Navios Maritime Holdings Inc (NM) 2021 Q2 法說會逐字稿

(technical difficulty) joining Navios Maritime Holdings' Second Quarter 2021 Earnings Conference Call. We are pleased to host this call from the Cayman Islands.

With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Vice Chairman, Mr. Ted Petrone; Chief Financial Officer, Mr. Georgios Achniotis; and Senior Vice President of Strategic Planning, Mr. Ioannis Karyotis.

I will now turn the call over to Ms. Laura Yagerman, who will take you through the conference call details and safe harbor statements.

Thank you. As a reminder, this conference call is also being webcast. To access the webcast, please go to the Investors section of Navios Maritime Holdings website at www.navios.com. You'll see the webcast link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call can also be found there.

Now I'll read the safe harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Holdings. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings' management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Holdings' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in this conference call.

The agenda for today's conference call is as follows. We will begin this morning's conference call with formal remarks from the management team. And after, we will open the call to take questions.

Now I'll turn the call over to Navios Holdings' Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

Thank you, Michael, and good morning to all of you who joined us on today's call. I am pleased with the results for the second quarter of 2021. In Q2, Navios Holdings reported revenue of $143.6 million, adjusted EBITDA of $85.9 million and adjusted net income of $30.3 million. The dry bulk market remains strong, supported by rates across different vessel types that are creating new highs.

Capesize rates are close to $50,000 with Panamax and Supramaxes about $35,000 per day. With increasing charter rates, we have also seen ship values rise. We are optimistic that these rates will hold in the near term as demand remains strong and the market struggles with an efficient logistics change for the dry bulk commodities.

Please turn to Slide 3 for an overview of the Navios structure. As you can see, Navios Holdings operates 38 dry bulk vessels with an average age of 8.6 years. Navios Logistics continued to grow in port business, developing critical infrastructure for transshipping minerals and grains, liquid and other commodities. The company is a leading infrastructure and logistics company in the Hidrovia region. Navios Holdings maintains its 63.8% ownership in Navios South American Logistics. Navios Partners recently announced its merger with Navios Acquisition. The combined entity will become the largest U.S. publicly listed shipping company by number of vessels with about 1/3 of its fleet in each of the dry bulk, containership and tanker sectors. We are excited about this transformational transaction and the potential value to NM. Pro forma for the merger, NM will own about 10.3% ownership in NMM worth $95.8 million as of the close on September 1, 2021.

Slide 4, you can see world GDP growth since 1970. Global GDP growth for 2021 is projected to be 6% and 4.9% in 2022. This is the highest consecutive 2-year growth recorded in the past 50 years. In addition, the percentage increase marks a potential impact. Nominal global GDP in 2020 was about $85 trillion compared with $3 trillion in 1970. In fact, expected 2021 GDP growth is almost 2x the entire GDP of the world in 1970.

The world is continuing its economic recovery. Despite a backdrop of strong GDP growth, the current level of the BDI lags behind previous highs. We believe this historical high points demonstrate that the BDI and the dry bulk market can continue to increase as we work through ongoing logistical disruptions posed by the pandemic.

Slide 5 highlights the recent developments. For the first half of 2021, we generated $260.6 million in revenue, a $135.1 million in adjusted EBITDA and $25.1 million in adjusted net income. During the second quarter, we generated $143.6 million in revenue, $85.9 million in adjusted EBITDA and $30.3 million in adjusted net income. During the second quarter, we also achieved the average time charter rate per day of $29,511 for our Capesize vessels, $17,531 for our Panamax vessels and $16,474 for our Ultra-Handymax vessels. We highlight a strong cash flow potential for the second half of 2021 with 6,891 available days and about 50% of them open or index linked, we can take advantage of the strong dry bulk market and generate significant additional free cash flow.

As an update to our ongoing debt reduction, we have successfully reduced our debt by $251.4 million so far 2021 year-to-date. As for the S&P activities in 2021, we sold 8 vessels for $153.2 million.

