Navios Maritime Holdings Inc (NM) 2010 Q2 法說會逐字稿

Thank you for joining us for this morning's call. With us today from Navios Maritime Holdings are Chairman and CEO, Ms. Angeliki Frangou, President, Mr. Ted Petrone, and Chief Financial Officer, Mr. George Achniotis. As a reminder, this conference call is also being webcast. (Operator Instructions).

Before I do the structure of this morning's call, I would like to review the Safe Harbor statement. This conference 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's management and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements.

Such risks are more fully discussed in Navios's filings with the Securities and Exchange Commission. Key information set forth herein should be understood in light of such risks. Navios does not assume any obligation to update this information contained in the conference call. Thanks.

At this time, I would like to outline the agenda for today's call. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide an operational update and an overview of market fundamentals. Following Mr. Petrone's remarks, Mr. Achniotis will review Navios's second-quarter 2010 financial results. Finally, Ms. Frangou will offer concluding remarks. At the completion of formal remarks, the Company will open the call to take your questions.

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

Thank you, Laura, and good morning to all of you joining us on today's call. We continue to benefit from our strategy of [facing the slate] for long-time periods with quality counter parties. As a result, in the second quarter of 2010, we had almost $99 million of EBITDA and $46.5 million of net income. We also remained one of the few dividend-paying companies in the dry bulk sector and we once again declared a $0.06 dividend per share for the second quarter of 2010. The dividend is payable on October 6 to stockholders of record in September 22.

The global economy has improved significantly over the past year. They were primarily by healthy industrial production in emerging companies. More recently, developed countries, the [OECD] countries are experiencing sluggish growth. This development, coupled with a significant order book make us cautious in that outlook. As an example, we are focused on the operating fundamentals of our dry bulk business and are maintaining a healthy balance sheet. We want to be positioned to weather unexpected volatility and take advantage of opportunities.

Now let's turn to slide two.

Navios has been successful in creating value through its core fleet as well as through its public and private subsidiaries and affiliates. First let's turn to the Navios Partners. Navios Holdings owns 31% of Navios Partners in MLP trading on the New York Stock Exchange under the symbol NMM. Navios Partners has grown significantly during the past three years and today has a market capitalization that is approaching $1 billion. Navios Holdings stake is worth over $220 million and we anticipate receiving almost $22 million in distributions from Navios Partners in 2010.

Next, let's turn to Navios Logistics. Navios Logistics is a private subsidiary that focuses on South America, was formed in 2008 and will have a 53.8 ownership stake. Navios Logistics is a key provider of integrated logistics in the Hidrovia region.

Core operations include storage and port terminal facilities for grain and liquid products, barge delivered transport and a cabotage business. Today, Navios Logistics is one of the few regional providers offering both wet and dry services, and we are seeking to expand into other related areas such as storage and trans (inaudible) of mineral commodities. And we will remain independent financially. We are currently taking active steps to achieve this.

Finally, there is Navios Acquisition. Most recently we have spent considerable time and capital in developing Navios Acquisition into a leading tanker company. As you can see at the bottom of slide two and as you turn to slide three, Navios Acquisition acquired an attractive fleet of product and chemical tankers for $457 million.

Today, Navios Acquisition has taken delivery of two LR1 product tanker vessels, each of which is chartered out with a base daily net rate of $17,000 plus 50-50 profit selling. These charters limit our downside risk to the base rate and allow Navios Acquisition to enjoy some of the upside volatility through their profit sharing.

The combined EBITDA of these two vessels is approximately $7 million annually without including any profit sharing.

Navios Acquisition also recently announced a transformational acquisition of seven VLCC tankers for $487 million (sic - see slide two). We believe that Navios Acquisition was able to capture this deal because it was uniquely positioned given the Navios Group's close relationship with a banking syndicate and a strong balance sheet.

We believe that this transaction is increasingly accretive. Their purchase price is $487 million for the seven VLCCs which account for very favorable [charter out] coverage averaging 8.8 years. Adjusting for this embedded contract, we arrived at the value of $687 million. Thus we believe and [Klaxos] agrees that we are paying almost 15% less than the value of these vessels or a $[100] million discount.

In addition, this fleet should generate about $250 million over an aggregate base EBITDA during the charter duration. Of course, it can be more because these figures do not include the profit sharing that five of the vessels have. This profit-sharing arrangement can provide a significant upside while the base rate protects our downside.

All in all, we believe this is an excellent entry into the sector.

To help fund this transaction, as well as to reduce the overhang that creates an obstacle in accessing the capital market, Navios Acquisition announced a warrant program. Under the program, warrant holders have a limited time to which they can achieve their warrant for sales on a favorable debt.

Navios Acquisition needs to raise approximately $100 million, and Navios Holdings has committed to funding about 80% of this requirement.

We have also created liquidity for Navios Holdings via drop-down of the Navios Pollux for $110 million. This deal was a non-cash transaction and we used the process to deliver and improve our cash balances.

