Safe Bulkers Inc (SB) 2013 Q2 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss financial results for the second-quarter 2013. Today, we have with us from Safe Bulkers, Chairman and Chief Executive Officer, Polys Hajioannou; President, Dr. Loukas Barmparis; and Chief Financial Officer, 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 (Operator Instructions).

Following this conference call, if you need any further information on the conference call or on the presentation, please contact Matthew Abenante at Capital Link at 212-661-7566. I must advise you that this conference is being recorded today, Thursday, August the 22nd of 2013.

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 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 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 we pass the floor to Dr. Barmparis. Please go ahead, sir.

Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast. Let's move on to discuss the financial results for the second quarter of 2013, which were announced yesterday after the close of the market in New York.

We have navigated through many sitting cycles, gaining experience and proven track record, maintaining hands-on approach based on our policies presented in slide number 4. We seek to expand our business sensibly, according to our recent assessment, and take value for our shareholders with whom we are fully aligned. In the pressing for long adverse market conditions, it is prudent to maintain a strong balance sheet, liquidity and comfortable debt in compliance with loan covenants, while supporting our investors with regular payments and dividends.

On slide 5, we present our fleet and order book. Currently, we own a fleet of 28 high specification vessels, and the comparable order book of seven newbuild vessels for some top quality CPS in Japan, delivered through 2016, which had the substantial cumulative annual growth rate since our IPO. We remain consistent to our asset management policy by investing mainly in newbuild solids after the economical assisted vessels in the low part of the shipping cycle.

Recently, in this low price vessel environment where prior to [1/2016] Post-Panamax class vessel at $19.5 million, which was delivered to us in July. As shown on slide 6, we have opportunistically invested in four secondhand vessels. In July, we also took delivery of one Japanese Panamax newbuild. As of August 19, the average age of our fleet is approximately five years, and the bond on several contracted deliveries through 2015 will be approximately six years.

Going to slide 7, we evaluate the performance of our strategy policy against the spot market which we outperform most of the time, as presented on the bottom graph. Our Charter coverage for our fleet including existing fleet and newbuilds was 82% of anticipated on our ship days for 2015; 28% in 2014 and 12% in 2015.

We seek to employ our vessels in period time charters in order to have visibility of our future cash flows while we maintain certain vessels in the spot market, to have the flexibility that the spot market offers in those other periods, and the upside potential when the market improves. Over the years, we have established long-term relations with some of the most respected charterers in the shipping industry. We have reduced our counterparty risk by agreeing to selective early deliveries for which we receive significant cash compensation.

On slide 8, we present our daily operating and general administrative expenses. Our daily operating expenses were $4413 for the first half of 2013, and our daily general administrative expenses were [$1105] (sic -- see slide), consisting of $936 daily management fees, $269 daily public company expenses. In total, we paid daily $5618 to run our vessels in our Company. This figure includes all costs except depreciation financial costs, and it's quite stable over the years, consistent with our lean operations.

Moving on to slide 9, we present the net debt per vessel together with the fleet expansion. We maintain low interest expense as evidenced by our debt per margin levels. We [retain] earnings in the company to further strengthen our balance sheet and our liquidity. Our follow-on equity offerings we have raised $189 million net. Our intention is to gradually deleverage our company on a net debt per vessel basis and comply at all times with our financial covenants. In the last quarter, our net debt per vessel ratio was at $13 million.

On slide 10, we present our liquidity and our ability to finance our capital expenditure requirements. As of June 30, 2013, our liquidity was $175.5 million, while our capital expenditure requirements were $232.2 million. We have not included our operational cash flow. We also have the ability to raise additional indebtedness against seven unintended contracted newbuild vessels that were secondhand upon their delivery, providing us with further financial flexibility. We would like to reiterate that management is fully aligned with our public shareholders.

On slide 11, we present historically our quarterly EPS and our quarterly dividends. Both have declared a dividend in the amount of $0.05 per share payable on 13 of September. Safe Bulkers has paid a total of $191.3 million in dividends for 20 consecutive quarters since the Company's IPO in 2008 and maintains an effective dividend yield.

