Safe Bulkers, Inc.

Thank you for standing by, ladies and gentlemen, and welcome to the SafeBalkers conference call to discuss the second quarter 2022 financial results. Today we have with us from SafeBalkers Chairman and Chief Executive Officer, Mr. Polis Haggiano, President Dr. Lucas Bambaris, and Chief Financial Officer, Mr. Konstantinos Adamopoulos. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, please slowly press star 1-1 on your telephone keypad and wait for your line to be open. 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 call is being recorded today. 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 vessels acquisitions and entering into further time chatters. 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 risk 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 changes in the demand for dry bulk vessels, competitive factors in the market in which the company operates, risk 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 declaims 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'll pass the floor to Dr. Bamparis. Please go ahead, sir.

Good morning. I'm Lucas Barbares, president of Sherry Barkers. Welcome to our conference call and webcast to discuss the financial results for the second quarter of 2022. The second quarter was a good quarter. As we see in slide three, our EPS reached 40 cents per share, and we maintain our dividend policy of 5 cents per share. We are different than many of our peers, as the free cash flows not only reward our shareholders through the dividend policy, but in parallel, we create intrinsic value through an extensive fleet expansion program with 11 new builds which comply with environmental regulations after 2025, known as IMO Phase 3 or CO2 emissions. They also comply with the most recent NOx regulations, Tier 3. Having taken delivery of the first Kamsar Max MV Vassos, and while we are expecting the next delivery of a post-Panamax, namely Climate Respect, the next few days, we have already seen in the first vessel a notable increase of earnings capability due to impressive savings in fuel consumption. We intend to compete on this basis with our new-built fleet, but the most important is that all these orders with deliveries within the next two and a half years were placed timely and relatively at low prices, substantially lower than their valuations today. We are maintaining a comfortable leverage in the order of our fleet scrap value, about 6.8 million per vessel, while the average age of our fleet, although the fleet is aging, has stabilized in about 10.5 years due to our renewal strategy and the delivery of the new builds. Our liquidity and capital resources are maintained strong at $294.8 million, which together with a contracted revenue of $390 million provides flexibility to our management in capital allocation. I also need to highlight the importance of our scrubber investments in this fuel-expensive environment. We have recently installed an additional scrubber in one of our caves. The operation of scrubbers in our fleet further enhances our earnings capability. During last quarter, as we see in slide 4, we continued certain moves that improved our capital structure. In other words, we redeemed $37.3 million of preferred C, saving in preferred dividends 8% of this amount on an annual basis. and have initiated a buyback program, acquiring from the market 1 million shares. Of course, our main focus is lean operations in this inflationary environment. As a result of our daily operating expenses were $4,981, and our daily G&A expenses, which include the management fees, were $1,382. We believe that the increase of fuel prices are reflected in several OPEX cost components, such as transportation costs, lubricants, costs for tickets for crew changes, although the overall repatriation costs may gradually reduce if they have non-COVID restrictions, paints for dry dockings, etc. Our OPEX are also affected as the cost of certain environmental upgrades, such as ultra-friction paints applications, is expensive. Moving to slide five, we would like to highlight additional points that make our management unique compared to our peers. Being one of the ten pure tribal companies with 60 years plus experience and public since 2008, we enjoy the benefits of a sound corporate governance together with the alignment of our CEO and Chairman of the Board of Directors, Polis Hadziouanou, which is achieved through his shareholding percentage of about 40%. For our management with 40% ownership, even during the extensive low charter market conditions and the oversupply of assets of the past, we never did a reverse split, we never filed for chapter 11, we avoided unwanted capital increases unless it was accredited for all our shareholders. We tried to do the right thing. For example, we have 0% commissions of chartering management, and through our management's direct relations, we achieve lower average total chartering commissions to third parties of 4% compared to the market standard, which is 5%. Our actual skin on the game is what differentiates us. Being ourselves shareholders of 40%, when we make new-built orders at a low market and create value for our shareholders, when such new-build orders have appreciated by 20-25% today, or when we manage our versus aiming to achieve the best performance, or when we do all such prudent actions to make our company stronger. The advantage that we see today is that in the future there is no order book in the levels of the past, so we remain cautiously optimistic. Despite the global instability caused by invasions, energy crisis or inflationary pressure, and well prepared in terms of environmental regulations. As we see in slide 6, our second