Safe Bulkers Inc (SB) 2021 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 and full year 2021 financial results. Today, we have with us from Safe Bulkers Chairman and Chief Executive Officer; Mr. Polys Hajioannou; President, Dr. Loukas Barmparis; and Chief Financial Officer, Mr. Konstantinos Adamopoulos. (Operator Instructions)

Following this conference call, if you need any further information on the conference call or 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 Security 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 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 these expectations reflect in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. The 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 expressively disclaims any obligations or undertakings to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any changes in the company's expectations with respect thereto or any changes 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 fourth quarter and the full year of 2021.

We will start our presentation on Slide 3. We are deeply concerned about the Russia and Ukraine conflict, which is against international laws and logic, has now broken and we hope that it will end soon avoiding further bloodshed in Ukraine. We do not have any Ukranian or Russian crews onboard of our vessels, and we don't have any vessels currently sailing in the Black Sea. We intend to comply with the sanctions imposed, and we will continue to monitor closely the situation to assess the impact of the war on the global economy and on the dry bulk fleet. As we can see from the slide, major commodity rates will be affected.

In Slide #4, we present the synergies of our quarter results. 2021 was a very good year for our company. We were able to renew our fleet with environmentally advanced vessels entered into several turbo time charters, substantially deleverage and improve our liquidity. As a result of our strong performance, the company is declaring a $0.05 dividend per share.

In terms of profitability, we reached $92.4 million in net revenues, $65.2 million of net income, $82.4 million of EBITDA, and $0.39 of adjusted earnings per share. In terms of performance, we reached a time charter equivalent rate of $26,180, aggregate daily OpEx and G&A of $6,600. In terms of liquidity and capital resources, we have about $388 million as of March 4, 2022, of which $194 million is in cash, $194 million is in RCF, revolving credit facilities, and secured commitments.

Furthermore, we have additional borrowing capacity in relation to 4 unencumbered vessels and 7 new builds upon their delivery. Further to that, we have additional borrowing capacity in relation to 4 existing unencumbered vessels and 7 new ones upon their delivery. Most recently in February, we have successfully issued EUR 100 million, 5-year, unsecured, non-amortizing bond at a coupon of 2.95% per annum. Our secured debt stood at $329.4 million as of March 4, 2022. And we paid $125.3 million for the 5 secondhand vessels with 8.8 years average age. And we collected $109.8 million for the 7 vessels we sold with 14.3 years average age, effectively renewing our fleet with charter and most efficient vessels.

Finally, we declared a dividend of $0.05 per share, noting at the same time, we are renewing our fleet with secondhand and Phase 3 newbuilds ahead of the competition, and that during 2021, we have successfully deleveraged our company.

Allow me now to guide you through the company's key investment highlights as presented on Slide 5. Safe Bulkers is a top 10 pure dry-bulk vessel owner in Panamax segment with a age of 60-plus years of track record experience, enhance on management led by Polys Hajioannou. With strong company balance sheet fundamentals, ample liquidity, low leverage, secured cash flows from reliable counterparties, we have secured with 9 Phase 3, Tier III newbuilds and the replacement of 5 secondhand vessels for our fleet expansion and renewal ahead of peer competition and ahead of the expected impact of the environmental regulations 2023 onwards.

We have an additional revenue here in the capacity of about $20 million plus from our 17 Scrubber fitted vessels due to the inflated fuel price differential. Our 40-vessel fleet is 80% comprised of Japanese vessels with superior specifications, and commercial and operational upgrades, which called the substantial premium, both in chartering and resale value. The order book remains at 20 years low and market fundaments are positive for 2022. We believe the company is well positioned for the long run with the environmental-based advantage.

Moving on to Slide 7. We present the development of CIB Commodity Index, which currently stands at a 5-year high with further upside potential. The index is basically commodity future prices, for example, energy, agriculture, precious metals and industrial metals, which represent a leading indicator for shipping. We have seen a strong demand for commodities across the board during 2021 and there have been certain price further amplified during 2022, as a result of the ongoing Ukrainian conflict. The general forecast of IMS before the Ukrainian conflict sets the global GDP expected growth at 4.4% for 2022 and 3.8% for 2023. The forecasted global dry bulk ton-mile demand is expected to increase by 2.2% in 2022, supported by recovery related industrial materials like iron ore, coal and agriculture, while the expected dry bulk fleet growth stands at 2% for 2022, which means that the squeezing the supply of vessels may well be a realistic scenario.

