State Street Q2 2023 Earnings Call Transcript

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Provided by Quartr
July 27, 2023

There are 4 speakers on the call.

Operator

Thank you for standing by, ladies and gentlemen, and welcome to

Speaker 1

the Safe

Operator

Bulkers Conference Call to discuss the Second Quarter 2023 Financial Results. Today, we have with us Mr. Polios Angiano, Chairman and Chief Executive Officer Doctor. Lucas Bomparos, President and Mr. Konstantinos Anamopoulos, 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. And wait for your name to be announced. 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 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 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.

Operator

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 the operation 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 over to Doctor. Bompares. Please go ahead, sir.

Speaker 1

Good morning. I'm Kaspar Baris, President of Safe Bulkers. Welcome to our conference Which we believe is reflective of economic growth uncertainties. In this quarter, we took delivery of our quarterly new bid, While our revenues were supported by the fast charter contracts, our strong liquidity and comfortable leverage enabled us Be flexible with our capital and at the same time, reward our shareholders with a dividend of $0.05 per share Our capital structure is conservative with significant cash and revolving capacity. Our CapEx requirements are adequately covered by our contracted future revenue.

Speaker 1

Our balance sheet is strong. After reviewing the forward looking statements language in Slide 2, we will move to Slide 3. There has been volatility in the Cape market with Capes at low levels. It's worth noting that all 8 of our Capes are period settled With an average remaining tariff duration above 2 years at an average daily rate of $22,000 with the market currently at 14,000 actually today is 15,000. On the Panamax side, the charter market remains very weak.

Speaker 1

Moving on to Slide 4, we present the development of CLP commodity index, reflecting the basic commodity futures prices, which represent leading indicator of those for shipping, including energy, agriculture, precious metals and industrial metals. Commodity prices declined sharply over the past months. And according to the World Bank Energy Price Index, a drop of 21% is projected for 2023, after rising by 45% in 2022. We continue to witness the increase of interest rates as the one Yesterday, by a quarter of a percentage point by the Federal Reserve, as policymakers aim to fight global inflation, which is the result of the Russian war and the Chinese economy weakening. The July forecast of IMF raised marginally The expected growth for 2023 of global GDP to 3% from 2.8% in April As global inflation projections for 2023 stand at 6.8% due to the war induced prices Precious on food, energy prices and on the supply demand imbalances.

Speaker 1

According to Bicco, The forecasted global dry bulk demand growth standard 2% increase in 2023 And steel demand outlook remains positive at 2.3% for 2023. High inflation in recent financial sector turmoil We see the soft landing expectations of Guelter Pono. The underlying core inflation is projected to decline more gradually And our forecast for 2024 inflation revised upwards to 5.2%. In China, the July projection growth for 2023 was stable at 5.2%, even though there are signs that the consumption led recovery There are unresolved real estate problems with negative cross border spillovers as the Chinese economy seems to be losing steam, Leading to weaker unexpected demand, the inflation may be well below target and the Central Bank has cut interest rates. Nonetheless, continued weakness in the real estate sector is weighing on investment.

Speaker 1

Foreign demand remains weak and rising And elevated youth unemployment at 20.9% in May 20 3 indicates future labor market weakness. India's emergence and expectations is reflected again in IMF's July projections for a 6.1% increase in GDP for 2023, An increase from 5.8% in 'eighteen as a result of stronger domestic investment. The World Bank Commodity price index declined by 2% as the World Bank July 2023 projection forecasts a 21% drop in commodities Let's move on to supply side as presented in Slide 5. The total drybulk order book stands at single digits and we remain cautiously optimistic about the medium term prospects of the trade market Coming years. About 25% of the medium sized fleet is older than 15 years old As the effect of aging environmental regulations are expected to accelerate the traffic.

