Safe Bulkers Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 13, 2024

There are 6 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call on the 4th Quarter Ended December 31, 2023 Financial Results. We have with us Mr. Pulis Aujianu, Chairman and Chief Executive Officer Doctor. Lucas Vampieri, President and Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company.

Operator

At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. Conference Call. Please contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today, February 13, 2024.

Operator

The archived webcast of the conference call will soon be made available on the Safe Bulkers website, www.safeulkers.com. Many of the remarks today contain forward looking statements based on current expectations. Actual results may differ materially from the results projected from those forward looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward looking statements is contained in the Q4 ended December 31, 2023 earnings release, which is available on the Safe Bulkers website, again, www.safevolkers. Quarter.

Operator

I would now like to turn the conference call to one of your speakers today, President, Doctor. Lucas Barbares. Please go ahead, sir.

Speaker 1

Good morning. I'm Lucas Barbares, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial Q4 of 2023. During the last quarter of the year, we operated in an improved charter market environment compared to the previous quarters. The company continues to maintain a strong capital structure while implementing its strategy of gradual fleet renewal that leads to decreasing fleet average age.

Speaker 1

Our ongoing efforts to upgrade our existing vessels coupled with our fleet renewal will Enable us to remain competitive while reducing our carbon footprint. Yesterday, just before the issuance of our earnings press release, We announced the sale of our oldest vessel MB, Maristin. This gives me the opportunity to focus on our investment strategy, which takes into account our existing ESE policy and prepares our company for the new more stringent regulatory environment in relation to carbon emissions. In slide 3, we present the environmental regulations timeline. We have been trying to be ahead of the market, for example, by placing Phase 3 orders when only Phase 3 regulations kicked in and sell older vessels and more recently by placing orders for dual fuel vessels.

Speaker 1

You see on slide 4 the challenge that the drybulk shipping industry phases as we move with steady steps towards 2,030. Advanced Phase 3 energy efficiency vessels are only Q3. Creating operational and commercial advantage for the early movers. We move to early ending slide 5. Given our recent deliveries, we have maintained a very competitive average age and we intend to do the same in the years to come with the remaining order book.

Speaker 1

All our actions should be picked up by the Green fleet advantage as presented in the top right graph of Slide 6. Our fleet is comprised of eco vessels built after 2013, conventional vessels which have been environmentally upgraded and Phase 3 Lubitsch, which now account for 20% of our fleet. Only 6 of our 46 vessels in our fleet vessels are scheduled to be upgraded. On the bottom graph, a synopsis of our fleet renewal is presented with 12 vessels sold in the last few years, having average age of 15 years old and 16 vessels acquired, 9 of which new builds and 7 secondhand with lower average age of 9 years old. Let's now focus on the market.

Speaker 1

In Slide 7, there has been significant volatility in the Cape market. It's worth noting that all 8 of our Capes at period charter with an average remaining charter duration of about 2 years at another daily rate of about $23,600 with the market currently at about $20,500 On the Panamax side, the charter market remains stable. Expectation as determined by the paper market is optimistic. The interesting point here in Slide 8 is that the supply side is relatively weak creating The total dry bulk order book stands at single digits. We remain cautiously optimistic about the medium term process of the trade market in the coming years due to this healthy order book.

Speaker 1

About 25% of the medium sized fleet is older than 15 years, thus the effect of fleet age and environmental regulations are expected to accelerate scrapping. Japanese built vessels have more efficient design and please note that 82% of our fleet is Japanese built versus 40% of the global fleet, which means that our fleet can compete better in the first time in the middle of the

Speaker 2

day charter

Speaker 1

market. We are one of the very few trade back companies with Phase 3 order book ahead of our peers timely placed at lower than the best market values, signifying our intention to compete on the base of operational and environmental performance. Moving to Slide 9, we present the development of the CRB commodity details, reflecting the basic commodities futures prices,

Speaker 2

which represent

Speaker 1

the leading indicators of shipping, including energy We continue to witness the rise of intensification of with the resilience in U. S. And several larger emerging markets and developing economies as well as a significant piece of support in China. Inflation falling faster than experienced in most regions is in the midst of unwinding slide side, issues and the restrictive monetary policies. The January forecast of IMF ratio margin and the project the projected global GDP growth for 2024 to 3.1% as global inflation protection for 2024 stands at 5.8% lower than the previous forecast.

Speaker 1

According to Binko, the forecasted global dry bulk demand growth stands at 1% increase for 2024. Yet the battle against inflation is not clearly won with inflation expectations well anchored in major economies. In China, the IMF general projection of GDP growth for 2020 quarter at 4.6%. China recovery seems stable even after taking into account the fiscal support And even though the Chinese invasion is near 0 due to the consistent domestic difficulties such as the elevated debt, weakness in corporate sector, structural factors such as aging, which weigh on growth. 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 a strengthening financial sector as we said in the IMF's January projection for a 6.5% increase in GDP for 2024.