Further to that, the U.S.A. have allocated about $1 trillion of stimulus program for infrastructure spending for bridges, roads, while China spends nearly about $120 billion on similar infrastructure projects achieving 8.1% GDP growth in 2021, the best growth pace in a decade. IMF forecast a 4.8% GDP growth for 2022 and 5.2% for 2023. Lastly, the EU overall recovery package of EUR 2.4 billion for the period of 2021 to 2027 is a further boost for global demand.

Let's turn to Slide 8 to have a quick look on present charter market conditions. As shown on the top graph, the Capes market for the year-to-date continues to be shaping. Capes lately have been volatile driven by commodities -- commodity dynamics, which we analyzed. The forward freight rate agreements present in red color is about $30,000 to $35,000 for 2022, similarly from Panamaxes as seen on the bottom graph, the FFA curve is about $30,000 to $35,000 for 2022. The prevailing commodities market, coupled with strong supply fundamentals, are likely to support the freight market throughout 2022.

On Slide 9, we present our scheduled order deliveries. In this positive expected charter market environment, we have 2 deliveries in 2022, 5 in 2023, and 2 in the first quarter of 2024. Our first newbuild delivery is in May. In the same slide, in the bottom graph, we also present a record low order book for the forward years for Capes and Panamax vessels.

Turning to Slide 10, we touch upon the current market evaluation above secondhand acquisitions and of our order book. During the business cycle as part of our fleet renewal strategy, we have invested in 9 newbuild vessels of the newest design, compliant with at least IMO regulations for NOx emissions. Second, we have acquired 3 Panamax and 2 Capes secondhand vessels of modern design big Japanese ships. The average acquisition price of our 9 newbuilds was about $32.5 million as compared with a current average market value, which is about $41.6 million.

For the 5 secondhands, the average price was $25.1 million as compared with a current average market value of $28.2 million. This timely stream of investments has created a pleasant and inflated wealth to our shareholders of close to $100 million. Further, the company has previously invested in scrubber technology to 17 of its vessels. The surge in fuel prices in the last 6 months, which is more evident in today's market has pushed to the very low-sulphur fuel oil vessels. It's a full differential at high levels, which is translated to increased revenues for the scrubber-fitted vessels.

Presently, Hi-5 in Singapore stands at about $280 per ton. And according to the future market, the balance for 2022 stands at about $190 per ton. Scrubber-fitted post-Panamax beds about 7,500 metric tons per year, pushing the implied scrubber gain return of about $25 million per annum in aggregate for our company's 17 scrubber-fitted vessels. All in all, our fleet remain (inaudible) can increase of the intrinsic value of our company of about $120 million.

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

Thank you, Loukas, and good morning to everyone. Let me start with our quarterly financial highlights shown on Slide 12. During the first quarter -- the fourth quarter of 2021, we operated in a significantly improved charter market compared to the same period of 2020. With lower interest expenses, reduced mortgage expenses and increased revenues also include earnings from scrubber-fitted vessels. Our quarterly net revenue stood at $92.4 million versus $52.2 million last year. Net revenues increased by 77% compared to the same period in 2020, mainly due to the increased time charter equivalent rate as a result of the improved market, assisted by the additional revenues and by our scrubber-fitted vessels.

We had a TCE of $26,180 compared to a TCE of $12,319 during the same period in 2020. The net income for the fourth quarter of 2021 reached $65.2 million compared to net income of $7.6 million during the same period in 2020. Our daily time charter rate stood at $26,180 versus $15,319 same quarter last year. Our daily OpEx stood at $5,149 versus $3,978. And the daily OpEx, excluding dry docking and predelivery expenses, stood at $4,666 versus $3,955 for the last quarter of 2020. Vessel operating expenses increased mainly affected by increased dry docking expenses, increased spare parts, stores and provisions, related to works performed due to dry dockings, increased provisions of technical services and increased crew repatriation expenses due to COVID-19.

The aggregate figure for both OpEx and G&A for the last quarter of 2021 was $6,183 demonstrating our focus on lean operations. We believe this number for both OpEx and G&A is one of the industry's lower, as we include in our OpEx all our dry dockings and predelivery expenses in our G&A, our management fees, directors and offices compensation as well as all expenses related to the administration of our company.

Our adjusted EBITDA for the fourth quarter of 2021 increased to $67.6 million compared to $26.3 million for the same period in 2020. Our adjusted earnings per share for the fourth quarter of 2021 was $0.39, calculated on a weighted average number of 121.6 million shares compared to $0.04 during the same period in 2020, calculated on a weighted average number of 102.2 million shares.

