Safe Bulkers Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 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 Q2 2024 Financial Results. We have with us Mr. Paulus Hajiono, Chairman and Chief Executive Officer Doctor. Lucas Bompari, President and Mr. Konstantinos Adamopoulos, 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 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. The archived webcast of this conference call will soon be made available on the Safe Bulkers Web site, www.safebulkers.com. Many of the remarks today contain forward looking statements based on current expectations.

Speaker 1

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 Q2 2024 earnings release, which is available on the Safe Bulkers website, again, www.seafulkers.com. I would now like to turn the conference call to one of your speakers today, the Chairman and CEO of the company, Mr. Paulus Agiono. Please go ahead, sir.

Speaker 2

Good morning, Caturall. I'm Lucas Paradaris, paid by St. Barcas. I will do the presentation. Key developments for the Q2 include the stinker market compared to the previous year, the implementation of our new integrated management system in compliance with dry BMS standards, the order of 2 additional Phase 3 new bids consistent with our fleet renewal strategy and the addition of our 2020 business and ability report detailing our ESG practices and our vision for the future.

Speaker 2

Our strong liquidity and comfortable leverage enabled us to be flexible with our capital allocation, remain focused on long term value creation and at the same time, reward our shareholders with a dividend of $0.05 per share of common stock. Following a comprehensive review of the forward looking statements, language presented in Slide 2, our attention transitions to the market update in Slide 4. The Cape market segment has been strong throughout the quarter, all 8 of our Capes are presently period subject, boosting an average remaining charter duration of 2.4 years with an average daily rate of $24,500 This provides us with a considerable degree of cash flow visibility. On the Panamax front, the charter might have come at about 15,000 Progressing to the Slide 5, we present here an overview of our CRB commodity index fluctuation in basic commodities prices. The geopolitical landscape to tensions in regions such as the Middle East, the Red Sea and Ukraine underscores the heightened level of global uncertainty.

Speaker 2

Consistent clearly affected uncertainty around the inflation, outlook has led central banks in major economies to become more cautious about the pace of policy easing compared with its positions at the end of the Q1. Consequently, market's expectations of the number of policy rates touched to be delivered in 2024 have been revised downward. Upside risk to inflation have increased, raising the prospect of higher for longer interest rates in the context of increased oil uncertainty. In terms of drybulk, we enjoy a positive drybulk outlook as supply has been outpaced by demand, setting the stage for additional drybulk market growth. The limited supply of pesos on one hand and the resilient demand on the other enhances rates over the short to medium period.

Speaker 2

We believe that the existing fleet decarbonization efforts and the energy efficiency of newbuilds will gather all focus on market in the medium term. Overall, on the commodity side, demand for iron ore remains strong. Cocoon is stable despite the energy transition forecast and for grains and metal bags stands at 8.30 meters. The IMF April forecast of a 3.2% expansion in global GDP for both 2024 2025 is accompanied by control of inflationary pressures. According to the BCO, the forecasted global global demand growth stands at 3%, increased compared to 84%.

Speaker 2

China being the major global importer and key driver of the market seems to be having a short landing prioritization of energy security with comp being the fastest way of that, drives the significant expansion of new clearly evidenced by the new fossil fuel generation during the first half of twenty twenty four, which increased by 12% year on year, outpacing the 6% fossil fuels growth. Nevertheless, coal fired power plants stabilize the demand for coal imports as steel coal imports rose by almost 10% year to year. The trend we do not expect to continue as steel coal shipments in the summer will decrease due to maintain penetration from renewables and with respect to domestic mining in the second half of twenty twenty four. Saia's growth forecast has been raised to 5% for 2024. However, GDP is expected to slow to 4.5% in 2025 and continue to decelerate over the medium term due to challenges from an aging population and slowing productivity growth.

