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spk00: Thank you for standing by, ladies and gentlemen, and welcome to the SafeBalkans conference call to discuss the second quarter 2021 financial results. Today we have with us from SafeBalkans Chairman and Chief Executive Officer, Mr. Polis Hadjianou, President, Dr. Lucas Barm Paris, and Chief Financial Officer, Mr. Konstantinos Adampoulos. At this time, all participants are in a listen-only mode. There'll be a presentation followed by a question and answer session. at which time if you wish to ask a question, you will need to press star 1 on your telephone keypad 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. Forward-looking statement. 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 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. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, change in the demand for dry bulk vessels, competitive factors in the market in which the company operates, risks associated with operations 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 to Dr. Banparis. Please go ahead, sir.
spk04: Welcome to our conference call and webcast to discuss the financial results for the second quarter of 2021. We are happy to present the financial results for the second quarter of 2021. A synopsis is profitability, fleet renewal at the edge of the technology, and the leveraging targeting to create shortly a company where each net debt is comparable to steel value of the vessels, creating value for our shareholders. The above are presented in slide 4. We reached $81.6 million in net revenues, $50.2 million of EBITDA, and 31 cents of adjusted earnings per share. We ordered eight vessels, GHG EDI Phase 3, NOX Tier 3, compliant, Japanese Nubix with early deliveries, two in 2022, four in 2023, and two in Q1 2024, at very competitive prices ahead of our competition. At the same time, we have sold six vessels, three of which are yet to be delivered, with 47.6 million outstanding sale proceeds, and acquired two second-hand Panamaxes. We believe that by 2024 we will be able to renew about one-fourth of the fleet, with phase 3 compliant new bits, while substituting at the same time some older vessels with younger second-hand vessels. In terms of deleveraging, we have a 125.5 million decrease in debt, from 607.7 as of 2020 year end to 482.2 as of July 23, 2021. At the same time, we maintain our financial flexibility by preserving a strong cash position of $115.6 million and our ongoing borrowing capacity available under revolving reducing credit facilities to $67 million. All these actions, we believe, will position the company to a whole new level of competitiveness well ahead of the competition. We are here for the long run. In slide 5, we show balance sheet analysis. The assets are presented, of course, in their book value, noting that presently we believe that asset values substantially exceed the book values. Let's turn to slide 7 to have a quick look on present charter market conditions. As shown on the top graph, the CAPES market for the year to date is outperforming 2020. Presently, CAPES are trading at about 32,000. The year to date average at about 24.8,000 as compared to 2020 average for the same period, which was 9,600. Similarly, for capital markets, the market remains strong throughout this year. Presently, trades at the region of 32,000, with a year-to-date average of 23.9,000, as compared to 7.9,000 for the same period in 2020. Current market prospects with strong demand and balanced order book are reflected in the FFA year, which is marked in healthy and sustainable levels. Turning to the next slide, number eight, will present the development on pricing of certain commodities, which are leading indicators for the shipping. The continuous increase on prices during the last period is signifying their underlying demand. The strong demand from China continues, and the control of COVID-19 will lead to the opening and normalization of other importing countries, as for example, India. Furthermore, leading countries such as the United States and China have been preparing for post-pandemic plans to boost their economies. These facts are expected to enhance industrial growth and altogether to boost the demand for dry bulk cargoes further. On the slide 9, we present the status of the feed in terms of values and expected supply. On the top graph, we present the values of five-year-old capes and Panamaxes as assessed by Baltic Exchange. During the last month, it is evident a sharp increase of the vessels' values. For capes in particular, the values have set more than 40% since the same period in 2020, and have gained about 21 million per vessel since the lows in 2016. Similarly, for five-year-old Panamaxes, the values have gained about 45% since the same period in 2020, and have gained about 18 million per vessel since 2016 lows. The above assessment is indicative for the average boat type vessel. Japanese-built vessels built at high specifications have increased demand and can achieve even higher values. Our fleet consists of mostly Japanese-built vessels with high specifications