Safe Bulkers Inc (SB) 2017 Q4 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 Fourth Quarter 2017 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 Adamopoulos. At this time, all participants are in a listen-only mode. (Operator Instructions). Following this conference call, if you need further information on the conference call or on the presentation, please contact Capital Link at 212-661-7566. I must advise you that the conference is being recorded today and 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 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 undertakings 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 with that, I would now like to 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 fourth quarter of 2017. Before I start the presentation, I would like to point out that after several quarters, on an adjusted basis, the company is again profitable. We continue our efforts to improve our capital structure. On February 20, we will redeem about 20 million of preferred B. We are focused to further reduce our financing costs and lower our breakeven point. Let's now continue with the developments in our regions. We'll examine the dynamics of our industry focusing on supply and demand equilibrium.

Heading into Slide 3, we present the supply outlook for Panamax, Kamsarmax and Post-Panamax category. Despite the notable increase of contracting during the recent period, we still see the supply of [tonnage] as well balanced. In this segment, the total fleet consists of about 2,520 vessels with the total current order book is about 205 vessels or 8% of the total fleet. These orders are evenly spread until 2020. We also note there are about 467 vessels which are older than 15 years old. Taking into account the upcoming regulations of ballast water treatment and NOx and SOx requirements which are to be enforced until 2020, scrapping activity might accelerate in the years to come.

Recently, we have entered into an agreement for all our vessels to ensure ballast water treatment over full flow electrolysis system that has received the United States Coast Guard approval certificate. Starting at an early stage provide us with commercial and financial advantages such as unrestricted worldwide trading, selling the stakes, logistical bottlenecks for upgrading, the financial benefits of the block order. In the next Slide 4, we present the dynamics of the market on a macroeconomic level. After many years, we're experiencing the positive effect of economies synchronization. Growth is synchronized with all economies currently expanding. As presented on the top graph for the first time since 2010, IMF is upgrading its growth outlook. Presently almost all countries of the fund are growing.

On the bottom graph, we present the global PMI and OECD industrial production. It is noted that both industrial production and manufacturing sector are improving steadily since 2016. Globally, PMI reached a new 7-year high in December 2017. Presently, the macroenvironment has a direct positive effect in the demand for drybulk transportation. Asset values are correlated with charter market as shown in Slide 5 where we present a graph with the historical values since 2011 of the 5-year Panamax -- values comparing it to the freight market. Asset value line has mainly been above this short period line. But recently this pattern seems to be distort as asset values have been increasing at a slower pace than freight market. Restoration of this pattern is expected to push gradually asset values higher.

The key takeaways are presented in Slide 6. Order book is evenly spread until 2020 as double-digit excess supply is reduced to 8% of the existing fleet. Growth is synchronized as currently, almost all economies are expanding. Manufacturing sector improved steadily through '17. Global PMI reached a new 7-year high in 2017, December. Highly sensitive demand-supply balance may push charter rates and possibly asset values upward. New regulations in relation to shipping are expected to push scrapping higher. We believe that the process for global growth remain overall positive.

In Slide 7, we'll present some financial data on a quarterly basis. Our quarterly revenues and our adjusted EBITDA have been constantly increasing thus improving our overall financial strength. This fact is also demonstrated in Slide 8 where we present our adjusted EBITDA per vessel basis. Our strategy of maintaining low-cost structure provide us with a very distinct advantage of making profits earlier than our peers.

We present in Slide 9 our daily free cash flow waterfall for 2017. During 2017, we have become profitable on adjusted basis for the first time after several quarters maintaining one of the most competitive breakeven points in the industry. We've earned $10,500 and done above $8,500 per day per vessel overall, our outflows including operating G&A, interest, preferred dividend and principal repayments. Our daily free cash flow stood at about $2,000 per day per vessel and demonstrates our financial health. As shown in Slide 10, we have only one remaining newbuild in our order book scheduled to be delivered in 2018, which will be financed through issuance of $16.9 million preferred shares on the owning company of this vessel to an unrelated investor at 2.95% dividend. In total, we have $27.1 million in outstanding CapEx and we need to spend less than $11 million from our liquidity. As of February 9, 2018, our liquidity was $79.5 million.

