Q2 2019 Earnings Call
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Thank you for standing by ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss the second quarter 2019 financial results.
Today, we have with us some say focus chairman and Chief Executive Officer, Mr. Palace, Asciano President thought to do cause some bias on chief Financial Officer, Mr. Constantinos add them up to us.
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 here, we need to press star one 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 on the presentation. Please contact capital link to one to 6617566 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 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934 as amended.
Concerning future events, the companys 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 expectations will prove to have been correct.
These statements involve known and unknown risks 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 risks associated with operations outside the United States and as the factors listed from time to time in the Companys filings with the Securities and Exchange Commission.
The company expressly disclaims disclaims any obligations or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in the companys expectations with respect that to or any.
Change in events conditions or circumstances on which any statement is based and now I pass the floor to Dr. Bambara. Please go ahead Sir.
Good morning, guys Mindbodys phases of safe Bulkers welcome to our corporate in school and the webcast to discuss the financial results for the six months ended up going to 19.
Good luck or markedly during the press conference Glenn you Nancy and this explains substantially out Martina losses last quarter.
Yeah, but its BPCI you during fiscal 2018 award show any kind of a 95 points.
Dan this out to the market has improved and debit its BJ pointed out it's part of the quarter was 1009 for more comes out.
Presently we are ending you Chuck this concludes todays.
As we see in slide four despite the questions with the trade war, both Capes and Panamaxes are performing at the highest level in six years.
James are trading today at about 58000 per day compared to plan B in the same period in 2018, and Panamaxes talk about 18000, a day compared to 12.
For the same period in great detail.
On the top left graph on slide five we present, the Chinese iron ore imports.
Hey, Scott.
Stocks.
They said developing shortage in both stocks, which are well below the three year average at the same time as could be sitting there, but I'd get up the production of dead on auto dropped significantly.
After the assumption of exports from Brazil, and the supply of iron ore and the Micro example.
The combination of low stocks and low idled oil prices do you expect between guys increased Idaho.
In the coal market as shown in the bottom left chart Chinese imports of thermal coal has been a fairly supportive during summer months, explaining partially the Boise altacorp.
Panamaxes.
Furthermore, in the bottom right graph the global seaborne.
Seaborne grain trade looks stable and it's going to cost us to slightly increasing 20 Duane.
However, we are monitoring closely the developments in this sector May June Threerd Wolfram sense.
And is it pretty much panamax market is mainly driven by the strong demand for grains transportation ex These go South America.
Let's move onto slide the dying to supply dynamics and 3001 slide six.
For Panamax and post Panamax class the order book, which is to be delivered until 2020 , one stands at around 10% over the existing fleet.
They all that work has been fairly stable for the past 18 months today to work one cents and expand mature in their environmental investments of course, using the new building orders. This 10% order book should be compared to the 70% of the fleet. We just over 17 years of rates.
Older vessels lagging technologically any potential fuel efficiency carbon to positive special surveys for example, the fourth space as of April business will base below 20 years. We expect we expected would result in picking up of scrapping.
Ballast water treatment systems enable 2020 regulations require substantial investments and then but the technical and operational capabilities until the end of second quarter, we haven't invested 20.5 million.
So today as shown in slide seven we have completed installation of ballast water treatment system in 15 of our vessels, maybe another eight versus the ballast water treatment system will be installed by the end of 2019.
We have also completed the installation and commissioning of Scrabulous in five vessels expecting reach a figure of about 10 vessels by the end over the third quarter and 19 vessels by the end of the here.
Look only speculation, but according to the equipment, we installed Alibaba technical design, Salix sort of multi English commissioning in training.
Paramount importance in order to achieve their long term performance.
Scrubbers and the financial returns.
In addition, we gradually completing the chemical cleaning accounts for vessels that we do not in stone Scrabble showdown, we will be able to use compliance issues from now on.
Our energy efficient vessels as the cases for most of our ships that were developing subscribers will have an abundance overhead to consuming all that business next year, so and we're not going to be due to the consumed quantities fuel, but also due to the price differential between the high circuit fuel Lloyd and the compliance issues in the next two slides we presented a few market data about consolidation of Scrabulous and price because there is a little fuels.
