Safe Bulkers, Inc. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; the supplied text does not provide standalone fourth-quarter 2019 results.
Business context
Safe Bulkers is a Marshall Islands-incorporated drybulk shipowner transporting commodities including coal, grain and iron ore. At year-end it operated 41 vessels; the filing describes a 41-vessel fleet and one contracted resale newbuild expected to be delivered in 2020. The fleet is employed through a mix of period and spot charters. Financial statements are prepared under U.S. GAAP, and the auditor issued an unqualified opinion.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $206.7 million | $201.5 million |
| Net revenue, after commissions | $197.8 million | $193.2 million |
| Operating income | $44.1 million | $55.9 million |
| Net income | $16.0 million | $27.7 million |
| Basic and diluted earnings per common share | $0.04 | $0.16 |
| Cash from operating activities | $58.3 million | $85.4 million |
| Cash, cash equivalents and time deposits | $106.4 million | $81.8 million |
| Total assets | $1,114.6 million | $1,076.2 million |
| Total liabilities | $624.7 million | $593.4 million |
| Total debt outstanding | $605.8 million | $579.6 million |
Operating margin was approximately 21.3% in 2019 versus 27.7% in 2018; net margin was approximately 7.8% versus 13.7%. Year-end current assets were $136.0 million and current liabilities were $86.8 million. The company reported $13.7 million of restricted cash, primarily held under borrowing arrangements or guarantees. Of total debt, $65.5 million was scheduled for repayment within the following 12 months.
The reported time charter equivalent (TCE) rate declined to $12,805 per available day from $13,102. Fleet utilization on ownership days decreased to 93.63% from 96.62%. Vessel operating expenses rose to $68.6 million from $63.5 million; daily vessel operating expenses increased to $4,582 from $4,360. No impairment loss was recorded in 2019 or 2018.
Material changes versus 2018
- Revenue rose 2.5%, reflecting higher prevailing charter rates and ballast bonus earnings, while net income fell 42.1% and operating income fell 21.2%.
- Voyage expenses more than doubled to $13.7 million, mainly due to vessel repositioning costs and lower fuel resale prices on delivery. Vessel operating costs increased 8.0%, including higher drydocking, repair, lubricant and stores costs.
- Operating cash flow decreased by $27.2 million. Management cited increased operating and voyage cash outflows and management fees; working-capital movements also affected cash generation.
- Debt increased by $26.2 million. Interest expense rose 4.3% to $26.8 million, alongside a higher average borrowing rate: 4.624% versus 4.428%.
- Revenues from spot time and voyage charters rose to 32.3% of charter revenues from 19.8% in 2018, increasing exposure to market-rate fluctuations.
Liquidity, capital allocation and outlook
Management reported liquidity of $178.0 million at December 31, 2019, including cash, cash equivalents and time deposits, restricted cash, $20.0 million available on a revolving facility, potential post-delivery financing for the newbuild and sale-and-leaseback refinancing surplus. These components include restricted or committed amounts and should not be treated as equivalent to unrestricted cash. Management said existing liquidity, operating cash flow and committed financing were expected to cover operations and stated capital needs at least through the end of the first quarter of 2021; it also noted possible refinancing and future financing needs.
At year-end, remaining newbuild and vessel-upgrade commitments were approximately $28.6 million in total, including $22.9 million for the newbuild and $5.1 million for scrubber and ballast-water treatment system (BWTS) commitments. The company expected the newbuild in the second quarter of 2020. Its 2020 plan included five additional scrubber installations and nine BWTS installations, subject to timing and shipyard availability.
As of March 13, 2020, the company reported that 25% of expected ownership days for the remainder of 2020 were contracted, at a contracted TCE rate of $14,014. This is a dated operating snapshot, not a full-year earnings forecast. The filing does not provide formal earnings guidance.
Management commentary, risks and unusual items
- Coronavirus and market conditions: The filing describes early-2020 COVID-19-related trade disruption, charter-rate weakness and possible delays to port activity, crew changes, repairs, drydockings, scrubber/BWTS installations and newbuild delivery. The impact on results could not be estimated in the filing.
- Asset values and covenants: The company said it complied with debt covenants at December 31, 2019. However, broker estimates put 29 vessels’ market values below carrying value by an aggregate $153.9 million. The impairment analysis identified no impairment using management’s projected cash flows and assumptions; alternative five-year historical rates would have implied an $83.9 million impairment in aggregate.
- Debt and refinancing: Debt is substantially secured by vessel mortgages or sale-and-leaseback arrangements and is mostly floating-rate. Covenants include vessel-value, leverage, net-worth, interest-coverage and minimum-cash requirements. In March 2020, the company entered into interest-rate swaps covering $50.0 million notional through September 2024, at an average fixed rate of 0.798%.
- Regulatory investment: The IMO 0.5% sulfur cap took effect January 1, 2020. Scrubber investment returns depend partly on the price spread between compliant fuel and high-sulfur fuel; fuel-price changes, scrubber performance and installation delays could reduce returns. BWTS installation across the fleet was expected to continue through 2022.
- Customer concentration: Glencore Agriculture B.V. generated 21.03% of 2019 revenue and Bunge S.A. generated 10.37%. Two charterers together accounted for 31.40%.
- Dividends and ownership: The company paid no common-stock dividend in 2019 and said it did not currently intend to resume one. It paid $0.50 per share quarterly on Series C and Series D preferred shares. The Hajioannou family held approximately 50.43% of common shares as of March 13, 2020. Management and service arrangements with affiliates create potential conflicts of interest.
- Other items: Ten Iranian port calls in 2019 generated approximately $5.0 million of gross charter revenue attributable to 348 port days; the company stated it did not believe the activity was sanctionable. The filing reported no material pending litigation and no off-balance-sheet arrangements. Management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether post-filing charter rates, utilization and customer demand support the March 2020 contracted TCE snapshot, particularly amid COVID-19 disruption.
- Actual cash availability after distinguishing unrestricted cash from restricted cash, time deposits and undrawn or conditional financing; also verify debt maturities and covenant headroom.
- Actual newbuild delivery, scrubber and BWTS installation timing, total remaining costs and realized fuel-spread benefits.
- Vessel market values and impairment sensitivity to charter-rate assumptions, given the disclosed gap between broker values and carrying values.
- Charterer concentration, counterparty payment performance and the renewal or repricing of charters as they expire.
- Preferred dividend capacity, the absence of common dividends, and the terms and effects of share repurchases and sale-and-leaseback financing.