Safe Bulkers Inc (SB) 2014 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen and welcome to the Safe Bulkers, Inc. Conference Call to discuss first quarter 2014 financial results. Today we have with us from Safe Bulkers, Chairman and Chief Executive Officer, Polys Hajioannou, President, Dr. Loukas Barmparis, Chief Financial Officers, 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 contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today, Thursday, May 29, 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 on entering into further time charters. Words such as "expects", "intends", "plans", "beliefs", "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 subjected 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 [bolt] vessels, competitive factors in the market in which the company operates, risks associates 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 I will now pass the floor to Dr. Barmparis. Please go ahead, sir.

Good morning and I'm Dr. Loukas Barmparis. Welcome to our conference call and webcast. Let's move on to discuss the financial results for the first quarter of 2014 which were announced yesterday after the close of the market in New York. We're on slide three where we present [scene] of main events on [unity].

Supply (inaudible) seems to be the main driver of the [sitting] market however the rate of [preclose] is declining. That [would] net increasing in 2012 was followed by [part] increase for 2013. For the first month -- or for the first four months of 2013, the [EBITDA] increased by 2.1% versus 2.5% in 2014.

As [graph] at the bottom right, [doesn't look] 2014 is declining for the years up to 2017 although we expect additional notice to be placed. [Display] about 5% of the (inaudible) for 2014; 7% for 2015 and 4% for 2016. Same forecast [both] represent about 5% of the increase for the remaining 2014, 8% for 2015 and 7% for 2016.

This illustrates a slowdown of growth rate [other] which is expected to be less due to this [capping] activity. During 2013, about 21.7 million W -- DW [tons] were [scraped] during the first four months of 2014 about 4.9 million that were done were scraped.

On the demands slide of slide 4, there [completion] paired was not [closed]. Market [then] greatly slowed down generally especially on the [capes]. Third, presently [operates] on the original 1,000 for capes and 8,000 for [Panama] markets. This slowdown can be attributed to [various] reasons and like [Luna] years, spring [festivals], et cetera.

On top of that, [costs] have posted. Q4 2013 ended with a value [capes] which we collected from the record high [buys] from China. Year on year, [areas] in China for 2013 have increased by 24%. Similar [agents] exist for the increased [tickets] dropping lower prices which are recently [stuck] below this [action]; similar strength coming from China [nation] with the recent announcement of more than 600 [kilometers] of [new] lines plans for 2014 although steady growth in China in Q1 increased 7.4%.

[Consistent] with the market is encouraging. [Inaudible] also from future markets focused for the end of the year, [this] will be trading about 20,000 and for [Panama] markets, at the rate of mid low 16's. Moving on slide 5, we are a company with a long history [for] the remaining cycles. The interest of our management are fully aligned with the interest of our shareholders as our CEO investment is [sitting] on activities in the safe markets encouraging control together with about 67% of our [capital] stock.

Moving to slide 6, we have [protective] expansion for the next years with another look of 15 [UN] design (inaudible) to 2017 with another [surprise] of 1.1 million. We are an [excellent] market player; Safe Bulkers has 64% with both [for these] days on the [million] 2014 operating substantially outside of [Penns Corava].

We have comfortable leverage. Our [vessel] are at 12.5 million in Q1 2014 in compliance with our low capitals. There is about [45.4] years while guaranteeing the value of five years of [Panama] is 27.3 million as per the [bulk] in [City] and assessment index.

We maintain lean operations with 5,000 [25] vessel for our goal and expenses and generally -- and any expenses in [Topol] for the first quarter of 2014 compared to 5,500 [eight] late of 2015 amongst the lowest in the industry.

In [City Negle] include always public capital and management fee expenses. We can see our financial flexibility with low financing costs and [the late] of 1.695% including the margin all by loans and percentage during the first quarter of 2014.

We seek to expand our business including [power] assessment, claim [value] at the same time with our shareholders as we look at it again for this quarter with the operation of the dividend of 6 cents of common share.

