Safe Bulkers, Inc.
Q1 2021 Earnings Call Transcript

Published: 8 May 2021

[Operator:]

Thank you for standing by, ladies and gentlemen. Welcome to the Safe Bulkers Conference Call to discuss the First Quarter 2021 Financial Results. Today, we have with us from Safe Bulkers Chairman and Chief Executive Officer, Mr. Polys Hajioannou; President, Dr. Loukas Barmparis; Chief Financial Officer, Mr. Konstantinos Adamopoulos. 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 this conference is being recorded today, May 6, 2021. 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 that strategy, including expected vessel acquisitions and entering into further time 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 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.

[Loukas Barmparis:]

Good morning. I am Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the first quarter of 2021. Let me start our presentation by expressing our gratitude to all our seafarers. We are committed to their safety and well-being. Moving on to Slide 3, we present some key points about Safe Bulkers. We are a true drybulk player. Without predications, we have a history of 60 plus years of uninterrupted presence in the drybulk market. Our management team has more than 30 years of experience in the drybulk industry. We are here for the long run. We preserve our liquidity, which provides financial flexibility, security in turbulence and opportunistic asset acquisitions. Our spot market exposure allows expansion of profits in favorable charter market conditions. We have half of our fleet in the spot market at about one-thirds of BDI charters index-linked, enjoying the credit market position. About 75% of our fleet is Japanese built, providing us with a lower environmental footprint, lean operations and cost building advantages from scrubber-fitted vessels based on increased fuel spread differential. We have actively centered the environmental preservation in the heart of our competitive strategy by investing more than $67 million in 2019 and 2020 retrofitting 50% of our fleet with exhaust gas cleaning devices, also known as scrubbers, which provide us with extra income capability in rising oil price environment. Management team has seen in the gain that offers full alignment with shareholders. We have demonstrated our twofold fleet renewal strategy. On the one hand, looking towards 2030 with ordering greenhouse gas EEDI Phase 3 and NOx-Tier 3 Japanese newbuilds and on the other hand, capturing the present market by opportunistic second-hand acquisition, replacing older vessels at a modest price differential. At the same time, we continue the gradual de-levering of the company.

[Konstantinos Adamopoulos:]

Thank you, Loukas and good morning to everyone. Let me start in Slide 17. We are chartering performance, where we present our quarterly time charter equivalent rate. For the first quarter, we stood at 15,567 vessels. Revenues, our quarterly running expenses would stood at $4,702.

[Operator:]

Thank you. We will now take the first question. Please go ahead. Your line is open.

[Unidentified Analyst:]

Hi, this is Liam on for Chris Wetherbee. Thank you for taking my question. So I just wanted to first ask about your fleet and the chartering strategy. So I know that half of your fleet is on the spot market environment.

[Loukas Barmparis:]

Can you please speak closer to the microphone because you cannot – you don’t have good reception or...

[Unidentified Analyst:]

Yes, sorry about that. So I know that half of your fleet is on the spot market currently. So I just wanted to ask about your chartering strategy. So what are your thoughts about the portion of your vessels that will continue to trade in the spot market? And what would it take for you to kind of look to lock in some of your vessels on longer term charters?

[Loukas Barmparis:]

Yes. Right now, half of the vessels are in the spot market, and the other half on short-term period market up to 1 year. Out of this period, shifts one-third of them as we saw is index-linked because we have – we were feeling that the market will improve in 2021. And we decided those fixtures on part of the clear pictures will be done on an index-linked basis. So we will continue for the rest of the quarter and up to the third quarter this policy to keep ships in the spot market. And possibly, in the third quarter or the fourth quarter, we will try to lock in longer periods as the charterers will be more keen to secure longer period charters.

[Unidentified Analyst:]

Got it. That’s very helpful. Thank you. And so kind of there is a little bit of a follow-up to that and some of the things you discussed earlier. So I know that more recently, given the fact that spot rates have surged, that’s really benefited your liquidity. But I’m also just kind of wondering like how are you kind of planning to leverage that increased liquidity? Are you going to look to be more aggressive in pursuing your fleet renewal program and maybe acquire more vessels in the secondhand market?

[Loukas Barmparis:]

Yes. I think that now our aim is joined – exercise of the leverage and fleet renewal. We are interested into newer technology vessels which means we have to concentrate on acquisitions on ships younger than 5 years old. At the same time, we have some ships approaching 18 years old, that we need to sell. So there will be some sales and some acquisitions and some selective ordering at a very limited pace. Because right now, we see that the shipyards are not ready to propose new designs with new technology, and there are not so many options there. This of course is giving us more optimism for the freight market. In that, we don’t expect to see newbuilding orders – many drybulk newbuilding orders for 2023. We believe that the yards are getting filled up with big container ships and tanker orders, whilst drybulk orders the owners will be waiting for new designs to appear, but we don’t see many shipyards keen at the moment to develop these new designs.

