Jan 28, 2019
Operator
Hello, and welcome to the Scorpio Bulkers Incorporated Fourth Quarter 2018 Conference Call. I'd now like to turn the call over to Hugh Baker, Chief Financial Officer.
Please go ahead, sir.
Hugh Baker
Thank you, operator. Thank you all for joining us today.
On the call with me are Emanuele Lauro, our Chairman and Chief Executive Officer; Robert Bugbee, our President; and Cameron Mackey, our Chief Operating Officer. The information discussed on this call is based on information as of today, January 28, 2019 and may contain forward-looking statements that involve risk and uncertainty.
Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today, as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com.
Call participants are advised that the audio of this conference call is being broadcast live on the Web and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.
Now, I'd like to introduce Emanuele Lauro.
Emanuele Lauro
Thank you, Hugh, and good afternoon or good morning to all. We are confident in the outlook for dry bulk.
We have continued to buy back stock during the quarter, believe in our own stock to be the best investment for exact liquidity. The Slide 5 factors in our industry remain benign and as such, long term fundamentals continue to remain positive.
However, we acknowledge the macroeconomic factors that have put pressure on sentiment and prospect for a short-term market recovery. As I stated before in previous earnings commentary, we must respect the tone of negative macro-commentary and the risk of a global trade war leading to a broader policy-driven short-term slowdown.
I do not have much to add in this except that we continue to be vigilant and watchful. We were pleased to have the opportunity to invest in Scorpio Tankers last quarter.
This financial investment will give some volatility to our quarterly earnings, but it is already bearing some fruits with near 14% appreciation in value on an unrealized $40 million profit mark-to-market since the fourth quarter closed. We're pleased with the fourth quarter operating performance of Scorpio Bulkers and note that the forward bookings we have provided are higher than the current fixing levels as demonstrated by the current indexes.
Fixing long-term contracts 13 ships during the fourth quarter has proven to be the right decision in hindsight. Of course we're not happy about the market correction, but should current market weakness persists, we're well positioned to withstand these conditions for a sustained period.
With this, I will turn the call back to Hugh Baker.
Hugh Baker
Thank you, Emanuele. During the fourth quarter, the company made a net loss of $7.4 million, which is $0.11 a share.
This will also include a net loss of $0.10 a share on the investment in Scorpio Tankers and $0.03 a share of deferred financing costs. Without these nonrecurring items we would've achieved a net profit of $0.02 a share.
In the fourth quarter, we made EBITDA of $23.4 million. In the fourth quarter, we earned $13,148 on our Kamsarmax fleet and $12,213 per day on our Ultramax fleet.
We are advising you that for Kamsarmax we've booked $12,913 per day for 60% of the first quarter and for Ultramax, we've booked $11,072 per day for 56% of the days in the first quarter. As mentioned by Emanuele, the present market is weak and below these levels.
In the fourth quarter, we booked 13 vessels on time charters that extend into the first and second quarters of 2019 for rates of between $14,500 and $16,500 a day and as Emanuele has commented, with the benefit of hindsight, these pictures seem to have been favorable. We paid a dividend of $0.02 a share for the quarter and have declared a dividend of $0.02 a share for the first quarter of 2019.
As of January 25, 2019, the company's investment in Scorpio Tankers had a fair market value of $110 million. We are increasingly becoming more optimistic about the fundamentals of this investment.
We believe that our own stock is currently the most attractive and accretive opportunity to invest in the dry bulk sector and during the fourth quarter, we purchased $27 million of our own stock at an average price of $6.05 per share. This is not only the equivalent to the value of a brand-new bulk carrier, but more significantly, it represents 6% of the company.
On January 25, 2019, the company's Board voted to authorize a new share repurchase program to replace the previous program. This new program authorizes and allows buybacks to the value of $50 million.
As I mentioned earlier, we continue to view buybacks as the most attractive use of capital for the company at this time. During the fourth quarter we announced agreements to purchase scrubbers for 28 of our vessels.
These agreements will be part of the company's overall scrubber program for all 56 of its vessels. This program is well-developed and in our earnings press release and presentation, we've provided full details of the expected scope and cost of this program.
