Safe Bulkers Inc (SB) 2021 Q3 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 third quarter 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 on the presentation, please contact Capital Link at (212) 661-7566. I must advise you 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 drybulk vessels, competitive factors in the market in which the company operates, risks associated with operations outside the United States and other factors listed from time to time in the company's filings with the Securities and Exchange Commission.

The company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

And now I pass the floor to Dr. Barmparis. Please go ahead, sir.

Good morning to all. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the third quarter of 2021.

We are happy to report that our profitability has increased during the third quarter of 2021 compared to the previous quarter. The synopsis is that as we move to year-end, we are gradually nearing our target leverage, maintaining a healthy liquidity position and making significant progress on our fleet renewal strategy. We have also begun contracting period time charters to provide better visibility to our future cash flows.

The above are presented in more detail in Slide #4. We reached $92.5 million in net revenues, $72.4 million of EBITDA and $0.40 of adjusted earnings per share. We have another 8 newbuilds, greenhouse gas EEDI Phase 3 Nox Tier 3-compliant Japanese -- from Japanese shipyards with early deliveries during 2022, 4 in 2023 and 2 in first quarter of 2024 at very competitive prices ahead of our competition.

At the same time, we have sold 7 vessels, 2 of which are yet to be delivered, with $37.3 million outstanding sale proceeds and a relevant $7.3 million outstanding debt. And we have acquired 4 second-hands, one of which yet to be delivered with $28.1 million outstanding Cap ex. We believe that by 2024, we will be able to renew about 1/4 of the fleet with Phase 3-compliant newbuilds with -- while substituting at the same time some older vessels with younger second-hand vessels.

In terms of deleveraging, we have $214.3 million decrease in debt from $616.2 million as of 2020 year-end to $401.9 as of October 29, 2021. At the same time, we maintain our financial flexibility by preserving a healthy cash position of $92.2 million, $88.9 million in undrawn borrowing capacity available under revolving reducing credit facilities, $46.2 million in secured commitments from loan and sale and leaseback arrangements, and $29.3 million additional incremental revolving reducing credit facility upon the expected consummation of an agreed new credit facility.

All these actions we believe will position the company to a whole new level of competitiveness, well ahead of the competition. We are here for the long run.

In Slide 5, we show balance sheet analysis. The assets are held, of course, in their book value, noting that presently, we believe that asset values exceed the book values considerably.

Let's turn to Slide #7 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 outperform 2020. Capes lately have been volatile guarding the dynamic -- driving by dynamics which we will analyze in our presentation, reaching a high of $87,000 per day and currently are trading at about $27,000 per day. The year-to-date average is about $33,800 as compared to 2020 average for the same period which was $13,000.

Similarly for Kamsarmaxes, the market remained strong throughout this year, reaching twice close to USD 40,000 per day, presently trading at $26,000, with a year-to-date average of $27,200 per day as compared to $9,500 for the same period in 2020. The prevailing energy crisis and the coal shortage in China, coupled with the COVID-19 restrictions are likely to support the market.

Turning to Slide 8. We present development on pricing of certain commodities which are leading indicators for shipping. We have seen a strong demand for commodities across the board during 2021 and the rapid surge in prices is followed by a recent correction.

In the case of iron ore, as presented in the top left, the excessive increase of prices, which is now followed by a correction, had been initially driven by the strong demand from China, while lately, the seasonal trading patterns are easing the market. In the case of coal, the shortage in stockpiles and the need for coal resulted to the commodity price hedge. Presently, an effort to control the market is evident, and traders deferred buying anticipating cheaper future prices resulting in a short-term trade freeze until prices fall in line with expectations.

However, the forthcoming winter in Northern Hemisphere, in connection with the continuing industrial production, is expected to keep the demand for coal robust. So yes, (inaudible) in the first half of 2021 and are presently subdued, but this is relevant to the seasonality of this trade, which is normally picking after the first quarter of each year. Lastly, what is noteworthy is that the price of copper, presented in the bottom right graph, has remained near in its 5-year high for an extended period, which signifies strong industrial growth backed by the post-pandemic economic recovery plans.

On Slide 9, we present establish of the fleet in terms of values and future supply. On the top graph, we present the values of 5-year-old Capes and Panamaxes as assessed by Baltic Exchange. During the last month, a sharp increase of the vessel values has been evident. For Capes, in particular, the values have surged more than 48% since the same period in 2020 and have gained about $26 million per vessel since the lows of 2016. Similarly, for 5-year Panamaxes, the value have increased about 59% since the same period in 2020 and have gained about $22.5 million per vessel since 2016 lows.

The above assessment is indicative for the average Baltic-type vessel. Japanese big vessels, of course, built at high specifications, have increased demand and can achieve even higher values. Our fleet consists mainly of Japanese-built vessels with high specifications and many commercial and operational upgrades.

