Navios Maritime Holdings Inc (NM) 2013 Q2 法說會逐字稿

Thank you for joining us for this morning's Navios Maritime Holdings second-quarter 2013 earnings conference call. With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; Chief Financial Officer, Mr. George Achniotis; and SVP of Strategic Planning, Mr. Ioannis Karyotis.

As a reminder, this conference call is also being webcast. To access the webcast, please go to the investors section of Navios Holdings' website at 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 Holdings. 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 the 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 risk. Navios Holdings does not assume any obligation to update the information contained in this call. Thank you.

We will begin with formal remarks from the team and then after we will open the call to take your questions.

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

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 2013. We had a solid quarter and reported $38.8 million of EBITDA. We continue to maintain operating discipline and have moderate level of 44% and cash of about $277 million.

As we focus on execution, we continue returning capital to our shareholders through dividend payments, and declared a $0.06 dividend for the second quarter to record holders of September 18, representing a yield of almost 4%.

Slide 2 shows our current corporate structure. The value of Navios Holdings primarily derives from four areas -- the drybulk fleet within Navios Holdings and three principal operating subsidiaries. In our view, the whole is still valued at less than the sum of the parts.

As of the close of business, (inaudible) August 21, Navios Holdings common shares traded at $6.30 per share. In contrast, Navios Holdings' ownership stake in the two publicly listed subsidiaries were valued at $4.27 per share. This implies a valuation of less than $210 million for Navios Holdings' core business of 58 dry bulk vessels and our controlling interest in Navios Logistics.

We believe that the value of Navios Holdings' interest in Navios Logistics alone is much larger. Navios Logistics continues to leverage the growth prospects of the Hidrovia region and reported $17.6 million of EBITDA for the quarter. Also Navios Logistics announced that it will be deploying three new convoys located [higher north] for an existing client.

Slide 3 highlights our strong competitive position. We have a conservative balance sheet with net debt to capitalization of 44% and liquidity of $277 million. Our liquidity should be viewed in the context of our capital requirements. The Company has no unfunded CapEx and no material debt maturities for the next four years. As a result, our liquidity is dedicated to expansion opportunities and operating needs of the Company.

As you can see from the table in slide 3, our contracted cash flow coupled with our dividends from our subsidiaries, (inaudible) was [significant] operating cash flow. We also have 2447 days, vessel days, open in 2013, which we are in the process of fixing.

We have provided the current one-year time charter rates for the various vessel classes, as well as the 20-year average of the one-year time charter rate. These rates provide the (inaudible) open days generate. As you can see given the low cash breakeven requirements of $5365 per day and the rising rate environment, we anticipate that not only will the cash requirement be covered, but that we will generate a sizable supply.

I also want to know that the profit-sharing market disposal mechanism that we are building into the charter contract would provide us with $2.2 million in incremental free cash flow for every $1000 in profit sharing achieved.

Slide 4 reviews our chartering strategy. Navios' adaptable chartering strategy has been formed in context of its conservative business philosophy. While subject to the volatility of the industry, we dampened the impact by maintaining low operating costs and a flexible chartering policy.

As an essential element, we seek to first protect against the downside risk. Only after we ensure that we have done what we can to mitigate downside risk do we focus on maximizing the market opportunity of the [moment].

We have implemented our chartering strategy by using period charters appropriate for the time. At the peak of the market in 2006 through 2008, we entered in long-term fixed contracts. More recently, we have been negotiating period charters that provide a flow above our cash flow breakeven and a mechanism for market exposure, so that we can enjoy the upside of the market.

Structural net flow in the charter rate context ensures that we never charter our vessels below our breakeven rate, and we charter EBITDA and cash flow positive. Having market exposure allows us to take advantage of the market recovery through our profit-sharing programs.

Currently, 11% of our fleet and 33% of our charters fixed since June include some sort of mechanism that allow us exposure to the market. I would note that even the industry-related contracts average above our cash flow breakeven rate as measured during the past few years.

