Safe Bulkers Inc (SB) 2013 Q4 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 fourth-quarter 2013. Today we have with us from Safe Bulkers, Chairman and Chief Executive Officer Polys Hajioannou; President, Dr. Loukas Barmparis; Chief Financial Officer, Konstantinos Adamopoulos; and Chief Operating Officer, Ioannis Foteinos. (Operator Instructions).

Following this conference call, if you need any further information on the conference call or on the presentation, please call Matthew Abenante at Capital Link, at 212-661-7566.

I must advise you the conference is being recorded today, Thursday, February 27, 2014.

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 we now 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 look at presentation. Let's move on to discuss the financial results for the fourth quarter of 2013, which were announced yesterday after the close of the market in New York.

We're a Company with a long history over many shipping cycles. The interests of our management are fully aligned with the interest of our public shareholders, as our CEO invests in owning activities only through Safe Bulkers; and currently controls, together with his family, about 57% of our common stock.

We have consistent policies, charter and mix adapted to market conditions, currently with exposure to the spot market and beating the BPI index; maintaining hands-on approach and lean cost structure; strong balance sheet and comfortable leverage in compliance with our covenants; and low financing costs.

We invest in the low part of the cycle for efficient newbuilds. We maintain one of the youngest fleets in the industry. And we sell our oldest designs at strong market conditions, realizing gains; expanding and renewing our fleet. We have invested in a previously depressed period of newbuild and secondhand vessels. Through our policies, we have managed to create value for our shareholders and maintain a meaningful dividend since our IPO.

Moving to slide 5, we have contracted substantial expansion for the next three years. Safe Bulkers was listed on New York Stock Exchange back in 2008. And since then, our fleet has grown from 11 vessels, back then, to 30 drybulk vessels today, and with an order book of eight newbuilds until 2016. We are a spot market player. Safe Bulkers has 64% of its anticipated ownership days open for the remainder of 2014, offering substantial upside potential for revenue.

The comfortable leverage, our net debt per vessel was $11 million in Q4 2013, in compliance with our loan covenants. The average age of our fleet is 5.4 years, while currently we value a five-year-old Panamax about $26 million.

We maintain lean operations, $5490 per-day per-vessel or our OpEx and G&A expenses in total for 2013, compared to $5765 for 2012, amongst the lowest in the industry. In G&A, we include public company and management fee expenses. We preserve our financial flexibility with low financing costs, at an average spread of 95 basis points for 70% of our debt.

We seek to expand our business sensibly, according to our risk assessment; create value and reward at the same time our shareholders, as we have done for 22 consecutive quarters, paying over $200 million in dividends and common stock so far.

Turning to slide 6, we present a synopsis of main events on shipping industry. Supply of vessels is still the main driver for the shipping market. However, the rate of fleet growth is declining, as the net fleet increase for the year 2013 stood at 5.3% comparable to 10% in 2012. As presented in the graph at the bottom left, the order book as of the end of January 2014 is declining for the years until 2017, although we expect additional orders to be placed.

The orders placed for Panamax represent 8% of the local fleet for 2014; 6% for 2015; and 4% for 2016. Same for Capes -- the order book represents 7% of the existing fleet for 2014; 7% for 2015; and 5% for 2016. This illustrates a slowdown in the growth rate of the order book, which is expected to be even less due to the scrapping activity. As shown here in 2013, about 21.7 million deadweight tons, or about 3% of the [later] order book was scrapped. And about same scrapping rate is expected in the following years.

On the demand side, the outlook of recent deals was mixed. 2013 closed with a remarkable outperformance of the Cape market, which was also observed in [all dry] by fleet. That was mainly due to the increased imports of iron ore from China, as you see it on the top graph on the right; on the back of the seasonal demand and the resulting trend of iron ore. Further to this, strong demand for steam coal, and good grain harvest ex-US Gulf, supported smaller sizes of drybulk fleet.

Presently, the market is negative. We are affected by seasonal slowdown of trade, mainly attributed to [holy days] around the globe. Both Capes and Panamaxes are trading in the region of $10,000. Going forward, there is a common consensus that prospects of the market are positive. [Seen as] from the Chinese domestic economy, the outlook of the global macroeconomics of sustainable growth, together with a declining order book, justifies this supportive consensus for the market.

