Navios Maritime Holdings Inc (NM) 2017 Q4 法說會逐字稿

Thank you for joining us for Navios Maritime Holdings Fourth Quarter and Full Year 2017 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. George Achniotis; SVP of Commercial Affairs, Mr. Tom Beney; and SVP of Strategic Planning, Mr. Ioannis Karyotis.

As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Maritime Holdings' website at www.navios.com. You'll see the webcast link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call can also be found there.

Now I'll review 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 nonhistorical 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 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.

The agenda for today's call is as follows: we'll begin with formal remarks from management team and after, open the call to take questions.

Now I 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.

I am pleased with the results for the fourth quarter and full year of 2017. For the fourth quarter, we reported revenue and adjusted EBITDA of $128.5 million and $46.7 million, respectively.

For the full year, we reported revenue and adjusted EBITDA of $463 million and $126.8 million, respectively. Rates for dry bulk vessels have improved materially. And we are beginning to see the effect of a healthier charter market on our business results, particularly in the fourth quarter.

Slide 3 provides our company highlights. Navios Holdings directly controls 72 modern dry bulk vessels and manages about 200 vessels. We maintain industry-leading operating cost, which are estimated by third parties to be about 40% below the average of the listed peers. And we manage our credit and market risk through a combination of fixed and floating rate contracts. Of the 22,684 available days in 2018, 73% of available days have market exposure, while 65.2% are contracted out either on a fixed or a floating rate basis.

Slides 4 and 5 illustrates our universal diverse company. Navios is a global brand with significant scale, management talent and industry relationships. Navios Holdings value derives from our dry bulk fleet it holds directly and the equity interest in subsidiaries that own tankers, dry bulk vessels, container ships and ports. Over time, Navios Holdings value should reflect the intrinsic value of this company.

Slide 6 outlines how we balance opportunity with stability. We had $134.2 million in cash at December 31, 2017, and have no significant committed growth CapEx in 2017. We solidified our balance sheet by refinancing our unsecured with secured bonds that mature in 2022.

We also extended the maturity of the $10.5 million loan by 2.5 years. We are renewing our fleet by chartering in vessels mainly with purchase options. During the past 9 months, we added, on a net basis, 7 vessels. As a result, we increased our fleet capacity and improved the average age of our fleet by 11%. We are adding vessels at the right time of the cycle while being respectful of our capital structure and doing so on a CapEx-light basis.

We have been busy in our South American operations. In 2017, we completed the construction of the iron ore port terminal and recognized about $10 million of EBITDA from the terminal in Q4 of 2017.

As you may recall, Vale has guaranteed 4 million tons of iron ore transshipment for 20 years. We expect to generate about $38 million in EBITDA in 2018 and $1.2 billion in estimated EBITDA over 20 years. The contract also has built-in tariff escalations, which further provide margin protection and growth.

On the grain side of the business, we have secured about $28 million in minimum grain terminal revenue for 2018. This represents about 70% of our grain terminal capacity.

For some context in 2017, our grain terminal generated total revenue of about $37 million.

Please turn to Slide 7, which provides an overview of our fleet renewal program. We have expanded our charter-in fleet at an attractive time as the values for dry bulk vessels are recovering. Since June 2017, we acquired 9 and sold 2 vessels, thereby adding a net of 7 vessels.

We acquired 2,000-built Capesize vessel for $10 million. And we expect to have $5.4 million in annual EBITDA. We bareboat charter-in 3 Kamsarmax vessels with purchase options. In addition, we charter-in 5 Kamsarmax vessels: 3 for 3 years and 2 for 5 years. We also sold 2 Supramax for $11.8 million, which had an average age of 16.5 years.

Slide 8 provides a further breakdown of our fleet renewal and expansion of our charter-in vessels. As I mentioned earlier, 8 Kamsarmax vessels were added to our fleet, 3 of which have moved in purchase options. In light of the current volatility and constrained capital market conditions, these purchase options provide us with real value. We have no significant requirements, which allow for capital flexibility and expansion capabilities at an opportune time.

As a result of this activity, we improved the average age of our charter-in fleet by 22%. Also our charter-in fleet days have increased allowing for additional revenue generation. Finally, 70% of our charter-in fleet has purchase options.

Slide 9 shows the cash flow potential of our fleet in a market recovery. Our time charter rate for Q4 of 2017 was $12,305 per day. This would generate $279.1 million of cash flow on an annualized basis. For 2018, our fleet has a total of 22,684 available days, of which 16,567 days have market exposure. At current rate, $14,982 per day, our fleet would generate an additional $60.7 million of cash flow. Moreover, if rates were to recover to a 20-year average of $21,826 per day, our fleet would generate an additional $155.3 million of cash flow.

Slide 10 sets forth Navios' cost structure. Our expected daily revenue for 2018 is $14,025 per day, with fixed 27% of our available days at an average daily charter-out rate of $10,481. Daily revenue may increase by $3,287 based on our expected impact of current market rates on open and index days and an additional $257 based on the current NNA dividend.

Our breakeven cost for 2018 is expected to be $11,995 per day. Our costs include our operating expense, scheduled drydocking expense, charter-in expense for our charter-in fleet, G&A cash expense, as well as interest expense and capital repayment.

Slide 11 highlights our strong liquidity position. Net debt to book capitalization was 70.4%, and we had cash of $134.2 million at December 31, 2017. We have no significant committed shipping growth CapEx or any material debt maturities until 2022.

I would like now to turn the call over to Mr. Tom Beney, Navios Holdings' Senior Vice President of Commercial Affairs. Tom?

Thank you, Angeliki. Slide 12 presents our diversified dry bulk fleet, consisting of 72 dry bulk vessels totaling 7.3 million deadweight split between Capesize, Panamax and Supermax Handy. We continue to be one of the largest U.S. listed dry bulk operators in the world, established over 60 years ago. We have 65 vessels on the water. The average age of the fleet is 7.7 years, 14% younger than the industry average. Navios Group's total fleet of 206 vessels includes 55 tankers, 40 container vessels and 111 dry bulkers and is a highly diversified public shipping group.

Slide 13 shows about $40 million of estimated operating cost savings for Navios Holdings in 2016. To measure our efficiencies, we compared our operating costs to the published results of our peers. We computed our peers' operating cost by reviewing their 2016 20-Fs and related disclosures.

As you can see, on Slide 12, our analysis showed that NM's operating costs were estimated approximately 40% lower than the average of the listed peers. These efficiencies translate into savings of about $40 million in 2016. We believe that these savings demonstrate the substantial competitive benefit we can generate and the value it delivers to all our stakeholders.

Turning to Slide 15. With all the major economies around the world growing, the IMF has increased its forecast for world GDP by 0.2% in 2018 to 3.9% and continue that pace for 2019. Accordingly, they have increased the advanced economies' forecasted GDP growth by 0.3% to 2.3% and the emerging markets growth by 0.3% to 4.9% in 2018.

On the back of synchronized global economic growth, dry bulk trade grew by an impressive 4% in 2017 and is initially expected to rise by 2.7% in 2018.

Our current BDI levels, the dry bulk market still has substantial upside. It would have to more than double to reach the 20-year average.

Going to Slide 16. Data from the IMF shows further evidence of the global economic expansion, as all major economies are growing simultaneously. This phenomenon rarely occurs and was last experienced during the period 2004 to 2007 and previous to that in the late '80s. Important for seaborne trade, the percentage of countries showing export growth has risen to 85%, the highest on record and a positive sign for dry bulk trade growth going forward.

Slide 17 shows demand for iron ore. In 2017, steel production in China rose by 5% and the rest of the world by 5.2%. High Chinese domestic demand has translated into a 4-year high in steel prices. Subsequently, Chinese steel mills continuing to enjoy high margins. Substitution of Chinese expensive low-quality iron ore with higher quality and lower-priced imports, particularly from Australia and Brazil continues.

Iron ore imports into China for 2017 rose 5% or 50 million tons and are forecast to rise further in 2018. Higher Chinese domestic steel demand has been stimulated by large infrastructure projects and recovery in their housing market. The One Belt, One Road project is a cornerstone of the Chinese economic plans for the next 5 years and supports steel and power demand inside and outside China.

Of note, our Brazilian iron ore exports, which are forecast to grow by about 20 million tons in 2018, Vale's flagship mine, S11D, reaches its 90 million ton annual capacity and the Samarco mine restarts production, which will further help ton miles.

Please turn to Slide 18. Power consumption in China grew alongside steel production as the Chinese economy grew by 6.9% in 2017. Up to the end of November 2017, total electricity consumption in China continue to rise by over 6% with thermal power generation rising by over 5%.

In 2017, Chinese seaborne coal imports were up by about 10%. The Chinese government continues to rationalize domestic coal production, closing down small, inefficient mines and encouraging consolidation of large mining groups. It is expected that the restructuring of the Chinese coal industry will continue to keep domestic coal prices high and encourage imports as inefficient polluting mines are closed.

With the ban on North Korea coal imports into China and weather-related problems in Australia or in Indonesia, seaborne coal had to be sourced from a further field, 18 ton miles. During the peak winter season, stocks of thermal coal of power plants in both India and China reached uncomfortably low levels, prompting both governments to allow additional coal imports to maintain power supply.

Turning to Slide 19. Agricultural production worldwide continues to increase. After a strong 6.9% growth in 2017, forecast for 2018 are for further increase. Worldwide grain trade has grown by 5.4% CAGR since 2008, mainly driven by Asian demand. After 4 years of record harvest, wheat, corn and soybean prices remained low, encouraging trade.

Demand increases are focused on Asian economies, and especially China, where incomes are rising and diets are changing. Chinese imports of soybeans in 2017 were up 15%. Most of the increases in grain production are based in the Americas or European regions, increasing ton miles for longer trips to Asia.

Moving to Slide 20. In 2017, about 38 million deadweight of new buildings delivered versus an expected delivery of 58 million deadweight tons, maintaining a 34% nondelivery rate.

As of January 1, the 2018 order book stood at 34 million deadweight. Using a 25% nondelivery rate for the year, it is estimated that about 26 million tons will deliver. With a low order book and continued high scrap prices, forecasts are for fleet growth in 2018 of 1.7%, the lowest since 1999.

Uncertainty over new Tier 3 designs incorporating the new SOx and NOx requirements, as well as new ballast water treatment systems makes ordering new buildings risky and encourages scrapping of older vessels. Most shipyards are unable to offer new ships before mid-2020. Therefore, the order book looks very likely to stay low.

Turning to Slide 21. 2017 ended with another low net fleet growth of 3%, about half of the long run average fleet growth of 5.8% and below the dry bulk trade growth of 4%.

Total scrapping in 2017 was 14.8 million tons, lower than 2016, but reflective of cost of additional regulations and higher scrap prices. The current dry bulk order book before nondeliveries is about 10% of the total fleet. And we note that vessels over 20 years of age equal about 7.5%. Given forecasted trade growth, there is a balance between new expected deliveries and potential scrap candidates.

The fundamentals for 2018 and beyond remain positive. In fact, forecast for 2018 show the demand growth of 2.7% will be more than the level of supply growth at 1.7%. With demand above supply, the market should continue to support increased charter rates going forward.

I would now like to turn the call over to our CFO, George Achniotis, for the Q4 financial results. George?

Thank you, Tom. Please turn to Slide 22 for a review of the fourth quarter and full year financial highlights. As the dry bulk market improves, so do our results.

Adjusted EBITDA for Q4 2017 was $46.7 million compared to adjusted EBITDA of $29.1 million in '16, an increase of 60%. EBITDA net income for the fourth quarter of '17 were adjusted to exclude $32.9 million impairment loss on one of our vessels, $3.4 million impairment loss on intangible assets and $2.7 million bond extinguishment loss relating to the refinancing of the 2019 unsecured bond.

EBITDA and net income for the fourth quarter of 2016 were adjusted to exclude $13.2 million gain from the buyback of the bond and the commercial loan, and $228 million impairment losses on our investment in Navios Partners and Navios Acquisition.

The increase in adjusted EBITDA is mainly attributable to the improvement in the shipping market. The TCE rate we achieved in the quarter was almost 50% higher than in Q4 of 2016. And improved results from Navios South American Logistics due to the commencement of the Vale contract at the port in Uruguay. The increase was partly mitigated by about 80% decrease in equity pickup from affiliated companies, specifically from Navios Acquisition as the tanker sectors had a different point in the cycle.

In fact, if we strip out from adjusted EBITDA the results of Navios South America Logistics and the equity pickup from affiliated companies, EBITDA from the shipping activities has increased by almost 3x compared to Q4 of '16.

Adjusted net loss also improved by 54% from $27.6 million in Q4 '16 to $12.6 million in '17. In addition to the one-off items that affected the Q4 EBITDA and net income, the full year results were also adjusted to exclude $14.2 million loss from the sale of 2 vessels earlier in the year and $12.7 million representing Navios Holdings portion of impairment losses at Navios Acquisition.

Adjusted EBITDA for the full year of '17 was $126.8 million compared to $229.2 million in '16. The results were affected by about 75% reduction in the equity pickup from affiliates. The decrease was mainly mitigated by an 80% increase in the results of shipping operations.

Adjusted net loss for '17 was $107.9 million compared to $106.1 million in '16. The slight reduction is due to the reduction in EBITDA.

Please turn now to Slide 23. We continue to maintain a healthy cash balance. At December 31, 2017, we had $134 million in cash compared to $141 million at December 31, 2016. With the completion of the construction of the port in Uruguay, deposits for asset acquisitions have decreased to $37 million compared to $137 million at December 31, 2016.

Senior notes reflect the refinancing of the 2019 notes that was completed in Q4. I would like to point out that we have no significant maturities until 2022.

Over the next slides, we will briefly review our affiliates. Please turn to Slide 24. Navios Holdings owns about 20% of Navios Partners, including a 2% GP interest. Navios Partners owns a fleet of 39 vessels: 32 dry bulk and 7 containers. NMM also owns about 34% of Navios Containers, a growth vehicle dedicated to containers. NMM is a unique platform generating significant cash flow with no significant near-term maturities. The company is currently in the process of renewing its dry bulk fleet with younger and larger vessels.

In 2017 and year-to-date '18, NMM has added 10 vessels with an average age of 7.4 years and has sold 2 with an average age of 20 years.

Turning to Slide 25. Navios Holdings owns about 46% of Navios Acquisition. Navios Acquisition has become a leading tanker company with 36 modern, high-quality vessels with an average age of 7 years, diversified between crude, product and chemical tankers. All vessels are on the water generating cash flow. The strategy of the company continues to provide charters that outperform the market. In fact, for 2017, the charter rates achieved were about 53% higher than the market average.

NNA is also a sponsor of Navios Midstream Partners, an MLP, with 6 VLCCs. NNA expects to receive about $21 million in distributions from Navios Midstream in 2017 and has received almost $50 million in distribution since 2015.

Moving to Slide 26, Navios Holdings owns 3.4% of Navios Containers. Navios Containers is a company that was set up in June 2017 with the intention of taking advantage of opportunities in the container sector. Over the past 9 months, the company raised $150 million at the Oslo OTC market and acquired 21 vessels, mostly through these trade transactions. The intention of the company is to continue to grow, obtain a listing in a more liquid exchange and consolidate all container vessels from the Navios Group.

Now, I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results. Ioannis?

Thank you, George. Slide 27 provides an overview of the Navios Logistics business. Navios Logistics operates 3 port terminals: one for grain, one for iron ore and one for liquid cargoes. Navios Logistics complements its port business with its barge fleet for river transportation and product tanker fleet for coastal cabotage trade.

Please turn to Slide 28. In Q4 2017, the new iron ore terminal generated $10 million EBITDA. During the quarter, Vale moved 0.4 million tons of iron ore and manganese below the minimum guarantee quantity for the period. In Q4 2017, we accrued revenue for the difference between the minimum guarantee quantity and the actual throughput, which has been invoiced and collected in Q1 2018. However, we expect volumes to increase over time. For 2018, we're estimating $38 million EBITDA from the Vale contract based on 4 million tons throughput, representing the annual minimum guaranteed quantity.

Moving to the grain terminal. As of today, we have secured approximately $28 million of minimum revenue for 2018 from agreements representing about 70% of the grain terminal capacity. As a point of reference, 2017 grain terminal revenue was $36.9 million.

Recovery in the barge market, which has suffered from overcapacity in recent years, appears to be in sight. On the demand side, the new Navios terminal should enhance the Corumba mines and create iron ore export volumes. The grain market continues to grow at healthy rates based on a study conducted by Informa Economics. Paraguay, Bolivia and Brazil are expected to add 4.1 million tons to the annual grain exports through the Hidrovia by 2022.

On the supply side, there are no expectations for new orders and certain players have declared their intention to scrap approximately 10% of the dry barge fleet. The combination of expected demand growth and reduced capacity should help the market to rebalance.

Slide 29 reviews our results. Q4 2017 revenue increased 16% to $49.9 million and EBITDA increased 111% to $15 million.

Q4 2017 port segment revenue was 76% higher compared to the same period last year, and EBITDA increased 366% to $12.4 million. The EBITDA increase is attributable to the contribution of the iron ore terminal.

In the barge segment, Q4 revenue decreased 22% and EBITDA decreased 41% to $2.4 million. The decrease is mainly attributable to the expiration of certain long-term iron ore transportation contracts during the second half of 2016. Going forward, we expect the combination of growing demand and shrinking supply to have a favorable impact on the barge market.

Cabotage business Q4 EBITDA was $0.2 million compared to $0.4 million in the same period last year. Net loss in Q4 2017 was $0.2 million compared to net loss of $5.7 million in the same period last year, mainly due to the improved performance of the port segment and higher income tax benefit, partially mitigated by higher depreciation and amortization expense and higher interest expense net.

Turning to the financial results for the year ending December 31, 2017. Revenue decreased 4% to $212.6 million, EBITDA decreased 8% to $62.5 million and net income amounted $3.1 million from $10.2 million in 2016.

Please turn to Slide 30. Navios Logistics has a strong balance sheet. Cash at the end of 2017 was $79.9 million compared to $68.1 million at the end of 2016. The increase in debt reflects the $100 million term loan issued in Q4 2017. In 2017, we distributed $70 million dividend to our shareholders, which reduces shareholders' equity. As a result, net debt-to-book capitalization at the end of 2017 was 56% compared to 48% at year-end 2016.

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

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

(Operator Instructions) Your first question comes from the line of Noah Parquette of JPMorgan.

I just wanted to ask, you guys were active this quarter, expanding your coverage on -- or expanding your exposure to dry bulk. I mean, in general, do you see yourself as a net buyer or chartering in of tonnage or is this more renewing the fleet?

We see the opportunities an attractive part of the dry bulk market. We like the entry point. And what we have -- we're trying to do it in a -- is in a CapEx-light fashion. This way, you get the ability to have vessels at -- nicely finance with purchase options that capture the low part of the cycle on the dry bulk. And you have the economic -- I mean, you see the demand for dry bulk for the next 2, 3 years is quite strong. And also, we'll use -- be used as a replacement of vessels as they reach in 2020 and some vessels will have to be sold.

Okay. And then on just one other question on logistics side. Can you give kind of update on the progress in terms of funding contracts for the remainder of the iron ore terminal?

Very good. On the -- if we take now the ports and -- you show that iron ore is going well. Q4 was the first quarter. We made $10 million EBITDA. Vale is ramping up its production for -- I mean, we're ramping up the port for 2018. And it will take some time to reach their full minimum capacity, but we're working on efficiencies, and we have the minimum guarantee as protection. I think, realistically, you'll see first minimum guarantee in tariffs And then you'll see the additional flow that will be captured down the dividend. Vale has a 5% increase this year from this mines versus last. And you see that miners around the world has been pushing up their production. Now the one thing that I would like to add there is, we added also, on the grains, now we added the visibility of the grain, which we have long contracts and repeating contracts, but it's more of a -- this doesn't have the take or pay of the entire facility. And we have now given visibility on that and where our revenues and run rate go. And I'd like to remind that we have 50% of our land that we need to develop. There, we are actively looking for other commodities. So we diversify our commodities to oil and gas. I want to remind you that the entire area of Brazil, Argentina now is booming. So the overall activity is quite significantly higher than what it used to be in the last 2 years.

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

This is Liam on for Chris. I just had a quick question about the fleet. So after chartering in the 8 Panamax vessels and then purchased in a new vessel, are you guys looking to do more chartering vessels in the future? Or do you think that maintaining your current fleet size is what you guys expect to do? So I'm just kind of wondering how the fleet growth perspective is going forward.

Good morning. We see that just another venue for CapEx-light expansion. We always had a strategy on chartering, which would -- is not -- it depends on the -- where we see those -- at what point in the market we think that we can step in. Don't forget that the bareboat charter is, is in essence an attractive way for ownership.

Okay. And just a follow-up on that, because you're talking a little bit about CapEx-light expansion method. So it's really cash flow. If you guys are able to maintain or if rates do maintain the current levels, how do you guys think about using that incremental free cash flow that you guys expect to generate? Are you guys going to prioritize paying down debt or are you guys going to continue to think about potential fleet expansion?

Listen, we developed this CapEx-light strategy and we -- Navios has the ability to do it because of the brand name, because not -- this is not a strategy that a lot of companies have. But in reality, our #1 focus is to delever through and bring down our leverage ratio. That is clearly the #1 target. In the process, you need to always be able to readjust your portfolio. You need to be able to buy vessels on what is the low part of the correct ZIP code or values of your buildings in order to have vessels over the entire cycle. Otherwise, you will not be able to maintain the average age and maintain a fleet that will be functional in all markets. So priority of repaying debt is #1 for the company, but then -- but definitely, if we have more of this kind of bareboat deals, we'll be doing them.

Thank you. I'll now return the call to Ms. Angeliki Frangou for any closing remarks.

Thank you. This completes our Q4 results.

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