Turning to slide 5, we see our generation of activity during this quarter. We placed six additional liquid [design] investments [moving] vestments on other with (inaudible) investors with a 10-year time [set] contracted upon delivery and two new [equity] design [class] presence which were employed in this port market.

We [collected] 36.3 million operations of [Vox] in relating to [capital] vessel that has another [7131] plus to present the full amount of [recipient] and [they did] the rate of 5%. We have completed the public offering with 2.3 million shares seeking revenue [deeming] perpetual prevent shares of 8% [Cupon] collecting 55.4 million in net operating costs.

Moving on slide 8, we evaluate the performance of our [having] port market which we are out [of it] most of the times as presented at the bottom graph. [Open] days for our [fleet] include complete and new [built]; 64% of anticipated [days] for the remainder of 2014; 85% in 2015 and 90% in 2016; operating expenses [outside] potential for revenue.

We can seek to employ our [vessel] in this market to flexibility that this port market is [low] in billions and has the potential for marketing [costs]. On slide 9 of the top graph, we observe the price increase of our [for set] of [endeavors] in position are the bottom of the market. Currently, the [Panama] is by 27.3 million as per the bulk of the [same] index while at the bottom of the market it was 18.1 million.

On the bottom graph we present our [free] audit book. Currently, we're on a [high] specification vessel and the [factor] of 2015 design vessels from top quality seekers in Japan; mainly to include from China; one in 2014; six in 2015; five in 2016 and one 2017. [As it is] investing during the low part of the same cycle. We've had a substantial [cycle] (inaudible); we remain consistent to management policy by investing mainly in solid [graph] vessels.

Going on slide 10, we present on the bottom graph our data [expectancies]; our data [expectancies] 4,707 for the first quarter 2014 and our daily general [many] expenses were 1,118 consisting of 822 daily [consistencies] and 296 daily public expenses.

In total we paid daily 5,825 to earn our [vessels] and our capital. This figure includes all costs with the exception of financial [deviation] and is amongst the lowest in the industry and consistent with [those] years operations.

On the top graph we present other interest rates of 1.695 including the margin for [both] loans and credit [facilities] during the first quarter 2014 [comparing] loan financing costs. On slide 11, on the bottom graph we present our net [differential] of 12.5 million in Q1 2014 together with a fee expansion.

Our intention is to move in leverage on [net] basis in compliance with our [financial] cabinets. On the top graph, we present our [liquidity] and our [finance] to capital expense requirements. As of May 22, 2014, our liquidity was 316 million while our capital expenses were 365.4 million. We have not included our [contracted] credit. As of May 22, 2014, we also have the ability to raise additional [indebtedness] against [12] UV vessels upon delivery providing us with financial flexibility.

Moving on slide 12, our goal is to [plan] dividends in the amount of 600 per share about the 17 th of June. Safe Bulkers has paid over $200 million in [same] property dividends since [capital] but including 2008. Our chief financial officer, Konstantinos Adamopoulos will now present our financial results.

Thank you Loukas and good morning to all. Slide 14 will present financial highlights for the fourth quarter of 2013 compared to the same period of 2012. Net revenue decreased by 7% to 41.3 million on 44.2 million. Daily investment operating expenses increased by 7% to $4,707 compared $4,412 for the same period in 2013 mainly due to the increase of [accruing] provision expenses as a result of [new] investors that took delivery during the first quarter of 2014.

Interest expense decreased by 2.2 million or [15%] in the first quarter of 2014 from 2.6 million for the same period in 2013 as a result of a decrease in the average outstanding amount of loans and [proximities] and in the [weighted] interest rate of such loans in such facilities.

Net income decreased by 30% to $11.2 million from $16.1 million in the same period in 2013. [Adapted] income decreased by 46% to $8.6 million from $16 million. EBITDA decreased by 14% to $23.7 million from $27 1/2 million during the same period in 2013. Adjusted EBITDA decreased by 23% to $21.1 million from $27.4 million during the same period last year.

