Navios Maritime Holdings Inc (NM) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen. My name is Carly and I will be your conference operator today. At this time, I would like to welcome everyone to the Navios Maritime Holdings second-quarter 2006 conference call. All lines have placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

It is now my pleasure to the floor over to your host, Mr. Alan Katz.

Thank you for joining us on this morning's call. With us today from Navios Maritime Holdings are Ms. Angeliki Frangou, Chairman and CEO; Mr. Robert Shaw, President; and Mr. Michael McClure, Chief Financial Officer.

As a reminder, this conference call is also being webcast. To access the webcast, please refer to the press release for the web address, which will direct you to the registration page.

Before I review the structure of this morning's call, I would like to 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. Forward-looking statements are statements that are not historical fact. Such forward-looking statements are based upon the current beliefs and expectations of Navios' management team and are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements. Such risks are more fully described in Navios' press releases and filings with the Securities and Exchange Commission.

The information set forth herein should be read in light of such risks. Navios does not assume any obligation to update the information contained in this conference call. Thank you.

At this time, I would like to outline the agenda for today's call. First Ms. Fragou will offer opening remarks. Next, Mr. Shaw will provide a brief overview of market fundamentals. Following Mr. Shaw's remarks, Mr. McClure will review Navios' second-quarter and first-half 2006 financial results. Finally Ms. Frangou will offer concluding remarks. At the conclusion of Ms. Frangou's remarks, the Company will open the call to take your questions.

At this time, I would like to turn the call over to Ms. Angeliki Frangou, Chairman and CEO of Navios.

Thank you, Alan. Good morning to those joining us on today's conference call from the United States, and good afternoon to every one of you in Europe. I am delighted to be with you again and share our accomplishments during the second quarter of 2006 as well as our financial and operational results for this quarter.

Mike will address the day-to-day financial performances in a moment, but I would like to highlight that our EBITDA was approximately $24.5 million for the second quarter and $49.1 million for the first six months of 2006. These results demonstrate our focus on consistent performance from continuing operations. We believe that EBITDA is an appropriate gauge for our performance, given the significant intangible assets on our balance sheet resulting from the acquisition of Navios in August of 2005.

Before I address our strategy and current position, I wanted to provide some context by reviewing the general industry conditions. Mr. Shaw will provide in greater detail, but I think it is appropriate to note the current strength of the market and put our strategy in perspective. We have been enjoying a remarkable strength recently.

Indeed, during the first four months of 2006, the Baltic Dry Index increased only by 1%. However, since May of 2006, the BDI has increased by 48%. As you can see, most of these gains occurred during the last couple of months, with August being an unusually strong one.

There are many reasons for this strength. Fundamentally, global industrial production has been very strong for the first six months. For example, the industrial production of China and India has increased by 19.5 in terms of earned [revenue]. In addition, it is a period of (indiscernible) as weekly requirements are increasing, as certain minerals and (indiscernible) from all of this, as well as from South America as the coastal regions (indiscernible).

With this backdrop, one can appreciate that Navios would like to cover its fleet. Indeed, Navios extended its long-term fleet coverage to 96.1% for 2006 and 46.4% for 2007. During July, Navios had three vessels for two years and one vessel for one year, as others made a rate net of commissions of $19,960 and $19,500 per day (indiscernible). This record should turn an EBITDA of [$40.3] million over the [further] periods. Furthermore, there are eight vessels that will be available for charter in the next five months. Under certain circumstances, we intend to seek multi-year charters for these vessels and (indiscernible) favorable cash flows look forward to (indiscernible).

We have previously discussed the implementation of (indiscernible) corporate infrastructure project. I am very pleased to advise you that we have moved into our modern, 20,000 square foot facility in Piraeus, where we have centralized all our vessel system support facilities.

In Piraeus, Navios has enacted an educated workforce that really meets our growing needs. In addition, our new IT and accounting systems are fully operational. These reasons have facilitated our timely reporting of results for the second quarter, in which subsequently we will describe them.

I have previously mentioned that our business model combines ownership and management of our vessels, thereby aligning interest of our shareholders who have (indiscernible) monitoring. Apparently, one of our public competitors agreed with these reasons, as this company is in the purchase of its management companies so that all its operations are now within the public company. We are pleased with this development, as it demonstrates the value of the Navios structure.

