Navios Maritime Holdings Inc (NM) 2011 Q4 法說會逐字稿

Thank you for joining us for this morning's Navios Maritime Holdings fourth quarter and full year 2011 earnings conference call. With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou, President, Mr. Ted Petrone, SVP of Strategic Planning, Mr. Ioannis Karyotis, 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 Navios Holdings website, www.navios.com.

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 facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings management and are subject to risks and uncertainties, which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in Navios Holdings' filings with the Securities and Exchange Commission. The information set forth in this conference call should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in the call.

Thank you.

The agenda for today's call is as follows. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide an operational update and an industry overview. Mr. Karyotis will go through an overview including recent financials for Navios South American Logistics. Then Mr. Achniotis will review Navios Holdings' financial results. Lastly, we will open the call to take your questions.

I would now like to turn the call over to Navios Holdings' Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

Thank you, Laura, and good morning to all of you joining us on today's call. We are pleased to report our results for the 2011 full year. We had a solid year and a good fourth quarter. We are pleased with our performance in a difficult market. Our focus during this year has been to efficiently manage operation of our global fleet and maintaining a good relationship with our commercial partners. We have also been focused on maintaining a strong balance sheet and (inaudible) complement this impairment.

We declared a $0.06 dividend for the first quarter of 2011 to shareholders of record on March 22, 2012. Slide two shows our current structure. The value of Navios Holdings mainly derives from four areas, the dry bulk fleet within Navios Holdings, and three principal operating subsidiaries. The whole continues to be valued at less than the sum of its parts. As you can see, the value of Navios Holdings in the two publicly listed subsidiaries is $3.23 per share. The market value of the remaining two businesses are $1.09 in total.

Navios core dry bulk fleet consists of 45 vessels in the water. This fleet has long-term charters with creditworthy counterparties that are always run by a government, European government entity. Our insurance coverage is unique and should continue to provide great comfort to all our stakeholders as it has done also historically.

The value of Navios Logistics is growing. We have a superb management team, addressing the market opportunity, and together we have transformed Navios Logistics into a key provider in the Hidrovia region of South America. Ioannis Karyotis will address Navios Logistics' results in further detail later.

Slide three shows our strong competitive positioning. We remain in a difficult market where (inaudible) and we have lowered volume in the past 25 years. However, we have done a lot of hard work to prepare for the difficult market. Much of this work has been directed at maintaining the strength of our balance sheet and we believe that it continues to be very strong, perhaps one of the best in our industry. We have paid attention to the (inaudible) of the liabilities on our balance sheet. As an example, in the beginning of 2011 we refinanced an existing bond with $850 million of (inaudible) debt. In doing so, we extended the maturity of this debt until 2019. This eliminated any refinancing risk under the next risk maturity in 2017 or about five years from today.

We have also been careful about managing our funding commitment for two buildings. Not only do we have -- we do not have CapEx funding requirement, but we will also receive a cash inflow of [$1.6 million] upon the delivery of the three new (inaudible). We have borrowed these lessons from a South (inaudible) Plant for delivery in the first and second quarter of 2012. The top (inaudible) is almost [$79 million]. The vessels have been styled around the previous one at $1,825 per day and they are both for $12,716 per day. Annual (inaudible) is expected to be almost $6 million. This transaction will fund (inaudible) long-term financials will receive $46 million more from a commercial bond for a ten-year period with a 15-year amortization schedule and favorable margin.

Close attention to our debt maturities and CapEx funding requirements placed us in an advantageous position compared with our competitors. These competitors now find themselves in a position of having separated the maturities at the time that financial institutions are shrinking, not extending their dollar loan to the (inaudible). Competitive markets are open only selectively.

Looking forward, in 2012 we have already covered 77% of our fleet base. As you can see from the box on slide three, if we do nothing more this year we will generate (inaudible) [for slow]. And if we have 3,529 open days for 2012, using market prices, we will generate heavy profit for our Company. If we use $12,000 for the remaining open days, we will generate a total of about $45 million across our build.

I would also like to mention the types of vessels that have open days in 2012. We have virtually no open days for 2012 with only seven days in the fourth quarter of this year. There were (inaudible) majority of open days for the Handymax vessels from the [March] (inaudible) to be particularly [easy] in the current environment.

