Safe Bulkers, Inc. — FY 2013 Form 20-F
Reporting period: Year ended December 31, 2013. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide clear Q4-only financial results. Amounts below are in U.S. dollars unless noted.
Business context
Safe Bulkers provides international drybulk shipping services, principally transporting coal, grain and iron ore. At year-end 2013 it reported 28 vessels and eight contracted newbuilds; by February 25, 2014, following deliveries, it reported a 30-vessel fleet with capacity of 2.79 million dwt and eight further newbuilds scheduled through 2016. The company uses period and spot time charters. Its financial statements are audited and presented as U.S. GAAP, although the accounting-basis checkbox on the cover appears to indicate IFRS.
Financial results and position
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Revenue | $191.5 million | $187.6 million | +2.1% |
| Net revenue after commissions | $186.7 million | $184.3 million | +1.3% |
| Operating income | $92.8 million | $112.0 million | -17.1% |
| Net income | $83.3 million | $96.1 million | -13.4% |
| Basic and diluted EPS | $1.05 | $1.27 | Lower |
| Operating cash flow | $100.6 million | $105.1 million | -4.3% |
| Cash used in investing | $100.3 million | $158.1 million | Lower use |
| Cash used in financing | $38.3 million | Cash provided: $127.7 million | — |
- Reported operating margin was approximately 48.5% and net margin approximately 43.5%, calculated using revenue as the denominator.
- Time charter equivalent (TCE) rate fell 20.4% to $18,297 per available day, while operating days rose 25.6% to 9,615. Fleet utilization was 98.99%, versus 99.20% in 2012.
- Vessel operating expenses rose 21.7% to $42.0 million, primarily with fleet growth; daily operating expense declined 3.5% to $4,320. Voyage expenses rose to $10.2 million from $7.3 million.
- At December 31, cash and cash equivalents were $64.7 million, restricted cash $8.2 million and current assets $173.2 million. The company also held a $50.0 million floating-rate note investment, classified as current at year-end.
- Total debt was $508.3 million, including $35.2 million due within 12 months, down from $615.7 million a year earlier. Total assets were $1.112 billion and shareholders’ equity $578.3 million. The company reported compliance with debt covenants at year-end.
- Common dividends declared were $0.21 per share for 2013; preferred dividends paid totaled $0.77222 per Series B share. A further $0.06 common dividend was declared in February 2014.
Material changes versus FY 2012
- Revenue edged higher as fleet expansion and more operating days offset lower charter rates. Lower TCE rates contributed to reduced operating income and net income.
- Operating income included $7.1 million of early-redelivery income, down from $11.7 million in 2012. Excluding this item, reported operating income was also affected by increased fleet-related depreciation and operating costs.
- Interest expense was nearly unchanged at $9.1 million. Derivatives produced an $0.8 million gain, compared with a $5.4 million loss in 2012.
- Debt declined after $123.4 million of principal repayments; financing cash flow also reflected common and preferred equity proceeds. Cash and cash equivalents fell by $38.1 million during 2013.
- Two charterers accounted for approximately 45.7% of 2013 revenue, down from 62.9% in 2012. The filing identifies Daiichi and Kawasaki Kisen Kaisha as the largest customers.
Outlook, risks and unusual items
- Management expected available liquidity, operating cash flow and committed financing to cover fleet operations and capital requirements through the end of 2014. It said it might seek additional debt in 2014 or 2015 to maintain liquidity; this is not a quantified earnings forecast.
- As of February 25, 2014, remaining newbuild commitments were $201.2 million: $54.2 million payable in 2014, $125.5 million in 2015 and $21.5 million in 2016. Several newbuilds lacked contracted charters, exposing future earnings to market rates and delivery timing.
- Management highlighted volatile drybulk rates and vessel values, potential global vessel oversupply, charterer concentration and default risk, and the possibility that lower vessel values could pressure collateral and financial covenants. Twelve of 30 vessels were deployed or scheduled for period charters with more than three months remaining, as of February 25, 2014.
- The company reported an arbitration award in January 2014 supporting its cancellation of a delayed Capesize newbuild contract and ordering a refund of $31.8 million in advances plus interest. The appeal period lapsed around February 24, 2014, but collection was not assured. The company said it would recognize a related gain when cash was received.
- Interest-rate swaps covered 86.6% of LIBOR-linked loans at year-end; a 100-basis-point LIBOR increase was estimated to increase interest expense by $1.0 million in 2014. The company had no currency hedges in place and reported exposure to non-dollar operating costs.
- Environmental rules, including ballast-water treatment requirements, may require investment and increase operating costs. The company stated it did not expect significant vessel-modification spending in the current or following fiscal year, while also describing future regulatory costs and requirements as uncertain.
- Related-party governance is a consideration: the Manager is controlled by CEO Polys Hajioannou, and the Hajioannou family controlled approximately 56.84% of common shares. Management fees are payable irrespective of profitability.
- The annual report states that disclosure controls and internal control over financial reporting were effective at December 31, 2013, and the auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile the cover’s apparent IFRS accounting-basis selection with the filing’s repeated statements that audited financial statements use U.S. GAAP.
- Track realization and timing of the $31.8 million shipyard refund and related interest; the award did not guarantee collection.
- Confirm financing, delivery dates, total remaining cash requirements and charter coverage for the eight newbuilds, and assess the sensitivity of returns to spot and short-term charter rates.
- Monitor cash, debt maturities, covenant headroom, vessel collateral values and the floating-rate note’s October 2014 maturity; verify the availability and conditions of undrawn facilities.
- Assess customer concentration and upcoming charter expirations, including the ability to replace charters at acceptable rates.
- Review dividend capacity and preferred-share priority alongside newbuild spending, debt service and any additional financing needs.
- Check the treatment of early-redelivery income and other non-recurring items when evaluating recurring operating performance.