Lastly, I want to highlight once more, the recently announced Navios Partners and Navios Acquisition merger. Combining these 2 companies creates a single entity operating in the 3 segments, dry bulk, tankers and containerships. This enlarged entity will be stronger and more agile and able to mitigate sector-specific cyclicality. The combined entity will have asset value over $4 billion, enterprise value exceeding $2.2 billion and a market cap of nearly $1 billion. Navios Holdings will hold 10.3% ownership in the pro forma for the merger.

Slide 6 further details our year-to-date deleveraging efforts. As I previously mentioned, we have successfully reduced our debt by over $251 million so far in 2021. We redeemed $100 million of 11.25% senior secured notes and repurchased another $21.4 million of our first priority ship mortgage notes. The remaining $130 million in debt reduction comes from the repayment of a $70 million Navios Logistics' loan and a $60 million of other credit facilities. As you can see from the chart below, our deleveraging efforts resulted in a 22.4% debt reduction year-to-date.

Slide 7 goes through the significant revenue upside from our fleet for the second half of 2021. As you can see from the bottom chart, we have $82.2 million in expected fixed revenue from the 50% of our available days. From the balance 50% of our 6,891 available days which are open or index-linked in the second half of 2021, we expect to have $143.4 million of additional revenue, assuming the current rate outlined in the table, yielding us total revenue of $225.7 million or a time charter rate of $32,754 per day for the second half of 2021. The dry bulk market remains strong, and our fleet is readily positioned to take advantage of any available market upside.

Slide 8 highlights our liquidity position. As of June 30, 2021, our net debt to book capitalization was 95.6%. We have cash of $73.2 million.

I would like now to turn the call over to Mr. Georgios Achniotis, Navios Holdings' CFO. George?

Thank you, Angeliki. Please turn to Slide 9 for a review of the Navios Holdings financial highlights for the second quarter and first 6 months of 2021. Adjusted EBITDA for the quarter was more than 3x higher than Q2 2020 at $85.9 million compared to $27.2 million in 2020.

EBITDA and net income for the quarter were adjusted to exclude $5.4 million impairment losses relating to 4 vessels. EBITDA and net loss for Q2 2020 were adjusted to exclude $9 million impairment losses on 2 vessels and $1.3 million impairment losses incurred by NMM. The increase in adjusted EBITDA reflects the significant improvement in the dry bulk market during 2021. The TCE rate we achieved in the quarter was almost 3x higher than Q2 2020. The improvement is also reflected in the net income of the company. During Q2 '21, we recorded an adjusted net income of $30.3 million compared to an adjusted net loss of $25 million in 2020.

Moving to the first half financial highlights. Adjusted EBITDA for the first half of 2021 was $135.1 million compared to $55.9 million in the first half of 2020, an improvement of 142%. The TCE rate achieved in the first 6 months of 2021 was almost 2.5x higher than in 2020. EBITDA for the first half of 2021 was adjusted to exclude $25.9 million in equity income in affiliated companies due to the merger of Navios Partners with Navios Containers and $25.9 million impairment losses relating to 7 vessels.

EBITDA for the first half of 2020 was adjusted to exclude $20.2 million impairment losses relating to the sale of 4 vessels, $18.3 million impairment relating to Navios Europe II, both directly and through our affiliates and $1.3 million impairment losses incurred by NMM. Adjusted net income for the period was $25.1 million compared to an adjusted net loss of $48.8 million in the first half of 2020.

Moving to Slide 10 and our balance sheet highlights. As on June 30, 2021, the cash balance was about $73 million compared to about $111 million at the end of December 2020. Following our deleveraging efforts, long-term debt including the current portion, reduced by about $98 million. This reduction does not reflect the $100 million redemption of the 11.25% senior secured notes that took place in Q3.

Please turn to Slide 11. Navios Partners recently announced its merger with Navios Acquisition. Pro forma for the merger, Navios Holdings will own 10.3% of the merged entity with an estimated market value in excess of $90 million. Navios Partners will become the largest U.S. publicly listed company with a fleet of 143 vessels, about evenly diversified across dry bulk, containership and tanker segments.

