper future prices, resulting in a short term trade freeze until prices fall in line with expectations. However, the forthcoming winter in Northern Hemisphere, in connection with the continuing industrial production, is expected to keep the demand for coal robust. Soybeans picked in the 2021 and are presently subdued, but this is relevant to the seasonality of this trade, which is normally peaking after the first quarter of each year. Lastly, what is noteworthy is that the price of copper, presented in the bottom right graph, has remained near in its five years high for an extended period, which signifies strong industrial growth backed by the post pandemic economic recovery plans. On Slide nine, we present the status of the fleet in terms of values and future supply.

On the top graph, we present the values of five year old Capes and Panamaxes as assessed by Baltic Chains. During the last months, a sharp increase of the vessel values has been evident. For Capes in particular, the values have surged more than 48% since the same period in 2020 and have gained about EUR 26,000,000 per vessel since the loss of 2016. Similarly, for five year Panamaxes, the value have increased about 59% since the same period in 2020 and have gained about $22,500,000 per vessel since 2016 lows. The above assessment is indicative for the average port type vessel.

Japanese based vessels, of course, built at high specifications have increased demand and can achieve even higher values. Our fleet consists mainly of Japanese built vessels with high specifications and many commercial and operational upgrades. Looking at the order book on the bottom graph, we note that the growth of the fleet for both Capes and Panamaxes is minor. In case of Capes, the total order book is in the region of 4.5% of the existing fleet, which is evenly spread until 2024. For Panamax, the total order book stands at 7.8%, which in its vast majority to be delivered in 2022 and minimal deliveries thereafter.

Under the current market shipbuilding conditions at CPS 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 dry bulk orders. Presently, there is no availability for dry bulk new building orders earlier than 2024. Therefore, the order book is unlikely to increase further the next two years. In the next slide, the Slide number 10, we present the age profile of the drybulk fleet in combination with the forthcoming IMO regulations for controlling the greenhouse gas emissions and especially the vessel's energy efficiency.

From a recent study for the vessels under the classification of NK, about 86% of the drybulk vessels would require some kind of action or retrofitting to comply with upcoming EEXI regulations, such as reducing speed or retrofitting with innovative propulsion technologies or energy saving devices. IMO has set the goal to reduce carbon intensity by 40% within the next decade up to 02/1930. As presented in the top left graph, about 50% of the Cape size and 53% of Panamax fleet is younger than 10 years of age. By the time of full implementation of the IMO regulations, the remaining half of the Capes and Panamaxes currently above 10 years of age will be eliminated as non commercially viable and competitive vessels. Squeezing the supply of vessels may well be a realistic scenario.

Let me remind you at this point that we have extended our fleet renewal having obtained having ordered eight greenhouse gas EBI Phase three NOx Tier three compliant Japanese newbuilds with competitive delivery times until 2024. Turning to Slide number 11, we touch upon the current status of fuels and their pricing. Trend, which is the main driver of fuel prices, has surged during the past period reaching to levels of $85 per barrel. Our company has invested in exhaust gas cleaning technology, which allows our ships to be fitted with scrubbers to comply with IMO 2020 regulations for shelter emissions by burning high sulfur fuel oil instead of IMO compliant fuel, which is the 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 revenues for the scrubber fitted vessels.

Presently high five in Singapore, for example, starts at about $140 per metric ton. According to future markets, as shown in the graph on the bottom, these prices are sustainable through 2023 in the region of about $120 per metric ton. The scrubber fitted post Panamax bed to about 7,500 metric tons. 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 even wider HiFi differential.

Let me summarize the key market takeaways in Slide number 12. We have experienced a strong charter of market of 2021 with robust volumes of iron ore, coal and grain. Demand for commodities has been exceptionally strong during the first quarter. Energy crash is expected to lift the coal volumes and sustain robust Panamax market. Coal shortages in China together with COVID-nineteen restrictions maintain concession in discharge ports.

