Safe Bulkers Inc (SB) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Safe Bulkers Conference Call to discuss the Fourth Quarter 2015 Financial Results. Today, we have with us from Safe Bulkers, Chairman and Chief Executive Officer Polys Hajioannou; President, Dr. Loukas Barmparis; Chief Financial Officer, Konstantinos Adamopolous; 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.

Before we begin, please note that this presentation contains forward-looking statements as defined in section 27-A 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 be 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 demands for dry bulk vessels, competitive factors in the market in which the Company operates, risks associated with operations outside the United States, or the factors listed from time to time in the Company's filing 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 or circumstances on which any statement is based.

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 broadcast to discuss the financial results for the Fourth Quarter 2015. We are probably at the lowest part of the shipping cycle, with the BDI index being below 300 points, the lowest ever recorded. Historical performance of the BDI since 1986 and the Brent prices are shown on slide 3. It seems that Brent prices have been highly-correlated in the past [eight of the] pattern [technical difficulty], as they are both indicators of the global commodities outlook.

If BDI is converted to [daily charter rates], it translates to about $2,400 per day for Panamax, and about $1,500 per day for Capes charter rates values, well below to operating [expenses] for the dry bulk shipping industry. Brent prices continue to face strong pressure, as currently they are [in gloria] in the area of $300 (sic - see slide 3, "$30") per barrel.

The [present sellers' market] creates significant operational losses for the dry bulk companies. It has also affected the pricing of assets as shown in slide 4. The 5-year on Panamax is valued today at $12 million, and the 5-year of Cape at $22 million. This creates an additional hurdle to the companies, as their liquidity is drained by the banks in order to comply with the assets and debt-related governance.

How is it possible, when a company cannot cover its operating expenses from its revenue, to be able to pay interest, or furthermore, its installments to the banks? This leads to further distressed sales, and lower asset prices to [be used to settle]. We have a plan, as you have read in our press release, and we will not be a part of this circle. We will be a part of the next shipping cycle, as we [stop as] all elements that we show on slide 5, work towards that direction.

Reported order book is not going to be delivered. It will be delayed or canceled, as we can see from the two top graphs for Capes and Panamaxes. In addition, scrapping has picked up, and this not only will reduce expected fleet growth, but eventually it will decrease the fleet. And, a small increase from the demand side then [configure] a better market.

From the demand side, in the lower graph, we can see certain signs for improvement. Overall, we expect that the market will stay low during 2016, although it will provide certain seasonal pockets of [hope] where good companies like ours can take advantage to set up certain type of contracts.

In the medium-term supply and demand, [HGs] will be resolved. We have adapted our chartering policy, taking longer duration contracts, which most of the time are above our daily OpEx and G&A expenses. That's creating positive inflow from operational activities.

Our time charter equivalent rate for 2015, in slide 6, was $8,770 per day, supported also by three long-term cape charters. We have outperformed our peers on average by $1,270 on a daily basis, and this creates a value of about $16.5 million per year for our stockholders. But, the most important is our performance in OpEx and G&A. We always included all dry docking costs in the OpEx figure. Our annual figure was $4,377 for OpEx, including nine dockings, plus $1,153 for G&A expenses including monitoring fees, in total $5,530. We have outperformed our peers on average by $1,545 on a daily basis. This represents a savings for our stockholders in the range of $20 million per year.

Furthermore, in demanding a more intense operating expenses review and negotiations program since May 2015, we have managed to further reduce our OpEx and the result is shown in the fourth quarter, where OpEx were $4,072 per day with three dry dockings having been completed that period. This program is ongoing, and we will continue to pursue the lowest costs in the industry, because this is what it matters right now.

In terms of cash flow from financial activities, in slide 7, we have already completed, as you are aware, three transactions involving about half of our debt, pushing balloon payments to 2021 and onwards, and reducing the annual repayment schedule for the first five years. We continue our work in this area. Our net debt per vessel stands at $11 million.

In slide 8, we have summarized the [leaded pocket] transactions and the procedures a special committee of the Board of Directors followed, which result in a $28.4 million deduction in the Company's capital expenditure obligations, a reduction in the Company's existing indebtedness of $16.7 million, and including of $12.3 million in the Company's liquidity.

At this point, I would like to say that our annual loss of $47.9 million includes a non-cash impairment loss of $22.8 million with respect to the sale of Stalo, the Kypros Unity, and the novation of the two Hulls. The result of all our action is targeting to preserve our liquidity as shown on Slide 9. Currently, our liquidity was $255.7 million, while our capital expenditure requirements were $135.6 million, [extended] until 2018, following agreements for delayed deliveries for our contracted new builds.

We have not included in our liquidity our contract revenue through 2018, and the $29 million from the sale of Stalo and Kypros Unity, which we materialize in March probably, and which provide us with better financial flexibility. In addition, we have not reflected in our CapEx the novation and the negotiations of Hull 1552, which [if agreed] will further reduce our CapEx by $28.8 million.