And this concludes my presentation. At this point, I will turn the call over to Ioannis Karyotis for his review of the Navios South America Logistics results. Ioannis?

Thank you, George. Slide 12 provides an overview of Navios Logistics. Navios Logistics operates 3 port terminals, which are complemented by a barge fleet for river transportation and product tanker fleet for costal cabotage trade.

Please turn to Page 13. In the second quarter of 2021, EBITDA decreased by 20% to $21.7 million. Our operating performance has been affected by a soft cabotage market, attributed to the weak economic environment in Argentina because of COVID-19 and deteriorating river navigating conditions due to low waters. These adverse conditions are highlighting the essential role our port asset in Nueva Palmira, Uruguay plays within the regional logistics chain.

Because our port is located at the mouth of the river, the loading draft has been unaffected compared to Argentine river ports suffering from 80-year low water levels in the Paraná river. Q2 2021 port segment EBITDA decreased by 4% to $18.3 million. The decrease was mainly attributed to reduced transhipment of Paraguayan grains. As water levels in the Paraná river continue to drop in the third quarter, our major customers started diverting certain cargoes, which would otherwise have been sent to Argentina to our port. This takes advantage of our loading draft that is almost 2 meters higher. We believe that this competitive advantage not only will support our grain port performance this year, but will have long-lasting effects as customers reengineer their internal logistics requirements.

On the iron ore side, from the Vale contract, we earn revenue per the minimum guaranteed quantity of 4 million tons per year. Vetorial continued to transship through our terminal during the quarter, moving around 200,000 tons. Despite the strong demand for iron ore, both Vale and Vetorial's export volumes from Corumba have been adversely affected by low water levels in the river system.

In the barge segment, Q2 2021 EBITDA increased 25% to $3.9 million. The increase is attributed mainly to higher revenue from liquid cargo transportation from our recently acquired liquid barge fleet with a take-on-pay contract for transportation of liquid cargoes to Paraguay. This trade is less affected by low waters compared to the transportation of iron ore from Corumba. The low water levels, however, are adversely affecting operations and profitability as barges have limited current capacity in reduced drafts and trips are taking longer to be completed. This increases voyage expenses. River conditions continued to be difficult during the third quarter.

In our cabotage business, Q2 2021 EBITDA decreased to minus $0.5 million from $5.1 million in the same period last year. The decrease is due to lack of employment for some of our vessels during the quarter because of weak economic environment due to COVID-19. For Q2 2021, loss for the quarter was $0.8 million compared to $11.9 million profit in the second quarter of 2020. The decrease is attributable to lower operating profit and higher finance costs, mainly due to new senior notes.

Turning to the financial results for the 6-month period ending June 30, 2021. Revenue decreased 4%, EBITDA decreased 9% to $45.3 million, and profit was $1.7 million from $18.8 million in the same period last year.

Please turn to Slide 14. Navios Logistics has no significant maturities until 2025. Our bond is trading above par, yielding 6.7%. Cash and cash equivalents at the end of the second quarter of 2021 were $47.5 million compared to $74.9 million at the end of 2020. Net debt to book capitalization was at 59%. As previously announced in July, Navios Logistics' subsidiary, Grimaud Ventures S.A., received full repayment of the outstanding balance of the $70 million loan it had issued to Navios Holdings in cash and shares of Navios Holdings. Subsequently, Navios Logistics declared and paid a dividend pro rata to its shareholders in shares of Grimaud.

I would now like to turn the call over to Ted Petrone.

Thank you, Ioannis. Please turn to Slide 15. Slide 15 presents our diversified dry bulk fleet consisting of 38 vessels totaling 4.1 million deadweight, 12 Capes, 21 Panamaxes, 4 Supramax and 1 Handysize. The average age of the fleet is 8.6 years, 20% younger than the industry average. Navios Group total fleet of 189 vessels includes 93 dry bulk vessels, 53 tankers and 43 container vessels.

