Navios Maritime Holdings Inc (NM) 2012 Q2 法說會逐字稿

Good morning and thank you for joining us for this morning's Navios Maritime Holdings second-quarter and first-half 2012 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 investor section of Navios Holdings website, www.Navios.com. A copy of the presentation referenced in today's earnings call can also be found there.

Before I review the structure of this morning's call, I would like to read the Safe Harbor statement. Conference call 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 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 conference 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. Good morning to all of you joining us on today's call. We are pleased to report our results for the second quarter of 2012. We had a solid quarter in a market environment that continues to be challenging. Our dual focus during these difficult times has been on what we control, the efficiency of our global fleet and maintaining a solid balance sheet. As a result, we can continue to return capital to our shareholders through dividends payments and consequently declare a $0.06 dividend for the second quarter of 2012 to shareholders of record on September 18.

We cannot control the market but we can in the meantime pay close attention to Company-specific matters. The failure to pay a dividend (inaudible) attention to this matter has put some of our peers in a precarious position as they are seeking significant liquidity when capital markets are only open selectively and financial institutions are reducing shipping industry exposure and dollar-denominated loan portfolios.

Slide 2 shows our current structure. The value of Navios Holdings primarily 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 [interest in] the two publicly listed subsidiaries is $2.80 per share. The market values of the remaining two businesses at only $0.87 in total. Navios Holdings core dry bulk fleet consists of 50 vessels in the water. This fleet has long-term charters with creditworthy counterparties that are insured with a AA rated insurance company in the EU.

Our chartered party coverage is unique and should continue to provide great comfort at all our stakeholders, as it has done the same historically.

The value of Navios Logistics is growing. We have a strong management team addressing the market opportunities. 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 3 shows our strong competitive positioning. As I mentioned a minute ago, we remain in a difficult dry bulk market. However, we have focused on what we can control, which is the expense side of our business. We continue to raise the bar on our operational performance and reducing our operating costs. Today our operating costs, which is always favorable when compared to our peers, is about 33% below the industry average.

At the same time, our fleet utilization is close to 100% for the last three years. We are also vigilant about our balance sheet, which we believe is one of the best in our industry. Our net debt to capitalization is 50%. This reflects a 1 percentage point reduction in the last six months since the end of 2011. The strength of our balance sheet can also be viewed based the options of whether material debt maturities until 2017 or CapEx funding requirements.

Finally, our balance sheet strength can be seen based on the industry's position in the market cycle, which we believe is near the low.

During the quarter, Navios also accessed the debt capital markets by using $88 million of add-ons, 8 7/8% notes due in 2017. The add-on notes issued at par eliminated the refinancing risk of $28.5 million otherwise coming due in 2015. Also the notes replace bank amortizing debt and thus reduce our cash flow breakeven. Not to be ignored also is the elimination of any LTV covenants, which as we have seen has created instability in other businesses as asset values decline in this part of the cycle.

Over the past few years, Navios has devoted immense time and effort (technical difficulty) in developing initiation and relationships with the financial community. It is this good work to date that offers Navios continued access to capital at favorable terms. And we believe that Navios has established a standard within the industry.

As I mentioned, we continue to deleverage when it makes sense to do so. We sold Buena Ventura to Navios Partners for $67.5 million during the quarter for which [profits] will be paid $26.8 million of debt and have another $41 million available on our balance sheet. In July, we also repaid $20 million of promissory notes that came due.

In an environment where the current capesize spot rate is well below operating expense level and are clearly struggling just to covers costs, let alone turn a profit, we are well-positioned to ride out the storm. Our current breakeven cost represents a 17% reduction from year-end 2010 and a 10% reduction from year-end 2011.

We have been able to achieve these significant cost savings over the years as a result of our competitive operational, technical, and financial management abilities.

As you can see from the chart on the bottom of slide 3, even with almost 944 days open for the year, Navios generated substantial free cash of about $45 million. Even if the spot market were to completely dry up and we were not to charter a single vessel for the rest of the year, we will generate substantial free cash flow.