Turning to slide 12, we present a synopsis of main events in the shipping industry. Oversupply of vessels is still the main driver of shipping markets. However, order book is declining and net fleet increased for the first seven months of 2013 is at 3.6% compared to [10%] in 2012. As presented in a graph at the bottom left, for the remaining period of 2013 above $12 million deadweight tons forecast in Panamax respectively are expected to hit the water, which is almost equal to the order book for the core 2014. This is as straight the slowdown in the growth of order book.

Scrapping activities despite lower volume down in 2012 is a catalyst regarding the easing of our oversupply. As of July 2013, about 14.5 million deadweight tons have been scrapped while about 34 million deadweight tons were scrapped in 2012. On the demand side for Panamaxes, after a busy grain season during Q2, market has been steadily trading between $7000 and $9000. Going forward in Q4, market prospects seem positive as strong exports from a US Gulf are expected and the seasonal coal trade is expected to boost demand for Panamax size vessels. Especially these market prospects is in combination with record-breaking prices of secondhand vessels in the beginning of the year related to sales for secondhand tonnage acquisition.

According to bulk the Baltic exchange, the price for five-year-old vessels have risen by approximately 20% since the beginning of the year. Let us remind you that during the past 12 months, we acquired four secondhand vessels, all bid by Japanese CPS at attractive prices. On the Capesize vessels, margins currently outperforming as there has been strong demand for iron ore from China. As shown on the graph on the bottom right, July 2013 has been a record month in terms of Chinese iron ore imports.

At this point, we would like to point out that we remain committed to returning cash flow to stockholders who have a lean and efficient cost structure in relation to operating expenses, management fees internally of these expenses. We believe it's important to preserve liquidity in this environment as we aim to further segment our balance sheet and deleverage our company, while maintaining the ability to make additional acquisitions, in order to renew and expand our fleet's value for the next couple of shipping cycles.

Our Chief Financial Officer, Konstantinos Adamopoulos, will now present our financial results.

Thank you, Lucas, and good morning to all. On slide 14, we will present selected financial highlights for the second quarter of 2013 compared to the same period of 2012. Net revenue decreased by 12% to $41.4 million from $47 million during the same period in 2012, mainly due to weak charter market conditions. Daily vessel landing expenses decreased by 2% to [$4414] compared to $4526 for the same period in 2012. The decrease is mainly attributable to the decrease in local contents and expenses.

Interest expense increased by 10% to $2.3 million from $2.1 million for the same period in 2012 as a result of the increase in the average amount of long-term debt outstanding. Net income increased by 14% to $24.6 million from $21.5 million during the same period last year. Adjusted net income decreased by 36% to $15.1 million from $23.7 million. EBITDA increased by 14% to $36.1 million from $31.6 million during the same period in 2012. Adjusted EBITDA decreased by 21% to $26.6 million from $33.7 million during the same period in 2012.

Earnings per share and adjusted earnings per share were $0.32 and $0.19, respectively. Calculating the weighted average number of shares of 76.7 million compared to 28 sales and 31 sales in the second quarter of 2012, calculated on a weighted average number of 76.7 million shares. You may find the definition and reconciliation of our financial fundamentals for the second quarter and March 2013 and 2012 on slide 16.

Slide 16 represent selected operational highlights for the second quarter of 2013 compared to the same period of 2012. Ownership available and operating days increased by about 28% for the second quarter of 2013 compared to the same period in 2012. During the second quarter of 2013, we owned and operated an average 26 vessels and achieved the utilization rate of [9.1%] compared to an average of 20.35 vessels at a utilization rate of 98.5% during the same period of last year. The average daily time charter awarded per vessel for the second quarter of 2013 was $17,116 compared to $24,168 for the same period of last year.

Slide 17 presents definitions and reconciliations of our fundamentals for the second quarter and first six months of 2013 and 2012. The result of our financial performance is clearly demonstrated by the Company's consistency in its dividend policy, maintaining a prudent and meaningful dividend throughout the last crisis in comparison to the vast majority of industry peers.