Moving on to Slide 11, our effort is to further increase our liquidity and use it to deleverage the company. This has not prevent us from acquiring opportunistically 1 second-hand Post-Panamax vessel, sister with our 2 other Korean vessels. In terms of use of liquidity during 2017, we have bought back 2 vessels reducing the recorded debt by about $44 million. The related bareboat charter outflow for those was about $4.7 million on an annual basis. We have reduced our outstanding preferred by about $30 million and the related outflow on an annual basis of about $2.4 million. We have decided to redeem all the remaining outstanding Series B preferred shares on February 20, 2018. We financed the above transactions with cash on hand and new debt at low 200 basis points margin. In such a way, we may further lower our breakeven point and achieve the profitability earlier. We will continue to use our cash from operations to further improve our capital structure, leverage and create intrinsic value for our common shareholders. Now our CFO, Konstantinos Adamopoulos will present our quarterly financials results.

Thank you, Loukas, and good morning to all. Let's move to Slide 12 with our quarterly financial highlights for the fourth quarter of 2017 compared to the same period of 2016.

Net revenue increased by 34% to $42.4 million from $31.7 million reflecting the increase in charter rates. Our time charter equivalent rate per vessel increased by 34% to $11,944 per day from $8,936 during the same period in 2016. Daily vessel running expenses increased by 5% to $3,914 compared to $3,711. Daily G&A expenses, which include daily management fees payable to our managers and daily costs associated in relation to our operation as a public company increased by 8% to $1,175 for the fourth quarter of 2017 compared to $1,083 for the same period in 2016. Our adjusted EBITDA for the fourth quarter of 2017 was $23.9 million compared to $13.6 million for the same period in 2016. Adjusted earnings per share for the fourth quarter of 2017 was $0.02 calculated on a weighted average number of 101.5 million shares as compared to adjusted loss per share of $0.09 in the same period in 2016 calculated on a weighted average number of 87.4 million shares.

Slide 13, we present our quarterly fleet data and average daily indicators comparing the same period of 2016. Liquidity in a cyclical industry like ours is key, next slide I will show you what we have achieved in this respect. Slide 14, we focused on our expense side. The aggregate OpEx and G&A figure for Q4 of 2017 was $5,089 from $4,794 per day in Q4 of 2016 and $4,973 for the whole year versus $4,847 for 2016. Our OpEx numbers include all items like dry-docking and initial supplies. Compared to our peers, on average, we have achieved about $1,230 in daily savings during 2017 from OpEx and G&A, which represents about $17 million or $0.17 per share of annualized savings. Slide 15, the dark blue bars show that the effect we have achieved by our cost-cutting efforts were sustainable during the last 2 years. The light blue bars represent our TCE and show our constant improvement from the lows of early 2016. At this point, we would like to emphasize that we have positive operational cash flows of $49.2 million for the year of 2017 as compared to $13.5 million for 2016.

Overall, we believe that the company with a liquidity of $79.5 million as of February 9 with positive cash from operations and controlled outflows for investing and financing activities is well positioned to take advantage of improved market conditions. Our press release presents in more detail our financial and operational results. Thank you for your attention and we're now ready to accept questions.

(Operator Instructions) And your first question comes from Jon Chappell from Evercore.

The first question I wanted to ask was about strategy. The liquidity number is pretty compelling especially given your capital commitments and then the fact that it's risen so much just in the first 40 days of this month clearly shows that you're continuing to generate good cash from the fleet. You are kind of mixing a couple of different uses of cash here. You bought a ship opportunistically, but you've also been redeeming the Series B and essentially wiping those out. How do you think about the liquidity that you have going forward and the next steps? You clearly still have the Series C and the Series D preferreds, but it's also if we look at the outlook for the market it may still be a good time to buy ships, so how do you kind of balance fleet with the capital structure?

