Safe Bulkers Q2 2009 Results

Thursday, September 10, 2009

Safe Bulkers, Inc. (NYSE: SB), an international provider of marine drybulk transportation services, announced its unaudited financial results for the three and six months periods ended June 30, 2009.

Summary of Second Quarter 2009 Results:
Net revenue for the second quarter of 2009 decreased by 14% to $44.3m from $51.4m during the same period in 2008. The company operated 13 vessels on average during the second quarter of 2009, earning a Time Charter Equivalent (TCE)(1) rate of $37,555, compared to 11 vessels and a TCE rate of $52,069 during the second quarter of 2008.  The decrease in the TCE rate resulted mainly from lower average period time charter rates contracted in previous periods, and to a lesser extent from the lower prevailing spot market charter rates.

Net income was $58.1m, or earnings per share of $1.07, in the second quarter of 2009, an increase of 31% from net income of $44.5m, or earnings per share of $0.82, in the second quarter of 2008.  The increase in net income of $13.6m reflects: (i) early redelivery income of $42.4m, compared to an early redelivery cost of $0.2m, (ii) loss on asset cancellations, related to the company’s cancellation of certain newbuilds, of $20.7m compared to none, and (iii) net revenue of $44.3m compared to $51.4m, for the relevant quarters in 2009 and 2008, respectively.
   
EBITDA(2) of $64.3m for the second quarter of 2009, an increase of 26% from $51.1m in the second quarter of 2008, mainly due to higher net income as described above.

Declaration and payment of a dividend of $0.15 per share for the second quarter of 2009.

Summary of First Half 2009 Results:
Net revenue for the first half of 2009 decreased by 10% to $91.1m from $100.7m during the same period in 2008.  The company operated 12.77 vessels on average during the first half of 2009, earning a TCE rate of $39,479, compared to 11 vessels and a TCE rate of $50,889 during the first half of 2008.

Net income was $120.1m or earnings per share of $2.20 in the first half of 2009, an increase of 76% from net income of $68.1m or earnings per share of $1.25, in the first half of 2008.  The increase in net income of $52m reflects: (i) early redelivery income of $72.1m, compared to early redelivery cost of $0.6m, (ii) loss on asset cancellations of $20.7m, compared to none, (iii) foreign exchange gain of $1m, compared to a foreign exchange loss of $9.9m and (iv) net revenue of $91.1m compared to $100.7m, for the corresponding periods of 2009 and 2008, respectively.
 
EBITDA of $132.7m for the first half of 2009, an increase of 64% from $81m in the first half of 2008, mainly due to higher net income as described above.
 
Fleet and Employment Profile
The company's operational fleet is comprised of 13 drybulk vessels with an average age of 3.56 years as of June 30, 2009.

As of August 31, 2009, the contracted employment of the company's fleet under period time charters is as follows: 85% of fleet ownership days for the remaining days of 2009, 80% for 2010 and 60% for 2011. This includes vessels which will be delivered to us in the future.

During the second quarter of 2009 our subsidiaries: i)   cancelled the MOAs for two newbuild Kamsarmax class vessels and entered into an agreement to cancel the shipbuilding contract for one newbuild Capesize class vessel (aggregate cancellation cost amounted to $20.7m and was recorded as loss on asset cancellations in the second quarter 2009); ii)  entered into agreements to delay the deliveries of one Capesize class newbuild vessel from 2010 to September 2011 and one Post-Panamax class newbuild from 2010 to June-August 2011; iii) entered into MOAs to acquire a 177,000 dwt Capesize class newbuild vessel with delivery in April 2010 at a price of $63m and to sell its oldest vessel, MV Efrossini, a 76,000 dwt 2003-built Panamax class vessel, for $33m with delivery in December 2009.

There were no associated charter party agreements for the two cancelled Kamsarmax vessels, while MV Efrossini is operated in the spot market. In the case of the cancelled Capesize vessel, the relevant charterer has agreed to accept delivery of the 177,000 dwt Capesize class newbuild vessel in substitution. In the case of the postponed Capesize class newbuild vessel, the relevant charterer has agreed to postponed delivery during 2012 with a decrease in the gross daily charter rate from $40,000 to $38,000.

Our subsidiary Maxdodeka Shipping Corporation has taken delivery of the newbuild vessel Andreas K, a 92,000 dwt Post-Panamax class vessel to be initially operated in the spot market. The vessel's purchase price was financed from surplus from operations. This expands our current operational fleet to 14 drybulk vessels.