As presented in slide 18, the Company has declared for the second quarter of 2013 a cash dividend of $0.05 per common share payable September 13, 2013 to shareholders of record at the close of trading on September 3. This is the 21st consecutive quarterly cash dividend since our Company's IPO more than five years ago. Also, the Company's Board of Directors has declared a cash dividend of $0.26111 per share on its 8% Series B Cumulative Redeemable Perpetual Preferred Shares for the period from the beginning of trading June 13, 2013 to July 29, 2013. This dividend was paid on July 30, 2013. This was the first Series B preferred shares cash dividend the Company has declared and paid.

Summing up our presentation on slide 19, although market conditions at the moment are still challenging, we are prepared as a long-term-oriented company. We have been shipping for more than 50 years. We know the industry and we believe in it. We actively monitor order book and fleet. As a result of our track record that is our reputation in the industry, we have developed some long-term relationships with key shipyards, charters and banks, and the Bank in Europe.

We have a history and reputation of operating excellence, as reflected in our utilization rate and operating expenses. We maintain low financial costs as a result of our flow space and our prudent leverage, and compliance with our financial covenants. We actively monitor our young shallow active fleet of 28 drybulk vessels, all of which are built 2003 onwards. Our substantial market average was established performing customers supports our strong balance sheet and liquidity providing financial flexibility. We remain committed to a pertinent dividend policy to reward the shareholders through payment of dividends and investment of future expansion and deleveraging.

You may find our contact information on slide 20. Thank you for listening, and we're now ready to accept questions.

(Operator Instructions).

Any questions?

Christian Weatherby, Citi.

This is Alex Hahn in for Chris. So starting off with the rates, what are your thoughts on the trajectory of rates? But more specifically, we want to get a sense of when they will get sustainably better and how high do you think that they can go?

Yes. Good morning, first of all. We are experiencing at the moment a gradual improvement on our freight rates. It's more evident the last week or so, the last 10 days on the Capesize bulkers, which are running at the moment on average around $16,000 a day. And this is a good improvement from previous quarter, we were below $10,000 a day. So the projection as per the [careholder or FFAs] for Capesize to be around $21,000 -- $22,000 by the fourth quarter of this year. If this materializes, this will also push the rates of Panamax and Post-Panamax higher from the current $8000 to $9000 a day. So we're entering into a little bit better markets.

All right, thanks. And switching over to costs, your OpEx was down sequentially, which normally doesn't happen in the second quarter. What does the rest of your year look like for costs, in particular for SGA? And what is the crux of the sequential decline?

Yes. We have a drydocking now of one vessel, at least one vessel by the end of the year, maybe two. So we expect these numbers to increase a little bit in the second half of the year. Otherwise we don't expect any substantial changes for the next six months. You know, only the effect of a couple of drydockings. The G&A expenses as a number of vessels increases is expected to stay stable or increase a little bit more, so we are optimistic that we will maintain the competitive costs of this company in the next few quarters.

Okay, thanks. And lastly, can you speak to the risks to a rate recovery from newbuild orders? And how will that be handled?

I think that the order book for next year standing around [5 million] deadweight. It's the level that gives us some optimism that we should see a rate recovery starting in the middle of next year. And we are optimistic, but you know there are no more [purse] to be committed for 2014 and for a good part of 2015. So, we believe that the order book for these two years will be relatively relaxed, because we know shipyards have reduced capacity and slow down production. But also unless we're not keen to order ships with the exception of the second quarter of this year. And most of the orders placed was in the Capesize sector and in the Ultramax sector or both sectors who don't have any exposure. Because our Capesizes are a long-term charter, and we have no Ultramaxes in there, although if you are ordering Panamax. So we believe that from a supply side, we will not get any surprises.

Okay, thanks a lot. I'll turn it over.

Greg Lewis, Credit Suisse.

Polys, could you talk a little bit about sort of what's going on -- the relationship between the Cape and Panamax market? I guess sort of over the last two weeks, we've seen Capes make a noticeable move away from Panamaxes in terms of the spread. I mean, I guess the Cape Panamax spread is well north of two times at this point. At what point do you think -- or maybe we don't -- is there the potential that we start to see cargoes being split, and maybe that potentially helps lift up Panamax rates? Or is this something where there's just not really as strong a demand for Panamaxes, and we should sort of expect Capes to really outperform Panamaxes on a relative basis?