Slide 4 shows our liquidity of about $249 million, of which $179 million is cash. Driving towards Navios' goal of building a solid capital structure, we have de-levered our balance sheet prudently. At this point in the cycle where asset filers are suppressed, our leverage indicates Navios's devotion to form a well-capitalized enterprise with a disciplined capital structure.

Our debt is long-term and stable with no material maturities until 2017. Bonds represent about 70% of our outstanding debt with no amortization until maturity. These bonds have favorable covenants, allowing us operational and financial flexibility in this kind of market. And we continue to have access to the debt market while the commercial lending market tightens.

Slide 5 sets forth Navios's substantial cash flow-generating capabilities from its fixed revenue and low operating cost. About 93.5% of Navios revenues has been fixed for 2012 at about $20,870 per day. In other words even if the Company does not find charters for the open days, which is more than unlikely, we will still earn about $45 million in free cash flow from the fixed days. Our fully loaded cost is only $15,950 per day per vessel.

In addition as you can see from the chart, for every $1000 per day we see from each open day, Navios would earn almost $1 million in additional revenue. Thus assuming our chartering activities generate an average of $10,000 per day for the rest of the year, which is reasonable in this market, we will earn another $9.4 million. Cash generation will therefore total to about $54.4 million.

Costs include everything, all operating expenses, drydock expense, the chartering expense on our chartering fleet, general and administrative expense including credit default insurance as well as interest expense and capital repayments.

And now I would like to turn the call over to Mr. Ted Petrone, Navios President, who will take you through Navios operations and our industry perspective. Ted?

Thank you, Angeliki, and good morning all. Please turn to slide 6.

Our long-term core fleet consists of 54 vessels totaling 5.5 million deadweight. We have 50 vessels in the water with an average age of 5.3 years. This is less than half of the industry average of about 11 years.

Please turn to slide 7. Navios' average charter-out rate for its core fleet is $20,870 a day for 2012, which increases through 2014. 93.4% of Navios' fleet is chartered out for 2012, 41.3% for 2013, and 24.4% for 2014.

In total we have contracted revenue of over $400 million through the end of 2014. We have insured our charters through an EU AA rated insurance company.

Please turn to slide 8. We enjoy vessel operating expenses about one-third below the industry average in all asset classes. Navios' current daily OpEx is $4,284 a day. This is $2,135 daily savings per vessel and operating expenses aggregates to over $23 million in annual savings, which goes directly to our bottom line.

We aim to continue leveraging our economies of scale and operating proficiency advantages. We also benefit from technical management services provided to our affiliates.

Please turn to slide 9. BDI rose in the second quarter an average 1024. However, the first half average of 2012 of 943 was the lowest since 1999. Panamaxes and Supermaxes both showed higher earnings in Q2 than Q1 while cape earnings in Q2 slipped below Q1 levels. Adverse weather and record quarterly additions to the fleet were among the reasons for capes remaining the lowest earnings asset class.

Iron ore shipments from Australia and Brazil returned to normal seasonal levels at the end of Q2. Grain and coal shipments held steady, which led to relative stability in Panamax and Supermax rates. Subsequent to Q2, lower rates for all sizes has drawn the BDI down from 1162 on July 9 for 31 consecutive days to 709 on August 21, its lowest level since the first week in February declining 56% from its peak at year opening of 1624.

The BDI closed up slightly yesterday to end its long decline but sentiment remains weak. Weakening worldwide steel production on the back of falling steel prices along with reduction in US grain exports due to severe drought and rising vessel supply provide little confidence for rate improvement in the near term. However, lower charter rates should induce more scrapping, which is expected to pick up in the autumn after the monsoon season ends in South Asia.

Please turn to slide 10. World GDP continues to be driven by developing economies. Developing economies now contribute a higher percentage of total world growth in the developed economies, representing over half of the global consumption of most commodities. The IMF expects this trend to continue for the foreseeable future.

The IMF recently lowered its forecast for world growth to 3.5% for 2012 and 3.9% for 2013. Emerging economies are projected to grow at 5.6% in 2012 and 5.9% 2013. The IMF lowered its forecast due to the continuing Euro crisis and the slowdown in China, India, and Brazil. The IMF now expects China's economy to grow at 8% for 2012 and 8.5% in 2013. India's economic growth is expected to be at 6.1% for 2012 and 6.5% for 2013.