We currently anticipate that the installation of scrubbers will cost around $127 million and we expect to install scrubbers on 18 vessels in 2019, 36 vessels in 2020 and two vessels and in the first quarter 2021. The majority of the 36 vessels that we will install scrubbers in for 2020 occur in the -- occur in the first half of the year.
We expect to finance substantially all of the cost of our scrubber program through secured finance -- financings, which we expect to announce in the first quarter. As of 25 January, the company have $74.3 million in cash.
I'd now like to open up the call to questions.
Operator
[Operator Instructions] And our first question is from Amit Mehrotra with Deutsche Bank. Please go ahead.
Amit Mehrotra
Thanks. Good morning, everybody.
So just first question, I just want to understand the confidence in the dry bulk market, particularly with respect to China. Other larger companies have highlighted the deteriorating China market as early as this morning, two large companies have done that.
And then also you have the coal headwinds, the BDI is now below 1,000, it was 1,600 in October. You obviously have a smaller fleet now, but I just want to see if you could talk about the risks you see in China right now and maybe what you're commercial people are seeing with respect to the demand for travel commodities, thanks.
Hugh Baker
Sure. I think Amit, quite clearly the present spot market is weak and obviously that further exacerbated not the least of which is we're approaching Chinese New Year, which is traditionally weak point to and we're obviously all awaiting the trade discussions between the United States and China and the weakness is probably even further added to because you would've had some pretty buying some getting ahead in the Chinese market when people thought that tariffs were going to go on.
There would have been early buying. So right now it's probably the darkest, people worrying about the trade positions.
We're in the middle of Chinese New Year, but we are expecting that fundamentally the supply sides here in check as we go over time that despite the present China slow down, it is still a growth that the world largest economy the United States has good positions, they're low unemployment and it would be rational for the participants between China and United States to try and get themselves a negotiated settlement that would result in a win-win and greater stability and that's our fundamental position. We're also very cognizant of the weakness.
So we are making steps. Shortly we had hoped to announce pretty significant increases in liquidity and we also do believe that the company is also discounting in its stock price already a sustained tremendous slowdown in dry cargo.
The company's stock is trading significantly below its net asset value and so that's why we think the best use of proceeds is to -- surplus cash is to buy back stock and it also has a big investment, the largest investor in Scorpio Tankers where the product market is just going from strength to strength and that market in this first quarter will be the highest -- is already the highest that market has been for the last 10 years and every day it's getting closer to 2020.
Amit Mehrotra
Right. If I could just ask one follow question, did you talk about maybe what the market is discounting the risks, that there are a lot of uncertainties out there, but you're buying back a significant amount of stock and you're also talking about liquidity levers that you may or may not pull.
So I am just trying to understand, I understand the fourth quarter when the market maybe took a bigger dip then you would've expected. You want to be opportunistic and certainly the equity value is well below NAV, but as you look how perceptively, are you guys going to conserve the liquidity as opposed to spending that much money on the buyback?
And the other question I have is just that how should we think about the capacity of the buyback given that rates are still low, You're going to be drawing down significant amounts of debt to pay for the scrubber investment plan, which is a net debit to your capital structure. Just help us out there in terms of what the plug is for the buyback?
Robert Bugbee
Well I think we look -- as I indicated in the press release itself, and Hugh has clearly stated we've clearly stated that we're working on measures and SALT's liquidity that are beyond that is needed to fund the scrubbers themselves. We're clearly not ready to detail that and we've said that shortly we will detail that.
Amit Mehrotra
No I understand. One last quick one for me, just on the open loop versus…
Emanuele Lauro
Everything, when you're this par far on your NAV and it's huge, I understand that most analysts look at the NAV itself marking Sting but mark-to-market but it didn’t come up with an NAV of something like $859 or whatever, but if we were to use where we think Sting is, Sting's own NAV is and bring that back into where SALT is, the NAV of SALT becomes without getting an accurate figure, is 10 plus. So when you have mark to a discount to real NAV, we're going to take nothing off the pay book.
Amit Mehrotra
Yes, discount on a discount right. No that makes sense.
Emanuele Lauro
We're better off selling assets and you can sell assets that are 10% down and still make an extraordinary position.