We continue to have (indiscernible) benefits of (indiscernible) ownership and trading operations, each of which complements each other. Further use of (indiscernible) ratings who can help and secure trading operations, while shipping operations provide (indiscernible) to the market for their trading ability. We believe that this provides Navios with (technical difficulty) operating flexibility.

(Indiscernible) in managing a high-quality fleet of six, the company uses FFAs, Forward Freight Agreements, and short-term targeting to manage revenue business risks. Our vertically integrated business model provides a unique window (indiscernible) industry and enables us to react quickly to any emerging opportunities within the market.

We are now having internal reporting and from the same structures and seeking to optimize operational performance of our valued divisions. We anticipate that fortunately there is a new focus for the region and there is significant growth over the next three to six months.

Right now, to give you an update of our strategy initiatives we announced in June, our intention of building a South American logistics business using Navios dry bulk storage and transfer facility at Nueva Palmira in Uruguay and the Cornerstone assets. As you know, the Parana River has become an gateway for grains and other minerals being exported from South America and an area that has seen explosive growth over the past few years as a result of demand from Asia and elsewhere. We believe that we will complete the (indiscernible) South American logistics business focused on grain and minerals from this area.

Since we announced this strategic initiative, we have had extensive conversations with numerous parties and believe that we may shortly be entering into exclusive conversations with one of the parties. While we are optimistic about the outcome of these conversations, no assurances can be provided that we will meet in agreement. We will continue our efforts in this area regardless.

I would like now to give you a fleet update. Our current core fleet is composed of 32 vessels and approximately 2.1 million of deadweight tonnes. Since August of last year, we have grown our own fleet by approximately 180% and our core fleet by 22.7. Despite this (indiscernible) growth, we have maintained the age profile of our fleet and today we have one of the youngest fleets in the dry bulk sector, with an average date of approximately 4.5 years.

During Q3, we (indiscernible) another option to acquire a Panamax vessel built in 2003. (indiscernible) price is [$15] million below the market price on their associated (indiscernible), further improving our net asset value.

Another vessel option is (indiscernible) in the fourth quarter of 2006, and we are set for further improvements in our net asset value should the market remain the same. I note here that some portion of our net asset value related to these vessels is not fully reflected in our balance sheet. This results from the purchase accounting treatment of intangible assets created during the acquisition of Navios.

Furthermore, we have a well-established newbuilding program through our relationship in Japan which provides a long-term (indiscernible) increase. We expect the delivery of three new Panamax vessels in the second half of 2006, with additional another five vessels until 2008. So by year-end, we expect to own 17 vessels and have ten additional vessels on long-term chartering fleet, having a total access rate in the water of 27 vessels.

I would like now to update you on the warrant exercise program. As you know, during the second quarter, we raised about $65.5 million under a warrant program that we developed with our counselor and advisers. As an existing institutional holder exercised warrants at the price of $4.10 per share and a total of approximately [16] million shares were issued.

Since we completed this program, the SEC has declared our F1 registration effective on August 14, 2006. The registration statement covers the sales that will be (indiscernible) the size of the existing publicly-traded warrants.

Finally, before I turn the call to Robert, I would like to share with you that we are happy to announce our third quarterly dividend of $0.0666 per share for record holders on August 31st of 2006. This dividend will be paid on September 27 of 2006.

Robert now will describe the health of the shipping industry and the continued demand for ship movement of the dry bulk commodities, as well as the current supply of (indiscernible).

Thank you, Angeliki. Over the last four months, and in particular over the last eight weeks, we have seen steady strengthening in all sectors of the dry bulk market. On August 11, the Baltic Dry Index stood at 3396 versus a recent low of 2364 on May 2. Today's level is also substantially higher than the average of 2573 for the 12 months through June, 2006.

The average spot rate for Panamax vessels is now around $27,250 per day, and daily rates for longer periods of employment of 12 months for modern Panamax levels are at a premium of about $1000 to this figure.

The causes of this remarkably firm market appear to be more than one. The continuing urbanization and industrialization of China reflected in an astonishing increase in year-over-year fixed asset investments close to 30% in the first six months of this year remains the single biggest factor, as it has been for the last three years. This surging Chinese investments, above all in real estate and other infrastructure construction, has continued the increases in Chinese steel production and, of greater significance to the dry bulk market, to further increases in iron ore imports into China.

