Safe Bulkers Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 8, 2023

There are 6 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss the Q3 2023 financial results. Today, we have with us Mr. Paulus Cajuwonam, Chairman and Chief Executive Officer Doctor. Lucas Bompares, President, Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company and Mr.

Operator

Thanassis Antonakis, Assistant Chief Financial Officer. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. 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.

Operator

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 in 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 timed 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 estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond and 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.

Operator

The company expressly disclaims any obligations or taking 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 will pass it over to Doctor. Bombardis. Please go ahead, sir.

Speaker 1

Good morning. I'm Lucas Barbariz, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the Q3 of 2023. During the 3rd Quarter, our financial performance was weaker, aligned with the charter market as a result of global economic growth and 70s. Our newbuilds order book with more efficient basis in our environmental upgrades program on our existing fleet was complemented with the orders for 2 methanol dual fuel newbuilds for the Q4 of 2026 and for the Q1 of 2027, marking a significant step towards decarbonization.

Speaker 1

At the same time, we took delivery of our 5th and 6th new bids and rewarded our shareholders with a dividend of 0.05 cents per share of common stock. Our capital structure is conservative with significant cash and revolver capacity. Our CapEx requirements are adequately covered by our contracted future revenues and our balance sheet is strong. After reviewing the forward looking statements language in Slide 2, we may move to Slide 3. There has been significant volatility in the Cape market.

Speaker 1

It's worth noting that all our 8 Capes are period charter with an average remaining charter duration of about 2 years at an average daily rate of about $23,500 with the market currently at about 18,500. On the Panamax, with the chartered market remains somewhat stable. Moving on to Slide 4, we present The development of the CRB commodity index, reflecting the basic commodities, future prices, which represent the leading indicators for shipping, including energy, agriculture, precious metals and industrial metals. Commodity prices declined sharply over the past Months according to the World Bank Energy Price Index led by coal minus 12.5 percent, oil -3.4 percent and metal prices -2.7 percent. We continue to witness the rise of the economic fragmentation, Indensification of geopolitical tensions, noting to the Middle East region and increase of interest rates as policymakers aim to fight global inflation.

Speaker 1

Global headwinds will continue to persist and intensify due to the high global interest rates, geopolitical tensions and sluggish global demand. As a result, global economic growth is also set to slow down over the medium term against the background of these combined factors. The resilience that global economy or economic activity exhibited earlier this year Mike said, the October forecast of IMF raised marginally projected global GDP growth for 2023 to 3% From 2.8% in April, as global inflation projections for 2023 stands at 6.9% due to the war in used prices, pressures on food and energy prices and on the supply demand imbalances. According to Bimco, The forecasted global drybulk demand growth stands at 3% increase in 2023. A slowdown is especially concentrated in advanced Economies where high inflation receded soft landing expectation of world economy.

Speaker 1

Growth is emerging in emerging markets In developing economies, it remains stable at 4% for 2023, 4.1% for 2024. Battle against inflation is not yet won with inflation expectations well anchored in major economies. In China, the IMF October projection for GDP growth was 5.1%, even though there are signs that the consumption lead recovery could slow. China recovery seems To be losing steam due to persistent domestic difficulties such as the elevated debt, weakness in property sector, structural factors such as aging, which weigh on growth with its highest EBIT estimation for 2024 to stand at 4.4%, leading to a weaker demand. On the other hand, India's growth is set to remain resilient despite global challenges underpinned by robust domestic demand, Strong public infrastructure investments and the strengthening financial sector as reflected in IMF's October projection for a 6.3% increase in GDP for 2023.

Speaker 1

Let's move now to the supply side as we heard in Slide 5. The total dry bulk order book stands at single digits. We remain cautiously optimistic about the medium term to prospects of the trade market for the coming years due to the relatively low order book. About 25% of the medium sized fleet It's older than 15 years, thus the effect of fleet aging and environmental regulations are expected to accelerate the scrapping. Japanese built vessels have more efficient designs.

Speaker 1

80% of our fleet is Japanese built versus 40% of the global fleet, which means that our fleet can compete better in the forthcoming environmental based charter market. We are one of the very few drybulk companies with a Phase 3 order book ahead of our peers, timely placed at lower Prices than the present values in the market, signifying our intention to compete on the base of operational environmental performance. As presented in Slide 6, we recently took an additional significant step towards decarbonization With a contract for 2 methanol dual fuel newbuilds, these vessels when powered by green methanol will be able to produce close to 0 greenhouse gas emissions based on a life cycle assessment methodology well to Propeller. Following the extensive order book for 12 Phase 3 vessels, which were placed timely at relative low prices and the environmental upgrade of the existing fleet, We set a clear path towards the decarbonization of our fleet by placing these 2 additional orders for methanol fuel vessels. We believe that the company will have one of the most environmental competitive fleets the following years.