Slide four shows our liquidity of $229 million, of which $177.5 million is cash, and net debt to book capitalization is relatively modest at 61%, particularly at this point in the cycle where other volumes are suppressed. Our debt is long-term and stable. Also, we held about 60% of our outstanding debt with no amortization until maturity. With those kind of favorable capital, and now it's operating in financial flexibility in this kind of market. We have continued to have access to the debt market while the commercial lending market tightens.

Slide five sets forth that Navios has significant cash flow generating capabilities from a (inaudible) operating or low operating costs. As we mentioned before, our (inaudible) building in Modern (inaudible), [Ionian Coast]. With about 77 of Navios -- 77% of Navios' revenues have been fixed for 2012 at about $24,000 per day. Our full year (inaudible) cost is $17,644. Cost includes all operating expenses, dry docking expenses, chartering expenses for all our chartering fleet, G&A including credit default insurance, as well as interest expense and capital repayments.

With that, I would like to turn the call over to Mr. Ted Petrone, Navios President, who will take you through Navios operation and our invested perspective. Ted?

Thank you, Angeliki, and good morning, all. Please turn to slide six. Our long-term core fleet consists of 57 vessels, totaling 5.8 million deadweight. We have 45 vessels on the water with an average age of 5.3 years. This is considerably younger than the industry average of less than 12 years.

Please turn to slide seven. In Q4 2011, Navios continued its policy of locking in secured long-term cash we've been drumming up for vessels, for a total of six years [time trailer] coverage to first class counterparties. Navios' average charter-out rate for its core fleet is $23,792 a day for 2012, which increases through 2014. 77.2% of Navios' fleet is chartered out for 2012, 21.4% for 2013, and 24.9% for 2014. In total, we have contracted revenue of about $550 million through the end of 2014 and have ensured this contracted revenue through an EU-backed AA-plus entity.

Please turn to slide eight. We enjoy vessel operating expenses significantly below the industry average in all asset classes. Navios' current daily OpEx is $4,493 a day, 29% below the industry average. This $1,834 daily savings per vessel amounts to an approximately $18 million annual savings for the current owned fleet in the water, which goes directly to our bottom line. We expect to continue to leverage our economies of scale advantage going forward.

Please turn to slide nine. After a rally at the end of 2011, that brought the [BDI] above 2100, the index has lost over two-thirds of its value, dropping below 700 for the first time in three years. Negative seasonal cyclical demand together with rising tonnage supplies has brought little confidence and any substantial improvement in rates in the near term. Should historic patterns repeat, low rates will do some more scrapping and forcing the self-correction of the dry bulk matter, while demand for and the supply of commodities available for seaborne movement increases over the longer term.

Even with slower or (inaudible) growth projections, the latest research shows increased 2012 dry bulk trade estimates over 2011. Please turn to slide ten. The drivers for world GDP growth continued to evolve as developing economies contribute a higher percentage to total world growth than the developed economies. The IMF expects that trend to continue for the foreseeable future. Prior concerns about the sovereign debt crisis in the Eurozone have led the IMF to lower its forecast for 2012 world growth to 3.3% and 3.9% in 2013. The latest forecasts show emerging economies will continue to grow at 5.4% in 2012 and 5.9% in 2013.

The primary engines of trade growth continue to be China, India, and Brazil with other emerging countries adding strong growth. China's trade has expanded by an average of 4.7% per year in the last decade since China joined the WTO. Consensus forecast for 2012 call for dry bulk trade to grow in excess of 4.5%. Please turn to slide 11. In order to continue their urbanization and industrialization, China and India continue to invest heavily in infrastructure throughout the Latin America, Africa and the Middle East regions. Both countries are securing supply lines of natural resources with these infrastructure investments to ensure continued growth. As a larger portion of world trade is occurring between emerging and developing economies, trade patterns are shifting eastward and southward.