Amit Mehrotra
I was just hoping to get your perspective on some of the ports are banning the open loose scrubbers. I know that obviously most of the exhaust is created out at sea, but are your orders, I guess hybrid ready, I mean not hybrid ready but ability to convert the hybrid.
I think that maybe coming at a cost of 50% more. Just what you're thinking about the new bans that have propped up over cost of place and how should we think about it?
Emanuele Lauro
I'll let Cameron.
Cameron Mackey
Sure Eman. Even before IMO 2020 came on to the radar of the general population, you had restrictions in most ports about the type of discharges vessels could make within port limits and the type of fuel they could burn within port limit.
So we see this as a natural or a continuation of an evolution that as you point out, it is not material from a voyage consumption point of view and therefore not really material from the point of view of scrubber economics or return characteristic, but will there be a day where the IMO may address open loop scrubbers in the open international waters? Sure, we think that's years away however and there's every indication that, that is still years away.
So it doesn't really affect our plans or the return characteristic of the scrubber investment.
Amit Mehrotra
Got it. Okay.
That's helpful guys. Thanks so much.
Appreciate it.
Operator
Thank you. Our next question comes from Randy Giveans with Jefferies.
Please go ahead.
Randy Giveans
Hey thanks operator. Good morning, everyone.
So two quick follow-up questions on the IMO compliance strategy, what spread in dollars per ton are you assuming through 2020 to determine your payback period for the scrubber?
Emanuele Lauro
From 2020, we're assuming around $250. And then with that, if the scrubber strategy driven more by economics because of the spread and the likely rate of premium or more of an operational decision just because of fuel compatibility concerns for [indiscernible].
The answer is yes and more. In other words it's not just those two certain parameters that you presented, but other ones too.
We did a rather comprehensive assessment of the number of things including the risk of regulatory changes, risk to the technology movement of the spread on fuel availability, compatibility all and this is where we came out. We're very confident and still quite comfortable with our decision.
Randy Giveans
All right. And then switching gears just for kind of a market question.
So obviously the tragic kind of volatility collapse in Brazil, dozens of lives lost, put things kind of into perspective but for the purpose of this call, any early thoughts on how this will impact the dry-bulk market overall, not just Capesizes, I'm sure there'll be some trick-down effect?
Emanuele Lauro
Just before I answer that question, we go back to the question previously to Cam. We do have the perspective also here from the products market and what we're seeing every day from the products market is the customers in the product, the refiners, the traders are taking actions that are very positive towards the idea that low sulfur fuel will be a premium and the decisions we made in Scorpio Bulkers with regard to not just the investment in Scorpio Tankers but the Scrubber investment and sales will pay off in the sense that those guys are trying to get along the product market every day by taking in charters, and they are willing to pay premiums to secure the scrubber fitted vessels going forward.
And that's really important when the actual refinement we’re going to be making this stuff but going forward and putting that dollars where they’re putting their words. With regard to the Vale position, I mean look it’s terrible and people are assessing the situation at the moment.
I think that it's very hard access exactly because it is linked into what will the government do there in terms of making them check other facilities et cetera, et cetera that's on one hand. And on the other hand, the actual mine itself is a minor part of the total production.
So it may not be end up being so significant especially right now in this short term when you're waiting for the big mine to come up, Samarco mine and you do have this sort of short time weakness in the market itself already.
Operator
Our next question is from Jon Chappell with Evercore. Please go ahead.
Jon Chappell
Few couple of questions for you. Just want to be clear, the schedule that you've laid out on the scrubber investment, super helpful but that’s obviously for the entire fleet and you had noted in the press release that there are still options for '18.
So as we think about CapEx spend, should we just assume that all those options are going to be exercised and then follow that table that you put in the press release?
Hugh Baker
Yes, I think the reason we put the table in the press releases is to really make everyone understand our scrubber to fully disclose the extent of our scrubber program, and that means put in how much we think it's going to cost and also the dates at which the quarter's at which each vessels are going to get installed with scrubbers and it is very much as per the schedule and you should use that to guide you.
Jon Chappell
And then understanding that there will be an announcement on financing most likely in this quarter, should we still think about the financing now as the full program assuming once again all options are exercise or is that going to be kind of a piecemeal financing where you get financing for maybe the 2019 CapEx and then a different solution for 2020, or its all on one bucket?