Look, we are focused a lot in our capital structure, which means that the averaging at this stage as the market improves is the most important key element for us. Of course, we have proven that during last year by doing this preferred B exchange and right now the call of preferred B and the acquisition of the 2 out of 5 vessels that were under sale and leaseback agreements, which reduces our cash outflows and it reduce also our breakeven point. We will continue to do that in this present environment. However, that hasn't prevented us to acquire a second-hand vessel when we found the opportunity. So we cannot say exactly what we are doing, but the most important thing is to improve our capital structure. In this present state, it's hard to show the market.

Okay, I agree with that. Second question, I think you guys are the only at least public firm who's been so upfront about a full kind of ballast water treatment initiative for your entire fleet. Can you tell us how much is that going to cost? What's the off-hire time associated with that or is it just a function of normal kind of special survey costs and schedules?

Look, it was quite clear -- it is quite clear to us that the regulation is a regulation and ballast water treatment is fully implemented. So companies which will delay to install ballast water treatment, after 2019, we believe after 2019 will face problems in trading with United States. So this is very important for us and we wanted to do the installation. We have examined all the alternatives and we have found the best technical and the economically and financially sound solution for the installation. Now, how this thing will go is that our plan is as vessels reach their special -- their dry-docking, we will install it. So we expect that this year we will install about 8 to 9 vessels and subsequently, this will happen in the following years. We overall expect that this cost will not influence a lot our financials. It's quite low and will be distributed within a period of 4 to 5 years. This is very important for us because from oldest to youngest ship, our company will be fully compliant with the new regulation.

Okay, final one and I don't want this one to be misinterpreted, but you already -- you have the best cost structure in the industry, I think that's known with the 5% increase in OpEx in the fourth quarter, 8% in G&A. Just wondering was the market so bad a couple years ago that you really battened down the hatches and went kind of on a bare bones budget and we should expect some kind of catch-up on cost inflation over the next couple of years or was that a timing thing and we should think about the recent run rate as being the run rate going forward?

Look, first of all, I need to say that there's always a variation on OpEx between quarter and quarter. Whatever we have -- wherever we have a dry-docking, you may have increased number and when you have lower number of dry-dockings, you may have a decreased number. The second point is that, we all expected an increase of that type and still, I think it's quite successful result compared to all our peers and substantially lower than the market because we still have in place several agreements from the past. Okay, although everybody can understand that right now the market increases, lubricants gradually will increase and so we expect some influence in our OpEx from there. However, we try our best and we will continue to be the leanest operator. You know that even in the past before the previous crisis, we had compared to all the others one of the best operating expenses and we did the same thing, we did cost cuttings during the crisis and right now, we still maintain a very low, a relatively low figure.

And your next question comes from Chris Wetherbee from Citi.

James Monigan on for Chris. Actually, I was wondering if you could probably provide some commentary on what you see in rate so far and sort of what your outlook for rate is across the rest of the year?

Yes. Chris, Polys speaking. So market is gradually improving and as you saw we achieved a profitable [PC] in the fourth quarter. The fixture that we did till the fourth quarter are spilling over in Q1. So it looks like the Q1 rate will be even higher than the Q4. So we see right now the Chinese New Year at full [lower cost] is this week and part of next week. I already have the impression that as soon as the Chinese are back on their desks, things will start moving positively. This is also reflected in the [FFA] market. So we are optimistic, but we are particularly optimistic for the second half of this year. So it's all looking positive. Of course, you know in shipping nothing must be taken for granted but looks positive.

That’s fine. And also…

The important thing here is to note that -- to share our breakeven point because right now we are profitable and you see that our breakeven point is below 12,000, substantially below 12,000.

Yes, it makes sense. And also you've done a lot of work on your capital structure and with that in mind, I wanted to sort of get your thought on the dividend and possibly what we might have to see further before that could possibly be resumed?

Look, dividend is something that all common shareholders would like to have of course and especially Polys. Our first priority at this stage of ascending market is to continue to deal with our, with deleveraging. It's very important for the long-term prospect of the company and the interest of all common shareholders and you've seen that we've done certain exchanges, we will deleverage and the most important thing is we try to create intrinsic value for our common shareholders. This is the keyword right now. I think dividend discussions should come in a later stage after having substantial knowledge and the prospects of the good chartering market. So right now I think everybody is enjoying from the profits that the company gets through increase of intrinsic value.

