Safe Bulkers, Inc.

Thank you for standing by, ladies and gentlemen, and welcome to the SafeVolkers conference call to discuss the third quarter 2023 financial results. Today, we have with us Mr. Paulus Kajiwano, Chairman and Chief Executive Officer, Dr. Lucas Bamparas, President, Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company, and Mr. Thanasis Antonakis, Assistant Chief Financial Officer. At this time, all participants are in 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 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 312-661-7566. I must advise you that this conference 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 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 estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond to control 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, 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 released publicly any updates or revisions to any poor-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 will pass it forward to Dr. Bamparas.

Please go ahead, sir. Good morning. I'm Lucas Barbares, president of SEIC Bargas. Welcome to our conference call and webcast to discuss the financial results for the third quarter of 2023. During the third quarter, our financial performance was weaker, aligned with the charter market, as a result of global economic growth in the 70s. Our new-builds order book, with more efficient basis in our environmental upgrades program on our existing fleet, was complemented with the orders for two methanol dual-fuel new-builds for the fourth quarter of 2026 and for the first quarter of 2027, marking a significant step towards decarbonization. At the same time, we took delivery of our fifth and sixth new builds and rewarded our shareholders with a dividend of five cents per share of common stock. Our capital structure is conservative with significant cash and revolver capacity. Our capex requirements are adequately covered by our contracted future revenues, and our balance sheet is strong. After reviewing the forward-looking statement language in slide two, we may move to slide three. There has been significant volatility in the CAPE market It's worth noting that all our eight capes are period charted with an average remaining charted duration of above two years and an average daily rate of about $23,500, with the market currently at about $18,500. On the Panamax, with the charted market remains somewhat stable. Moving on to slide four, we present the development of the CRB Commodity Index, reflecting the basic commodities, future prices, which represent the leading indicators for shipping, including energy, agriculture, precious metals, and industrial metals. Commodity prices declined sharply over the past months, according to the World Bank Energy Price Index, led by coal minus 12.5 percent, oil minus 3.4 percent, and metal We continue to witness the rise of geoeconomic fragmentation, intensification of geopolitical tensions, noting the Middle East region and increase of interest rates as policymakers aim to fight global inflation. Global headwinds will continue to persist and intensify due to the high global interest rates, geopolitical tensions, and sluggish global demand. As a result, global economic growth is also set to slow down over the medium term against a background of these combined factors. The resilience that global economy or economic activity exhibited earlier this year might fade. raised marginally projected global GDP growth for 2023 to 3% from 2.8% in April, as global inflation projections for 2023 stand at 6.9% due to the war-induced prices, pressures on food and energy prices, and the supply-demand imbalances. According to BIMCO, the forecasted global dry-bulk demand growth stands at 3% increase in 2023. A slowdown is especially concentrated in advanced economies, where high inflation receded, soft landing, expectation of world economy. Growth is emerging in emerging markets, and developing economies remain stable at 4% for 2023, 4.1% for 2024. Battle against inflation is not yet won, with inflation expectations well anchored in major economies. In China, the IMF October projection for GDP growth was 5.1%, even though there are signs that the consumption-led recovery could slow. China recovery seems to be losing steam due to persistent domestic difficulties, such as the elevated debt, weakness in property sector, structural factors such as aging, which weigh on growth, with a Chinese GDP estimation for 2024 to stand at 4.4%, leading to weaker demand. On the other hand, India's growth is set to remain resilient, despite global challenges underpinned by robust domestic demand, strong public infrastructure investments, and a strengthening financial sector, as reflected in IMF's October projection for a 6.3% increase in GDP for 2023. Let's move now to the supply side, as presented in slide 5. The total dry bulk order book stands at single digits. We remain cautiously optimistic about the medium term to prospects of the freight market for the coming years due to the relatively low order book. About 25% of the medium-sized fleet is older than 15 years. Thus, the effect of fleet aging and environmental regulations are expected to accelerate the scrapping. Japanese-built vessels have more efficient designs. 80% of our fleet is Japanese-built versus 40% of the global fleet, which means that our fleet can compete better in the forthcoming environmental-based charter market. We are one of the very few dry bulk companies with a Phase 3 order book ahead of our peers, timely placed at lower prices than the present values in the market, signifying our intention to compete on the basis of operational and environmental performance. As presented in slide 6, we recently took an additional significant step towards decarbonization with a contract for two methanol dual-fuel new builds. These vessels, when powered by green methanol, will be able to produce close to zero greenhouse gas emissions based on a life cycle assessment methodology well to propeller. Following the extensive order book for 12 phase 3 vessels, which were placed timely at relatively low prices, and the environmental upgrade of the existing fleet, we set a clear path towards the decarbonization of our fleet by placing these two additional orders for methanol dual fuel vessels. We believe that the company will have one of the most environmentally competitive fleets the following years. Concluding our market view, in slide 7, there has been an increased industry-wide volatility driven by tight monetary policies, rising fears of geoeconomic fragmentation, and growing signs of global economic losing momentum. Demand for technological efficiency creates opportunities for those willing to invest, as SafeBudgets has done. Such environmental-efficient cleats may lead to a two-tier market with differential in earnings capacity of such cleats. We believe that the combined effect of the aging of the cleat The low water book, lower selling speeds, and the new regulations and the greenhouse gas targets will favor cleats comprising of efficient Japanese vessels and vessels delivered after 2014 tightening the market. We have, as we said already, about 14 new-built vessels that will be brand-new Phase III vessels that will be able to compete with any vessel out there. It is evident that ESG adherence becomes increasingly important for the years to come. Let me now present in brief in slide 8 our recent developments, which include the declaration of a five-cent dividend per common share from the Board, the election of three directors during our annual shareholders' meeting and the delivery of two Phase III new builds, as well as the order of two dual-fuel vessels. In slide 9, we present certain of our key characteristics, which differentiate us from our peers. The key fundamentals and our strong alignment of interests With a significant percentage of management ownership, the comfortable leverage, the ample liquidity and contract revenues, our track record, and of course, the quality and competitiveness of our fleet. Let's focus now on our liquidity, our cash flows, and our capital structure, as presented in slide 10. We are maintaining a comfortable leverage of 35%. Our debt of €449 million remains comparable to our fleet's scrap value of €355 million, although our fleet is only 10.6 years old. Our weighted average interest rate stood at 6.24% for our consolidated debt, with a portion of €100 million being fixed and a 2.95% coupon in an unsecured five-year bond. We have paid $71 million for our capital expense requirements in relation to our order book of eight new builds, and the remaining capital expenditure are $233 million, including the recent order of the dual fuel vessels. Our liquidity and capital resources stand strong at approximately $280 million, which together with a contracted revenue of about $250 million, provide flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation to eight existing unencumbered vessels and six new builds upon their delivery. Before passing the floor to all Assistant CFOs and ISA donates for our financial review, Let me make a note about our strategy of directing cash flows to finance our new build program, which will provide us with a distinct commercial competitive advantage in terms of fuel consumption and environmental performance. We expect that by maintaining a comfortable leverage and a strong balance sheet, this creates the basis for rewarding our shareholders and position-shaped balkes among those companies that will successfully navigate the environmental challenges of the energy transition and of the aging of the dry-balk fleet. Tanasis, the floor is yours.

