Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call to discuss the First Quarter 2019 Financial Results. Today, we have with us from Safe Bulkers Chairman and Chief Executive, Mr. Polys Hajioannou; President, Dr. Loukas Barmparis; Chief Financial Officer, Mr.

Konstantinos Adamopoulos; and Chief Operating Officer, Ioannis Foteinos. [Operator Instructions] Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at (212) 661-7566. I must advise you that this conference is being recorded today.

Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning future events, the company's growth strategy and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters.

Words such as expects, intends, plans, believe, anticipates, hopes and estimates and variations of such words and similar expressions are intended to identify forward-looking statements.

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct.

These statements involve known and unknown risks and are based upon a number of assumptions and estimates, which are in inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the company. Actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include, but are not limited to, in the demand of the drybulk vessels, competitive factors in the market in which the company operates, risks associated with operations outside the United States and other factors listed from time to time in the company's filings with the Securities and Exchange Commission.

The company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based. And now I pass the floor to Dr.

Barmparis. Please go ahead, sir..

Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the first quarter of 2019. We will start our industry update on Slide 4, where we present the quarterly charter hire average for both Panamax on the top graph and Capes on the bottom graph.

As seen in both graphs, we witnessed a seasonal weakness in the beginning of each year, followed by strengthening of the market during the second half. In addition, the uncertainties of the U.S.-China trade relations and the disruption of the Brazilian iron ore trade have enhanced this seasonal weakness.

In Slide 5, we discuss the demand side noting the substantial disruptions in iron ore trade from Brazil, which affect directly the Cape market but also indirectly the overall drybulk trade. On the top left, we present the monthly trade of coal in China.

Chinese coal imports during the first quarter of 2019 appeared to be softer though similar pattern is evidenced in all previous years. On the top right graph, we see the spike in Chinese industrial production growth.

On the bottom left graph, we presented Chinese grain imports where the effect of trade war is evident in 2018 and in the first quarter of 2019. On the bottom right graph, we presented Chinese iron ore imports growth.

While iron ore prices have surged to a 5-year high above $100 per ton, mainly attributed to the ongoing supply disruption from Brazil and strong Chinese demand on the back of rising stimulus spending.

Let's move on to supply dynamics and fleet outlook in Slide 6, where we present the order book of the next 3 years, blue bars on the left and the aging profile of Panamax to Post-Panamax fleet, blue bars on the right.

The green line on the top is the age cumulative percentage, which shows about 16% or about 400 vessels of Panamax fleet older than 17 years old. We expect the enforcement of new regulations for SOx and ballast water treatment systems and the relative substantial capital requirements may create commercial disadvantages for the older vessels.

This, together with the prevailing environment of scrap prices, may stimulate scrapping. Furthermore, the order book of the next three years is about 254 vessels or 11% of Panamax fleet and although sizable should be compared with the older 400 vessels facing the market challenges.

In Slide 7, we present the number of vessels to be scrapped, fitted by each segment. The bulk majority of retrofitting is estimated to be in the region of 1,600 and will take place during 2019 and especially towards the second half of the year. This may create bottlenecks in the dry docking shipyards and eventually tightness in supply of vessels.

Turning to Slide 8, we drill down to Clarksons data specifically for drybulk where about 7% of the global drybulk fleet will be scrubber fitted.

Safe Bulkers will comply fully with IMO 2020 regulation by installing scrubbers in about 50% of its Panamax to post-Panamax fleet, mainly in relatively heavier-fuel consuming vessels and in the remaining by using compliant fuels. Please note that we presently have 11 eco ships.

In Slide 9, we present the outlook of the futures market on fuels and the new compliant fuel. The low-sulfur gas oil futures price is presented on the top right graph and the high-sulfur fuel oil futures price on the top left graph.

The spread of the compliant fuel vessels that currently use high-sulfur fuel oil is in line with the forecast and expectations of market analysts. Scrubber returns on investment may reduce over time if fuel price differential declines. In Slide 10, we present the key takeaways of the market outlook.

