Safe Bulkers Inc (SB) 2016 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 the first-quarter 2016 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, and Chief Operating Officer Iaonnis 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 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 market in which the Company operates, risks associated limited to changes and with operations outside the United States, and other factors listed from time to time in the Company's filings with the Securities and Exchange Commission. The Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

And I 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 to discuss the financial results for the first quarter of 2016.

We have announced yesterday that we have cured the notice of New York Stock Exchange in relation to listing requirements. This is very important for us, as for the long-term strategy which was developed and presented in the past period targeting to create value for all our shareholders in the long run and for the next shipping cycle.

Being historically a pure shipping company, we [guide] the experience of shipping cyclicality, which is demonstrated through our proactive moves. The market reached historically low levels in February and still remains at low levels today, as shown in slide 3.

Assets have lost a large part of daily values, as shown in slide 4. This has created big problems in financial covenants and financial outflows in this negative environment. We are not positive for this year as market in the second quarter remains low. However, there are certain good news for the medium term.

In terms of order book in slide 5, the top figures show estimations as of beginning of February for the deliveries and the scrapping for Capes and Panamaxes. The bottom figures show how the situation was developed during the first five months of this year, by end of May. Lower number of deliveries was confirmed. Scrapping exceeded expectations, and we observed for the first time in the last years a net decrease of the fleet of Panamaxes where we mostly operate.

Many years have problems, and many second-tier yards will not survive, and together with them, their order book. The cancellations, especially for Panamaxes, the delayed deliveries, the lack of any substantial order book after 2017, and the limited liquidity as companies are lossmaking and banks provide restrictive finance, while some of them have withdrawn from ship financing, is determining as outcome a net decrease of the drybulk fleet for the following three years. The question for the chartering market and the equilibrium of supply and demand will be answered by the demand side.

In slide 6, we show the projection for iron ore and coal with one comment: Any spike in demand may trigger a positive response by the chartering market.

Concluding, I would like to say that our management is cautious about [certain] market performance for 2016 and the most part of 2017. However, we trust the cyclicality of shipping and expect a recovery the following years.

The question is, who will survive? Our management has worked extensively with all components of cash outflows, financing outflows, and investment outflows, with full cooperation of our banks and our shipyards. But the winner, we believe, will be the company which will control the expenses.

In slide 7, we show the effect of our OpEx reduction initiatives started a year ago. I do not know many companies that have lower OpEx now that we see in present market conditions, as shown in slide 8. I have not referred to any numbers in this presentation, but I will mention only three.

In the last part of the cycle -- in the lowest part of the cycle, in the lowest market over 30 years, our company had a time-charter equivalent rate, which is net revenues less voyage expenses of $6,355 per day, while we have reduced our daily operating expenses to $3,653, which, together with daily general and administrative expenses to run the Company as public and the management fees, aggregate to $4,854.

Concluding this presentation in slide 9, we saw our liquidity position against capital expense requirements, noting that there are no balloon payments until and inclusive 2020 for servicing our event, that in the liquidity we do not included revenue from operations.

Our press release presenting detail of financial and operational results, which you have read, but instead of repeating them, we would like to take your questions. Thank you very much.

(Operator Instructions) Jon Chappell, Evercore ISI.

Loukas, I appreciate the brevity of the presentation. I also appreciate everything you've done with your credit facilities and being able to push back the bullet payments on those. Just a couple questions on that. First of all, were there any fees associated or significant down payments that were required for you to change the amortization profile of your facilities?

Look, we have not disclosed our actions because we are in this situation where we develop the whole strategy, where it's -- we consider each of our banks a different case, and we are in close cooperation with them. So we have agreed right now with two banks, and we will continue to conclude all the remaining outstanding requirements with the others in the next -- let's say the next period.

Okay. And in some of the press releases, you've noted that some of the near-term covenants have been waived, those associated with loan to value. Are there any other covenants, though, that are at risk right now, maybe some as far as, like, debt to EBITDA or EBITDA to interest coverage, minimum liquidity? Any covenants at risk today?