FFA market levels suggest sustainability of healthy charter levels. The order book is minimal as decarbonization discussions not favor orders. Most shipyards are preoccupied with containers and tankers orders until 2024. And only a few shipyards have developed new environmental efficient vessels. We have seen increased government spending on post pandemic stimulus programs and continuing greening 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 tonne. And lastly, aging of fleet and increased environmental restriction for emissions may enhance the scrapping activity. Now let me pass the floor to our CFO, Jose Luis Salamopoulos, for our financial overview. Thank you, Lucas, and

Speaker 3

good morning to everyone. Let me start with our chartering performance in Slide 14, where we present our quarterly TCE, which stood at $24,427 per day versus our quarterly OpEx, which stood at $4,608 per day. Moving to Slide 15, we present our quarterly daily OpEx of $4,608 and our quarterly daily G and A which stood at $15.90 dollars The aggregate figure for both OpEx and G and A for Q3 twenty twenty one was $6,198 demonstrating 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 and directors and officer compensation and all expenses related to the administration of unlisted companies. Moving to debt profile as seen in Slide 16,

Speaker 2

we

Speaker 3

present our repayment schedule as of 09/30/2021. As of that date, we had $100,860,000 in cash and cash equivalents, back time deposits and restricted cash, dollars 88,900,000.0 in undrawn borrowing capacity available under revolving reducing credit facilities and $46,200,000 in secured commitments for loan and sale leaseback agreements in relation to two newbuild vessels. Furthermore, excluding the two vessels that committed for sale, which have not been delivered yet, We had additional borrowing capacity in relation to three debt free existing vessels and six newbuilds upon their delivery. In Slide 17, we 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 in the previous quarters.

Let's now move to Slide 18 with our quarterly financial highlights for the first quarter of 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 compared to the first and second quarters of this year with lower interest expenses, where our net revenues of $92,500,000 during the 2021 compared to $51,900,000 for the same period in 2020. The revenues were further increased by the earnings from scrubber fitted vessels and the reduced vogtle expenses. During the 2021, we had a time charter equivalent of $24,427 compared to $12,575 during the same period of last year. The net income for the 2021 reached $55,400,000 compared to $3,300,000 last year.

Net revenues increased by 78% to $92,500,000 compared to $51,900,000 for the same period in 2020, mainly due to the increased time charter equivalent rates as a result of the improved markets and also assisted by the additional revenues earned by our scrubber fitted vessels. Daily OpEx decreased by 6% to $4,608 compared to $4,896 for the same period in 2020 and that was affected by reduced ownership days by 3% due to vessel sales, no dry dockings during the 2021 and increased crew repatriation expenses due to the COVID-nineteen pandemic. Daily vessel operating expenses excluding dry docking and pre delivery expenses increased by 3% to $4,608 compared to $4,459 Our adjusted EBITDA for the 2021 increased to 67,700,000 compared to $22,300,000 for the same period in 2020. Our adjusted EPS for the 2021 was $0.40 calculated in a weighted average of 119,900,000.0 shares compared to zero during the same period in 2020 calculated on a weighted average number of 102,200,000.0 shares. Closing our presentation on slide 19, we show our quarterly fleet data and average daily indicators compared to the same period last year.

We would like to emphasize that the Kona is maintaining a healthy cash position of $92,200,000 as of end October twenty twenty one, which provide us with flexibility as we move to year end nearing our targeted leverage, making significant progress in our fleet renewal strategy and contracting period time charters to provide better visibility to our future cash flows. Our press release presents in more detail our financial and operating results. We wish now to take your questions.

Speaker 0

Thank you. We will now begin the question and answer We'll now take the first question. This is from the line of Chris Wetherbee from Citi. Go ahead.

Speaker 4

Steve, it's Monaghan on for Chris. Hey, guys. Good morning.

Speaker 3

Hey. Good morning. Hi.

