Safe Bulkers, Inc. (SB) Q4 2024 Earnings Report, Transcript and Summary

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call and Fourth Quarter 2024 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. [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. The archived webcast of this conference call will soon be made available on the Safe Bulkers website at www.safebulkers.com. At this time, I'd like to turn the conference over to Dr. Loukas Barmparis. Please go ahead sir.

Good morning to all. I'm Loukas Barmparis, President of Safe Bulkers and I'm welcoming you at our quarterly financial results. We are having premium charter rates for environmentally upgraded vessels and our Phase 3 newbuilds and benefiting from our Capes that have period time charters. It seems that our policy for renewing our fleet and upgrading the existing vessel works and offers additional operational financial advantages. The charter market weakened during the fourth quarter of 2024 and this impacted our revenues and profitability. In this environment our company maintains a strong capital structure with required liquidity with a leverage of about 35%, and we have declared a $0.05 per share dividend rewarding our common shareholders. We remain focused on capital allocation towards our new build program, on improving our operational efficiency and the environmental footprint and all our actions are targeting to increase the wealth of our shareholders. Following a comprehensive review of the forward-looking statement presented in slide 2, let's begin with the market update on slide 4. The Cape market segment has been moving downwards throughout the quarter. All eight of our Capes are presently period chartered, with an average remaining charter duration of over two years and an average daily charter rate of $22,000. This provides us with a considerable degree of cash flow visibility, topping $145 million in contracted revenue from Capes alone. On the Panamax front, the charter market stands soft at $9,000, with signs of improvement. Moving now to slide 5, we will present an overview of the CRB commodity index fluctuation in basic commodity prices. The rising tariffs elevate policy uncertainty and pose a considerable downside risk for global growth against this inflation. There are rising fears of higher for longer interest rates from central banks and lower investments globally in the context of this policy uncertainty. For our segment, we anticipate a relatively softer trade market over the following quarters as supply grows faster than demand and we expect an increasing focus on existing fleet decarburization and on energy efficient new builds. The decision of the MEPC 83 in April about the global fuel standard and the levy will dictate the pace towards decarburization. The global GDP growth expectations for 2025 and 2026 as reflected in the IMF's January forecast call for a growth of around 3.3% in the coming years, accompanied by a gradual control of inflationary pressures. According to BIMCO, the forecasted global dry market demand will fall by 1% in 2025, followed by growth of 2.5% in 2026, with minor bulks being the best performing sector. China's slower growth may hinder demand for dry bulk commodities like iron ore and coal. Iron ore shipments are estimated to grow slightly, but with Chinese demand and increased recycled steel usage, are anticipated to restrict growth. Coal shipments may drop by about 2.5%, due to rising renewable energy in Asia and increased coal production in China and India. Grain shipments are predicted to rise by 2%, but the main supply remains tight, particularly for Ukraine, although this might change if a peace treaty is achieved during 2025. Minor bulk shipments, including bauxite, are expected to be a key growth driver, as demand increases due to the energy transition. The IMF projects China's GDP growth to be 4.6% in 2025 and 4.5% in 2026, signaling a faster-than-expected slowdown in consumption, amid delayed stabilization in the property market and a persistently low consumer confidence. Also, this projection reflects carryover from 2024, and the fiscal package announced in November largely offsetting the negative effect on investment from a heightened trade policy uncertainty and property market drag. Trade barriers, tariffs and external pressures could limit China's growth potential. The weakness in the steel and construction sectors is expected to reduce demand for key commodities, such as iron ore. India, on the other hand, continues to perform as expected and is projected to experience the fastest growth among major economies, with a forecasted 6.5% GDP increase in 2025 and 2026. Increased renewable energy and industrial growth will be key drivers for India's economic momentum. Each expanding domestic market and manufacturing sector may continue to contribute positively to the dry bulk demand, with infrastructure investments playing a vital role. Let's proceed now to examine the supply-side dynamics in Slide 6. Supply growth is expected to outpace demand, exerting pressure on freight trades. The dry bulk fleet is projected to grow by about 2.8% on average in 2025 and in 2026, due to stable new deliveries and increased recycling with Panama's vessels comprising the largest share. The dry bulk now stands at about 10.6% of the current fleet and renewables orders have slowed. Asset prices weakened during the second half of 2024 and are projected to weaken further and the secondary prices may fall in line with freight markets. Recycling volumes are anticipated to rise as weaker market conditions could prompt the retirement of older vessels. Only 13% of ship capacity in the order book will be capable of using alternative fuels upon delivery and an additional 14% will be ready for future conversion. Out of the capable ships, 41% may use LNG, 37% methanol and 23% are expected to use ammonia. We believe that energy-efficient designs will have an advantage in the coming years. We expect environmental emissions regulations are going to drive 1% fall in fleet speed in 2025 and in 2026, affecting supply by about the same percentage. Currently, about 25% of existing global fleet is older than 15 years. Safe Bulker's fleet now counts 11 [ph] Phase 3 vessels on the water, all delivered after 2022. In addition, we have 11 eco-ships which have superior design efficiencies compared to the past. 8% of our fleet comprises of Japanese-built vessels, surpassing the global average of 40% with our average fleet aging about 10 years old. We will continue to become even more commercially competitive as we have an order book of 7 more Phase 3 vessels, placed at prices well below the prevailing market, to be delivered to us within the next two years. Overall, our fleet today is fundamentally upgraded and commercially more competitive than two years ago, underscoring our commitment to sustainable business. The increasing impact of fleet aging and stringent environmental regulations will position our fleet favorably to compete within the stringent greenhouse gas targets. Moving to slide 8 for our company update, we will present an overview of our green fleet abundance. The breakdown is presented in the top right half, comprising of 46 vessels, with 24 having undergone environmental upgrades, 11 being Phase 3 vessels and 11 being eco-vessels. The bottom graph presents our fleet renewal strategy, with the investment of 14 older vessels, acquisition of seven second-hand vessels, delivery of 11 Phase 3 newbuilds, and an order book comprising of seven more Phase 3 newbuilds, resulting to a relatively stable 10-year average fleet age over the past four years, as clearly presented in slide 9, a trajectory of fleet expansion serving as a testament to our commitment towards sustainability. In slide 10, we present Safe Bulker's debt profile for the next couple of years, which stands at very comfortable levels throughout that period, with adequate room for our capital spending. As of December 31, 2024, our consolidated debt before deferred financing costs stood at $545 million, including the €100 million unsecured bond, a 2.95% fixed coupon, maturing in February 2027. Our consolidated leverage stands at a comfortable 35%, without net debt per vessel stood just below $9 million for an average age fleet of just 10 years old. Concluding the company update in slide 11, we present Safe Bulker's key attributes, such as our sterling 65-year track record, a robust management ownership alignment, comfortable leverage of 35%, our ample liquidity of $276 million, our significant contracted backlog of $205 million, our green fleet advantage evidenced by a 7.4% decrease in fleet AER GHG emissions, and by our DryBMS Standards management system implementation. We remain true in our commitment to expand by building a resilient company, owing a quality and competitive fleet strategically positioned to leverage on the regulatory landscape and achieve long-term wealth for our shareholders. I now pass the floor to our CFO Konstantinos Adamopoulos for our quarterly financial overview. Mr. Konstantinos, the floor is yours.