Turning to slide 5, we provide an update on the acquisition of the 10 vessels from a private Japanese owner. So far we have acquired four charter free vessels outright at cyclical loans. These vessels have already appreciated by about $4 million. We are financing these four vessels with a $40 million in debt and cash on our balance sheet. The loan has an age adjusted amortization profile of 18.4 years and a margin of 325 basis points. The cash flow breakeven for this vessel is $7445 per day per vessel.

Navios Asia, which is the joint venture entity with a private Japanese owner, will receive directly delivery of two of the six vessels in the third quarter of 2013. Navios Asia intends to partially finance this vessel with bank debt in terms that are consistent with our existing credit facility.

Slide 6 offers an update of our strategic relationship with HSH Nordbank. We, along with our affiliates, formulated the name Navios Europe. We will be the acquisition entity under the letter of intent we signed with HSH in April of 2013. Navios Holdings will own 47.5% of Navios Europe.

Navios Europe recently arranged for the technical and commercial management of 5 out of the 10 vessels in the transaction. To date we have taken over the responsibility of two container vessels, and we anticipate taking over the responsibility for three tanker vessels through September 2013. Navios Europe is expected to take ownership of all 10 vessels by November 1, 2013, at which point management of the remaining vessels will also be transferred.

This deal is an example of the excellent working relationship that HSH and Navios have developed, and our mutual goal is to complete this deal and work together towards similar transactions.

Slide 7 shows our liquidity position and net debt to capitalization is 44% in the end of the quarter, second quarter. In addition, we have a liquidity of $277 million. As I mentioned earlier, we have no material debt maturities for full year, and all of our CapEx is funded.

Slide 8 sets forth the Navios cash flow breakeven. As a reminder, we restructured our credit default insurance last year and moved about $175 million from future cash flows onto our balance sheet without any discounting for the time value of money.

The daily default insurance restructuring was a well-researched and strategic decision by Navios Holdings. We prefer to have cash on our balance sheet of our insurance where an event was unlikely to occur.

We have a cash flow breakeven of $12,806 per day in 2013. We have adjusted our contracted revenue to reflect that portion of the $175 million prepayment that was attributable to 2013. As you can see, the [$52] million (technical difficulty) allocation rate of contracted revenue to $14,790 per day.

We do not show the impact of the mitigating benefits as we receive, but under current conditions we quantify this benefit to about $6 million annually, as we no longer have to turn this [process] from the eight charter vessels to the insurance company.

Navios Holdings has a fixed 84.6% of available days for 2013, and is readily positioned to capture market recovery. Our cash flow breakeven will further decrease as we successfully expand our fleet with attractive acquisitions of historically low valuations.

I remind you as I do every quarter that our breakeven allowances includes operating expenses, drydocking expenses, charter-in expense for our charter-in fleet, G&A expenses including credit default insurance expense, as well as interest expense and capital repayment.

And at this point, I'd like to turn the call over to Mr. Ted Petrone, Navios' President, who will take you through Navios operations in an [industry] perspective. Ted?

Thank you, Angeliki, and good morning, all. Please turn to slide 9. Our long-term core fleet consists of 58 vessels totaling 5.8 million deadweight. We have 45 vessels in the water with an average age of 6.4 years.

Please turn to slide 10. Post the restructuring agreement with our credit default insurer, Navios average daily charter-out rate for its core fleet was $11,488 for 2013 and $15,968 for 2014. As depicted on the left side of slide 10, the white portion of the bars represents previously mentioned post insurance restructuring levels. The blue portion represents an allocation of part of the $175.4 million cash settlement received in 2013 to 2014, the year in which such portions would have otherwise been earned.

As you can see, Navios has already received $3302 a day for charters in 2013 and $1770 a day for charters in 2014 providing effective rates of $14,790 for 2013 and $17,738 for 2014. 84.6% of Navios's fleet is charted out for 2013 and what is expected to be an improving money, 21.5% for 2014.

Please turn to slide 11. We enjoy vessel operating expenses about 32% below the industry average in all asset classes. Navios current daily OpEx is $3841. The $1799 daily savings per vessel in operating expenses aggregates approximately $20 million in annual savings, which goes directly to our bottom line.

The right-hand chart reflects the change in the daily charter-out rates for the ships. We have a long-term charter before and after the lump-sum payments in the credit default insurer. We continue to enjoy good relations with these many industry participants. Our Navios Asia joint venture is an example of our strong ongoing relationships in the Far East dating back to the formation of Navios as a subsidiary of US Steel in the 1950s. This allows Navios to expand the fleet with minimal capital expense.

Please now turn to slide 12. The Baltic Dry Index opened Q2 at 896 and hit a low of 801 on June 5. Since then, increased exports of iron ore, coal and grain out of South America pushed the index dramatically up to a peak of 1179 on July 1, its highest level since January 2012. In fact, BDI recorded its highest monthly average since 2011 in July at 1123.

Subsequently after a slight pullback to mid-August the index continues to rise and as of August 21, stands at 1156. This increase has been concentrated in cape rates, which increased over 200% since the beginning of June with more gradual increases in the smaller sizes. During the second half of the year, the slowing trend in fleet growth along with significant additional iron ore export capacity in both Brazil and Australia should at least support if not increase earnings especially in the capesize sector.

Both the Panamax and Supramax sectors should receive support over the medium to long-term by Chinese coal and grain imports. The UN expects China to double grain imports between 2012 and 2022. The further slowdown in deliveries combined with gradual recoveries in the world economy should bode well for improving fundamentals in 2014 and 2015.

Please turn to slide 13. Developing economies continue to be the engine for world GDP as developing economies contribute a higher percentage of total world growth in the developed economies. In fact, developing economies now consume over half of the global requirements for most commodities. The IMF projected global GDP growth for 2013 and 2014 at 3.1% and 3.8%, led by emerging and developing markets growth of 5% in 2013 and 5.4% in 2014.

Turning to slide 14, the primary engines of trade growth continue to be China, India, and Brazil, with other emerging countries adding strong growth. Dry bulk trade is expanded by an average of 5.5% per year in the last decade since China joined the WTO. Consensus forecasts for 2013 offer global dry bulk trade to grow approximately 5% and ton mile growth to be about 7%. A similar growth rate is estimated for net fleet growth leading to balance supply/demand dynamics for the first time in four years.

Please turn to slide 15. In order to continue their urbanization, industrialization, China and India continue to invest heavily in infrastructure throughout Latin America, Africa, and the Middle East. Both countries are securing supply lines of the 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.

Please turn to slide 16. 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, income growth supports increased metal demand. The rising global income and the shift in global economy towards Asia should support increased ton miles in world [global] trade.

Moving to slide 17, iron ore from the major mining companies continues to be the lowest cost, highest quality source of this commodity. With iron ore prices forecasted to decline to the $100 range, significant Chinese domestic production, which is represented by the red boxes in the lower right-hand graph, will become uneconomic. The currently planned expansions of mines feeding seaborne iron ore could add an additional 200 million tons per year in 2013 and more than double that amount in 2014, with further growth in the following years. While the majority of these expansions are in Australia, over 30% will come from the Atlantic basin, adding ton miles.

Moving to slide 18, over the past three years, capesize average time charter rates respond positively to an increase in Brazilian shipments of iron ore. This increase in shipments usually happens between Q2 and Q3 each year and tends to affect rates later in Q3. We are seeing an early start to the trend this year due to delayed Brazilian shipments in the first half of 2013, the increase in Australian iron ore shipments, earlier than normal Chinese restocking, and a decrease in cape deliveries.

Moving to slide 19, the continued develop and urbanization of China will contribute significantly to steel consumption in 2013 and beyond. Infrastructure, housing construction, and consumer spending growth will all underpin future development. Underlying with this trend is the over 20% year-on-year Chinese fixed asset investment growth through July 2013.

Crude steel production in China through July was about 9% more than crude steel production for the same period in 2012. China imported 458 metric tons of iron ore, 8% more than the same period last year. More importantly as you can see in the upper left graph, imported stockpiles have been drawn down steadily from 98 million tons in August of 2012 to about 71 million tons as of last week and about 20 days inventory, this is the lowest level since Q2 2009, which we believe sets the stage for restocking.

Domestic iron ore production increased an estimated 7% year-on-year but decreased 22% between Q4 2012 and Q1 2013.

Going forward, the substitution of high-quality imported iron ore for low-quality domestic iron ore is expected to grow and will increase the ton carry and ton miles.

China is the world's largest coal importer today. Having imported 226 million tons in 2012, China turned from being a net coal exporter to a net coal importer in 2009. As the chart on the upper right indicates, China's seaborne coal imports have grown at a 20% CAGR rate since 2009 and imports are forecast to grow over the next several years, which will add to tons carried in ton miles as over 15% of imports come from the Atlantic basin.

Turning to slide 20, scrapping rates for older less fuel-efficient vessels have continued at very high rates this year. Through August 16, about 15.1 million dead weights have been scrapped. If this trend continues, scrapping could reach about 25 million deadweight tons in 2013. The current rate environment should keep scrapping levels high as about 11% of the fleet is over 20 years old providing 74 million deadweight of scrapping potential. Of note is that of the current 2013 scrapping totals already includes 15 ships that were less than 20 years old; five that were less than 15 years of age, and three that were between 10 and 14 years old.

Though the listing prices appear to depend on overall steel prices and not on the supply of vessels, they are expected to remain high. In our mind, we will continue to see the scrapping of older, less efficient vessels.

Moving on to slide 21, 2012 non-deliveries amounted to 30%, resulting in net fleet growth of 10.3%, the lowest level in the last four years. Net fleet additions in 2013 are expected to be much lower than last year.

Non-deliveries through July amounted to 42%. This combined with high scrapping means that net fleet growth could approximately equal the expected increase in demand during 2013. The order book declined dramatically through 2014 and beyond and is expected to remain that way as banks continue restrictions on new building loans.

Please turn to slide 22. Slide 22 provides a retrospective of the rate environment and considers the impact of supply/demand equilibrium on rate recovery for 2013. As we all know, for any rate recovery to be meaningful and lasting, fleet growth rates need to fall below trade growth rates. As I said earlier, the global GDP is projected to increase in 2013 and 2014 at 3.1% and 3.8% respectively from the more subdued rates of 2011 and 2012. To date, the improvement has been moderate.

However, the rate of change suggests that demand for dry bulk vessels will increase in 2013 as new building deliveries continue to decelerate and scrapping remains at record levels.

In sum, we note that for the first time in four years there is an expectation that net demand will equal or exceed supply. Consequently, rate levels could sustain their current rise during the second half of 2013 carrying into 2014. We note this as these conditions were not evident over the past few years.

I would now like to turn the call over to our CFO, George Achniotis, for our Q2 financial results. George?

Thank you, Ted, and good morning, all. Please turn to slide 23 for the review of the Navios Holdings earnings highlights.

Before I begin the review the financials, I would like to remind you that the comparison between 2012 and 2013 reflects the effect of the restructuring of our credit default insurance. As Angeliki mentioned earlier, of the $175 million cash received in 2012 from the restructuring, approximately $52 million was allocated to 2013. This represents about $3300 per vessel per day. Because of this, a more meaningful comparison of our Q2 results would be a sequential one with Q1 2013 as these are the two quarters post the restructuring.

Revenue in the quarter decreased to approximately $126 million compared to $172 million in 2012. Revenue from dry bulk operations reduced to approximately $62 million from $99 million in the same period in 2012. The decrease is caused mostly by a reduction in the daily TCE rate achieved in the quarter from $19,821 in Q2 2012 to $10,600 in Q2 2013. Of course this does not take into account the reduction of the $3300 per day due to the additional payment from the restructuring of the insurance.

The decrease in TCE was mitigated somewhat by a 5% increase in the available days of the fleet. Revenue from the Logistics business also decreased by approximately $10 million in the quarter, mainly as a result of a decrease in the sale of products at the port in Paraguay.

Revenue for the first half of 2013 decreased from $259 million compared to $324 million in 2012. Revenue from dry bulk vessel operations decreased from $201 million to $123 million mainly as a result of the decrease in the TCE rate achieved.

Revenue from the Logistics business increased by about $13 million which partly mitigated the decrease from the dry bulk operations.

EBITDA for the quarter was $39 million compared to $61 million in the second quarter of 2012. The decrease was primarily due to the lower TCE rate achieved in the quarter compared to last year and a $4 million decrease in net earnings from affiliates. The decrease was mitigated by approximately $12 million compensation from Korean Line shares received in the quarter, a $2 million decrease in G&A expenses, and an increase of $2 million in the EBITDA contribution from Navios Logistics.

EBITDA for the first half of 2013 was $77 million compared to $124 million in the first half of 2012. Similar to the quarterly results, the decrease was mainly due to a reduction in the TCE rate that shipped in the period. The decrease was mitigated by the $12 million compensation from Korea Line shares, a $6 million decrease in G&A expenses, a $1.6 million increase in net earnings from affiliates and an $8 million increase in the EBITDA contribution of Navios Logistics.

During the quarter, we recorded a net loss of $16 million compared to net income of $5 million in 2012. The reduction is mainly due to a reduction in EBITDA and $2 million higher interest expense in Navios Logistics due to the $93.6 million add-on to its senior loans completed in March 2013.

Net loss for the first half of 2013 was $26 million compared to net income of $15 million in 2012. Similar to the quarterly results, the decrease was mainly due to the reduction in EBITDA and an increase in interest expense of Navios Logistics. The reduction was partly offset by a $3 million decrease in depreciation and amortization, a $1 million decrease in share-based compensation, and a $4 million income tax benefit at Navios Logistics.

Please turn now to slide 24. We continue to maintain a strong balance sheet with low leverage and a healthy cash balance. At June 30, 2013, we had $277 million in cash compared to $283 million at December 31, 2012. The current portion of long-term debt reduced significantly from $33 million at year-end to $14 million at the end of June 2013.

The long-term portion of our bank debt also reduced to $277 million compared to $291 million at the end of December. Senior notes increased by $93.6 million following the add-on to the Navios Logistics bond in March 2013. We don't have any significant debt maturities until 2017.

The net debt to book capitalization ratio remains low at 44%. This is a very low ratio for a shipping company operating in a capital-intensive industry. It is particularly strong as we are at the 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 25, the Company continues to provide a return to shareholders through its uninterrupted dividend. A dividend of $0.06 per share was declared to common shareholders as of September 18 to be paid on September 26. The total expected cash dividend inflows from the two investments in Navios Partners and Navios acquisitions exceeds by over $16 million the average 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 Ted for a review of Navios Partners and Navios acquisition. Ted?

We will now briefly review our subsidiaries.

Please turn to slide 26. We currently own 23.4% of Navios Partners including a 2% GP interest. Navios Partners operates a fleet of 25 vessels equaling 2.7 million deadweight with an average age of 6.5 years. Since its inception in 2007, Navios Partners fleet capacity has grown more than 4 times.

Please turn to slide 27. Navios Partners provides significant cash flow to Navios Holdings. Since its start of operations, Navios Partners has grown distributions by over 26% and through 2012, we received about $106 million in distributions from partners. In 2013, we expect to receive about $29.4 million in distributions. This is about 120% of Navios Holdings' expected annual dividend. Including NNA dividend, Navios Holdings receives about 167% of its expected annual dividend from its ownership in these two companies on an annualized basis.

Please turn to slide 28. We have an approximate 52% economic interest in Navios Maritime Acquisitions. Navios Acquisitions' current fleet consists of 41 tanker vessels totaling 4.2 million deadweight. Navios Acquisition currently has 29 vessels in the water with an average age of 4.7 years. We believe, anticipate that NNA's newbuilding program for product tanker positions NNA to take advantage of the favorable long-term industry dynamics.

Please turn to slide 29, Navios Acquisition's similar as on slide 29. It has a large, modern, and diverse tanker fleet worth more than $1.5 billion. Navios Acquisition has a 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 uncertain market conditions and then it also has profit-sharing arrangements in about 84% of its contracted fleet. These arrangements limit the downside risks to the base rate and allows Navios Acquisition to enjoy the upside volatility.

For example, first half 2013 profit-sharing, about $3 million, was greater than total profit-sharing for 2012.

Please turn to slide 30. This slide demonstrates how Navios Acquisition's newbuilding deliveries are increasing EBITDA and building cash flow. Since 2011, available days have grown by 138% and the fleet has grown by 143%. EBITDA has grown by 33% in 2012 over 2011 and will continue to grow as Navios Acquisition takes delivery of new vessels. Based on the first half of 2013, Navios Acquisition's annual EBITDA will be about $115 million and this does not include the EBITDA from the four unchartered product tankers delivering in the balance of 2013.

Please turn to slide 31. Navios Acquisition provides significant cash flow to Navios Holdings including the expected dividend in 2013, Navios Acquisition has provided about $20 million in distributions since its start of operations. The $9.5 million expected from Navios Acquisition this year represents about 38% of Navios Holdings' expected annual dividend.

This concludes my presentation. I would now like to turn the call over to Ioannis Karyotis, Senior Vice President of Strategic Planning, for a review of Navios Logistics' financial results.

Thank you, Ted. Slide 32 provides an overview of Navios Logistics. Navios Holdings owns 63.8% stake in Navios South American Logistics. Navios Logistics has three segments, the port terminals, the barge business, and the cabotage business.

Slide 33 presents the highlights of Navios Logistics. They are one of the major logistics providers in the Hidrovia region of South America where we see significant opportunities to grow our business. While pursuing growth, we maintain our focus on contracted revenues from a divested portfolio of high-quality clients that provide visible cash flows.

As shown on slide 34, we have recently acquired three new dry cargo convoys for approximately $49.2 million, including transportation costs. We acquired three second-hand push boats in the United States and entered into an agreement for the construction of 36 Parana-type dry barges for 2800 deadweight tons each in China.

We leveraged the Navios network to globally source shipbuilding services for new barges and achieved a competitive all-in cost of $736,500 per products.

The Parana-type barges we have ordered are significant larger compared to the Mississippi-type barges. As a result, each of the new 12 barge Parana-type convoys will have a capacity of 33,600 deadweight tons and 40% higher than the typical 16 barge Mississippi-type convoys while operating costs will be similar. We expect delivery of the three convoys in Q4 2013 through Q1 2014.

We have an agreement in principle with a high-quality counterparty to employ the convoys for transporting iron ore and the take-or-pay seven-year contracts. We expect to generate annual EBITDA of $9.9 million from the three convoys.

Please turn to slide 35. In the past three years, revenue has been growing at 14.6% CAGR. At the same time, EBITDA has been growing at a 21.7% CAGR. In the first half of 2013, the EBITDA growth rates have accelerated. Revenue increased by 10.7% and EBITDA increased by 31.6% compared to the same period last year.

Please turn to slide 36 to discuss the results for the second quarter of 2013. We had a strong second quarter with all segments reporting well. Our EBITDA for the second quarter was $17.6 million, 14% higher compared to Q2 2012, and net income was $4.4 million, 85% higher compared to Q2 2012. Boat segment EBITDA increased by 10% to $7 million due to higher volume and increased rates in our dry port in Paraguay. The 25% or $7.6 million decrease in revenue of port terminals is attributable to $9.7 million lower sales of liquid products in our port in Paraguay, a low margin activity that has relatively low impact on EBITDA but affects revenue.

EBITDA in the barge business increased by 21% in Q2 2013 over Q2 2012 to $4.5 million mainly due to a reduction in voyage and operating expenses.

Cabotage business reported a 15% increasing EBITDA to $6.1 million in Q2 2013 from $5.3 million in Q2 2012 due to improved efficiency in fleet operations. Interest expense and finance cost net increased to $6.7 million in Q2 2013 compared to $5.1 million in Q2 2012 due to the add-on to the bond in March.

Depreciation and amortization expense was $5.8 million in Q2 of 2013 compared to $6.1 million in Q2 of 2012. Our net result was also positively affected by $1.3 million lower taxes compared to the same period last year due to the reorganization of certain of our global subsidiaries.

Please turn slide 37. Slide 37 shows our strong balance sheet. At the end of the first half, cash was $124.5 million compared to $45.5 million at the end of 2012. Most of this increase represents the net proceeds of the $90 million bond offering completed in March. Net debt to book capitalization was 30% compared to 33% at the end of 2012.

Now I would like to turn the call back to Angeliki.

Thank you, Ioannis. This concludes our formal presentation. We will open the call to questions.

(Operator Instructions). Christian Wetherbee, Citi.

Good morning. This is Seth Lowry in for Chris. If I could start off on your core dry bulk business, with the increasing rates you are seeing particularly on the capesize front, how much of that would you attribute to seasonality and maybe repositioning versus just overall strength in the overall dry bulk market?

The realities at this point, actually August is not a market where we have a strong quarter. The reality is that we are seeing an overall driver up and we use it as a Q4 event. So you are seeing a very -- we have seen in the middle of summer, which is unusual, a very strong recovery.

When we were reporting Navios Partners four week ago, the market was totally different. I mean we were looking on a three-year market around 15,000 for a capesize and today we see period markets for the three years reaching almost 20,000. So you are seeing a substantial recovery that is happening and it is actually much earlier than the seasonality.

Angeliki, he is right. Remember as we go into the second half of the year, the supply/demand fundamentals start tightening and go into the owner's favor, so any small movements really get magnified as we go forward. So I think that's why we are seeing an early movement here in the capes, which is normally followed by the other sizes moving on.

Okay, so I guess with the fundamentals being a bit more sticky in nature, how do you see the discount between newer tonnage and older tonnage trending over the next six months? Do you expect that to catch up a little bit? Maybe just talk about the trends in the rates for the various vessel ages that you see going forward.

I think the biggest issue now is a good described vessel so if you have a good quality vessel that ten gives good eco-spread, you can really command a much better rates. And I think that is really the difference. If you have let's say a [tiny] of a consuming vessel, that will not perform as well. Not trying -- it depends really on a good performance vessel with a good description.

I do think over the years you can see that at the bottom of the market, at the top of the market that differential really squeezes because everybody just needs a ship. It's at the middle part of the market that you are seeing the differential and we expect that the actually narrow going forward as ships become less available.

If that's the case, does that mean that -- do you find that the second-hand purchase opportunities especially for the slightly older tonnage that may be in a higher marginal cost carriers, does that become more attractive going forward?

Listen, the acquisitions we did on the Panamaxes recently have been extremely great success. It's not only that the short-term gains that we had of about $7 million. It is actually these vessels have a breakeven of $7400 and you can charter them out today on a short period of $9500. So you can see that it makes sense to get vessels at that are very well described. You can actually monetize a much better return.

Okay, lastly the last question switching gears a bit. With the agreement to manage the 10 vessels with HSH, is that an area that you foresee as increasing your presence going forward? I mean are there other opportunities to pursue management and are you looking to grow your presence or is that just more of a one-off opportunistic transaction?

We are not a vessel [asset] manager. We have enough vessels of our own. There are good reasons, what we are trying to discuss is that we have moved -- we follow a process in Navios Europe in order to get the vessels, you have to acquire 10 vessels so you have to do it in one moment. So the way it can be done is first to start getting the management of the acquired vessels, realign that as (inaudible) so that you have one day of closing where owners and asset management process to Navios Europe.

Okay, I got you. Thank you, that's all my questions. I will turn it over.

(Operator Instructions). Urs Dur, Clarkson Capital Markets.

Good afternoon. I think the questions about the market, you just addressed there and looking at the brighter spot, I know that the dry bulk markets have ticked up here and there's some long-term positivity there. I'm not taking away from that but the real bright spot I see in today's results is South American Logistics. Revenues came in at a bit below my expectations, but your margins are quite strong and that brings up the question that you get every quarter. What are the prospects of realizing or making more liquid your investment in Navios South American Logistics with a spin-off and what's your view there?

I think we have -- we see these opportunities becoming from more mature. Of course we have seven more projects that are materializing and that will create better opportunities. So we are in (inaudible) but we can see that in South America we are moving on a very positive direction on almost all ports and on the barge runners.

Great, so no concept of timing other than just keep growing that business in a high-growth area?

Yes, and we see the conditions of the market being actually better. That creates -- at this point you have the window open and you see also the (inaudible) materializing on projects on both of your segments.

Okay, you mentioned -- just back to the drybulk side -- what's the outlook of the Panamax here? It seems to continuously underperform in a lot of spaces and now with the cape kick up here, you're looking at their Cape Panamax ratio, well above 2 on an average basis globally. What's your outlook there? What's your outlook I guess for maybe coal demand and use of Panamaxes and such? Is it a ship class that is simply going to be pushed out by Supramaxes on one end and Capes on the other?

I don't believe that. I will give you my short answer and Ted can give you much longer answer, but the reality is one. Whenever you have a move upwards in the market, don't forget in the beginning of the year we had the BDI at almost 700. Today it was 1150, which is a 65% increase. But we are still 50% below the long-term trends of the BDI which is around 2000 (multiple speakers) the early stage of a recovery.

So in every recovery we have seen in all the sizes, Capesizes are the ones that they will move first followed by Panamax and Handymax. In the down of market, the best performing is Handymax. One of the things that Navios has articulated from the first time we have been public is we create a balanced portfolio of Capesizes with Panamax and the Handymax.

So we can have the ability to withstand any markets having the smaller sizes to be less volatile on the down of the cycle to support your capes.

But of course then you have the capes, which can be quite substantial drivers. That's why we see Navios has 58 vessels in the dry bulk fleet and we have portfolio growth giving us the ability to really return to our shareholders as market recovers.

I think your question on the ratio is a very good one. Over the last decade, the ratio has been about 1.8 but as the market starts moving in the upper part of the cycle, that ratio can get up to 3 to 1 as we all know. And I think that is what we are seeing now. That ratio will pull away but as the market starts going into the fall and the Panamaxes and Handymax start following up, which is a natural occurrence, that ratio will fall back probably under 2 to 1 going forward.

I think there's a natural market for the coal that is going to go into India and also China going forward. Listen, we've heard a lot about Panamaxes being -- I do think they are actually to going to be the workhorses, the Panamax (inaudible) range in terms of the pull going forward. I don't see that ratio changing over the next five years in terms of where it was the last ten.

I tend to agree with that. It's just the topic of discussion right now when we finally see the capes move a little bit at an unusual time of year so just trying to get a view on that point in the market. Excellent.

Most of my questions have been answered. I guess maybe if George has time over the next couple of days to give me a call on some basic modeling questions later, that would be great. Thank you very much, guys.

At this time, there are no further questions. I will now return the call to Angeliki Frangou for any closing remarks.

Thank you for listening to our second-quarter results.

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