The market strength has defied the consensus view of the pundits widely expressed at the end of last year and the beginning of this year that the dry bulk market would on average be substantially weaker in 2006 over 2005, due to an anticipated growth in the fleet of some 8% against an anticipated growth in demand for cargo that was estimated to be between 4% and 5%.

Certainly, the predictions of the increase in the fleet were correct. According to Howe Robinson, a leading London shipbroker, gross dry bulk fleet growth in the 12 months through June 2006 was 7.8%.

Scrapping has increased this year since the virtually nonexistent levels of 2005 and 2004, but it has not yet made a major difference in the net increase in the fleet. Again, according to Howe Robinson, [on a per line] per demolition, the net growth in the dry bulk fleet over this period was 7%.

The surprise therefore is on the demand side, and specifically that demand has proved far stronger than had been expected by most dry bulk market analysts only a few months ago. For 2006, the consensus view is that Chinese iron ore imports for the year could increase by some 40 to 45 million metric tonnes over the 2005 figure. It now seems the increase will likely be some 65 to 70 million metric tonnes of additional iron ore imports into China.

In addition, we have seen new additional tonne mile movement that has greatly added to the effects of demand. These include, first, a much greater proportion of the imported iron ore into China this year is being exported from Brazil, as opposed to the nearer alternative sources of Australia and India, thus giving rise to longer voyages.

Second, large amounts of cement exports from China, in particular to the U.S., are being seen this year. Third, there has been an increase in Chinese fuel exports, again, in particular into the United States. Fourth, we have seen new longer haul movements of coal, both within Asia, as China has curtailed its coal exports to satisfy its own increased domestic demand, and from Asia to non-Asian destinations.

Fifth and more generally, we have seen an overall increase in demand resulting from the increased industrial growth of the OECD economies as a whole, including in particular the industrial production of Japan and Germany.

In the short-term, as reflected in the very firm rates now being offered by charters for period employment, the dry bulk market sentiment is widely bullish for the balance of Q3 and indeed for Q4 also. Additionally, early Q3 tends to be the softest season for dry bulk shipping demand, falling at a time when steel plants in the Northern Hemisphere, where most of the world's steel is made, typically maintain lower inventory levels, and falling also between the North and South American grain harvests.

Yet this year, Q3 has been witnessing steadily increasing demand, which market senses may result in even higher rates later in the year if the typical seasonal increase in demand takes hold after August. It is for this reason that charters are currently taking in vessels for longer employment at rates reflecting the spot market and are making such commitments even for period charters, providing for delivery of vessels as far ahead as late Q4 of this year.

Widespread chartering in the ships on period deployment based on delivery dates so far ahead is unusual in the dry bulk market, and the phenomenon reflects the strength of sentiment that this firm freight market is likely to remain well into 2007.

A further factor contributing to this bullishness is the wide expectation of continuing weakness in the dollar. Historically, there has been a broad correlation between a strong freight market and the declining U.S. currency, and this expectation is widely held in the market.

The countervailing longer-term considerations are the Chinese fixed asset investments may retrench, particularly if overcapacity in infrastructure or if banking prices in China following the current investment boom were to cause a severe retrenchment, particularly in infrastructure construction.

A further concern currently expressed is that U.S. consumer spending can be expected to be cut back if home equity values decline, although the impact of any such reduced U.S. consumer demand on Chinese infrastructure investment may take longer to work through the system before it has an impact on the dry bulk market.

Moreover, although we do expect to see increased levels of scrapping next year, the number of newbuildings to be delivered in 2007 is not so very much lower than 2006. Demand will therefore again have to witness sustained increases in 2007 to match this new supply of vessels.

Despite these longer-term considerations, whose impact and likelihood is necessarily more difficult to predict, there are many solid reasons for encouragement in the near- and medium-term outlook in our markets from which Navios can reasonably expect to benefit.

Indeed, as the current significant portion of our fleet is redelivered to us from its existing employment, we anticipate redeploying these vessels on average at markedly stronger rates on longer-term periods of employment of between 12 to 24 months' duration. Not only will this step continue our policy of laying a firm foundation for the Company's future growth, but it is a prudent policy for us to adopt, particularly given the levels of the present market and the longer-term considerations I have outlined.