Following negotiations with the relevant counterparties under existing MOAs, our subsidiaries Maxdodeka Shipping Corporation and Maxdekatria Shipping Corporation have entered into addenda to such MOAs which reduce the purchase price for the relevant vessels by $2.5m and $1.5m, respectively.

Management Commentary
Polys Hajioannou, Chairman of the Board of Directors and Chief Executive Officer of the Company, said: "We are actively managing our day-to-day operations, intensifying our focus on operating a young, high-quality fleet and seeking to take advantage of current market conditions with respect to vessel sales and newbuild acquisitions. We believe that our high charter coverage positions us well for turbulent times ahead in the marketplace. At the same time, we have maintained our dividend of $0.15 per share for the second quarter of 2009, consistent with our policy to pay out a portion of our free cash flows."

Net income increased by 31% to $58.1m for the second quarter of 2009 from $44.5m for the second quarter of 2008. This increase is attributable to the following factors:
Net revenues: Net revenues were $44.3m for the second quarter of 2009, a 14% decrease compared to $51.4m for the second quarter in 2008. Net revenues decreased due to lower average period time charter rates contracted in previous periods and to a lesser extent from the lower prevailing spot market charter rates.

Vessel operating expenses: Vessel operating expenses decreased to $4.6m for the second quarter of 2009, a 4% decrease compared to $4.8m for the same period in 2008. Consequently, daily vessel operating expenses decreased by 19% to $3,914 for the second quarter 2009, compared to $4,826 for the second quarter of 2008. The decline mainly resulted from the number of dry-dockings which were completed during the relevant periods. During the second quarter of 2009, one scheduled dry-docking was partially completed, compared to two dry-dockings that were completed in the same period of 2008.

Early redelivery income/cost: During the second quarter of 2009, we recorded $42.4m of early redelivery income, relating to the early termination of period time charters of our vessels Maria and Katerina, versus $0.2m of expense for the same period in 2008. Maria was redelivered on June 28, 2009 instead of January 2, 2011, which was the contracted earliest redelivery date. In connection with the early redelivery, we recognized income of $20m comprising cash compensation paid by the relevant charterer on July 1, 2009 of $15.5m net of commissions, and $4.5m representing the unearned revenue from the terminated time charter contract. Katerina was redelivered on June 26, 2009 instead of November 26, 2010, which was the contracted earliest redelivery date. In connection with the early redelivery, we recognized income of $22.4m comprising cash compensation paid by the relevant charterer on July 1, 2009 of $21.5m net of commissions, and $0.9m representing the unearned revenue from the terminated time charter contract.

Maria and Katerina are both currently employed in the period time charter market.

Loss on asset cancellations: During the second quarter of 2009, $20.7m was recorded as loss on asset cancellations compared to none during the same period in 2008. In April 2009, the Company cancelled the MOAs for two Kamsarmax class vessels and forfeited the advance deposits. The aggregate loss on terminating these contracts amounted to $13.7m net of interest earned on the advance deposits. In May 2009, the Company entered into an agreement to cancel the newbuild contract for one Capesize class vessel. The cost of cancelling this contract amounted to $7m, inclusive of brokerage commissions.
 
Interest expense: Interest expense decreased to $3.1m in the second quarter of 2009 from $4.2m for the same period in 2008, attributable to the declining USD LIBOR levels as reflected in the decrease of weighted average interest rate from 4.165% in the second quarter of 2008, to 2.541% in the second quarter of 2009. The weighted average of loans outstanding during the second quarter of 2008 was $401.9m, compared to $490.1m during the second quarter of 2009. The higher average indebtedness reflects additional indebtedness to finance vessel acquisitions and indebtedness used for general corporate purposes.

Gain on derivatives: Gain on derivatives decreased to $5.1m in the second quarter of 2009, compared to $7.2m for the same period in 2008, as a result of the mark-to-market valuation of certain interest rate swap transactions to manage the risk and interest rate exposure of our loan and credit facilities. At the end of the second quarter of 2008 there were seven interest rate swap transactions outstanding, while 12 such transactions were outstanding at the end of the second quarter of 2009. The valuation of these interest rate swap transactions at the end of each quarter is affected by the prevailing long-term interest rates at that time.

Cash, time deposits & restricted cash: Cash, time deposits & restricted cash as of June 30, 2009 include cash and cash equivalents and short-term bank deposits amounting to $23.4m, and the current portion of restricted cash of $126.1m. The restricted cash represents collateral pledged in favor of our banks in connection with performance guarantees issued on our behalf for payments to shipyards due in 2009 totaling $32.6m, and cash pledged in favor of our lenders of $93.5m pursuant to our loan agreements, as amended.

(www.safebulkers.com)

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