A quick summary of actions we have taken until now is shown in slide 10. We have shown two vessels. We have novated one [new build] which resulted in $28.4 million reduction of CapEx. We are under negotiation for an additional novation. We have delayed our order book until 2018, we have been backed up by our lenders and have refinanced almost half of our debt by reducing annual principal payments for the next 5 years and pushing back balloon payments beyond 2020 to 2021 and onwards. In addition, we have adopted cost reduction and performance initiatives, which create significant value for our shareholders.

Our Chief Financial officer, Konstantinos Adamopolous, will now present our financial results.

Thank you, Loukas, and good morning to all. On slide 12, we present selected operational highlights for the fourth quarter of 2015 compared to the same period of last year. Ownership days increased by 13%, available days by 12%, and operating days by approximately 8%. We operated an average of 36 vessels, and a fleet utilization rate of 94.7%, compared to an average of 32 vessels and their utilization rate of 99%.

The average daily time charter equivalent per vessel was $8,251, compared to $11,849.

In slide 15, we present selected financial highlights for the fourth quarter of 2015 compared to the same period of last year. Net revenue decreased by 24% to $29.9 million from $39.1 million, mainly due to the decrease in charter days. Daily vessel operating expenses reduced by 4% to $4,072 for the fourth quarter of 2015, compared to $4,226 for the same period in 2014. Daily vessel OpEx includes the cost of three dry dockings completed compared to only one during the same period in 2014.

Daily G&A expenses, which include daily fixed and variable management fees payable to our managers and daily costs [in care to] in relation to our operation as a public company were $1,238 for the fourth quarter of 2015, compared to $1,179 for the same period in 2014. Net loss was $29.9 million, from $0.1 million during the same period in 2014.

Adjusted net loss was $7.7 million, from an adjusted net income of $4.7 million during the same period in 2014.

EBITDA decreased to $13.1 million loss from earnings of $13.4 million during the same period in 2014. Adjusted EBITDA decreased to $9.1 million from $18.3 million during the same period in 2014. Loss per share and adjusted loss per share was $0.40 and $0.13 respectively, compared to loss per share and adjusted loss per share of $0.04 and adjusted earnings per share of $0.01 in the fourth quarter of 2014, calculated on the weighted average number of 83.5 million shares in both cases.

As presented in slide 14, our Board of Directors in January declared a cash dividend of $0.50 per share on each of our 8% Series B, Series C and Series D Preferred Shares. Each dividend was paid on the first of February of this year to shareholders of record as of January 25, 2016, of the Series B, C and D Preferred Shares, respectively.

Summing up our presentation, you will find our contact details in Slide 15. Thank you all for listening. We are now ready to accept and reply to your questions.

(Operator instructions) The first question comes from the line of Christian Wetherbee of Citigroup. Please go ahead.

Hi, good afternoon, this is Prashant Rao in for Chris. I wanted to ask you guys off the bat about the vessel sales and the novation agreements. Obviously, tough times call for tactical measures, but just wondering, how much further do you think you could rationalize the fleet, or what's your strategy in terms of asset sales? And also, maybe some color on how you think about new, versus old? Obviously, limiting -- once there is a turnaround, you know, there's a balance in terms of the exposure that you want when rates finally do cycle up, 12 months or 24 months out from here. So, just wanted to get your thoughts around that.

Yes, hello, good morning. Look, there is not a -- our plan is, it will be accommodative to the conditions, you know? We cannot say that we have a set plan or another plan. We're a public company. We want to remain a public company. And this is one of the ways to demonstrate that. For the time being, we are not -- we are facing extreme conditions, but we think the market has already started taking drastic measures in reducing the fleet, the supply, the new buildings, and the existing ships on the water. We have recently seen 15-year-old Capesize going for scrap, and many other Capesizes or Panamaxes built 1999 or 2000, so 16 or 17 years old, are being offered for scrap. So, we will wait to see how the market develops, and how long it takes the recovery to take place, you know? It could not be two years, it could be less than two years, it could be one year. So, we will adapt according to the conditions.

Okay thanks, that's helpful, and sort of following on with that, what are sort of you seeing in the scrapping market, and what are your expectations for maybe how much tonnage gets scrapped in 2016? Obviously, we had a heated market in 2015 in the first half. Do you think it's possible we could start to see elevated rates to clear out some of the excess supply, here?

