Safe Bulkers - Earnings Call - Q4 2024

Transcript

Operator (participant)

Thank you for standing by, ladies and gentlemen, and Welcome to the Safe Bulkers Conference Call and Fourth Quarter 2024 Financial Results. We have with us Mr. Polys Hajioannou, Chairman and Chief Executive Officer, Dr. Loukas Barmparis, President, and Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company. At this time, all participants are 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 the presentation, please contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today. The archive webcast of the conference call will soon be made available on the Safe Bulkers website at www.safebulkers.com.

At this time, I'd like to turn the conference over to Dr. Loukas Barmparis. Please go ahead, sir.

Loukas Barmparis (President)

Good morning to all. I'm Loukas Barmparis, President of Safe Bulkers, and I'm welcoming you to our quarterly financial results. We are having premium charter rates for environmentally upgraded vessels and our Phase 3 newbuilds and benefiting from our Capes that have period time charters. It seems that our policy for renewing our fleet and upgrading the existing vessel works and offers additional operational financial advantages. The charter market weakened during the fourth quarter of 2024, and this impacted our revenues and profitability. In this environment, our company maintains a strong capital structure with the required liquidity, with a leverage of about 35%, and we have declared a $0.05 per share dividend, rewarding our common shareholders. We remain focused on capital allocation towards our new build program, on improving our operational efficiency and the environmental footprint, and all our actions are targeting to increase the wealth of our shareholders.

Following a comprehensive review of the forward-looking statements presented in Slide two, let's begin with a market update in Slide four. The Capes market segment has been moving downwards throughout the quarter. All eight of our Capes are presently period chartered, with an average remaining charter duration of over two years and an average daily charter rate of $22,000. This provides us with a considerable degree of cash flow visibility, topping $145 million in contracted revenue from Capes alone. On the Panamax front, the charter market stands soft at $9,000, with signs of improvement. Moving now to slide five, we present an overview of the CRB Commodity Index fluctuation in basic commodity prices. The rising tariffs elevate policy uncertainty and pose a considerable downside risk for global growth and against disinflation.

There are rising fears of higher for longer interest rates from central banks and lower investments globally in the context of this policy uncertainty. For our segment, we anticipate a relatively soft trade market over the following quarters as supply grows faster than demand, and we expect an increasing focus on the existing fleet decarbonization and on energy-efficient newbuilds. The decision of the MEPC 83 in April about the global fuel standard and the levy will dictate the pace towards decarbonization. The global GDP growth expectations for 2025 and 2026, as reflected in the IMF's January forecast, call for a growth around 3.3% in the coming years, accompanied by a gradual control of inflationary pressures. According to BIMCO, the forecasted global dry bulk demand will fall by 1% in 2025, followed by growth of 2.5% in 2026, with minor bulks being the best-performing sector.

China's slower growth may hinder demand for dry bulk commodities like iron ore and coal. Iron ore shipments are estimated to grow slightly, but with Chinese demand and increased recycled steel usage, are anticipated to restrict growth. Coal shipments may drop by about 2.5% due to rising renewable energy in Asia and increased coal production in China and India. Grain shipments are predicted to rise by 2%, but main supply remains tight, particularly for Ukraine, although this might change if a peace treaty is achieved during 2025. Minor bulk shipments, including bauxite, are expected to be a key growth driver as demand increases due to the energy transition. The IMF projects China's GDP growth to be 4.6% in 2025 and 4.5% in 2026, signaling a faster-than-expected slowdown in consumption amid delayed stabilization in the property market and persistently low consumer confidence.

Also, this projection reflects carryover from 2024, and the fiscal package announced in November likely offsetting the negative effect on investment from heightened trade policy uncertainty and property market drag. Trade barriers, tariffs, and external pressures could limit China's growth potential. The weakness in the steel and construction sector is expected to reduce demand for key commodities such as iron ore. India, on the other hand, continues to perform as expected. It is projected to experience the fastest growth among major economies, with a forecasted 6.5% 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. Let's proceed now to examine the supply-side dynamics in Slide six.

Supply growth is expected to outpace demand, exerting pressure on freight rates. 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 Panamax vessels comprising the largest share. The order book now stands at about 10.6% of the current fleet, and the new build orders have slowed. Asset prices weakened during the second half of 2024, and are projected to weaken further, and the secondary ship prices may fall in line with freight markets. Recycling volumes are anticipated to rise as weaker market conditions could prompt the retirement of older vessels. Only 13% of ships' capacity in the order book will be capable of using alternative fuels upon delivery, and an additional 14% will be ready for future conversion.

