Safe Bulkers Inc (SB) 2023 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 2023 financial results.

Today, we have with us Mr. Polys Hajioannou, Chairman and Chief Executive Officer; Dr. Loukas Barmparis, President; and Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company.

(Operator Instructions)

Following this call, if you need any further information on the conference call or on the presentation, please contact Capital Link at (212) 661-7566. I must advise you 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'll 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 2023.

During the first quarter of 2023, we operated in a relatively weak market compared to the previous year. Having comfortable liquidity and leverage, (inaudible) September 2021. We have continued our buyback program targeting 10 million shares aggregate repurchased and declared a dividend of $0.05 per share of common stock. Our balance sheet is strong with significant cash and revolver capacity. Our CapEx requirements are substantially covered by our contracted future revenues on our capital structure is conservative.

Now let's start with the market update turn on Slide 3. We have referenced on the graphs the current profits of the market. Capes have recovered from the recent lows and dry bulk freight markets overall recovered with China's easing it's COVID policy and numerous active supply in new bids. Coal consumption has declined with lower import demand and the increase of supply chain issues. And the Panamax with remaining commodities market is likely to provide support to the credit market throughout the second half of this year. It is worth noting that all our capes are preadjusted at an average daily rate of $24,000.

Moving on to Slide 4, we present the development of our CRB Commodity Index, reflecting the basic commodity future prices, for example, energy, agriculture, precious metals and industrial metals which represent leading indicators for shipping.

Although the index it currently stands at high levels, commodity prices declined sharply over the past 6 months follows the posted record-high levels of last year historic peak in June 2022. After rising by 45% in 2022, commodity prices are projected to fall by 21% in 2023.

We continue to (inaudible). The April focus of IMF expected growth of global GDP to 2.8% for 2023. Global inflation projection for 2023 stands at 7% (inaudible) and crude and energy prices and because supply demand imbalances. In this environment, the forecasted global dry bulk demand growth is expected to increase early by 2023 with a forecasted growth in iron ore by 1% as the construction activity remains muted with an expected growth in coal import demand as a result of high domestic mining in India and China. Grains, soybeans outlook demand remains positive as draught affected wheat harvests in major exporting counties like U.S.A. and Argentina.

In China IMF April projection growth for 2023 5.2% with major global in dry bulk (inaudible). GDP growth recovered to 4.5% year-on-year in 2023 from 2.9% in Q4 2022. This was a services-led recovery as service contributed 3.1% to growth whereas the industry contribution of almost 1.2%.

In March, (inaudible) rose to [58.2%], the highest level (inaudible) 51.9%. Metal prices fell by 3 in March (inaudible) in search of a less metal intensive recovery in China. India margins and expectations reflected a gain in IMF's April projection of 5.9%, increasing [GDP 2023].

Global investments in renewable electricity capacity will continue to rise. The global economy (inaudible) basically on the course of the war in Ukraine and the possibility of other pandemic-related supply side disruption, for example, in China. The World Bank commodity price index declined by 32% and the World Bank April '23 projection forecasted a 21% price drop in commodities for 2023.

On the supply side as we move to Slide 5, the total dry bulk order book (inaudible) single digit. For this reason, we remained cautious of the medium prospects of the credit market. Furthermore, more about 25% of the medium size fleet is older than within U.S. as scrapping is expected to accelerate as the combined effect of the (inaudible) kicking in from the first of January 2023.

With the gross (inaudible) have more efficient design contractual needs. 80% of our fleet is Japanese built whereas [30%] is dry bulk fleet which means that our group consists of more efficient vessels compared to market average and can compete better in the new environment.

Furthermore, we are one of the very low -- very few dry bulk companies who set an extensive order book after about years. Our intention remains to better review our fleet (inaudible) performance.

Actually on Slide 6, global fleet is out of end sales, only about 30% of dry bulk fleet is expected to comply with EEXI without requiring modifications or upgrades. So (inaudible) by the end of 2023 and at the same time, a major ongoing environmental upgrade program, increasing (inaudible) efficiency, CO2 emissions in group completing outbreaks by the end of 2023. Furthermore so that is reducing from (inaudible) monitoring the development of alternative fuels.

Concluding our market view, Slide 7. During 2023, There has been an increased industry wide volatility driven by geopolitical disruptions and tight monetary policies. There has been environmental regulations appearance becomes increasingly important in dry bulk sales and that's the result demand for technological efficiency, creates opportunities for those willing to invest (inaudible) has done.

(inaudible) fleets may affect company valuations, may lead to good tier market with differential in many capacities of such vessels. Furthermore, the combined effects of the aging of the fleet, the low order book and the new regulation to favor fleets with more efficient Japanese vessels and vessels delivered after 2014.

