Safe Bulkers Q1 2024 Earnings Call Transcript

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Provided by Quartr
April 30, 2024

There are 6 speakers on the call.

Operator

Thank you

Speaker 1

for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference call on the Q1 2024 Financial Results. We have with us Mr. Palis Hajduano, Chairman and Chief Executive Officer Doctor. Lucas Varvares, President and Mr. Konstantinos Andopoulos, Chief Financial Officer of the company.

Speaker 1

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, April 30, 2024. The archived webcast of this conference call will soon be made available on the Safe Bulkers website at www.safefulkers.com.

Speaker 1

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 Q1 2024 earnings release, which is also available on the Safe Bulkers website, again, www.safeulkers.com. I would now like to turn the conference call to one of your speakers today, the President of the company, Doctor. Lucas Barbaris.

Speaker 1

Please go ahead, sir.

Operator

Good morning to all. I'm Lucas Barbaris, President of Safe Bulkers. In the Q1 of 2024, we operated within a more robust market in comparison to the previous year. In alignment with our environmental, social and governance strategy, we ordered 1 additional Phase 3 new bid. Concurrently, we're continuing to process of modernizing our fleet by divesting 3 older vessels.

Operator

Moreover, we executed the prepurchase of 4,900,000 shares of our common stock while declaring a dividend of $0.05 per share of common stock. Our strategic focus persists on fostering enduring value for our shareholders and upholding a resilient capital structure. This commitment is further evidenced by our efforts towards a young and energy efficient fleet, thereby securing operational excellence in anticipation of forthcoming stringent environmental regulations. We ensure that our capital expenditure is adequately covered by our contracted future revenues, fortifying our balance sheet towards the trajectory of sustainable growth. Subsequently, a comprehensive review of our forward looking statements language presented in Slide 2, our attention the transition to the market update in Slide 4.

Operator

Noteworthy is the volatility experienced in the Cape market segment. It is pertinent to highlight that all 8 of our Capes are presently period chartered, boosting on average remaining chartered duration of EBITDA exceeding 2 years with an average daily rate of approximately $24,400 This provides us with an appreciable degree of cash flow visibility, notwithstanding the prevailing daily market rate today of around 19,500. On the Panamax front, the charter market is at about 17,200. Progressing to Slide 5, we present an overview of our CRB commodity indexes, fluctuation in basic commodities future prices. The geopolitical landscape with tensions in regions such as Middle East, the Red Sea and Ukraine underscores the heightened level of global uncertainty.

Operator

The global economic recovery is slow but steady. The drybulk market is expected to remain strong in 2024 with a tightening supply and demand balance attributed to increased cargo volumes, particularly in the Capesize segment, driven by higher iron ore shipments from Brazil to China and China. Rerouting away from the Red Sea and Panamax Canal has also bolstered demand in smaller segments. There is expectation of gradual control of inflation. Interest rate cuts, the expectation for global economic resilience remains strong.

Operator

The IMF April forecast of 3.2% expansion in global GDP for growth 20242025 is a combined control of inflationary pressures. According to BIMCO, the forecasted global dry bulk demand growth standard 3% increase for 2024. In China, the IMF every projection of GDP growth for 2024 stood at 4.6%. China faces challenges, of course, in growth dynamic driven by internal factors, while the resilience of India's robust domestic demand and sustained infrastructure investments Emerges such as stabilizing force amidst the prevailing economic uncertainty. Let us now proceed to examine the supply side dynamics in Slide 6.

Operator

The drybulk order book remains at single digit percentages. Our outlook remains optimistic regarding the near to medium term trajectory of the freight market underscored by the low order book. Approximately 25% of the medium sized fleet surpasses the 15 year mark, increasing the anticipated impact of fleet aging and threatened environmental regulations. Vessels constructed in Japan have superior design efficiencies. 85% of our company's fleet compares with Japanese built vessels, surpassing the global average of 40%.

