Safe Bulkers, Inc. — FY2016 Form 20-F
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone 2016 Q4 filing. Financial statements use U.S. GAAP and were audited by Deloitte, which issued an unqualified opinion.
Business context
Safe Bulkers operates drybulk vessels transporting cargoes including coal, grain and iron ore. At year-end 2016 it had 37 vessels; by February 17, 2017, its fleet comprised 38 vessels with 3.42 million dwt and an average age of 6.6 years. The company had one Kamsarmax newbuild scheduled for delivery in 2018.
Financial performance and liquidity
| Metric | FY2015 | FY2016 |
|---|---|---|
| Revenue | $132.4 million | $114.0 million |
| Net revenue, after commissions | $127.3 million | $109.8 million |
| Operating loss | $32.0 million | $31.4 million |
| Net loss | $47.9 million | $56.0 million |
| Net loss per common share | $0.74 | $0.83 |
| Cash from operating activities | $25.5 million | $13.5 million |
| Cash used in financing activities | $180.1 million provided | $83.9 million used |
| Gross debt at year-end | $671.7 million | $587.7 million |
FY2016 TCE rate fell 12.7% to $7,659 per available day, while fleet utilization was 97.27%. Vessel operating expense per ownership day improved 15.5% to $3,698. Interest expense rose 67.5% to $19.6 million; the weighted average debt interest rate increased to 3.290% from 2.184%.
At December 31, 2016, cash and cash equivalents were $81.6 million, short-term time deposits $12.0 million, and restricted cash $11.2 million; the company reported total liquidity of $104.8 million. Current assets were $111.0 million and current liabilities $23.8 million. Total assets were $1.174 billion and shareholders’ equity $578.5 million. The company reported covenant compliance at year-end.
Material changes versus FY2015
- Revenue decreased 13.9%, primarily because lower market charter rates reduced TCE, partly offset by more operating days as vessels were delivered.
- Operating loss improved modestly, but net loss worsened as interest expense increased. FY2016 also included a $17.2 million impairment loss and a $2.75 million loss on vessel sales.
- Operating cash flow fell by $12.0 million. Cash and cash equivalents declined by $49.1 million during the year.
- Debt decreased by $84.0 million. The company issued 15.64 million common shares in December 2016 for gross proceeds of about $17.2 million.
- Vessel operating expenses fell to $49.5 million, helped by lower drydocking, repairs, insurance, spares and lubricant costs. Voyage expenses fell to $7.7 million from $17.9 million.
- No common dividends were declared in 2016; the company paid $14.0 million in preferred dividends. It stated it did not currently intend to pay common dividends.
Outlook, risks and unusual items
- Weak, volatile market: The Baltic Dry Index ranged from 290 to 1,257 during 2016 and was 741 on February 17, 2017. Management highlighted low charter rates, vessel oversupply and continued exposure to spot-market conditions.
- Charter coverage: As of February 17, 2017, 59% of expected ownership days for the remainder of 2017 were contracted, at a reported contracted TCE rate of $9,472. The filing describes 33 of 38 vessels as deployed or scheduled on period charters with more than three months remaining; elsewhere it reports 26 vessels employed under period charters with more than three months’ outstanding duration.
- Funding and covenants: Year-end newbuild commitments were $69.6 million, including Hull No. 1551, which was sold upon delivery in January 2017. Remaining capital expenditure requirements were $32.4 million as of February 17, 2017. Management said existing liquidity and contracted cash flows should cover operations and requirements through 2017, but noted possible additional borrowing in 2018. Debt covenants include vessel-value tests and tighter financial requirements from 2018.
- Asset valuation: Broker estimates placed 37 vessels’ aggregate carrying value $436.3 million above estimated market value at year-end. The company recorded no impairment on operating vessels in 2016, but disclosed hypothetical impairment charges of $409.7 million using three-year historical rates and $399.8 million using five-year rates; these were sensitivity scenarios, not booked losses.
- Related-party transactions: The company sold Stalo and Kypros Unity to entities controlled by CEO Polys Hajioannou for $29.0 million in aggregate, recording a $2.75 million loss. It also novated one newbuild contract and agreed to sell another upon delivery to related entities. Independent directors’ special committees obtained appraisals and approved the transactions.
- Other risks: The filing emphasizes charterer concentration, potential charter defaults or renegotiations, refinancing and collateral risks, floating-rate debt, foreign-currency expenses, environmental compliance costs, and limited cyber and loss-of-hire insurance. Three vessel calls at Iranian ports in 2016 generated approximately $0.2 million in gross charter revenue; the company stated it did not believe the activity was sanctionable.
- Contingencies and controls: The company reported no material pending or threatened legal proceedings, no off-balance-sheet arrangements, and no material changes in internal control. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2016.
Important facts for investors to verify
- Charter expirations, realized TCE rates and vessel employment against the stated 2017 coverage and contracted-rate figures.
- Liquidity, cash conversion and ability to fund the 2018 newbuild commitment without weakening covenant headroom.
- Debt maturities, floating-rate exposure and compliance with vessel-value and financial covenants as market values change.
- Assumptions supporting vessel recoverability and the difference between broker market estimates and carrying values.
- Terms, independent valuation support and governance safeguards for related-party vessel and newbuild transactions.
- Preferred dividend capacity and the company’s stated lack of current intent to resume common dividends.