Out of the Capesize ships, 41% may use LNG, 37% methanol, and 23% are expected to use ammonia. We believe that energy-efficient designs will have an advantage in the coming years, and we expect the environmental emissions regulations are going to drive a 1% fall in fleet speed in 2025 and in 2026, affecting supply by about the same percentage. Currently, about 25% of existing global fleet is older than 15 years. Safe Bulkers fleet now counts more than 33 vessels on the water, all delivered after 2022. In addition, we have 11 Eco-ships which have superior design efficiencies compared to the past. 8% of our fleet comprises Japanese-built vessels, surpassing the global average of 40% with our average fleet aging about 10 years old.

We will continue to become even more commercially competitive as we have an order book of seven more Phase 3 vessels placed at prices well below the prevailing market to be delivered to us within the next two years. Overall, our fleet today is fundamentally upgraded and commercially more competitive than two years ago, underscoring our commitment to sustainable business. The increasing impact of fleet aging and strict environmental regulations will position our fleet favorably to compete within the strict greenhouse gas targets. Moving to slide eight for our company update, we will present an overview of our green fleet advantage. The fleet breakdown is presented in the top right half, comprising 46 vessels, with 24 having undergone environmental upgrades, 11 being Phase 3 vessels and 11 being eco-vessels.

The bottom graph presents our fleet renewal strategy with the investment of 14 older vessels, acquisition of seven second-hand vessels, delivery of 11 Phase three newbuilds, and an order book comprising of seven more Phase three newbuilds, resulting in a relatively stable 10-year average fleet age over the past four years, as clearly presented in Slide nine, a trajectory of fleet expansion serving as a testament to our commitment towards sustainability. In slide ten, we present Safe Bulkers' debt profile for the next couple of years, which stands at very comfortable levels throughout that period, with adequate room for our CapEx spending. As of December 31, 2024, our consolidated debt before deferred financing costs excluded $545 million, including the $100 million unsecured bond, a 2.95% fixed coupon maturing in February 2027.

Our consolidated leverage stands at a comfortable 35%, with our net debt per vessel stood just below $9 million for an average age fleet of just 10 years old. Concluding the company update in Slide 11, we present Safe Bulkers' key attributes such as our sterling 65-year track record, a robust management ownership alignment, comfortable leverage of 35%, our ample liquidity of EUR 276 million, our significant contracted backlog of $205 million, our green fleet advantage evidenced by a 7.4% decrease in fleet AER GHG emissions, and by our DryBMS standards management system implementation. We remain true in our commitment to expand by building a resilient company, owning a quality and competitive fleet strategically positioned to leverage on the regulatory landscape and create long-term growth for our shareholders. 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 everyone. During the fourth quarter of 2024, we operated in a weaker charter market environment compared to the same period in 2023, with decreased revenues due to lower charter rates, decreased earnings from spot-traded vessels, and increased operating expenses. Let us focus now on our liquidity, cash flows, and our capital structure, as presented in Slide 13. We maintain a comfortable leverage of 35%. Our debt of $545 million remains comparable to our fleet scrap value of $331 million, although our fleet is just 10 years old. Our weighted average interest rate of our debt stood at 6.12% for our consolidated debt, with a portion of €100 million being fixed at 2.95% coupon in unsecured five-year bonds. We have already paid $84 million, or 29%, for our CapEx in relation to our outstanding order book.

Our liquidity and capital resources stand strong at approximately $276 million, which, together with the contracted revenue of about $205 million, makes a total of $481 million, and this is more than double our outstanding CapEx of $206 million for seven newbuilds, providing flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation to those seven newbuilds upon their delivery. We strive to ensure that our capital expenditure is adequately recovered by our contracted future revenues, fortifying our balance sheet towards a trajectory of sustainable growth. Moving on to Slide 14, with our quarterly financial highlights for the fourth quarter of 2024 compared to the same period of 2023. Our adjusted EBITDA for the fourth quarter of 2024 was $40.7 million, compared to $50.7 million for the same period of 2023.