Moving to slide 12, development and urbanization of the Western and Central parts of China will continue significantly to steel consumption in 2012 and onwards. New construction and housing construction, and consumer spending growth will underpin development in 2012 and beyond. Crude steel production in China for 2011 was up 9% year-on-year. China imported 687 million metric tons of iron ore for 2011, 11% more than 2010. Domestic iron ore production was up 24% to 1.3 billion tons. In addition, China increased imports of coal for use in steelmaking and for power generation by an estimated 13% year-on-year. In 2011 worldwide (inaudible) liner set a new record of $1.1 billion metric tons as imports increased for the tenth consecutive year. This increase has been the result of higher demand from all major steel producing countries expect Japan.

Compounded growth in worldwide iron ore imports will be constrained until new iron ore mines and expansion projects become operational. But while the medium to long-term miners are investing heavily in additional production, the chart in the upper right depicts potential new iron ore mining capacity of over 500 million tons per annum on a cumulative basis through 2014. These expansions increased to tons carried and ton-miles.

Turning to slide 13, India has taken initial steps to industrialize and urbanize. As you can see in the lower right hand chart, India is expected to increase its urban population to 590 million people by about 2030. That means India will have to build about 1.5 [New York City] per year during that time.

To keep pace with expanding steel and electricity production, Indian coal imports shown on the left hand chart have increased dramatically at a 25% compounded annual growth rate since 2006. According to the Central Electricity Authority of India, substantial demand will continue at 65% of current planned new power generations will be coal fired. India now imports more coal per year than the UK, Italy, France, and Germany combined.

Indian companies are buying coal assets globally to assure future supplies to meet projected growth. The Government recently announced the state owned enterprise are to invest in infrastructure and overseas energy purchases to promote energy security.

Turning to slide 14, low freight rates, expensive fuel, and high ship scrap prices led to a surge in scrapping of vessels in 2011. In total 362 vessels were send to scrap including 67 capes. The $22.3 million deadweight scrapped last year represents the largest amount in deadweight and second largest on percentage terms dating back to the 1970s. Through February 17 of this year 3.6 million deadweight has been scrapped. On an annualized basis this equals approximately 28 million deadweight tons. Current environment should lead to high scrapping levels and about 12% of the fleet is 25 years of age or older and 18% of the fleet is 20 years of age or older providing about 110 million deadweight of scrapping potential.

Moving to slide 15, 2011 new build deliveries were 95.9 million deadweight against an expected 137.3 million deadweight, a slippage of approximately 30%. The order book for 2012 ballooned from 120 million deadweight in December. So 139 million deadweight, as statisticians reclassified many ships that were not delivered in 2011 to 2012 deliveries.

Non-deliveries continue to be a substantial part of the dry bulk order book as early indications point toward a high level of non-deliveries in 2012. Accordingly, net growth for 2012 in deadweight tons should be lower than 2011 after expected scrapping is taken into account. The order book declines dramatically starting in 2013. Please turn to slide 16. We currently own 27.1% of Navios Partners, including a 2% GP interest. Navios Partners operates a fleet of 18 vessels equaling 1.9 million deadweight with an average age of 5.6 years.

Please turn to slide 17. Navios Partners provides significant cash flow to Navios Holdings. Through 2013, we received more than $78 million in total distributions from partners. In 2011, we received $25.6 million distributions, which is more than 100% of Holdings' expected annual dividend. Including Navios acquisition dividend, Navios Holding, Navios Maritime Holdings received over 135% of its expected annual dividend from its ownership in these two companies.

Please turn to Slide 18. We have an approximately 54% economic interest at Navios Maritime Acquisition. Navios acquisitions current fleet consists of 29 tanker vessels totaling 3.3 million deadweight. Navios acquisitions currently has 15 vessels in the water with an average age of 5.8 years. We anticipate our new building program for product tanker position tests to take advantage of favorable long-term industry dynamics.

Please turn to Slide 19. Now, this acquisition is summarized in Slide 19. Navios Acquisition has a large, modern and diversified tanker fleet worth more than $1 billion. Navios acquisition has long-term contracted revenue that is well above the Company's low operating breakeven. This cash flow can sustain Navios acquisition for a long period in distressed market conditions.