Slide four presents our Newbuilding program. As you can see, our capital expenditures are fully funded. We expect eight new Capesize vessels to be delivered during the next six months. These vessels have an average charter-out of more than 10 years. The nominal acquisition price for these vessels is $575.4 million or $71.9 million per vessel.

However, as you can -- as you may recall, we used the mandatory convertible preferred stock while manning these vessels. So our effective price was over $100 million lower at $477.1 million. Or per vessel is slightly below $60 million, $59.6 million to be exact.

Both of these acquisition prices compare really favorably to the aggregate EBITDA of $697.9 million that generate over the duration of the charters. I [would not hear] that in addition to the new building program being fully funded, these vessels are fully hedged by long-term charter contracts. And many of them have profit sharing. Moreover, with the vessels have delivered, you will see a great [attrition] materially improve as a debt that is currently in the balance sheet but the revenues and EBITDA have not yet been created.

Slide nine shows our current liquidity excluding Navios Acquisition is favorable with total liquidity available of $359.5 million, of which $350.2 million gross cash on hand as of June 30, 2010. Also net debt to total capitalization was 48.1%.

Now let's turn to slide six which shows our substantial cash flow cushion from our low operating breakeven. As you can see, our estimated breakeven rate of $19,263 per day for 2009 and $19,101 per day for 2011 compares well with our contracted rate of $26,958 and $30,763 per day for 2010 and '11, respectively, hiving ability to create a good free cash flow.

At this point I would like now to turn the call to Mr. Ted Petrone, who will review the Company and the industry sectors. Ted?

Thank you, Angeliki, and good morning, all. Please turn to slide seven. Navios Maritime Holdings' long-term core fleet consists of 59 vessels totaling $6.4 million dead weight after the sale of the Navios Pollux and the Vanessa. Navios has 39 vessels in the water with an average age of 4.8 years, which is considerably younger than the industry average of 14 years.

The Navios Group which includes Navios Partners and Navios Acquisition controls 73 dry bulk vessels of 7.5 million dead weight as well as 20 tankers of 2.8 million dead weight, including the VLCCs. Please turn to slide eight.

Navios' average charter-out rate for its core fleet is $26,938 for 2010. The annual average rates continue to increase to 2013. The percentage of Navios-owned and long-term fleet that is chartered out is 97.5% for 2010 and 70.4% in 2011. We will enjoy contracted revenue of over $1.1 billion to the end of 2013. We have also insured our revenue with an EU-backed AA+ entity.

During Q2 2010, we fixed the Navios Magellan for about two years at $22,800 a day net, and Navios Herakles for about a year at $21,850 a day net and the Navios Primavera for about a year at $22,138 a day net. Please turn to slide nine.

Through our in-house technical management, we continue to enjoy vessel operating expenses significantly below the industry average. Navios's current daily OpEx is $4,411 a day, 26% below the industry average. Navios's established reputation allows us to charter vessels at high-quality -- to high-quality counter parties for long periods of favorable spreads of $16,825 a day in 2010 which increases to $19,796 in 2011. Please turn to slide 10.

We currently own 31.3% of Navios Partners including our 2% GP interest. Navios Partners operates a fleet of 14 vessels and 1.3 million dead weight tons with an average age of 5.8 years.

Two Panamax vessels are chartered-in with purchase options providing partners with current earnings without capital outlay. Please turn to slide 11.

Our 31.3% interest in Navios Partners has a market value of about $225 million. Navios Partners provides a significant cash distribution to two Navios Holdings. For 2010, we received about $30 million in distributions for Partners. We anticipate, based on current run rate, receiving about $21.9 million in distributions during 2010 which will fund about 90% of Navios Maritime Holdings dividends to our shareholders.

Partners' increasing EBITDA, operating surplus, and net income for the 10 quarters since Q1 2008 have allowed Navios Partners to steadily increase distributions. The consecutive higher results primarily reflect a significant profitable growth by the Company from increases in the number of operating vessels and favorable changes in the daily charter-out rates. Please turn to slide 12.

Navios South America Logistics, one of the premier providers in the Hidrovia region, has two divisions composed of a barge and cabotage business along with the port terminal operations. We formed Navios South America Logistics in January 2008 through the combination of our existing port operations in Uruguay with an [under-ton] company operating a wet and dry barge fleet, [upper to liquid] terminal and a cabotage fleet.

The fleet currently consists of 223 vessels, barges, and push boats. We recently expanded a double hull tanker fleet in Argentina cabotage business from four to six vessels. Please turn to slide 13.

Navios Logistics has a strong balance sheet. In Q2 2010, cash and cash equivalents amounted to $29.2 million as compared to $26.9 million on December 31, 2009. Total assets grew by 9% to $549.2 million by the end of Q2. Net debt to book capitalization is a conservative 22%.