Speaker 1

Concluding our market view in Slide 7, there has been an increased industry wide volatility driven by tight monetary policies, rising fears of geoeconomic fragmentation and growing signs of global economic losing momentum. Demand for technological efficiency creates opportunities for those willing to invest as Safe Bulkers has done. Such environmental efficient fleets may lead to 2 tier market with differential in earnings capacity of such fleets. We believe that the combined effect of the aging of the fleet, the low water book, lower selling speeds and the new regulations In the Greenhouse Gas targets, we favor fleets comprising of efficient Japanese vessels and vessels delivered after 2014 tightening the market. Especially, we have, as we said already, about 14 vessels, newbie vessels that will be a brand new Phase 3 vessel that will be able to compete with any vessel out there.

Speaker 1

It is evident that ESG adherence becomes increasingly important for the years to come. Let me now present in brief in Slide 8 our recent developments, which include The declaration of a $0.05 dividend per common share from the Board, the election of 3 directors during our Annual Shareholders Meeting and the delivery of 2 Phase 3 new bids as well as the order book as well as the order of 2 dual fuel vessels. In Slide 9, we present certain of our key characteristics, which differentiate us from our peers. The key fundamentals and our strong alignment of the interest with a significant percentage of management ownership, the comfortable leverage, the ample liquidity and contracted revenues, our track record and, of course, the quality and competitiveness of our fleet. Let's focus now on our liquidity, our cash flows and our capital structure as presented in Slide 10.

Speaker 1

We are maintaining a comfortable leverage of 35%. Our debt of 449,000,000 Remains comparable to our fleet scrap value of 355,000,000, although our fleet is only 10.6 years old. Our weighted average interest rate stood at 6.24 percent for our consolidated debt with a portion of €100,000,000 being fixed and 2.95 percent coupon in an unsecured 5 year bond. We paid we have paid €71,000,000 our capital expense requirements in relation to our order book of 8 newbuilds and the remaining capital expenditure are $233,000,000 including the recent order of the dual fuel basis. Our liquidity and capital resources stand strong at approximately 290,000,000 which together with a contracted revenue of about $250,000,000 provide flexibility to our management in capital allocation.

Speaker 1

Furthermore, we have additional borrowing capacity in relation to existing and in corporate vessels and 6 new bids upon the delivery. Before passing the floor to our Assistant CFO, Vanessa DeNites for our financial review, let me make a note about our strategy of directing cash flows to finance our UB program, which will provide us with a distinct commercial competitive advantage in terms of fuel consumption and environmental performance. We expect that by maintaining a comfortable leverage and a strong balance sheet, this creates the basis for rewarding our shareholders and position shaped markets among those companies that will successfully navigate the environmental challenges of the energy transition and of the aging of the drybulk fleet. Anastis, the floor is yours. Thank you, Lucas, and good morning to everyone.

Speaker 2

As a general note, during the Q3 of 2023, we operated in a weaker charter market environment compared to the same period in 2022, We've decreased revenues due to lower hires, decreased earnings from scrubber feeder vessels, increased operating expenses And higher interest rates due to increasing interest rates. Moving on to Slide 11 with our quarterly financial highlights For the Q3 of 2023 compared to the same period of 2022. Our adjusted EBITDA for the Q3 of 2023 stood at $30,900,000 compared to $66,900,000 for the same period in 2022. Our adjusted earnings per share for the Q3 of 2023 was $0.08 calculated on a weighted average number Of 111,600,000 sales compared to $0.39 during the same period in 2022, Calculated on a weighted average number of 1 100 and 20,400,000 shares. We will share in Slide 12 our quarterly operational highlights for the Q3 of 2023 compared to the same period of 2022.

Speaker 2

During the Q3 of 2023, we operated 44.13 vessels on average, Earning a TCE of $14,861 compared to 43.25 vessels Ending an average P and C of $23,403 during the same period in 2022. The company's net income for the Q3 of 2023 was $15,000,000 compared to net income of $51,000,000 during the same period in 2022. Concluding on Slide 13, we present our breakeven point for Q3 2023. It is evident that the global economy is experiencing multiple challenges. Inflation, higher than seen in several decades tightening financial conditions in most regions Russian invasion in Ukraine and the crisis in the Middle East all weighed heavy on the market outlook.