Navios acquisition has profit-sharing arrangements in many contracts. These agreements limit the downside risk to the base rate and allows Navios Acquisition to enjoy the upside volatility. An example, profit sharing for our two chemical carriers came to approximately $2,800 per day, per vessel in Q4 of 2011. This concludes my presentation. I'd now like to turn the call over to Ioannis Karyotis Senior VP of Strategic Planning. Ioannis?

Thank you, Ted. As you can see on slide 20 and 21, Navios Holdings owned 63.8% stake in Navios South American Logistics. Navios Logistics has three segments, each of which enjoy significant growth prospects. We seek long-term revenue from a diverse portfolio of high quality clients. Our strategic relationships, investments and the overall favorably export market fundamentals position us well.

Slide 22 sets forth our recent developments. The new silo in Uruguay is expected to be operational in Q1 2012. Total storage capacity of the dry bulk consequently will be 460,000 metric tons. We are also constructing a new conveyor belt that will increase better loading capacity by 6%. The new conveyor belt is expected to be operational in the first half of 2013.

In addition, we have a renewed several client contracts introducing a 24% increase in tariffs and significant increase in the minimum rotations. In the Liquid Port Terminal in Paraguay, we added 3,000 cubic meters of storage capacity in December 2011. We have contracted this new capacity to an oil major for a two-year period. We are constructing two additional storage tanks of 7,100 cubic meters combined capacity. These tanks are expected to be operational in the second quarter of 2012.

In the barge Business, three new convoys are now servicing a five-year contract for iron ore transportation. During 2011, one of these convoys was in service for four months and the other two operate for about one month. All three convoys will be operational for the full year in 2012.

In addition, we renewed the employment of five existing convoys for iron ore transportation without the 20% higher base rates and we also signed a new five-year contract for one Company for grain transportation. All convoys use [extinct 220] barges and are contracted with large high quality counterparties under terms that protect us from advanced rated pollutions.

Please turn to slide 23. For Q4 2011 revenue increased by 49% to $66.8 million compared to the same period last year. EBITDA for the same period was $10.1 million, 10% higher compared to Q4 of 2010. Port terminals achieved a 104% increase in revenue, mutually all of which was attributable to increased share volume and prices in our liquid port in Paraguay.

The segment EBITDA decreased by 21% to $2.9 million, mainly due to margin compression in sales of products in our liquid port. March business achieved a 33% increase in revenue as three new convoys were operational for part of the quarter, and existing iron ore contracts for three convoys were renewed at higher rates. EBITDA increased by 175% to $6.5 million from $2.4 million in the fourth quarter of 2010. EBITDA margins expanded significantly to 25% from 12% in Q4 of the last year.

While the Cabotage business increased revenue slightly, EBITDA decreased to $0.6 million from $3.7 million. This occurred mainly because we had scheduled and unscheduled [operations] in three vessels. Interest expense and finance cost in the fourth quarter increased to $5.1 million from $1.2 million for the same period in 2010 due to the interest expense associated with the single notes issued in the second quarter of 2011. Depreciation and amortization expenses increased to $6.3 million as compared to $5.8 million in Q4 of 2010. This resulted in a decrease in the fourth quarter net income.

Turning to the twelve-month period ended December 31, 2011, revenue increased by 25% compared to the same period of 2010 to $234.7 million. EBITDA grew 20% to $39 million due to the increase in interest expenses and finance cost to $17.1 million from $4.5 million in 2010 and the increase in depreciation and amortization expenses to $23.3 million from $22.6 million in 2010. Our net result was a loss of $0.2 million in 2011 as compared to a net income of $5.6 million in 2010.

Please turn to slide 24. Slide 24 provides selected balance sheet data as of December 31, 2011. Navios Logistics had a strong balance sheet. At the end of 2011, cash and cash equivalents was $40.5 million compared to $39.2 million at the end of 2010. Net debt to book capitalization at the end of the year was 34.6% up from 25.5% in 2010, but still conservative overall.

Now, I would like to turn the call to George Achniotis, Navios Holdings, Chief Financial Officer. George?

Thank you, Ioannis, and good morning all. Please turn to Slide 25 for a review of the full year and fourth quarter 2011 financial highlights. I would like to draw your attention to the fact that was in previous quarters. For comparability purposes, we are presenting the consolidated results on a pro forma basis, excluding the effects of Navios acquisition.