Speaker 1

Japanese peak vessels like ours have more efficient designs. As we said, 80% of our fleet is Japanese peak This is 40% of the global fleet, which means that our fleet can compete better in the within the forthcoming environmental pace charter market. We are one of the very few global companies with a Phase III order book ahead of our peers signifying our intention to As seen slide 6, the majority of Global Pivot is out of any phase. Ship Vantage owning today 44 vessels has 12 type of ships built after 2014, another book of 12 Phase 3 new bids, 7 of which will have been delivered by the end of 2023 and at the same time, a major ongoing environmental upgrade program, Increasing the energy efficiency of existing PH and thus reducing the CO2 emissions on our vessels. This program is also reflected in our increased OpEx as low friction preparation Elpaints are not capitalized, but are expensed.

Speaker 1

We are expected to complete upgrades in 20 versus by the end of 2023. Furthermore, we are raising from time to time by April and in monitoring the development of alternative fuels. Concluding our market view on Slide 7, during the first half of twenty twenty three, there has been increased industry wide volatility, Driven by geopolitical disruptions in tight monetary policies, demand for technological efficiency creates opportunities for those willing to invest as safe as 2nd diagmental efficient fleets may lead to 2 tier market with differential in earnings capacity of such fleets. We believe that the combined effects of the aging of the fleet, the low order book and the new regulations will favor Each comparison of the business of IMH vessels and vessels delivered after 2014 tightening the market even further. Let me present on Slide 8, certain of key characteristics could differentiate us from our peers.

Speaker 1

The key fundamentals are our strong alignment of interest with For the interest in management policy, the comfortable leverage effect 5%, down volatility and product revenues Our track record the creation of intrinsic value through our 12 Phase 3 newbuilds and the environmental upgrading of our existing fleet. La Colle is taking delivery of 4 Phase 3 liquids, which are the best performing vessels on the deadweight tonnage The drybulk market globally. We intend to compete on the base of lower fuel consumption and environmental performance the following years. Lastly, concurrently with building the future of this company, we have continued being rewarding our shareholders with what we consider to be meaningful dividend. Let's focus now on our liquidity, our cash flows and our capital structure as presented in Slide 9.

Speaker 1

We're maintaining a comfortable leverage of about 35%. Out debt of €143,000,000 remains Comparable to our fleet cap value of €3,385,000,000 although our fleet is only 10.6 years old and will continue to be The same age the next 2 years as we take delivery of new vessels in our fleet. Our weighted average interest rate stood slightly below 6% for our consolidated credit, with a portion of €100,000,000 being fixed €295, 2.8, unsecured IPF bonds. We have paid €73,800,000 for our capital expense requirements In relation to our order book of 8 new bids, I've already paid this amount and the remaining capital expenditure of €210,000,000 in aggregate. Our liquidity and capital resources sound strong at approximately €100,000, which together with the contracted revenue of €200,000,000 Let's move to Slide 10, where we analyze the investment rationale for Safe Bulkers.

Speaker 1

We have concluded a share buyback program having repurchased about 10,000,000 shares. We declared a dividend of 0 point 5 dollars per share over the last We believe that SafeWises' strong fundamentals offer finance We believe that the sale values with each order book Among those companies that will navigate environmental challenges of the energy transition, under the basing dry fleet by utilizing the inherent qualities of our fleet and the efficiencies of our Dutch K and the elemental upgrading program. Before passing the floor to our CFO, Jose dos Adamopoulos, for our financial review, let me here make a special note For the issuance of our 2022 sustainability report, which has been prepared in accordance with the standards provided in the new Global Reporting Initiative, GRI the Sustainability Reporting Guidelines and the Sustainability Accounting Standards Board, SISP, a recommendation for maritime transport alongside additional indicators that are materially important to us and to our stakeholders. This report is available for download through our website and I would like to invite you to Have a look on it because we are doing a very good job there and we are trying to improve our environmental and social governance footprint. Jose Antidos, the floor is yours.

Speaker 1

Thank you, Lucas, and good morning to everyone. As a general note, during the Q2 of 2023, we operated in a gradually weakening The market environment compared to the share period in 2022, we decreased revenues due to lower hires, decreased earnings from scrubber fitted vessels, Increased operating expenses and higher interest expenses due to increased interest rates. Slide 11 with our quarterly financial highlights for the Q2 of 2023 compared to the same period of 2022. Our adjusted EBITDA for the Q2 of this year is $23,300,000 compared to $66,500,000 for the same period last year. Our adjusted earnings per share for the Q2 of $0.23 was $0.12 calculated in a weighted average number of 113,000,000 shares compared to $0.40 during the same period in 2022 calculated in a weighted average number of 122,000,000 shares.