and many commercial and operational upgrades. Looking on the order book on the bottom graph, we note that the growth of the fleet for both Capes and Panamaxes is minimal and does not exceed the 3% on each year. Taking into account the expected scrapping, we may conclude that the expected demand for dry-bath vessels for the next years to come will be significantly higher than the actual supply of vessels. Under current market conditions, at CPIATs both in Japan and China, we do not expect that the order book may increase significantly for the next couple of years, The shipyards are occupied with orders from other sectors, such as containers and tankers, and there is no space for additional drive-back orders. Furthermore, only few shipyards have developed new environmentally efficient designs, which, together with the ongoing environmental discussions for emissions, is expected to discourage new orders. Turning to the next slide, 10, we touch upon the current status of fuels and their pricing. Our company has invested in the exhaust gas cleaning technology, which allows our ships fitted with scrubbers to comply with IMO 2020 regulations for sulfur emissions by burning high sulfur fuel oil instead of IMO compliant fuel, which is the very low sulfur fuel oil. The differential in the price between very low sulfur fuel oil and high sulfur fuel oil, the so-called high five, is translated to revenues for scrubber fitted vessels. Presently, the high-five differential in Singapore, for example, sets at about $125 per metric ton. According to future markets, as shown in the graph on the bottom, these prices are sustainable through 2023. A scrubber fitted post-Panamax burns about 7,500 per year. This brings the scrubber gain to about 900,000 per year, or about 2,500 per day. The recovery of global economies, the restoration of mobility and the recovery of crude oil prices may lead to even wider high-five differential. As shown in the top graph, presently the Brent prices are fading to pre-pandemic levels at the highs of the last five years. is minimal, and its lowest level since 2002, as decarbonization discussions not favor new orders. Most CPUs are preoccupied with containers and tangle orders until 2024. And only a few CPUs have We have experienced an exceptionally strong start of 2021 with robust volumes of iron ore, coal and grain. Demand for commodities has been exceptionally strong during the first quarter. We have seen increased government spending on post-pandemic stimulus programs and continuing greening of the global economy. We have experienced brink prices recovery, which may lead to even wider high-five spread differential than that of today of about $120 per ton. And lastly, the aging of the fleet and the increased environmental restrictions for emissions may enhance the scrap a support for our process in relation to the market conditions that will prevail in the following quarters. Now let me pass the floor to our CFO, Konstantinos Adamopoulos, for our financial overview.
spk05: Thank you, Lucas, and good morning to everyone. Let me start with our chartering performance in slide 13, where we present our quarterly TCE, which stood at $21,098 Moving on to slide 14, we present our quarterly daily OPEX, which stood at $4,874, and our quarterly daily GNA, which stood at $1,448. The aggregate figure of those two numbers is $6,322, which demonstrates our focus on lean operations. We believe that this number is one of the industry's lowest, if not the lowest, given the fact that we include in our OPEX all our dry documents with every expenses, and in our GNA, our management fees, directors and officers' compensation, and all expenses related to our administration. Moving on to our debt profile, as seen in slide 15, we present our repayment schedule as of the end of June of this year. As of June 30, we had $127.4 million in cash, cash equivalents, bank-time deposits and restricted cash. We had another $67 million in undrawn borrowing capacity, available under evolving reduced security facilities, and $54.7 million available in secured commitments for loan and trade and lease-back agreements. In relation to Furthermore, excluding the vessels committed for sale, which had not been delivered yet, we had additional borrowing capacity in relation to one unencumbered existing vessel and to three new builds upon their delivery. Slide 16 will present our debt amortization schedule versus the scrap value of our fleet. We have a smooth debt repayment profile for the next two years, gradually delivering our company following considerable debt repayments. If you now move to slide 17 with our quarterly financial highlights for the second quarter of 2021 compared to the same period of last year. As a general note, during the second quarter of 2021, we operated in an improved charter market environment compared to the second quarter of 2020. With lower interest expenses, while our net revenues of $81.6 million compared to $48.3 million for the same period in 2020, were further increased by the earnings from scarlet fitted vessels and our reduced mortgage expenses. During