Makes sense. And then one quick question, you took a impairment charge, I was wondering if you could provide some more color around what that was related to?

Look, with impairment charges, we took them last -- this quarter. We had -- we are doing impairment test every quarter as you may understand and the decision was based on the fact that 2008, which was -- we based our impairment test on assumptions for a 10-year average which included 2008 -- and 2008 was a very extremely high year. So in the next period, this 2008 will be removed in 2018 and so this according to our methodology would use the average charter hire with which we do our calculations and I think that because according to our assumptions, the possibility of having similar rates like 2008 and in 2007 in the future is quite remote. We believe -- and the cycle is quite smooth -- it increases smoothly. We believe that the most and the best thing to do is to take impairment charges now according to our methodology.

Your next question comes from Ben Nolan from Stifel.

Actually, just following up on that a little bit since you brought it up. It's been I think in the release that were 4 of the vessels that had impairment charges on it. I assume that you've looked across the entire fleet and is it fair to assume that there wouldn't -- there is unlikely to be any more of that type of charge going forward?

It's fair assumption, we did the impairment tests in all our vessels and this 4 which were actually the most expensive vessels, we had to take impairment test. We think that based on the present market conditions and according to the present tests, we don't believe at this stage there will be another impairment in the near future. Okay, this always depends on the assumptions in the market because we revisit our assumptions every reporting period.

Okay, that's helpful and then just for modeling purposes on that, how should we think about the impact on depreciation going forward after the impairment is taken out?

Obviously the depreciation, I mean, by doing the impairment, the net asset value of our fleet, the book value -- sorry the book value of our fleet is reduced. So this will influence somehow the depreciation expense by a little I guess, very little.

Okay, but you don't have the number off hand though I guess at the moment, right?

Maybe $0.02, $0.03 something like that.

Okay, no, that's helpful. And then as it relates to just the more I guess broader strategic view of the business. There, you've been buying or did buy relatively modern asset, you do still have a handful of specifically Panamaxes that are now 15 years or approximately that age although the Japanese-built and looks like you guys are still getting pretty good contracts on those vessels, I know they are pretty high-quality vessels, how do you think about some of those older or vessels that are getting a little bit older in terms of the fleet is it getting to the point where you can think about high grading and maybe swapping a newer ship for an older ship or those still right in the center of kind of the strategy given the high-quality of the asset?

Yes, there will be an asset play at a certain point, the prices are still not at the level that it’s worth pursuing this policy, but we believe when the freight market moves to the next level and it moves from $12,000 a day to maybe $15,000 a day, I think those ships the pre-owned ships will appreciate in value and one of the options would be to consider replacing them with a younger tonnage. The fact is that the company has decided these 15-year old ships to be kept in pristine condition, in top condition to go through any new regulation that comes like ballast water treatment. Actually, the first ship we are fitting the ballast water treatment from our fleet is a 15-year old ship coming due in next month for special survey. So we would have all those ships in top condition and considering that those ships were actually built to high specification for our own account 15 years ago by top Japanese [guys], we believe that will be ships that will have the opportunity to achieve probably a very good sale if and when the market develops most likely in the second half of this year or early next year. So we are open on all strategies, it all depends on the prices.

Your next question comes from Fotis Giannakoulis from Morgan Stanley.

Polys, I want to ask you about how do you view demand going forward and at what point shall we start worrying about the pickup in newbuilding orders and if you can comment about the appetite from shipowners to continue to place orders and the availability of capital that is out there.