Limiting the vessel supply (inaudible) markets even further. In this market of increased environmental fleet competition, let me refer Slide 8, second of our (inaudible) with differentiators from our peers. The strong alignment of interest with positive coming from our participation, the low level of 33% for comfortable liquidity and contracted revenues, our track record, the creation of invasive value through an extensive deep expansion program with 12 Phase 3 newbuilds and environmental upgrading our existing (inaudible) all of our goods will have scrappage by the beginning of 2024 and 20 bases in the environmental upgraded by the end of this year. We are taking delivery of 3 Phase 3 newbuilds already. We have the best performing bases on the deck rate in the dry bulk market globally.

We intend to compete on the base of lower fuel consumption and the environmental performance in the following years.

Let's now focus on our liquidity, our cash flows and our CapEx as presented on Slide 9. While maintaining a comparable leverage of 33%. Our debt of $430.2 million comparable to our fleet scrap value, which presently is $389.4 million (inaudible).

Our weighted average interest rate stood at 4.63% for our consolidated debt proportion of EUR 100 million fixed interest at 2.95% coupon in an unsecured 5-year bond. We have paid $72.8 million for our capital expenditure requirements in relation to our order book (inaudible) and the remaining capital expenses of $244.5 million negative. Our liquidity and capital resources stands at $359.9 million -- $355.9 million, which together with a contracted revenue of $282.1 million provided to our management and capital allocation.

Furthermore, we had additional borrowing capacity in relation to (inaudible).

Moving to our dividend policy on Slide 10. We declared a dividend of $0.05 per share over the last 6 consecutive quarters regarding our share purchase. At the same time, we have an active common share buyback program under which we have already repurchased 8.3 million shares as of May 2023 out of a total of [10 million] shares currently authorized under the repurchase program.

Furthermore, we have terminated the ATM equity offering program under which the last sale has occurred in September 2021. Total cost in this uncertainty of the capital markets and the world economy is that we continue to direct a portion of our free cash flow to (inaudible) newbuild program that will provide us with competitive advantage in terms of fuel consumption and environmental performance while maintaining our leverage (inaudible) low levels.

Now let me summarize the investment optional of Safe Bulkers on Slide 11. We believe that Safe Bulkers strong fundamentals offer financial flexibility to reflect market balances and pursue opportunities. Safe Bulkers with its order book among those coming, we will navigate environmental challenges transition that the aging dry bulk fleet and packed the global and services by utilizing the inserted quality of its fleet and the efficiencies of this large scale and (inaudible) upgrading program.

In paring the company's expansion, we opened a meaningful (inaudible) we believe we are positioned for the long run with an environmental base of balance. With our strong balance sheet, our liquidity, leverage comparable fleet scrap value, secure cash flows from reliable counterparties. We will see focused good expansion with full Phase 3 (inaudible) regulations, the company experienced management team is well positioned against market challenges (inaudible) to take advantage of market opportunities.

Now let me pass the floor to our CFO, Konstantinos Adamopoulos, for our financial overview.

Thank you, Loukas, and good morning to all. As a general note, during this quarter, we operated in a gradually weakening charter market environment compared to the same period in 2022. We decreased revenues due to lower highs, increased revenues (inaudible), increased operating expenses and higher interest expenses due to increased interest rates.

In Slide 12, we present a strong start in the former an example of our management alignment. We have the time charter equivalent of $15,760 compared with $21,352 during the same period in 2022.

Net income for the first quarter of 2023 reached $19.3 million compared to net income of $36.4 million during the same period in 2022. Daily earning expenses stood at $5,550 versus $5,722 last year, while our daily earning expenses, excluding dry-docking and predelivery expenses stood at $5,132 versus $4,923 for the Q1 of 2022. Our all-in OpEx and G&A for Q1 2023, which we believe is one of the most competitive compared to our peers, stood at [$7,043] and we know that this includes all our drug deliver expenses as well as all our direct and businesses cementation.

Moving on to Slide 13. We have positive financial highlights for the first quarter of 2023 compared to the same period of 2022. Our adjusted EBITDA for the first quarter of 2023 stood at $33.1 million compared to $46.1 million (sic) [$46.9 million] for the same period in 2022.

On adjusted earnings per share for the first quarter of 2023 was $0.10, calculated on a weighted average number of [118.4 million] shares compared to [$0.24] during the same period in 2022 calculated in a weighted average number of 121.6 million shares.

We will present Slide 13, our quarterly operational highlights for the first quarter of 2023 compared to the same period of 2022. We operated for 43.83 vessels on average and average time charter equivalent of [$15,750] compared to 39.54 vessels earning an average time charter equivalent of [$21,352] during the same period in 2022.

