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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss the First Quarter 2023 Financial Results.
Today, 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 question-and-answer session. [Operator Instructions] Following this 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.
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 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 drybulk 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 to release publicly any updates or revisions to any forward-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'll pass the floor to Dr. Barmparis. Please go ahead, sir.
Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the first quarter of 2023.
During the first quarter of 2023, we operated in a relatively weak market compared to the previous year. Having comfortable liquidity and leverage, we terminated the ATM program, which has stopped [indiscernible] September 2021.
We have continued our buyback program targeting 10 million shares are repurchase, and declared a dividend of $0.05 per share of common stock. Our balance sheet is strong, the significant cash and developed capacity. Our capital requirements are substantially covered by our contracted future revenues on our capital structure is conservative.
Now, let's start with the market update on slide three. If you turn on the graph, the current profits of the market. Sales have recovered from the recent lows and drybulk freight markets overall will recover with China's easing as well COVD policy and in the active supply in [indiscernible].
Total consumption has declined with lower import demand and easing of supply chain issues. And the PANAMAX with the commodities market is likely to provide support to the current market growth in the second half of this year. It is worth noting that all our rates are pre-adjusted at an average value rate of $24,000.
Moving on to slide four, we present the development of our CRB Commodity Index, reflecting the basic commodity features of future prices, for example, energy, agriculture, and precious metals, and industrial metals, which represent [indiscernible].
Although the index currency stands at high levels, commodity prices declined sharply over the past six months following the cost with record high levels of last year resulting in June 2022.
After rising by 45% in 2022, commodity prices are projected to fall by 21% in 2023. We continue to witness rise in several bank interest rates as service maintenance aimed to fight inflation and [indiscernible] to reach expected to affect the global outlook.
To give every forecast of iron ore set the expected growth of global GDP to 2.8% for 2023 as global inflation projection for 2023 7% during the war induced broaden price pressures, improve energy prices and because the leading supply/demand imbalances.
In this environment, the forecasted global drive back demand growth is expected to increase only by 2% in 2023, with a forecasted a drop in iron ore by 1% as the construction activity remains muted as an expected drop in coal import demand as a result of higher domestic [indiscernible] in China.
Grains and soybean outlook, the demand remains positive as growth effectively and main harvest major exporting countries like USA and Argentina. In China, the IMF April projection growth of 2023 totaled 5.2% with major global and drybulk steel orders. GDP growth recorded to 4.5% year-on-year in Q1 2023 from 2.9% in Q4 2022. This was service growth recovery as service contributed by 3.1% growth, whereas the interest contribution accounted for around 20% [ph].
In March the non-manufacturing PMI rose to 58.2 [ph], the highest level in the [Indiscernible] and the impact PMI to 51.9%. Metal prices fell by 3% in [indiscernible] metal intent to recovery in China.
India margins and expectations reflected again in IMF April projection was 5.9%, increasing [Indiscernible]. Local investments in renewable electricity capacity will continue to rise. The global economy short-term basically on the course of the war in Ukraine and the possibility of other pandemic-related supply side disruption, for example, in China.
The World Bank commodity price index declined by 30% as the World Bank April 2023 projection compromised a 21% price drop in commodities for the 2023.
On the supply side on slide 5, the total drybulk order [indiscernible] single digit. For this reason, we remain cautious about medium prospects of the freight market. We remain cautious above the medium term of the freight market because more about 25% of the medium size fleet is older than 15 years, and scrapping is expected to accelerate as the combined effect of the environmental regulations kicking in from the 1st of January 2023.
With the gross margins at [Indiscernible] ships have more efficient design contract in needs. 80% of our [indiscernible] 40% of the global fleet, which means that our group considers more efficient basis compared to market average and can compete better in the new environment.
Furthermore, we are one of the very low -- very few drybulk companies to set an extensive order book after the last years. Our intention remains [Indiscernible] production and annual performance.
As seen in slide six, I talk to global business out of sales, only about 30% of drybulk fleet is expected to comply with EEXI without requiring modifications or upgrades. Safe Bulkers owning today 12 eco vessels have [Indiscernible] being at 2014 and an extensive orderbook of 12 Tier III newbuilds [indiscernible] have been upgraded by end of 2023 and at the same time, a major ongoing environmental upgrade program, increasing tenancy and that decommission and our group completing outbreaks [indiscernible] by the end of 2023. Furthermore so that is reducing from time-to-time by monitoring the development of alternative fuels.
Concluding our market view on slide seven. During 2023, there has been an increased industry price volatility driven by geographical disruptions and tight monetary policies. [Indiscernible] regulations and sale becomes increasingly important in drybulking and that is result, demand to technological efficiency create opportunities for those looking to import actual buckets has done.