We experienced weak market -- weak charter markets since the beginning of 2019, attribute mainly to seasonality, iron ore trade disruption and increasing trade war concerns. Existing order book is relatively low compared to the number of older vessels that may face the market challenges.

New environmental legislation, ballast water treatment systems and scrubbers involve substantial investments and may create tightness in the supply due to down time. The vast majority of vessels in the Panamax to post-Panamax Class have not ordered scrubbers.

And as a result, slow steaming may be introduced to compensate for the potentially increased fuel costs. Older vessels towards their fourth special survey may be scrapped. As a result, environmental investments may act in a correct manner in a low market. I will finish this section with a glance at Safe Bulkers in Slide 11.

We have 41 drybulk vessels, over 3.8 million in deadweight capacity and 8.5 years average age. 11 of our vessels are fuel-efficient eco design. Our remaining order book includes only 1 Japanese Post-Panamax resale and newbuild with expected delivery in first half of 2020.

Our TCE rate was $12,280 per day during the first quarter of 2019, and our total daily operating expense and G&A expenses were $5,527. Our consolidated leverage was 58% and achieved the -- through our refinancing a smooth debt profile for the next five years with 2% average margin.

We remain focused on implementing our environmental investments in ballast water treatment systems and scrubbers. Our managers are certified with ISO 14001 for environment and ISO 50001 for energy efficiency and 39 out of 41 of our vessels have environmental notation for the prevention of sea and air pollution.

We have 15 ballast water -- we have 15 vessels installed with ballast water treatment systems. We were expecting about 12 installations in 2019. And we are on schedule on our scrubber installations for 50% scrubbers of our fleet, which will be completed on that basis throughout this year.

Now our Chief Financial Officer will present our quarterly financial results..

Thank you, Loukas, and good morning to all. On Slide 15, we present our quarterly time charter equivalent, which stood at $12,280, and we focus on our expenses both running expenses as well as general and administrative expenses. The aggregate figure for OpEx and G&A for the first quarter 2019 was $5,527.

This was a result of increased maintenance, general store and spare expenses as well as increased management fees charged by our managers. Moving to Slide 14, we present some financial data on the quarterly basis. Our quarterly revenues, our adjusted EBITDA and our operating cash flow have been improving our overall financial strength.

We present Slide 15, our daily free cash flow waterfall for the first quarter of 2019. During this period, we continued to be profitable. We went about $12,300 and went less than $11,300 per day per vessel for all of our daily outflows, including operating G&A, interest, preferred dividend and principal repayments.

Our daily free cash flow stood at about $1,000 per day per vessel. Moving now to Slide 16 with our quarterly financial highlights for the first quarter of 2019 compared to the same period of 2018. Net revenues increased by 11% to $48.3 million from $43.5 million, mainly due to increase in charter rates.

Our time charter equivalent and rate per vessel increased by 2% to $12,280 per day from $11,990 during the same period in 2018.

Daily vessel running expenses increased by 1% to $4,153 compared to $4,132 for the same period in 2018, whereas daily vessel operating expenses excluding dry docking and predelivery expenses increased by 3% to $4,150 for the first quarter of 2019 compared to $4,047 for the same period last year.

Our adjusted EBITDA for the first quarter of 2019 increased by 7% to $24.9 million compared to $23.2 million.

Our adjusted earnings per share for the first quarter of 2019 was $0.03 calculated on a weighted average number of 101.6 million shares and remained constant in comparison to the same period of 2018, again, $0.03 per share calculated on a weighted average number of 101.5 million shares.

Closing our presentation in Slide 17, we present our quarterly fleet data and average daily indicators compared to the same period last year. We would like to emphasize that in this period, we worked extensively in meeting environmental investments in scrubbers as well as ballast water treatment systems.

Our press release presents in more detail our financial and operational results. Now we are ready to discuss in detail and take your questions..

[Operator Instructions] We'll now take our first question..

This is Sean Morgan. I'm on for Jon Chappell this morning. So you guys, I guess, did pretty well, considering it was a more challenged market in the first quarter than we'd expected and now that rates are starting to move back up a little bit in drybulk.

