Navios Maritime Holdings Inc (NM) 2010 Q3 法說會逐字稿

Good morning and thank you for joining us for today's call. With us from Navios 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. To access the webcast, please go to the Investors section of the Navios Holdings website, www.navios.com.

Before I review the agenda for this morning's call, I would like to read 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 Holdings. Such forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings management and is subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in Navios Holdings filings with the Securities and Exchange Commission. These relations set forth herein should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in this conference call. Thank you.

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. Then, Mr. Achniotis will review Navios Holdings' third-quarter 2010 financial results. Finally, Ms. Frangou will offer concluding remarks. At the completion of formal remarks, the Company will open up 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 and good morning to all of you. We continue to benefit from our strategy of facing our fleet for long-term periods with quality counter parties in ensuring that revenues were AA class European governmental entity. As a result, in the third quarter of 2010, we had over $63 million of EBITDA and $18.65 million of net income.

We also declared a $0.06 dividend per share for the third quarter of 2010 and remain one of the few dividend payers in the drybulk space.

The global economy continues to improve, driven primarily by healthy industrial production in emerging markets countries. Thus, we are cautiously optimistic about the future subject to the significant order book and the input that (inaudible) is clearly discovering on commercial activity in the developed countries.

As an example, we are focused on maintaining a healthy balance sheet. We want to be able to weather unexpected volatility and to take advantage of opportunities. As you will see during the course of this presentation, we have been concentrating on reducing our leverage. Indeed, on a pro forma basis, our net debt to capitalization has reduced by 11.7% from 50.6% to about 45%.

And now please turn to slide three. As Navios Holdings was focusing on deleveraging, we were presented with a unique opportunity. In November we were able to repurchase a bond we previously issued at par for $29.1 million. The purchase represents a 13% discount from the issued price of $33.5 million. More recently we sold two Capesize vessels to Navios Partners for $177 million. Of this amount, we received $162 million in cash, and we paid about $72 million in debt. Net of this payment we have over $90 million of additional cash on our balance sheet.

We also received almost 800,000 additional units of Navios Partners equity. Overall we have significantly reduced our leverage.

We also are improving our liquidity. We have executed on two loan agreements for the funding of two new Capesize vessels. Each facility is for $40 million in place and has 275 basis points margin. The loans have very favorable amortization of 15.3 years for the loan facility and 15.5 years for the other.

Now, in terms of Navios Acquisition, we review many opportunities before investing over $1 billion in the tanker sector. Today Navios Acquisition has a fleet of 22 vessels, seven VLCCs, 13 product tankers and two chemical tankers. Navios Holdings has invested recently in Navios Acquisition, most recently investing about $78 million through the warrant program. This investment is evidence of belief in the sector. And in May it was proceeding cautiously as it adjusts its balance sheet for the market opportunity. In this respect, Navios Acquisition recently fixed it long-term debt requirements through the sale of $400 million of senior secured notes.

Last night Navios Acquisition announced an offering of 6 million shares of common stock at $5.50 per share or approximately $33 million of gross proceeds. We have typically created a healthy balance sheet in the growth company. In addition, we allow the potential for capital appreciation for opportunistic investments in the tanker sector. With a stable company and a healthy balance sheet, Navios Acquisition also declared a dividend of $0.05 per share.

Let's now turn to slide four. Our new building program continues to be fully funded. Indeed, upon delivery of older vessels, we anticipate receiving about $29 million more than the cash requirements for the vessels. The remaining new building vessel will join the Navios Holdings fleet will have another charter duration of 11 years. Using mandatory convertible preferred stock in part to acquire many of these vessels made an effective acquisition price very attractive while protecting our shareholders from undue dilution.

Let's now turn to slide five, which shows our liquidity position. Our net debt to total capitalization was 50.6% as of September 30, 2010. However, when you pro forma for certain activities in the fourth quarter, our net debt to capitalization improves by 11.7% to about 45%. Also, our cash position improves by almost 50%. Total liquidity available is $371.9 million, of which $254.2 million was cash on hand as of September 30, 2010.

