Business context and reporting period
Safe Bulkers, Inc. filed an annual Form 20-F for the fiscal year ended December 31, 2018, prepared under U.S. GAAP. This is not a standalone fourth-quarter filing; the text does not provide a clear Q4-only set of financial results.
The company provides global drybulk shipping services, primarily transporting coal, grain and iron ore. It operated an average of 39.9 vessels during 2018. As of March 8, 2019, it reported a 41-vessel fleet with 3.777 million deadweight tons and one newbuild expected in 2020.
Key financial metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $201.5 million | $154.0 million |
| Net revenue, after commissions | $193.2 million | $148.0 million |
| Operating income (loss) | $55.9 million | ($69.3 million) |
| Net income (loss) | $27.7 million | ($84.7 million) |
| EPS, basic and diluted | $0.16 | ($0.98) |
| Operating cash flow | $85.4 million | $50.1 million |
| Investing cash flow | ($63.7 million) | ($39.6 million) |
| Financing cash flow | ($15.6 million) | ($47.1 million) |
| Gross debt at year-end | $579.6 million | $571.8 million |
At year-end, current assets were $101.3 million and current liabilities $54.6 million, implying working capital of approximately $46.7 million and a current ratio of about 1.9. Cash and cash equivalents were $51.9 million, time deposits $29.9 million, and restricted cash $10.7 million; the company reported total liquidity of $92.5 million. Debt due within 12 months was $37.4 million. Total assets were $1.076 billion and shareholders’ equity $465.8 million.
The TCE rate rose to $13,102 per available day from $10,451; fleet utilization was 96.62%, compared with 98.67%. The company reported an operating margin of approximately 28.9% of net revenue.
Material changes versus the prior comparable period
- Revenue increased 30.8%, attributed to a 25.4% higher TCE rate and 2.9% more operating days, including contributions from two vessel deliveries/acquisitions.
- Net income swung to profit from a loss. A key comparison factor was the absence of a 2018 impairment charge, versus $91.3 million of impairment in 2017; 2018 impairment testing identified no impaired vessels.
- Vessel operating expenses rose 20.3% to $63.5 million; daily operating expense increased 14.4% to $4,360. Higher spares, stores, provisions, crew costs and nine drydockings contributed.
- Interest expense increased 10.8% to $25.7 million. The average borrowing rate rose to 4.428% from 3.838%, largely reflecting higher U.S. dollar LIBOR.
- Operating cash flow rose by $35.3 million. Investing outflows increased, including because there were no asset-sale proceeds in 2018, versus $20.5 million in 2017.
Outlook, risks, contingencies and unusual items
- Management outlook: The company said operating cash flow, existing cash and equity issuance capacity should cover operations and current requirements, including capital expenditures, at least through the end of Q1 2020. This is management’s assessment, not formal earnings guidance.
- Near-term employment: As of March 8, 2019, 39% of expected ownership days for the rest of 2019 were contracted, at a reported contracted TCE rate of $14,055. The Baltic Dry Index was 649 on that date, after volatile conditions in 2018 and early 2019. Charter expiries and spot-market rates could materially affect results.
- Capital commitments: Remaining newbuild expenditure was reported at $30.4 million, with $7.0 million scheduled in 2019 and $23.4 million in 2020. Remaining Scrubber and ballast water treatment system (BWTS) commitments were $26.7 million, including $22.5 million scheduled for 2019. The company planned 12 BWTS installations and 19 Scrubber installations during 2019.
- Market, debt and liquidity risks: Drybulk rates and vessel values are cyclical; lower vessel values could pressure collateral and financial covenants. The company reported compliance with covenants at December 31, 2018. Most facilities have floating-rate exposure, and no interest-rate swaps were outstanding at year-end. The filing also identifies refinancing, LIBOR transition, currency, customer concentration and charterer-default risks.
- Environmental and fuel uncertainty: The IMO 0.5% sulfur fuel cap took effect January 1, 2020. The economics of Scrubbers depend partly on the price gap between compliant fuel and heavy fuel oil; supply, compatibility, installation timing and regulatory restrictions remain uncertainties.
- Customers and Iran calls: Glencore Agriculture and Bunge accounted for 28.49% of 2018 revenue combined. The company disclosed five 2018 Iran port calls involving grain cargoes and approximately $1.6 million of gross charter revenue for 119 port days. It stated that it did not believe the activities were sanctionable; U.S. nuclear-related sanctions were reimposed in August and November 2018.
- Dividends and capital allocation: No common dividends were declared in 2018, and the company stated it did not intend to pay common dividends currently. Series C and D preferred dividends continued at $0.50 per share quarterly; Series B preferred shares were fully redeemed in February 2018. A common-share repurchase program was announced in December 2018.
- Governance and related parties: The Managers are controlled by CEO Polys Hajioannou and received $16.5 million in management fees in 2018. The Hajioannou family controls approximately 51% of common shares, creating governance and related-party considerations.
- Audit and controls: Deloitte issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective. The filing reported no material pending legal proceedings or material off-balance-sheet arrangements.
Important facts for investors to verify
- Review the audited statements and notes for debt maturities, the $37.4 million current debt portion, covenant definitions and available liquidity, including restrictions on cash.
- Check subsequent charter coverage, realized TCE rates, vessel utilization and market conditions; the reported 2019 employment figures are dated March 8, 2019.
- Track Scrubber and BWTS installation schedules, total costs, vessel downtime and the realized compliant-fuel/HFO price differential.
- Assess exposure to the two largest charterers and confirm the compliance and disclosure status of Iran-related voyages.
- Evaluate preferred dividend obligations, common-share repurchases, potential equity issuance for the newbuild and related-party management fees.