Operator

The strategic advantage positions our fleet favorable to compete within the environmental based charter market. As one of the few drybulk companies with a substantial Phase 3 order book, strategically positioned below prevailing market valuations, underscore our commitment to compete on the basis of operational environmental excellence. Freaks comprising of efficient Japanese vessels and vessels delivered post 2014 will be able to remain relevant and compete within the 3rd regulatory frameworks and greenhouse gas targets. Another of our recent developments is presented in Slide 8. This includes the declaration of 5% or 0 point 0 $5 billion per common share, divestment of 3 older vessels, the delivery of 2 Phase 3 newbuilds alongside the initiation of orders for 2 additional Phase

Speaker 2

3 vessels.

Operator

In slide 9, we did see what is a key attribute such as our robust management ownership, alignment, comfortable leverage, ample liquidity, contracted revenues, a tailing track record and the quality and competitiveness of our fleet, strategically positioned to leverage on their entire collaborative landscape, remaining true in our commitment to expand by building a resilient company and reward our shareholders. Moving to slide 10, we present an insight into the advantage of our green fleet. The breakdown presented in the top right graph underscores the environmental credentials of our fleet, comprising today of 46 vessels with 20 vessels having other environmental upgrades, 9 being Phase 3 and 11 being ECO and the remaining ships scheduled to be upgraded within this year. The bottom graph represents our fleet renewal strategy within with a divestment of 12 older vessels, acquisition of 7 secondhand vessels, a steadfast ordering comprising of 7 plus 1 Phase 3 newbuilds, resulting to a stable 10 year average fleet age over the past 4 years, as confirmed by slide 11. This trajectory of fleet expansion sends us a testament to our commitment towards sustainability.

Operator

I now pass the floor to our CFO, Ramonopoulos for our quarterly financial overview.

Speaker 3

Thank you, Lucas, and good morning to everyone. As Adena knows, during the Q1 of 2024, we operated in a stronger charter market environment compared to the same period in 2023, with increased revenues due to higher charter hires, these earnings from scrubber fitted vessels, increased operating expenses and higher interest expenses due to increased interest rates. Let us focus now on our liquidity, our cash flows and our capital structure as presented in Slide 13. We are maintaining a comparable leverage of 34%. Our debt of $534,000,000 remains comparable to our fleet's cap value of $338,000,000 although our fleet is about 10 years old.

Speaker 3

Our weighted average interest rate stood at 6 0.51% for our consolidated debt, with a portion of €100,000,000 being fixed at 2.95% coupon in an unsecured 5 year bond. We have paid $79,000,000 of our capital expenditure requirement in relation to our existing order book. The remaining capital expenditures are $201,000,000 Our liquidity and capital resources stand strong at approximately $216,000,000 which, together with the contracted revenue of about $276,000,000 provides flexibility to our management in capital allocation. Furthermore, we have additional volume capacity in relation to 7 existing unencumbered vessels and 8 newbuilds upon their delivery. Moving on to Slide 14 with our quarterly financial highlights for Q1 of 2024 compared to the same period of 2023.

Speaker 3

Our adjusted EBITDA for the Q1 of this year stood at $46,800,000 compared to $33,100,000 for the same period in 2023. Our adjusted earnings per share for the Q1 of 2024 was $0.20 calculated on a weighted average number of 100,400,000 shares compared to $0.10 during the same period in 2023, calculated on a weighted average number of 118,400,000 shares. On Slide 15, we present our quarterly operational highlights for the Q1 of 2024 in comparison to the same period of 2023. During the Q1 of this year, we operated 47.08 vessels on average, earning a DCE of on average of $18,158 compared to 43.3 vessels, earning on average TCE of $18,750 during the same period in 2023. The corporate net income for the Q1 of 2024 was $25,300,000 compared to net income of $19,300,000 during the same period in 2023.

Speaker 3

Concluding Slide 16, we present a list of our Phase 3 vessels already in our fleet. The global economy is experiencing multiple challenges: persistent inflation, tight financial conditions, Russian's invasion in Ukraine, Middle East crisis, all the way on the market outlook. Based on our financial performance, the company's Board of Directors declared a $0.05 dividend per common share. We'd like to emphasize that the company is maintaining a healthy cash position of about $82,000,000 as of April 19, 2024, another $164,000,000 available in the oil and credit facilities. Overall, a combined liquidity and capital resources of $246,000,000 Furthermore, we have contracted the Northern Pharma nonvatterable spot and period time charter contracts of $274,000,000 net of commissions and before scrubber revenue as well as additional borrowing capacity in relation to 7 unencumbered drifting ships and 8 new bids upon redelivery.