Mike will now offer some details on Navios' recent financial performance.

Thank you, Robert. I will now briefly comment on Navios' financial results for the second quarter of 2006. The financial statements I am about to discuss were included in this morning's press release.

Revenues for the three months of operations ended June 30, 2006 were $52.9 million, as compared to $66 million for the same period during 2005. Of this, the four terminals contributed $2.9 million for each of the second quarters of 2005 and 2006.

The decline in revenue is mainly attributable to the decline in the market environment, resulting in lower charterized out daily charter hire rates. The freight market, however, has dramatically changed for the better since the beginning of May this year. The Company did not enjoy any significant increase from this in the quarter ending June 30, 2006.

The Company utilized 28.5 equivalent vessels for the three months ended June 30, 2006, as compared to 26.1 for the three months ended June 30, 2005. The Time Charter Equivalent of TCE rate per day, excluding Forward Freight Agreements, FFAs, decreased 36.4% from $26,249 per day in the three-month period ending June 30, 2005, to $16.687 per day for the same period in 2006.

EBITDA was $24.5 million for the second quarter 2006, as compared to $25.8 million for the same period in 2005. The decline in EBITDA is mainly attributable to, one, declines in revenue, as earlier mentioned; two, lower gains from trading Freight Forward Agreements in the quarter ending June 30, 2006 by $2.1 million, as gains from FFAs in the second quarter of 2006 were $1.7 million versus $3.8 million for the same period in 2005.

All of these were mitigated by a reduction in time charter, voyage, and terminal expenses from $38.5 million in the second quarter 2005 to $26.6 million for the same period of 2006, and the increase in vessel direct expenses and general administration expense. This reflects the Company's strategy of redelivering higher cost charter-in vessels and the exercise of purchase options that results in the expansion of the owned fleet.

Going forward, EBITDA will continue to reflect the increase in the number of owned vessels and the exercise of purchase options. As of June 30, six vessels on which purchase options have been exercised were delivered into the owned fleet. The last one was delivered in mid-April. As we discussed last quarter, the exercise of these six purchase options will result in an increase in EBITDA by approximately $12 million annually, due to the elimination of chartering costs associated with these long-term leases. The exercise of the Navios Star's purchase option will favorably impact EBITDA by approximately $2.3 million annually once delivered.

I would like to point out that the increase of fixed assets on the balance sheet from the Navios Star delivery as an owned vessel will be approximately $28.5 million according to purchase price allocation under U.S. GAAP principles. In contrast, the current market value of a Panamax vessel with comparable characteristics is about $34.5 million.

Net income for the quarter ended June 30, 2006 was $4.9 million as compared to $24.3 million for the comparable period of 2005. The decline in net income was impacted by the factors I mentioned earlier in relationship to EBITDA, as well as the following factors.

One, a $4 million increase in depreciation through the expansion of the owned fleet from both acquisitions and the exercise of purchase options. Two, a $3.5 million increase in amortization costs related primarily to the intangible assets established on the Company's balance sheet as part of the acquisition in accordance with purchase price allocation principles under U.S. GAAP. Three, $10.3 million increase in interest expense due to increased indebtedness to finance the acquisition of the Company and the purchase of 10 additional vessels.

Time Charter Equivalent daily earnings, including results from FFAs, were $17,329 per day, $10,505 per day lower than the rates achieved in the same period of 2005. This decline reflects the significant overall decline in the freight market in the comparable 2005 quarter.

Direct vessel expenses for operations of the owned fleet increased by $2.8 million to $5.0 million for the three months ending June 30, 2006 as compared to $2.2 million for the same period in 2005. Direct vessel expenses include crew costs, provisions, (indiscernible) engine stores, lubricating oil, insurance, repairs, and maintenance required under normal operation of the vessel. The increase resulted primarily from the expansion of the owned fleet by 10 vessels from the six owned in the second quarter of last year.