Speaker 1

Concluding our market view, In slide 10, there has been an increased industry wide volatility, driven by tight monetary policies and rising geopolitical segmentation. There are signs of disinflation and forecast of stable growth for the next 2 years. Demand for technological efficiency creates opportunities for those willing to invest as Safe Bulkers has done. It is evident that the ESG adherence becomes increasingly important for the years to come. Environmentally efficient fleets may lead to a 2 tier market with differentials in earnings capability.

Speaker 1

We believe that the combined effect

Speaker 2

Of the aging of the fleet, the low order book, lowest sales pitch of the

Speaker 1

new installations and the GAG targets with favorable fleets comprising of efficient business tightening the market. I will conclude in Slide 11, quarter. We will be set certain key characteristics which we can see from our peers. The key fundamentals are our strong alignment of interest with a significant percentage of management ownership, the convertible leverage, the ample liquidity and contracted revenues, our track record and of course the quality and competitiveness of our fleet. Our operating model is positioned Capitalize on the new mortgage and environmental regulations with assets focused on environmental competitiveness and ESG strategy.

Speaker 1

At the same time, we are committed to reward shareholders with meaningful dividends, while actively building our future fleet competitiveness with a substantial fleet expansion. Our Chief Executive our Chief Financial Officer President and Amok Lusho will continue the presentation. Yes, Adios, the floor is yours.

Speaker 3

Thank you, Lucas, and good morning to all. As a general note, during the Q4 of 2023, we operated in a weaker charter market environment compared to the same period in 2022 with decreased revenues due to lower charter hires, decreased earnings from scrubber feeder vessels, decreased operating expenses and higher interest expenses due to higher interest rates. Let's focus now on our liquidity, our cash flows and our capital structure, which is presented in Slide 12. We are maintaining a comfortable leverage of around 37%. Our debt of $516,000,000 remains comparable to our fleet scrap value of $341,000,000 although our fleet is only 10 years old.

Speaker 3

Our weighted average interest rate stood at 6.31 percent for our consolidated debt. This is inclusive of the applicable margin with a portion of €100,000,000 being fixed at 2 at a coupon of 2.95 percent with an unsecured 5 year bond. We have paid $85,000,000 for our capital expenditure requirements in relation to our existing order book. The remaining CapEx were 223,000,000 Our liquidity and capital resources stand out strong at approximately $312,000,000 which together with revenue of about $270,000,000 provides flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation with 8 existing unencumbered vessels and 6 7 newbuilds upon their delivery.

Speaker 3

Moving on to Slide 13 is our quarterly financial highlights for the Q4 of 2023 compared to the same period of 2022. Our adjusted EBITDA for the Q4 of 2023 stood at $50,700,000 compared to $56,000,000 for the same period in 2022. Our adjusted earnings per share for the Q4 of 2023 was $0.25 This was calculated on a weighted average number of 111,600,000 shares compared to $0.29 during the same period in 2022 quarter. That was calculated in a weighted average number of 118,900,000 shares. We'll present on slide 14, our quarterly operating operational highlights for the Q4 of 2023 compared to the same period of 2022.

Speaker 3

During the Q4 of 2023, we operated on average 45.93 vessels, earning an average time charter equivalent of $18,321 compared to 44 vessels with an average TCE of $217.78 during the same period in 2022. Our net income for the Q4 of 2023 was $27,600,000 compared to net income of $34,900,000 during the same period in 2022. In conclusion, in slide 15, we present our recent newbuild deliveries. Based on our financial performance, the company's Board of Directors declared $0.05 dividend per common share. We would like to emphasize that the company is maintaining a healthy cash position, the evolving trading facilities and a drone boarding capacity, altogether combined liquidity and capital resources north of $300,000,000 Furthermore, we have contracted revenue from our non cancelable quarter and period time charter contracts of more than $240,000,000 and this is net of commissions and de force any scrubber revenue and additional borrowing capacity in relation to 8 unencumbered existing ships and 7 new bids of bonded delivery.

Speaker 3

We believe our strong liquidity and our comfortable leverage will enable us to expand the fleet, whilst rewarding our shareholders. Thank you. We're now ready to accept questions.

Speaker 2

Conference

Operator

Call. It may be necessary to pick up your hand at your questions. Our first question comes from the line of Omar Anokta with Jefferies. Please proceed with your question.

Speaker 4

Thank you. Hey, guys. Good afternoon. Just had a couple of questions, maybe just on the last point you made right before the Q and A session. Just wanted to ask about uses of free cash in this market environment.