Yes. I think that the improvement in the Capesize started about a week ago, a week-and-a-half ago. So it's very early in the process before we have to start splitting up for Panamaxes. Now in the spot market, of course, they reach $16,000 and the Panamax are doing $8000. So it's now reaching a level that charters may consider in the next month or two, of splitting cargoes. If the prediction of the market is correct that the Q4 will be in the low 20s for Capes, this can only be positive for the Panamax as well. And we expect that there will be some cargo split for Panamaxes out of Cape. So, in the fourth quarter of this year, where it's permissible, we will see the spot market of Panamaxes following and doing over $10,000 a day.

Okay. And then just shifting gears, I mean you have the seven newbuilds that you're scheduled to take delivery of over, I guess, the next 2.5 years. Beyond those seven newbuilds, when you think about potentially adding vessels to the fleet, is this something where it's primarily going to be going back to the shipyards, and looking for potential opportunities inside at the shipyards? Or is there still really the potential to acquire secondhand vessels?

No, I think that our main -- the main model of this Company is on new ships. We have seven echo ships on order. They start delivering from first quarter of 2014 up to 2015, so they are spread over two years. So we have a good timeframe to take deliveries of those ships.

I think that our secondhand price has increased by around 15% to 20% in the last three or four months. So unless we see a reduction in this price activity, we will not move for more secondhand ships. We don't feel as if we have to rush for paying more to shipyards. Of course, we will find a shipyard with -- that we like in Japan, and they can do an attractive price, we will be ready to do something more.

But I think we are very well-placed with seven ships spread out over the next 24 months. You know, to increase our fleet and to be able to fix hopefully at the better rates of expected for those two years and forward. So, also on the special quarter, only we find reasonable prices.

Okay, perfect. Thank you for the time.

Fotis Giannakoulis, Morgan Stanley.

I want to ask again about the Panamax market. And we've seen a lot of attention on Capesizes and the new iron ore capacity that is going to come online in the next few months until 2016. What is the full story for coal? We see the coal market quite troubled right now. Rates for Panamaxes are very weak. What would be your -- let's say 18 months outlook in terms of a charter rate?

And then related to that, at what point would you consider increasing your dividend? You slashed at around 70% last year. Probably more than what people thought was necessary. But at what point do you think that it's going to be time to increase your dividend?

Yes, I think the Panamax market, first, you know the big booster for the Panamax market is the coal movement. And the fact that we see coal prices on the drop, it's always optimistic and gives us optimism that it would be more or all transported into China instead of domestic production.

You have to remember that the Chinese, they consume more than 2 billion tons of coal every year. So, only 10% of that is imported. So if we see any meaningful change into this 10% to become 15% or 20% over the next few years, this would be a very big boost for Panamax market.

Regarding our dividend, you know we pay what we feel comfortable paying. You have to remember that our sales as a family, our own families are major shareholder of the Company. And we are keen to see the interest increase. But we have to see the fundamentals and the freight rates increase meaningfully before we can say that before we take these decisions, to start increasing the dividend.

So at the moment, we're happy that we can pay a dividend. We're not saying I'm not paying a dividend. And that was the 21st consecutive quarterly dividend that the Company has declared. So, we're happy with that. And when we see the meaningful improvement of freight rates, of course, we have the open tonnage and we have the fleet to take advantage of the higher freight rates. And obviously, this will be reflected into the returns to the shareholders. So let's be cautious and let's see if first freight rates improving before we can be more positive on this question.

Sorry for asking again, can you clarify to us what it means meaningful improvement in freight rates?

Hey, look, at the moment, you see that the spot market is around $8000 to $9000 a day. You can understand by simple calculation that many companies they don't cover even their running costs, which are around $8500 a day. But in our case, we have a very long cost base and we cover those running costs. And thereafter, you need $3000 or $4000 a day to pay the banks and the loans and the interest.

So you understand you have to go above this number, which is a rate market of over $10,000 a day, to start considering the excess capacity and the excess earning capacity of how you split it, if it's going towards the leverage or if you send it towards the shareholders. So, when we start seeing the spot market over $10,000, we will start considering what options we have.

