Safe Bulkers Inc (SB) 2015 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 the second quarter 2015 financial results. 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-answer session. (Operator Instructions) Following this conference call, if you need any further information on the conference call or the presentation, please contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today. 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 markets 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 2015, which were announced yesterday after the close of the market in New York.

We're in slide 3, where we present the synopsis of the market outlook. On the top of the slide we present the comparison of the daily average 4TC, higher for both Capes and Panamaxes. Capes for the full 2015 have been trending lower than their expected periods of 2014.

During June 2015, market conditions pushed charter market higher and for the first time it is higher than 2014. But as implicates of trading at $14,500 in converse to the year-to-date average of $5,500 and the five-year average of $15,800. Same for Panamaxes, market has been continuously trading at lower level than 2014, but since June market has outsmart 2014 reaching a high of $9,400. But I think the Panamax market is trading at about $8,500 to $5,500 for the year-to-date and the $10,100 for the five-year period. On the bottom on this slide, we present certain key factors affecting the southern market. Iron ore experienced increased imports from China in June of about 6%, but overall demand remained stable in comparison to last year. This is also reflected in current improvement of the Cape's market. Chinese iron ore inventories dropped by 7% and presently are at the lowest level since November 2013. This is subject to favorable pricing of iron ore is expected to enhance restocking, which could potentially provide some further support to the Cape's market.

Moving on to coal market, the major event of this year is the significant drop of Chinese imports, which is continuing. It is equivalent to 38% drop compared to the same period last year, reaching 99.9 million tons only.

On the other hand, continuous growth of coal imports from India is counterbalancing this negative effect in the market. Up to-date India has imported about 110 million tons, which is approximately a 31% increase to last year. In the grain market, imports of soybeans from China during June increased by 30%, reaching 8.1 million tons. This has also been reflected to the improved charter rates in the Panamax market. Year-to-date, imports have increased about 3% in comparison to 2014. According to USDA, volumes of US wheat and grain exports will be higher this season and this historically lasts from August to October.

On slide 4, 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 6%, 9% and 2% of the existing fleet for 2015, 2016, and 2017 respectively. Due to the weak market conditions, new building orders remain low during 2015. Only 3.4 million dwt or 44 vessels have been ordered in the first half the year, signifying a drop of 93% year-on-year. Therefore, order book for 2018 is close to zero. However, order book remains a big problem. Slippage, delays and conversions materialized during this weak market period will ease the oversupply effect.

Our order book (inaudible) is finally spread until 2019. Looking on the table on the right bottom of the slide we present the new build deliveries in comparison with the vessels exiting the market and going scrap.

Scrapping activity continues at a very high level totaling 20 million dwt or 275 vessels year-to-date in comparison to 15.4 million of 2014. During the first half of 2015 deliveries were 26.6 million dwt in contrast to 20 million of scrap vessels. This represents a net fleet growth was about 0.5% only -- is forecasted to grow by 2.5% for the full year. Capesize fleet is expected to grow by 1% and Panamax 2% in 2015.

Moving on to slide five on the graph, we present our fleet and order book. Currently, we own a fleet of 36 high specification vessels with an average age of 5.7 years. We have pushed back the delivery of 7 (sic - see slide 5, "8") new builds, thus our delivery program is as follows. Three in 2016, three in 2017, one in 2018 and one in 2019. By 2019, one-third of our fleet is expected to be comprised of eco ships vessel.

Turning on to slide 6, evaluate the performance of our chartering policy against the spot market, which we outperformed most of the time, as presented on the bottom graph. The open days for our fleet including existing fleet and new builds are 57% for anticipated ownership days for the remainder of 2015, 87% in 2016 and 90% in 2017. We have a number of vessels opening in the next period and we maintain flexibility in this weak charter market.

Going to slide 7, 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've paid daily $5,540 to run our vessels in our company for the first half of 2015. This figure includes all cost except depreciation and financial expenses. It is almost the lowest in the industry and contributes significantly to a relatively low break-even point, which is very important especially during weak markets.

On the top graph we present average interest rate of 1.85% including the margin for all bank loans and credit facilities during the first half of 2015, maintaining low financing costs and preserving our financial flexibility.