Analysts are addressing the market after the second quarter of 2014, and [some say] high levels [on the cars].

On slide 7, we present our fleet in order. Currently, we own a fleet of 30 high-specification vessels and we [contracted] order book of eight newbuild vessels from top-quality shipyards in Japan delivered through 2016. We have a substantial [relative] annual growth rate since our IPO. We remain consistent to our asset management policy by investing mainly in newbuilds [solids after] economical sister vessels in the low part of the [side group].

On slide 8, we show an example of our asset management policy. Although we have not invested in secondhand vessels the last 25 years, we decided to invest opportunistically for secondhand vessels. You may observe that they're positioned to place almost at the bottom of the market. Already vessels have been appreciated considerably.

Going to next slide, 9, with our weighted performance of our chartering policy against the spot market, we have outperformed most of the times, as presented on the left graph. The open days for our fleet, including increasing fleet and movement, were 64% of anticipated ownership days for the remainder of 2014; 86% for 2015; and 89% for 2016, offering substantial upside potential for revenue.

We seek to employ our vessels in [period times] in order to have visibility of our future cash flows, while we maintain certain vessels in the spot market to have the flexibility the spot market offers in low-charter periods, and the upside potential when the market improves. Currently, we seek to employ our vessels mainly into the spot market, as we are optimistic of the charter market for the next year.

On slide 10, we present our daily operating and general administrative expenses. In our daily operating expenses were $4320 for 2013. And our daily, general, and administrative expenses were $1170, consisting of $863 daily management fees, and $307 daily public company expenses. In total, we paid daily $5490 to run our vessels and our Company. This figure includes all costs except depreciation and financial costs. It's amongst the lowest in the industry, and lower than previous years, consistent with our lean operations.

The bottom graph will present the net debt per vessel ratio at $11 million in fourth quarter of 2013, together with the fleet expansion. We maintain low margins for financing of 95 basis points average spread, for 70% of our debt. Our intention is to maintain comfortable leverage on a net debt per vessel basis, and compliant all times with our financial covenants.

On slide 11, we present our earnings per share (technical difficulty), as well as our liquidity and our ability to finance our capital expansion requirements. As of December 31, 2013, our liquidity was $262 million, while our capital expenditure requirements were $254.9 million. We have not included our operational net cash flows. And as of December 31, we also have the ability to raise additional indebtedness against the six [unencumbered] contracted newbuild vessels upon their delivery, providing us with further financial flexibility.

Our Board has declared dividend in the amount of $0.06 per share, payable on 17 March. Safe Bulkers has paid over $200 million in dividends for 22 consecutive quarters, since the Company's IPO in 2008.

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

Thank you, Loukas, and good morning to all. On slide 13 we present selected financial highlights for the fourth quarter of 2013 compared to the same period in 2012. Net revenue increased by 20% to $59.2 million, from $46.4 million. Daily vessel [landing] expenses decreased by 6% to $4224, compared to $4511 for the same period in 2012, mainly due to the decreasing cost of lubricants, spares, stores, and provisions.

Interest expense decreased by 28% to $2.1 million from $2.9 million, as a result of the decrease in the average amount of long-term debt outstanding. Net income decreased by 4% to $31 million from $32.2 million. Adjusted net income increased by 53% to $31.3 million from $20.5 million.

EBITDA decreased by 2% to $43 million from $43.9 million. Adjusted EBITDA increased by 34% to $43.3 million from $32.2 million. Earnings per share and adjusted earnings per share were $0.38 and $0.38, respectively, compared to $0.42 and $0.27 in the fourth quarter of 2012; calculated on a weighted average number of shares of 79,916,260 and 76,665,956, respectively.

Moving on to slide 14, we present definitions and the reconciliation of our financial fundamentals for the fourth-quarter and full-year 2013, compared to the same period of 2012.

Slide number 15 will present selected operational highlights for the fourth quarter of 2013 compared with the same period of 2012. Ownership, available, and operating days increased by approximately 19%. During the fourth quarter of 2013, we owned and operated an average of 28 vessels, and a fleet utilization rate of 99%, compared to an average of 23.6 vessels and a fleet utilization rate of 99.2%. The average daily time charter equivalent per vessel was $22,550 compared to $20,845.