ESG report was issued on July 25th, focused on corporate governance, support of local communities with scholarship programs, support of seafarers during COVID restrictions, training of personnel, 371 million investments in 11 phase 3 new builds ahead of peers, Environmental upgrade in 2022 on existing feed of 2.2 million. Use of about 2,000 tons of biofuel by end of May 2022, emitting 1,550 tons less CO2. Reported also of verified AER, EOI data for 2021. Please take a look on our sustainability report in our website, as taking solid actions through investments is what differentiates safe budgets. Moving on to slide 7 for a synopsis of quarterly results. As a general comment, our 2022 second quarter profitability exceeded second quarter of 2021 profitability by 10 million, reaching net revenues of 91.6 million and an income of 50.3 million. We have achieved an EBITDA of $66.5 million and maintain significant liquidity and capital resources of over $300 million. We have redeemed in April 2022 more than a quarter of our eight preferred shares, improving our weight average cost of capital. Further, we have a significant cash flow visibility with over $360 million of charter contracts. Our financial strength, as reflected to our EPS of $0.40 per share, enabled our board to declare a dividend of $0.05 per common share, noting that at the same time we are renewing our fleet with second-hand and Phase III new builds well ahead of the competition. Moving on to slide 8, we highlight seven key figures of safe backers. All numbers which are presented here are as of quarter end. More specifically, on the right graph, we compare our liquidity with our outstanding capex. Our liquidity capital resources was $294.8 million, consisting of $139.4 million in cash and $155.4 million in internal available revolving reducing aid facilities and secured commitments. against outstanding capex which were 319.5 million in relation to the remaining 10 phase 3 new builds on the order book and our second hand cave to be acquired within August. We have already paid as advances for capex 58.9 million. On top of our liquidity capital resources we had as of quarter end an additional borrowing capacity in relation to seven unencumbered existing vessels and one second hand and nine new bills upon their delivery. On the left graph, we compare our debt against scrub value and against contract revenues and cash. Our cash was $139.4 million, and our contract revenue excluding scrubber benefit was $393.7 million, net of commissions from our non-cancellable spot and period time-chatter contracts. This is against our outstanding consolidated debt of 432.6 million, which includes the 100 million euro unsecured bonds. We need to see that our fleet SCAP value of 359.3 million, which is presented in the last column, and is calculated on the basis of our fleet aggregate lightweight tons and SCAP rate of 565 dollars per lightweight ton, is in the same order as the debt. Moving on to slide 10 and the drive-back market data, we present the development of the CRV Commodity Index, which currently starts at a five-year high. The index reflects basic commodities and future prices, for example, energy, agriculture, precious metals, and industrial metals, which represent leading indicators for shipping. As a result of the ongoing Russian-Ukrainian war, we have witnessed a rapid surge of prices during 2022. The updated forecast of IMF released yesterday downgrades the expected growth of global GDP at 3.2 for 2022, lowered from 3.6 in April, and at 2.9 for 2023, lowered from 3.6 in April. In China, further lockdowns and the deepening of the real estate crisis have led growth to be revised downwards by 1.1% with major global spillovers. In the US, lower growth earlier this year reduced household purchasing power and tighter monetary policy, though a downward revision of 1.4% in the real GDP growth. In Europe, significant downgrades reflect spillovers from the war in Ukraine and tighter monetary policy. Global inflation has been revised up due to the war, induced commodity prices increases, the broadening price pressures on food and energy prices, as well as lingering supply-demand imbalances as it is anticipated to reach 6.6% in advanced economies and 9.5% in emerging markets and developing economies this year, upward revisions of almost 1% from April. In 2023, this inflationary monetary policy is expected to affect global output with projected increase by just 2.9%. The projected 2022 Chinese GDP stands at 3.3% despite the zero COVID policy lockdowns and at 4.6% for 2023. We note an increased anxiety on Chinese iron ore demand if the national target to control carbon emissions is to be met, and the stronger domestic coal production evident in mainland China. In India, the projected 2022 GDP stands at 7.4%, and it is anticipated to reach 6.1% for 2023. The forecasted global dry bulk tonne mile demand is expected to increase only by 0.2% in 2022, supported by the industrial materials like iron ore and coal, and also by the agricultural commodities. Let's turn to slide 11 to have a quick look at the present charter market conditions. As shown in the top graph, the CAPES market for the year to date continues to be healthy. CAPES lately have been volatile, driven by the commodity dynamics, which we have analyzed. The forward freight agreement scale, presented in red color, is about 25,000 for 2022. Similarly for Panamax, as seen on the bottom graph, The FFA GERB is about 20,000 for 2022. The prevailing commodities market is likely to support the trade market throughout this year. In slide 12, we present our scheduled order book deliveries. We have one more delivery in 2022, which is imminent, which