Safe Bulkers Inc (SB) 2015 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss first quarter 2015 financial results. Today we have with us from Safe Bulkers, Chairman and Chief Executive Officer Polys Hajioannou; we have President, Dr. Loukas Barmparis; Chief Financial Officer, Konstantinos Adamopoulos and Chief Operating Officer, Ioannis Foteinos. 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 Capital Link at 212-661-7566. I must advice you the conference is being recorded today, Tuesday, June 9, 2015.

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 21-E 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 our 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 in the event to reflect any change in the Company's expectations with respect thereto any change in events, conditions or circumstances on which any statement is based.

Let me 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 the webcast. Let's move on to discuss the financial results for the first quarter of 2015, which were announced yesterday after the close of the market in New York.

We're in slide three where we present a synopsis of the market outlook. The market has been substantially under-performing in the past year, both for Capes and Panamaxes. For Capes, five-year average is at [$14.2000] a day, whereas the year-to-date average is at $4,300, [based on] the market rate at the region of low cost. Same for Panamaxes, market is selling at low levels. Five-year average is at $10,500 per day and the year-to-date average is at $4,800. And the spot market is at $4,900.

Driver for our drybulk transportation services is China. Coal imports have declined by 37% to 69 million tons according to the National Development and Reform Commission, as to the impact of the government's clean air and renewable energy policies. Electricity production increased from minus 7.6% year-on-year as of February 2015 to plus 1% year-on-year as of April. These are signs of economic activity improvement in April.

Industrial production increased slightly from 5.6% to 5.9% year-on-year in April 2015. Newly started construction projects in total increased by 9.5% year-on-year in April 2015. Growth is slowing in the West, increasing in the Central area, while the contraction in the East has started to ease.

Existing housing prices witnessed 0.2% positive growth since last month, the first time since February 2014, which indicates house prices are stabilizing.

On slide four, we present a brief outlook of the order book, which has been the main driver of our market. The order book remains large and accounts for about 7%, 8% and 2% of the existing fleet for 2015, 2016, 2017 respectively. Despite its [slope], it's still substantial for 2015 and 2016. However, slippage, delays or conversions are expected due to the very low market and is expected to ease the oversupply effect.

Looking on the table on the right bottom of the slide, we present the newbuilding deliveries in comparison with the vessels exiting the market and going for scrap. Year-to-date about 21.1 million deadweight tons have entered the market and about 18.8 million deadweight tons have been sold for scrapping. Therefore the increase of the fleet is only about 2.1 million deadweight tons year-to-date, in comparison with the net increase of about 32.8 million deadweight tons in 2014. Scrapping may reach the total figure of 30 million, 35 million tons in 2015. New regulations to be enforced are costly to comply with and it's expected to push more ships to scrap, as the charter market remains low. Scrapping may partially counterbalance heavy order book.

Moving on to slide five, on the graph we present our fleet and order book. Currently, we own a fleet of 34 high specification vessels with an average age of 5.9 years. We have pushed back the delivery of 6 out of 10 newbuilds. Thus our delivery program is as follows; two in 2015, three in 2016, four in 2017 and one in 2018. By 2018, one-third of our fleet is expected to be comprise of eco-ship vessels.

Turning to slide six, we evaluate the performance of our chartering policy, against the spot market, which we outperform most of the time, as presented on the bottom graph. The open days for our fleet, including existing fleet and newbuilds are 65% of anticipated ownership days for the remainder of 2015, 88% in 2016 and 91% in 2017. We'll have a number of vessels open in the next period and we'll maintain flexibility in this weak charter market.

Going to slide seven, we present on the bottom graph our daily operating and general and administrative expenses. In G&A, we include public company and management fee expenses. In total, we paid daily $5,968 to run our vessels and our Company. This figure includes all costs, except depreciation and financial expenses. It is amongst the lowest in the industry and contributes significantly to a relatively low breakeven point, which is very important, especially during the weak market. The increased figure of daily OpEx is mainly due to the increased number of dry-docking costs, which are (inaudible). On the top graph, we present the average interest rate of 1.84% including the margin for all bank loans and credit facilities during [2014] and maintaining low financial costs and preserving our financial flexibility.