Please turn to slide 11. In order to continue their urbanization and industrialization, China and India continue to invest heavily into construction throughout Latin America, Africa, and the Middle East. Those countries are securing supply lines of natural resources with these infrastructured 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.

Turning to slide 12, currently just over 50% of the world population resides in urban areas. This figure is expected to grow to 67% by 2050, adding approximately 2.8 billion urban residents with a large portion of urbanization occurring in the Asia-Pacific region.

As you can see on the right-hand graph, growth in income supports increased metal demand. The rise in global incomes and the shift in the global economy towards Asia should support world bulk trade by increasing movements of raw materials as shipping patterns adjust to the new global market.

Moving to slide 13, development and urbanization of the Western and Central parts of China will contribute significantly to the steel consumption in 2012 and onwards. Infrastructure, housing construction, consumer spending, growth, will underpin development in 2012 and beyond.

[Crude] steel production in China through July totaled 418 million metric tons or about 1% more than in the same period last year. Even with supply disruptions in Brazil and Australia, China imported 425 million metric tons of iron ore through July, about 9% more than the same period last year. China also imported 64.2 million tons from minor exporters in the first five months of 2012, up 17% over the same period last year.

Future growth in worldwide iron ore imports will be constrained until new iron ore mines and expansion projects become operational.

The chart on the upper right depicts apparent per capita steel use for selected countries and shows that both Brazil and China are still in their expansionary stage of steel consumption.

Turning to slide 14, India has taken additional steps in industrialization and urbanization. As you can see on the lower right-hand chart, India is expected to increase its urban population to almost 600 million people by 2030. That means India will have to build about 1.5 New York City's (technical difficulty) per annum (technical difficulty).

To keep pace with expanding steel and electricity production, India coal imports shown on the left hand chart have increased to the 25% compound annual growth in 2006. According to the Central Electricity Authority of India, substantial demand will continue as 65% of current planned new power generations will be coal-fired. India currently generates 73% of its power using coal. As a comparison, the US uses coal to generate about 40% of its electricity.

Please turn to slide 15. Low freight rates, expensive fuel, and high ship scrap prices led to a surge in scrapping in 2011 and so far this year. Scrapping rates for older, less fuel-efficient vessels have continued to accelerate this year. Through August 20, about 19.7 million deadweight has been scrapped. This represents an annual scrapping rate of over 31 million deadweight tons or close to 5% of the fleet.

The current rate environment keeps scrapping levels high as over 8% of the fleet is 25 years of age or older and about 14% of the fleet is over 20 years old, providing about 93 million deadweight of scrapping potential.

Of note is that the current 2012 scrapping totals include 14 ships that were between 15 and 20 years old as well as one that was 15 years old. Demolition prices appear to depend on overall steel prices and not supply of vessels.

Moving to slide 16, non-deliveries continue to be a substantial part of the dry bulk order book. Through July, non-deliveries amounted to 26% as newbuilding deliveries were 67. million deadweight against an expected 92.1 million deadweight. An upward revision of about 6 million deadweight tons to June deliveries appears to have been caused by yards pushing to provide new buildings before new paint coating regulations came into effect on July 1.

Fleet additions this year are expected to be about the same as 2011 but net deadweight growth should be lower after scrapping is taken into account. The order book declines dramatically in 2013 and beyond.

Please turn to slide 17. We currently own 25.2% of Navios Partners including a 2% GP interest. Navios Partners operates a fleet of 21 vessels equaling 2.3 million deadweight with an average age of 5.6 years. Since its inception in 2007, Navios Partners' fleet has grown by 261%.

Please turn to slide 18. Navios Partners provides significant cash flow to Navios Holdings. Since its start in operations, Navios Partners has grown distribution by almost 27% and we received about $92 million in distribution from Partners. In 2011, we received $25.6 million in distributions, which is more than 100% of Holdings' expected annual dividend. Including Navios Acquisition's dividend, Navios Holdings receives about 137% of its expected annual dividend from its ownership in these two companies.