On Slide 15, we present our low breakeven point for Q1 '23, which we believe is one of the lowest in (inaudible). The global economy is experiencing multiple challenges, inflation is higher than seen in several decades, tightening financial conditions in most regions. (inaudible) continued war in Ukraine, all heavy -- wage heavily on the market outlook as our main focus is lean operations in this inflationary environment.

Based on a satisfactory financial performance, the company's Board of Directors declared $0.05 dividend per common share. That the company is maintaining a heavy cash position of about $98.7 million as of May '23, another $119 million in revolving credit facilities, an additional 148.2 million in undrawn borrowing capacity combined liquidity and capital resources of $351 million that provides us with significant credit (inaudible) power.

Additionally, we have contracted revenue from our noncancelable spot and period time charter contracts in excess of $205 million net of commissions and excluding scrubber revenue (inaudible) as well as additional borrowing capacity in relation to (inaudible) and encumbered existing vessels and 5 new builds up under delivery.

We believe that the strong liquidity and relatively low leverage will enable us with the flexibility of our capital structure, expanded fleet (inaudible) rewarding our shareholders and taking advantage of possible opportunities that arise.

Thank you, and we are now ready for the Q&A session.

(Operator Instructions)

Our first question is from the line of Chris Wetherbee of Citigroup.

Maybe I could start on the fleet. I'm curious how you guys think about fleet opportunities from here. Obviously, a pretty tight order book relative to what we've seen over the past. And so I'm curious how you guys think about approaching it? Are there going to be new building opportunities for you that you'd like to execute on at this point? The secondhand make more sense? Or given where vessel values does it make sense just kind of to stay and pat and sort of see how things develop over time? Just kind of curious how you're thinking about that right now.

Yes. Probably have asked about (inaudible),I guess, whether the terms of opportunities if we are (inaudible) well.

Correct. Yes.

Okay, because the line is not so clear. Okay. Look, right now, I think the new big market is a little bit confusing because we see prices rising because of demand created from other sectors. And we don't have a clear path what will be the next fuel available for newbuilds and since we have still 8 vessels -- 9 vessels to be delivered from our existing building program in Phase 3, low consumption yielding.

We are not rushing to making some investment in dual fuel ships because simply we don't have a clear view. We know we are trying to monitor the market, but we don't have a clear view. So I think like us, there are many people with the same confusion at the moment, at least in the dry bulk sector. I think container ships is more clear. They have more options there. But in dry bulk, we don't have that many options. So at the moment, you will see very small order book for 2025, and the yards are very much full. And if someone wants to consider designs of dual fuel the availabilities in late '26 and '27. So it's very, very far away. So also for that delivery transitions, you have to bear in mind the high interest cost of the delivery installments.

So right now, I don't think that the market will see many more new business owners, I think we'll wait to have more crystallized designs in front of them.

Okay. That's helpful. I appreciate that color. And then I guess as you think about scrubbers in particular, I know you've highlighted some of the hurdles and opportunities, I guess, as well in terms of emissions and sort of how much the fleet sort of meets in the current and future emission standards, I guess, as you think about your approach to that market and then maybe scrubbers in particular. Is that still an investment that is worthwhile. So I guess 2 questions on existing vessels. Is there a desire or a idea that you might do more of that?

And number two, the vessels that you have the scrubbers on, do you feel like they're earning a reasonable return understanding that probably some of those were or most of those were underwritten by your customers. So just kind of want to get a sense of your thoughts on scrubbers generally.

Scrubber spreads below 150, the option to invest in scrubbers is not so attractive because you have to remember at the same time, almost are making environmental investments and they are reducing 10% of consumption of the vessels. So we will see scrubber spread going in the future about 150, then we may see more scrubbers being placed. But the current spread is heading towards 120. It's not so attractive to make new investments well. Our services have -- we have done above the scrubbers (inaudible) Capes by the end of the year, then they will have gas scrubbers. Capes they are above and around 35 to 30 tons a day. So they are -- it's a more viable proposal, but smaller ships, I don't think anymore is viable to (inaudible) scrubbers. I think that the payback time is much longer than what it used to be.

But having said that companies that invested in scrubbers in 2018, 2019, and we've been working them after the middle of 2020. I think they made but nominal revenue.

(Operator Instructions)

Next question is from the line of Omar Nokta with Jefferies.

Just wanted to maybe touch a little bit on capital allocation. Obviously, your strategy there has been fairly balanced. You've got the dividend, the buyback, which is fairly active recently. Acquisitions, with the new buildings and focusing on the balance sheet and making sure that debt is getting paid down. Just wanted to ask about how you are thinking about the fleet as it is going forward. You outlined in the report, you have the 44 vessels of which 12 were eco-designed, built after '14 and you have the 3 very modern ones of the Phase 3. You've also got the 9 newbuildings that are coming on.