Turning to slide 14, the following slides review our ownership in Navios Acquisition Corporation. As shown on this slide, understanding where an industry is within historical shipping cycles is essential to a successful entry. Navios Acquisition acquired 13 young, high-quality, double hull vessels in the products and chemicals tanker sectors at cyclically low prices. Please turn to slide 15.

This slide provides the details of the contemplated acquisition of seven VLCC tankers as Angeliki described earlier. The value of the vessels plus the attached charters provides an adjusted market value of $687 million, a favorable difference of $100 million or almost 17% higher than the purchase price. Please turn to slide 16.

This slide describes the Navios Acquisition work program. Navios Maritime Holdings has committed to fund about $80 million on successful completion of this program. Please turn to slide 17.

The dry bulk market performed well during the first part of Q2 with the BDI rising to a quarterly high of $4,209 on May 26. The BDI then dropped at 35 consecutive days, the most since 2002 reaching $1,700 on July 15, but has recovered since. And then it's over $2,500 for the last couple of days.

[Cape Time] generates dropped from about $59,000 per day on June 2 to $12,600 on July 23. The market has rallied to over $30,000 a day since then.

The volatility in the BDI was a result of a confluence of normal seasonal easing of cargoes out of India and Latin America, combined with the Chinese slowdown in construction, which had a negative effect on both iron ore and coal imports. Fixtures of vessels to import coal from China decreased slightly going into the summer.

With China becoming the world's largest energy consumer last year, it is expected to be a net importer of coal for the foreseeable future. The recent surge in Cape Rates seemed to restocking of iron ore as spot prices fell from a high of $186 or over this year to $116 in July. A reduction in loan availability in China intended to reduce speculation and an overheated housing market caused a decrease in car sales and consumer spending, which led to a decrease in iron ore spot prices.

We believe that lower iron ore quarterly contract prices and the normally expected first-half 2011 Chinese loan growth will set the stage for improvement later this year and into next year, driven up by pent-up demand. Please turn to slide 18.

Emerging economies are trading 10% more than the pre-Lehman peak. China surpassed Japan as the second-largest economy in Q2 2010, which underscores the strength of emerging markets. The announced Chinese consolidation of the steel industry and the increases in imported steam and metallurgical coal will further expand trade as domestic supplies are too expensive to develop. New steel mills will be sited near the coast to facilitate the import of met coal and iron ore.

Turning to slide 19, demand for dry bulk vessels is driven by both demand for natural resources and the distances that these cargoes are transported. Changing trading patterns affect all sizes of vessels.

As an example, Brazil passed India as the second-largest supplier of Chinese iron ore imports several years ago. India's declining share of Chinese iron ore imports forced China to import from outside the Pacific Rim, the increases, seaboard demand and also increases in ton miles, a key driver to Capesize demand. [Valley] sold a record 140 million tons of iron ore to China in 2009 compared to 91 million tons in 2008, underscoring the ton miles increases.

Indian coal imports shown on the right hand chart have a 23% compounded annual growth rate since 2006. According to the Central Electricity Authority of India, this demand will continue to substantially grow as a majority of planned new power generations will be coal-fired. Please turn to slide 20.

Crude steel production in China through July was 375 million tons, up 18% year on year. Iron ore imports were up 1.5% while domestic iron ore production was up 28%. This reflects a return to production of high-cost, low-quality domestic ore when input prices are high.

China imported 360 million tons of iron ore through July to keep pace with high steel production and demand driven by housing, cars and durable goods. First half of 2010 iron ore imports began decelerating at the end of Q2, due to high spot prices for imported ore and a price-sensitive market.

Spot prices fell from June to July but have risen recently to about $147 a ton. This has created an incentive to delay contract commitments to buy ore on dips in price and also estimate that Chinese domestic or accounted for 33% of blast furnace [fee stock] this year compared to 27% in the second half of 2009 when import prices were lower. Analysts estimate that when prices for spot dropped below $100 a ton, Chinese mills began to import more, reducing domestic or usage.

Turning to slide 21, the collapse in the freight market in Q4 '08 resulted in a dramatic jump in scrapping levels last year when a record 10 million dead weight was scrapped. With the market increase since then, scrapping has been less than the average since 2002 and reached only 3.4 million dead weight tons year-to-date equivalent to about 5 million tons dead weight on an annualized basis. Still, 16% of the fleet is older than 25 years of age and 25% of the fleet is over 20 years old, providing over 120 million dead weight of scrapping potential.

Moving to slide 22, July year-to-date new building deliveries have slipped 43% with only 41.8 million dead weight deliveries versus a projection of 73.6 million dead weight. Total 2010 deliveries are projected to be about 72 million dead weight, demonstrating that the dry bulk order book is overmarked.

While some yards may have increased capacity, 2010 deliveries reflect orders probably contracted at prices significantly above the current market, making them uneconomical today.

