Safe Bulkers Inc (SB) 2020 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 2020 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 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 expect, 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 estimations, 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 fourth quarter of 2020.

Starting our presentation in Slide 3, I would like to express our gratitude to all our seafarers hoping that within 2021, we will reach a point that all efforts of the global community to produce treatments and vaccines will conclude and the pandemic will be controlled.

To that end, Safe Bulkers has become a signatory of the Neptune Declaration. We have joined this global coalition signed by more than 600 companies and organizations in the shipping industry to share initiatives and actions combating the crew's change crisis and repatriation of our seafarers. We are committed to the safety and wellbeing of seafarers, while ensuring a stronger maritime supply chain and the uninterrupted flow of commerce around the world.

As a general comment for 2020, despite the negative effect of COVID-19, the company is maintaining strong liquidity position that provides us with flexibility that is following a plan, which in the best place, is based on our high-quality Japanese fleet, 32 out of 42 vessels with built-in advantage of environmental footprint compared to the global drybulk fleet. And further is aiming to upgrade and gradually renew our fleet with a view of our forthcoming environmental changes and sensibly deleverage our balance sheet, targeting to create value for our shareholders and be the leading quality drybulk company.

Management alignment with shareholding and performance and trust built over the years are of the paramount importance in the success of this plan.

Moving on to Slide 5 and the industry section. Let us analyze the market conditions. Recent COVID vaccine announcements brought optimism in the global freight market, together with the underlying demand. The graphs present the development of the charter rates for Capes and Kamsarmax as published by Baltic Exchange. Both Capes and Panamaxes have recovered after the low first half of 2020, which was mainly due to the COVID-19 outbreak. For Kamsarmax, the market is trading above USD 10,000 since June 2020, and more impressively, especially trading in the region of $17,000 or more, which is exceptionally strong given the seasonality low market during the first quarter of this year.

Similarly for Capes, the market peaked 3x after June 2020, with the most recent in January 2021 when it reached $25,000 per day. Presently, the market is lower and is trading at about $11,000 for Capes. However, the cap of FFAs changed the market levels closer to $20,000 for the remaining of the year. The resumption of economic activity and the healthy volumes of iron ore, coal, grain are the major drivers of this surge on rates. COVID-19 is still a concern, although acceleration of vaccination will likely control this pandemic.

Turning to Slide #6, we present certain aspects of Chinese activity which are indicators of the charter market conditions. The iron ore imports of China have been the driving force of the Cape market. And during the course of 2020, were up 9.3% year-on-year, despite finishing lower towards the end of the year.

Regarding the thermal coal imports, as shown in the middle graph, we show a big surge of imports during the end of year and an overall increase of 1.4% for the whole calendar year of 2020. The high demand for thermal coal, especially towards the winter months, has been reflected in the Panamax and Kamsarmax charter market. It is important to analyze the drivers of this big surge in demand for the thermal coal.

As presented at the bottom graph, we see that the power generation in Mainland China in December 2020, jumped by 13.4% month-on-month and by 11.2% year-on-year. Most importantly, the total China power generation was up 4% year-on-year, reflecting the overall economic development. The demand for Panamax and Kamsarmax is expected to remain fair as we are entering towards the grain season of export ex East Coast South America.

The grain harvest of this year is expected to be remarkably high and surge in demand for Panamax and Kamsarmax vessel is also expected to be high. Having analyzed the 3 important drivers of the demand, let's step now into Slide 7, where we present the Panamax order book as a percentage of existing fleet for the last 25 years. Presently, the order for both Capes and Panamax is the lowest since 2002, in combination with the 20% of world fleet being over 15 years old of age.

Moving on to Slide 8. We see that the remainder of 2021, the new orders are above 3% of the existing fleet for Capes and 3.7% for the Panamax and Kamsarmaxes. After 2021, the orders remained minimal, taking into account the aging of the fleet, it is highly possible that scrapping activity will increase. It is also important to note that the shipyard's capacity is presently covered with orders from other sectors, such as containerships and tankers. On top of that, the ongoing environmental discussions for emissions and decarbonization certainly do not encourage new orders.

Turning to Slide 9, we present the latest developments on the fuel markets. During 2020, due to the pandemic and the worldwide lockdowns, the demand for distillate products dropped dramatically. Towards the end of 2020 and year-to-date, there has been gradual reopening of the economies, which in turn has stimulated the demand for oil and distillate products leading to higher prices.