Let's conclude our presentation on Slide 13 with our quarterly operational highlights for the fourth quarter of 2021 in comparison to the same period of 2020. As a general note, 2021 was a very good year for our company. We were able to place orders, the newer fit with environmentally advanced vessels entered into several favorable time charters, substantially to deleverage and improve our liquidity. As a result of our performance, the company's Board of Directors has decided to declare a $0.05 dividend per common share. In addition, in February of last month, we have successfully issued a 5-year unsecured bond in the amount of EUR 100 million guaranteed by share markets, with a coupon of 2.95% due semi-annually.

We would like to emphasize that the company is maintaining a healthy liquidity position of about $194 million as of March 4 and another $194 million of RCF share and secure commitment, resulting in a combined liquidity of about $388 million that provides us with significant fire power. Our press release presents in more detail our financial and operational results.

And now we are ready to take your questions.

(Operator Instructions) We will now take your first question. This comes from the line of Chris Wetherbee of Citi.

This is Eli Wiske on for Chris Wetherbee. Just wanted to start with rates here and the perception around the volatility. So last couple of quarters, we had line of sight to them continuing to escalate, but with what's happening right now in the broader environment, do you guys see any more possibility for higher fluctuations? Or do we think they're going to continue to remain elevated, particularly in spot contracts?

You mean volatility on the charter -- in the charter market?

Yes. Yes, exactly. Is there more now than there has been do you think with some of the geopolitical issues? Or do we still expect demand is high in terms of the read-through to your customers?

Yes. We expect that there would be a fair amount of volatility because of what is happening right now because there are big strings on the prices of commodities and the price of oil, especially. And a lot depends on how long the war will take and how long this conflict will keep going. And of course, we expect sanctions will be there for quite a long time, which is not necessarily bad for shipping, could be good for volumes and ton miles. But the freight rates will fluctuate a lot because of these changes of bunker prices. I mean we saw, this week, changes of $20, $30 on the price of Brent on one side to the other side. So all this is affecting the trend. But overall, the trend is strong. Commodities are expensive and order book is very low. So we expect volatility indeed for the next few months.

Sure. What are your customers saying about this in terms of the duration of contracts? I think you said that the average contract duration right now is 1.2 years, as I believe that's what it said in the release. So do you see that more and more trying to shift to longer term in terms of their preferences?

No. I think the trend in dry bulk is the charter rates and the offered contracts is up to 1 year on our size of vessels. And the bigger ones on the Capesizes, you may find a little bit longer. But on the Panamaxes to -- Panamax is generally 6 to 12 months charters.

Got it. And then one more for me. You guys declared $0.05 dividend, stronger liquidity position. What does the long-term capital allocation look like for Safe Bulkers?

Long-term capital allocation? Yes, look, the -- we started the dividend this quarter in Q4 of last year, which was the first year of a good market after 6 or 7 years of low market, and we started with comfortable dividend in line with also the other actions the company is taking to deleverage and to take delivery of the new building vessels with the less possible debt on them. So all depends on the freight market, we believe we have a strong freight market for this year and possibly next year. There are good signs that next year will be good as well.

Overall, the remaining CapEx for the next couple of years is $250 million -- $247 million.

We will now take your next question. This comes from Ben Nolan of Stifel.

This is Ben over at Stifel. I have a couple. You talked a little bit about your chartering strategy, although we've seen this week, one of your competitors on a newbuild put a longer duration contract on a vessel. You guys obviously have some very high specification newbuilds, and it's sort of something that you guys have done often in the past. Curious if there's much depth to that market, and if it's something that you guys would consider doing on a few of those new vessels?

Look, it's much easier to do it on larger ships, long-term charter, because there's more horizon there also on the FFA market. So charters come guided by Capesize semi-pay market. In the smaller sizes like Panamax, post-Panamaxes, the curve is very steep for the year. So it doesn't make a lot of sense on when the market is so much undersupplied with new tonnage. There's not a lot of new tonnage to enter the market in the next 3 years. It doesn't make sense for an owner to go and lock 3 or 5 years. charters on the Panamax or on the Kamsarmax. And on the Capesize, I consider this fixture, which is done but also a pretty good fixture at the time it was done on a newbuilding vessel with a prompt delivery. So I see the point of view of the owner, and I believe it was a very good fixture.

Okay. And then switching gears a little bit. Obviously, you guys have a lot of scrubbers on your vessels. I assume that is working very much to your benefit at the moment. Any thoughts about going out and finishing out the fleet with scrubbers, maybe as they come up for dry dock or effectively adding to your scrubber exposure?