the second quarter of 2021, we had a transacted equivalent rate of $21,098, compared to $8,094 for the same period in 2020. The net income from the second quarter of this year reached 32.4 million, compared to a net loss of 13.9 million during the second quarter of 2020. Net revenues increased by 59%, to 81.6 million for the second quarter of 2021, compared to 48.3 million for the same period in 2020. as a result of the improved market, assisted by the additional revenues earned by our scrapped fitted vessels. Daily vessel OPEX increased by 3% to $4,874 compared to $4,729. This increase was a result of the combined effect of reduced dry dockings and provisions of technical services, but increased crew repatriation expenses Daily vessel OPEX, excluding dry docking and pre-delivery expenses, increased by 9% to $4,568 for the second quarter of 2021, compared to $4,207 for the same period in 2020. Our adjusted EBITDA for the second quarter of 2021 increased to $54.1 million, compared to $6.3 million for the same period last year. Our adjusted earnings per share for the second quarter of 2021 was 31 cents, calculated in a weighted average number of 100.9 million shares, compared to a loss per share of 16 cents during the same period in 2020, calculated in a weighted average number of 102.7 million shares. Closing our presentation in slide 18, we present our quarterly fleet data and average daily indicators compared to the same period last year. We would like to emphasize that the company is maintaining strong cash position of 115.6 million as of July 23, that provide us with flexibility to follow our plan, aiming to gradually renew our fleet with a view of forthcoming environmental changes and regulations, and further deliver as our balance sheet is targeting to create value for our shareholders. Once again, we would like to thank our seafarers for their commitment and dedication throughout this tough period. Our basic list presents in more detail our financial and operational results, and we are now ready to take your questions.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press star and 2. Your first question comes from the line of Ben Stifel. From Ben Nolan from Stifel. Please go ahead. Your line is open.
spk01: Thank you. So I have a couple. Well, good morning or afternoon, I guess, first. The... My first question relates to the new building activity. Obviously, you guys have been sort of at the forefront of the innovations of design and have always had high-quality equipment from primarily Japan. You know, they're still conventionally fueled or used oil relative to some of the other designs that we see a lot now, be that maybe LNG or ammonia. Can you maybe talk through the idea of how you decided on your propulsion systems versus, you know, some of the other what seem to be increasingly popular alternatives?
spk04: Yes, I don't think that, I mean, if you assess the actual situation, there are no presently other alternatives. Ammonia or hydrogen or alternative fuels will be under... and we strongly believe that this will be the case, and we have, let's say, this shift towards the new QLs, after about at least 10 years from now, or even 15. So we have followed a pragmatic approach. To tell you the truth, the LNG, as you mentioned, is not actually a real solution. It could be an intermediate solution, but LNG has the slip factor of methane, which is, I think, about 100 times more greenhouse gas effective compared to CO2. So it's not clear that if you order an LNG, this LNG will be compatible with the new regulations after five or six or seven years. The second point is that the other fuels basically do not exist. They're under discussion. And we know that because we are in the CPUs and we participate in such designs. also ourselves, and we have, let's say, the first information. On the other hand, we have followed a pragmatic approach, and when we say phase three, I want to make clear that phase three is applicable after 2025. It's not the vessels that are produced today, because today we have phase two vessels, not phase three vessels, which represent 20% reduction of emissions compared to 2008, and not 30%, which is the phase three. So a phase three vessel that we order is a vessel that will start its production between 25 and 30, before the shift to new technologies like, I don't know, maybe ammonia or hydrogen, whatever it prevails. which will come towards the mid of 2030. So I don't believe that there is a question whether you want to invest or not. This is an investment which is a clear advantage to us. We will have the best vessels compared to the market. We can compete easily on the existing fleet with extremely low emissions compared to everybody else, and while the others will wait to see what the technology will come after 10 years from 2025.
spk01: Yeah, I appreciate that, although what we do sometimes see is people that order ships that maybe aren't fueled by whatever is the alternative but have the ability to be converted relatively easily. Is there any ability of the new builds that you have to convert to alternative fuels relatively easily?