Look, first of all, I would like to clarify one point which I think we have not clarified fully. Our changes of financial covenants is proactive. Whatever we have done with our banks is we are always in compliance with the covenants, and we do projections for the future. And what we really seek is to be strong -- not today, because as you have seen, today the Company is quite strong liquidity. It's the situation with where we'll be in our [stressed] scenarios in 2018. And this is very important for us, to go to the next shipping cycle strong. Whatever covenants now we have, we present them. In the global level are the covenants that you have seen. We don't have any other covenants than those presented.

Okay. And then also, there's one other piece of debt, the perpetual preferreds, obviously a little bit more expensive. How are you thinking about those? Is that something that's just going to play out for now as you address the credit facilities first, or is that something you'd like to be proactive with as well?

Look, the preferred has specific terms. And what we are doing is we are complying with the terms of the preferreds. We are not considering -- I mean, we cannot -- we haven't taken any decisions about the preferreds.

Okay. And then the last thing and then I'll turn it over, just the OpEx reduction's pretty impressive. You noted in the press release it was every, basically, component of that except for crew ages. Just curious, how sustainable are those reductions? Is this a new run rate that's really feasible going forward, or were there some kind of anomalous events that were enabling you to bring it down to a lower level for a short period of time?

Hello, Jonathan. This is Polys speaking. So because I'm involved deeply in this scenario, like Loukas and Konstantin and the whole team, what we are doing, it would be meaningless to do it for one quarter and then start increasing it and end up where we were last year.

We're taking deep actions to ensure that this low OpEx is sustainable for a long period of time. And we are a company that -- one of the few companies that we are maintaining a strict policy of paying invoices and our suppliers on time. And on time means, we think, 30 days of invoicing.

You know, the industry as general tends at times like this to expand the ability to extend credit from suppliers, from people who cooperate with the company, service providers, all these people. Usually it goes initially to 90 days, then 120, 180, up to a year. So we decided that we would be paying everything on 30 days. We have no trade debt with any counterparty. Working capital is being put up and paid, all the invoices on time.

And at a time like this, you can utilize this strength of paying invoices on time to demand and to insist and to get discounts of 35%, 40% from suppliers because they have only 10% or 15% of their clients paying on time.

So this is a policy of the Company. And of course, with the people who cooperate, they are long-term corporations. We're using the synergies of a large fleet. We are making pooling agreements with other shipowners. We are running a company and pooling agreements with another 11 companies and having 200 ships under the same umbrella.

A lot of things, a lot of things are being done in order to achieve these results. We've [had underwriters with P&I clubs]. It's an ongoing process, and we will keep trying to improve this number. I'm not satisfied that this is the best number we can achieve. There is a little bit more room to go, and I think this will be a sustainable number for the next period of time.

Great. I appreciate that detail. Thanks, Polys. Thanks, Loukas.

Chris Wetherbee, Citi.

Just picking up on where you just left off, Polys, I think that's really helpful color, and the sustainability is important. You mentioned maybe a little bit further to go. Anything specific you want to highlight in terms of where you might see some opportunities, and then maybe what we can think that might reflect in terms of a daily OpEx number?

Can you repeat that? I didn't understand the question.

Sure. So in terms of the cost reduction strategy that you've employed, you just mentioned that there might be another leg to go to get the rates down further. I was just wondering if you could highlight anything specific that you could do to get those costs down and maybe how much they could come down further.

Yes, look, I mean, there are certain elements of the costs that are inflexible, like the crew wages, okay, and this we cannot influence too much. But all the other costs you can really press. And I think it's a really big asset, what I just said about the timing of the Company's payments.

Also, the banks are closely monitoring the timing of payments of invoices by their clients because they don't want to -- they are not feeling comfortable when they have a client who is delaying payments to suppliers and increasing trade debt to third parties and people like them. So it's a double benefit there. You see, your banks are more than helpful if you are paying on time, and also the suppliers are more than happy to reduce the costs more and more.