Please turn to slide 19. We have an approximate 54% economic interest in Navios Maritime Acquisition. Navios Acquisition's current fleet consists of 29 tanker vessels totaling 3.3 million deadweight. Navios Acquisition currently has 16 vessels in the water with an average age of 5.9 years. We anticipate Navios Acquisition's newbuild program where product tankers positions them to take advantage of favorable long-term industry dynamics.

Please turn to slide 20. Navios Acquisition is summarized on slide 20. 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 also has profit sharing arrangements in many contracts. These agreements limit the downside risk to the base rate and allow Navios Acquisition to enjoy the upside volatility. For example in 2012, profit sharing has been triggered for all asset classes and year-to-date totals approximate $1.2 million.

This concludes my presentation. I would like now to turn the call over to Ioannis Karyotis, Senior VP of Strategic Planning. Ioannis?

Thank you, Ted. As you can see on slides 21 and 22, Navios Holdings owns 63.8% stake in Navios South American Logistics. Navios Logistics has three segments, all enjoying significant growth prospects. We seek long-term revenue from a diverse portfolio of high-quality clients. Our strategic relationships, investments, and the overall favorable export market fundamentals position us well.

Slide 23 sets forth our recent developments. Our new 100,000 metric tons silo in Uruguay is now operating and we have contracted out 100% of its capacity to major global and regional commodity houses. Overall, we have a great contract, 94% of the port storage capacity for five years at increased rates annually adjusted for inflation and with higher minimum guaranteed rotations compared to previous contracts. The effects of these renewals are already evident in our improved results.

In addition, we are adding a second comparable to effectively double our vessel loading capacity. The construction of the new comparable is expected to be completed in the first half of 2015.

We are also adding capacity to our liquid port terminal in Paraguay. A new 5000 cubic meter tank is operating as of August 2012 while the new 2100 cubic meter tank is expected to be completed in September 2012, increasing the liquid ports capacity to 45,700 cubic meters.

In the second quarter of 2012, we start with the construction of four tank barges each with 3400 cubic meters capacity. The total investment will be $7.6 million or $1.9 million per barge. The barges are scheduled to be delivered gradually September 2012 through June 2013. These barges replace similar barges we previously chartered in and (inaudible) annual savings of about $1.8 million.

Please turn to slide 24 to discuss the results of the second quarter and the first half with 2012.

We had a strong second quarter, attaining significant EBITDA growth in all our business segments. Overall, revenue increased by 34% compared to the same period last year to $73.3 million. EBITDA for Q2 2012 was $15.4 million, 46% higher compared to Q2 of 2011.

Looking into the segment you can see that port terminals increased revenue by 67% because of higher volumes and tariffs in both our dry and liquid ports. The segment EBITDA increased by 75% to $6.4 million. Revenue in the barge business increased 27% and EBITDA expanded 78% to $3.7 million from $2.1 million in the second quarter of 2011 mainly due to the expansion of the barge fleet with three additional iron ore convoys.

Cabotage business reported a 4% increase in revenue while EBITDA increased 11% to $4.3 million from $4.8 billion in the second quarter of 2011. Interest expense and finance costs net were $5.1 million in both the second quarter of 2012 and 2011.

Depreciation and amortization expenses increased to $6.1 million as compared to $5 million in Q2 of 2011. Our net result for the quarter was a net income of $2.4 million compared to a net loss of $0.7 million in the respective periods last year.

Turning to the six-month period ended June 30, 2012, revenue increased by 25% compared to the first half of 2011 to $123.4 million. EBITDA grew 20% to $24.1 million. Interest expense and finance costs net were $10.1 million compared to $6.2 million in the first half of 2011 due to the interest expenses generated by the senior notes issued in April 2011.

Depreciation and amortization expenses increased to $12.9 million from $11.1 million in the first half of 2011. As a result, we were effectively breakeven for the period at the net income level.

