Safe Bulkers Inc (SB) 2021 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen. Welcome to the Safe Bulkers conference call to discuss the first quarter 2021 financial results.

Today, we have with us from Safe Bulkers: Chairman and Chief Executive Officer, Mr. Polys Hajioannou; President, Dr. Loukas Barmparis; 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, the 6th of May 2021.

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 that 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. 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 2021. Let me start our presentation by expressing our gratitude to all our seafarers. We are committed to their safety and well-being.

Moving on to Slide 3. We present some key points about Safe Bulkers. We are a true drybulk player. Without predecessors, we have a history of 60-plus years of uninterrupted presence in the drybulk market. Our management team has more than 30 years of experience in the drybulk industry.

We are here for the long run. We preserve our liquidity, which provides financial flexibility, security in turbulence and opportunistic asset acquisitions.

Our spot market exposure allows expansion of profits in favorable charter market conditions. We have half of our fleet in the spot market and about 1/3 of period charters index-linked, enjoying the present market conditions. About 75% of our fleet is Japanese built, providing us with a lower environmental footprint, lean operations and cost built-in advantages from scrubber-fitted vessels based on increased fuel spread differential.

We have actively centered the environmental preservation in the heart of our competitive strategy by investing more than $67 million in 2019 and 2020 retrofitting 50% of our fleet with exhaust gas cleaning devices, also known as scrubbers, which provide us with extra income capability in rising oil price environment.

Management team has skin in the game that offers full alignment with shareholders. We have demonstrated our twofold fleet renewal strategy. On the one hand, looking forward -- looking towards 2030 with offering greenhouse gas EEDI Phase 3 and Nox-Tier 3 Japanese newbuilds, and on the other hand, capturing the present market by opportunistic second-hand acquisition replacing older vessels at a modest price differential. At the same time, we continue with the gradual delevering of the company.

I will continue in Slide 4. We focus on our spot market exposure. I would like to point out that 75% of our fleet is Japanese versus 46% of the world fleet, providing us with a lower environmental footprint, lean operations and cost built-in advantage.

We present on the left side the Cape and Kamsarmax spot market, which during the first quarter of 2021 have significantly improved. As a result of our exposure in the spot market, without -- with half of our fleet on the -- and the fact that about 1/3 of our period charters are index-linked, you can observe on the right-hand side figures the impact on our TCE and net revenues of this quarter versus the same period of 2020.

We continue the presentation of certain key points on Slide 5. We demonstrate our lean operations and low break-even points with stable operating expenses yet again during this quarter.

As a result, on Slide 6, we have increased our profitability to earnings per share of $0.18 and $0.14 on an adjusted basis as compared to an adjusted loss of $0.13 for the same quarter last year.

Our liquidity has also increased, in Slide 7, to over $190 million as of quarter end and over $209 million as of April 23, which increases our flexibility to execute on our fleet renewal strategy and deleveraging.

At the same time, we have a strong balance sheet, as analyzed on Slide 8 with a healthy total liabilities-to-total asset ratio of about 57%.

Now let's see an overview of the first quarter as presented in Slide #9. We have increased our profitability in tandem with our exposure with half of our fleet in the spot market and about 1/3 of our period charters enjoying index-linked rates. As an example, our recently early delivered Capesize has been subsequently fixed for 1 year at a gross daily charter rate linked to the 5TC bulk exchange Capesize index multiplied by 119%. The current BCI rate stands at $44,000. At the same time, we have increased our liquidity and strengthened our balance sheet.

We will continue our efforts to gradually renew our fleet through selective sales of older vessels and new acquisitions with modern designed vessels that adhere to new environmental regulations. We remain focused on our environmental performance and continue to invest to improve our operations in this area as we believe that our environmental investments will contribute to sustained operational and financial advantages.