On Slide 8, on the bottom graph we present our net debt per vessel ratio at $10 million in second quarter of 2015 together with the fleet expansion. The average age of our fleet is 5.7 years while currently the value of a five year old Panamax is about $16.6 million as per Baltic Exchange sale and purchase assessment Index.

Our intention is to maintain profitable leverage on the net debt per vessel basis and comply at all times with our financial covenants. As of June 30, 2015, our liquidity was $355.6 million, while our capital expenditure requirements were $226.5 million extended until 2019, following agreements for delaying deliveries of seven of our contracted new builds. We have not included [Technical Difficulty] till 2019, providing us with further financial flexibility.

Moving on to slide 9, our Board has declared a dividend of $0.01 per common share, at the low prevailing market conditions during this year both adopted a dividend policy, which will further signal liquidity in balance sheet. Same markets have paid over $1 million in consecutive quarterly dividend since the company (inaudible) in 2008, in line with our policy to reward [Technical Difficulty]. Our Chief Financial Officer, Konstantinos Adamopoulos will now present our financial results.

Thank you Loukas and good morning to all.

In slide 11, we present selected financial highlights for the first quarter of 2015 compared to the same period of 2014. Net revenue decreased by 15% to $31.8 million from $37.2 million mainly due to a decrease in charter rates. Daily vessel operating expenses decreased by 9% to $4,048 compared to $4,455 for the same period in 2014. Net loss was $4.4 million for the second quarter of 2015 from net income of $2.1 million during the same period in 2014.

Adjusted net loss was $3.9 million from the second quarter of 2015 from adjusted net income of $3.2 million during the same period last year. EBITDA decreased by 36% to $10.1 million from $15.1 million.

Adjusted EBITDA decreased by 34% to $10.7 million from $16.3 million during the same period in 2014. Loss per share and adjusted loss per share was $0.10 and $0.09 respectively compared to earnings per share and adjusted earnings per share of $0.01 and $0.02 in the second quarter of 2014 calculated on a weighted average number of 83,470,000 shares (inaudible) 3,444,000 shares respectively.

Moving on slide 12, we'll present definitions and reconciliation of our financial fundamentals for the second quarter of 2015 compared to the same period of 2014.

In slide 13, we present selected operational highlights for the second quarter of 2015 compared to the same period of 2014. Ownership days increased by 10% available and operating days increased by approximately 11%. We owned and operated an average of 34.1 vessels and achieved the utilization rate of 99.5% compared to an average of 31 vessels and a utilization rate of 98.4%. The average daily time charter equivalent was $8,615 compared to an $11,642.

Moving to slide 14, we present definitions and reconciliation of our operational fundamentals for the second quarter compared to the same period of 2014. As presented in the slide 15, our Board of Directors declared for the second quarter of 2015 a cash dividend of $0.01 per common share which was payable on or about August 28, 2015 to shareholders of record at the close of trading on August 18, 2015. We have declared and paid dividends consecutively in all 29 quarters in our company's IPO and will continue to represent it taking into account market conditions and prospects going forward.

This month, our Board of Directors declared a cash dividend $0.50 per share on the 8% series B preferred shares, a cash dividend of $0.50 per share on 8% series C preferred shares and a cash dividend of $0.50 per share on 8% series D preferred shares. Each dividend was paid on July 30, 2015.

Summing up our presentation, as the market outlook is still challenging, we are prepared as a long-term oriented company. We have been in shipping for more than 50 years with outstanding track record and reputation.

We maintain low financial costs as a result of our low spreads and a prudent leverage, always in compliance with our financial covenants. We have extended capital expenditure requirements until 2019 through the delaying of seven new builds. We remain committed to further dividend policy to reward shareholders and at the same time ensure future expansion and deleveraging.

You may find our contact details in Slide 16. Thank you for listening and we're ready to accept questions.

(Operator Instructions) Chris Wetherbee, Citi.

Good morning. This is Prashanth in for Chris. I guess my first question is on the operating expense side, it looks like your vessel operating expenses have come down from 2014. I understand I assume that fuel is a bit of a tailwind but just wanted to get a sense of, is there further room downwards on operating expenses meaning that vessel margins could improve given the rate environment?