Moving on to slide 16, we will present definitions and a reconciliation of our operational fundamentals for the fourth-quarter and full-year 2013 compared to the same periods of 2012. The results 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 contrary to the vast majority of our industry peers; and by increasing the dividend in the third quarter of 2013.

As presented in slide 17, our Board of Directors declared for the fourth quarter of 2013 a cash dividend of $0.06 per common share, payable on March 17 to shareholders of record at the close of trading on March 10. We have declared and paid dividends consecutively in all quarters since our Company's IPO more than five years ago.

Also, January of 2013, we paid a cash dividend of $0.50 per share on our 8% Series B Cumulative Redeemable Perpetual Preferred Shares for the period from October 30, 2013, to January 29, 2014. This was the third consecutive dividend the Company had declared and paid on the Series B Preferred Shares.

Summing up our presentation in slide 18, as the market outlook is improving, we are prepared as a long-term-oriented company. We have been in shipping for more than 50 years; we know the industry; and we believe in its fundamentals. We actively monitor our order book and fleet.

As a result of our track record and reputation in the industry, we have developed strong, long-term relationships with key shipyards, charters, and banks in Japan, and Europe, in China.

We have a history and a reputation of operating excellence, as reflected in our utilization rates and operating expenses. We maintain low financial costs as a result of our low spreads and our [prudent] -- in compliance with our financial covenants. We actively monitor our young, solid, active fleet of 30 drybulk vessels, all of which have been post-2003.

Our substantial charter coverage with established [performing] customers supports our strong balance sheet and liquidity, providing financial flexibility. We remain committed to a prudent dividend policy to reward shareholders through payment of dividends, and ensure future expansion and deleveraging.

You may find our contact details in slide 19. Thank you all for listening, and we are ready to accept questions.

(Operator Instructions). Gregory Lewis, Credit Suisse.

Polys, Could you talk a little bit about -- it looks -- when we think about the vessels that saw their contracts terminated, it looked like two of them received cash payments immediately. And then it looked like the other one was going to have the payment amortized over the life of the next contract. Could you talk a little bit about the dynamics of that?

Yes. Maybe Loukas can explain a little bit better, because he's around one year left on these contracts, and there was a very small [TC] attached for maybe a few days.

But, Loukas, please explain how it works.

The money for these two vessels we had the employment with the charter for 2014, and the decision was to take it in delivery. And so, because at that point of the decision, there was a charter part in place in that continuation, according to US GAAP we had to include this in our revenue. Also, part was -- I mean also, we'll be accreting in the first quarter of 2014 because one of the vessels was delivered a little bit later in -- and in 2014.

So, currently the charter had to complete the voyage despite the earlier delivery. So he will fix the vessel for remaining of a few days to complete the voyage of 15, 20 days by agreeing the same rate that he compensated us with. And he paid the compensation base, the whole difference between the old charter party rate and the new charter party rate. So it's a facilitation for him to complete the voyage.

Okay. Thank you. That makes sense. And then just shifting gears a little bit. Polys, when you think about where we are today, and how Safe Bulkers' balance sheet looks right now -- you recently did the Preferred. At this point, where we are, is it reasonable to think that Safe Bulkers will be going back to the shipyards? And if you were to go back to a shipyard over the next few months or quarter or two, when should be reasonably think about those newbuilds coming online to being delivered to the fleet?

Yes. As you have seen in our presentation, secondhand prices have risen $8 million in the last year. So shipyards have taken note of this, and they are equally pushing up newbuilding prices by around $3 million or $4 million from the previous levels.

And I'm totally convinced that there are a few berths available earlier, but they are being hidden by the respective yards. They are trying to sell very far away berths, end of 2016 or early 2017. It's very uncomfortable for people to order 2017, you know? For the years ahead, you never know what the market will be at that stage.

But I'm totally convinced that there will be opportunities in the next 12 months to order the earlier berths at better prices. So people should be very careful and should concentrate when they receive indication of early berth from the shipyards.