Features market of Bulkers indicate a sustainable spread differential between the IMO 2020 compliant fuel, the very low sulfur fuel oil and the 3.5% high sulfur fuel oil, the so-called Hi5.

As shown in the graph and according to ICE Report Centre, the spot price for the Hi5 is in the region of 130 tons per metric -- $130 per metric ton were used for the remaining of calendar '21, '22 and '23 is trading above $120. This spread differential of about $120 per metric ton for the post-Panamax vessel, which on average builds about 7,500 metric tons per year. The scrubber-fitted could be translated to a good gain of about $900,000 per year or about $2,500 per day.

Let me remind you that our company invested on scrubbers and has already retrofitted scrubbers for half of our fleet. The recovery of global economies, the restoration of mobility and the recovery of crude oil prices may push this Hi5 differential to pre-COVID-19 levels.

Let me summarize a certain key market takeaways in Slide 10. We have experienced an exceptionally strong start of 2021 with healthy volumes of iron ore, coal and grain trade as the recent COVID vaccine use followed optimism in global markets, despite the trade tensions between China and Australia. The global lockdown has a vastly affected demand for oil and distillate fuels. We may have a slow oil demand rebound as global lockdowns eased with restoration of mobility, which will eventually may lead to the recovery of Brent prices and to even wider Hi5 spread differentials.

We have the lowest order book since 2002 as the ongoing decarbonization discussions do not favor new orders. The aging of fleet and the increased environmental restrictions for emissions may enhance the scrapping activity. And lastly, only few shipyards have developed new environmental efficient vessels.

In Slide 11, we present our fleet growth over the last years. In the next context -- in the context of our fleet renewal strategy, we have entered into agreements to acquire 2 Japanese built top design ships, which are designed to comply whether with the Energy Efficiency Design Index Phase 3 and Tier 3 in relation to Nox emissions with scheduled delivery days first half of our 2022 and third quarter of 2022.

Presently, only a few shipyards have developed this new environmental efficient designs. At the same time, we have agreed to sell 2 of our older vessels, 2003 and 2004 built, replacing the 1 immediately with a 2011 built Japanese Panamax at a modest price differential. It is important to note that our growth is gradual. The company had never headed into several orders that have distorted the supply side. At the same time, the company has kept a rate of growth even at loss-making markets and has invested always in the forefront of the technologies ahead of the competition.

Turning to Slide 12. I would like to focus on our fleet mix and point out that 75% of our fleet is Japanese versus 46% of the world fleet, providing us with a lower environmental footprint overall, lead operations and cost building advantage.

Furthermore, as in Slide 13, currently, only a small number of vessels compared to world drybulk fleet is built with EEDI Index. We believe that we can identify less efficient vessels on those that are not built in Japan and on older designs before 2010, and we expect that such vessels will face increased restrictions and additional costs or carbon emission taxes, making them less attractive the following years.

As stated in Slide 14, Safe Bulkers in the conduct of which Environmental Social Responsibility policies has invested ahead of competition and that they took significant environmental investments in new technologies and modern design and energy-efficient vessels to an aggregate amount of $67.2 million, as of December 31, 2020.

We have already retrofitted all 20 of our scheduled scrub installations with an additional scrubber order placed in 2021. And 30 of our vessels are already equipped with ballast water treatment systems. At the same time, unfolding our fleet renewal strategy, we have placed 2 orders for a greenhouse gas EEDI Phase 3 renewals for 2022.

Now let's move to Slide 15, where we have plotted the BPI index as the market performance and our stock price. The correlation of this project has been very strong. In 2019, the correlation has decoupled due to trade war. And during 2020, we have seen further decoupling due to COVID pandemic. At present, we believe that our stock is trading at levels relatively lower than the chartering market performance.

And now let's summarize our key points for Safe Bulkers. We are a pure drybulk play, we -- without predecessors, we have a history of 60 years plus of uninterrupted presence in the drybulk market. Our management team has more than 30 years of experience and continuous presence in the drybulk industry. We are here for the long run. We've reserved our liquidity, which provides financial flexibility, security in turbulence and opportunistic asset acquisitions.

Our spot market exposure allows expansion of profits in bulk charter market conditions. We have locked a good 38% of 2021 fleet days chartered under period time than charters, 68% of which are index-linked, enjoying the improving charter market conditions.

About 75% of our fleet is Japanese build, providing us with lower environmental footprint, lean operation and cost-building advantage 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 $65 million in 2019 and 2020 retrofitting 50% of our fleet with exhaust gas cleaning devices, the scrubbers, which provide us with extra income capability in rising oil price environment.