Thank you, Loukas, and good morning to everyone. During the fourth quarter of 2024, we operated in a weaker charter market environment compared to the same period in 2023. We decreased revenues due to lower charter hires, decreased earnings from strata-fitted vessels, and increased operating expenses. Let us focus now on our liquidity, cash flows, and our capital structure as presented in slide 13. We maintain a comfortable leverage of 35%. Our debt of $545 million remains comparable to our fleet scrape value of $331 million, although our fleet is just 10 years old. Our weighted average interest rates or our debt stood at 6.12% for our consolidated debt, with a portion of €100 million being fixed at 2.95% coupon in an unsecured 5-year bond. We have already paid $84 million, or 29% for our CapEx in relation to our outstanding order book. Our liquidity and capital resources stand strong at approximately $276 million, which together with a contracted revenue of about $205 million makes a total of $481 million, and this is more than double our outstanding CapEx of $206 million on the new builds, providing flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation to those seven new builds upon their delivery. We strive to ensure that our capital expenditures are adequately recovered by our contracted future revenues, fortifying our balance sheet towards a trajectory of sustainable growth. Moving on to slide 14, with our quarterly financial highlights for the fourth quarter of 2024 compared to the same period of 2023. Our adjusted EBITDA for the fourth quarter of 2024 was $40.7 million, compared to $50.7 million for the same period of 2023. Our adjusted earnings per share for the fourth quarter of 2024 was $0.15. This calculated on a weighted average number of 106.4 million shares. In comparison to $0.25 during the same period in 2023, that calculated on a weighted average number of 111.6 million shares. In slide 15, we present an overview of our quarterly operational highlights for the fourth quarter of 2024 compared to the same period of 2023. During that quarter, we operated 45.9 vessels on average, earning an average TCE of $16,521 in comparison to 45.93 vessels, earning an average TCE of $18,321. The company's net income for the fourth quarter of 2024 was $19.4 million, compared to a net income of $27.6 million during the same period in 2023. Concluding our presentation, we would like to highlight that 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 $130 million as of February 14, 2025, another $165 million in available reporting credit facilities, a combined liquidity and capital resources of $295 million. Furthermore, we have contracted revenue from our non-cancellable spot-and-period-time charter accounts of almost $200 million net of commission and before scrapped revenue and additional borrowing capacity in relation to seven new bids upon their delivery. We believe our strong liquidity and our comfortable leverage will enable us to expand the fleet, build a resilient company and create long-term prosperity for our shareholders. This concludes our presentation. We are now ready for the Q&A session.