spk04: If you can give me one name and one city that has that design, then we can discuss. So let's not say about work, let's say about reality. So I don't believe presently... In principle, everything can be converted. So an LNG, for example, can be converted, but it has... huge convention costs, you need to have different systems for storage, etc., etc. So we don't want to play this game of advertisement. We just follow what is the best available technology, right, I mean, after 2025 to 2030. And between 2025 and 2030, we may order the technology that will be available for the next decade. But if you give me a design, I can tell you whether what you say is correct, because we don't believe that such designs are tradable right now or even exist.
spk01: Gotcha. Okay, that's helpful. And then lastly for me, you guys have been pretty active, very active under that ATM program that you have. Can you maybe talk through the thinking behind that? I mean, obviously you are ordering new ships, but you're also – and making a lot of money on the existing fleet. So it doesn't look like you really need the money at the moment. What's the thinking behind the activity on the ATM program? Look, the idea is very simple.
spk04: We have designed a company that wants to create value for its shareholders, and I tell you that the majority shareholder is the family that owns our management, the Hadjianou family. So the design, we have clearly described how we look at a company that will be able to be very profitable in the future and also, at the same time, be able to pay dividends to the shareholders. We don't want a company which is over-levered. So this is the one point. We want a company which has low leverage, about, say, 30%, 35% of the assets. Second, we don't want a company which has a fleet, an old fleet, that after 2023 and following, I mean 2025, etc., we have to pay, the vessels will not be able to compete, especially when you have Chinese vessels, will not be able to compete. in the market and have to pay environmental taxes either in Europe or the United States or have to withdraw your fleet if it's in a category E or you have to do additional investments within three years if it's in category D. And all such vessels, we have substantial programs. We want a company that has basically its backbone has a solid phase three vessels. We have also about 10, 11 eco-ships which were bought in the previous, after 2015. And so this is the second point. with low interest, low leverage, low interest expense, young fleet, Japanese fleet, durable company, solid company, low emissions, this company will be able to generate the best profits after one year from now, and we'll be able to pay also dividends at a certain point of time. We don't want to create a company and pay a dividend now or do that. In this respect, we have two things. The one is selling older vessels, which you see this is a replacement, a renewal strategy, so we have sold a few vessels, and the prices in which we sell are very good. And the second point that we are doing is that we have also the ATM, which at the end, at the back of our mind, at certain point of time, all companies from time to time access the public markets one way or the other. So it's not a big deal for us to have some equity injected in our balance sheet, which basically is not dilutive. Because as you can see, the profits, we always beat the profits because the market is very good. And with new technology ships, we will continue to do that. So, basically, this is an investment for the future of the company. And, of course, when we do all this job in the right way, as we have designed, then we will be able to continue, then we will be able to do, also to reward our shareholders in the future.
spk01: Okay, that's helpful. And since you brought it up, you talk about wanting to pay dividends. How close are you to that at this point? I mean, you're making money and getting the balance sheet is stronger. Is that something that you think is a 12-month or?
spk04: I cannot say how close or how far we are, because half a year before we were very far. And now we could be closer. The issue is that, as you can see, we have... Yes, yes, Pauline?
spk03: If I may add here, if I may add, the good market has started only six months ago. around February. We are still six months into a good market. It's most important for the company to deleverage and renew its fleet first, and then to consider the dividends. Because now we have work to do, and this is what we are doing, and we are not staying still. We prove it quarter after quarter, both the deleveraging policy and the fleet renewal policy. So there will come a time that the dividend will come for the benefit of all shareholders. Hello? Yes, did you hear that? Yes, thank you. The good market is only six months old. You know, I mean, we expect this market should last a year or two more. And the order book is so small in dry bulk. All the yards are fully booked until first quarter of 24 with major activity in containers. And before that, we had major activity in tankers. But we have no activity in bulkers. So we expect a strong market with all the regulations that are coming in front of us to prevail for more years, one or two years more from now. So a company to reinstate the dividend has to do it after you finish off with your delivery priority and your fleet renewal priority. Right.
spk01: Right. Thank you for that. Yes. Thank you.
spk00: Thank you. Your next question comes from the line of Randy Givens from Jefferies. Please go ahead. Your line is open.