Please turn to slide 25. Slide 25 provides selected balance sheet data as of June 30, 2012. Navios Logistics has a strong balance sheet. At the end of Q2, cash and cash equivalents were $44 million compared to $40.5 million at the end of 2011. In May 2012, we extended our capital leases for four years and the related publication has been reclassified as long-term liability.

Net debt to book capitalization was 33%, down from 35% at the end of 2011 and still conservative overall.

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

Thank you, Ioannis. Please turn to slide 26 for a review of the Navios Holdings earnings highlights.

Q2 was a very good quarter with strong EBITDA generation and revenues increasing by 4% to approximately $172 million compared to $165 million in 2011. Revenue from dry bulk operations reduced to approximately $99 million from the $111 million in the same period in 2011. The decrease is caused mostly by a reduction in the daily TCE rate achieved in the quarter from $23,608 in Q2 2011 to $19,832 in Q2 2012.

I would like to note that the $19,821 daily rate achieved in the quarter is more than double the market average of the period, which was under $9,000 per day. This is a reflection of our prudent long-term chartering strategy.

The decrease in TCE was mitigated somewhat by a 6.1% increase in available days of the fleet due to new vessel deliveries during the year. As Ioannis mentioned a moment ago, revenue from the logistics business also increased, which counted the reduced dry bulk activities.

Revenue for the first half of 2012 increased by $2 million to $324 million compared to $322 million in 2011. The trend for the first six-month period was the same as for the quarter with decreased revenue from dry bulk vessel operations and increased revenue from the Logistics business.

EBITDA for the quarter was strong at $61.1 million. This was affected by a $300,000 gain from the sale of one vessel to Navios Partners in June. Excluding the gain, adjusted EBITDA was $60.8 million compared to $64.9 million in the second quarter of 2011. The decrease was primarily due to the lower TCE rate achieved in the quarter compared to last year.

The (technical difficulty) decrease was mitigated significant increase in EBITDA contribution from Navios Logistics. Adjusted EBITDA for the first half of 2012 was $123.3 million compared to $132.4 million in the first half of 2011. Similar to the quarterly results, the decrease was mainly due to a reduction in the TCE rate achieved in the period.

Net income for the second quarter of 2012 was also adjusted by $300,000 from the sale of one vessel to Navios Partners. Adjusted net income for the quarter was $5 million compared to $12.1 million in 2011. The reduction is mainly due to the reduction in EBITDA and higher depreciation and amortization in Navios Logistics due to the increase in the owned convoys.

Adjusted net income for the first half of 2012 was $14.4 million compared to $31.9 million in 2011. In addition to the reduction in EBITDA and higher depreciation and amortization in Navios Logistics, net income in the first half was also affected by higher interest expense at Navios Logistics following the issuance of a single note in April 2011.

Please turn now to slide 27. We continue to strengthen our balance sheet and delever the Company. At June 30, 2012, we had $178.6 million in cash compared to $177.5 million at December 31, 2011. The current portion of long-term debt reduced significantly from $70.1 million at year-end 2011 to $56.3 million at the end of June 2012. This was further reduced in July after the payment of a $20 million promissory note and the refinancing of bank finance with $88 million add on 8 7/8% non-amortizing bond.

Following these repayments, we currently have very low debt payments for the next 12 months of approximately $22 million and no CapEx commitments. The long-term portion of our bank debt also reduced to $412 million compared to $438 million at the end of December. As Angeliki already mentioned, we don't have any significant debt maturities until 2017 and we do not have any breaches on our loan covenants.

The net debt to book capitalization ratio also reduced from 51% to 50% in the end of 2011. This is a very low ratio for a shipping company operating in a capital intense industry. It's particularly strong as we are at the very low point in the cycle.

Furthermore, I would like to remind you that the full market value of our investments in our affiliated companies is not reflected on our balance sheet. If these investments were valued at the current market values, our leverage ratios would be even lower.

Turning to slide 28, as Angeliki already mentioned, the Company continues to provide a return to shareholders through a dividend. We declared a dividend of $0.06 per share to common shareholders as of September 18 to be paid on October 4, 2012. I would like to remind you that the total cash dividend inflows from the two investments in Navios Partners and Navios Acquisition exceeds by over $9 million the cash paid out by Navios Holdings to shareholders.