I don't think that we could achieve miracles and, you know, go another 15% or 20% lower than this level, because already very, very, very low. But I believe there are synergies and policies that the Company can undertake because we have a fleet that is mostly built in Japan by high-quality yards. And we have -- most of our ships are sister ships. So between sister ships, you can make certain synergies on spare parts and on other items that may require the proper upkeeping of those vessels.

So we are utilizing all the techniques the shipowner has and techniques that usually you forget about them at times when profits are being made. But at times like this, that we have a long or prolonged, I would say, low freight market, which will go another year or year and a half or two years -- nobody knows how long -- we will need for the fleet to clear out and when demand will pick up and all these things.

So the Company will have to keep improving. And if we don't manage to improve by another 15%, at least by trying to improve and achieve 10% or 15% lower running expenses, we will ensure that we will not go higher than the number we achieved in the first quarter of this year.

So, this is our effort. And we run the fleet out of two offices now, Cyprus and Greece. And we are trying between the offices to compare numbers and to try and improve even further our numbers. So, this is a thing that we spend a lot of time every week, and we will keep doing so because it's critical, I think, for the long-term strength of our Company.

Okay. Yes, that's very helpful. I appreciate that.

If I may add something on another view, is if you consider -- I mean, I would like to repeat this position. If you consider that in the worst quarter of the drybulk market of another 30 years, we managed to have a time-charter equivalent rate higher than the operating expenses, which means that we don't burn cash for operations. I mean, the operation of our vessels is making money to us, adds into our liquidity. This is extremely important.

And the second point is that if, for example, you consider that we have operating expenses of $3.7 million, and I don't know what it will be in the market -- the other, it may be $7 million -- it might be that each year this Company produces -- I mean, for 15,000 day, operating days, about, that we have, if you say $2,000, it's about $30 million of savings, which in other words contributes to the wealth of all shareholders. This is very important strategy for us. And because we are a shipping company and we know how to deal with such situations, we have done all this work very proactively and on time.

Okay, yes, that's very helpful. I appreciate the color. I joined the call a little late, so I apologize if you covered this. In terms of the remaining CapEx for the newbuilds that are coming online, how do you think about the opportunity to maybe renegotiate some of those agreements even further? Do you want to take delivery of those ships in the out years? Do you still think that that makes sense? Is it a wait-and-see depending on the market and then maybe you can make an adjustment? How should we think about that potential -- the potential newbuild pipelines beyond 2016?

Yes, look, one ship we will take delivery in the second half, because she is ready, and we will take at a certain point in the second half of the year. So the four remaining ships, which are in 2017 and 2018, there is an ongoing discussion with the yards. There is an ongoing discussion with the yards. The yards maybe -- they cannot do exactly what we want them to do or to delay even further to 2019 or whatever. But maybe they could help on other fronts.

All these things -- you know, we never act unilaterally. We never push things beyond where we can push them. But you have to remember, these are yards that were related with the last year. They want us as clients after five or six or seven years or whenever we would be in a position to order new ships again. And of course, they are interested to help the situation in one way or another.

Now, what form this operation will take place and how it will be developed, it will be unveiled as the talks progress for the last remaining four ships in the matter of the next six months. Or even me, I don't know which way, but I am -- especially from Japan's front, I'm receiving very, very good cooperation from long friendships I have in that country.

Okay, okay. So I guess in the next six months or so, we'll have more clarity on the newbuilding pipeline opportunity, is what you are saying.

Yes, I think in the next six months, we will know definitely what is going to happen with the last four ships and how they will come into play, and in what form, and who will help, and how it will help.

Okay, great. Listen, thanks, gentlemen, for the time. I appreciate it.

(Operator Instructions) Fotis Giannakoulis, Morgan Stanley.