As you start to think about capital allocation decisions going forward in an environment where free cash flows start to improve, would the preference be for more just continuing to do CapEx on just scrubber fitting? Or what about potentially looking at retiring some of the preferreds, just trying to reduce the costs associated with those?.

At this point, we are in the middle of this year, and we are investing heavily in scrubbers and the ballast water treatment systems. So we don't foresee any action towards our preferreds at least this year..

Okay.

And then as you guys are now starting to have a little bit more experience with operating the scrubbers and sort of dealing with, I guess, the market impact of -- on your clients and how they sort of respond to, I guess, the reduced costs that you guys would be experiencing and as you start to move toward an environment where you're going to have a preferential cost relative to a non-scrubber-fitted ship, is there any effort by the clients to sort of capture that? And are you seeing that in charter negotiations?.

Look, the market is still not prepared for this question, neither the size of the charterers nor the owners because we cannot calculate something that we don't know what parameters will apply. So I don't expect discussions from chartering scrubber-fitted ships before the last quarter of this year when things will be more clear.

I mean right now, people are thinking of differential of $200. It could be $150. It could be $350. It could be $450. Nobody knows what will be the value and hence, charterers and owners are waiting for that time in order to have a clearer picture. At the moment, it's too early. So that's the answer to your question..

Okay. Got you. I wanted to revisit that..

I just want to remind you also one point and how we did the investment in 20 out of, let's say, about 46 that we have, half of our fleet.

And basically, as we move closer to the actual situation, we will see that if you have, let's say, an MGO ship, the benefit that you may derive from this investment in scrubbers will be substantially smaller compared to the benefit that you have, let's say, a heavy-consuming ship.

So what we did really is that we have selected the most heavy-consuming -- the heaviest ships to make the installation instead of choosing old ships. So we didn't select those old ships because you can't easily compete -- I mean our ecosystem easily competed with the 95% -- 97% of the existing fleet out there because they are very fuel efficient.

So the issue is always about competition and about the return of money with -- by implementing the environmental regulations. .

Okay, great, thanks. I will turn it over. .

We will now take our next question..

This is Ben Nolan over at Stifel. I have a few questions sort of around events of today honestly. So a competitor of yours is out doing another acquisition of private equity-backed drybulk company. I'm curious if you guys are looking or seeing those same things.

And how you would think about doing those, if you think about doing them at all? Is that a little far removed for you or things that you're vetting?.

Yes. Look, Star Bulk is another company. So we cannot comment on what they are doing. From what we know, there is a backing there from a big fund, Oaktree. So it's a completely different company there. I heard the reports this morning at same time you read it. So we haven't analyzed.

I guess since they are doing it, it means it's a good business for them, and it's good they're growing their company. As far as….

Yes, more -- and really the question was intended for you. I mean, is that type of business things that you guys are pursuing or it's not something that you really spend a lot of time..

Look, we have not come across any proposal like that. And obviously, you see that our fleet consists mainly on Japanese-built sister ships.

So we're not prepared to change the profile and our model of working on a profitable model because simply I don't think we will find 10 Japanese-built ships put in the market at the same time by one owner in order to start these discussions. So at the moment, I think the best thing we are doing is investing on these scrubbers.

For 2019, we're very focused on this. Hopefully, we'll have the retention we expect we will have next year and then maybe an opportunity to see into other deals.

But for us, already this investment in the scrubbers is a big one for this year, and we want to remain focused on completing it in time and successfully technically without an issue because I mean you fit the scrubbers but on the other hand, there will be issues in the industry because there are many type of scrubbers out there.

So ourselves, what we try to do here is to focus on the quality and get the right results, and that's why we selected a reliable manufacturer for our scrubbers from Scandinavia. So we're focused on that. 2019, I don't expect we will be doing too many other things..

Okay. Now that's helpful. I'll now sort of switch gears a little bit. It does seem like there -- given these transactions or other things that are going on in the market, it does seem like that there is some move towards consolidation. You guys -- arguably, if you're out trading at discount to NAV.