Yes, look the shipowners always will be placing orders especially when the market is improving. The thing is that we are against newbuilding orders for this year. We believe newbuilding orders, company should order when it has decent profits. We should be placing, at least to my mind, all my career I was doing newbuilding orders to replace my existing fleet. I was doing it always when I had big profits. I would never order a newbuilding out of losses or small profits. So the replacement starts when you have big profits, but generally it's a little bit disappointing that I'm hearing some owners thinking to place orders because they believe, because the price are cheap now and they believe that in 2 years’ time these ships will be worth $2 million or $3 million or $4 million more than they could make a big profit at the time of delivery. This should not be the approach of owners because this ship will be built and will stay to compete with the rest of his fleet for 20 years. So it's very disappointing when you hear owners of big fleets having this strategy. So it's undoubtful, but order book will increase it's undoubtful, we just hope that it doesn't increase more than $120 million, $130 million that way, right now it’s around $80 million and the lowest point it reached in July of 2017 was $60 million. So if I think if the order book stays up to $120 million we should be okay in the long run and the recovery will bear the fruits, but even if there is more than that and because sometimes if freight rates shoot up in 2018 second half and into 2019 you will see more people rush for it. At least we are guaranteed that we will have at least 2 to 3 years of good market before all this new ships hit the market. And the other thing I really worry is about these owners ordering ships of lower quality and lower specs and old regulations. You cannot order a ship for the next 20 years when you are not getting at least Tier 3 engines on that ship. So this is really disappointing because there would come a point of time that those ships will need to be upgraded to another standard to be able to compete in the market. So yes ships are cheap now and newbuildings are cheap but owners have to worry and wonder why are they are selling those ships cheap because they sell them based on the old regulations.

And also in addition to that we all know that by 2020 when all the additional regulations will be implemented, all the vessels will at certain point of time will face the reality whether they need or they do not need to be scrapped and of course a lesser quality vessels of the past I mean, the previous -- before 2010 that were built before 2010 and they are not of respectable -- let's say, yards. They may face additional problems in continuing their operation. So this is also another thing that can expand, let's say, this 2 year or 3 years that Polys has mentioned just before.

Can you remind us what is the fuel cost differential between your ships, the majority of which are Japanese-built vessels and older or let's say around 10-year old Chinese built ship and what would be the impact of the low sulfur regulation in terms of a time charter equivalent?

Look, the difference is around 5 tons to 6 tons between good quality newer Japanese vessel compared with a year old to a 5-year old Chinese-built vessels. So if you take that fuel oil is $400, it's a $2,000 a day differential. If you take that there would be a period of time that ships maybe required to [burn a lawsuit or NGO] when the new regulation comes in place because no one will be ready to install scrubber in the next 22 months, in the next 21 months. Burning fuel oil, [lots of RMGO] that cost anything between $600 to $700 differential is increasing to [$3,500] a day for the newer ships and the better quality ships. So even if we reach this point, that we have to bear loss of [RMGO], the company that owns Japanese built ships will have a serious advantage on the earning capability of its fleet in comparison to whoever owns Chinese built ships.

In addition to that, don't consider that all ships (inaudible) because you need to have a special pump, specific pump at a specific point, it is about the lubricity of the fuel. So for example, if let's say, the pump of the main engine is questionable in terms of the construction, how it works, we mainly see in the future certain problems with their operations and maybe substantial need for retrofitting certain parts and certain equipment in the vessels, the oldest vessels. For example, this is not our case, but it will be the case for other ships holding up from a questionable construction. So another issue that you may consider is that when vessels will need to install ballast towards -- at least in the next, I mean from the next periods, they will spend more time in the shipyards and this will take out some portion of the supply of the vessels in the market.

I want to ask you about the acquisition of the latest Post-Panamax vessel. Without having to confirm the reports that they are talking about, $15 million which seems to be considerably higher than the current market. I want to ask are there any additions or repair that you need to make on this vessel or this vessel is ready to sail? And also are there opportunities this type of auctions that you can pick up some tonnage?

Yes, we booked the ship considerably lower, you said higher, but it's considerably lower from the prevailing market. We pay in the region of high [15s] of that ship at the time and there was a lot of competition on that ship. How do we knew that there were 10 shill bids in that auction as we learned after the event, had we knew from the beginning that there would be 10 shill bids on that ship, we will have put at least $1 million more on the price to make sure that we get it. We wanted to get it because she was a good ship. She was in good condition and she was sister ship with 2 other Post-Panamaxes we've had from the same yard. So it was an opportunity for us to have all 3 ships together. We have taken a decision to spend maybe around $400,000 to $500,000 on the ship. So still will be costing us low [$16 million] and that is always doing this because we want to be able to trade the ship for grains and for grow more cargoes on South Africa, which require a very clean cargo holes, which was not the case of this ship, but we are very happy because still, we will be the cost for us in the low $16 million once market value is around [$19 million] to [$20 million]. So it was a very good acquisition and we were very lucky to have a bid that was hardly $1,000 above the second bidder. So we are very happy with that acquisition.

