Safe Bulkers, Inc. — FY2014 Form 20-F
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a standalone fourth-quarter filing; standalone Q4 results are not clearly provided. Financial amounts below are in U.S. dollars unless stated otherwise.
Business context
Safe Bulkers provides international drybulk shipping services, principally transporting coal, grain and iron ore. At December 31, 2014, it had 32 vessels; four newbuilds were delivered during the year. By February 24, 2015, the fleet had grown to 33 vessels, with 11 additional newbuilds contracted for delivery through 2018. The company deploys vessels on period and spot time charters and reports under U.S. GAAP.
Financial and operating performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $159.9 million | $191.5 million |
| Net revenue, after commissions | $154.1 million | $186.7 million |
| Operating income | $26.7 million | $92.8 million |
| Net income | $14.6 million | $83.3 million |
| Net income available to common shareholders | $5.2 million | $81.5 million |
| Basic and diluted EPS | $0.06 | $1.05 |
| Operating cash flow | $43.7 million | $100.6 million |
| Investing cash flow | $(67.0) million | $(100.3) million |
| Financing cash flow | $65.9 million | $(38.3) million |
- Operating margin was approximately 16.7% and net margin approximately 9.2% in 2014, calculated using reported revenue; the corresponding 2013 margins were approximately 48.5% and 43.5%.
- Time charter equivalent (TCE) rate fell 34.4% to $12,007 per available day from $18,297. Operating days rose 16.2% to 11,174, while fleet utilization remained high at 98.81%.
- Vessel operating expenses increased 21% to $50.6 million; daily vessel operating expense rose 3.6% to $4,477. Voyage expenses increased to $19.4 million from $10.2 million, principally due to more spot-market employment and repositioning.
- Cash and cash equivalents were $107.3 million at year-end, up from $64.7 million; total cash and restricted cash was $122.5 million. Current assets were $135.9 million and current liabilities $28.7 million.
- Total debt was $469.6 million, including $17.1 million due within 12 months; shareholders’ equity was $700.1 million. The company reported compliance with all debt covenants at year-end. Debt facilities are secured principally by vessel mortgages.
Changes and unusual items
- Revenue declined 16.5% despite fleet growth, as weaker charter rates more than offset additional operating days. Net income fell sharply, reflecting the weaker operating environment and higher expenses.
- Reported 2014 operating income included a $4.0 million bunker-inventory valuation loss, a $3.6 million gain related to interest recovered after cancellation of a newbuild contract, and $0.5 million of net early-redelivery costs. The company also recorded a $2.0 million derivative loss.
- Preferred dividends of $9.4 million reduced net income available to common shareholders to $5.2 million. The company issued Series C and Series D preferred shares during 2014, raising approximately $133.4 million net of offering costs.
- In March 2014, the company recovered $31.8 million of advances, plus $4.5 million interest, after winning arbitration over cancellation of a delayed shipbuilding contract. A later costs award granted the company arbitration costs; recovery was still being pursued, and the company’s share was limited by insurance arrangements.
Liquidity, outlook and risks
- At December 31, 2014, contracted newbuild commitments were $304.6 million. After delivery delays and other updates, the company reported remaining commitments of $277.7 million as of February 24, 2015. Management expected cash, operating cash flow and available facilities to fund operations and committed capital spending through 2015; it said additional borrowing might be sought in 2016 or 2017.
- Drybulk conditions were weak and volatile: the BDI ranged from 723 to 2,113 during 2014 and stood at 516 on February 24, 2015. Management highlighted low charter rates and vessel values, fleet oversupply, and increased spot-market exposure. No specific earnings or dividend guidance was provided.
- Key risks include charter-rate and vessel-value declines, charterer default or renegotiation, newbuild financing and delivery risk, debt covenant compliance, and the ability to sustain dividends. Environmental regulation, fuel and crew costs, foreign-currency exposure, operational incidents and insurance limitations are also material risks.
- The common dividend was reduced during 2014: three quarterly payments of $0.06 per share followed by $0.04 per share. The board declared a further $0.02 common dividend in February 2015. Preferred shares carry cumulative 8% dividends and rank ahead of common shares for dividends.
- The company reported no off-balance-sheet arrangements. The auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2014.
Important facts for investors to verify
- How much of the fleet’s future employment is fixed-rate versus spot or index-linked, and what charter rates will apply as existing charters expire.
- Whether operating cash generation and committed borrowing are sufficient for newbuild payments, debt service and preferred and common dividends, particularly beyond 2015.
- Current covenant headroom and vessel collateral values under the secured facilities, including any implications of further declines in vessel prices.
- Revised newbuild delivery schedules, remaining capital commitments and whether the 2014 arbitration cost award has been collected.
- The sustainability of common dividends after preferred dividends and capital spending, and the effect of related-party management fees and the controlling shareholder’s influence.