General and administration expenses increased by $0.9 million to $4.0 million for the quarter ending June 30, 2006 as compared to $3.1 million for the same period of 2005. Excluding the transaction costs of approximately $0.8 million incurred in connection with the sale of Navios during the second quarter of 2005, G&A expenses increased by approximately $1.7 million in the second quarter of 2006. This increase is mainly attributable to increases in payroll and related costs, professional, legal and audit fees and traveling due to Navios' transitioning to a public company, and lastly, office expenses resulting from the Company's move and consolidation of administrative functions to new facilities in Piraeus.

Navios' cash and cash equivalents, including restricted cash balances, on June 30, 2006 was $124.1 million. This amount includes proceeds from the exercise of warrants of $65.5 million.

Turning now to our first-half 2006 results, revenue for the six months ended June 30, 2006 totaled $102 million as compared to $127.3 million for the same period of 2005. This decrease is mainly attributable to lower charter-out daily hire rates achieved during the first six months of 2006 as compared to the same period in 2005.

Of this, the port terminal contributed $3.9 million as compared to $4.2 million in the same period of 2005. This decline reflects the reduction in the terminal's throughput during the first six months of 2006 as compared to the same period of 2005, due to a drought situation in Paraguay.

EBITDA for the six months ended June 30, 2006 increased by $8.6 million to $49.1 million as compared to $40.5 million for the same period of 2005. This increase is in part attributable to a gain in FFA trading of $3.3 million in the first half of 2006 versus a loss of $0.8 million in the same period in 2005, for a favorable variance of $4.1 million. The balance of the difference, or $4.5 million, is a result of the decrease in time charter, voyage, and terminal expenses, which more than offsets the decrease in revenues and the increase of [deductible] direct expenses in G&A.

Net income for the first half of 2006, ended June 30, 2006, was $9.9 million as compared to $37.3 million for the comparable period in 2005. The decline in net income, in addition to the factors mentioned earlier in relation to EBITDA, was mainly impacted by the increased appreciation and amortization of $16.2 million due to the increase in the owned fleet and the amortization of intangibles established on the Company's balance sheet as part of the acquisition of Navios. In addition, net interest expense increased by $19 million, primarily due to the acquisition debt.

Navios utilized 27.5 equivalent vessels for the six months ending June 30, 2006, as compared to 26.6 for the comparable period of 2005. Time Charter Equivalent earnings on a per-day basis, including gains and losses from FFAs, were $17,905 per day for the six months ended June 30, 2006, compared with $24,011 per day for the same in period 2005.

General and administration expenses increased by $0.9 million to $7.6 million for the six-month period ended June 30, 2006, as compared to $6.7 million for the same period in 2005.

The Company continues to employ a conservative revenue strategy, which can be seen in our portfolio of long-term charters. Today, 96% of our fleet is fixed for 2006 to first-class charterers, and approximately 45.1% fixed for 2007, yielding an average daily net earnings rates of $17,579 per day for 2006 and $17,524 for 2007.

This concludes my comments on the financials. At this time, I would like turn the call back to Angeliki to provide closing remarks.

Thank you, Mike. Now we are open to questions.

(OPERATOR INSTRUCTIONS) Hardin Bethea, DePrince, Race & Zollo.

I guess my question is more of a big picture question and relates to the Company's valuation in the public market. And I'm interested in gaining feedback from management on this. What is it that you believe is or are the critical reasons for why Navios continues to trade at a significant discount to its net asset value and at discount to its shipping peers? What is management prepared to do to change that?

I think one of the reasons that we -- I believe it is the number one reason for what we perceive to be greatly undervalued, actually, here is that when we really completed our acquisition last year, it happened to be through volatile times for shipping. So you had all the analysts looking at the sector and everyone is looking on the quarter or a month. So sometimes you see they were looking at it not favorably.

So we were not able to get a lot of coverage from analysts, even though we have done a lot of work and we have progressed in a lot of ways (technical difficulty) analysts.

The moment you really get an opportunity, now we have seen that all the analysts are looking favorably at the sector. They put a positive buy for the whole sector. So we are just having again the spotlight on the dry sector. So I think that will help our sales, because analysts say that we have done work. They will be willing to start to covering our sales.

Also as part of -- another part was that back in the industry sections, a lot of analysts, they were waiting to see or hear end results, to see how (indiscernible), and to really see the whole Company. We have partnered, and most importantly, the industry has been viewed positively.