At present, the vessel is chartered and is sailing.

It was fixed on a spot cargo of 60 days for $11,500 a day to position her to China and do have the sandblasting of the holes and then start trading up $14,000, $15,000 a day without problem.

One last question, the grain season in South America is ready to start in a few weeks, can you give us your view, how do you expect this to develop and what would that mean for the chartering market?

We see already that there is big volume from South America. There were some problem with some cargoes in Argentina delaying to some strikes but now they are over. And also to -- because the market was in the new year a little bit slack in January and the many ships start [vulnerable in the] South that was affected the market, but as the Chinese are coming back, we are expecting the market from next week to start picking up. In December you know we are fixing ships to lift South American cargoes on base -- delivery base is India or (inaudible) around $14,500 a day for trips via South America to Far East. The current rate is around [$12.5] because of the reasons I just mentioned. So I think that as we enter -- as we get out of the Chinese New Year, end of February, March and April, we expect these rates to reach even levels of $15,000, $16,000, $17,000 a day basis deliver India. It has happened last year, it will happen this year as well and the volume of cargo is fixed. So we are very optimistic that the seasonal boost which we experience almost every year, that it will happen again in 2018.

Your next question comes from Magnus Fyhr from Seaport Global.

Just a question on the coal market, the Indian production has been a little bit disappointing and I don't know if you get any first read here if you see incremental demand or imports going to India on the coal side, surprising here over the next couple months?

Yes, coal market, I mean it is a major fuel both for India and China. So there may be times that they don't import as much but at the same time they deplete their stocks. India, I know that they are running on a very low stock basis. So we see regular cargoes coming in the market from Australia or Indonesia or South Africa to India as we talk, we see -- we may count around 10 cargoes in the market from these 3 loading areas into India. Also, we have ships carrying cargo to India from U.S. East Coast these days. So we are currently having 2 ships of our fleet doing cargoes from U.S. East Coast to India. So I think that they buy as they need and then, you know, I mean the outlook is optimistic, it will not decrease, especially in India. Now China, China again, the quality of the air and the pollution measures will dictate that there should be more import or substitution. There will be more cargo, better quality from Australia. Also we are reading reports that Indonesia maybe imposing some restrictions in reducing their exports of coal in order to use more of their domestic production for their own electricity needs. This also will be increasing ton miles because the cargo will come from South Africa or from Australia. So there are positive signs and coal is a big question mark in the long run after 20, 30 years, but I mean for the immediate next 5 to 10 years, I don't see that volumes will be reducing on the coal movement.

What do you think about some of the other commodities that you transport that potentially could surprise on the upside in 2018?

Yes, we are very positive both on iron ore because of steel demand and steel prices in China and we've seen that new production from Brazil is coming into play, which increases the ton miles a lot and we're very positive also on other cargoes like grains and bauxite. And overall, the demand should be at the stated numbers of 4% to 5%, maybe up high 4s. At the time when supply could be 1.5% to maximum 2%, (inaudible) supply. So this gives us optimism for capacity utilization to increase and the freight rates to increase even more. So we are in for a good year I believe.

Your next question comes from Randy Giveans from Jefferies.

Just a few quick questions here. Looking at returning, I guess improving your capital structure, I know you said that's what you want to do with free cash, is that mostly just debt repayments or would be purchasing some of the preferreds back as well?

Yes, at this stage, the priority is debt repayments.

All debt repayments, okay. And then one more question on the fleet, knowing that you recently got this Kamsarmax kind of second hand, any thoughts on expanding your Capesize fleet at this point in the cycle?

