Safe Bulkers, Inc. — FY2015 Form 20-F
Business context and reporting period. Safe Bulkers provides international drybulk transportation, primarily for coal, grain and iron ore. This is the audited annual report for the fiscal year ended December 31, 2015, prepared under U.S. GAAP; it is not a quarterly report. At year-end, the company reported 36 vessels, while its February 5, 2016 fleet disclosure showed 37 vessels, including a January delivery. Results are reported in U.S. dollars.
Key financial metrics
| Metric | FY2015 / December 31, 2015 | Prior comparable period |
|---|---|---|
| Revenue | $132.4 million | $159.9 million in 2014 |
| Net revenue, after commissions | $127.3 million | $154.1 million in 2014 |
| Operating income (loss) | $(32.0) million; operating margin about (25.1%) of net revenue | $26.7 million in 2014 |
| Net income (loss) | $(47.9) million; loss per common share $0.74 | $14.6 million profit; earnings per common share $0.06 in 2014 |
| Operating cash flow | $25.5 million | $43.7 million in 2014 |
| Investing cash flow | $(182.2) million | $(67.0) million in 2014 |
| Financing cash flow | $180.1 million | $65.9 million in 2014 |
| Cash and cash equivalents | $130.7 million; plus $1.5 million short-term time deposits and $72.3 million restricted cash | $107.3 million cash and cash equivalents; $10.9 million restricted cash in 2014 |
| Total debt | $671.7 million principal outstanding; $80.1 million current debt and $16.8 million associated with assets held for sale | $469.6 million principal outstanding in 2014 |
| Total assets / shareholders’ equity | $1,309.6 million / $634.1 million | $1,176.4 million / $700.1 million in 2014 |
- TCE rate fell to $8,770 per available day from $12,007 in 2014; fleet utilization declined to 96.59% from 98.81%.
- Vessel operating expenses rose to $55.5 million, but daily operating expense decreased 2.2% to $4,377. Depreciation was $47.1 million.
- Interest expense increased 40.9% to $11.7 million. The weighted average debt interest rate increased to 2.184% from 1.698%.
- Liquidity figures vary by definition and date in the filing: year-end cash and cash equivalents were $130.7 million; management also cites $132.2 million in cash and time deposits. Restricted cash is not freely available for general purposes.
Material changes versus 2014
- Revenue fell 17.2%, principally as weaker charter rates reduced TCE by 26.9%; additional vessel operating days partly offset the rate decline.
- The company recorded a $22.8 million impairment charge: $12.9 million for the Stalo and Kypros Unity, classified as held for sale, and $9.9 million of advances on two newbuild contracts intended for novation. No impairment was recorded in 2014.
- Debt increased by $202.1 million, primarily reflecting borrowings associated with fleet investment and refinancing. Financing cash flow included $446.9 million of debt proceeds and $243.7 million of principal repayments.
- Common dividends fell to $0.04 per share for the year from $0.22 in 2014. Preferred dividends remained $2.00 per share for each outstanding Series B, C and D share during 2015.
- Four vessels were sold and leased back under ten-year bareboat arrangements with purchase obligations; the company accounted for the arrangements as financing transactions.
Outlook, commentary, risks and unusual items
- Management describes drybulk markets as exceptionally weak and volatile: the Baltic Dry Index reached 471 in December 2015 and 290 in February 2016. As of February 5, 2016, 16 of 37 vessels had period charters with more than three months remaining; 21 vessels were expected to be available for employment in the first half of 2016.
- As of February 5, the company had contracted 42% of expected ownership days for the remainder of 2016, at a contracted TCE rate of $9,368. Management estimated existing cash, contracted operating cash flow and committed borrowing capacity would cover fleet operations and capital requirements through the end of 2016; additional financing might be needed in 2017 or 2018. This is management’s estimate, not a firm earnings forecast.
- Six newbuild commitments remained as of February 5, with $135.6 million of remaining payments scheduled through 2018; one contract was under negotiation to be novated. Newbuilds were unchartered at that date. Delivery delays, funding constraints, weak rates or lower vessel values could strain liquidity and covenant compliance.
- Debt covenants include vessel-value tests, leverage and net-worth requirements, an EBITDA-to-interest minimum of 2.0:1 under certain guarantees, debt limits, and restrictions on dividends. The company reported compliance at December 31, 2015. A 100-basis-point LIBOR increase was estimated to add $3.5 million of interest expense in 2016.
- In February 2016, related-party transactions approved by a committee of independent directors included planned sales of the Stalo for $9.0 million and Kypros Unity for $20.0 million to entities controlled by CEO Polys Hajioannou, and novation of the Hull 1718 newbuild contract; negotiations on Hull 1552 continued. The company said sale prices represented the higher of two independent appraisals. Verify completion and final terms.
- Charterer Daiichi entered Japanese civil rehabilitation proceedings and terminated a ten-year charter for Kypros Sky. Safe Bulkers filed a claim in those proceedings; recovery is uncertain. Two charterers accounted for 23.46% of 2015 revenue.
- The company disclosed an NYSE notice that its common stock failed the $1.00 minimum average closing-price standard and said it intended to cure the deficiency; continued compliance was not assured. The common stock traded as low as $0.80 in 2015.
- Other material exposures include further declines in charter rates and vessel values, customer concentration and defaults, refinancing and newbuild funding, fuel and currency movements, environmental rules and operating risks. The company had no outstanding currency hedges at year-end.
- The board determines dividends at its discretion; common dividends are subordinate to preferred dividends and subject to liquidity, law and debt restrictions. The company had an active program to repurchase up to $20 million of preferred shares.
Most important facts for investors to verify
- Current unrestricted cash and borrowing availability, near-term debt repayments, and the treatment and accessibility of restricted cash.
- Actual charter coverage and achievable TCE rates as contracts expire, including results of employment for previously unchartered newbuilds.
- Newbuild payment schedule, delivery status, financing and final outcome of the Hull 1552 novation negotiations.
- Completion, proceeds, debt repayment and related-party terms for the Stalo and Kypros Unity sales and the Hull 1718 novation.
- Covenant headroom under updated vessel valuations, and the sustainability of common and preferred dividends.
- Progress toward curing the NYSE common-stock price deficiency and status of the Daiichi claim.
Filing assurance: The independent auditor issued an unqualified opinion on the 2015 financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective at year-end.