is the delivery of one post-Panamax, namely MV Climate Respect, the next few days. This is the second delivery this year, the first being the MV Vashos, a CAMSAR MAX new build in May. We have five more new build deliveries in 2023, three in 2024, and one at the beginning of 2025. A total of 11 Phase III new builds, which will maintain, say, bulk as average cleat age at 10.8 years in 2025. In the bottom graph, we present a record low order book and expected cleat growth for the forward years up to 2026 for all vessel sizes. The supply fundamentals are strong as we witness a historically low order book and the shortage in shipyard capacity which is gathered by other sectors' orders, mainly container ships and LNGs. Following the slide 13, we focus on intrinsic value creation as a result of our investments in scrubber technology currently installed on 18 of our vessels. The surge in fuel prices in the last months, which is more evident in today's market, has pushed the very low sulfur fuel oil versus HFO differential at high levels, which is translated to increased revenues for the scrubber-fitted vessels. Presently, the so-called high five in Singapore, that's at about $390 per tonne, and according to the futures market, the balance for 2022 stands at about $280 per tonne. On an annual average consumption of about an assumed 7,200 metric tonnes for our 18 scrubber fitted vessels, the implied scrubber gain potential is about $26 million per annum in aggregate at a 230 assumed spread. Let me note here that we have agreed five additional scrubber installations for our cape-sized class vessels. Furthermore, the company is pursuing a vessel upgrade program during dry dockings in the amount of $2.2 million for 2022, which involves environmental upgrades, including application of low-friction panes and installation of energy-saving devices. Concluding this section in slide 14, We would like to reiterate that with our existing liquidity and contracted revenue, with our existing order book ahead of the competition, and with our strong financial position, we set the ground for a period where environmental regulations will dictate the competition rules. We believe that we are well prepared and that the market will continue to provide opportunities, either in relation to our operations and profitability, or in relation to new technologies and fleet renewal. Now, let me pass the floor to our CFO, Konstantinos Adamopoulos, for our financial overviews.

Thank you, Lucas, and good morning to everyone. Let me start with our quarterly financial highlights in slide 16. During the second quarter of 2022, we operated in an improved charter market environment compared to the same period of 2021, with lower interest expenses and increased revenues, which also include earnings from SCAB refitted vessels. Our quarterly net revenues through that $91.6 million, up from $81.6 billion for the same period of last year. Net revenues increased by 12% compared to the same period in 2021, mainly due to the increased Time Chartered Equivalent Earned Rate as a result of the improved market, assisted by the additional revenues earned by our Scrabble secret vessels. The daily time chart equivalent was $25,050 compared to $21,098 of 2021. The net income from the second quarter of 2022 reached $50.3 million compared to net income of $32.4 million during the same period in 2021. Our daily OPEX was $4,981 versus $4,874 last year and The same number, excluding dry docking and delivery expenses, stood at $4,648 versus $4,539. Daily vessel operating expenses marginally increased by 2%, mainly affected by increased repairs and maintenance expenses and also increased lubricant costs. Our all-in OPEX and G&A for Q2 2022, which we believe is one of the most competitive compared to our peers, stood at $6,363. This includes all our dry docking and pit delivery expenses, as well as our director's and officer's compensation. Our adjusted EBITDA for the second quarter of 2022 increased to $66.5 million, compared to $54.1 million for the same period in 2021. Our adjusted earnings per share for the second quarter of 2022 was 42 cents, calculated on a weighted average number of 121.6 million shares, compared to 31 cents during the same period of 2021, calculated on a weighted average number of 109.7 million shares. Let me conclude on slide 17 with our quarterly operational highlights for the second quarter of 2022 and the comparison for the same period of 2021. We have had a very satisfactory financial performance of $0.40 per share, and the company's Board of Directors declared a $0.05 dividend per common share. During the second quarter, we took delivery of our first customer's new build. We believe that our new build will provide us with substantial operational and commercial advantages for the years to come. We would like to emphasize that the company is maintaining a healthy cash position of about $167 million, as of 22nd July, and another $140.4 million in revolving credits and secured commitments, a combined liquidity of over $300 million that provides us with significant firepower. Furthermore, we have contracted revenue from our non-cancellable spot and period time charter contracts of over $360 million, net of commissions, and this number does not include scrubber revenue, and we have also additional borrowing capacity in relation to seven debt-free vessels, one second hand and also nine new builds upon their delivery. We believe that a strong liquidity and relatively low leverage will enable us to be flexible with our capital while still rewarding our shareholders. Our press release presents in more detail our financial and operating results and we are now ready to take your questions.