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

Thank you, George. With this, we complete our formal presentation. Now we will open the call to questions.

(Operator Instructions). Chris Wetherbee, Citi.

Thanks. Good morning, guys. I just had a question kind of when you think about CapEx and then cash flow as you start to move forward here towards the end or the end of your CapEx schedule, how should we be thinking about kind of incremental cash flow relative to maybe other opportunities or maybe debt service when you think about debt to cap being in the 50% range? I just wanted to get a sense of how we should start thinking about what you do with cash going forward?

Great, thank you. We do not have any CapEx in the natural newbuilding CapEx. This has been completed last year, as you know, so we're sitting now in about $180 million of cash. It is a nice capital position and we have free cash flow generation in today's market environment.

The one thing we view is that we care very much to return -- we return to our shareholders. We continue to have dividends and we are one of the few companies and we are reviewing market opportunities. We will only be willing to do a transaction if we see that this is cash flow positive in today's market, meaning that a breakeven on any transactions is below the market, the current market environment.

So this is the way we look at it. If we see opportunities of that nature and we see a lot -- there is a lot of stress in the market, we [constantly] -- we would be -- we're not going to decide on moving very quickly.

The other issue we have a market that have been very active reducing our cash flow cost. We have been active in eliminating any refinancing risk. Having these two ingredients makes us very comfortable on moving in any transaction we get.

Okay, maybe a -- do you have any thoughts about the target kind of debt to cap levels that you would like to see going forward? Does debt pay down become a bigger emphasis if you can't find interesting deals in this market?

(inaudible) increased. I think the current debt to cap is very comfortable especially if you consider where you are in the cycle and values in the cycles. So opportunities will arise and I'm very sure that we will have the opportunity to move forward.

The thing is that we are very disciplined by it. One of the things that you have seen is even though we did some -- we are one of the companies that we did very quickly eight capes, if you remember in 2009, we bought them at post-crisis levels with (inaudible) cash flows and we did it very quickly. We never went into a newbuilding spree in 2010 when a lot of other companies did in the dry bulk.

So we always will do a transaction where we have the finance, the equity, and the debt. This is a rule for us. We like a full funded CapEx and that is why we never ran into problems in today's market. For us it was not a surprise that the ship finance banks will be moving out of [ending] but we were well prepared for this environment.

Okay. Sure, that makes sense. Then I guess a question about the market relative to the capesize class. When you think about just the very, very pronounced weakness that we are in the midst of now, do you get a sense that our owners laying up vessels -- I mean do you have a sense of kind of what those levels look like as it stands right now? Or is there an impetus to do that anytime soon, just given where we kind of stand with rates currently?

You have vessels laid up. You have a lot of Japanese credit houses have laid up amounts, a large amount of capesizes. (inaudible) laid up in Singapore and Malaysia. We have since -- and also you have seen that the scrap comes earlier and earlier, meaning that you can see 15-year-old vessels going for scrap.

So I think one of the things you are seeing today is that this is -- there is going to be continuous scrapping. You had a little bit of a reduction in the rate because of the monsoon period in India, the seasonal monsoon time, which doesn't allow for scrapping. But I think as we move out of the monsoon in India, this will accelerate. And also you saw some delivery of vessels that I think is more fictitious because there was a regulation of those active as of July 1 of 2012. So you saw some registered vessels that should not have been there.

So apart from these two events you will see that you will have the net fleet growth will be in the single digits and I think the accelerated scrapping and non-delivery of the vessels will clean up somewhere in 2013 backlog.

Okay, okay. That's very helpful. I appreciate the time as always. Thanks very much.

Natasha Boyden, Global Hunter.

Thank you, Operator. Good morning, everybody. Angeliki, I just had a question for you on your charter coverage. Next year it looks like a fair amount of tonnage comes off charter and I'm assuming at this point that you have no desire to refix those vessels given where rates are at the moment. But where do you need to see rates to be to start refixing some of those ships that are going to come off charter?