Let's move now to Slide 11 and the industry update. Most of the countries have accelerated COVID-19 vaccination and have resumed their economic activity, and in most cases, at a faster pace than a pre-COVID period. This year started with very strong charter market. The average charter hire for Capes is about $20,500 year-to-date as compared to $5,400 for the same period in 2020. Presently, Capes are trading at about $45,000 per day.

Similarly, for Kamsarmaxes, the average charter hire is $19,300 year-to-date as compared to $7,100 for the same period in 2020. Presently, Kamsarmaxes are trading at about $25,000 per day. This represents a substantial increase in the vessel's revenue, which has been sustained through the first 5 months of 2021.

Moving on FFA curves, which have been extremely good and relevant to the market trend, the forecast is for the market to remain strong. According to the present trading rates for Capesizes, June is expected to trade at $47,000; Q3 and Q4 at $36,000 and $29,000, respectively. Similarly for Kamsarmaxes, June is expected to trade at $28,000 per day while Q3 and Q4 is at $25,500 and $22,000 per day, respectively.

The expected sustainability of the market comes as a result of the increase in the underlying demand, which is also reflected in the commodity prices, which we will review in a moment, and the lack of oversupply.

In Slide 12, we present the current status of the major relevant commodity prices. As seen, there has been a huge price surge on all commodities relevant to shipping. Main reason for this was the strong demand from China and from other countries and the government spending on post-pandemic recovery programs as well as the greening projects of the global economy.

Indicatively, iron ore, which is the main cargo for Capes is trading at about $190 per tonne comparable to 2009 levels.

Similarly for steel rebar, which is a direct product of iron ore and reflects [established metal] production, is currently trading at the highest levels in 5 years.

Soya beans, which are among the major cargoes for Kamsarmaxes, have hit an 8-year high and similar patterns apply on all grain products such as wheat, corn, et cetera.

In addition, we also presented the price development of copper, which has traded above $10,000 for the first time since 2011.

The surge in demand for commodities has been further enhanced by governments' stimulus plans. President Biden has proposed 2 additional stimulus plans on top of the one he has already passed. Furthermore, it is important to note that the demand is not only driven by China, which was the case through the past decade. The rest of the world is picking up and many countries are real contributors to the demand side.

Turning to Slide 13, we present the status of the fleet for Capes and Panamaxes. On the top left graph, we present the price of a 5-year-old Capes and Panamaxes since 2010 as assessed by Baltic Exchange. The 5-year-old Capes have surged by about 30% since the last 6 months and about 90% since 2016 lows and presently are valued at about $4 million. Similarly, Panamaxes have surged by about 35% during the last 6 months and about 135% since the 2016 lows. It is important to note that above figures reflect the average vessel in terms of country and shipyard bill, specifications and maintenance conditions. Safe Bulkers has a fleet mostly built by top-class shipyards in Japan at advanced specifications. Moreover, 75% of the fleet is fitted with ballast water treatment system and some with retrofitted scrubbers. All these features are providing significant additional market values for each of our vessels.

In the second -- in third graph, we present the status of the orders. Until the end of the year, the newbuild orders accounted for about 2.5% of Capes and about 3.7% for Panamaxes. From 2022 onwards, the new orders are less than 2%.

It is important to note that there are several limitations for anticipating a surge in newbuild orders. There is a scarce building capacity at most shipyards -- as most shipyards have covered their slots by building other sectors -- vessels such as containers and tankers. In addition, only few shipyards have developed new environmental efficient designs. These reasons, taking into account the aging of the fleet and the eventual scrapping, will diminish the growth of the drybulk fleet.

On the next Slide #14, we will present the status of the bunkers prices, and more specifically, the difference between the price of very low sulfur fuel oil and the high sulfur fuel oil, the so-called Hi5, which is of interest for our scrubber operations.

As shown in the top graph, the Brent prices collapsed during the pandemic period, especially in the beginning of 2020. As it was expected, this affected also the bunker prices and especially the different products, and yes, the very low sulfur fuel oil. Presently, Brent rate is close to the pre-pandemic levels in a healthy level of about $70 per barrel. Hi5 is presently in the region of $110 per metric ton, and according to the future market in Singapore, it is expected to trade in the region of $120 for the remainder of 2021 and in the region of $130 for 2022 and 2023. Safe Bulkers has installed scrubbers on half of its fleet.

For reference, scrubber fitted post-Panamax with consumption of about 7,500 metric tons per year, they enjoy the benefit of about $120, which is the difference between the very low sulfur fuel oil and the heavy sulfur fuel oil, making about $900,000 per year or about $2,500 per day. The recovery of global economies, restoration of mobility and recovery of crude oil prices may push the Hi5 differential even higher to pre-COVID-19 levels.

Let me summarize the key market takeaways in Slide 15. The order book is minimal at its lowest level since 2002 as decarbonization discussions not favor new orders. Most shipyards are preoccupied with containers and tankers orders until 2024. And only few shipyards have developed new environmental efficient designs.

We have experienced an exceptionally strong start of 2021 with robust volumes of iron ore, coal and grain in trade. Demand for commodities has been exceptionally strong during the first quarter.

We have seen increased government spending on post-pandemic stimulus programs and continuing greening of global economy.

We have experienced Brent prices recovery, which may lead to even wider Hi5 spread differential than that of today of about 120 tons (sic) [$120 per ton].

And lastly, the aging of the fleet and the increased environmental restrictions for emissions may enhance 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 in Slide 17 with our chartering performance, where we present our quarterly time charter equivalent rate. For the first quarter, we stood at 15,567 vessels (sic) [$15,567] versus quarterly running expenses, which stood at $4,702.

Moving on to Slide 18, we present our quarterly daily OpEx and our daily -- quarterly daily G&A, which stood at $1,440. The added figures for both OpEx and G&A for Q1 2021 was $6,142, demonstrating our focus on lean operations. We believe that this number when comparing apples-to-apples is one of the industry's lower, if not the lowest, given the fact that we include in our OpEx all our dry dockings and fleet delivery expenses; and in our D&A, our management fees, our directors' and officers' compensation as well as all expenses related to the administration of our company.

Moving on to fleet debt profile. As seen in Slide 19, we present our repayment schedule as of March 31, 2021. As of that time, our liquidity stood at $191.4 million, consisting of cash and bank time deposits, restricted cash, contracted undrawn borrowing capacity under revolving credit facilities and secured commitments, including sale and leaseback financing.

Slide 20. We focus on our liquidity versus our CapEx. As of April 23, 2021, we have liquidity of $209.6 million, which included cash and cash equivalents, time deposits, restricted cash and funds available under the sale and leaseback agreements, new term loan agreement as well as the revolving credit facility.

Our aggregate remaining CapEx for the acquisition of our 2 newbuilds and [the amount] were $52 million, of which a $600,000 is payable this year and $51.4 million payable in 2022. In addition, the committed CapEx for the scrubber -- for the installation of one scrubber and several ballast water treatment systems were $3.2 million, of which $2.3 million is due this year and $900,000 next year.

Slide 21, 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, so helping us gradually deleverage our company.

Next Slide, #22, we present our quarterly financial highlights for the first quarter of 2021 compared to the same period of 2020. As a general note, during the first quarter of 2021, we operated in an improved charter market environment, higher charter rates compared with the fourth quarter of 2020 with lower interest expenses while our revenues were supported by the earnings from scrubber-fitted vessels and reduced volume expenses.

During the first quarter of 2021, we had a time charter equivalent of $15,567 compared to a TCE of $9,089 during the same period in 2020.

Net income for the first quarter of 2021 reached $21.3 million compared to a net loss of $9.9 million during the same period in 2020. Net revenues increased by 37% to $62.5 million for the first quarter in 2021 compared to $45.7 million for the same period in 2020, mainly due to increased TCE as a result of improved market, assisted also by the additional revenues and by our scrubber-fitted vessels.