Looking at the order book on the bottom graph, we note that the growth of the fleet for both Capes and Panamaxes is minor. In case of Capes, the total order book is in the region of 4.5% of the existing fleet, which is evenly spread until 2024. For Panamaxes, the total order book stands at 7.8%, which, in its vast majority to be delivered in 2022 and minimal deliveries thereafter.

Under the current market ship-building conditions at shipyards, both in Japan and China, we do not expect that the order book may increase significantly for the next couple of years. The shipyards are occupied with orders from other sectors, such as containers and tankers, and there is no space for additional drybulk orders. Presently, there is no availability for drybulk newbuilding orders earlier than 2024. Therefore, the order book is unlikely to increase further the next 2 years.

In the next slide, Slide #10, we present the age profile of the drybulk fleet in combination with the forthcoming IMO regulations for controlling the greenhouse gas emissions and especially the vessels' energy efficiency. From a recent study for the vessels under the classification of NK, about 86% of the drybulk vessels would require some kind of action or retrofitting to comply with upcoming EEXI regulations, such as reducing speed or retrofitting with innovative propulsion technologies or energy-saving devices. IMO has set the goal to reduce carbon intensity by 40% within the next decade, up to 2030.

As presented in the top left graph, about 50% of the Cape size and 53% of Panamax fleet is younger than 10 years of age. By the time of full implementation of the IMO regulations, the remaining half of the Capes and Panamaxes currently above 10 years of age will be eliminated as noncommercially viable and competitive vessels. Squeezing the supply of vessels may well be a realistic scenario. Let me remind you at this point that we have extended our fleet renewal, having obtained -- having ordered 8 greenhouse gas EEDI Phase 3 Nox Tier 3-compliant Japanese newbuilds with competitive delivery times until 2024.

Turning to Slide #11, we touch upon the current status of fuels and daily price trend, which is the main driver of fuel prices, has surged during the past period, reaching to levels of $85 per barrel. Our company has invested in a exhaust gas-cleaning technology, which allows our ships to be fitted with scrubbers to comply with IMO 2020 regulations for sulfur emissions by burning high-sulfur fuel oil instead of IMO-compliant fuel, which is the very low-sulfur fuel oil. The differential in the price between very low-sulfur fuel oil and high-sulfur fuel oil, the so-called Hi-5, is translated to revenues for the scrubber-fitted vessels.

Presently, Hi-5 in Singapore, for example, starts at about $140 per metric ton. According to future markets, as shown in the graph on the bottom, these prices are sustainable through 2023 in the region of about $120 per metric ton. The scrubber-fitted post-Panamax beds about 7,500 tons. This brings the scrubber gain to about 900,000 per year or about 2,005 tons per day. The recovery of global economies, the restoration of mobility and the recovery of crude oil prices may lead to even higher -- even wider Hi-5 differential.

Let me summarize the key market takeaways in Slide #12. We have experienced a strong [status] of -- market of 2021 with robust volumes of iron ore, coal and grain. Demand for commodities has been exceptionally strong during the first quarter. Energy drive is expected to lift the cost volumes and sustain robust Panamax market. Coal shortages in China, together with COVID-19 restrictions, maintain concession in discharge ports. FFA market levels suggest sustainability of healthy charter levels.

The order book is minimal as decarbonization discussions do not favor orders. Most shipyards are preoccupied with containers and tankers orders until 2024, and only a few shipyards have to develop new environmental-efficient vessels. We have seen increased government spending on post-pandemic stimulus programs and continuing cleaning of the global economy. We have experienced Brent prices recovery, which may lead to even wider Hi-5 spread differential than that of today of about $120 per ton. And lastly, aging of fleet and increased environmental restriction for emissions may enhance the scrapping activity.

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 chartering performance in Slide 14, where we'll present our quarterly TCE, which stood at $24,427 per day versus our quarterly OpEx, which stood at $4,608 per day.

Moving to Slide 15, we present our quarterly daily OpEx of $4,608, and our quarterly daily G&A, which stood at $1,590. The aggregate figure for both OpEx and G&A for Q3 2021 was $6,198, demonstrating our focus on lean operations. We believe that this number is one of the industry's lowest, if not the lowest, given the fact that we include in our OpEx all our dry docking and predelivery expenses; and in our G&A, our management fees and directors and officer compensation and all expenses related to the administration of our listed company.

Moving to debt profile, as seen in Slide 16, we present a repayment schedule as of September 30, 2021. As of that date, we had $100.86 million in cash and cash equivalents, bank time deposits and restricted cash, $88.9 million in undrawn borrowing capacity available under revolving reducing credit facilities, and $46.2 million in secured commitments for loan and sale and leaseback agreements in relation to 2 newbuild vessels. Furthermore, excluding the 2 vessels that committed for sale, which have not been delivered yet, we had additional borrowing capacity in relation to the 3 existing vessels and 6 newbuilds upon their delivery.