Management team has seen in the gain that offers full alignment with shareholders. We have demonstrated our twofold fleet renewal strategy. On the 1 hand, looking towards 2030 with ordering greenhouse gas EEDI Phase 3 Nox Tier 3 Japanese newbuilds. And on the other hand, capturing the present market by opportunistic second-hand acquisitions replacing older vessels at a modest price differential. At the same time, we continue the gradual delevering of the company.

Now I will pass the floor to our CFO, Konstantinos Adamopoulos, for the analysis of our financial results.

Thank you, Loukas, and good morning to all. Let me start with our chartering performance in Slide 18, where we present our quarterly time charter equivalent rate, which stood at $12,319 versus our quarterly OpEx for the same period, we stood at $3,978.

Moving on to Slide 19, we present our quarterly daily OpEx versus our quarterly daily G&A, which stood at $1,469. The aggregate figure for both OpEx and G&A for the last quarter of 2020 was $5,447 demonstrating our focus on lean operations. We believe that this number for both OpEx and G&A when comparing apple-to-apple is one of the industry's lower, if not the lowest. Given the fact that we included in this figure all our dry docking and predelivery expenses and also in our G&A, our management fees and directors and officers compensation and all expenses related to the administration of our company as a public entity.

Moving on to our debt profile, as seen in Slide 20. We present a repayment schedule as of the end of the year of 2020. Our liquidity at the end of the year stood at $171.2 million, consisting of cash and bank time deposits, restricted cash, contracted undrawn borrowing capacity under a revolving credit facility and secured commitments, including sale and leaseback financing.

In Slide 21, focusing on our liquidity versus our CapEx commitments. As of February 12, we had liquidity of $184.3 million, which included cash and cash equivalents, time deposits, restricted cash funds available under the sale and leaseback agreements, new term loan agreement and the revolving credit facility.

Our aggregate remaining CapEx for the acquisition of the 2 newbuilds as well as of the second-hand vessel were $64 million, of which $12.6 million is due in 2021 and the remaining $51.4 million in 2022.

In Slide 22, 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.

Let's now move to Slide 23 with our quarterly financial highlights for the fourth quarter of 2020 compared to the same period of 2019. As a general note, during the fourth quarter of 2020, we operated in a relatively weaker charter market environment with lower operating and interest expenses compared to the same period in 2019. While our revenues were partly supported by the additional learnings from scrubber-fitted vessels, the operation of 1 additional vessel which we took delivery back in April of 2020 and also from the reduced mortgage expenses.

The net effect is reflected in our used TCE of $12,319 for the fourth quarter of 2020 compared to $13,770 during the same period in 2019. Net revenues decreased by 2% from $53.2 million to $52.2 million, mainly due to the reduced TCE because of our weaker market, partially offset by the additional revenue sent by our scrubber-fitted vessels and the additional vessel delivered in 2020.

Daily vessels earning expenses decreased by 22% to $3,978 compared to $5,103 for the same period in 2019. This decrease is associated with reduced dry dockings and provision of technical services, an increased growth patriation and expenses due to the COVID pandemic.

Daily running expenses, excluding dry docking and predelivery expenses, also decreased by 13% to $3,955 for the fourth quarter of 2020 compared to $4,540 for the same period in 2019.

Our adjusted EBITDA for the fourth quarter of 2020 increased to $26.3 million compared to $23.1 million for the same period in 2019. Our adjusted earnings per share for the fourth quarter of 2020 was $0.04, calculated on a weighted average of 100.2 million shares compared to $0.01 in '19, calculated a net weighted average number of 102.6 million shares.

On the table of Slide 24, we provide an estimation of the expected downtime in Q4 2020 and Q1 2021 in order to assist analysts with their projections.

Closing our presentation in Slide 25, we present our quarterly fleet data and average daily indicators compared to the same period last year. We would like to emphasize that in this period, we have worked extensively despite the tough market conditions, and we have concluded the order of 2 Japanese modern design and technologically advanced newbuilds with delivery in the first half and third quarter of 2020 with limited impact on our liquidity by agreeing 90% financing through sale and leaseback agreement for 1 and by committing term loan facility for the other one.

We have sold 2 of our oldest vessels, built 2003 and 2004, at attractive prices and immediately agreed the acquisition of 2011 Japanese-built vessel, to 2 of our vessels with limited impact on our liquidity. We have a strong balance sheet with comfortable average, a small debt profile for this and the next year and the liquidity position of $184.3 million as of February 12.