I think one of the things that (technical difficulty) like to point to you is that Q4 usually is seasonally up so we are a little opportunistic of how we do it. And even in today's rate environment, one-year right environment, we will fix 2013 exposures. You have circa around 9500 to 10,000 in today's environment, the one-year rate.

So as we are going to be moving on to Q4, our strategy is to fix one-year and two-year exposures and also you have to see that we are relaxed on doing that and in a very relaxed mode because our breakeven to do the calculation for next year, the equivalent of what you see in the breakeven analysis, you realize that our breakevens are well below today's current market. So even though we have 60% fleet open, our breakeven for 2013 is well below today's market.

Okay, great. That's helpful. Thank you. I actually just have a couple of macro questions that I would love to get color on if you don't mind. Iron ore prices have obviously been moving lower quite dramatically recently and recently hit near-term lows. How much of this do you think could spur more imported (inaudible) to China and how much of this is just an indication of poor demand out of China?

Natasha, hi. The prevailing research tells us that once you get below 115, you're probably starting to knock out at least a third of the domestic iron ore production in China. And with today's prices at 106, it looks like where we are now, they're not going to immediately just stop digging out of the ground today when they go negative. They will probably wait a month or two.

But you can already in the July figures they are down 10 million tons compared to the month before. Now is that a trend? We will wait till next month but you would tend to think that there will be less being dug out of the ground and more being imported going forward.

I guess that could spur a potential stronger fourth quarter, I'm assuming.

Yes, I think along with the seasonality, that's right. I think you could see it. I don't think you will see a strong fourth quarter like last year but you will certainly see higher rates in Q4 than Q3.

Okay, just one other question. We read recently that the Australian Resource Minister said that the country's mining boom is over particularly after BHP is reconsidering the economics of the Olympic Dam Mine. What kind of comments do you have for that? I know in the presentation you have a long-term bullish view on the market, but sort of more of a short-term perspective, what are you seeing particularly in light of those comments?

Natasha, you're asking about BHP's --?

Yes, about the reconsideration of the Olympic Dam Mine. (multiple speakers)

I think they had this uranium and platinum mine. There's a lot of cut back on infrastructure or mining investment. Now there are reports just out about Vale, which gets 100% of their revenue from the iron ore that they should double their iron ore exports in the next six years. Rio Tinto, which gets about 75% of their earnings from iron ore in this last 12 months, they have cut back on investments but not iron ore.

BHP is looking to reduce their port structure so there is some cut back but I think what you see out there in terms of the pullback on the mining companies is mostly non-iron ore. So we are still bullish in terms of more iron ore hitting the market but that number may be 75% of what we were thinking it was six months ago.

Okay, great. Then just one last question, if I may. I wanted to talk about financing, particularly the sort of drought that's coming out of Europe with a lot of banks pulling back on their willingness to finance vessels. Angeliki, you've talked a lot of times about the fact that Navios Holdings still has access to the capital markets and has access to the banks.

What is it do you think puts you apart from other companies that are maybe struggling and do you think that there's even more room for squeezing out of the banks of the European market and that the borrowing might move to the East?

I think the one thing that sets us apart is that we are very conservative and we are conservative today. We have this way of thinking for a long time. We always manage our maturities. We always have strong cash. We protect the downside. This is a strategy that we didn't implement today. You had given the high of the market in 2008. If it's five- and 10-year deals, you make sure that you always look on your low breakeven, the cash breakeven. That means that you care -- do give a mark about your operating expenses that today is critical for a company. Today $2000 below your industry below your peers means you're profitable or if you are $2000 above, you will be wiped out. You care about maturities. You care about your CapEx.

Navios was never going to buy vessels without having the equity and debt in the balance sheet. So you never go unhedged. All of these things makes banks very comfortable with us and we also have worked very much on the bond market with our investments and the rating agencies for a long time.

So this makes you different from your peers. Let's be clear about that. The other alternative is to have zero debt. That is another model. Navios selected to have debt but we are very conservative of how we deal with our balance sheet.

Okay, great. Thank you very much for your time.

That was our final question and now I will turn the floor back over to Angeliki for any closing remarks.

Thank you. This completes our second-quarter earnings. Thank you.

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