Now if you ask me on another thing, now people will start concentrating -- last year, the people did not see the advantage of, let's say, exercising the purchase options. On the present vessel that we just acquired, a 2002 Panamax, we are saying very conservatively that we have $50 million gain between that and the exercise price and the market value. If you take the recent, just say, that was reported on Monday of another publicly traded company, you will calculate that at a real gain -- it's over $20 million. And this is something that we will have another record in Q4 delivery on January.

So you realize this is the things that will be seen by the market. We are talking about good assets you have in 27 vessels. You increase your (indiscernible) visibility here will follow very conservative approach. We will [be] a visible cash flow which can be seen from our operating expenses, even though we had -- if you see this year's operating results versus last year's, in reality, the differential is in the FFA gains. Otherwise, the Company earned $2 million more on FFA last year versus this year. Then you realize that the Company really produced, on an environment that was lower rate, much better on actual returns.

So this is something that we are here to continue. We are working very hard with all the world fleets to get the message out, and we have now the possibilities, because they favor the market. They favor the sector. And I think we can deliver this visibility in the next couple of months.

Also, Hardin, there may be some confusion in the market with respect to Navios' financials, especially due to the purchase accounting principles that we would use to establish the balance sheet in the first place. But we are spending a significant amount of time in visiting potential shareholders, existing shareholders, and analysts to better explain the Corporation.

How much was that non-cash amortization in the quarter?

The amortization for this quarter was -- just on the amortization alone, was $4.8 million. Notice though that in Q1, that number was about $6.3 million. So as we exercise more purchase options, we reduce the amount in the balance that gets amortized. So that number is continuing to decline, and that will decline with the Navios Star. And then early in 2007 we have another option that we could exercise. So that amortization amount will decline.

When I look at the value of the shipping assets alone, I get something higher than where your stock currently trades, backing out all of your financial obligations. So I guess at this point, why is it the market isn't willing to pay anything -- actually, they are subscribing negative value to your trading operation and your port.

I think it is more a matter that they now start realizing this. Hardin, you have spent a lot of time on the [timing] and financials. If somebody has not spent the time and now we have been doing an extensive work, and both Robert and Mike and my friends who have spent a lot of time with a lot of people explaining.

You realize that if -- you are penalized because you're buying (indiscernible) at below $20 million. That is the truth. If you're buying it at $40 million, you will be better off. That is a reality on an accounting (indiscernible). This is the reality, however.

Particularly, it is a learning curve. You have to not forget that the sector was almost going -- (indiscernible) had forgot about the sector in the second quarter.

What I would like just to add to that, just to give you a real quick example, a simple example, like on the Navios Star, our purchase option price is $19.5 million, about. And then when we add back the unamortized portions of the intangibles, we will take to our balance sheet about $28.5 million. If we went out today in the open market, we would probably pay somewhere in the mid-40s for that vessel, and that would be taken to the balance sheet. So on that example alone, our balance sheet is going to be understated something like $12 million to $15 million.

That is just one vessel.

That is just one vessel, right.

And you have another vessel that we can exercise in Q4, which presently our intention is to do that, where we are allowed, that we can take it in the next -- very, very early next year. So as you realize this is only we have eight vessel purchase options that we have not exercised, and this will be -- we have like a newbuilding program that we follow on a step-by-step basis.

One more question. Then I'll --

You're mentioning about net asset value. I can't agree or disagree, but one has to look at our fleet and mark-to-market that based on available information. I think you will agree that our balance sheet doesn't reflect the true market value of those vessels.

I agree. One more question, then I will jump back in the queue. I remember the port facility underwent an expansion in the second half of last year, but it doesn't seem like it has benefited revenue or throughput this year. Can you describe why that expansion of the facility has not shown up in the results?

Remember that you're dealing with shipment deals. The great shipment season, when that facility came online, it was in Q3 of last year -- well, it was in October -- so late Q3/early Q4. Bear in mind that in the Southern Hemisphere, the grain shipment season doesn't begin until the reverse of the Northern Hemisphere. The grain shipment season began there in March, April of this year. And now that facility is fully booked out under multiyear contracts to two of the grain makers, and you will see at the end of this year an incremental impact.

