Safe Bulkers Inc (SB) 2017 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 2017 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.

(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 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 now I 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 second quarter of 2017.

Let's start our presentation with the developments in our industry. On Slide 3, we present the Cape and Panamax average 4TC. During the first half of 2017, we have seen signs of improvement of the charter market compared to historical lows observed back in the first quarter of 2016. Presently, Cape market is correcting, while Panamax market show some strength following an earlier correction. Still however, charter market is volatile and at non-profitable levels. Charter rates for Capes are now down to $8,400 per day while for Panamaxes are up to $9,600.

Asset values, as shown in Slide 4, have recovered and haven't yet been substantially influenced the seasonal correction of the rates. The 5-year of Cape is short at about $31 million compared to the low of $21 million in March 2016, and the 5-year of Panamax is short at about $19 million compared to $11 million lows last year.

Let's move on to examine the status of the supply and demand equilibrium. In Slide 5, we see information about the net fleet change in Capes and Panamaxes. Dark blue bars denote deliveries and light blue bars scrapping, while the number above the bar represents the net increase. We observed in 2017 a relatively small net increase in the number of both Capes and Panamaxes compared to the total size of the fleet.

The excessive order book of the past years is substantially exhausted this year, as shown in Slide 6, especially for Panamaxes, where most of our fleet operates. Some requests for new orders encouraged by the improved charter market of the first quarter were frozen due to charter market correction, but now certain interest is being built up again, always at reasonable levels. This cash liquidity and the time lag between the placement of an order and its delivery is creating the base for an improved market in 2018. We expect that ecological constraints related to new regulations for ballast water treatment plant and for SOx emissions will also influence the market.

In the next few slides, we show certain information in relation to demand for dry-bulk services, which is directly related to the global economic development. In Slide 7, we present certain data in relation to iron ore trade. During 2016, China's iron ore imports grew in conjunction with advances in consumption volume by domestic steel mills. In March 2017, Chinese iron ore imports reached record levels and in June reached a 15% year-on-year rise. The peak in demand has been correlated with the commodity price and eventually with the freight rates.

In Slide 8, we present the development of the coal demand. Chinese coal imports grew stronger during the second quarter of 2017. The peak in demand has been correlated with the commodity price and eventually with freight rates. China still relies heavily on coal as it remains as the basic fuel for electricity production. During summertime, the low hydro levels are expected to boost coal demand.

Demand for grain, as shown on Slide 9, supports historically the dry-bulk transportation demand. China's soyabean demand has been growing at 5% rate per annum and China's soyabean imports have more than doubled over the last 10 years.

In Slide 10, we present the key takeaways of our discussion. Excessive past order book will be exhausted mainly in 2017. The reasonable additional dry-bulk orders have been placed reducing growth of dry-bulk fleet. Financing constraints remain. Seasonal correction creates concerns for the future prospects. China was and will continue to be a key player in dry-bulk transportation through the development in their plans for infrastructure projects and urbanization and substitution of Chinese domestic production. And overall prospects for global growth remain positive.

Now our CFO, Konstantinos Adamopoulos, will present our quarterly financials.

Thank you, Loukas, and good morning to everybody. Let's now move in Slide 11 and see our quarterly financial highlights for the second quarter of 2017 and compare it to the same period of 2016.

Net revenues increased by 34% to $35 million from $26.2 million mainly due to an increase in charter rates. Our TCE equivalent rate per vessel increased by 30% to $9,978 per day from $7,675 per day during the same period in 2016. Daily vessel running expenses increased by 2% to $3,893 compared to $3,814 for the same period in 2016. Daily G&A expenses, which include daily management fees payable to our managers and daily costs inherent in relation to our operation as a public company, increased by 4% to $1,157 for the second quarter of 2017 compared to $1,115 for the second quarter of 2016. Our adjusted EBITDA for the second quarter of 2017 was $16.2 million compared to $8.8 million for the same period last year.

We may still remain unprofitable; however, our adjusted net loss per share for the second quarter of 2017 was $0.07 calculated on a weighted-average number of 101.4 million shares reduced as compared to $0.15 during the same period of last year; that calculated in a weighted-average number of 83.6 million shares.

Slide 12, we present our quarterly fleet data and average daily indicators compared to the same period of last year. Liquidity in a cyclical industry like ours is a key point that I would like to show you in the next slide what we have achieved.

We focused on our expenses, both OpEx and G&A. The aggregate figure for both OpEx and G&A for the second quarter was $5,050 from (technical difficulty) $4,929. The second quarter of 2017 includes cost of 3 dry-dockings versus 1 dry-docking during the same quarter last year. Our OpEx numbers include all items like dry-dockings, initial supplies for new buildings, et cetera. Compared to our peers, on average we are achieved about $1,500 in daily savings during the first half of 2017 from daily OpEx and daily G&A, representing about $20.5 million in annualized savings or $0.20 per share in savings.

Slide 14, the light blue bars show that the effect we have achieved by our cost-cutting efforts was sustainable during all four quarters of 2016 and through the first half of 2017. The dark blue bars represent our TCE and show the improvement of the market from its lows during early 2016 and our relevant performance.

At this point, we would like to emphasize that we have positive operational cash flows and we have controlled the financing and investment cash outflows. The liquidity we preserve helps us go through the cycle and then can be used to reduce financial obligations as we have demonstrated through: firstly, our recent exchange offering of Series B preferred shares and, B, the exercise of our purchase options regarding 2 Kamsarmax vessels, which are under sale and leaseback agreements at an aggregate -- the agreed price of $43.8 million. This transaction will consummate in September, 2017, and it will be financed through a mixture of cash on hand and committed debt facilities of up to $30 million.