Speaker 4

Just wanted to get a better understanding of the your view around sustainability of the current rate and also vessel value. Just vessel values have obviously come up off the bottom. But just how much of that do you think is through size with the

Speaker 1

Sorry. Sorry, Dave. Can you I mean, there is a You

Speaker 5

are very tough. Sorry, guys. Is this Yeah.

Speaker 1

Yeah. Better. Okay.

Speaker 4

Yeah. Just wanted to just wanted to ask, first off, about vessel

Speaker 2

values. They've they've obviously come up off the bottom,

Speaker 4

which is good to see.

Speaker 2

But like how much of

Speaker 4

it do you think is driven by the input prices versus sort of a stronger sort of market sentiment around the longer term outlook? Just trying to sort of get your understanding of where you think sort of the perception of like the long term or what's being priced in for the like the long term in the market at the moment.

Speaker 2

Yes. The sound is very bad, so we didn't get the question. But anyway, I presume you're asking about the long term prospects of the market.

Speaker 4

And if that's reflected in the vessel values or if that's just essentially commodity pricing in the vessel value at the moment?

Speaker 2

Look, the commodity prices are on an increase, and we see this that there is demand for commodities. Because recently, we have seen drops in coal prices with Chinese government intervention to cool down that part of the market. And iron ore price as well have slowed down in the last two months because of reducing the steel output for environmental reasons before the Olympics. I think overall, the demand for commodities, especially the minor ones, is very healthy. And we see it from the rates that are being enjoyed by the smaller size of vessels, Handysize and Supramaxes as well as Panamaxes, but the demand is very strong.

So we believe commodities, including oil, will kept at strong levels. And most likely, oil prices also will increase further.

Speaker 4

Got it. But given sort of the strength of the market, it seems that the vessel values aren't necessarily reflected in the strength of

Speaker 1

the it's good in your sound, which makes us very difficult to proceed slowly

Speaker 4

You know what, I'll turn the call. I'll follow-up separately and just turn the call over just so other analysts can ask questions given the difficulty.

Speaker 0

Thank you. We'll move to the next question. The next is from the line of Magnus from H. C. Wainwright.

Please go ahead.

Speaker 5

Yes. Good afternoon, gentlemen. This is Magnus Fear with H. C. Wainwright.

Just, you know, you've secured some time charters here in the last year and also you've been pretty active on the in the S and P market. With the current volatility, you know, and some uncertainty going forward, do you see more opportunities for you to potentially secure time charters or become or or potentially make acquisitions? Or or do you think the volatility has created less opportunities?

Speaker 2

Look, if we exclude the last couple of weeks, the market has been very strong. Lately, we have seen big volatility, which also resulted from big increase of Capesize rates approaching $100,000 a day. So there has been a correction that is looking as huge. Of course, if we exclude this extra $30,000 $40,000 achieved on the case of two or three weeks in the spot market. The rest of the market, we can say that has been fairly stable, because we still enjoy after the correction rates of around $30,000 a day on all class of vessels.

So for us, this is a healthy market and it's good that we have a correction and we call it a correction when the market reaches $30,000 a day. So I don't expect ship prices to be affected by this volatility because owners of vessels, they are not going to let them cheaply, because we have seen what earnings you can make in the last nine months. And right now, see it in other sectors, which they have very low freight rates, that ship prices are going up for many reasons. One of them is the steel prices, another one is expectation that the market will change in other sectors. We are seeing what is happening on the container ships and in the container market.

Also drybulk market is very healthy and very strong. I don't expect the asset prices to correct, to give us opportunities to step in and buy ship vessels like in the 2021.

Speaker 1

I think it may not

Speaker 2

go higher, but I don't expect them to drop.

Speaker 5

Okay. So from a capital allocation standpoint, balance sheet looks very good. You're to generate a lot of cash flow here at current market rates. What is the priority going forward? Reduce debt or potentially buy back stock or some kind of dividend to shareholders?