Earnings per share [adopted] earnings per share were 15 [10] respectively compared to 21 cents and 21 cents in the first quarter of 2014 calculated on a weighted average number of shares of 83.4 million and 76.7 million respectively. Moving on to slide 15, we present the conditions and the [consideration] of our financial [vendors] for the first quarter of 2104 compared to the same period of 2013. In slide number 16, we present selected operation of highlights for the first quarter of 2014 compared to the same period of last year.

Ownership [available page] increased by approximately 20% for the first quarter of 2014. In the first quarter 2014 we owned and operated an average of 29 [6] vessels and the [key] reservation rate of 98.8% compared to an average of 24.97 vessels and the [idealization] rate of 98 and a half percent during the same period last year.

The average daily [increment] rate per vessels for the first quarter of this year was $2,921 compared to [$18,115] for the same period last year. Moving on to slide 17, we present [definitions] and the considerations of our operation and fundamentals for the first quarter 2014 compared to the same period last year.

The results of our financial performance is clearly demonstrated by the company's consistency in its [dividend] policy maintaining a [prudent] and meaningful dividends [of our] crises; [quarter] vast majority of [winner] peers and by increasing the dividend in the third quarter of 2013. As present in slide 15, our board declared for the first quarter of 2014 a cash dividend of 6 cents per common share payable on June 17, 2014.

Shareholders of record at the close of [bidding] on June 5 th. We have declared and paid dividends consecutively in all the four quarters since our company [developed] six years ago. Also, last month we paid a cash dividend of 50 cents per share on our 8% [dividend] redeemable per shares.

This was the fourth quarter -- four consecutive series preferred shares cap dividend our company has declared and paid. Inevitably, 32,000 (inaudible) 8% [to see] dividend of perpetual preferred shares with par value 1 cent per share and its liquidation [perpetual] $25 per share and [grant] and the underwriters [open auction] for additional 300,000 shares.

The net proceeds from the [power] company including the overall option after deducting underwriting discounts and [estimated] expenses payable by us, we are approximately 55.4 million and the company utilized the net proceeds for vessel acquisitions, capital expenditures and for other [general] corporate purposes.

Summing up representation is slide number 19. Other market outlooks have improved with a [fair] [long-ended] company who have been in shipping for more than 50 years and that we know and believe. We actively managed our [auto] fleet. As a result of our track record and reputation in the industry, we have developed strong long-term relationships with key recipients and [progress] and bonds in Japan, Europe and China.

We have a history and reputation of operating excellence which are reflected in our utilization rate and operating expenses. We maintain low financial costs as a result of our gross [spent] and our [potent] leverages in compliance with our financial covenants. We actively monitor our young [Saleda] 31 [drive-back] vessels of which have been [free] onwards. Our substantial [governors] have established the forming [capital] supports our strong balance sheet and liquidity providing financial flexibility.

We remain committed to improving dividend policy to reward shareholders to payment of dividend and assure future expansion and delivery. You may find our [conduct] in slide 20. Thank you for listening we open for any questions.

Thank you. (Operator instructions). Your first question is from the line of [John Chapel] from [Evicol]. Please go ahead.

Thank you. Good afternoon, guys. I want to ask about the chartering strategy. I know that you're pretty optimistic about the second half of the year however you have 22 ships that come off contract in the next three months. You know on the one hand, it's good to have the operating leverage to the market; on the other hand, it seems that there's still a disconnect between spot rates and time charter rates. Have you thought about kind of staggering the employment of these vessels; maybe putting some on one-year contracts and keeping the majority of them on short term?

Yes, from time to time when the opportunity arises we try to fix six months or one-year charters so we don't have a -- we're using a number of ships on the stock market because there is the cap at the moment. We believe this cap will change in the next two to three months and spot rates will become like they were in the second half of last year.

The spot rates we're about the one-year period rate at the moment. You can fix one period -- one-year period rates around or maybe [20 1/2] thousand or $15,000 a day but you give away the possible outside after the first two months so it's a situation that you would have to -- if you have a pessimistic look on the market, you know one may go and fix more [period] but then the upside would not be materialize.