Speaker 2

Geopolitical developments, of course, have halted trading patterns and increased demand for drybulk commodities, rerouting away from the Red Sea and Panama Canal has also bolstered demand in smaller segments. The drybulk market is a high end point despite the weakening and falling global steel and iron ore prices. Both specialties have been showing averaging 32,000 per day in second half. In Q2, down modestly compared to Q1 average of $24,000 per day, a doubling $37,000 per day for pilots in the Q3. A tight supply picture with the modest growth this year and tightening effects from the long haul bucket trade have played a key role.

Speaker 2

So far, the Q3 is looking similar to the Q2 with decent earnings. Global coal investment is set to grow by 2% in 2024, led by increases in India, Indonesia and Australia. The resilience of India's robust domestic demand and sustained infrastructure investments seem to play a stabilizing pattern easing the effects of Chinese uncertainty. The growth forecast for India has also been raised to 7.3% for this year, reflecting the positive growth and enhanced profits for private consumption, especially in rural areas. Let's proceed now to examine the supply side dynamics in Slide 6.

Speaker 2

Currently, about 25% of the existing fleet is older than 15 years as and I remember, the merchants are seeking in these vessels being on the lower end of fuel efficiency, which gradually become less competitive, forcing them to be phased out. On top of that, the dry order book remains at about 9%, thus the near to medium term trajectory on the freight market remains optimistic, especially when taking into account the reliability of that space and expanding new orders and digital strategies in the tactical nanometer technologies. Safe Bulkers fleet now counts 12 Phase 3 vessels on the quarter, all delivered after 2022, with the last delivery taking place just a few days ago. In addition, 22 vessels have been environmentally upgraded, and 11 are eco vessels having superior design efficiencies. 85% of our fleet comprises of Japanese fleet vessels, surpassing the global average of 40% with our average fleet age of 9.9 years old.

Speaker 2

Overall, our fleet today is fundamentally upgraded and commercially more competitive than 2 years ago as a result of the E and C strategy implemented throughout this period and has called our commitment to sustainable business. We will continue to become even more commercial competitive as we have as we have on our order book 8 North Phase 3 vessels to ASK prices well below the prevailing market to be delivered to us within the next 2 years. The anticipated combined impact of fleet aging and seasonal environmental regulations will position our fleet favorably to compete with the environmental based charter market, the synthetic lateral framework and greenshow gas targets. Moving to Slide 8, we present an overview of our green fleet advantage. The breakdown presented in the top right graph underscore the environmental consensus of our fleet conversion of 46 vessels, with 32 having undergone environmental upgrades, 10 being Phase 3, 11 being ECO, and the remaining 6 30 to be upgraded within this year.

Speaker 2

The bottom graph details our renewal strategy with divestment of 13 older vessels, acquisition of several secondhand vessels, delivery of 10 Phase 3 newbuilds and the steadfast order book comparison of 8 more Phase III vessels, resulting to a stable 10 year average fleet age over the past 4 years. As confirmed by Slide 9, this projection of fleet expansion serves as a testament to our commitment to our sustainability. In Slide 10, we present the safe market security attributes such as our sterling 65 years track record, the Revach Management ownership aligned with 14%, comfortable leverage of 32%, our operating liquidity $276,000,000 our significant contracted backlog of $250,000,000 Our green fleet advantage evidenced by 7.4% decrease in fleet higher GHG emissions and by our dry DMS standard management system implementation in anticipation to forthcoming civil environmental regulations. The quality and competitiveness of our fleet is strategically positioned to leverage on the regulatory landscape, remaining true in our commitment to expand by building a resilient company and reward our shareholders with 21 percent and about 31% dividend payout ratio. Our efforts is not only to have the best fleet in terms of energy efficiency, but also to have to upgrade our company materially and be able to compete with worldwide anyone.

Speaker 2

I now pass the call to our CFO,

Speaker 1

Ladies and gentlemen, thank you for waiting. I apologize about the technical difficulties. We will now return to our regularly scheduled conference.

Speaker 3

Thank you.

Speaker 2

Lucas, can you hear us? Yes. I can hear you. Did I finish did I solve everything?