Despite a challenging shipping market in 2011, we managed to increase our revenues between 2010 and '11 and adjusted EBITDA has remained the same between the two years at $265 million. This was achieved through an increase in the available days of the owned fleet, due to the delivery of the new building vessels and despite the reduction in the available days for the charter-in fleet and the average TC rate achieved during the year.

Both years were affected by certain one-off items. In 2011, EBITDA was affected by the following items, the $38.8 million gain from the sale of Navios Luz and Navios Orbiter to Navios Partners, a $21.2 million of expense relating to the bond extinguishment in January of 2011 and a $35.3 million non-cash accounting loss on the deconsolidation of Navios Acquisition, and a $1.7 million accounting loss on shares received by Korea Line for the settlement of part of their outstanding balances.

In 2010, EBITDA was affected by the following items, a gain of $55.4 million from the sale of five vessels to Navios Partners, a $17.7 million gain from the initial consolidation of Navios acquisition, a $4 million write off of unfavorable short-term charters and a $3.8 million gain on the buyback of convertible notes. As Ioannis just mentioned, Navios Logistics also contributed a high EBITDA in 2011, compared to 2010. Net income for the years ended December 31, 2011 and 2010 was also affected by the one-off items discussed earlier, which affected EBITDA.

Excluding the effect of these items, adjusted net income for 2011 decreased to $62 million compared to [$81 million] in 2010. The decrease is mainly attributable to the increase in interest expense following the issuance of the $200 million bond at Navios Logistics in Q2 of 2011 and the high depreciation and amortization charge due to the increase in the number of owned vessels.

In the fourth quarter of 2011, we produced significant EBITDA of $65.7 million. EBITDA was adjusted by $1.7 million to exclude the effect of our accounting loss on shares received from Korea Line and settlement of part of the outstanding balance due from them. Net income for the period was adjusted for the accounting loss mentioned above. It was adversely affected by the reduction in EBITDA in the period. Net income was also adversely affected by increased depreciation and amortization reflecting the increase in the owned fleet, and fair interest expense from the new bond of Navios Logistics.

Please turn now to slide 26, where the balance sheet highlights are presented. The cash balance as of December 31, 2011 increased to $171 million compared to $146 million at the end of December 2010. The increase reflects our intention to maintain a strong cash position, in order to be able to take advantage of potential distressed transactions that may become available over the next few quarters.

Other current assets increased at the end of the quarter, reflecting mainly the timing differences in amounts due from affiliated companies. Other current liabilities also increased at year-end 2011 compared to 2010. The main movement came from Navios Logistics from a varied classification of current values obligations on two vessels from long-term to short-term and accrued interest from the Navios Logistics bond issued in Q2 of 2011.

Despite the prolonged period of these depressed rates and vessel values in the dry bulk market, our net debt to book capitalization ratio will remain around 50%, and none of our debt covenants were met at the end of the quarter.

Turning to slide 27, the Company continues to pay its dividend uninterrupted by market conditions. The dividend for the fourth quarter of 2011 of $0.06 per share was declared to shareholders on record on [March 27] to be paid on April 12. I would like to highlight the fact that the total annualized cash dividend inflows from the two investments in Navios Partners and Navios Acquisition is approximately $33 million, exceeding the cash paid out by Navios Holdings to its shareholders by $8 million.

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

Thank you, George. This completes our formal presentation for the year-end and Q4 results. We'll open the call to questions.

(Operator Instructions) Your first question comes from the line of Natasha Boyden with Cantor Fitzgerald.

Good morning, everybody.

Good morning, Natasha.

Just a general question. Asset values have obviously been coming down and rates are extremely depressed. There's a concern that companies obviously could be again in violation of loan covenants. So I'm just wondering what you are actually seeing in terms of distressed opportunities from the banks. Are you seeing anything at all?

I think this is a, Natasha, this is an ongoing situation and one thing that we will say is that in Navios Holdings with a fleet of 45 vessels in the water and 57 overall, we had no longer value covenant problem on the whole portfolio. I think this is a strategy and unlike a lot of the other companies, we are well positioned on any market condition.