The Capesize fleet, we have 3 Capesize against long-term charter. We are not really a Capesize player or a player that will buy by a Capesize to run the spot market. So it's not on the cards, that we will be looking to do a Capesize. We prefer to concentrate on the category of ships we have, Panamax, Kamsarmax and Post-Panamaxes. Our fleet is evenly divided in those 3 areas. Our Post-Panamaxes are getting a benefit when Capesize rates moving up because they can take a split Capesize cargoes when that market is overheating. We've done it in the past and at a time when Capesize market is strong, our Post-Panamaxes and then maybe 30% more or 25% more on the Kamsarmax vessels. So we have a strong fleet of Post-Panamax vessels. I'm very optimistic about this type of vessels. We fit all of them as they go into dry-docks to be suitable for New Panama Canal, we already have ships trading New Panama Canal on our -- because already 60% of our Post-Panamax are fitted for New Panama Canal and we get better returns on those ships. If you see, we recently fixed one of our Post-Panamaxes at [$14,750] for a year. That ship was passing Panama Canal on her first voyage for the new charter, ballast ship from the Far East to lift the coal cargo in the U.S. Gulf.

The final question comes from James Jang from Maxim Group.

Just a couple of quick ones. I jumped on late, so I don't know if you went over this, but what is the scheduled -- dry-dock schedule for '18 and '19?

Are there any other questions?

Yes. Can you guys hear me?

Yes.

Yes, so can you just go over the dry-dock schedule for '18 and '19?

Yes, can you repeat the question, please?

Yes, so can you just go over the dry-dock schedule that's planned for '18 and '19?

The dry-dock schedule -- it's about 8 ships this year and 5 to 6 next year.

Okay. 5 to 6 next year, and I know that with the ballast water treatment schedule, I know you mentioned about you guys start implementing over the next couple of years. So what can we look for in terms of near-term in '18 for installation of the systems?

Hey, look we will issue shortly in a couple of weeks’ time the annual report and we will present all the information there.

Okay and just one last one is, so I know that not a lot of yards are still building Post-Panamaxes. Do you know how many are still actively marketing Post-Panamax newbuilds?

Yes, there are very few yards, you are absolutely right. So I think this type of ships from good yards will be very precious. So there are not many yards that want to build them because the cost is much more than the Kamsarmax vessels and the yards, they are not keen to build them and the owners are not keen to pay the extra $5 million that you need to build the Post-Panamax. So it's very important that the Post-Panamaxes we have is very important, keep them in top condition to be able to earn higher [Pelopidas] on those ships when the market improves.

Also, the design of these ships is superior to the standard Post-Panamax, they are shallow drafted in good consumption.

Okay, so last question, just if you guys are looking for additional free renewals or expansion, would it be fair to say that you would first look for the Post-Panamax segment or are you happy with regular Panamax Kamsarmax sizes?

First of all, we will look for good quality and that if it comes on a Kamsarmax vessel, it will be a Kamsarmax vessel, if it comes on a Post-Panamax, it will be a Post-Panamax, but when it comes on a Panamax vessel, we're not afraid to trade the Panamax vessel. So we need to find a good quality second-hand vessel because as we've told you before, we don't plan to place any orders this year. Now, next year, if we have big profits, we will consider replacing the ships that we will probably sell, replace them with newbuildings as a replacement. You know with a couple of orders at that time. So for us, we are in all 3 sectors of Panamax, Kamsarmax and Post-Panamax, evenly balanced on those 3 sectors. We are equally happy that -- important to find good quality job, one is good ships, not only the good yard is important, but also if the -- for which owner this ship was built and if it was to higher spec. So it's not an easy process to find a quality ship, but when the opportunity arises and they look similar to our type of ships that we have already, we will invest in second-hand.

Thank you, sir. There were no more further questions, please do continue.

So thank you very much for attending our conference call and we expect to issue our annual shareholders report -- annual report probably by the end of this month and we are looking forward to discuss again with you in our next conference call for the results of the first quarter. Thank you very much.

Thank you, gentlemen. And thank you, ladies and gentlemen, for participating in this conference today. You may all disconnect. Speakers, please standby. Thank you.