Speaker 4

Thank you, Lucas, and good morning to everyone. This is Costa Dida Amopoulos, the CFO. I will make a presentation about our numbers, the Q2 numbers. As a general note, during the Q2 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, lease payments from charter seated vessels and higher interest expenses due to increased interest rates. If we focus now on our liquidity, our cash flows and our capital structure, as presented in Slide 12.

Speaker 4

We maintain a comfortable leverage of around 32%. Our debt of about $500,000,000 remains comparable to our fleet scrap value of around $350,000,000 although our fleet is only 9.9 years old. Our weighted average interest rate stood at 6.3% for a consolidated debt, of which €100,000,000 is fixed as 2.95% in an unsecured 5 year bond. So far, we have paid $110,000,000 or 30% for our CapEx in relation to the outstanding order book. Our liquidity and capital resources stand strong at approximately 2 $81,000,000 which, together with the contracted revenue of about $252,000,000 makes a total of around more than $533,000,000 which is double of the outstanding CapEx of 2 52,000,000 dollars This provides flexibility to our management in capital allocation.

Speaker 4

Additionally, we have borrowing capacity in relation to 4 existing unencumbered vessels and 9 new builds upon their delivery. We are sure that our capital expenditure is adequately covered by our unprotected future revenues, fortifying our balance sheet towards a trajectory of sustainable growth. Moving on to Slide 15, with our quarterly financial highlights for the Q2 of 2024 compared to the same period of 2023. Our adjusted EBITDA for the Q2 of 2024 stood at $41,800,000 compared to $34,300,000 for the same period in 2023. Our adjusted earnings per share for the Q2 of 2024 was $0.17 calculated on a weighted average number of 106,800,000 shares compared to $0.12 during the same period last year that created on a weighted average number of 112,900,000 shares.

Speaker 4

In slide 14, we present an overview of our quarterly operational highlights for the Q2 of 'twenty four compared to the same period of 2023. During the Q2 of 2024, Goh operated 45.43 vessels on average, earning a TCE of $18,615 compared to 44.01 vessels, earning an average TCE of $17,271 during the same period in 2023. The company's net income for the Q2 of 2024 was $27,600,000 compared to net income of $15,400,000 during during the same period last year. Concluding our presentation, we would like to point out that based on our financial performance, the company's Board of Directors declared a 5% dividend per common share $0.05 dividend per common share. We would like to emphasize that the company is maintaining a healthy cash position of about $77,000,000 as of July 19, 2024 and another $180,000,000 in available rewarded bed facilities as well as another $20,000,000 from our held for sale vessel, a combined liquidity and capital resources of $276,000,000 Furthermore, we have contracted revenue from our noncancelled spot in period end charter contracts of $252,000,000 net of commissions and default scrubber revenue and additional borrowing capacity in relation to 5 unencumbered existing vessels and 3 new bids on their delivery.

Speaker 4

We believe our strong liquidity and our comfortable leverage will enable us to expand the fleet while still rewarding our shareholders. Thank you for your understanding, and we are now ready for the Q and A session.

Speaker 1

Thank you. We will now be conducting a question and answer session. Our first question comes from Omar Khnakta from Jefferies. Please proceed.

Speaker 3

Thank you. Hi, guys. Good afternoon. Thanks for the update. Just wanted to ask, obviously, on the fleet, you've been very dynamic here for the past maybe 2 plus years.

Speaker 3

You've been adding these modern, perhaps super eco, dual fuel CancerMAX new buildings, you've been selling the older ships. You have the series of new these 8 new buildings delivering here over the next 3 years. Just wanted to ask,

Speaker 5

what are your thoughts on the

Speaker 3

Cape fleet at this point? Obviously, it's scrubber fitted and you have contracts in place on all the ships. But just in general, as you think about that fleet and investing going forward and given the low order book we're seeing in the broader Cape market, is that something that maybe you're considering investing in here in terms of perhaps free cash versus continuing to look at further CancerMAX newbuildings?

Speaker 5

You mean investing in Capesize?

