Safe Bulkers Inc (SB) 2015 Q3 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 Third Quarter 2015 Financial Results.

Today, we have with us from Safe Bulkers, Chairman and Chief Executive Officer, Mr. Polys Hajioannou; 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 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 the conference is being recorded today, Tuesday, November 10, 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 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 the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks, and are based upon a number of assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company.

Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include but are not limited to, changes in the demand for dry bulk vessels, competitive factors in the market in which the Company operates, risks associated with 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 in any change in events, conditions or circumstances on which any statement is based.

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

In the present [best] market conditions, our Board considered prudent to suspend the dividend for the third quarter of 2015, which is an additional measure to strengthen our liquidity and balance sheet.

In slide 3, we present our EPS and dividend history with a focus on best showing lean operations, targeting to reduce our operating expenses and our breakeven point. In this low market, the most important element is liquidity. On slide 4, we present our liquidity versus our CapEx. As of September 30, 2015, our liquidity was well above our capital expenditure requirements which we expanded by 2019 by delaying deliveries for seven out of eight of our contracted newbuilds.

Industry fundamentals are not positive. In slide 5, we present the synopsis of the market outlook. The top of the slide, we present the comparison of the daily average 4TC higher for both Capes and Panamaxes. Capes, expect for a short-lived spike during summer months for the whole 2015 have been trading lower [run] the respective periods of 2014. Presently, Capes are trading at $6,000 lower on the year-to-date average of $7,000 and the five-year average of $12,000.

Same for Panamaxes, market over-performed 2014 only during the summer months. Presently, Panamax market is trading at about $5,000 in comparison to $6,000 for the year to date and $12,000 for the five-year period. Demand side presents substantial weakness. The official Chinese PMI Index for China steel industry fell below 15, indicating contractions, affecting the trade of major balks. Iron ore imports contracted so far for this year in China, Japan and Korea. This is the result of steel production cuts, with the exception of India where there is a slow growth. Low iron ore prices, continuous inventories at Chinese ports increase.

Moving on to coal markets year to date, China cut its coal import nearly by 30% in order to fight pollution and eliminate oversupply of coal. Grain trade of the three major dry bulk commodities is on track to record a new high.

The order book has also been increasing substantially our market, as measured in slide 6. Orders for the next two years are significant. However, no additional orders are currently placed. Therefore, the order book after 2017 is almost zero. For Capes and Panamax, a good portion of existing fleet is over 15 years and maybe scrapped if loads to marketplaces which will ease the oversupply. Scrapping activity has partially counterbalanced the oversupply during 2015. Year-to-date net fleet growth about 2.2%. Panamax fleet has grown by 2% in 2015. We have rescheduled our order books spread until 2019.

Moving on to slide 7, on the graph, we present our fleet and order book. Currently operate a fleet of 36 high specification vessels with an average age of six years. We have pushed back until 2019 the delivery of our newbuilds. By 2019, one-third of our fleet is expected to be comprised of [Echoship] vessels.

Turning to slide 8, we evaluate the performance of our chartering policy against the spot market which we outperformed most of the times, as presented on the bottom graph. We have significant number of vessels operating in the spot market and shown on top figure, maintaining flexibility in this weak charter market.

Going to slide 9 will present on the bottom graph, our daily operating (inaudible) expenses. In G&A, we include company and management fee expenses. In total, we pay daily $5,608 to run our vessels and our Company for the first nine months of 2015. This figure includes all costs except depreciation and financial expenses. It's amongst the lowest in the industry and continues significant to a relatively low breakeven point, which is very important, especially during weak markets. A figure of daily OpEx also includes the drydocking costs as seen on the [graph per] here. We have done seven dry dockings until quarter end this year. On the top graph, we present the average interest rate of 1.94 including the margin followed by (inaudible) during the first nine months of 2015. Maintaining low financing cost and preparing our financial flexibility.

On slide 10, on the graph, we present our net debt per vessel ratio together with a fleet expansion. The average age of our fleet is six years, while currently the value of 5-year-old Panamax is about $16.1 million as per the Baltic Exchange Sale Purchase Assessment Index. Our intention is to maintain comfortable average on a net debt per vessel basis and comply with our financial covenants.

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

Thank you, Loukas, and good morning to all. In Slide 12, we present selected financial highlights for the third quarter of 2015 compared to the same period of 2014. Net revenue decreased by 8% to $33.5 million from $36.5 million, mainly due to a decrease in charter rates. Daily vessel running expenses remained stable at $4,550 compared to $4,542 for the same period in 2014, despite three dry dockings concluded during the third quarter of 2015 compared to one during the same period in 2014. Interest expense increased to $2.8 million for the third quarter of 2015 compared to $2 million for the same period in 2014, as a (technical difficulty) vessel sale and leaseback transaction, as well as (technical difficulty) amount of loans and credit facilities and in the weighted average interest rate of such loans and credit facilities.