Yes. It doesn't make a lot of sense to put the vessels so high now between scrappers, because what we see now the spike in the spreads can be temporarily because of what is happening in Ukraine. This should -- may last for 2 or 3 months. I don't think it will last for the whole year. So to put ships away in the dry docks for extra period of 15, 20 days when the market is $35,000 a day doesn't make sense. We did it in 2019 when the market was $5,000 or $6,000 or $7,000. We put the ships in the dry dock to do this extra bit of time there to fit the scrubbers in anticipation that the spread would be a decent spread.

So right now, I don't see us doing anything more. We have a Capesize vessel, which we are doing right now to plant since a year ago to do it. But we don't have plans. We are more focused on environmental improvements that we can do on our fleets of how we can upgrade our ships and reduce their CII and their energy efficiencies indexes. Because I think this -- when all this story of the war settles down, this will come back in focus, and we have to be prepared for the next year.

Okay. That's helpful. And then the last for me, I believe I saw in the release that you guys had not been active under the ATM program, which is the first time in a while. Is that an indication that you sort of -- you are where you are and you like where you are and you don't need more capital to do anything else or is just trying to...

It's clear that we consider the stock price still not at the level that is worth considering and we don't plan to use it. So for the time being, it's at a level that we don't really need any more liquidity. So that's why since September, we didn't touch that scheme. On the other hand, as you have seen, we have increased our liquidity. We have extra liquidity through the bond. We are waiting for the right opportunity to invest in new technologies and in fleet renewal, replacing the older ships with a bit younger ones apart from the new building we have.

And for us, the most important is to prepare for the next day on the new environmental changes. But as I tell you now, we will forget about them for 3 months. But thereafter, I mean, the climate change is there. It won't go away because of the war. I mean, we are not focused on it now, but we have to see how, especially, Europe will deal with the shortage of gas and the shortage of energy. But in 3 months' time, I believe that the focus will be back on the climate. And we don't want to derail from our initial planning of making environmental investments, but we will comment in the next 2, 3 years very fast.

And we take our next question. This comes from the line of Randy Giveans of Jefferies.

Gentlemen, Randy Giveans from Jefferies. I guess, looking at the first quarter, a lot of your peers kind of giving some quarter-to-date rate guidance. Can you provide us with the same on the spot side of the market?

The spot market is improving in the last 2, 3 weeks quite substantially as we all see. And the first 2 months of the quarter have been done. So the first 2 months of the year are definitely lower than the Q4, but there's a catch-up in the third month of the quarter. So I think that it's looking good. So we are not guiding of what will be the average, but we expect if the 2 months are a lot lower than the one and not higher, the balance will be a little bit dipped on the lower side from the previous quarter.

So in the last quarter, the number was 20 -- how much was it 26?

26. And then this quarter may be a little bit less.

And then on the dividend, great to see a dividend announcement from you guys. How did you decide on this amount? How should we think about it going forward? Is there a policy in place? Or is this a flexible dividend based on kind of market conditions?

No, it's more like, let's say, sustainable dividend because, for us, as I tell you, we were one of the few companies that we have made timely renewal of the fleet, which we have to take now delivery of all the ships starting with the first one in 2 months' time. And then we have every couple of months a new building at the end of 2023 in the beginning of '24. For all the ships, we expect to hit the market in a good freight rate environment.

As we have seen the new ships, certainly, they will be very attractive to charterers and would be able to secure longer than 1-year charters, maybe 2- or 3-year charters at the right time of the market. So we thought to start with this dividend right now. We are very confident for the next 2 years, and we thought that we should start it now and at the same time, keep enough liquidity for the new builds and for the environmental investments.

Of course, we review our dividend policy every quarter. And always, there is no reassurance that we will continue to pay the dividend. But as Polys said, the dividend is designed to be meaningful for, let's say, the following period.

Got it. That makes sense. All right. And in terms of the unsecured, very impressive in terms of the rates there. Use of proceeds, I know you had a few options, kind of, are you leaning towards one or the other. Is that market -- can it be tapped again, right, to do another EUR 50 million or whatever may be kind of on the upside of that?

No, we don't plan to use this market. Again, we used it once. It was a good one because to the first dry bulk company to do the bond in the Athens Stock Exchange. We will consider the price favorable. Of course, conditions have changed in the last month with interest rates, and it's not something you tap every other quarter and you go in. You do it -- once you go for 5 years and then you see what happens after 5 years, if there is appetite for refinancing it and put money to what's spent or if you just repay the investors. So this gives ample of liquidity to the company to make investments, either on new ships or modern ships or environmental investments, which start to operate the fleet with advantage to that of the competition. Because as I told you, I mean, in 6 months' time, all the -- 3 or 6 months' time, all their focus will be back on the climate. We shouldn't forget that.