One thing that has had an influence this year, but it is not a long-term thing, is that the Paraguayan crop, which has been historically our single biggest source of grain, has had a big drought. So with the drought in Paraguay this year, the crops that they were expecting to be well in excess of 5 million tonnes was in fact 3.6 million tonnes. So that will have some impact on the throughput.

Nevertheless, there are guaranteed minimums for these particular silos, and in addition, we're seeing a big increase in Uruguayan grain production, which is what that silo was destined to serve. So I think you've really got to wait until the end of this year to have a full view of the impact of that investment.

Second question on the port, I don't know if there's any more detail you can provide on the strategic initiative being pursued regarding that facility (multiple speakers) logistics business.

Ms. Frangou alluded to that in her remarks. We are in, I believe, advanced discussions with a major participant in the commodity trades in that part of the world. Those discussions are the subject of confidentiality agreement at the moment, so I can't say too much. And as Angeliki stated in her remarks, we are -- how would I say to use the cliché -- cautiously optimistic that those discussions will bear fruit.

But regardless of whether they do with that particular party, we are quite confident that there are plenty of opportunities that we will be following to produce something in the next few months and have something tangible to announce to you.

I will let some others ask questions. I appreciate your answers.

Omar Nokta, Dahlman Rose.

Just with respect to your vessel purchase options, this exercise, would you consider selling them in the open market and taking that profit or would you really intend on operating these ships?

To be honest, we are -- at this moment, we are not looking on reducing our fleet. We see very (indiscernible) profits that we can book. We are looking on more this year contracting that we did through a high visibility for '07 and '08 EBITDA. And our achievement here is to reach very solid results from our operating business, from our operating shipping business.

Because as a I already have mentioned, we are working on all our other divisions, our trading division short-term. So with this flexible structure, we are able largely to capture the volatility, the intermediate volatility. So our strategy here is to keep our fleet, book it for solid numbers for the next two years. And then with our flexibility, our ratings short-term and after trades be able to come through the additional volatility.

This is a strategy that we have started it that is on the beginning and we are now implementing in a full way. You will be seeing in the next three to six months the results of that.

Okay. And you talked earlier on the call about looking for contracts of about 12 to 24 months on your fleet. Do you intend at all to operate on the spot market or the short-term market with some of your vessels? Or is that going to be relegated mostly in the risk management side of your business?

Excuse me, can you repeat the question? I didn't hear it.

Sorry about that. You talked on the call about looking for contracts between 12 and 24 months on your fleet. Do you plan to do that for the whole fleet or do you want to play a little bit on the short-term side and maybe capture some of that upsides? Or is that going to really stay mostly on the risk management aspect of your business?

The good thing about Navios is that we are flexible; that is the difference. So what can offer to our shareholders and all of them is that we can provide in our core fleet of the 27 vessels that we will have by year-end very strong results.

We will do a portfolio arrangement, as we always do. We already have fixed four vessels. We will have another two on charters at over $20,000 net rate, and we will report that immediately when we have it. And we have another six until year-end. Our strategy is to book very solid EBITDA that is visible until 2008, and then take all the upside, the short-term upsides that can happen in our flexible structure that we have, and (indiscernible) rates in short-term.

And this is [started] (indiscernible) this way, it can show that the risk management and the trading is really your supplementary EBITDA. We have worked very much on risk monitoring. We have an announcement later of how we are restructuring the divisions so that we can consistently and safely provide these results.

Very good. Thank you so much.

[Jeff Miller], JMG Capital.

You talked about strategic initiatives with the port logistics facility, and hopefully we will have the news on that front in the next few months. Can you talk about any strategic initiatives for enhancing the fleet size just generally to capture some of this upside and the strong market going forward?

Yes. First of all, I think it is a strategy we look on three to five years, and you can see that today we are bearing the fruit of what will be in Q4. I mean, buying those vessels, exercising options, and this is a strategy that we are continuing to do.

Speaking as I always have said, this is all a time business. It doesn't mean you have to put the seeds of a strategy early on. In this moment what we see very profitable is to create a very visible cash flow, solid cash flow, and this is something we like to deliver. And together with increased fleet, we can be able to show to our investors the rewards of our strategy that has started a year ago in reality.