Second environmental fleets may affect company valuations and we [Indiscernible] market with differential in capacity of such vessels. Furthermore, the combined effect of the ageing of fleet, the low orderbook and the reregulation to favor with more expecting a [Indiscernible] vessels and vessels delivering after 2014.
Limiting the vessels supply impacted the market even further. In this market of increased environmental base competition, let me turn on slide 8, second of our [indiscernible] with differentiated from our peers.
The strong alignment of interest with positive coming from our participation, the low level of 33% for comfortable liquidity, and contracted revenues our track record, the creation of invasive value through an extensive fleet expansion program with [indiscernible] and the environment upgrading our existing fleet including installation of new scrubbers.
All focus is now a [Indiscernible] systems, all of our goods will scrubbers by the beginning of 2024 and 20 vessels in the environmental upgraded by the end of this year. We are taking delivery of three Phase I [indiscernible] already. We have the best performing verses on the [Indiscernible] in the drybulk market globally. We intend to compete on the base of lower fuel consumption and environmental performance with all [Indiscernible].
Let's now focus on our liquidity, our cash flows and [Indiscernible] as presented in slide nine. While maintaining a comparable leverage of 43%, our debt of $430.2 million comparable to our fleet scrap value, which presently is $389.4 million, [Indiscernible].
Our weighted average interest rate stood at 4.63% for our consolidated debt approximate 100 million fixed at 2.95 coupon in a secured five year bond. We have paid $72.8 million for our capital expense guidance in relation to our orderbook [indiscernible] and the remaining capital expenses of $244.5 million negative.
Our liquidity and capital resentment are $355.9 million, is together with contracted revenue of $282.9 million, [Indiscernible] management and capital allocation.
Furthermore, we had additional borrowing capacity in relation to sales and intend of vessels and five newbuilds upon their delivery.
Moving to our dividend policy on slide 10, we declared a dividend of $0.05 per share over the last six consecutive quarters regarding our share purchase. At the same time, we have an active common share buyback program under which we have already repurchased 8.3 million shares such as May 2023 out of a total of 10 million shares strategy authorized under the repurchase program.
Furthermore, we have [indiscernible] program under which the last sale has occurred in September 2021. Total cost in this uncertainty of the capital markets and the world economy is that we continue to direct a portion of our free cash flow is to commence unique amount for newbuild program that will provide us with competitive advantage in terms of fuel consumption and environmental performance, while maintaining all the average operating activity and low levels.
Now, let me summarize the investment rationale of Safe Bulkers in slide 11. We believe that Safe Bulkers fundamentals offer financial flexibility to reflect market balances and the opportunities.
Safe Bulkers with its orderbook is among those coming, we will navigate environment challenges of the net transition that the aging drybulking and tackle the global uncertainties by utilizing the quality of its fleet and the efficiencies of this large scale environment upgrading program.
In parallel the company's expansion, we opened a meaningful [indiscernible] we believe we are positioned for the long run with an environmental base of balance. With our strong balance sheet and liquidity leverage comparable [indiscernible] scrub value secure cash flows from reliable counterparties. We will see focus fleet expansion with full Phase III using [Indiscernible] environmental regulations, the company experienced management team is well-positioned against market challenges [indiscernible] to take advantage of market opportunities.
Now, let me pass the floor to our CFO, Konstantinos Adamopoulos, for our financial overview.
Thank you, Loukas, and good morning to all. As a general note, during this quarter, we operated in a gradually weakening charter market environment compared to the same period in 2022.
We decreased revenues due to lower highs increased earnings from started vessels, increased operating expenses, and higher interest expenses due to increased interest rates.
In slide 12, we present a strong start and performance an example of our management alignment. We have the time-charter equivalent of [Indiscernible] compared with $21,300 during the same period in 2022.
Net income for the first quarter of 2023 reached $19.3 million compared to net income of $36.4 million during the same period in 2022. Daily earning expenses stood at $5,550 versus $5,722 last year, while our daily earning expenses, excluding drybulking and predelivery expenses stood at $5,132 versus $4,923 for the Q1 of 2022.
Our rolling OpEx and G&A of Q1 2023, which we believe is one of the most competitive compared to our peers stood at [indiscernible] and we know that this includes all our drybulking delivery expenses as well as all our [Indiscernible].
Moving on to slide 13, we have positive financial highlights for the first quarter of 2023 compared to the same period of 2022. Our adjusted EBITDA for the first quarter of 2023 stood at $23.1 million compared to $26.1 million for the same period in 2022.
On adjusted earnings per share for the first quarter of 2023 was $0.10, calculated on a weighted average number of 118.4 million shares compared to $0.24 during the same period 2022 calculated on a worked average number of 121.6 million shares.