OK and then with the new buildings that you announced in this release, it's the first time that I can remember where the liquidity bar is a little bit shorter than your capital commitments. Obviously, there's a lot of leverage to pull there. When do you start thinking about taking on some debt associated with the 12 unencumbered ships or how else are you thinking about kind of bridging that smaller gap?

The company is talking to the banks. We have very good perception with a finance in the balance. We have interest to finance at [provisional] margins not far away from what we believe it's you know reasonable for the company to commit and slowly, slowly we will stop doing some agreements with a few banks on both [vessels].

There's not urgency as you see to do it immediately because almost the CAPEX is there; it's covered from the cash on hand and taking into consideration that the revenue from operations is not included in this acquisition so there are chapter [high outs] being paid on the ships, you know, there're are every [money]. So we will do some more; we will try to do more on a revolving basis so the company has opportunity to utilize cash when needed and when it doesn't need it, to be able to pay them back and reduce the cost of finance.

Right.

There are [folks] on the way.

OK, last one for me. That was 13 new buildings and your history as kind of modernizing the fleet as you go along. When you look at either the 2003 or the 2004 built ships in your fleet or maybe even more specifically the assets that you bought in the second-hand market, late 2012, early 2013, which are very much in the money today, when do you think about kind of you know getting rid of those assets and ensuring a balance sheet that way?

Yes, [overall] there is this in mind. We try to do it under a year because of the drop of the stock market all the buyers are skeptical. They are trying to get a better price and they are trying to negotiate CAPEX so there's no point to change the buyers at this point. We have to wait when we see an [avenue] for stock market and then the buyers will be coming along the lines that they should come but even if those ships were sold at a lower price then what we had three months ago, maybe a million less or whatever they're asking but it [was] double ships. So there will come a time when these ships will be sold.

OK, thanks for your time, Polys.

Thank you.

Question from the line of [Christian Weatherby] from [Citi]. Please go ahead.

Good morning, this is [Seth] filling in for [Chris]. Hi, how are you?

Fine, thanks.

If I could start off, you know around this time last year, I think you know the board decided to raise dividend marginally. Just given where you're at on your CAPEX program, how well you're sitting and sort of a constructive forward outlook for rates, do you think at this point we could potentially expect another increase however marginal?

On what front; I didn't catch it; on what front?

From a dividend perspective?

A dividend, yes, a dividend -- we said repeatedly, consistently I would say that it's related to the trade markets so when we see better trade markets, of course we will be focused on dividends. At the moment -- at the moment in this rate market we don't -- I don't think [we want] to discuss an increase in the dividend.

Is it fair to say that they're probably looking for a little bit of an extension on your charters before that may happen; [ranking] of the contracts?

The thing is -- the thing is that you have to realize what you are securing and what you are losing. If you go for one-year charter now you are securing a base of $12, $12.5 thousand dollars a day but you live possibly outside. You go where the stock market may be; you have $9 of $10,000 a day on monthly basis and you have help on the upside. So considering that [second power] of 2013, this sort of vessels were earning $16, $17, $18,000 a day and one-year rates at the time were $15,000, $16,000, I think that we should not look at many ships at 12.5 or 15 thousand at [seven] point of time.

You know it's [September] counts and market is still quiet then we will start to consider several alternatives.

OK, that makes sense. And can I just follow up? Was the cancelled the vessel -- the Cape [side] could you remind us, was that your initiative or did that come from the shipyard or I guess what was driving the underlying cancellation of that vessel delivery?

Yes, that was an old story in 2012. The ship was [over] in 2010 for delivery in 2012 so when the time came, the ship was still in the [dry book] and had another seven or eight months to condition so I think the company decided to cancel the vessel. We have been looking at the chart on that vessel around $24,800 of ten years. We agreed with the charterer; we [recount] on the 20.5 years for [$12.5] million. We agreed with them to make a better ship in Japan and a better ship at a lower price than the one we contracted in China and he was very happy to move the charter two years later to the new delivery position.