As shown in Slide 15, we have only one remaining new build in our order book, which is scheduled to be delivered next year. This will be financed through issuance of $16.9 million of preferred shares at the level of the owning company of the vessel to nominated investor up to 2.95% dividend. In total, we have outstanding $31.4 million of CapEx and we need to spend essentially less than $15 million from our liquidity for that. As of July 19, 2017, our liquidity was $98.9 million.

Moving on to Slide 16, we show information about our quarterly cash flows. For the first half of 2017, we achieved positive operating cash flows of $26.6 million, which was a result of the better market observed and our performance supported our low operating expenses. The negative cash flows we had from investing and financing activities were mainly due to the delivery of 3 new-build vessels, one of which was short upon delivery, and due to the recent exchange offering of Series B preferred shares. Overall we believe that the company, with a liquidity of $98.9 million as of July 19, with positive cash from operations and controlled outflows for investing and financing activities, is well-positioned to take advantage of improved market conditions even when the shipping markets turn sustainably. Our press release presents more detail of our financial operating results.

We wish now to take your questions. Thank you.

(Operator Instructions). And your first question today comes from the line of Magnus Fyhr from Seaport Global.

Just one question on capital allocation. You're almost done with your new-build program. And I was just wondering, the yards have -- especially some of the Chinese yards have started to get a little aggressive on pricing. You have mostly ordered your ships from Korean and Japanese yards. But is new building something you would consider here going forward? Or it would just be interesting to see your view there.

Yes. At this point, we do not plan to place any new building orders. There are many second-hand vessels in the market and if the company wish to pursue further acquisitions we'll do so on the second-hand market.

And with the recent weakness in the market do you see I mean sellers getting a little more willing here to come down in price or have you seen developments here in the last few months?

We think that prices are holding. We don't expect them to come off. Because they are already low, they are low enough, we don't expect further reduction of prices. The thing is before we invest we want to see better freight market, which we expect we'll start seeing in fourth quarter of this year as is seasonally expected and with the recent move-up of commodity prices. And, another indicator, the lower USD value, we believe that spot market will improve as we enter in the fourth quarter, in the final quarter of the year, by October time with the exports of the grain season for North America. So at that time we believe it will be maybe a better market and that will maybe allow us to enter the second-hand acquisition market, but not the new-building market.

Yes, that's good to hear. Second question on your demand slide on coal. You mentioned imports substitution. It's expected to continue going forward. There's been some recent, I guess, on the tier 2 ports to reduce, I guess, the imports. They've set new quotas. Do you think -- I mean for the lower-quality coal. What's your view there going forward on the imports as far as the tier 1 ports and domestic production?

I think the restriction imposed by China in certain ports is not the main important ports. It's, I would say, third-tier ports. Only one of the ports mentioned Panamax or (inaudible) ports so I think any influence on our size of vessels will be minimal. On the other hand, we believe that the environmental visions will be a long-term process. We're not talking about this year and next year; we're talking about the next 10 years. It will be a slow process. And better-quality coal from countries like Australia or further afield will come into play in the subsequent years. We may see increased ton miles as a result of these changes.

(Operator Instructions). We have no further requests coming through at this time. Please continue. My apologies. Magnus Fyhr has a follow-up.

Just a question on the ballast water treatment system. It's been pushed out to 2019. Do you think that will have an impact here on scrapping going forward? Or do you think most owners will take their 17- and 20-year-olds through their surveys?

Definitely on the 17- or the 20-year-old, I don't think that it will so beneficial to consider ballast water treatment.

As far as our company is concerned, we think that ships, our oldest ship is 14 years old, so ships under 15 years old I think the company should be prepared to do it early enough. I don't think that our company is planning based the recent extension of two years. We're planning based the previous regulation and we're getting ready to start installing the ballast water treatments as from the forthcoming dry-dockings in the beginning of 2018.

So I think companies should plan and apply this regulation early enough because the systems -- there are enough systems already approved and some more are getting approved by Coast Guard, U.S. Coast Guard, in the coming months. So I think there will be many options available for ship owners. Definitely I don't think it's worthwhile bothering on ships of 20 years old, but ships that are under 15 years old I think owners should not postpone the application of this rule.

Yes. And you mentioned with more systems getting approved. What do you see the cost currently? Has the cost come down for these systems or can you kind of elaborate on that what the cost is for different classes?

Not yet. The cost has not come down yet. But I think that there is more than in the region of $0.5 million per ship. So a company hasn't got to do the whole fleet in 1 year. You have 5 years over which you can apply these costs. So I think that it's prudent to start applying these from the forthcoming dry-dockings in 2018 so you have a smaller cash flow profile on your fleet. So our company, we're planning bases applying this from the first dry-dockings that we will have in 2018.

Operator: And we have no further questions at this time. (Operator Instructions). We appear to have no questions coming through at this time. Please continue.

Thank you very much for attending our conference call for the second quarter. During this summer period, I guess many of you are out and doing vacations. And we wish you all the best and looking forward to discuss again our financial results for the third quarter later on this year. Thank you.

Thank you. Ladies and gentlemen, that does conclude your presentation for today. Thank you all for participating. You may now disconnect.