If we turn to slide 14, our quarterly operational highlights for the first quarter of 2023 compared to the same period of 2022. We operated for 43.83 [ph] vessels on average and average time-charter equivalent of $15.760 million compared to 39.54 vessels earning an average time-charter equivalent of $21,354 in the same period in 2022.
On slide 15, we present our low breakeven point for Q1 2023, which we believe is one of the lowest in the industry. The global economy is experiencing multiple challenges. Inflation is higher than seen in several decades, tightening financial conditions in more regions, continued war in Ukraine all have very heavily wage on the market outlook. As our main focus is lean operations in this inflationary environment.
Based on a satisfactory financial performance, the company's Board of Directors declared the dividend for common share. It is likely concerns that the company is maintaining a heavy cash position of about $90.7 million as of May 2023, another $119 million in revolving credit capacities, an additional $128.2 million in borrowing capacity. The combined liquidity and capital resources of $351 million that provides us with significant [indiscernible] power.
Additionally, we have contracted revenue from [Indiscernible] charter tenders in excess of $205 million, not on commissions and excluding from revenue from certain vessels as well as additional borrowing capacity in relation to several and unencumbered existing vessels and five newbuilds upon their delivery.
We believe that the strong liquidity and relatively low leverage with enable us a good flexibility with our capital structure, expanded fleet, [indiscernible] rewarding our shareholders and taking advantage of opportunities that may arise.
Thank you. And we are now ready for the Q&A session.
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions]
Thank you. And our first question is from the line of Chris Wetherbee of Citigroup. Please proceed with your questions.
Hey thanks. Good afternoon guys. Maybe I could start on the fleet. I'm curious how you guys think about fleet opportunities from here. Obviously, a pretty tight order book relative to what we've seen over the past. And so I'm curious how you guys think about approaching it? Are there going to be newbuilding opportunities for you that you'd like to execute on at this point? The secondhand make more sense? Or given where vessel values does it make sense just kind of to stay on pattern, sort of see how things develop over time? Just kind of curious how you're thinking about that right now.
Hi Chris. Probably have asked about newbuild, I guess, whether the terms of opportunities if we are mixed it well.
Correct, yes.
Okay, because the line is not so clear. Okay. Right now, I think the new big market is a little bit confusing because we see price is rising because of demand created from other sectors. And we don't have a clear path what will be the next fuel available for new bids and since we have still at vessels, 9 vessels to be delivered from our existing building program in base low consumption yielding.
We are not passing to making some investment in fuel ships because simply we don't have a clear view. We know we are trying to monitor the market, but we don't have a clear view. So I think like us, there are many people with the same confusion at the moment, at least in the drybulk sector.
I think container ships is more clear. They have more options there. But in drybulk, we don't have that main option. So at the moment, you will see very small order for 2025, and they are very much full. And if someone wants to consider design of yet, the availabilities at 2026 and 2027. So it's very, very far away.
So also for that delivery transitions, you have to bear in mind the high interest cost of the delivery installments. So right now, I don't think that the market will see many more new business owners, I think we'll wait to have more catalyzed designs in front of them.
Okay. That's helpful. I appreciate that color. And then I guess as you think about scrubbers in particular, I know you've highlighted some of the hurdles and opportunities, I guess, as well in terms of emissions and sort of how much the fleet sort of meets the rent in future emission standards, I guess, as you think about your approach to that market and then maybe scrubbers in particular. Is that still an investment that is worthwhile?
So I guess two questions on existing vessels. Is there a desire or an idea that you might do more of that? And number two, the vessels that you have the scrubbers on, do you feel like they're earning a reasonable return understanding that probably some of those were or most of those were underwritten by your customers. So just kind of want to get a sense of your thoughts on scrubbers generally.
Scrubber spreads below 150, the option to invest in scrubbers is not so attractive because you have to remember at the same time, almost are making environmental investments and they are reducing 10% of consumption of the vessels. So we will see scrubber spread going in the future about 150, then we may see more scrubbers being placed. But the current spread is heading towards 120. It's not so active to make new investments well.
Our services we have done above the scrubbers now to allow tapes -- by the end of the year then they will have gas scrubbers. It takes turning around 35 to 40 tons a day. So there, it's a more viable proposal, but smaller ships, I don't think anymore is viable to sports scrubbers. So I think that the payback time is much longer than what it used to be.
Okay. All right. That's helpful. Thanks very much.
Having said that, companies that invested in scrubbers in 2018, 2019, and we've been working them after the middle of 2020. I think we made back [indiscernible].
Okay. That's a fair point. Great. Well, thanks very much for the time. I appreciate it.
Thank you. [Operator Instructions] Next question is from the line of Omar Nokta with Jefferies.