Speaker 3

Yes.

Speaker 5

Yes. Look, KXR is in buildings. The prices are really out of the question at the moment. They are hovering over $75,000,000 in Japan. And as long as interest rates remain at current levels, we cannot proceed with such investment.

Speaker 5

Maybe at the future time, maybe in a year's time, you will see some easing of interest rates. We may revisit that case, but always in relation to fleet renewal. So we will have to sell in order to trade size to buy a newer one. So we don't want to touch for the time being the cost of high interest rates.

Speaker 2

We might add that, Rif, that the last few years, the fleet has been expanded substantially. So in the past, we had about 3 Capes, and right now, we have 8. So this shows a proactive movement from our side to invest in the Capesize market before the prices reach these very high levels.

Speaker 3

Right. Yes. Good point. And I guess, wanted to ask them on the Capes because that's been obviously, that's part of the market perhaps this year that's done quite well and it has that low order book ratio, but yes, the returns aren't there, as you're mentioning, at least on new buildings. You are acquisitive on the second hand, as you just mentioned.

Speaker 3

Is there are there returns there that look interesting? Or is it kind of across the board case look too expensive relative to, say, that the CancerMAX are midsized segments? Yes. I think, of course, both are too expensive. So

Speaker 5

you need $50,000,000 to buy an 80 year old Capesize from a good yard. So for us, it's not a good investment at this point. The living term rates were 3%, and we have been a different proposal. But right now, we want to wait for that time.

Speaker 3

Okay. Thank you for that color. And maybe just a follow-up, maybe kind of thinking about just the market in general. Obviously, dry bulk rates across the board this year have been very healthy, much better than last year. We've seen some softer steel prices and a bit more of a tougher, maybe still complex, obviously, in China, but globally, it seems that things are under pressure.

Speaker 3

But cases generally held up, even though they've eased here a tight supply picture that's perhaps insulated the sector from weakness in the steel markets? Or is it perhaps just eventually weakness will make its way into the dry bulk rates and we're not seeing it yet? Any color you're able to perhaps give on what's driving the market here recently?

Speaker 5

Yes. Right now, the market is a little bit on the weak side. And traditionally, it's weaker in the summer months. And we expect improvement in the Q4 of this year. And what we have not seen in the last few months is we have not seen real congestion in any of the major loading or decharging areas for dry bulk tonnage.

Speaker 5

And also, we have seen very little backhaul cargoes to Europe from the Far East and generally a bit of a weak market in the Atlantic. And we believe that Atlantic will pick up as we enter in the autumn in September, October period, as it always does. And this will lift the market. We need a bit of stronger Atlantic market to lift at least the Khamsin Max market. But of course, even at $16,000 or $17,000 a day, the spot market, dollars 15,000 to $17,000 is still a healthy market as far as we are concerned.

Speaker 5

So we don't really complain about it. Of course, a key part really shows all the closure of the Red Sea and not closure, but the restriction of the trading by the Red FCA and Panama Canal, which exist at the moment. Panama Canal is for a number of months and the FCA since January February of this year. And this will continue to be that case. We don't see any dry pulp vessels passing through the canal, but maybe 1 or 2 every week.

Speaker 5

That's about it. And I think this will guarantee that the market will stay a bit longer at good levels. What is the most important for us in the long run as a company, when we don't plan on a quarter per quarter basis. We are planning on a long term basis. It's a fact that environmental regulations are getting tougher.

Speaker 5

From 1st January, the trading into European waters will be costing 70%. The EU EPS of that penalty we are paying for CO2, from 40% that it was this year. This will make demand for younger ships to trade the Atlantic business, which traditionally the Atlantic business was a market for older ships. And these older ships will not find it comfortable to take cargo from U. S.

Speaker 5

Gulf to continent or Brazil continent or U. S. East Coast to the continent because simply they will have to pay extra cost for the EUITS fee. And hence, they will try to find business in the Pacific. In the Pacific, they are not very welcome, especially in Australia, if you are over 15 years old or we are approaching 20 years old.