How should we think about those new buildings as they deliver and what the plan is for sort of that existing fleet today that isn't mentioned as being in that eco portion of the business. So basically, call it, 20, 25 vessels that make up your older age fleet. What's your plan with those especially as you start taking delivery of the new building.

Okay. First of all, I will say a few things about our capital allocation. So basically, at an early stage when we decided about the dividend, we built meaningful dividend policy to also -- to buy back a reasonable portion of our free cash flow towards the investment in newbuilds. So our leverage, our loan to value will not be better in the following years. So we're going to see something like in the range of 4% to 5% also a loan-to-value, which we feel very comfortable.

The second point of our policy is that we have a substantially contracted revenue. So we have visibility in (inaudible). And we also have a substantial liquidity in order to take action opportunities that they arise in the market.

Now in terms of our fleet, you can see that by the end of 2025, half of the fleet basically will be either anchored ships or Phase 3 vessels, which will be, I think, a very impressive figure. The other half this could be -- this probably consists of 25 vessels, 20 of them will be upgraded within 2023, which means that an efficiency in the range of about 10% (inaudible) in the range of 2020 -- 10% will be there. And also, the other part is that our ships Japanese build, which are inherently more efficient than the other. I believe that the most -- the remaining dry bulk which is by about 50% Chinese general is more safe. So I think that the company will be very comfortably, be able to compete on the basis of fuel performance, having about half of the fleet a new fleet Phase 3 and Eco and the other half upgraded fleets, which basically a well-challenged Japanese build.

Okay. That's a very good overview. I appreciate that. I think earlier in the -- I think it was in response to Chris' question about new buildings and you highlighted the you'd have to go out to '26 or '27 to take delivery. And again, there's uncertainty on proportion. Earlier this year, you had added to your Kamsarmax, I believe, (inaudible) with $25 in the first half of '25 If you guys were to place an order, is that achievable again to be able to get something in the first half of '25? Or is it basically now the window has passed and we're looking at '26, '27.

In Japan, it's very hard to find the new builds in 2025. It's '26 onwards. If you go also to see there are any dual fuel possibilities, at the moment we have to go to 20 -- late '26, early '27. And even there, you don't know if the designs are viable and if the designs the shipyards are really got well by the yards and they are at a very primary stage. And I think ship owners in general are very skeptical which parts to pull along.

For us, we are pleased that what we have an ongoing program of 9 ships still to be delivered, so we don't have real anxiety to do some moves on something very simply because we can renew our fleet with the addition of the ownerships joining the fleet which also were at a very good low price before -- during the start of this quarter. So at -- from my point of view we can afford to wait another 6 to 12 months before we make a move.

Of course, if we find the right opportunity earlier, and we have a clear sign that what will be coming and we will consider some more ships. But I don't see really (inaudible) of 5% plus the margin of the banks another 2%, 7%. I don't see (inaudible) for 2027. It's too far away (inaudible) too much. So we prefer to wait for later now. Now we will be selectively selling our other ships or ships being further 15 years old -- around 15 years old.

Since we already have the replacement time here, and we wait and see how the market develops. The interesting thing is despite the trade markets have been underperforming in the first 4 months of 5 months of this year (inaudible) seen the prices increasing. So when pricing are increasing -- so either the market has to go up and all (inaudible) variables have to come down.

So there will be plenty of opportunity to gain one way or another. So we don't need to make more moves at the moment simply because we are very well placed. W have to wait a little bit in the market in term going to be next year. Our prices if the market doesn't come up in the second half of this year, maybe prices will correct -- secondhand pricing will correct. So it will be in the investment opportunity will come or investment existing modern ships under 7, 8 years range. So we have to be little bit take our silence and see how things move.

Yes. Actually, that was just going to be -- going to have a follow up on that.

At the same time, if I may add, at the same time, we have seen that our NAV is trading at 50% of the value of the fleet. If prices continue to go up and our NAV is static, it's much healthier to invest the shareholders' money in (inaudible) stock, which lately we have -- as you have seen, we have stepped up a bit on that front. So this program may continue. We'll see how things develop. We would then see appreciation of our share price, we continue and as prices keep improving, we'll continue investing in our shares.

That sounds good, and it's very clear. I'll -- that's it for me.

At this time, there are no additional questions. I'll turn the floor back to management for closing remarks.

Okay. Thank you very much for attending this conference call of our first quarter financial results. And we are looking forward to discuss again with you in the next quarter. Thank you to all.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.