Daily vessel OpEx decreased by 1% to $4,702 compared to $4,771 for the same period in 2020. This decrease is associated with reduced dry dockings and provision of technical services, which was impacted with increased crew repatriation expenses due to COVID-related issues. Daily vessel OpEx, excluding dry docking and predelivery expenses, increased by 2% to $4,358 for the first quarter of 2021 compared to $4,258 (sic) [$4,285] for the same period in 2020.

Our adjusted EBITDA for the first quarter of 2021 increased to $34.6 million compared to $9.4 million for the same period in 2020.

Our adjusted EPS for the first quarter in 2021 was $0.14. Calculated on a weighted average number of 103.3 million shares compared to a loss per share of $0.13 during the same period in 2020 calculated on a weighted average number of 103.4 million shares.

In Slide 23, we provide an estimation of the expected downtime in days for this year in order to assist our analysts with their projections.

Closing our presentation in Slide 24, we present 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 strong liquidity position with $209.6 million as of April 23, 2021. This increased liquidity provides us with flexibility to follow our plan, aiming to gradually renew our fleet with the forthcoming environmental changes and sensibly deleverage our balance sheet targeting to create value for our shareholders.

Once again, we would like to thank our seafarers for their commitment and dedication throughout this tough period. Our press release presents in more detail our results, and we are now open to take questions.

(Operator Instructions) We'll now take the first question.

This is Liam on for Chris Wetherbee. So I just wanted to first ask about your fleet and the chartering strategy. So I know that half of your fleet is on the spot market environment...

Can you please speak closer to the microphone because we cannot -- we don't have good reception or...

Yes. Sorry about that. So I know that half of your fleet is on the spot market currently, so I just wanted to ask about your chartering strategy. So what are your thoughts about the portion of your vessels that will continue to trade in the spot market? And what would it take for you to kind of look to lock in some of your vessels on longer-term charters?

Yes. Right now, half of the vessels are in the spot market and the other half on short-term period market up to 1 year. Out of this period ships, 1/3 of them, as you saw, is index-linked because we have -- we were feeling that the market will improve in 2021 and we decided those ships shows -- or part of the period ships will be done on an index-linked basis. So we will continue for the rest of the quarter and up to the third quarter this policy to keep ships in the spot market. And possibly, in the third quarter or the fourth quarter, we will try to lock in longer periods as the charterers will be more keen to secure longer-period charters.

Got it. That's very helpful. And so kind of a little bit of a follow-up to that and some of the things you discussed earlier. So I know that more recently, given the fact that spot rates have surged, that's really benefited your liquidity. But I'm also just kind of wondering like how are you kind of planning to leverage that increased liquidity? Are you going to look to be more aggressive in pursuing your fleet renewal program and maybe acquire more vessels in the secondhand market?

Yes. I think that our aim is join the exercise of the leverage and fleet renewal. We are interested into newer technology vessels, which means we have to concentrate on acquisitions on ships younger than 5 years old. At the same time, we have some ships approaching 18 years old that we need to sell. So there will be some sales and some acquisitions and some selective ordering at a very limited pace because right now, we see that the shipyards are not ready to propose new designs with new technology, and there are not so many options there.

This, of course, is giving us more optimism for the freight market in that, we don't expect to see newbuilding orders -- many drybulk newbuilding orders for 2023. We believe that the yards are getting filled up with big container ships and tanker orders. Whilst drybulk orders, the owners will be waiting new the designs to appear, but we don't see many shipyards keen at the moment to develop these new designs.

And we'll now take our next question.

This is Ben Nolan from Stifel. I actually just wanted to follow up on that last response you're talking about. Well, obviously, you guys ordered some ships last year, but now we're sort of looking for things with new designs. I'm curious if you could maybe flesh that out a little bit. Are you most interested, I don't know, in things that maybe would use ammonia? Or is there something specific that you have in mind that isn't being developed that would be of interest?