Operating expenses are influenced by the number of dry dockings and so the second quarter we didn't have dry dockings to show. This is an effect of not having any dry docking period, while in the first quarter we had three. Now we are doing intensified efforts to reduce the capital OpEx. And I think, I mean if you take out the effect of dry docking, we expect a small reduction in operating expenses. However, the effect of the full year because of the success in number of dry docking, we expect a higher number than that.

Okay, that's helpful. And then turning to the market environment, on coal with the Indian counterbalance to the Chinese drop, how sustainable is that through the year and what's driving that increase in coal demand from your view?

Yes. The coal demand of India is expected to keep increasing for the next few years. And there are optimistic data coming out of India. On the other hand, the coal imports of China are at the lowest level in the recent years on annualized rate of around 200 million tons from 400, that was back in 2013. Of course, Chinese government is heavily interfering with the imports of coal as they are planning to close certain mines in China and they want to control the production of domestic coal. So if we see in 2016, Chinese government not interfering with the import substitution, given the very low price of coal, we expect that we should stop seeing a decline of imports in China from the current annualized rate of 200 million tons. We expect a slight improvement next year, but it all depends whether the government will allow this import substitution to take place.

Okay, thanks. And just one last question, scrapping activity, I know has been very heated so far this year, but seems to have taken a sequential step down. Do you expect a resumption in accelerated scrapping through the back half of 2015 or are these at a more normalized level that we should expect?

Yes. Under normal circumstances, the amount of scrapping for 2015 has already been covered in the first six months. If the market stabilizes in the second half of the year, we should expect to see less scrapping, but still there would be some shifts that they cannot avoid scrapping. Now over the next year, we will see more scrapping. It depends on how strong the freight market is. If the freight market in the first half of 2016 underperforms again, we expect the scrapping to be resumed and most importantly I think, is not if scrapping will resume, most importantly if the market underperforms again in the first half of next year, the good thing out of it will be that the order book -- there will be no orders placed like we have this year. This year has been very slow on new orders, which give us great potential for 2017 and beyond. If you see the order book 2017 and beyond, it is very, very weak. So, hopefully if we clear 2016 and we don't see orders in 2016, because I don't think we will see orders in 2015 either. If we clear also 2016 without orderings, I think that in subsequent years we should expect any slightest improvement of demand so immediately that will be reflected in improved freight rates.

Thank you for that very detailed answer. That's it from me. Thanks.

Thank you.

Shawn Collins of Bank of America.

Great. Thank you. Good morning and good afternoon, Loukas and Konstantinos. Hey sorry, I believe you delayed the new builds further this quarter the eight or nine ships, I think it looks like, you pushed one out to 2019, which is great I think last quarter, the furthest it was pushed out was 2018. Can you just talk about the talks with the yards and the new negotiations with the yards on those delays and if there was any financial penalty involved or any adjustment there that you could comment on?

Yes, look there is very strict confidentiality closes as you understand, it's a sensitive issue, we are not going to give details of what we have agreed. And I think that most important is the company -- our company's long relation with the shipyards. It's not since 2008 when the company became public; it's a long history, starting since 30 years ago of doing business with yards and there are certain points of time that special consideration is being taken place. So, I think we are using the relation to achieve better result for the company, and we think this market is prudent when the possibility is there to push the order book as further out as possible. Now, if the market recovers same day, the company has enough ships in the water to make the benefits. So the prudent thing is to keep pushing the order book back.

Okay. I understand appropriately. It should be confidential business reasons. But nice to see that you pushed little over further and included 2019.

I think this is most important the fact that this one has been achieved.

That's right. Absolutely, and that's my focus not on how you got there. Just curious. Second question, obviously it's a difficult point in the cycle. Can you just -- and liquidity is very important in the current environment as you have stressed in the past and have done a very great job managing. Can you just talk about your most recent relationships with the banks and how supportive they have been?

The banks, we have very good relationship we don't have any issues. I mean, we have 12 banks doing business with the company; all the major ones. We have a very good understanding from them and wherever there is a need to make any adjustments on terms that is good to receiving from our anchors with minimal cost to make certain accommodations. The liquidity of the company we consider it very strong given that the order book now is pushed up to four years from now. And on the figures we provide, we have to remind you that those figures do not include revenue on the liquidity side, it does not include revenue that will be generated from chartering. If you see that even in the lowest quarter of the last 30 years, which was the first quarter and second quarter of 2015, the company was generating cash by having average TC rates of around 9,000 in those two quarters despite the spot market was around five So 9,000 is generating comfortably cash over and above 5.5, which is our running cost including G&A and management fee. For us, it is very important to defend this 5.5 and try to improve it if possible. So we can keep generating cash, so our liquidity -- the liquidity does not include these revenue that would be generated in the next three, four years.