Okay. Thank you. And regarding your preferred equity, can you please explain to us what was the rationale why you issued this preferred? And if you think that there might be a possibility of offering additional similar paper?

Look, I think the preferred goes down in line with our investment in four secondhand vessels, which was done because we thought that they were at the cheapest level we have seen in the last 25 years for secondhand bulk areas. So we invested around $70 million on those four vessels -- $68 million or something like this, around $68 million. So that most of that preferred on those or against the equity put in those vessels.

We believe with the vessels bought at this part of the cycle, the Company will make much more than the 8% it spent on the equity of this preferred stock. Now in future, we will reconsider, it depends on the terms. It depends on the appetite of the market. You know, it's not our top priority, but we see that there is a healthy market. And if there's good opportunity for the Company to raise some money without diluting the existing shareholders, we may consider it, but it's not as if we rely on it.

Thank you for your answer. One last question about the asset values in shipbuilding. You mentioned earlier that the prices for secondhand vessels have increased around 15% the last few months. And they are not that attractive. But it seems that newbuilding prices, they haven't really moved so much, at least. Can you explain to us what is the state of the shipbuilding market? You mentioned that there is reduced capacity compared to previous years. How much capacity in the drybulker sector has changed since 2008? And has this changing capacity, is it permanent? Or we might see, in the future, yards offering additional berths similar to what we saw in 2006 and 2009?

Yes. I think there was a very good opportunity for ordering in Japan in the first quarter of 2013, because they had some freight space for 2015 still available. And they wanted to put in some orders before the end of their financial year. So at that point, we stepped in, we managed to secure two vessels at below $30 million, Echo vessels or 77,000 deadweight.

And you know I visit Japan in end of July a few weeks ago. I don't think these prices are achievable again, because the yards that they needed to sell they sold every space they had. So they are more relaxed now. Off the record, they are quoting 10% higher prices now, but I don't think they mean it.

So I think the next arm that will feel pressure could well be towards the end of this year. And then depending on the freight market and the interest from shipowners, we will see how much the yards again are giving on the price. But at the moment, I will say they are rating low 30s in Japan for the Panamax. So at these levels, we are not prepared to do anything at this stage.

Now regarding capacity, you know yards they are producing at 50% capacity in Japan, because they have building definitely at a loss on those berths. So they are arguing you know why to build at this level of small ships. They scaled down for a couple of years. Of course, they can increase back the capacity. They see that prices are rising. But before prices rise on a newbuilding vessel, we have to see substantial improvement of our freight markets, which at the moment, is not happening.

So I don't think any time soon we will see substantial increase of our shipyard prices. To the quarter, if one freight market improves, firstly, we will see substantial improvement on secondhand prices. And total that allowed between that time and the time that shipyards could start raising their prices.

Thank you, Polys.

David Beard, IBERIA.

A lot of my questions have been answered, but maybe you could just review for us how you look at what percent of the fleet you'd like chartered going into 2014 and '15? And has that strategy changed, given where we are in the cycle?

Yes. At this point of the freight market, when the freight rates are at $8000, $9000 a day, there's absolutely no reason for companies to go in and lock in period charters, you know. Okay, you may do a six-month charter or something like this, but there's absolutely no point to lock at $8000 rate per vessel for two years. Because simply, there is no downside to protect from and you give up the whole of upside.

So, our company, all the vessels that they're ending their charters, we trade them in the spot market or maximum in the short period market. Very seldom maximum, we may go up one year if we can secure some premium, let's say around 20% over the current spot market. But more than six months or 12 months' period, we are not prepared to consider, because I mean you lock in the ship at the low rate, and when the recovery starts, you will regret it. So this is our policy at the moment. You know, spot market or short period market.

Okay, thank you.

Thank you.

(Operator Instructions). You have no more questions from the phone lines, gentlemen. Back to you.

Thank you very much for attending our webcast. And we're looking forward to talk with you again in our next -- in the next quarter. Thank you very much.

Thank you very much. Ladies and gentlemen, that does conclude the conference call. Thank you all for taking part today and you may now disconnect.