Net loss was $7.5 million for the third quarter of 2015 from net income of (technical difficulty) million during the same period last year. Adjusted net loss was $6.3 million for third quarter of 2015 from adjusted net income of $1 million during the same period in 2014. EBITDA decreased by 38% to $9 million from $14.4 million during the same period in 2014. Adjusted EBITDA decreased by 26% to (technical difficulty) from $13.9 million during the same period in 2014. Loss per share and adjusted loss per share was $0.13 and $0.12 respectively, compared to loss per share and adjusted loss per share of $0.02 and $0.03 in the third quarter of 2014.

Moving on to Slide 13, we present definitions and reconciliation of our financial fundamentals for the third quarter of 2015 compared to the same period of 2014. In Slide 14, we present selected operational highlights for the third quarter of 2015 compared to the same period of 2014. Ownership days increased by 16%, available days by 14% and operating days by approximately 11%. We operated an average of 35.98 vessels, and achieved a utilization rate of 95.1% to an average of 31.05 vessels at a utilization rate of 99.1%. The average daily (technical difficulty) per vessel was $8,843 compared to $10,736.

Moving on to Slide 15, we present definitions and reconciliation of our operational and fundamentals for the third quarter of 2015 compared to the same period of 2014.

As presented in slide 16 and as (technical difficulty) this time, our Board of Directors has not declared a dividend for the third quarter of 2015. Last October, our Board of Directors declared a cash dividend of $0.50 per share on our 8% Series B preferred shares and they cut dividend of $0.50 per share on our 8% Series C preferred shares. Its dividend was paid on October 30, 2015, to shareholders of record as of October 21, 2015.

Summing up our presentation, as the market outlook is still challenging we are prepared as a long-term-oriented company. We've been shipping for more than 50 years with an outstanding track record and reputation. We maintain low financing costs as a result of our low spreads and our prudent leverage, always in compliance with our financial covenants. We have extended our capital expenditure requirements to 2019 through the delaying of seven newbuilds. We remain committed to a [project] dividend policy and at the same time, have shown future expansion and deleveraging. You may find our contact details in slide 17.

Thank you all for listening and we're now ready to accept you questions.

Thank you very much, indeed, sir. (Operator Instructions) Chris Wetherbee, Citi.

Hi, this is Alex Hahn in for Chris. Thinking about your chartering strategy, looks like most of your investors are locked in only until the end of the year or first quarter of next year. Do you expect to employ this short-term chartering strategy through 2016 and at what point do you expect to start locking in vessels into longer-term charter?

Yes. At the moment, the market is low and there is no availability of long-term charters. Obviously, charters are very skeptical way to pay premium. So, we will continue our policies to operate between a spot market and short period market. So, when we find a suitable employment in the short period of market like four to six months, we will be fixing in four to six months. Otherwise, we will operate on a spot market cargo by cargo basis.

Okay. Thanks. And also, it seems as though it's been delaying vessels in an effort to strengthen your liquidity during trough conditions. If you could just give us a little bit more color on your fleet expansion plan and if you expect any delays or maybe even some cancellations as the market conditions [is] challenged?

Yes. Regarding our order book, we don't expect to have any cancellations. What we are doing, we are in close contact with our shipyards and we managed to delay a good number of our newbuildings into up to four years from today. You may recall that about a year ago, all our deliveries were supposed to be in 2015 and 2016, because they were new echo vessels ordered in 2013. Now, the same order book, we push back into 2017, 2018 and 2019. So we're in good contact and good terms with the shipyards. And to delay where possible the arrival of these ships because nobody wants to work our new ships in a very low long marigns.

And just touch on your dividend. Do you expect this to be one-off thing or do you expect distribution to be updated in the near future as well?

No, everything depends and we've been saying in previous quarters. In the last six quarters, we've been saying this that the dividend is directly related to profits. So we stand by our policy of paying a dividend. We've demonstrated to the investors that we're a company that wants to pay dividend to its shareholders. But given the persistently low market, which is expected, maybe to prolong for 2016, we have to take this decision, and we have to wait to see how the market develops in the following quarters before we decide to reinstate the dividend. For the time being, if 2016 stays low, it's more than likely that the dividend would not be reinstated. But if the market changes and Company starts having profits, of course, we've demonstrated that we're a Company that wants to give money back to shareholders.

Okay. Great. Thanks. That's all from me. I'll turn it over.

Fotis Giannakoulis, Morgan Stanley.

Yes. Hello, guys, and thank you. From what I understand from your moves in cutting the dividend, but also in getting into a sale and leaseback at the time you have plenty of cash and aleady a sign available credit lines, it seems that you're preparing yourself for a very prolonged downturn. Can you give us your view about the market, how long do you think that the current dreadful market is going to last? And what's the biggest thing that's going to make the recovery appear closer?

Yes, look, it is a reality that like everybody else, we see that 2016 will be a difficult year. I don't think it can be as low as 2015, but nevertheless, even a small improvement from 2015 levels will not change the big picture. I think once this 2015 goes out of the equation, the deliveries in the drybulk order book will be diminishing. And we hope that the measures taken by the Chinese to re-ignite their economy, like the repeated cuts of interest rates will start showing in the real estate market and in the housing market, and slowly will start to generate growth in demand for commodities.

So we believe once 2016 is out of the equation, things will start getting better. On the other hand, as a company, we have to have the liquidity if market prolongs its downturn in 2017. We need to have the liquidity for 2017 and beyond, also 2018. And this liquidity which not needed will be used for investment -- could be used for investment in new ships in 2017 or 2018. So, it's a positive thing that the Company has done the sale and leaseback transactions at a time that such transactions were possible and were still able to do them, because right now, I think that they are more difficult to do similar transactions.

Thank you, Polys. Can you also describe to us how is the debt market -- how do the banks behave in this kind of environment, and not only on the borrowing capacity perspective, but mostly from bad loans that they might have in their balance sheet and the risk of some of them having a trade data they have to deal with and are being forced to sell a large amount of vessels, which it can create possibly a shock in the market. Is this something that you might be aware of any situation or you might be concerned that it might happen?

You have to remember that the banks that have stayed in shipping in the last three, four years, have reduced from the number of banks we had in the past and the banks that have remained are the more committed banks. Those take the long-term approach. They have seen the cycles in the past years and they don't get panic very easily. So, some banks have gone out of game in the last three, four years with a low tanker market and I believe those are -- they have stayed professional enough and wherever there is young tonnage involved and the age of the ship is below 10 years, I think the banks are very cooperative, very relaxed. Also a good sign is a strong tanker market at the moment. So, the tanker companies are making good profits and this is making the banks more or less pressurized. So, I don't expect the banks to create unnecessary problems to good management and to good companies.

I certainly believe that there are a lot of private owners in dry bulk sector that today have loans that there are higher than the market values of the ships and still there, I don't expect the banks and I don't hear the banks doing unnecessary maneuvering. So, overall, I'm pretty confident that the banks this time will stand up to the task.

And I also want to ask about how do you view the health of the steel industry. We understand that many or most of the steel mills are losing a lot of money, prices are below breakeven levels. What do you expect to see in order for prices to recover? You mentioned the housing market in China, do you foresee any capacity cuts in the steel industry in China and how will this impact the dry bulk market?

I think that the steel industry will adjust to the new reality, and I think only the big steel mills will be operating. There would be many smaller steel mills closing down. This is not necessarily but for the market, because if the more professional steel mills stay alive, this will create a better environment and a better market for the steel industry.

At the moment, I think that China will take another six to 12 months before it clears the overcapacity in the housing market. We've seen that the prices of houses start going up in China, and we've seen that demand starts going higher, but there is a lot of overcapacity still to be clear. And in the long run, I'm very optimistic about the drybulk market. We have to be patient, the world population is increasing. China may abolish this one child rule and the Chinese people will start having bigger families. All these things, I think, in the long run, will create a lot of demand for commodities and a lot of demand for drybulk services.

The most important is for companies to close down the hatches and reduce their cost and their expenses and try to steer through this next couple of years of low market. So the companies that will manage to do this and reach 2017 and beyond, I think that they start to make very good profits in future years, because it will happen what happens in the tanker business that the upturn of the demand and the upturn of the shipping market will happen simultaneously with a time that there will be no order book and no deliveries. So this will create a very nice upturn of the market, like we're seeing this year in the tanker business.

Thank you, Polys. One last question, I think I have the answer, but I think I should ask, you increased your liquidity, do you think that this is enough? Do you feel comfortable enough with this liquidity and are there any thoughts of potential increasing your liquidity or even issuing equity anytime soon or this is something that you will completely dismiss?

Yes, I think we will be the last company to consider issuing stock and drive today's liquidity that way. I think that there are other ways still available to the Company to increase even further its liquidity. I feel very confident with the current liquidity that we have, that could be pushed, that could take us through 2017 and 2018. Of course, we have the new buildings that we can try and delay even further where possible and on the other hand, there are other ways that the Company can keep increasing its liquidity without issuing shares. So, while fully focused on these ways and we're trying in a difficult market to being inventive and this is what we do here all the time.

The thing that in a butt market, we have to prove ourselves I believe 100% that all shipowners are now hands-on on their companies and they are trying to navigate through the bad weather. We are doing the same and I think in following quarters, you will see results that will be quite amazing on cost cutting and on other mentioned ways to increase the liquidity.

In addition to what Polys said, I mean if you would like to see the page nine, we have added the number of dry dockings for this year and the previous years, that you may see there what is our management and OpEx cost this year and the number of dry dockings which is a figure just below which was seven this year and five the previous year. So we have intensified our efforts for a cut reduction in our cost as much as possible, so targeting to lower our breakeven point.

Thank you very much.

Shawn Collins, Bank of America.

Great. Thank you. Good morning and good afternoon, Polys, Loukas and Konstantinos. My question is regarding the terminated ten-year time charter contract that you had with DCKK in Japan for the vessel Kypros Sky. I just wanted to ask, how much money is owed to you or how much will you try to seek in claiming the loss for that vessel within the Japanese court system? Thank you.

Yes. This 10-year charter unfortunately happened is Daiichi DCKK applying for habilitation under the Japanese Civil Courts. We can do nothing about it. Of course, our loss, so we cannot exactly calculate it at the moment, because there is no such ten-year charter available to us in the market. So I think that our Company more than likely will claim for the full amount. Now, what the court will allow, we will see in the process and I don't expect a big recovery of this claim.

On the other hand, I would like to say that over the years, we had a long trading history with this Company and they performed over the years very big charters. And this charter was a good one, but on the other hand, was not anywhere near the previous sky-high charters, and this was a vessel we bought for $28 million as a new building, so it was not a vessel that cost us fortune and we were relying on the charter.

Of course, there was out of this such story of a big company like Daiichi hitting the rocks was that they delivered at the same time many ships in the market, which I believe it has an influence on the current state of the freight market, because you have to remember most of the ships they delivered were belonging to local owners, Japanese local owners, which traditionally they charter out their ships on five or 10-year periods, and they have no experience of trading a spot market on a trip-by-trip basis like say the Greek owners.

So these ships hitting at the same time, our market is causing us bigger headache than what is a bankruptcy of Daiichi causing us from the loss of the Kypros Sky charter. But I think that the Company will claim through the courts, so they mark some amount and we will wait to recover whatever is recoverable.

Yes. That's helpful. Thank you.

Thank you.

A second question for you, financing related. Obviously, you announced a sale leaseback agreement on September 21. It is an interesting financing solution, it frees up $47 million for you. Can you talk about which bank you did this with and I know you may be able to or may not be able to? And then also, can you talk about your decision to do this transaction? Thank you.

Okay. We have not disclosed the bank. So, this was a good transaction which was appropriately described in our disclosures, in our specific press release. It's a transaction which is a finance transaction basically and we are very happy that we did this transaction because as we referenced, we increased our liquidity. We have not disclosed the bank.

The good thing I would add to what Loukas said on this transaction is that it's a 10-year transaction with the Company, Safe Bulkers holding the right up to two years to terminate it and every year annually after the end of the second year. So, it's another benefit to the Company that if we don't need it, we don't keep it for 10 years. We should run it through two years or three years or four years. So it's a very good flexibility that this transaction offer to the Company. It's a transaction we've been working since late last year 2015 because it takes a lot of documentation, a lot of visits before it comes to the table for signing. So we had it as a back burner and we thought this summer that was a -- the trading market was not developing the way we were planning, that we should take this option as well and take in the extra liquidity.

That is helpful color. Thank you very much for the time and the insight today.

Yes. Thank you.

Thank you.

Thank you very much, sir. (Operator Instructions) Gentlemen, there appear to be no further requests for questions. So, I pass the floor back for you for closing remarks.

We would like to thank all of you that participated in our conference call and we are looking forward to discuss again during our next quarter financial results. Thank you to all and have a good day.

Thank you very much indeed. So with many thanks to all our speakers today, that does conclude the conference. Thank you for participating. You may now disconnect. Thank you, gentlemen.

Thank you.

Thank you.

All the very best. Bye-bye.

Bye.