Safe Bulkers - Q4 2022

Transcript

Operator (participant)

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call to discuss the Fourth Quarter 2022 Financial Results. Today, we have with us from Safe Bulkers, Chairman and Chief Executive Officer, Mr. Polys Hajioannou, President Loukas Barmparis 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. At which time, if you would like 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.

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 charter. 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 the 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 demand for dry bulk vessels, competitive factors in the market in which the company operates, risks associated with the 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 undertakings 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. Now, I will pass the floor to Dr. Loukas Barmparis. Please go ahead, sir.

Loukas Barmparis (President)

Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our Conference Call and Webcast to discuss the Financial Results for the Fourth Quarter of 2022. Revenues the EBITDA although still strong declined versus the previous quarter and the fourth quarter 2021 although on annual levels they have remained relatively stable. Our balance sheet is strong with significant cash and borrowed capacity. Our net debt per vessel reflects the conservative nature of our capital structure. We are focused on renewing our fleet through our extensive order book while reducing the footprint of our existing vessels implementing a program of environmental upgrades. We had a financial performance of $0.38 per share and maintained our dividend policy of $0.05 per share. Our liquidity and capital resources provide us with the financial flexibility we require.

Let's start with the market update on slide 3. With that. We go to slide 4 to see the market performance. We present here on the graphs the current status of the market. Charters have been weaker, mainly as a result of the seasonal decrease in rates due to Chinese New Year and due to market volatile dynamics driven by the commodities price levels. On the Panamaxes, we remain in a modest market and is likely to provide support to the freight market throughout the second half of the year. Let me remind you here that all our rates are in period time charters and the average daily charter rate is $19.8 thousand per day.

Moving to slide 5, we present the development of CRB, the commodity index, reflecting the basic commodities, future prices, for example, energy, agriculture, basic metals and vaster metals, which represent leading indicators for shipping. The index currently stands at five-year high. At the same time, solutions are assumed as one of the policy by the leading level growth, the rise in several in those rates are still to make us aim to fight inflation and the Russian war consequences. The inflationary monetary policy is expected to affect the global output. The team forecast of IMF upgraded the expected growth of global GDP to 2.9% for 2023 as global inflation projection for 2023 stands at 6.6%, meaning the growth in two commodity prices increases.

The only price pressures on food and energy prices and because of the little supply demand imbalances. In this environment, the forecasted global demand growth is expected to increase only by 1% in 2023. In China, the reopening of the economy and expectations of a faster than expected rebound have led the growth projections for 2023 to be revised up to 5.2%, which makes global and less. Let me point out here two things. Firstly, 80% of our fleet is Japanese-built, that is 40% of the global fleet, which means that our fleet consists of more efficient vessels compared to the market average and can compete better in the new environment requiring lower greenhouse gas footprint from our industry.

Secondly, we are one of the very few dry bulk companies with such an extensive order book ahead of our peers, which shows our intention to gradually renew our fleet and compete on the basis of operational and fundamental performance of our fleet in the coming years. As shown in slide 7, the majority of dry bulk vessels are Phase zero or Phase I, and only about 5% of dry bulk fleet is expected to comply with EEXI regulation without requiring modifications or upgrades. An important point to remember here is as shipowners is the owner of 44 vessels, shipowners have 12 eco ships built after 2014 and extended orders of 11 Tier 3 Phase III vessels that have been ordered, of which seven will be delivered by the end of 2023.

At the same time, we have entered on board with another upgrade program, increasing energy efficiency as an increase of zero emissions on our vessel position equivalent to 18-20 vessels by the end of 2022. Well, shipowners have chosen to invest in Phase III newbuilds. Let's see how we stand with slide 8. In the existing dry bulk fleet, we have the following choices. One, to stay idle until new fuels appear in the market, something that will materialize in the next decade. Watching the global and compare our fleet becoming with uncompetitive CO₂ emissions that will be related to environmental taxes and penalties.

Two, to act ahead of our peers as we did, securing low price newbuild orders with early deliveries and the best possible emission profiles, for which the advantage is shown in the two graphs in this slide, in slide number 8. The graphs present the rising greenhouse gas rating. The blue line is existing vessel design index and is a CO₂ emission per transported ton of cargo and per travel nautical mile. The colored dots represent the GG rating as derived of dry bulk vessels for the existing global fleet being classified from A to G. As you observe, our MV vessels on the left and our MV Climate Respect on the right graph are the best performing vessels in the market currently in relation to their deadweight tons.