But if somebody were to come along and offer you a premium or trade shares or something like that, that is equitable, is that something that you would look to in terms of possibly even selling your company, high-quality assets and so forth?.

We cannot reply to hypothetical questions. Let them come, and we'll see what they offer, and we analyze it at the time. It's a completely theoretical process. Equally, we may say what we will do if the market goes to $30,000 a day. So we cannot think about it because simply we don't have such a thing in front of us.

What we are focusing is to be profitable like we were in the first quarter, despite the terrible market, which, thank God, it's improving a lot in the second quarter.

And I'm pleased to say that despite the trade war, which we don't know when this will be solved or not solved or what will happen there, I'm very optimistic about the second half of this year irrespective of the trade war because too many ships are out of the market for scrubbers. Scrapping has been very healthy in the first quarter.

The order book is very low, and we are very optimistic that we will see with the return of Vale into the game and the iron ore from Brazil coming into the equation, we expect to see a very healthy market in the second half of this year..

Right. Okay.

Well, and then just to follow on that, your last point there, with respect to vessels being out for scrubbers, any estimate as to how much equivalent -- or ships being out for scrubber fitting it's having on the effect of supply of ships and how much of the recent improvement may be in the market do you think it might be attributable to that?.

Look, it's -- on the big ships, you have 21% of the Cape fleet staying outside the market for anything up to 45 days at a time, could be anything between 30 and 45 days depending on if the ship has other work to do and things like that.

So if you keep the Capesize fleet, 20% of the Capesize fleet off the market for a month and a half, all of them at the same time in the second half of the year, which additionally is a strongest trade market in the year, you expect, but freight rate should be improving a lot.

Often we combine this with the effect of the extra production from Brazil that will start up some point in the second half of the year, we expect the Capesize rates to push up and take with them also the larger Panamax and post-Panamaxes. So on the Panamax to post-Panamax size, the scrubber percentage is down to 6%. It's not that great.

On the other hand, it gives you much less competition when you get the ships fitted with the scrubbers.

So you don't have the boom of supply but -- that you have on the big ships, but you have far less competition when you go for charters, and this is not only the money that we will be receiving on a ship-by-ship basis but also the opportunity that may appear because you would be able to offer a ship into a long-term contract and secure long-term revenue out of this scrubber that is fitted in the right time and also with the right manufacturer..

Okay. Now that's helpful. I appreciate it. Thanks a lot guys..

We will not take our next question. .

It's Chris Wetherbee from Citi. I wanted to ask -- I guess, follow up on sort of scrubbers but from a different angle. Wanted to get a sense of the availability of compliant fuel.

When do you expect to see that begin to hit ports? Is it the third quarter? What -- and then maybe a follow-up question sort of what would be the time -- the timing of sort of recycling through noncompliant fuel to compliant fuel for vessels that don't have scrubbers.

Is there any downtime associated with that process as you go through and sort of take out the higher-sulfur fuel out of the tanks and put in the lower-sulfur fuel?.

Yes, regarding the compliant fuel availability, I think the major ports, they should have availability in the third quarter. In some countries like Japan and some other countries, it will be more like a fourth quarter.

From our inquires, it will be more like a fourth quarter event, but anyways will be available before the deadline, and people have to do the necessary arrangements to get their fuel available in time. Now regarding the debunkering of the vessels, basically you have to manage your fuel on-boat in advance.

You have to do some treatment of the fuel you have on-boat in order to be able to clean the tank easier and place the tank you perform certain processes of bunkering with using some chemical, but they are widely available in the market. The tank should clean sufficiently enough.

Of course, you have to inspect visually, and you will -- may need a few days here and there to put down people to clean the last bits and pieces in each tank, if this is not satisfactorily done. We are following this procedure. We have started already this treatment of our tanks since the first quarter of 2019.

We believe we will be comfortably ready in the last quarter of the year to switch to the compliant fuel. Now depending on who the charter is, some charters, they are more conservative and more sensitive to environmental issues. They would switch to compliant fuel, I believe, in October, November, and that's a prudent thing to do.