Speaker 1

In Slide 12, we present our quarterly operational highlights for the Q2 of 'twenty three compared to the same period of 2022. During the Q2 of 'twenty three, We operated 44.01 vessels on average, earning an average time charter equivalent of $17,271 Compared to 4,104 vessels, earning an average time charter equivalent of $25,050 during the same period of 2022. Computing on Slide 13, we present our breakeven point for Q2 2023. The global economy is experiencing market challenges, inflation higher than seen in several decades, Tightening financial conditions in most regions with interest rates being at historical highs,

Speaker 2

Based on the Ukraine all weigh heavily on the market outlook.

Speaker 1

Based on our financial performance, the company Board of Directors declared a 5% dividend performance share. We would like to highlight and emphasize that the company is maintaining a healthy cash position of about 90 $6,700,000 as of July 21 and another $152,500,000 in available RCF Facilities $80,700,000 in undrawn borrowing capacity. The combined liquidity and capital resources of $330,000,000 provides us with significant firepower. Furthermore, we have Contracted revenue from our non cancellable spot in period time charters contracts, in total about 2 $12,000,000 net of commissions, excluding scrubber revenue. And we also have additional borrowing capacity on in relation to 7 debt free existing vessels and 4 new bids upon their delivery.

Speaker 1

We believe that a strong liquidity and a comfortable leverage will enable us to be flexible with our capital, be able to expand the fleet Once again, let us have in mind that you may download our 2022 sustainability report from our website, which was just

Speaker 2

Thank

Operator

you. Our first question comes from the line of Omar Nochtar with Jefferies. Please proceed with your question.

Speaker 2

Thank you. Hey, guys. Good afternoon. Just have

Speaker 3

a yes, I have just a couple of

Speaker 2

questions as follow-up just in relation to the liquidity that you were just highlighting. But just maybe first on the share buyback. You've been very active for much of the past year buying back shares. You put it on pause for now, at least just based off of the way the press release was reading. I guess The reasoning is probably the softer freight market that's developed here in recent months.

Speaker 2

But just wanted to ask, what drove for the suspension of the buyback. And what are you looking for to give you confidence to restart it?

Speaker 3

Good morning to you. As you have seen, the market, the last quarter was not performing as per expectation. And we have many quarters in front of us to continue the buyback program. We emphasize our Now on the environmental improvement of our 10 year old ships combined with the Delivery of our newbuildings as they come in the following couple of quarters. We have around 5 new buildings to get delivered in the next two quarters.

Speaker 3

So we decided to suspend it temporarily, but Not withdraw it, to suspend it for the Q2 of the low performing. I think the market may start improving soon. And as soon as we see better freight rates, this program will be in the state. I don't think that stock markets will react Immediately on improving markets, but ourselves, we can revitalize this program. It's more important I consider at this point to continue the environmental investments even if the market is slow because The regulations are changing very fast.

Speaker 3

No one is doing anything on this front for many competing owners. Very few on this, I'll bring these investments. The order book is very low. Yachts are increasing their prices. You have to remember that our 12 ships of order book, 8 ships ordered book and 4 ships delivered were ordered in the low 30s, Whilst the yards in Japan are up in more than 40 for KamsarmaxNOW, still despite that last quarter the market is not performing.

Speaker 3

S and P prices, which have dropped 20% secondhand ships, everyone is up there to find modern ships, But they cannot find in the market. So there is heavy competition for ships around 15 years old at the moment. And then the shipments come in the market like Capesai, Bulgaria, that they dropped their prices by 20% From the beginning of the year, you have 20 or more buyers competing for this simply because Many, many owners of other type of vessels make good money and still making good money in tankers and in the past years And they are now investing heavily on bulk. So we will have the phenomenon, but Even if the market is slowing for this quarter or next, prices will not To a lot, we are approaching the bottom of S and P prices. So the best thing we can do right now is invest on environmental Okay.