On slide eight, on the bottom graph, we present our net debt per vessel ratio at $9.7 million in Q1, 2015, together with the fleet expansion. The average age of our fleet is 5.9 years, while currently the value of a vessel -- of a five-year old Panamax is about $16.4 million as per the Baltic Exchange Sale and Purchase Assessments Index. Our intention is to maintain comfortable leverage on a net debt per vessel basis and comply at all times with our financial covenants. Two breaches in MVC covenant at quarter-end were of technical nature and have been rectified, as the Company has substantial liquidity, shown on the top graph.

As of March 31, 2015, our liquidity was $430.7 million, while our capital expenditure requirements were $259.5 million, [expanding] until 2018, following [recapitulation] agreements for delayed deliveries for 6 out of 10 newbuilds. We have not included our contracted delivery until 2018, providing us with better financial flexibility.

Moving on slide 9, our Board has declared a dividend of $0.01 per common share. At the low prevailing charter market conditions during this year, our Board considered prudent to adopt a dividend policy to lower levels, which will further strengthen our liquidity and balance sheet. Safe Bulkers has paid over $200 million in consecutive quarterly dividend since the Company's IPO in 2008, in line with our policy to reward our shareholders.

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

Thank you, Loukas and good morning to all. On slide 11, we present selected financial highlights for the first quarter of 2015 compared to the same period of 2014.

Net revenues decreased by 22% to $32.1 million from $41.3 million, mainly due to a decrease in charter rates. Daily vessel running expenses increased by 4% to $4,872 compared to $4,707 for the same period in 2014. Net loss was $6 million for the first quarter of 2015, for a net income of $11.2 million during the same period last year. Adjusted net loss was $4.6 million for the first quarter of 2015, from adjusted net income of $8.6 million during the same period in 2014.

EBITDA decreased by 68% to $7.6 million from $23.7 million during the same period in 2014. Adjusted EBITDA decreased by 57% to $9.1 million from $21.1 million during the same period in 2014. Loss per share and adjusted loss per share were $0.11 and $0.10 respectively, compared to earnings per share and adjusted earnings per share of $0.13 and $0.09 in the first quarter of 2014. Calculated on a weighted average number of 83,462,059 shares and 83,441,135 respectively.

Moving on to slide 12, we present definitions and reconciliations of our financial fundamentals for the first quarter of 2015 compared to the same period of 2014.

In slide 13, we present selected operational highlights for the first quarter of 2015 compared to the same period of 2014. Ownership days increased by 10%, available and operating days increased by approximately 8%. We owned and operated an average 32.7 vessels in the fleet utilization rate of 97.3% compared to an average of 29.9 vessels in the utilization rate of 98.8%. The average daily time charter equivalent per vessel was $9,440 compared to $13,921.

Moving on to slide 14, we present the financials and reconciliation of our operational fundamentals for the first quarter compared to the same period of the [first quarter] of 2014.

As presented in slide 15, our Board of Directors declared for the first quarter of 2015 a cash dividend of $0.01 per common share, payable on or about June 26, 2015 to shareholders of record at the close of trading on June 19, 2015. We have declared and paid dividends consecutively in all 28 quarters since our Company's IPO seven years ago, and we will continue to be prudent, taking into account market conditions and profits going forward.

Last April, our Board of Directors declared a cash dividend of $0.50 per share on our 8% Series B Preferred shares, a cash dividend of $0.50 per share 8% Series C Preferred shares and a cash dividend of $0.50 per share on our 8% Series D Preferred shares. Each dividend was paid on April 30 to shareholders of record as of April 24.

Summing up our presentation, as the market outlook is a bit challenging, we are prepared as a long-term oriented Company. We have been in shipping for more than 15 years with outstanding record and reputation. We maintained low financing costs, as a result of our low spreads and our prudent leverage, in compliance with our financial covenants. We have expanded our capital expenditure requirements until 2018 through the delay of 6 out of our 10 newbuilds. We remain committed to improve the dividend policy to reward the shareholders and at the same time, ensure future expansion and delivery.