Speaker 3

We believe our strong liquidity and our comfort of leverage will enable us to expand further retreat while rewarding our shareholders. This concludes our presentation. We are now ready for the Q and A session.

Speaker 1

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. Our first question comes from the line of Omar Khnab with Jefferies. Please proceed with your question.

Speaker 4

Hi guys. Thank you. Good afternoon. A couple of questions for me. Maybe just first off, perhaps on the term charter market.

Speaker 4

Noticed you fixed the Maria for 4 to 5 years at just under 26,000. That ships looks like a standard Cape, 10 years old. Is pretty high relative to clearly market averages in recent years and also even just forward assessments, whether it's the FSAs or the 1 year, 3 year, 5 year charter market assessment. Is there something specific on the charter or is there anything specific on the ship that gives

Speaker 5

us the type of premium or is it simply the

Speaker 4

growing rate now for a 4 to 5 year contract?

Speaker 2

Yes. This vessel was with a specific charter on index linked and as the market was rising in Q1, the charter wanted to change it into long term period charter of fixed rates. So the company took advantage of that requirement and converted this to 4 year charter, which, as you said, is above the current market, given that the vessel is Japanese fleet and environmentally upgraded with various fixtures that have improved recently air consumption. So we managed to achieve for 4 years, minimum 4 years of $25,950 per day, which is a very healthy rate. And the company locked in at that time.

Speaker 2

Also at the same time, we had another vessel, 2012 built, which we fixed forward for delivery in September of this year for 18 to 20 4 months at $26,000 a day, which is also a very healthy rate given that the picture is on forward pace. So there was this spot of opportunity and we have the right vessels at the right time available and we managed to secure these long charters, which usually typically are available on hot markets of Capesize vessels.

Speaker 4

Yes, yes. And obviously, the market's eased a bit. It's still obviously very solid, generally speaking. How would you characterize the liquidity now in the term market? Would you be able to repeat there that type of duration going out 12 to 18 months 4 years.

Speaker 4

Could you do that? Obviously, the rate may have come down, but is there enough liquidity still to be able to secure that type

Speaker 2

of visibility? Look, these sort of charters come at the spots when you have a very hot spot market. So if the spot market is $40,000 or going even higher than $40,000 charters can book contracts, can cover in the futures market their exposure and such deals are available so long you have the right vessel available at the right moment. Most of our Capesize, almost all of them, they are on period charters. Some of them, they expire in 'twenty five, some in 'twenty six.

Speaker 2

But in a hot market, let's assume we have a hot market in the second half of the year. Could be opportunity. 1 charter wants to extend 1 year ahead of time. 1 of the other vessels could switch an existing charter into something longer and bigger. So all these scenarios, we are very hands on on what's going on in the freight market as we are working in house all our chartering activities.

Speaker 2

And when the opportunity arises, we try to take the advantage of such requirements. On the Kamsarmax vessels, of course, the charter durations are much shorter because the forward curve is not moving usually very fast as with capsize rates. And on those ones, the charters are more like 1 year or 1.5 year duration.

Speaker 4

Okay. Thanks for that color. And then just kind of a separate topic just on the capital allocation. Just wanted to ask what you're thinking in terms of the buyback going forward. You bought a good amount of stock obviously under the 5,000,000 share authorization from late last year.

Speaker 4

You did cancel it just before finishing the full 5,000,000. You effectively got close to it, but you didn't do all of it. But you went ahead and terminated it. Just want to get a sense, any reason why you canceled it with a little bit left to go? Any thoughts on a new one?

Speaker 4

And then also, is it just simply the stock performance being so strong as why you backed off from the buyback recently?

Operator

About capital allocation, as you are aware, we I mean, we push our earnings from operations towards the new investments because it's very important to renew the fleet and to be competitive in the following years because the new regulations will have substantial will create substantial problems to ships that cannot perform. And we don't want to leverage the cavalry. So I want to point out that the leverage today is this quarter was 34%. In terms of the buyback program, the buyback program almost exhausted. But we all believe in the company that the price of our stock, repeating it's our belief, is quite low compared to the asset value.