On Slide 17, we present our debt amortization schedule versus the scrap value of our fleet. We have a smooth debt repayment profile for the next 2 years, gradually deleveraging our company following considerable debt repayments we have made in the previous quarters.

Let's now move to Slide 18 with our quarterly financial highlights for the first quarter of -- for the third quarter of 2021 compared to the same period of last year. As a general note, during the third quarter of 2021, we operated in an improved charter market compared to the first and second quarters of this year, with lower interest expenses, while our net revenues of $92.5 million during the third quarter of 2021 compared to $51.9 million for the same period in 2020.

Revenues were further increased by the earnings from scrubber-fitted vessels and the reduced mortgage expenses.

During the third quarter of 2021, we had a time charter equivalent of $24,427 compared to $12,575 during the same period of last year.

The net income for the third quarter of 2021 reached $55.4 million compared to $3.3 million last year. Net revenues increased by 78% to $92.5 million compared to $51.9 million for the same period in 2020, mainly due to the increased time charter equivalent rates as a result of the improved markets and also assisted by the additional revenues earned by our scrubber-fitted vessels.

Daily OpEx decreased by 6% to $4,608 compared to $4,896 for the same period in 2020, and that was affected by reduced ownership days by 3% due to the vessel sales, no dry dockings during the third quarter of 2021 and increased crew repatriation expenses due to the COVID-19 pandemic.

Daily vessel operating expenses, excluding dry docking and predelivery expenses, increased by 3% to $4,608 compared to $4,459. Our adjusted EBITDA for the third quarter of 2021 increased to $67.7 million compared to $22.3 million for the same period in 2020.

Our adjusted EPS for the third quarter of 2021 was $0.40, calculated on a weighted average of 119.9 million shares compared to 0 during the same period in 2020, calculated on a weighted average number of 102.2 million shares.

Closing our presentation in Slide '19. We show our quarterly fleet data and average daily indicators compared to the same period last year. We would like to emphasize that the company is maintaining a healthy cash position of $92.2 million as of end October 2021, which provides us with flexibility as we move to year-end nearing our targeted leverage, making significant progress in our fleet renewal strategy and contracting period time charters to provide better visibility to our future cash flows.

Our press release presents in more detail our financial and operating results.

We wish now to take your questions.

(Operator Instructions) We'll now take the first question. This is from the line of Chris Wetherbee from Citi.

James Monigan on for Chris. Just wanted to get a better understanding of your view around the sustainability of the current rate and also vessel value. Just -- they've obviously come up off the bottom. But just how much of that do you think is driven by...

Sorry, James, can you again say?

You are breaking up.

Sorry. Is this better?

Yes. Yes, better.

Okay. Yes, just wanted to ask, first off, about vessel values. They've obviously come up off the bottom, which is a -- which is good to see, but like how much of it do you think is driven by the input prices versus sort of off a stronger sort of market sentiment around the longer-term outlook? Just trying to sort of get your understanding of where you think sort of the perception of like the long-term -- what's being priced in for like the long-term in the market at the moment?

Yes. The sound is very bad, so we didn't get the question. But anyway, I presume you're asking about the long-term prospects of the market.

And if that's reflected in the vessel values or if that's just essentially commodity pricing in the vessel value at the moment?

Look, the commodity prices are on an increase. And we see this -- that there is demand for commodities. Of course, recently, we have seen drops in coal prices with Chinese government intervention to cool down that part of the market. And iron ore price as well have slowed down in the last 2 months because of reducing the steel output for environmental reasons before the Olympics.

I think overall, the demand for commodities, especially the minor ones, is very healthy. And we see it from the rates that are being enjoyed by the smaller-size of vessels, Handysize and Supramaxes as well as Panamaxes. But the demand is very strong. So we believe commodities, including oil, will be kept at strong levels. And most likely, oil prices also will increase further.

Got it. But just given sort of the strength of the market, it seems that the vessel values aren't necessarily reflecting (inaudible).

Chris -- James, sorry. There is -- it's coordination in your sound, which makes this very difficult. So please say slowly.

Actually, I'll turn the call. I'll follow-up separately and just turn the call over to -- so other analysts can ask questions given the difficulty.

We'll move to the next question. The next is from the line of Magnus Fyhr from H.C. Wainwright.

This is Magnus Fyhr with H.C. Wainwright. Just -- you've secured some time charters here in the last year, and also, you've been pretty active on the -- in the S&P market. With the current volatility and some uncertainty going forward, do you see more opportunities for you to potentially secure time charters or become -- or potentially make acquisitions? Or do you think the volatility has created less opportunities?