Speaker 4

Clearly, 4Q was a stronger period than we anticipated or at least a lot of us anticipated. 1Q is off to a solid start. There's a lot of disruption globally. And so just in general, as you think about things, How are you thinking about the uses of cash at this point or at least the main use of cash? Is it to lower debt at this point?

Speaker 4

Or do you still see opportunities for further expansion beyond the current

Speaker 2

scope? Yes. Hello. Good morning to you. Look, the situation depends on how the market develops.

Speaker 2

At the moment, we see the market is turning quite positive for the next year or so and even more in 2025 as we see also American economy doing very well. So The use of cars will be split for new buildings With Fleet Renewal, we don't exclude the sale of older ships to be replaced by more modern ships. So it's not only the new builds that they are coming. There will be more modern ships added in the fleet. Will be some share buyback.

Speaker 2

I know we didn't do in the last quarter, but we didn't have the We didn't have enough evidence that the market would perform. Right now, we have enough evidence That the market is performing. And we will reduce also our leverage. We don't want to increase the leverage from the current percentages as the new ships are coming in. So we want to keep it around the current level.

Speaker 2

So onethree, 37%, thirty 8%. So we will use cash for all these things. Of course, everything depends on how the market will perform. At the moment, the signs are positive. And you know all the geopolitical situations and Panama Canal is reduced drafts and No comes so much of Ospana Max are passing out with the Canal, coupled with the problem of the Red Sea.

Speaker 2

And I need to say here that Safe Bulkers was one of the first companies that declared its charters after the first hits of the merchant vessels in beginning December that we will stop going through the Red Sea Simply because we don't believe that our seamen are Our key workers and everybody recognized Siemens as key workers are to be used for transporting through military areas. So like we don't trade in the Black Sea for the last 2 years, we decided not to trade the Red Sea for the foreseeable future. And this, I want to say that is very well received by all the crew members of our ships. We control the spot ships we have in the spot market. It's our decision.

Speaker 2

But also, I'm pleased to say that The majority of our charters accepted immediately this condition. So it's very important this company to be doing business with the A rated charters who share, Let's say the responsibility against the cement to avoid at least for the next 2, 3 months until things clear out, Let's see. It's not good to participate in conferences and we say that Siemens are key workers And like we did during COVID, and nobody was accepting our cement to get off either in Singapore or in China or in any other country in the world. We had to deviate ships to Manila at the time to disembark our shipment. Shoppers were not paying deviation costs or calling costs, very expensive.

Speaker 2

We had to take the ships to Manila. And the only country in the world that allowed safe corridors for Siemens to be disembarked at that time in the first half of twenty twenty was Cyprus, A small country. I'm not saying this because I come from Seifel and because we are located our we have our headquarters in cycle. But I have to admit that it was the only country that allowed change of cruise through a safe corridor because it's a small country, but government is pro business and can take fair decisions Very quickly. So the same now applies for the Red Sea.

Speaker 2

Until this situation is sorted out, charters should not pressing shipowners to send the seamen through the Red Sea, which the seamen, they are not there to watch if the drones are flying over the ship or switch off the lights of the vessels passing through the area. Let's sort it out with the navies as soon as possible this situation. So we have safe passage again through the Red Sea.

Speaker 4

Thank you, both. It's very good context on everything as you kind of related things a bit towards the COVID situation with the crew changes. I guess in this market, there's been I guess 2 ways where I mean you're obviously much closer to it than we are, but there's clearly a spot contract and then there's the vessels on time charter. Is there a deviation in terms of how charters are looking at transiting to the Red Sea, at least from your lens and your ships. Are you still having vessels that are in your control Operationally that are on contract or that are on time charter, are those shifts still in some cases being forced to go through the Red Sea by your customer?

Speaker 2

Yes. On all our 10 charter ships, I'm proud to say that our Charteraires are big names. They all cooperated despite there was some cost involved. They cooperated. We let them know early that we will not Except to go through a military area or a war zone.

Speaker 2

And we even had a charter on a route from the continent to the Far East that halfway through the Mediterranean, turned the ship around and went via the Cape Town. I'm proud With all these people, we reward them with more business and more ships. When we time charter for 1 year charters, we say from the start, we don't cross the Red Sea. The charters are happy to accept and they find the optional rules. So we should base respect to the people who do the job.

Speaker 2

And the people are they have families and they are the seamen. They are not military personnel. And even if we use armed gas on board our ships, The armed guards are good against pirates. They are not good against drones and rockets. They can do nothing.