Lack of bank financing continues to adversely curtail funding to private ship owners, ending the first-half 2010 ordering spree. Despite high slippage in 2010, expected deliveries will likely establish a record year for new buildings.

In conclusion, the recent volatility in dry bulk rates reflect a slowdown in Chinese construction market reaction to higher and then lower iron ore prices and increasing vessel deliveries to a seasonally slow market. Usual increases in trade volume in the fourth quarter depend on an active US grain export season aided possibly by this year's Russian grain export ban. Increased activity after the end of the Indian monsoon season and for the remainder of 2010 a renewed emphasis on imports of iron ore price decline and Chinese steel demand remains strong.

This concludes our presentation. I would now like to turn the call to George Achniotis for the Q1 2010 financial results. George?

Thank you, Ted. Before I begin the review, I would like to point out that as of May 28, 2010, Navios Holdings owned 57.3% of Navios Acquisition and, at that date, started to fully consolidate Navios Acquisition. That had an immaterial effect on revenue EBITDA net income.

Please turn to slide 23 as we review Navios's financial results for the second quarter and the first half of 2010. Total revenue for the second quarter of 2010 increased by 16.3% to $165.4 million as compared to $142.2 million for the comparable periods of 2009. Revenue from dry bulk vessel operations for Q2 2010 was $113.8 million as compared to $107.1 million for the same period during 2009.

The increase in revenues is mainly attributable to the increase in the available days of the core fleet new to the deliveries of [manual building] vessels. The average PC rates for the two quarters were approximately the same. Revenue from Navios South American Logistics was $51.6 million in Q2 2010 versus $35.1 million in the second quarter of 2009.

The increase is mainly attributable to the additional (inaudible) built (inaudible) sized tankers using the local cabotage business and increased operations at the liquid terminal in Paraguay and the increased throughput in storage capacity at the dry terminal in Uruguay.

In addition, overall revenue activity in 2010 increased compared to 2009 and [revenue] levels materially improved from the severe drought of 2009.

EBITDA for Q2 2010 increased by over 70% to $91 million compared to $53.4 million for the second quarter of 2009. The Q2 2010 EBITDA reflects a number of [lower] carrying events such as a $17.7 million gain on our investment in Navios Acquisition and a $1.8 million gain on the sale of Navios Pollux.

I note that we also had non-net carrying events affecting EBITDA for the second quarter of 2009 such as a $16.8 million gain from the sale of Navios Sagittarius to Navios Partners, a $6.1 million non-cash compensation from Navios Partners. These positive events were partially offset by a $13.8 million and a realized mark to market loss on our units in Navios Partners.

After adjusting for non-net carrying items, our adjusted EBITDA for the second quarter of 2010 was $71.5 million compared to $44.3 million in the same period of 2009, an increase of over 61%. The $27.2 million increase in EBITDA is mainly attributable to an increase in revenue of $23.2 million and an increase in gains from the revenues of $5.2 million.

We also had an increase in equity in net earnings for our affiliate companies of $2.8 million. The increase in EBITDA was adversely affected by an increase in time charter, voyage and logistics business expenses by $0.8 million; an increase in direct vessel expenses by $1.6 million; an increase in general announcement expenses of $0.7 million and an increase in net other expenses by $0.9 million.

The EBITDA contribution in the second quarter of 2010 from Navios American Logistics was $10.3 million as compared to $8.6 million for the same period of 2009.

Net income for Q2 2010 increased by over 110% to $46.5 million compared to $22.1 million in the same period in 2009. Net income for both periods was positively affected by the same [non net] carrying items that affected EBITDA. Excluding the effect of these items, net income for Q2 2010 would have been $27 million compared to $13 million in 2009, an increase of 107%. The increase is mainly attributable to the $27.2 million increase in EBITDA.

The increase was mitigated by $6 million increase in depreciation and amortization, primarily due to the delivery of the Universal (inaudible) fleet; an increase in interest expense by $6.3 million and a $0.9 million decrease in income taxes.

Turning now to the six-month results, revenue for the six months ended June 30, 2010, was $319.8 million compared to $289.4 million for the same period in 2009. Revenue from dry bulk vessel operations for the six months ended June 30, 2010, was $232 million compared to $224.9 million for the same period in 2009. As mentioned earlier, the increase in revenue was mainly attributable to the delivery of nine vessels since the end of June 2009, increasing the number of available [base] by about 1,000.

The increase was mitigated by a reduction of the average [DC] rates for the first half of 2010 to $25,424 per day compared to $27,544 per day for the same period last year.

EBITDA for the first half of 2010 increased by 76.5% to $169 million compared to $95.8 million in the same period of 2009. EBITDA for the six-month period ended June 30, 2010, was positively affected by a $26.1 million gain from the sale of three vessels Navios Partners, the $17.7 million gain on the investment in Navios Acquisition and was negatively affected by a $4 million write-off of our unfavorable short-term charter.