In slide eight on the top graph according to data from Clarksons from dry bulk about 10% of the total fleet will be scrapped defeated by the end of spending 19, and about 14% will be scrabble treated by the end of 2020 .
Regarding the total oceangoing fleet about 11% of their fleet and 50% of the fleet will be scrapped that feed it by the end of 2019 and 20 in 2020 , respectively. As shown on the bottom graph of Scrabble hits operating activity I sped data provided by brokers based on ice systems. After the May 2019 in the Capesize class. They are constantly about 67 million goodwill dose, but in Cps, installing scrubbers and or undergoing scheduled dry dockings.
I said before this may into it there because the debit there if you supply of tonnage of gapes by about 2% to 3% weakness after may 2019, creating tightness to the demand supply balance.
Turning into slide nine approaching generally 2020 the market is entering into a more dynamic phase in preparing for the compliance with IMO two into 20 regulations.
Demand for compliance purely cash that has started to pick up despite the fact that the majority of the ship owners have not yet moved to PC business of compliance you. It is spread differential between heavy sales of sure Lloyd and I almost ended Randy compliance really brought the dumps starts at about 160 us dollars paramedic don't presently.
Looking to the future pricing the spread differential for the full 22 and distance at about 20, $220, but medic dawn as we approach the end of the year, we expect the dynamics of the market will be reflected to the spread differential.
Summarizing slight then the main key takeaways are.
Market, you've seen enough current trading at six years high and their exceptional bite on low grade there from what I see and strong grain demand from an east coast South America at driving the chartering market.
The existing order book is relatively low compared to the number of older vessels that may face the market challenges Scott scrapping is expected to increase.
Your environmental legislation ballast water treatment system in Scrabulous involves substantial investments and great tightness in the supply market diverting mutual funds from new orders the vast majority of vessels in the Panamax and post Panamax class will not be equipped with scrubbers. ADESA result, slow steaming maybe two I'm used to compensate for the potentially increased fuel costs.
Older vessels towards the fourth special survey may be scrapped.
And finally safe Bulkers is fully prepared for the new entitlement environment going to Andy that we starting the first January 22, Inc.
Now, our Chief Financial Officer will present, our quarterly financial results.
You know, Chris and good morning, everyone.
In slide 12, we present, our quarterly time charter equivalent which stood up $11970 per day.
And we focus on our expenses, both opex as well as gently.
The aggregate figure.
For the second quarter.
2019 was 5000.
$981.
This was a result of decreased maintenance general source on the spares and increased management fees SaaS player monitors.
Moving to slide 13 presents some financial data on a quarterly basis, our quarterly figures on adjusted EBITDA and operating cash flow has been improving.
Our overall financial strength.
Slide 14, we will present, our daily free cash flow waterfall for the second quarter of 2019.
We havent about $20000 and spent less than 10400 per day per vessel.
For all our daily outflows, including operating DNA in that it would be fair dividend.
And principal repayments, leaving about $1600 per day per vessel, our daily free cash flow.
Slide 15.
So as our quarterly financial highlights for the second quarter of 2019 comprised onto the same view of those 28.
Net revenues decreased by 3% to 445, and a half million dollars from 47 million.
Mainly due to a decrease in charter rates.
Our time charter equivalent rate per vessel decreased by 9% to 11907 Boes per day.
From 14200 $225 during the same building by the team.
Daily vessel Opex increased by 4%.
Two $4616 compared to $4809.
For the same period right the thing where daily vessel Opex, excluding drydocking activity with expenses decreased by 2% to 4200 their defeat on us for the second quarter of two enacting compared to 4000.
$392 for the same period in two empty 18.
Our adjusted EBITDA for the second quarter of two of the nine being decreased by 9% to 21 million compared to 23.1 million for the same period in 2018.
Our adjusted loss per share for the second quarter of 29, neither was one cents.
Calculated on the weighted average number of 400 to 1.3 million shares.
Compared to adjusted earnings per share of two cents during the same period last year.
Activated on a weighted average I'm at a 100 to 1.5, yes.