Speaker 5

So they would not be able to trade diesel in the Atlantic. They would not be able to trade diesel in the Pacific. And some of those ships will head to the scrapyard. So a bit of a weak market will not do us any harm because, as you know, safe markets have already delivered 10 Phase III vessels, very economic ships, and another 8 are coming through in the next 2 years. So we are looking more into what will happen in the next 2 or 3 years rather than the next 2 months.

Speaker 3

Yes. Thank you. That makes sense. And I appreciate the insight and the detail. That's it for me.

Speaker 3

Thank you.

Speaker 1

Our next question comes from Clement Mullins from Value Investors. Please proceed.

Operator

Good afternoon. Thank you for taking my questions. I wanted to start by asking about the returns on the environmental upgrades you've pursued on your existing fleet. Could you provide some commentary on some of the initiatives you've done? And secondly, what kind of returns are these investments generating?

Speaker 5

Yes. Look, first of all, we'll start with the scrub investment, which will start in 2019, and we complete it in 2020. This has been paid off already, and whatever income is generated by the scrubbers now is profit on the annual result. Right now, the spread is around $80 $90 It's not at a very good level, but still on those numbers, the company is earning an extra $20,000,000 a year. So after that, we take this money and withdraw them on the environmental investment of the existing fleet by upgrading them on all of them on dry dockings, even on our older ships.

Speaker 5

So we just finished now in our 6 bidd KansalMAX by talking that we applied low friction tails and other improvements on the hull. We have reduced the consumption of those ships by 2 tons, so from 24 tons down to 22 tons. So it's a 17 year old ship is doing better, 18 year old ship is doing better consumption than the BKI average, which is 23 tons. So with this improvement, the ships are saving around $1,000 a day ball because of the fuel saving. We operate and $1,000 charter rates higher.

Speaker 5

And we will carry on doing this investment on the existing fleet. So, basically, we take the scrub revenue, and we put it back on the remaining ships.

Operator

Thanks for the color. Following up on Nomar's question on your fleet positioning, you still have a few 2,006, 2007 build CancerMAX and Postmanamaxes. Considering that asset pricing has done pretty well over the past year, should we expect the disposal of some of these going forward? Or are you comfortable holding on to them for the foreseeable future, especially after the recent upgrades?

Speaker 5

Yes. There is an upgrade that works in 2 folds. 1st is a 2 fold. The one is that the ships can earn extra income whilst they remain under the company, the company's operation. You have to remember this, our ships, We contracted as newbuildings 17, 18 years ago.

Speaker 5

So they are very well kept looked after. Of course, the company is not selling at any price. When will

Speaker 3

we receive the right buyer at the right price? And we get a

Speaker 5

premium over the market rates because we believe the ships are worth premium, we can sell. Of course, we are not in a hurry to sell all of them. We are selling 1 ship a quarter or 1 ship every 6 months because we have to allow time for the new buildings to get delivered in the fleet. So it will be a process that will be going on for the next 2

Speaker 4

or 3 years at good periods

Speaker 5

of the market and that when we find the right buyer to pay the the to appreciate the condition of the ships and the investments we have done in the recent drydocking, so of course we will sell if we can achieve prices of like the last deals we have done. So it will be a slow process and it will take some time, but we are not very hard to complete the sale of the older ships in the next 6 months.

Operator

That's very helpful. That's all for me. Thank you for taking my questions. Thank you.

Speaker 1

This concludes our question and answer session. I would like to turn the floor back over to Lucas Bompares, Doctor. Lucas Bompares for closing comments.

Speaker 2

Thank you very much for coming this for being with us this morning and hearing our presentation. We wish you to have a pleasant summer and we look forward to discuss again with you in our next quarter call meeting. Thank you very much.

Speaker 4

Thank you.

Speaker 1

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

Powered by Quartr
Earnings Conference Call
Safe Bulkers Q2 2024
00:00 / 00:00