Okay. And I think, Angeliki, I think maybe you said in your earlier remarks, you talked about the banks not really being available to a lot of owners out there. Is that something that you are seeing or I'm guessing that Navios is probably one of the few companies that is still actually getting benefit from the banks? Would that be correct?

Yes, I will tell you that at this point financing has been, ship financing is far worse than 2008-2009 periods. So the conditions are very much worsening. Navios has no problem of accessing the market and the other thing is that we see a lot of distressed deals. The issue is that you will have to be in the driver's sea, I will say, because your balance sheet is precious right now.

And then I'm just curious what you're seeing in terms of period charter activity in both the Panamax and the Capesize sectors. Are you seeing any more interest at all from charter to longer period, charters, or are they still sort of staying on the sidelines?

You see some bottom fishing here. I mean today a company without problems will not do a long-term charter, meaning three or five years, because you're really locking in at very low rate. But it is encouraging that you see three years and five years, which means that at least someone is seeing an optimistic view with further deliveries also in the second half of the year.

On the actual rate, you can see that we saw a little bit of, I mean we're not on the absolute bottom, a little bit of more optimism for Q2. And the BDI is 700, but the reality is that we are seeing that, okay, you're still in the Q1 in the middle of the Q1, but we're seeing that Q2 there will be better rate than what we are seeing on the spot market. Of course, we also have to realize that spot market rate are really not good Navios (inaudible). We usually do one-year time charter. So you're seeing that in the low-teens on every size, mid-teens to low-teens.

Okay, great. Thank you. And then just lastly, are you considering any further drop down of vessels Navios Partners here?

This is a Navios (inaudible). This is between the two boards and depends on the market conditions, and as how we're creating the [beliefs] for both parties.

Okay. Thank you very much, Angeliki.

Thank you.

Your next question comes from the line of Chris Wetherbee with Citi.

Great. Thanks. Good morning, guys.

Good morning.

Why don't you just kind of touch on maybe your outlook for rates. I know it's difficult to get a sense of where we go from here. Angeliki talked a little bit about things potentially improving in 2Q and certainly that seems like it makes sense. I mean how do you think that -- I know there is going to be volatility. That's probably the one thing we can all accurately forecast. But how do think rates look as we kind of come out of '12 and into '13? I mean can we get back to a sustained period with the level of capacity on the water where capes are earning $25,000 to $30,000 a day or just that just seem to be just unrealistic just given the supply-demand circumstances?

Chris, one thing that I want to tell you that in this market, you have seasonality and cyclicality. Q1, as is always the (inaudible) you hear weather patterns, you will be low. You will have Q2 and Q3, Q2 and Q4, which is also the harvest seasons in North and South [Hemisphere] and we do always better.

We have today, if you take 2011 and as 2012 is developing, we are looking on averages, which average -- you are seeing averages of, let's say, Supermax and Panamax around 14,000, 14,500, and in Capes of 15,500. I think this is at these levels we will see massive [scalping] and with a restriction of banks, you will see substantial non-deliveries.

So as we come in 2013, I believe that you will, and this is internal belief that you will be eating up into the new building and to the non-delivery so the rate of net field growth will be lower. And you will also have economic activity and demand around the whole recovering, because we see, we have seen that emerging markets are loosening. China is loosening its policy. US is doing better than we expected, and no matter what we think about Europe, by 2012, it will have been in a better situation. So with a net field growth reduced because of gaping and non-deliveries, 2013 should be coming into a better equilibrium.

Sure. Okay that's helpful. I appreciate that. That's actually, it's good color. On the order book you touched on it a little bit, when you think about the order book for 2013 and 2014, Ted you had a great slide in there kind of highlighting the progression of, I guess the roll forward of the slippage which is adding to the kind of current year order book. When you think about '13, where it stands right now, does it feel like the at least stated amount of deliveries expected is likely to be delivered?

I mean in other words, should slippage on that piece as it stands right now be a lot lower than it has been just by the simple fact that orders for delivery in '13 are more likely to have been made in the last call it 18 months or so, where maybe you needed to have financing, maybe you need to have a little bit more of a deposit down in order to secure the slot. What are your thoughts about slippage when you get out past this big year?