Okay, I understand. Thank you. Just my last question here. Is there any region, particular region in the world where activity has surprised you, whether it's on the strength of that activity or possibly the weakness of the activity; any particular region stand out to you?

Yes, look, the region that -- I wouldn't say surprised, but I would say it has performed very well is the coal imports of India, which is a steady increase every year, in the last few years, and also the grain exports from East coast South America have been very strong this year. You see also the Atlantic market has been supporting this fact. Ships are earning up to $12,000 a day in the Atlantic market. And it looks like the grain will be one of the drivers of Panamax market in the next year, because we have to keep in mind the world population is increasing and living standards in countries like India, China are increasing. China has growth of 8% -- sorry, India has growth of 8%, China of 7%. So all these people are consuming more food and meat and grain will be one of the long-term benefits of the market on creating (inaudible) because of the long distances they are carried from. So these two markets, I will say, are they are most promising in the next few years.

Okay. I understand that. That's helpful. Thank you very much for the insight.

Thank you.

Fotis Giannakoulis, Morgan Stanley.

Yes, hello guys and thank you. I would like to ask you about -- how do you view the recent uptick in the market? What were the drivers behind? If you think that we are right now in a mode of gradual recovery and whether this recovery you have northeast that is driven apart from the declining fleet supply growth also from some improvement in the demand?

Yes, look, the market also unduly low in the first half of the year especially the first quarter and spilt over in the second quarter. When grain season started in March and April from East Coast South America, we were expecting market to start improving. It didn't happen in May and June, it started happening towards the end of June beginning of July. Already, we have seen people becoming optimistic again and several (inaudible) prices jumped up by $2 million or $3 million in certain cases. So it doesn't need a lot for the market to become pessimistic to optimistic and for owners to start revising their rates upwards. You remember last year how it started on the (inaudible) market. Everybody was very pessimistic and when you start seeing the freight rate, you should get more -- you get more courage and you start asking for higher rates. Now, I don't think that we will see any big run on the second half of this year, but we expect that demand will pick up 2.5% in the second half of this year whilst in the first half, it was almost zero, if not a bit lower than zero. So, I think that this will support rates of 8,000, 9,000, 10,000 in this spot market and thereafter it depends if no ordering happens in 2016, for me 2016 is a pivot earlier. If we don't see ordering happening in 2016, we should hold decent expectations from 2017 onwards.

So does this mean that at some point in 2016, provided that there is no increase in the new building activity, we might see you buying more vessels and I've seen in the past that you have almost always ordering new building vessels? Given where the asset prices are right now, if there is no ordering and your expectation for 2017 recovery becomes real. Would that suggest that you might start looking on secondhand values, but we all know that they have a much higher upside potential in a potential recovery?

I think the first half of 2016 should be a good time to start investing in secondhand vessels. Yes.

And this is something that you are willing to entertain or you're going to stick with your newbuilding plans?

In newbuildings we have a -- newbuildings and you've seen we've spread the amount to 2019. We will continue all our newbuilding programs in the subsequent years, I don't expect us to do any new buildings before we finalize the current buildings, simply because we don't want to add to the oversupply of the market, but like we have done in 2012, at the lower part of this, second half of 2012, I expect that the first half of 2016 will be a good opportunity to invest in a quality secondhand tonnage in the market at very attractive prices and hopefully this will be near to a market recovery. It all depends if we don't see ordering activity, if we see ordering activity while -- not order a newbuildings, we are not going to buy secondhand, and we will try to delay further our newbuildings.

I want to ask you also about the concern that the credit risk the drybulk market has. We saw in the past the collapse of Korea Line created a lot of uncertainty and volatility in the market. Today in the news is Noble Group that might be facing similar problems. Can you comment over how important is the chartering portfolio of Noble. If you have any vessels chartered there and what can it mean for the overall market if something goes wrong? And speaking of credit risk also if you can comment on the situation of Greece, if your operations have by any way been affected by the capital controls there?