You may find (inaudible). Thank you for listening and [we'll move on to] questions.

(Operator Instructions) Jon Chappell, Evercore.

Just a couple of quick questions from the press release. First, you mentioned that you fell out of compliance with covenants on two of the 15 loan facilities that you subsequently restored. How much of the $431 million of liquidity was required for this, just so we have a better sense for what the current liquidity stands at today?

All together, it was about $6 million, I would say.

Okay, not much at all. Secondly, you also mentioned the discussions with the builder of Hull 1148 regarding some, I guess, issues there. Can you give an updated -- just a little bit of update on what's going on there? And we had originally had that delivering early this quarter; an updated timing on the delivery for that ship.

Look, we are in certain discussions with the builder. We think that certain detailed specifications would be met and we expect that he will do the right thing and fix the specification of this vessel, and will be able to deliver the vessel as per the contracting specifications. So we monitor the situations and if there is something, we will update you further. So we don't want to enter in detail discussions about that.

Can you just -- you laid out the fleet growth; I guess, two this year, three next year, four in 2017 and then one in 2018. I know you didn't answer the delays previously, but still a little bit different. Can you just give us an update on which ships are delivering in which years, since they're not in the fleet list anymore?

Look, it's Polys speaking. Generally, the yards are very reluctant when we report which yard is doing what. This is an item that we have to keep -- we keep all our people involved happy, because there are pressure from other people as well. So we decided that it's better not to report which yard and which ship it goes where. So we basically say the number of ships and also the related capital expenditure requirements per year also, per year.

So, I'll just push back the one that we had delays in 2016, I guess. Finally, it seems like you have adequate liquidity to get through this difficult time, but still there are six ships in the fleet that are over 10 years old, is there a two-tiered market for those ships right now? Have you entertained the thoughts of disposing of any of those?

Look, the two-tier market is always between over 15 and under 15 years old. So hopefully, by the time our ships become over 15, the market will not be the same. So we still have another two, three years before our older ship reach 15 year mark. So we hope that this market doesn't stay for another [three] years like this, because then there would be many causalities around.

Christian Wetherbee, Citi.

This is Alex Hahn in for Chris. Just we were wondering what your thoughts were on rates. We don't see much downside to this story, but we are wondering if there were any incremental developments pointing to a recovery in the shorter term?

Yes. Charter rates, it's fair to say that we are at the very low of the market right now. I think we won't see lower than the present levels. The market is scraping around those levels with the small or very small encouraging signs on certain routes, depending on the time of the year, like the export South America market at the moment is doing little bit better. It's very disappointing in the Far East. But we think we are at the bottom. The big question is how long we stay at these sorts of levels and not even we will go any lower. You see at those sorts of levels ships of 1997 build, 1996, 1998 builds, under 20-years-old, they are going for scrap. So, it's not the question if this rates go lower, it is a question how long they stay at these levels.

So, piggybacking on that, we are wondering at what point the longer-term charters could be more economical.

Look, to go to long-term charters, you have to make money. If you are making money, it's worth going into longer-term charters. But if you are below your breakeven cost, it's no point to go on long-term charters. We can only go between spot and short period, which is -- short period is something like four months to six months or four months to seven months, half a year maximum. So by going to half a year, in case the market changes faster, you don't lose much. To go into a one year or two year charters, we do not agree that we should do this thing now, because it's -- rates are well below breakeven.

And, finally, it seems like the delay of vessel delivery seems to be a continuing headwind, given the order book and buy issues. Are you sharing a similar dynamic across the industry and also have you thought of canceling some vessels and would that be economical at this point?

Yes, it's not economic to cancel. But it's possible if somebody has good relations with the yard over the years, and you are a future client of those yards, to manage and do certain adjustments on the ships that will be built and when they will be delivered. That's why we want to keep this information. I mean the details of the information, a little bit under cover, but we are giving the new delivery positions. I think that deals with shipyards are possible from other owners as well and generally the shipyards, with long-term clients, they tend to cooperate.