And being currently in Japan myself -- and I am calling from Japan right now -- I feel that we have to be patient and things will develop. But it takes time. They say that secondhand prices have moved off the bottom. And somehow they expect that they will be able to achieve better their prices. So we have to be patient in respect of shipyards, but deals will come. The good deals will come in the future.

Okay. Perfect, guys. Thank you very much for the time, and have a good night.

Jon Chappell, Evercore.

Polys, that was a curious comment you just made, regarding -- you think that you'll get some better prices in the next 12 months for better berth deliveries. What the basis behind that? Typically -- the sentiment has obviously improved in the market; that's why asset prices have gone up, and the delivery schedule has been pushed out. One could potentially read that comment into thinking that maybe the sentiment will trend in an unfavorable manner over the next 12 months, which is kind of counterintuitive to how the futures market looks and the outlook that Loukas provided earlier.

Yes. I believe that -- shipowners and shipyards, they are playing similar games. When the market is improving, we tried to fix [port] positions and keep the earlier ones in the spot market and try to capitalize on the early ones. They are doing the same, I think. In general, they tried to sell forward berths to hungry shipowners. And they keep some earlier berths available for future deals, in the hope that they will achieve better prices. So, there comes a point that the yard has to sell. And it's a point that when somebody has to be alert, and has to be around, and have the relationships and the longer corporation and try to get in.

There are not so many berths, but I believe there are early 2016 berths available or hidden somehow. And if you are patient and if you have a long corporation, and you are persistent and you have the experience, you will get those berths. So, people rushing to fix later berths, it's a mistake at this stage.

Okay. So it wasn't a commentary on your market outlook, then? Regarding the secondhands, you've made a comment couple of times how much they've increased. And if you look at that chart you provided earlier in your presentation, you haven't purchased one in over eight months.

As you look at your current fleet and growth opportunities, would you think about returning to the secondhand market in the near term? Or has that ship sailed? And then the ships that you bought back about 12 months ago, you kind of insinuated that the time that that might be an asset play. Are you getting close to maybe disposing some of your older assets to take advantage of the recent ramp in the secondhand prices?

Yes, I think that the secondhand prices have appreciated by around 50%. We think there's more room. There's another 40% to 50% in those prices to go up. I don't think we will enter the secondhand market, not because it's inflated to the maximum, but because you have to be focused. Our business model is based on replacing our fleet with new ships, and more economic ships, and more new technology ships. So we have to be patient. And if we are to do something, it would be in the next quarters, considering selling those three or four ships we bought last year.

And we will be patient. We will not rush. But you can never achieve the best deal of the market, so at a certain point, you would be happy to take a good profit and sell the older ships somebody purchased at a good price a year ago.

Yes, that makes sense.

But no rush. There will be no rush to sell, because we think the market is just starting [here].

Okay, yes. Understood. Last question, just on the dividend. I understand it's a Board decision every quarter. You guys were one of the first to increase the dividend last quarter, at a time when your earnings had flattened out. As you look for the back half of this year and the market to continue to improve -- you have two more newbuildings hitting in the early part of this -- or in 2014, your earnings should start to ramp again. So how do you think about the dividend over the next 12 months, if the market plays out the way that you expect it to?

Yes, look, last quarter we had a very strong September-October, and Capesize rates reached $40,000. And spot market on Panamax, it was up over $15,000 and close to $18,000 or $19,000 on the spot market. So that was prudent to increase the dividend. This quarter, we had a very slow January-February, so the Board decided to keep it at $0.06.

We directly relate our dividend to the freight market. And so long we see movement in the next quarter, this could very well be translated into some dividend increase. We are not going to raise the dividend before we see the freight market really moving forward. We have room to do that, but we want to do that out of profit, and not out of expectation.

Yes, understood. Okay, thank you, Polys.

Chris Wetherbee, Citi.

When you talk about the potential to come into the market for new ships, do you think that -- does that require more equity from a funding perspective? Do you feel like you're at an appropriate level where you have access to capital from the debt markets, so you don't need to come back for equity if you were to do more acquisitions?

Yes. Look, we have a very good balance sheet. And, as you've seen on the slide, our newbuildings are fully funded, so we don't really need to put debt on those ships, and the funds are there. So the policy will continue to be conservative leverage, and 50% on the asset. So we will use debt, but not over the top. We believe debt will be more attractive in a year's time, and spreads will be more attractive than the current levels. Always, debt will be used, but very, very, very conservatively.