So we cancelled the vessel. We applied to the bank for refund. The shipyard objected and made an approach to delay the process and went to arbitration so we have to go prove [try] to get the award and with the award we went to the bank and collected our money and then we collected the money from the shipyard because [sure] before the expiring of the time that the balance was paid, the shipyard came along and they took the money so they have the money from the [stock]. They wanted to delay the process because the company had some interest in the process. I remember one of [$4.5] million so -- I mean 4.5 we have full interest and we are the Japanese big vessel in place of the Chinese of a discounted price, I think we all ended up very well I think on this situation.

Sure, so I mean it seems to be driven I guess more by a customer specific issue rather than you trying to manage your exposure to the Cape market?

Yes, the Cape market, we say the company is not comfortable with working the stock market on Capes. It's a very proud market; big players are involved on the cargo side. It's big names are involved. They constantly control the game and you know on the [owning] side. Also there are a lot of names with big number of ships you know, 10, 15, 20 Capes playing the market so if a company with three Capes goes to play the stock market; it's very difficult to compete. So, all in all we decided to now Cape differences will go against long-term employment so we avoid them -- the opportunity of the Cape market.

OK, that makes a lot of sense, thanks for the call. I'll turn it over.

On the line of [Salte Scancolis] from Morgan Stanley. Please go ahead.

Yes, hello gentlemen.

Hello.

I want to ask you about the new buildings that you recently ordered and whether the size of your flip right now you think is sufficient; you are going to be around 45 vessels upon the delivery. Is this a size that you feel comfortable and whether you're looking to add additional new buildings to your fleet?

Yes, we are not in a hurry. We have a program. We have [15] vessels now. They are all at very reasonable prices. They on an average costing us $31 million. We're below what Japanese big ships are worth today or what they're asking today. We think that we have a very good expansion and growth program. Of course, we will send in the next two years a few of our older ships if the market allows us to do. So I mean for the time being, we are very well placed. We are not in a hurry to do something immediate. You know, I think this is you know investment is a decent order.

And also, I see that out of six new orders, two of them are from China. I know your preference for Japanese built vessels. Almost all your existing vessels are Japanese and most of your orders with Japanese built. Why this two vessels -- were there any special deal and special terms that made you look more favorable to Chinese ships and new buildings?

Yes, we looked into a yacht or two vessels. The yacht in comparison at that time in two three months ago was giving us earlier delivery positions. You know about the year earlier so it's -- in 2015 it's two deliveries and at that time Japanese yachts were offering late 2016 so we thought we should go for the earlier delivery; also the price was more attractive.

So we made the exception. It's two ships out of 15 you know. If the past we [organized] when Chinese ships -- when there was a material difference in the price and better delivery dates. We believe you know also these yacht after we mailed the checks would deliver on time so and it's an up and running yacht with good track record so we believe that we will not get any surprises there.

And can you explain to us the construction process. Are there any major differences in terms of supervision between Chinese and Japanese shipyards? Are you going to have people overlooking the construction in the Chinese shipyards?

Yes, it's also new [equitable] design built design. Of course, Chinese shipyard design always have small question mark on the actual [diploma] but it won't be [marks] away from what they say and of course you need a strong team and supervision so it's going to cost the management a big amount of money but the company pays a fixed fee for supervision costs so it will not be unduly sacrificed or even a decision that was going to be given. Some of this is under management front and not on the company front.

Thank you Polys. I want to ask you about your outlook for the market and if I remember on the previous call, you mentioned that you wouldn't be surprised to see Panama [x-rays] reaching $20,000 by the end of this year. Is this a position that you currently have or something has changed on your outlook given the weakness of the last three months?

Yes, I see the market will develop into a market like last year of two halves. It looks like the first last is lost and other [earnings] around $10,000 on the [Panamexis] on the stock market. The second half of last year there are $15,000, $16,000 a day so I see absolutely no reason why this year we won't have the same -- the same exact. We need better Cape size market. This is definitely needed to push the freight market of smaller ships higher.

In last year you remember they stopped it slowly beginning in June beginning July and they [came] in September so it will be the same story this year and with the [average] price falling below $100 [ton], we believe that [royal] will be on the Cape size were normal. In the second half of the year it is going to [dictate] the market for everybody.