Closing up 11 patients life schemes, we present, our quarterly data and targeted daily indicators in comparison to the same period of last year.
We would like to emphasize that in this field with river.
Absolutely implementing innovative amendable investments in scrubbers, and the ballast water treatment systems.
Our press release present in more detail, our financial and operational results and we are now ready to take your questions.
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Hello.
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Yeah, Hi, the spend Nolan from Stifel can you hear me.
All right yes.
Hey, good.
Good [noise]. So there there was a I have a handful of questions. The first one is if you. If you said something I missed it and I didn't see it in the press release do you have any update on where you stand on the buyback program didn't look like the share count moved much but I know that there was something that you talked about.
Yeah.
No [laughter] Locust walk us can update.
If they buy the buyback program is ongoing but in my note Oh actually and so I'm I note a shares have been a board but until now.
Okay, and so it's still well I think it was a 5 million share allocation still pretty close to that is as whats.
HM.
The second bucket today, it's a very small amount I see it might get the win quite yet.
Yeah, all right no. That's helpful. And then I was going to ask that the the DNA expenses were a little bit higher than what I thought and I know that.
There was a footnote in there that the I'm the manager the daily rate for the manager has gone up a little bit just curious you may be walk me through that and and how.
How to think about the DNA going forward and and the the the fees there.
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<unk> expense for the Mylan said I believe that those should be jewel and actually so sometimes we may see base somebody you would exchange or sit and deepen. It says we took a look at later to the actual amount, but there related to the regulation or in U.S dollars.
Oh, Gosh, Oh, Oh, Oh, so all children has been substantial in Greece.
On the N. falling short on two small mall from better you saw lawsuits on other companies, which is affecting all shipping companies with respect to review all of <unk>.
Okay. So so given that insurance it.
Inflation, the DNA sort of where it is is it fair to assume that's probably where it will be.
Close to that going forward.
Yes, yes it is.
This is correct yes.
Okay, alright, and that well there the other the other thing I was curious on it. It. This is pretty late is really late in their reporting cycle or and I looked last year you guys reported at the end of July was there anything.
Specific that they'd call it see the need to be you know September .
September 4th rather than kind of the normal reporting period.
No we weren't expecting I bet that market then the wouldn't both studies outside and you know just south of the only days that's often the only thing because at this point and that's including sockets on dental bone got somebody will pay up potential.
Even now we then they've more all day holiday exhibit it beat that why not getting there in the UK in the in the public markets watch blade market is very important.
It's quite beautiful just in the public markets still [noise].
This is masking the shipping stock markets. So we decided to do it right now instead of opening the longest.
Okay.
All right that that does it for me I appreciate it thanks guys.
Thank you.
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We've been I take out next question. Please go ahead. Your line is now open.
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Hi, guys just want to get on for Chris just Uh Huh.
So higher level question, you seem to have piloted a rebound in the <unk> in the quarter, but didn't really come through in the piano or the Tc rates I wanted to get a better understanding of.
Basically why and a if maybe a rebound was a bit more isolated and Ah.
If it might come down in the future.
Annuity Pete can you would it be because I didn't get.
I didn't get what you're saying about the CHMP the rates why there was lower than the previous quarter.
Hi, it's something along those lines as well as you seem to have hot Air you highlighted a.
Strong rebound in the <unk>, one the Devon understanding of why that didn't come through on the piano.
Yes, because that they see was lower because she didn't know that Q2 results what affected by it but is there any ball law School, then which was the spot market. You remember was all 5000 of unless they.
That's cool status excels on boneless about triple that so all those numbers feet everything that is on schedule to do which welding or no.
And then also I know, there's a news we mention though all that be the eyes to more than double in the third quarter than what it was in the first couple of the Oh, social I mean that when you have the IDE below 900000 of it isn't that first stop.
I understand that this is a very weak.
Or maybe I need to work on and in the in that in the in the market or during the first six months on the yeah.
But right now were more than double this number.
So.
The results were affected by this but the way I think we ought to just one cent lows, which is by far a one of the best results in the market this quarter.
Got it and so.
You had also mentioned.
I wanted to highlight essentially the China Chinese iron ore market picking up.