Please turn to Slide 16. Slide 16 highlights our ESG initiatives. Maritime shipping is the most environmentally friendly means of transportation as it is the most energy and carbon efficient mode of transport. We aspire to have 0 emissions by 2050. In this process, we have been pioneering and are adopting certain environmental regulations up to 2 years in advance, and we aim to be one of the first fleets to achieve full compliance. Navios is a socially conscious group whose core values include diversity, inclusion and safety. We maintain policies and procedures that provide effective corporate governance and a clear code of ethics. Our Board is composed of a majority of independent directors and independent committees that oversee our management and operations.

Please turn to Slide 18. The Q2 index average of 2,793 was more than double any Q2 quarterly average in the past decade. More recently, rates in all asset classes have risen sharply reflecting surge in trade, driven by strong demand for both major and minor bulk commodities. The Baltic Exchange Dry Index broke to the 4,000 level, the highest since 2010 as earnings for sub-Capesize vessels reached multiyear highs. Supply and demand fundamentals going forward remain extremely positive as strong demand for natural resources combined with COVID-related logistical disruptions, which adds to fleet inefficiencies, and a slowing pace of new building deliveries all support strong levels of spot and future freight rates.

The IMF projects global 2021 GDP growth of 6%, the highest in 50 years, led by an 8.6% expansion in China, India and developing Asia. Accordingly, 2021 dry bulk trade is projected to increase by 4% and further increase by 1.7% in 2022.

Turning to Slide 19. Demand is forecasted to outpace net fleet growth in both '21 and '22. The graph on the left shows that dry bulk demand for the 3 major cargoes of iron ore, coal and grain for the second half of this year is forecast to increase by 7% compared to the first half of 2021. The graph on the right highlights the previously mentioned slowing fleet growth. Net fleet growth is forecast to be 3.3% this year and only 1.2% in 2022.

Turning to Slide 20. Post-pandemic stimulus measures in the advanced economies and increasing industrial production and economic growth in China have fueled demand for iron ore. Global iron ore demand is expected to increase by 3.6% this year. Additionally, availability of Atlantic exports to China in the second half of this year are expected to increase as steel mills replenish stockpiles, increasing ton miles and driving demand for Capesize vessels.

Forecasts are also for growth in iron ore imports around the world as the effects of the pandemic recede. Europe's imports are expected to grow by 18% and Asia, excluding China, is expected to import 12% more iron ore in '21 than in 2020.

Please turn to Slide 21. Asian coal imports, which account for over 80% of the world's seaborne coal trade, are expected to increase by 3.7% in 2021. According to the IEA, the International Energy Agency, global coal-fired electrical generation is expected to rise by nearly 5% this year and exceed pre-pandemic levels before increasing a further 3% to an all-time high in 2022.

Turning to Slide 22. An ever-increasing world population, food security issues driven by the pandemic as well as increasing protein demand worldwide continues to support global grain trade. World grain production this year will reach a record according to the International Grains Council and the USDA. Worldwide grain trade has been growing at 5% CAGR since 2008, mainly driven by Asian demand, which increased by 15.5% in 2020 and is forecast to grow by a further 6.9% in 2021. Overall, total world grain trade is expected to increase by 4.4% in 2021.

Please turn to Slide 23. The current order book stands at historically low 5.8% of the fleet. Contracting for all 2020 and year-to-date combined has been low, about equal to all contracting in 2019. Accordingly, 2021 net fleet growth is expected at 3.3% and only 1.2% in 2022, below the projected increase in dry bulk demand for both years.

Turning to Slide 24. Vessels over 20 years of age are about 8.8% of the total fleet, which compares favorably with the previously mentioned historic low order book. Scrapping totaled 15.8 million tons in 2020 and year-to-date has totaled 4.6 million tons, which is on pace for a yearly total of about 8.6 million tons.