spk02: Howdy, gentlemen. How's it going? Thank you. Fine. Fine. Thank you. I guess two questions for me here. Looking at your chartering strategy, you clearly have a market strength, and then also, what are your quarter-to-date spot rates achieved thus far? It seems like the vast majority of your third quarter is already booked. So just trying to compare 3Q21 versus the $21,000 a day you earned in 2Q21. Yes.
spk03: Look, first of all, regarding the period charters, as I said in previous calls, The period charter is for the time still controlled by the major charters through the so-called FFA curve and the FFA, the forward trade agreements, and which for the forward years are not at satisfactory levels for 23 or 24, so you cannot really utilize three or four or five year charters like we see now in container business. So the company prefers to work in the spot market or short period or up to one year because you can get the maximum benefit during those periods. I expect as the spot market improves in the following quarters that charters will come out and meet higher freight rates for two- or three-year periods. But at the moment, we only see sensible numbers for the up to 12-months period. Beyond that, if you start talking for two-year period, the charters ask heavy discounts. So I don't see what is the point for a company to invest in two years when you are doing the year one, let's say, at the high 20s, and the year two at the low teens. no point to fix the year two at low teens and make average of $21,000, $22,000 a day because you can get it done the year one and then keep the ship in the spot market. So we don't believe there will be order booking $22,000 or $23,000 to spoil the party from that point of view. And we still believe the supply will be strong because we see handy-sized rates of $30,000 a day. We see supramax rates at $30,000 a day. We see campsite marks are the same and cave sites are the same. We never before remember handy sites earning $30,000 a day, even in the good times of 2010, 2011, that we have strong market. The handy sites were earning $16,000 a day or $17,000. So it means now the mine of bulk is moving and is moving with bulk carriers and not on containers. And this is boosting a lot the base of the market and the strength of the market. So I believe that the two or three-year starters, we have to wait a little bit longer before those come. As far as the other question you said about the third quarter, the numbers are increasing. Yes, this is true. But the market, the levels have increased from Q1. So it's reasonable to expect that the numbers will be higher in Q1. In the third quarter, as it looks now, we are only through the first month of the third quarter. But it's higher than what it was in the second quarter, until now.
spk02: Got it. Yep, yep. I was just saying, I know with your recent charting activity, almost 100% of the third quarter is already booked. But... All right, well, looking at your balance sheet, you know, you have obviously a very robust cash balance, $115 million plus all the cash available from the asset sales. How are you looking at kind of current fleet in terms of renewal, looking at further acquisitions, maybe some more divestitures at the older vessels? What are your plans on that in the coming months?
spk03: Yes, we have eight new buildings. We have sold six older vessels. So these are coming in as replacement for the older vessels. I don't expect we can find reasonably priced new buildings from now on. It will be very difficult, the type of ships we want from Japan. So we'll mostly concentrate on modern second-hand acquisitions. If we are to sell a vessel built in 04 or 05, we'll try to replace it with a 10-year younger vessel built in 2012, 13, 14, that sort of period. So from now on we tend to concentrate on secondhand acquisitions. We have a couple of deals under negotiation. We are going to conclude in the next few weeks. You know, I mean, I think it's a prudent strategy to continue that way because also in the shipyards we see that their cost has gone up, the steel price is going up, they are increasing their prices. So for us also deliveries that is 2.5 years away now is looking a bit far away for us. So we have to wait for new ships and also to allow some time for new technologies to evolve, if this may be in hydrogen vessels or ammonia vessels or other things, or LNG, I don't know. No one knows what fuel will prevail and what technology will prevail. So we are happy we've got these eight vessels to replace ships we already sold. And the priority for us is to keep renewing the fleet and to deliver as a company. And we are doing that very fast, as we have demonstrated in our last two quarter earnings. We have solid profits. It's looking good. And let's make the company as attractive as possible for investors to join in and enjoy the good returns in the next quarters that are coming.
spk02: Yep. All right. Well, hey, that's it for me. Thanks again. Thank you.
spk00: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. There are no further questions at this time. I will hand the call back to you.
spk04: Thank you very much for attending this conference call where we presented our quarter results and we are looking forward to discuss again with you in the next quarter. Thank you very much again and have a nice day. Thank you.
spk00: Thank you. That does conclude today's conference. Thank you for participating. You may now disconnect.
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