Thank you. Hi, guys. Good afternoon. Just wanted to maybe touch a little bit on capital allocation. Obviously, your strategy there has been fairly balanced. You've got the dividend, the buyback, which is fairly active recently. Acquisitions, with the new buildings and focusing on the balance sheet and making sure that debt is getting paid down.
Just wanted to ask about how you are thinking about the fleet as it is going forward. You outlined in the report, you have the 44 vessels of which 12 were eco-designed, built after 14, and you have the three very modern one of the Phase 3. You've also got the 9 newbuildings that are coming on.
How should we think about those new buildings as they deliver and what the plan is for sort of that existing fleet today that isn't mentioned as being in that eco portion of the business. So basically, call it, 20, 25 vessels that make up your older age fleet. What's your plan with those especially as you start taking delivery of the new building?
Okay. First of all, I will say a few things about our capital allocation. So basically, at an early stage, then we decide about the dividend we felt that meaningful dividend policy also to buy that a reasonable portion of our free cash flow towards the investment in new builds. So our leverage our loan to value will not be tepid in the following years. So we're going to see something like in the range also loan-to-value, which we feel very comfortable.
The second one of our policy is that we have a substantially contracted revenue. So we have visibility in order to get our dividend. And we also have substantial liquidity in order to take -- to be able to take an action opportunities that they arise in the market.
Now in terms of our fleet, you can see that the end of 2025, half of the fleet basically will be either a position vessels, which will be, I think, a very impressive figure. The other cap could probably consists of 25 vessels, 20 of them will be upgraded within 2023, which means that an efficiency in the range of about 10% increase efficiency in the range of 2020 -- 10% will be there.
And also, the other part is that our ships Japanese build, which are inherently more efficient than the other. I think the most of the remaining bit, which is by about 50% Chinese general is more [indiscernible]. So I think that the company will be very comfortably, be able to compete on the basis of fuel performance, having about half of the fleet newbuild Phase 2 Eco and the other have upgraded fleets, which basically 8% of the newbuild.
Okay. That's a very good overview. I appreciate that. I think earlier in the -- I think it was in response to Chris' question about new buildings and you highlighted the you'd have to go out to 2026 or 2027 to take delivery. And again, there's uncertainty in propulsion. Earlier this year, you had added to your Cancer MAX, I believe, Tally with the 2025 delivery. If I remember it was the first half of 2025. If you guys were to place an order, is that achievable again to be able to get something in the first half of 2025? Or is it basically now the window it's passed and we're looking at 2026, 2027.
In Japan, it's very hard to find the new builds in 2025. It's 2026 onwards. If you go also to see there are any all possibilities -- at the moment, we have to go to late 2026, early 2027. And even there, we do a the designs are viable and decide the shipyards are really -- well by the yards they are at a very primary stage. And I think ship owners in general are very skeptical which part -- for what we have an ongoing program of nine ships to be delivered, so we don't have real insight to do some moves on something very simply because we can renew our fleet with the addition of the ownerships giving the fleet which also were at a very good low price before during the start of the quarter.
So at a view can to wait another 6 to 12 months before we make a move. Of course, if we find the right opportunity earlier, and we have a clear sign that what is going to be coming, we will consider some more ships. But I don't see really as we iterate turnaround of 5% plus the margin of the banks not 7%. I don't see openings for 2027. It's still far away and be targets too much. So we defer the way for lateral -- now we will be selectively sending our other ships or ships being further five years also around 15 years old.
Since we already have the replacement come, and we wait and see how the market deals. The interesting thing is despite the trade markets have been underperforming the first 4 months of five months of this year, the content. So we have silver prices are increasing. So home prices have increased, so either the market has to go up and all spaces were have to come down.
So there will be plenty of opportunity to gain one way or another. So we don't need to make more moves at the moment simply because they are very well placed. And we have to wait a little bit in the market in term going to be next year. Our prices if the market doesn't come up in the second half of this year, maybe prices will correct secondhand pricing will correct. So it will be in the investment opportunity will come to invest on existing modern ships under seven, eight-year range. So we have to compete [indiscernible].
Thank you. Yes. Actually, that was just going to be -- going to have a follow up on that.
At the same time, if I may add, at the same time, we have about NAV is trading at 50% of the value of the fleet. If prices continue to go up and our NAV is taking it's much healthier to invest the shareholders' money in buyback of own stock, which lately as you have seen, we have stepped up a bit on that front. So this program may continue. We'll see how things develop. If we don't see appreciation of our share price, we continue and asset prices keep improving, and we'll continue investing in our shares.
That sounds good, and it's very clear. I'll -- that's it for me.
Thank you.
Thank you. At this time, there are no additional questions. I'll turn the floor back to management for closing remarks.
Okay. Thank you very much for attending this conference call and our first quarter financial results. And we are looking forward to discuss again with you in the next quarter. Thank you to all.
Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.