EBITDA for the same period in 2009 was affected by the $16.8 million gain on the sale of the vessel to Navios Partners, the $6.1 million compensation from Navios Partners and was negatively affected by the $13.8 million on the realized mark to market losses on Navios Partners units.

After adjusting for the above items, EBITDA for the first half of 2010 was $129.2 million, compared to $86.7 million for the same period in 2009, an increase of 49%.

The $42.5 million increase in EBITDA is mainly attributable to an increase in revenue by $30.4 million, a decrease in [time, traffic, voyage] and port terminal expenses about $3.8 million; an increase in gains from derivatives by $3.4 million; an increase in equity and net earnings from our fleet of companies by $9.3 million; a decrease in non- controlling interest of $1.3 million; and an increase in net revenue income of $0.5 million.

The above-mentioned increase was mitigated mainly by an increase in G&A expenses by $2.4 million and an increase in direct vessel expenses by $3.8 million.

Net income for the six-month period ended June 30, 2010 was $7.8 million compared to $4.1 million in the same period of 2009, an increase of 128%. Net income was affected by the same items that affected EBITDA mentioned earlier. After adjusting for the effect of those items, net income for the first half of 2010 was $38 million compared to $25 million in 2009.

The increase of adjusted net income of $13 million is mainly attributable to the $42.5 million increase in EBITDA. The increase was offset by $[15.4] million increase in depreciation and amortization, an increase in net expense by $13.3 million and a decrease in taxes of $0.8 million.

In terms of Navios Logistics, revenue was $87.8 million in the first half of 2010 compared to $64.4 million during the same period of 2009. The EBITDA contribution from Navios South American Logistics was $14.4 million in the first half of 2010 and remained the same as in 2009.

Slide 24 highlights key balance sheet changes between June 30, 2010, and December 31, 2009. To provide a more meaningful comparison, we have added pro forma numbers, excluding the effect of the consolidation of Navios Acquisition.

Navios continues to benefit from a strong balance sheet and a strong liquidity. The cash and cash equivalent balance, including restricted cash on June 30, 2010, improved by $[69.1] million to $350.2 million from $220 -- 81.1 (sic -- see press release) million at the end of December 2009. Restricted cash mainly consists of amounts available to the Company for the financing of new building vessels.

Vessels, port terminals and other fixed assets, net of depreciation, reduced by $89.4 million, deflecting primarily the sale of three vessels to Navios Partners. I would like to remind you at this point that due to US cap accounting, the 1.3% investment in Navios Partners is reflected on the balance sheet at the value of $81.9 million whereas the current market value of the shares is approximately $225 million, a difference of about $142 million.

Stockholders equity increased from $925.5 million to over $1 billion, reflecting the deliveries of the new building vessels and the profitability of the Company. In net debt to book capitalization ratio also improved from 52.6% at the end of December 2009, to 48.1% on June 30, 2010. I know that in addition to our new building program being fully funded, the vessels are fully hedged by long-term employment contracts.

Last as our vessels are delivered, you'll see our [creditations] improve as most of the debt is coming to you on our ballot shoot, but the revenue in EBITDA has yet to be created.

Turning now to slide 25. We continue our consistent dividend policy and we have declared a dividend of $0.06 per share for Q2 2010. The equity will be September 22 and the payment date will be October 6.

This concludes my review of the second-quarter financials. At this time I will turn the call back over to Angeliki. Angeliki?

Thank you, George. And we will -- (multiple speakers)

Thank you for joining us for this morning's call. With us today from Navios Maritime Holdings are Chairman and CEO Ms. Angeliki Frangou, President Mr. Ted Petrone, and Chief Financial Officer, Mr. George Achniotis.

Hello. This has completed the formal presentation, and we open the call to questions.

(Operator Instructions). Jon Chappell from JPMorgan.

Good afternoon. George, I have a question for you on the income statement. In this past quarter, there was a pretty big nonrecurring item which obviously we'll exclude from the numbers, but it was $17.7 million related to a gain on change and control. Can you explain a little bit what that had to do with?

Yes. Good morning. When we decided stack -- Navios Acquisitions are stacked Navios Holdings turns up having a 57% holding and we had to consolidate the Company at the time. So we had to rush through, we had to buy [our] investment in Navios Acquisition and that created a gain of $17.7 million. That's the one item from that.

Okay. So if you get to the point where you -- Navios Holdings ownership is less than 50% and you don't have to consolidate is that a line on that will be reversed at some point?

One of the gain is -- this quarter, and open to reverse at a later stage.

Okay and is that a cash? Does that have an impact on cash or no?

This is an accounting gain.

Okay. That's what I thought. Second question and I know this is probably a somewhat delicate topic because the warrant program is supposed to end on Monday, but given that you need 75% participation, what happens as far as Navios Acquisition Corp.'s financing of the VLCC acquisition if the warrant program doesn't reach that threshold of 75%?