Okay. So I guess what you're telling me then is you're going to continue on the strategy you have now, where you're going to be exercising your purchase options, kind of ratcheting up incrementally your fleet size, but you're not looking at any other options to try to capture a larger fleet size faster by some sort of strategic option?

We're always looking, but you have to be very careful when you do that, and they have to be the right options. First of all, if you are doing an acquisition with a single (indiscernible) which is one way, because company you have to make sure that whatever you do, it will deliver control, etc.

So we are in constant evaluating new projects. And we have the capacity to deliver any new project if it makes economic rationale. At this point, we have a newbuilding program that makes a lot of sense. We are hearing demand for it, and we continue to do that. And we are here to capture any new opportunities that we see. We will have interest in the Far East. We will be reviewing strategic new opportunities there, apart from the ones that are here in the West.

Okay, thank you.

(OPERATOR INSTRUCTIONS) A follow-up from Harden Bethea, DePrince, Race & Zollo.

Related to the risk management business comments you made earlier, it looks like results have become a little more consistent, at least first quarter and second quarter are relatively similar. Is there an expectation you're willing to share for the consistency of results you expect going forward? Is this something -- a level we should continue to expect on a go-forward basis or is there opportunity to enhance the performance of this segment?

As I have already mentioned is that we have worked in [all obligations]. We have taken a very hard look and we have worked on creating risk controls in order to be ready to be able to deliver consistent and more reliably, and without us being a public company, better results.

I think we will be able to work on that and create more supplementary EBITDA in the next -- and we'll see fruit in the next three to the six months, and we will keep you fully updated on that. We have worked -- as with the IT of the Company, we have been working on this -- on all our divisions, rethinking our divisions from day one, and I think we will be able to deliver slowly and carefully these results.

Another question. I know the balance sheet does not reflect the value of the assets you control. Maybe it would help if we could talk for a minute about financial leverage. If I were to instead of using net debt to the book value of capital, maybe instead use debt to the market value of assets. Is that something that you can discuss?

I think we can sit down, if you like, off-line and work on the ratios the Company has realized as reviews (indiscernible) with the new market it has been (indiscernible) the capacity ratio been reduced. And we have been in a -- we have about -- so we have reduced our debt rate with the [ratio], I think. We can have from 250 it went down to 2.

So as you realize, we have worked on that and we are there to believe we have about $124 million in the balance sheet. And I think you can be off-line with Mike -- he can take you through all the ratios that you would like to calculate.

The last question I had --

Correct. If we adjusted equity, if you will, for the difference between mark-to-market on the vessel assets versus our book value, that would be -- that would give us a better result.

That is how your financial -- that is how your credit agreement looks at it, right?

I'm sorry -- it's very hard to hear you.

Your current credit agreement actually looks at debt as a percent of market value of the underlying asset, right?

Frankly, I am not sure about that at this point in time, but let me review that.

Okay. I guess the last question is just to clarify that you have chartered four vessels that will be coming off on new charters for one to two years, and it looks like there are four more vessels in the fourth quarter of this year, in addition to some in the first quarter, that are coming up for renewal.

Until January -- in the next five months until January 15, I think of next year, we have about eight vessels, of which two we are [on subject] and we have -- we are looking on a two- and three-year (indiscernible). So we are doing a portfolio arrangement on this. And we are looking on these vessels that we will be covering sometime in the next couple of months.

Okay. If somebody looks like -- any opportunity you had to fix those vessels today would be at equal to or better than the rate they currently earn.

You know, since May, early May this year, the markets on this -- on a Panamax, actually, has gone up [73]%, and we've just started boxing that higher value in for lengths of period. So I think that is the best strategy here, to do that. And as Angeliki is saying, so we have visible transparent protections.

Also one of the strategies we follow is we (indiscernible) vessels (indiscernible) the market and we are trying to start those vessels at that opening up so that further out, so we have the near vessels -- that more (indiscernible) vessels available so we can actually fix them at more potential rate.

Thanks.

Thank you. This does end the Q&A session. I would like to turn the floor back to your host for any closing remarks.

So we would like to thank you for today's call. If you don't have any questions, we will keep you updated with all our results and announcements later.

And we are planning to have an investor's day here in Greece so that you can see our new offices and be able in October/November to meet all the people that are in port here. Thank you.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.