This is how we intend to compete in the new environment in the future, and this is the reason why we have placed these orders at a quite early stage. Turning to slide 9, we focus on the increased value creation as a result of our investment in Scrubbers technology currently installed on 19 of our vessels. Four additional Scrubbers will be installed within 2023 in our four capes, which due to their size, are the heaviest fuel consuming vessels and the economics of such investments work better. There is also the fuel oil versus high sulfur fuel oil price differential, which translated to increased revenues for the Scrubber-fitted vessels. Presently, HSFO in Singapore starts at about $246 per ton, with a peak of $180 per ton for 2023 as per futures market.

At an assumed average tone of $200 per ton fuel for 2023, the implied scrubber gain potential is about $24.6 million revenue for our 19 scrubber-fitted vessels. Concluding our update during slide 10, during 2022 and early 2023, there has been increased industry-wide volatility driven by geopolitical disruptions and tight monetary policies. The ever-changing environmental regulations Adherence becomes increasingly important in dry bulk trade and as a result, demand for technological efficiency creates opportunities for those willing to invest as we have done in Safe Bulkers. Such environment efficient fleets may affect company valuations and look to put their mark in the future with differentials in favor of owning such vessels.

Furthermore, the combined effect of the aging fleet during the lower levels and the lower durations in older fleets require efficient Japanese vessels. This is delivered after 2013, where we had this fleet of eco ships that have been delivered. In this market of increased environmental based competition, let me present in slide 12 a set of our characteristics which we believe will shape us from our peers. On the one hand, our fundamentals, the inherent alignment of interests with all our shareholders with our 40% ownership participation. Low leverage, comfortable liquidity and contracted revenues and our track record.

On the other hand, creating intrinsic value through an extensive fleet expansion program with Phase III newbuilds and upgrading our existing fleet and installation of our new Scrubbers not only rewards our shareholders through the dividend policy, but also investing for a greener, more competitive fleet. We would also like to focus on our fleet quality and our environmental investments because this is the basis on which we compete in the market against our peers. All 44 vessels in our fleet have already installed ballast water treatment systems or 8 of our ships will have Scrubbers by the end of the year and 20 vessels will be environmentally upgraded by the end of this year.

We note that we have already taken delivery of three Phase III newbuilds to date, the MV Vassos, the MV Climate Respect and in January 2023, the Climate Ethics. These vessels are currently the best environmental performance globally in the dry bulk market on their deadweight tonnages with impressive savings in fuel consumption. We intend to compete on this basis with 12 eco ships in our fleet, with seven Phase III ships by the end of 2023 and 10 by 2024. Safe Bulkers with half of its existing fleet upgraded and by roughly the other half consisting of 12 eco ships and 10 Phase III vessels by 2024 will be a very strong competitor in the dry bulk sector. Let us focus now on our capital structure as presented in slide 13. We maintain a comfortable leverage of 34%.

Our debt of $423 million is comparable to our fleet's carrying value, which presently is $348 million, although our fleet is 10.5 years old. During 2022, our weighted average interest rates stood at 3.25% for our consolidated debt, with a portion of EUR 100 million fixed at 295 basis points in an unsecured five-year bond. We have $123.3 million in cash and $292 million of secured contracted revenues as of the year-end. Our liquidity and our CapEx are presented in slide 14. Our liquidity, capital resources stands strong at $349 million, which together with the contracted revenue of $292 million provides flexibility to our management in capital allocation.

Let me note here that we are well hedged against acute market volatility. Currently, as we said before, the Baltic Dry Index, BDI, stands at 4,400, while only eight of our six size class vessels are chartered under time charters with 2.7 years remaining duration and $19,800 average daily charter rate, totaling $160 million in contracted revenue from charters alone. As presented in slide 15, we have maintained a level of dividend at $0.05 per share over the last four years translated annually in fifty.

Focal point in this uncertainty of the capital markets and of web economy is that we continue a large portion of our free cash flows to finance our newbuilds that will provide us with competitive advantage in terms of fuel consumption and environmental performance, while maintaining our leverage at relatively low levels. In addition to that, during 2022, we have repurchased $2.8 million of own shares. Let me summarize the investment rationale in Safe Bulkers. In slide 16, we see that Safe Bulkers with its order book is among those companies that will successfully navigate the environmental challenges of the energy transition and the aging dry fleet and will tackle lower revenues by utilizing the inherent qualities of its fleet and the benefits of its large-scale environmental upgrading program.