Speaker 1

If we see on Page 17, we put the projection of the debt for the end of the year and for the following couple of years, which shows exactly that the deleveraging policy our deleveraging policy will almost be ended by the year end and then we will go to the formal principal repayments. So the debt will be about $3.50 next year compared to the scrap value of the vessels, which is $3.78 according to the pricing today of the steel. This makes us to feel very comfortable about the leverage of the company because the debt that we have basically reflects what is the steel value of the vessels. Having done that and also having completed the renewal strategy the renewal strategy in terms of ordering, we have ordered most of what we could do. And in terms of a new of secondhand vessels, there might be some opportunities to see.

However, we have done the big volume. I think in terms of CapEx, in terms of leverage, the priorities are becoming lower. So the new cash that is generated in the future, I think, will give us opportunities in the next year also to be able to reward our shareholders. However, we need to point out two things. We want visibility in our cash flows, which can be established through period time charters, and we want the market to be to continue to be in comfortable levels as it is, let's say, today.

Speaker 5

Okay. So you've done a couple of three year charters. Is there an appetite there for more of those from your side and from the charterer side?

Speaker 2

Look, these charters were available in early October when the freight markets was the spot market was hitting levels of $50,000 $60,000 per day on The Cape. So charters came along with these proposals and with these charters. We considered it prudent to secure this business at that time. So right now, we don't see three year charters available because of the recent volatility of the last two weeks. But I'm sure that this will come back in the market when things settle down.

As I said before, spot market of around 30,000 on all sectors is not an unhealthy market and we wish this stays for the whole of next year.

Speaker 5

Yes. No, I hope so too. That's all I had. Thanks for answering my questions.

Speaker 1

Thank you. Thank you.

Speaker 0

We'll now take the next question. This is from the line of Randy Giveans from Jefferies. Please go ahead.

Speaker 6

How are you gentlemen? How is it going?

Speaker 2

Fine. Fine.

Speaker 6

So I guess, just following up on some of the recent refinancings. What is now your kind of expected interest expense and maybe weighted average interest rate, for next year and then your debt amort for 2022?

Speaker 1

Debt amortization, I think, is shown on Slide number 16.

Speaker 2

Basically, we have very low interest rates. As you know, we have hedged with the shops at very good levels, almost 85% of our debt. So we are immune against probable increase of interest rates. We have 84%, 84% on derivatives, maturing some of them up to 2026. So I think that the numbers are very comfortable.

For next year, The principal repayment is only €35,000,000 which is increased then in 2023 to $63,000,000 So we understand that these are very comfortable numbers for the company. So the exact calculation, we can send it to you after this call. It's on Page 16. You see Page 16, you can follow-up the numbers.

Speaker 6

Got it. Okay. And then just for the remainder of the ATM, I think there's twenty eight five remaining. Do you plan on using this imminently, and how is that decision made? Is it based on a, a kind of NAV basis?

Or

Speaker 5

what would be

Speaker 6

the reason to or not to kind of further execute that ATM?

Speaker 1

Look, we execute the ATM from time to time. We don't necessarily do the ATM continuously or at any price. So you may see us coming out of the market and sell some portion. We have started the ATM last year and this continues and still there is a substantial amount of as we said about €25,000,000 which we have not executed. We don't know exactly based on the market conditions on the pricing of the stock and how well it will perform because we really have the cash liquidity and the cash reserves.

And we don't feel in a rush to execute the ATM at any price.

Speaker 6

Got it. All right. Well, that's it for me. Thanks so

Speaker 1

much. Thank you.

Speaker 0

Thank you. There are no further questions coming through sir. Oh, we have one question. One moment, please. Our question has been withdrawn.

In that case, sir, there are no further questions. And I will hand back to the speakers now. Thank you.

Speaker 1

Thank you to all, and we're very happy to discuss again with you today. And we're looking forward to discuss again once more in our next quarter for our results. Thank you and have a nice day.

Speaker 0

Thank you. That does conclude the conference for today. Thank you for participating and you may now disconnect.