In addition to that, we expect in the next period to have available the funds from after we have won this arbitration. And these funds also will be available to us in the next -- we hope, we expect -- in the next periods.

Okay. And remind us, what total we should be looking at that, Loukas?

Total [lending] is about -- okay, we had paid $31.5 million, and plus about $4 million on interest. It will be about $35.5 million, something like that.

Okay, that's helpful.

Which is basically an additional [offering].

(laughter) Okay. Fair enough, thank you. And then when you think about the two newbuilds for delivery in 2014, I know you mentioned in the prepared comments that the charter strategy right now is to maintain more a short-term or spot market exposure, given your positive view on the overall market.

When you think about that newbuilds specifically, do you layer in any contracts? Or is the term market supportive yet of doing anything there? Or does it just makes sense to continue to have these come in, and come right into a spot or a single voyage charter type of situation?

Look, the one vessel of the two is coming in March, and this will start on the spot market. We believe we will be doing rates of around $15,000 on the spot market because a new type, eco-type. And we've seen charters willing to pay around $15,500 for a year on these type of vessels. We believe it's too early to commit for one year. So we will let -- work the spot market, and probably start fixing those eco-ships when one-year rates reach probably $17,000 or $18,000 a day.

The second newbuilding of this year comes in September from a Japanese yard. Again, it's an eco-vessel. If by that time we can achieve $17,000, $18,000 for one year, maybe we'll lock in for one year. But, definitely, we will look into long-term charters in 2015. We will not look this year into long-term charters.

Okay. That's helpful. Thanks very much for the time. I appreciate it.

Matthias [Detjen], Morgan Stanley.

Thank you very much for that update. I have a question about the grain season and basically how you see that developing this year. We're in a lull right now, but the South American grain season is starting up. And so how do you see that development, and what do you think -- the effect that will have on rates going forward?

Yes. Indeed, it's slow at the moment, the South American. It's not that cargo is not, available, it's because we had a very bad January in the Pacific market, and a lot of ships [ballasted] from the Pacific into the Atlantic, so there's a bit of ships on the pipeline.

So when the new cargoes for second-half March or first-half April will start appearing in the market, I think the rates will be pushing up. I think it's only one year behind this year, the market, on last year. And we have to be patient so this tonnage is clear from the Atlantic. And starting three, four weeks from now, we expect to see better rates from East Coast of America. But we are hearing reports that the crop is very good down there, so it's a matter of time. It's not matter of if; it's a matter of time.

Okay, that makes sense. And then maybe one -- maybe your comment -- if you have any comments on the iron ore supplies in China. We've been seeing stockpiles building, and people are starting to be worried about that, that this might take a longer time to work through by the steel mills. Do you have any color on that, any comments on that, how you see that developing?

Yes, we are not the experts in the Capesize market, in the iron ore market. But from what I understand, the stock is good for the next two months. And as soon as the Chinese clear a good part of that stock, they will start buying. It's a big game; they are between the big players, the three main producers on the one hand, and the big steel mills in China. Definitely, China needs the iron ore. Definitely, they have this program for urbanization increase every year, which need new construction, and they need the iron ore. It's a matter of a game of the price on the iron ore.

So, Chinese -- they know that new production is coming online from Australia. They are holding back their requirements. And they believe that the effect that they are not in the market, and the new production coming online, should depress iron ore prices. Suddenly, they will come back in the market. And iron ore rates, Capesize rates will jump likely in September and in November of last year. Give it two, three months again, you will see a big move there. I think the market expects this. And you can see the FFA market for third quarter and fourth quarter in the Capes is very, very buoyant. So it's a matter of big games in regards price of the commodity.

Okay. Well, Polys, thank you very much for that.

(Operator Instructions). And if there are no further questions at this time, I will pass the floor back for closing remarks.

So, thank you very much for attending this presentation. And we're looking forward to discuss with you in our next-quarter results. Thank you.

And with many thanks to our speakers today, that does conclude our conference. Thank you all for participating. You may now disconnect.

Thank you, Dr. Barmparis.

Thank you.

Thank you, sir.