Jonathan, on this issue we are under registration and we cannot comment. We believe that this is a very creative investment for all the investors involved. Navios is a part of (inaudible). We remain -- you know, we believe this to be a success, but we cannot comment for the case that is not successful.

Okay, that's understood. And then, finally, kind of reading between the lines on your industry commentary in the press release, and Angeliki's earlier remarks about being a little bit cautious about the order book. That is the first time in my memory that you've shown any cautiousness on the supply side.

Does that have to do with any changes in the demand side of the equation? Clearly there have been concerns about China trying to slow their economy. Would you say you are a little bit more concerned about the near-term outlook than you have been over the last year since we have come out of the recession?

Yes. We -- I mean one of things that we have to realize and we have also included it in our industry section is that after the crisis in the end of 2008, there was a big boost that was given by emerging markets. We had -- if you have seen the volumes of import and export from emerging markets it's 10% more than the precrisis level of 2008. So you have seen that there's a really successful boost that we caught from emerging markets.

What really gives us a little bit of concern is really where the OECD countries and developed countries are going, because we haven't seen them yet being able to keep the pace to start picking up the way they have to do.

I'm not -- what I -- what we see is that this demand, this [constellation] of demand that if we don't see the OECD countries picking up, this is the area where if you put next to the supply, then you have an imbalance. I think very successfully was the sovereignty risk of the bonds in the unit [question] somehow being resolved of the crisis.

I think the one issue we have to see is to see the OECD countries being able to grow at a better rate. We haven't seen that. And this is the area where we have to concentrate.

Okay and then just lastly, if I may, you were one of the few companies that actually took advantage of any type of significant price declines in asset prices in a meaningful way. Yet, the banks were pretty lenient with companies through the last part of 2008 and early 2009.

If the developed economies don't recover, do you think there is going to be actually more potential opportunities this time around, call it in 2011, than there was in the prior 18 months?

I will not say that. We do not say that we know that there is going to be a second dip, but I will tell you that is usually -- and this is not particular to this cycle -- but in every cycle, usually, there is a second side with a bounce in there. You know become impatient and you have a second wave of foreclosures and a second wave of [cost] direction on books.

Because as companies that they don't have healthy cash flows and balances, you have issues about asset prices and values. And then as if you have a second dip or a second softness, you see that net inevitably that creates a second wave for the banks that they lose their patience. So and usually banks the second time they are not surprised. They have a better situation in their books, so they are more prepared to do a move.

This is one of the things that, in Navios, we are very quick to take advantage. And that is why we have a good balance sheet and a strong balance sheet because we believe the opportunities mostly come from distress.

All right. Very helpful. Thanks.

Natasha Boyden of Cantor Fitzgerald.

Thank you. Good morning or good afternoon, everybody. Ted, in your remarks you pointed out, so I think maybe quite rightly, that the banks have been fairly reluctant to perhaps help some of the companies with orders to bring those to fruition.

However, it looks like Navios itself has had relatively little problem getting bank financing. So could you just talk about the discrepancy there and what is it that makes Navios Group a better bet apparently for the banks?

It is. Come on, Natasha. That's our obligation. But number one is also our motto. To make it simple, you have to realize that we had a drop in the market of 70%. And our business model [was sad] that we were able to keep paying the dividends to our shareholders and of course having all our issues and everything, satisfying our banks.

We have a visible EBITDA. Take for example in 2011 that we were discussing previously that we may have some kind of a short list, maybe. You can see that Navios -- and you can do your own calculations that Navios can have zero. We can keep our records with full crew and we will be able to have sufficient cash flow to provide for everything.

So our breakeven is very comfortable. Our visible cash flows are very comfortable. So the banks, really, that we have a model that we can protect in any scenario. Also, we are very thoughtful. We are taking bonds ahead of time. We care about the expiration date. We prolong our -- we don't have any financing release because we prolong our loans and our debt schedule.

So we are very careful that we deal with our debt and our balance sheet on the same way we deal with our portfolio.

Okay. Great. Thank you. Then looking at -- just moving over to [NNA]. On the consolidation of NNA into Holdings, is that, to sort of figure out -- is that going to be a positive thing or are you intending for that to be more of a temporary situation?

This is mostly a temporary situation. You can avoid consolidation in a later stage by also, you know, on the way we put our voting right or something. So this is not something that we foresee will be permanent.

Okay, great. And then just a couple more questions. Vessels, in terms of dropping down to NMM, you have been fairly active in doing that. I'm assuming we can continue to see that occurring?

This is something we always see. But we -- it is really up to the Board of NMM, and it's very opportunistic if it's very accretive to NMM shareholders. And, of course, the Board has to approve that.

Do you have a number of vessels in mind in terms of how many you would drop down or is it just as you said as an opportunistic basis?

Opportunistic, Navios is holding a -- if you remember, we in the last -- in 2009, Navios Holdings has taken over eight vessels and with the eight that we are getting this year in the next six months, we will have 16 vessels with 59 Capesizes (inaudible). There's plenty of vessels.

And then lastly if I may, George, you had a $5.9 million loss of derivatives during the quarter. A couple of things. Was that realized or unrealized? And what was that actually related to? Was it interest rates or was it FFA?

That profit is not a loss, it's a gain.

Oh, I'm sorry. I beg your pardon. Okay, it's a gain.

Getting any cash from the valuation of the (technical difficulties) Navios Acquisition.

Okay. All right. Thank you.

That's having to do with FFA trading.

That's nothing to do -- sorry, you said nothing to do with FFA trading?

Yes.

Thank you.

(Operator Instructions). John Parker of Jefferies.

Apologies. I had limited time to go through all your filings, but you did quite well in the quarter, adjusted EBITDA of 70 versus 60 in kind of consensus estimates and where I thought you'd come in. And is there anything you can point to why your results came in so well? Was it short-term trading or anything else that you can discuss?

There was no effect from short-term trading or from (inaudible). I think the fleet is -- well, the results from South America were nice. So the overall results, you know, they were pretty good.

(multiple speakers) special during the quarter.

Okay.

(multiple speakers).

And then can you give me any more color? You have $180 million now restricted cash. Just generally was that held for or when would you expect that to go away?

As I said, most of that cash will be used to finance new business ventures. They are already investing their time to a specific launch that we take out that (inaudible). So the only portion that is actually received that is about $15 million. That is (multiple speakers).

So as of -- as the Capesize is delivered you would expect that balance to trend down toward the $15 million?

Yes

Okay. And then you discuss $80 million of cash going for the warrant exercise program if that is successful or if it works out. Can you break out how much of that is coming off of the Navios Holdings' balance sheet and how much is coming from Angeliki's positions?

The fleet warrants is -- all belong, as you know, the promote was given to Navios Holdings. So Navios HOLDINGS has all the warrants which is the majority. My personal investment is about $1.2 million. The rest is coming from Navios Holdings which also received a fleet warrant.

This is an investment that we think that makes sense because we are putting the balance sheet of Navios on, we had opportunity. We bought a lot of very nice vessels in the dry bulk during the first half of 2009 when it was really distressed deals where you bought vessels on active dry values with the precrisis cash flows.

In the same way, we found an opportunity during the softness in the market over the tanker market. We are entering at a very opportune time. We've 15% [premium] buying assets at 15 premium -- 50% premium of their bulk with 15% discount to the value of the (inaudible) and with long-term cash flows of almost nine years. So we believe that there is a good use of this cash.

So the bulk -- but to answer my question, the bulk of the 78 is coming from Navios Holdings. Is that correct?

Yes.

And then I think this has been touched on a little bit, but I would like to ask again. Your long-term plans for the Navios Acquisition equity, I think you said that the consolidation is a temporary thing, which assumes that you would bring your equity stake down.

So I guess at some point, when you think the value is recognized in the markets, you would be a seller of Navios Acquisition shares to get your position down below 50% so you didn't consolidate the results anymore. Is that what you're saying?

No, never. We have never sold the shares even in Partners. When we started with Partners we had almost 50%. This is when a company will grow, we may have to do you know over two, three years and they do (inaudible) whatever and that is how it comes out.

Okay. So through additional equity raise is used for growth?

And also after the warrant program, we -- you know, it has to be -- you have to renegotiate your share holdings after everything is completed.

Yes. And then, finally, when you did the Navios Holdings spec deals, I recall -- and this is sort of talking my own business here, but you went from a complete reliance on bank debt to a more flexible capital structure with some high-yield debt in there. And I think that served you well during the downturn.

Would there be any plans to do that with Navios Acquisition to get a more flexible capital structure? Right now it looks like you are completely dependent on bank debt.

You know, our strategy is we will use any possible market. We are not shy of using any market, depending of the market conditions on the terms we get, on what we are going to see. So we are not shy on using every possible market and the flexibility is the target. So I wouldn't exclude it, but depends on market conditions and other scenarios.

That's all I have. Thank you very much for your help.

[Robert McKenzie] of FBR Capital Markets.

Good morning. This is actually [Doug Garber] filling in for Rob. I guess my first question is, you guys obviously had some good opportunities to buy assets at low prices last year and your outlook is a little bit more muted now. I was curious with your more muted outlook and also prices coming down, are you still interested in acquiring assets at distressed prices?

We always like to acquire vessels on relative -- on a good relative evaluation. Also we -- if you had seen, even though we did a huge purchasing, we all bought head positions on the eight vessels that we are getting delivered in the next six months. They gave charges at that time, [short] of 10 years. Five of them have 50-50 profit sharing.

So you realize, we care about cash flows. We are careful to buy in the good evaluation and we are trying also to -- if we can have also attractive -- as these records that we bought from bank, they had the problems and we acquired them with [10-year] charges is even better. So we are very opportunistic on this.

And you know, I know you guys have you know over the last few years you have gotten into the Logistics business. You've gotten into the tanker business. I'm curious as to what your thoughts are on the containership business and if there are any intentions around that?

We couldn't comment on that. The only thing I can tell you is that Navios Acquisition has no agenda and at the time when (inaudible) spiking, we felt that the sector that was more ripe for investment was the tankers. So that I think speaks to where we thought about the market. We cannot exclude any market, but we are not having [transitions] to distract ourselves.

That's helpful. And my final question is within the businesses you guys have in the dry bulk logistics and the tanker business now, can you rank your priorities for capital allocation from the parent company in terms of investment between those three?

What we have done very successfully is that, as you know none -- we like all of them to be publicly independent. We don't guarantee any of the debts. And also, except for Logistics, everything else is public.

No, we have not intentionally -- sorry. We like them to be growing by themselves.

All right. I think that's all my questions. I'll turn it back. Thank you.

Justine Fisher of Goldman Sachs.

So when Navios Holdings investors are looking at the time frame during which you may continue to own or to consolidate Navios Acquisition, I mean, it's obvious -- you said it was temporary but you said also that it could take a couple of years depending on the growth strategy at the Company. So should people looking to invest in Navios Holdings be thinking of taking both VLCC product carriers and dry bulk risks or is it a short -- is it really a shorter time frame and is Navios Holdings still going to be a dry bulk investment?

Navios Holdings is dry bulk investment. Of course, we will -- an element of the consolidation you always get the benefit of the Navios Acquisition percent as ownership. On the size of the deck, I can tell you that we do not guarantee any of our subsidiary (inaudible). They are totally independent and there is no gross -- I mean, there is not any guarantee whatsoever on the liabilities.

So on the -- consolidation or not is almost irrelevant because even if you don't consolidate it, you will still get a percent of (inaudible). [Next year] we will have 49%. You don't consolidate, but you still have 49% of an (inaudible) tanker company. So you get the benefit of that.

The risk and the debt and the -- everything is different. It is two different public listed companies.

All right, but they are going to have to start looking at EBITDA for Navios Holdings including the potentially much more volatile results of VLCCs and product carriers as well, right? At least for the next couple of years, you said.

I don't think that the -- first of all, I don't know if you -- there's something --. First of all, we have excluded and you can see clearly Navios Holdings so --. And we believe that Navios Holdings will need -- not need for accounting purposes to consolidate for a long period with Holdings.

But there is no hold activity to -- as I said because as you know there is VLCC we have with all-time charters for the next nine years.

Okay. And then, and then, and then --

A confusion of -- you know.

Yes. No, that's true. The time charters make a difference, but I think people may be looking at Navios as a dry bulk as opposed to a tanker. Isn't that -- I just was wondering whether that may be -- may be changing for a longer period of time.

And then another question that I have is just to clarify what the cash CapEx requirements for the rest of Navios Holdings is acquisitioned. I know that you know all except $15 million of the $186 million of restricted cash is going to be to fund the vessel deliveries. But by my calculations there's still over $400 million that Navios Group will have to pay for those deliveries.

So can you just remind us where that is coming from, or George?

There is a mandatory convertible with that and there is also equity that has paid. So in essence, I can tell you that this is fully funded and on top of it, we have two vessels without (technical difficulty). It's fully funded and we will have two vessels without mortgages.

Right, but what's -- if you were to say how much does Navios owe total for the remaining fleet deliveries, what is the total? Let's say excluding the mandatory convertible preferred, so the cash portion of Navios's remaining deliveries, what's that number?

I mean --.

There's financing in place for all the new building deliveries. So we won't have to put in any (inaudible) equity from Navios's cash.

Right, but just how much is required? Even if it comes from financing just what's the dollar amount of what is required for those ships?

We can tell you -- give you a call and he can give you the exact number, but I don't --. The exact schedule, but there's no -- any equity at all cash from the Company. And one other thing that I think is important is that our ratios, debt ratios will substantially improve the moment we get the vessels in the water, which is within the next six months. Because automatically we have the debt right now and the majority of the debt is in our balances already.

You have it, but we don't have the earnings EBITDA in there. So there's a niche mark between the debt and the -- the debt and the ability to see the full EBITDA into the correct ratio.

Okay and I'm sorry. Last question. The $80 million -- around $80 million that Navios Holdings is giving to Navios Acquisition, are there -- is it anticipated that Navios Holdings may have to make more cash contributions like this to support Acquisitions' future acquisitions and does that qualify as a restricted payment from Navios to Navios Acquisition?

No. There's not any [sequence]. We don't use any backers or any of these kinds of things. And second of all, this is -- we are exercising the warrants we have. So we are not anticipating any other. So we do it. We are exercising the warrants that Navios Holdings had.

Okay. Thanks very much.

I would now like to turn the call back over to Ms. Frangou.

Thank you very much. This completes our second-quarter results.