Fotis Giannakoulis, Morgan Stanley.

I understand that your operating cash flow was positive, but it seems that all the operating cash flow goes for the preferred dividend, which means that you have to dig from your existing liquidity for your debt repayments. My question has to do with how much can you further enhance your liquidity. You obviously have $430 million, but what other measures can you take in order to enhance your liquidity? For example, is there a possibility of waving some of your debt repayments or doing some financing transactions that will give you more cash on hand?

Look, I mean, we are always working quite in an organized manner. So we have enhanced our liquidity. You can see that we are quite comfortable, even in the worst risk scenario. Of course, we are cooperating with shipyards. Means of increasing liquidity are very clear, we are cooperating with shipyards to push vessels with forward delivery days, which means that then we save some CapEx requirements, would reduce CapEx requirements. The second point is that -- I mean we cooperate with banks. We have a low MVC right now. I think we feel very comfortable with our liquidity. We have also reduced the dividend.

May I ask you, this scenario, the worst case scenario that you have run and make you feel very comfortable. Under the current rate environment, how long can your liquidity last? Is it two years, three years, five years, just to have a sense of what is the worst scenario?

So, coming back, working in a scenario, I mean, we think that the market will be quite low for the next three, four quarters and in our, let's say, worst case scenario, we feel that the market cannot be so low as it is today for more than two, three years. So, our risk scenarios are based on this assumption.

Okay, three years is still plenty of cash from what I understand?

Three years, that is our risk scenario in the worst case.

And given the fact that you have so much cash and most likely you expect a few quarters of this current [spot] market, at what point would you be willing to sacrifice part of your liquidity to acquire vessels, they are in the market and they seem to be in -- at very attractive prices, given many of your peers are forced to sell vessels. And also, if you would be looking to buy ships at the current low prices, would that be vessels in the water, would that be potentially discounted ship build -- newbuilding vessels that you would be planning to order that and how do the shipyards see the current environment in respect to pricing and improving the terms for potential buyers?

In the past, we have -- I mean, we cannot tell you what we will do in the future, but we can tell you what we have done in the past. So, in the past, we have, in the low market, we have put newbuild vessels, which I think it's not the right thing to do right now and also in the lowest market, where no one was buying, we bought four second-hand vessels just before the previous, let's say, higher part of -- I mean, when we have a spike in the cycle. I think the Company is monitoring very carefully all situations and we are prudent to act. But we cannot say when and what we'll do.

Can you give us a few data points that will make you feel more optimistic about the market? What makes you think that it's going to be three, four quarters until the improvement. Steel production in China seems to be declining. The coal market is pretty weak. What are we expecting to see on the demand side as a positive catalyst for the drybulk market?

Look, the grain cargoes are moving positively, the mineral cargoes are moving positively. The problem is the intervention of Chinese government into the coal imports in China, which we believe is done for strategic reasons and not demand reasons. China is consuming 3.5 billion tons a year of coal and right now they are reducing their imports dramatically from last year, and this year even more. And on an annualized basis, it is down from 400 million tons couple of years ago, is down to 200 million tons, out of [3.5 million] tons that they need. At the same time, they are dropping the price of coal and they are achieving like this a strategic plan that they have and they are buying cheaply coal mines all over the world; in Indonesia, in Australia, in South Africa, in East Africa, in other places. They are investing heavily in coal mines, because they consider coal strategically important for them in the -- as an energy source. And so, overall, we are not optimistic for the next 12 months. Thereafter, we believe scrapping and delays of newbuildings and no ordering will help the market with a slightest improvement of demand to push things higher. So, already we're seeing a very good response from scrapping and the net increase of the fleet so far in the first five months has been just 5 million or 6 million deadweight, which are very encouraging numbers. This month was the first month that we had a negative growth of the fleet. If you -- across all sizes, especially on Capes, we had 25 scrappings and only five deliveries, with the latest data we have now in our hands for May. So I think the market will clear -- as it does always, will clear itself out, but it needs time and we think this will happen in the next 12 months. Now, will the recovery will be that strong? It depends, of course, on demand also. So, we are not optimistic for the next 12 months and we are cautiously optimistic thereafter.