The previous years before 2011, it was averaging about 40%. Last year it was 30%. So we're looking at range -- we would be looking at ranges anywhere between 30% and 50%, even going out to '13. But take a look at the order book as a whole, Chris. Today there's about 185 million deadweight on order between now and out there to '14. Let's say the slippage is only one-third the non-deliveries. So you're down to 120 million that may deliver. You have about that amount of vessels that are over age.

So as Angeliki is saying, things could come into equilibrium sooner than people expect. We expect the non-deliveries to continue to be within the ranges we've been saying for the last three years, anywhere from 30% to 50%. This year it's probably a bit higher than last year and '13 is going to be somewhere in the same range. It's hard to predict.

One thing that I would like to add to this Chris, to give you a little bit of the banking side of color is that a lot of that what you see even '13 and '14 is orders from the past. So you'd don't really know how short they are on the other side. What happened in 2010 there was an optimistic moment because the market in the dry bulk looked, with economic activity that everything was looking very promising. So you had a little bit of more orders throughout the years, but the reality is that financing has been so severe in the last year, in the second half of 2011, that they do not believe a lot of orders will be able to materialize because clearly banks don't have the money to advance a loan and will never be able.

And we see it from vessels we have on delivery on different yards. You see that a lot of owners have behind you or ahead of you, the problem of actually these vessels being completed. So there is a big problem on actually financing right now that will serve as (inaudible) non-deliveries.

Sure, sure, that certainly make sense. And then may be a final question just to think about the scrapping potential. Obviously, you had a record year last year and off to a very rapid pace in the first month and a half of this year. What do you think the potential capacity could be for scrapping of dry bulk vessels? I know it is difficult because obviously the different vessel classes impacting it, but do you have a sense of what maybe capacity looks like from a global perspective as far as scrapping is concerned?

I will tell you something, scrapping is very easy. So unlike -- I remember three, four years ago, everyone said they can never be more than 12 million deadweight tons. Easily reached last year almost 23 million deadweight tons. The reality is it can increase as much as 30 million and there is a lot of research firms that are seeing numbers, they are quoting numbers up to 30 million. I believe this kind of an environment that we see today and with a scrap price of 500, in the older vessels it doesn't make sense to be kept. It makes more sense even for the bunks to scrap the vessel, take the additional vessel has and put it to a younger vessel and keep that vessel around. So it will be very much accelerated.

Okay.

I mean if you take the 10 year and 15 year asset class and look relative to a scrap, it makes no sense for operating an over 20 year vessel.

Sure, sure. What's the youngest vessel that you've seen scrapped recently? I mean are we starting to see -- I feel like we've heard some news about in the neighborhood of 15 years old, but have you seen anything lower than that or younger than that be scrapped at this point?

We haven't heard then and we find it very peculiar to be less than 15. But we have seen it when VLCC's scrap, at four VLCC's, which was 15-years-old.

Sure.

So we realized that is easily done. It makes sense. But I wouldn't say that you will see something younger. The reality is, with a scrap price where it's down, I mean take a case high as (inaudible). You have the scrap value of again with $500 of 10 million, why you should keep a vessel and not change it for a 15 year old, it makes no sense. So people use economic rationale on that and also even if the vessel has a mortgage, the bank will prefer to scrap the vessel, get additional debt that may have, and move it to a younger vessel. So it has some recovery potential.

Okay, so they're being flexible as far as that's concerned about allocating the mortgage to the appropriate assets?

It could be because if you're, let's say you're a bank and you have a 20-year-old Cape. It makes no sense to give that vessel if the recovery is not imminent.

Okay.

And the three factors, Chris, that you have, is the high scrap prices right, the high fuel and the low freight. The high scrap prices will continue and the high fuel looks like it's going to continue through the year. So that really makes the differential between the older vessels and newer vessels. The spread is even larger and I would expect the utilization rate in these older ships even today is 50%. So I would assume, if you are doing the math, it's quite an easy calculation for the owner.

Yes, that's certainly make sense. Okay, well listen, thanks very much for the time. I appreciate it.

Thank you.

Thank you.

We have completed the question and answer session at this time. Ms. Frangou, do you have any closing remarks?

Thank you very much. This completes our fourth quarter earnings. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.