Slide six sets forth our operating breakeven. As you can see, we have a very healthy cash flow generation. Our operating breakeven rate of $18,814 for 2010 and $19,227 for 2011 compares favorably with our contracted rate of $26,252 for 2010 and $29,508 for 2011.

I would like now to turn the call to Mr. Ted Petrone, our President, who will continue to discuss Navios Holdings fleet and their subsidiaries.

Ted?

Thank you, Angeliki, and good morning, all. Please turn to slide seven. Our long-term core fleet consists of 57 vessels totaling 6 million deadweight. We have 39 vessels in the water with an average age of 4.9 years, which is considerably younger than the industry average of approximately 14 years. The Navios Group controls 95 vessels, 73 drybulk vessels of 7.7 million deadweight, as well as 22 tankers of 2.9 million deadweight.

Please turn to slide eight. During Q3 Navios took delivery of the Capesize vessel, Navios Buena Ventura. The vessel is chartered out at $29,356 for 10 years, which results in an estimated annualized EBITDA of $8.5 million before profit share. Navios exercised the purchase option of the Handymax Navios Astra at $21 million, some $14 million below the current market value. Further, Navios chartered in a Handymax new building for delivery in 2013 for seven units at $14,700 per day. Additionally one-year options on a purchase option are included in the deal.

Subsequent to Q3, Navios continued its policy of locking in secured long-term cash flow by chartering out the Navios Titan two years at 19,000 net to a first-class charter counterparty.

Please turn to slide nine. Navios's average charter outrate for its core fleet is $26,262 a day for 2010. The annual average rates continue to increase through 2013. The percentage of Navios' fleet that is chartered out is 99.2% for 2010 and 73.3% for 2011. We will enjoy contracted revenue of over $1 billion through the end of 2013. We have also ensured our revenue from an EU-backed AA+ entity.

Please turn to slide 10. Through our in-house technical management and the economies of scale, we continued to enjoy vessel operating expenses significantly below the industry average in all asset classes. Navios's current daily OpEx is $4377 a day, some 37% below the industry average. The chart on the right demonstrates that Navios's established reputation allows us to charter vessels to high quality counterparties who will own periods at favorable rates.

Please turn to slide 11. We currently own 28.7% of Navios Partners, including our 2% GP interest. Navios Partners operates a fleet of 16 vessels equaling 1.7 million deadweight with an average age of 5.8 years.

Please turn to slide 12. Our 28.7% interest in Navios Partners has a market value of about $263.4 million as of November 15. Navios Partners provides significant cash flow to Navios Holdings. We anticipate based on the current run rate receiving about $22.4 million in distributions during 2010.

Please turn to slide 13, Navios South America Logistics, one of the premier logistics providers in the Hidrovia region, has two divisions composed of the barge and cabotage business, along with the port terminal operations. The fleet currently consists of 234 vessels, barges and push boats. We recently expanded the double-hull tanker fleet in the Argentinean cabotage business from four to six vessels.

Turning to slide 14, Navios Logistics has a strong balance sheet. In Q3 cash and cash equivalents amounted to $32.74 million as compared to $26.9 million on December 31, 2009. Total assets grew by 11% to $564.35 million by the end of Q3 2010. Net debt to booked capitalizations is a conservative 19.3%.

Please turn to slide 15. We currently own 62.1% of Navios Maritime acquisitions. Navios Acquisition's current fleet consists of 22 tanker vessels totaling 2.9 million deadweight. The Navios fleet is comprised of seven VLCC crude tankers, 15 product tankers and two chemical tankers. Navios Acquisition currently has nine vessels in the water with an average age of 7.7 years. Navios Acquisition holds options on two of our one new building product tankers that can be exercised through March 2011.