Yes. Look, when we speak about newbuildings for the future, and we said that we have bought the 2 ships and we referred to Phase -- EEDI Phase 3, I wanted to clarify that EEDI Phase 3 comes in the regulations up to 2025. So basically, what the company has done is that we ordered not the present generation that we can do easily, which is Phase 2 until 2025. But we ordered the Phase 3 vessels, which are much closer to 2030 and they are more advanced. Now the company has chosen this route because we believe it's a pragmatic group for the existing technologies.

And we know that despite the fact that there are several discussions and researches about new fuels, we are not -- we are quite sure and we know that new fuels like hydrogen or ammonia will not come to play a role in the -- in, let's say, the next decade. So by having the most advanced ships of 2025 onwards earlier, that would be a competitive advantage.

A second point that we want to stress out is that our company has, and we said that many times but we want to clarify that, that our company has the vast majority in Japanese big fleet, which generally are lighter and more energy-efficient, and as a result, we have better footprint.

So we expect that when the new regulations for greenhouse gas has come to 1st of January 2023 as it's expected to play a role in the performance in the valuation -- in the classification of the vessels in categories A to E and the A categories -- the A category vessels will receive a notice that within a year, they need to fix second fleet, so the B category, within 3 years. I mean our vessels will be well placed in this lease. And so we will maintain the operational advantages that we always have had in the past. I don't know if you want to ask another question on that.

Well, really, the question is, and I appreciate that you're in a good position in that your newbuilds that you have ordered are also in a good position. But when looking at sort of what would be next, if you were to order a ship and -- but yes, it isn't available to the shipyard. What do you have in mind there? I mean what is that next-generation ship that would -- if a yard were to come out with the design, what would check the boxes for you? Is there a particular type of fuel or something?

This is a problem right now. There is no next-generation ship available. A lot of stories appearing in the press about what will be the fuel for the next 10 years or 20 years, no one knows. Definitely, on tankers, on containers, there are a few options being proposed by the shipyards, which really, we don't know which is the medium term or the long term or the short term.

So ourselves, we cannot do anything more at this stage than go for Phase 3 newbuilding whenever it's available. Otherwise, we will concentrate ordering more than second-hand ships, but under 5 years old. That will be very close to -- on the upper part of Phase 2 designs. There is nothing we can do at the moment because really no one knows if this ship will be LNG powered, if it will be hydrogen, if it will be ammonia. No one has an idea. And the yards -- and this is maybe a good point for trade markets. The yards, they are not really interested to develop such designs for bulkers.

So at the moment, they concentrate on big container ships that they have big consumptions or VLCCs or bigger ships and they don't bother yet to develop designs for bulkers for the next phase of decarbonization. Basically, you have to remember that the yards, like shipowners, they've been losing money for a number of years. And first of all, they have to do the change on the bigger ships. They have better levels and new contract levels, and thereafter, they will bother.

So I think it will be very difficult to have new buildings with new designs for bulkers proposed by the yards this year. If at all we get it, it will be next year at the earliest. So the delivery of bulkers with different fuels, all these things should not be available before 2025 delivery.

So we have to be patient. If we can find a reasonably priced with good delivery date newbuild of Phase 3, we may consider. If we don't find, we will go for very young ships in replacement of our older ships. We can consider that the only alternative fuel to the existing fuel, which is the natural gas, for example, the LNG and we don't have such solutions in this -- in the bunker industry, such solutions may come, let's say, towards the end of this decade. And maybe new fuels like hydrogen or like ammonia would come at the early or mid of the next decade. So basically, the next-generation ships that are not generally available now are Phase 3 vessels. So this is the only thing that we have and which is pragmatic.

