Safe Bulkers, Inc. (NYSE:SB) Q4 2023 Earnings Call Transcript February 13, 2024
Safe Bulkers, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call on the Fourth Quarter ended December 31, 2023, Financial Results. We have with us Mr. Polys Hajioannou, Chairman and Chief Executive Officer; Dr. Loukas Barmparis, 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. [Operator Instructions] 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 archive webcast of the conference call will soon be made available on the Safe Bulkers 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 31st, 2023 earnings release, which is available on the Safe Bulkers website, again, www.safewalkers.com. I would now like to turn the conference call to one of your speakers today, President Loukas Barmparis. Please go ahead, sir.
Loukas Barmparis: Good morning. I'm Loukas Barmparis, President of Safe Bulkers. 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 rate 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 press release, we announced the sale of our oldest vessel, MBE Maritime.
This gives me the opportunity to focus on our investment strategy, which takes into account our existing policy and prepares our company for the new, more stringent regulatory environment in relation to carbon emissions. In slide 3, we present the environmental regulations timeline. We have been trying to be ahead of the market, for example, by placing Phase 3 orders when only Phase 2 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 3 energy efficiency vessels are only a few, creating operational and commercial advantages for the early movers. We move to early, and in slide 5, 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 be built up in green fleet advantage, as presented in the top right graph of slide 6. 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 six of our 46 vessels in our fleet vessels are scheduled to be upgraded. On the bottom graph, a series of our fleet renewal is presented with 12% sold in the last few years, having average age of 15 years old, and 16 vessels acquired, nine of which new bits and seven second hand with lower average age of nine years old. Let's now focus on the market. In slide 7, there has been significant volatility in the gate market. It's worth noting that all eight of our gates are period chartered with an average remaining charter duration of about two years, at an average daily rate of about $23.6 thousand, with a market currency at about $20.5 thousand.
On the Panama side, the charter market remains stable. Expectation as defined by the paper market is optimistic. The interesting point here in slide eight is that the supply side is relatively weak, creating upside potential after the Chinese New Year holidays. The total drive back order book spans up to single digits. We remain cautiously optimistic about the medium-term prospects for 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.
This means that our fleet can compete better in the post-carbon environmental based charter market. We are one of the very few drive back companies with Phase 3 order book, ahead of our years, timely placed, but lower than the present 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, representing the basic commodity futures prices, which represent the leading indicators for shipping, including energy, agriculture and industrial metals. We continue to witness the rise of intensification of geopolitical tensions, noting the Middle East region, the Red Sea and Ukraine. We witness the greater than expected resilience in US and several larger emerging markets, and developing economies, as well as significant fiscal support in China.
Inflation, falling faster than experienced in most regions, is in the midst of unwinding supply side issues and restricting monetary policies. The general forecast of IMF raised margin in 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 general projection of GDP growth for 2024 stood at 4.6%. China recovery seems stable, even after taking into account the fiscal support, and even though the Chinese invasion is near zero due to the existing domestic difficulties, such as the elevated debt, weakness in property sector, structural factors such as aging, which weigh on growth.
A fleet of vessels sailing in tandem, illuminated by the setting sun.
On the other hand, India's growth is set to remain resilient, despite the global challenges underpinned by Europe's domestic demand, strong public infrastructure investments, and a strengthening financial sector, as we tell you 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 increase in industry-wide volatility, driven by tight monetary policies and rising geoeconomic fragmentation. There are signs of a decent inflation and forecasts of stable growth for the next few years. Demand for technological efficiency creates opportunities for those willing to invest in as safe budgets have done. It is evident that ESG adherence becomes increasingly important for the years to come.
Environmentally efficient fleets may lead to a 2-tier market with differential earnings capability. We believe that the combined effect of the aging of the fleet, the low water book, lower selling speeds and the new regulations and the GAG targets will favor fleets comprising of efficient business tightening the market. I will conclude with Slide 11, where we will present certain of our key characteristics which differentiate us from our peers. The key fundamentals are our strong alignment of interests 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 most recent 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 substantial fleet expansion. Our Chief Financial Officer, Konstantinos Adamopoulos, will continue the presentation. Mr. Adamopoulos, the floor is yours.
Konstantinos Adamopoulos: 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 Scrubber fitted vessels, 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 rates stood at 6.31% for our consolidated debt.
This is inclusive of the applicable loan margin, with a portion of €100 million being fixed at a coupon of 2.95% for 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 out 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 $0.25. This was calculated on a weighted average number of 111.6 million shares, compared to $0.29 during the same period in 2022. That was calculated on a weighted average number of 118.9 million shares. We present 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 charter 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, on Slide 16, we present our recent newbuild deliveries. 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, the revolving credit facilities and undrawn borrowing capacity. Altogether, combined liquidity and capital resources north of $300 million. Further and more, we have contracted revenue from our non-cash of sport and period time charter contracts of more than $240 million. And this is net of commissions and before any scrap revenue and additional borrowing capacity in relation to eight unencumbered existing ships and seven newbuilds upon their delivery. We believe our strong liquidity and our comfortable leverage will enable us to expand the fleet while still rewarding our shareholders.