In conclusion, positive demand fundamentals, mainly due to strong restart of economic activity around the world, along with reduced fleet availability, should continue to support the dry bulk industry as it continues in an effort to navigate through this easing pandemic storm.

This concludes my presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki?

Thank you, Ted. This completes our formal presentation. We open the call to questions.

(Operator Instructions) We will take our first question from Omar Nokta with Clarksons Securities.

Angeliki, just I had a handful of questions for you today. And maybe just, firstly, thinking in the grander context of Navios Holdings, especially with NMM merging with NNA and creating a large strong footprint under one umbrella. How do you think about holdings long term? One, is IPO of Logistics still a priority? And two, could you see Holdings staying as a holdings company long term? Or do you see that potentially down the line also joining up with NMM?

I will tell you on the phone that if there is something to announce, we would have told you, but the reality today is, one thing about -- and it's not a very typical maritime company. You may have a large dry bulk fleet, but you also have a material subsidiary in the Navios Logistics, which basically is concentrated in the port infrastructure and logistics in South America. So it's not an obvious one.

Now overall, I think one of the things I'd like to say is that Navios Holdings is benefiting from a very strong dry bulk market. Rates are increasing. Cash flows are increasing and asset values are rising. And demand -- and we think the demand for the dry bulk commodities is robust and will remain as such because of not only demand, but also the continuous logistic chain challenges. So I think this is on the dry bulk market.

On the business we have in South America, I think, as you know, we are very ready on -- the company is ready for capital markets. Of course, we see that market conditions are difficult. I mean industry peer in South America is not really doing very well because you have the river level that is challenging and general capital market. Of course, here, you can see the resilience of our port. I mean, we are in the mile 0. That provides us additional water level, and we are actually having a 2-meter advantage versus the Argentinian side.

And then maybe just separately, regarding the debt maturities next year. Obviously, as you highlighted, rates are up, cash flows are rising and you've got a significant increase in your asset value. What are -- any color you can give on the potential refinance of the bonds? Can you see -- we obviously -- it seems that the banks -- or traditional lenders have become much more interested in lending to the shipping market. How do you think about the refinance of the bonds? Can you envision doing a refinance with just straight up conventional bank debt? Or do you also see coming to the capital markets again?

I think we are reviewing all our options. I think what I will tell you is that we have seen a significant increase in values and the rate. And it's something that will continue and work to our advantage. If you see the results and how the market is developing, it seems to us robust. Of course, Navios has always traditionally a good relationship with banks, with leasing companies. So we have a long tradition on the financing front. And we did quite -- we have done a lot of work. You have seen we have reduced our debt by over $250 million on year-to-date, and we have achieved that with numerous ways.

Yes, definitely. And maybe just one final one for me. Just wanted to ask about the purchase options you've got on the vessels chartered in. I believe there's 13 currently in place. Presumably some of those or potentially all of them may be in the money, just given the increase in values we've seen this year. Any sense or color you can give on whether these options are planning to be exercised or how much in the money they are? Any color you can give there?

It is difficult because there are multiple options, yearly options, late exercisable at different times. And also one thing I can give you a color is that, with the charter-in rates, they also create a huge advantage to us. So if there is something to be exercised, this is a portfolio we monitor constantly. We have even the ability on a cash flow-wise to extend on -- we have not only on the charter period, we have optional here. And also, we have the exercise of the options of purchase option, is in different points. So this is a metric that a portfolio will follow very well.

I want -- I mean, I think you were previously covering -- if you have been in the maritime industry for some time, Navios has been a beneficiary of that market. We have exercised options in the past very profitably. And more recently, we have done by selling and capturing this differential. It will be difficult to give you a number because this is really multiple here, and it can be done either on cash flow or purchase option.

Got it. Yes. Well, clearly, definitely some value from them just given how the markets transitioned here since the beginning of the year.

And we have no further questions on the line at this time. I will turn the program back over to Angeliki for any additional or closing remarks.

Thank you. This completes our quarterly results. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.