Safe Bulkers, Inc. — FY2017 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a quarterly filing. Financial statements are prepared under U.S. GAAP and audited; the auditor issued an unqualified opinion on the financial statements and internal controls.
Business context and financial performance
Safe Bulkers provides international drybulk transportation, principally of coal, grain and iron ore. It operates a mix of period and spot time charters. During 2017, the average fleet was 38.0 vessels; as of February 9, 2018, the fleet comprised 39 vessels with 3.51 million dwt and an average age of 7.6 years.
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $154.0 million | $114.0 million |
| Net revenue, after commissions | $148.0 million | $109.8 million |
| Operating loss | $69.3 million | $31.4 million |
| Net loss | $84.7 million | $56.0 million |
| Loss per common share | $0.98 | $0.83 |
| Cash from operating activities | $50.1 million | $13.5 million |
| Cash used in investing activities | $39.6 million | $39.9 million |
| Cash used in financing activities | $47.1 million | $83.9 million |
Revenue rose 35.1%, primarily as the time charter equivalent (TCE) rate increased 36.5% to $10,451 per available day and operating days increased 5.0%. Fleet utilization improved to 98.67% from 97.27%. Net revenue as a share of revenue was approximately 96.1%; operating loss was approximately 46.8% of net revenue. These margins reflect the substantial impairment charge.
Financial position, liquidity and capital
- At December 31, 2017, total assets were $1.035 billion, total liabilities $578.7 million and shareholders’ equity $456.3 million. Current assets were $79.1 million and current liabilities $36.9 million.
- Cash and cash equivalents were $46.2 million; time deposits were $12.2 million and restricted cash was $10.3 million. The company reported total liquidity of $68.7 million, including these balances.
- Gross debt outstanding was $571.8 million, including $26.6 million due within 12 months. Debt declined from $587.7 million at year-end 2016. The company reported compliance with all debt covenants at year-end.
- Operating cash flow improved to $50.1 million, but cash, cash equivalents and restricted cash together declined by $36.5 million. The company used $39.6 million in investing activities and $47.1 million in financing activities.
- Year-end newbuild commitments were approximately $27.0 million to shipyards/sellers, payable in 2018; the remaining purchase commitment was reported as $27.6 million in the liquidity discussion. Management said available resources and expected financing would cover current needs and capital commitments at least through the end of Q1 2019.
Material changes and unusual items
- Impairment loss increased to $91.3 million from $17.2 million. The 2017 charge wrote down four vessels—Panayiota K, Efrossini, Venus History and Andreas K—whose carrying amounts were not recoverable under management’s assumptions. In Q4, the company changed its impairment methodology by excluding the 2008 charter-rate outlier from the historical average; management said this reduced the applicable ten-year average rates by about 25%–34%, depending on vessel class.
- Interest expense increased 18.4% to $23.2 million as the average borrowing rate rose to 3.838% from 3.290%, partly offset by lower average debt. A $8.2 million gain on debt extinguishment contributed to other finance income of $7.7 million.
- Vessel operating expenses increased 6.7% to $52.8 million; daily operating expense rose 3.0% to $3,810. Repairs, maintenance and drydocking costs and spares, stores and provisions were notable sources of increase. Voyage expenses fell 49.4% to $3.9 million, mainly due to lower repositioning costs and fuel prices.
- Cash from operations increased substantially versus 2016 as charter revenue recovered. The 2017 net loss nevertheless widened, principally because of the larger impairment charge and higher interest expense.
- The company completed a Series B preferred-share exchange offer in April 2017, issuing 2.21 million common shares and paying $24.9 million cash. The remaining 379,514 Series B shares were redeemed on February 20, 2018 for approximately $9.5 million, including accrued dividends.
Outlook, risks and contingencies
- Drybulk markets remained volatile: the Baltic Dry Index ranged from 685 to 1,743 during 2017. Management noted that charter rates had improved but were below profitable levels for much of the year.
- As of February 9, 2018, 27 of 39 vessels had period charters with more than three months remaining; 53% of expected ownership days for the rest of 2018 were contracted. The company reported a contracted TCE rate of $12,740 for the remainder of 2018. These are point-in-time disclosures, not formal earnings guidance.
- One Japanese-built Kamsarmax newbuild was expected in the first half of 2018. The company cited remaining expenditure of $27.1 million as of February 9 and planned to fund part of the vessel through $16.9 million of subsidiary preferred equity.
- Key risks include shipping-market cyclicality, vessel oversupply and asset-value declines; charter renewals and customer concentration (Bunge Geneva S.A. represented 12.72% of 2017 revenue); floating-rate debt and covenant compliance; and the ability to refinance or fund capital needs. A 100-basis-point LIBOR increase was estimated to add $4.6 million of interest expense in 2018.
- Environmental compliance may require material investment: ballast-water treatment systems are to be installed across the fleet over the next five years, and the IMO’s 0.5% global sulfur-fuel cap was scheduled for January 1, 2020. The cost and operational consequences of compliant fuels or scrubbers were uncertain.
- Management identified potential increases in crew, maintenance and drydocking costs as vessels age. Approximately 25.4% of 2017 vessel operating expenses were incurred in currencies other than the U.S. dollar; the company had no currency hedges outstanding at year-end.
- Common dividends have not been paid since 2015, and management said it did not currently intend to resume them. Preferred dividends remained subject to board discretion, liquidity, legal restrictions and debt covenants. Management agreements with related-party managers were due to expire in May 2018; terms of expected replacement agreements were not yet determined.
- The company disclosed four 2017 port calls to Iran, generating approximately $0.9 million of gross revenue, and stated it did not believe the activity was sanctionable. It reported no material pending or threatened legal proceedings and no material contingent liabilities requiring disclosure or accrual.
Most important facts for investors to verify
- Whether charter rates and contracted coverage support cash generation as existing charters expire, and how the 2018 contracted TCE compares with realized results.
- The assumptions behind the $91.3 million impairment, especially historical charter-rate selection, vessel valuations and sensitivity to future rates.
- Liquidity after the newbuild payment and Series B redemption, and the availability and terms of the planned $16.9 million subsidiary preferred financing.
- Debt maturities, covenant headroom and refinancing needs, including exposure to higher LIBOR and declining vessel values.
- Expected cost, schedule and operational downtime for ballast-water systems and compliance with the 2020 sulfur cap.
- Terms of any renewed related-party management agreements, and the company’s continuing approach to common and preferred dividends.