Hugh Baker
I think we would have to wait on that other than it will be exit to the requirement. And the - but I keep - I think we just leave at that.
Jon Chappell
And then Robert you had mentioned the liquidity levers, clearly you have been on the sale-leaseback market a little bit, I'm just wondering if that market is still there and that's an alternative you're looking for or is it straight debt or is it just straight asset sales looking to play the hour potentially on where the asset prices are today and where the stock is trading?
Robert Bugbee
That’s in the company, we look at all alternatives whether it's the opening up some of the bank finance because the balance itself is strong. The investment - the investment is in new fleet so you could do that to a company that is sound and fair and with the relationships we have with the lessors, then yes, you're going to look at that.
And obviously as stated before with the ob word is, you'd be willing to look at sales too. So you know, it’s all of the above.
Jon Chappell
Final one from me, you guys mentioned coal, a bunch of times in the press release as it related to you kind of slow down on the end of fourth quarter and even start to the first quarter. There is these - import quotas that China has put in, is there any kind of history that you have with these quotas, were they relatively new?
And as far as what your commercial guys are seeing right now, has there been a significant stuff back early in the year or we can maybe anticipate a bit more soothing out of the coal imports in 2019 relative to 2018?
Cameron Mackey
Jon our expectation is so early in the year that we’re getting up just being the short term weakness. What we expect later on is a smoothing out, and so redemption of normalized demand but right now it’s very early to say.
Our experience in the past with import quotas is that they are very unevenly applied and enforced from province to province in China but more to follow probably in the second quarter call we can go in a great detail about what we’re experience year-to-date.
Operator
Our next question comes from Greg Lewis with BTIG. Please go ahead.
Greg Lewis
As we look at freight rates, I clearly you guys highlighted - why obviously we’re heading into the Chinese New Year, rates have come down, I guess historically this has been led by Capes, just given China’s focus on iron ore - demand for iron ore which is more of a Capes trade than an Ultramax trade. But could you talk a little bit about - it looks its happening in the market the smaller vessels seem to actual to be underperforming relative to the Capes.
Just kind of talk little bit about what you’re seeing maybe in the Atlantic Basin that’s kind of driving those disconnect between where we are today even though Chinese need the smaller vessels typically - can they do better in the Chinese New Year?
Emanuele Lauro
I think it’s pretty early days because the smaller vessels were largely outperforming in a lot of that period before, so we don’t know whether or not people were getting ahead of things as I explained earlier whereby the rate strength was slightly inflated in let's say September, October, November and now it's down and you'll get a smoother balance. So it's pretty hard to look at in such a short data stream right now and you simply know in the bigger picture that you have calendar event of Chinese new year going on and you have this the bigger picture all waiting to see in the slowdown related to concerns of the US and Chinese trade.
And we are in a position where we will be able to watch. It's not as if we're going to even if we started buying back stock immediately and as soon as we can also at this conference call, it doesn't mean we're going to fire for all our balance sheet and debilitate the position.
You are going to be doing a process. So the next week and you'll be able to look see.
And the first indication will be where will the market be a week, 10 days off after Chinese New Year and how will the US trade discussions go. This is just short term right now.
Greg Lewis
Okay. Great.
And then just another question, on hearing that some of the Newcastlemax or VLOC conversions are potentially starting to be discriminated against. Is that something that you're hearing in the markets or is there anything to that?
Just kind of curious.
Emanuele Lauro
Well, I'll direct you to the widely publicized case of Polaris, the South Korean company, owner of Stellar Daisy, but that's all, it's public information, what is a bit more up to conjecture is how port stays and customers make blanket decisions on the back of that singular case and that company, which we don't really have a view on at the moment.
Greg Lewis
Okay. All right guys.
Thanks for the time.
Operator
Thank you. Our next question is from Magnus Fyhr with Seaport Global.
Please go ahead.
Magnus Fyhr
Hey, good morning. Most of my questions have been answered, but just one follow-up on the IMO 2020 as it relates to the economics, I am sure with the more port states banning close or open loop scrubbers near port, that you still have a good margin there.