And would you be able to give us your demand outlook for the next couple of years under your base case? And also, if you can comment on this recent action plan of the Chinese government about One Belt, One Road concept and the funding that the government has announced? How do you think that it could shape this base case outlook that you might have and how long is this going to take in order to impact the steel market and the drybulk market overall for shipping?

I think the measures they are taking now, we will see them after three or four quarters affecting the drybulk market. Now, it will be a massive change or will be a small improvement, this remains to be seen. I think that that market that we already have for one year and terrible market the last five, six months. It does no harm to us if it stays another 6 or 12 months. So, I think the market will be -- the recovery will come out of a combination of improved demand and improved supply. So both of these two things must happen to see a better market.

Now to go into more details, we believe the main condition has to be no intervention by Chinese on their import substitution, to allow import substitution to happen, i.e., the cheap coal price and the cheap iron ore price to drive imports, as opposed to domestic production. But, you know, with the China's government, they have other plans, we cannot read into their minds and into their procedures. So, we just follow the trend. We believe that what we said before that on coal, is a major, major commodity for Chinese. They would rely on this in the foreseeable future. Is not that their imports will go to zero of coal. They are buying mines all over the world. So, it's not -- it doesn't make sense if it was a country that was planning not to import in future, to be buying mines all over the world, coals mines are very, very cheap price, hence they want to buy the cheap mines and then they want to start the imports.

Shawn Collins, Bank of America.

So, I have a question also on liquidity. So, two out of your 15 loans had covenants that were out of compliance, not covering a large amount at all, only $6 million, and you cured both covenants via collateral and refinancing. Can you just comment on your overall relationship with the banks and the tone of the conversations that you had with the banks on those two covenants?

Look, the banks generally the -- we have had a very good relationship, both in the good times and at the bad times and most of the banks understand the situation and because also they believe in us. We are very proactive and so observing the covenants. And since we make repayments on our own volition, before they come to us and they check the valuations. We do not have any issues in the past and we still don't have any issues. And the things that we have a six-year old fleet on average with a lot of the spirit, let's say, considerable life of vessels left. So, the banks feels that they can offer some relaxation, because there's still, let's say, room to recover in the future.

Also just, I mean the thing that it was quite technical breach of covenants, which was [prudent], we have excellent relations; you understand that, because we have such a huge liquidity base. So, this is not -- we don't have any problems with our banks.

And then just one of the two loans you refinanced the facility, can you just talk about, if the refinancing, how that differed from the current facility in terms of rate, and obviously the duration?

All refinancings will be done only if we have more favorable terms. Otherwise, we'll reach agreement with the existing banks.

And we don't provide details for each backlog, what we provide is a total cost which we can monitor on a quarter basis, our [total] cost.

But in general we believe that, let's say, the loans that we have secured on the newbuildings, they are among -- the terms are among the best you can find in terms of pricing and structure .

And just one last question. So on page three of your slides, the fourth bullet point just states the contraction in the East has started to ease. Can you just provide some color and context around that and what you're kind of seeing out there in terms of that please?

Sorry, which point was that on the slide there?

Yeah, no problem. Page three, just where you cite the contraction in the East has started to ease. Just would love to get some color on some of the positive data points that you might be seeing there.

This is a general view of -- that describes the situation in China and so we know that China is quite diverse and this is what it has reported. What we pay attention more is that the last month the housing prices -- recently the housing prices were stabilized, which is a good indication that may be in the future we'll see further development in this sector.

(Operator Instructions) And there appear to be no further questions at this time, gentlemen. So I'll pass the floor back to you for closing remarks.

Thank you, Bob. Thank you very much for being with us in this conference call and we are looking forward to be together in our next quarter results release. Thank you.

Thank you very much indeed from all our speakers. That does conclude the conference for today. Thank you for participating. You may now all disconnect. Thank you Dr. Barmparis, thank you gentlemen.