Can you explain given the fact that [Idenor] price is already low, that there's still production in China is already at high levels, why the Cape size market is so weak and what is going to be the driver that we shall be expecting in the second year of the year to move the rates higher?

Look, I think there is also lack of -- lack between one price [viral] comes down and when trade markets go higher. At the moment they have big stocks in the ports; they have 110 million idle sitting in the Chinese ports according to the latest reports so I mean they have the Chinese -- they can call the game now. And, there will be a point that they will come back [marginally] in the market; stop fixing ships again more actively and maybe this will affect [flavor]. Now, if this is in July or is in the summer in August or in September, it remains to be seen but it will happen like it happened last year.

Thank you very much for all your answers.

Your welcome.

On the line of Shawn Collins from Bank of America. Please go ahead.

Hi guys, good afternoon. Can you - you know, just following up on what [Fotis] said, can you just talk about what you observed in the first quarter and were you surprised by the first quarter market slow down and rates especially given you know the large run up in rates at the end of the fourth quarter?

Yes, now I'm not surprised in the first quarter. Where we were a bit surprised was in net [revenue] and not in the Pacific market; in the Atlantic market. We were expecting a stronger Atlantic market [definitely] in May than what we had. At least in my [capital] of seven, eight years the first time -- if not the first maybe the second time actually Atlantic market in April and May in the spring to be lower than the Pacific market.

I think this has a lot to do with the grain export and the cancellation of CAPEX by Chinese buyers because of certain events in China related to the [bird] flu and other things. And, the [crashing] margins being used to very small levels so they decided to cancel on capitals. Also you know the problem in Argentina, the economic problems and the devaluation on their currency, it pays them to keep the commodity in the silos and sell it later because of the devaluating peso.

I think this fact -- the cap is there and it will be moved. The fact that Argentina is 75% bound on export than on Ukraine then it was at this stage last year I think it speaks volume. Also, the fact that the jobless [coming] from South America it means we have less congestion as well that we get always traditionally this time every year in the South American ports and this keeps vessels turnaround time shorter and this has affected the market.

Now, there is a good possibility this will have on the year. This extra volume from South America comes to the market together with a good export [decision] from U.S. [cap] area and this should give a double boost to [pay] rates. So we are optimistic I would say but you know the surprise to us was not the first quarter; was last two months.

OK, great, thank you for that insight. I appreciate it; just a second question. Just turning to the Preferred Series C rates that you did in the quarter or on April 30th, can you just comment on how you think about you know the preferred and the rate on that of 8% and the fact that that it's perpetual versus lower cost bank financing and is that a tradeoff because it's fixed and it's perpetual versus bank and it would have to be paid sooner or you know what was the decision-making process behind that?

OK, you know that we have the lowest and a very reasonable debt and they basically pay very low. Now, let's say equity stocks we always consider that we need to have let's say comfortable leverage and so when we do a move, we are going to finance these moves from debt and equity. Many companies have already boats out there which [similarly] more expected costs and you know a boat counts like a debt while the preferred is equity and always we maintain a very comfortable stature.

They take a percent but the amount is quite low and we have the flexibility to repay up to the [fixed] period of time. So we think that this policy of having a good stature is based on our experience -- the [historical] experience of the market sometimes do well; sometimes do -- go down and the company has [comprised] of profits over many, many years so our intention is to maintain low leverage and continue to have this comfortable stature. For this occasion right now, we thought it very useful to -- I mean we had this expansion that it described in [several] 15 vessels and we found it's a very reasonable [fact] with a portion of equity.

OK, that's helpful, great.

Without by looking also -- [it's a very] quarter we saw dilution of the [accruing] sale [on] this price.

OK, that makes sense; that's great, thank you very much for the time and insight guys.

Thank you.

(Operator instructions). There are no more question. We will now pass the floor to Dr. Barmparis for closing remarks.

I want to thank you very much for this conference call. We look forward getting together with you in the next quarter. See you in Barcelona. We will be traveling in Greece next week. Thank you.

Thank you for your call today. Thank you all for participating. You may now disconnect.