Thank you, Lucas, and good morning to everyone. As a general note, during the third quarter of 2023, we operated in a weaker charter market environment compared to the same period in 2022. with decreased revenues due to lower hires, decreased earnings from scrabble-free diversions, increased operating expenses, and higher interest rates due to increasing interest rates. Moving on to slide 11, with our quarterly financial highlights for the third quarter of 2023 compared to the same period of 2022. Our adjusted EBITDA for the third quarter of 2023 stood at 30.9 million, compared to 66.9 million for the same period in 2022. Our adjusted earnings per share for the third quarter of 2023 was 8 cents, calculated on a weighted average number of 111.6 million shares, compared to 39 cents during the same period in 2022, calculated on a weighted average number of 120.4 million shares. We present in slide 12 our quarterly operational highlights for the third quarter of 2023 compared to the same period of 2022. During the third quarter of 2023, we operated 44.13 vessels on average, earning a TCE of $14,861 compared to 43.25 vessels, earning an average TCE of $23,400. in 2022. The company's net income for the third quarter of 2023 was 15 million, compared to net income of 51 million during the same period in 2022. Concluding on slide 13, we present our break-even point for Q3 2023. It is evident that the global economy is experiencing multiple challenges. Inflation, higher than seen in several decades, tightening financial conditions in most regions, Russian invasion in Ukraine and the crisis in the Middle East, all weighed heavily on the market outlook. Based on our financial performance, the company's board of directors declared a $0.05 dividend per common share. We would like to emphasize that the company is maintaining a healthy cash position of about $67 million as of November 3, 2023, and another $158 million in RCFs and $53.5 million in undrawn boring capacity, a combined liquidity and capital resources of $278.6 million. Furthermore, we have contracted revenue from our non-custodial spot and period time shutter contracts of $233 million, net of commissions and before strawberry revenue, and additional boring capacity in relation to eight unencumbered existing vessels and six new digs upon their delivery. We believe our strong liquidity and our comfortable leverage will enable us to expand the fleet while still rewarding our shareholders. We are ready now for your questions. Thank you.

Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment, please. And our first question comes from the line of Chris Weatherby with Citigroup. Please proceed.

Hi, guys. Good morning. This is Matt on for Chris. Thanks very much for taking the question. uh... first i wanted to just take some time to see what you might be hearing in the market for some of your customers uh... you know how they looking at uh... you know try balkan uh... and the rate environment moving into year-end and further sort of thinking more so within twenty twenty four particularly as it relates to the the sustainability of increased chinese import activity and and you know i think that should be you know uh... a key business driver moving forward just just any details there i think what i would would be very helpful

Yes, good morning to you. Look, the Chinese activity, the imports, we have seen that have been increasing lately on iron ore and we think that this will being supported to the market. On the other hand, we see a lot of activity into India. There's a lot of carcass into India from all over the world, not only from nearby countries like Indonesia or Australia, but even from the Atlantic Basin, which is giving more support to the market and made at low levels. For 2024, the expectation is that we will see better demand than we had in 2023. We don't have big surprises of the geopolitical events that are happening But, again, we don't expect something anywhere near to the levels we were in 2021 or 2022. Overall, because the order book is a comfortable level for 2024 and 2025, we don't expect yachts to undoubtedly surprise us for these two years. It's going to give a positive surprise, but everything is very vague because of all the things that are happening in various parts of the world.

Fantastic. Yeah, no, thank you very much for the detail. Certainly very helpful on that front. So it looks like you contracted revenue, took a nice step up in the quarter versus 2Q. You know, could you just touch a little bit more on what is driving that, you know, amid the market weakness and sort of how you see that backlog moving into 2024? Yes.

And look, the contracted revenue mainly we have is from our Cape-sized balkanias. Cape-sized is to fix for three years or more as FFA curve responds. It's not the same on Panamaxes. Usually in a good market, the Panamax FFA market responds for the next three or four quarters. So it's not enough to secure We have some cave sizes that are still fixed until 2025. We have one vessel that is fixed until 2031. These are giving us contract revenues for the years to come. Our new buildings are easily fixed in one year TC rates. They are in demand because they are very economic ships. And we are very optimistic also for next year when we will have the EU ETS start applying, that those vessels with very low consumption will be in good demand for European cargo. I think the Charter will be trying to fix these phase three vessels into European business. At the moment it's not happening because still no one is paying attention to the EPS, but You know, we're prepared, and we expect from next couple of quarters to start seeing increased activity for the modern ships sailing into Europe.

Great. Yeah, really helpful. Very, very insightful detail. And then just for my last question, you know given the developments uh... going on in the middle east currently with you know international turmoil uh... have you noticed this impacting specific trade lanes that you operate in or or do you see it impacting uh... you know any areas uh... you know that you operate and just trying to get a little bit of a better understanding of of how that could be uh... you know potentially impacting uh... international trade routes

what's happening in the Middle East. I think that also during the Russian conflict with Ukraine, it took some time before we saw the changes on the trade lanes, and it was mostly because of sanctions that created extra termites. and extra cargoes, especially for the tanker owners. In the Middle East, there's not so much cargo going into Israel. It's not affecting a lot of dry-bark movement. There was very limited cargoes going into there because Israel was sustained self-sustained on electricity and not so many coal cargoes as it was in the past five or ten years. The conflict, of course, there is one concern that we don't know how Egypt will react should there is there is and we hope there won't be but we don't know if there is a movement of people if this engine will take some steps into reducing the amount of commercial ships passing through Suez Canal this is a question mark for the months to come Again, we hope that this does not happen because that is not nice to see happening. But everything is uncertain. I think we need the next two, three months to understand how this conflict will be resolved because one way or another it has to be resolved for humanitarian purposes. The solution must be found. And hopefully things will not escalate because it's against... So, but at the moment, it's too early to have any clear opinion or picture.