And finally, we took measures to protect our seafarers and for employees, health and wellbeing and kept all of our vessel sailing continuously servicing our charters. Once again, we'd like to thank our seafarers for their commitments and dedication throughout this tough period and drive the industry's attentions to efforts releasing and preserving the wellbeing of our seamen.

Our press release presents in more detail our financial and operational results. And we are now open to take your questions.

(Operator Instructions) Our first question today is from Randy Giveans.

I guess a few questions. Looking at first, the agreement for the acquisition of the 2011 built, the Panamax there. What are the thoughts behind that in terms of the ages? And also comparing that with the recent announcement for the 2 newbuilds of additional vessels on the water? So kind of comparing and contrasting a 10-year-old vessel and newbuilds?

Yes. The 10-year vessel was done at the time when we sold 2 of the older ships of the company, the '03 and the '04 vessel. At a small premium, we managed to buy an '11 built vessel before prices start rising, in which case, with a small increase, we renew the age factor by 8 years. The newbuilds are more long-term investment in new regulations and the new energy efficiency environment that would be delivered in the middle of second and third quarter of 2022, which is -- was done ahead of the game in order to have a good delivery periods because right now, the deliveries are fully booked until 2023.

So it's a different -- it's -- the fleet renewal is twofold. Fleet renewal is partly selling all the ships and replacing them with younger ones and partly replacing them with brand-new technology vessels.

Got it. Okay. And then I guess also looking at the repurchasing of the Series A, right? What is the kind of thought process around that and the savings with that? Would you look to maybe start a dividend or kind of what is your thoughts around that incremental capital that's not being paid out now on the Series A?

Look, that was a financing for the newbuild the , which was done 3 years ago. So we thought it was the time to call it to redeem it. And in its place, we have refinanced the vessel through a sale and leaseback transaction, increasing also our liquidity.

And as a result, I mean we -- I mean this is -- I mean according to our strategy to increase our liquidity and be more flexible in the market. Now having this strategy, we have substantial liquidity that provides us flexibility in -- for other acquisitions, for future orders, I mean for whatever. So this is the thought process for redeeming the preferred A stock that was issued by one of our subsidiaries.

Got it. And then in terms of maybe a potential dividend at some point? Are we still may be too early in the update?

Yes, in case of the potential dividend, there is -- I mean there are 2 real truth. First of all, the management has about 50% of the company. So the base target of the family is to create -- the management is to create a value for shareholders and to be able to restore the dividend.

The second point is that we just -- I mean we have come out of several years of bad markets. And even the last year, it is profitable at the end, but it was overall not profitable. And so we need to see, let's say, the development of the market and to be able to, let's say, more sustainable good markets in order to consider additional dividend, which always is at the end of the day, the target of each ones that invested in any company, including our management.

Basically, the fourth quarter of 2020 was the first profitable quarter after a very bad first half of 2020 and the breakeven quarter in Q3. The company shows that both its profits and its stock price is bouncing back after the -- after freight rates reversed. So we are adjusting very fast to the new environment and turning the losses of COVID-19 into profits.

So if things develop like we expect in 2021, we will have more profitable quarters, and then it will be more likely to consider how we distribute funds.

Yes. That completely makes sense. We're expecting many more profitable quarters, so we can have some patience on the dividend.

(Operator Instructions) The next is from Ben Nolan from Stifel.

This is Frank Galanti on for Ben. For my first question, I just wanted to ask, given -- I guess through sales and the buyback -- basically the fleet transactions and then the ordering of the new vessels, how much dry powder do you think you have in order to grow the fleet without tapping the ATM?

It is -- there is some dry powder, and there is more to be created by possibly selling later in 2021, a couple of more of the older ships, replacing them with younger [promise]. But the most important is to see to how much the profits of Q4 will be developed now that the market is developing in a nice way as freight rates start increasing meaningfully for the first 2 months of this year.

We believe that our profits will strengthen. But we have to bear in mind that also the company wants to do deleveraging because there's a long-term sustainable level of profits and dividends for the shareholders and not into making 2 or 3 quarters of dividends and then to stop when the market changes. So we want to, at the same time, deleverage. One of the ways to deleverage is through as the market increases serving the older ships and replacing them with newer ones, so that will be debt free. The plan right now for the new acquisition is to remain debt fee. That's why we will contribute to the earnings as much as the 2 older ships were contributing at the same time.

So it will be a combination of factors that will decide things. We are very optimistic as things stand at the moment. Because the drybulk market is getting out of a very bad situation. We have the depression of 2015, 2016, then we have the trade war in 2018, when the market starts improving. Then in 2020, we had COVID-19. So it's 3 major events in the last 6 years.

Right now, we are happy that, as I said in the past that there's not a bad thing without a good thing coming. All these crisis resulted into very little ordering of new ships. We have one of the lowest order books over the last 20 years. This, I believe, is a key point that will drive the profits higher and will drive the drybulk market to very, very profitable levels. The order book is below 6%. We haven't seen this order book for ages. And you have to remember in the previous commodity booming of 2013 and 2014, we had order books of 50% or 45%, 50%.

So at that point, we couldn't carry on with a sustainable market. Right now, I think that the part that everyone is missing is of this recovery. If it develops a way -- and of course, nobody knows, but if it develops a way, we are thinking and most of the people are thinking it will develop along with a commodity boom. It will coincide with 2 or 3 years of low order book, which, coupled with the aging of the fleet and the decarbonization and the requirement for some of the ships to slow down in order to meet the greenhouse gases restrictions. I believe that this will give a major boost to the vessels that are well prepared for that phase of the market.

If I may add on that, if you consider the Slide 21, where we show our liquidity, which is about $184 million against our capital expenditure requirements, about $60 million. I think one point to say is that looking at the future in the present market environment, we can say that by -- for each $1,000 that the time charter equivalent increases, the profit of the company will be about $15 million. So the liquidity -- we foresee that the liquidity will increase in the following, let's say, quarters from the markets, which is very important and very wanted.

Okay. Great. That's really helpful. And then I guess I wanted to ask about the Lake Despina, the Capesize that had the contract terminated early. Can I -- give us a bit more context on why that transaction was completed? And if you'd be interested in doing the same for other vessels?

Look, the Lake Despina was -- made a washout agreement with charter of the vessel on their request. They asked to pay the differential between the market and -- at the time and what was charter rate for the ship. The ship had around 3 years remaining on her charter of $24,800 a day. We made the calculation, it came out to $8 million in compensation. We received already this money.

Now the ship has redelivered. We decided that we should keep the ship because it's a premium ship in the spot market and fix it on index link, like we have done a big part of our period vessels. So we have done this one at 19% above the Baltic Cape Index. We believe the Baltic Cape Index will start performing a lot better. Of course, in January, it was almost $30,000 Baltic Cape Index. Right now, in the Chinese New Year, it dropped. But I think that in the next couple of months, we will see Baltic Capesize Index above $20,000. And I think that it's a good call from the company because if the spot market on the Baltic Cape Index goes back to $20,000, which is -- it's not a big event at this stage, the company will be receiving the money it was receiving on the original charter.

So we have this flexibility. We took a decision in the last quarter of last year, any period of business we were fixing to keep it index-linked because we believed in the market and we wanted to enjoy the [site] as soon as it would happen. We have around 7 Panamax and 2 Capes in index-linked. So even ships built all 3 or all 4 now, they're returning rates of $17,000, $18,000 a day on their period of charter. So I think that there was a good opportunity for us to wash out this charter. And also it was good for our charters, which we are first-class, they performing brilliantly for 7 years and they paid the due compensation.

Now on the other contracts we have, we never have a hint about the respective charters want to make anything like this. The 1 ship that has a long-term period remaining of another 10 years, so last 11 years. The charter will make an investment on the ship of environmental investment adding scrubber and things like that. So I mean their intention is to maintain the ship and perform more as the charter party. They are a big company conglomerate. We never had a problem in the first 10 years of the charter.

So we don't expect any more contracts to be treated that way. But at the same time, we are very happy with the standard of our counterparties and because when we fix ships, we think that this is the most important element. Our long experience is with who we fix and not only the rate but with the reputation of the charter and the security center and the guarantees we get from those long-term charters. So it's looking good at the moment. But I mean we have to wait and see how the market develops. Right now, we are seeing in the middle of Chinese New Year ships earning $25,000 a day in the Atlantic or $18,000 in the Pacific. So it's really looking good because last time I remember this sort of market in the first quarter was 2011. So I think something similar is happening at the moment.

(Operator Instructions) There are no further questions coming through. I will now hand back to management for closing remarks. Thank you.

Thank you very much for attending this presentation on our quarter results. And we are looking forward to discussing you in about 3 months for our first quarter results. Thank you to all, and have a nice day.

Thank you very much, sir. Ladies and gentlemen, that does conclude the call. Thank you, everyone, for joining. You may now disconnect.