Yes, I appreciate that. If I can switch gears for a second on my next question. Obviously, we've seen the spot rates go up and talked about that and there's strong underlying demand, you guys did do some time charters. But still most things, both for you and elsewhere in the market, tend to be pretty short duration, 6 to maybe 18 months on the long end.

But as the market tightens, are you guys beginning to see any lengthening duration in terms of what customers are looking for to sort of perhaps hedge out the risk of a spike or something like that?

And really, I asked because I know in the past, you guys have done some longer duration deals. So is that something that's materializing at all? And is it something that you would be interested in doing?

You are talking about the longer period of charter deals?

Yes. 3 years or 4, I think longer than a year, yes.

Yes. For this to happen, we have to be a little bit patient because we had a decent 2 months, February and April. In between, we have the correction of the market in March. So all we have seen until now was just 2 good months of freight market, February and April. And we continue now in May is the third month of a good freight market.

The charters, before they start fixing long-term deals, they have to see the spillover of enthusiasms going on in the forward years. And many of them usually monitor this FFA market, which is not necessarily every shipowner's piece of cake or guidance for long-term business, but the charterers mainly they monitor these things. And as we know, the forward part of those curve is very depressed from the point of view that there is not enough volume to push it up to the proper levels, similar levels like 2022 when -- 2021 when we know 2022 is supply restrictive and the same for 2023.

So as we enter into Q3 and Q4, I believe charter will get this feeling, but the commodity prices of today's and the value of the dollar and what is happening worldwide with the stimulus package, both East and West, will keep them -- the market this time higher for a longer period of time. And then we will see the FFA forward years start moving to higher levels. And then charterers will start asking ships for 3 or 4 or 5 years.

So we have to be patient and have the ships in the spot market to be able to reach that point when charterers will decide that, yes, they believe in this market and they start investing into the forward part of the FFA curve.

So I think this will happen sometime in the third quarter, personally. But maybe you will call me optimist -- optimistic. Maybe it happens in Q4, I don't know. But I mean a lot depends on those 2 quarters if we will see the long period charters. Personally, I believe that because shipowners do not participate in the FFA market, especially for the forward years, I believe that the FFA market is rather constrained and is the freight is being exchanged for the forward years between charterers and operators, which mostly sit on the same side of the fence usually.

And if that does materialize, that is an area that you guys would need to be active in.

If it doesn't materialize, we have to enjoy the $20,000 a day.

Right now, but if it does -- if it happens?

If it does, certain part of the fleet has to go there, yes, definitely.

And we'll now take the next question.

Gentleman, it's Randy Giveans at Jefferies. Two questions from me. First, clearly, your TCE rates increased pretty meaningfully from $12,000 a day in the fourth quarter of 2020 to about $16,000 in 1Q '21. So how big of an increase are you expecting in 2Q '21?

Look, I mean the spot market has moved to the levels you know, $22,000, $23,000 a day. On the Capes, it has moved on -- to $40,000 level. So you should expect that the second quarter TCE rate should be a similar increase. We already run 50% of the second quarter and the fixtures you are doing now will cover the rest of the second quarter. So I mean the assumptions are easily to be made.

So I do not want to predict the numbers now, but it's -- I mean you are 50% in the spot market and 1/3 of the period ships on index-linked, you can run the calculations very easily.

Okay. And then looks like you used half of your $23.5 million ATM Program raising. I think it was $12.7 million in recent months. Average price is under 2 80. So with the ongoing rally now pushing your shares around 4, will you use the remainder of that ATM here in the near term? And what will the primary use of the proceeds be?

Look, a small part of ATM has remained, but we don't know exactly when we will activate this last part. I mean we always activated when the company -- a I've already indicated, when the company thinks that it's right pricing. And so we cannot comment on that anymore.

(Operator Instructions) There were no further questions coming through, so I'll now hand back to the speakers.

So thank you for attending this Q1 conference call and webcast to discuss our financial results, and we are looking forward to have the same discussion in about 3 months from now. Thank you to all, and have a nice day.

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