Turning to slide 16, in a relatively short period of time, Navios Acquisition acquired a large, modern and diverse tanker fleet in two complex transactions aggregating more than $1 billion. In between, Navios Acquisition closed on a warrant equity program of $78 million and raised $400 million through the sale of senior secured notes. Navios Acquisition announced a dividend of $0.05 per share in the third quarter, equivalent to $0.20 per share on an annualized basis.

Please turn to slide 17. The Company is summarized on slide 17. We have made a commitment to the tanker segment given the favorable industry dynamics. We have created long-term contracted revenue that is well above our Company's low operating breakeven. At the same time, we have profit sharing arrangements in many contracts. These agreements limit our downside risk to the base rate and allow Navios Acquisition to enjoy the upside volatility through the profit sharing. Our contracts are with strong counterparties, and we have built seasoned management with an established track record.

Please turn to slide 18. Slide 18 sets forth a delivery schedule for the 13 vessels. The slide shows a significant embedded growth from our new building program. By the end of 2012, we expect to have 22 vessels or about 2.9 million deadweight and having an average age of 4.4 years.

Please turn to slide 19. Drybulk demand remains strong despite the increase in new vessel deliveries. Demand continues to be robust from China, and overall demand will be increasingly supplemented by the growing demand from India, other emerging markets and the return of growth in the OECD imports. There are substantial mining and port infrastructure expansion plans being built around the world that will add significant cargo volumes.

Turning to slide 20, local newspapers tend to color the view of the global economies. As you can see on the left, while developed nations growth is still below their pre-crash peaks, emerging economies have exceeded those peaks by 10% and are still expanding their exports and imports.

On the right you can see the growth of China and the developing economies contribute a higher percentage to total world growth than the advanced economies. IMS expects that these macro trends will continue for the foreseeable future where the emerging economies will contribute most of the world's growth.

Turning to slide 21, in 1980 to 1990, the world trade in drybulk commodities grew an average of 1.1% annualized in the number of tons. In the 90s trade growth more than doubled, averaging 2.8 per year. Tonnage on the WTO in 2000, trade drybulk expanded by 5% per year. This includes strong growth in 2010 estimated by analysts to be about 8%. While the primary engine of that growth continues to be China, India and other emerging countries adds strongly to that growth.

Please turn to slide 22. Crude steel production in China through October was 524 million tons, up 11% year on year. Iron ore imports were on par with last year's totals, while domestic iron ore production was about 26%. This reflected a return to production of domestic low-quality, high-cost capacity and had been idle in 2009 when imported iron ore prices were low.

China import had 570 million tons of iron ore through October. This amount represents more than the total import for all 2008 and includes this year's government slowdown and rationalization of the steel industry and full power reductions. Based on analysts' estimates, China's iron ore imports should be about the same as last year. Some of these cargoes replace Indian iron ore shipments as India restricts more of its iron ore for its own production, while some note the increased iron ore imports to Japan, South Korea and the EU provided the growth in seaborne iron ore during 2010. The chart on the right shows current steel intensity balanced against GDP per capita in several countries. We anticipate that China will increase steel consumption per capita. While (inaudible) Brazil and India are also rapidly increasing their GDP and steel consumption per head.

Turning to slide 23, in drybulk vessel demand is not only driven by the quantity of natural resources shipped, but also by the distance that these cargoes are transported. Changing trading patterns affects all sizes of vessels. As an example in 2009 China turned into a net importer of coal. Analysts forecasted very large increases in met coal imports from 34 million in 2009 to a range of about 55 million in 2012. It's a large portion of this additional demand being met by coal from the Atlantic.

In addition, thermal coal will remain a large import with forecasted yearly imports ranging from 100 to 150 tons per year. China is expected to be a significant net importer of thermal and metallurgical coal for years to come. As China exports less coal, other Pacific Rim countries source from further afield locations, increasing ton mile requirements. Indian coal imports shown on the right-hand chart have increased dramatically at a 23% compounded annual growth rate in 2006. According to the Central Electricity Authority of India, this demand will continue to substantially grow as the majority of planned new power generations will be coal fired.

India now imports more coal per year than the UK, France and Germany combined. Forecasts are for greater than 60% growth in Indian thermal coal imports. Analysts project growth from 46 million tons in 2009 to over 75 million in 2012. Indian met coal imports will add to this reaching 63 million in 2012 from 21 in 2009.

Turning to slide 24, the collapse of the freight market in the fourth quarter of 2008 resulted in a dramatic jump in scrapping levels last year when a record 10 million deadweight was recorded. The subsequent and favorable market conditions, the pace of scrapping has declined this year reaching 4.7 million deadweight year-to-date or about 1% of the fleet. This is equivalent to about 5.6 million deadweight on an annualized basis.

However, a significant percentage of the drybulk fleet is reaching the end of its academic useful life. 14% of the fleet is older than 25 years of age and 23% of the fleet is over 20-years-old, providing about 119 million deadweight of potential scrapping candidates.

Please turn to slide 25. Through October 2010, new building deliveries were 62.4 million deadweight against an expected 102.7 million deadweight, a slippage of 40%. At this pace 2010 total deliveries are projected to be about 77.2 million deadweight out of 125.6 million deadweight originally predicted by the order book. It is believed that this demonstrates that non-deliveries will continue to be a substantial part of drybulk order book going forward.

Even though some yards may have increased capacity, especially the Chinese, it should be noted that 2010 and 2011 expected deliveries reflect orders probably contracted at prices significantly above the current market, making them uneconomical in today's environment.

In addition, reduced traditional bank financing will continue to adversely impact the market, severely curtailing funding to private shipowners in favor of publicly quoted shipping companies.

Despite high floodage in 2010, expected deliveries will likely establish a record year for new buildings.

This concludes the industry section. I would like to turn the call over to George Achniotis for the Q3 financial highlights.

George?

Thank you, Ted, and good morning, all. Please turn to slide 26 for a review of the third-quarter financial highlights. I would like to draw your attention to the fact that for comparability purposes we are presenting the consolidated results on a pro forma basis, excluding the effects of Navios Acquisition.

EBITDA for the quarter increased by 13.6% compared to the same period last year from $55.7 million to $63.3 million. The increase is mainly attributable to the delivery of new building vessels to our own fleet. The available days attributable to the owned vessels increased from 1807 in the third quarter of 2009 to 2018 in the same period of 2010.

During the same period, the available days attributed to the chartered in fleet decreased by 228 days. I would like to remind you that there is a high operating profit margin on the owned vessels versus the chartered in ones, which is the spread between the lower operating expenses versus the chartered in costs.

Another factor that contributed to the increase in EBITDA was the higher time charter equivalent rate achieved in the third quarter of 2010 compared to 2009. The TCE rate in Q3 of 2010 was $24,598 versus $24,061 per day in 2009. Despite the increase in EBITDA, net income for the period reduced from $21.3 million in 2009 to $18.7 million in 2010. The reduction is mainly attributable to the higher interest expense following the issuance of the $400 million secured bond in the fourth quarter of 2009.

Net interest expense in the third quarter of 2010 was $22.5 million compared to $13.8 million for the same period of 2009. Depreciation and amortization also increased in the third quarter of 2010 to $23.9 million compared to $19.9 million in 2009 due to the delivery of the new building vessels to our own fleet.

Turning to slide 27 are the highlights of the results for the nine-month period to the end of September 2010. EBITDA in both the nine months ended in September of 2010 and 2009 was affected by certain one-off items. In 2010 there was a gain of $26.1 million from the sale of Navios Aurora II, Navios Hyperion, and Navios Pollux to Navios Partners, a $17.7 million gain on the investment in Navios Acquisition and a $4 million write-off of an unfavorable short-term charter.