Whether we are a charterer or an owner. Some others, they would want to burn HFO until Christmas and then switch over between Christmas and the New Year. And I mean, these things you cannot go to the edge, and the ships are not robots or not computers.

We have to make sure that by sometime in October, November, all our ships would be switched into compliant fuel, the ships that they're not fitted with scrubbers..

Okay. Okay. That's helpful. And so when you talk about sort of the second half outlook, I don't know how much of that sort of process potentially leads into your optimism, obviously getting the iron ore trade back up and running again, potentially clearing some of the hurdles from a trade war perspective wouldn't hurt.

But do you think that sort of mechanical process of potential cleaning the tanks but as well as sort of scrubber dry docking or extended scrubber dry docking will have an impact? I guess, I'm just trying to make sure I understand how you guys are thinking about the setup for the back half of the year.

It sounds like you're optimistic about rates, but want to sort of make sure I'm understanding all of the sort of pieces that drive that optimism..

Yes, I'm optimistic. I don't know. I mean, we may see the levels we saw last August and September. We may see them in September, October or November. You know the $25,000 a day on the Capes. I mean, right now, it's, what is it, $14,000, $15,000, the spot market, and the period market is around $16,000. So it's not a disaster market.

It's a decent market even now. But I made a simple calculation of taking off 20% of the fleet-to-fleet scrubbers for anything up to a month and a half.

Largely other ones doing the tank cleaning or whatever else we may be doing plus the cost of the delays you the ordinary dry dockings because you have to bear in mind that every half year, 10% of the world fleet goes through dry dockings.

Those dry dockings will be delayed a lot because of the presence of ships doing retrofits in the shipyards and the costs, of course, will be going higher.

So all these delays I think will be very, very good for the market at the time when iron ore prices are very high, but you have Chinese imports of iron ore are of high-quality iron ore at the lowest in the last 2.5 years.

And the Brazil production should getting back to more normalized levels in the second half if they sort out these issues they have with these safety concerns on their production in Brazil. So all of this for me, it adds up to a very good market. We see that there is demand.

We see iron ore prices in China reaching $107 in the last report I saw, and these numbers are showing strong market. So I think that we may be surprised by the freight rates we may see in the second half of the year.

The first half of next year, again, will be -- should be good because, again, there will be down times because of all these supply issues of bulkers and all the other questions.

I expect of the initial period, but there will be a lot of consumption of lower-sulfur MGO as well, and you know this will push up freight rates because higher the cost of bunkers, we all know the higher the freight market and the voyage freight rates become. So again, it's a period that looks interesting for ship owners.

Now how much it will go and therefore how long it will stay, of course, no one can predict precisely, but we're positive about the process..

Got it. Well, thank you very much. I appreciate the points. .

We will now take our next question..

This is Randy Giveans at Jefferies. So you mentioned U.S.-China trade war a few minutes ago. So obviously, it's making a lot of headlines.

Can you kind of compare and contrast the drybulk market being impacted by no trade deal this year versus a trade deal actually happening?.

Well, it's a big question. I mean if the trade war escalates and there is retaliation from the Chinese, which definitely there will be, this escalation, and this will affect a lot of the grain trade. And I don't think it pays anyone, but they let the trade war go beyond the September 11.

I understand that there is huge issues on technology market, on transfer of technology, on telecommunication, all other things on the table. But you know we're living in the world global economy -- in world economy. The Chinese depend on the Americans, and the Americans depend on the Chinese.

You know all these grain that is produced in the states, it has to be consumed somewhere. So I don't think that either side want to take the war to the end or to the limits. And of course, we all know that there are elections in the U.S. next November. So we think that there should be some sort of compromise by -- before the September or October time.

If it escalates, it would be uncharted waters, and we'll have to see what happens. We cannot forecast. On the other hand, of course, if it's so bad and it ends up in a full-blown trade war, there is -- the first ships that will be killed or crucified will be the older ships, and there is a big number of older ships out there.