This is actually Ben stepping in for Fotis. I just had a couple questions. So, we've seen bulker rates improve somewhat into Q2. However, they're still likely to remain under cash breakeven levels for the foreseeable future, at least. Just how do you expect managing liquidity moving forward? And do you think you'll get more aggressive through vessel sales or perhaps an equity infusion to fuel the gap here?

Look, we have to see how the market develops. The Company has $120 million of liquidity. All our actions we are taking at the moment is to ensure that we have sufficient liquidity after two years. Right? Now we have liquidity, we can manage 2016. We can manage 2017. In 2018 there will be liquidity, but we don't want the Company to stay with a very low liquidity, because thereafter, you will not be able to achieve the OpEx we are achieving and to do deals and agreements in the form that we are doing now with our service providers, with our banks, and with other people.

So there are constant talks with all the people. We are one of the companies that, you know, we don't impose to our banks our will and we say that's that, and whether you like it or not. We'll sit down with all of them. We discuss. We find something that both sides are happy with, and they see the long-haul prospect.

When they see a fleet that is average age six years old, is mostly built in Japan, i.e., the higher value and the higher possibility at any given stage to sell these ships, because you have seen this in the secondhand market, that the Japanese-built ships are the ones that are getting sold. And also, the fact that they see the reduced expenses by more than $1,000 improvement from last year, I think that banks, the banks, they have open ears, and they want to cooperate with this management team.

So, ourselves, we are confident that our liquidity will be strong in two years' time with the concentrated effort from all involved parties. Management, banks, shipyards, anyone who is involved with this Company will do his part for the Company to be strong in 2018. And just so you know, this is our job to ensure we have demonstrated we are a hands-on management. We don't lift things that are -- you know, whatever the market will bring and just pray for a better market. And we will be doing the things that we need to do.

Sure. I appreciate the color here. And then just one more question on the broader market. You mentioned a market rebalancing coming from the demand side of the equation. But would you mind just touching upon the supply side a bit and your outlook for continued scrapping levels and newbuild cancellations?

Yes, the scrap -- the order book is $60 million. On paper, it's -- they write $100 million, but it's $60 million. We know at times like today, only 50% or 60% of the order book is real or is delivered. If it was a good market, maybe 70% could be delivered.

So if we assume we still have another $60 million to enter the fleet, this year alone, we believe with the freight market we have in the first half, which is -- it was $3,000 a day in the first quarter and it's $5,000 per day in the second quarter, these numbers will simply ensure that around $40 million or $50 million will go to the scrapyard this year alone.

So then, we'll have another $20 million to deal with it. And on top of it, because banks are shrinking, the number of banks are shrinking, the liquidity of the owners is shrinking because there was a lot of equity lost and disappeared, and everybody is trying to repair balance sheets and to fix their wounds, there is not going to be any ordering of drybulk vessels in 2017 and 2018.

So if we have this, and we assume that the market starts recovering meaningfully in 2018, we will have another two years in front of us without any newbuildings being delivered. You don't need the demand to do a 7% or a 5% when the fleet and the demand is balanced. You need just a 2% or a 3% in any given year above the time of the year or the market to go from $6,000 to $12,000 a day.

Exactly the same story happened in the tankers. The tanker improved when there was a little bit increase of demand. But after they had four years of no ordering and four years of no speculative ordering in the market, so this would happen in the drybulk market. And I think that the supply is getting very favorable now for shipowners.

And people say provided shipowners, they don't know [their end], I guarantee you that this provided is a matter of fact, is a reality, because nobody can order today. Nobody can order. It is not a matter of price. There are no banks to finance newbuildings, and there is no equity left to put into new ships.

Awesome, thanks so much, guys.

There are no further questions at this time. Please continue.

No more questions.

Are there any more questions?

There are no further questions.

Okay, so thank you very much for being with us this morning and attending our conference call. And we are looking forward to discuss again with you in the area of financials as of the next quarter. Thank you.

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