Operator

So, from time to time, we may take the damage of the opportunity to initiate an additional buyback program, although this has not been yet decided. And the other point is that, at the same time, we reward our shareholders with a steady dividend until now, dollars 0.05 per share, which is also, I think, reasonable on the basis also of the capital increases because we expect that the stock price of our stock the increasing stock price of our stock will increase as the new regulations will come and play a major role in the mutata market.

Speaker 4

Thank you. No, that makes sense. Appreciate it. That's it for me. Thank you.

Speaker 1

Our next question comes from the line of Clement Mullens with Value Investor's Edge. Please proceed with your questions.

Speaker 5

Good afternoon. Thank you for taking my questions. Following up on Omar's question on the repurchases, could you provide some commentary on the average price paid per share and on the amount that was spent post quarter end?

Speaker 2

Yes, Mr. Shif.

Operator

We don't declare the exact prices. But what we can say is that we have almost exhausted

Speaker 5

the

Operator

decreasing buyback program. And any decision in the future will depend on the capital allocation that we think is better. So we can for example, I could say that we moved towards an acquisition of a new wind vessel, as you are aware. So this played an important role. So we are targeting also the newbie market.

Operator

And of course, I think we believe that our price is quite low compared to the net asset value of our fleet. Of course, if I

Speaker 2

may add, you may see the last quarter, the stock price was between $4 $5 So you have a low part, a low price on the low on the bottom part and then the upper part. So it was in that range. The purchases was in the market range. What I may add more what's happening right now in the market, and it's the most important thing to take note of, We have secondhand prices rising in the last two quarters, especially in the Q1 of this year with a strong freight market, and we see this on all type of vessels on all the spectrum from Ultramax, Kamsarmax, KJIs, all of secondhand price vessels arising by $10,000,000 $4,000,000 the last quarter or so. And the company is also using some of its older ships, as you have noticed, as cash discussion on those older ships to finance new acquisitions, namely on new technology Phase 3, IMO Phase 3 vessels.

Speaker 2

On the other hand, we have to say that the opportunity for fleet renewal is not unlimited, given the fact that most of the shipyards are now caught in berths in second half 'twenty seven or even first half 'twenty eight. So the opportunities are becoming less and fewer and fewer. So you may find the odd birth, if you have good relations with yards in Japan, work both every now and then. And this is the opportunity one should not be losing when such a berth is available to take advantage and book the berth. That's why we need liquidity not only for share repurchase but also to take advantage of those opportunities when they arise.

Speaker 2

And I don't think in the next 6 to 9 months something will change. To the contrary, we believe that we are entering into a tighter market. We know that the latest data from Suez Canal is that passages are 66% lower now than they were in end of November when the crisis become. We see that the strikes on merchant shipping by the Yemen rebels is continuing. So we don't expect this to change anytime soon, which will add fuel to the present trade market.

Speaker 2

So the company must be ready to make use of its liquidity, not only on share repurchase, but on other opportunities as they arise before all these opportunities are gone, because we cannot order a new build for 2028 delivery. You can understand it's 4 years forward. It's too far away and the cost of redelivery installments is very high. So when the opportunity arise for early days, we should be able to move quickly.

Speaker 5

Thanks for the color. I also wanted to ask about operating expenses, which increased quarter over quarter, although from a very low starting point. Could you provide some commentary on the forecasts you have for operating expenses for the remainder of the year?

Operator

Usually, the operating expenses that we see in the Q1 are a little bit more a little bit increased. And the reason is that because there are substantial supplies of shares that will be used for the drydockings. And so you may see if you compare the last quarter of the year and the Q1 of this year, you will see that it's a substantial increase. However, we don't expect in the annually to have a substantially different figure.

Speaker 5

Makes sense. That's all for me. Thank you for taking my questions and congratulations for the quarter. Thank you.

Speaker 1

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Operator

Thank you very much for attending this quarter our quarter results webcast. And we're looking forward to discuss again with you in the next quarter. Have a nice day.

Speaker 1

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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Earnings Conference Call
Safe Bulkers Q1 2024
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