In 2009 EBITDA was affected by a $16.8 million gain from the sale of Navios Sagittarius to Navios Partners, a $6.1 million non-cash compensation from Navios Partners and a $13.8 million unrealized mark-to-market loss on common units of Navios Partners accounted for as available for sale securities. Excluding the effect of these adjustments adjusted EBITDA in the nine months to September 30, 2010, increased by 35.2% to $192.5 million from $142.4 million in 2009. Similar to the three-month results, the main reason for the increase was the delivery of the new breaking vessels to the owned fleet. The available days of the owned fleet increased from 4815 in the nine months of 2009 to 6330 in the same period in 2010. The increase was mitigated by a reduction in the available days of the chartered in fleet, which decreased by 890 days and a reduction in the TCE rate achieved in 2010 compared to 2009, which reduced from $26,353 to $25,298 per day.

Net income for the nine-month periods ended in September 30 of 2010 and 2009 was also affected by the one-off items discussed earlier, which affected EBITDA. Excluding the effect of these items, our adjusted net income for the nine months of 2010 increased by 22.3% to $56.7 million compared to $46.4 million in 2009. The increase is mainly attributable to the increase in the number of owned vessels due to the deliveries of the new buildings. The increase was mitigated by the increase in net interest expense due to the $400 million bond issued in the fourth quarter of 2009 and the higher depreciation due to the increase in the owned vessels.

Net interest expense increased from $42.9 million in 2009 to $64.9 million in 2010, and depreciation and amortization was up from $51.8 million to $71.2 million in the same period.

Please turn now to slide 28 where the balance sheet highlights are presented. The cash balance as of September 30, 2010, was $93 million compared to $173.9 million at the end of December 2009. The reduction reflects the total investment made in Navios Acquisition of approximately $170 million through the exercise of the warrants and the provision of a loan and some optional early prepayments on our existing loan facilities. The balance does not reflect net proceeds of $90.1 million from the sale of Navios Fulvia and Navios Melodia to Navios Partners and $27.6 million repayment of the loan from Navios Acquisition.

The restricted cash balance has increased from $107.2 million at the end of 2009 to $161.2 million at the end of September 2010. The increase is mainly due to refinancing of loan facilities, and the balance is available to finance new breaking vessels. Most of it was utilized in the fourth quarter.

As we are de-leveraging our balance sheet, part of the restricted cash was used in Q4 to make additional prepayments to existing loan facilities. The current portion of long-term debt has increased by approximately $100 million as a long-term portion reduced by approximately $131 million. This is an [account early] classification to reflect the prepayments made in Q4 on existing loan facilities and the pressures of the $33.5 million convertible senior promissory note. As mentioned by Angeliki, these notes were purchased by Navios at a 13% discount to its nominal value.

Since most of the steps to de-leverage the Company took place in Q4, we have pro formaed the net debt to book capitalization ratio at the end of Q3. On a pro forma basis, adjusting for the cash from the sale of the two capes and the partial repayment of the loan from Navios Acquisition, the ratio drops to below 50%.

Turning to slide 29, the Company, due to its prudent fleet deployment policy, continues to pay its dividend uninterrupted by market conditions. A dividend for the third quarter of 2010 of $0.06 per share was declared to common shareholders as of December 16 to be paid on January 5, 2011. Following the declaration of a dividend by Navios Acquisition and in addition to the dividend received by Navios Partners, the total cash dividend inflows from the two investments exceeded the cash paid out by Navios Holdings to its shareholders.

This concludes my review of the financials. At this point I will turn the call back over to Angeliki for her closing remarks. Angeliki?

Thank you, George, and this completes our formal presentation. We open the call to questions.

(Operator Instructions). At this time I'm showing no questions.

This is a very successful call. We don't have any questions. Thank you very much for following our Q3 results.

And ladies and gentlemen, that concludes the Navios Holdings third-quarter 2010 earnings conference call. We appreciate your time. You may now disconnect.