Thank you. [Operator Instructions] Our first question comes from Omar Nokta with Jefferies. Please proceed.

Thank you. Hey, guys. Good afternoon. Thank you for the update. I guess just a couple of questions on my end and maybe just perhaps first on the shared buyback. You announced the $5 million program in November. You went to work fairly quickly buying $1.5 million, but then in December, you went ahead and terminated it. I just want to get a sense. Was there a trigger maybe that kick-started the buyback program, and was there something that caused you to terminate it outright? Or is it just the way safe brokers tend to do its share buyback?

Look, from time to time we are doing buyback programs, especially when we feel that our market, the price of the stock market is very low and we execute always a portion of it, so this has happened in the past, it can happen again in the future. We believe really that the asset, the valuation of our carbon is quite low compared to the net asset value, especially because we have made all these investments since the last two years. We have upgraded our fleet, we have renewed our fleet, we have new builds, and we offer to our shareholders a solution where when they invest on us, they have the ability to invest in a company which basically has a better operational and financial prospects with the same number of ships because they run with a lower fuel consumption and advanced energy efficiency.

I may add what Loukas said. Sometimes the company evaluates a program also related to the current trade market. If the company feels that the current trade market is not performing or it's too much weaker than working sources would be, we may slow it down or we may stop it for a quarter and continue later. So all these parameters are assessed, on a daily basis as the program develops and as the market develops. When we have more clear sight of market, the program can always be reinstated in the next quarter. I mean.

Okay, so that makes sense then in terms of looking at this share price versus NAV in a vacuum isn't the only decision. If the freight market is there and supports positive cash flow, then that would be a trigger given that the market is softer so far. Okay, all right.

And then when you have freight market approaching original OpEx expenses like it did late in December, and consider the buyback program, it could wait for a couple of months.

Got it. That's clear. Yes. And maybe just a follow up, just in terms of kind of the underlying NAV itself and what we've been seeing in asset values. Can you give just a sense from your perspective, it feels that even though the freight market has softened over the past two or three months, asset values, at least from what we're seeing quoted by the various brokers, seem elevated. There hasn't really been much pressure. Would you say that the values are firm or is there just simply not enough business being transacted to have a good sense?

Yes, the market has dropped a lot in December and January and prices have definitely been affected. We can say that older ships have been affected by as much as 25%, while younger ships around 15%. But at the same time, there are many, many owners that have made a lot of money, especially in other categories like tankers or. But they are always looking to buy in a cheaper sector, which is at the moment the drybank sector. So I don't think that the prices have a long way to go unless the market, freight market continues to slide. So if the freight market stabilizes, as it is doing the last few weeks, I don't think that values will have a great deal of way to go down, maybe another 5%, 10%. And at the same time, when buying power is around, especially in the freight [ph] market, I believe that prices will strengthen in the second half of this year. Not a lot, but from the current levels.

Okay, very good. Well, thank you. That's it for me.

Thank you. At this time I would like to turn the call back over to management for closing comments.

Okay. Thank you very much for attending this conference call that we had today for the Q4 and year-end financial results. And we are looking forward to discuss again with you the following quarter. Thank you very much.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.