Look, I would not be surprised if we see figures that there are, even doubled on the figures of last year. Last year, we had the around 30 million deadweight of deletions from the fleet. And, we have to bear in mind that we have a good market for three months in the summer, when people believe that the worst is over, and the scrapping stop during that period. So, if there was a complete, you know, bad year, the whole of 2015, and we didn't have the three months of encouragement in the summer months, I mean, scrapping could have been north of 40 million deadweight. We expected the whole year is as everybody's predicting, will be very bad, the whole of 2016. I will not be surprised, it will not be surprising, we'll see the 30 million of this year to become 45 million or 50 million of deadweight, which means could be well more than the actual deliveries that hit the water. So, this will create conditions that could help the market, with any slight improvement or confidence, or worldwide demand or improvement of commodity prices or oil prices, to see an immediate response on the freight rates.

Excellent, and just one last one, then. Some of the charter rates that you got looking at the updates here, are actually, given the market, are definitely above market averages. I was just wondering if you could comment about if there's been any change in the concentration of charterers, or the mix of sort of counterparties that you're seeing on these charters over the last three to six months?

Yes. The [duty] of the Panamax, [to push Panamax plate] is what we have, we have a variety of charterers. We are doing business with 75 different companies. Some of them, they are top class. Some others, they are okay for a few months or for a year. But there is a variety there, and we don't have any single ship, any single charterer with more than three ships in the whole fleet. So, you see that all the risk is spread out, because you need at these times to keep contact with too many people in the market, and you know, to have the maximum variety of different charterers you can have.

In a very good market, you tend to concentrate two, three, four big names, that tend to perform better than the others when the market drops, but in a low market you can do business with so many more people.

Excellent. Well, thank you very much for the time, gentlemen.

Thank you.

Thank you. (Operator instructions) Your next question comes from the line of Fotis Giannakoulis of Morgan Stanley, please go ahead.

Yes, hi guys, and thank you. Polys, I want to ask about the, these transactions, the vessels that you have bought from the company. Can you elaborate a little bit on the rationale, why did you -- I understand that you have strength and furthered the liquidity. However, your liquidity was already strong. Why do you think that it was good for the Company to sell those assets, and why did you personally get involved into this transaction instead of trying to sell the vessels to the open market, or even try to cancel some of the new buildings?

Yes, look. The difficult thing today is to find the buyers. The easy thing is to find sellers. You know? There are many sellers in the market, and there are almost no buyers. So, it is almost impossible for a company like ours, and we are giving even the wrong message to the market, to become another public company putting ships up for sale in the market. This will destroy confidence. It's already -- confidence is a lot damaged, but we will destroy it completely if we were to put ships in the market.

Also, we know very well how some people are valuing ships today in the market, and some computer models and some let's say, some -- I will say yes, computer models. We all know what values they put on assets today. So, ourselves, we wanted to demonstrate that we believe the market is holding better for good quality assets, and we wanted to demonstrate that we have a belief in the market. And as a buyer, I show to the market that a good ship always deserves better price than the other ship out in the market.

We are here to -- this way in two-fold, to benefit the liquidity of the Company, and to reduce the debt and reduce our CapEx, and at the same time demonstrate that we are to remain a public company. And the public company has to look not only one or two years ahead, but further down the road and increase our liquidity for the time that it would consider us a bottom to start investing. In our case, we believe that asset prices maybe would fall a little bit further. That's why we thought it was good to sell these assets quietly on the private side.

If you want my comment as a buyer of these assets, I know the assets very well, you know? And I know how well they can perform, and you know, for me, as a buyer on the private side, I would buy assets that are brand new or very new ones. In this case, I bought one version that is two years old, and one that is 10 years old. So, you see what the -- I wanted to demonstrate that we are, we are here and do not a favor, but to do a deal that is looking good for both sides, but especially for the public side.

Now, regarding the CapEx, regarding the new buildings, you know that I'm related with the [yachts] many years, and you know we had to reduce our order book. Also, this makes the banks more comfortable and more happy, and they know that their liquidity can easily cover our obligations towards the banks. So, that was a major decision, why we decided to sell one and we are trying to sell another one of our new buildings to myself, and there is one, we didn't sell it to the market. There was the same, we didn't sell the other ships, is that I have many friends who want to buy these assets, but at distressed levels.

So, can I ask you, you have run several models, several distress models, rates are at $2,000, $3,000 below operating expenses in the market. Under this current distress, long-times low rate environment, how long can the Company, its liquidity be positive without the need for additional transactions or equity infusion, or additional vessel sales? And if you can also comment about the three above-market charters that you have, they are at quite high levels compared to the market. What kind of risks do you see, have you been approached by the charters asking to renegotiate, or what kind of comfort do you have and security do you have against these charters?

Yes, on the first part of the question, look. Our job is to extend the liquidity for as many years as it is required. You know, for now I believe the Company is strong for the next three years. It depends, of course. I cannot believe that the [stock] market will stay at $3,000 a day for the next three years without an improvement. Even last year, that was a terrible year as well. We had the good opportunity in the summer months and we could fix some charters, at $8,500, $9,000 a day for one year. I believe there will be pockets of opportunity this year as well, to make one year investments at $7,000 or $8,000 a day. Even now, we're fixing ships at [low-6] for one year, as you may have seen on our table of reported [fixtures].