Stimulating demand actually wanted to understand if you had actually seen some of the demand coming through or if that was something that might happen later in the year and possibly in 2020 or if that's something that's going on now.
Yeah, No. We are seeing were seeing more movement on vital whole from biopsy, you remember what that that big but I see or accident in January which I'll pick. He said that he did that capesize market they felt that yep.
It does it not just back on track and there's tremendous shortage of Capesize vessels, and we have not seen chaos on from hold rates of six to 7000 dollar stays at day for Capesize bulk ideas from the Atlantic to the Pacific and this has been studying throwing name the Pacific rates went all ships the post panamaxes well doing that around so right now at the 1920 $21000 a day on the around mortgage bases issues was doing $8000 in the spot market in that in the first half. So you can see me doubling up this is affecting a.
Well, just the ugly and wouldn't be shown in the next quarter or is outside our numbers now one very optimistic because what I'm getting at finish on all the changes that you along.
In in.
I'm, sorry, I didn't know if even 20% of the vessels have been scrapped Bonescalpel Donny show, there's plenty of work still to be done in 2020 on chips converting or scrabble. It is we'll keep a lot of supply off the market. They are mostly listen the shipyard west seen ships up their spending I thought that it gets 60 or 65 days, what we describe as because all the working adult yachts well achieving that of course will should be out say roughly around 10 days on all ships. So what optimistic Oh, there's a there's actual wouldn't wouldn't keep late somebody can.
I really can't see levels for the next five or six quarters, that's not only for the next quarter.
Okay.
Got it and then one more quick one you meant highlighted some of the chemical cleaning and thanks, just wondering to understand if there is any dry docking attached to that or is that something that could actually be done during the course of operation.
No I live Lucas long said, it's in the course of operational but look us in most of the states.
Hey, look I mean that we have a specific schedule for or put it for all the advances at the well exceeding scrabulous. So where are you seeing a chemical that treatment or a leading bank getting in and put a two dives into we want a day slides or that he's a accumulated there. So basically we believe that we have quite that 80 to accept the a.
<unk> looks a bit.
It looks like we don't expect to have the downtime that.
We have started the process all the chemical cleaning fall madly in 2019. So these have already worked through the the banks and the early results are very close.
All right got it thank you guys.
Once again, if you do wish to ask a question. Please press star one on your telephone I'm like automated message. It finds in your line is open if you wish to cancel your request. Please press star tame.
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Hi, gentlemen, it's Randy given from Jefferies. How are you.
Hi, Hello, Hi, Hi.
All right. So a couple for me just looking at your fleet. You know you have five panamaxes over 15 years of age what appeared to be earning a discount to kind of the modern panamaxes in terms of their short term rates. So we do look to sell those assets ever knew your fleet with more modern second hand, and if so which asset class or would you like to growing.
Yes, local bullshit dalsa shoot saw that evening less because the ships we fix the when the market was low we decided to fix all shoots fall will be the ultimate instead of running through your <unk>.
The dollar some day in the first quarter, we decided the ball about time to fix up eight 910 piles on boneless roll all something like eight to 10 months speeding up the lucky to some better right.
So they are still running off on both numbers. So it's the winding outdoor <unk> of the chalk. This up we did in <unk> I live in the show we kept that because ships available to work the spot market them to be able to capitalize on the increase on the expected increase up I was always talking about so a very strong second half of the year on the Capesizes show will never stop and all that big ships on the spot market and it was hot chocolate and of course, some overall than smaller ones in the first half because you can understand you come up with the whole fleet in the spot market once the Dol.
When 5000 bone muscle she does on the Investor day, so that shot the sole coming all fall you know by the end of the year, we expect them to be early charter stuff much healthier rate. For example, we have a shoot up or I guess, the only one of our troponin streaks almost $20000 a day for the South America kind of go through their bodies. So this the ships can compete in the market as a matter of timing or when they will open a former employee.
All right and then just looking at fleet renewal.
Thoughts on maybe selling those buying more second hand, and if so what happened yet.