Understood. Understood. Got it. Okay. Thank you very much for the detail, and I will turn it over on that note.

Thank you. Ladies and gentlemen, as a reminder, to ask a question, please press star 1 on your telephone And our next question comes from the line of Clement Mullins with Value Investors Judge.

Please proceed. Good morning. Thank you for taking my questions. I wanted to start by asking about the order for two methanol dual fuel cancer maxes. Could you provide some commentary on the main drivers behind the decision to offer methanol instead of, say, LNG or ammonia dual fuels? And secondly, have you seen a lot of interest from potential charters for these kind of assets?

Hello, I will take this. Yes, I may take this response, Lucas. Look, first of all, the first part, if we discuss about ammonia or methanol, basically ammonia is not well developed yet. There is a It's hazardous, so it needs more development. We cannot discuss at this stage availability of ammonia ships out there. Maybe this can happen after two, three, four, five years. While methanol ships are there, they are real. The question about methanol ships is whether at the end of the day we will be able to find green methanol instead of brown methanol, which means that if we are able to use green methanol, the vessel will operate closely to a zero greenhouse gas emissions world propeller. Now, another part which is interesting is that that's why we need to have dual fuel methanol ships and not only methanol ships, because in the first period we expect that the vessels will run with with fuel as all the other ships, and there will be phase three as the other ships that we have already ordered. And the important thing for us is that in total we have about 14 ships, 14 vessels, which are phase three. And just think a fleet, I mean, after a couple of years, two, three, four years from now, a fleet, which is of a size of between 40 and 50 million, or 40 and 50,000 vessels, that will consist of 14 phase 3 ships and 2 and 12 echo ships. About 36 percent of the fleet out of 40, 45 vessels will be very modern to compete. We will have one of the most young and modern fleet able to tackle all new environmental regulations. Why do we need to go towards let's say an alternative fuel? The question is simple. Back in 2019-20, we started ordering ships for phase 3, which is basically a ship that will have a design after 2025. That was the first step. And, of course, we upgrade our fleet environmentally. And so by the end of this year, 20 vessels will be upgraded with low friction pains and have a substantially better efficiency. This is a logical step to assess, study, and conclude an alternative design which leads to decarbonization. So it's not something which is peculiar for us, because we are always in the forefront of technology. We want to be the most advanced tribal company, and we couldn't, I mean, miss the target of start ordering methanol ships, which is a real solution, while ammonia is not. And one other point that I want to make is that sometimes some people may ask about our OPEX, and I want to just again once more clarify that in OPEX We include the cost of paints because they are not amortized, they are expensed immediately. So that's why sometimes we are showing some additional OPEX because of the large number of dry dockings which include environmental upgrades.

Thanks for the call. Your fleet will indeed be very modern. I actually also wanted to ask about operating expenses, which declined significantly quarter over quarter. X dry dock. What were the key drivers behind the decline towards more normalized levels? And looking ahead, should we expect them to remain at levels similar to this quarter? You mean the OPEX?

Yeah. Exactly. Yeah, I think that's it. Yes, I think that according to our budgets, we are about there. We expect to have a similar OPEX, let's say. I mean, we cannot say about quarter to quarter because sometimes we do more dry domics in one quarter so they can go higher. But during a period of a year, I think we have a similar amount of dry docking scheduled for next year as it was before. So we expect

stability in our OPEX I think there are also replies to this is that sometimes some quarters are more OPEX intensive and then the other quarter is less intensive sometimes it happens like this but you should see the average of the year I'll pass it over thank you for taking my questions yes thank you

Thank you. Ladies and gentlemen, there are no further questions at this time. I'd like to pass the call back to Dr. Pamparas.

Thank you very much for attending this conference call once more. And we are looking forward to see you again and discuss again with you the next quarter. Thank you very much and have a nice day. Thank you. Bye. Bye.

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