Speaker 3

Thank you, Thomas, who is giving us real returns in savings in fuel because No one expects the QML price of $600 per metric ton to come lower. Actually, the buyback program has been canceled for the time being, but this is a program that And they will state at any given point.

Speaker 2

Thanks for that. Yes. No, that's a very helpful and detailed discussion on the market and also just on

Speaker 3

the buyback. Maybe just as

Speaker 2

a simple follow-up and getting maybe a little deeper into the weeds, not too much, but just want to make sure we have it correct. You outlined having

Speaker 3

plenty of liquidity. I think it was

Speaker 2

300 plus you had Just highlighted, in terms of the new buildings, you have 8 that are new to deliver between second half and then into 'twenty five. The total CapEx is expected at $210,000,000 What's the amount that you have secured right now in terms of financing? And what do you expect to finalize

Speaker 3

ahead of deliveries of the remainder that's not finished? Yes. The guys will give you the details, but we have cash, dollars 88,000,000 as we said. We have our A facility of 170 something. So only the cash on the RCF on the existing fleet It's enough to pay for that program without adding debt on the remaining 8 ships.

Speaker 3

So we are in a comfortable We don't want to increase a lot our leverage from the current leverage. But of course, we will put some financing on these Yes, ships remember that there are many owners, especially in Asia, but they have a potential interest rate Situation that they can do the so called sale in this pack without covenants and without other things that they are eager to finance So some of our in the building, so we're very comfortable on this front. I think the most important is to Engage in this program of upgrading the 10 year old ships and be more competitive because I sincerely believe that Heavy consumption vessels in the environment of global warming and the environment of new regulations For me, you and other regions are going to hit very soon. People will get a big Price or how fast things will be changing towards environmentally friendly vessels. So for the time being, most of the owners are pretending that This is not going to happen, but I'm sure that events that are unfolding in front of us, especially In USA, Canada and Europe for the last few weeks with the overheating of the In fact, as you know, in the Mediterranean and in southern countries, in Greece, we have 46, 47 degrees temperatures, which We haven't had COF for the last, I don't know how many decades.

Speaker 3

So all these things We will be faster implemented by European Union, and we have wildfires Increase the last couple of weeks. So all those things will expedite What is happening now in Europe? And I think owners who are investing on all these things ahead of the economic recovery that will Hopefully, in the early part of next year when interest rates start easing off. If you have the proper shifts in that market, I think you will make the biggest returns for your shareholders. This is our policy for the time being.

Speaker 1

In the slide number 9, if you may you can look, I mean, a good summary What Paul is just mentioned just before because the CapEx, as you said, is 210 The liquidity, which is also cash and undrawn borrowing Capacity is about 297. And also, we need to point out that contracted revenues It's €232,000,000 So if we add on together, you can see that we are quite we have the clicks bid. You have already paid €73,000,000, €74,000,000 in advances for these vessels. And the question sometimes, if I may make an additional comment, is How you allocate your capital? And we are in a good position to have low leverage, 35% And we're able to allocate it in the most advantageous way for the future of the company, which as Pauli said before, is the environmental adaptation because things will change very quickly.

Speaker 1

But I don't know if you have a look on Page 9, I think all the numbers are there.

Speaker 3

Yes. Thank you. No, that's helpful. Great. Well, I appreciate that.

Speaker 3

Nice to see the liquidity where

Speaker 2

it's at. And Obviously, you guys are 1 step ahead of the regulations. I'll turn it over. Thank you.

Speaker 3

Thank you.

Operator

Thank you. It appears

Speaker 1

I would like to emphasize once more on the new regulations, the fuel EU which And the EU ETS, which is coming in Europe and also The regulations that will be adopted gradually by IMO that will be demanded worldwide which will change the environment and the environmental impact of the shipping industry. We would like to thank you all for attending our conference call, and we're looking forward to discuss again with you in our next conference call for the Q3 results.

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Earnings Conference Call
State Street Q2 2023
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