Our adjusted earnings per share for the fourth quarter of 2024 was $0.15, this calculated on a weighted average number of 106.4 million shares, in comparison to $0.25 during the same period in 2023, that calculated on a weighted average number of 111.6 million shares. In Slide 15, we present an overview of our quarterly operational highlights for the fourth quarter of 2024 compared to the same period of 2023. During that quarter, we operated 45.9 vessels on average, earning an average TCE of $16,521, in comparison to 45.93 vessels earning an average TCE of $18,321. The company's net income for the fourth quarter of 2024 was $19.4 million, compared to net income of $27.6 million during the same period in 2023. Concluding our presentation, 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'd like to emphasize that the company is maintaining a healthy cash position of about $130 million as of February 14, 2025, another $165 million in available revolving

credit facilities, a combined liquidity and capital resources of $295 million. Furthermore, we have contracted revenue from our non-cancellable spot and period-time charter contracts of almost $200 million net of commissions and deferred scrubber revenue, and additional borrowing capacity in relation to seven newbuilds upon their delivery. We believe our strong liquidity and our comfortable leverage will enable us to expand the fleet, build a resilient company, and create long-term prosperity for our shareholders. This concludes our presentation. We are now ready for the Q&A session.

Operator (participant)

Thank you. We will now conduct 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 a question queue. You may press star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one at this time. One moment while we post our first question. Our first question comes from Omar Nokta with Jefferies. Please proceed.

Thank you. Hey, guys. Good afternoon. Thank you for the update. I guess just a couple of questions on my end, and maybe just perhaps first on the share buyback. You announced the five million program in November. You went to work fairly quickly, buying 1.5 million, but then in December, you went ahead and terminated it. So I just want to get a sense, was there a trigger maybe that kickstarted the buyback program, and was there something that caused you to terminate it outright, or is it just the way Safe Bulkers tends to do its share buyback?

Konstantinos Adamopoulos (CFO)

Loukas, from time to time, we are doing buyback programs, especially when we feel that our market, the price of the stock market, is very low, and we execute always a portion of it. So this has happened in the past. It can happen again in the future. We believe really that the valuation of our company is quite low compared to the net asset value, especially because we have made all these investments since the last two years. We have upgraded our fleet. We have renewed our fleet. We have newbuilds. And we offer to our shareholders a solution where, when they invest on us, they have the ability to invest in a company which basically has a better operational and financial prospects with the same number of ships because they run with lower fuel consumption and advanced energy efficiency. Thank you.

Polys Hajioannou (Chairman and CEO)

I may add on what Loukas said. Sometimes a company evaluates a program also related to the current trade market. So if a company feels that the current trade market is not performing or it's much weaker than what we thought it would be, we may slow it down or we may stop it for a quarter and continue later. So all these parameters are assessed on a daily basis as the program develops and as the market develops. When we have more clear sight of the market, the program can always be reinstated in the next quarter, I mean.

Okay. So that makes sense then in terms of looking at the share price versus NAV in a vacuum isn't the only decision. If the freight market is there and supports positive cash flow, then that would be a trigger given the market is softer so far. Okay. All right. And then.

When you have trade market approaching or reaching OpEx expenses like it did late in December, and you consider the buyback program, it could wait for a couple of months.

Got it. That's clear. Yeah. And maybe just a follow-up, just in terms of kind of the underlying NAV itself and what we've been seeing in asset values, can you give just a sense from your perspective? It feels that even though the freight market has softened here the past two or three months, asset values, at least from what we're seeing quoted by the various brokers, seem elevated. There hasn't really been much pressure. Would you say that the values are firm, or is there just simply not enough business being transacted to have a good sense?

Yes. The market has dropped a lot in December and January, and prices have definitely been affected. We can say that all the ships have been affected by as much as 25%, while the other ships around 15%. But at the same time, there are many owners that have made a lot of money, especially in other categories like tankers or container ships, but they are always looking to buy in a cheaper sector, which is at the moment the dry bulk sector. So I don't think that the prices have a long way to go unless the trade market continues to slide. So if the trade market stabilizes, as it is doing the last few weeks, I don't think that the values will have a great deal of a way to go down, maybe another 5-10%.

At the same time, when buying power is around, especially in the Greek market, I believe that prices will strengthen in the second half of this year. Not a lot, but on the current levels.

Okay. Very good. Well, thank you. That's it for me.

Thank you.

Operator (participant)

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Konstantinos Adamopoulos (CFO)

Okay. Thank you very much for attending this conference call that we had today for the Q4 and year-end financial results, and we are looking forward to discuss again with you the following quarter. Thank you very much.

Operator (participant)

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.