How many days do you currently calculate to use your scrubbers? I think you had said 200 days, but just wanted to confirm.
Emanuele Lauro
Yeah, it's about 200 days Magnus.
Magnus Fyhr
And has that changed anything with the recent announcements?
Emanuele Lauro
No.
Magnus Fyhr
And you mentioned it's probably years out, but logistically what needs to happen for the industry to go to close loop scrubbers summing with the waste disposal and everything in ports?
Emanuele Lauro
It would be a big stretch, bear in mind of course there is adjustments that have to be made to a vessel's infrastructure to accommodate so much recycled and retained wash water and then there is what's called exogenous to the vessel adjustment where you're referring to reception facilities or that wastewater, wash water. And it pretty clear that both of those things are incredibly limited or scarce at the moment.
It would take another wholesale change in the industry to get there, something that would take years. So first, if you look at the history of IMO 2020, you're talking about something that took more than a decade to come to fruition, a similar step change with regards to open or close look scrubbers, we believe would take a similar timeline, another 10 years plus.
Hugh Baker
I think it's also important to understand when it comes to scope of the bulkers is that as Cameron points out, we don't think it's going to happen, but it would be fantastic if people -- if actually scrubbers couldn't be used at all and you have to use the load software immediately from January 01 and that for two reasons, one Scorpio Bulkers has a really modern fleet and low fuel consumption and you gladly increase price for the low sulfur fuel, you would gladly sacrifice the CapEx, but you could have spent on scrubbers, all of that saving relative to the market and then on top of that, it's investing in the company that is going to benefit most -- likely to benefit most in shipping from the increase in low sulfur fuel usage. So there's a little bit of reluctant when we say that the scrubbers at the moment we're happy with the decision that we made.
Magnus Fyhr
Great. Thanks for clarifying.
Operator
Thank you. Our next question is from Max Yaras with Morgan Stanley.
Please go ahead.
Max Yaras
Hi, yes. Thank you, guys.
The tape of detailing scrubber installation is helpful. Just wondering if you have estimates on dry dock days maybe by quarter or year as well?
Emanuele Lauro
Max, I think we are internally and I stress the word internally, I think budgeting for around I think would say three weeks for the installations to take place. I am looking across with a little extra time for those vessels that are going through statutory dry docks.
So that's what I can give you.
Max Yaras
And then if they had to go back in to be converted to closed loop, how long would that be on top of that?
Emanuele Lauro
We haven't finished an analysis on that. It would take another several weeks at least, but that type of further conversion would be years down the line.
It would be something where we didn’t take that option to come back to the dry docking next year or the year after. This is optionality that we're looking at for the next 5 to 10 years.
Max Yaras
Fair enough. Just one last question, we focused on Capes in iron ore trade.
What is your, kind of estimate for what minor bulk trade does in 2019 or what other drivers of growth do you see out there besides iron ore?
Hugh Baker
Well, we're still looking at a global economic picture that has growth in ton miles for bulk generally in single-digit percentage terms and a supply picture that looks at something very low, maybe 1% net. So we still see a very positive supply demand picture for the next several years.
Notwithstanding that, of course things have decelerated in the last half of the last month the last year and the first month of this year. I think what Emanuele said it's short-term weakness in broader picture of longer-term pretty good fundamentals for the dry bulk space.
And I think that this is something also that in it's bizarre way what's been happening in this last two, three, four months with dry cargo and the fear of the equity capital markets and the constraints on the fed side to weaker players. It is just further strengthening what we believe can happen in the mid-to-longer term here because it's really going to put this continued choke on new building orders and that's a pretty good part of this equation.
And as Cameron said, as long as we continue to have growth, at some point, it's going to play through into those fundamentals and so far even the worst economists that we read even if there is a -- even if Trump and the Chinese go to each other, we're still talking growth here in the Chinese and the developing countries and therefore growth in trade for the asset classes that we have. And it's really great that you got this slowdown supply side.
Operator
Thank you. Ladies and gentlemen, this concludes our Q&A session.
I would like to turn the call back to Hugh Baker, CFO for his final remarks.
Hugh Baker
Thank you, operator. I have no final remarks.
Thank you, everyone for your attendance on the call and we look forward to talking to you soon. Thank you.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect.