This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Thank you for standing by, ladies and gentlemen, and welcome to the Safe Brokers Conference call on the fourth quarter ended December 31st, 2023 Financial Reveal. We have with us Mr. Polis Hajuanu, Chairman and Chief Executive Officer, Dr. Lucas Vampari, President, and Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company. 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 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, February 13, 2024. The archived webcast of the conference call will soon be made available on the SafeBulkers website, www.safebulkers.com. Many of the remarks today contain forward-looking statements based on current expectations. 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 fourth quarter ended December 31, 2023 earnings release. which is available on the Safe Brokers website, again, www.safebrokers.com. I would now like to turn the conference call to one of your speakers today, President Dr. Lucas Barbaris. Please go ahead, sir.
spk02: Good morning. I'm Lucas Barbaris, President of Safe Brokers. Welcome to our conference call and webcast to discuss the financial results for the fourth quarter of 2023. During the last quarter of the year, we operated in an improved charter market environment compared to the previous quarter. The company continues to maintain a strong capital structure while implementing its strategy of gradual fleet renewal that leads to decreasing fleet average age. Our ongoing efforts to upgrade our existing vessels coupled with our fleet renewal will enable us to remain competitive while reducing our carbon footprint. Yesterday, just before the issuance of our earnings-based release, we announced the sale of our oldest vessel, MBE Maritim. This gives me the opportunity to focus on our investment strategy, which takes into account our existing ESG policy and prepares our company for the new, more stringent regulatory environment in relation to carbon emissions. In slide three, we present the environmental regulations timeline. We have been trying to be ahead of the market, for example, by placing Phase III orders when only Phase II regulations kicked in, and sell older vessels, and more recently by placing orders for dual fuel vessels. You see in slide four the challenge that the dry bulk shipping industry faces as we move with steady steps towards 2030. Advanced Phase III energy efficiency vessels are only a few, creating operational and commercial for the early movers. We move to early and in slide five, given our recent deliveries, we have maintained a very competitive average age and we intend to do the same in the years to come with the remaining order book. All our actions should build up a green fleet advantage as presented in the top right graph of slide six. Our fleet is comprised of eco-vessels built after 2014, conventional vessels which have been environmentally upgraded, and phase 3 new bits which now account for 20% of our fleet. Only 6 of our 46 vessels in our fleet vessels are scheduled to be upgraded. On the bottom graph, a synopsis of our fleet renewal is presented with 12 vessels sold the last few years, having average age of 15 years old. and 16 versus acquired, nine of which new builds and seven secondhand with lower average age of nine years old. Let's now focus on the market. In slide seven, there has been significant volatility in the CAPE market. It's worth noting that all eight of our CAPEs are period chartered with an average remaining charter duration of about two years at an average daily rate of about $23,600 with the market currently at about 20.5 thousand. On the Panamax side, the charter market remains stable. The expectation, as defined by the paper market, is optimistic. The interesting point here in slide A is that the supply side is relatively weak, creating upside potential after the Chinese New Year holidays. The total dry bulk order book stands at single digits. We remain cautiously optimistic about the medium-term prospects of the freight market, in the coming years due to this healthy 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 scrapping. Japanese-built vessels have more efficient design, and please note that 82% of our fleet is Japanese-built versus 40% of the global fleet, which means that our fleet can compete better in the post-carbon environmental phase of the market. We are one of the very few drive-by companies with a Phase III order book ahead of our years, timely placed at lower than the personal market values, signifying our intention to compete on the basis of operational and environmental performance. Moving to slide 9, we present the development of the CRB Commodity Index, reflecting the basic commodity commodities futures prices, which represent leading indicators for shipping, including energy, agricultural and industrial measures. We continue to witness the rise of intensification of geopolitical tensions, noting the Middle East region, Red Sea, and Ukraine. We witnessed a greater than expected resilience in U.S. and several larger emerging markets. and developing economies, as well as significant fiscal support in China. Inflation, falling faster than expected in most regions, is in the midst of unwinding supply-side issues and restrictive monetary policies. The January forecast of IMF raised marginally the projected global GDP growth for 2024 to 3.1%, as global inflation projection for 2024 stands at 5.8%, lower than the previous forecast. According to BIMCO, the forecasted global drive-back demand growth stands at 1% increase for 2024. Yet the battle against inflation is not clearly won, with inflation expectations well anchored in major economies. In China, the IMF generally projections of GDP growth for 2024 stood at 4.6%. China recovery seems stable, even after taking into account the fiscal support even though the Chinese inflation is near zero due to the existing domestic difficulties, such as the elevated debt, weakness in the property sector, structural factors such as aging, which weigh on growth. On the other hand, India's growth is said to remain resilient, despite the global challenges underpinned by robust domestic demand, strong public infrastructure, investments, and a strengthening financial sector, as we saw in the IMF's January projection for a 6.5% increase in GDP for 2024. Concluding our market view, in slide 10, there has been an increased industry-wide volatility driven by tight monetary policies and rising geoconflict. There are signs of a disinflation and forecasts of stable growth for the next two years. Demand for technological efficiency creates opportunities for those willing to invest, and as Seybaldis has done. It is evident that the ESG adherence becomes increasingly important for the years to come. Environmentally efficient fleets may lead to a two-tier market with differentials in earning capability. We believe that the combined effect of the aging of the fleet, the low order book, lower selling space of the new regulations and GIG targets We favor fleets comprising of efficient vessels tightening the market. I will conclude in slide 11, where we present certain of our key characteristics which differentiate us from our peers. The key fundamentals are our strong alignment of interest with a significant percentage of management ownership, the comfortable leverage, the ample liquidity and contracted revenues, our track record and of course the quality and competitiveness of our fleet. Our operating model is positioned to capitalize on the new more strict environmental regulations with assets focused on environmental competitiveness and ESG strategy. At the same time, we are committed to reward shareholders with meaningful dividends while actively building our future fleet competitiveness with a substantial fleet expansion. Our chief financial officer will continue the presentation. Mr. Adinos, the floor is yours.
spk00: Thank you, Lucas, and good morning to all. As a general note, during the fourth quarter of 2023, we operated in a weaker charter market environment compared to the same period in 2022, with decreased revenues due to lower charter hires, decreased earnings from scabby fee diversions, decreased operating expenses, and higher interest expenses due to higher interest rates. Let's focus now on our liquidity, our cash flows, and our capital structure, which is presented in slide 12. We are maintaining a comfortable leverage of around 37%. Our debt of $516 million remains comparable to our fleet's scrap value of $341 million, although our fleet is only 10 years old. Our weighted average interest rate stood at 6.31% for our consolidated debt, This is inclusive of the applicable low margin with a portion of 100 million euros being fixed at a coupon of 2.95% with an unsecured five-year bond. We have paid 85 million for our capital expenditure requirements in relation to our existing order book. The remaining capex were 223 million. Our liquidity and capital resources stand up strong at approximately 312 million, which together with the contracted revenue of about 270 million provide flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation to eight existing unencumbered vessels and six and seven new builds upon their delivery. Moving on to slide 13, with our quarterly financial highlights for the fourth quarter of 2023 compared to the same period of 2022. Our adjusted EBITDA for the fourth quarter of 2023 stood at $50.7 million, compared to $56 million for the same period in 2022. Our adjusted earnings per share for the fourth quarter of 2023 was 25 cents. This was calculated on a weighted average number of 111.6 million shares, compared to 29 cents during the same period in 2022. And that was calculated in a weighted average number of 118.9 million shares. We will present in slide 14 our quarterly operational highlights for the fourth quarter of 2023 compared to the same period of 2022. During the fourth quarter of 2023, we operated on average 45.93 vessels, earning an average time chart equivalent of $18,321. compared to 44 vessels and an average TCE of $21,078 during the same period in 2022. Our net income for the fourth quarter of 23 was $27.6 million compared to net income of $34.9 million during the same period in 2022. In conclusion, in slide 15, we present our recent new-build deliveries. Based on our financial performance, the company's board of directors declared $0.05 dividend per common share. We would like to emphasize that the company is maintaining a healthy cash position, revolving credit facilities, and a drone borrowing capacity. Altogether, a combined liquidity and capital resources north of $300 million. Furthermore, we have contracted revenue from our non-cancellable spot and period time charter contracts of more than $240 million. and this is net of commissions and before any scrubbed revenue, and additional borrowing capacity in relation to eight unencumbered existing ships and seven new boats upon their delivery. We believe our strong liquidity and our comfortable leverage will enable us to expand the fleet while still rewarding our shareholders. Thank you, and we are now ready to accept questions.
spk03: Thank you. We will, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A combination tone will indicate your line is in the question queue. You may press star two 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 key. Our first question comes from the line of Omar Anokta with Jeffrey. Please proceed with your question.