[Unidentified Analyst:]

Alright. Thank you very much for taking my questions.

[Operator:]

Thank you. And we will now take our next question. Please go ahead. Your line is open.

[Ben Nolan:]

Great. Thanks. This is Ben Nolan from Stifel. Actually, just wanted to follow-up on that last response you’re talking about. Well, obviously, you guys ordered some ships last year, but now we’re sort of looking for things with new designs. I’m curious if you could maybe flesh that out a little bit. Are you most interested, I don’t know, and things that maybe would use ammonia or is there something specific that you have in mind that isn’t being developed that would be of interest?

[Loukas Barmparis:]

Yes. Look, when we speak about newbuildings for the future, and we said that we have bought the two ships, and we referred to Phase – EEDI Phase 3, I wanted to clarify that EEDI Phase 3 comes in the regulations after 2025. So basically, what the company has done is that we order, not the present generation that we can do easily, which is Phase 2 until 2025. But we offer the Phase 3 vessels, which are much closer to 2030, and they are more advanced. Now the company has chosen this route because we believe it’s a pragmatic group for the existing technologies. And we know that despite the fact that there are several discussions and researches about new fuels, we are not – we are quite sure and we know that new fuels like hydrogen or ammonia will not come to play a role in the – in, let’s say, the next decade. So by having the most advanced ships of 2025 onwards earlier, that would be a competitive advantage. A second point that we want to stress out is that our company has – and we said that many times that we want to clarify that our company has the vast majority in Japanese big fleet, which generally are lighter and more energy-efficient, and as a result, we have better footprint. So we expect that when the new regulations of greenhouse gas has come to 1 of January 2023 as it is expected to play a role in the performance in the valuation – in the classification of the vessels in categories A to E and the A categories – the A category vessels will receive a notice that between a year, they need to fix second fleet, so if the D category within 3 years. I mean our vessels will be well placed in this lease. And so we will maintain the operational advantages that we always have had in the past. I don’t know if you want to ask another question on that.

[Ben Nolan:]

Yes. Well, really, the question is and I appreciate that you are in a good position in that your newbuilds that you have ordered are also in a good position. But when looking at sort of what would be next, if you were to order ship, and – but yes, it isn’t available to shipyard. What do you have in mind there? I mean what is that next-generation ship that would – if a yard were to come out with the design, what would check the boxes for you? Is there a particular type of fuel or something?

[Loukas Barmparis:]

This is a problem right now. There is no next-generation ship available. A lot of stories appearing in the press about what will be the fuel for the next 10 years or 20 years, no one knows. Definitely, on tankers, on containers, there are a few options being proposed by the shipyards, which really, we don’t need to know which is the medium-term or the long-term or the short-term. For ourselves, we cannot do anything more at this stage than go for Phase 3 newbuilding whenever it’s available. Otherwise, we will concentrate on very more than second-hand ships, but under 5 years old. That will be very close to – on the upper part of Phase 2 designs. There is nothing we can do at the moment because really no one knows if this ship will be LNG powered, if it will be hydrogen, if it will be ammonia. No one has an idea. And the yards – and this is maybe a good point for trade markets. The yards, they are not really interested to develop such designs for bulkers. So at the moment, they concentrate on big container ships that they have big consumptions or VLCCs or bigger ships. And they don’t bother yet to develop designs for bulkers for the next phase of decarbonization. Basically, you have to remember that the yards like ship owners. They have been losing money for a number of years. And first of all, they have to do the change on the bigger ships. They have better levels and new contract levels, and thereafter, they will bother. So I think it will be very difficult to have new buildings with new designs for bulkers proposed by the yards this year. If at all we get it, it will be next year at the earliest. So the delivery of bulkers with different fuels, all these things should not be available before 2025 delivery. So we have to be patient. If we can find reasonable price with good delivery date newbuild of Phase 3, we may consider. If we don’t find, we will go for very young ships in replacement of our older ships.

[Ben Nolan:]

Okay.

[Loukas Barmparis:]

If we consider that the only alternatives not purely to the existing fuel, which is the natural gas, for example, the LNG and we don’t have such solutions in this – in the bunker industry. Such solutions may come, let’s say, towards the end of this decade. And maybe new fuels like hydrogen or like ammonia would come at the early or need of the next case. So basically, the next-generation ships that are not generally available now at Phase 3 vessels. So this is the only thing that we have, and which is pragmatic.

[Ben Nolan:]

Yes, I appreciate that. If I can switch gears for a second, my next question, obviously, we’ve seen spot rates go up and you talked about that. And there is strong underlying demand you guys did do some time charters. But still most things, both for you and elsewhere in the market, tend to be pretty short duration, 6 to maybe 18 months on the long end. But as the market tightens, are you guys beginning to see any lengthening duration in terms of what customers are looking for to sort of perhaps hedge out the risk of a spike or something like that? And really, I asked because I know in the past, you guys have done some longer duration deals. So is that something that’s materializing at all? And is it something that you would be interested in doing?

[Loukas Barmparis:]

You are talking about the longer period of charter, do you?

[Ben Nolan:]

Yes. 3 years or 4, I think longer than a year, yes.

[Loukas Barmparis:]

Yes. For this to happen, we have to be a little bit patient because we had a decent two months, February and April. In between, we have the correction of the market in March. So all we have seen until now was just two good months of freight market, February and April. And we continue now in May is the third month of a good freight market. The charters before there is some fixing long-term deals, they have to see the spillover of enthusiasms going on in the forward years. And many of them usually monitor this FFA market, which is not necessarily every ship owners’ piece of cake or guidance for long-term business, but the charter is mainly they monitor these things. And as we know, the forward part of those scales is very depressed from the point of view that there is not enough volume to push it up to the proper levels, similar levels like 2022 when 2021, when we know 2022 is supply restrictive and the same for 2023. So as we enter into Q3 and Q4, I believe charter will get this feeling, but the commodity prices of today’s and the value of the dollar and what is happening worldwide with stimulus package, both East and West, we will keep them – the market this time higher for a longer period of time. And then we will see the FFA for years, start moving to higher levels. And then charters will start asking ships for 3 or 4 or 5 years. So we have to be patient and have the ships in the spot market to be able to reach that point when charterers will decide that, yes, they believe in this market and they start investing into the forward part of the FFA care. So I think this will happen sometime in the third quarter, personally. But maybe you will call me optimist – optimistic. Maybe it happens in Q4, I don’t know, but I mean, a lot depends on those two quarters, if we will see the long period charters. Personally, I believe that because ship owners do not participate in the FFA market, especially for the forward years, I believe that the FFA market is rather constrained and is the freight is being exchanged for the forward years between charters and operators, which mostly sit on the same side of the fence usually.

[Ben Nolan:]

And if that does materialize, that is an area that you guys would need to be active in.

[Loukas Barmparis:]

If it doesn’t materialize, we have to enjoy the $20,000 a day.

[Ben Nolan:]

Right now but I think if it does – if it happens?

[Loukas Barmparis:]

If it does, certain part of the fleet has to go there, yes, definitely.

[Ben Nolan:]

Yes. Okay, perfect. Appreciate it. Thank you.

[Operator:]

Thank you. And we will now take the next question. Please go ahead. Your line is now open.

[Randy Giveans:]

Gentleman, it’s Randy Giveans with Jefferies. How is it going?

[Loukas Barmparis:]

Yes. Hi, good morning.

[Randy Giveans:]

Good morning. Two questions from me. First, clearly, your TCE rates increased pretty meaningfully from $12,000 a day in the fourth quarter of 2020 to about $16,000 in 1Q ‘21, so how big of an increase are you expecting in 2Q ‘21?

[Loukas Barmparis:]

Look, I mean the spot market has moved to the leverage, $22,000, $23,000 a day. On the Capes, it has moved on to $40,000 level. So you should expect that the second quarter TCE rate should be a similar increase. We already run 50% of the second quarter and the fixtures you are doing now will cover the rest of the second quarter. So I mean, the assumptions are easily to be made. So I do not want to predict the numbers now, but it’s – I mean you are 50% in the spot market and one-third of the period of ships. On index-linked, you can run the calculations very easily.

[Randy Giveans:]

Okay. And then it looks like you used half of your $23.5 million ATM program raising I think it was $12.7 million in recent months. Average price is under $2.80 million. So with the ongoing rally now pushing your shares around 4, will you use the remainder of that ATM here in the near-term and what will the primary use of the proceeds be?

[Loukas Barmparis:]

Look, a small part of ATM has remained, but we don’t know exactly when we will activate this last part. I mean we always activated when the company as before have already indicated when the company thinks that it’s right pricing. And so we cannot comment on that anymore.

[Randy Giveans:]

Alright. Well, thanks so much. That’s it for me.

[Operator:]

Thank you. There were no further questions coming through, so I’ll now hand back to the speakers.

[Loukas Barmparis:]

So thank you for attending this Q1 conference call and the webcast to discuss our financial results, and we are looking forward to have the same discussion in about 3 months from now. Thank you to all and have a nice day.

[Operator:]

Thank you. That does conclude the conference for today. Thank you for participating. You may now disconnect.