Yes. First of all I don't believe there are any Korea Line left in the market. The Noble Group, we cooperate with them mostly on the spot market, they have first class and they always pay on time. So while the experience has been very good with this company and Noble Group, I don't think is anywhere near Korea Line, they have huge cargo base behind them and now I don't know all the reports, where they're coming from. But our experience has been very positive with them, but we don't have any exposure any way long-term exposure. And even if we had it would have been at low money, so we wouldn't be worried about. Now regarding Greece, the situation is not affecting shipping companies. It is affecting of course, everybody living in Greece and the employees of shipping companies. The fact that you cannot have availability of Euro cash, shipping companies they're long established with bank accounts in London or in other financial centers, where they're receiving their freight rates. And they simply performed their duties and their obligations payment (inaudible) growing into agents and to shipyards from overseas accounts. So, it's absolutely nothing to do with the Greek banking system. So, I think we have and we're the single owner facing in Greece problem to operate ships efficiently and timely. So, I think these stories, they're overplayed and should ship owners have the problem, you would have feared about ships stopping left and right. I haven't heard of any ship stop anywhere.

Thank you very much.

Thank you.

(Operator Instructions) Amit Mehrotra, Deutsche Bank.

Yeah. It's Amit Mehrotra from Deutsche Bank. Thank you very much. My first question is on the chartering strategy and specifically spot exposure in 2016 and 2017. If we fast-forward six months, what will that I guess 80% -- 87% excuse me, open days in 2016 look like? What I'm trying to do is just get a sense of how much of the current rate improvement do you plan on walking in, maybe as a way to increase some of the visibility and how do you sort of think about that balance between spot and fix given what you and the rest of the industry have just gone through in the market?

Yes, look we don't consider prudent to fix long-term of the current freight rates. When the spot market is 8,000 and when it was 5,000 two months ago, it's absolutely not going to fix, start fixing long-term. On the other hand, when the opportunity arises, we can fix some short periods like six months or even sometimes up to one year, simply because you want to put some vessels on a steady income whilst the others are working on the spot market. I'd say we are comfortable to work 2025 ships in the spot market and we are having very good networking with our close charters. And we are doing business with around 75 top class names in the spot market. People who perform and they don't -- balance is on unpaid. So we are happy to work the spot market with a bit of, let's say, mix in rom the short period of the one-year period of market. For us to fix two years, so things like that.

I'm talking about six to 12 months. So that's what I'm talking about. In terms of that mix and I totally agree with what you're saying. But is there any more detail you can offer in terms of what that mix may look like from a quantitative perspective? So, whether the 87%, maybe will move down to 60% 50% as we look out, six months mix with those spot and six to 12 month charters.

Yes, six to 12 months charter are possible and could possibly go down to 50:50 if we have a strong fourth quarter. Currently, we are let's say 60:40 or 70:30 in favor of the spot because we haven't got the opportunity yet to do something. But I think if we put this it will go to 50:50 but after 12 months we will not go, we see some people going for two years. We think this is too short I think to give away money and lock away losses for two years.

Okay, that's very clear. Thank you. Can I ask just one follow up on perspective funding that the $172 million of undrawn but committed loan and credit facility, just if I'm understanding that correctly, is that what you actually expect to drive down based on I guess loan to the current value of the assets? Or should we expect the actual drawdown to be less given some of the changes, maybe in the in the asset values?

Look it could be little bit higher and could be little bit lower. I mean currently the asset prices have gone up. I would say for good ships Japanese ships have gone up by $2 million. (inaudible) depends what is the freight market and what is the valuation. It's an estimate that we have according to our loan agreements, is what we are expecting to drop. If there is an average mark (Technology Difficulty) could be another 5% higher or lower at the end of the day.

Okay, and then I don't know, I didn't see this during -- in the presentation, but what are the debt amortization payments or any balloon payments if there are any over the next couple of years, if you can provide that?

(inaudible) we don't normally disclose updated the information during the year.

Okay, I'll take a look at the filing. And thank you all so much for answering my questions, appreciate it.

Thank you.

(Operator Instructions) There appear to be no further questions at this time. Please continue sir.

Thank you very much for being with us in this discussion. We are looking forward to discuss again with you in our next quarter results. Thank you.

Thank you. This does conclude our conference for today. Thank you for participating. You may now disconnect.