What we are fully committed of doing, is the last quarter of 2015 we reduced our OpEx to below $4,100 including the cost of three dry dockings. So, if you exclude the cost of three dry dockings, it means that only costs are at around $3,800. The average [landing] cost is not easy to reduce it without being hands on, on the management of the Company, and without trying to re-adjust all the agreements you previously had with suppliers. And, we take a personal involvement on a daily basis of how to reduce our OpEx. I'm confident that further reductions can be demonstrated in the coming quarters, and this will give us, you know, some breathing space to weather the storm a little bit better than the general market.

Now, regarding our Cape charters, every charter there is performing top-plus. They are paying the higher monthly in advance. I don't expect any problems, because all of them, they are big conglomerates, big companies with the proper guarantees attached to the charters. It would be a big surprise to hear one of these guys not performing, you know, unless there is a major accident like a bankruptcy or things like that, which I don't think that these [companies] are anywhere near this level.

So, this is where expensive ships, that they were ordered at the high market, with good charter rates, and the charterers, they respect their signature, their name and the guarantees they granted to us when we signed the contracts.

Thank you, Polys. My last question is about the market. You talked about the -- that your plan is, or at least your current liquidity can hold for at least three years. I want to ask, how long do you think that this weak market is going to take? We have falling coal demand all over the world, declining Chinese imports. We have the Chinese announcement that there's going to be a reduction in the steel production by 100 million or 150 million tons. First of all, how long do you think this is going to take until the shipping market to be balanced, again? And, how many ships, how many Cape sizes, or ships in general, they will need to be scrapped? And, how much the fleet will have to be reduced in order to reach this balance?

Yes. Generally, from my experience, 30 years in the shipping business, and of course for me it's the worst -- the worst time I had in the last 30 years, and I was not around in the crisis of 1980, 1985, 1986. I believe at that time, it was no different, that crisis. You know, we had an over-supplied market, and we had a much smaller world, and we had huge interest rates. Today, with the environment we have with the low interest rates, and the corrective actions the big economies are taking, with the fact that the world is expanding and the world population is not expected to be reduced in the coming decades, it is going to explode. When there will be a correction of supply, I honestly believe that there will be things that with a slight move of demand in the next couple of years, we will see a big return of freight rates like we saw on the tanker business.

If the current climate continues for another one year, the amount of scrapping could reach in 2016, 50 million deadweight. There will be no order book for another year, which means that [yachts] will not be able to deliver ships before 2020 at best, if there is another rush for (inaudible). So, it appears to be expected that 2017, 2018, 2019, should be a good time for dry bulk market. Of course, nobody knows if the slowdown of China will be dramatic, or how things will develop, but I think we are too early and we have to see what measures the Chinese central government will take after their Chinese New Year, and with a new five-year-plan that they have announced, and what stimulus they are going to put in their economy to help their own economy.

And I will not be surprised if next year, we are seeing a recovery of the market to -- not to profitable levels, but at least to levels that they are near to break-even. So, I think let's be patient, and let's not panic that it's the end of the world, and the world population will shrink, and the world needs will discontinue and people's living standards will be reduced in the coming decade. I believe quite the opposite, and as soon as we balance the supply, things will start changing to the better, you know? And this could be sooner than we expect.

Thank you very much, Polys.

Fotis, can we see -- can (inaudible) for example, if you are a shipping company like ours -- [an ideal shipping company]

-- you have the best operating expenses, very low profile, so you can net money, you can -- from operations, even let's say from a $5,000 -- 6-kind-of-thousand market, which we can eventually, and we have it in most of our charters right now, if you see this. If you expand the profiling of your loads, and you have it after 2020, so you have the smoother payment profile, you have all these good relationships with the shipyards, with your banks, which help you find support. And so what's the best, let's say, support from a bank signing, expanded by [loan payment] of 2020 to 2022. Just time to consider.

So, we are trying to make the operational profits, or profits from operations, we try to minimize the cash outflow from the financial activities and the cash outflow from the CapEx. And this is the way to go forward. In a few months' time, maybe one here, one-and-a-half, always will be a history and the Company will be strong outside this present cycle, in the new cycle.

Thank you very much, Loukas. That's very helpful. Thank you.

Thank you, and there appear to be no further questions from the phone lines. Please continue.

So, no further questions?

There are no further questions at this time, sir.

Okay. Thank you very much for attending this conference call, and we'll be discussing it with you in our -- after our press release for the next quarter. Thank you very much.

Thank you, ladies and gentlemen. That concludes our conference for the day. Thank you for participating. You may now disconnect.

Thank you.