Speaker 2

So It's a very important matter. And of course, I believe it will not take long to be solved. It will not be a matter of 1 year, more like 2 or 3 months. And what navies are in the area, they are taking care of matters. And When the corridor is safe, we will start passing again, hopefully in the next 4 or 3 months.

Speaker 4

Yes, definitely. Okay, that makes sense. And then maybe just final one for me and this is more of a follow-up to make sure I understood correctly. So the in terms of the share buyback that you haven't yet put to work, clearly it was in a time of transition and uncertainty. But given how things are at this point, you have the conviction at least with respect to the dry bulk market that now is the time to buy stock?

Speaker 2

Look, yes, we believe that it is time because now we have clear signs that the market is pushing up, yes.

Speaker 4

Okay. Thank you. I'll turn it over. Thank you. Thank you.

Speaker 4

Thank

Operator

you. Our next question comes from by the line of Clement Morris with Value Investor Edge. Please proceed with your question.

Speaker 5

Good morning. Thanks for taking my questions. You've provided ample commentary on your fleet renewal approach, but I was wondering, could you provide some insight On the reasoning for focusing on ordering midsizing vessels instead of Capesizes, is it because of pricing Or because you have had a relatively more positive view on Kamsarmaxes.

Speaker 2

What did you say, Kathy? Because the line was not good. Why we invest in midsized vessels?

Speaker 5

Yes, instead of Capesizes.

Speaker 2

Yes, yes. We're not a capsize trade. There always we were feeling over the years a little bit uncomfortable with a type of vessel that relies in 1 commodity namely iron ore and little bit of coal. We wanted to be more versatile and be able Trade on more routes. And I don't know this pro, let's say, China, Depending on the Chinese economy.

Speaker 2

Of course, now we are I believe we are in the right phase also for Capesize opportunities. Of course, the competition there is huge. The order book is very low and very positive for Capesize as well. But we are a little bit afraid that maybe the high capital Cost of ordering a Capesize in a good shipyard like Japanese shipyards is more than $70,000,000 You may call me the calculation of interest rate at 6%, and You will understand that this is a big risk for a company like ours to step up any major investment in that sector. We did that in 2021.

Speaker 2

We bought 4 Capesize bulk carriers, which are earning handsome rates for us now in the mid-20s for 3 years or 2 years or things like that. We fitted scrubbers on them that they are adding a good $1,500,000 per vessel per year. So we did our small investment there. Now I don't believe we'll get opportunity in the next 6 months. We will try to inspect a couple of But I'm hearing interest from 15, 20 buyers on every ship.

Speaker 2

I don't think we will be the winners of any of those bids. But we're happy that we have invested in the at the right time starting in 2020 in the Kamsarmax new buildings, Japanese Kamsarmax Phase 3 new buildings and prices we start investing was around $28,000,000 Today, the same ships are worth over 14 to order from those yachts. So we're happy we have done We continued in the business. We know we ordered a total of 16 units, and we are very well placed Since we have delivered 9 of those already in a good market and 7 more are coming, including 2 methanol all ships. So we're in a good position overall, let's say.

Speaker 2

We're happy with our moves so far.

Speaker 5

Thanks, Hans. Thank you for the color. I also wanted to ask a bit about the 2024 outlook for coal. China recently reinstated the tariffs, and I was wondering whether you expect this to have an impact on the overall market?

Speaker 1

Could you repeat the question because they are setting their options in the line?

Speaker 5

Yes. The question is about China's tariffs on coal, which were recently reinstituted and whether you expect that to have an impact on the overall market?

Speaker 2

Yes. Chinese coal imports were the highest ever in the last in 2023. It's a vital commodity for the Chinese. We know that at a certain point, they will consider the environmental consequences. And they will step back, but it's not the Chinese, I think, consume around 4,000,000,000 tons of coal a year.

Speaker 2

So the imported quantity of around 10% of that amount It's not that big. And I don't think they will De escalate from coal in the next, let's say, 5 to 10 years. Later on, of course, we may see reduction of coal into China. And we will see increase in coal into other areas like India, Malaysia, Vietnam, Southeast Asia countries. So I think call will always be there.

Speaker 2

And the thing is, if there is cleaner coal from other areas or technologies to fit to make it more friendly to the environment. But I don't think coal will be reducing a lot in the years to come.

Speaker 5

Thanks for the color. That's all from me. I'll pass it over. Thank you for taking my questions and congratulations for the quarter.

Speaker 2

Thank you.

Operator

Thank you. We have reached the end of the question and answer session. Therefore, I'll turn the call back over to Mr. Boris Aujang for closing remarks.

Speaker 1

So thank you very much for attending our presentation. And very sincerely, we will start again with June in the financial results of our next quarter. Thank you all and have a nice day.

Operator

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

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Safe Bulkers Q4 2023
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