He is saying palco say bulk is when the do we do a small uplift that you all how's the how's the market thing boots, it wouldn't going to more than the shapes of less than five years old on or are you, saying, we don't want to we don't go out to the order book well, we already bought one new Salem, which is more than anybody else and next year and the way we want to do is a small fleet for the new one, but there's not that I time right now to do that for you literally you want because you know we are de leveraging as well we have the the investment in the scar best when we want to collect money from all these actions and then two to going to a bigger scale their fleet renewal.
Okay and in terms of asset classes across the board growing your case and look how they are our big ex that this is a panamax and post panamax, we will stay there or was there a bit of a flavor on the capesize as well, but capesizes. We prefer to go for then when we have a long period charters, rather not speculate ocean. The capesize market. Because you know we we don't have a big enough fleet. They have to compete there. Once you have a very big fleet on no Panamax Kamsarmax and post panamax. So so it's our our especially our lives national and connections and the market is in their comp so much the post panamax market is where we tend to concentrate.
Got it Okay and then.
Looking at your <unk>.
Balance sheet as your cash continues to increase I know tire currently than it was at the end of June scrubber, Capex will be winding down in the next few months.
So our additional share repurchases the number one use of cash after that or maybe look at buying back some of your preferred.
Yeah, Hey fleet is that even if the if the if the market.
And if we don't reflect if their share price does not reflect their current they improve the freight rate environment I think the best assumption would be that the share repurchase and then all the other spot we see how the market will lose forms in October or November as we are gathering pace and were getting closer to the to the eye a mall that line as you remember we are one of our all the only company that we will be 100% finished solution scrublands before the end of the year.
I've got a few companies in the world how about we'll be able to achieve this.
This the results to be ready on Crystal January already that lend out 2020 the spread between between them.
Aged edge polo, and the and the compliance through at least $220.
In Singapore.
Show and were still in September . So we expect this number to be increasing as we go now to January and that we're in a good position to capitalize on this investment, which we did tell you that the our scrubbers. They are technically they are performing excellently.
Well producing emissions from <unk> or much less than 8.1%.
Well, we can't trade. We described this normal conditions generic areas everywhere.
With a very comfortable law margins. So what we have to take that much muslin digital the of the.
Well the new regulation.
Okay, and then kind of lastly, touching on the scrubbers. We've heard of reports of delays you know 234 week, apparently you're not seeing that if you're still pretty confident that all your servers will be installed in the next three and a half months.
Yes, I think on the on your only 40% of the of the ships out there, we'll take scrubbers will be ready by December .
In comparison was safe bulkers, which wouldn't be hundred percent. So I've been working in a very good position because we moved early and we have they've got a good team set up in the shipyards. We did on all their work in the in the same a shipyard and there we achieved very good those are already we'll have our pipe ships that I mean I have more will be done in this month in September .
So going by the by the end of December we will help them 19 out of 20 ships are working and it will have their scrabulous operationally on the last one that we don't Harvey said, one of our long periods or Capesize, which they investment is being done by the charters will this will be early next year. So where we are in a very good position I think there are many companies up or they will not be even not 30 or 40% of their work by the end of the year in the some of them they wouldn't be going through in the event during 20 plant in the <unk>.
Maybe even going to their lust.
Quartet overall 2020 to finish off their program show, where they were very good position would be.
Yes, but but for sure a big rebate pension where pay more attention not only in the installation by pushing the commissioning, which is very important and operation because you know everybody. We install the question is how you would have been 80 when it when it will be able to commit street finally, and how successful you vis a vis a we've been that will working your ship. So this is a very important compared lets say too just installing and if we've been because this is not a let's say a washing machine. It's a very big equipment that we need to be very careful you need to have to train people you need to have let's see come a little bit I commissioning you need to spend time and to be there will be a challenge for the market and I think that the two there were more prepared it compared to the others.
Got it okay. Thanks, again and good luck with that.
Thank you.
I would now like turn the conference back too tough to come by.
So thank you very much for a participating in this Ah a conference call and would be intentions were looking forward to for the next quarter, where we sent the headquarter financially sound. Thank you too.
That does conclude our conference for today. Thank you for participating you may all disconnect.
Thank you.
Okay. Thank you bye bye.
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