Speaker 2

Based on our financial performance, the company's Board of Directors declared a $0.05 dividend per common share. We would like to emphasize that company is maintaining a healthy cash position of about $67,000,000 as of November 3, 2023, And another $158,000,000 in RCFs and $53,500,000 In undrawn borrowing capacity and combined liquidity and capital resources of 278,600,000 Furthermore, we have contracted revenue from our non cash of the spot and period time charter contracts of 233,000,000 Net of commissions and before scrubber revenue and additional borrowing capacity in relation to 8 unencumbered existing vessels And 6 meetings upon their delivery. We believe our strong liquidity and our comfortable leverage will enable us

Operator

One moment please. And our first question comes from the line of Chris Wetherbee with Citigroup. Please proceed.

Speaker 3

Hi, guys. Good morning. This is Matt on for Chris. Thanks very much for taking the question. First, I wanted to just take some time to see what you might be hearing in the market from some of your customers.

Speaker 3

How are they looking at drybulk and the rate environment moving into year end and further sort of thinking more so in 2024, particularly as it relates to the sustainability of Increased Chinese import activity and as that should be a key business driver moving forward. Just any details there, I think, would be very helpful.

Speaker 4

Yes. Good morning to you. I'm Paulist. Look, the Chinese activity, the imports, we have seen that Have been increasing lately on iron ore, and we think that This will be supportive to the market. On the other hand, we see a lot of activity into India.

Speaker 4

Countries like Indonesia or Australia, but even from the Atlantic basin, which is giving more support to The market are made at low levels. For 2024, the expectation is that we will see better demand that we had in 2023. We don't have big surprises of the geopolitical events that are happening in various parts of the world. So we expect demand to do better, and we expect the capacity utilization to be better than it was in 2023. Now this means in freight rates, it's quite possible we will see better market.

Speaker 4

But again, we don't expect Something anywhere near to the leverage we were in 2021 or 2022. Overall, because the order book is at comfortable levels of 24 25, We don't expect the ups to undoubtedly surprise us for these 2 years. So any kind of push

Speaker 3

Fantastic. Yes, no, thank you very much for the detail. Certainly very helpful on that front. And then So it looks like you contracted revenue, took a nice step up in the quarter versus 2Q. Could you just touch a little bit more on what is Driving that amid the market weakness and sort of how you see that backlog moving into 2024?

Speaker 4

Yes. Look, compared to the revenue mainly we have is from our Capesize bulk carriers. Capesize is when the market is moving higher and it's easier to fix For 3 years or more, as FFA cap response, it's not the same on Panamax's. You got in a good market, the Panamax SFA market response for the next 3 or 4 quarters. So it's not enough to secure Long term charters with increased activity.

Speaker 4

So we have some Capesizes that are still fixed until 2025. We have 1 vessel that is fixed In 2031, these are giving us contract revenues for the years to come. Our newbuildings are easily fixed in 1 year to see rates, they are in demand because they are very economic ships. And we're very optimistic also for next year when we will have the EPS start applying, but those vessels with very low consumption will be In good demand for European cargoes. In the charters, we'll be trying To fix these Phase 3 vessels into European business.

Speaker 4

At the moment, it's not happening because still No one is paying attention to the EPS, but we are prepared and we expect from next

Speaker 3

Great. Yes, really helpful. Very insightful Okay. And then just for my last question. Given the developments going on in the Middle East currently with international Turmoil.

Speaker 3

Have you noticed this impacting specific trade lanes that you operate in? Or do you

Speaker 1

see it impacting

Speaker 3

Any areas that you operate in? Just trying to

Speaker 1

get a little bit of

Speaker 3

a better understanding of how that could be potentially impacting International trade routes? It's starting to get

Speaker 4

any Change of trade patterns because of what's happened in the Middle East. I think that Also during the Russian conflict with Ukraine, It took some time before we see the we saw the changes on the trade lanes, and it was mostly because of I'm sure that created extra ton miles and extra cargoes for especially for Tanker for the tanker owners. In the middle, it says not so much cargo going Into Israel, it's not affecting a lot of dry bulk movement or very limited countries going into them because Israel also Sustain self sustained on Electricity and not so many coal cargoes as it was in the past 5 or 10 years. The conflict, of course, there is one concern But we don't know how rigid will react should There is escalation of what is going on in Israel, and we hope There won't be, but we don't know if there is a movement of people. If this if you will take some steps into reducing the The amount of commercial ships passing through Shoeys Canal, this is a question mark For the months to come, again, we hope that this does not happen because that is not nice to see happening.

Speaker 4

But if everything is uncertain, I think we need the next 2, 3 months to understand how this conflict will be Resulted because one way or another has to be resulted for humanitarian purposes. The solution must be found. And hopefully, things will not escalate because it's against the money, it escalates.

Speaker 3

Understood. Understood. Got it. Okay. Thank you very much for the detail, and then I will turn it over on that note.

Operator

Thank you. And our next question comes from the line of Clement Mullens with Value Investor Edge. Please proceed.

Speaker 5

Good morning. Thank you for taking my questions. I wanted to start by asking about the order for 2 methanol dual fuel comes from Axis. Could you provide some commentary on the main drivers behind the decision to offer methanol instead of say LNG or ammonia dual fuels? And secondly, have you seen a lot of interest from potential charters for these kind of assets?

Speaker 1

Hello, I will take this Yes. I may take this response. It's Lucas. Look, first of all, The first part, if we discuss about ammonia or methanol, basically ammonia is not well developed yet. There is a it has a dose, so it needs more development.

Speaker 1

We cannot discuss at this stage availability of ammonia ships out there. Maybe this can happen after 2, 3, 4, 5 years. While methanol ships are there, They are real. The question about methanol ships is whether at the end of the day, we will be able to find Green methanol instead of brown methanol that will which means that if we are able to use green methanol, The vessel will operate closely to a 0 greenhouse gas emissions well to propel it. Now the second another part which is interesting is that that's why we needed to have dual Fuel methanol ships and not only methanol ships because in the first period we expect that the vessels will run with fuel as all the other ships and there will be Phase 3 as the other ships that we have already ordered.

Speaker 1

And the important thing for us is that In total, we have about 14 ships, 14 vessels which are Phase 3. And just think a fleet, I mean, after a couple of years, 2, 3, 4 years from now, a fleet which is of a size of between MXN 40,000,000 and MXN 50,000,000 There are MXN450,000 that will consist of 14 Phase 3 ships and 2 And 12 Eco ships, about 36% of the fleet out of 40, 45 vessels will be Very modern to compete. We will have one of the most young and modern fleet able to tackle all new environmental regulations. Why do we need to go towards, And let's say an alternative fuel. The question is simple.

Speaker 1

Back in 20 nineteen-twenty 20, we started ordering ships for Phase 3, which is basically our ships that will be they have the design after 2025. That was the first step. And of course, we update our fleet environmentally and So by the end of this year, 20 vessels will be upgraded with low friction gains and have a substantially better efficiency. This is a logical step to assess a study and conclude an alternative design, which leads to decarbonization. So it's not something which is peculiar for us because we are always in the forefront Of technology, we want to be the most advanced global company.

Speaker 1

And we couldn't I mean, the miss is the target of start ordering methanol 6, which is Wiley ammonia is not. And one other point that I want to make is that sometimes some people may ask about our about our OpEx. And I want to just again once more clarify that in OpEx, We include the cost of our paints because they have not amortized their expense immediately. So that's why sometimes we have We are showing some additional OpEx because of the large number of trade offs, which include environmental upgrades. Thank you.

Operator

Thanks for the color.

Speaker 5

Your fleet will indeed be very modern.

Speaker 4

I actually also wanted

Speaker 5

to ask about operating Expenses, which declined significantly quarter over quarter ex drydock, what were the key drivers behind the decline towards more normalized levels? And looking ahead, should we expect them to remain at levels similar to this quarter?

Speaker 1

You mean the OpEx? Yes. Yes. I think that According to our budgets, we are about there. We expect to have a similar OpEx, let's say, I mean, we can't say about quarter to quarter because sometimes we do more drydumbics in 1 quarter, so they can go higher.

Speaker 1

But during a period of the year, I think we have a similar amount of drydocking scheduled for next year as it was before. So we expect that's built in in our OpEx?

Speaker 4

I think the answer in fact to this is that sometimes some quarters are more OpEx intensive and then the other quarter is less intensive. Sometimes it happens like this, but you should

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. I'd like to pass the call back to Doctor. Pompares.

Speaker 1

Thank you very much for attending this conference call once more. And we are looking forward to see you again and discuss again with you the next quarter. Thank you very much and have a nice day. Thank you, Mike.

Operator

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

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