We believe that Safe Bulkers has strong fundamentals of financial flexibility to reflect market challenges and pursue opportunities. In parallel to the company's expansion, we believe in offer an meaningful dividend. We believe the company is well positioned for the long run with environmental-based advantage. We have a strong balance sheet and liquidity leverage at comparable levels and comparable levels to fleet's value, secure cash flow from reliable counterparties, ESG focused fleet expansion with 11 paid-stream newbuilds ahead of peers competition and the dynamic regulations of 2023 onwards, the company experienced management team is well-positioned against market challenges and to take advantage of opportunities. Now letting back the floor to our CFO, Konstantinos Adamopoulos, for our financial overview.

Konstantinos Adamopoulos (CFO)

Thank you, Loukas, and good morning to everyone. As a general note, during this quarter, we operate in significantly weakening charter market environment compared to the previous quarter, with decreased revenues due to lower highs, decreased earnings from Scrubber fleet investments, increased operating expenses and higher interest expenses due to increasing interest rates. In slide 18, we present our quarterly net revenues and adjusted EBITDA, both at satisfactory levels. Moving on to slide 19, we present our strong chartering performance and example of our management alignment. We achieved a daily TCE of $21,078 compared to $26,180 during the same period in 2021. Net income for the fourth quarter of 2022 is $34.9 million compared to net income of $65.2 million during the same period in 2021.

Our daily running costs stood at $5,323 versus $5,149 last year. While our daily OpEx, excluding drydock and pre-delivery expenses, stood at $4,822 versus $4,666 for 2021. Our owning OpEx and G&A for Q4 of 2022 stood at $6,760. We believe this is one of the most competitive compared to our peers. Moreover, as this includes all our dry docking expenses and pre-delivery expenses, as well as director and officers compensation. We try to do the right thing.

For example, we have zero percent commission of chartering management, and through our management direct relations, we achieve lower average total charter commission to third parties, standing at below 4% compared to the market standard of 5%. Moving to slide 20, we present our fleet contracted employment percentage, noting that as of February 10 of 2023, we have contracted revenues of approximately $229.5 million net of commission. This from our non-cancelable spot and period time charters, excluding the Scrubbers benefit. We present the slides 21 and 22, our low breaking point of 2022, which we believe is one of the lowest in the industry, as well as the cash flow break-even million for the same period respectively. The global economy is experiencing multiple challenges.

Inflation higher than seen in several decades, tightening financial conditions in most regions, Russia's invasion of Ukraine and the lingering COVID-19 pandemic all weigh heavily on the market outlook. Our main focus is lean operations in this inflationary environment. In slide 23, we present our balance sheet analysis. We believe our balance sheet is very healthy and assets are presented in the book value, noting our vessel asset values exceed the book value. Moving on to slide 24, we record the financial highlights for the fourth quarter of 2022 compared to the same period of 2021. Our adjusted EBITDA for the fourth quarter of 2022 are stood at $56 million, compared to $67.6 million for the same period in 2021.

Our adjusted earnings per share for the fourth quarter of 2022 was $0.29, calculated on a weighted average number of 118.9 million shares, compared to $0.39 during the same period in 2021, calculated on a weighted average number of 121.6 million shares. Let's conclude our presentation on slide 25 with our quarterly operational highlights for the fourth quarter of 2022 compared to the same period for 2021. Based on our satisfactory financial performance, the company's board of directors declared a $0.05 dividend per common share. We would like to emphasize that we are maintaining a healthy cash position for about $115 million as of February 10, 2023.

Another $132 million in available revolving credit facilities, as well as about $118 million in undrawn borrowing capacity available under three existing loan facilities in relation to three newbuild and three existing vessels, giving a combined liquidity and capital resources of $365 million that provide us with significant firepower. Furthermore, we have contracted revenue from our non-cancelable spot and period time charter contracts of over $229 million, excluding Scrubber re-revenue and additional borrowing capacity in relation to seven debt-free vessels and five newbuilds upon their delivery. We believe that our strong liquidity and relatively low leverage will enable us to be flexible with our capital, expand the fleet-

Loukas Barmparis (President)

While still rewarding our shareholders and taking advantage of possible opportunities in the near future. Thank you. We are now ready to accept questions.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A 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. One moment please while we poll for questions. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. There are no questions at this time.

Loukas Barmparis (President)

Thank you very much. We will be discussing again in the next quarter for our Q1 financial results for 2023. Thank you very much. Have a nice day.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.