We will see tremendous increase of our scrapping. So the next increase of the market after this happens will be led because of supply, demand passing supply for first time after many, many years.

So I mean, we are not in a market that we were in 2015, 2016, when the freight -- when the shipping market was heavily oversupplied and we had, as you remember, the huge deliveries of 2010, '11 and '12, every year, 100 million deadweight entering the market plus then all the ordering of the eco ships in '13 and '14, and then we have the drop of commodity price and the big drop of the shipping market, all combined with a huge increase of supply.

Now we don't have huge increase of supply. As you see yourselves, there is no order book. There is no ordering. So the order book is what we already know. There's no more ships being added there, simply because there's not enough liquidity and there's not enough money around. Most of the companies are already invested.

So even if there is a full-blown trade war, I think it will be a big hit in the market, but it won't last for a great period of time..

Okay.

And then honing in on SB, looking at your ballast water treatment systems, how many of those 15 were completed in the first quarter of '19? And then what's the average cost per system for the remaining 12 this year?.

Yes, the ballast water systems, you know, we have reported the number of, I think, these are equipment that they are costing roughly $500,000 to $700,000 plus the installation cost is increasing on the yards.

I think people -- companies have demonstrated these things late before there was some sort of extension, if you remember, allowed and I see companies that they have not done deals yet on the supplier would find themselves in the unpleasant situation of paying increased -- paying maybe 34% increased cost for this equipment.

So we moved early in 2017 in the second half of 2017 because we knew these regulations would kick us up at certain point. And I mean, we have already 15 installations working. We are pleased to report that we are very satisfied with the operation of those systems.

Our crew is getting acquainted, and they know how to operate the systems, and they get familiar, and we expect 12 more to do this year and the remaining in 2020.

So we will be ready ahead of time for this installation, and then you remember when the charter may appear in 2020 asking for three-year or five-year charter, you don't want to say to him that I will fit my ship with this equipment next year or during the lifetime of the charter because they don't like this, you better have it on-boat earlier..

And then how many were done during 1Q?.

How many? That around 13, 14 units will remain for next year on the scheduled dry dockings..

And you said 7 during 1Q? How many ballast water treatment systems were installed?.

How many we did? These 15 you see here, some were done last year, of course, but not all 15 in this year. It was some already done in 2018.

About two or three, we did this year until now, but we have all the schedule of dry dockings, which will coincide with ballast water treatment systems and scrubbers was pushed towards the second part of the year because we were expecting the delivery of the scrubber units.

So most of the dry dockings will happen in the second half and already we have, as we reported in our press release, we have scheduled three scrubbers this second quarter. And most of the scrubbers will be done in the third quarter with about 10 and 6 in the last quarter.

At the same time, when all these vessels, in most cases, we install our ballast water treatment systems and show this 12 will coincide with the 20 ships -- the 19 ships that will have a scrubber fit -- will be scrubber fitted this year. It's a very good table in our press release, so you can dig there all the data in detail..

Yes, I see that on dry docking and scrubbers. I was just trying to see the one with you.

Before the scrubbers is the ballast water treatment systems table..

Perfect. Yes. Yes. I see that as well. And then lastly for me. Your average time charter equivalent earned during 1Q '19 was $12,280.

Can you give some guidance for 2Q '19 in terms of average TCE or percentage of the quarter that's already been booked?.

And look, we don't report forward, but I mean, the market is better in Q2, Q1, the spot market, and so I expect the rates to improve, the average rate, but it's my expectation as we talked. I mean, we don't speculate, but you see the spot market yourself is improving. So arrive your own calculation..

And also just look, I mean, our table, which we report the chartering table, you can see really that how the rates have changed.

And so for example, for Pedhoulas Fighter from May, we have $14,000 just above we have, I mean, you can see that we have some smaller figures we've seen earlier and some other bigger figures coming into play right now where the chartering vessels had about $14,000, $15,000, $16,000 on those..

It's more like $12,000 to $13,000..

There are no further questions. If you do have any questions, please get in contact with the Investor Relations contact. I would now like to hand back to your speakers. Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all now disconnect..