Look, we exclude the last couple of weeks, the market has been very strong. Lately, we have seen big volatility, which also resulted from a big increase of Capesize rates approaching $100,000 a day. So there has been a correction that is looking as huge.

Of course, if we exclude this extra $30,000, $40,000 achieved on the Capes for 2 or 3 weeks in the spot market, the rest of the market, we can say that has been fairly stable because we still enjoy, after the correction, rates of around $30,000 a day on all class of vessels. So for us, this is a healthy market, and it's good. But we have a correction, and we call it a correction when the market reaches $30,000 a day.

So I don't expect ship prices to be affected by this volatility because owners of vessels, they are not going to let them cheaply because they have seen what earnings you can make in the last 9 months. And right now, you see it in other sectors, which they have very low freight rates. But ship prices are going up for many reasons. One of them is steel prices. Another one is the expectation that the market will change in other sectors.

We are seeing what is happening on the container ships and in the container market. Also, drybulk market is very healthy and very strong. I don't expect the asset prices to correct to give us opportunities to step in and buy ship vessels like in the first quarter of 2021. So I think prices may not go higher, but I don't expect them to drop.

Okay. So from a capital allocation standpoint, balance sheet looks very good. You're going to generate a lot of cash flow here at current market rates. What is the priority going forward, reduce debt or potentially buy back stock or some kind of dividend to shareholders?

If we see on Page 17, we put the projection of the debt for the end of the year and for the following couple of years, which shows exactly that the deleveraging policy -- our deleveraging policy is almost -- will almost be ended by the year-end, and then we will go to the formal principal repayments. So the debt will be about $350 million next year compared to the scrap value of the vessels, which is $378 million according to the pricing to day of the steel. This makes us to feel very comfortable about the leverage of the company because the debt that we have basically reflects what is the steel value of the vessels.

Having done that and also having completed the renewal strategy. The renewal strategy in terms of ordering, we have ordered most of what we could do. And in terms of new -- of second-hand vessels, there might be some opportunities still. However, we have done the big volume. I think in terms of CapEx, in terms of leverage, the priorities are becoming lower. So the new cash that is generated in the future, I think, will give us opportunities in the next year also to be able to reward our shareholders. However, we need to point out 2 things.

We want visibility in our cash flows, which can be established through period time charters, and we want the market to be -- to continue to be in the comfortable levels as it is, let's say, today.

Okay. So you've done a couple of 3-year charters. Is there an appetite there for more of those from your side and from the charterer side?

These charters were available in early October when the freight market was -- the spot market was hitting levels of $50,000, $60,000 per day on the Cape. So charters came along with these proposals. And with these charters, we consider it prudent to secure this business at that time.

So right now, we don't see 3-year charters available because of the recent volatility of the last 2 weeks. But I'm sure that this will come back in the market when things settle down. As I said before, spot market of around $30,000 on all sectors is not an unhealthy market, and we wish this stays for the whole of next year.

Yes. No, I hope so, too.

We'll now take the next question. This is from the line of Randy Giveans from Jefferies.

So I guess, just following up on some of the recent refinancings. What is now your kind of expected interest expense and maybe weighted average interest rate for next year and then your debt amort for 2022?

Debt amortization, I think, we shown on Slide #16. Basically, we have very low interest rates. As you know, we have a hedge with shops at very good levels, almost 85% of our debt. So we are immune against a probable increase of interest rates. We have 84%, 84% on derivatives, maturing some of that up to 2026.

So I think that the numbers are very comfortable. For next year, the principal repayment is only $35 million, which is increased then in 2023 to $63 million. So we understand that these are very comfortable numbers of the company. So the exact calculation, we'll come send it to you after this call. On Page 16. If you see Page 16, you can follow-up the numbers.

Got it. Okay. And then just for the remainder of the ATM, I think there's 28.5 remaining. Do you plan on using this imminently? And how is that decision made? Is it based on a kind of NAV basis? Or what would be the reason to or not to kind of further execute that ATM?

Look, we execute the ATM from time to time. We don't necessarily do the ATM continuously or at any price. So you may see us coming out in the market and sell some portion. We have started the ATM last year, and this continues. And still there is a substantial amount of -- as you said, about $25 million, which we have not executed. We don't know exactly based on the market conditions and the pricing of the stock and how well it will perform because we really have the cash liquidity and the cash reserves. And we don't feel in a rush to execute the ATM at any price.

(Operator Instructions) There are no further questions coming through, sir.

We have one question. One moment, please. The question has been withdrawn.

In that case, there are no further questions. And I will hand back to the speakers now. Thank you.

Thank you thank you to all, and we're very happy to discuss again with you today, and we're looking forward to discuss again once more in our next quarter for our results.

Thank you, and have a nice day.

Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.