Your next question today comes from the line of Magnus Fyhr from H.C. Wainwright.

This is Magnus Fyhr from H.C. Wainwright. Just a follow-up question on the current cash position. You mentioned you have $250 million of CapEx going forward. Can you break that out between the 3 years? I guess most of it is in 2023. And how much you plan to use for installment versus debt? Should we assume like 60%?

The majority is coming in '23 because of deliveries in 23 and most of it is payable at the time of the delivery. 60% or 70% is time at the time of delivery. So you are right to say that most of this CapEx is in 2023. Look, I mean, we plan to put minimal debt on the new ships, not on all of them. Because as we say that we are -- we want to keep the debt near the scrap value of the fleet, and so we could produce more profits for our shareholders. Also, I believe that it's very important in shipping to remember that it's a significant business. There wouldn't be definitely opportunities in the next 2 or 3 years to invest money in shipping. We cannot take everything for granted that this market will last 10 years. We have to have the funds and be able to invest in the low part of the cycle if this -- anything happens during the next 2 or 3 years.

The CapEx of the company is $55 million in '22, $143 million in 2023 and $47 million in the beginning of '24. Our last delivery is very early '24, in the early part of '24, like, January/February. So we have a fleet that is coming in the next -- in the next 20 months to the company. Every 2 months, we take -- on average every 2 months, we will be taking a newbuild vessel and this will grow our fleet by around 25% in the next 20 months. So we are on a good track with the liquidity that will generate. We will reward investors and shareholders, and at the same time, make all the environmental investments to stay ahead of the game.

All right. And just on the prefs, do you have an amount in mind there, given that with all the cash on the balance sheet to retire some of those prefs?

The preferred, you mean? Yes, it's in our mind to do that as well. A certain part of it in the next few quarters to be allocated into some retirement of preferred and anyway we have said that also when we issued the bond that a part of it will be going there as well, but the company and the Board will decide what percentage goes in what element. Because if ship prices are going to be elevated, you understand we are not planning to invest in expensive vessels. We'll wait our opportunity. We have fleet expansion anyway. And obviously, the price of vessels, as we see now the last 2, 3 weeks, maybe all sellers are asking $5 million more for dry bulk vessels. We're not going to jump on those prices. We can afford to be patient. People with liquidity and who have not invested on ships, may jump on expensive acquisitions. Whilst in our case, we can afford to wait.

We do have one more question on the line. (Operator Instructions) We will now take our next question. This comes from the line of Climent Molins of Value Investor's Edge.

Good morning, Climent Molins from Value Investor's Edge. Congratulations for this quarter. Your balance sheet has improved significantly over the past year. And I was wondering if you could provide some commentary on how you think about the preferred? Is really a part of the preferred outstanding something you would consider to further reduce your cost of capital?

Look, the capital structure of the company, as we said, has improved substantially. And we had set an approximate target for our leverage of about 30% in that region, 30%, 35%, which was achieved in the -- as we go ahead, the thought process is that, at a certain point of time, we may retire some preferred. We don't know exactly and we cannot say anything about how much. What we know is that about -- I mean, a substantial amount will remain. Some of it can be retired.

So we have, let's say, a strong percentage of preferred, a strong percentage of bonds, about EUR 100 million that we have already issued and some banking loans that will cover the position. The company, as we go ahead, will have about 9 vessels to be delivered to us. Show the asset value, the net asset value of the company will increase while the debt leverage will not follow the same path.

So we intend to maintain how this capital structure in the following years, which gives us benefit in good markets because we have the liquidity, we have the right capital structure, we have lower expenses. And also in (inaudible) markets, it will work for us and may create for us opportunities. It is the liquidity to move if there are certain opportunities that we may locate in the market.

All right. That's helpful. Regarding the bond you issued in the Greek market at what we believe to be a very attractive rate, will you look to hedge the FX risk or are you comfortable with this euro exposure?

You mean the bond, you mean. Look, at a certain point, we'll hedge some part of the exposure. But you have to remember, as a company, we have around EUR 30 million a year expenses in euro. So we did EUR 150 million in 5 years. So the euros we have kept as euros, because anyway, we can't spend them. There will be opportunities and we see one right now that is happening because of this unfortunate story with the Ukrainian war. That euro has depreciated to levels that the company is considering to have some part of the exposure.

It appears there are no further questions at this time.

Okay. So thank you very much to all the participants, and we're looking forward to start again with you in our next quarter results, which would come about in 3 months from now. Thank you.

Thank you, all, for participating. This does conclude our conference for today.