spk04: Thank you. Hey, guys, good afternoon. Just had a couple of questions, maybe just on the last point you made right before the Q&A session. Just wanted to ask about uses of free cash in this market environment. Clearly, 4Q was a stronger period than we anticipated, or at least a lot of us anticipated. 1Q is off to a solid start. There's a lot of disruption globally. And so just in general, as you think about things, How are you thinking about the uses of cash at this point, or at least say the main use of cash? Is it to lower debt at this point, or do you still see opportunities for further expansion beyond the current scope?
spk01: Yes. Hello. Good morning to you. Look, the situation depends on how the market develops. At the moment, we see the market is turning quite positive. for the next year or so, and even more in 2025, as we see also the American economy doing very well. So the use of cars will be split for new buildings with fleet renewal. We don't exclude the sale of older ships to be replaced by more modern ships. So it's not only the new builds that are coming. There will be more modern ships added in the fleet. There will be some share buyback. I know we didn't do in the last quarter, but we didn't have enough evidence that the market would perform. Right now we have enough evidence that the market is performing. And we will reduce also our leverage. We don't want to increase the leverage from the current percentages as the new ships are coming in. So we want to keep it around the current level. So one third, 37, 38%. So we will use cash for all these things. Of course, everything depends on how the market will perform. At the moment, the signs are positive and you know all the geopolitical situations and Panama Canal is reduced drafts and no camps are maxed out because Panama is passing now through the canal. coupled with the problem of the Red Sea. And I need to say here that Save Valkes was one of the first companies that declared to its charters after the first skids of the merchant vessels in beginning December that we will stop going through the Red Sea simply because we don't believe that our seamen who are key workers and everybody recognizes seamen as key workers are to be used for transporting through military areas. So like we don't trade in the Black Sea for the last two years, we decided not to trade the Red Sea for the foreseeable future. And this, I want to say, that is very well received by all the crew members of our ships. We control the spot ships we have in the spot markets, it's our decision, but also I'm pleased to say that the majority of our charterers accepted immediately this condition. So it's very important for this company to be doing business with the A-rated charterers who share, let's say, the responsibility against the seamen to avoid, at least for the next two or three months, until things clear out, the Red Sea. It's not good to participate in conferences and we say that seamen are key workers and like we did during COVID and nobody was accepting our seamen to get off either in Singapore or in China or in any other country in the world. We had to deviate ships to Manila at the time to disembark our seamen. Charters were not paying deviation costs or calling costs, very So we had to take the ships to Manila, and the only country in the world that allowed safe corridors for seamen to be disembarked at that time, in the first half of 2020, was Cyprus, a small country. I'm not saying this because I come from Cyprus, because we have our headquarters in Cyprus, but I have to admit that it was the only country that allowed change of cruise, through a safe corridor because it's a small country that the government is pro-business and can take fair decisions very quickly. So the same now applies for the Red Sea. Until this situation is sorted out, charters should not be pressing ship owners to send the seamen through the Red Sea, which the seamen, they are not there to watch if the drones are flying over the ship. or switch off the lights of the vessels passing through the area. Let's sort it out with the navies as soon as possible, this situation, so we have safe passage again through the Red Sea.
spk04: Thank you, Paul. That's a very, very good context on everything as you kind of related things a bit towards the COVID situation with the crew changes. I guess in this market, there's been, I guess, two ways where i mean you're obviously much closer to it than we are but there's you know clearly a spot contract and then there's the vessels on time charter is there is there a deviation in terms of how charters are looking at transiting through the red sea at least from your lens and your ships um are you still having vessels that are in your uh control operationally that are on contract or that are on time charter are those ships still in some cases being forced to go to the red sea by your customer?
spk01: Yes, on all our time charterships, I'm proud to say that our charters have big names. They all cooperated despite there was some cost involved. They cooperated. We let them know early that we will not accept to go through a military area or a war zone. And we even had a charterer on a route from the continent to the Far East. that halfway through the Mediterranean, turned the ship around and went via the Cape Town. I'm proud to say that with all these people, we reward them with more business and more ships. When we time charter for one year charters, we say from the start, we don't cross the Red Sea. The charters are happy to accept and they find the optional routes. So we should pay respect to the people who do the job. And the people, they have families and they are the seamen. They are not military personnel. And even if we use armed guards on board our ships, the armed guards are good against pirates. They are not good against drones and rockets. They can do nothing. So it's a very important matter. And of course, I believe it will not take long to be solved. It will not be a matter of one year. It will be more like two or three months. And the world navies are in the area. They are taking care of matters. When the corridor is safe, we will start passing again, hopefully in the next two or three months.
spk04: Yep, definitely. Okay, that makes sense. And then maybe just a final one for me, and it's just more of a follow-up to make sure I understood correctly. So in terms of the share buyback that you haven't yet put to work, clearly it was in a time of transition and uncertainty, but given how things are at this point, you have the conviction, at least with respect to the dry bulk markets, that now is the time to buy stock?
spk01: Look, yes, we believe that it is time because now we have clear signs that the market is pushing up, yes.
spk04: Okay, thank you. I'll turn it over.
spk01: Thank you. Thank you.
spk03: Thank you. And as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the question and answer key. Our next question comes from the line of Clement Mormons with Value Invested X. Please proceed with your question.
spk05: Good morning. Thank you for taking my questions. You've provided ample commentary on your fleet renewal approach, but I was wondering, would you provide some insight on the reasoning for focusing on ordering mid-size vessels instead of gate sizes? Is it because of pricing or because you have a relatively more positive view on cancer max?
spk01: What did you say? Because the line was not good. Why we invest in mid-sized vessels?
spk05: Yeah, instead of cape sizes.
spk01: Yes, yes. We're not a cape size trader. Always we were feeling over the years a little bit uncomfortable with the type of vessel that relies on one commodity, namely iron ore and a little bit of coal. We wanted to be more versatile and be able to trade on more routes And Iron Ore is pro, let's say, China, depending on the Chinese economy. Of course, now I believe we are in the right phase also for cave size opportunities. Of course, the competition there is huge. The order book is very low. I'm very positive for cave size as well. But we are a little bit... afraid that maybe the high capital cost of ordering a cape size in a good shipyard, like Japanese shipyards, is more than $70 million. You know, you make only the calculation of interest rate at 6%, and you will understand that it's a big risk for a company like ours to step up any major investment in that sector. We did that in 2021. We bought four cape-sized valkyries, which are earning handsome rates for us now in the mid-20s for three years or two years or things like that. We fitted scrubbers on them that they are adding a good million and a half per vessel per year. So we did our small investment there. Now, I don't believe we'll get opportunity in the next six months. You know, we will try to inspect a couple of ships, but I'm hearing interest from 15, 20 buyers on every ship. I don't think we will be the winners of any of those bids. But, you know, we're happy that we have invested at the right time, starting in 2020, in the Kamsa Maxx new buildings. Japanese Kamsa Max Phase 3 new buildings. The prices we started investing was around $28 million. Today the same ships are worth over $40 million to order from those yachts. So we are happy we have done, we continued in the business we know. We ordered a total of 16 units and we are very well placed since we have delivered nine of those already in a good market and Seven more are coming, including two methanol ships. So we're in a good position overall, let's say. We're happy with our moves so far.
spk05: Thanks. Thank you for the call. I also wanted to ask a bit about the 2024 outlook for coal. China recently reinstated the tariffs, and I was wondering whether you expect this to have an impact on the overall market.
spk02: Could you repeat the question because there are certain interactions in the line?
spk05: Yeah, the question is about China's tariffs on coal, which were recently reinstituted, and whether you expect that to have an impact on the overall market.
spk01: Yeah, Chinese coal imports were at the highest level in the last, in 2023. It's a vital, vital commodity for the Chinese. We know that at a certain point they will consider the environmental consequences and they will step back. But the Chinese, I think, consume around 4 billion tons of coal a year. So the imported quantity of around 10% of that amount is not that big. And I don't think they will deescalate from coal in the next, let's say, five to ten years. Later on, of course, we may see reduction of coal into China, and we will see increasing coal into other areas like India, Malaysia, Vietnam, Southeast Asia countries. So I think coal will always be there. And the thing is if there is cleaner coal from other areas or technologies to make it more friendly to the environment. But I don't think coal will be reducing a lot in the years to come.
spk05: Thanks for the call. That's all from me. I'll pass it over. Thank you for taking my questions and congratulations for the quarter.
spk01: Thank you.
spk03: Thank you. We have reached the end of the question-and-answer session. Therefore, I'll turn the call back over to Mr. Oboli-Hajuan for closing remarks.
spk02: So, thank you very much for attending our presentation, and we're looking forward to discussing again with you in the next quarter. Thank you all, and have a nice day.
spk03: And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer