Navios Maritime Holdings Inc (NM) 2014 Q1 法說會逐字稿

Thank you for joining us for this morning's first quarter 2014 earnings conference call for Navios Maritime Holdings. 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.

The conference call is also being webcast. To access the webcast, please go to the investor section of Navios Maritime Holdings' website at www.navios.com. You'll see the webcasting link.

I'd now like to read the Safe Harbor Statement. This conference call can 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 fact. 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 herein should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in this conference call. Thank you.

We'll begin this morning with formal remarks from the team and, after, we'll open the call to take your questions.

And now I'd 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 with our results for the first quarter of 2014 for which we reported a net income of $2 million and an EBITDA of almost $60 million. We are also pleased to announce a dividend of $0.06 per share for the first quarter of 2014, representing a yield of almost 3%.

Slide 3 highlights 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. For example, Navios Logistics recently signed a 20-year contract with Vale which we expect to generate at least $35 million of annual EBITDA.

Slide 4 provides an overview of the significant competitive advantage we have been developing over the past few years within Navios Holdings where we keep our in-house technical and commercial management. I am deeply involved in this effort because I believe it is essentially a skill for a transportation company. Unlike many of our competitors, we manage our vessels in house. We believe that, by doing so, our company is better run and our stakeholders enjoy significant efficiencies, which is more noticeable in bad times than good, but in total always.

We have been developing this capability for many years and can demonstrate savings, which we believe will be unattainable to third-party providers for no other reason than those third-party providers are concerned about their bottom line where we are focused on our bottom line. As a result, today we have a world-class parent attending to our business in every department in our firm. This means better decisions are being made regarding the daily operations and maintenance of our vessels, that the decisions are made about talking in terms of (inaudible) vessels and that the process and procedures have been developed in operating a company. Today Navios has about 200 professionals attending to business on your behalf globally, excluding our crew of almost 3,000 people.

In addition, as we get larger we have all this purchasing power. Suppliers of all sorts would like to work with us and we can translate this into savings which are being shared within the Navios Group. And then we simply extended the management structure for Navios Acquisition for another five years and fixed the management fee for two years.

In the market, generally pressured by rising costs, NM was able to reduce VLCC ship-building expenses by about 5% while keeping rates for the product and chemical tankers constant. This slide also has the Navios Partners operating expenses, which is 22% below industry average.

Focusing on Navios Holdings, you can see that Navios Holdings' daily operating expenses is 37% below industry average and our G&A expense is below our peers. We believe we have demonstrated that Navios Holding can achieve economies of scale and share these economies of scale with members of our Group, ultimately to the great benefit of our stakeholders.

Now, turning to slide 5, we provide the status of growth on Navios Asia. As you can see, Navios Asia -- we acquired 100% of Navios Asia. Previously, Navios owned 51% and a Japanese partner owned the remaining 49%. We acquired this 49% interest when Navios Asia two 2006-built Panamax vessels. As part of the termination, we also acquired a Japanese new building Capesize vessel to be delivered in June.

Navios will pay $64 million in cash; $10 million for the acquisition of the 49% interest and $54 million for the acquisition of the newbuilding Capesize vessel. We decided to terminate the JV because of a number of benefits aside from the financial benefit. Navios Asia established a physical presence for Navios in Asia and built upon Navios' existing relationships. Navios received $20 million economic benefit from terminating the JV, consistent with $9 million made from acquiring the Capesize newbuilding vessel and $11 million net from the acquisition of the 49% of the existing two vessels. There is even further potential upside from the appreciation of the market. Navios Asia will also modernize its vessels by having an average age of 5.3 years.

Slide 6 outlines our recent developments. Navios Holdings issued a $50 million perpetual preferred stock. In doing so we have been able to access a new source of funding used to maintain our balance sheet. This is for a [stock-based] coupon of 8.75 of a percentage but Navios Holdings has no obligation to redeem this preferred stock, but has an option to redeem the stock after January of 2019.

We also refinanced Navios Logistics bonds by using $375 million senior unsecured notes, lowering the coupon by 200 basis points to 7.25% and extending the maturity to 2022.

Further, we resolved our credit default insurance. You may recall that we were approached by an insurance company in 2012 when (inaudible) the decision to exit this segment of insurance market. Since then we have been in a standoff mode with no additional insurance purchased as a result of this termination agreement, and then we received a cash payment totaling of $11.3 million, including a $4.1 million payment received in April directly from the insurer and $7.2 million from the sale of the defaulted counterparty claim.

The (inaudible) cash payment reflects a present value benefit of $600,000 because the insurers would have otherwise been paid over the course of the defaulted charterer. We also received $6.7 million of benefit from eliminating a mitigation obligation. Under the [available] insurance policy, once the insurance company pays for the defaulted charter and some related vessels during the course of this charter must be credited to the insurance company. However, as a result of the termination agreement, we have no obligation to credit any amount earned on the related vessel to the insurance company, so any earnings on the vessel is enjoyed solely by Navios Holdings.

Slide 7 highlights our strong liquidity position. We have a conservative balance sheet with net debt capitalization of almost 49% and liquidity of about $274 million. Our liquidity should be viewed in the context of our cash requirements. The Company has no unfunded CapEx and no material debt maturities for the next five years. As a result of our liquidity, is dedicated to expansion opportunities and our operating needs.

Slide 8 (inaudible) for Navios' low cost structure. For 2014 we have fixed almost 66% of our available days at an average contracted daily charter-out rate of almost $13,500. This is above our full-loaded cost of almost $13,000 per day. For 2015 we have fixed 9% of our available days with an average contracted daily charter-out rate of $15,818. We feel comfortable with our current 2015 position as it provides us the flexibility to charter out our vessels at a higher rate that will be available during a market recovery. I remind you that -- as I do in every quarter, that our bake-in analysis includes operating expenses, the docking expenses, charter-in expense for our chartering fleet, G&A expenses including credit default insurance expense until expiration, as well as interest expense and capital repayment.

Slide 9 goes into further detail surrounding the Company's chartering strategy in capturing market upside while protecting the down side. Our estimate for the 2014 breakeven cost for our fleet, including all costs, is $4,598 per day per vessel. Our low daily cash breakeven rate at Navios Holdings to show significant cash flow regardless of market returning to historical norms. Based on the current market rate of $15,341 per day and using our open days of 5,990 days for our fleet, we can earn $64.3 million in free cash flow. However, should the rate revert to historical levels, we (inaudible) $20,600 per day for the 20-year average and $29,100 per day for the 10-year average, we comment $95.8 million or $147 million in free cash flow, respectively. As this slide illustrates, by acquiring assets at attractive values and using innovative methods to keep our costs low, we are well positioned for any market recovery.

And at this point 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. Please turn to slide 10.

We acquired 3 vessels in 2014; two Capes for delivery in 2014 and 2015, and one Kamsarmax for delivery in 2015. Our core fleet consists of 61 vessels totaling 6.2 million deadweight. We are one of the largest drybulk operators in the world. We have 51 vessels on the water with an average age of 7.2 years. This is 21% younger than the industry average age of 9.1 years.

Please turn to slide 11. Including our new acquisitions, we have fixed about 66% of our capacity for 2014. The remaining open days are available for hire in an improving environment. We have fixed 9% in 2015. The average charter-out rate for our fleet is $13,498 for 2014. The average charter-out rate has increased from the $13,408 we reported for 2014 in February showing that, in spite of the market's volatility, we have been able to charter-out at slightly higher rates through the first several months of this year. The rate for 2015 is $15,818.

As Angeliki previously mentioned and as noted in the bottom left of our slide, our vessels' operating expenses are 37% below the industry average in all asset classes. This reflects, among other things, the significant economies we have achieved with scale. The $2,102 daily savings per vessel, as compared to the industry average in operating expenses, aggregates to about $28 million in annual savings dropping directly to our bottom line.

Please turn to slide 12. The BDI recorded its highest Q1 average since 2010 at $1,371, despite the volatility in the quarter. This was 72% higher than in Q1 2013. earnings for the quarter were unevenly distributed by asset class as both the Supramaxes and the Handysizes outperformed Panamaxes. And the Cape Panamax ratio hit its widest margin since 2010 at 2.5 times.

The market was buoyed early in the quarter by record Chinese iron ore imports and China stocking up of nickel ore and bauxite in advance of the Indonesia iron ore export restriction. Since then disruptions of cargo availability arose from Chinese financing issues, weather related factors in Brazil and governmental decrees in Columbia and Indonesia. Negative Chinese soybean crushing margins and credit exchange issues have also delayed grain exports from South America. Most of these disruptions are temporary, except for Indonesia's export restrictions.

Cape rates experienced a sharp fall from a combination of the above disruptions and normal seasonality. Yet the current $14,900 a day spot average through mid-May is more than 2.5 times last year's average of $5,700 a day. The slowing trend in fleet growth for the remainder of this year, along with significant additional iron ore export capacity in both Brazil and Australia should support earnings, especially in the Capesize sector.

Both the Panamax and the Supramax sectors should receive support over the medium to long term by Chinese coal and grain imports as the South American grain season finally gets underway.

Please turn to slide 13. World GDP continues to be driven by developing economies, which now contribute a higher percentage of total world growth than the developed economies, representing over half of the global consumption of most commodities. The IMF recently increased projected world growth for 2014 to 3.6%. Developing economies are projected to grow at 4.9%. Chinese economic growth is projected at 7.5%. Another significant GDP movement is the shift of Europe from a negative 0.5% in 2013 to a positive 1.2% projected for 2014. This is an almost 2% movement within a short period in an economy the size of the US.

Turning to slide 14, the primary engines of trade growth continue to be China and India. Drybulk trade has expanded by an average of 5.5% in the 12 years since China joined the WTO. Forecasts for full-year 2014 are for global drybulk trade to grow approximately 6% and ton mile growth of about 7%. Net fleet growth is expected to the about 5%, leading to favorable supply-demand dynamics for the first time in 4 years.

Moving to slide 15, iron ore from the major mines outside of China continued to be the lowest-cost, highest-quality source of this commodity with future iron ore prices forecast to remain in the $100-a-ton range. Chinese domestic production, represented by the red boxes in the lower right graph, will become uneconomic. The currently-planned expansions of global iron ore mines will add significantly to seaborne bulk commodity movements in 2014, with further significant growth in the following years. While the majority of these expansions are in Australia, about 35% will come from the Atlantic basins, adding to ton miles.

Moving to slide 16, the continued development and urbanization of China will contribute significantly to steel consumption for the remainder of this year and beyond. Infrastructure, housing construction and consumer spending growth underpin future development. Note that the Chinese fixed-asset investments continue to grow at over 17% year on year through April. For April 2014, crude steel production in China was up 5% year on year. Chinese iron ore imports through April were up 20% year on year including the all-time highest and second-highest monthly imports in January and April of 87 million tons and 83 million tons, respectively.

Domestic iron ore production increased 7% year on year, but quality seems to be deteriorating as effective FE content averaged in the 15% to 20% range compared with 63% of imported ore. Based on this data, it seems that the substitution of low-quality domestic iron ore with imported ore is occurring. It is expected that this trend will continue and will increase the tons carried and, therefore, the ton miles.

Please turn to slide 17. Over the past few years there has been a significant changes in coal trade. China turned from being a net exporter of coal in 2009, only four years ago, to being the world's largest importer today. As the charts indicate, both India and China's seaborne coal imports have grown at at least 21% CAGR since 2009. With the increase in steel production and with the number of planned new coal fire-powered generators, coal imports in both countries are forecast to grow over the next several years. Just those two countries account for over 35% of all seaborne coal movements worldwide.

Turning to slide 18, China's grain imports are expected to double between 2012 and 2022 as the country's per-capita income rises, leading to an improved diet and increased consumption of poultry and meat. As noted on the bottom of this slide, it takes about eight tons of grain to produce one ton of beef. Grain shipments, while small relative to iron ore and coal, account for a large portion of vessels demand as measured in vessel days as grain is an inefficient cargo to load and discharge.

Moving to slide 19, 2013 newbuilding deliveries totaled about 62 million deadweight ton, down by almost 40% from the 2012 record. The non-delivery rates through April of this year was 41%. Once again, this year about 58% of the order book is scheduled to deliver in the first half of the year.

Net fleet additions this year are expected to be lower than last year and net fleet growth is expected to be lower than demand growth, resulting in an improved rate environment. The order book declines dramatically this year and for the next -- in the next three years.

Turning to slide 20, low freight rates for most of 2013 and expensive fuel and high scrap prices led to continued high scrapping levels at 22 million deadweight tons of scrap for 2013. Scrapping rates for older, less fuel efficient vessels have continued at the start of this year. Through May 16th, about 5.7 million deadweight has been scrapped. The current rate environment should encourage scrapping of older vessels. Over 10% of the fleet is over 20 years old, providing almost 76 million deadweight of scrapping potential. As demolition prices appear to depend on overall steel prices and not the supply of vessels, they are expected to remain high. We believe we will continue to see the scrapping of older, less efficient vessels continue.

Moving to the next slide, 21, this slide provides a retrospective of the rate environment and considers the impact of supply/demand equilibrium on a rate recovery for 2014. As we all know, for any rate recovery to be meaningful and lasting, fleet growth rates must fall below trade growth rates. As mentioned earlier, demand for drybulk cargos is expected to increase for the full-year 2014 by 5% to 6%, a rate higher than the expected net fleet growth for this year. However, the rate of change suggests that demand for drybulk vessels will increase in 2015 and beyond as newbuilding deliveries continue to decelerate this year and next and scrapping remains at high levels.

In summary, note that for the first time in five years there is a consensus expectation that cargo demand growth could exceed net supply growth.

This concludes my presentation. I would now like to turn the call over to George Achniotis, our CFO, to go over our financial highlights and review our subsidiaries. George?

Thank you, Ted, and good morning, all. Please turn to slide 22 for a review of the financial highlights of the first quarter of 2014.

EBITDA in the first quarter of 2014 increased by 55% from $38.5 million in Q1 of 2013 to almost $60 million in 2014. The increase is mainly attributable to a 7% increase in the time charter equivalent rate achieved as the market has recovered from last year's lows; a 20% increase in the available days of the owned fleet as we took delivery of five vessels in the second half of 2013; a $5.4 million increase in other income, mainly due to the resolution of the credit default insurance; and an $8.3 million increase in equity net earnings from affiliated companies.

EBITDA of Navios Logistics remained about the same at $14 million in Q1 of 2014 compared to Q1 2013. Net income for the quarter was $2 million, compared to a net loss of $10.2 million in the same period of 2013. The increase was mainly attributable to the increase in EBITDA and was mitigated by a $2.7 million increase in net interest expense, an increase in depreciation and amortization of $1.4 million, and a $4 million decrease in income tax benefit in the Logistics business.

Please turn now to slide 23 where the balance sheet highlights are presented. The cash balance, including the restricted cash as of March 31, 2014, increased to $221 million compared to $190 million at the end of December 2013. This is mostly the result of the issuance of the preferred equity in January of 2014. It provides the Company with enough firepower to take advantage of additional distressed transactions that may become available. Following the initial payment for the acquisition of two newbuilding vessels, deposits for vessel acquisitions have increased by $17 million. Debt was almost unchanged since the end of last year. The balance does not reflect the refinance of the Navios Logistics bond completed in April of 2014. Net debt to book capitalization reduced from 51% to 49% since the end of last year

Turning to slide 24, the Company continues to provide returns to its shareholders through an uninterrupted dividend. The dividend for the first quarter of 2014 of $0.06 per share was declared to common shareholders as of June 18th to be paid on June 26. The total cash dividend inflows from the two investments in Navios Partners and Navios Acquisition are expected to be approximately $45 million compared to about $25 million expected to be paid by Navios Holdings.

Over the next few slides we will now briefly review our subsidiaries. Please turn to slide 25.

Following the latest equity raising of Navios Partners, Navios Holdings owns 20% of the Company, including a 2% GP interest. Navios Partners has become a key player in the drybulk industry with a market capitalization of about $1.5 billion and an enterprise value of about $1.8 billion. Since its inception in 2007, Navios Partners' fleet has grown by almost 4 times from 8 vessels to 30, with an average charter duration of 3.2 years.

Slide 26 highlights the recent agreement to resolve the credit default insurance discussed earlier by Angeliki. As a result of this, Navios Partners will have an estimated benefit of over $100 million as follows: $50 million cash, $9.6 million net present value benefits from the upfront lump sum payment, and $45 million by eliminating the market mitigation obligation. The transaction provides Navios Partners with additional cash to finance future growth plans.

Please turn now to slide 27. Navios Partners provides significant cash flow to Navios Holdings. Since its start of operations, annual distributions from Navios Partners have grown by over 150% from under $12 million to $30 million annually. By the end of 2014 we expect to receive a total of about $166 million in distributions.

The expected dividend for 2014 is about $30 million. This exceeds the dividend that Navios Holdings expected to pay to shareholders by almost $5 million. In addition to the distributions, there has been a 133% appreciation of our investment in Partners which is not reflected in our balance sheet.

Turning to slide 28, following the latest equity raising of Navios Acquisition, we have approximately 46% economic interest in the company. Navios Acquisition has grown to become one of the top five publicly-listed tanker owners among its US and European peers with one of the youngest in the water fleets. Their fleet consists of 44 tankers with an average age of 4.2 years, and 36 vessels are currently in the water with an additional 8 vessels to be delivered over the next few quarters.

Turning to slide 29, during the quarter the company increased its VLCC fleet through the acquisition of two vessels delivered in Q2 of 2014 for an aggregate purchase price of $84.5 million. Following this latest acquisition, NNA has become the third largest owner of VLCCs in the water among its US and European publicly-listed peers. The timely acquisition of 6 VLCCs during 2013 and 2014 has already created over $65 million in value appreciation. The VLCC fleet has also been renewed from the sale of 2 older vessels that had an average age of 19 years, and the average age of their fleet reduced by 4 years to 8.4 years.

Please turn now to slide 30. This slide shows how NNA's fleet has grown since 2011 and how this will continue to grow as newbuild vessels deliver into the fleet over the next 18 months. Available days have more than tripled in 3 years, from just over 4,000 in 2011 to almost 13,700 in 2014, and they will grow to over 15,800 in 2015 when all vessels deliver into the fleet. As a result of this, EBITDA has grown by 67% between 2011 and 2013 and will continue to grow as NNA takes delivery of new vessels this year and next.

Please turn to slide 31. Navios Acquisition provides significant cash flow to Navios Holdings. Including the expected 2014 dividends, Navios Acquisition will provide about $35 million in distributions since its start of operations in 2010. The value of Navios Holdings' interest in Navios Acquisition has also grown by almost 20%.

This concludes my presentation. At this point I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics' results. Ioannis?

Thank you, George.

Slide 32 provides an overview of Navios Logistics; includes Navios Holdings' owned 63.8% stake. Navios Logistics has three segments: port terminals, barges and cabotage. We are one of the major logistic providers in the Hidrovia Region of South America. We have significant opportunity to grow our business and maintain a focus on developing contracted revenues from a portfolio of high-quality clients, providing visible cash flows.

Please turn to slide 33. In April we issued $375 million of senior notes due in 2022 to redeem the $290 million senior notes due in 2019. With this transaction we extended maturity to 2022 and lowered our interest rate by 200 basis points. From this financing we secured significant additional funds to grow our business, whether in the ports or elsewhere.

The development of the new iron ore terminal to service our 20-year agreement with Vale International for the storage and transshipment of iron ore is progressing and we have now assigned a contractor to direct the port area. In parallel, we are advancing on the remaining regulatory processes to start construction. I would like to remind you that we expect to invest approximately $150 million in this project and expect a minimum annual EBITDA of $35 million.

Turning to the investment in the 6 new convoys, so far this year we have taken delivery of 3 push boats and 36 barges. We expect delivery of another 36 barges in Q2 2014 and the 3 newbuilding push boats in Q1 2015.

In the second quarter we started servicing three of the four six-year time charter contracts that was previously announced. In fact, we're chartering barges for an [interim] period. Under this contract each convoy is earning $14,500 per day and we anticipate each convoy ultimately will generate approximately $3.3 million annual EBITDA.

Please turn to slide 34. In the past 4 years revenue has been growing at an 8% CAGR. Our core revenue has been growing at 11.7% CAGR. The low-margin trading activity in our liquid port captured in sales of products was low in 2013, a trend that continued in Q1 2014.

During the last 4 years EBITDA had been steadily growing at a 20.5% CAGR. From the 3 new contracts that we started servicing in Q2 2014 we expect to ultimately generate about $10 million annualized EBITDA. We expect similar contribution from another three convoys that remain to be delivered, as well as incremental growth from the investment in the port terminal infrastructure.

Please turn to slide 35 to discuss the results for the first quarter of 2014. Our EBITDA for the first quarter was $14 million, just 1% short of Q1 2013. Port segment EBITDA decreased by 43% to $4.2 million, mainly due to the decline in EBITDA in our liquid terminal in Paraguay. In the first quarter of 2013 sales of products in the liquid terminal were particularly strong as we sold $29.1 million of fuel products, or 63% of the total products sold last year. In the first quarter of 2014 sales of products were only $2.7 million. This explains the significant reduction in revenues and EBITDA of the liquid terminal in the quarter compared to the same period last year.

As we have articulated in the past, this is an opportunistic low-margin trading activity that entails some volatility. The performance of our dry terminal was slightly lower than last year due to the delay of cargo movements which we have seen picking up in the second quarter. The reduction in the low-margin sales product activity actually more than doubled the port segment EBITDA margin to 43.8% from 19.8% in Q1 last year.

Barge and cabotage businesses had a strong performance in the quarter. Barge business EBITDA increased 41% to $4 million in Q1 2014 compared to $2.9 million in the same period last year. The increase is mainly attributed to lower operating costs.

Cabotage business EBITDA increased 45% to $5.8 million in Q1 2014 compared to $4 million in Q1 2013, mainly due to a reduction in operating costs. The interest expense and finance cost net increased to $6.7 million in Q1 2014 compared to $5.4 million in Q1 2013 due to the $90 million add on to the bond in March 2013.

Our net result was also affected by a $0.2 million tax expense compared to a $3.8 million tax benefit in the same period last year that stemmed from the reversal of income tax provision due to the r-organization of certain of our local subsidiaries. As a result, net loss for the period was $0.2 million compared to a net income of $5.9 million in Q1 2013.

Please turn to slide 36. Slide 36 shows our strong balance sheet as of March 31st, 2014. Cash at the end of the first quarter was $85.8 million compared to $86.6 million at the end of 2013. Net debt to book capitalization was 76%, unchanged compared to the end of 2013. These numbers do not include the refinancing of the 2019 senior notes with the issuance of the $375 million senior notes due in 2022 that happened in April that will show up in Q2.

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

Thank you, Ioannis. This completes our formal presentation and we open the call to questions

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

Good morning, good afternoon, everybody.

Good morning.

Good morning.

My questions really center around Navios South American Logistics, which was really -- a bunch of it was just addressed, but I guess I'll start with what appears to be an interesting issue out there as in the South American grain season. How does it impact Navios South America Logistics, or does it in any manner? Are you locked by contract and minimum use, so on so forth? How does the grain season impact Navios South American Logistics? How might we put it in our model?

Actually, what we have seen is that there was about a $0.5 on that EBITDA from the port less because of the volume of the cargo which was delayed. And we have seen that the Q2 from -- as these two months have develop in Q2, volumes are again going up. So what happened is, even though the season was good, there was not the movement because everything was remaining [stalled] and that came with a little bit of a delay.

Alright. Okay, well that's good to know. I think more feet on the ground, Argentina, Uruguay, I mean we were hearing that the Argentinean farmers really didn't want to export largely because of interest rate peg, but eventually the cargo has to move. Is that -- that's your impression, correct?

Yes. We have seen movement like this in our cargo that have started moving at the higher rates than last year.

Okay. On the liquid terminal side you noted that it's very volatile, it's a low-margin business and it can really impact the top line. And in fact, did impact in my model's top line rather significantly because on the margin side you did very, very well, but I had overestimated that number. What does the liquid terminal look like for South American Logistics for 2Q? What is the volatility? What should we expect there or are you simply winding that business down?

Really, the sales of product is an opportunistic business and is based on the differentiating pricing of fuel between Argentina and Paraguay, so down the river and up the river. So is not really forecasted. I think one of the things we are seeing is whether we can separate that line so that it doesn't really create the noise. As a revenue line, affected by about $30 million for an EBITDA of less than $2.5 million.

Okay, great. And thank you. And then this year's EBITDA, again, South American Logistics, has started pretty much the same as last year. In fact, a better margin so congratulations on that. But you've had great EBITDA growth over the last five years in particular, as per your slide. What's going to drive the second half EBITDA possibility of growth this year at South American Logistics? And then further to that, when do you -- and you may have mentioned it on the call but I don't recall hearing it. When do you expect the Vale contract to eventually come online and how is that project developing? So it's a two part question; second half of this year, how do we look at it, and than what's happening with the Vale contract?

The second half of the year is really working with our port where you have better volumes and also the margin on our contracts is better. And also, we have three convoys have already started the six year contract with Vale at 14.5, plus you have the conveyor belt and all the port infrastructure that we did last year that will give us Q2 and Q3 a better rate.

Now moving into the Vale contract, the Vale contract, as we have already mentioned, is going to be end of 2015, second half of 2015 would be when we start that contract.

Okay, excellent. That's good. I think that's pretty much what I have in my model. And then I guess Ted or anybody. A toss-up question. Freight rates have been nasty on the drybulk side. It's knocked a lot of the stocks down, and rightfully so. The market has a right to be nervous when freight rates are down. But, it still looks like the order book is slowing and overall demand is pretty good.

What are you guys seeing, particularly on the iron ore side outlook, as well as volumes? But also, what catalysts should we look for over the course of the summer and into the second half of the year for an improvement in freight rates again as we typically see seasonally, but what are you specifically looking for in this market to maybe indicate to us the market will be improving ahead of seeing big headline rate improvements?

(Inaudible) shall allow Ted to give you the market update. But one quick thing that we can say about Navios is that by controlling our costs, and we have shown you how really the in-house technical and commercial monitoring plus the economics of scale we have done, it really brings that operating expense about 37% below the industry average. And this also benefit works in our subsidiaries with approximately 20% in both subsidiary -- in the Group. This can create quite a significant benefit and this is really benefit on all market conditions. So, we have the ability to generate the cash flows irrelevant to where the market is. And Ted will then give you a little bit about the market.

(Inaudible.)

Hi, Urs. I think if you look at the seasonality, look at last year. The bucket really didn't start moving until almost the first half of the year was over and I think you have some numbers that are playing into that factor again. You're starting to build maybe some more Brazilian iron ore coming on. A lot of people worried about the stockpiles in China. But if you look at it as a percentage of days of inventory, it's about the average of 27 days. It's been like that less five years. It's right about at that average.

And there's a lot of people wondering how much of that was bought by traders at the higher prices of let's say 130-135. And we know today the stock -- the prices are down below 100, which is good for the more volume. The volume started really picking up this year. A lot of it is coming from Australia. There'll be more coming from Brazil the second half of the year. I think the late grain season in South America may sort of shift into the second half, which will begin the beginning of the grain season in North America. So I think the sort of whole here, the lower low may mean higher highs as we go through the second half of the year.

Remember on the medium- to long-term, net fleet growth will be below [voyage] ton mile growth this year. So, we're actually very optimistic going forward, even though the seasonality seems to be different than it was over the last decade, but remember that was a different time when you had iron ore contracts for the year on a yearly basis. And I think as the world changes seasonality may change a little bit too.

Okay. And then a follow-on to that, just trade financing. We speak to trade finance people and they're saying the pricing for letters of credit, in China the pricing has gone from 60 bps above LIBOR over the last 6 months to now like 160, 180. It looks like it's policy driven. What kind of impact are you seeing in that regard or do you view that -- do you have a view in that market at all and how that might change or whether it's sustained? Doesn't look like a credit or risk issue to us; it looks like a policy issue. I'm just wondering if you had any insight or boots-on-the-ground thoughts on that?

I think the same thing that we have seen -- and you follow I think the policies there to restrict some of the speculative trading. And I think -- but there is very good growth. I mean the growth remains. And for the commodities that are needed, even if you take out the speculators, there will be quite a substantial medium-term growth. We are not worried. I will say we are optimistic medium term. Of course you have certain kinds of -- there will be a restriction of the speculative state.

We haven't seen it on the iron ore side. The coal's been down a little bit. That's more to do with weather in North America where the US exports were down a bit, which is a big tonne mile effect. So we really haven't seen anything like that restricting any trades.

Okay. Good. And I know I'm taking a lot of time, but the final question. Asset prices, got weak freight rates here. I know that you've guys are insulated with your cost control and I absolutely respect that. But asset prices, ship -- if you wanted to go up and buy a ship today would you pay up or pay down for it? Is there any pressure or do you think asset prices take a breather over the course of the summer or do you think there's still pressure to pay up for second hand and/or newbuilding vessels?

Actually, prices have not softened. I mean they remain firm. I don't know if this is because there is still in the market the optimism that this is a temporary dislocation. So, we have not seen in any asset really softening, asset price.

Perfect. All right. Thank you for all your time. Thanks again, guys.

Thank you.

Ben Nolan, Stifel.

Thanks. Yeah, I have a few and some sort of follow on with your commentary just a minute ago.

Ted, maybe could you give me a little bit of color on what you are seeing specifically as it relates to -- iron ore prices have fallen down to about $100 a ton and last time we got down close to this level, activity levels really accelerated. Are you seeing any increase in inquiry? Are there people starting to pick up the level of interest or anything at all as it relates to the import of cheaper ore?

Yes. I think pictures are up over the last two weeks; definitely on the iron ore. Congestion has sort of bounced off the bottom as is starting to pick up in Brazil. So you're seeing the beginnings of what I think it's a better Cape market going forward because of this pricing.

Okay, that's -- what about long-term charter activity? Has there been any activity on that front?

You mean more than a year? I mean there's been -- there was just a couple done. One years are being done but -- listen, I just don't -- we don't think at Navios this is a time to be giving away young assets, longer than a year. So there's a number of charters who would love to take ships for four or five years because the rate's probably around 24-25 from 1 year out to 5, but I don't see anyone who's doing that.

Okay, that's helpful. And I guess along that front and given that iron ore is sort of the main driver -- and maybe I'll just (inaudible). In your view is Capesize sort of the class to be in at the moment and is that where the real juice is in the market?

It is always the higher-margin vessel, I mean, and that where -- you can see it even in today. I mean 1-year rate is over $25,000. Your cost is $5,000. It's quite a significant margin there. It is always a market that is strongest. It is always the best asset class. But one of the things that Navios does as a risk management, we always have a fleet of all types of vessels and that provides us the flexibility and the upside margin.

Okay.

The Capes usually have led the way; the bigger the ship the higher the volatility, so higher the upside at this part of the cycle in the seasonality. I think there are some reasons -- as I said, the coal really didn't move. So, I think the building blocks are there for a pretty good second half, especially for the Capes. And then you have like two grain seasons sort of plug into each other, it looks like to me, anyway. So, I do think you will see some much better numbers led by the Capes in the second half.

Okay. That's helpful. And then just going back over to -- I also have few follow-on questions as it relates to the South American business. It sounds like the grain season is, at least in some geographies, going to be really good down there. And certainly, as you indicated, the second quarter and third quarter outlook should be pretty healthy, at least in the grain terminal side. Does that at all change your -- or how does that impact I guess your view on when to ultimately take that business public?

I think this is not about seasonality for South America. It is about CapEx and the projects that are coming in line and I think that is the biggest driver throughout the market.

Okay. So how do you view the CapEx schedule away from and the Vale contract? Are there a lot of opportunities that ultimately will need capital?

I mean, as you know, we just announced that we put 3 convoys on a 6-year contract with Vale at the time charter rate of $14,500 dollars. So we have the other three that are coming, the barges are delivering and we'll have the push boats that are delivering in the beginning of next year. So apart from this CapEx, which you know we have already articulated, is the port. So, we can easily add to the iron ore and grains in additional convoys, but this is -- we do it in an orderly fashion. We already just are finishing these six convoys and then we'll review -- meet with our clients and move more contracts. All our contracts now is mostly -- we do it on a time charter basis. That takes a lot of the volatility and all the different kinds of volatility out of our model.

Okay that's helpful. And then lastly on -- or lastly as it relates to the South American business, the -- and you guys mentioned the OpEx did come down a little bit in the quarter. Is that largely a function of just changes in currency valuation or is there something that you guys have implemented to reduce cost there?

We had some cost reductions, but you don't have really -- you are taking the risk of the exchange rate out, as you know. We have -- all our formulas work so that we don't have risk of a currency, labor inflation or fuel cost.

Okay. All right. And then lastly, I guess my last question is you guys are sitting on an awful lot of cash in the balance sheet. Aside from the South American business, there's not an awful lot of CapEx to fund. What's the thinking with respect to capital at the moment? Are you still -- will you still be aggressive buyers with assets prices where they are or -- I don't know. Where do you come out with respect to the use of your cash?

I think one of the things you should see is that, with the Navios Asia, we just acquired a newbuilding Capesize Japanese vessel for $54 million. That is delivering in June so immediately we can put it in use. The economic benefit overall of Navios Asia has been $20 million if you consider. And one of the things I'd like to say, as I started, next year Navios has 10% of our fleet fixed at 15.5. So by having this cash position we are able to have vessels in the water, generate cash flows, but also be protective of our balance sheet so we are able to really withstand any short-term volatility and be able to capture market upside. That's why we like the cash position. And also, we can be even in this kind of a market, you have seen that we can generate over $50 million of free cash. The reason for that is really cost. The cost structure is quite significantly better. You get about $2,000 per day per vessel in your bottom line.

Okay. Alright. Well that's helpful and that does it for my questions. I appreciate it.

Thank you.

Thank you. I will now return the call for Angeliki Frangou for any additional or closing remarks.

Thank you. This completes our first quarter results.

Thank you for participating in today's conference call. You may now disconnect